How consultants are evolving to keep increasing value for shareholders
Hiring consultants remains sometimes controversial. Why would they know the business better than us? How can they deliver value in just a few weeks? When a CEO is wondering if hiring consultants will help his firm, he should know that a study conducted by the World Bank and Stanford in 2012 has proven that management consultants improve a company performance. Besides, consulting firms have perfectly embraced the digital revolution and have reinvented themselves.
It is always difficult to demonstrate with facts and figures that a consulting project delivers the expected value. But an experiment conducted by a professor from Stanford for a World Bank study in 2012 provides interesting conclusions. The purpose of the study was to answer the following question: can management practices explain differences in productivity, especially in countries where the performance spread is particularly large? To investigate, the Stanford team organized a field experiment, in which they selected a set of mid-sized Indian textile companies that were offered a free 5-month management consulting project with Accenture, to change their factories processes. The results were compared with a set of similar Indian companies that kept their factories processes unchanged. The results were indisputable: the companies that had followed the consultants’ recommendations not only improved their productivity by 10%, but improved also product quality, inventory management and managed to speed up the production. Is it only in India, you may ask? Well, the same professor had worked on a similar study with two LSE researchers and gathered data from all over the world. The results were similar.
So how do management consultants remain relevant in a world that changes at such a pace? When looking more in details at the four main consulting functions that are Information, Expertise, Insight and Execution, it is very clear that management consulting firms have made radical moves to keep their competitive advantage. Let’s look at each of these functions and understand how consulting firms are adapting for each of them:
- Information: all the expertise that Accenture or other consulting firms bring to their clients comes from the significant quantity of data they have collected over the thousands of projects they have completed. But nowadays, access to large volume of data has become much easier, and historical data of a single consulting firm on its own, is less valuable. So how are consultants reinventing themselves to remain the information gurus they used to be? Well, many consulting firms have built in-house data science teams to leverage the abundance of available data. McKinsey hires experienced data engineers that help field teams, while the BCG has set up a BCG Gamma team in charge of data science. Because even if finding data has become much easier, computing it in a smart way to deliver the right recommendations is now the difficult part.
- Expertise: most consulting firms prefer hiring generalists rather than experts. Largest consulting firms notably hire MBAs who may work on supply chain project one month and on a pricing project the next one. However, they have developed a wide network of experts who join the team whenever a project requires it. Leveraging this network is very powerful to provide better insights to client companies. Every consulting firm should focus on expanding their network of independent consultants.
- Insight: there is always hope for financial return when a company hires consultants. Insights provided by consultants are supposed to generate top or bottom-line improvements. Shareholder value increase has always justified the significant project fees charged by consulting firms. The famous BCG growth-share matrix was called the “$1M framework” because it would provide such great insights that it justified a $1M client fee for such a project. With the increasing number of strategy books and the rise of business schools, the classic strategic analysis has become more available. But consulting firms most important insights are now focused on their vision of industry changes, and what companies should do to increase their competitive advantage rather than just providing a strategic framework.
- Execution: This is an area where consulting companies have started adapting a long time ago. Consultants have always offered to help with executing the strategy they have defined. But the gap between insights and execution is wider now than it was a few decades ago. Strategy execution has indeed become increasingly technical as the world is becoming more digital. For instance, if the strategy recommends to “develop an e-commerce website and increase search engine optimization (SEO)” or to “build a multi-platform analytic tool to predict customer demand”, the client-company may not have the right internal resources to execute this strategy. This is where good consulting companies can help, when they have internal resources or when they are partnering with the right experts.