In a recent article, Consulting on the Cusp of Disruption, Harvard Business Review makes a strong case that the consulting industry is undergoing a significant transformation driven by “the same forces that [have] disrupted so many businesses, from steel to publishing…”
While the article’s authors focus on what the disruption may mean for traditional consulting firms, key takeaways for talent strategists are that:
- Consulting work is being disaggregated with delivery and execution of consulting services becoming more commoditized than in the past.
- The market for consulting services is moving in a direction of greater pricing transparency and performance accountability.
- New entrants are succeeding at breaking into an industry that has been quite walled off for a very long time.
- Lines between traditional consulting and other forms of flex talent such as outsourcing and staffing are becoming blurred, as illustrated in the image below.
- Other contingent workforce talent channels are positioning themselves to support delivery and execution types of work efforts, leaving strategy and operate models for Management Consulting firms to support.
What is driving the change?
- Procurement
- Regulators
- Unbundling work efforts
Procurement at the Forefront
Commoditization of professional services is being driven largely by the rise and expanding influence of enterprise global procurement functions. Armed with spend-analysis automation tools, procurement leaders are gaining rapid, accurate and detailed insights into total corporate spending for professional services. They are using the data to open C-Suite executives’ eyes to cost-savings opportunities obtainable through standard and best procurement disciplines and practices.
Procurement cost-savings initiatives typically involve:
- Standardization and rationalization of goods and services being purchased.
- Consolidation from many to a few high-performing service providers.
- Increased use of competitive sourcing to identify lower (not always lowest) total-cost suppliers.
- Definition of talent channels to drive spend optimization.
Commoditization – the unbundling of services into rigidly defined component parts and application of standard unit prices or costs – is a key component of competitive sourcing as it enables suppliers’ bids to be compared accurately. Proliferation of sophisticated electronic sourcing (eRFx) technology is accelerating the trend to professional services commoditization as it requires rigorous definition of requirements and makes it difficult for suppliers to obfuscate competitive bids by changing parameters midstream. Electronic sourcing also enables companies to evaluate more potential suppliers more easily, intensifying competition and introducing transparency into markets, such as consulting, that have long thrived on opacity in terms of price, bundling services and ownership of intellectual property.
While many professionals services industries – for example, legal, marketing & communications and human resources – have fought valiantly against procurement unbundling and commoditization, the battles are often being lost due to the advent of disruptive startup competitors (as described the HBR article) and organizations continuous drive to lower cost.
Regulators Weigh In
Procurement is not the only force behind unbundling and commoditization of professional services. Indeed, Genesis10’s Walter Taylor, EVP of Strategy notes that government regulators are also getting into the act as they focus on minimizing structural risk in industries capable of large-scale economic destabilization such as banking and financial services.
“Outsourcing exam manuals for financial services companies concern themselves quite explicitly with potential for risk and disruption deriving from potential cost overruns, overpayment for services and exposure to undocumented or unknown supply risks,” Taylor says. “While they stop short of mandating more competitive procurement, services unbundling and greater price/cost transparency, regulators make it very clear they are paying close attention to these kinds of things.”
Unbundling Work Efforts: Strategy vs. Delivery & Execution
For management consulting, a key breakpoint for disaggregation and commoditization is between high-level and creative strategy work and more easily definable and consistently repeatable delivery & execution work. Some large consulting players are choosing the route of developing proprietary solutions for client companies to use themselves in more routine types of delivery and execution work. But others may be supplanted in these areas by lower cost or specialized market entrants and/or sophisticated technologies that are “democratizing” knowledge and breaking traditional Big Consulting’s stranglehold on organization’s to whom they provide strategy consulting services through implementation.
As the HBR article describes it: “We are seeing the beginnings of a shift in consulting’s competitive dynamic from the primacy of integrated solution shops, which are designed to conduct all aspects of the client engagement, to modular providers, which specialize in supplying one specific link in the value chain. The shift is generally triggered when customers realize that they are overpaying for capabilities that they don’t value and that they want greater speed, responsiveness and control.” We are, likewise, observing these kinds of shifts in procurement practices within manufacturing, life sciences & pharmaceuticals and financial services industries.
Genesis10’s Taylor cites the example of a large U.S. banking interest that decided to create a broad and highly sophisticated, yet relatively low-cost standing contract labor pool. “As soon as they did that,” Taylor says, “more than half of the big consulting firms’ business with them was at risk.” The contract pool in this example was used to support delivery related services. Another example is the same large U.S. banking interest is further optimizing their contingent workforce spend by shifting spend from one talent to another (e.g., staffing to domestic outsourcing) as well as leading an effort to purify how talent channels should be utilized by the type of work effort, engagement duration, risk, etc.
While disruption is always difficult for the industry being disrupted, it’s usually a great thing for customers who benefit by paying less for the same or similar quality products and services. Savvy talent strategists will be helping their procurement organizations to define and push the envelope on disaggregation, commoditization and greater transparency in consulting services. They will also be paying close attention to which consulting players are re-inventing their service offerings and who is entering the market with consulting-caliber flexible talent or technology solutions at competitive rates that can cut costs significantly without adding risk or compromising delivery, quality or capability.
