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Our Management Consultancy guru Mick James this week reflects on the new breed of consultancy firm growing in strength in the sector – and the “trusted adviser” angle that firms like Ernst & Young are using to carve out a new position in the consulting market.
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Could we be witnessing a transformation in the consulting industry?
Could we be witnessing a transformation in the consulting industry?
It’s always nice in this game when you float a theory and have it at least partially confirmed a couple of days later. Last week I posited that a new breed of consultancy firm fuelled by refugees from the old Big Four was beginning to compete head on with the current market leaders for high value work and talent. This new tier in the market would potentially separate off project design and management and relegate the bigger consultancies for system building, integration and outsourcing, unbundling the “design, build, run” model that’s dominated consultancy for years. The only thing I was lacking was a suitable name for this emerging strand
A couple of days later at the Top Consultant recruitment fair, Ernst & Young neatly filled the gap. I was immediately intrigued to see a Big Four firm so blatantly competing head to head with the likes of Accenture and Capgemini, and what intrigued me was how different and deliberately focused their message was. I hope to write in more detail about Ernst & Young’s re-entry in to the consulting spaced, but in a nutshell their stance is that of “trusted advisers”: remaining firmly on the client side of the table with a limited palette of services that nevertheless bring all the capabilities of an international professional services firm to bear on the client’s issues.
The question is, does this represent a decisive shift for the market, or is this just a case of firms which can no longer achieve scale in IT or outsourcing work making the best of the opportunities that are left?
The second argument is easily made: the structure of any consultancy firm, even the whole industry is usually best explained as a series of historical accidents. Even while accountancy firms were recruiting hundreds of SAP programmers in the 1990s. you never saw an IT firm buy a firm of auditors, and the pressures that saw them divest those IT assets were almost entirely external.
However, the period in which three of the Big Four exited the consultancy market may well represent a high-water mark in the vertical integration of the industry. At that point it was fashionable to conceive of consultancy as a river, with high-value, low-volume strategy work upstream and high-volume, low margin implementation and IT work downstream. Then the players began to encroach on each other’s territory, perhaps best symbolized by EDS’ purchase of A.T. Kearney. As that relationship now unravels, you have to ask, are the forces which pushed EDS and Kearney in opposite directions at work in other consultancies?
Note that this has very little to do with the direction any of these firms want to pursue—the migration of individual talent alone could settle the issue. Accenture and IBM, for example, have roomfuls of strategy consultants but how happy are these people with their company and personal branding? Particularly as the rest of the industry is assiduously pressing the claim that consultancy for these firms is little more than pre-sales outsourcing or systems integration work?
Client needs have also shifted. Vertical integration used to be justified by constant references to a mythical old school of consultants who wrote reports which were inevitably described as “gathering dust on the shelf”. The new paradigm of consultancy was to roll up your sleeves, do the job or even take over the process, with any doubts about conflicts of interest resolved by innovative risk/reward structures.
For a long time this paradigm worked, because pretty much everyone on the global client target list knew they needed massive ERP or CRM systems, and would also probably have to outsource and/or offshore a reasonable amount of their operations to stay cost-competitive. So it didn’t really matter who did the downstream work, and they were happy for it to go to their advisers.
Nowadays there’s more of a focus on operational issues, and clients want to explore a broader variety of options. Given that a big SI or offshoring programme is no longer a foregone conclusion there’s little advantage in limiting your advisers to people with those capabilities—even though you fully believe that those firms can offer, objective high-quality consultancy. And it increasingly makes sense to have a knowledgeable third-party involved, in much the same way as using an architect can often end up saving money on even a small building project through clever project management and tough negotiating skills. “Trusted advisers” can develop a killer one-tow of combining effective management of consultancy projects with greater and higher-level client buy-in.
This poses a dilemma for the big firms. On the one hand this “trusted adviser” segment can represent an economical route to market and an entrée to new clients. They’re not going to refuse to take the calls, and in the short term, this could prove lucrative for both parties. Longer term, however, the “trusted advisers” will be seen as gobbling up lucrative work and taking a too-dominant role in the client relationship. Can they afford to maintain these increasingly expensive skillsets in-house? And if they begin to lose them do they face the risk of being relegated to a niche, of being seen as body shops?
And finally, if you’re a young, would-be consultant at the hiring fair, whose stand do you queue up at?
Related link: One month and counting until “The Art of Selling Consulting Services” takes place
All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.
Contact Mick with your views or suggestions at:
[email protected]
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