Consulting as audit
Writing up some of our client research earlier this year, we estimated that as much as 15% of all consulting goes on what we called ‘validation’, an activity which ranged from genuine research and analysis around a particularly thorny issue to signing off on a decision already effectively made by senior managers.
We were struck by three things. First, that 15% is more than we expected: this is a big market for consultants and shows no sign of disappearing (although it also has, we believe, few prospects for growth). We also couldn’t help noticing how accepted the practice is. While the media may protest about consultants being used to take clients’ watch and tell them the time, the people at the top of very large, complex organisations constantly struggle with how to make things happen quickly and, if consultants can help cut through cross-organisational wrangling, then this is money well spent. Lastly, only certain firms are mentioned in this space: the Big Four where financial decisions are concerned, and Bain, Booz, BCG and McKinsey for strategic ones. That makes sense: if you’re looking for a firm which everyone respects, then it has to be a well-known name.
All this raises questions about the extent to which this type of work could become (perhaps already is) the consulting equivalent of the financial audit, essentially an opinion expressed by a respected firm which is used by internal and external stakeholders in their decision-making process. How many big corporations today would agree – for instance – a major acquisition based on their own in-house analysis? Most, I think, would look for some independent verification and support. This would, in turn, make the consulting firms involved more risk averse: if their opinion is to be robust, they will need to go through a rigorous process. Over time, that process will become increasingly rigid. Showing that you’ve gone through this process will be more important than exerting individual and independent judgement (indeed, the latter will be regarded as positively dangerous in this context). Research has shown that standardised consulting processes add less value than customised ones because they ignore the unique circumstances of a given client. Also over time therefore, this type of consulting will be seen to add less value; it will become something one is expected to do, not something you really need or want. Like financial audit, it will also become a commodity in the sense that any one of a select group of firms can do it, but the difference in approach between them is minimal; competition will often be on price; margins will fall.
More than all this, the emergence of the ‘decision audit’ as a distinct consulting market will free the rest of the consulting industry to get on with the more interesting stuff. Already we hear clients say that, if they want an ‘opinion’, they’ll go to a well-known firm, but if they want a specialist or to actually get something done, they’ll go elsewhere. ‘Opinions’ and ‘real consulting’ evolve into two quite separate practices, much as audit and advisory/consulting work did in the Big Four. Tensions will mount: ‘real consulting’ partners will be worried about the liabilities taken on by the ‘opinions’ partners, while the latter will resent the gung-ho approach and higher margins of their ‘real consulting’ colleagues. Blamed for failing to anticipate the next financial crisis, ‘opinions’ consulting will be subject to increasing regulation, further driving a wedge between it and ‘real consulting’.
Wait a few more years, and the firms will split, spinning off one practice or other as a separate business. And then the whole cycle will start all over again…
Fiona Czerniawska is a leading commentator on the consulting industry and a co-Founder of Source, who provide specialist research on the management consulting market to consultants and their clients.
© Fiona Czerniawska 2012. All rights reserved.
Reproduced by permission.