MANAGEMENT CONSULTING: HISTORY AND FUTURE

Summer 2017 Issue

One of the benefits of longevity in a profession is getting an insider’s view of its evolution.  Having spent most of my career in and/or around consulting and consultants, I have given some thought to how management consulting has progressed over its relatively short history. So let’s start at the beginning – and see how we’ve gotten all the way from the origins (Consulting 0.0) to today and beyond (Consulting 4.0).

The origins of the management consulting profession are often traced to practitioners focused on very practical issues of productivity on the shop floor: time-motion studies, assembly line design, and the introduction of the experience curve. Much of this work was inspired by the disciplines of engineering and sociology. As the nascent profession evolved, practitioners migrated to the boardroom and to the office.  

Rapid expansion of the post-war American economy in the 1950s and 1960s gave rise to two distinct branches of management consulting, differentiated here simplistically by their organizational orientation:

Strategy firms such as McKinsey, AT Kearney, and Bain focused on anticipating and designing broader directions to assure growth by pioneering strategy, planning and programming methods drawing upon economics and psychology, and disseminating their practices through leading business schools and their publications. This model helped create a unique class of consultants serving boards and senior leadership.

Concurrently, accounting firms began to shape and develop their management consulting practices by offering methods to reduce the costs and increase the productivity of the operations of large (and growing) organizations. Management reviews, productivity studies, and organization structuring methodologies offered disciplined approaches to increase the productivity of labour-intensive processes. This simple model established a broader base of well-trained consultants who used relatively complex methodologies and tightly-prescribed processes. The rise of this model grew the profession and its disciplines significantly.

Various shocks to the economy, and the prevalent social order of the day, have shaped the methods and approaches to management consulting since those early days. The constant is that consultants share methods, processes, and know-how within a disciplined project framework. They apply these tools using trust-based relationships with senior leaders.   

The impetus for change to this relatively stable business order can be traced to the oil shock of the early 1970s, when prevailing assumptions about the economy, world order, and the foundations of business were put into question. As cost structures escalated under rising oil prices, management consulting responded with more robust strategic planning processes (forecasting, scenario planning) and business process re-engineering, and organization design. It is fair to assume that much of this work was undertaken with the assumption that a shift had taken place and a re-defined equilibrium was required.

Throughout the 1980s and 1990s, changes in the rules and political structures governing trade, complemented by improvements in telecommunications, made globalization more feasible. This added new strains to domestic firms, and made possible the growth of multinational firms with greater internal cohesion.

Management consulting responded with:

• micro and macro competitive strategy methods;
• elaborate information technology-based enterprise resource planning (ERP) systems (for product planning, cost and development, manufacturing or service delivery, marketing and sales, inventory management, shipping, and payment); and
• integrated financial and human resource management systems augmented by change management methods to assure longer-term acceptance of these expensive systems throughout the workplace.

The intent was to assuage the fears of those with a stake in the profits of firms by instilling a greater degree of certainty and control in a world that was becoming increasingly uncertain and harder to control.

This era came to a close in the aftermath of the Y2K (Year 2000) ‘crisis’, which fell short of the predicted chaos stemming from fears that automated systems of the day would crash due to a programming oversight. While this fear provided impetus for lucrative large system installations, it also generated a growing level of cynicism about the objectivity of management consultants who did not realistically frame or better explain the risks when the foreseen cataclysm failed to materialize.

Consulting 2.0 - The Internet Shift

Management consultants leveraged early Internet technology to help design important new business architectures.

The integration of Internet technology into established business, and as a base for new forms of enterprise, became the impetus for yet another fundamental shift in business. Geography and size were less important as design factors. Communications became less expensive. Businesses were able to disaggregate. Management consultants developed many critical methods that were extensively used by businesses to develop new architectures. For example:

• foresighting – strategy formation driven by level of uncertainty, using options and gaming theory to explore possible shifts and changes, contingency planning to anticipate consequences;
• business modelling;
• network structural architecture;
• de-centralized control systems; and
• experiential change approaches.

At the same time, academics and management consultants introduced businesses to the phenomenon of disruption, and provided strategic response approaches based on observing what worked. They introduced governments to new business-formation thinking that translated into enabling policy.

These methods rested upon the assumption of constant change and the futility of trying to control the dynamics of economies in dramatic flux to provide stability to business. This dynamic and relatively open period of business experimentation was supported (and to some extent enabled) by very creative and innovative management consultants drawn from non-traditional (that is, non-business) disciplines. Project teams often featured experts in design, anthropology, the performing arts, and the humanities. These disciplines provided fresh perspectives to the unfolding shifts in society that were changing business and its conduct. The methods and practices encouraged participation and integrated multiple perspectives.

As businesses and their management consultants become more comfortable with the ambiguity and dynamic nature of the workplace, a new breed of professionals with skill-sets rooted in mathematics and the advanced natural and health sciences, were augmenting consulting teams to explore and understand complexity and advance the use of computing in measuring and analyzing problems and issues.

The capacity and ability to capture, store, and rapidly analyze big datasets naturally evolved symbiotically with the expansion of large internal ERP systems, medical research, security monitoring, and intelligence gathering activity.   

The events of September 11, 2001 (9/11) in the US and the July 7, 2005 London bombings shifted the business landscape dramatically again. The preoccupation with safety and security as well as risk and its mitigation gave rise to management consulting methods such as disaster simulations, and planning and risk assessment/mitigation. The profile of teams has grown to include programmers and graphic designers who introduce gaming and animation techniques into ever more realistic simulation games for those faced with the possibility of a significant security breach. Typically, the management consultant will frame the issues, design, and stage the sequence of interactions, and analyze and interpret the data collected to create a story that will prompt creative problem-solving.

These same techniques have been used to solve the complex problems facing leadership teams in mining, public transit, and publicly funded multi-site events such as the World Cup and Olympic Games.

Games organizers face political, financial, as well as security risks. The stakes are significant, and leaders are dependent upon a complex set of interdependencies for their success. Management consultants are skilled in reducing the complexity, identifying the points of risk, and working with leaders and their experts to prepare for successful execution – especially important when the entire team has one chance to get it right!

Concurrent development of information technology and analytical tools has made analysis of big data sets and text-based data (narratives, for example) increasingly effective, allowing for the tracking of processes and media or narrative analysis to enrich the evidence underlying the work of consultants.

The current era is being shaped by another, more recent, shock to the landscape emanating from a failure of the financial system. The outcome of the subsequent events is a protracted economic downturn. It has affected government policies and is felt in management consulting in several ways.

The major change has come from businesses who can not (or will not) pay high fees for their external advisors. Many larger firms have instead opted to establish and build significant internal consulting teams. These teams are charged with implementing and enhancing core operational systems. The members of these teams are highly-qualified professionals who have typically been schooled by major consultancies. The effect of this has been dramatic: the conceptual work and modelling traditionally undertaken by external management consultants is now being done internally.

Businesses that have survived and achieved a level of financial sustainability are now focused on managing both growth and stability. They want to keep their valuable employees, retain valued clients, and manage costs. They are investing in employee engagement services (coaching, employee surveys, mentoring) and client retention strategies (re-design of Customer Retention Management systems to increase functionality, re-introduction or strengthening of balanced scorecards and benchmarking). These businesses want to achieve the right balance between internal resource allocations and cost cutting. It would appear that they are also investing in a greater organizational capacity to adapt by investing in leaders capable of skillfully affecting change through their behaviours and ability to influence:

•  Flexible processes and systems;
•  Building looser, networked structures that can be adapted to opportunities;
•  Innovation (technologies, management processes, delivery systems, business models);
•  Futures (small investments in potential businesses or business lines); and
•  Processes that simplify operations and result in decreased costs.

In short, we are in an era of pragmatism, strong operational emphasis, and a bottom-line discipline driving our decision-making.  Consultants who offer candour, practical know-how, and superior collaborative skills are in high demand. Now, the question is, where are we going next?

All formal and informal sources suggest management consulting to be a growing profession. We may be evolving in new ways in response to the disruption being experienced by our clients. Indeed, we may be growing precisely because there is need to make sense of the marketplace.

Today’s on-demand economy is pushing consulting to transform in new and robust ways. It won’t be long before we see new strategies and practices taking shape. For example, the pervasiveness and centrality of integration to increasingly sophisticated digital platforms are driving client demands for:

• Expectation of greater speed of delivery;
• Better understanding of a client’s customers by their consultants;
• Need to fit into and enhance complex global transformations, which increases the scope, risk, politics, and impact of transformation projects and demands consultants who can deal with executives at the most senior levels of the organization; and
• Greater attention to regulatory requirements (privacy constraints, different tax regimes across borders, for example).

Some very broad expectations of the future state of the profession, according to Forrester, include:

• Traditional high-revenue, technical work will shrink and change;
• Asset-based consulting will affect revenue and delivery models;
• Projects will be smaller (with more value), global, more virtual and will use centres;
• Pure strategy projects with static deliverables will shrink rapidly;
• Organizational change management will become a science, enhanced by data and software; and
• Contracts will shift incrementally to gain sharing, licenses. and retainers.

Rather than delve into the specifics or rely on this high-level prognostication, we should reserve judgement on this future until we see it unfold. There are a few more immediate changes that are evident: creative innovation in large consultancies and the continuation of the market of independent consultants flourishing hand-in-hand with the on-demand economy. Here are some emerging models:

New fast-paced businesses are highly ambitious, innovative, and are early-adopters (if not creators) of technology. Their business models have just bare minimum semblance to traditional businesses. As they discover the undefined turfs of their business, they need the best expertise from across the world. Traditionally, this assembling and service delivery was addressed by established consulting firms. It appears that this is quickly changing.

The new breed of consulting firms are generally smaller (more nimble), smart, work on limited budgets, but have great ambitions. They have to get their analytics and predictions right, but they have limited budgets. They need information and analytics, which is new knowledge. As it is new for all firms, why should clients not look to experienced independent consultants or smaller firms? They often choose to hire independent consultants likely at a fraction of the cost that larger consulting firms would charge.

Disruption is driving boutique consulting firms, through models like Eden McCullum and A-Connect that deliver consulting services through new hiring models of having lean in-house staff drawing on a robust network of freelancers, and finally through online marketplaces for consultants that has democratized access to talent like Hourlynerd and Flexing It. These companies assure top-tier quality engagements at reasonable costs, which is delivered by their use of independent consultants. They also did away with the ceremonial ambiguity attached to consulting and brought in much greater transparency. Businesses are starting to embrace that combined expert service, greater clarity, flexibility, and affordability.

Another interesting model emerging in response to budget consciousness is: hire anyone, from anywhere through new platforms that provide access to great talent: HourlyNerd, MBA&Co, Flexing It and more. The buzz now is: hire anyone, from anywhere, for any number of days, for any number of projects. That’s total free economy. It might sound utopian, but that is how the world of independent and freelance work is evolving.

The freelance and independent consulting model works best for an on-demand economy. The pace of work is fast and there is great access to quality resources. Also, more professionals are taking this route to independent working. Why? The opportunity of freelancing and project-based work is estimated to be $600 billion -$1 trillion by 2020 in the US.  Professionals who would never have planned to become consultants, have begun the move to become independent. 34% of the US workforce is freelancing and this is set to cross 50% over the next decade.

The consulting industry has been maturing in recent years. In the future, a company must either be be very large to be able to have enough scale to maintain expertise across many domains (there are only two of these, McKinsey and BCG) or must be niche (and there are many players in this space, e.g. Delta Partners for Telco). All firms are looking for the 'holy grail' of repeatable processes that can be implemented at high margins (McKinsey has a consumer database for China, BCG has a Megatrends framework). These may or may not be real differentiators over the long term.

The second part is: what does this mean for the consultants themselves? The job has already changed dramatically over the last 10 years and now the 'proposal is what used to be the project' claim actually has a lot of validity. The future will likely see a push towards earlier and stronger specialization into topics and industries, and a far greater investment in information / experience storage and transmission. The real underlying question for individuals is, will consulting be a worthwhile / attractive profession for me in the future as it changes from the previous 'gain a breadth of experience in a condensed period of time' proposition.

Extreme specialization: hiring consultants who are experts in particular areas such as social media analysis, targeted market approaches, branding for age groups and specific product markets, attacking import/export efforts and entering overseas markets, market penetration approaches, pricing and costing, advanced manufacturing and maximum profitability, product extensions, and more.

More firms seem to be hiring specialists or target shooters, people with top expertise in these areas, rather than large, monolithic generalist firms who assign junior members to assignments, and who pump out generic reports with non-specific suggestions that have non-measurable objectives.

New career paths are motivators for individual contributors and millennials. Digitalization will change traditional consulting structures and career paths that are based on sales and the management of larger and larger teams. Instead of a pyramid project structure, firms are experimenting with a diamond structure, consisting of a senior leader, seasoned subject-matter experts, and a small base of junior people. Other firms are looking at different ways of motivating employees, millennials in particular. They are experimenting with more virtual work, team-driven goals, use of design centres, and the application of social media.

Many activities are being automated (using dynamic software solutions, tools, and data-based assets in conjunction with static ones such as process and business models) or integrated (the merging of strategy and rapid delivery is affecting the skill-sets being sought by recruiters and the acquisition targets of bigger strategy firms).

To summarize, there is a lot of experimentation underway in management consulting in almost all aspects of the profession. What has not changed, though, is the need for enterprise-wide perspectives, flexibility, and the capacity for rapid delivery in addressing the possibilities inherent in a disruptive, dynamic landscape.