The End of Consulting as We Know It?
After decades of helping clients pre-empt disruption, could consultants be next? IDEO thinks so, and is facing the challenges posed by digitalization head-on.
What if “the crowd” replaced consultants as the go-to resource for answering CEO’s most pressing questions? Tim Brown, CEO and President of the global design firm IDEO, recognizes that this is not a hypothetical, but rather an imminent reality[1]. Digitalization has created new platforms and labor sources that are disrupting consulting’s traditional high-margin, billable time-based business model. But rather than seeing this disruption as a challenge, IDEO is using it as an opportunity to re-think how it will deliver value to clients today and long into the future.
The challenge posed by digitalization
Management consulting is a $250 billion dollar industry in flux[2]. Traditionally, the supply chain has been based around a solution shop model, in which a number of pedigreed consultants work to diagnose and solve a problem with an undefined scope[3]. Value is delivered primarily through the consultant’s own judgement, and customers pay high fees at hourly rates for proprietary offerings, methodologies, and tools.
Digitalization threatens this model in several ways. Firstly, the democratization of information created through digitalization results in the spread of “best practices” that had previously been held as proprietary or localized to a specific firm or region. In addition, new platforms for engaging consulting labor, such as the HBS consulting startup Hourly Nerd, dramatically increase access to consulting expertise at a lower price. Lastly, the emphasis on data analytics is providing customers with new methodologies for tracking and measuring the impact consulting firms are providing, and also encouraging them to reimagine new solutions they might provide that transcend labor services.
While the opacity and agility of consulting firms has long left them more immune to the disruption that their clients have experienced, failure of traditional consulting firms to pay heed to the challenges of digitalization would be a fatal mistake; particularly as big-name technology firms such as Google begin to expand their consulting offerings.
The IDEO solution
From its inception, IDEO has differentiated itself from traditional strategy consulting firms by bridging industrial design with innovation consulting. This unique mix initially made the company hard to imitate and provided a unique market position. However, IDEO’s leadership recognized that the company was not immune to the threats facing other consulting firms and in recent years has developed a number of ventures to test alternative offerings that could change the way consulting firms think about the services they provide.
These offerings, which can be described as a “facilitated network”, are structured to enable IDEO to provide a new range of products and services. These network investments create an opportunity for IDEO to disrupt itself before the outside market does and provide a range of investments that will help the firm grow in the short and long term[4].
Short-Term Investments
- OpenIDEO: OpenIDEO is IDEO’s attempt to disrupt itself by creating an open source version of the company that harnesses the power of the crowd to solve social enterprise challenges. It disrupts the typical consulting supply chain through a digital platform that engages individuals of diverse backgrounds from all over the world to solve a shared challenge (e.g., improving sanitation in urban areas). While OpenIDEO and IDEO remain separate solutions, the OpenIDEO platform has been used by IDEO consultants as a solution for clients wishing to conduct their own private prize competitions and to source ideas for particular consulting questions.
- IDEO U: Ideo U is an online school that provides training on the IDEO methodology for design thinking and collaboration. This solution commoditizes the proprietary knowledge held by IDEO U and ensures that the firm is adding value in new ways to customers. The digital platform also enables IDEO to engage with potential customers in a new way an enables analytics that can track the value that the service is providing to support optimization.
Long-Term Investment
- IDEO Futures: IDEO has created IDEO Futures to incubate, launch, and scale the new ventures, products, and services that will be essential to helping IDEO stay relevant in the future. It also offers IDEO Futures as an incubators for world-class design entrepreneurs – providing IDEO with emerging talent and unique insights on where industries are heading.
Considerations and Questions for the Future
As IDEO anticipates the future challenges and opportunities presented by digitalization, it should continue to build out its ecosystem of partners. This will benefit the firm by helping it produce new insights into where the world is moving, while also providing clients with relevant connections to industry leaders. Improved analytics capabilities also offer an opportunity to implement value-based billing to the client and new labor structures that are less reliant on full-time labor.
However, long-term questions about the impact of digitalization and a “facilitated network” consulting model remain. Should IDEO new solutions, such as OpenIDEO and IDEO U remain on the edge of the organization or be integrated into the traditional consulting firm? And should the traditional IDEO design process, which was emulated by companies all over the world, be adapted as a result of digitalization?
Word Count: 708
[1] Lakhani, Karim R., and Anne Laure Fayard. “Open IDEO.” President and Fellows at Harvard College, Harvard Business School Publishing, 29 Oct. 2013.
[2] Kaplan, Soren. “The Business Consulting Industry Is Booming, and It’s About to Be Disrupted.”Inc., 11 Sept. 2017.
[3] Christensen, Clayton M., and Dina Wang. “Consulting is on the Cusp of Disruption.” Harvard Business Review, Harvard Business School Publishing, Oct. 2013.
[4] https://www.ideo.com/
The digitalization of consulting is unlikely to replace its core business, since its greatest value proposition is the creativity engendered by teams of smart individuals working together to solve problems. Frameworks provide a logical overview of the issue at hand – and there is nothing wrong with disseminating these principles – since the competitive advantage is still retained in the form of collective intelligence and teamwork. The same is true for universities, as one might argue that massive open online courses (MOOCs) threaten their own value proposition. Yet the true value of the education is from peers in the academic environment, not the material itself. For the same reason universities will endure digitalization, so too will consultancies – IDEO should continue to spread its initiatives, and traditional consulting businesses should offer the world the same.
Very interesting perspective! I agree with you that one of the core values that consulting firms provide to clients is “creativity engendered by teams of smart individuals working together to solve problems”. However, I would challenge you as to whether consulting firms are requisite in bringing these individuals together. A number of organizations, such as the XPRIZE Foundation, are using digital platforms to connect individuals from all over the world to solve intractable problems. Indeed, Deloitte Consulting has developed its own proprietary crowd platform — Pixel — to give clients the ability to access the crowd (while of course paying Deloitte a fee to access it). I agree with Dennis below that, for some clients, consulting projects are merely a stamp of approval — very similar to a Harvard MBA degree, one might argue. Even if Harvard is not at risk of losing its value proposition in the near-term, many other universities are. Similarly, while the value proposition remains for consulting firms in certain contexts, they would be remiss to not focus on creating new value streams, as digitalization is most certainly destroying some of their old ones.
Kate, this is very well-written. A few things come to mind:
(1) I belong to the same camp as you, and I do believe that client service jobs like consulting will be mostly disintermediated by digitalization and automation, given enough time for artificial intelligence to become more sophisticated. Whether that is 10, 20, 50, or a 100 years, remains to be seen. Like Ray Kurzweil in his book, “The Singularity is Near” [1], I believe it will probably take 20-50 years.
(2) I worry a lot less about the near-term, as I see the merits in having a dedicated team of consultants providing time-sensitive advice to their clients. Some ex-consultants (and cynics) even make the claim that CEOs hire consulting firms to simply validate their own conclusions with a stamp of approval from a prestigious third-party consulting firm [2]. These CEOs would likely not want to pay for a crowd-sourced opinion for two reasons: (i) it carries less prestige and weight when presented to his board, and (ii) he might not be able to steer the opinion to validate his preconceived conclusion. Obviously, this is a cynical view, but if true, then prestigious consulting firms should continue to prosper, so long as they maintain their brand and image.
(3) IDEO is very forward-looking in this case, and is getting ready to disintermediate itself when the time comes. This reminds me of the “Innovator’s Dilemma” [3], as presented by Clay Christenson in his book, where innovators need to decide if they want to invest in technology that cannibalizes on their current business.
Footnotes:
[1] Kurzweil, Ray. “The singularity is near: when humans transcend biology”. Viking, 2005.
[2] https://www.forbes.com/sites/timworstall/2012/02/03/why-do-companies-hire-management-consultants/#7e45b71e2e4f
[3] Christensen, Clayton M. “The innovators dilemma: when new technologies cause great firms to fail”. Harvard Business Review Press, 1997.
Great post Kate I found this super interesting. I never realized consulting firms are so forward-thinking in their preparation for the future of their industry. I definitely believe IDEO should incorporate their short and long-term investments in order to stay relevant with technology. From my understanding of the consulting industry, I have a hard time imagining them being in any real danger in the near future, when the singularity occurs is a different story. Management consulting firms like McKinsey and design consulting firms like IDEO, bring different values to their clients so I thought I’d break them up below.
Design consulting (IDEO): They really pride themselves, and have achieved some incredibly creative concepts/solutions to problems through a combination of their finely-tuned design thinking methodology and their insanely competitive hiring process that typically requires experts in a chosen field. The point is their process and sheer talent level shouldn’t be taken lightly. I have a difficult time believing the crowd will replace this machine anytime soon.
Management consulting (McKinsey): The same things can be said here in regards to premium talent and proven processes. I also agree with Dennis on his point 2; according to “The Firm: The Story of McKinsey and Its Secret Influence on American Business” by Duff McDonald, there are many things management consulting firms bring to the table besides idealized consulting value. For instance, hiring a management consultant gives a legal avenue for finding out corporate rival’s secrets and for the CEO to have someone else to blame for mass layoffs. So in this regard, even if consulting know-how of McKinsey somehow gets replaced by the crowd, they still have a place in the corporate world.
IDEO at the forefront again! I wonder if digitalization presents new tools which can actually be co-opted as another part of the kit that consulting firms bring to bear. For example, if a company is trying to devise a new algorithm for pricing, McKinsey may actually offer a crowdsourced solution as one alternative to consider, alongside the surveys and customer calls and market mapping it already does. This crowdsourced answer has the benefit of emerging from first-principles thinking – the originator is unencumbered by the legacy thinking of the operators – and by passing through McKinsey, it gains validation from a firm that is *generally* perceived to be credible.
This type of outcome seems more likely to me than wholesale disruption; as Curtis and Chris noted, one value proposition of consulting firms seems to be about validating decisions that are already largely made and are often incremental, rather than introducing truly blank-sheet optimal solutions which may not gel with a company’s culture, current capabilities, or market reality.
However, I am concerned that the pace of digitalization actually poses a different challenge for consulting: as the rate of technological change and business model innovation increases (thanks to new communications technologies and things like VR/AR), how applicable will the timeless frameworks and 5 forces analyses of consulting firms be? Can they adapt their structured thinking to an increasingly unstructured world?
The digitization of consulting is something I would become more and more concerned about with the rise of artificial intelligence. With increasing power of AI, I think that firms will be able to draw additional insights from the wisdom of crowds rather than a set of consultants. For example, Unu.ai leverages the wisdom of crowds in order to source answers to questions. The belief is based on the idea that a crowd is more likely to reach the correct answer, harkening back to the idea of Watson’s approach to certain questions (1). This technology would enable companies to quickly gather key insights from their customers on a broad range of topics and could potentially help drive innovation at the company. Of course, there are always risks to relying too much on data, but there is also risk to relying too much on consultants!
(1) https://www.diplomacy.edu/resources/books/reviews/wisdom-crowds-why-many-are-smarter-few
Interesting discussion, but I am much less bearish on the consulting industry than the tenor of this post. Yes, digital advances have “democratized” access to information, but it has not necessarily increased the quality of the information. In fact, I would argue that the proliferation of information has lowered the “average” quality of an information unit. Clients engage consulting firms to come up with highly specific, nuanced strategies to complex problems. The main value consulting firms provide is the high quality of their solutions. Even if some random people on the internet can provide similarly high-quality advice, I don’t think that companies will perceive or trust that the advice they would receive via an open-source process would be high quality. Secondarily, human interaction is a very important piece of consulting work, again, largely because it engenders trust in the quality and relevance of the advice provided. No digital solution can provide that.
I think IDEO is right to grapple with and plan for the issues raised around digitization. I agree that many of the functions of traditional consulting can be done at lower price via firms like Catalant and, further in the future, increasingly through artificial intelligence. I do, however, think that IDEO is on the right track by embracing this disruption and combating it from within. I think OpenIDEO, IDEO U, and IDEO Futures ought to be at the forefront of IDEO’s business. The way to add value going forward as IDEO is to leverage the improving technology to do their job even better. The reason they will be able to add value is that they have the ability to have a nuanced perspective. The key to have that perspective is being the agent that leverages the improving technology, not the technology itself. Clients can still see value in IDEO because IDEO will have the perspective of seeing what is going on in the market via OpenIDEO, IDEO U, and IDEO Futures. Further, I think IDEO has the ability to add value to their networks by bringing relevant parties together to solve difficult issues and leverage improving technology together. Through their IDEO CoLab offering, IDEO leverages its network to bring organizations together to address specific, pressing issues [1]. Instead of waiting for a client to come to IDEO, IDEO can go to clients to proactively seek out solutions to difficult problems. In doing so, IDEO only further enhances its value as a connector of organizations, but also as an incubator and thought leader on solutions to difficult problems.
[1] IDEO CoLab, “The CoLab is IDEO’s R&D Network.,” http://www.ideocolab.com/, accessed December 2017.
Kate – great post! Very interesting to read about how digitization is changing the consulting game. I agree with your recommendation that consulting firms should pay heed to the challenges and ensure that they are evolving to stay relevant. Your point on customers using new methodologies to track and measure the impact of the consultants they hire is well taken. I’ve seen the consulting industry start addressing this concern by changing their fee structure and introducing more contracts where fees are at stake / contingent on the project meeting specific success factors (e.g., increasing revenue by X%).
The examples of how IDEO is changing makes this post very tangible. I’m particularly interested in IDEO U, the online school. I would love to see pricing information and more details on their go to market strategy.
Finally, I appreciate your point that IDEO should continue to build out its ecosystem of partners. The more it is able to do this the better it will be able to react to a changing landscape and provide holistic solutions to its clients. If you could advise IDEO, what types of partners would you encourage it to approach?
Great article!
One of the key value propositions of consultants, from what I have seen, is their ability to offer clients a fresh perspective on their business decisions, based on the company’s data, whilst keeping this data private and secure. In this day and age companies’ data is often their source of competitive advantage, and keeping this data private and secure is central to the companies’ ability to be successful.
I don’t see how crowd sourcing will ever take off if there isn’t a way of keeping companies’ data confined to only those who want to see these companies succeed.
If somebody innovates a solution to this challenge, it will be a game changer, though, and the industry stands to be shaken up for all the reasons stated above!