Consulting firms not fully monetising digital transformation efforts

13 December 2017 Authored by Consultancy.uk

Consulting firms are yet to fully monetise digital transformation opportunities, according to a new study. While nearly 8 in 10 firms in the industry now offer digital services, 57% of those indicated that a digital approach has only somewhat or not at all enabled them to win more business, as the consulting sector struggles to leverage new technology for itself, despite advising others on how to implement it.

The potential of digital technology is huge. In recent years, new innovations have demonstrated the potential to transform previously static markets, disrupting them by empowering smaller, more agile new firms to compete with the expertise and labour-power of established market incumbents. 

Fuelled by booming client demand, consultancies have been quick to seize on the opportunities offered by the buzz surrounding digital transformation. According to a survey from 9Lenses among senior professionals in the consulting industry, 78% of those polled say their firm now offers digital services to clients – an increase of 4% since last year. This ranges from digital strategy and how digital can change business models, to changes to operations spurred by automation or even IT infrastructure work, such as the implementation of systems and applications.Benefits of digital transformation to consulting firms

The researchers found this shift to be visible across every practice area, making clear that the impacts of digital transformation are not to be confined to a single practice or function. In the UK, according to the latest analysis from the Management Consulting Association, as much as 28% of consulting sector service income can be directly attributed to digital and technological consulting, while a large amount of other fields include it in some aspect.

“Respondents, when defining digital transformation, believe the impact to day-to-day activities is real and has impacts across the business for innovation, customer experience, how data is connected and how decisions are made,” said Edwin Miller, CEO of 9Lenses, a firm that help consultants with their client data collection and management

Booming market

Consultants are rapidly developing new digial offerings to tap into what is a booming market. The global digital transformation consulting market currently brings in annual revenues of over $23 billion, which is nearly 20% of all consulting turnover generated by the top tier of the global consulting industry.

Does your firm offer consulting services to assist clients digital transformation

Besides helping firms to win the business in the digital transformation consulting space directly, however, the continued evolution of digital possibilities has also opened up new revenue streams outside of traditional consulting. Establishing new adjacent revenue streams is another major driver behind the consulting dive into digital, with the potential for diversification meaning that industry players can somewhat insulate themselves from future hostile market conditions, while supplementing their global revenues during prosperous periods.

McKinsey & Company is one of the best examples of this strategy, with the firm having grown its McKinsey Solutions arm into numerous new markets, including analytics and sales advisory services, on the back of its digital capacity. While McKinsey’s core remains devoted to strategy consulting, today it boasts over 80 solutions within its solutions arm, giving clients the opportunity to make use of the products and insights on a subscription model. This has created a steady stream of non-consulting income for the firm, an approach which industry competitors are keen to emulate. European-origin BearingPoint is posting good progress in this respect, with the firm, headquartered in the Netherlands, now possessing an array of solutions, chiefly focused on regulatory compliance, which are widely used in the financial services industry, including its RegTech partner programme. 

Innovation

According to Miller, digital is meanwhile also driving innovation in the offerings of consulting firms, not only refurbishing existing capacities, but developing new ones. Miller: “The most forward-thinking firms are already testing new models for delivering value to clients.”

Size of the digital transformation consulting market

While this is becoming common practice among the world’s largest consulting firms, there is no one uniform method of delivery to be noted. While some firms simply add digital to their brand, as seen with among others McKinsey Digital, Deloitte Digital or Bain Digital, some launch new units to communicate their digital offerings, such as BCG has done with BCG Digital Ventures. In either respect, such arms are usually built on the bundling of all internal capabilities which work along the lines of technology into a cohesive unit.

Besides these simple methods of incorporating digital into a consultancy’s offering, there are more complex examples too. In some cases, innovation driven by digital adds a new layer of existing service offering, while in others, where digital is integral to several different services, including innovation, M&A or operating model design, digital is part of a multi-disciplinary approach. Irrespective of how consultancies are organising their propositions, firms are leveraging their digital prowess to help clients design better strategies, target their consumers more effectively, drive down costs or even close deals in a more effiienct manner.

To bolster their digital capabilities, a large chunk of firms have been pursuing a buy-and-build strategy. Data from Equiteq shows that mergers and acquisitions involving technology firms had increased by 12% on last year in the first half of 2017. The big Four alone have acquired over 185 consulting firms over the past four years, of which an estimated more than half are active in the technology/digital space. The strategy consulting firms have made similar designs on the sector, albeit making acquisitions more geared towards digital advertising, with McKinsey for instance picking up design firm Lunar and Swedish agency Veryday, while BCG added MAYA

Future

Looking ahead, according to 9Lenses’ study, the appetite for digital is unlikely to slow down, instead projected to ramp up. According to the firm’s survey, 94% of respondents indicated that digital transformation will have an extreme or near extreme impact on the business climate in the next five years, an increased indication of 10% from last year. In the short term, this will form the basis for more lucrative work, as clients continue to look to external experts including consultants to help them implement their new digitised business models.

Changes made in the last 3 years in response to digital trends

However, beyond the immediate potential for profitability, a question which largely goes unasked is, “how well are consulting firms preparing themselves for the growing shift toward digital?” The data shows that the main way in which consulting firms have readied themselves for digital growth over the past three years is to reposition themselves into the digital consultancy space by making changes to their value proposition, at 67% of respondents. This response was followed by participants indicating they had made significant changes to their consulting portfolio, at 49%, before hiring more people with digital capabilities into the practice area, at 46%. This illustrates, according to Miller, how most of the focus on digital is still given to traditional consulting methods and “quick wins” – which while they remain healthy wins, could limit consulting firms’ performances in the digital space in the long term.

More substantive changes to acquire capabilities, skills or people have lagged behind in the priorities of many consulting groups. Indeed, while the percentage of responses doubled on last year’s figures, just 24% of respondents said their firm had made acquisitions of companies to add capabilities to their internal process, or their external offering. While the external offering might have been catered to in other ways, the lack of attention being paid to internal process might present a problem for consultancies in the long-run. While it may be some time away, should the digital transformation market peak, as the new technology reaches maximum saturation among clients who then see the practices as normal, the consulting industry itself may lag behind when it comes to time and cost saving implementation of technologies including AI and automation. 

One reason for this lack of maturity may well be that time remains a factor. While 65% of respondents believe that digital is only somewhat or not at all ingrained in their culture, it may not yet be embedded in the company culture of consulting firms because the technology is still relatively new. As it is still evolving rapidly, early implementation may also saddle firms with capacities that could quickly become industrially irrelevant, while in a fiercely competitive environment, unnecessary expenditure of that nature could cede ground to rivals.To what degree has a digital approach enabled you to win more businessHowever, according to Miller, the pattern suggests something else. It is also a part of the long standing rules of engagement in consulting, which see the finding of ways to differentiate business offerings and win new clients the highest rated priorities, due to the immediate benefits the delivery of those priorities tend to exhibit. “Consultants are prioritising making money, quickly. Perhaps a warning that longer-term investments in tools and people is not an area of focus,” the founder of 9Lenses said. 

Interestingly, as a result of this prioritisation of short-term profit, the effects of investment in digital are not fully synchronised with the making of money yet. According to the report, 57% of those surveyed indicated that a digital approach has only somewhat or not at all enabled them to win more business, with the bulk of these responses coming from organisations sized between 1 and 50 members – the firms digital technology ideally should benefit most, by making up for gaps in resources to make ground on larger competitors.

Indeed, Miller contended that these consultancies are likely advising similarly sized businesses to take advantage of the very processes they are neglecting – a neglect which is preventing them from realising their own potential. “Consultants are telling us how important digital Transformation is to the business environment, but as an industry, consultants are lagging behind in their maturity and ability to monetise that approach,” he concluded.

For more information on the results, download the report 'Digital Transformation in the Consulting Industry'.

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