Consulting firms not fully monetising digital transformation efforts

13 December 2017 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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Accenture's push into the creative sector is an identity crisis

18 April 2019 Consultancy.uk

In its latest push into the creative sector, Accenture Interactive acquired New York and London-based ad agency Droga5 earlier this month, adding illustrious clients such as HBO, Amazon and The New York Times to its roster of clients. With the latest in a long line of similar purchases, Accenture Interactive further demonstrated its ambition of becoming the globe’s leading trusted advisor to chief marketing officers. Yet according to Ben Langdon, Chairman of Class35, Accenture’s strategy may be heading in the wrong direction.

A press release on Accenture’s website announcing the acquisition sits next to a quote stating that “brands aren’t built through advertising” – a huge contradiction from a consultancy firm hell-bent on becoming the ‘CMO agency of choice’. It’s not alone of course. The entire consulting industry wants a piece of the creative pie right now. In addition to Accenture Interactive, recent acquisitions by PwC Digital, IBM iX, and Deloitte Digital meant that in 2017, for the first time ever, four of the world’s ten largest creative agencies were consultancies.

So just what it is that Accenture wants to achieve from this? For one thing, it’s clearly trying to be a digital transformation business. A one-stop creative shop rivalling more traditional models, it wants to lure CMOs in with the promise of lower ad spend and a “more impactful customer experience”. At the same time, though, it’s still in thrall to those same slinky, shiny branding and advertising agencies it’s attempting to disrupt. The Droga5 acquisition and that of Karmarama a few years before are both testament to this.

There’s a fundamental problem with this, though. Digital transformation businesses don’t sell to CMOs. These people have enough on their plates trying to transform their own marketing skills in order to keep up with an ever-changing market – they just don’t have the time or the energy to concern themselves with digitally transforming a whole business. If Accenture’s purpose is digital transformation, then going after creative agencies is barking up the wrong tree.Is Accenture's push into the creative sector an identity crisis?

Worlds apart

Perhaps more importantly, these two industries are worlds apart in terms of the way they think. Creative agencies are all about ideas, campaigns and consumers. Digital businesses, on the other hand, are customer-driven – they think in terms such as lifetime value, measurement, and efficiency. Customer-led thinking is an entirely different beast to consumer-led thinking.

The reality is that the arrival of digital and an all-encompassing obsession with technology, measurement and social has led to the death of agencies in a reductive, zero-sum, efficiency-focused battle with brands. Indeed, agencies have become so obsessed with the latest tech fads, they’re beginning to forget how brands work. Worse still, they’re beginning to forget how brands are built. And, by forgetting, they’re destroying their own values.

Killing creativity

All things considered, it really feels to me as though Accenture is a chip leader in a game it doesn’t understand. Expensive acquisitions like these show that they’ve got the big money, but they don’t appear to have any idea what they’re doing with it. Take talent, for example. The best talent in the creative industry right now is out in the market; it’s not tied to any one agency. Both agencies might well be at the top of their game, but why would a consulting firm waste so much money on buying them when they could hire high-quality creative talent on a contingent basis instead?

As their presence in the top 10 creative agencies shows, there is a growing trend in which Accenture, like many of the other big players, are buying up agencies as if they were nothing more than keywords. What they’re really buying, though, is a collection of credentials, clients and IP. Unfortunately, the talent that created those credentials aren’t going to stay at the business, the clients that hired the agency in the first place won’t be interested in buying what is basically just another part of Accenture, and the IP never really existed to begin with.

Droga5, for example, was one of the few agencies that did great brand work the old-fashioned way – undoubtedly something that made it attractive to Accenture in the first place. The irony, though, is that by leading it further away from the way of working that made it so special, the consulting giant will kill its creativity.

“Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record…. But, in flashing its cash, it is spending millions on acquiring nothing of any value.”

If pressed, the recently acquired agency staff at Accenture will tell you just how dysfunctional the new arrangement is. They’re largely unfulfilled. Rarely do they feel their work has any sort of meaning or purpose. What’s more, the different disciplines have found little or no common ground, and find it hard to work together as a cohesive whole. It’s not surprising, then, to see talented people leaving in droves.

Beyond the window dressing 

It’s clear, then, that consulting firms and creative agencies are no easy bedfellows. But in his company’s defence, Accenture Interactive’s Senior Managing Director for North America, Glen Hartman, described its culture as being “far, far away from what a stereotypical consulting firm would look like. Our office and studios look a lot like Droga5’s.”

In demonstrating a belief that office design equates to workplace culture, this statement serves as an illustration of how confused Accenture is right now. It wants to justify its new strategy so badly, it’s started dressing like a creative agency. But if you look beyond the window dressing and see that you and your partners are speaking a different language with a different purpose, selling to different people in a different market, there’s no getting away from the fact that you’re different.

Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record, and it wants to dazzle others with its new direction. But, in flashing its cash, it is spending millions on acquiring nothing of any value.

Related: Space between consulting firms and creative agencies is converging.