Practical consulting set to become the new norm in consultancy industry

11 January 2018 Authored by Consultancy.uk

A new report on the future of the consulting industry has forecast the rise of practical consultancy as the next major force in the space. According to many businesses, however, “Third Category” consulting – positioned for the mid-market between expensive high-end strategy consultants, and larger, more multidisciplinary alternatives – is under-exploited, offering firms a major opportunity over coming years.

Against the spending backdrop, small and medium enterprises (SMEs) in the UK admitted to wasting a grand total £12.6 billion on external assistance in professional services, which they felt failed to improve the performance of their companies. When asked by a report in 2017 why they felt such a figure was wasted, as many as two in five British businesses said they found “inefficient” fixed fees to be the main reason for dissatisfaction at the service they received. With this backdrop of perceived inflexibility in mind, it is perhaps unsurprising that new, bespoke, agile services from consulting firms are gaining ground.

Companies are increasingly seeking more tailored practical consulting support, rather than a large team of consultants, commodity players, or a high-priced brand name, although this sector of the consulting industry market is under-filled at present. Instead, there exists a simple dichotomy of two variants: First Category consulting firms provide high level, strategic advisory services and command high fees due to their pedigree. The Second Category represents the reality of the commoditisation of certain services, and encompasses large scale work flows with well-defined processes (using armies of consultants) as well as staff augmentation. These two variants tend to compete on price.

According to a new report by RGP, the traditional two-category dichotomy of consulting firms is not addressing the need for more tailored and individualised services. The survey found a disconnect between what companies want and value from their consulting partners, and what they are actually getting. Almost one-third of the respondents cited cost, delivery of results, and knowledge transfer as the greatest sources of dissatisfaction.

Two-tier system is not meeting all of clients needs

Major dissatisfaction

The analysis from RGP identifies four top areas of dissatisfaction with the current consulting partners of businesses. First, in relation to cost, respondents believe that consultants do not deliver sustainable results often enough. As the delivery of results is one of the most important values expected from consulting partners, if results cannot be maintained without the aid of consultants then engaging external expertise is essentially a waste of time and resources.

Following this, a more surprising criticism from clients is that their consulting partners lacked relevant knowledge. Today, companies are more knowledgeable about what they want done – not just what someone else tells them needs to be done – in part, perhaps because many managers in the current epoch are ex-consultants themselves, and are aware of the tricks of the trade. The alumni bases of large firms such as the MBB strategy consultancies, and the Big Four of the professional services world, have become thousands of managers in decision-making positions. This makes the effective implementation of the second top value from consulting partners – the transfer of knowledge – all the more important.

High prices were also a top four source of dissatisfaction. The consulting industry has been under sustained pressure not to elevate fees, even after a period of recovery following the global financial crisis of 2008. In spite of this, clients still cite consulting partners as charging high prices – while stating a key value of prospective partners is competitive pricing. The question is which tier of consultant this applies to – though as strategy firms are the most expensive, followed by the Big Four, it is perhaps most applicable to Category One. Operational consultants can meanwhile be cheaper.

Finally, respondents of RGP’s study suggested that gaps in tools and methodology were a downfall of many consulting firms. While consulting partners are expected to bring specific expertise to the projects of their clients, clients also expect a set of best practices and tools that can help advance maturity and smoothen implementation.

According to the author of the study, “It is becoming apparent that specific needs are not consistently met by the current two-tier system. Hands-on subject matter expertise and complete knowledge transfer back to the business are two of the most common unmet needs.”

Further to this, clients and consultants clearly demonstrate a disconnect between expectations and delivery. Attributes ranked ‘most important’ when engaging a consulting firm were; Subject matter expertise; Specific industry skills; Project management & execution; and Attentive client service. As a result, the report concludes that there is a real need for new, innovative consultancies to fill the gap, with a model that is better. They call this “Third Category consulting.”

Practical consulting set to become the new norm in consultancy industry

Third Category consulting

The Third Category exists in a state of symbiosis between consulting companies and the organisations they serve. Rather than simply providing recommendations, this new frontier will see firms engaging with clients by helping and training their personnel, while strategising a long term model to leverage. The closer ties between client and consultancy are partially the result of a more refined, individualised process for hiring consultants, with a greater emphasis on the depth of subject matter expertise and the transfer of that knowledge being the top attractions for clients to Third Category firms.

Increasingly, companies are looking to get better value for their investments in consulting partners by pre-vetting service providers by discipline or solution. For example, transaction services or change management specialists would now be favoured for specific projects over broader, multidisciplinary firms which were previously hired for their blanket knowledge. This new selection process provides for a pre-qualified pool of consulting options to leverage the best talent for a particular need. As a result of this method of obtaining specialist know-how, consultants will subsequently be expected to provide more in-depth and personal work, as they are hired on the basis of their specific expertise – not just a broader industry knowledge.

Providing attentive and tailored solutions to the client is an essential factor behind success in this category, then. Looking deeper into the attentiveness attribute, consulting firms need to position their subject matter specialty into meaningful business results. In order to deliver this to Third Category clients, value relies heavily on a consulting firm’s proven ability to work effectively with client teams, and with other consulting firms that the client has engaged. Consulting firms will have to demonstrate that they have this capability and the track record to serve as an integrated partner.

Preferred provider programmes

With this change in flavour comes a new challenge for clients too. At the moment, most larger companies purchase consulting services through their preferred provider programmes – with studies saying as many as three quarters of consulting work can go to such suppliers. However, most preferred provider programs do not accommodate the Third Category trend. Meanwhile, buyers’ perceptions need to be realigned with business reality. At present, the study warns that companies may not know where Third Category consulting firms fit within their existing two-tier structure, mistakenly placing such firms in the Second Category where price, not expertise, is the primary driver. As a result, companies may not be taking advantage of solution efficiencies.

The study recommends that organisations should look into this, as if they rule out innovative firms upfront on a blanket basis, groups risk not getting innovative and best services. Instead, developing a new or revised method for identifying preferred providers is recommended, giving careful consideration to incorporating plug-and-play solutions, and the delivery of value and services desired in order to implement a new preferred provider programme. To this end, the UK government recently implemented a new framework for preferred financial consulting firms, which would see 30 firms including SME representatives subjected to an internal bidding process in order to ensure competitive pricing and maximal suitability for projects.

According to Kaush Oza, Senior Practice Director in Integrated Solutions at RGP, and author of the study, it is clear that the trend toward the Third Category type of consulting is a major force for the future of the industry, as companies are increasingly looking for pre-qualified and just-in-time expertise. Clients no longer have an appetite for large, bundled and branded consulting services and the associated premium fees.

Oza concluded, “The consulting industry is transforming in a similar manner to the dining industry. No longer are we limited to just two dining categories (fast food and fine dining). Now, a third category exists – fast, casual – quick healthy cuisine with an upscale décor.”

News

More news on