Consulting industry faces its own a 'challenger bank' moment

23 July 2019 10 min. read
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The UK’s £10 billion consulting industry is dominated by a group of large players, including multinational consulting firms and larger UK-headquartered consultancies. Yet, similar to developments in other industries, most notably banking where digital-savvy disruptors are eating away market share from incumbents, the consultancy space is ripe for disruption. Daniel Meere, Managing Director of Axis Corporate in the UK, below explains why the consulting industry faces its own a 'challenger' moment.

Organisations use consultants for one of three reasons: capability, capacity or collaboration. The capability need reflects skills that the organisation either does not have or has insufficient levels of experience to carry out a project or programme. The capacity need arises from a mismatch in timing or volume, where although the firm has the expertise they need, they cannot access them when they need them. Collaboration can involve a combination of the previous two requirements, or marks the need for a consultancy to help a client along the journey towards a change or defined objective. Given that the consulting industry in the UK alone is worth over £10 billion annually, this is big business.

A majority of consulting buyers are satisfied with their consultants, however, when it goes wrong, they often complain of poor value, being oversold on capability and being unable to bring down consulting spend in line with reduced budgets. Consultants often complain that clients change their minds, delay on decisions and increase scope that makes their job more challenging. The reality is that there is truth in both sets of complaints. However, in a people business that is reliant on clear communication for it to succeed, these complaints tell us that something is clearly wrong.

Have consulting projects met expectations of value

Taking the client viewpoint, a consulting engagement can produce the outputs specified in the proposal (process flows, operating models, business cases and the like) without actually delivering the outcomes such as reduced headcount, faster time-to-market or a clear return on investment. Outcome-based fee structures can limit spend, but failure to deliver is still costly.

Picking the right firm

Clients are often presented with a choice of consulting partners from a preferred supplier list (PSL). These are firms that the procurement team has validated as approved for use, and this process helps to limit the supplier list to a manageable level, remove ‘maverick buying’ and control risk for the organisation requesting the help. Large consulting buyers have also negotiated volume discount deals which (as the name suggests) offer low prices in return for guaranteed levels of business. Individuals buying consulting services often need to consider personal risk also: “What would be the consequences for me of not using a PSL firm, and the project then failing to deliver?”. It is often far easier to select the ´default´ choice than try to persuade an organisation that there is a better – albeit lesser known or tested – option available.

As the larger consultancies have grown to now command a market share of around 40% of 2018 revenues, according to research by the MCA (UK’s association for consulting firms) they have become overextended. The race for dominance has also meant that too many junior staff are overseen by too few experienced hands, with expertise and execution capability suffering as a result. Has the team in place actually delivered the type of work the case studies boldly claim? Does the consultancy understand the client´s business in sufficient detail to be able to offer relevant advice and a fit-for-purpose solution? Sometimes, but not always.

The choice could be likened to buying a car. There are the established brands – most people drive them, everyone knows them, they are thought to be reliable and you won't get laughed at if yours breaks down. But break down they do. What about a Kia as an alternative option? They are a smaller player, but less expensive also. Fewer people drive them, the brand is less known. Will they break down though? If Kia is prepared to offer a 7-year or 100,000 mile warranty then they must be fairly confident in their build quality. Rafael Nadal seems to think so, anyway, and he likely doesn't get laughed at when he pulls up in his reasonably priced automobile.

Likewise in the business world, challenger banks are taking aim at the established players whose monopoly has existed for 300 years in the UK. The mass shift to challengers is yet to happen, but there is certainly the sense that either the heritage banks change, or the challengers will make the change for them. We're seeing record levels of new bank authorisations, and even one of the leaders of the revolution, Monzo is being told to ‘move over’ as an even newer, slicker, more challenging player is ready to take its place in the form of Viola Black. Small and agile replacing big and branded: could the same apply to consultancy?

Business needs requiring management consulting services

Challenger consultancies

The solution may come down to three key changes. Firstly, consulting buyers need to be presented with a greater choice of partners. Secondly, a fit-for-purpose approach is needed to match large partners to large programme demands, and vice versa. Finally, focusing on value delivered above brand, scale or incumbency will drive better outcomes for consulting buyers.

There is no shortage of smaller consultancies available to buyers, should they wish to break from the norm. Over 2,000 established consulting firms are active in the UK. True, the number of ‘scale challengers’ with above 1,000 staff is limited, but do you really need 1,000 staff to be a valuable partner? That is more staff than Warren Buffet’s Berkshire Hathaway, Monzo, or Instagram before it was bought by Facebook. Surely if you are focused and great at what you do, then there is an upper limit to how big you can be or want to be. I don’t mind that my local dry cleaner has five staff because they do a great job on my shirts. Neither do Instagram users seem concerned at the team size of their go-to app.

It is also true that the niche players need to do a better job of positioning themselves as a credible partner, with a degree of differentiation. Some firms already do this well and have grown impressively over a short period of time. Capco, Baringa Partners, Elixirr and 11FS are all good examples of this. Consulting buyers could be forgiven for a lack of awareness of these and other credible alternatives to the standard choices. But look beyond and you´ll find them.

There is help at hand to make matches here. Some procurement teams, through Hellios´ FSQS platform, for example, are casting the net wider to attract new and niche consulting partners. They set out the terms and conditions of business, capture data around providers' core capabilities and scale, then have the option of adding them to the mix in any upcoming tenders. Focused consultancies are using a content marketing strategy to ensure that they appear highest in search results from prospective clients. At Axis Corporate, we found that by targeting the alternative remedies package (ARP) fund to stimulate competition in the SME banking market, our microsite attracted significant traffic and real interest from clients, enabling us to top the Google search rankings for related expertise.

Growth rates of management consulting firms

Business models are changing

The nature of the programmes on which clients are looking for support is also changing. In the banking sector, fewer multi-year, all-consuming ‘mega-programmes’ are being mobilised. This is in part due to fewer new regulations needing urgent compliance, and signals banks are starting to adopt some of the more agile project methods of the neo-banks and start-ups. Could it be that smaller projects and more agile approaches require consulting partners with those characteristics? It holds the same logic as large programmes needing partners with 1,000+ resources. And what if one of the FAANG firms (Facebook Amazon, Apple, Netflix and Google) aimed its sights at consultancy?

Whatever the outcome of the ‘consultancy challenger bank’ moment, the aim should be for client / consultant relationships to deliver greater value. No-one would dispute this, but achieving it will require a change in mindset (another parallel with the disruptive effect of challenger banks). Clients tend to value the people they work with from consultancies above the company itself, and this explains why star performers are able to nurture client relationships even when they leave the firm. People buy people, after all. There is an argument that bigger, more established firms can maintain a higher quality bar through their training and knowledge networks. This is true up to a point, but overextension and use of external associates to plug skills gaps has diluted this advantage.

Clients asking the critical questions of consultants is therefore essential. Which members of the presentation team will be delivering the work? What role will each play, including the Lead Partner? What access will you provide to wider SMEs and knowledge? How will you transfer this knowledge to the client team? Reviewing proposals blind could also help. Stripped of the branding and cachet of a big name, some proposals appear insipid and vague. Removing the ‘brand bias’ could throw up some interesting selection dilemma.

Clients and consultants certainly need each other – perhaps now, more than ever, with change being the only constant we can rely on. To satisfy both parties' needs, there must be value creation. At Axis Corporate, our view is that this requires a fresh look at who you choose to partner with, and why.