Why independent consulting jobs are on the rise worldwide

There are numerous management consultancies that have different business models. For example, Deloitte is a franchise model, Accenture is a company owned model, Samsung has an in-house consultancy and Arthur D. Little is a management buyout led boutique consultancy. More recently, there has been a growth of independent consulting platforms such as Talmix (market place model) and a-connect (hybrid model)

While there are variations in the business model the purpose of consultancies remains the same - which is to advise clients to achieve business success. But they do not always succeed. For instance, in the late 2000s McKinsey advised LG Electronics to transform to a marketing insight driven company. Teams of consultants moved to LG to implement the transformation and to execute marketing focused strategy instead of technology R&D. Likes of LG Prada phone was launched in the view that phones are fashion accessories. Fast forward 15 years, LG ended up closing down their mobile phone business unit while technology driven Samsung leads the smartphone market. I heard a colleague saying that there are written memos up on the toilet wall of LG Electronics, ‘Don’t trust the advice of external experts’. It’s an urban myth.

But the point is that consultants do not always get things right. Can this be true for management consulting organisations themselves? Here, I would like to describe aspects of the business that are problematic. To start, the three problematic areas I will highlight are, inefficiency in resources planning, biased talent pooling and fragmented independent consulting networks. Then, I will describe key industry trends in work culture, digitalization and expansion of independent consulting platforms. Lastly, I will propose potential solutions that can be implemented. By the end I will summarise how management consultancies can consider transforming their business models to address the issues and adapt to the changing environment.

Problematic aspects of business

There are three main aspects of the business that are problematic. The first is high cost of services due to inefficient resources planning. As with any B2B sales organisation, the consulting business is dependent on the industry demand. The amount of temporary human resources required by the clients tend to vary, temporary because they are project based and the proposal win ratios fluctuate. Managing these peaks and troughs of resources lead to relatively high loaded costs to utilization rate. In order to increase profitability, executives often manage utilization rates of consultants that lead to back-to-back projects and proposals, leading to top talents often getting burned out and retention rates become lower, resulting in a high turnover and rising training costs. As a consequence, the clients have to pay a high price for an inferior quality of service.

The second is ineffective talent matching to specific problems due to biased and limited talent pooling. One of the core roles of a managing executive is matching talents to specific client problems. However, when executives look for the right talent, they will look within their organization first because their KPI is aligned that way. This results in finding talent that is available at the time to be staffed, not based on the correct qualifications for the project, which is not the best outcome for the client and begs the question whether executives are adding value.

On the other hand, independent consulting networks address some of the problems mentioned above, as they are staffed with consultants with specific expertise. However, their limited geographical coverage is still problematic, due to regional specifics of independent consultant platforms that have sprung up mainly in western countries such as the UK, U.S and Europe.

Lastly, more curated platforms with management functions tend to focus on small sets of practice and industries making them difficult to scale. These hybrid platforms utilize independent professionals while retaining managing executives who engage with clients to shape and manage projects. These firms often have close relationships with certain clients and operate within the specialised area of practice and industry. Due to this nature, these platforms are often small and siloed.

Strategy consulting firms are by no means cheap while the clients do not always get the best resources. Alternative service models such as independent consulting platforms have begun to emerge but they are still too small in size and fragmented. Therefore, I would like to propose three different action plans which could be implemented to deal with the issues, discussing advantages and disadvantages of each.

Key Industry Trends

I would like to briefly outline underlining trends that can be useful to understand. There has been a significant shift in the work culture, along with the growth of gig economy, toward a direction of time and location flexibility. This trend is further driven by the recent pandemic because employees are seeing clear benefits of working from home. The flexibility to work remotely has been preferred by employees of global organisations as they are able to save the time of commuting and achieve a better work-life balance. Many global organisations are permanently switching to a hybrid model to reflect the preference of their employees but some are choosing not to go back to permanent roles altogether. This shift has been enabled by the digital technologies such as Zoom, while some jobs are being replaced altogether by robots and AI algorithms. For instance, robots on wheels are delivering packages, chatbots answer customer queries and LinkedIn matches you with jobs based on your profile. With more employees putting their profiles online, it has never been easier to match the right expert to a project. There are now podcasts from marketing experts on ‘how to brand yourself on LinkedIn’. The same trend applies to consultants as many independent consulting platforms are expanding their network. Veritux is a US based platform that has recently organised a first meet-up in London. CoMatch, a Germany based platform is proactively recruiting consultants in the UK and a-connect is a more global platform that has offices in Europe, UK, US and Singapore.

The trends in work culture, digitalization and independent consulting platforms provide an important context to the action plans that could be implemented to deal with current issues in management consulting organisations.

Action Plan 1: Management consulting organisations can tap into the gig economy to lower their loaded cost, offer their consultants more flexibility and increase value for client’s money.

Consulting firms can choose to use independent consultants partially and only when it is needed. This kind of hybrid model will be advantageous because consulting firms can ramp-up quickly to respond to the market and be more flexible when the demand is down. Less overhead means increased profitability and price competitiveness. From the consultant perspective, the model allows them to take time off after demanding project if they want. Clients get more experienced consultants for the same price.

On the other hand, the model can have a cannibalization effect, clients opting for more independent consultants. Quality control may suffer in some cases, as some independent consultants may find it difficult to be integrated seamlessly into existing organisation. Lastly, more consultants can churn to the gig economy.

There are clear reasons why management consulting organisations will want to protect their current business model and the brand. However, continuing to ignore the external forces of younger generation’s preferred work style and ever savvy clients may result in a worse ending in the future.

Action Plan 2: Management consulting organisations can digitalize their talent pool database and adopt matching algorithms to reduce managing partner’s influence, that will create a more effective talent selection.

Reduced partner’s time charge will lower the cost. Larger talent pool can result in a better talent selection of for the clients. However, diminished partner’s influence and control over consultants can be disruptive to the current centralised and top-down apprentice model.

Managing partners at consulting firms will not want to relinquish the power to select and deter from established project management processes because their position will be weakened.

However, by decentralising the selection process, the benefits gained by the clients and the consultants are greater. The clients get to have more influence in the composition of the team and the consultants have more freedom to choose the projects. AI and natural language processing technologies can also eliminate human bias, creating a fairer system for both the users and the service providers. In the future, AI’s ability to discern and propose the right talent can surpass managing partners. Adopting the technology now will be a good stepping stone for managing partners to evolve into a hybrid model with the machines.

Action Plan 3: Independent consulting platforms can create partnership models to create a greater coverage of geographies and practices.

As discussed earlier, the expansion of independent consulting platforms is already in motion. But most of these platforms are similar to job boards that can only complement traditional consultancies by filling in the gaps in the market. More curated platforms with a project management function and client leadership tend to be more regional and industry specific. If the curated platforms form partnerships, to achieve a greater coverage, then it will be more competitive against the traditional consultancies. It can offer its clients a wider coverage of geographies and a broader range of services, just as incumbent global constancies do. On the other hand, quality control can become more difficult and there are risks of conflict in interest, as there is more than one entity involved.

To overcome current limitations of independent consulting platforms, expansion methods other than talent recruitment can be considered. While partnership models can cause complexities around management, it is an approach that has proven to be effective with management consultancies when smaller firms are competing against larger rivals.

Summary

There is an opportunity to transform traditional consultancy business model in order to achieve greater flexibility, efficiency and value. The underlining trends in gig economy, adoption of AI technologies and independent consulting platforms will continue to drive the changes in the future. Global management consultancies should recognise the problems to embrace new opportunities by exploring innovative business models that include independent consultants and AI technology. New entrants such as curated independent platforms can further increase their presence by forming partnership models to compete against larger incumbents.

In the end, the purpose of management consultancies does not change, which is to serve our clients the best way possible. If the new ways of serving clients can result in a better outcome, then I think it is worth exploring new opportunities. As ANC continue journey as a management consultancy, we are going to keep exploring new business models and emerging digital technologies.