This column was written by Auctus Advisors co-founder and director Abhisek Mukherjee, and was initially published by Mint, one of India's most esteemed business news publications. The content may be viewed on livemint.com, and more information about Auctus Advisors (now a part of YCP Group) can be found here.
The common complaint against management consultants is that they deliver glossy reports and not results. There is significant truth in this, but the reason is not lack of intent. The real reason is complicated. Two points before exploring the real reason:
First, typical clients are reasonably smart CXOs who understand their business, are measured, and often paid, on results. If management consultants lacked results focus, they would not be hired at a premium. Yet management consulting has been one of the enduring and profitable industries for the past century.
Second, there are two ways to do management consulting: First-principles and hypotheses-driven. First-principles firms sell pedigreed consultants and a differentiated way of thinking. They jointly solve a business problem ground-up in close collaboration with the client. Basically, such firms imply that they have smarter people with better thought processes. While many such firms find a few loyal, long-term clients, they rarely scale. It is difficult to replicate impact across multiple clients through first-principles. They either remain niche or devolve into higher end body shopping.
Our focus today are hypotheses-driven firms (e.g., McKinsey, Accenture) which sell economies of knowledge (like economies of scale in manufacturing.) Because of their broad clientele, across industries and geographies, they can bring potential solutions to most business problems (hypotheses) on day one. Often, these hypotheses are presented in the proposal itself. The actual project is about validating the hypotheses in the client context and preparing customized plans do deliver results. This approach is focused on delivering impact quickly. These are the firms which have scaled.
Despite this intent on delivering quick results, the implementation challenge endures. The reason is a vicious cycle comprising of four segments:
First, consultants cannot deliver results independently. They must work closely with the organization. For the organization though, this is “overhead," beyond regular roles. Most implementation plans assume that the organization can absorb this overhead. Only few can.
Second, to compensate, management consulting firms deploy teams long-term, to coax the results. But management consultants come at a premium. While this premium is justifiable for short-term projects, it adds up over long-term engagements, especially for McKinsey, BCG, and Bain (MBB.) As costs rise, clients start “internalizing" the implementation work.
Third, these internal teams, despite their capabilities and best intents, cannot substitute the consulting firm. Implementation is identifying and executing a series of “mini-strategies." Without the economies of knowledge of the underlying consulting firm, the time to identify and ability to execute such mini-strategies suffer, resulting in impact-dilution. The internal teams also get trapped in politics more than their external colleagues.
Fourth, the impact dilution affects morale, which reduces the organizational energy necessary to drive complex transformation. The vicious cycle is completed when the initiative is abandoned and all that is remembered is the glossy report.
Management consulting firms understand that they cannot survive and scale without impact. They have been adopting three broad strategies to break the vicious cycle:
The first strategy is “string of pearls:" Create different entities with different price points in different parts of the implementation value chain. This addresses the cost segment of the vicious cycle described above. This is driving the increasing number of acquisitions of analytics, design, and engineering companies by management consulting firms. There are also approaches such as McKinsey Implementation aimed at creating a more sustainable long-term engagement model.
The second strategy involves partnerships between firms with different commercial models. This is like the first strategy but done through partnerships. It helps build scale quickly and allows for highly customized offerings for clients. Of course, such partnerships require creative approaches to protect the Intellectual Properties of all the partners. The third strategy is linking significant upside payments to results. This has two major risks: One is the risk of loss if results are not achieved, for reasons beyond the consultants’ control. Two, the risk of disagreements on credit attribution even if the impact is delivered. This can only work when there is significant trust between the consultant and the client.
The model that addresses the implementation challenge in management consulting sustainably is yet to emerge. Perhaps the world is waiting for a firm which delivers 80% of McKinsey at 40% the cost.
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