Strategic Options for Consulting Firms

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Strategic Options for Consulting Firms in the New Economy

(Originally published in Consultant’s News)

Several Big-5 consulting practices announce they may go public. Cisco takes a 20% stake in KPMG. McKinsey targets law schools to bolster its associate hiring. Brand-new Internet consulting firms upstage traditional, larger powerhouses. What happened to the staid, unobtrusive, MBA-centered consulting industry of just a few years ago, when implementation wasn’t even in a consultant’s vocabulary? A number of accelerating trends are forcing consulting firms of all sizes to seriously rethink their role in the industry:

* The Internet, expert software, and online databases are commoditizing plain-vanilla expertise, and as clients have more and more access to information—often for free—they are demanding greater value-added from consultants.

* The information technology and e-commerce build-out required to support corporate America presents an unprecedented and highly profitable business opportunity, both for advice and software development.

* Since the early ‘90s, the availability and attractiveness of stock options in both established and dot-com companies has drawn talent away from traditional consulting careers.

There are three distinct strategies that consulting firms can follow to successfully ride these trends. We call the firms that employ them Deep Generalists, offering broad-based problem solving advice; Branded Experts, which develop and disseminate branded, institutional expertise and specialist knowledge; and Infrastructure Partners, which team with large technology players to directly build the IT infrastructure of the New Economy. Each strategy requires different skills and implies a particular positioning in clients’ minds.

Deep Generalists are those firms that offer a general management, problem-solving approach supported by specialist knowledge of functions and industries. These firms may pitch a theme—“innovation” or “organizational renewal,” for example—but at heart they are deep generalists, business advisors with expertise rather than specialists. Examples include well-know firms like McKinsey, BCG, and Bain, but also smaller boutiques with just a handful of partners, such as Emergence Consulting, which focuses on growth strategies. Rather than just providing expertise and knowledge, these firms educate and navigate for their clients. Independence is a core value of Deep Generalists, enabling them to play the role of objective, trusted counselors.

Branded experts are firms that become truly renowned in a particular area. They focus single-mindedly on an area of specialization or a grouping of related specialties, creating an institutional brand for their expertise rather than individual stars. Most importantly, they extensively leverage distribution media, moving from the in-person delivery of expertise to seminars, publishing, broadcast media, tape and video, expert software, and the Web. “Ernie,” the on-line consulting service of Ernst & Young, or Miller Heiman’s strategic selling software are examples of this. Branded Experts may develop some of the deep, advisory relationships characteristic of Deep Generalists, but their focus is on providing specific, often pre-packaged solutions to a varied array of clients, and disseminating their expertise as widely as possible to a broad audience. Andersen Consulting and Arthur D. Little employ the Branded Experts strategy, and so do smaller firms such as Stern Stewart, which consults on economic value-added (EVA).

A third option for consulting firms is just emerging—we call it Infrastructure Partners—and it represents an extension of the IT services, such as outsourcing, that Branded Experts have offered for many years. Infrastructure Partners team up with major hardware and software companies to build, in the first-person, the e-commerce infrastructure of the new economy. Examples of this include Andersen Consulting’s joint venture with Microsoft, called Avenade, and KPMG’s partnership with Cisco. Rather than fighting the exodus of talented consultants to dot-com companies, Infrastructure Partners are joining the club and offering the lure of stock options, equity stakes, and the buzz of being part of the Internet revolution from the inside.

Consulting firms must ask themselves, “What is our main strategic emphasis?” Several of these options can co-exist, but pursuing all three together is bound to fail. Each strategy implies a different approach to recruiting, career management, training, marketing, and service delivery. Deep Generalists require a predominance of consultants who have both depth and breadth, for example, whereas Branded Experts need strong cadres of specialists who are content to drill deeper and deeper into their core expertise. There can be overlap—Deep Generalists may offer some “branded expertise,” à la Bain’s customer loyalty practice, although most will eschew tying themselves to a specific software or hardware vendor through the Infrastructure Partners strategy, as this could seriously compromise their independence with clients. The large Branded Experts are the firms most likely to pursue the Infrastructure Partners strategy—either through joint ventures or outright merger—since it is a natural extension of their core software skills. Firms following these different strategies can all have top-management relationships, but the characteristics of those relationships—the degree of independence and breadth, and whether you are really an advisor or a supplier—will differ significantly.

The concept embodied by Infrastructure Partners raises interesting questions about the very definition of “consulting.” As professional service firms raise outside capital and go directly into their clients’ business for themselves, they are becoming more and more like the corporations they serve. At the same time, large corporations are increasingly adopting the professional service model of continuous learning, flat organizational structures, a focus on developing intellectual capital, and a project orientation. Where the twain shall meet is unclear at this point, but the way we classify firms and draw industry boundaries will undoubtedly be redefined in the near future. Is IBM’s $20 billion global services divison a “consulting firm”? Is EDS a “high-tech corporation?”

Each of these three options represents a powerful business model that can add enormous value to clients, but there are challenges to overcome. The importance of technology to corporate strategy, for example, means Deep Generalists may get bypassed by software- and Internet-oriented behemoths. Branded experts will increasingly need outside capital in order to compete, and going public or being acquired will bring their own sets of problems. Finally, Infrastructure Partners will struggle to find a peaceful coexistence with traditional consulting models. One thing is for certain: consulting firms that try to ride too many horses will never get firmly in one saddle—they’ll offer neither sufficiently deep expertise nor the generalist capacity to truly stand out with their clients.

 


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Andrew Sobel

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