How the digital economy is transforming strategy consulting

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There was once a time when running a management or strategy consulting firm was a clearly defined business, with distinct assets and entry barriers. These attributes protected the business from new entrants and competitors. In a pre-digital business environment, strategy consultancy was driven by top talent from established MBA schools. These individuals had a clear career path laid out for them, guided by tried-and-tested project management and quality assurance processes supported by specialist skills and resources. 

However, the digital era is transforming this landscape. Companies now have access to a growing community of freelance consultants, many of them coming from top-notch consulting firms. As they leverage the power of the Internet, such as the wealth of information available online, these freelancers no longer need to be part of a structured consulting firm to deliver high-quality project outputs, including professional-standard documents. 

Thus, companies now have new and different options to access the required talent to run strategic projects. Moreover, the key required skills are no longer provided by the usual suspects from prestigious MBA schools, but instead, from industry-specific professionals. Their specialist digital skills are increasingly in demand and more likely to be found in the freelance community than inside a traditional consulting firm. Below, we discuss these key talent changes and the challenges they present for traditional strategy consulting firms.

The strategy consulting skills gap

The demand for new skills is a significant challenge within management consultancy. As new technologies and methods appear, many large firms struggle to keep up with the pace of skill evolution. After all, many established firms have unwieldy management structures that find it difficult to take up agile practices and combine different skill sets. Instead of large firms bringing in teams with homogeneous skill sets, the drive towards agility demands that employees and external consultants alike have complementary skills spanning business strategy, digital and operational acumen. 

Think about all the new technologies and digital skills which are potentially involved in a new digital service or product; things such as blockchain, machine learning, big data, NFV or bots are just the tip of the iceberg. In this context, it’s no surprise that traditional consulting firms are struggling to provide all the required expertise. In many cases, they too are having to access external freelance experts, or gig workers, who complement their more generic skill set.  

Strategy consulting intensified competition

Today, more and more agile, digital-savvy and specialised boutique firms are entering the strategy consulting market. These new business structures enable companies to do more with less, putting significant pressure on what were traditionally the big players (McKinsey, Deloitte, Ernst & Young, KPMG). For instance, in a survey conducted by Deltek, 55% of respondents said that addressing this new breed of competitor was a major priority, while CEOs said redefining their competitive advantage was a key goal in their five-year plan. 

However, emerging firms are far from the only threat. Today, freelance consultants are putting significant pressure on the industry. These independent consultants are propagating an “a la carte” approach to consulting and talent acquisition, where the client can select specific professionals with the right skill set as needed for a specific timeframe. The digital era has made it far easier for firms to connect with these specialists, and additionally, this model places significant pressure on consulting pricing as these individuals have far lower overheads than large firms and therefore provide their services at a fraction of traditional consulting firms.Finally, rising automation is a significant disruptor in the consultancy industry; tasks that were once carried out by whole teams of analysts are now executed by computers in minutes. Take German software firm Celonis as an example; their process mining software completely transformed the process management segment. Whereas in the past entire teams of management consultants would have been hired to optimize manufacturing processes or supply chains, their product can identify inefficiencies in a matter of minutes.

Pressure on profit

The demand for new skills, emerging competition, and automation have put significant pressure on pricing and profit margins. Today, clients’ ability to hire specific professionals or even execute projects in-house is compelling large firms to lower their prices. Fuelled by the globalisation and commoditization that the digital era brings, even highly specialised firms are feeling the squeeze. However, this trend does not only represent a threat; it also signals an opportunity. Firms should marry their expertise with new digital tools to create an important new value proposition. This is particularly the case for larger firms that can invest large amounts in R&D to create innovative new products and services.

The strategy consulting industry needs to reinvent itself

The availability of knowledge and talent is putting a significant strain on traditional approaches to management consulting. Boutique firms or freelance business strategy consultants are becoming a popular alternative to large firms, especially as these individuals very often come from top management consultancies – albeit with a more entrepreneurial and results-oriented approach. These professionals combine consulting experience with digital skills, all at a fraction of the price, so it’s no wonder the industry is experiencing such radical shifts. 

This new model is also a clear growth driver for the overall consulting industry, as it allows medium-sized companies to access previously unaffordable consulting services, enabling them to enter new markets and drive growth. So there is no surprise that new digital talent platforms – such as Outvise –  are rapidly emerging to enable this transformation and provide companies with easy access to this freelance talent. They not only make the entire process simple and agile, but they also play a fundamental role in matching and certifying the right profiles and skills.