Managed services: The next leap forward for the consulting industry
by: Fiona Czerniawska of Source Global Research
Seventeen percent.That’s how much we estimate the digital consulting market will grow in 2017 (and our number is just for consulting, if you include the systems implementation, hardware, and software elements, then growth will be even higher).But where is growth going to come from in more traditional consulting services?The key here will be to re-draw the boundaries of consulting.
|That’s precisely what happened in the 1990s. The idea that organisations should focus on their core business, and minimise the amount of time and effort they put into non-core work led to a radical reappraisal of what we could broadly term make/buy decisions. Important processes, those critical to competitive advantage, would continue to be “made” internally, but unimportant ones could be carried out by third parties. Some of this translated into a huge boom around outsourcing, particularly of the IT function, but also of logistics, call centres, and many other operational components. The consulting industry gained, too. While consulting isn’t outsourcing in the conventional sense—it’s short-term and involves supplying people that an organisation doesn’t employ on a permanent basis—it still benefited from the shift from “making” to “buying”. As we’ve previously argued in this blog It seems likely that the next few years will see a further re-think of the make/buy division, but driven this time by technology.
In practical terms, that’s going to lead to a huge boom in what consultants are calling managed services. That’s a misnomer: What they’re not talking about here is the type of routine IT work we typically associate with the term. While this new-style consulting-as-a-service approach could be applied to an entire functional area—such as data & analytics or cybersecurity—it seems more likely that, at least in the short-term, it will be focused on a specific issue—data analytics of your supply chain, for example. It will involve a combination of low-cost and high-value consulting work. However, the low-cost work will be automated: consulting expertise about the issue will have been embedded in the design of robotic processes. At the high-value end of the spectrum, it will be the other way around: Technology, in the form of artificial intelligence and cognitive computing, will take the form of tools that are embedded in the consulting process. The focus of the low-cost work will be efficiency, accuracy, and the ability to create and use much larger datasets, rather than rely on small-scale sampling, as consulting has traditionally done. The focus of the high-value work will be effectiveness: Applying clever tools and smart thinking by experts to the wealth of data created by the low-cost process to come up with a better solution. At the cross-over point between the low-cost and high-value parts of the service will be a “platform” of some type. That could be a firm’s business model: Management processes and organisational structures that weave the two parts of the service together. Or it could be technology: Online collaboration tools that give clients a window on what’s happening.
By combining the low-cost with the high-value, a service of this type goes some way to overcoming the main reason why clients haven’t used consultants on a long-term basis: the expense.
If you go back to the early 1990s, organisations that wanted to outsource their IT function had two options: They could go to a consulting firm, or to a hardware or software manufacturer. The latter was cheaper—massively so, when you take account of the 10-year deals organisations were looking to do. The only way to avoid the entire opportunity running, like sand, through the fingers of the consulting industry was for them to lower their prices. Some firms did this, launching IT services and outsourcing practices that eventually outgrew their original consulting businesses. Others missed out.
Digital technology, robotic process automation, artificial intelligence and cognitive computing all offer consulting firms a second chance. By automating the low-cost part of what they do and balancing it with high-value work, they can reduce the overall cost to a client, while maintaining high margins where expensive human experts are involved. They can dial up the high-cost element in the early days of a project, when the need for innovation, flexible thinking, and collaboration will be key, but can dial it down once that period of intense creativity has passed, leaving clients with on-going support at a reasonable price.
This creates new opportunities to grow traditional consulting services, the areas whose potential for growth is currently being hoovered up by digital transformation. Success will depend on having the right balance of low-cost to high-value, and on how you manage the transition between the two.
Fiona Czerniawska is a leading commentator on the consulting industry and a co-Founder of Source who provide specialist research on the management consulting market to consultants and their clients.
© Source Global Research 2017. All rights reserved.
Reproduced by permission