Monthly Archives: August 2016

Consulting Industry Being Attacked on Three Sides

Consulting Industry Being Attacked on Three Sides

The worlds of employment and business are becoming increasingly turbulent as the stability of the enterprise grows ever shorter, the loyalty of the enterprise to its people faces extinction, and the wealthy countries of the world stand at a precipice of overhanging debt. Increasingly intelligent digital technologies and mercurial customer expectations threaten both people and enterprise at every turn.

One would suppose that this would be an amazing time for consultancies, full of promise and opportunities. One would imagine that clients desperate for solutions that help them cope with these challenging times would be banging down the doors of consulting firms outbidding each other to the firm’s next client.

But that is not the reality…

Because, the same forces that are causing a feeling of disequilibrium for the firms that consultancies serve are also causing the same unease, trepidation and challenge for the consulting firms themselves.

The fact is that the consulting industry is being attacked on three sides:

  1. Increasingly Available Intellectual Property
  2. Internal Consultants
  3. Artificial Intelligence

Let’s look at each threat in turn:

1. Increasingly Available Intellectual Property

In my last article, “Thought Leadership Builds Firm Value”, I wrote about the importance of thought leadership in today’s digital age and its role in helping to drive inbound sales leads.

Hiring a consultancy, even for a small project, is a big expenditure for most companies, something that requires several levels of approval before the project can begin. Given that, company employees take to the Internet to build their consideration set and to do their research into how each company thinks and who seems to be the leader in the space where they need help. For help with building an innovation or digital transformation strategy or process, often they find me.

The way that company employees find the companies they will include in their consideration set, and the individual (or firm) they will ultimately hire, is by finding and evaluating thought leadership created by consultants like myself who are good at creating frameworks and other tools aimed at simplifying complex concepts (referred to as eminence by some firms).

Because the discovery and evaluation of thought leadership by potential customers is a key way that independent consultants and advisory firms attract new business, and because it is easier than ever to create and share thought leadership while simultaneously becoming an increasingly important factor in the buying process, independent consultants and advisory firms are creating more pieces of thought leadership and eminence than ever before.

On the plus side, thought leadership and eminence help independent consultants and advisory firms to win business. The down side however is that in much the same way that kids in Hawaii have learned how to become professional surfers by watching YouTube videos, as advisory firms create more thought leadership and make it publicly available to win new business, they also stand to lose an accelerating amount of new business as well. The reason is that the proliferation of eminence and thought leadership will inevitably lead to:

  1. Increasing numbers of line managers feeling that they know enough to tackle the challenge themselves that they might have otherwise outsourced to a consulting firm
  2. Increasing numbers of senior leaders deciding that someone inside their company could spin up and lead an internal consulting group

2. Internal Consultants

Let’s face it, whether we like it or not, an increasing number of senior leaders are becoming fed up with spending $500/hr on newly minted MBA’s from McKinsey, Bain, BCG, etc. when they could hire them on full-time for $75-100/hr by taking one of their promising senior leaders and having them spin up an internal consulting group.

Many companies have already created internal consulting groups to handle the bulk of their strategic project work in order to either:

  1. Save money
  2. Increase responsiveness
  3. Increase speed to market
  4. Keep the knowledge gained from such projects readily accessible
  5. Create and retain a competitive advantage

For me, reason number five is potentially the most compelling reason because it is impossible to expect any large consulting firm to unlearn the insights they acquire on one consulting project and not leverage them on a subsequent project with a competitor somewhere down the line. Doing projects with your competitors is how a great deal of industry expertise is gained by large consultancies, and this expertise is one of the primary reasons that managers hire a consulting firm.

3. Artificial Intelligence

Roboadvisors, chatbots, and other implementations of artificial intelligence have captured people’s imaginations and led to both an increase in the number of articles written about artificial intelligence, but also in the practical implementations of artificial intelligence. People are becoming increasing comfortable with artificial intelligence thanks to the recommendation engines on Amazon and Netflix and IBM Watson’s appearance on the game show Jeopardy and battles against chess grandmasters.

But what does consulting have to fear from artificial intelligence?

In the short run, maybe not a lot. But, in the grander scheme of things, over time enterprising technology vendors will inevitably build upon publicly available artificial intelligence frameworks made publicly available by companies like Microsoft and Google (who are seeking to increase the sale of cloud services) to automate some of the tasks that recently minted undergraduate analysts or Indians perform now for the large consulting firms.

Conclusion

These are challenging times for independent consultants as they respond to these attacks from three sides. Only time will tell how quickly and how broadly artificial intelligence (AI) threatens the core business of consultancies. The internal consultancy threat is real and growing in scope and threat. What may have started in Project and Portfolio Management (PPM), Six Sigma, Lean and Agile practices in some organizations, is quickly expanding into other Operational Excellence areas and even into Innovation, Digital Transformation, and traditional Strategy. Increasingly available intellectual property poses a Catch-22 for consultancies as a refusal to participate in the creation of eminence and thought leadership will lead to less business in the short-term, but doing so will certainly over time lead to an overall reduction in the size of the market for consulting services. Some consultancies are responding by diversifying their service offerings, attempting to create consulting superstores. What will be your response to this attack from three sides?

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Amazon Changes Everything in a New Way

Tide Dash Button

The arrival of the Internet began major disruption to decades old methods of consumer packaged goods (CPG) distribution. The tried and true method of manufactures selling to a collection of wholesalers, who then sold the product on a range of retailers began to be reexamined. We saw the arrival of online retailers like Amazon who sought to compete with brick and mortar retailers, trying to offer a wider selection while also offering potentially a more convenient (and possibly cheaper) shopping experience for a few (or possibly for many). We saw retailers experiment with selling on Amazon (adding an extra layer of intermediation) and grocery stores experiment with online ordering and local delivery.

But at the same, in 2010 we saw manufacturers like P&G start to experiment with selling direct to consumer over the Internet via sites like pgshop.com and then in 2013 P&G started selling their wares on Amazon. Below is a screenshot of a Pampers product listing on Amazon:

Pampers Amazon Screenshot

As you can imagine, when companies like P&G start selling direct to consumers and via Amazon, this makes traditional retailers nervous. And while maybe some day their nervousness will translate into major volume declines, we’re probably not quite there, yet. But for manufacturers, the possibility of selling direct to consumers or via Amazon changes everything. It changes everything because it requires companies selling consumer goods to build new marketing capabilities, and possibly even new manufacturing and distribution capabilities as well.

Frito Lay Amazon Box

Here we have an example of a Sweet and Salty Box being sold to consumers via Amazon by Frito Lay. Compare this with a P&G Pampers page on Amazon and you’ll see that Frito Lay is still learning how to market via the Amazon channel and hasn’t completely figured out how to optimize the experience they create for consumers or likely how to maximize their conversion. But, you may also notice that the Amazon channel offers Frito Lay the opportunity to sell something they probably couldn’t sell in a Krogers, or Whole Foods, or Tesco, or 7-11.

In both of these examples, Amazon is taking and selling the inventory much as a grocery store would, but the customer wants, needs and expectations in the Amazon channel are different, and the skills to effectively market in this channel are different too. These are the reasons that Amazon changes everything for CPG companies. As Amazon continues to grow in importance as a channel for nearly everything, and as other sites like Facebook make a stronger push into eCommerce, and as consumer preferences for where and how they want to buy things changes, it presents a great opportunity for the forward thinking among us to take existing products and create new offerings that resonate with consumers showing a preference for existing and emerging digital channels and to create entirely new solutions that may involve a new product or possibly move beyond a product. Companies in CPG must continue to ask themselves:

  1. What is possible online that isn’t possible in-store?
  2. What do online shoppers want that is different than in-store shoppers?
  3. If we were to move beyond the confines of the product (and how it is packaged and presented), what would resonate with this type of consumer?

You can see on the Pampers page on Amazon above they’ve done a number of different things without changing the product:

  • Offering a range of product quantities
  • Coupons
  • Amazon Dash buttons (push the button and it automatically orders for you)
  • Etc.

And Frito Lay took their existing products and re-packaged them in a different way to suit the capabilities and needs of the channel because selling one individual bag of Doritos doesn’t make economic sense (and so Amazon won’t let you do it unless it is part of a larger Prime Pantry box).

If you were in charge, and had the product range that P&G or Frito Lay have, what would you do to optimize your results in the Amazon channel, or even more broadly in a direct to consumer context?

Please add your comments below.

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Charting Change – eBook Now Available

Charting Change is Number OneI’m super excited to announce that my new book Charting Change is now available in English as both a hardcover and as a Kindle eBook at various Amazon sites around the world (USA, UK, CA, AU, DE, FR, JP) and now the traditional eBook is also now available!

Charting Change has been the number one new release on Amazon for at least “Business Management” and “Production & Operations” so far. It also was the #2 new release for “Organizational Change” and probably #1 too (but I think I missed getting a screenshot).

For those of you prefer to read digital books instead of hardcovers, you can get the Kindle version or get an eBook at the following places:

  1. My publishers web site
  2. Google Play store

For those of you who already have the book, I hope you are enjoying it and leave an Amazon review when you finish! 🙂

Please feel free to ask questions about the book below.

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