In an August 2021 Forbes blog post titled “The End Of Consulting As We Know It,” Forbes Technology Council member, Jay Garcia, describes “unprecedented” disruption currently underway within the $250 billion global consulting industry. Citing tepid growth of just 2% industrywide over the previous five years, he argues that traditional, “legacy” consulting firms are facing headwinds caused in part by the evolution of technology and the entrance of super boutique technology consultancies. The entrance of such competitors, he points out, has been made possible by a shift from strategic to tactical engagement work, driven by the increasing importance of technology and, more specifically, digital transformation, as a requisite for business survival: “In the past decade, digital transformation went from being a buzzword to a question of life and death for businesses.”
Garcia suggests that another important factor influencing industry disruption is the failure of traditional firms to deprioritize their reliance on proprietary tools and processes to create client dependency, or ‘stickiness.’ The continued pursuit of client dependency by traditional firms stands in direct contrast to the trend toward open-source collaboration seen over the past decade, according to Garcia. He goes on to describe the way in which open-source innovation has accelerated development of emerging technologies, such as artificial intelligence and machine learning, arguing that no other single factor could be more attributable to the shifting landscape of the consulting industry than the rise of such open-source collaboration and innovation.
Finally, Garcia concludes by addressing the question: “If consulting firms aren’t creating client dependencies, how can they survive?”. In short, he suggests that firms can gain competitive advantage through adoption of an ‘open-source mindset,’ in which they prioritize client growth over dependency.
While the aforementioned blog post by Garcia identifies trends causing disruption to consulting on a global, industrywide basis, namely open-source collaboration and the reliance of traditional firms on the creation of client dependency, it paints a substantially bleaker picture of consulting than that faced by many firms, including Vector Advisory. Moreover, while digital transformation has undoubtedly become a matter of increasing importance for businesses both large and small, consulting firms in the U.S. continue to have ample opportunities to create value within “traditional” practice areas, including transaction advisory and restructuring, due in large part to improving economic conditions.
In fact, even at the time of publication in August of last year, macroeconomic conditions had begun to rebound from pandemic-induced downturns, and businesses began to hire. Middle-market consulting firms, including Vector Advisory, experienced healthy growth in 2021. M&A activity in North America also accelerated, producing nearly 6,500 deals in the first three quarters of 2021 worth a record-breaking $2.1 trillion. Given the rebound in growth and reduction of disruptions caused by the coronavirus pandemic, consulting firms can reasonably expect healthier growth rates over the next several years.
Secondly, while many consulting engagements incorporate technology components, Garcia’s recommendations are more applicable to pure technology engagements, such as digital transformations, which align more naturally with open-source collaboration due to the nature of coding as a building block for technology advancement. In contrast, traditional consulting firms have spent years developing and refining sophisticated proprietary tools that they would be unwise, and frankly irrational, to simply give away through open-source collaboration. Granted, in certain instances, open-source collaboration within traditional management consulting is prudent – it makes sense to share foundational tools and frameworks, as consulting firms both large and small have repeatedly done in the past. Notable examples include McKinsey’s 7S framework and Boston Consulting Group’s product portfolio matrix, or “BCG Matrix.” In fact, Vector Advisory recently published our integration planning tool, a checklist designed to facilitate business organization and streamline essential integration activities by functional area, or dimension.
Third, the true value proposition of non-technology consulting firms is not proprietary tools and methods, and the safeguarding thereof, but rather the abundance of expertise that firms’ professionals have developed over the course of their careers through combinations of education, certifications, and work experiences that allow them to properly advise clients to navigate a variety of challenges and generate business results. The team at Vector Advisory offers expertise in M&A advisory, finance and accounting, and compliance due to the team’s credentials and strong background including Big 4 firms, boutique consultancies, banking, and FP&A. Moreover, to the previous point about consulting firms’ quest to create “stickiness”: if clients choose to retain us, it is not because we have created some sort of dependency, but rather, we have established our firm as a trusted partner and identified additional areas of opportunity to accelerate value capture. More broadly, this would be true of many other consultancies as well. The mission of Vector Advisory is to cost-effectively equip small- to mid-size businesses to successfully navigate through their most complicated and transformative issues, delivering the best client service experience. We distinguish ourselves by developing partnerships, not just consultant-client relationships.
Finally, the very nature of consulting allows for diversity of perspectives, and therefore, approaches to problem-solving. In addition to the expertise, education, and experience required to deliver value as a consultant, sometimes the perspective afforded to an “outsider” allows one to better see the forest for the trees and develop solutions in a manner that company insiders simply may not have considered.