Great analysis. Your post actually inspired an existential question: what is the role of a consulting firm today?
Codification allowed for knowledge to be standardized and scaled rapidly presumably because market entry, corporate strategy and portfolio analysis were the types of work that were in heavy demand back then. But with frameworks commoditized, business and corporate strategy work now done in-house, the nature of consulting and what clients buy has evolved considerably. From what I can tell, a big chunk of consulting work is now (apologies if I've missed any):
- Pre-M&A: Commercial due diligence
- Post-M&A: Operating model, Integration/PMO
- Tech strategy and transformation: Digital, Advanced Analytics, AI
- Cost out: Procurement, turnarounds, etc.
Common themes I can see:
1. Work you want external advice to de-risk
2. Work you don't have bandwidth to do internally and/or do it fast
Vince, if you keep asking such good questions, we won't be able to keep up. The future of consulting should be yet another in-depth piece. (we do have pieces in pipeline for the 2 of 3).
Your three categories are better, and more honest decomposition than most firms use internally. We like to pretend internally that we solving tough problems, build trust in society (ha!), building a better working world, create positive change in the world...
So we agree with you. But let's analyze it a bit deeper. Because each has a different relationship to the codification trap.
De-risking
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Commercial due diligence, external validation before a board decision - is buying the logo on the cover page. The client needs a name that provides career insurance. This justifies premium pricing. The codification trap is almost irrelevant here because the value was never in the substance of the analysis. It was in the signature.
That market is durable, but it is also smaller than the firms would like.
And it faces pressure from boutiques with credible enough names to provide the same cover at lower cost.
It also faces another pressure from mounting numbers of scandals. In Australia today, or in Saudi Arabia a year ago, buyers had to provide additional justification for buying Big 4 - i.e. in those markets they managed to achieve the opposite of "de-risking". Buying them when there is an alternative would put buyer's career at risk. We think Big 4 and MBB don't deserve that brand premium anymore, unless they change a lot.
Bandwidth
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It is the most codified category by a wide margin. This is the consulting equivalent of contract manufacturing: the client knows what they want done, they need bodies to do it, and the bodies apply standardised frameworks to deliver it.
This is where the codification trap bites hardest, because the frameworks are interchangeable and the people applying them are interchangeable.
It is also the category most exposed to AI, because the first-draft production that used to require a team of four now requires a team of two with better tools.
Capability
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This is the work the client genuinely cannot do internally - this is the category closest to Hansen's personalization model, and also one that justifies premium pricing.
The problem is that this category is shrinking. Clients have been building internal strategy teams, analytics functions, and transformation offices for a decade. In AI specifically, many corporate teams are now more capable than the consulting teams pitching to advise them. The list of things a Fortune 500 company genuinely cannot do without external help is shorter than it was ten years ago, and it gets shorter every year.
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The problem for the firms is that they price everything as if it were capability work. The buyers are learning to tell the difference.
Great analysis. Your post actually inspired an existential question: what is the role of a consulting firm today?
Codification allowed for knowledge to be standardized and scaled rapidly presumably because market entry, corporate strategy and portfolio analysis were the types of work that were in heavy demand back then. But with frameworks commoditized, business and corporate strategy work now done in-house, the nature of consulting and what clients buy has evolved considerably. From what I can tell, a big chunk of consulting work is now (apologies if I've missed any):
- Pre-M&A: Commercial due diligence
- Post-M&A: Operating model, Integration/PMO
- Tech strategy and transformation: Digital, Advanced Analytics, AI
- Cost out: Procurement, turnarounds, etc.
Common themes I can see:
1. Work you want external advice to de-risk
2. Work you don't have bandwidth to do internally and/or do it fast
3. Work you don't have internal capability to do
Vince, if you keep asking such good questions, we won't be able to keep up. The future of consulting should be yet another in-depth piece. (we do have pieces in pipeline for the 2 of 3).
Your three categories are better, and more honest decomposition than most firms use internally. We like to pretend internally that we solving tough problems, build trust in society (ha!), building a better working world, create positive change in the world...
So we agree with you. But let's analyze it a bit deeper. Because each has a different relationship to the codification trap.
De-risking
----------
Commercial due diligence, external validation before a board decision - is buying the logo on the cover page. The client needs a name that provides career insurance. This justifies premium pricing. The codification trap is almost irrelevant here because the value was never in the substance of the analysis. It was in the signature.
That market is durable, but it is also smaller than the firms would like.
And it faces pressure from boutiques with credible enough names to provide the same cover at lower cost.
It also faces another pressure from mounting numbers of scandals. In Australia today, or in Saudi Arabia a year ago, buyers had to provide additional justification for buying Big 4 - i.e. in those markets they managed to achieve the opposite of "de-risking". Buying them when there is an alternative would put buyer's career at risk. We think Big 4 and MBB don't deserve that brand premium anymore, unless they change a lot.
Bandwidth
-----------
It is the most codified category by a wide margin. This is the consulting equivalent of contract manufacturing: the client knows what they want done, they need bodies to do it, and the bodies apply standardised frameworks to deliver it.
This is where the codification trap bites hardest, because the frameworks are interchangeable and the people applying them are interchangeable.
It is also the category most exposed to AI, because the first-draft production that used to require a team of four now requires a team of two with better tools.
Capability
----------
This is the work the client genuinely cannot do internally - this is the category closest to Hansen's personalization model, and also one that justifies premium pricing.
The problem is that this category is shrinking. Clients have been building internal strategy teams, analytics functions, and transformation offices for a decade. In AI specifically, many corporate teams are now more capable than the consulting teams pitching to advise them. The list of things a Fortune 500 company genuinely cannot do without external help is shorter than it was ten years ago, and it gets shorter every year.
-----------
The problem for the firms is that they price everything as if it were capability work. The buyers are learning to tell the difference.