In October 2013, Clayton M. Christensen, Dina Wang, and Derek van Bever published a widely recognized article in the Harvard Business Review (HBR) about business model innovation in consulting firms. The traditional consulting firms no longer hold a oligopolly with their fee-for-service business models.
Management consulting’s fundamental business model has not changed in more than 100 years. It has always involved sending smart outsiders into organizations for a finite period of time and asking them to recommend solutions for the most difficult problems confronting their clients. Some experienced consultants we interviewed scoffed at the suggestion of disruption in their industry, noting that (life and change being what they are) clients will always face new challenges. Their reaction is understandable, because two factors—opacity and agility—have long made consulting immune to disruption.
The traditional solution shops are structured to diagnose and solve problems whose scope is undefined. They deliver value primarily through the senior consultants experience and judgment, rather than through a repeatable processes and customers pay high prices in the form of fee-for-service. Most common, solution shops are hired by clients who are not capable of understanding or solving major challenges themselves, or because the clients would like an outside-in view to bring new ideas and competence for change. Examples includes the traditional management consulting firms, like McKinsey, Bain and Boston Consulting Group, but also niche players like IDEO. Bearing is in this field, in our niched focus areas where we have a competitive advantage from being specialists.
The value-added process business model is structured to address problems of known and defined scope with standard processes. This can be outsourcing of services or part of value chains and the processes are usually repeatable and controllable. Customers pay for output only and can measure the value of the service by comparing with previous internal cost or in benchmarking with others. Examples includes Salesforce, McKinsey Solutions, Accenture and Deloitte. The two later have been solution shops but are moving towards value-added business process. This sector has historically had much lower margins than the solution shops so profitability lies in scale or specialisation, like Salesforce.
Facilitated networks are structured to enable the exchange of products and services among a network of competent resources. Customers pay fees to the network, which in turn pays the service providers. Service providers tend to be squeezed in the middle, as they cannot get a personal relation with the customers and show the full extent of their competencies and thus their advice is treated like a commodity product. They are only asked to work on their exact area of expertise for a pre-defined set of specifications, and so do numerous other people in the network with similar competence and expertise. To be selected as an expert then becomes a matter of charging the lowest price.