What Challenges Do Consulting Firms Face in the Digital Age?

The consulting industry is facing a new set of challenges in the digital age. With the rise of online resources, former students of top-tier consulting firms, and independent consultants, clients are now more informed and have more influence than ever before. They demand greater value and flexibility at lower prices, putting pressure on consulting firms to increase their profitability. In addition, the introduction of new technologies and alternative business structures has increased competition in the sector.

Furthermore, the complexity of projects has led to increased resource volatility and unplanned changes, resulting in financial penalties for those who do not comply with regulations such as the General Data Protection Regulation (GDPR). As a result, consulting firms must strive to innovate in order to remain competitive. Another factor that adds to this growing scrutiny is that consultants no longer have a monopoly on specialized knowledge. Two decades ago, firms such as McKinsey, Boston Consulting Group and the Big Four had unique knowledge and advice on best practices, making their offering invaluable. Now, much of this information is available online for those willing to do research.

In addition, former students from top-tier consulting firms are now widespread. McKinsey alone has more than 30,000 alumni who hold leadership positions in the private, public and social sectors around the world, meaning that their experience has been disseminated across the industry. As clients are more willing to seek consulting services, it's understandable that they have more influence than in the past and demand greater value and flexibility at lower prices. In a Deltek survey, 54% of operations managers said that their biggest challenge, caused by “changing customer behavior”, was to offer more value at the same cost. In another survey conducted by Deltek, researchers surveyed consulting executives on how they think they could increase the company's profitability. Increasing scrutiny over cost control came first, followed by the improvement of working capital through better management of incoming and outgoing flows and limiting the number of budget overruns of projects, especially in the case of fixed-price projects.

Driven by new innovative technologies that allow them to do more with less, new players are entering the consulting market and alternative and digitally savvy business structures are being deployed. In the Deltek survey, 55% said that addressing growing competition in the sector was one of the top business priorities, while 33% of chief operating officers said that “defining competitive advantage was one of their top three priorities for the next five years.” Boutiques and specialized firms are not the only form of competition that is increasing. The increase in independent consultants is also proving to be a major competitive force. In the United Kingdom, there are now more than 2 million self-employed workers and that number will continue to grow. Most of these independent consultants operate in the fields of professional services, consulting and project management.

They are putting pressure on prices, because they operate without the same overhead costs as larger companies and can charge well below what established consultancies can afford. Currently, in the United Kingdom, a fifth of the more than 10 billion pounds sterling in management consulting work goes to independent consultants. Elsewhere, at the top of the market, the most important players are only growing. The ten largest consulting firms in the world now have a 56% share of the industry, while the top 200 have about 80%. Both percentages have been increasing since the beginning of the century, driven by the Big Four and the growing number of operations in the industry as a means of growth. As a result, companies that are too big to be seen as specialists and too small to compete in the top positions are under significant pressure.

The complexity of projects also comes at a cost. It makes it more difficult for project managers to plan ahead, which means that their resource volatility has increased. It can also put a company's results at risk, as unplanned changes are often required at the end of a project.71 percent of respondents admitted to Deltek that they are not paid for all change requests they receive, either because customers refuse or because they have strategically decided not to transmit them. In Europe, GDPR has placed more emphasis on cybersecurity.

In addition to incurring severe financial penalties, negative publicity would harm companies' reputations and could affect their ability to get jobs in the future. The result has been hundreds of thousands of pounds in fines and loss of current and future contracts. A Forrester study commissioned by Kantata and Salesforce reveals that Kantata offers an average ROI of 489%. However, embracing digitalization and automation involves more than just using technology. Software engineers presented us with “Agile” (or “Lean”) methodology driven by Agile Manifesto which prioritizes people over processes; collaboration over negotiation; responding to changes rather than following a plan. The risks in your consulting business may vary depending on your practice area but many issues can threaten consultants in every industry.

This has affected margins forcing executives to recalibrate their own business models accordingly. While all organizations must adapt to these abrupt changes; global consulting industry which focuses on strategic planning; process development; customer relationship management must strive to innovate in this fast-paced environment.

Rós Kimberl
Rós Kimberl

Avid travel lover. Evil travel trailblazer. Incurable zombie trailblazer. Subtly charming internet fan. Professional bacon maven. Wannabe music buff.

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