Why the consulting business is becoming difficult: The era of the new movers and shakers.

When I founded my digital transformation consulting company four years ago, the world was relatively simple: there were companies that advised clients strategically and conceptually, there were companies that implemented concepts and there were companies that operated the solutions. Projects were often carried out according to waterfall and in clear stages. Business models were rarely up for discussion. All of this has changed dramatically in recent years and new approaches are really catching on. That’s a good thing – for almost everyone in this game.

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Expensive and slow

The sequence of strategy, conception, implementation and operation was and is obvious and traditional for everyone. However, it has two fundamental disadvantages: it is extremely expensive for the customer and it takes an extremely long time for something concrete to see the light of day. I have often experienced that it can easily take up to 6 months, partly due to company political wrangling, just to get all the strategic eggs in one basket. By the time a concept was ready and filled 3 Leitz folders, the assumptions on which the strategy was based were already partly outdated.

And of course nobody had the courage to say that we should rethink this, but instead, knowing full well that we were already strategically wrong, we set about implementing it.

As a result, of course, everything was extremely expensive. The larger the consulting companies, the higher the daily rates and the younger the consultants. What was and is a kind of magic formula for the consulting companies, of course, depressed many clients.

I have often experienced being called in for an initial meeting after a concept phase and being asked what to do with the 400-page concept. They didn’t understand it, had paid dearly for it and nobody wanted to deal with it in the meantime. My standard answer at the time: “Get it out of the way.”

Not just digitizing what already exists, but creating something new.

Times have changed. Many a larger company has realized that it is not enough to simply digitize their existing offering and launch an eCommerce store or have a new social media department.

Many have realized that they need to use the new technology to create new offers and products and thus new business models.

One peculiarity of new business models is that you don’t know for sure whether they will work or not. With this realization at the latest, the waterfall-style digitization approach is no longer compatible.

I remember well the first time I dealt with a client four years ago who asked for coaching and prototyping rather than concept and consulting. That had a completely different quality for me. We were able to do something, not just workshops and paperwork. But it also meant that this was not a normal, safe assignment. Instead, it was clear that if we “killed” the original idea and the business model with our “challenge” – I know, these anglicisms are terrible – the “project” would be finished in an instant.

Since then, I have noticed in the market that many customers at least have such an approach in mind. The vast majority of tenders and concepts are still being created. But I think I recognize that we as an industry are moving at great speed towards a lean prototype / design thinking approach as the standard method of choice.

I believe this is urgently needed.

Macro role models and examples

And it is in keeping with the spirit of the times to simply get on with it. The more knowledge we have readily available, the less important a theoretical approach to implementation becomes. The cultural differences are particularly evident in the automotive industry, where German car manufacturers, as representatives of a conservative approach, are trying to tackle the future and find their way with lengthy concepts and strategy development processes.

In contrast, there are new players, first and foremost but not exclusively Tesla, who probably also have a strategy, but are much quicker to get down to business and try to deliver “minimal viable” products (MVP) as quickly as possible. This has worked out quite well at Tesla. Now you have to scale the whole thing up to a relevant size and stop such mundane things as burning money. But when it comes to value destruction, at least VW can keep up quite well at the moment “through its own drive”. I know that’s bad. But you have to look at it this way.

The new makers

I’ve been called a doer all my life and I’ve never really liked it. I know too many “doers” who do a lot but don’t think too much about whether they are doing the right thing. True to the motto: “When we lost sight of the goal, we redoubled our efforts”.

On the other hand, there is a new type of “doer”. He has absorbed strategic thinking with his mother’s milk, so to speak, but does not lose himself in endless strategy formulations.

A veteran executive from a large company recently explained this to me:

“Don’t let yourself be lulled into a false sense of security by the strategy nerds. Anything that doesn’t fit on half a page of A4 is not a good strategy. Anything you can write down on top of that will turn out to be nonsense, wishful thinking or a stroke of luck when it comes to implementation anyway. So leave it alone. “

Certainly too radical and populist. But the new type of doer wants to produce initial results as quickly as possible, test them and, if successful, develop them further. Fortunately, these lean startup discussions with potential customers are often already well advanced. Because this is the faster and cheaper approach, so many managers have been traveling to Silicon Valley for three years to learn exactly that. They don’t code over there.

Strategy has become much more important

Paradoxically, however, such an approach increases the pressure on the strategy. Because if a strategy is poor, this becomes apparent much more quickly. As a result, bad investments can be prevented or at least reduced. I am convinced that this has a positive effect on strategy development.

The consulting business under pressure

The consulting business is coming under pressure as a result. I think that in the long term, it will no longer be possible to sell the existing, traditional consulting models to customers. And that’s a good thing. Because their time is up.

After all, it was sometimes too easy: consulting company XY picked up the best university graduates, let them work as juniors for two years, and then later on fully paid them off. What these people usually did was highly theoretical and internally political.

I have often seen projects being steered in a direction in which the mandate turned out to be particularly lucrative. This is about as reprehensible as a lawyer who could win a case for his client but deliberately argues weakly in the closing argument because he knows that the client will appeal anyway. And as a lawyer, he can bill more fees as a result.

Of course, this is not unanimously common practice. But it happens more often than we would like. It’s usually not so pronounced with smaller advisors, which is why I have a certain preference for smaller boutique consultancies. I think almost every client is better off with such a firm.

Many consulting companies have recognized that it’s all about doing. It is no coincidence that many software service providers and web agencies are currently being bought by large consulting companies.

The end of the traditional consulting business: coaching

Looking at these developments, I assume that the traditional consulting business as we have known it for the last 50 years will dissolve in favor of a coaching & implementation model. This has enormous advantages for the customer. They reach their goal faster, with less “noise” around the “signal”. And therefore with lower costs in less time. Yes, that’s what it’s all about in the end. Simply because it is far too expensive to launch and test new digital products today.

Software service providers take note

Software service providers who feel that this does not affect them are mistaken. The same shifts are also taking place, simply in the opposite direction, for pure implementation service providers. They too must get used to taking smaller steps with smaller budgets and developing solutions that work from a business perspective.

This is also no easy undertaking and means that software service providers will have to employ even more people as business analysts and coaches than before. This is not to be confused with a classic full-service concept. Rather, it is about being able to credibly participate in discussions as a company on the path from strategy to the first testable product.

Until now, I’ve often heard from technical service providers: “That’s a concept and strategy, it’s none of our business” and from consultants: “The technology will have to solve that for itself”.

Service companies of the future have positions on both sides of the table. Regardless of whether they are more technology-oriented or consulting-oriented service providers. In the future, the boundaries will probably be blurred.