Consulting firms are the pioneers of business strategy. For more than half a century, organizations have turned to large consulting firms to guide their growth. As businesses became more complex, management consulting firms began offering cutting-edge analyses which spurred the creation of the now $250 billion dollar industry. However, with technology advancing faster than ever and data proliferating at an unprecedented rate, the consulting industry is undergoing disruption. While consulting firms have tried to adapt by acquiring companies with progressive technological capabilities, new-age tech firms have emerged as a compelling alternative. In this next series of articles, we will review if new-age tech companies and their solutions are disrupting consulting firms.
If we break down the services of management consultants, we can identify four key offerings: information, expertise, insights, and execution. By analyzing how each offering is impacted by new-age tech, we shed light on why management consulting is vulnerable to the rise of digitization and big data.
Information: Market research and business insights were once scarce, but valuable data is now publicly accessible for free or at low cost. Furthermore, API’s, connectors, data-as-a-service, and wearables are making significant changes to the way information is collected and processed. The world is becoming technologically fluent, and as data processing skills become commonplace, the need for management consultants declines.
Expertise: Consultants have maintained an edge in this space. When looking to solve complex issues, advice from an expert in the field is extremely credible and valuable. Data scientists have attempted to create algorithms and programs to provide the same advice as experts, however, the level of emotional assurance offered by in-person consultation cannot be replicated by this technology.
Insights: Frameworks and models designed to reveal insights and drive action are now available with a single online search. Moreover, the increase in self-serve analytics tools and boutique data analytics firms are making valuable insights available without the need to pay for the services of management consultants. Insights are generated at the intersection of two data sets, and IT’s unparalleled speed in processing data provides a significant edge to technology.
Execution: A well-planned strategy is only as effective as the quality of its execution, so consultants must also ensure that their recommendations are flawlessly executed. For example, as a growing number of companies struggle to execute their digital strategies, management consulting firms are looking to help organizations understand the steps required to solve their digital pains. But technology has not waited for consultants to catch up; the solutions required are often extremely complex and necessitate a high degree of technical expertise to execute. When tasks lean heavily towards execution, consultants may be outpaced by smaller, specialized tech firms who are expert at implementing digital strategies.
As the new-age tech landscape evolves, the need for management consulting shifts. SMEs are growing at a much faster rate than large companies yet cannot afford to pay hundreds of thousands of dollars to large consulting firms. The young, tech-savvy professionals leading SMEs are more likely to hire technology-driven solutions to fill the gap and become their new business consultants. We see that smaller boutique firms developing these technology-driven solutions are continuing to offer exceptional execution on intricate solutions that aim to integrate technology into the core of the business rather than as a service to support their operations.
The case study below involves a theoretical mid-sized research and development company, XYZ Inc, and illustrates how analytics can be used to optimize their human resources functions. This case demonstrates that a small firm with subject-specific expertise and a technical solution can provide a unique advantage in deriving insights and recommendations. This advantage emerges as large consulting firms function on two fronts: the consulting team and the technical team. The former understands the landscape of their specialized domain but lacks the technical capabilities to think of technological solutions on their own. The latter is capable of executing technical solutions, yet does not recognize how to apply them to specific industries. However, team members in smaller tech-consulting firms possess both of these skill sets which provides an invaluable competitive advantage.
In the following example, the discussion will revolve around XYZ’s key priority: to retain their highly skilled workforce. This study will exhibit a real-life application where Percipient provides a competitive alternative to the information, insights, and execution offered by management consultants.
Attrition at XYZ Inc.
Attrition is a pressing concern for XYZ Inc. When a scientist or sales associate leaves the organization, they take with them their substantial knowledge and experience. Replacing these top performers is both expensive and time-consuming due to the efforts while onboarding new employees. In addition, it is crucial for XYZ Inc. to retain its top talent to maintain the success of the organization.
The turnover rate at XYZ Inc. was 16% last year. This metric is widely reported and regularly tracked as an indication of how effectively the company can retain its top talent.
Reporting & Availability of Data
The turnover numbers were presented as follows.
Figure 1: A sample custom Turnover Dashboard built for XYZ Inc.
When we slice the metric using different dimensions, more patterns emerge. Such a dashboard equips the HR leadership team with more context to develop retention strategies.
To take this to the next level, the head of HR of XYZ Inc. needs to tell a better story about the state of their attrition. For example, HR business partners conduct exit interviews with departing employees and jot notes in Excel sheets. This is done from a compliance standpoint; this data is almost never analyzed. Even if it were to be analyzed, the data is mostly contextual, thus would be difficult to draw insights. By improving the data collection process and incorporating analytical techniques such as sentiment analysis, we can help XYZ Inc. combine this knowledge and the data stored in the HRIS system to generate more insights into the attrition rates. Merging these data streams will put XYZ Inc. in a better position to understand the causes of attrition and devise retention strategies specific to the problems faced by the different departments and groups.
Despite combining data from different sources to tell an insightful story about attrition, it remains reactionary. Employee retention strategies that only rely on descriptive analytics may seem more specific but is painted with one brush. It is crucial to incorporate predictive analytics to stay proactive and nimble.
At XYZ Inc., a Random Forest classifier algorithm was deployed on the available employee data. Figure 2 provides a glimpse of the different factors and their varying degrees of impact on an employee’s decision to leave.
Figure 2 : The different attributes used by the random forest model by their importance in predicting attrition
This predicts the likelihood of the employee being an attrition risk with a much higher accuracy.
It is advantageous to understand how XYZ Inc. structures its processes around managing the retention of its high performing employees (Figure 4). The model is deployed throughout its workforce and is constantly updated to identify at-risk employees at each department. Line and HR managers are able to identify high performers who are likely to leave and are in a position to develop personalized retention strategies to retain them.
Figure 3: How XYZ Inc. uses the retention model
From a point of applying textbook retention strategies, being data-driven has enabled XYZ Inc. to be more intelligent in terms of managing employee turnover. Starting with identifying what data is captured and understanding how insights can be drawn from them, HR departments were able to move up the maturity curve starting with data reporting, descriptive analytics, and predictive analytics.
As the case study suggests, a small firm specializing in people analytics could produce high-quality insights and seamlessly execute the technological requirements to provide strategic direction. The possession of both technical and functional knowledge allowed the team to determine the best technological solutions and follow through their vision. When field expertise overlaps with the technological capabilities, a competitive solution can be provided at only a fraction of the cost charged by management consultants. The shift is evident, and we see this as a new era of business consulting.
CB Insights, May 2019. Killing Strategy: The disruption of management consulting. https://www.cbinsights.com/research/disrupting-management-consulting/