The term ‘disruptive innovation’ was first used in 1995 but the phenomenon always existed. We have seen it happen across industries and in all areas of business – from manufacturing to marketing and healthcare to education. Consulting, however, remained immune for a long time. Perhaps, the reputation of consultants and relationship with clients was the reason. Consulting firms grew while they operated in the same manner with modifications to research methods, technology, and tools. New entrants, specializing in modern technology that replaced existing business processes, secured a foothold in the industry and progressed towards causing a disruption, prompting incumbent consulting firms to evolve. Consequently, the consulting business model underwent several changes in the last few decades.
New technologies, analytical tools, and modern communication systems enabled clients to manage many of the services provided by consultants, either on their own or through other specialist companies and independent freelancers. For example, collecting and analyzing business information, niche expertise, insights, frameworks, benchmarks, and execution. These were disruptions, of course, caused by small entrants who grew big enough to compete in areas like data analytics, strategy, specialized solutions, and implementation. Consulting firms could compete with and stay ahead, by acquiring or enhancing capabilities and expanding their scope of work. Most of them had new specialized divisions or subsidiaries in place, thus upgrading themselves.
The real disruption, which is now underway in the consultancy business, has been brought in by firms offering returns-based pricing. Although, time-based billing is still the norm. Other human-inputs-based industries like legal services have already switched over to outcome-based or value-based pricing but consulting has been slow to adapt. The winds of change, however, are clearly indicating that returns-based pricing, which crept in unnoticed and is slowly gaining ground, is the disruption on the horizon that consulting firms cannot elude anymore. Howsoever consulting firms evolve themselves, and no matter what their brand values are, clients do evaluate consultant-billings against returns and compare it with the services of others, particularly the standalone specialists.
Therefore, if consultants have to survive in the long run, they have to prove their relevance all the while, by delivering superior value. They will have no choice but to switch over to returns-based billing. As a business, consultancy is bound to grow. At the same time, for every offering – whether it is digitization, supply chain realignment, strategy or anything else – there would be more and more specialists available. They will claim higher focus, specialized domain knowledge, better quality and will be open to returns-based pricing to counter the brand value of established consultants. If consultants do not pay attention, their survival in the present form may be at risk very soon. The only way is to exhibit their confidence to clients, by switching over either in part or in full to returns-based pricing.
However, like any other disruption, this changeover too will take time. That gives the much-required time to consultants because the outcome of returns-based pricing could go either way for them. If they are not able to stand the test, it is a loss of both money and reputation. They will have to upgrade, with the best of talent, technology, and a method to crack the model of delivering outcomes consistently. Talent retention, as such, is a great challenge in consulting. Leadership teams will have to come to terms with this change of strategy, which could take time. To the clients, however, it will undoubtedly deliver higher quality, build trust, with the assurance that the consultant’s returns are linked to theirs.