When consultants talk about their work, they talk in terms of “added value”. It is the life-blood of what they do. It is the reason they exist! But how could at it are they really?
“Value added” is usually a numerical value, like revenue or profit. Consultants back this up with qualitative change, like an improvement to the distribution chain. One leads to the other. This allows them to tell a convincing story to the client about what they have done for the business.
But we rarely discuss how good consultants actually are at adding value. Although it is the reason they exist, there are lots of popular myths. Some of you will have heard the criticism that management consultancies offer solutions businesses already really knew. The consultancy only offers them peace of mind. Or the CEO just wants a consultancy to backup their idea. Some firms even call in consultancies by default when there is a problem.
This is more true than most consultancies confess and there are lots of boring projects as a result. If you ask consultants about the work they have done, they are likely to mention the client’s brand name. They might avoid talking about how much value they actually added. Every consultant has worked on projects were the answer is simply obvious. For whatever reason, the business just wanted able to make it happen on their own.
This has recently been an important criticism of McKinsey in particular. The firm has taken on high-value work that just doesn’t require a lot of strategy. They add very little real value while taking large cheques. McKinsey naturally has the biggest and best clients, but the firm often works on only 10% of the client’s business. That 10% is likely to require only a simply change to make it more efficient. Many consultants would say it’s more exciting to work on a transformative project for 90% of a small business.
Big tech firms have exacerbated this problem. Amazon, Facebook and Apple hire people straight out of business school who have the skills for big picture corporate thinking. The wages are better than consultancies and FAANG are attracting the best graduates who can solve problems traditionally allocated to consultants. The consultancy world sometimes only has access to more obscure strategy projects. Therefore there is little scope for a management consultancy to add value when there already consultants at the firm. Increasingly, those consultants are at least as good at what they od.
Consultancies are negotiating this problem in two ways. The big three in particular want recognition for their ability to affect wholesale transformation. Some consultancies like McKinsey have started to hang their fees on the project’s success. That means the consultancy only receives project fee if the client is satisfied. This encourages firms to ask more of consultancies to make sure they get their money’s worth. However, it also incentivises lower risk projects.
Other consultancies, like BCG, have built “end-to-end” or “implementation” arms to their company. That means that they don’t just develop a solution and hand it over. They also develop fit or the company’s computer systems and operational nuances in a longer project to ensure “value added”. This seems like the best way to ensure that value really is achieved and you can expect many more consultancies to head this way in the future.