Regular readers of this blog will know that we see the consulting industry dividing into two markets: the low-cost market, where familiarity results in super-specialisation, standardisation, and—ultimately—commoditisation; and high-value consulting, in which unfamiliar problems can only be solved by smart people supported by clever tools, writes Fiona Czerniawska of Source.

We’ve argued that these two markets co-exist, but the former, although bigger (about 70% of the total, we estimate) is growing more slowly than the latter—which would be fine except that clients are telling us that these markets are also diverging, making it hard for firms to do both. All that’s created pressure on the consulting business model.

For some time now we’ve been looking at how this complex market is evolving, but we’ve been guilty of ignoring its behind-the-scenes impact. If you’re a big consulting firm, you’ll want to keep—or build—a foot in both camps: that’s because large-scale transformation projects, which account for half of all new growth in the current market, require elements of both. The evidence of this has been all around us for a while—Accenture’s launch of Accenture Strategy, PwC’s acquisition of Strategy&, EY buying the Parthenon Group, etc.,—but the internal ramifications are also becoming clear.

At the heart of these different business models are different people. You can dress a corporate strategist in jeans and a T-shirt, but that won’t make them a technologist, anymore than you can put a technologist in a suit and claim they can do strategy. Clients see through the rouse in an instant but, more importantly, so do the people themselves. For all the talk of cross-disciplinary working, most consulting firms are a million miles from making this the norm—the oil and the water stubbornly refuse to mix.

Why? The reasons appear to be cultural (the arrogance of the high-value people outrages the legions of low-cost-but-let’s-face-it-still-profitable consultants). It’s also economic: high-value consultants expect to be (and usually are) paid more, although it’s worth highlighting that it’s proved rather easier to raise their salaries than their charge-out rates. It’s certainly structural: internal silos persist, held in place by hard-to-change P&Ls and incentive systems.

So now consulting firms face a challenge on two fronts. Clients want to have their cake and eat it. They simultaneously want a clearer distinction between the low-cost and high-value parts of the consulting business, while also ramping up demand for transformation projects that straddle the two. Consulting firms have at least started out on the path of solving the first of these, but they’ve yet to step up to the second.

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Fiona Czerniawska is a leading commentator on the consulting industry and a co-Founder of Source who provide specialist research on the management consulting market to consultants and their clients.