How Clients Are Forcing Consulting Firms to Focus: An Interview with Consulting Industry Authority Fiona Czerniawska

Fiona
Czerniawska is an authority on the consulting business.
Since 1997, she has written six books (including Value-Based
Consulting, Management Consultancy
in the 21st Century, Management Consultancy:
What Next? and The Intelligent Client),
numerous articles and several research reports on the
industry. Her work has explored how consulting firms
organize their businesses, determine their strategies,
generate awareness and leads, recruit talent, create
new services, and deliver advice.

She is one of the industry’s biggest proponents – and
critics. Her well-researched views on how the best consulting
firms deliver significant client value, retain their
best people, articulate what they do, and attract clients
and new employees provide strong and necessary lessons
for an industry that lived a decade of tumultuous times.

In June, she talked to Bloom Group co-founder Bob
Buday about her latest book, Business Consulting:
A Guide to How it Works and How to Make It Work,
which she wrote with Gilbert Toppin, an independent consultant
who most recently was chief operating officer for European
consulting at Deloitte.

Czerniawska is based in London, where she runs a “consultancy
for consultancies” called Arkimeda (www.arkimeda.com).

Q: What’s different
about the consulting industry today compared to the heady
years of the late 1990s and early 2000s? Have consulting
firms changed the way they market and develop their services,
price their services, create new services, and other areas?

A: First, I do think the industry operates very differently
today. Consulting firms are more cautious than they were
in 2001. Everyone thought the idea of increasing returns
was clearly going to apply to consulting. They didn’t
have much in the way of physical assets. And the future
looked very rosy.

Although the consulting firm leaders I know believe there
will be some return to growth in some areas of consulting,
I think even the more-optimistic ones are cautious about
it. There’s much less certainty and fewer assumptions
being made.

Part of that is that it’s hard to talk today about
trends across the entire consulting industry. Every time
you look at trends in the industry, there are different
trends in different sectors. There are different trends
for different services. It’s a very fragmented picture.
There are micromarkets rather than a single thing driving
the industry in one direction.

Q: Do you find this fragmentation happening in
consulting firms themselves – that is, fewer and
fewer generalists or large firms with many specialties,
and more very specialized firms? Has specialization taken
hold in this industry?

A: Yes, very much so. I think that has always been on
the top of clients’ agenda. To some extent, consulting
firms are catching up with what clients have wanted them
to do. Increasingly, consulting firms organize themselves
by putting together people working in similar areas. That
might be by industry or a particular business issue.
These firms are becoming an umbrella of more specialized
units.

Q: You said clients are driving that. How so?

A: The idea of a one-stop shop for consulting has never
been particularly attractive to clients. The exception
is clients that are under severe financial pressure and
substantial change, and thus who want to take a chunk of
their business and give it to someone to manage. In most
circumstances, clients want the best people in consulting.
The best people aren’t always in one firm. Thus,
most clients assemble teams of people from different firms.

Q: In your new book, an ExxonMobil executive
talked about this. His company favored specialists and
disdained consulting firms that bundle too many services
together, saying they lose focus and quality. In fact,
his words were “No
[consulting] firm can do everything even though many imply
that they can.” Are his views typical?

A: Yes. He speaks for so many clients. In sectors like
financial services, it’s become quite common for
clients to pull together a team of people from different
consulting firms. It’s a trend, although saying it’s
a norm would be an exaggeration. Quite often, financial
services companies set the trend for what other types of
consulting clients do. It’s such an important consulting
market that the way clients behave there sets the standard
for other consulting markets.

Q: Interesting. So what implications does that have for
consulting firms? If clients want deeper skills, and those
skills require more specialization in consulting firms,
what does that mean for the larger, multi-practice consulting
firms?

A: Taken together with other drivers, I think it means
that consulting firms will not build up skills in every
area. They’ll look more to partnering with other
consulting firms. Each firm is different in their approach
to this. But there is now an increasing number of firms
that see partnering as a way to scale their business, rather
than return to recruiting people when the market expands.
They are using alliances or some kind of joint ventures
to get access to skills they need without having to commit
to them on a long-term basis.

Now that challenges the idea of career structure – the
fact that you join a consulting firm and move around and
do different things. While there will still be some
movement within a firm, I think people will be specializing
earlier, and consulting firms will be encouraging them
to move within a smaller range of areas, rather than allow
them to become generalists or stay generalists.

This in turn will mean that consultants are less likely
to stay at one firm. They might move from firm to firm
as the market changes. Clearly, they do have to look ahead
to understand what skills they will need when their current
skill is no longer good in the marketplace.

Q: So consultants are going to have to “choose
a major” in consulting and stick to it longer.

A: And have a strategy for going on to the next major.

Q: On the issue of clients wanting deeper expertise
and consulting firms having to provide that, what do
you think it bodes for consultancies that don’t
have a strong focus?

A: My advice to those consulting firms is that they need
to get their act together. Quite a few consulting firms
have done that over the past 12 months – of seeing
not only what bits they should focus on but also what’s
less important to their business. They are also bringing
focus to their delivery model. Is it on-shore or off-shore?
Is it through associates? How do you kind of break up the
consulting process for each market?
If the leaders of consulting firms don’t start scrutinizing
how their firm delivers its services, they will get the
cost, efficiency and, ultimately, the pricing wrong.

Q: With a shift to focus comes “weeding and seeding” of
consulting services. Are you seeing that as well?

A: I’m seeing less seeding and more weeding. The
margins were big enough 10 years to let consulting firms
carry their weaker service lines. There wasn’t quite
the pressure to make sure that an investment went to the
right areas because they could afford to make mistakes.

Now they need to be more like investment bankers – spotting
the good opportunities and knowing how to nurture and invest
in them, rather than just sowing their seeds very widely
and hoping that something will come up.

Q: From our experience, getting a consulting firm to
weed its services is a very painful undertaking because
getting rid of certain services could mean shedding some
highly influential people in the firm.

A: Indeed. The emotional engagement consultants have
with a certain service is necessary for generating and
building client relationships. But it can become a liability
when the company no longer wants to pursue that area.

Q: So how is this weeding and seeding done in the best
consulting firms you have studied?

A: Where I’ve seen it work best is when a consulting
firm has from the very top a clear sense of its portfolio.
Everybody buys into the dimensions of that portfolio and
where they fit into it. They can then see how their area
is likely to evolve through the different stages of the
portfolio. It’s going to at some point meet a maturity,
a point of saturation.

Therefore, there are a different set of issues in managing
it at that space. The entrepreneurial partners who like
growing things clearly need to move out before it gets
to that point. Their management structure becomes a commodity.

And every model needs to change. Leaders of consulting
firms have to see it has nothing to do with them as people
but with a changing market. To do that, they need some
kind of portfolio framework that everybody in the organization
understands and buys into.

Q: So the consulting firm with 40 consultants
and 40 different practices will no longer fly, right?
I know that’s
an exaggeration, but you know what I’m talking about.

A: Yes. I agree with the statement and its direction.
You can no longer have 40 people doing 40 different things.
But you do need some scouts or talent spotters. The consulting
firm that doesn’t have that doesn’t have a
pulse on the marketplace. There must be an element of that
built on the back of a prioritization mechanism.

Q: So what should happen after consulting firm leaders
set priorities about which services to focus on?

A: I think the next step is one about how to develop
intellectual assets. It could be developing “thought
leadership” on some issue – thought leadership
that leads to a new service. Or it could be about creating
a methodology on ideas the firm has already developed.

It’s become crucial today for consultancies to
invest in both areas. Thought leadership commands premium
pricing. Solutions methodologies are more about the efficiency
with which a consulting firm can do things and therefore
bringing the margins up. They could bring the price down
but the cost of delivering the service and thus margin
should stay up.

If consulting firms were manufacturing companies, there
would be a mammoth level of investment in these things
compared to what consulting firms do. Consulting firms
still live with the idea that their brightest consultants
can pick up an idea and turn it into a method or an article
in the Harvard Business Review instantly. I think
every experience that you and I know says it’s not
like that.