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Management consulting 2.0: A deep dive on the industry’s rise, new challenges and what the future holds

An interview with Marc Baaij, former BCG consultant and strategy professor at the Rotterdam School of Management
Last updated: Dec 19, 2016

“It used to be that the only way to learn anything about management consulting was simply to become a management consultant,” said Marc Baaij. In the beginning, there were no info sessions, coffee chats, industry books like The McKinsey Way, or well visited websites where the McKinseys, BCGs and Bains of the world shared their research. If you wanted to learn about management consulting, there was no easy access - you simply had to get the job to find out.

In this post, we sit down with Marc Baaij, a former BCG consultant who joined the firm in 1998 and helped establish the BCG Amsterdam research team before returning to academia to teach strategic management and problem solving at the Rotterdam School of Management. Given Marc’s unique perspective as a former consultant who now studies the industry through an academic lens, we’ll delve into the rise of the management consulting industry, the challenges it faces and how he expects the leading firms to cope with it.

The complexity flywheel
It is quite possible that no industry has benefitted more from the unstoppable rise of complexity in business than the management consulting industry has. Today’s companies have to manage global supply chains, hedge against currency fluctuations, navigate a landscape of changing government regulations, master the nuances of large and varied global markets, market and brand themselves effectively across a myriad of marketing channels and organize themselves effectively to succeed… and that is, of course, just a partial list.

As firms like McKinsey, BCG and Bain helped clients navigate these thorny issues, the knowledge bases they began to build were (and still are) an incredible competitive moat. Essentially, it kick started a complexity flywheel: business challenges became increasingly complex, companies turned toward consulting firms, consultants drew on their existing expertise, and gained new knowledge in the process. The results were great. Clients received sage management advice and consultants continued to build industry expertise and problem solving muscle memory.

Adding fuel to the fire, according to Baaji, the leading firms have “done two things exceptionally well: first, successfully internationalized and second, established thought leadership in new, growing fields.” On the international front, McKinsey and BCG operate in North America, Europe, Asia, Middle East and Africa at scale. On the expertise front, an early example is BCG’s introduction of the portfolio matrix which helped propel their corporate strategy practice. Another widely acknowledged example, is Bain’s reputation as a leader in the private equity due diligence space.

Change is afoot
However, what has driven tremendous growth for consulting firms in the past won’t necessarily work in the decades to come. In particular, Baaij believes there are two mega trends that will influence the next evolution of the consulting industry.

Dissemination of management strategy
The growth of global MBA programs and their tendency to emphasize strategy coursework means that knowledge of strategic problem solving approaches will become more distributed, eroding the pricing power and knowledge exclusivity that firms have enjoyed in past decades. For example, a VP would rather hire two or three MBAs into an in-house strategy group rather than pay multi-million dollar contracts to the elite firms. Although a consulting firm will still bring independence and problem solving muscle memory to the table, with the high volume of graduating MBAs, the temptation is great.

As a result, many Fortune 1000 companies who make up a sizable portion of the client base for consulting firms, now staff large internal consulting arms that are populated with alumni of the elite consulting firms. This trend is driven in part by many of the “up or out” policies practiced by firms like McKinsey and BCG. For example, Google now has a 100+ in-house strategy team largely comprised of former McKinsey and BCG employees and KKR, the private equity behemoth, staffs its own in-house consulting team, KKR Capstone, for due diligence and work with their portfolio teams.

Client demand for implementation
Clients are demanding a deeper effort on the implementation of the strategic recommendations themselves. “The research is increasingly showing that organizations find the implementation of the strategic recommendations are never getting off the ground or failing outright. As such, they’re now looking for the consultants help implement their solutions to prove out the value proposition,” says Baaij.

What does the future hold?
Look for the consulting firms to respond in two key ways.

First, they’ll take a page from the prior playbook and seek to establish thought leadership in critical new areas of business complexity. Older areas of complexity that they used to dominate, like merger integrations and due diligence, are now studied extensively in MBA programs and are thus less prized categories of expertise. Emergent areas like the sharing economy, robotics integration, artificial intelligence are becoming increasingly critical to understand, and companies are eager to assess their impact and how they should react. You can find evidence of this in the recent reports all three firms have produced in the last quarter alone: BCG has done significant research on the rise of autonomous, self-driving vehicles, McKinsey is spending time digging into the impact of the “gig” or sharing economy is having on the labor force and Bain recently put out research on how to succeed in the Internet of Things.

Second, they’ll start building large, effective implementation practices. It allows the firms to sell deeper into the relationship, extend the lifecycle of each client and meet client demands to prove their strategies are effective by executing on them. McKinsey has started pursuing this aggressively, staffing up a formal Implementation practice and building digital execution capabilities through the Digital Labs group. BCG is using their stronghold in post-merger integration, which already focuses on tactical implementation of a strategic vision, as a model for selling additional implementation projects across multiple industry practice areas.

Conclusion
Historically, management consulting firms built their businesses, and their brands, on being oracles of the business world: dispensing sage, strategic management advice to lead all comers to profitability promised land. They’ve successfully established centers of excellence and expanded internationally. The next decades will bring new challenges in mastering implementation and seeking out and establishing the new bodies of knowledge in exciting areas such as robotics and AI. These challenges will create exciting opportunities for the next generation of consultants: their strategic management chops will be valuable not only for clients’ most pressing challenges, but also for the firms’ own challenges, in their quests for profit and growth.