3 Reasons Smaller Consultancies Can Compete with Traditional Consulting — Procurement Take Note

 

Spend Matters welcomes this guest post from Terri Gallagher, president and CEO of Gallagher and Consultants, a workforce strategy provider.

“The smallest company in the world can look as large as the largest company on the web.”

~ An apocryphal quote attributed to Steve Jobs

Bigger is not always better. Yet traditionally, the view is that a bigger business has, presumably, offered scale advantages and stability. But reliance on small professional services providers across many categories (creative, IT, engineering, business consulting) has been increasing for a variety of reasons — like hyper-dynamic market environments, the need for ever-changing specialized expertise and the reasons covered below: outcomes-based approach, new technology tools and lower costs/faster results.

Change is in the air

Depending upon how the term is defined, global consulting revenue is on the order of $100 billion to $300 billion annually, and the majority of that revenue is concentrated among the “Big 4” (Deloitte, EY, PwC and KPMG), and a few others. However, some businesses argue that the basic model of the “Big 3, 4, 5” consulting firms has barely changed in decades, can be inefficient and does not always align to the high rate of change that businesses face today.

The traditional consultancy approach has been to focus on process, size/length of the project, and billable dollars vs. outcomes. The secret sauce of a cache of expertise and data that clients lack has never come cheap. But that exclusive intellectual property is no longer as exclusive — as independent consultants become more accessible, and startups and boutique consulting firms emerge and can leverage predictive technology and big data analytics to deliver value cheaper and faster.

Indeed, there is change in the air, and expedited outcomes and lower costs seem to be emerging as the “new brand” of professional consulting.

Here are 3 reasons why small firms can now compete with Big Consulting

  1. Outcomes-based and execution-oriented approach. Big consulting firms’ claim to fame is an exclusive and extensive cache of methodologies, frameworks and systems that are applied to multiple clients. This approach can inhibit agility and the client-centric customization that often favors strategy over execution (with the execution left up to the client). Smaller consultancies don’t have the resources to compete with that; they have to take a more targeted approach to ensure the fastest time to value and clear results to stay competitive.

Some time ago, one of our clients, a successful national healthcare staffing and consultancy firm, was developing advanced talent-supply-chain strategies to stay competitive. The division president wanted to spend less than 10 minutes total with us on our proposed project plan, governance framework and other consulting outputs (on which my team spent several hours painstakingly putting together like proper consultants). But he was more interested in the vision and how we were going to specifically help them elevate their current service offerings and the path to get there. He wanted us to cut to the chase.

While process rigor and discipline are important to keep things on track, relying on process for process’ sake can dilute the ability to drive tangible outcomes and dampen a client’s excitement and engagement.

  1. New technology tools available to small consultancies — Enter the ecosystem of talent technology, such as on-demand workforce platforms, freelancer marketplaces, talent clouds, data analytics and AI. Technology is the delivery system for alternate consulting models, and teams of consultants are banding together to grab larger projects posted on Freelancer.com and other on-demand workforce platform sites. Leveraging data, data analytics and even AI is increasingly accessible, and expertise in this area is in high demand, with a new generation of data science analysts operating under different expectations about how they will work.

Solopreneurs and smaller consultancies are reaching out to their own networks and other freelancer and independent consultants within the talent technology ecosystem and breaking down scope of work by skill set, objectives and deliverables to keep their proposals competitive. This also allows them to quickly scale up small teams to go after bigger clients and projects. Given that these freelancers and independent consultants are often vetted and ranked, this gives a unique layer of quality control. It also enables agility and innovation in putting together these expert teams.

The four pillars of traditional consulting — information, expertise, insight and execution — is no longer the sole domain of Big Consulting. Information about customers and competitors is more available than ever. Business analytics tools of all kinds are now available to any solopreneur who wants to pay for a subscription. “Expertise has been disaggregated. Insight has been productized (and in some cases commoditized). And execution has in many cases, been brought in-house or outsourced to freelancers,” according to the CB Insights article Killing Strategy: The Disruption of Management Consulting.

The key is closing the gap between the idea and the execution. Customers need someone to leverage information effectively, interpret insights and data, and have the expertise to execute. These tools enable independent, agile consulting teams to go up against the “Big Dogs” and win.

  1. Lower cost and faster results — Client businesses are ultimately interested in the bottom line and the value they get for their money. Lower overhead and bill rates, and a delivery-oriented model vs. an opaque project model, may sound good to many businesses. In addition, smaller consulting firms’ focus on agility and faster time-to-value means shorter project lifecycles and lower project costs.

The big consulting firms not only have partners constantly selling additional services, they have a whole sales team. They also have marketing teams, and many other teams not involved in doing client work. They have expensive training, administrative costs and more. In addition, partners in any consulting firm will expect an annual distribution of profits. All of these costs get passed on to clients.

In contrast, boutique consulting firms and solopreneurs have lower overhead and cost of resources — and are more agile and adaptive to client needs. They also have a low percentage of employees who are not client-focused. Consultants at smaller firms typically have greater exposure to their respective partners, and thus often develop their skills faster and in greater depth and are not constricted and insulated by layers of bureaucracy, as big consulting firms are.

Big consulting firms have delivered trillions of dollars in “value” (based on revenue) over the past 10 years, but they will need to prove they can be nimble, embrace modern workforce management tools, focus on execution in addition to strategy and not simply fall back on the prestige name that has gotten them this far.

Indeed, some big consultancies are taking steps forward, though that will not allow them to do all of the things that small, agile, specialized professional services providers can accomplish for their clients. Whoever delivers exactly what is needed with the most agility, time to value and competitive costs will win. In that case, size really doesn’t matter.

What does it mean?

Procurement knows that professional services is an enormous services spend category, and it is a significant cost for many medium- and large-size companies where spend management opportunities are present. Bringing more small consultancies into the supplier mix may be part of the answer.

Rather than being viewed as offering few if any economies of scale and posing higher levels of risk, small consultancies may be able to provide something large consultancies cannot with respect to many business requirements. And while a proper infrastructure for sourcing and managing small consultancies may not seem to exist, there are in fact an increasing number of platforms that can do exactly that. Accordingly, it may be time to revisit how different consulting services can be purchased when old models are coming under pressure and new models seem to be arriving.

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