Thursday, October 15, 2020

"Killing Strategy: The Disruption Of Management Consulting"

A deep dive from CB Insights, October 8:

Since former BCG consultant Clayton Christensen first used the term "disruptive innovation" in 1995, nimble startups have challenged incumbents in every field from music to manufacturing. Now, a tectonic disruption is hitting management consulting just as it has hit many other industries.

The industries that have proven the most vulnerable to disruption have been those with:

  • One or a few major players
  • Relatively outdated business practices
  • Slow technology adoption

Oddly, management consulting is rarely named in discussions about industries vulnerable to disruption (unless you ask Christensen), despite the fact that it meets all of the above qualifications.

Over the last 60 years, the large management consultancies have grown and maintained their status through prestige, branding, and long-time client relationships. Consulting itself is a $200B+ industry, per CB Insights’ Industry Analyst Consensus. But the big three consultancies — McKinsey, Boston Consulting Group (BCG), and Bain — are ultimately no more immune to the forces of disruption than any other industry.

“[W]e’re still early in the story of consulting’s disruption… More likely than not, alarms won’t sound until it’s already too late in the game.” — Clayton Christensen

Management consulting is primarily human-driven. Hourly or per diem billing, rather than outcome or value-based pricing, is still the general rule (even as industries like law move away from billable hours). The increasing pace of technological change means that, more and more, consultants’ recommendations are out of date nearly as soon as they’re made.

Consulting, in other words, is inefficient, inflexible, and slow to adapt. Any of these weaknesses alone would suggest coming disruption — possessing all of them points to a major fight ahead.

McKinsey, Bain, and BCG have weathered existential crises before. These consultancies offer a highly brand-driven, prestigious, and hard-to-quantify product to Fortune 100 companies with plenty of cash to spend.

If you dig deeper into the specific types of services that these firms offer their clients today, however, it’s clear that a tectonic disruption is hitting management consulting just as it has hit many other industries before. It may be a slow and gradual change, and the big names may well endure — no matter how thinned their ranks — but a change is coming.

Table of contents

The invention of strategy

Before Bruce Doolin Henderson opened the doors of Boston Consulting Group on July 1, 1963, the concept of competition barely existed in American business culture, let alone strategy.

There were great, successful companies. Companies made plans. Those companies were not, however, thinking analytically and rigorously at a high level about the classic three Cs of strategy: their customers, their costs, and their competitors.

“What companies didn’t have before the strategy revolution was a way of systematically putting together all the elements that determined their corporate fate… the pre-strategy worldview lacked a rigorous sense of the dynamics of competition.” — Walter Kiechel

Before BCG, McKinsey, and Bain, those who owned and ran businesses in America generally dismissed “strategy” as something for generals and political campaigns.

The first management consultants changed that. As business became more complex and global in the 1960s and 1970s, consultancies brought cutting-edge methods of market research and data analysis — as well as access to academic and industry experts — to bear on the major challenges of business. They helped companies build more efficient supply chains, improve their product positioning, figure out which markets to exit and which to enter, and more.

Those consultancies pioneered many of the major tools and frameworks companies still use today to develop corporate strategy: the 2×2 matrix, the Experience Curve, SWOT (Strengths, Weaknesses, Opportunities, Threats) diagrams, Porter’s Five Forces, and many more.

As they found success, BCG, McKinsey, and Bain began hiring the brightest, most technical business school students they could find. The MBA became, for the first time, a truly respectable career choice. Between 1970 and 1995, the number of MBAs granted per year rose from 25,000 to 90,000.

Source: US Department of Education

Today, nearly 200,000 students graduate with MBAs every year in the US. The value of strategy is now obvious to every company.

McKinsey made about $10B in 2018, BCG about $7.5B, and Bain about $4.5B. Each is still growing.

From one perspective, the position of management consulting as an industry has never seemed more secure. But just as their clients are always under threat from new players and technologies, consultants too are not immune to the forces of disruption.

The four functions of consulting

“The underlying principles of strategy are enduring, regardless of technology or the pace of change.” — Michael Porter

Since the early days of management consulting, firms have sought to differentiate themselves by doing more for their clients. In some cases, they’ve even embedded themselves as if they were part of the team.

That’s not always a good thing. The habit of being “part of the team” has landed both McKinsey and Bain in hot water for insider trading and other scandals over the years....


Some of this is really old news:
October 8, 2013
Clayton Christensen: The Next Industry Headed Toward Disruption--Consulting
From the Harvard Business Review:
Consulting on the Cusp of Disruption....

And more from the Clayton Christensen Channel:
Harvard's Clayton Christensen: The World's Most Influential Business Thinker (and what he's investing in)
The Guy Who Wrote the Only Business Book Steve Jobs Ever Bothered to Read Talks Academia and Big Data
"Disruption guru: Why Apple, Tesla, VCs and Academia May Die" (AAPL; TSLA)
UPDATED--Point-Counterpoint: "Disruptive" is Silicon Valley's Most Pernicious Cliché
Institutional Investor: "Controversy In the Land of Disruptive Innovation"

Clayton Christensen's theory of theories and forecasting
Professor Christensen's paper "The Process of Theory Building" is available from him at
We have links to Christensen's thinking. 

April 2015
Climateer Line of the Day: Clayton Christensen Cringes Edition 

A little alliteration in the headline.
Today's CLoD occurs in a Paul Murphy production starring David Keohane:

"Here’s the plan, we’re going to disrupt the sex toy AND the undertaking business in one fell swoop."
-FT Alphaville's Further Reading post.