The largest management consulting firms have a dirty little secret: they don’t want their clients to succeed too much. When Fortune 1000 CEOs hire one of the big three consulting firms, they expect consultants’ interests to align with the company’s. In the process, they pay top dollar for advice on how to beat their competitors. The problem is that their competitors are also clients of the big consulting firm.
Large consulting firms strive to help clients make strides against competitors at the margins, but stop short of helping any one company become king of their fragmented industry.
This isn’t to say that management consulting firms are rooting against their own clients, but simply that they have conflicting incentives. They take on projects that incrementally improve revenue, fend off disruption for another 5 years, and innovate on the periphery where other clients will not be imperiled. In other words, large consulting firms strive to help clients make strides against competitors at the margins, but stop short of helping any one company become king of a fragmented industry.
If a firm helps one client pummel down hard on competitors, then the firm may lose clients. These large firms employ tens of thousands of people and have shareholders who have come to expect multi-billion dollar revenues. Management consulting firms are mostly not in the business of disruption, because they are incentivized not to upset the competitive balance in an industry. Disrupting their clients would ultimately disrupt the firm’s revenue streams.
For decades, management consultants could hold back without experiencing much of a downside. They largely weren’t operating in ‘winner take all’ industries anyway. But today we’re in the midst of the fourth industrial revolution in which platform companies like Amazon, Uber, Google, and AirBnB have disrupted long standing markets and usurped traditional industry kings. Furthermore, the largest of these platforms operate across traditional industry lines, thereby creating more direct competitors across industries than ever before. To compete against the new modern monopolies, traditional enterprises must embrace platforms at the core of their business.
While large consulting companies do not want to make kings of any existing client, they know they must deliver platform business model innovation to companies hungry to keep up with the modern era. The problem is that the winner-take-all nature of platforms is in direct conflict with the management consulting incentives described above. Currently, large consulting firms tend to solve this by implementing platform business initiatives to address peripheral problems that won’t make or break a business.
Some of these platforms can be pretty good projects that boosts the company’s revenue and diversifies its offerings. However, by operating on the periphery they avoid transformative innovation (despite claiming to offer “digital transformation”) and therefore in no way does it significantly change the company’s standing against competitors. This approach aligns neatly with the consulting firm’s incentives to not disrupt the competitive balance, and everyone can claim a small victory with this project. The consulting firm delivered a platform business, the client is making incremental revenue improvements in the margins of its core business, and the consulting firm’s other clients in the same industry have no reason to take up arms against the consultants.
It’s safe all around, and safe projects are nothing to scorn, but they also aren’t kingmakers. It’s easy to see why the large consulting firms are in a bind when it comes to harnessing the winner-take-all dynamics of platforms. That’s unfortunate for their clients who are not looking to merely survive the next disruption, but to be that harness that innovation for themselves.
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