5 of the biggest challenges for consultancies in 2023 [and solutions!]
The future of consulting, social housing, training, and other knowledge-based industries, is unpredictable.
From digitalisation to real-time demands to changes in consumer engagement, there are a slew of new themes threating the way these businesses traditionally work. Not to mention challenges that have long been an issue, such as the cost of scaling.
Now more than ever, knowledge-based industries have to be able to adapt - and do it quickly.
However, this is easier said than done. Scaling clients is undercut by the need to scale staff, changing services means extensive retraining, and reducing face time means losing your value proposition...
But it doesn’t have to.
In this piece we explore the biggest challenges facing knowledge-based businesses, but how they can be addressed head on! With this advice, you can confidently scale, adapt, and succeed no matter how the landscape evolves.
1. The cost conundrum – build or buy?
Cost is a big challenge in the consulting business model.
Profitability is under pressure for many industries – as inflation, cost of living and interest rates rise – but consulting is experiencing this in earnest.
Adding to these pressures are the following trends:
- Worries about a market crash
- Unpredictability in market performance
- Less budget for investment – into technology, talent, and more
- Resource and skill shortages across the industry
Faced with such uncertain futures, scaling is a cost burden and a huge investment risk for consulting organisations working under a service model.
Contract, hire, repeat
The age-old question for scaling...build or buy?
How do consultancies balance a limited budget for investment or hiring with the need for external expertise and additional value creation opportunities?
The answer: They can’t. At least not sustainably.
Signing more contracts is fundamentally how consulting scales, but traditionally, this approach relies on hiring to accommodate. Costs are therefore always hot on the heels of profit.
The more contracts you get in, the more people you need to manage the client relationships, project delivery, billing, HR and so on. This can escalate rapidly – pulling valuable potential investment back into sustaining the business, instead of growing it.
Unfortunately, as shown, this is a difficult compromise in the current climate.
One option people tend to take is to rely more on internal capabilities, however this will end in burnout. Another is to outsource. But this can be an expensive option and doesn’t really offer room to grow the business long-term.
Or try and hire new staff, the demand for which is driving up cost. This route results in staff spending an in-expendable amount of billable time on training and onboarding. All the while, it’s not guaranteed that you’ll be able to maintain the momentum that inspired you to scale in the first place. Certainly not in today’s unpredictable marketplace. So, investing this time could all be for nought.
While scaling is so reliant on monetary investment, it’s impossible for these organisations to grow securely. Monetary concerns are in their peak and so there will always be a veil of uncertainty and the costs of a failed attempt to scale could be great.
Scaling without the costs
So how can businesses cut these costs as they scale? Or cut costs so they have room to scale?
Here are three key ways to support scaling:
- Enhance your digital services
- Retain your talent
- Optimise your value offering
2. Shedding a service mindset
What is a service business model?
“Many of the management tools and techniques used in service businesses were designed to tackle the challenges of product companies. Although they are valuable to service managers, they aren’t sufficient for success.” - HBR
A service model at its simplest form is centred around providing a valued service, where the customer purchases expertise, activities, or advice, but does not ultimately own any product.
In the context of consulting or coaching, this means practitioners are hired out, per hour or per day, for clients to access their talent. This relies heavily on hiring (and good quality hiring), plus very tailored methodologies per firm or client, to be a success.
The problem with this model for scaling:
- The hiring conundrum: Every new client needs to be matched by hiring more practitioners, meaning growing revenue is difficult.
- Burnout: In contrast, you can push your practitioners to their limits and either end up churning them or decreasing the quality of their service.
- Building experience: Because each firm has a niche process and a suite of clients, each of which require a bespoke service, for new hires to learn, the onboarding and training processes takes a long time.
- Unique project methodologies: Much of the time, each project is given an individual methodology, or follows a unique process. This means projects require dedicated staff, a lot of attention, and plenty of valuable resource.
- Aversion to adapt: Service models have been built with consideration over time, but it’s created a complex infrastructure in some cases. It’s not easy to now change how things are done or embrace innovation. For example, moving towards a digital solution-based offering like McKinsey has is a daunting step that, without the right mindset, could fail.
What is a tech business model?
While there is no set definition, tech business models tend to prioritise innovation and can, often, achieve it. Think of some of the biggest and fastest organisations you’ve seen scale. The tech giants of the world probably spring to mind – Google, Amazon, Apple, Meta.
There are others though that take on this model that aren’t a tech-first company. For example, AirBnB, Uber, and Levi’s. AirBnB and Uber both launched with an innovative business model, taking a traditional service offering and semi-productising it through digital solutions. Levi’s represents a more adaptable mindset. By listening to their customers, they saw the shift to e-commerce coming before COVID-19 and quickly reacted with a curbside pickup service, all due to predictive analytics.
How this approach supports scaling:
- Mindset: First and foremost, they have an ambitious mindset that means they’re open to new ideas, to innovation, and to making change.
- Scalable sales model: The way in which companies with a tech-inspired business model sell their services or products is efficient and highly scalable. They can be completed intuitively, instantly, and without active human resource.
- Designed for more: Many of these models pre-empted the need to diversify their offering and built their initial offering so that it would accommodate this. For example, Google’s now suite of products.
- Agility: Companies with a tech mindset are willing to take risks, fail, and learn, then quickly move on. They are reactive and agile to outside stimuli – whether it’s customer feedback or market changes – they change where they must to survive.
3. Digital transformation – friend or foe?
One of the biggest issues with digital transformation is it’s not accessible.
Businesses are quick to sell you their solutions, sell the big dream of a digital revolution, but very infrequently do they deliver on these promises.
This leaves firms with many doubts, criticisms, and challenges throughout their own journeys. Before we get to ways you can make your digital transformation successful, let’s address some of these common fears:
- “Digital tools make my lifer harder”: Disparate solutions can be difficult to manage, but having an integrated or all-in-one solution can overcome this.
- “Implementing and maintaining solutions is difficult”: Getting the right tools, that align with your needs and digital infrastructure, will eliminate these challenges automatically.
- “We don’t have enough resource”: Onboarding fewer, or easy to use, tools makes onboarding, training, and management seamless. Automation and AI in particular can ease resource burdens massively.
- “What if we lose our personal USP?”: Management consulting is reliant on one to one relationships – and this won’t change – if you get tools that are designed to support, not replace, your consultants’ expertise.
What does digital transformation look like for a management consultancy?
Although I'm sure you’ve helped plenty of clients through the transition of digital transformation; have you ever considered what it might look like for your own business?
For management consultancy firms, digital transformation is a revolution for the way you deliver programmes and structure your business model.
It represents a way for firms to create repeatable methodologies, eliminate menial tasks, and productise their solutions. It supports new sales opportunities and revenue streams.
Fees are traditional time and skill based, meaning profit and growth is reliant on headcount. This approach has limited potential. Bringing digital processes into the mix can help optimise this relationship between resource and revenue to an extent, but truly embedded digitisation into your service model can unlock a new realm of opportunities to scale.
You can work in a way that is leaner, more agile, and more profitable – while still maintaining the unique value of your processes and knowledge.
How to make my digital transformation successful
Don’t be fooled by a completion date
Digital transformation is a journey. There is no clear start, hence the common fear, and no clear end. It’s a continuous process and a mindset rooted in adapting. This should resonate with management consultants well, it’s what you tell your customers.
Remember that it’s something you must constantly monitor and measure the outcomes of based on clear KPIs. This helps you gauge success and remove obstacles along the way, or redirect your efforts to the right place.
Keep sight of your specific objectives
Digital transformation is not a goal – it's an approach that helps you achieve your goals to scale, to improve margins, to evolve your programme deliver, to transform consultancy processes....and so on.
Therefore, you should always begin by identifying your organisational goals, then determine what your journey to digitisation should look like. Too often companies begin ‘transforming’ with no clear outcomes...then they lose the motivation and the vision along the way.
Take a holistic and overarching approach
Maybe most importantly, remember that digital transformation should not be a siloed effort. The purpose is to, well, transform. This requires the entire business to be affected and integrated into your digital transformation strategy - from team culture to processes to digital architecture. Otherwise, it’s not really digital transformation, it’s the introduction of some digital tools.
4. Keeping customers engaged in a digital age
The Guardian quoted that,“increasingly, research has found that our reliance on technology is altering the way we think, act and engage with other people” - The Guardian
Digitalisation has undeniably changed how consumers connect with services and brands. The easiest way to encompass this change, is to say people are looking for ‘bigger’ more connected experiences.
Their digital world is no longer disjointed – integration is the key phrase here - and so the experience they have as they journey through this world is expected to be equally smooth.
This is as true (if not more so) for knowledge-based businesses, like consultancy or social work, where the services delivered are deeply embedded in people. In spite of this, these are often the businesses that are slowest to adapt!
To make things easier, we’ve outlined some of the key changes and how you can implement these in your business.
5 Learning trends1. Micro-learning
Our attention spans are getting shorter...so the services or courses we offer should be more bite-sized to get the best results!2. Digital learning
Plenty of human-human formats can now be delivered online, on the go, or virtually without losing that interactive element.3. Collaborative learning
People don’t want to work in isolation! This can mean many things – from connected courses to being able to reach out in real-time to group learning settings.4. Active learning
Technology gives people control over their own experiences. This supports active problem-solving or knowledge searching vs passive listening or lecturing.5. Personalised formats
This comes as no surprise, but people learn better when they can do so in a format that suits them. Or, when they can lead their own learning progress.
The challenges of engagement in the digital age
With a shift in engagement trends, come challenges for any business.
86% of consumers would leave a brand after as few as two poor experiences. (Emplifi)
The new ways people learn and engage may not translate against your current business model. You may not be doing things in the most optimal way, and this can be daunting.
The best way to address these potential risks is to understand how customer engagement trends will affect your business.
Knowledge-based businesses will need to digitise in order to keep people engaged.
This may be a big shift depending on your existing set-up. This is both good and bad. It gives you the opportunity to deliver services in entirely new and optimised ways, but it also creates more challenges along the way. Businesses need to create a clear roadmap because done wrong, digitisation can create even more disconnected experiences.
Impacting a multitude of people becomes even more difficult when everyone responds to different forms of engagement. The question is then, how do I deliver my services in order to reach the greatest number of people? How can I tailor individual experiences without creating an exponential amount of work?
Digitisation can really shine here. Tools like automation, AI, and workflows make tailoring experiences at a large scale much easier and less time-consuming.
People have so much choice at their fingertips now. Digitisation makes the threat of churn much more prominent.
Businesses like consultancy must be able to react quickly to customer needs, to adapt their models to what people want, and constantly be evaluating customer satisfaction.
But once again, digitisation is also the solution. Without it, all changes are extremely manual processes, making it almost impossible to keep up. Digitisation will allow consultants to rethink their programme delivery in a more considered, streamlined, and reactive way.
How you can adapt your services
There are so many ways organisations can adapt their service delivery, learning material, development courses and more.
The key is to lean into the nature of digitalisation rather than fighting it. There are so many ways you can use these tools to make your engagement and retention better.
5. Balancing data insights and data security
This is an important topic to discuss; the use of customer data and how to handle it.
Obviously, management consulting relies on customer data. Digital transformation just means that the way you do so has evolved, and this comes with a few more considerations every management consultancy should think about.
Human vs digital data
The traditional form of ‘collecting data’ is getting to know your clients on a 1 to 1 basis - just as you would any relationship. This may involve;
- Phone calls
- In-person meetings
- Onboarding surveys
- Customer satisfaction questionnaires
This is how consultants get to know their customers well enough to truly help them. This results in an accumulation of knowledge, maybe held in someone’s mind or maybe written down in various ways.
The intention of data collection has not changed in this approach. The motivation is still about understanding your customers in order to build their programmes and take them on a journey towards change. This may still involve surveys, questionnaires and communication.
The nature of how you collect that data is what has changed. It's now being done digitally. Plus, there are now many other routes for management consultancies to gain additional data – such as through monitoring user behaviour. This may be done using:
- Communication platform
- Social media
- Digital surveys
- Digital questionnaires
- Video calls
- Virtual workshops
This opens the door to much greater and broader insights that reveal patterns and preferences that may not have been obvious before. But it may also cause greater concern around data collection, storage, and usage.
The benefits of digitalising data
- Digitising data collection saves time and money
- Analysing user behaviour helps gain insights to improve interactions
- Consultants can use insights to adapt their programmes
- AI can be implemented to create personalised digital experiences
- Greater insights, and customer understanding, is a great competitive advantage
- Insights can inform new products or services
- Consultants can create comprehensive individual profiles and journeys
- Firms can leverage multiple platforms to understand their customers
The potential challenges
- Collecting data from different platforms
- Data transfer
- Storing large amounts of data
- Customer trust
- Lack of human involvement
- Intrusive delivery of content
- Data privacy
- Explainable algorithms
Mindset always puts the customer first - everything is designed to add value to your customers.
The data capabilities we use – including user behaviour analysis, adaptable AI, and reporting – are not designed to keep people glued to the screen or exploit people’s data. It’s designed to create individual experiences that the user will love.
Making your business scalable
Mindset AI is designed to handle these challenges. It’s designed to make scaling, digital transformation and growing revenue accessible! Without all the hassle...
We want to help knowledge-based businesses accelerate their aspirations and scale their expertise. That’s why with Mindset, businesses can easily digitise their offering and adapt to the changes of today.
The Mindset platform is a different kind of tool. It provides you one branded, fully configurable and easy-to-use platform from which you can manage every element of your service delivery. But, the best bit, is we use friendly AI to automate your manual tasks and give your users the more relevant, valuable, and adaptable experience possible.