Industry101: Business Consulting

Hey there!

With economic activity picking up - more companies are generating profits and hirings are rising. The Nifty50 hit an all time high of 13,079 today; at the very least, there is optimism around India's future.

In today's article, continuing on our Industry101 theme, we're covering business consulting. A lucrative career choice for many top professionals, the consulting industry has been growing rapidly. Currently it's a $500 Billion (~37.5 Lakh Crore) industry globally.

This article is for:

• students considering a career in consulting,
• leaders planning to transform their business, &
• learners curious to learn more about how the world works.

If you're one of the above, read on. :)

What is it, really?

Consultants are experts who provide advice for a fee.

A business has many-many facets - sales, marketing, branding, operations, inventory, supply chain, finance, people management, compliances, and so on. Getting external help for one or more of these, history has proven, makes a lot of business sense. Sometimes an external helping hand is required by law - like a Chartered Accountant to sign a balance sheet; other times, external help is preferred over building or hiring those expertise internally.

In an increasingly specialised world, it's getting harder and harder for organisations to ace every function, so consultants stay in demand.

Why so glamorous?

Top business graduates over the years have preferred consulting jobs to core industry jobs. Though the trend has started moving towards IT companies in the last 10 years or so, consulting is still pulling its weight.

Why?

A mix of many things actually. One, consulting pays well. Two, rapid learning (Famous Indian-American Indra Nooyi said it best - “Every year in consulting is like three years in the corporate world because you have multiple clients, multiple issues – you grow so much.”). And three, pretense - since many look-upto-able individuals have chosen consulting as a career, younger graduates continue to follow suit.

Ask MBA graduates about their dream recruiter, chances are that strategy focussed names like - Mckinsey, BCG, and Bain, and accounting focused ones like - Deloitte, EY, PwC, and KPMG, would come up in the top 10.

On the flip side of the argument, here's a two minute video of Steve Jobs recommending working in industry over working in consulting.

Why large organisations often use consultants

I read a fascinating analogy which when applied to consulting, explain why large businesses have historically used consultants much more than small businesses have. It compares the dynamics of small and large businesses, to that of my two favourite sports - basketball and football.

Basketball is a strong-link-sport, where a team can be improved significantly by recruiting the best player onto the team. This is because the game of basketball (by nature) allows for individual brilliance. Only five players play for a team, and the size of the playing field (the court) is relatively small. This gives the talented individual a relatively straightforward environment to excel. Much akin to a small business - where a skilled individual can do far better than a lesser skilled peer.

Football however, is a weak-link-sport where the team improves significantly when the weakest player is replaced by a better one; and not as much if a more superior player is brought in in place of an already excellent player. Here, the nature of the sport depends on extensive collaboration between teammates. There are eleven players on a team, and a large playing field makes it harder for the super-skilled individual to have as much of an impact. A large business hence resembles football. Due to the sheer expanse of operations, and the need for various parts to communicate efficiently with one another, getting external help to shore up weaknesses of the business is worthwhile.

This however is changing. Nowadays armed with the power of the internet, even startups are finding domain experts online, and are building far more robust businesses than the small businesses of yesteryear.

What's the offering?

Consultants usually provide four types of services:

1. Information - Historically, information was privy only to the privileged class. Then it started getting democratised through newspapers and educational institutions. The internet made most information freely available for anyone who seeks it. But on some subjects, even now, top consultancy firms have access to much higher quality of information than what is generally available. Such firms provide access to this information for a fee.
2. Advice - For business leaders, good advice from a reputed source is far more valuable than scores of research papers. After all, time is money. I read once that investment strategy expert - Kiril Sokoloff often gets on calls with fund managers and business tycoons like Jeff Bezos and Mukesh Ambani. People having command over massive empires have always found it valuable to speak with the wise.
3. Insight - Information is valuable no doubt, but information in the hands of an expert makes such information usable. Let me explain:
   ⇒ Novice + Poor quality tabla = Terrible music;
   ⇒ Novice + Best tabla in the world = Still terrible music;
   ⇒ Zakir Hussain + poor quality tabla (or even a table) = Really good music;
   ⇒ Zakir Hussain + Best tabla in the world = Amazing music.
   High quality, authentic information in the hands of a seasoned expert produces insight. Business outcomes of this would be a digital marketing strategy or product redesign plan.
4. Execution - Over time, many organisations after receiving high quality reports and business plans from consultants realised that they couldn't execute these plans as anticipated. This was due to reasons like - staff not buying in, lack of in-house expertise, etc. And then consultants would still charge for their, well, consulting.
   So more recently, fee models are changing from billable hours to incremental benefit derived. Which means that earlier if a consultant charged say ₹100 per hour spent, and spent 40 hours on the project, they would bill ₹4,000. Now, the payment model would be something like this:
   ⇒ If a consultant takes on a cost reduction assignment, and find an alternative vendor for providing raw material which results in a cost reduction of say ₹2,00,000 - the consultant would charge an agreed percentage of this incremental benefit, say 10% = ₹20,000.

What about disruptions / innovations?

Like every other established industry - startups and technopreneurs are coming for the status quo. Here are some major changes that are happening:

• Information gathering has moved on from human effort to sensors, cameras and satellites.
• Traditional consulting is getting replaced by IT consulting. Earlier, consultants would bring together data from - their clients, their in-house repositories, and extended network of domain experts to provide good-looking and well thought out presentations and reports. But now, most reports are prepared on real-time data through data visualisation and statistical tools like Tableau and R. Further, software vendors like Zoho and Intuit are providing software solutions for organisations to easily collect business data, and see it in a comprehendible format. So, part of the fee of the consultant is getting eaten by the software vendor. Which is why, consulting companies which will be successful in future would be those that offer softwares, and bundle high-quality advice and execution on top of that.
• On contract consulting is getting replaced by on demand consulting. In the internet age - Information / Advice / Insight / Execution are starting to become available on demand (on need basis, at the click of a button). Three examples - Smartkarma provides investment research from the top analysts in the world on demand. GLG provides access to the top experts in various fields on demand. Fiverr provides access to freelancers providing execution services in hundreds of categories.

Conclusion

Some believe that consulting will get sacrificed at the alter of software. I don't think so. Sure software will eat into their pie, but consulting is here to stay. Experts will always be valuable, they will just become more and more niche.

Even if one has access to the best, most beautifully presented data tools, the limiting factor in everyones life will always be time. And that's not extendible. There is value in having an expert do their job, and most importantly, leaving it to them - which is why execution will increasingly become a more important part of consulting.

Lyricist Anand Bakshi said it best - Dafli Wale... Dafli Baja...

I hope you enjoyed reading this article. Do write to me with feedback and suggestions; and do share this article with those you think would find it interesting. :)

Until next week. ✌🏼