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The Future of Consulting Reflects Its Past

By J. Hall Thorp

Over the decades, the management consulting industry has responded creatively to the changing needs of clients, leading to the growth of a thriving industry. As we consider the challenges facing clients today and in the future, it’s helpful to reflect on the historical changes in focus and methods of management consultants who came before us. The insights of history provide guidance as consultants seek the innovations to meet the future needs of clients.

Milan Kubr, an authority on the management consulting industry, reminds us that “Consultants are inventors and creators of their own markets and their future.”  In the early years of the industry, consultants built highly flexible businesses on two market realities: the rise of management as a science, and evolving economic conditions.

The result: a human capital-intensive industry with “booms” and few busts. Consulting firms have readily grown and shrank in response to client demand

The Beginning

Virtually all consulting firms in the United States at the turn of the twentieth century concentrated on specific technical answers. For example, Arthur D. Little was an MIT professor and is generally considered the first management consultant to create an entity that employed other consultants in the U.S. (1890).

At that time, management consultants were not only technically oriented, but tied to large cities, where a critical mass of clients could be served economically. In 1926, McKinsey & Company was launched to serve general management clients. McKinsey was a new type of consulting firm focused on business strategy, while also providing subject matter experts for technical issues.

The emerging economy of World War II and the post-war economic environment created new demands for consultants. As the U.S. economy grew, companies such as the Boston Consulting Group (1963) created new ways of examining industry, products, and process measures. During the 1970s, accounting firms (e.g., Arthur Anderson) and high-tech companies developed consulting practices that leveraged their on-going client relationships and augmented their core businesses.

The revenue growth of management consulting firms correlates with the general cycles of the U.S. economy. A notable exception to this trend occurred in the 1980s and 1990s when consulting firms grew faster than the economy. The resulting overcapacity forced some firms out of the market.

The future of management consulting will likely continue the historical trend of specialization—with extremely focused expertise. While this specialization has previously been industry-specific, innovative firms will provide expertise on specific management issues.

However, unlike consultancies that have historically been referred to as “boutique” firms, subject-matter expert firms will likely need to cultivate strategic alliances with other management consultants, so clients can benefit from specialization within a network of quality providers. This hub-and-spoke model will allow all aspects of knowledge that clients may need to be "plugged in" with comprehensive quality assurances.

The history of consulting is very similar to the evolution of legal, accounting, and other professional service firms. Each of these industries is primarily reactive to client demand.

Management consulting is also similar to banking. Just as banks provide financial capital, consulting provides intellectual capital. In addition to expanding product offerings, consulting firms provide their service in a manner similar to merchant banking. In merchant consulting, the consulting firm has a “net share” interest in the client. It becomes an investor. Some venture capital firms are also utilizing this approach as their investment transcends capital, and provides additional value by aligning companies in their portfolio of companies while also providing consulting services.

As inventors and creators of our own markets and future, management consultants will continue to rely on the delivery of knowledge and general economic conditions. We can benefit from examining our past to understand the types of expertise our clients need from us. This is our source of value, and as history indicates, this changes as our client’s needs change.

Consulting firms that specialize in specific aspects of organizational productivity, while creating strategic alliances with complimentary organizations (within and outside of the consulting industry), will be strategically positioned to benefit from whatever future actually unfolds.

Organizational productivity is likely to continue migrating from process to people domestically, while being more process oriented in less-developed countries. Consulting firms that focus on maximizing their clients’ employees will be well positioned. In addition, those firms willing and able to partner with clients so both parties have the same interests will likely be well-received by clients.

In conclusion, our past points to our future, but only by pointing out that our future will require creativity just as in our past. The role of innovation for consulting firms will continue to increase, not only in how we add value for our clients, but also in how we structure our practices to implement such innovative strategies.

Today, we should continue to align our firms with others that provide complimentary services and have the same organizational values and ethics, while maintaining our flexibility to respond to general economic conditions. Innovative is to the key to our prosperity.

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J. Hall C. Thorp is a Partner at Trinity Research, LLC, a private investment and working capital consulting firm in North Carolina. His firm helps clients, from start-ups to mature companies, to achieve operating efficiencies and increased value. Thorp’s areas of expertise include negotiations and organizational strategy. He can be reached at hall@wpc.net.