July 18, 2014 | Written by: Kirk-Dale
Platforms such as IBM’s Watson will augment and ultimately challenge a portion of work currently done by management consultants. Much has been written about cognitive computing applications in industries such as healthcare, financial services and retail. The professional service industry is not exempt. In fact, it will be a driving force in its adoption.
A confluence of supporting technologies is catalyzing this transformation. Firstly, the ERP revolution that has taken place over the last 30 years has provided a platform of standardized enterprise information. Secondly, integration and service-bus platforms allow access to rich complex networks of services and information both in-house and cloud based. Thirdly, analytics tools can capture, analyze and present vast quantities of data in near real-time. Fourthly, the storage and processing power required have become ubiquitous.
The consulting market today is undergoing tremendous growth, but to grow consulting firms have created a delivery model dependent upon large global resource pools. Global revenues reached $415 bn in 2013. To drive growth many firms have taken to making acquisitions. Mergers within the same segment of the services value chain (for example the Price Waterhouse merger with Coopers and Lybrand) have provided global reach and secured the positions of these firms as global leaders. Recently, firms have sought acquisitions in adjacent segments of the value chain such as the merger between PwC and Booz & Company. In all cases the business model in services firms requires a large number of junior and mid level resources relative to each partner to support healthy margins.
The changes cognitive computing bring will challenge the growth of these firms. Cognitive computing alters the resource model significantly. Reducing both the number and changing the mix of resources needed. The soft aspects of consulting – relationship and stakeholder management, change management and strategy execution are critical and would remain so. These functions tend to be driven by senior consultants and partners. Firms must still hire critical thinkers and numerate people – but they won’t need as many.
The center of gravity in these firms will move upwards and the technology will force the firms to be less highly leveraged. The corollary to needing smaller teams is that revenues will fall. That is unless the cognitive frameworks on which firms conduct their analysis can be licensed – their consulting expertise becoming their software. In addition depending on the speed of adoption by their clients, firms saddled with a large cost base will be unprepared for the change of direction.
Those who say that consulting is not an exact science and that this technology cannot be applied are short-sighted. Often there’s no single right answer to a business problem. There can however, be better and faster answers. Cognitive computing allows us to see through the entropy in business problems identifying patterns, noise and anomalies – the absence of patterns. Watson will do a better job of dealing with ambiguity and removing the biases of consultants, thereby identifying more opportunities for competitive advantage and creating greater value.
A similar thing has happened at least once before. The spreadsheet revolution allowed businesses (and consultants) to build complex models and solve problems that would have been difficult to solve prior to the spreadsheet. Had the spreadsheet never been invented consulting firms would have had to deploy significantly larger teams over a longer duration to tackle the same business problems. The spreadsheet provided firms with the opportunity to tackle complex problems with smaller teams and allowed them to re-use their analysis. They benefited from the experience curve, captured market share and grew. Far sighted firms used the technology to create new capabilities, services and revenues streams. A similar opportunity exists today.
The consulting firm’s service portfolio has never remained static. The industry has seen similar changes to those outlined on prior occasions. Today’s strategy firms perform less market research in comparison to their services portfolio in the 1990s. Even, the core capability of strategy is under duress. Strategy now represents an increasing small part of a strategy management consulting firm’s portfolio. In-house consultants and intelligent tools will reduce the number of these pure strategy engagements even further.
Can cognitive computing replace consultants altogether? No. Consulting is more than just analysis… but it will reshape the industry, providing an opportunity for and a challenge to further growth.
Kirk-Dale’s expertise focuses on operationalizing strategy, leading business transformation programs and building innovative business models. He has broad experience spanning senior roles focused on strategy, corporate turnarounds and reengineering.
KD leads Strategy & Analytics for IBM in Saudi Arabia. He is an alum of Harvard Business School, HEC Paris, The London School of Economics and The University of Oxford.
Latefah is an Associate Consultant in the Strategy & Analytics practice of IBM Middle East & Africa. She has a very good technical background with a passion for Business. She is interested in Strategy, Smarter Cities, and Watson. She holds a BA in Computer Science.