The landscape of management consultancy has dramatically shifted over the years, particularly over the last decade, with an increased emphasis on long-term strategic consulting rather than the traditional short-term problem-solving model. Many strategic consulting firms, including multinational giants, have altered their approach to engage clients through a more stake-based model. Before exploring the specifics, let's understand how business strategy consulting assists clients and the value it provides.
What is the impact of strategic consulting?
A Harvard Business Review article describes the goal of strategy consultancies as offering advice to companies and aiding in the implementation of these recommendations, thereby elevating the company's performance. Eight key objectives can summarize the role of strategy consulting:
- Delivering client-specific information.
- Addressing a client's challenges.
- Diagnosing the issue, potentially leading to a redefinition of the problem.
- Providing recommendations grounded in the diagnosis.
- Assisting with the execution of suggested solutions.
- Creating a consensus and commitment to necessary changes.
- Promoting client learning — teaching clients to handle similar future issues.
- Enhancing the organization's effectiveness on a permanent basis.
In his exploration of strategic consulting fundamentals, Arthur N. Turner asserts, “The last three goals, although derived from earlier objectives, are vital to successful consulting, even if they aren't recognized as explicit goals at the project's inception.”
In summary, strategic consulting is a long-term approach that deeply involves the business strategy consultant from the initial stages to a more result-driven conclusion. To address common client concerns that consulting companies face no real repercussions if their recommendations fail, these companies have started to engage with their clients by having their own “skin in the game”.
The stake-based model of consulting
This model emphasizes the consulting firm's role in guiding clients towards their goals and aligning the firm's revenue to the client's successes. For example, a consulting firm might base a portion of its payment on the increased sales revenue resulting from its strategies. This could be either actual sales or projected sales derived from the implementation in specific regions.
Another common method used by strategic consultants involves their direct involvement in the implementation of cost-cutting measures, with part of the savings paid out to the consulting firm. This payment approach, known as contingent pricing or variable fees, links the consultant's payment to hitting specific performance targets, including equity payment instead of standard fees.
With an increasing number of clients seeking a risk-sharing model of consulting, more consulting firms are exploring models that benefit both parties. Long before Nassim Nicholas Taleb introduced his book, “Skin in the Game,” in 2017, many strategic consulting firms had already embraced this model, albeit without formalizing it in their marketing materials.
Leading strategic consulting firms adopting the stake-based model
From multinational heavyweights like IBM and Accenture to smaller firms, an increasing number of consultancies now offer strategic consulting with some degree of stake. For example, Accenture agreed to waive most of its fees for a five-year, Can$240-million reengineering project until it started delivering cost savings.
The Seattle-based company Slalom launched Slalom Build in 2018, which serves firms that require top-tier product development but lack the resources to build it in-house. Similarly, The Parthenon Group is bucking the trend in this traditionally risk-averse industry.
Celerant Consulting operates under a clear philosophy: it forfeits a portion of its fees if its consultants fail to meet expectations, a policy applicable to at least 75% of its engagements.
While this model is not yet widespread among Indian strategic consulting firms, some, including a Mumbai-based firm called Vector Consulting Group, have adopted it. A Business Today article reports that over 40% of this firm's total revenues come from variable fees tied to its clients' actual gains.
In essence, the consulting industry is undergoing significant transformations.
