What if your business model prevents you from innovating? The case of consulting firms

Management consulting firms were created nearly a century ago to support the growth of companies by accompanying them in decision making. Their primary job is to formulate solutions to help their clients transform and improve their operational performance. Consulting firms also stimulate firms’ capacity to innovate, that is, “the ability to continually transform knowledge and ideas into new products, processes, and systems.” But will consulting firms succeed in developing the same capacity for innovation to serve their own business?

This question may seem surprising if we refer to it Cause of existence Consulting firms and excellence they claim. However, it is clear that consulting firms are struggling to reinvent themselves, and tend to perpetuate a model that no longer meets certain stakeholder expectations.

We are right in formulating the hypothesis that the success model of consulting firms is, paradoxically, a brake on their ability to innovate. In fact, its profitability depends on the consolidation of methods that have proven themselves with other clients. Thus, their activity is to adapt expertise to customer needs according to previously tested solutions. manufacturing This process encourages consulting firms to embrace the principles of effectiveness and efficiency, which go against the logic of innovation.

Little research has been done in this area, but a quick review of these principles tends to support this intuition. For example, file rotation The high level of employees assumes the excellence of individual abilities and adaptability rather than collective intelligence. principle “up or out” It is conducive to a highly competitive environment rather than a collaborative one. Finally, the transfer of advisor activity to the client reduces the time for internal exchanges, especially informal exchanges.

Building on the strength of these findings, we have collected the testimonies of more than 40 consultants of all ranks who work for management consulting firms of all sizes. Based on our interviews, we dissect different characteristics of the consulting firms’ business model, and explain how they can severely inhibit internal innovation.

Production oriented business model

Using the RCOV model (see box below), we formalized the business model of consulting firms to identify their most salient characteristics and assess their relationship to innovation capacity.

The resources and skills of consulting firms are represented globally by consultants. Although hiring policies change, consultants are selected according to very specific criteria. They come from the same major management or engineering schools, and have all the expected technical and behavioral skills. This homogeneity is necessary to ensure the quality of services, but also to facilitate the mobility of consultants, and to identify talent oriented to advancement in the structure. On the other hand, it greatly hampers diversity in favor of the ability to innovate within the organisation.

a job

The organizational structure of consulting firms is hierarchical, and generally consists of a large base of consultants, a narrow group of managers and a handful of colleagues. This structure includes a rotation Mission at the base of the pyramid, institutional through practice up or out : Either the advisor is competent and advances in the structure or leaves him. This practice is a key component of the profitability of consulting firms, by focusing activity on production, by investing in fewer high-potential consultants, and by stimulating internal competition. However, such profitability factors are detrimental to the company’s ability to innovate: short periods, low internal cooperation, political games, etc. Transfer of the consultant’s activity to the client reinforces these adverse effects.

Management practices are calibrated to ensure that the hierarchical structure is deployed and consultants are monitored. Consultant utilization rate is another key component of the profitability of consulting firms. First, all consulting firms strive to improve the rate of use of consultants, demonstrating the priority of production over research activities necessary for innovation. This revenue model reinforces managers’ preference for production, because consulting firms generally charge for work time. In case of fluctuation in activity, managers tend to use the best talent, who will therefore devote themselves to production, without hesitation. for work After billing hours. Thus, the priority given to using the best talent for productive ends diverts them from innovation practices.

These practices support the value proposition of consulting firms, which is also relatively standardized. Contrary to what one might imagine, clients of consulting firms expect “some form of classic”. If the service is to be of high quality (enhance the logic of internal competition), it must be comparable with competitors, so you can estimate and negotiate its price. Also, the Service must comply with the representations and Customer mind maps. This criterion has a positive effect on other components of the business model because it makes it possible to improve the management of resources that are themselves standardized. On the other hand, it is unlikely to stimulate creativity and innovation within consultant teams. The development of innovative services runs the risk of mortgaging significant resources and skills at the expense of production, with no guarantee of commercial success.

A business model that inhibits innovation?

Analysis of the business model of consulting firms has enabled us to identify three main obstacles to developing their innovation capacity: imbalance between exploitation and exploration activities, lack of internal social relationships, and preference for short time frames.

In fact, the focus on billable hours encourages companies to develop a culture of production at the expense of a culture of innovation. By maximizing the uptime of the best talent, consulting firms effectively reduce their value Exploration activities (For example, studies and research, publishing activities, free missions, etc.). Subsequently, the transfer of production activities reduces the possibilities of formal and informal exchanges, incentives for the dissemination of social ties, but also for the generation of innovations. Finally, a lack of diversity, a climate of competition between peers, and concern for results put consultants in a series of short time frames, detrimental to the development of innovation capacity within consulting firms. In this sense, our research shows that for the consulting industry (as well as for other industries with similar business models), it is business model itself that acts as a disincentive to internal innovation. This explains why, in most cases, large consulting firms are no longer known for inventing new management practices but instead to implement “modern” practices that have been proven without risk.

Our analysis opens up thought-provoking avenues for research but above all for practice. First, it emphasizes the importance of evaluating business models aRegarding other variables important to its sustainability, such as the ability to innovate. Our case shows that these assessments can call into question practices across an entire industry, sometimes in a useful way, when these do not align with the aspirations of stakeholders, such as young graduates for example. Our research then sheds light on duality of models, when it proves to be formidable in ensuring a company’s financial and business performance, but fragile in developing sustainable sources of growth. This duplication must be handled carefully by managers in order to anticipate the threat of potential new entrants to the market, who are likely to introduce disruptive models.

Finally, we invite managers and researchers to think of innovative business models that can cover many issues, sometimes opponentsIt is also proving increasingly important in the face of emerging social and environmental concerns. Such an approach presupposes deconstructing certain beliefs of leaders and managers, in order to visualize what might be contradictory in the construction of performance.

The article was co-written with Fernanda Areola, Dean of the Faculty at ISC Paris.

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