Earlier last week, Bloomberg reported that McKinsey, the firm synonymous with an MBA, is laying off workers: “The management-consulting giant McKinsey is dangling career-coaching services and nine months’ worth of pay to staffers keen on leaving the firm, the British newspaper
This is a great, comprehensive summary of the industry. Would it be correct to infer that they took the wrong signal in inferring the rise of market demand as being evolutionary rather than temporary as a result of COVID?
The other issue is that most solutions that can be “productized” by consultancies can eventually be competed away by other firms. For example, ZS Associates pioneered sales force structure models that relied on leveraging client data and intensive data processing to product optimal sales force sizing and territory structure recommendations. The combination of knowing how to structure and use client data, analytical models, and compute capacity was both unique to ZS and hard to replicate. But now you can buy software that does everything but the first and it’s often acceptable to spend 20% as much for 50-80% of the result.
I’m curious why back-end cost improvements don’t lead to margin expansion over time. All these firms have invested in automating and offshoring tasks. If billable revenue per consultant has stayed steady, why don’t costs go down over time? Is it cost inflation or something else? I would think that there is a scale advantage here where both boutique firms lack the scale to invest in and effectively manage these and clients lack the will and expertise.
"Another way to put it is that firms make money by monetizing billable hours (some of you said 'meaningless decks,' but the author behind this newsletter is better than that)." 😂
This is a great, comprehensive summary of the industry. Would it be correct to infer that they took the wrong signal in inferring the rise of market demand as being evolutionary rather than temporary as a result of COVID?
The other issue is that most solutions that can be “productized” by consultancies can eventually be competed away by other firms. For example, ZS Associates pioneered sales force structure models that relied on leveraging client data and intensive data processing to product optimal sales force sizing and territory structure recommendations. The combination of knowing how to structure and use client data, analytical models, and compute capacity was both unique to ZS and hard to replicate. But now you can buy software that does everything but the first and it’s often acceptable to spend 20% as much for 50-80% of the result.
I’m curious why back-end cost improvements don’t lead to margin expansion over time. All these firms have invested in automating and offshoring tasks. If billable revenue per consultant has stayed steady, why don’t costs go down over time? Is it cost inflation or something else? I would think that there is a scale advantage here where both boutique firms lack the scale to invest in and effectively manage these and clients lack the will and expertise.
"Another way to put it is that firms make money by monetizing billable hours (some of you said 'meaningless decks,' but the author behind this newsletter is better than that)." 😂
Excellent!