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

Management consulting firms were created almost a century ago to support the growth of companies by accompanying them in their decision-making. Their core business is to formulate solutions to help their clients transform and improve their operational performance. Consulting firms also stimulate companies’ capacity for innovation, namely “the ability to constantly transform knowledge and ideas into new products, processes and systems”. But do consulting firms manage to develop this same capacity for innovation, in the service of their own activity?

This question may seem surprising if we refer to the reason of being consulting firms and the excellence they claim. However, it is clear that consulting firms are struggling to renew themselves, and tend to perpetuate a model that no longer meets certain expectations of their stakeholders.

We are rightly formulating the hypothesis that the success model of consulting firms paradoxically constitutes a brake on their capacity for innovation. Indeed, their profitability is based on the standardization of approaches that have proven themselves with other customers. Thus, their activity consists in adapting the expertise to the needs of the customers according to previously tested solutions. industrialization of this process encourages consulting firms to adopt principles of effectiveness and efficiency, which come up against the logic of innovation.

Little research has been conducted in this area, but a quick review of these principles tends to support this intuition. For example, the turnover high level of employees supposes privileging individual capacities and adaptability rather than collective intelligence. The principle of “up or out” is conducive to a highly competitive rather than collaborative environment. Finally, the relocation of the consultant’s activity to the client reduces the time for internal exchanges, particularly informal ones.

On the strength of these findings, we have collected the testimony of more than 40 consultants of all ranks and working in management consulting firms of all sizes. Based on our interviews, we dissect the different characteristics of the business model of consulting firms, and explain how they can strongly inhibit internal innovation.

A production-oriented business model

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

The resources and skills of consulting firms are globally represented by consultants. Although recruitment policies are changing, consultants are selected on very specific criteria. They come from the same major management or engineering schools, and have all the technical and behavioral skills expected. This homogeneity is necessary to ensure the quality of the services, but also to facilitate the mobility of the consultants, and to identify the talents destined to progress in the structure. On the other hand, it significantly hinders the diversity favoring the capacity for innovation within an organization.

Business

The organizational structure of consulting firms is pyramidal, generally made up of a large base of consultants, a tight pool of managers and a handful of associates. This structure involves a turnover important at the base of the pyramid, institutionalized by the practice of up or out : either the consultant is efficient and he progresses in the structure, or he leaves it. This practice is a key element in the profitability of consulting firms, by focusing the activity on production, by investing in a reduced number of high-potential consultants, and by stimulating internal competition. However, these profitability factors are detrimental to the firm’s capacity for innovation: short times, reduced internal collaboration, political games, etc. The relocation of the consultant’s activity to the client reinforces these deleterious effects.

Managerial practices are calibrated to ensure the deployment of the pyramid structure and the control of consultants. The consultant utilization rate is another fundamental element of the profitability of consulting firms. First, consulting firms all seek to optimize the rate of use of consultants, which demonstrates the primacy of production over the research activities necessary for innovation. The revenue model reinforces this preference of managers for production, since consulting firms generally charge for man-time. In the event of fluctuation in activity, managers will tend to use the best talents, who will therefore devote themselves to production, not hesitating to to work beyond the hours billed. Consequently, the priority given to using the best talents 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 “a form of classicism”. If the service must be of high quality (reinforcing the logic of internal competition), it must be comparable to that of competitors, if only to be able to estimate and negotiate its price. Also, the performance must correspond to the representations and customer mental maps. This standard has a positive impact on the other components of the business model since it makes it possible to optimize the management of resources which are themselves standardized. On the other hand, it is not likely to stimulate creativity and innovation within teams of consultants. Developing innovative services involves the risk of mortgaging significant resources and skills, to the detriment 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 the development of their capacity for innovation: imbalance between exploitation and exploration activities, lack of internal social relations, preference for short time frames.

Indeed, the emphasis placed on billable hours encourages firms to develop a culture of production at the expense of a culture of innovation. By maximizing the uptime of top talent, consulting firms are effectively devaluing exploration activities (eg studies and research, publication activities, pro-bono missions, etc.). Then, the relocation of production activities reduces the possibilities of formal and informal exchanges, catalysts for the deployment of social ties, but also for the generation of innovations. Finally, the lack of diversity, the climate of competition between peers, and the attention paid to results, place consultants in a series of short time frames, which proves detrimental to the development of a capacity for innovation 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 the business model itself which acts as an inhibitor of internal innovation. This explains why, in the majority of cases, large consulting firms are no longer known for inventing new managerial practices but rather for implementing “trendy” practices that have been proven and do not involve risks. operational.

Our analysis opens exciting avenues of reflection for research but above all for practice. First, it emphasizes the importance of assessing the business models awith regard to other variables important for their sustainability, such as the capacity for innovation. Our case shows that these assessments can question practices on the scale of an entire industry, and sometimes in a beneficial way, when these no longer correspond to the aspirations of stakeholders, such as young graduates for example. Then, our research sheds light on the duality of models, when they prove to be both formidable for ensuring the financial and commercial performance of a company, but fragile for developing sustainable sources of growth. This duality must be handled carefully by managers in order to anticipate the threat of potential new entrants to a market, likely to offer disruptive models.

Finally, we invite managers and researchers to think of innovative business models capable of covering a multiplicity of issues, sometimes antagonists, as is proving increasingly crucial in the face of the salience of social and environmental concerns. Such an approach presupposes deconstructing certain beliefs held by leaders and managers, in order to conceive of what may be paradoxical in the construction of performance.

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

<< À lire également : L’abonnement, business model d’un monde plus durable ? >>>

Leave a Comment