Are we approaching the end of management consulting?

HourlyNerd is changing the consulting industry and serving clients with lower willingness to pay.

When considering career options, most MBAs will try their hand at management consulting.  Consulting is an industry that has been around for over a century, [1] but is it truly immune to the disruption of technology?

Business Model

Consulting companies thrive on providing high value-add solutions to clients by using talented employees and intellectual property. The consulting firms give the client access to experts that the client would not traditionally have access to and institutional knowledge that the firm has built up from multiple years of operation. Access to experts and highly talented individuals often allows the clients to transform their business.

Operating Model

The current operating model involves a client contacting a consulting firm for an engagement and presenting a major business problem to the consultants. The consultant adds value to client by aggregating knowledge from various stakeholders and providing more dedicated resources for the problem [2]. After research, a consultant will use internal firm experts, trusted external firm experts, and internal knowledge database to develop the best solution. As a result, the consultant will develop a solution that incorporates information from various sources.

consulting_operating_model

Chart 1: Management Consulting Operating Model

The current business and operating models provide great value to the clients, but what about the clients that have already identified the problem and are searching for technical experts to develop solutions?

This segment of the market that usually do not require the same level of guidance for problem research and have a lower willingness to pay for consulting services, and thereby are priced out of the market. Moreover, research has shown that, “at traditional strategy-consulting firms, the share of work that is classic strategy is now about 20% – down from 60% to 70% some 30 years ago” [3]. Hence, clients are requiring more analytical solutions from consultant firms and requiring that consulting firms lower their prices. In recent years, the improvement in technology has allowed new startups to fulfill the business need for the companies with lower willingness to pay but with a need for industry level expertise. The innovation in technology has allowed for the development of companies such as HourlyNerd. HourlyNerd’s business model is to provide valuable insights to price conscious clients.

So how is HourlyNerd able to provide clients with a cheaper alternative to management consulting firms?

hourlynerd_operating_model

Chart 2: HourlyNerd’s Operating Model

 

HourlyNerd’s technology enabled marketplace has created a new market that allows clients to connect directly with experts. The following factors are how HourlyNerd is able to use technology to create a two-sided market [4]:

Client

  • Connection to Experts
    • The clients are able to communicate with experts that they might not have access to [5].
  • Lower Billing Rates
    • The platform connects experienced professionals, so HourlyNerd does not spend money on recruiting and training for consultants.
    • The consultants are not employees of HourlyNerd, so HourlyNerd does not have to pay the consultants a salary when they are not working on a project [6].
    • HourlyNerd does not have to pay for real estate for employees because consultants work remotely, therefore lowering operating cost [5].
  • Quality Assurance
    • The digital rating system allows for clients to find high quality consultants on the platform.

Consultants

  • Better work/life balance
    • The consultants are able to choose theirs hours and free to accept/decline job requests [7].
  • Less required travel
    • The consultant has the option to travel to the client location or work remotely [7].
  • More pay
    • Since the platform requires less overhead compared to the typical management consulting firm, a higher percentage of the bill rate is going towards the consultant [7].
  • Job security
    • From the large user base, the consultant will have more project opportunities.

 

Through the use of technology, HourlyNerd is able to create a new business model that serves the need of companies with lower willingness to pay. Is it possible for HourlyNerd to take more market share from the traditional consulting firms?

Company Improvements

The biggest area of improvement for HourlyNerd is to capture the knowledge and expertise of their primary human capital assets – the consultants. Knowledge capture prevents future consultants from having to reinvent solutions that others have already created. Additionally, the company might consider changing the business to reseller model [8] in which HourlyNerd performs the screening of consultants. Research shows that the platforms lose customers because of lack of trust of the platform [9]. The third area of improvement is around pricing. Currently the clients do not have to pay for the consultant’s service if they are satisfied with the service. Although this incentive works great to attract customers, I question the value of subsidizing customer’s experience for one time users. The company should perform more research on the lifetime value of the free clients [10].

Word Count: 791

Sources:

  1. Arthur D. Little Corporation, “Who says it can’t be done?” http://www.adlittle.com/, accessed November 2016.
  2. Raj Ramanan, “What value do consulting firms like McKinsey, Bain, Et Al. Really Add To An Operation?” Quora Corporation, July 9, 2012, http://www.forbes.com/sites/quora/2012/07/09/what-value-do-consulting-firms-like-mckinsey-bain-et-al-really-add-to-an-operation/#13f7d8c97225, accessed November 2016.
  3. Clayton M. Christensen, Dina Wang, and Derek van Bever, “Consulting on the Cusp of Disruption”, Harvard Business Review, October 2013, https://hbr.org/2013/10/consulting-on-the-cusp-of-disruption, accessed November 2016.
  4. Thomas R. Eisenmann, Geoffrey G. Parker, and Marshall W. Van Alstyne, “Strategies for Two-Sided Markets,” Harvard Business Review, October 2006, https://hbr.org/2006/10/strategies-for-two-sided-markets, accessed November 2016.
  5. Benjamin Edelman, “How to Launch Your Digital Platform,” Harvard Business Review, April 2015, https://hbr.org/2015/04/how-to-launch-your-digital-platform/, accessed November 2016.
  6. Dina Wang, “Revenge of the HourlyNerds,” Harvard Business Review, September 18, 2013, https://hbr.org/2013/09/revenge-of-the-hourlynerds, accessed November 2016.
  7. Mark Garrison, “A startup is disrupting the consulting industry,” Marketplace Organization, December 9, 2015, https://www.marketplace.org/2015/12/09/business/startup-disrupting-consulting-industry, accessed November 2016.
  8. Andrei Hagiu and Julian Wright, “Do You Really Want to Be an eBay?” Harvard Business Review, March 2013, https://hbr.org/2013/03/do-you-really-want-to-be-an-ebay, accessed November 2016.
  9. Andrei Hagiu and Simon Rothman, “Network Effects Aren’t Enough,” Harvard Business Review, April 2016, https://hbr.org/2016/04/network-effects-arent-enough, accessed November 2016.
  10. Sunil Gupta and Carl F. Mela, “What Is a Free Customer Worth?” Harvard Business Review, November 2008, https://hbr.org/2008/11/what-is-a-free-customer-worth, accessed November 2016.

 

Previous:

When the Success of Digital Transformation is a Matter of Life and Death

Next:

How Netflix Became Chill

17 thoughts on “Are we approaching the end of management consulting?

  1. Interesting! While I do agree that Hourly Nerd could solve questions that are highly limited in scope, the key assumption in the appeal of Hourly Nerd’s main value proposition is that the work that has shifted outside of classic strategy (80%) is in the analytics field and that the opinion of one expert is sufficient to analyze the entire problem.

    However, what is actually happening is that “other” work is shifting towards implementation, project management, post-merger integration, operations, etc. [1] – all of which require more of a human touch and face time to work because it involves soft skills and convincing people to get on board with management-provided strategy and ensuring proper on-field execution.

    Additionally, this type of work typically requires larger teams with more experts than just the one that Hourly Nerd believes is sufficient for the job because to come to an accurate and balanced conclusion, you will likely need to factor in the viewpoints of multiple experts.

    Source:
    [1] The Economist, “To the brainy, the spoils” (May 11, 2013), http://www.economist.com/news/business/21577376-world-grows-more-confusing-demand-clever-consultants-booming-brainy

  2. I find this article fascinating, and it brings up the age-old question: what are consultants actually worth? While it is simple that HourlyNerd can be paired with a client directly, ask client to define the problem and then solve it, I wonder if there is value lost without the teamwork in a typical consulting engagement. Part of the traditional management consulting proposition is to guide the client in solving for the right problems. Sometimes clients do not know what the underlying right problem is, and it takes years of experience from senior partners with expertise to develop an intuition for the root cause. Another issue is the branding. Whether it is right or not, many times companies hire big consulting companies to buy reassurance through the brand name (aka, the analysis has been verified by XYZ consulting company). This provides leverage for a specific decision to present to the board. While HourlyNerd employees may come to the right answer, that is only half the battle. The other half is to get buy-in from the key stakeholders of the client, which requires a lot of soft skills and networking skills developed through a typical consulting path.

  3. I was familiar with HourlyNerd before but was never sure how exactly it differs from traditional consulting. Your article sums it up quite clearly. The flow charts provide a great visual aid to understanding the difference.
    Something I would like to know more about that your article does not provide is the type of people that actually work as consultants for HourlyNerd. Are they similar to traditional consultants or do they generally differ in certain ways.
    Also, I would be interested in knowing the compensation for the consultants as being able to work anywhere eliminates a huge problem for the work like balance of traditional consultants.

  4. Hourly Nerd has an interesting value proposition. However, it may be at risk as consulting firms come under increasing pressure to provide better work-life balance to retain top employees. If consulting firms are able to better negotiate hours or staff larger teams of consultants, they may continue to have a competitive edge. They are able to offer compensation packages that are more stable and competitive than freelance consultants. Additionally, consultants through Hourly Nerd may actually have to work longer hours to ensure a “satisfied client” whereas consulting firms can better ensure payment for its employees.

    Finally, as consulting firms focus on developing their digital capabilities, they may hold a competitive edge over freelance, siloed consultants who can’t provide best-in class services because they aren’t part of an organized network.

  5. Interesting article. Hourly Nerd seems to be a unique threat to the traditional management consulting industry. As previously stated above in a comment, there has been a trend recently of the top firms focusing on operations and implementation more then in the past. As this the rapid growth of operations practices slow down I would be interested to see how clients respond to high cost consultants doing operational work and whether the cost per engagement will result in clients switching to cheaper alternatives like Hourly Nerd.

  6. This is a really interesting article – I had thought of Hourly Nerd as more of a “transactional” type of consulting versus “relationship” based, as I tend to think of the traditional management consulting industry. I definitely think there is value that Hourly Nerd provides to clients who are looking for a fast solution to a focused problem, but one concern I have is around the long-term sustainability of the solution. Given that in Hourly Nerd, consultants can choose to work on a client’s problem without truly needing to build a long-term relationship with that client, I wonder if the solutions that are provided to the client through Hourly Nerd are sustainable. When I think of a traditional consulting setting, the consulting firm aims to build a long-term relationship with its clients, so it can receive future work from the clients. In this case, the consulting firm would generally provide solutions that are not only valuable for the short-term, but also sustainable in the long run. Depending on what type of clients Hourly Nerd is looking to attract in the future, the firm will need to consider whether its competitive advantage will be in providing short-term but fast and viable solutions (as it currently is doing), or in providing sustainable, long-term solutions to retain its client base.

  7. Thanks for the article! I would be curious to understand how the major management consulting firms are responding to the threat that Hourly Nerd represents; is there a large enough barrier to entry that McKinsey, for example, could not beat Hourly Nerd at its own game? Or is the ROI not worth it for management consulting firms to play in this space (e.g., cannibalizing their own business)? The value proposition of Hourly Nerd is strong – I just wonder how defensible it is in the long-term.

  8. Thanks for the article – I thought it was really interesting and can see a lot of parallels to the Uber platform as HourlyNerd essentially sounds like a technology platform that connects consultants with businesses who need help. Two points I’d like to make, however: 1) I think HourlyNerd will be limited to the SMB space as large corporations probably have much more complicated problems that need teams of consultants to advise them. However, there are a lot of small to medium sized businesses who need some accounting guidance or simple supply chain / buying advice, which is where I see the company’s value proposition being. However, one potential expansion area would be for HourlyNerd to create consultant teams who are able to tackle some of the more sophisticated problems. 2) As I think about how HourlyNerd should go about pricing, I wonder if a commission based pricing scheme (a la Uber) or subscription based scheme (a la Angie’s List), or a combination of both, would be fair.

  9. I believe that Hourly Nerd is expanding into an untapped market, but is not necessarily threatening traditional strategy consulting firms. Hourly Nerd is selling small projects to corporate clients, projects that would normally be done in-house by a company’s employees, or not done at all. The big, transformational projects for most Fortune 500 companies are still going to be done by traditional consulting firms (for reasons that Jolynn and Katherine outlined above). Additionally, I don’t believe that Hourly Nerd is poaching talent from McKinsey, BCG, Bain or Deloitte. Since most traditional consulting firms operate with an “up or out” model, I imagine that many of Hourly Nerd’s contractors would not have had long term careers at traditional consulting firms (due to poor performance reviews that forced them out, or a need for part-time work that traditional firms don’t offer). So in summary, I think that Hourly Nerd will continue to be successful as a niche player by tapping an unmet need (for smaller, cheaper projects that companies used to do in-house or simply ignore), but that they do not represent a large threat to traditional strategy consulting firms. I think the biggest threat to strategy consulting firms comes from large clients who have decided to develop in-house strategy teams, eliminating the need to bring on a high-priced consultant contractor.

  10. Super interesting article. I’ve always been a bit confused myself about how defensible the management/strategy consulting value proposition was given the fees they charge, so am fascinated by a company that is trying to attack it. HourlyNerd’s use of technology to connect companies with particular consultants does seem like an interesting way to serve a clientele with a lower price point, but I do wonder if they are truly leveraging all the potential of their platform to provide higher value added services or to begin providing services to higher margin customers.

    For instance, you mentioned in your article how traditional management consulting firms provide a lot of the value they deliver to customers by aggregating expertise from various internal and external expertise and resources. It seems like the current business model, in which a single consultant is matched with the firm, is unable to provide analogous services. I wonder whether HourlyNerd could also use its platform to allow individual consultants to join teams from each project on a per-project basis, to allow companies to customize expertise in different areas as well as leverage the aggregation of expertise in a similar manner to traditional consulting firms.

  11. I’ve done a bunch of work through HourlyNerd (IT/tech consulting), and I do think it is becoming more of a threat to the traditional consulting article. At first HN (now “Catalant”) focused more on small and medium businesses who are left out of the consulting industry, but now they are working hard on solutions for larger enterprise customers.

    Their network is strong, their client base is growing. Traditional firms should be worried.

  12. Really interesting to hear about HourlyNerd. I can see that this has the potential to be very valuable for companies grappling with particular kinds of problems, though agree with Laura that this is likely not taking away business from firms like McKinsey, BCG or Bain as typically companies choose these firms where there is a higher level of ambiguity and a lot of value at stake (to justify the fees). I actually see HourlyNerd as more disruptive to businesses like recruiting firms who connect Fortune 500 companies to flexible temp labor. HourlyNerd’s platform dis-intermediates these firms by allowing companies to connect directly with talent.

    I’d be interested to understand how the manage development, feedback and performance management for their consulting contractors? Professional development is part of the core value proposition to employees at traditional consulting firms, which I imagine is trickier for HourlyNerd to provide when consultants are working as sole contributors at a client rather than in teams.

  13. Thanks for the article. I wonder the role that traditional management consulting companies have in legitimizing HourlyNerd consultants, i.e., do companies choose HourlyNerd consultants because they list BCG etc. as a prior employer? If so, it presents an interesting question about how churn from consulting could be coming back to bite consulting firms, although Laura provided a compelling argument against that above. Second, I agree with the question posed about could consulting firms disrupt themselves – could a BCG or McKinsey branded platform service be truly additive to those firms? BCGD – BCG Digital – could do the same thing but with much more cache, depending on the cannibalization impacts.

  14. My neighbor works at this startup and i am still just as fascinated by it now as when I first learned about it a few months ago. The good news is that clients, Hourly Nerd, and HN consultants benefit at the expense of the management consulting golden goose. Clients are matched with specialized consultants at reasonable prices, and “freelance” consultants benefit with work-life balance and flexibility – what’s not to like?

    One caveat however, is that HN likely appeals most to veteran consultants, those who have spent a few years at large firms and can hold their own in the freelance market. Younger consultants may be better served by the structured training programs at large firms.

  15. Great article! I love the comparative use of the diagrams and it seems to have inspired a lively conversation in the comments.

    Like Sarah mentioned, this company seems like the Uber of consulting so I wonder how it deals with many of the same problems that face the car company namely quality and the sustainability of their position in the future. The mechanism of only requiring payment when the customer is satisfied after the engagement is helpful in ensuring the customer’s experience but it seems to lack actionable guidance that could help to prevent that dissatisfaction in the future. This may also hurt their ability to attract top talent as the consultant is not provided with a mechanism to deal with a particularly bad client. In contrast, Uber is able to achieve this through their two-way feedback system. Finally, I am skeptical of their ability to grow in the future. Like Uber, it seems like this model could easily be copied, particularly by one of the larger, more established firms. As a result of low barriers of entry, I doubt their ability to truly threaten the traditional model.

  16. Amazing idea and company. We have a similar success story in Turkey. That is a perfect application of crowdsourcing. I believe that most value from HourlyNerd could be captured when global experts/talents meet with local demands. There is a huge talent oversupply and overdemand across countries where HourlyNerd can capture arbitrage opportunities. In addition, I do not belive that this model will bring any end to consulting based on my experience. On the contrary, consulting industry will benefit from access to a larger network of experts and and shift more focus on creating synergies between experts and consultants.

  17. Though I do not believe HourlyNerd and some of the major consulting firms (McKinsey, BCG, Bain, etc) will be in direct competition, I do think some of the smaller boutique firms could be at risk. Ross Galloway’s recommendation for creating a BCG-Digital consulting platform is a very interesting one. Any one of the top firms would have stronger credibility and customer trust compared to HourlyNerd and this site could serve as a platform to upsell new customers or to develop smaller clients into bigger ones someday. Great article and thanks for sharing!

Leave a comment