Slideware to software ventures: A new kind of consulting firm

Consulting and corporate partners gear up to battle Silicon Valley startups for digital supremacy

Imagine the offices of The Boston Consulting Group (BCG), the $5b consulting firm [1].  You may visualize people drawing on white boards, debating vigorously in meetings, and crunching numbers.  And you’d mostly be right, with one exception: the Manhattan Beach offices of BCG Digital Ventures (BCGDV), BCG’s corporate startup builder, incubator, and investing vehicle. Here, Sublime Text conquers PowerPoint, and you’re as likely to see a deep V-neck as a Brooks Brothers coat.

BCGDV launched in response to the threats and opportunities of digitization, piloting a new business model and operating model launching digital startups for clients, developing internal digital IP, and making venture investments.  As it scales, it’s opening a new means for corporate titans to participate in the digitized future being created by startups and tech companies.

An opportunity and crisis

Prior to BCGDV, BCG partners had a problem.  As Silicon Valley tech rose to stratospheric valuations, established industry leaders felt increasingly threatened by the agility of startups and the potential for displacement.  Jamie Dimon’s Q2 2015 letter to J.P. Morgan shareholders sums up these sentiments best: “Silicon Valley is coming.”  [2]

Solving this particular issue for clients would require a business and operating model radically different from traditional BCG projects: enter BCGDV.

Products, startups, and investment, not recommendations

BCGDV’s first innovation was in the consulting business model itself, both in terms of the actual “product” offering, and in the economics of its delivery.

venture-rooms-at-dvmb

While BCG traditionally used variations of a fees-for-services model, digitization presented new opportunities for BCGDV: venture investment and productization of BCG IP.  These business models complement the BCGDV customer promise of building and launching digital startups that drive growth, and co-exist with BCG’s traditional fees-for-services model.

  • Building and launching startups is the core of the BCGDV offering.  While specific companies are confidential, BCGDV engages beyond strategy in the full startup lifecycle, from ideation, to product development, and commercialization.  A successful BCGDV project results in new ventures, not recommendations.
  • Investments in digital startups provide BCGDV with access to cutting-edge digital technologies that are of strategic relevance to clients.  Takt, for example, is a customer analytics and personalization startup, in which BCGDV led the $30m Series A investment [3].  Personalization is a hot topic in many client industries – retailers, financial services, and more – and as a result of this investment, BCG’s expertise in personalization is greatly enhanced.  To broaden its investment capability further, BCG became the partner and an anchor LP for B Capital Group, a new $143m venture capital fund led by Raj Ganguly and Eduardo Saverin [4].
  • Productization of IP is the final way in which BCG leverages digital to better serve clients.  Through project experience, BCG identifies common problems that can be better solved with technology solutions, and productizes them.  For example, BCG built a digital platform to help clients make optimal pricing decisions based on its experiences in pricing engagements.

Going from slides to software, however, is not trivial, and necessitates a significant evolution in BCG’s operating model in terms of recruiting and people processes.

A new operating model for new people

BCGDV has grown like a weed, from zero to 500+ people in two years, in functions that previously did not exist at BCG: product management, engineering, and design [5].  Hiring and retaining this talent is a major challenge.  Used to recruiting grad students, BCG has developed different recruiting approaches, for example working with agencies and targeting industry experts rather than new graduates.

BCG has also developed new career mechanisms for this talent, with significant implications for employee turnover and utilization.  Unlike the traditional model, BCGDV doesn’t always operate under a strict “up-or-out” policy, because of the ongoing need for expertise in niche functional topics.  BCGDV also reworked the BCG staffing model to allow junior staff to work across multiple projects, reflecting, for example, that a solution architect might not be needed in a 100% capacity.

Moving forward

Ultimately, BCGDV startups must compete with their Silicon Valley cousins.  BCGDV can take two concrete actions to hedge its eventual success:

  • Coordinate ventures across clients – By virtue of relationships, BCG is uniquely positioned to develop platforms that coordinate multiple stakeholders in an industry (e.g. comparison sites like Kayak). BCGDV should identify clients with aligned interests and help them pool resources to launch the digital business that will disrupt them – before someone else does
  • Involve outside venture funds – Scaling a true rocket startup requires hundreds of millions to billions in investment, capital beyond what BCG or its clients alone can provide

Time will tell who will be the ultimate digitization winner in consulting, but BCG is gearing up for the long haul.

(Word count: 779)

 


 

[1] Forbes, America’s Largest Private Companies, http://www.forbes.com/companies/boston-consulting-group/

[2] USA Today Money, ‘Silicon Valley is Coming’ Warns JP Morgan CEO, April 9 2015,  http://americasmarkets.usatoday.com/2015/04/09/jp-morgan-warns-silicon-valley-is-coming/

[3] Venture Beat, Takt Raises $30m Series A Funding Led By BCG Digital Ventures, July 25 2016, http://venturebeat.com/2016/07/25/takt-inc-raises-30-million-in-series-a-funding-led-by-bcg-digital-ventures/

[4] Finsmens, Eduardo Saverin’s Venture Capital Firm B Capital Group Closes Fund, at $143M, May 20 2016, http://www.finsmes.com/2016/05/eduardo-saverin-s-venture-capital-firm-b-capital-group-closes-fund-at-143m.html

[5] LinkedIn Company Pages, BCG Digital Ventures, https://www.linkedin.com/company/bcg-digital-ventures

Credit for images goes to Glassdoor, Feelgrafix, and BCG Digital Ventures

Blog post written based on publicly-available information and reflects the opinions of only the author

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7 thoughts on “Slideware to software ventures: A new kind of consulting firm

  1. Great read! The economics of DV is super interesting, especially the risk vs return. In essence there are 3 distinct bodies that are acting in parallel. DV, BCG, and B Cap, however, the reputation of BCG is tied to all three, which leads me to think if DV misses the goal on a project does BCG’s reputation take the hit? Moreover, if B Cap investments flop or the fund goes under does DV or BCG refuel it or let it fail? Also does the success the start-up have the potential to tarnish an existing client relationship BCG might have? Clearly the opposite is true, not to mention there is a large client market here that is underserved, as most BCG clients are actively thinking and spending on innovation.

  2. Great article Vince! I remember that during my previous role in the strategy group of a Fortune 500 company, executives were quite worried about digital disruption from Silicon Valley. They responded to this by creating more buffers around our core competencies to increase barriers of entry from startup disruption. Had we known about BCGDV, it would be interesting to see whether my company would be receptive to such an idea – actively disrupting it’s own model. The productization of IP is not as “out there,” and may be of interest, but I can see other forms of self-inflicted disruption (like you mentioned in this article) as being quite foreign to a long-time established company that has been set in its ways for years.

  3. Thanks for the educational piece, Vince! Given BCG’s well-established reputation as a consulting powerhouse, I think the challenges for BCGDV are as follows: 1. How to break away from its reputation of being a pure-play consulting firm, which require quite different skills from building and launching startups, and 2. how to isolate the failed BCGDV startups, such that BCG’s reputation is not tarnished. Given the aforementioned risks, it may be worthwhile for BCG to consider establishing the DV business under a brand name that is not directly associated with BCG.

  4. Vince, it was really interesting to learn about BCGDV. BCGDV seems like it also might help BCG hire and retain talented people who might otherwise jump into work at a start-up or tech company. BCG consultants could do rotations through BCGDV to further explore start-up work as opposed to having to leave BCG to get that sort of experience at another company. A rotation through BCGDV would help BCG’ers better understand if technology and start-up work was a right fit for them (vs. something they just feared missing out on), and add to BCG’s customer promise to its younger employees as the best place for talented young professionals to explore and find work at which they thrive.

  5. Interesting article Vince. To take the cynic’s perspective — it looks like BCG following the trend of *everybody* moving into the startup investing/incubation space. There was a similar trend of “old world” companies moving en masse into venture investing during the dot-com bubble, and it ended badly for almost everyone. Not saying BCG is necessarily an old world company, just something I’m thinking about. Another concern is conflict of interest. If I’m a BCG client, and they recommend a product in which the company is invested, I would be highly skeptical of its true value. To me, a lot of the value of consulting firms is their objectivity. Anything that could call that into question is a risk.

  6. Vince really interesting write-up. I would have to agree with Amelia Lee in a few perspective but one in particular: how can BCG differentiate BCGDV from its existing consulting brand? I think its critical to look at the two separately because the failure of some of BCGDV investments on the BCG brand could have some implications which is quite worrying to me. Interested to get your thoughts.

  7. Vince – great article! Really appreciate the well laid out analysis of how BCG is tackling the digitization problem. While I share some concerns about the brand issues mentioned earlier – what I worry more about is what is BCG’s right to win in this space. If I recollect correctly BCG formed a kind of quasi venture fund in the early 2000’s in partnership with a leading Bank to invest in startups that BCG would then provide consulting services to in return for shares. That venture folded rather quickly and lost a lot of money. Mckinsey also under Rajat Gupta took on startups as clients – and suffered in the Tech bubble[1]. Basically my point here is that historically consulting firms have performed poorly on similar strategies in the past. What is your take on how it is different this time and why DV can be a good bet?

    [1]https://www.washingtonpost.com/business/gupta-defied-mckinsey-before-sec-action/2011/06/07/AFUGck8G_story.html

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