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Now, Highly Paid Consultants Are Getting Disrupted Too

2014 March 19

In the late 1960’s, minimills like Nucor started using a new process that could produce low grades of steel more efficiently than the big integrated steel makers.   These, however, were the lowest margin products in the industry and didn’t seem much of a threat to the big guys.

In The Innovator’s Dilemma, Clayton Christensen describes what happened next.  As minimill technology improved, it began producing higher grades of steel.  The integrated mills migrated upward until, by the late 1980’s, they had forfeited much of their market.

We’ve seen the same dynamic play out time and time again across a variety of industries. Digital cameras, cloud based software, rental cars, education and a host of others.  Yet now we’re starting to see it take hold in the high-brow market for professional services.  It’s still in its early stages, but history—as well as economics—doesn’t favor the incumbents.

The Freelance Revolution

In 2005, Amazon launched its Mechanical Turk service which allows people to earn money doing rudimentary tasks, like completing an Internet search or reading numbers off of an image.  Yet soon it was discovered by social science researchers, who used the service to expand survey questionnaires beyond undergraduate students and do other simple tasks.

Since then, the idea of using the Internet to match people to short term jobs has caught on. On Canada’s AskForTask you can find someone to walk your dog, clean your house or even babysit your kids.  Corporations also use the AskForTask to find people to do things like help set up for an event and test new mobile apps.

There are also services that specialize in skilled tasks.  Elance has over 3 million freelancers who are accredited in skills ranging from graphic design to data science.  TopTal focuses on “rock star” programmers who do advanced work in development languages like Ruby on Rails and Python.

Muneeb Mushtaq, CEO of AskForTask points out that the service is not so much about technology or even strictly making money, but creating connections.  People who need jobs done and people looking to earn extra money can find each other without anyone in the middle.  The result is a cheaper, more streamlined process and a new era of talent.

Those same forces are now about to disrupt highly paid consultants as well.

Upending The Agency Model

If you work with an ad agency, you are expected to go through an elaborate briefing process. First, you need to brief an account executive, who then goes back and sets up a “kick off” meeting where a large team discusses the project.  Some senior people discuss strategy for a while and before you know it, $10,000 has been billed and not a pixel moved!

John Winsor, a highly successful ad executive and entrepreneur, developed a different approach with his new company, Victors and Spoils.  Instead of keeping a full staff, it outsources its briefs to outside creatives and sees what they come up with.  The model has proven highly effective and others, such as Poptent have also sprung up.

As Winsor pointed out in a recent blog post, these trends have led clients to cut agencies out of the loop.  Why deal with the cumbersome process and high overhead of an agency when you can reach out to the talent yourself?

The “Firm” Under Attack

The holy grail of professional services are the blue chip consultancies like McKinsey and Bain.  As Duff McDonald describes in The Firm, they get paid top dollar to dole out advice to the world’s largest corporations.  Yet the truth is that, while you pay for the partners, it’s the associates that do all the work.

Rajeev Jeyakumar worked at a boutique consulting firm for five years before getting his MBA at Wharton.  While he was there, he noticed that many of his friends were doing side jobs to earn extra money.  They had become proficient in basic consulting tasks like building financial models, performing market analysis and formulating business plans.

It was with that insight that he founded SkillBridge to match consultants with companies. Most of the consultants come from top tier firms, but don’t want the the long hours and extensive travel that they demand.  Many are stay-at-home moms who want to keep their skills sharp and earn money while still maintaining a home life.

Although only active for about 10 months, the company is off to a great start.  It’s sold a few hundred thousands dollars worth of projects to a variety of firms, from mid-size private equity funds all the way up to well known names such as Estée Lauder and Warby Parker.

A Dire Need For Business Model Innovation

At an advertising agency I used to work at, one of the senior executives was fond of saying that poor execution undermined business model.  What I think she really meant was that when we screwed up, it had a deleterious effect on our P&L.  Not a tremendous insight, but a telling statement nonetheless.

What her comments showed was a complete misunderstanding of what a business model is. It is not a business plan, but a coherent logic for creating, delivering and capturing value. And when it comes to professional services, it increasingly appears that the model is broken, even if its executed well.

Clients don’t always need a big sales pitch, a hefty strategic document or to be schmoozed by senior executives.  Sometimes, they just need work done.

Of course, these new web-powered professional service organizations, much like the minimills in the steel industry a generation ago, are mostly focused on the lower end of the market.  Yet, as we’ve already seen, that can change fast and, when it does the market for professional services will likely be transformed.

– Greg

12 Responses leave one →
  1. shiv vasisht permalink
    March 19, 2014

    Brilliant! Just today McKinsey sent me a link to their service for insights. Oh the poor incumbent agency!

  2. March 19, 2014

    I think they’ll last a while longer:-)

    But it does make you wonder, what’s going to happen to the agency/consulting model? It hasn’t really been around that long and, when you think about it, there is no definitive reason it has to exist. Nevertheless, over the last few decades it has been thriving.

    What happens if top recruits start deciding that maybe they’re better off doing something else?

    – Greg

  3. March 20, 2014

    Hello Greg!

    Great glog and something Clayton also talked about in the recent in a HRB blog, “consulting on the cusp of disruption”

    Can you provide the examples of the above “variety of industries. Digital cameras, cloud based software, rental cars, education and a host of others.” Urls etc appreciated


  4. March 20, 2014

    Thanks for letting me know about the Christensen article.

    Here are some examples:

    Rental Cars: Zipcar
    Education: Khan Academy, University of Phoenix

  5. March 21, 2014

    Hi Greg,

    Great article and very true – you should check out which founded the concept of the online marketplace for ultra-skilled consultants and independent professionals.

    We have seen millions of dollars or work processed through our service that would have traditionally gone to larger consultancies. Additionally, given the large alumni from the first tier firms it is not the “know how” that companies find hard but rather the resources and the time to manage and deliver the projects. As platforms like MBA & Co eliminate this then only the very most specialist work or that which needs a brand name will remain the domain of these firms.

  6. March 23, 2014

    Thanks for the tip Daniel. Good luck with MBA & Co!

    – Greg

  7. March 23, 2014

    Thanks for the links, I’ve been looking for more ways to advance my freelance consulting business. I was let go from a large agency when the economy collapsed and found it virtually impossible to get hired again during the recovery. Not that my abilities had receded, but it seemed that most of the companies I interviewed for didn’t think a 70 year old would be a good fit. I can’t prove that to be true, but I do know when I was running my own agencies in the 1980’s that I also didn’t bring in any older professionals. So I understand the dynamic of that culture/mind-set, but as you’re written, the time and money larger agencies charge just to set a meeting is a waste and more and more entrepreneurs are realizing this.

    Now I work for many companies and seldom leave my office.

    James Morran

  8. March 23, 2014

    Good luck James!

    – Greg

  9. Karl Burns permalink
    March 24, 2014

    Hi Greg,
    Another great article. I really liked this quote:
    “Clients don’t always need a big sales pitch, a hefty strategic document or to be schmoozed by senior executives. Sometimes, they just need work done.”

    This is so true, and a testament to the large skills gap that exists. It’s not a demographic or socio-economic one, nor even an experience gap. It’s the gap between people who want to do one job and the ones who stick their necks out and try to create something out of nothing. Too often, it’s that timidity (and fear of making a mistake) that keeps groups or divisions from reaching new heights. There are many times I’ve seen high-priced consultants doing work that someone 10 years young could (should) actually be doing, but nobody from the client had thought of it or had the will to take it on.
    THIS is a skills-gap that will continue for a while.

  10. March 26, 2014

    Yes. It’s very common. Usually, the associates do the bulk of the work, but partners take the meetings.

    – Greg

  11. March 29, 2014

    That’s what happened in the Mystery Shopping industry. Large companies began to use mystery shopping companies to get low paid jobbers to stock shelves, check on competitors and the like. Putting their loyal route drivers off the company insurance, salary, etc.

  12. March 29, 2014

    That’s the way it was everywhere. Younger, cheaper and more easily taken advantaged of kids for labor is what’s happening more and more, James.

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