Understanding demand, not supply

“The 20th century was about sorting out supply. The 21st is going to be about sorting out demand. The internet makes everything available, but mere availability is meaningless if the products remain unknown to potential buyers.”

This is what a good friend of mine, Gavin Potter, said a year or so ago, interviewed by Wired. He was actually talking about how people decide which DVD to rent, but the more I think about his comments, the more I think they apply to management consulting as well.

Let’s take the first part of Gavin’s comments first, that demand, not supply, will be the challenge in the 21st century. There isn’t, I think, a better way to sum up how the consulting industry has changed. The rapid growth consulting enjoyed towards the end of the century meant that firms’ main priority was to attract and retain the right people. Far more of their efforts were focused on this than on selling their services because, give or take the odd blip, demand was booming. That’s not what’s happened in the last ten years. Although occasionally masked by growth in – say – regulatory-driven or public sector work – the consulting industry has in general been a far tougher, more competitive environment.

Understanding demand is crucial: you can’t just assume clients will call. The “war for talent” continues, but it too needs to be fought in the context of what clients are buying, not what consulting firms are selling.

What role does the internet play in this? Primarily used by consulting firms as a vehicle to showcase their skills, it has indeed made all consulting services available to all clients. But availability by itself is meaningless, as Gavin points out. What matters is being able to match demand with supply and vice versa (the equivalent of recommendations for DVD rental). That explains the boom in thought leadership which can, at its best, deftly link clients’ needs to consulting solutions. But we’re still a long way from the equivalent of Amazon’s “if you’re interested in this, you may also like this...”

Before anyone jumps up and says that DVDs are a commodity, totally unlike consulting, let’s remember that it’s the content of DVDs which is important. Choices about what we want to watch are very finely tuned – which is why some clever maths and a lot of research underpin the online recommendations made by Amazon, Netflix and the like. The algorithms that do this kind of thing well don’t come cheap, but then there’s a lot of money to be earned from getting it right.

Most consulting firms, by contrast, spend relatively little on helping clients identify what they might want or need to buy. Other industries have become far more sophisticated in the way they understand their customers – may be consulting should do so too.