Front- or back-office: where will your firm sit in the consulting value chain?Thursday 11th Nov, 2010One of the revolutions in financial services over the last ten years has been the increasing complexity of its supply chain. Banks sell products which other organisations develop and administer. Buy your insurance from one company and you’ll find another providing the service behind the scenes. The result is an industry increasingly polarised between front-office organisations, whose brands are household names, and back-office ones we’ve often never heard of. Something similar is happening in consulting. As the number of client organisations with preferred supplier lists grows (and it does, daily), more expenditure is being consolidated into a smaller number of consulting firms. That would seem good news for them and bad news for the mid- and small-sized firms that get squeezed out in the process. But in practice it also means that bigger firms have to provide a far wider range of specialist services, services they won’t necessarily need all the time any more than their clients do. They’ll react exactly as their clients have done, by buying in external services, typically from niche firms. From the mid- and small firm point of view, what they lose in terms of business direct from clients they’ll make up in work for the largest consulting firms. Some of this is already happening particularly in large-scale government contracts where multi-sourcing is already a fact of life. However, it tends to be offset by existing client relationships which allow even the smallest firm to circumvent procurement rules. But no client relationship lasts forever. Small firms need a constant supply of new work if they’re to survive and grow – and the prevalence of preferred supplier lists will make it harder for them to forge new relationships in the future. To compensate, they’ll increasingly look on large consulting firms as a new channel to market. This environment creates challenges for big and small firms alike. There’s a genteel scramble underway to get on the “front-office” list. By dint of their brand and size, some firms have an unassailable position, but others have a more precarious foothold. That will, I believe, trigger more consolidation along the mooted but now abandoned Booz-AT Kearney lines. The long-term question, however, is how to find the best niche firms to work with. Consulting firms are about to discover what clients have always known, that it’s hard to find reliable information about the quality of small firms’ work. Taking a more systematic approach to talent spotting will be vital. The problem for “back-office” firms is, of course, how to get noticed. Sub-contracting individual subject matter experts won’t work: it will lower margins and there’ll be nothing to stop big firms making job offers to the people they are impressed by. Thought leadership will help, but success will ultimately depend on having a tangible asset which big firms can incorporate into their process, giving due credit to the specialist firm which developed it. Such assets may take time to develop, so being systematic will be important here, too. And for both sides, time is of the essence. What will your value chain strategy be? Blog categories: |
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