The three stages of commoditisation

Consulting is always being commoditised but has yet to become a commodity.

Commoditisation has always snapped at the heels of the industry, but emerging challenges and new technologies has historically allowed the industry, on balance, to stay ahead. And that’s what consultants do: they keep on running.

But just occasionally it’s worth looking back over our shoulders to understand exactly how and why consulting services become commoditised. After all, if we could slow down that process, perhaps we wouldn’t be so breathless.

The first and most familiar stage of commoditisation is when clients believe that many firms are capable of offering the same service. All are equally well-qualified and are therefore interchangeable, allowing clients to substitute one firm for another. Price competition and falling margins are the obvious results. The frontline of defence here is innovation and differentiation: if firms have something unique to say or do, then clients have no choice but to hire them to do it. For the moment, however, this strategy appears to have all the resilience of the Maginot Line: the consulting landscape is dotted with concrete fortifications, each claiming to a new idea or service, which clients have simply gone round.

And that brings us to the second stage of commoditisation – and the second line of defence. It’s a small practical step, but a huge conceptual leap, for clients who believe that every consulting firm offers the same service to decide to do it themselves. If the skills required are abundant externally, then they can be found internally or recruited. Consulting firms have to respond by saying that it’s not what they do, but how they do it, that’s different. Clients work too slowly, the argument goes; they get bogged down in internal politics and distracted by the workaday issues. And this is actually where the battle is being fought at the moment: you just need to see how much consulting firms stress how the “experience” of working with them is different to understand that.
It’s a difficult thing to articulate in general terms and it poses some genuine challenges for consulting firms in terms of consistency of delivery. And it’s not clear that the battle is being won: during the recession, many big client organisations, motivated by spare capacity and a need to cut consulting budgets, are doing more for themselves.

And the third stage of commoditisation? It’s when what started out as a consulting project and then became an internal initiative evolves into something people do without thinking. It’s when something ceases to be special. Thus, you could argue that change management, which was the preserve of consultants before being taken over by internal staff, is now regarded as a skill everyone should have. We don’t need projects to manage change, because it’s just what we do. This is, of course, the big battle and the last battle – and I’m not sure the consulting industry has any defence for this. It’s when “consulting” isn’t something we bring in people to do from the outside, or do internally, it’s the way we all work, all of the time.