The five lessons consulting firms need to learn about the next generation of managed services

By Fiona Czerniawska. 

Our recent report on how the consulting delivery model could change from being an often uncomfortable and suboptimal mix of advice and implementation to a combination of deep expertise, smart software, and proprietary data (something we’ve reluctantly—in the absence of anything better—termed “managed services”) has triggered more conversations with more firms than anything else we’ve written this year. So what have we learnt?

1. There’s a huge appetite for change: Our research suggests that 90% of US executives find the idea of managed services, as we’ve defined it here, attractive. Around two-thirds of them already ask consultants to work like this to some degree, and many would like some or all of their current consulting projects to adopt this way of working. This is by far the most positive response we’ve seen from clients about any consulting opportunity this year.
2. Anything can be a managed service: Old-fashioned managed services, the kind that tied you down to long-term, disappointingly low service levels, was confined to routine tasks—necessarily so, because the cost savings came from paying people less rather than making the process better. But the clients we’ve spoken to are keen to apply this different approach to a much wider range of consulting activities. Even strategy consulting isn’t immune… 
3. Don’t expect your clients to fund your investment: Because offering managed services involves delivering software and data, not just people, consulting firms that start to work in this fashion will need to invest. Historically, this is something they’ve been bad at (remember the incubators of the dotcom boom in the late 1990s?). Partnership structures famously don’t lend themselves to long-term, large-scale investment in the way that corporate structures do, but partners are frankly deluding themselves if they think they can get around this problem by explicitly asking clients to pay for the investment. As one client we spoke to recently put it, “There’s absolutely no way we’re doing that. If anything, we expect technology to decrease fee rates.” 
4. How you position this way of working will be critical: None of these problems are insoluble. Clients are, for instance, willing to pay more for a managed service they perceive to be customised. This means that consulting firms pursuing this strategy need to think carefully about how they position their offerings. Get this right, and there’s a huge opportunity to take over work that clients currently do in-house. Get it wrong, and you could—really quite easily—halve your revenues.
5. Not having the right term is a huge barrier: You can’t buy what you can’t talk about. Our research suggests that clients have been keen to see new delivery models for years, but still struggle to articulate what they’re looking for. Either by accident or design, that’s given consulting firms an excuse to ignore both the challenge and the threat of working differently. Silence in this case has been far from golden, and the firm that’s first to talk about this approach in a clear and instantly comprehensible way stands to gain a huge competitive advantage.