Transformation: Buzzword or boundless opportunity?

We’re a cynical bunch at Source Towers.  Last year, when we heard consulting firms talk about transformation, we suggested it was the latest in a long line of grandiose posturing unlikely to sway clients’ views, let alone their budgets.

We were wrong.  It turns out that clients have been far less dismissive than we anticipated – to the point where we estimate that between one third and two thirds of organic growth among big consulting firms in 2012 came from large-scale transformation projects.

But before we get carried away, let’s be clear about what we we’re talking about here.  Transformation isn’t the new term for one-stop-shopping but refers to a very distinct phenomenon.  Yes, transformation projects are big, but they’re also multi-functional in that they extend across multiple parts of an organisation.  They require a multi-disciplinary approach from the consulting firm in which every part requires deep specialist skills (the opposite of the one-stop-shopping idea, in fact) and they typically extend across several geographies.  “It’s hard to imagine a transformation project which doesn’t have a technology component,” one client told us – but that doesn’t mean that technology is always the driving force behind the initiative (only 40% of transformation work comes out of the IT function).  Crucially, though, transformation work is not aimed at changing how an organisation works, but what its business is.

Our research has enabled us to identify what we call the ‘transformation spiral’, the seven factors which create the circumstances in which relatively small issues or initiatives evolve into transformation programmes.  How far a consulting firm moves round and up this spiral depends on how well it is positioned against each factor.  In the early days, industry knowledge is the key.  It’s the fertilizer round the small acorn of an idea: only if you really understand – say – banking will you know that a particularly regulatory change could be a massive opportunity to do things differently. Breadth and depth of service clearly matters, as does scale, but it’s the ability to knit the two together which will prove decisive.

Some firms, even those in Tier 1, are better positioned than others and that’s already starting to drive a wedge between their performance and their competitors’.  For the latter, closing the gap will become increasingly difficult.

But there is a fly in the ointment.  A consulting world in which a greater proportion of revenue is tied up in large-scale project won’t just be uneven: it will be inherently volatile.  A single industry in a single country probably won’t be able to support more than a small number of transformation projects at any one time: if there’s even one more project than consulting firms plan for, there won’t be enough resources to go round; if there’s one fewer project, the market will suddenly and significantly contract.

Et in Arcadia ego, said the poet: even in paradise there is death.