Technology Business Research, Inc.The Future of Consulting Services: AI, Fixed Pricing and Managed Services
Episode highlights:
- Engagements: Outcome-driven versus fixed-price
- Consulting model evolution
- HCLTech’s alliance and acquisition strategy
“Some of the key elements I would say, I think the key trends in the market and the market influencers were definitely heavy on how we look at it. You can look at some of the disruptors like AI; fixed pricing is really changing how these companies are going to have to structure their contracts going forward; the talent composition, how that’s changing; and then the geopolitics situation, which is always changing, plays a role. The evolution of the consulting space, though, is definitely a key thing, and that makes it harder because you don’t know what it’s actually going to look like in five years, let alone two years from now. And so, what is encompassed in that evolution? We’re going to see these new businesses emerging, look at managed services, how much that’s grown over the past five years, not necessarily in terms of revenue but the prevalence of it and how the companies are coming out,” said Lesiczka.
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The Future of Consulting Services: AI, Fixed Pricing and Managed Services
TBR Talks Host Patrick Heffernan: Welcome to TBR Talks: Decoding Strategies and Ecosystems of the Globe’s Top Tech Firms. Where we talk business model disruption in the broad technology ecosystem, from management consultancies to systems integrators, hyperscalers to independent software vendors, telecom operators to network and infrastructure vendors, and chip manufacturers to value-added resellers. We’ll be answering some of the key intelligence questions we’ve heard from executives and business unit leaders among the leading professional IT services and telecom vendors.
I’m Patrick Heffernan, Principal Analyst, and today we’ll be talking about TBR’s new Consulting and Systems Integration Market Forecast with Kelly Lesiczka, Senior Analyst in TBR’s Professional Services Practice.
How TBR approached creating the Consulting & Systems Integration Market Forecast
Kelly, welcome back to TBR Talks. Very excited to have you here.
Kelly Lesiczka, TBR Senior Analyst: Yeah, thank you. I feel like it’s been so long.
Patrick: It probably has been, but what we’re going to dive into today is a market forecast. And speaking about so long, I resisted for a long time doing market forecasts just because I was kind of afraid that it was the equivalent of throwing darts at a dartboard and saying what was the growth rate going to be? But as a team, we came up with an approach to doing market forecasts across professional, IT services, consulting and systems integration, and then the federal IT services space. So, you had the honor, the privilege of doing consulting and systems integration. So, tell us about what that was like, and then what does the forecast end up looking like coming out of all the research?
Kelly: Yeah, sure. So, thinking about the market forecast, I think it’s kind of tricky, as you said, just kind of throwing a dart. It’s hard to get a real grasp on what the entire market looks like. And I think it kind of goes back to the essence of what TBR is and thinking about who the existing players are and what they’re doing. So, looking at what we closely track and then seeing directionally where they’re going, where they’re headed, what they’re trying to do. And then some of the key elements I would say, I think the key trends in the market and the market influencers were definitely heavy on how we look at it. You can look at some of the key elements I would say, I think the key trends in the market and the market influencers were definitely heavy on how we look at it. You can look at some of the disruptors like AI, fixed pricing is really changing how these companies are going to have to structure their contracts going forward, the talent composition, how that’s changing, and then the geopolitics situation, which is always changing, plays a role. The evolution of the consulting space, though, is definitely a key thing, and that makes it harder because you don’t know what it’s actually going to look like in five years, let alone two years from now. And so, what is encompassed in that evolution? We’re going to see these new businesses emerging, look at managed services, how much that’s grown over the past five years, not necessarily in terms of revenue, but the prevalence of it and how the companies are coming out.
Patrick: Yeah. And so, then when you looked out, I want to come back to a couple things on that, but when you looked out five years, what did it look like in terms of the growth of the market for consulting and systems integration?
Kelly: Yeah, I think it is pretty consistent growth going forward. I think we’ll see a lot more of the specialized services. We were talking about earlier the technology partners and the alignment coming out of these consulting vendors. I think aligning more closely with them and bringing on more of those resources in-house, the need for a better blend of the technology as well as the business and consulting knowledge will definitely become more essential. A lot of the vendors too, there is a lot of ongoing restructuring and reorganization. And I think how those companies balance that with the direction they’re going, it could make or break them really in terms of figuring out who they are and what opportunities they actually want to pursue and go after.
Patrick: Yeah, there’s always been a lot of reorganization and leadership change and structural change within the companies in the consulting and systems integration space. But it feels like over the last few years, there’s been more of that. You just-
Kelly: Yeah, I think it’s just an ongoing evolution. I think it was about two years ago, they said transformation needs to be ongoing. And I think it’s something maybe these vendors took to heart themselves in terms of just continually updating who they are and making sure they’re going where they should be.
Patrick: Right, and reinvention has become such a buzzword.
Kelly: Yeah.
Patrick: Such a buzzword that Accenture has an entire business practice named after it.
Kelly: Yeah. *laughs*
Scenario discussion: Outcome-driven versus fixed-price
Patrick: So then one thing we tried to do in the forecast is have what I’ve, sort of, in my mind, I’ve been calling kind of the gray forecast, which is like, this is the baseline of what we think is going to happen, but then have scenarios that would explain what could go differently. Like where could things spill out different than what this sort of gray baseline forecast is. So, what were a couple of the scenarios within C&SI Market Forecast?
Kelly: Yeah, I think the first big one was around the shift on outcome-driven engagements, and looking back at that fixed plus piece. A lot of the vendors had traditionally focused on solving a business problem. So that’s just how they went, the nature of consulting, they wanted to start with the business problem and go out from there. And I don’t know that outcome driven is that much different than that. I think it’s just the value of the contract and the engagement is just more going to be directly tied to it. So, in a sense, it’s just more checks and balances for the vendors to make sure they’re actually achieving what they set out to achieve. And kind of a risk on the vendor too, taking more of the risk from the client. They’re just getting a lot more pressure, I think, in terms of what they’re actually doing. So, are the clients actually getting the benefit from them? And I think the questions are falling back down. It’s, oh, you adopt every new technology, but then it’s where do you kind of figure out what’s actually doing something for you?
Patrick: And part of that is the adoption of the, by the, of and by and for, the consultancies and the IT services companies of AI, and AI equals transparency. So as you gain additional transparency, the pressure from clients to say, it’s not just fix my problem, it’s get to this outcome, because now we can more transparently see what that outcome is, and looking backwards, more transparently see what it was that the consultancy actually did that led to that outcome.
Kelly: Yeah, I think that’s a good way to look at it.
Scenario discussion: Consulting model evolution
Patrick: Was there another scenario?
Kelly: Yeah, we had two. This one is similar, kind of follows along, but it’s around the consulting evolution. Consulting is based around people and permission, and so we wanted to dive a little more deeply into that kind of thought process. And I think it’ll still be the essence of what consulting is around people and permission, but it’s the way that the companies build up that talent and gain that permission and who they’re actually working with now as opposed to who their personas and their buyers were five years ago, what they’ll look like five years from now moving forward.
Patrick: So I want to dive into some specific companies, but so, I was going to hold this to the end, and I was going to hold this until the end but I’m going to ask you now because you’ve talked about the evolution in consulting and you listed a bunch of things that went into how you made the forecast. So, AI, obviously, changes in pricing, changes in talent management, the macroeconomics and the geopolitical, the ecosystem and how alliances are different now. The consulting, and you just mentioned people and permission, which is so fundamental. So, the consulting business model hasn’t ever changed. I mean, in 100+, 200+ years, since the first time somebody paid for, tell me what to do or do it for me, or tell me what to do and help me do it, the real core parts of consulting. It’s really not changed. So, in your thinking looking out to 2030, are all those factors, AI, pricing, talent, macro, geo, ecosystem, are they all going to force change in the consulting business model? Or are we just going to have a slightly different model, not a really dramatically changed consulting model?
Kelly: Yeah, that’s a good question. There are so many different ways to look at it, but I don’t think it’ll be too radically different. I think the essence will still be there. I think it’s just what they’re doing. I think in a podcast, it was the McKinsey lead, he was talking about how they’re looking for a mixture of skills now. So not just MBA hires, but now they’re looking at liberal arts hires. So, I think they’re just trying to, I think the benefit for consulting would be around bringing in a better background and more experience from different areas, because that’s one of the pushes around specialized skills. So, it’s like now you need to bring in all of these different pieces, all the different experiences, and it gives you a different result, especially where you’re looking at specific outcomes, you’re tying this more directly. It’s not just a framework that you’re following, I wouldn’t say. I think it’s going to require more value, more specialized skills, so more knowledge around either industry or these technologies. So, it’s not just the business knowledge you need and the finance knowledge, it’s more- a little bit of everything, I feel like.
Patrick: Right. And an increased emphasis on the people skills and the ability to, which is, so we heard from both a PwC partner and a BCG partner talking about how as they’re hiring into their consulting practices, it’s less about those MBA honed skills around finance, around accounting, around operations, around supply chain, whatever it might be. And it’s more about can this person actually connect with another human being? Because at the end of the day, that’s what AI doesn’t displace, and that’s what people actually pay money for in the consulting space.
Kelly: Yeah.
Patrick: So, in that way, probably the consulting business model isn’t going to change.
Fujitsu’s consulting build out is one to watch
But set that aside now, and let’s talk about specific companies, because to you looking out to 2030, what are the companies in the consulting and systems integration space that you think are going to be the most interesting, the most, and that’s a terrible word to use. What companies do you think will be the most dynamic, the most disruptive, be the most fun to talk about between now and 2030.
Kelly: I think Fujitsu is a very fun company to watch. They’re often forgotten about because they’re so heavily based in Japan and that’s where a lot of their business is, but there’s so much more to them than just Japan. And their build out of consulting, while it’s not a disruptor for any of the other vendors. It’s definitely something to watch because of the way that they’re doing it. It’s more or less organic to who they are. Obviously, it’s not something they had historically, but the way that they’re building it up and really integrating it across everything they do, it makes a big difference. And tying it back to their Fujitsu Uvance business as well, it’s just, it’s more holistic, I guess you could say. I just think it’s a very interesting company to watch from that perspective. It’s something they didn’t have. They’re building it from the ground up, something they didn’t have at all. But they’re actually doing well in terms of scaling that, even coming from nothing.
Patrick: Yeah, and at the very beginning of season five of TBR Talks, we interviewed the CEO of Fujitsu Americas.
Kelly: Oh, yeah.
Patrick: That whole discussion was so illuminating in terms of how much is changing in Fujitsu. And I think it’s a good company to look at for two, three very specific reasons. One, the alliances that their consulting team is forming with technology partners is super important. Two, yeah, they’re not an existential threat to the largest of the consultancies, but they certainly are coming in and taking away some market share. And then three, they’re changing. And anytime anyone within an ecosystem can evaluate and understand and look at the factors behind one of their peers or competitors changing, you can learn a lot. Because you can see what mistakes they’ve made. Not that they’ve made any, of course, they’re perfect, but you can see what choices they’re making and then decide how does that reflect on the choices you have. So yeah, totally agree. Fujitsu is a good company to keep an eye on. So, who else?
HCLTech: Alliance and acquisition strategy
Kelly: The other one that I like- well I like them all. But HCL is always cool to watch because I think they have a good alliance and acquisition strategy. It’s all very strategic and focused. So, they’re looking for a specific capability, a specific region, whatever the goal is. But they’re very strategic about how they use them. And so, they will occasionally purchase consultancies that have either digital technology skills or digital transformation skills, software related consulting or even just engineering or semiconductor experience. But I think they’re very good at using their partners in acquisitions. And I think that’s something- it could be advice for others, a good guidebook for others to watch and just see how they’re plugging all this in because they’re getting the return on those investments. So, it makes a big difference. For them at least.
Patrick: You’re like the ideal guest because you’re bringing up another TBR Talks podcast episode from earlier this season where we talked to Alan Flower at HCLTech.
Kelly: Oh, yeah.
Patrick: Right, who had a lot to say about exactly those points. And with HCLTech, I think it’s interesting too because the company itself has always been among the smallest of the large India-centric IT services providers. But probably the one that has changed the most and has introduced the most kind of different services, different lines of services, acquired IBM software at one point. So really a more dynamic company compared to some of those other companies.
Kelly: Yeah.
The divergence between SI-focused players and consulting-focused players
Patrick: So, I just want to ask about when we look at consulting and systems integration, from TBR’s research perspective, we sort of have two different paths that we go down. One is C&SI as part of the broader IT services package. And then the other is focusing more on the consulting slice and looking at management consulting. So when you, in the forecast, I don’t know if, honestly, I don’t know if you did this, did we sort of split out like the management consultancies and their trajectory in terms of growth and the SIs and their trajectory in terms of growth? Or did we kind of pull it all together and look at the demand side of, you know, this is what the demand is going to do for consulting and systems integration altogether?
Kelly: I think it’s difficult to look at them from the same lens because they have very different clients in the projects that they’re consulting on. I think one of the things we discussed with the Management Consulting Benchmark, not the C&SI Market Forecast, was around the emergence of a lot of these smaller boutique consultancies that are using technology to kind of replicate what they’re doing. Because a lot of times they approach it with just a framework that they’re using, and that’s so repeatable. You can’t necessarily show your different or really show value through doing something like that.
Patrick: True.
Kelly: It has to be more organic. But we didn’t break it out that way, but I think it’s hard to look at them from the same lens. Especially with the things that they’re going after, I think are very different, and the projects that they’re kind of approaching are a little different. I would venture to say, the more traditional IT services would grow more quickly around it just because of what they’re doing, the scale that they’re coming from, as opposed to the more heavily management consulting ones and the areas that the management consulting ones are going to shift their focuses to.
Patrick: Right. It’ll be curious to see this. So, the demand right now that we’re hearing about for consulting is there’s a lot of it around AI and sort of strategy for AI, deployment of AI within an enterprise, getting the best, you know, the ROI on an AI deployment. There’s a lot of consulting around that right now, which is great for the pure consultancies. But over time, once companies begin to adjust, it’s sort of like cloud. I mean, once you’ve gotten over the hump of how do we leverage cloud, then you’re just, you’re no longer looking to a McKinsey or a Bain or a BCG to say, explain cloud to us. And right now, a lot of companies are having to say, explain AI to us, but that’s only going to last so long.
Kelly: Yeah.
Patrick: And then curiously, we’ll see also what happens as these companies that we’re talking about also deploy AI internally and how much that changes. I mean, the talent pyramid that you mentioned earlier, the structure of talent within these companies could change dramatically over the next five years. as AI begins to displace some of the, probably more in the middle, less so the entry level, because you still need to bring people in and use the apprenticeship model. But the folks that are kind of in the middle that missed out on learning about AI when they were in college and have not yet sort of reached that more senior ranks.
Kelly: Yeah, that’s true. Yeah, we’ll see how it goes, but I think they’ll be- I think they’ll definitely separate in a sense on what they’re actually trying to do, where these consultants will focus their energies and what they’ll try to do.
Patrick: Right. So, I think maybe for the next market forecast, one thing we can try and do is look at this, the divergence between the real SI focused players and then the real consulting focused players. And then of course, we’re going to have those companies right in the middle, the Deloittes of the world and the Accentures that do a whole lot of both. And how do they decide which of those two trajectories they want to go down?
Kelly: Right.
Patrick: So yeah, so I guess we’re already setting up our next conversation about this.
Kelly: Yeah, I still stick true to strategy consulting. I know a lot of people forget. They think it’s a thing of the past or it’s not as big as it was. But I think with the changing of business models of what AI is doing to these companies in terms of their own strategy is what they want to do. I think it might be labeled differently moving forward, but I think it’s still going to be a viable area to go.
Patrick: Yeah, I think fundamentally, the question, “what should we do,” is a question that companies are always going to look for advice for. And they’re always going to look to someone who’s trusted, they’re always going to look to someone who has experience, and they’re always going to look to someone who has that outside in perspective on a company. So, the demand for strategy consulting may kind of ebb and flow, but it’s never going to go away forever.
Kelly: No, definitely not.
Final thoughts
Patrick: Yeah. Excellent. Well, that’s a positive note to end on, so we’ll end it right there. Thank you, Kelly, so much.
Kelly: Thank you. It was great to be on.
Patrick: Awesome.
Tune in next week for another episode of TBR Talks.
Don’t forget to send us your key intelligence questions on business strategy, ecosystems, and management consulting through the form in the show notes below. Visit tbri.com to learn how we help tech companies, large and small, answer these questions with the research, data, and analysis that my guests bring to this conversation every week.
Once again, I’m your host, Patrick Heffernan, Principal Analyst at TBR. Thanks for joining us, and see you next week.
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Technology Business Research, Inc.