fbpx

How HR Tech will feast on the hour business of Consulting (and how you survive)

The survival guide for Management Consultancies that wants to understand and thrive in the post-disrupted world, that been altered by the monster we know as HR Tech.

Søren Vasø Hansen

Søren Vasø Hansen

“Management Consultancies, I’m looking at you.”

That’s what I believe the monster of disruption would have said if it could speak (while pointing intensely at you with a slimy tentacle and crushing your precious hourglass with another).

But it can’t.

It would be easier though. Then we didn’t have to guess what hits us next and could start preparing in time.

But we can do a thing that comes close:

We can use a benchmark to see what’s happening in the industry of consulting and search for clues of how to adapt when the monster starts to invade our world.

Benchmarking from the battle scarred

Disruption can mean many things, but in this time and era, technology is almost always the driver. And in our benchmark, it’s pretty evident that the landscape has been violently reshaped by the continued hits of digital and technology.

The consulting industry we are looking into is the marketing space. Agencies in all its glory. And it’s a pretty big one.

In small Denmark (where we’re based) with its 6.2 mill citizens, there are over 1000 agencies. In the US it is 120.000 and worldwide… well, who knows?

New agencies start every day, and old ones die – a lot of them eaten by the monster mentioned before (which is still eyeballing you btw).

The MarTec monster

If we look into what happens, we need to understand the market. So, let’s take a trip down memory lane and wind up the take-us-back machine to minus 8 years.

2011 – in this glorious year, Scott Brinker came up with a term he called MarTec. Short for Marketing Technologies. A new breed of companies was starting to crawl their way into the classic marketing space.

The internet was booming. Facebook was leading the way of social media and websites were essential. But new tech like marketing automation, ads tools, and optimization began to make small dust prints in the landscape of marketing.

The MarTec landscape was made up of 150 tools and looked like this:

Now, that’s a lot of opportunities for all the agencies to grasp. New ways to serve customers and more ways to make money. But not that much happened back then – it was business as usual. Only the clients were looking into these new options.

Let’s go forward a couple of years and settle down in cozy 2014 where the MarTec space was displaying 1000 logos on the now famous landscape graphic.

Now things started to happen and the dust prints was starting to look more like meteor-strikes:

A lot of classic agencies started to pivot their business to position themselves as experts in specific software and ways to work.

Like shifting from making webdesign to fully committing to e-commerce with WooCommerce or Shopify. Or doing Conversion Rate Optimization with Usertesting and Optimizely when your previous trade was PR.

Fast-forward to today and the 2019 edition. A behemoth of a graphic more than 7.000 logos:

The era of marketing controlling platforms, specialized agencies and software-enabled ecosystems.

Now, this is a lot to take in. From 150 logos to 7.040 in 8 years. Or actually, that’s not even close to gathering all of them. But it’s all Scott Brinker could manage to put into mapping this vast space with 9 people and a few months. 

In this year’s release, he talks about MarTec 50.000, and if you look at one of the significant ecosystems, WordPress, there are 54.880 apps alone. So, 7.000 doesn’t really cover it, but it gives us an idea of where the space is at and how much new software is added year after year.

More on the latest version of the MarTech Landscape Supergraphic here.

Why is this disruption happening?

There is a couple of drivers:

The infrastructure of the internet, the maturity of buying online, technology that make it easier than ever to build a website, app or software.

But the most significant factor in all of this is the end consumer. Because it’s the end consumers who molds what comes next. And when they change behavior, it opens up for disruption.

What affected the marketing space was that people began to buy in a new way once the Internet became commonly accessible. Now, people are searching for vendors in B2B and are 70% through the buyers’ journey before contacting their first vendor. Then the smartphone came, and suddenly we were subjected to local stuff when we browsed the Internet. And then Social Media came and changed our buying habits once again.

So, marketing had to adjust how to market products to the new generation of buyers.

And because this happened, people had several options to help them solve their problems with other solutions than traditional consulting services – a.k.a. software.

This opened up to a new way of positioning an agency to serve a market.

The positioning game

Marketing has always had a lot of differentiation, but in recent years it’s exploded. It has given birth to deep specialization and hybrid agencies, some software-enabled, others not. I try not to focus on the ones that have entirely transitioned from consulting to product (and there is a lot), but this is my humble attempt to map the rest in just a few categories based on their relationship with MarTec.

 

  1. Ecosystem agencies
    Those who are building their entire business on a software ecosystem. E.g. agencies that are focusing only on making Adwords on Google. Or with a bit wider view on Search Engine Marketing, which also includes SEO and other stuff, but still activated by Google’s ecosystem. Powered by and living under the tech giants.
  2. Branch agencies
    These are the ones that focus on a branch of the marketing tree and are using software to power that position. Like only doing content marketing, but using a lot of tools across the market to make their content marketing game the best it can be. They shop around but have their strong positioning in the branch.
  3. Methodology agencies
    There are not a lot of these, but a big one is the Inbound Industry. These are focusing on a specific way to attack a market and are selling to people who believe in that method. They are fully focused on doing this way of business and only have a few options to power the operation. In the center of every methodology stands a software platform, like HubSpot or Marketo (which also are eco-systems).
  4. Digital agencies
    They do anything, with everything. Or maybe they just have a few favorite pieces of software they really know and work with a lot. The full software market is open to them, but they are not dedicated to a single piece of software.
  5. Traditional agencies
    They enforce the craftsmanship but are forced into using some amount of software because of the day and age we live in. They are positioning themselves in the old art of marketing and stands strong by tradition.

The customers have to navigate this landscape

Confused? Just imagine browsing this market to figure out who you are going to play with. That’s why positioning becomes essential. Because it’s tough to navigate the market, a lot of customers are taking another stand.

Before figuring out who should help them, they look at what type of software they use and then cherry pick the agency that can work with that solution.

So, if the company does a lot of Adwords, you should probably be pretty good at Adwords to be chosen. If they use HubSpot as their platform, you should know Inbound before coming into consideration. And so on…

Deep breath…
* Ahhhhhhh *

This is our benchmark: An industry that got reinvented by the customers and the MarTec monster.

Not all consulting industries are this mature when it comes to software impact. But they are going to be.

In 3, 2, 1…

HR Tech Monster Holder An Hours Glass

Management Consulting disruption is happening now.

A significant shift in how companies look at their own business and are starting to use software to do jobs that classic consulting businesses did before, is happening right now.

Let me provide you with some evidence.

LMS is a 9.2 billion industry and is estimated to grow to 22.3 billion by 2023. With it comes a foundation for companies on which they base their training and learning. A reality where consultancy services have to fit into.

Neelie Verlinden is the author of the blog post: The 71+ Biggest HR Tech Conferences to Attend in 2019.

Seventy-one…

If you can make that blog post, something is happening in this space. And if businesses are using the money on software, they are not power shopping in the good old consultancy shop.

Investments in HR Tech companies surpassed $800 million in the first 3 quarters of 2017. That’s two years ago and it ain’t slowing down. I don’t have data on consultancy investments in the same period, but I feel pretty safe when saying they didn’t even make it out the locker room in this game.

The customers are starting to buy the HR Tech platforms as a foundation to help them run their businesses. Just look at the Danish rising star in HR Tech, Peakon, which makes an employee engagement platform that measures every human KPI you want – and want it, companies do. 

Consultancies simply can’t deliver the same impact or result by throwing man-hours at it.

That’s why Peakon just closed another round of funding, making it $68M in total.

There are loads of other evidence out there to support and show that HR tech is going to impact Management Consulting just as much as the agencies were hit by MarTec. It’s only a matter of time.

Before we leave our Marketing Benchmark completely, let me just show you how this looks from the customer side of things:

The graphic below (which is totally awesome) shows the full marketing software stack of the company Esri, which weighs in at 24 pieces. In top of that, it shows where in the lifecycle they use them. And it’s not just Esri. Look at 47 other companies who are showcasing their marketing stacks.

It’s a beautiful look into how much software we actually are powering our operations with.

Now, think of this in the HR department. It’s a combination of multiple solutions, all chosen to match the operation. G2Crowd, which is a software review site, keeps a nice list of what they are stacking in their catalog of HR Tech and it looks like this:

  • HR Management Suites
  • Core HR
  • Benefits Administration
  • Workforce Management
  • Time Tracking
  • Sales Compensation
  • Performance Management
  • Employee Engagement
  • Compensation Management
  • Corporate LMS
  • Course Authoring
  • Video Interviewing
  • Job Boards
  • Recruitment Marketing
  • Applicant Tracking System (ATS)
And this is only the hardcore list of HR Tech. There is a lot of hybrid software that crosses over in HR but lives elsewhere. Strategy software, behavior designers, collaborative tools and much more.
 
A lot of it trying to replace or at least serve as an alternative to solve the challenge by throwing man-hours at it – the hours you often sell.
 
That is what management consultancies are up against. So how do you prepare as a consultancy?

The opportunity that comes with disruption

First of all, let me underline this:

This is a great thing.

It’s a tremendous opportunity to scale, have more impact, and make more money.

Most Management Consultants only make money when they sell their hours. But digitization of the market has the power to change this.

In fact, in our experience, the customer wants to buy in different ways and have a part of their service be digital. They want to stop gathering all people in the same room. They want to make it more flexible and have something they can scale themselves.

The market is expecting you to know about LMS, LXS, EES, HRS and a lot more acronyms.

If you don’t talk this kind of language, someone will eventually replace you. Other consultancies that understand they have to morphe their services to match how the market buys – to stay relevant and competitive.

And now is the time. 

I believe that, in 3-5 years, we can start outlining who chose the right path to the golden era of HR Tech and who is struggling to stay alive.

The game of timing

This is another way to look at the MarTec options.

HR Tech is not settled this firmly yet, but we are starting to see the trends. Some platforms that almost run businesses. Category leaders with ecosystems you can tap into. App and components you can use, and lastly the small citizen apps that connect to your ecosystem.

When you start to tap into this new world of software, you must figure out how you will put together your playbook and how you start positioning yourself.

For instance:

I cannot believe all consultancy websites don’t have a section where they talk about what software they are familiar with.

Look at it from the customer side: I want a consultancy to help me train my employees – I’m looking at 3 consultancies – I think they can do the job, but only one of them has told me they have experience with the LMS I use.

Advantage, yes, please.

And yes, this is the way your future customers look at you. Remember, it’s the thing that tricked the disruption in the marketing industry.

Software is here to make your work better, position you stronger in a big landscape and let you make more money doing it.

The hard part is picking the software that elevates your services and has an impact on your target market.  If you go all-in on a specific software, like the Eco-system agencies, you’ll have a hell of a job positioning yourself again, if it’s not a winner. But most consultancies won’t make that big a bet on software in years I predict. It’s just too early for the classic management consultancy to transform in such a big way. But timing will matter to get ahead.

On the customer side it’s also hard to figure out when to start moving on these new technologies. Scott Brinker (yes, him again) dubbed MarTec’s Law, which states technology changes exponentially, but organizations change logarithmically.

That means timing becomes relevant. Because, when organisations reset, they really need help getting this right. And there is a huge new business opportunity to be that market leader who knows software and can help with planning, negotiation, onboarding, internal adoption and much more. 

You know, classic consulting services, wrapped in a pretty digital giftbox.

How software effects the bottom line in Consultancies

Digitization and productization of consulting services really have a big upside.

Money.

Now, I want to give fair warning: This is my own dog food I’m about to serve. It’s real numbers from project consultancies that utilize our software as a backbone.

But to make it as transparent as possible, you can download this spreadsheet and fill in your own numbers and see how it adds up. In the next chapter, there is more on the economy – littered with numbers.

With that disclaimer in place, I will show you how we at Acadal help consultancies make more money by adding a digital layer to their existing services in the form of software.

number-1

Digitization as part of your service

The classic way to make your service come alive is to train, teach and inspire a bunch of people in a room. You probably have 5 touchpoints over a period of 2-3 months before calling the project finished. 

If you instead used software for some of those touch points where your service is delivered by video, assignments, audio clips and put into the right context, a couple of interesting things will happen:

1. You can re-use content if you package it wisely. That means you can earn money without actually putting hours in it again and again.

2. It means you can lower the price and be even more competitive – or just make a bigger profit.

3. The customer also saves resources, because it’s digital. It means people can see it when they have time and don’t have to travel. And this is something they are starting to demand.

number-2

Add new services to the portfolio

By knowing different types of software, you can add new services. How to onboard people, how to set it up in the organization, and how to help them design the system just right.

1. It allows you to enter early in a company

2. It means you can start specializing and being an expert in certain areas.

number-3

Passive income on partnerships

A lot of software lets you be the middelman when it’s sold and cuts you in on the deal. In our case, we offer 20% kick-back when a new customer sign on with our software – forever.

Let’s say you bring in 10 customers per year that on average have 50 people on our software with an annual chrun of 25%.

That’s more than €140.000 in commission over 4 years.

And this is not mention, that you bring in 10 customers, you probably is going to made a fair deal of business besides that (otherwise you are doing it wrong…)

number-4

New ways of selling knowledge

This is where it really get interesting. Now, this is probably a bit special for our software, so let me provide some context:

On Acadal, you can design a process where you fill in content in our system and wrap it up to solve specific challenges. It could be challenges within sales training, leadership development or other Must Win Battles.

Because it is digital, you can sell this to anyone, without ever having to meet the customer. Customers find it on your website or on a marketplace, searching for help with that specific challenge.

1. This is where we are starting to talk about productization and scalable income. It could give a solid revenue stream each month, without putting consulting hours into it again and again.

2. It also let’s you expand your market. Now you have a lower-market entry, so all the customers who could’t afford you before have a way of buying your service at a lower price.

This is just a few of the ways to sell your services in another way. Put a bit of creativity into it and there are tons of ways.

number-5

Add a recurring revenue stream

The last layer is something I personally find really interesting and have practiced previously within the marketing consulting business I worked before started roaming in your backyard of management consulting.

Retainers.

In Management consulting, this is almost a mirage. It’s something not thought about, but in other areas of consulting something that is almost standard practice. Lawyers have done it for decades. Marketing is switching to it.

A retainer is where you agree on a level of service for a fixed amount each month. It could be 30 hours for 5.000$ every month on a year long contract. Each month you scope out what the resources should be spent at this month.

Software can enable this. In our case, where a company buys access to the Acadal platform as the foundation of business and people development, they’ve already decided to allocate resources to do this. So it should be fairly easy to scope out where they need consulting services the next year based on upcoming development.

It’s the way it works in marketing and it’s something Consulting Management should try to copy and software could be the conversation starter with the customers.

1. It would make resource planning a lot easier.

2. It would re-scope how to sell.

3. It gives a nice fixed amount that is secured each month

4. And besides the economy, it gives a lot closer connections with the customers.

That’s 5 ways of how adding software to the business could help you make money. How much is probably your next question.

Show me the moooney

Let’s get down to the numbers, before you go all Jerry Maguire on me. So here it is. If you add all the different ways to make money as showed above, it would almost double your profit between year one and two.

All figures in €

To good to be true? Let’s run down the numbers.

Our math is based on the following:

You run a consultancy where the average project is €32.500. You have 90 projects over a year with 25 participants per project. Your year over year growth is 10% and you have €275.000 in other turnover.

In expenses, you have a headcount of 18 costing you on average €135.000 a year. Not just consultants, but all employees. Rent, software, and paperclips rack up €500.000 more in expenses. All in all, the result comes out with a 9% profit margin.

It looks like this:

Now, if you switch gear and add a software layer (and by that, I mean ours as these numbers only represent what our partnerships look like) this is how it would look. As always it is super easy to make things look good in an excel spreadsheet. Therefore, let me start by sharing the assumptions we use in our scenario. We believe the assumptions are realistic, but it will take an effort to get there. The assumptions are as follows:

  • Use a software platform in 25% of the 90 projects you already deliver yearly.
  • Convert 10 customers annually (new or from existing portfolio) with an average of 50 users and have an annual churn (customers who stops using the software) of 25%. I also assume you will sell new services (such as onboarding and digital content) to these customers.
  • Use a marketplace to sell your digital content without being present. You need to build and market the products e.g. via social medias and your website. In this scenario I have estimated you will yearly sell 48 content packages in this form.
  • To make all of this happen you may need additional resources. Therefore, I have added a “digital consultant” who can support your senior consultants and build the digital products.

All prices used in this scenario are prices our customers are willing to pay. The specific price for your product will depend on many things such as your brand, competition, content, quality and other things. Feel free to download the Excel file and change the parameters yourself.

Now it looks like this:

Can you see the difference? Top-line up! Bottom-line up! You grew the net profit from 9% to 15% and thats on an even higher turnover.

If you want to amend some of the figures – up or down – or just check the calculations, feel free to download the Excel file.

Now compare the two business strategies, next to each other. Which consultancy will you prefer to be?

This is the beauty of sticky, recurring and passive income. 

Is this the outcome for you? Figure it out by calculating the numbers yourself. All the numbers shown above is available to edit so it matches your real numbers.

> Download the Excel file: Economic Forecasting Model of working with software

The Excel-sheet only requires a few numbers to make a scenario of the impact in your business.

Is this realistic for year 1?

Probably not.

To alter the old saying: It takes money – and time – to make money.

You’ll have to get digital skills, learn to sell software, how to use it and have an internal power struggle of “I hate change”, “Why can we do it as we always have done” and “I’m not good with a computer”.

So in our experience, it takes longer to switch on the powers of digital, but just adding one layer of software-enabled business will impact the bottomline with 1/3 in a positive direction, as you can see in the calculations

My point is to give you a taste of the potential of thinking consulting differently and involving software in the business.

The end – or a beginning?

This is how I see the market developing. For me, having experienced this journey as a consultant in the marketing space, it would be an obvious choice to start exploring and finding my feet, before I would be forced to by the market.

And the upsides are so big I would grab the opportunity with both hands and hang on for dear life.

But if you look like the majority, you are really conservative when it comes to reinventing yourself.

Management consultants often find them in a situation where they train and guide companies who just experienced disruption and change, but most don’t really change themselves.

So most of the innovation that happens, revolves around selling more hours – or selling hours in a different way.

As Alanis Morissette stated back in 95’: Isn’t it ironic, don’t you think?

I certainly do.

But I also hope it will be the soundtrack for changing how your consultancy will look in the future and that this read gave you some inspiration and insights on what you are about to meet in the landscape of management consulting.

I want to pay a special tribute to Scott Brinker and his team. Without his research of MarTec, this would have been so much harder to get. Thanks for all the hard work put into mapping marketing technologies. Go to chiefmartec.com to explore their work.

Hopefully, we can do the same with HR Tech someday.

More like this

9 Corporate Training Myths Debunked

Companies is looking past education and training. Some of them only because they belive in myths that should have been killed years ago. Here is 9 we would like to kill.

Catch all the newest stuff

Get 20+ strategies for inspiration (and key learnings)

Get access to 24 strategies and learn from established players like Siemens, Norges Bank and Arla.