Consulting industry will be disrupted: The question is when.

What does the innovation guru Clayton Christensen think about consulting?*

Management consulting’s fundamental business model has not changed in more than 100 years. It has always involved sending smart outsiders into organizations for a finite period of time and asking them to recommend solutions for the most difficult problems confronting their clients. Some experienced consultants we interviewed scoffed at the suggestion of disruption in their industry, noting that (life and change being what they are) clients will always face new challenges. Their reaction is understandable, because two factors—opacity and agility—have long made consulting immune to disruption.

Like most other professional services, consulting is highly opaque compared with manufacturing-based companies. The most prestigious firms have evolved into “solution shops” whose recommendations are created in the black box of the team room.

It’s incredibly difficult for clients to judge a consultancy’s performance in advance, because they are usually hiring the firm for specialized knowledge and capability that they themselves lack. It’s even hard to judge after a project has been completed, because so many external factors, including quality of execution, management transition, and the passage of time, influence the outcome of the consultants’ recommendations. As a result, a critical mechanism of disruption is disabled.

Therefore, as Andrew von Nordenflycht, of Simon Fraser University, and other scholars have shown, clients rely on brand, reputation, and “social proof”—that is, the professionals’ educational pedigrees, eloquence, and demeanor—as substitutes for measurable results, giving incumbents an advantage. Price is often seen as a proxy for quality, buoying the premiums charged by name-brand firms. In industries where opacity is high, we’ve observed, new competitors typically enter the market by emulating incumbents’ business models rather than disrupting them.

Read the rest here at Harvard Business Review.

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