Arguably, the first recognisable consulting firm came into existence in 1886, when Arthur Dehon Little and Roger B. Griffin entered into a partnership in the US that later became Arthur D. Little, evolving from a chemical testing and technical research company to a general management consultancy. In the UK the first recognisable consulting firm was probably Personnel Administration, founded by Ernest E. Butten in 1943, later becoming the PA Consulting Group. Today, according to the Management Consultancies Association, the consulting sector is valued at circa £20.4 billion in the UK alone.
Consultancy is a burgeoning sector both domestically in the UK and in terms of overseas exports, with growth currently increasingly being powered by digital transformation, artificial intelligence, cyber-security and energy transition.
Operating a consultancy firm could never be claimed as a simple task, but recent years have seen genuinely new pressures in addition, including ever-tightening regulation, heightened public and client scrutiny, and the rapid deployment of AI across the industry.
The sector’s importance to the UK economy begs the question whether increasing regulation, more focused scrutiny, and greater deployment of AI, with its attendant risks, are likely to hamper the industry’s progress, or help liberate its potential in new ways.
What it means to be a consultant today certainly looks very different from 1886, and even 1943, as a divide appears to be growing between firms that can adapt rapidly, and those that do not.
Regulation cannot be regarded simply as a burden
For many decades consultancies existed in a relatively lightly regulated space compared to the industries they were often advising. This is changing, as data protection regimes, sector-specific rules in finance and healthcare for example, and an increasing volume of AI-specific legislation is now beginning to affect almost every type of consulting engagement. Whether it is a consultancy advising a bank on redesigning its processes, or one supporting a healthcare provider in improving operational efficiency, firms must increasingly factor in compliance obligations that simply did not exist a decade or so ago. This applies not just to a firm’s clients but also to how the consultancy itself manages data, builds models, and documents the methods it uses.
These changes can add cost and complexity and can also slow engagements that used to be deliberately fast-moving to generate rapid client-focused actions. For smaller firms and independents, the changes can also raise standards to a level that is difficult to reach without the compliance infrastructure of major players. Logic dictates this could lead to increased market concentration.
From trust to public accountability?
Beyond increased and increasing regulation, another pressure on consulting firms is cultural: government contracts awarded to major consultancy firms have come under sustained public and parliamentary scrutiny in several countries, leading to questions about value for money, conflicts of interest, and even the originality of the advice being offered. Clients are becoming increasingly demanding in terms of the value they receive for money spent, how independent the advice might be, and even whether it could have been provided through in-house resources.
This increasing scrutiny means more consultancies are having to become increasingly transparent about their methodologies, more careful about conflicts of interest, and more willing to justify fees against demonstrable outcomes rather than relying on often apparently secret proprietary processes and reputation. Today it is highly unlikely that a strategy presentation will be embraced by a client based on the strength of a firm’s brand name alone. In simple terms, the answer is no longer enough. Today, consultancy firms are expected to show their workings.
AI is eroding the traditional value proposition
Much of the work junior consultants were traditionally paid to undertake such as aggregating research, building first drafts, creating slides, and summarising client engagements, can now happen in a fraction of the time, and often for a fraction of the cost, thanks to AI tools. Whilst this does not negate the need for consultants, it does affect the traditional middle and lower levels of consultancy practice, where relatively junior staff undertaking relatively routine work could be billed at premium rates. AI has changed that. Clients are simply less willing to pay junior-consultant day rates for AI-based outputs.
As AI increasingly becomes part of the delivery process, new questions are being raised such as who might be liable if an AI-generated recommendation is incorrect, the degree to which AI-generated deliverables can be verified or audited, and the value of largely AI-driven outputs versus human work. This latter is likely to lead to a two-tier system valuing AI-driven outputs at a far lower level than high-end human consultation, with a price divide between the two, and a service gap where price debates may rage. It is certainly the case that modern consultancies must have a clear vision of where AI can contribute to the business, how it can be valued and where human consultancy can add value that AI cannot, such as ethical oversight.
What might be the likely implications for consultancy firms?
In combination, these pressures point to a consultancy future where the proposition is likely to be narrower and deeper. The elements of consultancy that are more difficult to commoditise, such as real judgement under uncertainty, organisational politics, being accountable for a recommendation, and building trust with a client over many years, will become relatively more valuable, whilst the elements that are more easily automated, including research aggregation and synthesis, first-drafts, and standard frameworks, will become price sensitive and perhaps even ‘bundled’.
In practical terms this means smaller teams undertaking high-value work, and a reduced role for junior and middle-tier consultancies potentially leading to a shrinking of the workforce, and a greater emphasis being placed on differentiation.
Consulting is not becoming impossible, but it is becoming an industry where a differentiated proposition will be essential, and with less ability to scale purely through paid-for head count. Tomorrow’s scaling will come through expertise and trust, with AI acting as a facilitator rather than an end solution. Indeed, some firms may simply choose to commoditise AI outputs and operate on a volume business model.
One thing is clear: the consultancies of today and tomorrow are a far cry from those of even the recent past.
