CM: Perot Systems was one of the trailblazers as far as taking equity in clients goes. We've been reporting quite a bit recently on how even some of the more traditional strategy firms are now also doing this. Can you share any thoughts on the growing necessity to take equity in clients?
Champy: There is value in taking equity for companies like Perot, particularly the e-commerce businesses, and actually venturing with clients. The nature of business and relationships is kind of leading in that direction, so we are very much involved in doing that. We still very much believe in that and, if anything, we believe in it today more than ever.
CM: We've recently seen sizable changes taking place within Big Five consultants as well as traditional strategy firms like McKinsey. More corporatelike structures are being put in place, partners seem to be enjoying less power, decision-making is becoming more centralized. What should we expect the organization within a consulting firm to resemble five years from now?
Champy: I think there will be a number of consulting firms that will start to create more of a corporate structure, because it's that kind of structure that will be required to do business. A corporate structure will be required to create joint ventures, not a partnership structure.
There are tremendous conflicts that a partnership structure creates. The partnership structure does not lend itself to the managing of a venture. I think we will see more corporatelike structures, and in those structures there will be more central control and more central decision-making. I could even argue that some of the firms will start to look like venture firms themselves.
I think the large firms still have a few years to go in the way they operate. There is enough business out there. But I think that over the longer term, their structures and their purposes will really be challenged.
CM: You've often talked about how technology alliances are now critical to delivering strategic solutions. Should we expect to see McKinsey and other traditional firms step up their efforts to form these types of alliances?
Champy: Absolutely, you see it now. Some of them do it in terms of investments. I think the major players are going to be strategically disadvantaged if they don't have some form of technology practice of business. It can't just be an alliance. I actually think they have to be in the business. I think any company that denies that is living in old arrogance. It's like we don't do that stuff, because we're above that stuff. That is dangerous, dangerous thinking, which some of the firms are still capable of.
CM: What will make them see the light?
Champy: Their competition. There was an article in Forbes showing what Diamond Consulting is getting for billing rates. They're in the technology business, but their annual billings per professional are getting really up there into the strategy zone. The truth is that they are actually crossing into the strategy zone.
When I look at our own business, we are in the business strategy territory deeply in all of the technology work we are doing. We don't compete with McKinsey for strategy work, but we are doing it as part of the larger relationships that we have. So I think that it's competition that will get these people to wake up.
I actually think that Diamond will be an example of the firm of the future that is integrating strategy with technology work. We go a step beyond Diamond because we do operations. We'll do a venture. We do strategy, systems integration. We'll run networks and server farms, and we will also venture in a new business. By the way, our corporate structure allows us to do that. That's why I think corporate structures will be the end game.
We've had that corporate structure in place from the very beginning. When we want to do a new relationship or a new deal, we don't have to go to 150–200 partners. Our management decides and we go do it.
CM: Consultants are known for data-driven analysis, but not necessarily intuitive thinking. What do consultancies need to do to encourage intuitive thinking? Do you believe most consultancies will be willing to do what is necessary to change in this respect?
Champy: Intuitive thinking is much more important than data analysis, because our clients are operating in wholly new technology and business territories. The data doesn't tell you what to do very easily, so intuitive thinking is important.
The answer to what consulting firms need to do is that they have to go in two ways at the same time. They need to get deeper and more steeped in industry knowledge. If you are in an industry, or if you are operating in an industry or preferably a set of industries, you've developed more intuitive skills about sensing what's going on in the marketplace.
What intuition is about is developing sensing capabilities on the part of your consultants. And the way you do that is that you put them out into an industry and let them get deep. Don't let them be shallow. But at the same time, they've got to be broad enough so that they don't get stuck in an old industry paradigm.
The way you address that is that you put more consultants up against your clients' customers. A lot of consultants never get to feel the pain of their clients because they don't go deep enough into their problems, and they don't see the customers and what the customers are really demanding of their clients. So we've got to take our consultants and get them deeper into industry sensing, and at the same time put them squarely up against the problems of our clients. And they have to feel the pain.
Consultants aren't lazy, but do you know the pain consultants feel now? They're tired when they get off airplanes. I mean it. You talk to them and you say, "What are you going through?" And they tell you about how hard it is. They're working 80 hours a week, but the truth is that they are not feeling the pain of their clients.
I actually want them to be at the side of their clients operationally. I want them to be with a client and making deals and selling things and making things so they get a sense of what the client's real issues and problems are. I think that as consultants we are sometimes too abstract in what we feel and what we sense.
By the way, I think data is still important. You want to look at the numbers, but I just find that you might look at numbers and still not know what to do.
CM: A number of consultancies have told us they plan to grow the number of small growth companies included in their client mix. What's the right mix when it comes to Fortune 1000 vs. small growth companies, as it pertains to large established firms?
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