Full Potential

The IT imperative

To witness the leading edge of services innovation within functional practices, you need not look any further than today's major information technology (IT) practices.

Today's top management agenda is packed with complex IT issues and big-ticket investment decisions. In fact, Gartner projects that corporations will spend over $20 trillion during the next decade to expand IT capabilities. The stakes are huge. If strategy firms miss the opportunity to shape these decisions, they risk a greatly diminished role in executive suites and boardrooms. For all the premier strategy consulting firms, some observers argue that it is not just the future of the IT practice that is at stake, but perhaps even the relevance of the entire firm.

However, as a relatively recent addition the CEO's agenda, many strategy firms are still striving to become credible advisers on these issues. While they are catching up to their clients' needs, they must also navigate around deep-pocketed technology companies that are practically giving away strategic services to secure downstream implementation contracts. No matter how distinctive your value proposition, it's hard to compete with "free."
If the stakes are huge for strategy firms, so are the challenges inherent in building a thriving IT practice. As David Shpilberg, director and global leader of Bain & Company's IT practice, puts it, "You can't provide useful counsel to today's CEOs and senior executive teams if you don't fully understand how IT really works. This includes connecting technology to business opportunities as well as grasping how hardware, software, and services can combine to provide real performance gains. This isn't something that consultants will simply absorb overnight."

While the IT learning curve with strategy firms is undoubtedly steep, competitors are not sitting still. Teams from Accenture and IBM Global Services are meeting with the very same senior executives with the added benefit of specialized technology expertise coupled to tangible services and outsourced solutions. They have sophisticated alliances with hardware and software companies and invest behind advanced marketing and sales initiatives. For example, company reports reveal that IBM alone spends over $2 billion a year on global marketing programs.
You might think that faced with this competition, the major strategy firms might simply throw in the towel and retreat to more traditional practice areas. Instead, we believe that they are rising to the challenge. Here's how they are doing it, and why their IT practice efforts could set a new standard for innovation within other functional practices.

Cultivating an ethic of "real-time objectivity": Over the past ten years, too many corporations pressed technology vendors for quick solutions and instead received rapid disappointment. As a result, many CEOs, CFOs, and CIOs are now revisiting the value of obtaining objective counsel before making the next $50 million IT investment decision … including the opportunity to hear that their IT problem might actually be an organizational issue in disguise.

Boston Consulting Group puts this value proposition at the forefront of their mission. "We believe that our clients want total objectivity. As a result, we have no implementation capabilities, alliances, or external relationships with other firms. This is by design," explains Craig Lawton, BCG's North American IT practice leader.
However, clients have little appetite for the traditional open-ended, six-month study of options. This version of objective and independent counsel no longer flies. Strategy and implementation increasingly happen side by side and not in sequence. Consider that at any given time a global company may have over 50 major IT projects at various stages of prototyping, development, or deployment. In this environment, objectivity must fit the realities of the ongoing investment programs. Slowing down the train is rarely an option, so consultants must be prepared to inject real-time objectivity into time-sensitive decisions.

Creating deeper specialization to maintain an expert positioning: A professional who wants to drive demand and capture a premium price must offer true expertise, and not just readily available labor. For strategy firms, expertise comes from deeper specialization. While other functional practices are content to grow experts over years, IT practices having taken the war for talent to the very top of the firm.
For example, over the past two years Bain has recruited into the senior partner ranks IT heavyweights from leading business and technology consulting firms, including folks like David Shpilberg (former vice chairman of Ernst & Young's consulting division), Rudy Puryear (former e-business practice leader, Accenture), and, most recently, Tom Manning (former global leader of strategy and transformation business at Cap Gemini Ernst & Young). Other firms are following suit, breaking the taboo against hiring partners directly into the firm. In most strategy firms, fully 50 percent of the partners have been recruited into the firm from other organizations.

But depth alone may not be sufficient to move the needle. "In a large consulting firm, deep expertise isn't meaningful unless you also have sufficient scale," says Marshall Lux, director and a leader of McKinsey & Company's Business Technology Office. "From the beginning, our vision for building BTO was to do something that was significant. We realized that an incremental approach simply wouldn't be sufficient, and might even fade out. In the last six years, we have grown BTO to over 400 consultants worldwide, and we are still growing."
In many respects, Booz Allen Hamilton has been at it longer than most. The firm that coined the term "supply chain management" over 20 years ago has a rich history of injecting IT perspectives into its work. "Not only do we have technology skills embedded in many of our practices," says Gil Irwin, managing partner of Booz Allen Hamilton's North American IT practice, "but our commercial business readily draws on specialized labs, demos, and systems resource centers that we have built for our government practice known as WTB (worldwide technology business). This gives us a unique capability in the market." And that capability is significant, with approximately 3,500 IT professionals spread across the entire firm.

Valuing creativity as much as analytics in strategy development: When you get really close to it, you might be surprised to find that great technology and marketing strategists have more in common than you might otherwise imagine. IT has a huge creative component, at every step in its evolution. At the tactical level, you will see this in the 4 a.m. breakthrough that leads to an elegant piece of programming code, and at the strategic level, it resonates in the architecture that knits together 23 different technologies to reformulate the entire customer service experience.
This realization naturally forces strategy firms that would historically approach clients with the primary question of "What's the problem?" to just as quickly ask themselves, "What's possible?" At the end of the day, truly advancing the IT agenda is not about abstract concepts but instead requires building new capabilities that must creatively incorporate issues related to legacy systems, emerging technologies, and the ever present ability to create custom applications that are practically unbounded in their ability to absorb time and capital.

If necessity is the mother of invention, then it is no surprise that the IT practices at all the firms are paying careful attention to the need to marry creative skills to their analytical core, which is in itself a major cultural transformation for these firms. Of course, you might not find luminary technology visionaries like John Seely Brown, Ray Kurzweil, or Nicholas Negroponte walking the hallways every day, but you will see a new breed of consultant who receives encouragement to look far beyond the numbers. As Marshall Lux of McKinsey puts it, "Every day, our clients turn to us for deep inspiration. Their most frequent request is that they want us to proactively bring them new ideas. This must be core to our mission."

Broadening the generalist's core capabilities. One thing is clear: After years of experimentation with different types of specialist models, every firm today believes that each and every consultant must be a "generalist first" if they are going to succeed in the culture. Narrow specialists who lack a broader generalist perspective just won't make it, but neither will "thin generalists" who are a mile wide and a few inches deep.
In this regard, Bain & Company's David Shpilberg is a man on a mission, saying emphatically that "it simply isn't enough for the IT practice to focus on serving Bain's clients. That is only half of our mission. The business world has evolved, so the other half of our mission is making sure that each and every Bain consultant sees basic IT acumen as a core part of their skill set. Understanding IT is no different than understanding the basics of corporate finance, operations, or marketing. In this way, we create a broader generalist who has the necessary skills to be effective, and who will not shy away from technology issues when they are inevitably raised by the client executive."

Of all the firms in the market, Bain appears to be leading the way in this aspect of the revolution. In fact, it strikes us that the only way the generalist proposition survives in any strategy firm is through the creation of a "super generalist" who must be an integrator across client issues as well as someone who brings very deep expertise in one or more functional or industry domains. What is less clear is whether grooming such special talent is a scalable proposition, or if firms will instead choose to shrink back down to an elite contingent that can both capture the CEO's attention and build a truly distinctive brand in the market at the same time.

Redefining how the game is played

Taken together, these moves are all encouraging, but are they sufficient given the magnitude of the specific IT opportunity in the market? Some industry experts are skeptical. Eric Pelander, partner and global leader of IBM's Strategy and Change Services practice, puts it this way: "There is a client segment that values objectivity, but it feels smaller than the segment that values getting their hands on something that really works. And when it comes to knowing what works, it helps to be building these systems each and every day while also having direct access to world-class research labs. Pure strategy firms simply can't match this value proposition." He raises excellent points, but our view is that there is more than enough room for all these propositions to live side by side, over time carving out their natural contribution to client organizations.

Stepping back, perhaps the bigger question is whether other functional practices in major strategy firms will choose to follow the innovation path carved out by the IT practices. For instance, will corporate finance practices create even deeper levels of specialization, perhaps hiring in former investment bankers as senior partners? And if this senior hiring becomes the norm, how does that impact the organic cultivation of top talent? Will marketing and organization practices proactively nurture more creative capabilities across their consulting population, and does this in turn lead to evolution around the basic strategy development and delivery process? Might we see many more practices start to embrace a "dual mission" of serving clients while extending the core skills of the generalist, as is happening in Bain's IT practice? And will we see firms making fewer, bigger bets behind practices to ensure that they achieve scale and depth of capability, as is illustrated by McKinsey's BTO effort?

Regardless of how these questions are ultimately answered, one thing is absolutely clear: In a world where client executives are every bit as smart as their strategy consultants, and well-funded competitors walk the planet, dramatic innovation can't be very far away.