Business model mixer for consulting

The Business Model Mixer for Consulting

Sioo Newtonlaan 209, 3584 BH Utrecht, Netherlands

+31 (30) 291 30 00 [email protected]

www.sioo.nl

the Business Model Mixer

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Introduction Various authors have noticed that the consulting sector is undergoing a transformation due to trends such as the automation of knowledge work, increased knowledge of clients and the rise of new business models1. An overview of new consulting business models is still lacking. In this paper we make a start by taking stock of a number of new business models. In addition we provide a new tool that may help consultants to develop new business models: the Business Model Mixer. We offer no more but also no less than an analysis of new business models on the market. We neither promote nor judge these models or the entrepreneurs who have developed them. This is simply an observation of the fascinating trends which are currently developing. We aim to provide consultants working on the development of new business models with a few ideas by showing the trends in this area. The white paper starts with a brief discussion of the business model phenomenon. We then describe ‘traditional’ business models in consulting. Following a concise overview of the research behind this paper, we present the Business Model Mixer for Consulting. We lay out the most important trends in business models for consultants, on the basis of our study. As a consultant, you can use this yourself to think in a structured way about business models which can be interesting for you. The penultimate section tells you how to do this. The last section discusses the extent to which new business models will disrupt the consulting sector. Utrecht, September 2015. Ard-Pieter de Man Marguerithe de Man Annemieke Stoppelenburg

1 Christensen, C., D. Wang and D. van Bever, 2013, Consulting on the cusp of disruption, Harvard Business Review, October, 106-114; De Man, A.P., M. de Man and A. Stoppelenburg, 2013, De vijf gamechangers voor consulting, Utrecht, Sioo, December.


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1. What are business models?

The most common definition of a business model is that it is the way an organization creates, delivers and appropriates value2. The most popular business model approach is the business model canvas which uses nine fields to describe business models3. This canvas is an excellent standard for developing and analyzing individual business models, but it is too detailed for our purposes, so we have followed Johnson’s (2010)4 four-box model, which is essentially a more condensed form of the business model canvas5. Johnson identifies four elements of business models: the client value proposition, profit formula, key resources and key processes (figure 1). The Client Value Proposition is central to the model: it is the value the organization delivers to the client. Successful companies succeed more than anyone else in finding ways to deliver unique value to clients. They help clients perform their activities better, faster, more enjoyably or more cheaply. Figure 1: Johnson’s business model approach (2010)

An organization can use the value proposition as a basis for defining its own profit formula. This is where you determine the way costs and benefits are realized and the degree to which your organization can appropriate the value delivered to the client. An organization also needs resources and processes so it can provide value. The resources can be tangible and intangible. It is the way they are combined in processes that helps determine the value which is delivered to clients and which the organization can appropriate.

2 Osterwalder, A., and Y. Pigneur, 2010, Business Model Generation, Chichester, Wiley 3 Idem 4 Johnson, M.W., 2010, Seizing the white space, Boston, Harvard Business Review Press 5 It is not within the scope of this paper to discuss business models comprehensively. We can refer to other approaches which we believe are valuable, such as: Chesbrough, H., 2006, Open business models, Boston, Harvard Business School Press; Houtgraaf, D., and M. Bekkers, 2010, Business modellen, Culemborg, Van Duuren Management; Jonker, J., 2014, Nieuwe business modellen, The Hague, Academic Service; Mandour, Y, K. Brees and R. Wenting, 2012, Groeimodellen, Culemborg, Van Duuren Management; Choudray, S.P., 2013, Why business models fail: Pipes vs. Platforms, Wired, 21 October. The special issues of Long Range Planning from 2010 (Vol. 43, No. 2-3) and 2013 (Vol. 46, No. 6) provide a good start for the scientific substantiation behind business models.


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2. What are traditional business models?

When we talk about new business models, we are implying that there are also old business models. The broad spectrum of consultancy practice makes it scarcely possible to do justice to the variety of business models which have been used in recent years by consultants. Any discussion is necessarily rough and incomplete, but we do make an attempt here. On the one hand we want to make it clear what we consider to be traditional models. Others can have different opinions about this, but the best we can do is make our starting point clear. On the other hand this discussion helps to see what is new in the business models which we have come across in actual practice. Comparing old and new has its limitations, but the contrast does throw up new insights. For that matter, we do not expect traditional business models to disappear. There will always be consultancy assignments for which they remain suitable.

Client value proposition Traditional consultancy models assume that the consultant is smarter than the client and that this deeper knowledge can add value. Because a consultant works for several companies, he6 is able to transfer best practices from one business to another and thus contribute to increased productivity of the client. In addition to this form of expert consulting, process consulting is another important activity of consultants. The support of implementation processes can help achieve improvements faster. Finally, different forms of secondment have come into existence over time; their value for the client lies in the fact that he can hire highly qualified employees temporarily. He is not stuck with expensive people on the payroll.

Profit formula The traditional revenue model is still the standard one in the code of the Dutch Order of Management Consultants (Ooa, 2014, p.3), paragraph 4.6: ‘The fee shall be based on the hours spent on the assignment and the expenses incurred …’7. This also makes fixed price assignments possible, whereby a fixed price is agreed with the client on the basis of an estimate of the number of hours. But the Ooa code explicitly provides leeway for making other agreements and has thus already become broader in the past few years in comparison with the past.

The main cost item is formed by the consultants’ salaries. A consultant is hired by a client on the basis of an hourly rate with a mark-up on the hourly salary. Profit is maximized by making the number of billable hours as large as possible (in consultancy jargon: increasing the utilization or productivity). In addition, consulting firms create a certain leverage, because by a relatively limited effort from expensive seniors a large number of juniors can be kept at work. The risks in this model are for the client: the client pays, whether the consultancy work has an effect or not. Success fees can be applied but form an exception rather than the rule.

6 For ease of reading we use he, where ‘she’ is implied as well. 7 Ooa, 2014, The key code for knowledge-based services, www.ooa.nl, 1 July.


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Key resources/processes The most important resources in the traditional model are the consultants themselves, and the senior consultants especially. Their value grows because of their experience: they acquire deeper and wider knowledge and also become increasingly effective in acquisition and the social side of the client contact. Training on the job is the most important way to gain experience. A second resource is the knowledge of the firm, usually laid down in client reports and models, processes and methods which are used regularly. The third resource is the reputation of the consultant. A good name results in word-of-mouth advertising or follow-up assignments. Firms prefer to work alone and only participate in combined teams with rivals if the client requests this.

The consultancy process is linear: acquisition of an assignment is followed by an intake. Research is undertaken at the client site or into his market, and forms the basis of a report. This report can in turn result in the implementation of a project. This whole process is certainly not always covered by a single assignment: sometimes consultant A does the first part, while consultant B will do the second part. The process is generally characterized by direct, personal and often intensive contact with the client.


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3. Our research approach

This white paper is based on a number of sources, the first of which is the literature on business models as discussed briefly above. The literature gave us a conceptual lens through which we could examine real-life practice.

Our empirical research entailed a number of case studies and interviews. Nine cases were examined in more detail. We made case descriptions of them and presented these descriptions to the interviewees for approval. The research into some additional cases was shorter, for instance comprising a (telephone) conversation or the Internet. We selected our cases on the basis of examples which we already knew or cases which had contacted us. The criterion was that the case had to involve a new business model and could not only concern a new consultancy service. We will refer briefly to these cases from time to time in the rest of the paper. More information about these cases is available in our book about this subject8. Table 1 gives a brief overview of the cases. A second source of insight comes from consultancy firms which have completed the Sioo Business Model Challenge. This Challenge raises the critical awareness of consultancy firms as regards trends in their business, their knowledge base and their business model.

A further source was an expert workshop which Sioo organized. Three business models were presented on that day. In the discussion which took place the first common threads emerged. All the input was then analyzed on the basis of the theoretical framework from Figure 1. This resulted in the discovery of a number of common themes in the development of consulting business models.

The cases do not represent a cross-section of the Dutch consultancy market. They mainly come from small consultancy firms and cooperative networks of self-employed practitioners. Most of them are also recent starters in the market. For many of them, their businesses must still demonstrate how viable they are. On the other hand, these cases operate at the boundaries of innovation and that makes them particularly suitable for our purpose: identifying and listing new business models. They are ‘revelatory cases’ from which much can be learned9.

The selection of these cases does not imply there are no developments in business models at the larger and established firms. We know that a number of the large firms have an increasing diversity of revenue models. The internal consultancy departments of large organizations also fall outside the scope of this research. Our approach may therefore result in some trends being left out. But the trends in the development of business models outlined in this paper are relevant for the entire range of consultants and consultancy organizations. After all, innovation often occurs outside the established order and then puts pressure on that established order, because it finds itself incapable of following these disruptive innovations10. To be fair, discussions with large consultancy organizations have shown us that these organizations do consider models which are an extension of the business models in this paper.

8 The cases are included in De Man, A.P., M. de Man and A. Stoppelenburg, 2015, Nieuwe business modellen in consulting: Changing the game, Amsterdam, Mediawerf (in Dutch). 9 Yin, R.K., 1994, Case Study Research, Design and Methods, Beverly Hills, Sage. 10 Christensen, C.M., 1997, The innovator's dilemma: when new technologies cause great firms to fail, Boston, Massachusetts, USA, Harvard Business School Press.


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Table 1: Case summaries

Case Description

Bol Adviseurs -Wyzr Takes over business processes

dutch Sets up cooperatives involving sustainable themes and participates in them

Florpartners Hyperspecialist in horticultural cooperatives

Great Game of Business Helps organizations to realize their goals with an approach based on Open Book management

Ontwikkelaarsgilde Network of self-employed persons who work, learn and innovate together

Putmans Advies Online HR consultancy for SMEs

Solutio Consulting Develops propositions and markets together with partner organizations

Randstad Consultancy Deploys specialists for organizational issues

Transparency Lab Automization of the research component of consultancy processes


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4. The Business Model Mixer for Consulting

We went through our selection of cases in search of the elements consultants used to design their business models. We collected these elements in the Business Model Mixer in table 2. The first column of the business model mixer shows the most important variables which consultants and firms can use to change their business model. The next three columns show the trends which we see in those variables. We have identified three levels of trends. Basic renewal stays the closest to the traditional consultancy model as described above. Medium renewal implies a major shift from the traditional model, but one which still retains much continuity. Radical renewal means abandoning the traditional model. It is not possible to formulate an opinion about what is best. Radical renewal may sound attractive, but it often also comes with a high risk. Basic renewal involves less risk but can also be too conservative. In real-life practice we did not find any consulting firms which implemented all the trends in the radical way. Many parties are radical in one or two elements and are ranked in the basic or medium categories for the other elements. Consultants mix different variables at different levels this way to come up with a new business model.

Table 2: The Sioo Business Model Mixer for Consulting

Variables Basic Medium RadicalValue proposition

Time to value Linear project Accelerated linear project Instant consulting

Risk distribution Risk for client Sharing risk Risk-based consulting

Degree of specialization Broad provision of services Specialization in segment or service Hyperspecialization: specialization in segment and service

Profit formula

Value creation ‘Shareholder’ or partner value; leverage Joint value for consultant and client Shared value

Revenue model Time-based billing; fixed price; one-off project basis

Performance fee, one-off projects Recurring revenues; multiple revenue streams

Cost model High fixed costs; low sunk costs Semi-variable costs High sunk costs, low fixed costs

Process

Market development Reactive, wait for demand Create demand Create client

Interaction with client Person-to-person; consultant physically present at client

Blended: consultant supported by online/data Virtual consulting

Role In and out at client site in a fixed role Part of flexible shell of the customer: different roles

Co-entrepreneur, co-worker

Resources

Networking Calling in partners ad hoc per job if necessary Regular use of the same partners Collaborative consulting

Knowledge Consultancy owns the knowledge (experts employed)

Core team employed, access to knowledge in flexible shell

Create knowledge and innovate in co-creation with network


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Value proposition

Time to value A first trend is the client’s demand for faster results, so that consultants try to accelerate the speed of their impact. The disadvantage of traditional linear consultancy processes, whether they are performed in collaboration with the client or not, is that they take a long time to complete. These days consultants try to generate value faster for their clients. They can do that by using methods like ‘scrum’, which makes results visible more often, or by drastically reducing the research time. Transparency Lab applies the latter method.

The use of information technology in consulting is booming and continues to grow. Technology also offers increasingly more possibilities. Transparency Lab’s slogan is We automate consulting. This firm uses a database with more than 20,000 questions to diagnose organizations on various topics such as team cooperation and the effectiveness of sales forces. The market of Transparency Lab consists of the internal consultancy departments of large companies and external consultants. They select questionnaires from the Transparency Lab database and use them for their clients. The concept behind supplying this kind of commodity service is twofold. Firstly, it improves existing consultancy processes because consultants can gather better information and diagnose problems faster. Secondly and more importantly, it opens up a new market for consultancy: the large market of smaller requests for consultancy for which the traditional model is too expensive. The latest service of Transparency Lab, No Suits, even makes it possible to make analyses which serve this market via a pay-per-use model.

The most radical solution is instant consulting: a consultant spends almost no time any more on research at the client, but sets to work directly on solving a problem. This is only possible if a consultant already knows the client, their sector and their problem and has already developed a tailor-made solution for this which can be put to use immediately. While a great deal time of time is often spent in traditional consulting processes on first finding out the question behind the question and also on getting to know the client, this is no longer the case with instant consulting. In many cases the client has become mature enough to pose a good question and the consultant is considered to know the client and their problem already. In that case only a limited amount of research still needs to be done or it can be incorporated into the approach, as with the Great Game of Business, which teaches clients to do research into financial improvement themselves. Bol Adviseurs have a different approach. Their consulting service, Wyzr, works on the basis of real-time client information which they have access to. Wyzr has a reversed family doctor function: the Wyzr consultant calls the client with the message ‘I have noticed that you are coughing’, on the basis of the client information which Wyzr sees.

The Great Game of Business can get to work immediately. At the start of an assignment they only need some information about the business to get an inside view and also to see whether the intended objectives are realistic. If the objective is growth in turnover, they can start with for example the theme ‘better utilization of production machines’ to ensure that the intended growth can actually be produced. Large objectives are divided into smaller steps this way and then successively turned into a game in which client employees learn to improve machine utilization by doing so in practice. The Great Game is a standardized concept that consists of a number of elements. The aim is to end up with an Open Book Management organization.


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Risk distribution Risk and entrepreneurship are two sides of the one coin. Many traditional consultants run risks as entrepreneurs, but these are often limited in comparison with the risk the client runs. This is often due to professional independence being regarded as inconsistent with risk sharing. How can a consultant still provide objective advice if he is also has a stake in the success of the enterprise he advises? That is why the client often bears the risk. More elements of risk distribution have come along, step by step, for example through the use of success fees. In that case, risk is shared with the client. This is much more common in the United States than in the Netherlands where clients still have to become accustomed to the idea. The Great Game of Business is willing to work with a risk distribution model, but in their experience not all clients are open to this. Naturally it requires very clear and quantifiable agreements about whether an assignment is successful or not. There seems to be a relationship in the firms investigated between the faith in their own approach and the willingness to work on success fee basis. The most drastic version is when consultants bear the entire risk of an assignment. For instance, consultancy firm dutch creates its own clients by establishing cooperatives itself and participating in them. In that case the consultancy bears the full risk itself.

Degree of specialization Knowledge competition has become so fierce that only extremely in-depth knowledge can be profitable. That is why precisely the generalist consulting firms offering a broad range of services have encountered problems. Often broad consultancy firms do not have the critical mass to maintain the knowledge areas they cover, which means specialized consultants can take over their market. This leaves firms which offer a full range of services in a tight corner. Consultancy firms are indeed specializing more and more. They do this in the first instance according to client segment or service, but specialization according to segment and service is becoming more prevalent. This is what we call hyperspecialization.

One consultancy firm which has been doing this for a while is Florpartners. Florpartners has specialized for years in providing services to the glasshouse horticulture industry, and within this specialization it has specialized even further in advising growers’ cooperatives. Glasshouse horticulturalists join these cooperatives for production or marketing purposes. This hyperspecialization has helped Florpartners to be successful in a sector which has been under significant pressure for years.

Profit formula

Value creation The ideas about what value creation is have been evolving in the consultancy sector the same way they have in society. Consultancy firms in the traditional model often aim at increasing the partners’ income. Significant amounts can be earned with good leverage (a senior who sets many juniors to work). More of that value is being shared due to pressure from growing client demands. Consultants might discuss together with their clients how they can create value jointly, for example by doing research together, so that they can both benefit from it. Thinking in terms of shared value11, whereby consultant, client and society all experience improvement, is also becoming increasingly important. This also leads to consultants being more committed to their work, because they perceive their work as being more meaningful.

11 Porter, M.E. and M.R. Kramer, 2011, Creating shared value, Harvard Business Review, January/February, 63-77.


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Revenue model Besides the traditional time-based billing concept (basic) and performance fees (medium), the most radical trend is the decision not to demand a fee at all any more, but to be remunerated in other ways. The new revenue models are based on multiple revenue streams (several sources of income) and recurring revenues (no payment for a one-off project, but receiving income repeatedly). This is in line with the idea that you should avoid business models whereby clients buy something only once12. One example of recurring revenue is the subscription system of Putmans Advies: for a fixed annual fee clients can ask a helpdesk an unlimited number of questions. As yet, this trend is not generally accepted. Clients of consultancy firm Metri have the choice between a subscription which allows continuous monitoring and a once-only benchmark. Metri has noticed that clients often choose the latter option.

The multiple revenue streams are not only financial in nature. Rewards may also take the form of learning or marketing exposure. As a consequence of the shared value idea there is also an intangible compensation. The fact that consultancy can also improve the environment, prevent poverty or create jobs is becoming increasingly important to a growing number of consultants13.

Dutch realizes multiple recurring revenues when it participates in the establishment of cooperatives. Dutch initiated the Beebox cooperative, which enables sustainable vegetable and fruit growers to sell their produce to subscribers. Dutch did have to spend the necessary number of consultancy hours on setting up the cooperative. Those hours have been added to the balance sheet of Beebox as a subordinated loan. Dutch is also a shareholder in the cooperative. This gives dutch four different potential sources of income: Dividend based on the shares; Appreciation of the shares; A modest interest on the subordinated loan; When the subordinated loan is repaid, the consultancy hours will have been recovered. On the other hand, dutch does not receive any immediate income from the consultancy hours devoted to setting up Beebox and runs the risk that the whole project might fail.

Cost model Fixed costs dominate in the basic model. There are staff on the wage list and an impressive building in a prestigious location: these are important components of the costs. Some of the costs are made variable in the medium model, for instance by using a flexible shell. If the turnover declines, this does not hit the bottom line as hard. The fixed costs in the radical model are substantially lower. Few people are employed and the organization’s infrastructure has also become flexible thanks to cloud services.

But there are high sunk costs, definitely with data-driven consultancy. Substantial pre-investment is required to develop a good database. While anyone can start a consultancy firm fairly simply with the basic model because initially there is no large capital requirement, in the radical model the start requires a capital investment to build a database and corresponding software. Once the database and software are present, new possibilities are opened up because consultants can use the databases and software for different business models without incurring any extra costs.

12 McGrath, R., 2011, When your business model is in trouble, Harvard Business Review, January/February, 96-98. 13 Jonker et al., 2014; see footnote 5.


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Metri and itfacts4you are examples of firms which put two different business models on the market on the basis of the same databases and software. But with their new label Wyzr the enterprising Bol Adviseurs also look further than their own market.

Bol Adviseurs have a regional function and do not have the ambition of becoming an organization with national coverage. But Wyzr is a concept that can be used by other accounting firms and organizations. Bol and Wyzr therefore want to cooperate with other firms in the Netherlands which serve other regions. That way they become a consultant for the other firms. At Bol they envisage many more possibilities for Wyzr. Wyzr software is currently also being offered as a white label to a party which counts many dentists and physiotherapy businesses among its clients. This opens up a new segment.

Process

Market development It is not easy to develop a market for consultancy services. A traditionally reliable strategy is to deliver new services to existing clients.

Randstad’s regular business as a temporary employment agency mainly concerns the structured questions from clients. But the questions from clients (e.g. about internationalization, actual implementation, strategic orientation) are becoming more complex and that means different methods are required to be able to remain a partner for those clients. If the services of Randstad are considered as a collection of ways of helping clients increase their returns on labour, providing strategic advice about this becomes a logical activity.

The demand for consultancy services was large enough in the past for firms to wait relatively passively for clients to come with their questions, but over time the creation of demand has become increasingly important. For example, new management concepts are introduced which are then brought to the attention of the client. Taken to its absolute limit, this becomes the creation of the client. Firms such as dutch, Rebel Group and Florpartners are involved in the establishment of new organizations to which they can then supply various services.

Interaction with client The information revolution is also having repercussions in the consultancy sphere. New models are now appearing instead of the traditional advice model in which people were the most important resource and consultants were physically present at the client’s site. In the blended model, consultants go to the client and are supported by databases and online tools. McKinsey Solutions is the best-known example of this. Clients can subscribe to a database which they can use to set their own benchmarks. The sale of consultancy hours is part of this. A further step again is the reduction of the human component and to work purely data-driven. Our research showed that Transparency Lab came the closest to this model. This lays the foundations for virtual consulting, in which advice is provided mainly online, sometimes including the use of databases. Wikistrat has developed a variation of this by using crowdsourcing to implement consultancy. Wikistrat provides advice on international relations. The firm has very few employees but it does have a network of experts at its disposal it can use online for client questions. The answer is in the network. Putmans Advies has developed the ‘Factor Arbeid’ service which makes use of online interaction with clients.


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Factor Arbeid serves SMEs, providing them with instant answers to their questions concerning human resource management (HR). The service is based on subscription. Clients can ask a helpdesk questions without limitation and can retrieve standard documents without limitation. The questions are stored by the consultancy organization in a database which makes the answers accessible for all consultants. Finding information is relatively easy and the promised speed of answers to clients can be realized. A standard component of the service is an inventory of the current HR policy of a client, so that Putmans Advies can get to know the client properly.

Role The roles which consultants fulfil can also shift. ‘Consultant’ was previously a clearly defined role and consultants visited clients on a project basis, but now consultants have become much more active in different roles. In addition to their ‘pure’ advisory role, consultants can also be coaches, trainers, interim managers and temporary workers. Consultants form part of the flexible workforce around their client through those different roles. That role becomes even broader if consultants start developing joint business with clients. In that case they are involved with an organization on a continual basis and the role they fulfil can be very broad. That is when the distinction between client and consultant becomes blurred. The value proposition for the client becomes the value proposition for the consultant as well.

Resources

Networking A subsequent trend is the disappearance of the stand-alone consultant: a firm or individual who prefers to work autonomously in the market. When we speak of a trend towards cooperation we do not refer to the worn-out cliché of many consultancy firms that they work together with the client. It is actually about the cooperation between consultants, between consultancy firms and between consultancy firms and third parties. In the traditional model, consultants or firms call in partners ad hoc if particular knowledge is not available in-company for a job. This can develop slowly into the regular use of the same partners, which results in the creation of a permanent network. External cooperation can take place behind the scenes, similar to the way Transparency Lab cooperates with universities to build up a validated database of questions. It goes another step further when the network of permanent partners develops a shared philosophy and jointly go to market. One example of this collaborative consulting is Solutio Consulting which has gathered a network of a handful of partners around itself with which joint assignments are carried out in the field of business analytics. The Ontwikkelaarsgilde is a collective of sixteen independent consultants and trainers who have been working according to this model for years.

From a client’s perspective the Ontwikkelaarsgilde is a consultancy firm with the continuity of a ‘normal’ firm. However, it consists of independent consultants who have worked with each other for a long time. The network works together on the basis of a number of values, the most important of which is the individual and collective responsibility for development. The consultants in the Ontwikkelaarsgilde prefer to do two assignments together than one job alone. When a client has a question they put together a specialist in the relevant field and someone who has a development objective for that question. Continual development is guaranteed through three kinds of meetings: specialist days about themes, development days revolving around their own entrepreneurship and inspiration mornings where a person tests something out on colleagues or introduces a theme in which they are involved.


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Knowledge Ownership of knowledge formed the core of the competitive advantage in the traditional consulting model. Experts were permanent employees and the company’s own database with PowerPoint presentations was the knowledge backbone of the consultancy. This has changed gradually, and increasingly more consultancies have realized that access to knowledge is at least as important as ownership of knowledge. On the one hand this is because the really valuable knowledge can no longer be made explicit: implicit knowledge is embodied in the consultant and is not actually the property of the consulting firm. On the other hand, it is not smart to employ expensive experts either, in view of the development of niches. The chance that an expensive expert can be kept working continually on client assignments in one consultancy is not high. Many consultancies are currently switching to the model of the flexible shell, whereby a core team of consultants is employed permanently and a part of the knowledge can be hired from the flexible shell. A more drastic step is the creation and innovation of knowledge in co-creation with the network. Parties involved in collaborative consulting take this step.

One of the characteristics of networks is that the resources are spread over various independent parties. The idea behind this is that the combination of the specialisms of the partners can deliver a better service to the client. This can be seen in the network supporting Solutio Consulting. The partners of Solutio Consulting are: Pragus (a consulting firm specializing in client-oriented information), FinTouch (a consulting firm specializing in the improvement of the financial function in organizations) and Xomnia (a consulting firm which specializes in big data analytics and predictive analysis).

Overlap, coherence and conflicts The variables given in table 2 are often complementary but they also may conflict. One example of complementarity is that hyperspecialization quickly raises the need for collaboration with other parties with complementary competences. These two radical elements will thus often occur together. Another example is the fact that creating a new client often entails a high degree of risk for the consultant. And likewise there are more elements which will often occur jointly. Some elements also seem to conflict with each other. It would appear difficult to relate hyperspecialization to co-entrepreneurship with the client. The latter usually requires a wide package of knowledge and skills to be put to use for the client. The fact that contradictory trends occur shows that the market is currently experimenting with a broad variety of business models.

Moreover, it is possible for different business models to exist within one single firm. One example we came across was Metri. It has a single platform on which a business model with a lot of client interaction is based, as well as a business model in which this interaction is limited. The latter model is available on the market under a different name (itfacts4you). In addition to its activities in cooperatives, dutch also has a traditional consultancy branch.


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5. How to use the Business Model Mixer

Consultants can use table 2 to find their own new business model. They can do that by mixing the different elements from the table. The most effective way is to take four steps. Step 1: Identify the current business model

The first step is identifying your current business model, along the lines outlined by Johnson (2010). Start with the client value proposition: what offer do you make the client which is better than existing alternatives and which price is acceptable to the client? Which segments do you serve? Do you supply a commodity or a top-end product?

The profit formula then determines how your organization creates value for itself while you offer added value to the client. You determine the prices, margins and costs you have and how you make them. Do you work with time-based billing? Do you have mainly fixed or variable costs? Key resources are all those crucial resources such as people, technology, facilities and equipment which are necessary so the value proposition can be delivered to the intended client. What resources do you have yourself? What resources do you have access to?

The key processes enable organizations to deliver the value proposition again and again and to deliver them on a large scale. This involves various recurring business processes such as training, development, planning and sales, but also the rules and standards for maintaining the value of the proposition. Is customization involved or standardization? How intensive is your client contact? Which delivery channels do you use? What are the strong and the weak points of your processes? Step 2: Plot your business model in the Sioo Business Model Mixer

Use a line to show the sections in which your business model scores (figure 2). This is not a value judgment. A score in basic is no worse than a score in radical. Even the most radical cases we found in our research still contained many basic elements.


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Figure 2: Possible business model score in the Sioo Business Model Mixer (illustration)

If you work in a consultancy it can be an interesting exercise to work out these scores as a team. The discussion about the scores can often be very valuable for gaining insight into the strong and weak points of your current business model. Step 3: Vary aspects and design alternatives

Once you have that (joint) picture, the various aspects are ready for investigation. Suppose on the variable role you score at basic level and you want to shift to radical: what does that mean? What other things need to shift and what can stay the way it is? What does this mean for your value proposition for the client? It is interesting to invent three alternative business models this way and think them through for their coherence in all elements from the business model mixer.

Variables Basic Medium RadicalValue proposition

Time to value Linear project Accelerated linear project Instant consulting

Risk distribution Risk for client Sharing risk Risk-based consulting

Degree of specialization Broad provision of services Specialization in segment or service Hyperspecialization: specialization in segment and service

Profit formula

Value creation ‘Shareholder’ or partner value; leverage Joint value for consultant and client Shared value

Revenue model Time-based billing; fixed price; one-off project basis

Performance fee, one-off projects Recurring revenues; multiple revenue streams

Cost model High fixed costs; low sunk costs Semi-variable costs High sunk costs, low fixed costs

Process

Market development Reactive, wait for demand Create demand Create client

Interaction with client Person-to-person; consultant physically present at client

Blended: consultant supported by online/data Virtual consulting

Role In and out at client site in a fixed role Part of flexible shell of the customer: different roles

Co-entrepreneur, co-worker

Resources

Networking Calling in partners ad hoc per job if necessary Regular use of the same partners Collaborative consulting

Knowledge Consultancy owns the knowledge (experts employed)

Core team employed, access to knowledge in flexible shell

Create knowledge and innovate in co-creation with network


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Step 4: Determine the implementability

A test is needed for each alternative design: Can we do this? What do we need for it? Which existing resources and processes are obstructive and which ones help? What do we need to develop, acquire and invest? If you do this test for the three different designs, a viable new value proposition for clients will emerge.

The nature of this value proposition determines how this can be taken up and implemented further. Consultants can implement new business models in the existing organization, in a separate department or in a new organization. A lot can be said about this, but we will keep it brief. Many consultancy organizations deliver different services at the same time which are actually founded on a similar business model. On the client side fundamentally different business models are often better off with an independent positioning on the market. Whether there is one organization with the same people and shared resources behind the scenes depends very much on the proposition. Co-entrepreneurship, for example, requires totally different qualities than traditional consulting. It is probably difficult to have those two exist together in the one organization.


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6. Is there disruption?

What the business model mixer shows is that there is a lot going on in the world of consulting. The question is whether the experiments with new business models are disruptive for the sector. A number of factors determine the speed and extent of possible disruption:

Conservatism versus innovativeness of clients. Are clients willing to accept new models? The predominating procurement mentality of many larger companies seems to play into the hands of traditional business models rather than new ones. And yet we see that the opinions of clients about other models are slowly but surely becoming more open.

The quality of the client. The new models require the client to be able to formulate sharp questions. Our research round revealed that the qualities of clients in this area are very diverse.

Conservatism versus innovativeness of consultants. Are consultants capable of renewing or does the old adagio apply here that the cobbler’s children have no shoes? As long as consultants are judged by sales and productive hours instead of by added value, change will only happen slowly. Consultants will also have to start thinking very differently about innovation. Are they prepared to accept the sunk costs which new models entail? Large pre-investments in innovation are taboo in traditional business models.

Economic growth. The traditional consultancy models will profit from economic growth when the market is picking up. The replacement of traditional models by new models will slow down in this case. An economic crisis will result in further investigation of new business models with which money can be earned.

The professionalism of the consultants who put new business models on the market. We noticed that the consultants we investigated were very seriously involved in their profession and asked themselves many questions about quality, independence, professionalism and knowledge. There will undoubtedly also be new business models which are not viable. The more professional the innovative consultants, the earlier their business models will be accepted in the market.

In view of the underlying trends, we believe that eventually it will be new business models which will dominate, although traditional models can co-exist with these. Which ones they will be precisely and the speed of this development remain to be seen. Once the tipping point has been reached, it can sometimes go faster than expected.

You really want to get to work? Do the Sioo Business Model Challenge! Spend a day with a Sioo team and develop new business models yourself.

Sioo. The consultant’s consultant.

Business model mixer for consulting

Business

Transcript of Business model mixer for consulting