Last week Clearsight was in London to celebrate the completion of another successful transaction, a license of key IP assets to EY in a deal that provided a landmark liquidity event for Clearsight’s client Competitive Capabilities International (Pty) Ltd. (“CCi”). CCi is a South African software and consulting business helping clients in the global manufacturing space achieve transformative operational improvement. The firm is known for its manufacturing operations management software TRACC which provides a rich depth of proprietary content delivered through a web-based software platform. EY has adapted the software to launch a new venture, UK-based EY Catalyst, to offer new tech-enabled capabilities to its Advisory clients in global manufacturing.
The transaction is notable because it illustrates a critical shift in the traditional consulting business model and corroborates Clearsight’s founding thesis around the convergence of business services, technology, and data. We have observed an increasing interest in tech-enabled consulting services, with two common models:
Software focused model. Go-to-market emphasizes productized software with consulting follow-on opportunities in such areas as implementation, education/training, analytics, or strategy. A well-integrated software product can provide recurring engagement from consulting teams well versed in leveraging the customer’s own software data outflows for unique insight and to enact meaningful change.
Consulting focused model. Go-to-market emphasizes consulting services and software provides capabilities differentiation. In a crowded professional services marketplace, offerings leveraging proprietary intellectual property stand out and the delivery of surplus value provides a basis for premium pricing and creates a stickier, longer client relationship.
Both models are well represented in recent M&A activity. Our recent transaction with CCi is a representative example of the software-led model and EY Catalyst’s structure as an affiliate of EY Advisory suggests a similar model for that organization. Strategy consulting giant McKinsey & Company, Inc. provides an example of the consulting-led model. In recent years, the firm has acquired PriceMetrix, Inc. (software products for retail wealth management firms) and Quantum Black Visual Analytics Limited (advanced data analytics services).
Firms of all size can benefit from this integration of technology and consulting services. In addition to competitive differentiation, we see the following as potential attributes of embracing a tech-enabled model:
Technology as a “leave behind”. Consulting firms offering technology as stand alone products or embedded assets can create a recurring touch point with the client. Such touch points enhance the overall “stickiness” of the client relationship help firms stay top of mind between client projects.
Potential “key hole” insights. Usage reporting and analysis may provide leading indicators of business complexities that would benefit from consulting support.
Recurring revenue. Consulting business models tend to be project-based with poor revenue visibility. Adding Software-as-a-Service (SaaS) or support/maintenance revenues can diversify the revenue base and improve the volatility of performance and revenue visibility.
Ancillary product offerings. Depending on the context, there may be an opportunity to consolidate obfuscated data and provide ancillary services such as research, subscription products, or another Data-as-a-Service (DaaS) model. Proprietary insights at scale can be leveraged not only by internal consulting teams but by clients themselves (and potentially in another part of the client organization) for industry benchmarking and best practices awareness.
At Clearsight we work with clients that blur the lines guarding traditional business consulting models. Organic capabilities development is ideal but not all organizations have the right culture or skillsets to incubate new business lines internally, especially when software development is involved. Many firms supplement organic development through tuck-in M&A, finding unique teams and products for a truly tech-enabled consulting model. We expect these trends to accelerate over the coming years as global consulting firms continue to look for ways to supplement organic growth, further differentiate their offerings and create deeper, longer, more predictable relationships with their clients.