FIR #476: Rewiring The Consulting Business For AI For Immediate Release podcast

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For Immediate Release »
FIR #476: Rewiring the Consulting Business for AI

4d ago 24:11

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Swarms of consultants descend on companies that have engaged their firms, racking up billable hours and cranking out PowerPoint presentations that summarize the data they’ve analyzed. That business model is at risk, given the amount of that work that AI can now handle. Recognizing the threat, some consulting firms are actively reengineering their businesses, with McKinsey out in front. In this short midweek episode, Shel and Neville review the actions of several firms and agencies, and discuss what might come next for consultants.

Links from this episode:

The next monthly, long-form episode of FIR will drop on Monday, August 25.

We host a Communicators Zoom Chat most Thursdays at 1 p.m. ET. To obtain the credentials needed to participate, contact Shel or Neville directly, request them in our Facebook group, or email [email protected].

Special thanks to Jay Moonah for the opening and closing music.

You can find the stories from which Shel’s FIR content is selected at Shel’s Link Blog. Shel has started a metaverse-focused Flipboard magazine. You can catch up with both co-hosts on Neville’s blog and Shel’s blog.

Disclaimer: The opinions expressed in this podcast are Shel’s and Neville’s and do not reflect the views of their employers and/or clients.

Raw Transcript:

@nevillehobson (00:02)
Hi everyone and welcome to Four immediate release. This is episode 476. I’m Neville Hobson.

Shel Holtz (00:08)
And I’m Shell Holtz. If you’ve been following the consulting industry lately, or maybe you’re part of it, you’re aware that AI is all the buzz. The Wall Street Journal recently reported that McKinsey & Company, the gold standard in management consulting, is deep in an existential transformation. And if you weren’t watching the video, you didn’t see me make air quotes around existential transformation. It’s their words. ⁓

AI is the catalyst for that transformation and the realization that it can do a lot of what McKinsey’s highly paid human consultants do faster, cheaper, and sometimes just as well. For nearly a century, McKinsey has built into business on armies of bright young consultants, fresh from top universities, synthesizing vast amounts of complex information and advising C-suites on what they ought to do next. But now,

instead of a small battalion of analysts, a project might require just two or three people, along with an assortment of AI agents, tools that write in the classic McKinsey tone, check the logic of arguments, summarize interviews, and crank out PowerPoint decks. McKinsey has rolled out, are you sitting down, 12,000 of these AI agents, and its CEO predicts a not too distant future with one AI agent for every human employee.

And they’re not alone. Boston Consulting Group has Dexter for presentation building in Gene, a conversational assistant. Deloitte has Sidekick and Zora AI. PwC, KPMG, EY, they all have their own fleets of AI helpers. At McKinsey, over 70 % of employees are already using a tool called Lili, which taps into a century’s worth of the firm’s knowledge.

EY is using AI with 80,000 of its tax professionals, and rather than seeing that as a job killer, its CEO says it could actually help them double the firm’s size. And that’s an important point. While AI is eliminating some roles, particularly entry-level repetitive work, it’s also changing the skill mix. For consultants, that means fewer suits with PowerPoints and more partners in the trenches.

co-creating solutions with clients and helping organizations implement change. As one Oliver Wyman executive put it, the age of arrogance of the management consultant is over. Clients don’t want abstract strategy anymore, they want execution, training and transformation. Now for those of us in organizational communication, there’s a clear parallel. AI is already reshaping our own work in much the same way, handling…

media monitoring, sentiment analysis, and first draft content creation. In public relations, agencies like Edelman and Golan are using AI to track reputation, analyze audience sentiment, and even test campaign ideas on synthetic focus groups. The USC Annenberg study on AI and communications found many agency leaders are building cultures of experimentation around AI, seeing it as a way to free their teams for higher value work. But, and this is a big but,

The risks are real. In both consulting and PR, the differentiator going forward won’t be who can use AI. It will be who can layer human judgment, creativity, and trust on top of AI speed and scale. As one McKinsey partner put it, the basic layer of mediocre expertise goes away. The distinctive expertise becomes even more valuable. And that’s a key takeaway for communicators. First, the business model has to adapt.

Just as consulting firms are moving from billable hours to outcome-based fees, agencies are rethinking traditional retainers in favor of value-based pricing, charging for results, not hours. We’ve talked about this on FIR before. Second, the human skills that AI can’t replicate, relationship building, empathy, strategic thinking, become even more critical. And third, the organizations that thrive will be the ones that treat AI as a collaborator, not a threat.

@nevillehobson (04:14)
Thank

Shel Holtz (04:16)
just as McKinsey is doing by pairing agents with experienced human experts. The AI era isn’t all about being replaced. There’s plenty of validity in the augmentation argument. The winners are gonna be the fast learners, the ones who can adapt their craft, rethink their value proposition, and work seamlessly with both humans and machines. But let’s not sugarcoat this. The threat to jobs isn’t hypothetical. According to HR Dive,

US employers cited AI as the reason for over 10,000 job cuts in July alone, and layoffs surged 140 % year over year in that month. In total, more than 800,000 job cuts have been announced so far this year. Now, many of these AI-related layoffs are under-reported or hidden, buried under euphemisms like technological updates or restructuring.

The outplacement firm Challenger Gray and Christmas notes that only 75 layoffs in the first half of the year were explicitly attributed to AI, but they warn the real number is almost certainly higher, much higher. This isn’t theoretical. Across sectors from consulting to communication, the integration of AI doesn’t just augment roles, it reshapes them and in some cases eliminates them entirely.

In any case, the future of consulting and of communication belongs to those who can bring something to the table that no chatbot ever will.

@nevillehobson (05:40)
Yeah, but it’s interesting. It’s quite apparent that this will have a dramatic impact on this. see a lot of articles and opinion pieces published about the kind of tactical use to make of AI. But what you’ve explained in terms of what firms like the consulting firms you mentioned are doing, this is a quite a significant shift that’s happening.

A trigger in my mind ⁓ reminded me of a post I wrote in my own blog in February about the need to change the bill about hours model. As you said, we talked about it in FIR. We actually came up in our interview with Steve Rubell earlier this year as well. And I’ve been trying to do this. This is the catalyst where you can’t ignore this. No one’s going to want to pay a consultant on an hourly retainer basis.

when AI in its various shapes and forms, particularly agentic AI, it’s going to be totally apparent to anyone that that’s doing the grunt work. Your value is kind of like, this is what it means, Mr. Client, or actually more than that, much more than that, in fact, although AI will help you do that. So it will require a rethinking of the whole relationship model between consultants and clients. And I doubt

truly doubt more than 5 % of consultants, which basically are the big ones you’ve mentioned, are ready for that. I don’t think they are. So it doesn’t mean to say that no one’s going to change. It’s going to be a painful process. The ones who I think will benefit from this will be the ones who are already making plans for a shift. And it could be that ⁓

number of organizations already having conversations with clients who are quite happy, quite comfortable with how things currently are and don’t really like the idea of change. That is all to do with human resistance to change more than anything I would say. You could give them the logic about here’s the cost benefits, why we should change, but it’s the emotional bit you need to bring into this, which I think is an opportunity for consultants to

kind of, as you mentioned in your narrative, to position you, the consultant, as the critical addition to the mix that blends the value of the agentic AI and other aspects of artificial intelligence with your irreplaceable skill in literally bringing that to the table to illustrate to the client.

what it means for what they’re trying to achieve and the role that these tools will have. This is not new at all in the sense of suddenly we’re talking about it. We’ve been talking about this in different ways for quite a while. I think though what I’ve seen most of the conversations tend to be at a really high level and very technically focused. So this needs conversations on a far more emotional level that so that people can grasp quite clearly what the benefits are.

PRSA had a report just a month ago in June about how AI is driving PR innovation. It’s not about the main topic here, but it’s absolutely connected to it, because that’s exactly how you’re going to be able to use a word I dislike intensely, but it’s apt to harness the power of this that enables you to do the things that the PRSA mentions in their report, hyper-personalized media pictures they talk about, predictive crisis simulation.

real-time event adaptation, visual storytelling, and cross-cultural adaptation, that one’s most interesting. So you’re seeing these are the kind of outcomes that you would get when you harness all this intelligence, combining yours with the, ⁓ well, the algorithmic intelligence of artificial intelligence. So it’s an exciting time, although I fear that many people

Will not do well out of this change that’s coming

Shel Holtz (10:06)
Undoubtedly not. It reminds me a lot of this notion that I shared in the early days of the net and basically the computer revolution in business, which you and I have both been around for. mean, you and I both worked in days where we had typewriters and typewriters and fax machines, absolutely. And it was…

@nevillehobson (10:28)
Fax machines, yeah, true, after that fax machine.

Shel Holtz (10:34)
Something, I don’t remember if I heard this or just observed it, but the first thing we tend to do with a new technology is stuff that we were doing with the old technology. The first thing we did with computers was type. Word processors, right? It was WordStar and WordPress. And it was just a replacement for a typewriter. And instead of a ledger, we had Excel for…

@nevillehobson (10:49)
Yeah.

Shel Holtz (11:01)
keeping our numbers. It was the same job we were doing before we had just found this technology that allowed us to do it better and faster and easier. But it was stuff that we were already doing. And even with that list that you read from the PRSA report, the things that they have figured out how to get AI to do are things that we are already doing. Where technology gets interesting is

After you move beyond that, say, okay, we’ve adapted this technology so that it makes our lives easier with all of these tasks that we had to perform in a more manual way before. What else can we do with this? That’s where it gets interesting is where you start to see what these things can do that you hadn’t imagined and that you weren’t already doing that benefit your life and your organization. And when you look at this idea of reshaping

the business. I don’t think most businesses of any kind, consulting or anything else, are there yet. They’re still at the, how can we do what we’re already doing better, faster, cheaper than we were doing before with, by using AI and not how can we rethink the way this business operates.

And McKinsey, think, is already heading there. They’re already saying, look, rather than sending a pod of 30 consultants out to the client and taking over 10 offices on site and having this presence and cranking out PowerPoints and crunching all of this data, we’re just gonna have some people in the trenches there working with them. The AI will come up with

@nevillehobson (12:24)
Thank

Shel Holtz (12:50)
the data analysis and all of those things that it’s good at. We’re going to be with the client figuring out how to bring this into the workplace, how we’re going to synthesize this into their operations, and how we’re going to train them and prepare them and guide them through this shift, whatever it may be, whatever they brought us in to consult with them about.

@nevillehobson (13:01)
and

Shel Holtz (13:17)
So they’re rethinking what their business is all about, how they’re going to execute it. And it doesn’t look a lot like what it looked like before, but to their credit, they’re ahead of it. They’re not waiting the way so many industries did in the world of Web 1.0, Internet 1.0, where newspapers started to suffer because they didn’t see the writing on the wall and figure out a better way or a different way to…

fulfill their fundamental mission, which is getting news and information into the hands of the people in the communities that they serve. So it’s good to see McKinsey doing this. It’s worrisome that we ⁓ don’t yet see other organizations, many other organizations, that they’re still in that phase of how can this replace the tactical work that we do or augment the tactical work that we do, not how does it reshape how we get our work

what our business is all about and how we do it.

@nevillehobson (14:19)
Yeah, I think there’s also another element here that you’re talking about, know, McKinsey, Ernst & Young, and these these mega big consulting firms with typically huge enterprise level clients in different countries all over the world. And that’s great, because they will lead the way for that level of relationship building with clients of who have needs very different to

the small to medium enterprise, the small consulting firm, mid-size consulting firms, for that matter, ⁓ who aren’t going to be about changing the whole business model. They’re going to be about what can they deliver to the client that makes absolute sense to where that client’s at on this journey that we’re all on. So it could well be that you’re going to see, you won’t see uniformity in this at all. What we’ll see, which is most welcome,

is the McKinsey’s and the Ernst & Young’s taking the strongest lead to reinvent the businesses of consulting, if you like. And that’ll filter out, gradually. It’ll be very uneven. And some won’t do it, in which case they may not survive or they may not evolve. Who knows what’s going to happen in that sense. But that’s good, in my opinion, because the kind of

Let’s look at how AI will help us reshape entirely our business model. It’s for everyone right now. If you’ve got a 10 person consulting practice, that’s not for you, I would think, or you could argue, well, actually, it might be, it should be easier because you’re smaller and more nimble. We don’t know really what this is going to look like. But what I see, though, is a two-way pressure stream where clients are going to be pressuring their agencies, their consulting partners, if you will.

I’m hearing about this, let’s talk about this. We want to do X. You then got an opportunity to say, let’s talk about that because I’ve got three ideas that could work that are absolutely on this avenue. But it’s not going to happen quickly and it isn’t going to be for most businesses, I would argue, not yet. ⁓ For the big ones where there’s a lot at stake and they need to do things like, hey, we’re not going to send 100 consultants out this client at

X hundred dollars per hour or whatever it might be, we’re going to work out a deal where the outcomes are really what we’re going to be judged upon. And yes, we’ll have a hundred agentic consultants and there’ll be three human beings who lead them. Or as we have discussed on F.I.R. Shell, one of the leaders may well be another AI. So but that’s not for everyone. These are this kind of big picture ideas that scares the hell out of a lot of people, I have to say. So this is uneven.

It’s exciting or a nightmare depending on your point of view. I think it’s exciting personally. I could see for instance, independent consultants are the ones who are probably most at risk, where you’ve got a nice gig going with a handful of clients, you all like each other, they know you. But as an individual, you just absolutely cannot deliver what they need without partnering with someone else.

be a big shake up, I would say in this, but it’s going to take a while and by a while, I don’t mean 10 years, you’re looking at two to three years before you see an impact in this I would venture. So interesting times ahead, as someone said recently.

Shel Holtz (17:45)
Yeah,

it’s definitely the fastest growing technology we’ve ever seen, which is a conundrum because we tend to adapt at the same pace that we always have, regardless of the fact that this technology is growing by leaps and bounds. And for those…

smaller consulting firms that maybe now is not the time, I would worry about that because if I get an assignment and I go into a client and I’m presenting them with a monthly invoice showing hours burned on this client’s work and I’ve got 15 people taking four months to do this assignment and I’m hearing through my network about colleagues that are working with other consulting firms that are getting it done.

in three weeks with a team of two consultants and getting great outcomes and spending less, then I am going to worry about my client wanting to work with them because they’re more efficient at it.

@nevillehobson (18:48)
Yeah,

I agree, but that’s not really what I’m talking about because not everyone is going to be impacted by this yet, not at all. And in fact, I don’t believe it’s feasible to say everyone suddenly has got to change right now. Get rid of the billable hours model. ⁓ indeed, indeed, many are not. You’re right. They ought to start thinking about it. You’re not going to see the kind of horrific outcome suddenly that this nice little consulting firm

Shel Holtz (19:04)
I think everybody needs to start thinking about it right now.

@nevillehobson (19:18)
suddenly lost all the clients because they can’t deliver the AI content that they need to do. Some will argue, yeah, we’ll use AI models and we know how to do that and we can deliver what’s right for this client where the role of AI ⁓ is important in the fit with humans. But the conversations about how it’s going to replace your employees and they’re going to be agents all over the place isn’t realistic in the way most people are talking about it, it seems to me.

So I think you’re right, and I don’t disagree at all that everyone needs to be cognizant of what’s coming down the track in one way or another. And so people who are talking about it, people who are writing about it or whatever it might be, or demonstrating how this all works, pay attention to that. I’ve attended good probably four, yes, four webinars in the last month on this not exact topic, but in this area of working with

the new ⁓ elements of artificial intelligence are coming into the workplace. And they’re all useful, slightly different. I learn something new from all of this that shapes my thinking, if you like. So it is a time to be aware that this is happening. And that’s where paying attention to McKinsey’s and so forth is really important.

Shel Holtz (20:38)
Yeah, I think if you’re a consulting firm, especially a smaller one, it’s time to start considering what differentiates you from your competition? What are your genuine strengths? What do you bring to the table that an AI chatbot can’t? What do your clients really appreciate about you? And to start thinking about how do we leverage those things

that can’t be commoditized with artificial intelligence that all of the consulting firms are gonna be using in roughly the same ways. ⁓ I think that differentiator is going to be critical ⁓ in the early thought process on all of this.

@nevillehobson (21:25)
Yeah, you’re right. And I’m just thinking, I’m looking at what we discussed with Steve Rebell back in the early part of this year, early February. So that’s seven months ago. A lot has changed in seven months already. But what Steve says, I think is still the case. He says, you know, we know this. is not a substitute for PR professionals. It’s a force multiplier, he says. AI can analyze trends, detect patterns and all that. It still requires human intelligence.

to interpret, contextualize and act on these insights. That I totally agree is still true. I would add that for how long though I wonder, where’s only the humans who can do that. But it is a significant value of PR as Steve points out. And he talks about ⁓ who’s gonna survive, who’s gonna thrive in this era that’s coming. Well, in simple terms, those who embrace AI as an augmentation tool rather than resist its impact. You know what? That conversation was common.

just seven months ago. Now, though, I don’t believe it has the same, well, impact, frankly, where you talk about if you don’t do this, you won’t thrive, you resist, it’s going to happen no matter what. We’ve moved to the how rather than the what in that conversation, it seems to me, even those skeptics who don’t see this. So strategic advisory roles rather than commoditized execution work is what humans need to be thinking about, according to Steve. I don’t disagree with that.

Shel Holtz (22:53)
Not at all. And that will be a 30 for this episode of For Immediate Release.

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