Can a Boutique Consulting Firm Beat McKinsey or BCG?
There are 6 rules to displacing McKinsey and BCG.
It is one thing to use the techniques of McKinsey and BCG to become a slightly better boutique consulting firm. It is quite another to use them to beat McKinsey & BCG. This series examines the process to leverage the unique competitive advantages of a boutique consulting firm to build a market entry approach which outflanks the competitive advantages of elite consulting firms in Chinese consulting market. For confidentiality reasons, we have modified some of the details in these articles.
There are 6 rules to displacing McKinsey and BCG
There are some very simple rules to displacing McKinsey and BCG. We are going to list them here. If your boutique consulting firm is competing with McKinsey and BCG and you fail to follow any of these rules, you might as well stop your efforts now because these failures will derail you no matter what you try to do or how you try to do it.
Rule #1: If you are enamoured with McKinsey and BCG and deep down believe they are the greatest management consulting firms in the world, your boutique consulting firm will never ever displace them.
Rule #2: To outflank a competitor’s competitive advantage, you actually need to know its true advantage. BCG is a strategy firm but not McKinsey.
Rule #3: If you do not understand core problem solving, you cannot hope to reinvent it and your boutique consulting firm will, therefore, never beat McKinsey or BCG.
Rule #4: If you are preparing for a full frontal assault to beat McKinsey at what it does best, your boutique consulting firm will never beat them.
Rule #5: If you confuse some client success for a suitable, sustainable and scalable business model, you will constantly be chasing a dead business model.
Rule #6: Your boutique consulting firm will not beat McKinsey and BCG at their own game.
Rule #1: You cannot beat someone who you think is perfect
Rule # 1 is fairly simple to understand and eliminates most firms. If you deep down think McKinsey and BCG are the greatest management consulting firms in the world and your boutique consulting firm can never be as good, then you are blinded to the many imperfections of those firms.
And if you cannot see the imperfections then you have no way of organizing your boutique consulting firm to exploit those imperfections. Think about this one very carefully because it is the most important rule of all.
We would say most boutiques sincerely do not believe they can beat McKinsey and BCG and if they dig deep into their conscience they really, truly, only want to be mentioned in the same breadth as McKinsey. If that is your mentality, it is game over for you.
You cannot beat someone who you think is perfect. You must have the mindset of expecting, seeking out and exploiting imperfections.
This is not to say you should not respect them. Respect is not the same as unreasonable adoration. The former is a requirement of a professional while the latter basically makes you a groupie.
Rule #2: Know a competitor’s true advantage
Rule #2 has been explained in great detail in the editorial about BCG about 2/3rd down the page. If you have trouble finding it just search for the sentences below.
“For example, way back in the 1990s when everyone was just happy to be mentioned alongside McKinsey as a great strategy firm, McKinsey tried to distance itself. It realized that BCG would fight back hard, and BCG did by aggressively moving into the Harvard Business Review and owning the conversation on key business issues. McKinsey was being squeezed on all fronts around business themes.
McKinsey did not like what was said about the Firm, so McKinsey changed the conversation. It positioned itself as a leadership factory. It did not just come up with this catchy phrase, it did three concrete things to become a leadership factory.”
You can also listen to the audio interview of the senior partner from McKinsey, Bill Matassoni, who developed and implemented the strategy of moving McKinsey away from being a strategy firm.
Why do you need to understand both BCG’s and McKinsey’s strategy? Competition is about relative positioning. There is no such thing as the perfect strategy. There is only a perfect strategy relative to what your competitors are doing.
Therefore, you need to know what your competitors are doing before you can decide how you will differentiate your boutique consulting firm.
Strategy is about differentiation. Be different and be consistently different. Being the same means you will eventually die.
Rule #3: Understand core problem solving
Rule #3 is slightly harder to understand but just as important. I am going to explain it in two ways.
Let’s assume I asked you to bake a soufflé but you have no idea what a soufflé looks like nor have you actually tasted one. However, being a good sport you decided to at least give it a go. You can infer the following at the very least:
It sounds French.
It sounds like a pastry.
It sounds light.
It vaguely sounds like a cake.
So you dive in. You spend 4 hours in the kitchen whipping up this delicious and amazing “soufflé”. We bring along some general customers. They are not pastry experts and by no means do they understand what is a soufflé.
They taste your “soufflé” and love it. They think it is the best thing in the entire wide world and are even willing to pay you $10 per “soufflé”.
You now have a business and start making “soufflés” and selling to clients.
People love it.
People even buy it.
You do quite well.
There is just one problem. You are not making a soufflé. Not even close to it.
This is basically the problem with so many boutique consulting firms. They have never learned true operations or strategy problem solving. They have learned their version of it.
However, that does not stop them from calling it strategy. That does not stop them from even convincing clients to buy it. However, that does not make it strategy.
Just like presenting the knock-off version of the soufflé will get you laughed out by pastry experts, a problem solving expert will one day realize your approach does not work. At some point, unless you learn the correct approach, you will be undone.
Now, it is possible in the example above that you could have reinvented the way soufflé is made. You could have taken the essence of the soufflé and made it relevant. Yet, to reinvent something you need to understand what it is you are actually reinventing so you know what to keep and what to discard.
So if you do not really understand core problem solving, it is unlikely you could have reinvented it. Not impossible, but highly unlikely.
Moreover, making the knock-off soufflé means you will never take the time to learn to bake the real thing since you found a way to make money from the knock-off and, therefore, have no incentive to learn the correct approach.
You are incentivized to keep investing in protecting the knock-off soufflé, which is not what you wanted in the first place. This problem is point #5.
To understand #3 in a different way, here is a discussion we had recently with a relatively smart PhD in computer science.
The guy believed he had invented a superior way to do strategy that would displace McKinsey.
Basically, he has created this type of decision tree which would ask you a set of questions and depending on the answers his website would present a set of analytic tools and frameworks you should use.
Thereafter, depending on how you used the tools, it would provide more steps for the company to follow. He sincerely believed this would change management consulting.
Lets for one second assume this guy could actually model in all the millions of permutations and computations to build a sentient website. He would still face so many practical problems, including facing such questions as:
1) Is the data needed by this model available in the format required?
2) If the data sits in the laptops of different people, do they need to rotate using the software so the software receives all the inputs it needs?
3) How does the model interpret issues not inputted into the model?
4) Who interprets the findings?
5) Who will trust a computer?
The problem he faced is so clear: because he does not understand – not even in the slightest – how consultants solve problems he cannot figure out how to break it down, simulate it and improve on it.
Unless you are really lucky and just guess your way out of it, you generally can only improve what you understand. You must understand the problem you are trying to solve.
In another analogy, it is similar to a nature conservationist claiming to understand a Puma. Yet, if the conservationist has never seen, spent time with and worked with a Puma, how can he be an expert. Looking at pictures and reading others notes is not the same as working with a Puma.
This is very similar to many boutique consulting firms. They claim to advise CEOs but most rarely if ever interact with the decision maker. How could they possibly come out with a reasonable approach?
Rules #4 and 6: Find your own angle and develop a unique business model
Rules #4 and #6 are very similar so are best explained together. McKinsey and BCG are multi-billion dollars companies. They can and will outspend just about any boutique consulting firm. You should never do something as ridiculous as having a competitive advantage and waving it as a target to be taken down, because they will take you down.
This is a subtle distinction. If a boutique consulting firm is really good they should focus their efforts on communicating their difference to clients. By eroding the elite consulting firms’ client bases the boutique consulting firm will eventually succeed.
However, most boutique consulting firms seek egotistic gratification by communicating to the general market they have arrived. This is wasteful since the general market is not the target market.
Rule #6 implies that McKinsey and BCG have spent decades and billions of dollars excelling in a business model that they understand and perfected. To come along and think you will just leapfrog them using the same business model is crazy.
Think about this in practical terms. Think about organizations that epitomize the pinnacle of their industry and think about how they where beaten. It is almost always about a new business model. Copycats do not win in the long-term.
Yahoo’s human indexed search engines lost to Google’s spider indexed engines.
Microsoft’s open system lost to Apple’s closed system.
Nucor’s mini-mills toppled United Steel’s massive operations.
SpaceX’s reusable rockets will topple conventional discarded rockets.
If you want to build a few million-dollar boutique consulting firm to run for a few years and retire, then you can copy McKinsey. However, that will not be sustainable in the long-term nor will you have built a dominant firm.
There are numerous valid reasons why this logic is true, but that is for another article. If you want to topple an entrenched incumbent, you cannot hope to beat them at a game they invented. They run and you crawl. It is practically impossible.
You have to solve the initial problem, but in a whole new way. In a way they cannot replicate and perfect.
Rule #5: Don’t confuse some client success for a suitable, sustainable and scalable business model
Rule #5 is pretty simple but worth explaining in a different way. A lot of tiny little boutique consulting firms get really excited when they are selected for some work over the big consulting firms. It fits their positive bias that they must be superior to McKinsey and BCG. Why else would they have been selected?
It is one thing to be selected for a few studies, it is quite another to scale. In fact, the start-up sphere offers the best example.
Do you know how to define a start-up? It is a business without a proven business model which, therefore, may not scale.
Most boutique consulting firms are like this. They get excited over a very few successes that keep them busy for a few years, but they can never truly scale. Sure, the owners may blame a lack of talent or a lousy market, but it does not change the fact that they could not scale.
The point I am making is that just because you are making some revenue in the market does not mean your business model is right. I can assure you many start-ups are abandoned when they are making money. The issue is whether or not they can scale.
With those rules in mind, here are three important observations to take into account.
1) Ego, everything starts here and ends here
If you want to see why boutique consulting firms fail it is because of their ego. Honestly, most great failures can be traced to someone’s ego getting in the way.
We have met the partners of many boutiques. Many write to us for partnering discussions and so many of them are led by ex-BCG and ex-McKinsey associates, managers, principals and directors.
When these discussions take place I play a game in my head to see how long it is before they say something like:
“It is just McKinsey and us in the market.”
“Clients prefer our approach over McKinsey.”
“We have beaten McKinsey in the market many times.”
“Clients always complain to us about BCG and McKinsey.”
“We are better than McKinsey since we use better analytics.”
“We own this market and McKinsey is a joke.”
If you are in management consulting, working for a boutique consulting firm or interact with boutiques, you could convert this to a drinking game. Down a shot every time the boutique mentions McKinsey or BCG. You would be drunk before the call is over.
Did it ever occur to the boutique consulting firm that being like McKinsey or mentioned alongside McKinsey just might actually be a bad thing? If you are truly unique, how can you have any peers?
I have since learned not to raise these questions with consultants and owners of boutique consulting firms who have not worked at BCG or McKinsey. They are the most aggressive at wanting to be mentioned in the same breadth. They will become angry if you say their boutique consulting firm is not a strategy firm or in McKinsey’s league.
They cannot understand it is bad strategy to have a duplicate strategy.
And it is largely due to their ego. They will not change. They all want to be strategy firms because they sincerely believe that is what McKinsey is and they believe it is the pinnacle of management consulting.
They take more pride in being a weak replica of McKinsey’s apparent strategy, than taking the time to build something meaningful.
It is their ego that is preventing them from seeing the real opportunities. And the grand irony of an ego is that the person being blinded cannot possibly fathom that he or she is being blinded.
2) Marketing Myopia
This is such a fundamental concept but so easily overlooked. Theodor Levitt basically said that a product is a means to fulfill a market need. Whether or not the markets’ need changes, the means to fulfill the need can always be improved.
However, companies and people become so vested in a product that they cannot fathom it being improved. They end up worshipping the product versus thinking about ways to cannibalize the product to find a new and better way to serve the market.
This is all from his seminal paper in HBR called Marketing Myopia.
And this is basically what has happened to business consulting. The majority of the market is myopic. They have fallen in love with the approach perfected by BCG and McKinsey and fail to understand that it can and must be improved.
So, the next steps are obvious. Do not reproduce the old approach. Make it better.
The same way better breeding of horses did not stop the arrival of the automobile, better iterations of the same approach to management consulting will not prevent a better approach from arriving.
BCG and McKinsey know this. That is why both firms are struggling to reinvent themselves.
It is their competitors, however, who want to preserve the past.
3) Do not enter an attractive market. Wait for the call
Explaining the statement above will be an entire article in itself. In fact, each of these sections can be a full article. Maybe, even a book each. Yet, I will summarize it here.
When you start approaching firms in China, or any consulting market, trying to get in secure meetings and hopefully work, you fall into the trap of having to prove you are worth their time.
Since the potential client did not approach you, you need to justify being appointed. This sounds really irrelevant, but it exponentially changes the dynamic in some crucial ways:
1) The client has a “show me the value?” attitude.
2) You will have to make concessions, mainly in price.
3) You will be forced to discuss previous studies and provide testimonials that can border on a painful examination.
4) More concessions are extracted during the actual study.
This list could go on and on. The point is to avoid it you should never enter a market. You should be invited.
In the next article we will discuss why China, more than any other country in the entire world is the single best region to outflank BCG and McKinsey. If you enjoyed this piece, please comment below and I will write up follow up articles.
To be continued …
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