Will AI Replace Management Consultants? | with Accenture, McKinsey, BCG & Bain

0:00This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed Sponsored Jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed Sponsored Jobs. Get a$75 sponsored job credit at indeed.com slash podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed Sponsored Jobs. Hello and welcome back to the Market Maker podcast and this week, will artificial intelligence kill management consultancies? That is the question we are looking to address in this conversation.

0:42We're going to spend some time working through how AI is shaking up the world of management consultancy, focusing on how AI might threaten the leading consultancies like BCG, Bain, McKinsey, Accentures of this world, Core revenue streams, how new entrants are starting to gain footholds in a space once dominated by the big beasts, and whether there is still a role for juniors as AI is thinning the pyramid, resulting in fewer graduate hires. Stephen, we've mentioned that word, the pyramid again, the Bermuda Triangle of Talent. What are we talking about here if someone's never listened to us before?

1:21Yeah, we've spoken about this for the last few weeks, weirdly. This is a kind of popular philosopher, Rooka Bregman's Bermuda Triangle of Talent. He says that all of the good brains from Oxford and Cambridge and Harvard and Yale end up going into finance, corporate law, and consultancy. The Bermuda Triangle of Talent. I always thought it was weird, by the way, and I don't know if you felt the same. When I was younger and my friends went into management consultancy. And I just thought to myself, who are you to consult anyone? You know nothing. You're just out of university. How can you call yourself a management consultant at the age of 21 or 22?

2:08And then obviously I realized the business model relies on my friends working very hard and then charging them out at a very, very high rate. But that was always a bit of a weird one but being someone who didn't go to cambridge can i just ask do you guys like pull straws over which one of the which which side of the triangle you're going to go for how does that actually work on on campus or in college i should say not campus yeah i think well there were there were different types of people at cambridge and many of them were much more much more ideological or at least vocationally minded than me and my friends were.

2:49So you would have people that really wanted to save the world in some way, shape or form, or you'd have medics that end up becoming doctors or whatever it might be. They were the good guys. And then you had this morass of floating humanities students, of which I was one, where you go through your university and you drink quite a lot, and then you scratch your head and go, gosh, what next? And yeah, it's not a picking straws game, but it is certainly a, hmm, you know, I like writing stuff. So I'm going to do, I'm going to do law. Hmm. I like numbers and stuff. So I'm going to do finance. Hmm. I don't really know what I like, but management consultancy pays well.

3:31So I'm going to do that. And we all drifted off into our, into our corporate cells. So that, that management consulting route then, is that now under threat? with AI. I mean, there's lots of news stories, articles over the last really two years, ever since the boom of Claude and Claude Code and everything came online. So yeah, why are we talking about the death of it then? Let's get into it. Yeah, absolutely. As you said, there's so many articles that have come out. The one that I read most recently that has prompted me to suggest an episode about the death of management consulting, quote unquote.

4:10We'll realize whether there's a death or not later on in this episode. But the one that I read was about Accenture, which is the world's largest IT and transformation consultant market cap of$140 billion. It comes out and says, look, we have no idea whether AI is going to be the thing that makes us or breaks us. And what's so fascinating about Accenture, again as a finance person a bit like you is the uncertainty around the impact of AI on management consultancy is reflected so clearly in the company's recent share price it's experienced its biggest ever one-day drop and then its second biggest one-day rise in its history as analysts struggle to figure out whether this is an existential threat to the industry or whether AI transformation projects are going to be a massive increased revenue stream.

5:15And I think just another article that I really, really wanted to reference, there was a Wall Street Journal article, actually over a year old now, but it's become a little bit seminal in this space. This was McKinsey basically admitting, this was inside McKinsey, admitting that AI is an existential threat. And McKinsey's AI lead, Kate Smage, probably saying her name wrong, on whether AI is an existential threat for the profession, she says, I do believe it's an existential threat for the profession, but according to her, an existential good for us I don't even know what that means, but I think she's trying to say that this threat could be an opportunity.

6:02This is why it's so confusing. That's why we're talking about it today. So maybe let's double down then into Essentia specifically. So what evidence do we have as to suggest whether she or others are right or wrong in terms of the performance, more specifically on revenues and headcount? I guess that's the other key metric that people will look at, determining not just them telling other firms about AI and transformation, but themselves. They've got to be obviously positioning themselves as the thought leader, the expert in the space, right? So what's their workforce look like over this period?

6:37Yeah, absolutely. So the revenue story for Accenture isn't quite as bad as the headlines suggest. It's growing. Last year's revenue,$74 billion. It's a big company, increased by 5%. New bookings, which is an interesting metric for management consultancy,$84.5 billion. Adjusted operating profit margin, 16%. So this is not a kind of a tale of catastrophic decline. It is a tale of a company, Accenture, that had a few years, well, it's had a number of years of growth, but a few years of breakout growth as it advised tens of thousands of corporates and public organizations, governments, etc. on the move to cloud computing.

7:31this is where it saw double digit revenue growth. That was what it hung its revenue hat on for a number of years, struggling a little bit to understand how to make the most of the AI revolution. And what's happened, I mean, the share price has gone all over the place. Over the last year, it's still down close to 20%. So the analyst community are very much scratching their heads. And we'll talk about threats to management consultancies, business model and revenue streams in a bit. But you mentioned job cuts. They've had two rounds of layoffs, over 9 ,000 job cuts, which is not insignificant. and that mirrors modest job cuts across the industry especially at the junior level which again we'll talk about in a bit maybe we could just take a step back for a moment because don't assume that well i think most people know of management consultants but perhaps they don't know what they actually do other than tell people what to do like what what are they doing more specifically um yeah it'd be good to get that a bit more and why would you hire a consultant you said cloud computing what do you mean by that and what does transformation mean when someone says grand kind of words that strategy consultants use which is quite a colorful vocabulary but what are they masking here yeah this is really this is so interesting so what does what does management consultancy provide?

9:15What is its product? And historically, the likes of McKinsey and BCG and Bain, they would say that we sell knowledge, we sell expertise, we sell brainpower, basically. A load of really, really smart Oxbridge types with decades of institutional memory, i.e. the McKinsey way or the Bain way or the Oliver Wyman playbook or whatever it might be, we sell that. And we sell that in the form of advice, recommendations for strategic implementations. Again, I'm struggling to not be too jargon heavy here. So they basically come in to an organization that is facing a particular problem that is time-bound, i.e.

10:22it is not worth that organization hiring a brand new division to try and solve that problem, but it is an important enough problem such that it needs to be solved. Whether that's a move into a new market, a cost control exercise, an integration after you've acquired a company, the offboarding of a particular technology and the integration of a new technology like cloud computing, data management, anything that is time-bound and not necessarily the core of what the business does. So for example, if you are Alphabet, you're probably not going to get the management consultants in to do your software engineering, right?

11:15You're going to get the management consultants in to work through a strategic problem relating to their revenue or relating to their cost base or relating to some technological or regulatory hurdle. Can I ask a question? If Anthropic and their valuation, let's just say, for argument's sake, is$2 trillion, and you said Accenture, the largest, is what,$150 billion, and Anthropic's biggest challenge is making organizations understand the use case for their technology that they're making, and then also transforming their businesses so that they Hoover up tokens over long period contracts. Can't Anthropic just buy Accenture and then just send out your Oxbridge boys to go out and deploy it, the transformation roadmap to then facilitate then the overall kind of dominance of Anthropic as a deployment across the industry.

12:20This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed Sponsored Jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed Sponsored Jobs. Get a$75 sponsored job credit at indeed.com slash podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed Sponsored Jobs. It is an absolutely brilliant job. Very, very astute comment. So what I mentioned earlier on is that these firms have historically prided themselves on selling knowledge, on selling brains.

13:07Obviously, the case for Anthropic being a $2 trillion plus plus plus company is that they are now the best repository and the best way of organizations accessing, utilizing knowledge, right? And it's this wonderful thing that if Accenture chooses, as it probably will, and as it is doing, much like lots of other management consultancies, if it's choosing to go, all right, we need to get on this AI transformation piece of work that we believe that every company and every organization in the world needs, and every company and every organization in the world is probably thinking, gosh, how do I integrate AI into my workflow and my unstructured data sets and my customer service and all of this kind of stuff?

14:01It's a little bit like industry-wide, I wouldn't call it Harry Kiri, but it's almost, they're kind of killing themselves, right? They provide the AI transformation services and make a decent amount of money in the short term. But what that's doing is they're letting the Trojan horse of Anthropic basically take the knowledge work that was their historic bread and butter forevermore. And Anthropic and OpenAI know this, and they are building in-house consulting capabilities and products and widgets and bolt-ons and extensions to make it much more easy for me to go, actually, I don't really need Accenture because I'm pretty integrated with Anthropic and it's doing a lot of the knowledge work for me.

14:52In terms of the subset then of IT or technology transformation in organization, would it not make more sense for Accenture to pivot more to regs and just focus on that? Because I can't imagine Anthropic has a lot of interest or time or motivation. It's kind of like, look, I'd rather the Oxbridge person talk to the other Oxbridge policy setter person and utilize the network of which those humans possess by definition of who they are and where they sit in society, all the rest of it, the pyramid again of power and influence, and let us just crack on and build cool shit and build models and push the frontier.

15:33Yeah, yeah. I don't think that's a bad way of looking at it. I just think that the The market size, the total addressable market for management consultants at the moment is basically any knowledge-based problem. And if you are limiting, if you are shrinking that market to, you know, to things like regulation or things that maybe require two people sitting across the table from each other, that is going to massively, massively shrink this market. And it's going to result in a significant contraction in the revenue base of a lot of these firms. And quite frankly, it's going to be interesting to see whether Anthropic or the AI labs or the AI products end up replacing certain elements of management consultancy and certain products.

16:37and certain things that management consultants historically deliver, or whether management consultants will learn to be the best utilizers of this technology, and there still needs to be a human in the loop that is basically acting as the reassurance and the translation function to an organization that's like, oh, I'm not sure about this AI stuff. can you not just put up your fees like massively slim down your workforce put up your fees and then the knowledge that you possess because the models at the moment require knowledge you hold that knowledge through as you said lived and the experience if you like at that more senior level of which they possess so you just massively increase the fee but become a little bit more narrow and concentrated in the offering.

17:34Well, this is what's actually happening, weirdly enough. So these big behemoth management consultancies that profess to be able to do just about anything and everything if the price is right, these are the ones that are struggling because they've got such a big headcount, because they are so sprawling, because their institutional knowledge base is so broad that it's very very hard to niche like you mentioned actually what's happening and this again is is partly a function of or partly a result of of the efficiencies of ai is that a lot of smaller consultancies that wouldn't ever previously be able to play with the big boys on a big contract because McKinsey has 10 ,000 junior staff that can be deployed at the click of a button to a particular project.

18:31Now, due to the power, computing power and the knowledge capability of some of these AI platforms, we are getting niche smaller management consultancies that are actually starting to take business from the big boys that they never thought that they would be able to compete with before. And we're almost getting from that kind of, and this is fascinating from a market structure perspective, we have in certain markets, you tend to get consolidation and then fragmentation. sometimes markets stay consolidated for an awful long time because the economies of scale and the barriers to entry are so entrenched but at some point again we reference the innovators dilemma a lot at some point the success of these firms is their own downfall and they don't move quickly enough or nimbly enough to take advantage of new technology or take advantage of a new demand onset from a client base.

19:40And this is maybe what we're seeing happening. It's really fascinating to see how this plays out. Maybe to close then, big question for a large portion of our audience and community. Does this mean the end for juniors? And what does it mean for the industry more at large management consultancy? Oh gosh, yeah. No, this is interesting. So does this mean the end for juniors? I think if you look at the typical, historically, the typical set of tasks that a 21, 22, 23-year-old management consultant would do, that is the collating and gathering of data sets from a client. And they could be quite data sets, analyzing and structuring and making sense of those data sets, creating compelling, playbook-aligned, McKinsey or BCG playbook-aligned strategic guidance and interesting pitch decks and advice and recommendations and things like that.

20:48I think that a lot of that is in the process of going? And therefore, is it a case of we no longer need juniors because AI will do everything? Or is it a case of we are going to repurpose juniors to do something different? Right? And again, a little bit like our deep dive into AI and investment banking, I would be very, very hesitant as a large management consultancy to put the brakes on hiring really, really amazing young people. But I would be thinking, how can I use these people to maintain relevance in a post-AI age? And again, this is the human relationship side of things. This is the storytelling side of things, but this is also the AI still can't get to the manufacturing plant.

21:51It still can't get to the industrial warehouse or whatever it might be. There's still going to be a space for young people to pound the pavement in some way, shape or form. It just might be in a way that we don't currently quite know. And what we've learned, if we've learned anything from technology and different waves of technological advance, is that we don't really know what comes next. But historically, new things have arrived that keep us in employment, right? Well, look, I mean, if you listen to the last episode, so SpaceX will merge with Tesla and then Elon will build out his entire vertical supply chain.

22:42He will then connect Neuralink into that combination. He'll then have his humanoids powered up and deployed into the manufacturing facilities, into the client meetings, skinned with their new biological outer skin. So with the redundancy, Stephen, we should just resign now and go and enjoy, go and play paddle, go and play golf. and yeah i like i like the uh i like the phrase biological outer skin i think i think we're testing i think we're testing the limits of our respective uh kind of deep tech knowledge um yeah look let's let's go out and play some paddle but you know in in all seriousness that there's so many jobs and there's so many things that we still know that humans will do better and we'll get more nourishment from receiving from another human whether that's the product of creativity whether that's the building of community whether that's the delivery of care whether it's mentoring whether it's teaching these are things that and i don't see elon musk's you know humanoid robots taken have you not seen terminator 2 when he at the end he goes now i know why you cry and then he gets it gets melted so he they can learn this stuff steven they can learn emotion and care yeah i know i know but barney did well maybe maybe they will take the management consultants who knows but i don't think it will be for a while i you know as just to kind of conclude the graduate hiring of these large organizations is going down, but it's not going down as precipitously as maybe we thought might be the case.

24:38And it might still continue to go down. The problem is applications are going up, right? So if I was a young person coming out of university and I was thinking, gosh, I've got to get my act together. Maybe management consulting is a good thing for someone that's got a decent brain. I would be probably going, that's not going to be the high. Applying for one of these top tier firms may not be the highest return on my investments from an application perspective. Maybe I could start looking at slightly more of the boutique management consultancies and seeing what they do and then sending them an email and being proactive and doing the stuff that we recommend so often because you might be banging your head against a brick wall if you're trying to apply for these massive massive mckinsey's and bain's that are really really slowing down their graduate hiring cool well yeah that was super interesting thank you steven thanks everyone for listening and we will see you next time brussels clean up nicely at Sweetgreen.

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