From Australia Financial Review (AFR), Dec 30 2015
by Agnes King
Boston Consulting Group is struggling to keep up with the demand for digital transformation services and claims it could grow faster than the 20 per cent forecast for the year to December 31, if it could find more able bodies.
But a greater portion of BCG's fees will be "at risk" as clients demand greater accountability from highly paid consultants.
BCG's at-risk fees have quadrupled in the last four years in dollar terms, while performance based income as a percentage of BCG's work has doubled in the last two years.
"It's a substantial change and it's growing very fast," BCG's Australia and New Zealand managing partner Andrew Clark said.
BCG's domestic income rose 30 per cent, to $141.4 million, for the year to December 31, 2014.
At current growth rates, at-risk fees could quickly account for half of BCG's domestic income. However, Mr Clark cautioned against this over simplified extrapolation since demand for hard core fee-for-service strategy work continues to be important.
Driving the change is an almost insatiable desire from clients to digitise existing companies and co-create new digital enterprises.
"We're almost at the point of having skin in the game in the new business," Mr Clark said.
DOTCOM BOOM IS BACKBCG has hired 45 technologists into its digital arm in the past 12 months.
Since acquiring Sydney-based design agency Strategic & Creative last July to gain a foothold in the rapidly expanding digital arena, BCG's freshly rebadged Digital Ventures Asia has grown to 60 staff, up from 15.
"We're really struggling to keep up with demand," Mr Clark said.
"The degree of excitment feels a little bit like the dotcom days of 2000 but it is different in that there is real money and people are more pragmatic about the opportunities."
"Building that business out as fast as we can has been a big challenge."
SKIN IN THE GAMEIn a highly confidential deal, BCG's North American firm has taken an equity position in a client's new digital company. The client, who remains anonymous, engaged BCG to create a new entity off the back of its existing operations using sophisticated data analytics. BCG took some fees for the work but also took a "material" equity stake.
BCG Australia has not gone down this path yet, however, Mr Clark said it's possible.
"It ties you more closely. Your compensation [is] driven by how these businesses perform, the pace with which they're launched and the degree to which the client buys into the whole concept," he said.
Fees at risk has always been a fringe component of strategy consulting but over the past three or four years the proportion of business subject to this rigour has dramatically increased.
"The mix of work has been changing over the last few years and it's starting to accelerate," Mr Clark said.
For the "right type of work", Mr Clarke embraces the concept of increased accountability saying it gives consultants an opportunity to prove their mettle.
He points to BCG's work on Horizon Power in Western Australia as an example of how this model can produce a win-win. BCG earned $5.1 million on a strategic review that saved the WA government $160 million according to figures cited in a parliamentary session last year.
MORE PROFITIn the same way banks charge more interest on high risk loans, strategy consultants earn higher fees on at-risk work, provided they deliver.
But it requires a trusted relationship with the client to work well, says Mr Clark.
"You don't ever want to get down to granular contract discussions. There has to be a degree of trust so you can collectively form a view as to whether the work has been successful beyond the specific milestones," he said.
RISE OF FREELANCERSAside from the demand for digital skills, large scale transformation work has changed the depth and breadth of expertise BCG needs to access. Like most other professional services firms it is forming more partnerships with independent consultants and external consultancies, while its global network of highly skilled and typically nomadic freelance experts has expanded exponentially over the last few years.
"Our core workforce continues to grow at the same rate as the overall business but we are inserting more of these people into our teams," Mr Clark said.