‘Outdated’ consultancy sector faces a reckoning as AI rips up the old model
For years, the consultancy sector has relied on a traditional model and profitable formula: retained clients, billing time and upselling clients. Another crucial element has been the blend of ‘senior counsel’ supported by a team of juniors carrying out research and compiling reports.
But the rug is being pulled from under this model and a once dependable blueprint is under threat as clients rewrite their expectations while the sector faces AI disruption and a wave of competition from nimble boutiques.
Above all, clients want more for their money and many are choosing to either move operations in-house or hire smaller, often private equity-backed boutique firms while the rise of AI throws much of the traditional ‘strategic communications’ or management consultancy model into doubt.
The sector is ‘at a crossroads’
One source with high-level experience in agencies but who now leads a team in-house told CityAM that to stand out amid the disruption, advisory firms need to do something radically new – but much of the industry is peddling “an outdated model” where “no one is doing anything differently.”
They said there “isn’t much between the big firms”, which sets them apart.
“The sector is at a crossroads. It’s no longer based on who you know and lunch with, but what you’re offering,” they said. Adding that trust, and a relationship with someone who is essentially “part of your extended team” is more important than a barrage of strategy decks or coverage reports.
“You’d need to be someone I can call at the lowest point, and who gets the brand and business,” they said.
They said that consultancy firms “should be worried”, as they are all “saying the same things they’ve always said”, especially agencies offering advisory services to corporate clients, in which they have long relied on historical relationships in the media and the City.
According to research released in September by Soba: Private Label, many UK professional services firms are struggling to stand out because they lean too much on regurgitated cookie cutter messaging.
The research reveals that firms suffer from an ‘echo chamber’ effect where they use nearly identical messaging, talk too much about themselves and not enough about clients, and drown in generic ‘consulting speak’.
AI is reshaping client expectations
AI is wreaking havoc across the sector, but particularly in changing the meaning of the billable hour (or its time-sheet driven cousin) as clients expect that the technology is used being firms to automate much of the most time-consuming tasks.
High-paying retained clients have been the lifeblood of consulting for decades, with clients willing to reach into their pockets in exchange for time, expertise and knowledge. Alongside this, project work is often charged based on how long it takes to deliver and – crucially – how many people are on the team.
With consulting firms jumping aboard the AI ship to keep up, clients are shunning the services firms have on offer as they believe they aren’t worth the price tag, with many turning in-house and automating much of what an agency used to deliver.
Another source with experience overseeing agency work told CityAM that “it is surprising how many client teams are using AI in-house as they are further ahead than agencies” when it comes to deploying bespoke AI.
“Clients can’t justify spending money on agencies when they can do those things internally,” they said.
The source added that they believe AI will “change the back end of the model dramatically, but the client-facing end will stay the same”, with human judgement a necessary and irreplaceable part of that.
Tom Rodenhauser, managing partner of K2 Consulting Research, told CityAM that clients are often turning to consultants for help with how to use AI before rolling out the technology themselves as it “doesn’t necessarily require a cast of consultants for implementation.”
“For the most part, clients are doing a lot of the actual AI rollouts themselves,” he said.
He added that many firms are scrambling to invest in AI tools to “create more internal efficiencies for the actual process of consulting.”
Junior jobs on the line
Rosenhauser said he is increasingly hearing “many stories” which “focus on replacing junior staff with AI”.
“Conversely, you also see firms like McKinsey doubling down on the people side. I think firms are still feeling their way through this and trying to figure out the optimal people-to-bot ratio,” he added.
Another source with knowledge of the sector told City AM that bigger agencies “are both trying to invest in AI and are held back by it” as they grapple with attracting clients.
They added that they believe advisory is “going to be eroded” by the technology, particularly with the hiring squeeze with many firms increasingly automating work junior recruits would traditionally have done.
There have been thousands of jobs lost in professional services over the last few years, with a market slowdown one of the main reasons, but juniors are finding themselves more on the line.
Alex Hamilton-Baily, a partner at executive recruitment firm Odgers, told CityAM that amid AI disrupting the consulting business model, clients are looking instead to pay a premium for a genuinely experienced consult who knows their sector.
“The number one thing people buy in consulting is experience, which leads to improved judgement,” he said.
“Clients want the tough reps, they want people who have been in the room when deals are going wrong, or a crisis is hitting, or high value contracts negotiated, in person, by human beings they trust. AI can model scenarios, but can’t bear accountability for prior consulting successes and failures,” Hamilton-Baily said.
He added that the hiring process is shifting for many consulting firms that are increasingly looking to cut junior roles as they embed AI process into their workstream in areas such as research.
“Just last week I was with a group of consulting leaders who collectively thought that next year they would reduce their early-career intake. We hear similar things across consulting, law and accounting,” Hamilton-Baily said.
For the cohort of juniors dreaming of carving a name for themselves in the industry, joining the large legacy companies is no longer the most desirable option.
Many are now tossing the coin between staying at the more bureaucratic big players or fleeing to more agile boutique firms. The safer bet seems to be jumping the fence and moving in-house, which Hamilton-baily said “provides the same long-term stability without some of the financial fluctuations of consulting.”
However, he said the “most movement” is happening because of the private equity pull, with many juniors opting to move into boutique private equity-backed mid-market firms where “creative incentive packages including equity are being used to entice top talent.”
Clients’ pockets not as deep as they once were
Many clients are facing an onslaught of issues such as increased overheads, labour costs soaring, and diluted consumer demand meaning they can’t afford to splash out on retained consulting services.
One City source told CityAM the advisory market “is tightening in a slow economy where client spend is declining and once-lavish budgets are being restricted.”
They added that businesses “are very careful about spending money on services for their reputation.”
Meanwhile, the consulting sector’s growth across the board has stalled.
Following the pandemic in 2020, consultants soaked up a hike in demand which led to firms going on hiring sprees, but in the following years many firms have cut headcount as clients stall projects amid economic instability.
According to data from Source Global Research, the size of the UK consulting market fell from £15.4 billion to £14.9 billion in 2024.
The Management Consultancies Association said that according to their latest research, firms are expecting revenue to grow by 6 per cent this year, a figure previously estimated to be 9 per cent.
“Growth is difficult in an ever-competitive, overserved circle,” the source said.
“The market is overserved, but demand is shrinking.”