Ever since the pandemic, companies have been grappling with a perfect storm of operational challenges leading to a big shift in the role consultancy firms play in their clients’ growth and transformation.
While traditional advisory services still have an important role to play, advice alone is no longer enough for many companies to solve their operational shortcomings. Instead of being told what to do, businesses are increasingly looking for strategic partners to step in and run things for them, changing the role of consultants from advisors to operational partners.
This shift is being driven by several critical business challenges: keeping pace with rapid technological change, maintaining agility amidst economic and geopolitical volatility, harnessing AI, and staying resilient against growing cybersecurity threats. These challenges are compounded by a global talent shortage as companies lack the people, skills, technology, and capabilities needed to stay competitive and meet growth targets. Consequently, they are turning to consultants and strategic partners to bridge these operational gaps.
In response to this demand, many established professional services firms are evolving what they offer clients beyond traditional consultancy to become fully fledged managed services providers. This allows them to take over the end-to-end management of core parts of their client’s businesses when the clients lack the necessary skills and resources.
Market analysis is reflecting this trend, with Statista predicting the managed services market will grow into a $500+ billion industry by 2028, up from $279 billion in 2022. This is partly due to the breadth of operational expertise companies are seeking from managed services providers, including managing risk and compliance challenges, delivering cloud and data transformation, and running tax, legal, and finance functions, as well as various customer and supply chain management activities.
This might sound similar to traditional outsourcing but there’s more to it. Unlike traditional outsourcing, advisory firms can combine their existing deep subject-matter expertise with the new operational capabilities that they’ve built. They act as both strategic advisors and delivery partners, transforming business functions while managing them for clients.
The dual role is proving to be an attractive option for the C-suite because it shares the risk and responsibility of delivering transformation while providing access to the critical skills they’re lacking. It also gives businesses access to the advanced technology they’re missing.
In our recent CEO survey, 56% of CEOs identified technological change as the primary driver behind their transformation plans for the next three years. This is prompting advisory firms to build out their networks of technology partners to give their managed services clients access to the tech they need plus the skills to deploy it.
For example, PwC’s partnership with Sage, the U.K.’s largest listed tech company, provided 150 managed services clients with financial insights to improve efficiency, simplify operations, and reduce costs last year. PwC also announced a partnership with OpenAI to become the first reseller and largest enterprise user of ChatGPT Enterprise technology, offering clients access to the latest AI tools and technologies.
Our competitors, including other Big Four firms, are also building out their offerings to support clients’ increasing operational challenges, moving at pace to partner with established tech players or acquire promising startups to pass on innovation to clients via managed services deals.
BCG recently announced that it expects to make a fifth of its revenue this year from helping clients integrate AI into their business, supported by its tech partnerships. Similarly, our far-reaching ecosystem of technology alliances is proving to be a draw for clients wanting—and needing—access to the right technology at speed.
But having the skills and technology alone isn’t enough. It’s how managed service providers deploy them intelligently that counts.
The rise of managed services is prompting firms like ours to adapt our team structures and fee models, with a big emphasis on flexibility.
We know that companies are struggling to recruit for critical roles, with 26% of CEOs citing skills shortage as the biggest risk to their business. Accessing the capacity and capability they need via a managed service—especially when it can flex up and down to meet their needs—is a solution that more and more advisory firms are offering. In turn, this is leading to new types of fee models, moving away from traditional fixed-fee or time-and-materials models to fees based on volume, outcomes, or subscription-based models.
As the business and labor landscape continues to demand ever more agility and adaptability, we’re likely to see the managed services market continue to grow at pace. In turn, these blended, flexible approaches to teams, resources, fee models, technology, and partnerships will become the norm for how businesses engage with their consultants and strategic partners.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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