AI Transformation: Why the Future of Consulting Will Look Completely Different | Pontus Sirén | E1S9

Utsav: The consulting industry is being rebuilt in real time. New models are emerging, old assumptions are collapsing, and leaders everywhere are thinking how strategy work should get done differently. Welcome to Alt Consulting Conversations. This series brings together the people who are shaping this transformation.

My guest today is someone who has spent two decades helping organizations understand customers, unlock growth, and navigate disruption. My guest today is Pontus Sirén, who has worked with organizations across Europe, Asia and US on customer centricity and disruptive innovation. His career spans BCG, nine years as partner at Innosight and now his own firm, CTIT Consulting. He has worked with organizations going through transformation across multiple industries, including services, which gives him this unique vantage point to his perspective on disruption that is unfolding in consulting industry today.

Pontus, thank you for joining me today. Pontus: Absolutely, it's a pleasure to be here. Utsav: let me start with a big question. From your vantage point, what is changing in consulting industry today and within this change ⁓ the things that we are seeing unfold, ⁓ feels temporary and what feels permanent?

Pontus: I think there are two things that are happening big picture. There's obviously the technological disruption driven by AI, which we'll dive deeper into in this conversation, I'm sure. But there's also a broader disruption, I think, at almost a nation state level. So my hypothesis is that the Western business model, is being disrupted.

And by West, I mean the US, Europe, so on and so forth. And of course, AI is part of that disruption. But I don't think we can disentangle the disruption that's happening with AI from the disruption of the Western business model. And when we talk about the consulting industry, we often talk only about Western consulting companies.

I just looked at who are the top 10 biggest or most prestigious consulting companies in the world, and they're all Western, mostly American or European. And when we think about the fact that in 2000, China had 6 % of the world's industrial production and by 2030 it's estimated they'll have 45 percent of that production. And I'm using now industrial production as a shorthand because we can't all the sectors. But if we take that as a shorthand, ⁓ seeing that China is becoming a massive, massive industrial powerhouse.

It has been so for decades and many other countries as well. But again, for shorthand, I'm using China as an example of the disruptive model that's emerging from what we might call the global south or the global east. So when we think about this disruption, I think that is permanent, that is unavoidable. The AI disruption that we're going to get dive deeper into is, I think, permanent than happening.

And the disruption of the Western business model, I think, is also very permanent than happening. And for people who have studied and worked with disruption know that once it reaches escape velocity, there's no turning back. And of course, the decline is always slow. It was slow for Kodak and many other illustrious companies, but it was inevitable.

So I think the Western business model is going to be disrupted. Big picture. And I think simultaneously the business model of Western consulting companies will be disrupted. Not so much because they're doing anything wrong themselves or they aren't thinking about these things.

It's going to be massively disrupted, I think, because their clients are going to be disrupted. Utsav: Hmm. Wow, think ⁓ that's a mega trend that you have referred to and there's a lot to unpack there. So let me actually go to ⁓ clients and sort of look at from their lens because as this disruption unfolds almost at a country level and then they are going to move the business models from a client's ⁓ standpoint when they look at advisors today and specifically donning the hat of ⁓ jobs to be done.

Because you have been a job to be done practitioner. ⁓ What are clients really trying to get today by hiring advisors and how is that ⁓ if you look at last few decades? Pontus: I think clients are trying to get the same thing done as they've always to get done. They want to have a good answer to difficult problems.

Sometimes they know what the good answer is, but they need conviction and political capital to ⁓ make it happen. Sometimes they need an internal ⁓ kind of an external expert who is supposedly, know, ⁓ impartial and so on. So I don't think the jobs to be done have changed that much And I don't think they will, in fact. I think there's always going to be advisors.

Since time immemorial, kings and noblemen and others have had advisors, and I think advisors will be around as long as humans are around. But I think what's increasingly happening is that, course, ultimately people want good solutions, companies want good solutions to a problem. And I think AI is now being incorporated into those solutions at the source. So I was just reading that that Leuven in Belgium is testing these Chinese autonomous buses.

They're doing, you know, testing and safety trials right now. And those buses have a tremendous amount of AI incorporated into them because all the cameras and safety and 15 other things that I can't even imagine. And so the city of Leuven wants these autonomous mini buses to run around the city. And want to do it safely and efficiently and so on and so forth.

And so clearly that those jobs to be done are pretty obvious. But the solution, you know, isn't now to have consultants run around and ⁓ about safety in Leuven. It's to take a Chinese bus that's been tested in China. and plunk it in Leuven and now they're running around in Leuven.

you know, I think the jobs to be done are kind of are eternal in many ways, ⁓ I think in the context of this AI discussion, AI is being incorporated in at the source. When I say source, I mean, you know, China and all the testing they've done there. So that's just another example of this question that, know, 20 years ago, someone said, you know, we're going to be buying ⁓ Chinese robot taxis for Belgium, you people would say you're dreaming. And here we are.

Utsav: Yeah. ⁓ if we look at ⁓ this point that you mentioned, ⁓ jobs are still the same. People have been hiring advisors and they'll keep on hiring advisors. ⁓ we have discussed often that jobs are almost always constant.

⁓ then there is a bigger problem which comes ⁓ how then customers pick up different solutions. ⁓ that's where the firm that you have, ⁓ which stands for customers thinking trade-offs. ⁓ Becomes a very important point because now with all these choices that are in front of the clients, how would they select the right service providers? What new trade-offs they are to make or not willing to make?

Where they'll hesitate? Where they'll take the leap ⁓ So for the benefit of everyone would be great if you could just ⁓ the concept of ⁓ customers think in trade-off and how we apply ⁓ same trade-off lens when it comes to consulting industry. ⁓ particularly Chief Strategy Officers or Chief Innovation Officers are evaluating traditional consulting services versus emerging and new consulting service providers. Pontus: Sure.

So the concept of trade-offs is really a simple one. Trade-offs simply mean what a product or service does and does not do. It's price, features, functionality, quality, and 15 other things that of course depend on the product or service we're talking about. And ultimately, customers have different preferences.

They have different priorities. Someone might prioritize quality. Some other might prioritize safety or speed of delivery or whatever. And based on their priorities and their circumstances and what kind of problem they're trying to solve, they'll choose a different package of trade-offs.

I think that's quite obvious and intuitive. Now, when we think about trade-offs and buying consulting services, I think one of the challenges with this new world, this AI world that we're increasingly living in, is that there's a kind of a contradiction because everyone more or less has access to similar AI tools. I mean, of course, on a nation-state level, we can have debates, but. In the business world, we could argue that most companies and organizations increasingly have access to similar tools.

Arguably, smaller companies have an advantage because they have access to similar tools as large companies. And so it's very difficult from a client perspective to then say, well, if everyone is using AI or everyone has access to AI, then uses AI the best? Like, how do you differentiate that? Because most people ⁓ don't understand and in the business setting it's very difficult to distinguish who is the best, you know leverager of AI and if I had gone with a different company that also uses AI, I have gotten a better solution or would they have offered more insights?

So I think one thing is that there's this dilemma that everyone recognizes that AI is similar and people have access to similar tools, but it's at the same time very difficult to distinguish what are the trade-offs with all these companies that are offering AI. So essentially I think a lot of companies just choose the same providers as they have so far because they assume everyone has AI and is doing more or less the same thing with AI. Now that's probably not true but how does a person who's not an expert distinguish between two consulting companies who use similar AI tools you detailed in your book.

I thought very, very eloquently and very well the different systems that some of the leading AI companies are using. But if you then ask me is ⁓ tool better than BCG's or McKinsey's, I would have no idea. So probably people at this point are still defaulting to their traditional choices because they can't distinguish the trade-offs between this, that and the other tool. And until they can, ⁓ I don't think at least in the West, the competition is going to change.

I think the difference with the China challenge is that their AI is incorporated in the industrial production. So people are getting the benefits of the AI because of quality control, because of price, because of efficiency, but you have no idea what AI tool they use. I was just reading about a China telco AI tool that they were using to inspect for mistakes in woven fabric. And they were eliminating, you know, they were, the machine was then tightening the strings to make sure that the fabric was perfect.

So, I mean, China Telecom now using AI to improve fabric production. So my point is again, this, that, you know in the West, think, I think, you ⁓ it's very difficult when we talk about the consulting industry because we're so Western centric and, and, and we, kind of forget that there's this enormous powerhouse. And of course it's been going on for decades, ⁓ it's prime time now, you know, that's producing 32 million cars every year at a price which most Western companies, US or Europe can't match.

Anyway, so I keep coming back to this big because I think when we talk about the West I don't think you know the McKinsey's and the BCG's and Bain's are gonna go anywhere for any anytime soon ⁓ I think as this economic power shifts and the company shifts and the profits shift, you know just one more point on that. I was looking at how many offices does McKinsey have in China? Not counting Hong Kong five. How many do they have in Australia that has what 25 million people five?

So what does that tell us? There are going to be a lot of consulting companies we've never heard of that are going to be the AI powerhouses in 10 years. That's my hypothesis. Utsav: Yeah.

And I think, just to relate this entire example to the consulting industry, when you talk about, or when you share examples of integrating AI at the source in the product, I think the point that we are also, you're sort of hinting at is, is AI integrated at the source in your business model? Like it's not just an overlay where you're just talking about, hey, we are also using this AI tool and our consultants are 30 % more efficient. It's not about that. It's about how you think about a new business model and how clients or sophisticated clients will start perceiving that differently.

So, and any sort of points on that on when you apply this integration of AI at the source to the business model of consulting and maybe some new types of consulting models which we have never even heard of coming in the market. Any thoughts on that? Pontus: Yeah, I think that the challenge for traditional consulting companies is that they want to sell big projects, which means lots of people and lots of time, preferably decades, they could choose. So they ⁓ in ways, this ⁓ temptation inefficiencies built in.

As we saw in the context of the law firm we worked together on that project in Australia. ⁓ is a temptation to inefficiency of the way billings happen and compensation happens and reviews happen and all that. ⁓ And so of course, all these big consulting companies are going to use AI in their model and they're going to say we have the greatest and latest. But the real challenges, as we saw in that law firm, have to do with motivation, reviews, compensation, and so on, which are much more difficult than spending $50 million on AI tools and training.

Utsav: Yep, and I think Pontus: And then are companies that don't have that temptation for inefficiency are at an advantage. But that takes a long time to play ⁓ But I think unless you deal with this ⁓ of inefficiency. ⁓ It's very predictable what's going to happen. Utsav: Yeah, I think it's a great segue to the ⁓ work that we did together with the law firm.

if I just take learnings from that particular project, and was pre pandemic, so the AI wasn't there, the pandemic related changes were not there. And we still talking about how it will take four to five years for you to move the needle and lot of things ⁓ after that because of the circumstances with the ⁓ world was in and the company was in. Now, if I it to consulting in the book also, there are a couple of examples which I have shared that even though you come with a great tool, which has 100 years of your strategy and innovation knowledge built in, you are selling that to customers and saying, hang on, we are also having a great tool in-house.

But if a customer flips and says, thank you, can you provide that as a service to me? I would be happy to use a tool rather than your consulting team. That again, from a motivation standpoint is a very, very tough question for a consulting firm to answer. Because till now they are still selling the pyramid model.

And if the client asks for a product instead of consultants, there's a lot of motivational asymmetry there. So if you sort of take the learnings of whatever we saw in the legal tech industry and the different kinds of startups which are coming up there, what do you think might happen with the large incumbent organizations who ⁓ frankly speaking, they're doing a lot of work, a lot of great work in coming up with these tools. it's not that classic disruption of they are sleeping and somebody else is taking over their market.

They're actively and aggressively working in that space. ⁓ ⁓ would be the future trajectory ⁓ they don't ⁓ the basic questions ⁓ or important questions ⁓ inefficiency which resides in the business model? Pontus: Well, I think there are a lot of similarities. You can start from what type of people consulting companies hire.

I think in the future, they'll have to be more technologically savvy as they do in law. ⁓ I think they have to think very differently about how to structure projects and what outcomes look like. arguably they have step change how technologically savvy the entire organization is I mean, you could start to debate that in certain industries, they almost have to become ⁓ IT engineering ⁓ when think I was looking at, know, what share of McKinsey's and BCG's profits or revenues at least comes from the industrial practice, ⁓ it's very substantial part.

⁓ And that business, how are you going to advise unless you have very, very deep AI and engineering and integration skills, at which point are you, know, what kind of a company are you then? And then the fact that China Telco is selling, you know, kind of consulting services for textile companies starts to make sense. And I think that is a big jump because it's not only about the business model, then it's about education, training, universities, where you hire, etc, etc. So again, I don't think those models are going anywhere anytime soon.

I think they're going to be around for a long time. But I think it's a declining trend. And then within that trend, there'll be ups and downs. But I think the trajectory, and again, I say the driving force is this shift in competitive dynamics globally.

But even then, I don't think the traditional management consulting model is going to be that successful in the longer term. I think Accenture of the Western companies is probably the of the model of companies that are best positioned to compete. Utsav: Yeah, no, there are a couple of conversations I've had where the name of Accenture comes up, Accenture, IBM's of the world where they have deep tech muscle and they also have a significant share of doing IT services for clients where this is a normal, the next logical step for them to move on.

And if I may extend your analogy of the Chinese telco, if manufacturing companies start integrating a layer of advisory on top of their machines, it's the same thing which a tech company could do. So Accenture or IBM or Infosys TCS or other IT consulting companies of the ⁓ All the IT systems that they run, if that has a layer of advisory on top of it, which is now powered by ⁓ it's a very powerful where then you don't need an outside advisory firm to walk in and do the diagnostic and tell you what to do.

The tool itself can start telling, you know, what are the gaps and issues that need to be looked at. That's a very, very interesting insight. I never thought of that as a sort of an archetype which can come in challenge. Pontus: I think that's right.

And when I look back at my consulting career, which started in 96, some of the stuff we did in the mid and late 90s is so silly simple by today's And I don't think, as this world progresses and all these changes happen with technology and AI and everything else, I think a lot of that is just not going to be something that you can charge for. Right. Because I mean, the insights, even with the law firm and even this discussion we're having, it's not it's not a secret what's going to happen.

We can debate the timelines. We can debate about who's going to win or lose whatever. All of those are relevant debates. But the direction is clear.

Then the question is, you know, what are you going to do about it? And then you get into the technology discussion. But it's not really a strategy discussion. ⁓ So so I think for that reason, a lot of these things that companies built their foundation on, at least BCG originally is not going to be chargeable work.

And anyway, even today we see that they're not making that much money off strategy. It's all implementation and ⁓ reorgs and what have you. But again, I think the question is you cannot divorce the consulting discussion from this broader competitive discussion and the disruption of the Western model. And the question is how successful are you going to be if your clients are not successful?

and for reasons that have nothing to do with the consultants as such. Utsav: Got it. Absolutely. So we've spoken about traditional consulting firms.

Now there are a lot of new type of consulting firms where they are solo consultants, there is a small partnership with AI powered operating system, then there are companies which are selling strategy as a product, claiming to be a superior alternative to hiring consulting firms in certain respects. Then you have all these expert network platforms who can generate a script on the fly and give you synthesis of insights. So there are lot of different archetypes which are emerging, but the same time we have to recognize that the traditional consulting model has been built with years and decades of deep experience and relationship with clients.

So what do you think is the biggest challenge with all the up and coming consulting firms which are trying to figure out a new way to offer advisory services? And how could they overcome that? Pontus: In my mind, the biggest challenge is that there is no common measuring stick or common criteria around what they're actually buying or selling. it's so hyper non-standardized.

It's so diverse. Quality capabilities, who's a good match to fix this problem or to help me with that problem or whatever. I mean, if you look at BCG and McKinsey's and the others, in some ways they created a standard. You'll get great service, you'll get very good analytical abilities, you'll get very smart people.

And that kind of people can kind of understand what that is. They know that BCG has partners and this and that, and they have good quality control and what have you. Okay, so people understand what they're buying. And of course, people have relationships and all that.

So clients understand what they're buying. They're buying reputation, they're buying political cover for whatever decision they decide to make, so on and so forth. Now with this new it's like people are buying cars but they don't know ⁓ what trade-offs they're making. I think maybe the fundamental problem is they don't understand what trade-offs are embedded in each one of those small or medium-sized or whatever-sized companies we're talking about that are combining AI.

So what's my trade-off? And if you don't understand trade-offs, ⁓ you're You can't engage them. So a big part of this is educating clients or potential clients about what are the trade-offs that you know, that you take on if you engage with a company that's not established like a BCG or McKinsey. And that's difficult to do because how do you start to explain the trade-offs?

Like there's a myriad of them and which ones are more important and some are not important at all, etc. etc. And I think when people don't understand the trade-offs, they can't make decisions and they default to the traditional options because they understand them. Not because the traditional options are necessarily better.

It's only when when companies can be clear about what the trade-off package is and what the trade-offs entail, that people and companies can actually engage with them. And that of course is a long education process as we all know, and it's not easy ⁓ to explain that to companies because often these smaller companies don't even themselves know exactly what trade-off package they should be offering or promoting. Utsav: That's so well put because a lot of conversations I have been having for the past two years, there is a trade-off that I am trying to manage where you on one hand say that there is a much more efficient way to doing things and you don't need an army of junior consultants to get this output done.

I can get it done for you faster, better, efficient at the same quality. But at the same time, there's a perception which has been there for decades that if the price is low, it might not be as high quality as you know have been used to buying. So it takes a lot of effort for clients to first test it out and see whether this is something which works for them and then they sort of ⁓ on their own understand the trade-off that they are making so that they can carry on with that relationship.

Otherwise it's such a product, it's such a service that you're hiring which is no clear ⁓ goals and bounds around what would come, what means by, I make a comprehensive slide deck versus I'll do a digital strategy for you and I've done it five times over. It is there's so many permutations and combinations. It's very difficult for people to process and that makes the whole buying decision very tough for clients. Pontus: Yeah, I think that's exactly right.

Utsav: Great. on the last point I had, so you have read the book and thanks for sort of going over it and providing valuable feedback. What ideas from the book resonated most with you? Pontus: Well, was a very interesting read and it covered a very broad spectrum of topics.

I ⁓ what I there were many pieces that I thought were very interesting, but what kind of stuck to me was when you were doing the section on how companies are responding, the big consulting companies are responding to threat or the opportunity of AI and what are the different options that they're pursuing. ⁓ ⁓ had those charts where you laid out ⁓ different companies are doing that. ⁓ what stuck to me was ⁓ word "EVOLVE" Most of these big companies are trying to evolve with the technology, which makes a ton of sense.

And in their shoes, I'd probably be doing the same thing. ⁓ As you look at it, I think the evolution will prolong and will maintain and will enable them to have a good business for many years to come. But I don't think evolve is the answer ultimately. It's not the 20-year answer.

It might be the five-year answer or even the 10-year answer, but I think it's not the 20-year answer. And maybe they'll do something more radical later on. These are very smart people after all. But I thought that was a good summary of the response of the established kind of consulting companies is evolve, try to evolve.

But I think evolution in the face of disruption rarely works because Utsav: Yeah. Pontus: You get stuck with the old structures and then you start to plug on. Reminds me of that example in Clayton's book about those wire powered excavators who then tried to combine the wires with hydraulics. They kind of created that Frankenstein monster.

I'm not saying there aren't examples of where evolution works, but I think in the face of this kind of epoch changing you could argue historically unique, I came to the Industrial Revolution type disruption. I just don't think evolution is the answer. Utsav: You know, I think ⁓ that that entire section, the key takeaway for me on that was, it's great that they are all evolving because initially when the AI tools came, they were all protecting their business, trying to talk about it's hallucinating, it's not right, it's not ready for prime time.

The sources are, you know, all over the place. It's fabricating data. It doesn't replace the knowledge and, you know, the years of experience that we have. But it's what, two and a half, three years down the line.

They are all using it aggressively. But ⁓ the big question on whether that will be the new normal or would there be some new companies like the Chinese telco trying to just take away consulting work altogether because now it's inbuilt and a feature in their product. that's what we need to look at. But this was a terrific conversation as usual and your perspectives on trade-offs, customer centricity and integration of AI at core is something which at least I take away from this discussion.

Thank you for joining me today in Alt consulting conversations. look forward to having such dialogues and exploring how these ideas shape in practice. Pontus: Absolutely, it was my pleasure.