It is impolite to think of management consultants as comparable to call centre bots. But remuneration changes at the top of McKinsey & Co, that most blue-blooded of consultancies, show that, when it comes to billing, the two are becoming more aligned. (View Highlight)
McKinsey is under pressure from clients to tie its fees to outcomes achieved — such as lower costs, higher profits or increased market share — rather than to the hours its consultants spend concocting advice designed to achieve those ends. Charging for results delivered rather than work done makes revenue less reliable, which helps explain why the firm will shunt a bigger share of partners’ pay into equity and husband more cash. (View Highlight)
he drive to tie fees to outcomes partly reflects the way billable hours are becoming less useful as a yardstick, thanks to consultants’ own usage of AI for tasks such as data analysis and diagnosis. Other AI-exposed professional services such as lawyers and auditors have also come under pressure to pass on their cost savings.
More broadly, clients are questioning the value of advice while also growing more accustomed to tariffs based on successful task completion. Fin, a maker of AI agents, charges 99 cents for each customer case resolved by its eponymous bot; iDenfy bills £1 per identity verification. Salesforce lets customers pay per task for activities such as updating customer records. Budgeting predictability — for both Salesforce and client — is afforded by bulk-buying credits for these tasks upfront. (View Highlight)
Some industries are old hands at this form of billing: think “no win, no fee” legal ambulance chasers or hired assassins. Even consultancies have history on this front. Alvarez & Marsal used similar pricing when working on Rolls-Royce’s 2018 restructuring. The engine maker’s own “power by the hour” programme, charging fixed maintenance and replacement costs for each hour flown, was an early precursor.
McKinsey and its professional services ilk will still seek to keep the bulk of work on billable hours. Giants of AI such as OpenAI still prefer to charge subscriptions for some of their products given the appeal of recurring, predictable revenue, as well as offering consumption and enterprise plans. (View Highlight)
The biggest catch with paying for results is that the results may be worse, or better, because of forces beyond the consultant’s control. Wars, tariffs and stubborn line managers at their client firms can all kibosh the best-laid plans in, say, procurement or supply chains. One workaround might be to align consultants’ incentives to the same ones that determine client executives’ bonuses.
Billable hours, subscriptions and flat fees will always be part of the equation. But the proportion of outcome-based pricing will undoubtedly expand — and that goes down as a definite tick in the column under the benefits wrought by AI. (View Highlight)
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