The push for digital transformation – what investors look for in consultancies and how is this evolving?

There has been no shortage of new technologies over the last decade and this trend is only accelerating. Whether it’s the adoption of generative AI models, redesigning operations to drive automation, optimising use of the cloud or the development of a new app to overhaul the customer experience, the demand and development of tech is undeniable.

However, with such a heavy focus on the technology itself, it’s easy to forget that – for businesses at least – this is only half the battle. Its development and implementation must also be accompanied by an effective, lasting and deep-rooted adoption of technologies to ensure maximum and sustainable impact. Indeed, with new technology often moving at a faster rate than corporates can adopt it, an agile approach to facilitate continuous evolution is critical to fully leverage what is available and retain a competitive advantage.

Effective outcomes from technology transformation require the whole business to buy into the transformation, and the operating model design, processes and cultural considerations are fundamental to make deliver impactful change, therefore there is increasing value in a strategic consultancy-led approach to digital transformation initiatives. The recognition of these firms’ ability to make digital transformation ‘stick’ for clients is now a critical factor in evaluating the client proposition of digital transformation firms.

Throughout 2022, demand for the entire spectrum of technology and data-related services was outstripping supply meaningfully, and the core challenge to scaling was finding the right talent. The landscape is now shifting as macro events are causing a slight softening in demand (or at least delays) for major transformation programmes, whilst large swathes of tech lay-off across the sector have contributed to a softening in the talent market. It is therefore now more challenging to identity who will win in a more competitive market, and investors should be prioritising their focus on slightly different areas compared to 12 months ago, for example:

• Talent for talent’s sake is less valuable – skills shortages are still very prevalent across the technology services market, but this is less acute than 12 months ago. At its peak, there was considerable value in scaled digital transformation platforms with multiple hundreds of technical heads, even if profit was lacking. As larger players find it easier to tap into the talent market, there is less value in these organisations, unless they can display a compelling client proposition and a robust, sustainable financial profile.
• Client impact is key – It is very difficult to differentiate small to mid-size digital transformation consultancies with similar talent bases and often similar propositions on paper. Clients are increasingly demanding that they can demonstrate tangible impact from transformation programmes. This is where a holistic approach to technology transformation can be valuable. As a simple example, a new technology platform requires (i) a strategic / commercial lens to ensure it addresses a business problem, (ii) the technical architecture and build and (iii) robust adoption by people across the organisation. Many technology consultancies focus on (ii) and neglect the other two factors, whereas a valuable and differentiated proposition might consider all three to demonstrate maximum client impact.
• 2023 will be an important year – put simply, the most effective way to evidence a compelling and relevant client proposition is to deliver strong growth in 2023, where much of the market is seeing a softening. Pipeline progression is equally important as many firms will see run off in 2023 of longer-term programmes, and the ability to convert new work or client logos in 2023 will be an important benchmark.

It is not surprising that we are seeing technology consultancies increasingly looking for front end strategic or business consultancy capabilities. The main factor driving this trend is the complexity of the technology landscape and corporates not knowing where to start when it comes to adopting the right technology solutions. AI is a case in point, the market is so nascent and fast-moving, but despite this complexity corporate simply cannot ignore its impact on their organization. A highly commercial understanding of the AI landscape and how it can best be leveraged to drive commercial outcomes is critical before you dive in with a specific AI product or platform.

In a fast moving and ever-changing market, it will be interesting to see how digital transformation consultancies evolve their propositions to stay relevant and differentiated, and investors are likely to be thinking carefully about which players have a sustainable advantage in a more crowded market.

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