Significant Shift in the Innovation Consulting World?

by Paul Hobcraft

huron-acquires-innosightIt always catches you by surprise when one of the leading players within the innovation space makes a change. In this case, Innosight has been acquired by Huron, a fellow professional services firm, one that has the vast majority of their business in the United States. Huron focuses specifically on Healthcare, Education, and Life Sciences and has been to-date far more operationally driven in its delivery solutions.

Being fairly curious you search for the fit and its meaning to both parties as Innosight has been continually shaping their offering to focus more on the strategic positioning of innovation over the past few years as the market has been undergoing a significant change in client demands and innovation solutions. I wanted to work through all of what this might mean and some more.

The transaction overview is ” Huron will purchase Innosight Holdings, LLC for $100 million upon closing, consisting of $90 million in cash and $10 million in Huron common stock, plus contingent consideration of up to $35 million if specific financial performance targets are met over a four-year period.”

This time last year we saw another acquiring of a pure innovation firm

This time last year we saw the takeover of Fahrenheit 212 by Cap Gemini and I wrote about it here under “In the blink of an eye, it gets something bigger.” I had suggested at the time that “David meets and marries a Goliath” and worried over the deal for Fahrenheit’s future.

Recently I went back and took an updated look and from all accounts the relationship is thriving (on the surface) and the Fahrenheit team seems to be well on track to achieve their stated aim of being a global innovation strategy and design firm  where their stated objectives are “we challenge the belief that innovation is inherently unreliable and have spent the last decade designing the method, building the model, and assembling the minds to make innovation a predictable driver of growth for our clients’ businesses“.

Part of their magic sauce lies in the Applied Innovation Exchange that had been designed and launched by Cap Gemini some weeks before Fahrenheit 212 was acquired. Still taking a fresh look at the underlying changes of that marriage is for another post, let’s return to Innosight’s move of being acquired by Huron.

Back to Innosight

I consistently look at different innovation consulting firms and the directions they are taking as it makes sense to gauge the directions that client demand is taking. Innosight is one of those first port of calls for me. They have been undertaking some internal moves in recent years, to reflect the changes and challenges around a ‘pure’ focus on innovation and where it fits within the larger organization,  by attempting to move further up into the strategic design and alignment in building greater C-Level engagements, searching for larger project sized contracts.

Innosight has been continually shaping their offering to focus more on the strategic positioning of innovation. They break down their offering into three core parts- 1. Create Growth Strategies that “Strengthen and extend today’s business – while harnessing the disruptive innovations of tomorrow”, 2. Develop Innovation Capabilities of “the talent, culture, and systems to make innovation repeatable and reliable” and 3. Build New Business to “discover opportunities, design new business models, and launch high-impact new ventures.

Understanding the rationale. Working through it.

Innosight is a partnership so it was not so easy to gain the type of understanding you require, relating the aspirations, reality with hard numbers. As Huron is on the  NASDAQ (HURN) it becomes a little easier in what they need to declare for this acquisition.

I was a little surprised that Innosight had a turnover of $43 million in 2016, I was expecting more from a team of 90 people. Also how the breakdown of revenue by industry specific their business profile was not as I would have expected. Although these clearly change by the demand of the clients and the recognition that the consultant can deliver the work, compared to others, in a very tough competing environment.

According to the first webcast on this acquisition (17/2), Innosight has 31% of their revenue in Life Sciences and 15% in Healthcare in 2016, so on the surface, they have a 46% ‘fit’ to Huron. The big difference coming in the fact that Huron is servicing around 500 health organizations mostly individual hospitals and academic medical centers, with 400 universities and institutions. Innosight has focused far more on Corporations, one notable one being Aetna. Huron has around 2,000 employees and having present revenues (excluding Innosight) of $726m in 2016. Is it such a fit?

What did surprise me on how the Consumer Products part of Innosight’s business had fallen away from what I can see and that might reflect the growing gap still to be found at ‘appealing’ to the C-Level on strategic innovation and the ongoing need for operational delivery of innovation capabilities and competencies.

These insights show Innosight has been adapting and responding to changing innovation needs and market opportunities as they felt they could work the horizontal, across industry, for many of the innovation capabilities and designs, although it is certainly becoming more complex at strategic design level. Yet this across-industry has been going against the ‘competitive’ grain when you are facing large vertical and horizontal consulting practices that claim they offer both a real depth of industry and innovation-specific knowledge. Often I do question these claims, in what I see, with notable exceptions.

I think it is this positioning as a strategic consulting company, competing in an extremely tough environment with the big strategic consulting companies of McKinsey, BCG, Deloitte, Strategy& and a whole host of full consulting and service solutions where EY, KPMG, and others all compete for a slice of the innovation pie is a very tough one for Innosight to gain the momentum they would have liked.

Equally, at the operational and integration end, we see Cap Gemini, Accenture, TCS and many others offering digital and transformation services. No, a very tough market to compete in and I think for Innosight this must have been a constant ongoing struggle.

Rooting for the specialist.

I will instinctively root for the focused business that has innovation at its core and Innosight has been one of these. Their focus on strengthening and relating growth needs coming from innovation and its necessary alignment was a good but perhaps too niche a position to constrain their growth against such global competition. The disruptive message they offered, although a powerful one needs a highly receptive audience and most organizations leave their changes until they are often in the middle of a crisis and then they tend to panic and call in the ‘big guns’ of the consulting world.

The disruptive message they offered, although a powerful one, needs a highly receptive audience and most organizations leave their changes until they are often in the middle of a crisis and then they tend to panic and call in the ‘big guns’ of the consulting world.

Finally, in this section, Innosight’s growth route through innovation was a good position. They focused increasingly on alignment and taking a ‘future back’ approach to eventual strategic design, to determine new innovation business models was a good targetted focus and has been, I suspect, the reason for their compounding 20% yearly growth. Yet I can imagine they were not achieving that critical mass and scale I suspect they wanted, to stay independent and became open to an offer. For some to perhaps ‘cash out’ while others stay for varying reasons.

In the announcement of this acquisition Huron made the following overview:

When combined, Huron and Innosight will use their strategic, operational and technology capabilities to help clients across multiple industries develop pioneering solutions to address disruption and achieve sustained growth.

“No industry is immune to disruption. Faced with increased competition, often from unconventional sources, organizations are forced to rethink their historical strategies to stay ahead of market forces and changing customer preferences,” said James H. Roth, chief executive officer and president of Huron. “Together, we will provide a full spectrum of services – from strategy to execution – that will help organizations think, plan and act differently to confront disruption and accelerate growth.”

Built by leading strategic thinkers and co-founded by renowned strategy consultant Mark Johnson and Harvard Business School professor and author Clayton Christensen, the world’s foremost authority on disruptive innovation, Innosight is a trusted partner to Fortune 500 companies and other leaders looking to strengthen today’s business while creating tomorrow’s growth engines. The firm’s innovation and transformational strategies have proven successful in industries undergoing disruptive change such as aerospace, automotive, energy, financial services, healthcare, insurance, life sciences and retail.

“Companies are under mounting pressure to satisfy a range of competing interests,” said Scott Anthony, managing partner at Innosight, who will become a Huron managing director. “But shifting stakeholder expectations, combined with disruptive change, create significant opportunities for today’s leaders. Huron and Innosight’s combination of capabilities in strategy, operations, technology, and analytics will enable us to offer transformative change to address these opportunities.”

Formed in 2000, Innosight recognized that traditional approaches to strategy and growth were not enough to help companies accelerate transformational change. This became the basis for its “future back” approach to strategy. Organizations that apply Innosight’s approach build leadership alignment on a vision for the future and create portfolios of new innovations and growth businesses that address changing customer needs and outpace their competitors.

Applying the same methodology alongside Huron’s deep industry expertise in healthcare, education and life sciences, the combined firms will help leaders in these critical industries successfully navigate changing market dynamics, regulations and consumer expectations to grow for the long-term”

“No industry is immune to disruption” Here lies the rub.

I think this disruption thought underscores the joint rationale for this acquisition. Heron is facing some massive forces of disruption in their primary business of Health as well as Education. With a Republican party looking really hard on how it will unwind or redirect the Affordable Care Act (ACA) The comprehensive health care reform law enacted in March 2010 (sometimes known as ACA, PPACA, or “Obamacare”) has given much of the past growth to Huron. Today they are seeing declines in this sector while this uncertainty continues. Clients are downsizing in projects while the political and macro conditions are sorted out.

The same is about to possibly ‘hit’ in Huron’s Higher Educational offerings as the new Administration has signaled large questions of necessary change in the general direction of Education- Presently with all the uncertainties of the new Secretary of Education, Betsy DeVos and the directions she takes in what some are assuming is a radical agenda of change, leaves the higher educational institutions in a potential ‘state of flux’.

As this potential set of policy disruptions will need time to get the level of clarification and granularity clients required, it exposes Huron and 70% plus of its business to many uncertainties.

Arguably, it will be well positioned when these policy decisions become clarified but that is potentially arriving over the next two to even four years between being decided and enacted, into policy and clarity for the individual institutions to react too.

This present operating environment for Huron does make for real uncertainty, especially in larger transformational consulting projects but it needs to manage the interim in different ways. So positioning for disruptive change and managing strategic and operation transitions become essential to help manage this period of great industry uncertainty.

Transformational guidance becomes the key mutual focus.

Innosight has been positioning itself increasingly as a growth strategy consulting firm focused on helping organizations design and create the future, instead of being disrupted by it. As a leading authority on disruptive innovation and strategic transformation, these identifications of new growth opportunities, making changes through new ventures and designing the capabilities to accelerate to significant industry and organizational change. will require a lot of guidance to support organizations as they contend with the change transforming their industries and businesses.

For Innosight does it make any changes with its direction? Open questions perhaps?

Innosight had a global footprint, it seems Huron withdrew from its international business expansion back in 2015. Although Innosight has 80% of its business in the US, will it continue to pursue growth outside?. It has an office in Singapore and one in Switzerland and when you are servicing Global fortune 500 equivalents you need this broader presence. Huron has really a 100% business in North America.

Do they compliment and focus only on the US market or will they stay global in ambition, if the C-Level remains as an essential focus, it stays both a necessity for one (Innosight) and an aspiration for the other (Huron). That will have its integrating challenges perhaps or will they combined have and global appeal in the focus sectors Huron currently serves as very US centric?

Equally, although Innosight has been growing its Healthcare and Life Sciences business the blending of very specific work on operational matters by Huron with Innosight’s C-Level future back work and the search for growth, new business models and launching new ventures needs some radical aligning to leverage well, it needs some dedicated work.

Innosight by spanning more the horizontal position, across industries needs some recalibrating possibly with Hurons’ more vertical depth and very deep operational engagement. Possibly not so easy but a challenge to extract and leverage the complementarities in many ways quickly, or it gets likely to becomes ‘bogged’ down in those past entrenched internal positions that are highly vertically focused.

Will this be a prelude to a new operating structure? Maybe it is the time.

Having this aspiration of Hurons in dealing at C-Level becomes a reality with the leadership team that resides in Innosight and the thought leadership that constantly emerges in the form of innovation thinking, books, and academic work.

Will Clayton Christensen, along with Mark Johnson and Scott Anthony give Huron the entry point into the C-Level and Government Corridors? I’m not sure it the core leadership team of Innosight is staying or cashing out?. That has yet to be fully and specifically clarified. How does that move across the 2,000 seemingly highly industry specific plus consultants, I think will be an equal challenge.

When you also look at the present advisory heavyweights of Academia, advising Innosight in the form of Vijay Govindarajan, Rita McGrath, Hal Gregersen, Jeff Dyer, Clark Gilbert as well as Clay Christensen, along with numerous others that work with Innosight to varying degrees, it should have greater ‘growth’ gravitas.

If the advisors to Innosight stay involved then the potential to gain leading academic insight, to help open corporate C-Level doors and clarify much, has a powerful ‘enabling effect’ that Huron will need to relate too. Hopefully, they, (Huron) are not losing this in the acquisition as it harnesses a really powerful brains trust in my opinion at the right point of organization entry.

I was a little surprised that Huron has 120 plus client-serving Managing Directors.

From what I understand is that Scott Anthony, the present MD of Innosight, will become one of these Managing Directors positioned in the Business Advisory service area. I wonder about this, for positioning around so much uncertainty and potential disruption if this is the right place?

Of course, I don’t have details of any of the Innosight teams new positioning but to transition from a partnership to a (highly) structured consulting firm as Huron seems to convey. The question becomes perhaps one of utilizing talent in the best way not ‘just’ fitting into given structures.

Maybe something more radical will emerge

I would argue with so much ahead in many corporate strategic redesigns, as well as coping with industry disruptions, both in the US and global markets, the scarce resource becomes those that can articulate and energize the set of strategic decisions needed, experienced in disruption and planning out new business models becomes the critical one to nurture and transfer.

That is not easy as it calls for a combination of change management skills and strategic grounding at C-Level ‘speak’. Then you gain the operational outcome ‘flowthrough’ from this and the challenge is harnessing those fairly rare resources both across vertical and horizontal challenges with the strategic dialogues delivered at the right level.

This managing of an internal design change can become the critical enabler and criteria to judge how this acquisition works in identifying, leveraging and harnessing the diverse resources across the ‘disrupting’ landscape ahead.

The existing structure at Huron is a classic consultants – seemingly siloed.

In Huron’s recent risk assessment (Form 10-K) it stated on its employees ” the managing directors are the key drivers of the business. They work externally to serve clients as advisors and engagement team leaders, originate revenue by developing new and existing client relationships, and enhance our reputation. Internally they create our intellectual capital and develop our people. Our senior directors, directors and managers manage the day-to-day client relationships and oversee the delivery and quality of our work product.”

I would wonder how the dynamics and flow of a partnership differs in where it places its emphasis, time, management and energy. I feel it will require some adjustments for Innosight to relate into a much larger organization set up more vertically in focus and structured in the traditional lines of a larger consulting practice?

Finally Huron’s headquarters are located in Chicago with domestic and international (?) offices including those located in the following major metropolitan areas: Atlanta, Bangalore, Boston, Buffalo (N.Y.), Dallas, Denver, Detroit, Houston, Madison (Wis.), New York, Pensacola (Fla.), Portland (Ore.), Raleigh (N.C.), San Francisco, Toronto and Washington, D.C. Whereas Innosight is located in Boston (80%) of the team, Switzerland, and Singapore. The domestic US market perspective will clearly dominate, will it become all-dominating? Are we going to see a growing global footprint or a retreat into America?

I think the acquisition does come as a surprise.

I had not, in all honesty, heard of Huron but that is not so surprising because I am not so focused on Health Care, Hospitals and Medical Institutions, or the operational matters they have clearly built a strong business upon, specifically in the United States. So I initially wondered on the attraction between the two. Just simply why?

It boils down to a significant cash consideration for the partnership of Innosight to distribute, partly knowing being independent is a long hard slog. It is equally this growing recognition that “no industry is immune to disruption” including consulting, often working on perhaps outdated consulting models. It is also a crisis of revenue need for Huron, a publically quoted organization recognizing the deteriorating state of the US healthcare market.

There is this increasing realization that greater disruptive forces are coming into play, in the form of even more competitors, increased pressures on margins, a struggle to achieve the bigger projects in uncertain time and the debate on where to focus, vertically or horizontally.

A further choice of  managing all the forces of change domestically in the biggest consulting market of the USA at a significantly changing time politically, or taking out a global footprint further out becomes a real challenge to manage well and keep shareholders happy. Global footprints come at a far higher higher cost to utilization of assets, facing the growing, diverse and challenging consulting market where big seems to be getting bigger and more diverse, offering such scale and access to deep resource to call upon any time. Some tough decisions have to be made here beyond the aspirational.

In summary

Both Huron and Innosight trade on close client relationships once established, a focus on clear reputation, harnessing either industry experience or subject matter knowledge (disruption theory, innovation, business model change) to then deliver to the client’s explicit needs. in potentially more meaningful and focused ways as highly specialized.

Do they achieve a balanced portfolio of services with this deal? Perhaps no, they certainly fill or plug some essential gaps but the ability to really leverage this is the “real ability to straddle“, not just diverse client needs but the one that for me, makes or breaks this, the internal straddling required to integrate and leverage each of the parts into a cohesive whole. It will be interesting to see how this plays out.

The macro and micro forces are in play across all the consulting industry, it is not immune itself. So many questions are being raised on global uncertainties that will impact both the US & global focus for many. Many political and Government decisions will be forcing change but while this stays unclear, for many this is a growing time of uncertainty.  It is the ability to “focus out”, design and determine what are the real disruptive forces each client has to double down upon, will provide options and alternatives to thrive in this age of transformation.

As I said earlier that is a rare ability to harness the strategic patterns and design new innovation business models and this takes a specific skill set, which seems Huron are buying in this acquisition of Innosight. Time will tell on the acquisition success as the internal design of Huron to take advantage of these changing market forces does need further fleshing out. It needs a very different language of (client) design and articulation, I believe.

Hopefully, that clarity comes in the coming days in further investor and webcast calls.

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paul-hobcraft-150x150Paul Hobcraft runs Agility Innovation, an advisory business that stimulates sound innovation practice, researches topics that relate to innovation for the future, as well as aligning innovation to organizations core capabilities. Follow @paul4innovating

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