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This is part 2 of my investigation into AI's impact on consulting. In part 1, we uncovered how AI is enabling a two-person consultancy to compete with McKinsey. Now, we reveal why traditional consulting firms might become extinct faster than anyone expected.

Two weeks ago, I shared data from 384 interviews showing how AI is completely restructuring the consulting landscape. Many of you reached out to discuss this more in-depth - some skeptical, others excited, all wanting to know more.

Today, we're going deeper. We'll explore:

• 📈 The New Economics of AI-Powered Consulting

• 🧠 The Evolution of AI Capabilities

• 🛠️ The Tools Reshaping Consulting

• 🌟 New Business Models

• ⚠️ The Barriers

• 🚀 Predictions for 5 years ahead

This isn't just another tech trend. This is a fundamental rewiring of how value is created and delivered in consulting. And the numbers are staggering.

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💰 The New Economics of AI-Powered Consulting

Remember the 40% of consultants who said AI tools let them perform tasks that previously required larger teams? That was just the beginning. The economics of consulting are being completely rewritten, and the numbers are staggering.

The Evolution of AI Capabilities

The rapid evolution of AI's capabilities is mind-boggling. Just look at the growth in context windows (the amount of information AI can process at once):

• GPT-3.5: 16,385 tokens → November 2022

• GPT-4: 128,000 tokens

• Claude 3.5 Sonnet: 200,000 tokens

• Gemini 1.5 Pro: 2,000,000 tokens → July 2024

This exponential growth (122x in <2 years!!!) in capacity means AIs can now process entire project histories, client documentation, and industry research in a single conversation. It has fundamentally changed how consultants work - enabling analysis vast amounts of data and generate insights in minutes instead of weeks.

The Tools Reshaping Consulting

Our AI Maturity Index reveals that consultants are rapidly adopting these expanded capabilities, with specific tools emerging as clear leaders in different domains. Here's what the top performers are using:

Content Creation (61% adoption)

• ChatGPT, Claude for writing

• Midjourney, Adobe Firefly for visuals

• Canva for presentations

Research and Analysis (37% adoption)

• Perplexity for market research

• Gemini for data analysis

• Microsoft Copilot for coding assistance

The Economics of Disruption: From Scarcity to Abundance

The consulting industry is experiencing what a16z calls "LLMflation" – but recent developments have accelerated this trend beyond anyone's predictions. To understand why, we need to look at three converging forces:

1. Exponential Growth in AI Capabilities

The raw processing power of AI has exploded:

• GPT-3.5: 16,385 tokens

• GPT-4: 128,000 tokens

• Claude 3.5 Sonnet: 200,000 tokens

This isn't just about bigger numbers. Each jump represents a fundamental expansion in what's possible. Today's AIs can process entire project histories, client documentation, and industry research in a single conversation.

2. The Price Revolution

November 2022

• GPT-3 launches at $60 per million tokens

• MMLU score of 42

• Enterprise-only territory

March 2023

• GPT-4 debuts with MMLU score of 83

• Prices begin dropping

• Mid-market firms gain access

November 2024

• Llama 3.2 3B matches GPT-3's MMLU score (42) at just $0.06 per million tokens

• OpenAI launches ChatGPT Pro: $200/month for unlimited access to GPT-4 and o1

• Enterprise capabilities become available to everyone

3. The Subscription Revolution

The shift from per-token to unlimited subscription access changes everything:

Old World (Pay-per-token)

• Market analysis in 2021: $50,000

• Processing client meetings (10,000 words): $1.20 each

• Every new project adds cost

• Usage anxiety limits experimentation

New World (ChatGPT Pro)

• $200/month = $6.67 per day

• Unlimited analyses

• Unlimited processing

• Zero marginal cost for additional work

• Full access to most advanced models

Think about this: A solo consultant can now run 100 market analyses per month for the same fixed $200. That's $2 per analysis, with no limit on complexity or depth.

🦾 New Business Models Emerging

Let's dive into how these technological advancements are not just changing how consultants work, but also how consulting businesses operate and generate revenue. The traditional project-based consulting model is evolving rapidly and AI is opening up new business models and revenue streams, particularly benefiting smaller firms and independent consultants.

These new models offer exciting opportunities for smaller consulting firms to create more predictable revenue streams and compete more effectively with larger firms. Let's explore some of these innovative approaches:

Our research reveals six models that are already gaining traction:

* Preview of an AI generated AIMI Team Report.

* Check out the full demo 👇 → AI Maturity Index Report

These new additions provide even more opportunities for small consulting firms to innovate in their business models and create diverse revenue streams.

These new business models offer smaller consulting firms the opportunity to create more stable, recurring revenue streams while also expanding their service offerings and competitive positioning. By leveraging AI, small firms can punch above their weight, offering services that were once the domain of only the largest consultancies.

⚠️ The Barriers We Need to Overcome

But it's not all smooth sailing. Our AI Maturity Index data reveals some critical challenges - despite high awareness (95%) and interest (88%), only 48% of consultants use AI daily. The impact when they do is significant:

• 12.9 hours average weekly time saved

• Female consultants are 30% more likely to use AI for creative tasks

• 61% use AI for drafting documents, emails, and proposals

Yet barriers remain. Here are the five key challenges:

1. Skill and Training Barriers

   • 20% feel undertrained

   • 30% need formal training

   • 45% struggle with advanced features

But here's the twist: Female consultants are 30% more likely to use AI for creative tasks, and consultants with 20+ years of experience are 25% more likely to use AI multiple times daily. Experience breeds confidence, not resistance.

2. Trust and Reliability Concerns

• 15% have major reliability concerns

• 35% struggle with output validation

• 25% report accuracy issues

Yet our data shows trust increases exponentially with usage. The key? Starting small and scaling up.

3. Integration Challenges

• 40% struggle with workflow integration

• 35% report tool compatibility issues

• 28% face data security concerns

4. Ethical and Compliance Concerns

• 15% worry about AI-generated content sourcing

• 22% express concerns about bias

• 18% struggle with regulatory compliance

5. Psychological Barriers

• 25% concerned about job security

• 30% worry about skill obsolescence

• 20% concerned about client perception

🔮 The Next Five Years: My Predictions

1. The Era of 'Moonshot Thinking'

Traditionally, complex projects requiring extensive resources and time were often shelved due to cost and feasibility constraints. AI is dramatically altering this landscape by significantly reducing the time and effort needed to execute ambitious initiatives. Here are some examples:

• Efficiency Leap with OpenAI o-1 and o-3

  The recent launch of o1-preview model has revolutionized the capabilities of large language models (LLMs). For instance, creating a complex automation model that once took 100 hours can now be accomplished in just 10 hours.

  Shep Bryan's Experiment: Consultant Shep Bryan tested o-1 preview by giving it a complex business case along with a list of deliverables similar to what a McKinsey team might produce. Remarkably, o-1 generated a comprehensive strategy deliverable in one request, showcasing the potential of AI to handle high-level consulting tasks efficiently.

• Claude Artifacts Enhancing Creativity:

  In July 2024, Anthropic introduced Claude Artifacts, a feature that allows users to create, edit, and share interactive content directly within the AI interface. Consultants can generate interactive documents, data visualizations, and even website designs without needing extensive technical expertise. This democratizes the creation of complex deliverables and enables consultants to produce high-quality work more rapidly.

  Example: A consultant can use Claude Artifacts to create a detailed market analysis report complete with interactive charts and graphs. The AI assists in generating the content, which can then be easily shared and collaboratively edited, streamlining the workflow.

If AI enables anyone to undertake 'moonshot' projects, does this diminish the value of seasoned consultants? The democratization of advanced capabilities may disrupt traditional consulting hierarchies, potentially challenging the perceived value of extensive experience.

2. AI-Augmented Services Will Dominate

Pat Grady, Partner at Sequoia Capital, emphasized this shift: “One of the big opportunities for AI is to replace services with software.”2 This reflects a broader trend where AI doesn't just assist consultants but becomes the primary delivery mechanism for certain services.

• Customized AI Advisory Platforms:

  Consulting firms will develop bespoke AI platforms tailored to individual client needs. These platforms will offer real-time data analytics, predictive modeling, and strategic insights, allowing clients to interact with AI tools customized for their specific challenges.

  Example: A consulting firm creates an AI platform for a manufacturing client that continuously monitors production processes, predicts maintenance needs, and optimizes supply chain logistics, thereby reducing downtime and costs.

• AI-Enhanced Decision Support Systems:

  Consultants will offer AI-driven decision support systems that simulate various business scenarios, helping clients make informed strategic choices with confidence.

  Example: An AI system that models the financial and operational impacts of entering new markets, adjusting variables such as currency fluctuations, regulatory changes, and consumer behavior in real-time.

• Virtual AI Consulting Assistants:

  Firms will deploy AI assistants that can provide instant expertise and support to clients, augmenting the traditional consulting relationship with continuous availability.

  Example: Clients have access to an AI assistant that can answer questions, provide data insights, and even offer preliminary recommendations outside of scheduled consulting sessions.

• AI-Powered Transformation Services:

  Consultants will use AI to drive organizational transformation, leveraging machine learning to identify inefficiencies and recommend process improvements.

  Example: Run the discovery process for “AI Maturity Adoption”.

• Predictive Analytics and Risk Management:

  AI will enable consultants to offer advanced predictive analytics services, identifying risks and opportunities before they materialize.

  Example: An AI system that scans global news, social media, and market data to predict potential reputational risks or emerging trends relevant to the client's business.

3. Less Humans, More Agents

Anthropic's breakthrough in computer control (14.9% success rate, rising to 22% with additional steps) signals a fundamental shift in how work gets coordinated.

The emergence of what we're calling the "New Management Stack" represents a fundamental rewiring of how consulting work gets done. Here's how it works:

1. Strategic Layer (Human)

• Vision and direction setting

• Complex stakeholder management

• Novel problem framing

• Ethical oversight and accountability

2. Coordination Layer (AI)

• Resource optimization

• Timeline management

• Cross-functional coordination

• Performance monitoring

• Real-time adjustments

3. Execution Layer (Human + AI)

• AI-augmented analysis

• Human-guided implementation

• Hybrid quality control

• Adaptive execution

This isn't just a new org chart – it's a new operating system for consulting. The key insight? AI isn't replacing layers; it's creating new ones that amplify human capabilities.

2025 will be all about AI Agents. Let’s embrace it!

🛣️ The Path Forward

Here's what successful consultants are doing right now to stay ahead:

1. Embrace AI-First Workflows

   • Start with AI in mind

   • Build processes that scale

   • Focus on high-value human input

2. Develop AI Integration Expertise

   • Master key AI tools

   • Create custom solutions

   • Build proprietary frameworks

3. Focus on Human+AI Synergy

   • Enhance human capabilities

   • Don't replace, augment

   • Lead with strategy

4. Build New Revenue Models

   • Move beyond hourly billing

   • Create scalable solutions

   • Focus on continuous value

5. Invest in Continuous Learning

   • Stay ahead of AI developments

   • Build technical expertise

   • Develop new skills

The future isn't a battle of humans versus AI; it's a synergy of humans and AI versus complex problems. The consulting industry stands on the cusp of a revolution where agility, adaptability, and technological prowess will define success. Climate change, global health crises, and economic uncertainties demand solutions that are as sophisticated as the challenges themselves.

Remember that two-person AI-powered consultancy outbidding McKinsey? That's not science fiction. That's where we're headed. Fast.

But here's the thing: This AI revolution isn't a threat. It's the biggest opportunity in consulting since the invention of the spreadsheet. It's your chance to punch above your weight, to deliver Fortune 500 insights with a startup team, to solve problems that were unsolvable just years ago.

The question isn't whether AI will change consulting. The question is: Will you be the consultant who changes with it?

Don't just nod along. Don't file this away as "interesting but not urgent." This is your wake-up call.

DM me on LinkedIn to chat about this 🙂 

Happy holidays and see you in 2025 🎅 ,

Iwo