Best of LinkedIn: Strategy & Consulting CW 34/ 35

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about strategy in consulting.

00:00:05: In calendar weeks thirty four and thirty five.

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00:00:34: right.

00:00:35: so let's get right into it.

00:00:36: our mission today is to cut through all of the noise strategy and consulting trends from the past two weeks across LinkedIn.

00:00:45: Exactly, because we are looking at a massive reordering of how business is done right now both digitally and physically.

00:00:50: Yeah

00:00:50: And if you're a strategy M&A or investment professional consider this deep dive your shortcut to staying sharply well-informed.

00:00:57: Right?

00:00:57: We're skipping the hype cycles were focusing strictly on the signals that actually move markets.

00:01:02: You are busy so we're getting straight to the insights.

00:01:05: Absolutely Looking at the macro picture right now, there is one conversation dominating every boardroom which obviously artificial intelligence.

00:01:14: Of course!

00:01:15: But we're finally moving past that initial excitement of adoption?

00:01:19: The conversation has distinctly shifted toward whether AI actually changing business outcomes on a balance sheet?

00:01:25: Right let's unpack this because if you are sitting in commercial due diligence looking for target companies tech stack You really need to know If your'e looking into true operational mode Or, I mean just a bunch of expensive Microsoft co-pilot licenses.

00:01:39: Yeah exactly we've all seen the press releases but the gap between AI hype and actual bottom line impact seems staggeringly wide.

00:01:48: right now it

00:01:48: is wide And The data paints very sobering picture.

00:01:52: Surya Sharma recently highlighted some McKinsey research that serves as massive reality check here.

00:01:57: Okay what do they find?

00:01:58: So out of all the organizations currently experimenting with generative AI, only six percent qualify as high performers.

00:02:04: Wait just six percent?

00:02:06: Just six.

00:02:07: and in this context they define high performers as those delivering at least a five-percent impact on their operating profit or EBIT.

00:02:15: Wow

00:02:15: so ninety four percent of companies are essentially throwing capital at this without actually moving the needle on their profitability.

00:02:23: exactly what is that Select six percent doing differently.

00:02:27: The primary differentiators that nearly three-quarters of the top group are completely redesigning their workflows around AI from ground up.

00:02:35: They're not just layering it on to existing legacy processes, but they layer approach is what most companies fall into.

00:02:43: To give you a sense of scale for this trap.

00:02:45: Diana Kearns Menelanos points to Deloitte research showing half organizations running more than thirty AI pilots simultaneously.

00:02:53: thirty pilots at once and that sounds like chaos.

00:02:56: It is total chaos, some retire new ones start And these organizations just keep spinning their wheels.

00:03:01: They keep the cost pressures dangerously elevated without ever scaling this tools into actual enterprise wide value.

00:03:08: Because layering an AI copilot on top of a fundamentally broken or inefficient process Just means you're executing bad processes slightly faster.

00:03:19: The real question how companies build sustainable mode?

00:03:23: And Chuck Whitten brings up a crucial concept here, right?

00:03:27: He argues that competitive advantage is rapidly moving to what he calls the orchestration

00:03:32: layer.

00:03:33: The orchestration lair.

00:03:34: yes this is arguably the most important technical concept for strategy leaders to grasp Right now.

00:03:40: let me see if I have my head around This orchestration concept because it feels A bit like Like a commercial kitchen.

00:03:46: Okay, I like

00:03:47: that.

00:03:47: by Friday any of my competitors can go out and buy the exact same high-end ovens The exact same premium knives those tools to off the shelf.

00:03:55: AI models are just a commodity Yep?

00:03:58: The orchestration layer is the head chef for the proprietary recipe.

00:04:02: It's the internal logic of how your software agents handoff tasks to one another.

00:04:06: Yeah You know what databases they're securely allowed to ping an exactly when a human being needs to step back into the loop.

00:04:13: yeah that proprietary logic is what actually earns you the Michelin Star.

00:04:18: That's a highly accurate way to look at it, because software interoperability solves connectivity but doesn't solve strategy.

00:04:25: If you hand orchestration over an external vendor You are essentially running your core operations out of someone else' playbook...you have no moat.

00:04:35: A concrete example from a company doing this redesign comes from Roshni Hora who shared how IKEA approached.

00:04:42: They deployed an AI assistant named Billy that successfully handled forty-seven percent of routine customer inquiries.

00:04:48: Wow!

00:04:50: Forty seven percent of all volume is a massive chunk overhead.

00:04:53: to suddenly automate The traditional corporate reflex there is just to slash the call center head count and bank the savings.

00:04:59: Oh, that's exactly the Reflex.

00:05:00: But here Is the genius part of IKEA workflow redesign.

00:05:04: instead?

00:05:04: Of treating that freed capacity as a cure cost takeout they retrained and redeployed eight thousand five hundred employees into entirely new growth areas like remote interior design in digital sales.

00:05:16: That is a fascinating shift because it forces a really important pushback on how we view transformation.

00:05:22: Like, How do organizations stop managing AI innovation and cost optimization as two completely disconnected portfolios?

00:05:30: Yes

00:05:30: that's the core issue.

00:05:31: Usually

00:05:32: you have the front office aggressively chasing growth in buying expensive AI tools while The back office is just relentlessly trying to cut headcount To pay for those tools.

00:05:40: Right If a saving-in customer service Is just displaced by software licensing costs elsewhere You haven't created any net enterprise value.

00:05:48: Precisely,

00:05:49: the equation has to be viewed holistically across the enterprise.

00:05:53: Ikea preserved human elements that AI cannot easily recreate.

00:05:56: you know cultural thick complex problem solving relationship building while letting orchestration layer handle high volume low complexity task.

00:06:05: But this massive rush to automate routine work and redesign workflows, it creates a terrifying existential question for another industry entirely.

00:06:21: Exactly.

00:06:21: If enterprise clients are successfully using AI to absorb all this routine analytical work, what happens to the massive consulting industry whose entire historic business model was built on billing by The Hour for that exact routine work?

00:06:37: The tectonic plates of the consulting industry are definitely shifting.

00:06:40: it's not just a threat anymore...the underlying economics of the billable hour is being fundamentally rewritten.

00:06:47: They absolutely are.

00:06:48: Jim Tompkins pointed out a staggering structural shift happening at the top tier of the industry.

00:06:53: Bob Sternfels, who is the global managing partner of McKinsey recently admitted that the firm now runs twenty thousand AI agents alongside its forty-thousand human employees.

00:07:03: Wait let that sink in.

00:07:04: Twenty Thousand Agents A third their workforce executing tasks are essentially software agents.

00:07:10: Right.

00:07:11: That means the traditional pyramid structure of consulting, where you have a few highly paid partners at the top supported by an army of junior associates grinding out billable hours at the bottom.

00:07:21: that's fundamentally being rebuilt around code rather than human leverage.

00:07:25: And when look how this shift is impacting mergers and acquisitions in the consulting space it gets wild!

00:07:31: Ivo von Broeklen highlighted a deal perfectly illustrates the sheer panic & financial gymnastics happening right now.

00:07:37: Oh i saw

00:07:38: Portia recently sold its internal consulting arm, MHP to Tata Consultancy Services for three hundred and twenty million euros.

00:07:47: Which honestly makes sense on the surface.

00:07:49: Automakers are shedding non-core assets but then in second half of that deal drops?

00:07:54: Right!

00:07:55: Portia turned around signed a deal to pay Tata one point two five billion Euros over five years for AI consulting and digital transformation services.

00:08:04: Let's break down their math because it is almost unbelievable.

00:08:08: Tata recovers its initial purchase price four times over directly from the seller in guaranteed revenue.

00:08:13: Exactly!

00:08:14: Why would an automaker sell it's strategic brain trust and immediately rent it back at a massive premium?

00:08:19: You really have to look at the severe margin pressures driving this decision.

00:08:23: Porsche's own operating profit recently crashed ninety-three percent down just to four hundred thirteen million euros, and they announced nine thousand job cuts.

00:08:33: Wow, ninety three

00:08:35: percent?!

00:08:35: Yeah

00:08:36: They essentially committed sixty percent of a full year's profit every single year for five years to rent back the capabilities they just sold.

00:08:43: That is insane!

00:09:05: premium markup to rent a big consulting firm's AI agent, To do my supply chain analysis when I could just license or build My own orchestration layer.

00:09:14: Well that is the exact vulnerability in The market right now.

00:09:16: Hugo Reichmakers argues That AI isn't killing Consulting.

00:09:20: it's forcing It to evolve away from large leverage teams and hourly billing its moving squarely toward judgment complex orchestration And strict accountability for outcomes.

00:09:31: Those are the elements of advice that are vastly harder to automate.

00:09:34: Yeah, and Lux Meyers cautions that smaller boutique consulting firms Are making a fatal error right now if they try to copy The jargon the breadth in the commercial sameness Of the big legacy firms because

00:09:46: they can't win a scale game against Tata or Mackenzie

00:09:49: exactly.

00:09:50: Boutiques need to lean heavily into sharp specialization, highly specific heistfix problems and absolute speed.

00:09:58: Speed is their ultimate weapon while the big legacy firms are bogged down navigating their own massive internal workforce

00:10:05: transitions.".

00:10:17: Absolutely.

00:10:18: So we've established that AI is rapidly replacing junior level human effort, both inside major corporates and within the consulting firms advising them.

00:10:26: but this raises a critical long-term structural risk.

00:10:30: what happens when we strip out that foundational human layer?

00:10:34: Yeah

00:10:34: This is the dark side of automation That nobody wants to talk about.

00:10:37: on their quarterly earnings calls The risk of entirely losing our edge.

00:10:42: Neha Cabra introduces a brilliant Honestly, concerning concept here called cognitive atrophy which she also refers to as the memory

00:10:51: paradox.

00:10:52: The premise is rooted in how professional judgment actually formed.

00:10:56: In an apprenticeship model like consulting or investment banking junior staff build their intuition by doing grinding analytical work.

00:11:06: If a junior banker uses AI bypass that grind having an agent scrape the data, build the financial model and draft a memo.

00:11:13: They miss the critical reps required to build actual

00:11:16: judgment.".

00:11:17: Oh wow!

00:11:18: Yeah we are very good at counting hours saved by AI on a spreadsheet but were completely blinded with experience in intuition that is being lost.

00:11:25: Yes The organization's digital systems might remember more data But people running them actually understand less about how their data connects

00:11:32: Precisely...the reps build the judgement And we're automating away the reps.

00:11:37: So essentially it Sounds exactly like our modern reliance on GPS navigation.

00:11:41: Oh,

00:11:41: that's a good comparison right?

00:11:43: Like we all use it.

00:11:44: It's incredible efficient But now nobody actually knows how to navigate their own city without staring at a screen.

00:11:50: sure if We let AI navigate our financial models are due diligence in our market analyses.

00:11:57: What happens when those junior staff become senior staff and the quote-unquote satellite goes down?

00:12:03: They won't have the internal compass to know When an output looks technically plausible But it's commercially absurd.

00:12:10: And that lack of internal human judgment is exactly why hyper-strict governance Is no longer just an IT issue.

00:12:16: It is the most critical bottleneck for scaling AI at enterprise level.

00:12:20: Halina Rush noted a fascinating development regarding how seriously this has to be taken.

00:12:24: KPMG recently put an agentic AI platform through more than nine hundred independent tests before deployment.

00:12:30: Wait, Nine Hundred distinct test?

00:12:32: Just to launch an internal tool?

00:12:34: Yes because the risks are asymmetric.

00:12:37: They were testing for hallucinations, content safety reliability and critically things like prompt

00:12:44: injections.

00:12:44: Yeah

00:12:44: which is where a user maliciously tricks the AI into breaking its own rules bypassing security protocols or leaking confidential client data.

00:12:54: Her point is that having an AI policy written in a PDF, you must be able to prove chain of custody and demonstrate with hard evidence your controls actually hold when the system behaves unexpectedly.

00:13:08: If an AI agent is autonomously executing trades or reallocating physical supply chain resources, standing up in court and saying well the AI told me to do it isn't a viable legal defense.

00:13:19: It definitely not.

00:13:19: but based on that data it seems like boardrooms are severely lagging on this governance piece.

00:13:23: More

00:13:24: drastically behind Tim Persons shared a board-level reality that highlights this gap perfectly.

00:13:30: Eighty two percent of public company directors admit they're already using generative AI personally for their.

00:13:36: Yet, only six percent of those companies have formal board-level policies governing its use.

00:13:42: Only six percent?

00:13:43: That's a massive disconnect!

00:13:44: It is.

00:13:45: Boards are still asking basic questions about if the company should use AI instead of asking them much harder governance questions which of these investments are actually producing verifiable financial outcomes and what are the liability frameworks when these systems start acting on our behalf rather than just advising

00:14:03: us?

00:14:03: It's basically a governance crisis hiding in plain sight.

00:14:06: Yeah, but while the boardroom is entirely obsessed with digital agents generative models and cognitive atrophy The physical world is violently reasserting itself.

00:14:16: Oh absolutely we are seeing macro risks geopolitical tariffs And supply chain shocks forcing a massive rethink of physical corporate strategy.

00:14:25: it does start contrast to the digital conversation.

00:14:28: Dia Garouir-Ibanez captured this physical shift beautifully.

00:14:32: She noted that for decades global manufacturing and supply chains were entirely obsessed with extreme efficiency, right?

00:14:38: Lean everything

00:14:39: exactly.

00:14:40: it was all about the lowest possible costs The leanest inventory And just in time Everything.

00:14:47: but the severe unpredictability of the last few years has fundamentally changed them.

00:14:52: now resilience is the new competitive advantage.

00:14:55: so redundancy like taking on the cost of qualifying a second supplier in different country, or holding strategic inventory and regional warehouse that isn't viewed as an operational inefficiency anymore.

00:15:08: It's necessary insurance against what if world?

00:15:11: Exactly!

00:15:11: And we're seeing concrete examples of public companies actively pulling back complexity to build physical resilience...

00:15:18: Like who?

00:15:19: Well, Liz Young highlighted how companies like Helen of Troy and Under Armour are actively narrowing their product lines.

00:15:26: Really?

00:15:26: Yeah!

00:15:27: They're significantly reducing the variety of merchandise they sell.

00:15:30: because carrying that sprawling complexity in managing those massive fragmented supply chains is simply too risky amid volatile transportation costs...and constant threat to new tariffs.

00:15:41: But I have to push back a little here especially if we think about this from an investor or private equity perspective.

00:15:46: Okay go ahead.

00:15:46: Is this actually strategic resilience or are companies just panic hoarding inventory the way people hoarded paper goods in twenty-twenty?

00:15:56: Because when you look at a balance sheet, redundancy and excess inventory still looks exactly like margin erosion.

00:16:02: That's a fair point!

00:16:03: If your backed by PE You can't just erode margins and call it insurance.

00:16:08: How do you mathematically balance that insurance with profitability?

00:16:11: It

00:16:11: comes down to pricing risk correctly And understanding.

00:16:14: geopolitical turbulence creates market variables that companies can either be paralyzed by or capitalize on.

00:16:20: Take the tariff situation as an example of pricing risk, Kevin O'Leary offered a macro investment perspective purely from an investment standpoint, not taking any political sides.

00:16:34: He points out that the threat of unsustainable fifty percent U S tariffs on Canada which is its largest trading partner creates this sixty to ninety day window of intense political chaos and market panic.

00:16:46: right

00:16:46: supply chains freeze up buyers panic.

00:16:48: everyone pauses.

00:16:49: but from an investments standpoint O'Leary argues that This Chaos actually presents a massive lucrative opportunity.

00:16:57: The smart money uses that window of panic to invest heavily at the bottom of the market.

00:17:02: Ah, I see.

00:17:03: Yeah acquiring assets or securing long-term contracts at a steep discount knowing that the realities of deep economic interdependence will eventually force a stabilization.

00:17:15: It's not just about hoarding inventory.

00:17:17: it's about the strategic deployment of capital when your competitors are paralyzed by tariff shocks.

00:17:22: So always comes back to operational fundamentals.

00:17:24: doesn't navigating the macro noise by executing flawlessly on what you can actually control.

00:17:29: Exactly!

00:17:30: Paul Brown made a point about Coca-Cola.

00:17:32: that really drives this operational reality home, Coca Cola shares are up thirty two percent this year.

00:17:37: Wow they're outperforming every single highly valued tech stock in The Magnificent Seven.

00:17:42: and here's the kicker They didn't launch a single new product to achieve them.

00:17:47: That is remarkable.

00:17:48: beating the Magnificents seven without a net new product launch means This is purely an operational victory.

00:17:53: How exactly did they drive that kind of value?

00:17:56: They just executed brilliant cost discipline and tightened their operations in the middle of the P&L.

00:18:02: Just fundamentals!

00:18:04: Yeah, they sold five percent more product globally but through operational efficiency they earned sixteen percent more per share.

00:18:11: The massive distance between those two numbers is just pure operational execution

00:18:16: Incredible.

00:18:17: While everyone else is placing massive risky bets on digital moonshots or panicking over tariffs, Coke found their most powerful growth lever was already sitting inside the business.

00:18:28: Which brings us to a fascinating and somewhat troubling intersection of everything we've unpacked in this deep dive.

00:18:34: How so?

00:18:35: Well, we're seeing companies drastically narrow their physical product lines and build expensive physical redundancy to survive geopolitical shocks.

00:18:43: Right?

00:18:43: They're optimizing heavily for operational resilience and efficiency like we see with Coca-Cola right.

00:18:48: yet at the exact same time these same enterprises are racing to outsource their junior talents analytical reasoning To AI orchestration layers risking massive cognitive atrophy And hollowing out there future leaderships judgment.

00:19:02: Oh man that is a paradox

00:19:05: It is.

00:19:05: If we project these two massive trends forward, what does the enterprise of twenty-thirty actually look like?

00:19:11: Are we building highly efficient, highly physically resilient organizations that have at their core entirely forgotten how to invent The Next Big

00:19:29: Thing?"?