Definitions

Management consulting

Management consulting

Management consulting refers to both the industry of, and the practice of, helping organizations improve their performance, primarily through the analysis of existing business problems and development of plans for improvement.

Organizations hire the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice, access to the consultants' specialized expertise, or simply as extra temporary help during a one-time project, where the hiring of more permanent employees is not required.

Because of their exposure to and relationships with numerous organizations, consultancies are also said to be aware of industry "best practices", although the transferability of such practices from one organization to another is the subject of debate.

Consultancies may also provide organizational change management assistance, development of coaching skills, technology implementation, strategy development, or operational improvement services. Management consultants generally bring their own, proprietary methodologies or frameworks to guide the identification of problems, and to serve as the basis for recommendations for more effective or efficient ways of performing business tasks.

History

Management consulting grew with the rise of management as a unique field of study. The first management consulting firm was Arthur D. Little, founded in 1886 by the MIT professor of the same name. Though Arthur D. Little later became a general management consultancy, it originally specialized in technical research. Booz Allen Hamilton was founded by Edwin G. Booz, a graduate of the Kellogg School of Management at Northwestern University, in 1914 as a management consultancy and the first to serve both industry and government clients.

After World War II, a number of new management consulting firms formed, most notably Proudfoot Consulting, founded in 1946 by Alexander Proudfoot, which implemented sustainable operational improvements within its clients, and Boston Consulting Group, founded in 1963, which brought a rigorous analytical approach to the study of management and strategy. Work done at Booz Allen, McKinsey, BCG, and the Harvard Business School during the 1960s and 70s developed the tools and approaches that would define the new field of strategic management, setting the groundwork for many consulting firms to follow. In 1983, Harvard Business School's influence on the industry continued with the founding of Monitor Group by six professors.

One of the reasons why management consulting grew first in the USA is because of deep cultural factors: it was accepted there, (contrary to say, Europe), that management and boards alike might not be competent in all circumstances; therefore, buying external competency was seen as a normal way to solve a business problem. This is referred to as a "contractual" relation to management. By contrast, in Europe, management is connected with emotional and cultural dimensions, where the manager is bound to be competent at all times. This is referred to as the "pater familias" pattern. Therefore seeking (and paying for) external advice was seen as inappropriate. However, it is sometimes argued that in those days the average level of education of the executives was significantly lower in the USA than in Europe, where managers were Grandes Ecoles graduates (France) or "Doktor" (Germany), though this is very difficult to quantify given the vastly differing management structures in American and European businesses.

It was only after World War II, in the wake of the development of the international trade led by the USA, that management consulting emerged in Europe. The current trend in the market is a clear segmentation of management consulting firms. Another branch of management consulting is Human Resource consulting. Such firms provide advice to their clients regarding the financial and retirement security, health, productivity, and employment relationships of their global workforce.

Approaches

In general, various approaches to consulting can be thought of as lying somewhere along a continuum, with an 'expert' or prescriptive approach at one end, and a facilitative approach at the other. In the expert approach, the consultant takes the role of expert, and provides expert advice or assistance to the client, with, compared to the facilitative approach, less input from, and fewer collaborations with, the client(s). With a facilitative approach, the consultant focuses less on specific or technical expert knowledge, and more on the process of consultation itself. Because of this focus on process, a facilitative approach is also often referred to as 'process consulting,' with Edgar Schein being considered the most well-known practitioner. The consulting firms listed above are closer toward the expert approach of this continuum.

Many consulting firms are organized in a matrix structure, where one 'axis' describes a business function or type of consulting: for example, strategy, operations, technology, process improvement, HR, sales, etc. The second axis is an industry focus: for example, oil and gas, retail, automotive. Together, these form a matrix, with consultants occupying one or more 'cells' in the matrix. For example, one consultant may specialize in operations for the retail industry, and another may focus on process improvement in the downstream oil and gas industry.

Specializations

Management consulting refers generally to the provision of business consulting services, but there are numerous specializations, such as information technology consulting, human resource consulting, and others, many of which overlap, and most of which are offered by the large diversified consultancies listed below. So-called "boutique" consultancies, however, are smaller organizations specializing in one or a few of such specializations.

Current state of the industry

Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and linked to overall economic conditions. The consulting industry shrank during the 2001-2003 period, but has been experiencing slowly increasing growth since. In 2007, total global revenues for management consulting are expected to exceed the $300 billion mark.

Currently, there are four main types of consulting firms:

  1. Large, diversified organizations that offer a range of services, including information technology consulting, in addition to a strategy consulting practice (e.g. Accenture, Deloitte). Some very large IT service providers have moved into consultancy as well and are also developping strategy practises (e.g. Wipro, Tata)
  2. Medium-sized information technology consultancies, that blend boutique style with some of the same services and technologies bigger players offer their clients (e.g. IDS Scheer, arinso).
  3. Large management and strategic consulting specialists that offer primarily strategy consulting but are not specialized in any specific industry (e.g. McKinsey, BCG).
  4. Boutique firms, often quite small, which have focused areas of consulting expertise in specific industries or technologies (e.g. Towers Perrin, the Avascent Group) . Most of the boutiques were founded by famous business theorists. Small firms with less than ca. 50 employees are often referred to as niche consultancies (e.g. Agility Works, iProCon HCM). If they have a unique concept and market it successfully, they often grow out of this segment very fast or are bought by larger players interested in their know how.

A fifth type of global consulting firm is emerging.

Sourcing Advisory services deal with choices between insourcing and outsourcing, vendor selection, and contract negotiations. The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were Alsbridge, TPI, EquaTerra, NeoIT, Pace Harmon, PA Consulting, RampRate, Deloitte, Gartner, and Everest. Although a fast growing sector, the largest sourcing advisory practices would likely be classified as boutiques when considering the management consulting industry as a whole - with one of the largest players, TPI, for example, citing 2006 revenues of less than US$150M during its acquisition by ISG.

Trends

Management consulting is becoming more prevalent in non-business related fields as well. As the need for professional and specialized advice grows, other industries such as government, quasi-government and not-for-profit agencies are turning to the same managerial principles that have helped the private sector for years.

One important and recent change in the industry has been the spin-off or separation of the consulting and the accounting units of the large diversified firms. For these firms, which began business as accounting firms, management consulting was a new extension to their business. But after a number of highly publicized scandals over accounting practices, such as the Enron scandal, accountancies began divestiture of their management consulting units, to more easily comply with the tighter regulatory scrutiny that followed.

Rise of internal corporate consulting groups

Added to these approaches are corporations that set up their own internal consulting groups, hiring internal management consultants either from within the corporation or from external firms employees. Many corporations have internal groups of as many as 25 to 30 full-time consultants.

Internal consulting groups are often formed around a number of practice areas, commonly including: organizational development, process management, information technology, design services, training, and development.

There are several potential problems facing internal consultants, and those who employ them:

  • The internal consultant may not bring the objectivity to the consulting relationship that an external firm can.
  • An internal consultant also may not bring to the table best practices from other corporations. A way to mitigate this issue is to recruit experience into the group and/or proactively provide diverse training to internal consultants.
  • Where the consulting industry is strong and consulting compensation high, it can be difficult to recruit candidates.
  • It is often difficult to accurately measure the true costs and benefits of an internal consulting group.
  • When financial times get tough, internal Consulting groups who have not effectively demonstrated economic value (costs vs. benefits) are likely to face size reductions or reassignment.

There are several potential benefits of internal consultants to those who employ them:

  • If properly managed and empowered, internal consulting groups evaluate engagement on projects in light of the corporation strategic and tactical objectives.
  • Often, the internal consultant has less ramp up time on a project due to familiarity with the corporation, and is able to guide a project through to implementation—-a step that would be too costly if an external consultant were used.
  • Internal relationship provides opportunities to keep certain corporate information private.
  • It is likely that the time and materials cost of internal consultants is significantly less that external consultants operating in the same capacity.

Note: Corporations need to be conscious of and consistent with how internal consultant costs are accounted for on both a project and organizational level to evaluate cost effectiveness.

  • Internal consultants are often uniquely suited to lead external consulting project teams or act as organizational subject matter experts ‘embedded’ with external consulting teams under the direction of organizational management. As a group internal consultants can closely work with, and monitor, external consulting firm delivery, quality, and overall operating relationship.

External firms providing consulting services have a dichotomy in priority. The health of the external firm is in aggregate more important that the health of the client organization. (client objectives are ultimately secondary to that of the strategic goals of the external firm)

Again assuming proper management, internal consulting groups are less likely have a dichotomy in priority. The health of the client organization is in aggregate more important that the health of the internal consulting group. (Put the company objectives first)

Government consultants

The use of management consulting in governments has increased significantly in recent times. Booz Allen Hamilton is particularly well known now as a consultant that primarily serves the US Federal Government.

United Kingdom

From 1997 to 2006, New Labour have spent £20 billion for management consultants and at least another £50 billion for IT systems, up significantly from the £500 million a year spent by the previous Conservative government. From 2003–2006 spending on consultants has risen by a third, from £2.1 billion in 2003–04 to £2.8 billion in 2005–06, largely due to increases in spending by the National Health Service. In the past three years £7.2 billion has been spent on consultancy services from large consultancy firms.

Criticism

Despite consistently high and growing revenues, management consultancy also consistently attracts a significant amount of criticism, both from clients, and also from management scholars.

Management consultants are often criticized for overuse of buzzwords, reliance on and propagation of management fads, and a failure to develop plans that are executable by the client. A number of critical books about management consulting argue that the mismatch between management consulting advice and the ability of business executives to actually create the change suggested results in substantial damages to existing businesses.

Irreputable consulting firms are often accused of delivering empty promises, despite high fees. They are often charged with "stating the obvious" and lacking the experience on which to base their advice. These consultants bring few innovations, and instead offer generic and "prepackaged" strategies and plans that are irrelevant to the client’s particular issue. They may fail to prioritize their responsibilities, placing their own firm’s interests before the clients'.

Further criticisms include: taking apart of the business (by firing employees) in a drive to cut costs, only providing analysis reports, junior consultants charging senior rates, reselling similar reports to multiple clients as "custom work", lack of innovation, overbilling for days not worked, speed at the cost of quality, unresponsive large firms & lack of (small) client focus, and lack of clarity of deliverables in contracts.

Professional qualifications

There are several qualifications that can lead to becoming a management consultant; they include:

See also

Lists of firms

Areas of action of Consulting

Related Culture

Institutes

External links

References

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