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^{[citation needed]}.

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.

Contents 1 History 2 Approaches 2.1 Specializations 3 Current state of the industry 4 Worldwide Management Consultants - numbers. 5 Trends 5.1 Rise of internal corporate consulting groups 5.1.1 Advantages 5.1.2 Disadvantages 6 Government consultants 6.1 United Kingdom 7 Management consulting companies rating 8 Criticism 9 Professional qualifications 10 See also 10.1 Lists of firms 10.2 Areas of action of Consulting 10.3 Related Culture 10.4 Institutes 11 References 12 External links 13 Further reading

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.^{[citation needed]} Though Arthur D. Little later became a general management consultancy, it originally specialized in technical research. Booz & Company 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 Boston Consulting Group, founded in 1963, which brought a rigorous analytical approach to the study of management and strategy. Work done at Boston Consulting Group, McKinsey, Booz & Company, 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^{[citation needed]}. 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^{[citation needed]}. Therefore seeking (and paying for) external advice was seen as inappropriate^{[citation needed]}. 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^{[citation needed]}.

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.^{[citation needed]}

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, executive leadership, process improvement, talent management, 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.^{[citation needed]}

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, Capgemini, Deloitte). Some very large IT service providers have moved into consultancy as well and are also developing strategy practices (e.g. Wipro, Tata, Infosys)
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. Bain & Company, Booz & Company,McKinsey & Company, The Boston Consulting Group, Oliver Wyman, A.T. Kearney).
4. Boutique firms, often quite small, which have focused areas of consulting expertise in specific industries, functional areas or technologies (e.g. Heidrick & Struggles, Towers Perrin, the Avascent Group, Newton Industrial Consultants) . Most of the boutiques were founded by famous business theorists. Small firms with less than 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 that is emerging is the sourcing advisory firm, that advise buyers on sourcing choices related to insourcing, outsourcing, vendor selection, and contract negotiations. The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were TPI, Gartner, Hackett Group, Everest Group, PwC, Avasant, PA Consulting, and EquaTerra.^[1] 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.^[2]

Worldwide Management Consultants - numbers.

With worldwide revenues of $300 Billion, it can be assumed that the average revenue per consultant is $300,000 - this means that there are over 1 million management consultants in the world.

Assuming that 50% of these are employed by firms with 50 or more consultants, then it fair to assume that there are at least 500,000 management consultants in Boutique firms

Trends

Management consulting is becoming more prevalent in non-business related fields as well.^{[citation needed]} 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.

Advantages

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 than 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

a) Lead external consulting project teams or b) Act as organizational subject matter experts ‘embedded’ with external consulting teams under the direction of organizational management.

A group of internal consultants can closely monitor and work with external consulting firm. This would ensure better 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)

Disadvantages

• 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 that have not effectively demonstrated economic value (costs vs. benefits) are likely to face size reductions or reassignment.

Government consultants

The use of management consulting in governments has increased significantly in recent times. Booz Allen Hamilton (now split from Booz & Company) is particularly well known now as a consultant that primarily serves the US Federal Government. Deloitte Consulting LLP applies its industry expertise and decades of experience to helping government departments and agencies solve their toughest problems. In India agriculture finance corporation limited provides consultancy mainly to governments and related institutions.

United Kingdom

From 1997 to 2006, Labour governments 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.^[3] 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.^[4]

Management consulting companies rating

The webservice "vault.com" prepares a list of the most prestigious 50 consulting companies each year. The most prestigious 15 consulting companies in 2009 are ^[5]:

1. McKinsey and Company
2. Boston Consulting Group
3. Bain and Company
4. Booz & Company
5. Monitor Group
6. Mercer LLC
7. Deloitte
8. Oliver Wyman
9. PricewaterhouseCoopers
10. L.E.K. Consulting
11. Ernst and Young
12. A.T. Kearney
13. IBM Global Business Services
14. Accenture
15. The Parthenon Group

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^[6], 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.^[7]

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'. ^[8]

Another concern is the promise of consulting firms to deliver on the sustainability of results. At the end of an engagement between the client and consulting firm, there is often an expectation that the consultants audit the project results going forward for a set period of time to ensure their efforts are sustainable. Although sustainability is promoted by some consulting firms, it is difficult to implement because of the disconnect between the client and consulting firm after the project closes.

Further criticisms include: taking apart of the business (by firing employees) in a drive to cut costs^[6], 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

• The internationally recognized Certified Management Consultant (CMC) professional designation - this is by far the gold standard.

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

• Certificate in Management Consulting Essentials (IMC) - UK, Diploma in Management Consultancy (IMC) - UK - this is a step on the way to CMC
• Accountancy qualifications: Chartered Management Accountant (CIMA), Chartered Certified Accountant (ACCA), Chartered Accountant (CA), Certified Public Accountant (CPA), Certified Practising Accountant (CPA), Certified Management Accountant (CMA) Chartered Cost Accountant CCA Designation from AAFM
• Engineering qualifications: Chartered Engineer (C.Eng - UK) Professional Engineer (P.E / P.Eng - USA and Canada)
• Actuarial qualifications: Casualty Actuarial Society (FCAS) - US, Society of Actuaries (FSA) - US, Institute of Actuaries (FIA) - UK, Faculty of Actuaries (FFA) - Scotland
• Finance qualifications: Chartered Financial Analyst (CFA) Certified Treasury Professional (CTP)
• Consulting qualifications: Master of Science in Business Consulting (BCM) Hochschule Furtwangen University Germany
• Consulting qualifications: Master of Business Administration in International Business Consulting (MBA) Hochschule Offenburg University of Applied Sciences, Germany
• Business Administration qualifications: Master of Science in Management -Europe- (MSc.in Management) ,Master of Business Administration (MBA) -USA Canada Doctor of Management ( Ph.D.), Doctor of Business Administration-USA/Canada- (DBA),Master of Science in Management Consultancy (MSc) - UK
• Public Administration qualifications: Master of Public Administration (MPA) -USA/Canada, Doctor of Public Administration
• Project Management qualifications: Project Management Professional (PMP) recognized globally, Master of Project Management (MPM)- USA/Canada
• Advanced Professional Degrees such as Ph.D.s or Master's degrees in Engineering and Science, M.D.s, J.D.s etc. are specifically targeted by firms like McKinsey, Bain & Company and the Boston Consulting Group. These degrees may also have concentrations in management consulting, international management, or other relevant focus.
• Akademischer Unternehmensberater (Academic Management Consultant) - Austria - incite -institute for management consultants and information technology experts, Vienna
• Marketing qualification: Chartered Postgraduate Diploma in Marketing, which can lead to Chartered Marketer status from The Chartered Institute of Marketing (CIM)
• Consulting qualifications: Multidimensional Human Factor Management Consulting (MDHFM) Multidimensional Human Factor Management School Germany by Luis Daniel Maldonado Fonken

See also

Lists of firms

• List of management consulting firms
• Category:Management consulting firms

Areas of action of Consulting

• Strategic management
• Operations management
• Industrial engineering

Related Culture

• Case interview
• Motivational speaking
• Business coaching
• Management fad
• Business philosophies and popular management theories sub system organisation and effect on the entire managemental culture

Institutes

• Institute of Management Consultancy UK
• Management Consultancies Association UK
• Institute of Management Consultants USA
• Phillips Graduate Institute

References

External links

• Association of Management Consulting Firms (AMCF)
• Management Consultancies Association

Further reading

• Critical Consulting: New Perspectives on the Management Advice Industry,ed. by Timothy Clark and Robin Finchan, Blackwell Publishers, 2001, ISBN 0631218203

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