Management consulting

Management consulting is the practice of helping organizations to improve their performance. Organizations may draw upon the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice and access to consultants' specialized expertise.

As a result of their exposure to, and relationships with numerous organizations, consulting firms are typically aware of industry "best practices". However, the specific nature of situations under consideration may limit the ability or appropriateness of transferring such practices from one organization to another.

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

History

Management consulting grew with the rise of management, as a unique field of study. One of the first management consulting firms was Arthur D. Little Inc., founded in 1886 as a partnership, and later incorporated in 1909.[1] Though Arthur D. Little later became a general management consultancy, it originally specialised in technical research.

As Arthur D. Little focused on technical research for the first few years, the first management consultancy was started by Frederick Winslow Taylor, who in 1893 opened an independent consulting practice in Philadelphia. His business card read "Consulting Engineer – Systematizing Shop Management and Manufacturing Costs a Specialty". By inventing Scientific Management, also known as Taylor's method, Frederick Winslow Taylor invented the first method of organizing work, spawning the careers of many more management consultants. One of Taylor's early collaborators, Morris Llewellyn Cooke, for example, opened his own management consultancy in 1905. Taylor's method was used worldwide until industry switched to a method invented by W. Edwards Deming.

The initial period of growth in the consulting industry was triggered by the Glass–Steagall Banking Act in the 1930s, and was driven by demand for advice on finance, strategy, and organization.[2] From the 1950s onwards consultancies not only expanded their activities considerably in the United States but also opened offices in Europe and later in Asia and South America. After World War II, a number of new management consulting firms were formed, bringing a rigorous analytical approach to the study of management and strategy. The postwar years also saw the application of cybernetics principles to management through the work of Stafford Beer.

The industry experienced significant growth in the 1980s and 1990s, gaining considerable importance in relation to national gross domestic product. In 1980 there were only five consulting firms with more than 1,000 consultants worldwide, whereas by the 1990s there were more than thirty firms of this size.[3]

A period of significant growth in the early 1980s was driven by demand for strategy and organization consultancies. The wave of growth in the 1990s was driven by both strategy and information technology advice. In the second half of the 1980s, the big accounting firms entered the IT consulting segment. The then Big Eight, now Big Four, accounting firms (PricewaterhouseCoopers; KPMG; Ernst & Young; Deloitte Touche Tohmatsu) had always offered advice in addition to their traditional services, but after the late 1980s these activities became increasingly important in relation to the maturing market of accounting and auditing. By the mid-1990s these firms had outgrown those service providers focusing on corporate strategy and organization. While three of the Big Four legally divided the different service lines after the Enron scandals and the ensuing breakdown of Arthur Andersen, they are now back in the consulting business. In 2000, Andersen Consulting broke off from Arthur Andersen and announced their new name: Accenture.[4] The name change was effective starting January 1, 2001 and Accenture is currently the largest consulting firms in the world in employee headcount. They are publicly traded on the NYSE with ticker ACN.[5]

The industry stagnated in 2001 before recovering after 2003 and then enjoying a period of sustained double-digit annual revenue growth until the financial crash of 2008/9. With Financial Services and Government being two of the largest spenders on consulting services, the financial crash and the resulting public sector austerity drives hit consulting revenues hard. In some markets such as the UK there was even a recession in the consulting industry, something which had never previously happened and has not happened since. There has been a gradual recovery in the consulting industry's growth rate in the intervening years, with a current trend towards a clearer segmentation of management consulting firms. In recent years, management consulting firms actively recruit top graduates from Ivy League universities, Rhodes Scholars,[6] and students from top MBA programs.

In more recent times, traditional management consulting firms have had to face increasing challenges from disruptive online marketplaces that are aiming to cater to the increasing number of freelance management consulting professionals.[7]

Function

The functions of consulting services are commonly broken down into eight task categories.[8] Consultants can function as bridges for information and knowledge, and that external consultants can provide these bridging services more economically than client firms themselves.[9] Consultants can be engaged proactively, without significant external enforcement, and reactively, with external pressure.[10] Proactive consultant engagement is engaged mainly with aim to find hidden weak spots and improve performance, while the reactive consultant engagement is mostly aimed at solving problems identified by external stakeholders.

Marvin Bower, McKinsey's long-term director, has mentioned the benefits of a consultant's externality, that they have varied experience outside the client company.[11]

Consultants have specialised skills on tasks that would involve high internal co-ordination costs for clients, such as organization-wide changes or the implementation of information technology. In addition, because of economies of scale, their focus and experience in gathering information worldwide and across industries renders their information search less costly than for clients.[12]

Big Three management consultancies
Main article: Big Three (management consultancies)

Three consulting firms are widely regarded as constituting the Big Three.[13] Also called the MBB, they are:

Big Four accounting firms in the management consulting market

The Big Four audit firms (Deloitte, KPMG, PwC, Ernst & Young) have been working in the strategy consulting market since 2010.[14] In 2013, Deloitte acquired Monitor Group—now Monitor Deloitte—while PwC acquired PRTM in 2011 and Booz & Company in 2013—now Strategy&. From 2010 to 2013, several Big Four firms have tried to acquire Roland Berger.[15] EY followed the trend, with acquisitions of the Parthenon Group in 2014, and both the BeNeLux and French businesses of OC&C in 2016 and 2017, with all now under the EY-Parthenon brand.[16]

Deloitte has been named as the largest consulting firm for six years running as per Gartner's annual consulting report.[17] Deloitte Consulting is broken up into five practices: Strategy, Analytics and M&A, Customer & Marketing, Core Business Operations, Human Capital, Enterprise Technology & Performance.[18] They have been ranked #4 on Vault's 2020, 2019, 2018, 2017 and 2016 rankings for consulting firms.[19] In 2016, PwC overtook Deloitte again as the globe's largest consulting firm, with the revenue gap between the two Big Four firms at roughly $600 million, according to Gartner.[20]

FirmRevenuesFiscal yearSource
PricewaterhouseCoopers (PwC)$16.0bn2016[20]
Deloitte$15.4bn2016[20]
Ernst & Young (EY)$14.5bn2016[20]
KPMG$11.5bn2016[20]

In 2013, an article in Harvard Business Review discussed the prevalent trends within the consulting industry to evolve. The authors noted that with knowledge being democratized and information becoming more and more accessible to anyone, the role of management consultants is rapidly changing. Moreover, with more online platforms that connect business executives to relevant consultants, the role of the traditional 'firm' is being questioned.[21]

Government consultants

United Kingdom

In the UK, the use of external management consultants within government has sometimes been contentious due to perceptions of variable value for money. From 1997 to 2006, for instance, the UK government reportedly spent £20 billion on management consultants,[22] raising questions in the House of Commons as to the returns upon such investment.[23]

The UK has also experimented with providing longer-term use of management consultancy techniques provided internally, particularly to the high-demand consultancy arenas of local government and the National Health Service; the Local Government Association's Improvement and Development Agency and the public health national support teams; both generated positive feedback at cost levels considered a fraction of what external commercial consultancy input would have incurred.

Europe

European Standard EN 16114:2011 "Management consultancy services".

Romania

In 2011, the Romanian management consulting industry began to re-initiate growth after a period of economic stagnation. At the end of 2010, a majority of Romania’s management consultancies had experienced declining profits and by the end of 2011 about 70% of them had noted shrinking bottom lines. 2010 and 2011 represented an important test for many Romanian consulting firms according to a European Federation of Management Consultancies Associations (FEACO) study.[24]

In 2015, Romanian management consulting had a turnover of 350 Mln. € and an export of 10% of the overall turnover, 75% within the EU and 25% outside. The local leader of the Romanian management consulting market is Ensight Management Consulting.[25][26]

Australia

In 1988, the newly elected Greiner State Government commissioned a report into the State Rail Authority by Booz Allen Hamilton. The resulting report recommended up to 8,000 job losses, including the withdrawal of staff from 94 country railway stations, withdrawing services on the Nyngan- Bourke line, Queanbeyan – Cooma line and Glen Innes- Wallangarra line, the discontinuation of several country passenger services (the Canberra XPT, the Silver City Comet to Broken Hill and various diesel locomotive hauled services) and the removal of sleeper trains from services to Brisbane and Melbourne. The report also recommended the removal of all country passenger services and small freight operations, but the government did not consider this to be politically feasible.[27] The SRA was divided into business units – CityRail, responsible for urban railways; CountryLink, responsible for country passenger services; FreightRail, responsible for freight services; and Rail Estate, responsible for rail property.

New Zealand

In New Zealand the government has historically had a greater role in providing some infrastructure and services than in some other countries. Contributing reasons included insufficient scale in the private sector, smaller capital markets and historic political support for government service provision. Current infrastructure investment plans are open to a range of public/private partnerships.[28] New Zealand governments hire in expertise to complement the advice of professional public servants. While management consultants contribute to policy and to strategy development, the Government tends to use management consultants for strategic review and for strategy execution. There is a distinction[29] between management consultants (who generally provide advice and fixed deliverables, often for a fixed fee) and professional contractors (who work for an hourly or daily rate providing specialist services). Official figures from 2007 to 2009 show annual expenditure of about NZ$150 to NZ$180 Million by the New Zealand Government on consultants, but this may be understated.[30] While multinational consultancy firms provide advice on major projects and in specialist areas, the majority of management consultants providing advice to the New Zealand government operate as sole practitioners or as members of small consultancy practices. The range of services provided is large, covering change management, strategic review, project and programme management, procurement, organizational design, etc.

Nonprofit consultants

Some for-profit consulting firms, including McKinsey and BCG, offer consulting services to nonprofits at subsidized rates as a form of corporate social responsibility. Other for-profit firms have spun off nonprofit consulting organizations, eg. Bain creating Bridgespan.[31]

Many firms outside of the big three offer management consulting services to nonprofits, philanthropies, and mission-driven organizations. Some, but not all, are nonprofits themselves.[32][33]

Criticism

Management consultants are sometimes criticized for the overuse of buzzwords, reliance on and propagation of management fads, and a failure to develop plans that are executable by the client. As stated above management consulting is an unregulated profession so anyone or any company can style themselves as management consultants. A number of critical books about management consulting argue that the mismatch between management consulting advice and the ability of executives to actually create the change suggested results in substantial damages to existing businesses. In his book, Flawed Advice and the Management Trap, Chris Argyris believes that much of the advice given today has real merit. However, a close examination shows that most advice given today contains gaps and inconsistencies that may prevent positive outcomes in the future.[34]

Ichak Adizes and coauthors also criticize timing of consultant services. Client organizations, which is usually lacking knowledge it wants to obtain from the consultant, cannot correctly estimate right timing for engagement of consultants. Consultants are usually engaged too late, when problem is visible at the organizational iceberg tip, so proactive checkup, like regular medical checkup, is recommended.[35] On the other side, this opens additional danger for abuse from disreputable practitioners.

More disreputable consulting firms are sometimes accused of delivering empty promises despite high fees, and also with "stating the obvious" or lacking the experience upon which to base their advice. These consultants bring few innovations, instead offering 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 those of the clients.[36]

Further criticisms include: disassembly 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 and lack of (small) client focus, lack of clarity of deliverables in contracts, not customizing specific research report criteria and secrecy.[37]

International standards

ISO published the international standard ISO 20700 Guidelines for Management Consultancy Services on June 1, 2017. This document represents the first international standard for the management consultancy industry.[38]

An international qualification for a management consulting practitioner is Certified Management Consultant (CMC).

See also

References
  1. "Scatter Acorns That Oaks May Grow". MIT Institute Archives & Special Collections. Archived from the original on 12 March 2017. Retrieved 9 March 2011.
  2. Kipping, M. 2002. "Trapped in their wave: the evolution of management consultancies," in T. Clark and R. Fincham (eds.). Critical Consulting: New Perspectives on the Management Advice Industry. Oxford: Blackwell, 28–49.
  3. Canback, S. 1998a. Transaction Cost Theory and Management Consulting: Why do Management Consultants Exist?, Working Paper 9810002. Henley Management College, Henley-on-Thames.
  4. "Andersen Consulting Announces New Name — Accenture — Effective 01.01.01 | Accenture Newsroom". newsroom.accenture.com. Retrieved 2017-01-24.
  5. "ACN : Summary for Accenture plc Class A Ordinary - Yahoo Finance". finance.yahoo.com. Retrieved 2017-01-24.
  6. Schaeper, Thomas J.; Schaeper, Kathleen (2010-01-15). Rhodes Scholars, Oxford, and the Creation of an American Elite – Thomas J. Schaeper, Kathleen Schaeper – Google Books. ISBN 978-0-85745-369-3. Retrieved 2013-06-14.
  7. "Consulting on the Cusp of Disruption". Harvard Business Review. Retrieved 2016-03-15.
  8. Turner, A. N. 1982. "Consulting is more than giving advice," Harvard Business Review 60/5: 120-9.
  9. Bessant, J., and H. Rush 1995. "Building bridges for innovation: the role of consultants in technology transfer," Research Policy 24: 97-114.
  10. Adizes, Ichak; Cudanov, Mladen; Rodic, Dusanka (2017). "Timing of Proactive Organizational Consulting: Difference between Organizational Perception and Behaviour" (PDF). Amfiteatru Economic. 19 (44): 232–248 – via ECONSTOR.
  11. Bower, M. 1982. The Will to Manage. New York: McGraw-Hill.
  12. Bessant, John; Rush, Howard (January 1995). "Building bridges for innovation: the role of consultants in technology transfer". Research Policy. 24 (1): 97–114. doi:10.1016/0048-7333(93)00751-e. ISSN 0048-7333.
  13. Szczerba, Marta (5 March 2014). "The Big Three: meet the world's top consulting firms" (72). The Gateway. Archived from the original on 4 September 2014. Retrieved 18 October 2014.
  14. "Consultancy firms: Strategic moves". The Economist. 2013-11-09. Retrieved 2015-05-07.
  15. "Limitless? Big Four strategic moves in consulting". Beaton Capital. 2014-04-14. Retrieved 2015-05-07.
  16. "French arm of strategy consultancy OC&C joins Parthenon-EY". www.consultancy.uk. Retrieved 2017-09-25.
  17. Gartner. "Market Share Analysis: Consulting Services, Worldwide, 2016".
  18. {{Cite web|url=https://www2.deloitte.com/global/en/services/consulting-deloitte.html?icid=top_consulting-deloitte
  19. "Deloitte Consulting LLP|Company Rankings|Vault.com". Vault. Retrieved 2017-01-24.
  20. Gartner. "Gartner Consulting Report".
  21. "Consulting on the Cusp of Disruption". Harvard Business Review. Retrieved 2016-03-02.
  22. "The Times & The Sunday Times". thetimes.co.uk. Retrieved 14 April 2018.
  23. "Central government's" (PDF). British House of Commons. Retrieved 2007-10-19.
  24. "FEACO Survey 2010-2011" (PDF).
  25. "10.000 de angajaţi produc venituri de 380 de milioane de euro pe an pentru firmele de consultanţă în management - Ziarul Financiar". m.zf.ro. Retrieved 14 April 2018.
  26. "FEACO 2014-2015 survey" (PDF).
  27. Moore, M Lagan, B. SRA takes axe to 8000 jobs. Sydney Morning Herald, July 14, 1989.
  28. The 30 Year New Zealand Infrastructure Plan 2015, National Infrastructure Unit, The Treasury, New Zealand Government.
  29. Page 12, RFP All of Government Consultancy Services 28 October 2014 New Zealand Government
  30. "para 16" (PDF). Archived from the original (PDF) on 2019-01-27. Retrieved 2014-04-23.
  31. Krauss, Alan (2008-11-10). "A Nonprofit Consultant Offers Free Strategic Advice Online". The New York Times. ISSN 0362-4331. Retrieved 2020-01-03.
  32. "Virtue's intermediaries". The Economist. 2006-02-25. ISSN 0013-0613. Retrieved 2020-01-03.
  33. Dagher, Veronica (2011-04-13). "Helping Make Clients' Philanthropy Count". WSJ. Retrieved 2020-01-03.
  34. Argyris, Chris. Flawed Advice and the Management Trap. New York: Oxford University Press, USA, 2000. Print.
  35. Adizes, Ichak Kalderon; Rodic, Dusanka; Cudanov, Mladen (2017-09-21). "Estimating consultant engagement in the corporate lifecycle: study of the bias in South Eastern Europe". Management: Journal of Sustainable Business and Management Solutions in Emerging Economies. 22 (2): 1–12. doi:10.7595/management.fon.2017.0015. ISSN 2406-0658.
  36. "Management Consulting'?". ArticleWorld.
  37. "Johann Hari: The management consultancy scam". independent.co.uk. 20 August 2010. Retrieved 14 April 2018.
  38. "ISO 20700:2017 - Guidelines for management consultancy services". www.iso.org. Retrieved 14 April 2018.

Further reading
  • Christopher D. McKenna (2006). The World's Newest Profession: Management Consulting in the Twentieth Century. Cambridge University Press.
  • Joe O'Mahoney (2006). Management Consultancy. Oxford University Press.
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.