Management consulting today and tomorrow, second edition

GIULIONI Solo Practitioners and Small Firms 68 Future Needs and Challenges 69 2.0 Evolution of IT and IT Consulting 77 3.0 Defi ning the IT Industry 91 4.0 Defi ning IT Management Consu

Management Consulting

Today and Tomorrow

This new edition gathers more than 22 experts to outline the theory behind consulting, providing insight into change processes and management issues

in the fi eld The business of consulting has grown faster than most other businesses, due not only to increased demand by clients, but also to the innovative capabilities of numerous consulting fi rms as they develop new services

Divided into six parts, the book introduces readers to the consulting industry, addressing the major practice areas, contexts, and implementa-tions of the fi eld Signifi cant updates detail the effect of the economic trou-bles between 2004 and 2010 and then 2010 and now; analyze the market response to consulting in recent years; and provide a more thorough under-standing of how consulting is applied in the different areas of a business, such as operations, marketing, and fi nance Introductions written by the editors offer further insight into the themes and learning goals of each sec-tion, helping readers to recognize the elements of a successful consultation, and utilize their new skill set The text concludes with a look at the future of consulting with regards to ethics standards and how strong manager-client relationships contribute to fi nancial growth Readers will also learn how the developing fi eld of entrepreneurship creates new economic structures and job opportunities

Practitioners, consultants, clients, faculty, and students of business and management will learn not only how to consult, but also gain the skills needed to adapt to and lead organizational change, giving them a competi-tive edge when they enter the fi eld

Flemming Poulfelt is Professor of Management and Strategy and Vice Dean

at Copenhagen Business School, Denmark

Thomas H Olson is Professor of Clinical Management and Organization

at University of Southern California-Los Angeles, U.S A

improve our understanding of what is effective, cutting-edge consulting to business and covers the key issues of consulting in a brilliant way: appropri-ately eclectic and broad, but focused on what is essential to know This will have a strong impact!”

Peter Lorange, Lorange Institute of

Business Zurich, Switzerland

“For this book, Poulfelt and Olson have assembled a veritable ‘who’s who’ in the world of management and organizational consultants, includ-ing themselves One could not ask for better coverage: comprehensive and broad yet with depth and very current I know of no better compendium on today’s consulting world.”

W Warner Burke, Columbia University, USA

“When Larry Greiner published his seminal work on ‘Consulting to agement’ some 35 years ago, he laid the groundwork to a deeper under-standing of a practice which has been growing exponentially since The new and updated edition builds on his heritage and provides an impressive kalei-doscope which constitutes today’s diverse universe of management consult-ing An indispensable companion for consultants and their clients alike!”

Man-Roland Deiser, Claremont Graduate

University, USA

“The business of management consultancy has been changing over the last 30 years The business grew economically, the skills of the consultants developed further, the roles of consultants became more differentiated, and the fi rms were better managed This book covers a complete set of issues

on management consultancy compiled by well-known and experienced fessionals in this fi eld The group of editors and authors has succeeded in collecting relevant theory, experience, and practices to describe the state-of-the-art of the sector.”

pro-Leon de Caluwe, Vrije Universiteit,

The Netherlands

“In this newest edition, like the original Greiner and Poulfelt edition, Poulfelt and Olson have designed a book that can be used for my own consulting work or in the classroom where wannabe consultants are yearning for the most current consulting knowledge Students demand cases, challenges, and insights from the shrouded world of consulting – these authors offer it all with real world learnings.”

Therese Yaeger, Benedictine University, USA

Management Consulting Today and Tomorrow

Perspectives and Advice from Leading Experts

Second Edition

Edited by Flemming Poulfelt

Thomas H Olson

by Routledge

711 Third Avenue, New York, NY 10017

and by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Routledge is an imprint of the Taylor & Francis Group,

an informa business

© 2018 Taylor & Francis

The right of Flemming Poulfelt and Thomas H Olson to be identifi ed

as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical,

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Library of Congress Cataloging-in-Publication Data

A catalog record for this book has been requested

1 The Changing Global Consulting Industry 5

FLEMMING POULFELT AND THOMAS H OLSON, UPDATED FROM

FLEMMING POULFELT, ARVIND BHAMBRI, AND LARRY GREINER

A Return to Consulting’s Heyday 5

The Global Financial Meltdown 6

Back on Track 6

What Lies Ahead? 11

After the Burst of the Bubble 13

History in Brief 16

Enduring Trends and Client Needs 23

Responses of Consulting Firms to Marketing Trends 26

Skills with Clients 41

Integrity at the Core 42

Problems of Enforcement 46

The Real Bottom Line 49

3 The Marketing and Selling of Consulting Services 51

ROBERT DUBOFF AND PETER R GIULIONI

Solo Practitioners and Small Firms 68

Future Needs and Challenges 69

2.0 Evolution of IT and IT Consulting 77

3.0 Defi ning the IT Industry 91

4.0 Defi ning IT Management Consulting 97

5.0 Future of IT Management Consulting 111

6.0 Conclusion 115

5 Strategy and Organization Consulting 118

DAVID A NADLER AND ADRIAN J SLYWOTZKY

Before 1960: The Primacy of Intuition and Judgment 119

1960–2000: Sequential Consulting, Divergent Disciplines 119

From Business Policy to Value Creation Models 121

Organization Consulting: From the Individual to the Enterprise 126 Requirements for Organization Consultants 131

Change Management Consulting 131

An Aging Model 133

Concurrent and Integrated Enterprise Design 135

Implications for Consulting 137

6 Trust-Based Selling of Consulting Services 141

CHARLES H GREEN

The Paradox of Consulting Sales 141

The Alternative: A Trust-Based Approach to Selling

Consulting Services 144

Building a Consulting Firm That Sells on Trust 152

RICHARD B CHASE, K RAVI KUMAR, AND PETER R GIULIONI

Who Are Today’s Operations Consultants? 157

The Five Ps of Operations Management 158

Key Concepts for OM Consultants 160

Different Contexts for OM Consulting 162

Analytical Tools of Operations Consultants 166

Practical Problems Facing OM Consultants 168

Future Issues for OM Consulting 169

The Challenge and Reward of OM Consulting 173

GERALD E LEDFORD JR WITH EDWARD E LAWLER III

AND SUSAN MOHRMAN

Defi nitions 175

Market Size and Characteristics 176

Types of HR Consulting 177

Types of HR Consultants 178

Buyers of HR Consulting Services 180

An Overview of the HR Consulting Field 180

Conclusion 182

PART III

MARK B NADLER AND DAVID A NADLER

Consulting to CEOs 188

Consulting to the Board 198

Consulting to Both the CEO and the Board 206

Know Thyself and Thy Client 207

10 Consulting on the Global Stage 209

MATTHEW C HEIM

Introduction 209

Pre-Engagement Considerations 210

Putting the Global Consulting Approach to Work 220

The Global Consulting Experience 226

THOMAS H OLSON

1 What Is Public Sector Consulting? 228

2 Process for U.S Federal Government Consulting – Contractor/ Client Roles, Relationships, Rules, Regulations and Request

for Proposals 233

3 The Role of the Consultant/Contractor Vis-à-Vis Competitor Clients/Customers – Prior, During and After the RFP 238

4 Responding to Request for Proposals 241

5 The Top Government Consultants/Contractors/Key

Competitors/Products and Services/Linkages via M&As 248

6 The Future of Public Sector Consulting 253

Appendix 1 – Federal Acquisition Regulation 255

Appendix A – Lockheed Martin Major Consulting/

Key Dimensions in Consulting Interventions 274

Four Alternative Intervention Strategies 280

Implications for Consultants, Clients, and the Profession 289

13 Consulting to Integrate Mergers and Acquisitions 294

ANTHONY F BUONO

Dynamics of M&A Consulting 295

Common Integration Issues 301

Intervention Strategies and Techniques 306

The Future of M&A Consulting 314

14 Business Transformation and Innovation Consulting 319

MATTHEW C HEIM

Introduction 319

Business Transformation Defi ned 320

Consulting Roles in Business Transformation 321

Transformational Leadership 323

Collaboration and Innovation 333

The Business Transformation Consulting Experience 335

PART V

15 Managing Growth Stages in Consulting Firms 341

LARRY GREINER AND JAMES MALERNEE

Growth Stages and Crises 344

Stage I: Exploring the Market for Growth

Opportunities 346

Stage II: Focusing on a Specialized Market Niche 350

Stage III: Diversifying into Multiple Offi ces and Related Services 353 Stage IV: Institutionalizing into a One-Firm Firm 356

Fifth Stage and Resulting Crisis? 360

Developmental Leadership 361

JAY W LORSCH

Strategy, Goals, and People Success Factors 365

Leadership and Partnership Behavior 371

The Firm’s Culture: Cause and Consequences 375

Alignment and Firm Size 376

17 Knowledge Management in Consulting 379

4.0 Knowledge Management Systems in Consulting 398

5.0 Conclusion: Thinking About the Future of Knowledge 402

Ethics, Virtues, and Values 411

How Do Trusted Advisors Behave? 412

How Can We Create Ethical Firms of Trusted Advisors? 416

Evaluating Success as a Trusted Advisor and as an Ethical Firm 420

19 Consulting in Entrepreneurship: Essential Foundations

RICKIE A MOORE

The Entrepreneurial Revolution 424

Creation or Discovery? Are Business Opportunities

Created or Discovered? 426

The Entrepreneurial Journey 426

Dynamic Value Creation in Entrepreneurship 428

Evolution of Roles and Skillsets 430

The Entrepreneurial Mindset 430

Innovation and Disruptions – Evolution and Revolution 431

Implications for Consultants 432

Contributors

Arvind Bhambri is Associate Professor of Management and Organization

at the Marshall School, University of Southern California, where he cializes in strategic change, competitive strategy, global business devel-opment, and leadership He is co-author of three books and more than

spe-30 articles and cases

Anthony F Buono is a Professor of Management and Sociology at Bentley

University He has written and edited nineteen books, and is editor of the

Research in Management Consulting book series Dr Buono is a two-time

past Chair of the Academy of Management’s Management Consulting Division His research and consulting interests include the management consulting industry, organizational change, and mergers and acquisitions

Richard B Chase is Professor of Operations Management at the Marshall

School, University of Southern California He has written and lectured extensively on the subject of service design His textbook, Operations Management for Competitive Advantage (with R Jacobs and N Aquilano)

9th ed., has been among the most widely adopted textbooks in the fi eld for over 35 years

Tom Cummings is Professor and Chair of the Department of

Manage-ment and Organization at the Marshall School of Business, University

of Southern California He has authored/co-authored 23 books, and was the 61st President of the Academy of Management His major research and consulting interests include designing high-performing organizations and managing strategic change

Robert Duboff is a Lecturer and Executive-in-Residence at The Carroll

School of Management at Boston College He was a line consultant for over two decades with Mercer Management Consulting, serving a client base that featured professional service fi rms He then served as Director

of Marketing for Ernst & Young

Peter R Giulioni is an Associate Professor in the SMO Department and

Assistant Dean for Nanyang Business School’s Graduate Studies Career

Development Offi ce He launched his career in professional services as the founder of a boutique management consulting fi rm and from 1994 to

2004 he was a senior Deloitte Consulting partner aligned with the Change Management practice

Charles H Green is co-author or author of The Trusted Advisor ,

Trust-based Selling , and the Trusted Advisor Fieldbook , as well as founder

and CEO of Trusted Advisor Associates After an MBA from HBS and

20 years in management consulting, Charlie has focused since 1997 on the nature of trust and trust-based relationships in business

Larry Greiner was Professor of Management and Organization in the

Mar-shall School at the University of Southern California Dr Greiner served

as Chairperson of Managerial Consultation Division of the Academy of Management He is the author of numerous books and articles on organ-ization growth, management consulting, and strategic change, including

Consulting to Management, with Robert Metzger

Matthew C Heim serves as Executive Vice President of Customer

Suc-cess at inno360, Inc., the leading enterprise innovation management software provider Dr Heim has worked on fi ve continents, delivering strategy, innovation, and business transformation services to over 100 Global 2000 companies Prior to joining inno360, Matthew held various global executive leadership roles with KPMG, PriceWaterhouseCoopers, and Clarkston Consulting Matthew has written and co-authored seven

books, including Breaking the Musashi Code: Transcending Competition Through Visionary Strategy (2007), and has delivered over 50 keynote

addresses around the world on the topics of strategy and innovation

K Ravi Kumar is Dean of the Nanyang Business School and Professor of

Information and Operations Management in the Marshall School at the University of Southern California He is the author or co-author of many articles on operations management Dr Kumar teaches courses on Operations Consulting and has consulted with many global Fortune 100 companies in the U.S., Europe, and Asia

Edward E Lawler III is Distinguished Professor of Business and Director

of the Center for Effective Organizations in the Marshall School at the

University of Southern California His most recent books include: porate Boards: New Strategies for Adding Value at the Top (Jossey-Bass, 2001), Organizing for High Performance (Jossey-Bass, 2001), Treat Peo- ple Right (Jossey-Bass, 2003), and Creating a Strategic Human Resources Organization (Stanford Press, 2003)

Gerald E Ledford Jr is Senior Research Scientist at the Center for Effective

Organizations (CEO), Marshall School of Business, University of ern California He returned to CEO in 2012, where he was a key contrib-utor from 1982 to 1998 From 1998 to 2003, he was a leader at Sibson

South-Consulting Since 2004, he has been President of Ledford Consulting Network LLC He received a PhD in psychology from the University of Michigan He has authored over 125 articles and ten books

Jay W Lorsch is the Louis Kirstein Professor of Human Relations at the

Har-vard Business School He is the author of many articles and over a dozen

books, including Aligning the Stars (March 2002) and Pawns or tates: The Reality of America’s Corporate Boards (1989) Dr Lorsch

Poten-has been a consultant to many companies in the U.S and abroad and is currently a Director of three companies

David Maister consults to professional fi rms worldwide He is the author

of numerous articles and books on professional service fi rms, including

Managing the Professional Service Firm (1993), True Professionalism (1997), The Trusted Advisor (2000), Practice What You Preach (2001), and First Among Equals (2002)

James Malernee co-founded Cornerstone Research, a litigation research and

consulting fi rm, in 1989 Dr Malernee is CEO of the fi rm and heads its New York City offi ce Prior to that, Dr Malernee was a Senior Vice-President of The MAC Group, a general management consulting fi rm

He has taught fi nance at the University of Texas at Austin and business strategy at the Stanford Graduate School of Business

Michael A Mische is an accomplished executive, author, and educator He

is a former consulting principal (non-CPA partner) in the global fi rms of KPMG and A T Kearney Michael has over 30 years of experience in management consulting He is the author of seven books and has been cited in over 200 articles, interviews, reviews, and studies Since 1997, Michael has been an Adjunct, and now Full-time, Professor at the Mar-shall School of Business of the University of Southern California where

he teaches strategic transformation, organizational behavior, and agement consulting

Susan Mohrman is a senior research scientist at the Center for Effective

Organizations in the Marshall School at the University of Southern fornia She researches and writes in the areas of organizational design and effectiveness, knowledge and technology management, and the human resources function She is the coauthor of three books and several articles and consults to a number of organizations on team-based management

David A Nadler was founder, CEO, and Chairman of Delta Consulting

Group (later Mercer Delta Consulting), a management consulting fi rm that specialized in large-scale organization change, executive leader-ship, and corporate governance He also served for seven years as vice chairman of Marsh & McLennan Companies He was widely pub-lished, authored and/or edited 16 books, and was elected a Fellow of the American Psychological Association In 2013, he was inducted into

the National Association of Corporate Directors (NACD) Corporate Governance Hall of Fame

Mark B Nadler is Principal and co-founder, with David Nadler, of Nadler

Advisory Services, which consults to organizations of all kinds on ership effectiveness and board performance As a Partner at Delta Con-sulting Group, Mercer Delta, and the Heidrick & Struggles Leadership Consulting Practice, Mr Nadler has specialized in CEO succession and other work with boards He has authored or co-authored more than

lead-65 publications concerning leadership and governance Prior to ing, he worked for 20 years in the newspaper business, most recently as

consult-Vice President and Executive Editor of the Chicago Sun-Times

Thomas H Olson is Professor at the University of Southern California

Dr Olson’s prior work includes Senior Executive and Associate Medical Director positions with two Fortune 500s—Booz Allen Hamilton (equity holder) and Ernst & Young Dr Olson is medical board licensed and

a medical and management consultant, public accountant, and cal chemistry/solid state physics) engineer Dr Olson has earned Teach-ing Excellence Awards at three universities including 15 at University of Southern California Dr Olson earned his Doctorate(s) with honors and studied with Nobel Laureate with his innovative graduating Thesis being the basis for his PhD Dissertation He has served on the Board of Direc-tors of several organizations and universities and provided expert witness services Dr Olson has six recent consulting books and has presented over 100 keynote addresses and has over 100 other publications

Flemming Poulfelt is Professor of Management and Strategy and Vice Dean

of Research Communication at Copenhagen Business School, Denmark

He has served on faculties at universities in Denmark, Europe, the U.S., and Australia His research and consulting interests focus on strategy, management, global leadership, managing professional service fi rms, governance, and management consulting He is the author and editor of numerous books and articles published in various languages Along with his academic career, he has developed strong ties to global businesses, both through board memberships and through consulting activities

Adrian J Slywotzky was Vice President and member of the Board of

Direc-tors of Mercer Management Consulting, Inc., where his ties included leading the development of the fi rm’s intellectual capital

Mr Slywotzky is the co-author of How to Grow When Markets Don’t (2003), How Digital Is Your Business (2000), Profi t Patterns (1999), and The Profi t Zone (1998)

Part I

Consulting Industry, Skills,

and Professionalism

1 The Changing Global Consulting Industry 5

(FLEMMING POULFELT, COPENHAGEN BUSINESS SCHOOL

AND THOMAS H OLSON, UNIVERSITY OF SOUTHERN CALIFORNIA

UPDATED FROM FLEMMING POULFELT, COPENHAGEN BUSINESS

SCHOOL, UNIVERSITY OF SOUTHERN CALIFORNIA,

ARVIND BHAMBRI AND LARRY GREINER)

(DAVID MAISTER)

3 The Marketing and Selling of Consulting Services 51

(PETER R GIULIONI, UNIVERSITY OF SOUTHERN CALIFORNIA,

UPDATED FROM ROBERT DUBOFF BOSTON COLLEGE)

busi-of numerous consulting fi rms as they developed new services At the end busi-of the last century, the world economy was booming Everything was moving fast and upwards, seemingly unstoppable An economic tailwind was appar-ent as the consulting business rode its tidal wave of success

However, trees rarely grow into the sky—not even for the consulting industry In late 2001, a sudden downturn for the industry occurred when

a number of negative forces, beginning with the 9/11 tragedy and the Enron and Arthur Andersen debacle, deeply impacted the economies of the world Chapter 1 describes these changes and how the industry responded with cost cutting, layoffs, and defi cits But beneath these quick fi xes, the chapter also points out that a number of transformational forces are still deeply at

work within the industry, producing new challenges for fi rms and for sultants The industry itself will be transformed over the coming decade Major changes stemming from the Internet, social media, information technology, and innovation are likely to continue to signifi cantly alter the face of consulting for the long term The outsourcing of IT and other ser-vices is changing the economic and strategic face of many consulting fi rms

con-In addition, clients have become more sophisticated, now expecting their consultants to collaborate rather than to stand apart as lone objective evalu-ators Strategic responses from Private and Public Sector consulting fi rms and companies and their consultants to these many changes will determine their mutual fate in the years ahead But changes in services, economics, and skills will likely not be enough

The improprieties in its audit and consulting divisions that led to the demise of Arthur Andersen has brought to the forefront the importance of professionalism and ethical conduct in management consulting Chapter 2’s focus, “Professionalism in Consulting,” recognizes that the lack of profes-sionalism by a few consultants is able to bring down a whole fi rm and place

a taint on the entire industry This chapter attempts to defi ne ism and how it should be inculcated by fi rms into the psyches of consult-ants The concept of professionalism, in the author’s view, is an ambiguous one that refers to a wide range of skills, attitudes, values, and behavior He points out that professionalism is a state of mind embedded in the consult-ant’s individual behavior, and thus is not easily regulated by codes of ethics and industry rules

The key message of Chapter 2 is that professionalism is nothing a ant can claim for himself or herself; rather, it’s an adjective that one hopes that clients and colleagues will apply to each other’s behavior Professional-ism, in essence, has to be earned through one’s daily behavior by taking the

consult-“high road” to results

The marketing and competitive positioning of a consulting fi rm affects not only the success of the fi rm but its degree of professionalism and even the future of the industry In Chapter 3, “The Marketing and Selling of Con-sulting Services,” the authors make clear that without successful marketing,

no consulting revenue is forthcoming The chapter emphasizes that ful consulting requires both effective marketing and exceptional sales skills; one cannot exist without the other Consulting is a subjective service that is purchased by wary clients who need both persuasion and reassurance when making large expenditures for consulting projects in the millions of dollars The ethics of consulting marketing require that clients be led to expect a service that can be delivered as promised Chapter 3 discusses various other issues in marketing and sales, such as the role of market research, compen-sation and rewards, relationship marketing, public relations, sponsorship, and ethical marketing Although consulting has become more mature as a business, the underlying theme of the chapter is that professional marketing and sales are still in their youth, searching for maturity

Taken together, these three chapters provide an important orientation to

a dynamic industry, the complex issues facing it, and the required skills that consultants, both neophytes and those with long experience, will need to acquire if they are to succeed While there are many problems to overcome, the opportunities remain bright Consulting is an industry making a signifi -cant impact far beyond its size, not only for improving the performance of clients but also in developing new knowledge about business and in improv-ing the state of the global economy

1 The Changing Global

Consulting Industry

Flemming Poulfelt and Thomas H Olson,

updated from Flemming Poulfelt, Arvind

Bhambri, and Larry Greiner

The Changing Global Consulting Industry was the headline of the chapter

on the consulting industry when the book was published originally Yet the title seems even more relevant to Private Sector, as well as Public Sector, consulting in 2016, as these Sectors are once again undergoing major trans-formation In hindsight, we might conclude that consulting is permanently

in a state of transition In fact it needs to be, if a fi rm wants to present itself

as a professional advisor to businesses and Public Sector organizations ing their own need to evolve and change So it is fi tting that consulting fi rms and practitioners describe themselves as being embedded and engaged in

fac-a continuous chfac-ange process As we noted in the fi rst edition, “It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change” (Darwin) This observation is just as valid today

Our original mapping of the industry and its major challenges still has relevance too, although the context now differs from that of the big market shock at the turn of the millennium – the bursting of the dotcom bubble, 2001 bankruptcy of Enron and ensuing recession, compounded by 9/11/2001, implosion of Arthur Andersen in 2002, and increasing global unrest All of this hurt the consulting industry across sectors for years, creating a turbulent time of fl uctuating revenues and profi ts It wasn’t until around 2004–2005 that the industry started to recover: as late as 2003 a consulting magazine cited the continued wait for a market upturn

But what has been happening since then? What has been the rience of the industry over the last decade, and what are some of the challenges consultancy fi rms are facing today? The following provides an update

A Return to Consulting’s Heyday

The turbulence experienced by the consulting industry following the nomic recession in the early decade of this century wasn’t wholly negative:

eco-fi rms became crisper and clearer in the way they ran their organizations

For example, effi ciency had been on the agenda, followed by new opment in service offerings to clients The industry took off again, seeing new high growth rates and an increase in employment In 2006 and ensu-ing years consulting business boomed across sectors once more, and many

devel-fi rms assumed something of a ‘walk on the water’ attitude Growth rates were back to double digits (around 10 percent), new services such as real outsourcing were being introduced, intensive price competition persisted,

IT heated up again, and classic services thrived as buzzwords lost ity Optimism largely dominated until early 2008 when signs of economic malaise began to appear, as the fi nancial sector started to overheat

The Global Financial Meltdown

On October 9, 2007, the Dow Jones Industrial Average set a record by closing at 14,047 A year later, it had plunged to just above 8,000, hav-ing dropped by 21 percent in the fi rst nine days of October 2008 Major stock markets in other countries had plunged alongside the Dow Credit markets were nearing paralysis Companies began to lay off workers in droves and were forced to put off capital investments Individual consum-ers were being denied loans for mortgages and college tuition After the nine-day US stock market plunge, the head of the International Monetary Fund (IMF) had some sobering words, warning that “Intensifying solvency concerns about a number of the largest US-based and European fi nancial institutions [had] pushed the global fi nancial system to the brink of systemic meltdown” (“IMF”)

The explicit trigger was the collapse of the investment bank Lehman Brothers, which fi led for bankruptcy on September 15, 2008, initiating a cascade effect across Wall Street and other fi nancial institutions around the world The ripples were felt across most markets, including the Public Sec-tor Everyone was hurting Before long, booming consulting markets turned

to doom

The implications for consulting were tremendous as clients started to cut back Firms found themselves having to lay people off again, as they took their foot off the accelerator

The road to recovery would be a long one

Back on Track

Turning the consulting business around again took time, due to the try’s dependence on the recovery processes in other markets But slowly it adapted to the ‘new normal’, fueling positive growth rates, although on a lower level compared to ‘the good old days’

Taking stock of the consulting industry in the year of 2016 provides the following picture:

Good Times Return

Although not quite enjoying a booming market, consulting has been ing on a healthy trajectory compared to many other industries On aver-age, the Private Sector consulting industry has seen growth rates in the 5–10 percent range, though with geographical and discipline-related vari-ations For the Public Sector, and with major synergies and client needs, the grow rate has outstripped the Private Sector for particularly the major companies This led to the splitting of Private and Public Sector services – with a most notable being the historically older Booz Allen Hamilton The most recent estimates for revenue in Public Sector note that the US alone spends approximately 600 billion dollars on one of its major clients – quite

grow-a lgrow-arge pool of monies for contrgrow-actors grow-and the Public Sector Consulting / Contactor Industry

Paradoxically, demand has been going up, yet fees have not So fi rms have not been able to rely on the old model of pushing up rates once busi-ness picks up; the market’s ability to sustain price hikes can no longer be assumed For the Public Sector, performance metrics have grown as more the basis for compensation For the Private Sector, this may well be a result

of central procurement departments’ greater involvement, despite tancy’s associations with knowledge skills and the emphasis on people and relationships Seemingly this now has less bearing on decision-making processes, which are increasingly based on securing greater value for less money

Another increasingly common theme being seen in many consulting kets is a rise in tender processes, especially in the Public Sector In many countries this is an explicit part of the public procurement for tasks above

mar-a certmar-ain scope

Commoditization Continues

Private Sector consulting fi rms have commonly struggled to fi nd the right balance between tailoring a solution to the client versus delivering standard-ized off-the-shelf solutions To some degree we have seen a trend towards greater commoditization of services, over developing unique solutions for clients This might be due to the pressures on pricing, but it could be argued that it also refl ects the relatively low rate of innovation in consulting For Public Sector consulting companies, these businesses have become more reliant on customization – especially with the very large contracts being awarded to 10 or so consulting companies with each company needing to

‘compete’ for task work and revenue

Revised Business Models

Some would argue that the fundamental Private Sector business model in consulting has not changed in more than 100 years While there might be

a ring of truth about this, new business models have evolved over time In

their HBR article in 2013, Clayton Christensen et al suggest there are three

models – the fi rst a more classic approach, the others new modes of doing consulting business based on other foundations:

Solution shop, as seen at McKinsey, Bain, BCG, IDEO:

a) Structured to diagnose and solve problems whose scope is undefi ned; b) Delivers value primarily through the consultant’s judgment rather than through repeatable processes;

c) Customers pay high prices in the form of fee-for-service

Value-added process business, as seen with Motista, Salesforce.com, McKinsey Solution:

a) Structured to address problems of defi ned scope with standard processes;

b) Processes are usually repeatable and controllable;

c) Customers pay for output only

Facilitated Network, as exemplifi ed by OpenIDEO, CEB, Gerson, Lehrman Group, Eden McCallum, Byg:

a) Structured to enable the exchange of products, services;

b) Customer pays fees to the network, which in turn pays the service provider

There is some refreshing of service models in the consulting industry, then – and indeed the illustrations above are not the only manifestations A fur-ther consideration – whether the new models will have major impact on fee structures – remains an open question, as the introduction of fee structures based more around value, for instance, has been a slow process up to now The Business Model of the Public Sector remains RFP driven This said, and per Ashton Carter in the most recent very few years, the challenges of consulting in the Public Sector in 2016 requires signifi cant challenges in moving ‘the model’ to be more innovation adaptive and collaborative and much quicker to ‘navigate’ in the ‘contracting process’

Digital Transformation Has Legs

Digitalization or digital transformation is a preoccupation for many nies, now The explosion of digital consulting in recent years is a response to this and refl ects the value that consultants are perceived to offer here After all, at the heart of digital transformation ambitions is the ability to drive innovation through technology and new systems, to accelerate and generate new business, by changing the way companies do things This could not be truer of both the Private and Public Sectors As a result, IT consulting has

compa-become a rapid growth area – not just for traditional Private Sector IT-based consultancies but for this Sector’s strategy and operational management con-sulting fi rms which now offer comprehensive ‘digital transformation’ services For the Private Sector, with signifi cant events involving terrorism and intel-ligence, the access and utilization of digital data and processes have become ever more relevant and important as well as a substantive revenue source

M&A Activity & Market Consolidation

M&A activities have not returned to previous levels within the Private tor as, for example, those seen during the dotcom period However, M&A has been signifi cant in the Public Sector

Within each Sector a few notable M&As have taken place

One example in the Private Sector is Deloitte’s acquisition of Monitor

in 2012 This followed the separation of Deloitte into six separate ties as a function of the Enron debacle and collapse of Arthur Andersen Although Monitor’s 1,200 employees was a drop in Deloitte’s ocean of 200,000, Deloitte improved its position in strategy practice, to compete with McKinsey-tier fi rms (the MBB fi rms = McKinsey, Bain & BCG) It’s possible that the reason for the sale from the seller’s side was an attempt to survive the mid-sized consultancy tier

For the Public Sector Consulting Contractors, the composition of the most dominant consulting companies has remained more the same (as is the case for the Private Sector) Still, there have been major changes And the most sig-nifi cant of these changes that occurred in the Public Sector was the acquisition

by Northrop Grumman of TRW This then followed with the move of NG Headquarters from Los Angeles to the Washington, D.C., area

Additionally, Huntington Ingalls Industries (HII) was founded in 2008

as part of the Northrop Grumman Company principally to focus on the US Navy as the client However, HII then separated from Northrop Grumman and became a separate corporation in 2011

Further, Hewlett Packard (HP) moved to create HP’s (more Public Sector) consulting arm as Hewlett Packard Enterprises in November 2015 This was, essentially simultaneously, accompanied by Computer Sciences Cor-poration’s (CSC) ‘spin off’ of its Public Sector business and the acquisition

of SRA, creating CSRA in November 2015, as well Additionally, of major changes, a last to be mentioned here is that Leidos became a joint ‘spin-off’

of Science Applications International Corporation (SAIC) and is a US Public Sector Company headquartered in Reston, Virginia, that provides a variety

of consulting services

Client Professionalism

There is no doubt that both Private and Public Sector clients have become much more ‘savvy’ professional buyers and users of consultants over the

years Large companies and agencies / organizations, in particular, with extensive experience of using consultants, have found ways to systematize their dealings with consulting fi rms, formulating explicit policies for when and how to engage them and how to streamline historically more complex and time-consuming processes However, there are still many companies and agencies reluctant to invite consultants into their operations, for fear of run-ning up charges based on a ticking clock or meter, a perception the Private Sector industry hasn’t quite shaken off and the Public Sector works to make more effi cient while maintaining effectiveness and quality

Entrepreneurialism

For the Private Sector, consultants have not made as much ‘entry’ and impact – largely due to entrepreneurialism being ‘earlier in the live cycle’ stage of development (Greiner, Evolution and Revolution HBR article from 1972) For the Public Sector, consultants have made more impact with becoming part of large and ‘open’ contracts that are granted in which multi-ple contractors are ‘preapproved’ This, then and in-turn, allows Public Sec-tor consultants to ‘move’ more quickly and innovatively to seek out (as by submitting legally approved position ‘statements’ and the like) to advance the identifi cation of ‘needs’

All said, the use of entrepreneur consultants in both the Private and Public Sectors has been relatively underutilized Nonetheless, the use of more equity-based-ownership entrepreneurialism by consultants in the Pri-vate Sector may well lead to more value creation–like consulting (a la Bain Capital) long into the future This should then build more successful devel-opment of entrepreneurs into viable and valuable companies

It’s Still About Value Creation

A key issue in consulting has always been how much value consultants offer their clients, and how to make value creation more visible This has been the case for decades within the Private Sector And it has become much more the case in the most recent decades for the Public Sector – especially since major changes away from fi xed-price contacting took place

In the Private Sector, Bain made a smart move in this area by ing the observation that its clients outperform the market at a rate of 4:1, measured against S&P 500 Index companies (http://www.bain.com/about/client-results/index.aspx) And in the Public Sector, more and more engage-ments are value-based as well – particularly for larger production programs Analyses have shown that consultants typically add value in three ways:

highlight-• They provide specialist knowledge that helps clients take better decisions

• Their experience in project delivery helps clients execute their plans more effectively and effi ciently

• The skills of individual consultants improve the capability and team work of managers in client organizations

More specifi cally, UK analysis (2010) showed that the average value sultants add to their clients is 10 times the fees paid! This means that in most cases the return on consulting makes for a highly profi table business case

con-No wonder consultants are working on the basis of the Return on ing (RoC) – although making the formula visible in practice can be trickier

What Lies Ahead?

As we look ahead, consulting fi rms are facing what have been called ‘wicked’ problems, i.e those problems that are diffi cult or impossible to solve because

of incomplete, contradictory and / or changing requirements which may be hard to recognize (Grinth, 2008)

However, this is consultants’ tour de force : navigating turbulent waters

And there are no indications that this pattern will change ‘Transformation’ will always be the quest, then, whether for the client, or for consultants But what are the issues consultants and their fi rms should watch out for?

We can point to fi ve clear ones that lie ahead:

Accelerating the Innovation Cycle

With the speed, volatility, and need for continuous renewal and reinvention, clients need consultants to increase the effort and resources they allocate

to innovation and development Per Ashton Carter, this is key to new tiatives in the Public Sector This could be by developing new services and offerings, by developing the professionals themselves, by cooperating with the clients in new ways, and by experimenting (especially with new and innovative processes in the Public Sector) to a greater degree If failures are good indicators of success (being prepared to experiment increases the risk that some ventures will fail), consultants could do with generating some more As Churchill once said, “Success is not fi nal, failure is not fatal: it is the courage to continue that counts.”

Anticipating & Driving Disruption

Disruption has become a buzzword, not only in consulting language and oric but also more generally in business Consultants can help their clients

rhet-in three ways here First, they can act as advisors, to stimulate a client to

be more disruptive in its behavior and in developing new business models and so on Secondly, consultants can support their clients by helping them

to avoid being disrupted Third, they themselves can act as disruptors by

introducing new services, offerings, or business models So developing a disruptor’s mindset might be a useful priority for consulting fi rms

Accommodating the Need for Simplicity

Running a business has become a complex undertaking in the modern age Growing legislative requirements are another example of what businesses

must contend with, and a common source of complaint But internal

com-plexity doesn’t make business any easier, either Although information nology is championed as a vehicle to make systems and processes more effi cient and smooth, often the opposite is true So consultants have an opportunity to help by helping clients simplify their IT estates and business processes

Thinking Global, Acting Local

Under pressure at home following the fi nancial crisis, many consulting

fi rms looked for new markets outside their national domain or overseas However, for many it has not been an easy ride, as working in other con-texts and cultures can be more challenging than expected This has become even more substantively problematic for major Public Sector consulting

fi rms that are straddled with more security of information and processes requirements

But the global perspective is still an important driver for many consulting

fi rms – not only as a business growth initiative, but also as a mindset To succeed internationally, consultants need to blend global vision and strategy with local considerations, i.e ‘think global, act local’ (often shortened to the rather clumsy term, ‘glocal’)

Leading Practices

Most consulting fi rms will have upgraded their leadership skills over the years and refreshed their approach to managing their practices However, running a professional services fi rm can present its own challenges, when most professionals have been hired for their ability to tackle challenging client assignments But experience shows that if a consulting fi rm is well managed, this has a positive impact not just on profi tability but also on the caliber of person the fi rm is able to recruit This is because profession-als want to be employed somewhere where assignments are challenging and rewarding, and where they feel appreciated, and will be nurtured and developed

Leadership investment and prioritization should also be high on the agenda for consulting fi rms into the future This is particularly the case within the Public Sector Given the aggregation as of 2016, the seven largest Public Sec-tor consultants / contractors with the US across the world markets remained essentially the same: Lockheed Martin (LMC), Boeing, Raytheon, General

Dynamics (GD), Northrop Grumman (NGC), Leidos Holdings (w SAIC – two separate companies now), and Huntington Ingalls Industries (HII)

Of course, there are other major and large (in terms of revenue and employees) consulting fi rms to the Public Sector that cross over into the Private Sector These include: Accenture, BAE, Booz Allen Hamilton Inc., (now split in two separate companies), Computer Sciences Corporation (CSC), General Electric, HP (Enterprise Services – Hewlett Packard Enter-prise as of November 2015), International Business Machines (IBM), SRA International, Inc., Unisys Corporation, and AECOM that acquired URS Corporation in October 2014 While these are but a few of the literal tens

of 100,000s of businesses that provide Public and Private Sector ing, these businesses are widely recognized and signifi cant and are the focus

consult-of this text book And, therefore, these consultants will be referenced and used as representative examples of engagements and programs about which more information is available and known

Summing up: the future will therefore belong to those consulting fi rms and professionals that can appreciate the past but are not bound to it; to those who anticipate emerging trends; and who can run faster, work more

fl exibly and effi ciently, and add more value than their competitors It’s a race that will require a lot of foresight, stamina, and clever tactics

Bibliography

Christensen, C.M., Wang, D & Bever, D van Consulting on the Cusp of

Disrup-tion Harvard Business Review October 2013

Grinth, Keith (2008) Wicked Problems and Clumsy Solutions: The Role of

Leader-ship Clinical Leader, Volume I Number II

‘IMF in Global “Meltdown” Warning,’ BBC News , October 12, 2008

Management Consulting Association, 2010 and 2016

http://www.bain.com/about/client-results/index.aspx

After the Burst of the Bubble

For over four decades leading up to 2000 and the new millennium, the management consulting industry experienced explosive and continuous growth, approximating an increase of 15 to 20 percent per year Profi t mar-gins also increased dramatically, due to larger projects, better leverage ratios between partners and staff, and diversifi cation into new services, such as outsourcing Total revenues of the global industry are now moving toward

$150 billion, and the worldwide number of consultants is close to 1 million, including both those who work in large and small fi rms, as well as solo prac-titioners Few other industries in history have experienced such sustained growth and fi nancial success for so long a period of time

This impressive record of growth and fi nancial success is only an cation of the consulting industry’s deeper and wider impact around the world Over the years, the industry’s many fi rms and consultants have made signifi cant worldwide contributions to management knowhow and, in so

indi-doing, have greatly advanced the cause of professionalism in management They have also improved the performance of thousands of companies and public agencies, leading to signifi cant economic growth in many industrial-ized countries In addition, management consulting has helped greatly to advance the quality of education in business schools, and it has become a major employer for graduating MBAs and an elite training ground for many

of today’s CEOs and senior executives

Yet, despite all its success, the consulting industry is today in a state of continuing economic transformation, insecurity, and heightened uncertainty about its future This is a troubling but challenging condition that, as it evolves, will likely serve to redefi ne future winners and losers and eventually the industry’s overall structure and direction

The Big Shock

The year 2000 began with a major wakeup call for the consulting industry, beginning noticeably in the second half of 2000 and, in all likelihood, con-tinuing well into 2004 First, there was the dot.com bust, followed by the fall

of the telecom industry Then came the 9/11 disaster, continued terrorism threats, and economic recession, all of which took a big toll on sales and morale within consulting fi rms Occurring almost simultaneously was the Enron debacle and the self-infl icted demise of Arthur Andersen, leading to broader negative consequences for many accounting fi rms and their consult-ing operations The net fallout from these events, many of which were uncon-trollable, resulted in a big slowdown in growth for many consulting fi rms Numerous potential clients hesitated to buy consulting services and began requesting lower fees Clearly, the rapid growth era of the 1990s was over Notwithstanding the downturn in the early 2000s, several bright spots have either survived or recently emerged Most notable are new projects in customer relationship management (CRM), systems integration and mas-sive information systems for government, cost-saving HR technologies, plus expanding overseas markets in Asia, as well as a heavy demand for out-sourcing solutions to help clients reduce their costs

Still, if we eliminate outsourcing from most of the revenue calculations (we consider it to be a service but not actual management consulting), the growth rate for the industry throughout the early 2000s is likely less than

10 percent and for many fi rms possibly even negative

Signs of Industry Transformation

How have consulting fi rms responded to these serious threats and challenges brought in by the new millennium, and which are still continuing? There is obviously no single, uniform response, but the main pattern has been one

of shake-up, downsizing, consolidation, layoffs, hiring freezes, and even the bankruptcy of the once-venerable Arthur D Little Many of the large fi rms,

whether in information technology or general management, have suffered because of their dependence on large contracts to cover expensive global infrastructures and armies of highly paid consultants

In 2002, Deloitte Consulting asked senior executives to take a 10 percent pay cut Even the blue chip general management fi rms, such as McKinsey and BCG, were forced to make capital calls on partners, while Bain bor-rowed from a private investor, and Booz Allen Hamilton reduced its part-ners by one-fourth in its Private Sector consulting division Divestments have also occurred at BCG and Bain, which shed their venture businesses Several large fi rms are for sale at valuations less than one-third of their value during the 1990s

At this point in history, the industry is facing a single overriding tion: Is it undergoing a signifi cant transformation and long-term directional shift or just a mid-course correction and then back to business as usual?

ques-If we believe the former to be true, then the current cost reductions and temporary down-sizings by fi rms will not suffi ce Under the transformation scenario, consulting fi rms will have to change their existing strategies and restructure their practices in order to survive No doubt one can argue both sides of this question, but we believe the odds are clearly on the side of fun-damental and transformational change

Deeper Re-Structuring Direction

The future is usually revealed in underlying historical trends rather than superfi cial symptoms, and to us the underlying trends emerging in client needs and industry economics point toward major transformative changes

in the industry SEC pressures have prompted the divestment of consulting divisions from the accounting fi rms The computer hardware fi rms, notably IBM and HP, as well as information technology services companies like EDS and Cap Gemini, are building substantial consulting practices, and nonconsulting companies are acquiring consulting fi rms Witness Marsh-McLennan’s earlier successful acquisition strategy, which began over a dec-ade ago with William M Mercer, followed by Temple, Barker & Sloane, Delta Consulting, National Economic Research Associates (NERA), and Lippincott and Margulies In Europe, Atos recently acquired KPMG’s UK and Netherlands consulting groups (now known as Atos KPMG), focus-ing on IT-related activities Just what cash-rich Microsoft is likely to do is uncertain, but we predict it will eventually diversify out of lower margin software into higher margin IT consulting and outsourcing

In our opinion, the future competitive life for the consulting industry will not only become different but highly challenging, especially for large consult-ing fi rms and their consultants At the same time, we think that small- and medium-sized fi rms will be less affected by the competitive wars occurring among the ‘big boys’, provided these small fi rms are able to niche their specialized services and give highly personalized attention to local clients

Consulting Insights Trianz, Inc.–Succeeding in the New Era

During this discontinuous shift in the consulting industry, Trianz is a sulting fi rm that has achieved triple digit growth to become a respected player in its information technology niche Trianz helps clients to reinvent business processes across the entire value chain, using the Internet as the medium for achieving leverage in the chain Trianz provides a full-service outsourcing infrastructure in the United States and India, supported by

con-a tecon-am of professioncon-al consultcon-ants ccon-apcon-able in strcon-ategic con-and vcon-alue chcon-ain analysis

To begin our assessment of the industry’s future, we must fi rst lish an historical perspective for the industry In doing so, we will identify earlier trends and issues that still face fi rms and consultants today As we move along, we will point out what are likely to be the changing needs of clients and how consulting fi rms will have to change their strategies to meet these needs Without this broadened perspective, consulting fi rms can easily misjudge where they are in the unfolding dynamics of the industry Hang-ing on to past practices and strategies will likely become a recipe for future disaster

History in Brief

In a 1998 article in the Journal of Management Consulting , Staffan

Can-back made an interesting observation with reference to the experience curve

in consulting services He wrote:

If the experience curve applies in consulting services, then it may be worthy that approximately 80 percent of all consulting experience was generated in the last 17 years, and only 20 percent in the period from

note-1886 (when Arthur D Little started the fi rst consulting fi rm) to 1980 1 With further accumulated experience since Canback’s article, we can rea-sonably conclude that, in this 115+ year-old industry, more than 90 percent

of all experience has been generated in the last 20 years

What are the factors that stimulated growth in the 1980s and 1990s and made the industry fundamentally different in both quantity and quality from the preceding years? What can we conclude about this growth that may infl uence client needs and consulting practices over the next few dec-ades? As Exhibit 1.1 shows, changing business issues and opportunities fac-ing clients have led to new management techniques and concepts, which in turn have changed the offerings of consulting fi rms

Before 1950

Prior to 1950, most consulting fi rms focused on effi ciency and technical issues in manufacturing The fi rst consulting fi rm was Arthur D Little

Exhibit 1.1 The Historical Developments of Consulting

1 Origins of

consulting

Before 1900

Fayol, Taylor Birth of scientifi c

Performance measurement, electronic data processing, portfolio management

7 Business strategy 1970 BCG, Bain Planning,

organization structure, marketing, competitive advantage

8 Restructuring and

effectiveness

1980 March &

McLennan, Saatchi &

Saatchi, KPMG, Ernst & Young

Excellence, culture, M&A, globalization

Internet leadership, change, Y2K, BPR, ERP

10 E-Business and

value chain

2000 Cap Gemini/

E&Y, IBM Global Services

Outsourcing, transformation, networks, alliances

(ADL), founded in 1886 (and fi led for bankruptcy protection in 2002) ADL grew out of a research laboratory, and it continued to maintain links with its technical roots for several decades, long after its management consulting accounted for a majority of its revenues ADL’s ascendancy occurred in the

maturing period of scientifi c management, whose origins go back to ick Taylor 2 and Henri Fayol 3 in the early 1990s

In the fi rst half of the 20th century, most of the consulting fi rms were founded either with specifi c customer opportunities in hand, such as Booz Allen Hamilton with the US government, or with a specifi c functional spe-cialization, such as Towers Perrin in compensation and human resources For the most part, this early imprinting led to a lasting impact on both fi rms Thus, even today Booz Allen continues to retain signifi cant federal business, and Towers Perrin is still known for its major presence in human resources consulting

Following World War II, the focus of management consulting turned to designing, improving, and systematizing the internal functioning of client organizations and the marketing of products Specifi c emphasis was given

to designing divisional structures, formal budgeting, performance ation, strategic planning systems, goal setting, compensation schemes, and other such performance improvement techniques Advertising and sales force management were major issues in marketing Most consulting

evalu-fi rms chose to specialize only in a narrow range of needs as expressed by clients

In the 1960s, a dramatic and discontinuous shift occurred in the scope and complexity of management consulting Client companies were grow-ing rapidly through diversifi cation and creating the fi rst conglomerates, and the novelty of international competition was fast becoming a reality In this changing environment, companies asked consultants for help on pressing strategic questions about which business they should be in and how they should internationalize themselves This was the stage where the elite strat-egy consulting fi rms, such as BCG, became household names

1960–1980

McKinsey & Co had existed as a generalist fi rm for almost four decades (since 1925) when Bruce Henderson founded the Boston Consulting Group (BCG) in 1963 Henderson pioneered the marketable idea of strategy con-sulting based on expert analysis of a client’s competitive situation BCG differentiated itself through promoting new strategy concepts, notably the Experience Curve and the Growth/Share Matrix The accelerating popular-ity of these concepts began to establish the credibility of consulting fi rms

as developers of intellectual capital and led to a two-way, synergistic tionship between business schools and consulting fi rms The top strategy consulting fi rms became the fi rst job choice of MBAs, an advantageous recruiting position that certain elite fi rms like McKinsey and BCG continue

rela-to maintain rela-to this day

During the 1960s nontraditional players began to enter the consulting industry, but often with mixed results A negative example was Citibank acquiring Cresap, McCormack & Paget, and then divesting it to preserve

the consulting fi rm’s independence Eventually, Towers Perrin acquired Cresap The high visibility of top strategy consulting fi rms in the 1960s also attracted attention from the Big 8 accounting fi rms, which had long established auditing and tax relationships with many large Fortune 500 companies Without exception, these accounting fi rms all launched man-agement consulting services, which promised higher fees and margins than yielded by their auditing services For the most part, the consulting divi-sions of the accounting fi rms were not able to penetrate the elite strategy market However, with a larger employee base and lower fees than the strategy boutiques, they gravitated toward operations consulting and infor-mation technology

1980–2000

By the end of 1980, the stage was set for the golden era of management sulting, which evolved around information technology and global expan-sion Consulting fi rms grew in the 1980s and 1990s through both organic means by developing new practices in-house and also rapidly by mergers and acquisitions This was also the era of global growth for US consulting

con-fi rms as they moved out around the world to capture over 80 percent of the world consulting market

At the same time, the accounting fi rms made many mergers and sitions in order to achieve greater scale and leverage in their auditing and consulting practices Thus, we saw PMI (Peat Marwick International) merge with KMG (Klynveld Main Goerdeler) in 1987 to become KPMG; Deloitte merged with Touche Ross in 1989 and turned into Deloitte & Touche; Ernst & Whinney with Arthur Young in 1989 to become Ernst & Young; and Price Waterhouse with Coopers & Lybrand in 1998, turn-ing into PricewaterhouseCoopers In addition, numerous small- and medium-sized consultancies were acquired by larger fi rms during this same period, such as the French company Sogetti in 1991 acquiring both the MAC Group, which was founded as a faculty-based general man-agement consulting fi rm, and United Research, an operations consulting

acqui-fi rm These latter acquisitions were merged to form the core of Gemini Consulting

Attracted by the consulting industry’s growth and high profi tability, eral nontraditional companies also attempted to enter the industry through high profi le acquisitions Saatchi & Saatchi was one of the fi rst companies

sev-to articulate the concept of ‘one-ssev-top-shopping’ for professional services Their acquisitions included Petersen in litigation consulting and Hay in human resources and compensation consulting, along with other companies

in market research and fi nancial services The results of Saatchi’s acquisition strategy proved disastrous; most of the acquired consulting fi rms were later sold back to their original sellers for a fraction of the price paid just a few years earlier Marsh & McLennan, from insurance, was more successful in

moving into consulting with the acquisition of Mercer and several other professional services fi rms

By the 1990s, the main driver for acquisitions appeared to shift toward providing integrated IT solutions under one roof, which in turn led to EDS acquiring A T Kearney and to CSC acquiring Index These combi-nations were not deterred, even though some consulting acquisitions by non-consulting fi rms resulted in serious incompatibilities By far the largest growth during this period occurred among the information system pro-viders Driven by the increasing interdependence of information technol-ogy and strategy, these fi rms helped clients to formulate an information strategy, and then to design and install the appropriate IT infrastructure,

all of which is further discussed in Chapter 4, Information Technology Consulting

During the late 1990s, many of the IT consultancies diversifi ed into sourcing, which subsequently became a major growth driver As clients began outsourcing their entire IT departments to consultants, this attracted hardware and software fi rms like IBM and EDS In the marketing of out-sourcing, the consultant’s value-added proposition is that of shifting assets

out-to the consultant so the client’s balance sheet is improved, and the client can focus on its core business

Firms in the IT segment included IBM Global Services, which is now the largest consulting fi rm in the world, Electronic Data Systems (EDS), Accen-ture, Deloitte Consulting, and Cap Gemini Ernst & Young (CGE&Y) Their primary consulting focus, other than outsourcing, is on providing a wide range of IT services, including: 1) the assessment of a client’s IT infrastruc-ture; 2) the development of appropriate systems and software; 3) the inte-gration of incompatible technology; 4) the redesign of business processes; 5) the purchase and installation of appropriate hardware; and 6) change management and training of employees Among the many services provided

by these fi rms, strategy analysis is a relatively small segment, and even it is usually conducted with an IT emphasis

2000 into the Storm

As Exhibit 1.2 shows, in 2001–2002, the 10 largest consulting fi rms recorded approximately $52 billion in revenues (about 42 percent of the total market),

up from less than $2 billion in 1980 This suggests an industry that is increasingly dominated by a few large fi rms, primarily IT-oriented fi rms Only two generalist fi rms, McKinsey and Mercer Consulting, appear in the top 10 in revenues The IT fi rms remain at the top even if we discount their revenues by 20 to 40 percent derived from outsourcing

If we break down total revenues into separate practice areas, Exhibit 1.3 reveals that, in 2001–2002, the 10 largest consulting fi rms accounted for approximately $9.8 billion in revenue for the strategy practice area; the

10 largest information technology practices for $27.6 billion; the 10 largest human resources consulting practices for $9.2 billion; and the 10 largest operations consulting practices for $9.9 billion As one can see, the IT seg-ment is about three times larger than each of the remaining services, all of which are at about the same level

Interestingly, in Exhibit 1.3, 22 different fi rms compose the top 10 across the four practice areas, which indicates some degree of cross-specialization, since the table would require 40 fi rms if it was ‘pure’ specialization with no overlap across practice areas However, only two fi rms, Accenture and PwC (now IBM), have been successful in broadly diversifying themselves across all four categories, although we suspect that much of this coverage is closely related to IT activities As for profi tability, the economics clearly favor the strategy consulting fi rms over the IT consultants The top strategy consult-ing fi rms average about $450,000 in revenues per consultant per year, which compares to approximately $200,000 in IT-based consultancies The profi ts per strategy consultant are considerably higher than in IT fi rms Although Accenture is approximately eight times bigger than McKinsey in total num-ber of employees, it is only three times larger in total revenues However, the IT fi rms clearly lead in total revenues and total profi ts because of their much greater size

Exhibit 1.2 The 10 Largest Global Management Consulting Firms, 2001–2002

Revenues (US$/b)

Number of Consultants

Estimated Market Share (%)

Exhibit 1.3 also suggests that human resources consulting is a highly specialized fi eld where the IT fi rms are not so dominating However, this practice area is also more IT-focused in its development (see Chapter 8 on

Human Resources Management ) Apparently, the fastest growing part of

human resources consulting lies not in its historical work on HR strategy and compensation but in arranging for the outsourcing of a client’s back-offi ce HR functions In these arrangements, some or all of a client’s entire payroll, benefi ts, and training programs are transferred to an outsourcing partner

Enduring Trends and Client Needs

The current period of industry turmoil provides an opportunity for sulting fi rms to examine the underlying forces shaping the future needs of clients Being able to meet these needs will determine the consulting winners

con-in the future Firms need to avoid the easy assumption that their growth is assured by client growth Today, many clients aren’t growing, or they are turning away from consultants to rely on their own staff professionals for help So it is important to begin with prospective clients to see what is on their minds – this is where all consulting fi rms should start their analyses as they reexamine their future business strategies

We detect fi ve major trends affecting client needs, all of which arose over the past decade and are likely to continue into the future Consulting fi rms must tune their service offerings to these trends

1 Keeping up with the pace of change All industries have increasingly had

to cope with ever shortening product life cycles Although some industries, such as personal computers and consumer electronics, have long operated with cycles of less than a year, even traditional, long life cycle companies like aircraft engines and airplane manufacturers are now greatly reducing their cycle times for competitive reasons In addition, many potential clients are facing other threatening shifts that limit long-term thinking, such as new nontraditional competitors, deregulation, and technological shifts – all

of which create uncertainty and cause companies to rethink their strategic positions and reinvent themselves more frequently

Discontinuous change requires new strategic concepts, which is the ince of strategy consultants Not surprisingly, new and proprietary strategy concepts and tools have become a major basis for achieving differentiation

prov-among the offerings of consulting fi rms (see Chapter 5, Strategy and ization Consulting ) In the future, consulting fi rms that focus their strategies

Organ-and skills on helping clients with issues of speed to market, whether it is in operations or in marketing, will likely receive a favorable audience

2 Continuously reducing costs Operational effi ciency and cost

con-tainment have become necessary for corporate survival (see Chapter 7, Operations Management Consulting ) As a result, companies are seriously

reevaluating their mix of operating activities, and many are deciding to

outsource activities that are not part of their core competency For the most part, these outsourced functions include backoffi ce departments concerned with logistics, data processing, human resources transactions, and some-times even the complete manufacturing of products

This trend toward reconfi guring a company’s value chain is leading to considerable growth in consulting Consultants are undertaking large pro-jects to help companies assess and reengineer their activity mix, assisting them in deciding what their core competencies are, and what activities should be outsourced In addition, consulting fi rms are becoming primary outsourcing and infrastructure providers to their clients This is opening up

an entirely new and sizeable revenue stream with a reliable cash fl ow, in contrast to a tradition of sporadic payments by clients

3 Accelerating product and market development As companies face

maturing markets and intense competition in their home bases, they are actively seeking new products and redesigning old ones In this effort, tradition-bound companies often lack creativity within their organization cultures, and so they look to consultants for outside help This requires consultants to study customers’ needs and competing products and to work closely with a client’s R&D, marketing, and product designers, as illustrated

in Chapter 6, Trust-Based Selling of Consulting Services

In addition, there are now major international openings in nontraditional markets, including China, India, and Eastern Europe With limited experi-ence in these markets and abundant horror stories of failed ventures, client companies are seeking assistance from consultants with offi ces abroad Not surprisingly, McKinsey’s offi ce in India became its fastest growing, most profi table offi ce in the late 1990s

4 Coping with discontinuous technology shifts Many experts argue

that science and technology are driving the economics of business and uct development Moving from central mainframes to client servers and distributed computing, from intra-networks to EDI and then to Web-based collaboration, many companies have found that information technology is not just an implementation tool but a key driver of business strategy Most companies have learned painfully that the impact of information technol-ogy has been pervasive throughout society, causing them to rethink stra-tegically the state of their product lines, asset utilization, and likely future markets

This need has in turn reopened debates such as “What should be owned versus outsourced?” and “Where in the value chain should we add value?” Indeed, companies like Dell have become industry leaders because of their ability to outsource almost their entire value chain, and thereby construct

a new business model based on tight coordination with outsiders On the other hand, Nokia outsources very little of its operations relative to its com-petition, and yet it remains successful through the extensive use of IT for coordinating internal production and logistics

The emergence of industry leaders with nontraditional business models, such as Dell, has made it a business imperative for companies to reexamine the fundamentals of their business models For example, entrenched com-petitors like General Motors and Ford have come together to form a joint venture, Covisint, to create and manage common e-commerce platforms for procurement Similarly, the largest consumer packaged goods companies have joined to form Transora In both cases, a major portion of the initial budget of these new ventures went to consulting fi rms who helped to set up the joint venture

5 Meeting the global imperative As we shall see in Chapter 10,

Consult-ing on the Global Stage , consultConsult-ing fi rms of all sizes, in order to prosper in the

future, are positioning themselves to handle the globalization of industries and companies Large consulting fi rms will need to locate themselves over-seas at many sites, and smaller ones will have to join with larger consulting

fi rms to assist clients in addressing issues of globalization Consultants have long recognized that their clients will require at some point a global presence and perspective However, many consulting fi rms choose to globalize only after following an existing client overseas More proactive consulting fi rms have decided to internationalize before their clients so as to exploit new markets abroad For example, a US fi rm choosing Japan can begin to serve back-home clients but also local companies in Japan Research also supports

a commonly held belief among large potential clients that consulting fi rms must be international in order to qualify as a leading-edge player

Moving abroad may also be a matter of survival In a 1990 report from ACME, it was noted that North American consulting fi rms had experi-enced a continuing drop in revenues attributable to domestic operations to

81 percent of total revenues, with predictions of a further drop to 67 percent

in 2000 4 Similar shifts have been observed in Europe According to sultants News in 2002, the breakdown of total worldwide consulting rev-

Con-enues is as follows: 56.6 percent North America, 34.5 percent Europe, Latin America 1.4 percent, Asia Pacifi c 5.6 percent, and rest of world 2 percent 5 These numbers indicate that, although consulting is popularly regarded as

a global industry, 90 percent of the market remains concentrated in North America and Europe Interestingly, Asia trails far behind with only 5.6 per-cent, which not only indicates an opportunity, but also a diffi cult challenge

to penetrate

All 50 leading global consultancies now occupy offi ces spread around the world A majority have expanded abroad through mergers, acquisi-tions, joint-ventures, and alliances Today, many fi rms are focusing on Asia, especially China (see Consulting Firms in China) However, some have also closed offi ces or operations during this same period due to the recession and

an inability to manage operations in a different culture For example, both CSC Index and Gemini closed down in Japan after several years of frustra-tion and lack of success