Management consulting

Management consulting (which comprises strategy consulting and operations consulting) refers to both the practice of helping companies to improve performance through analysis of existing business problems and development of future plans, as well as to the industry composed of firms that specialize in this sort of consulting. Management consulting may involve the identification and cross-fertilization of best practices, analytical techniques, change management and coaching skills, technology implementations, strategy development, or operational improvement. Oftentimes management consultants also rely on their outsider's perspective to provide unbiased recommendations. Management consultants generally bring formal frameworks or methodologies to identify problems or suggest more effective or efficient ways of performing business tasks.

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

While management consulting refers to providing business consulting services, it can be hard to definitely distinguish between management consulting and other consulting practices such as Information technology consulting and human resource consulting because these fields directly support business operations and often overlap the field of management consulting.

History

Management consulting grew with the rise of management as a unique field of study. The first management consulting firm was Arthur D. Little, founded in 1886 by the MIT professor of the same name. Though Arthur D. Little later became a general management consultancy, it originally specialized in technical research. Booz Allen Hamilton was founded by Edwin G. Booz, a graduate of the Kellogg School of Management at Northwestern University, in 1914 as a management consultancy and the first to serve both industry and government clients. The first pure management and strategy consulting company was McKinsey & Company. McKinsey was founded in Chicago during 1926 by James O. McKinsey, a professor at the University of Chicago Graduate School of Business, but the modern McKinsey was shaped by Marvin Bower, who believed that management consultancies should adhere to the same high professional standards as lawyers and doctors. McKinsey is credited with being the first to hire newly minted MBAs from top schools to staff its projects vs. hiring older industry personnel. Andrew T. Kearney, an original McKinsey partner broke off and started A.T. Kearney in 1937 . During Britain's war effort, Personnel Administration (PA) was founded in 1943 by three Englishmen: Ernest E. Butten, Tom H. Kirkham and Dr. David Seymour.

After World War II, a number of new management consulting firms formed, most notably Boston Consulting Group, founded in 1963, which brought a rigorous analytical approach to the study of management and strategy. Work done at Booz Allen, McKinsey, BCG, and the Harvard Business School during the 1960s and 70s developed the tools and approaches that would define the new field of strategic management, setting the groundwork for many consulting firms to follow. Another major player of more recent fame is Bain & Company, whose focus on shareholder wealth (including its successful private equity business) set it apart from its older brethren. Also significant was the development of consulting arms by both accounting firms (such as Accenture of the now defunct Arthur Andersen) and global IT services companies (such as IBM). Though not as focused on strategy or the executive agenda, these consulting businesses were well-funded and often arrived on client sites in force.

One of the reasons why management consulting grew first in the USA is because of deep cultural factors: it was accepted that, contrary to Europe, Management and Boards alike might not be competent in all circumstances; therefore, buying external competency was seen as a normal way to solve a business problem. This is referred to as a "contractual" relation to management. By contrast, in Europe, management is connected with emotional and cultural dimensions, where the manager is bound to be competent at all times. This is referred to as the "pater familias" pattern. Therefore seeking (and paying for) external advice was seen as inappropriate. Conversely it must also be said that in those days (and still today) the average level of education of the executives was significantly lower in the USA than in Europe, where managers were "Grandes Ecoles" graduates (France) or "Doktor" (Germany). The combination of these two factors made it difficult for consulting to emerge in Europe. It was only after World War II, in the wake of the development of the international trade led by the USA, that management consulting emerged in Europe.

The current trend in the market is a clear segmentation of management consulting firms. McKinsey, Bain, and BCG retain their strong strategy focus, while many other generalist management consultancies such as Accenture and Capgemini are broadening their offering increasing into high volume, lower margin work such as system integration.

Current state of the industry

Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and linked to overall economic conditions. The consulting industry shrank during the 2001-2003 period, but had been experiencing slowly increasing growth since. In 2004, revenues were up 3% over the previous year, yielding a market size of just under $125 billion.

Currently, there are four main types of consulting firms. First, there are large, diversified organizations, such as Accenture, BearingPoint, Capgemini, Deloitte and IBM Global Services that offer a range of services, including information technology consulting, in addition to a strategy consulting practice. Second, are the medium-sized information technology consultancies, such as Hitachi Consulting, that blend boutique style with some of the same services and technologies bigger players offer their clients. Third, are the large management and strategic consulting specialists that offer only strategy consulting but are not specialized in any specific industry, such as Arthur D. Little, A.T. Kearney, Bain & Company, Boston Consulting Group, and McKinsey & Company. Finally, there are boutique firms, often quite small, which have focused areas of consulting expertise in specific industries or technologies. For instance, Roland Berger is well-knowned in Europe for its skills in downsizing and cost-killing, while Monitor Group is focused on the pharma industry and assistance to developing countries'governments. Most of the boutiques were founded by famous business theorists.

Another important distinction between types firms is the extent to which they offer to manage or implement their recommendations instead of merely writing reports and leaving their clients to implement alone. These firms offer 'risk managed' implementation strategies where the risk of failure in a program is shared with the client. Since the end of World War II, a number of firms have moved into the implementation field and a number of different models allow the consulting firms to share the risk associated with driving change. These popular models include 'contingency billing' where firms may take a share of benefits or savings generated in a joint program as payment and 'weekly renewable brief' where firms will produce detailed evaluations each calendar week and compare the results to forecasts produced at the beginning of the program. In the latter case the firm is invited to return to the program each week only if the client is satisfied that weekly progress is as forecast. There is no contract for completion of the program and the program may be terminated with no notice for any reason. Sydney Consulting Corporation is a boutique firm operating in Australia, Asia and the United States which has grown rapidly by offering such risk management strategies to clients across industry. A feature of this type of program is that the consulting firm will usually maintain a presence throughout and beyond any implementation program.

The rise of internal corporate consulting groups

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

The internal consultant approach is chosen for three reasons. First, the corporation does not want to pay the large fees typically associated with external consulting firms. Second, they want to keep certain corporate information private. Finally, they want a group that more closely works with, and monitors, consulting firm relationships. Often, the internal consultant has less ramp up time on a project due to familiarity with the corporation, and is able to guide a project through to implementation—-a step that would be too costly if an external consultant were used.

Internal consulting groups are often formed around a number of practice areas. The more common areas are: organizational development, process management, information technology, design services, training, and development. There are three potential problems. First, the internal consultant may not bring the objectivity to the consulting relationship that an external firm can. Second, when the external consulting industry is strong, it is increasingly difficult to recruit candidates who are of the same high calibre as those working for consulting firms. Finally, when financial times get tough, often the internal consulting group is the first to face layoffs.

Approaches

Management consulting has become a source for innovation in the practice of management, forming a bridge between academia, firms, and thought leaders in other fields. As a result, management consulting firms use a variety of tools and techniques to approach business problems. See strategic management, operations management, and industrial engineering for more information.

Criticism

Management consultants are often criticized for overuse of buzzwords, reliance on management fads, and a failure to develop executable plans that can be followed through. A number of highly critical books about management consulting argue that the mismatch between management consulting advice and the ability of business executives to actually create the change suggested results in substantial damages to existing businesses (see, for example, Dangerous Company by James O'Shea).

Management consultants are often charged with “stating the obvious” and lacking the experience in corporate business to warrant sound advice. Bad consulting firms are blamed for providing ineffective results. Clients think bad consultants are ones who deliver empty promises and charge expensive fees. These consultants bring nothing innovative to the table and often regurgitate "prepackaged" strategies irrelevant to the client’s issue. The bad consultants do not prioritize their responsibilities: they neglect to engage themselves with the client and therefore serve their firm’s interests before their clients'. If the clients are not satisfied with the unfulfilled promises, then the consulting firm is a bad one.

However, good management consulting firms internalize specific codes of ethics to fortify client relationships by offering fair advice and accepting transactions only if they benefit their clients. In other words, if the consultancy cannot provide effective services to their clients, it will pass on the opportunity, even if the client is willing to pay the fee.

Integrity is key in any professional or social setting. Companies adopt an unwritten or sometimes written obligation to serve the people first, before the firm's own interests. In order to do so, managers and employees alike must be honest and divulge information about the company to parties externally and internally. Mistakes both big and small must be publicized and remedied. Basic honesty results in trust, loyalty, and the well being of the company employees, as well as that of its clients. In order to exude these qualities to clients, consultants must embrace as well as internalize codes of ethics, which ultimately lead to strong interrelationships between employees and clients.

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

Professional qualifications

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

• The internationally recognized Certified Management Consultant (CMC) professional designation.
• Certificate in Management Consulting Essentials (IMC) - UK, Diploma in Management Consultancy (IMC) - UK
• Accountancy qualifications: Chartered Management Accountant (CIMA), Chartered Certified Accountant (ACCA), Chartered Accountant (CA), Certified Public Accountant (CPA), Certified Management Accountant (CMA) Chartered Cost Accountant CCA Designation from AAFM
• Finance qualifications: Chartered Financial Analyst (CFA) Certified Treasury Professional (CTP)
• Consulting qualifications: Master of Science in Business Consulting (BCM) Hochschule Furtwangen University Germany
• Business Administration qualifications: Master of Science in Management -Europe- (MSc.in Management) ,Master of Business Administration (MBA) -USA Canada Doctor of Management ( Ph.D.), Doctor of Business Administration-USA/Canada- (DBA),Master of Science in Management Consultancy (MSc) - UK
• Public Administration qualifications: Master of Public Administration (MPA) -USA/Canada, Doctor of Public Administration
• Project Management qualifications: Master of Project Management (MPM)- USA/Canada
• Advanced Professional Degrees such as Ph.D.'s or Master's degrees in Engineering, Science, etc. are specifically targeted by firms like McKinsey and the Boston Consulting Group.
• Management Consulting MBA ESC Toulouse,France
• Akademischer Unternehmensberater (Academic Management Consultant) - Austria - incite -institute for management consultants and information technology experts, Vienna

See also

• Applied Information Economics
• Category:Management consulting firms
• Certified Management Consultant
• Strategic management
• Operations management
• Industrial engineering
• Management fad
• Business philosophies and popular management theories
• Institute of Management Consultancy UK
• Institute of Management Consultants USA
• Phillips Graduate Institute

External links

• Association of Management Consulting Firms (AMCF)
• Canadian Association of Management Consultants
• Institute of Management Consultancy
• Timeline of the history of management consulting
• The Logic of Management Consulting (pdf)
• Management Consultancies Association