consultancy presentation v0

Introduction to the Consulting Business

MIRCEA GIURCAN BUCHAREST, dd.mm.2011

Introduction to the Consulting Business 22/17/2011

Introduction

• Today, management consulting is a multi-billion-dollar business. Some of the largest service providers have more employees and higher revenues than most of their clients.

• Others, although of a smaller size, enjoy considerable influence on decision makers, not only in the economy, but also in politics and society.


• The large-scale managerial enterprise originated with the second industrial revolution in the last half of the 19th century. This meant that in many industries the ‘visible hand’ of management took over part of the economic coordination function from the invisible hand of the market.

• Almost from the outset top managers in these enterprises asked foroutside advice. A number of different actors, including bankers, advertising agents, auditors and engineers provided such services – initially on an ad hoc basis. Consulting to managers became a clearly recognizable business activity carried out for financial gain, with the development of scientific management.

• These early management consultants were known as industrial engineers or efficiency experts.


What is actuallyManagement Consultancy?

Management consulting is the creation of value for organizations,through the application of knowledge, techniques and assets, to improve performance.This is achieved through the rendering of objective advice and/or the implementation of business solutions.


A large chunk of the consulting industry is not in the business of offering advice at all, but exists to implement the strategies and programmes agreed in the boardroom, often with other professionaladvisors.

It is not possible for a consultancy firm to provide in-depth knowledge of a particular technology, global teams to implement it and to be technologically ‘agnostic’. Indeed many clients do not regard this as necessary; they are looking for world-class suppliers and speedy implementation across borders; in such situations objectivity is not an issue.


Collaborative working between client, consultant and other partners is increasingly seen as key to the success of consultancy projects.


The question that many clients asked themselves over the years has been compounded with the increasing level of integration of management consultancy firms with large audit firms or with information technology (IT) companies.

Yes! But can you trust them?


Questions raised in Europe and in the USA were suddenly answered with the revelations of the conflicts of interest

ignored by Enron and its auditor,Arthur Andersen. Arthur Andersen was billing US$50 mil. for these services, divided roughly equally between audit and consultancy.

The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure.

Enron's nontransparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance.


Competency of individual consultants

In an uncertain world, clients seek as much certainty as possible to protect market shares and margins.

Obtaining the services of a consultancy firm whose staff can prove they have current competency in the services needed is an increasingly important factor in the choice of consultants.


Individuals are tested within the following competence framework:

• Professional behaviours: these define the entry-level professionalbehaviours and attitudes which act as ‘enablers’ in achieving marketcapability, knowledge and consulting competence;

• Consulting competence: these are the core consultancy skills, toolsand techniques that are essential to effective service delivery;

• Market capability and knowledge: this is the application of fact-based knowledge. It brings together the combination of technical skills, business understanding, sector insight and external awareness.


Types of Management Consultancy

• An awareness of the distinctions between the different forms of consulting is important to demonstrate to clients and employers a general understanding of the industry.

• It is also important for a consultant’s career progression to know which sectors

and types of consultancy best suit their own strengths.

• There is a significant difference in working style and pay between, for example, implementing an IT project in the public sector and doing strategy work in a bank.


There are, several ways of segmenting the consultingindustry, namely by:

• Business Model: What is the firm’s structure and strategy? How does it make money?

• Service: What activities does the consultancy undertake for its clients?

• Sector: What do the firm’s clients do?

Segmentation of the Consulting Industry


The differing business models of consulting

firms are important because they determine

what type of clients the fi rm will attract, what

the consultants’ jobs will look like, how they

will get paid, and how they are organised.

1. Different Business Models


Main Types

• Hybrid vs. Pure Consultancies• Niche vs. Generalist• Small vs. Large Consultancies• Body-Shopping• Internal Consultancy• Contractors• Interim Managers


Hybrid vs. Pure Consultancies• “Pure” consultancies focus solely on consulting work,

such as McKinsey, Bain, Roland Berger, and AD LittleVS

• Companies that have added consultancy as an additional competence to complement their other work. For example, audit companies such as Ernst&Young or Deloitte, IT businesses such as IBM or Axon, and engineering corporations such as Enterprise Consulting or Arup have added consulting to their existing businesses as additional sources of revenue.


• Hybrid companies, such as IBM, PWC, and Accenture, tend to be latecomers to consultancy, adding the consulting function onto an existing company. Adding consultancy to an existing business provides a business with an opportunity to cross-sell advisory work to their clients so that the “core” functions, such as engineering, IT, or audit, enable the company to create leads and opportunities for consultancy work.


For example, if an IT company undertakes a strategic audit for a client, it may be no surprise if they discover an IT deficiency in their client which could be solved with the use of their IT offerings.


Niche vs. GeneralistA generalist consultancy is one that offers many services.

For example Accenture offers everything from outsourcing to systems integration to strategy work. Having a generalist offering is often useful for consultancies because when one type of work dries up, they can offer something else to balance the loss. For this reason, many of these consultancies employ “generalist” consultants who have easily transferable skills.

Generalist consultants don’t necessarily have all the skills required when they start a project. However, they have a strong set of “core” analysis and communication skills and have the ability to learn quickly. Unless the work is of a particularly specialised nature, a good generalist consultant will develop competence within a matter of days.


Niche consultancies tend to be smaller and to employ more experienced or specialised consultants.

Many of these employ only one or two people and work within a loose network of affiliations of similar consultancies to take on bigger projects. These usually rely on personal contacts and networking for new contracts and often specialise in one service area. Clients like using them because they know the person they are working with, they are often cheaper than large consultancies, and they tend to have more experience than the MBA graduates offered by the likes of Accenture.


Small vs. Large Consultancies

No. employees Market % 2003 Market % 2009

1–4 79.8 82.2

5–9 9.7 8.5

10–19 5.2 4.7

20–49 3.2 2.8

50+ 2.1 1.8Changing patterns of dominance in size of US consultancy firms (2003–2009)Source: IBIS (2009)


The other types of classification

• Body-Shopping• Internal Consultancy• Contractors• Interim Managers


Case Study

Ball Inc’s Internal Consultancy

• What ethical issues are raised in this case?• Who do you think is “right” in each issue?• What would you do if you were Ball Inc’s MD?• Could this situation have been handled better

by any of the parties? How?


2. Consulting by Service

IT consulting46%

Business advisory services

26%

Operations management

15%

Strategy consult -ing8%

HR consulting6%

Market share


Strategy Consulting

Strategy consulting is universally acclaimed as the sexiest form of consulting and one with which students, job-seekers, analysts, and academics prefer to associate themselves. The strategy fi rms, such as McKinsey, Bain, and Boston Consulting Group, whilst not the biggest in the world, routinely recruit the best and brightest from the top universities around the world and pay the highest salaries in the industry.


What Is Strategy Consulting?

• At its most basic, strategy consulting is concerned with two questions: where the client should position themselves (the strategy) and how they should get there (the strategic plan).


In theory strategy consultants identify changing markets, technologies, and environments and seek opportunities for companies to increase their shareholder returns or profitability.

A key tool that consultants use for this is scenario planning. Scenario planning involves estimating what the world will look like in fi ve years and designing the company to position itself to take advantage of these changes.

This might involve issues such as:

• What should BP do if fossil fuels run out?• What opportunities does global warming offer to insurers?• How should US businesses respond to the threats from India and China?


IT Consulting• IT consulting is now the biggest revenue stream of

management consultancies.• It is important to clear up a big misconception about IT

consultancy. Many students are reluctant to get involved with IT consulting because they know nothing about IT. However, IT consulting is not about IT—it is about business.

• The biggest reason IT consulting projects fail is not because the coders or systems analysts get it wrong but because the business fails to control and specify what it wants.


The segmentation of the IT consulting industry

Segment Description Daily chargerange Examples

Largesystemsintegrators

These are the large SI and outsourcing firms that also advise on IT implementation. These firms have around 75% of the market. These firms tend to do the management and implementation work.

£400–1,000 Accenture,IBM

Audithouses

Accounting firms are well placed to give advice on IT implementations because they can also offer advice on minimising the tax burden on such systems. These have around 10% of the market.

£600–1,500 Ernst&Young, PwC, KPMG, Deloitte,

Nichestrategists

These not only include the strategy consultancies but also niche technology and e-business firms that specialise in this area. These have around 10% of the market.

£800–2,000 Sapient, Avenue A,Diamond

IndividualsThese are either consultants or contractors who have enough skill and experience to work independently. In terms of consultants (i.e. not systems analysts or coders) these account for about 5% of the market.

£250–3,000

The segmentation of the IT consulting industry, Management Consultancy, Joe O’Mahoney, OUP, 2010, p.65