Management consulting
Management consulting refers to both the industry, and the practice of, helping organizations improve their performance, primarily through the thorough analysis of existing business problems and development of plans for improvement. Organizations hire the services of management consultants for a number of reasons, including, for example, to gain external, and presumably more objective advice and recommendations, to gain access the consultants’ specialized expertise, or simply as temporary help during a one-time project, where the hiring of permanent employees is not required.
Because of their exposure to and relationships with numerous organizations, consultancies are also said to be aware of industry ‘best practices,’ although the transferability of such practices from one organization to another is the subject of debate. Consultancies may also provide organizational change management assistance, development of coaching skills, technology implementation, strategy development, or operational improvement services. Management consultants generally bring their own, proprietary methodologies or frameworks to guide the identification of problems, and to serve as the basis for recommendations for more effective or efficient ways of performing business tasks.
Management consulting refers generally to the provision of business consulting services, but there are numerous specializations, such as information technology consulting, human resource consulting, and others, many of which overlap, and most of which are offered by the large diversified consultancies listed below. So-called ’boutique’ consultancies, however, are smaller organizations specializing in one or a few of such specializations.
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.
One important and recent change in the industry has been the spin-off or separation of the consulting and the accounting units of the large diversified firms. For these firms, which began business as accounting firms, management consulting was a new extension to their business. But precipitated by a number of highly publicized scandals over accounting practices, such as the Enron scandal, accountancies began divestiture of their management consulting units, to more easily comply with tighter regulatory scrutiny that arose in the wake of the scandals.
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. In 1983, Harvard Business School’s influence on the industry continued with the founding of Monitor Group by six professors.
One of the reasons why management consulting grew first in the USA is because of deep cultural factors: it was accepted there, (contrary to say, Europe), that management and boards alike might not be competent in all circumstances; therefore, buying external competency was seen as a normal way to solve a business problem. This is referred to as a “contractual” relation to management. 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. However, it is sometimes argued that in those days the average level of education of the executives was significantly lower in the USA than in Europe, where managers were “Grandes Ecoles” graduates (France) or “Doktor” (Germany), though this is very difficult to quantify given the vastly differing management structures in American and European businesses.
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.
Another branch of management consulting is Human Resource consulting. Such firms provide advice to their clients regarding the financial and retirement security, health, productivity, and employment relationships of their global workforce.
Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and linked to overall economic conditions. The consulting industry shrank during the 2001-2003 period, but has been experiencing slowly increasing growth since. In 2007, total global revenues for management consulting are expected to exceed the $300 billion mark.
Currently, there are four main types of consulting firms. First, there are large, diversified organizations 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, 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 primarily strategy consulting but are not specialized in any specific industry. 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-known in Europe for its skills in downsizing and cost-killing. Most of the boutiques were founded by famous business theorists.
A fifth type of global consulting firm is emerging. Sourcing Advisory services deal with choices between insourcing and outsourcing, vendor selection, and contract negotiations. The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were Alsbridge, TPI, EquaTerra, NeoIT, Pace Harmon, PA Consulting, RampRate, Deloitte, Gartner, and Everest. Although a fast growing sector, the largest sourcing advisory practices would likely be classified as boutiques when considering the management consulting industry as a whole – with one of the largest players, TPI, for example, citing 2006 revenues of less than US$150M during its acquisition by ISG.
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Tags: business consulting services, business problems, business tasks, development of coaching, human resource consulting, implementation strategy, improvement services, Management, management assistance, managerial principles, objective advice, operational improvement, organizational change management, profit agencies, proprietary methodologies, strategy development, technology implementation, temporary help, time project, transferability