Management consulting is the practice of helping organizations to improve their performance, operating primarily through the analysis of existing organizational problems and the development of plans for improvement. Organizations may draw upon the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice and access to the consultants' specialized expertise.
As a result of their exposure to, and relationships with numerous organizations, consulting firms are typically aware of industry "best practices." However, the specific nature of situations under consideration may limit the ability to transfer such practices from one organization to another.
Consultancies may also provide organizational change management assistance, development of coaching skills, process analysis, technology implementation, strategy development, or operational improvement services. Management consultants often bring their own proprietary methodologies or frameworks to guide the identification of problems, and to serve as the basis for recommendations for more effective or efficient ways of performing work tasks.
Management consulting grew with the rise of management, as a unique field of study. The first management consulting firm was Arthur D. Little Inc., founded in 1886 as a partnership, and later incorporated in 1909. Though Arthur D. Little later became a general management consultancy, it originally specialised in technical research.
As Arthur D. Little focused on technical research for the first few years, the first management consultancy was started by Frederick Winslow Taylor, who in 1893 opened an independent consulting practice in Philadelphia. His business card read "Consulting Engineer – Systematizing Shop Management and Manufacturing Costs a Specialty". By inventing Scientific Management, also known as Taylor's method, Frederick Winslow Taylor invented the first method of organizing work, spawning the careers of many more management consultants. One of Taylor's early collaborators, Morris Llewellyn Cooke, for example, opened his own management consultancy in 1905. Taylor's method was used worldwide until industry switched to a method invented by W. Edwards Deming.
The initial period of growth in the consulting industry was triggered by the Glass-Steagall Banking Act in the 1930s, and was driven by demand for advice on finance, strategy, and organization. From the 1950s onwards consultancies not only expanded their activities considerably in the United States but also opened offices in Europe and later in Asia and South America. After World War II, a number of new management consulting firms formed, bringing a rigorous analytical approach to the study of management and strategy. The postwar years also saw the application cybernetics principles to management through the work of Stafford Beer.
The industry experienced significant growth in the 1980s and 1990s, gaining considerable importance in relation to national gross domestic product. In 1980 there were only five consulting firms with more than 1,000 consultants worldwide, whereas by the 1990s there were more than thirty firms of this size.
A period of significant growth in the early 1980s was driven by demand for strategy and organization consultancies. The wave of growth in the 1990s was driven by both strategy and information technology advice. In the second half of the 1980s, the big accounting firms entered the IT consulting segment. The then Big Eight, now Big Four, accounting firms (PricewaterhouseCoopers; KPMG; Ernst & Young; Deloitte Touche Tohmatsu) had always offered advice in addition to their traditional services, but from the late 1980s onward these activities became increasingly important in relation to the maturing market of accounting and auditing. By the mid-1990s these firms had outgrown those service providers focusing on corporate strategy and organization. While three of the Big Four legally divided the different service lines after the Enron scandals and the ensuing breakdown of Arthur Andersen, they are now back in the consulting business. In 2000, Andersen Consulting broke off from Arthur Andersen and announced their new name: Accenture. The name change was effective starting January 1, 2001 and Accenture is currently one of the largest consulting firms in the world. They are publicly traded on the NYSE with ticker ACN.
The industry stagnated in 2001 before recovering after 2003, with a current trend towards a clearer segmentation of management consulting firms. In recent years, management consulting firms actively recruit top graduates from Ivy League universities, Rhodes Scholars, and students from top MBA programs.
In more recent times, traditional management consulting firms have had to face increasing challenges from disruptive online marketplaces that are aiming to cater to the increasing number of freelance management consulting professionals.
The functions of consulting services are commonly broken down into eight task categories. Consultants can function as bridges for information and knowledge, and that external consultants can provide these bridging services more economically than client firms themselves. Consultants can be engaged proactively, without significant external enforcement, and reactively, with external pressure. Proactive consultant engagement is engaged mainly with aim to find hidden weakspots and improve performance, while the reactive consultant engagement is mostly aimed at solving problems identified by external stakeholders.
Consultants have specialised skills on tasks that would involve high internal coordination costs for clients, such as organization-wide changes or the implementation of information technology. In addition, because of economies of scale, their focus and experience in gathering information worldwide and across industries renders their information search less costly than for clients.
In general, various approaches to consulting can be thought of as lying somewhere along a continuum, with an 'expert' or prescriptive approach at one end, and a facilitative approach at the other. In the expert approach, the consultant takes the role of expert, and provides expert advice or assistance to the client, with, compared to the facilitative approach, less input from, and fewer collaborations with the client(s). With a facilitative approach, the consultant focuses less on specific or technical expert knowledge, and more on the process of consultation itself. Because of this focus on process, a facilitative approach is also often referred to as 'process consulting,' with Edgar Schein being considered in America as the best-known practitioner. The consulting firms listed above are closer toward the expert approach of this continuum.
Many consulting firms are organized in a structured matrix, where one 'axis' describes a business function or type of consulting: for example, strategy, operations, technology, executive leadership, process improvement, talent management, sales, etc. The second axis is an industry focus: for example, oil and gas, retail, automotive. Together, these form a matrix, with consultants occupying one or more 'cells' in the matrix. For example, one consultant may specialize in operations for the retail industry, and another may focus on process improvement in the downstream oil and gas industry.
Management consulting refers generally to the provision of business services, but there are numerous specialties such as strategic management, information technology consulting, human resource consulting, financial consulting, virtual management consulting, design, operations management consulting, engineering management, management science, and others, many of which overlap, and most of which are offered by the larger diversified consultancies. So-called "boutique" consultancies, however, are smaller organizations focusing upon a few of such specialties.
The 1990s saw an increase in what has been termed a 'future-based' approach. This emphasized language and alignment of people within an organization to a common vision of the future of the organization, as set out in the book Three Laws of Performance. The essential concept here was that the way people perform is seen to correlate to the way that world occurs for them, and that future-based language could alter the way the future actually occurs for them. These principles were increasingly employed in organizations that had experienced a market transition or a merger requiring the blending of two corporate cultures. However, towards the end of the 1990s the approach declined due to a perception that the concept outlined in this book did not in practice offer added value to organizations.
Current state of the industryEdit
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 grew steadily until the recent economic downturn in 2009. Since then the market has stabilized.
Increasingly, management consultancy firms are being challenged by disruptive technologies which facilitate work for ex-management consulting freelancers.
As of December 2016, revenues grossed $229.9B with profits of $26.2B. Annual growth from 2011-2016 is expected to increase at a rate of 5.8% year-over-year. The projected growth rate from 2016-2021 is 2.4%, accounting for the potentially disruptive technologies as mentioned before that will affect freelance and independent consultants.
Big Four accounting firms in the management consulting marketEdit
Big Four audit firms (Deloitte, KPMG, PwC, Ernst & Young) have been investing significantly into the strategy consulting market since 2010. In 2013, Deloitte acquired Monitor Group—now Monitor Deloitte—while PwC acquired PRTM in 2011 and Booz & Company in 2013—now Strategy&. From 2010 to 2013, several Big Four firms have tried to acquire Roland Berger. EY followed the trend, with acquisitions of the Parthenon Group in 2014, and both the BeNeLux and French businesses of OC&C in 2016 and 2017.
Deloitte has been named as the largest consulting firm for six years running as per Gartner's annual consulting report. Deloitte Consulting is broken up into three practices: Human Capital, Strategy & Operations, and Technology. They were ranked #4 on Vault's 2018, 2017 and 2016 rankings for consulting firms. In 2016, PwC overtook Deloitte again as the globe's largest consulting firm, with the revenue gap between the two Big Four firms at roughly $600 million, according to Gartner.
|Ernst & Young (EY)||$12.1bn||2015|||
The future of the industryEdit
In 2013, an article in Harvard Business Review discussed the prevalent trends within the consulting industry to evolve. The authors noted that with knowledge being democratized and information becoming more and more accessible to anyone, the role of management consultants is rapidly changing. Moreover, with more online platforms that connect business executives to relevant consultants, the role of the traditional 'firm' is being questioned.
Two emerging key trends will have a large impact on McKinsey, BCG, Bain and their counterparts: 1) new areas of specialization (machine learning, AI, sharing economy, blockchain) provide opportunities to establish new and valuable domain expertise and 2) expansion of consulting services from "strategy only" to a strategy plus implementation. As a result of the first trend, McKinsey et al. will publish research and build expertise in these new areas, which will help them re-gain a domain expertise edge and establish a competitive moat. In addition, these companies will start pitching, selling and delivering on more implementations work which will drive up revenues but also put these firms in direct competition with Accenture, Deloitte, etc.
In the UK, the use of external management consultants within government has sometimes been contentious due to perceptions of variable value for money. From 1997 to 2006, for instance, the UK government reportedly spent £20 billion on management consultants, raising questions in the House of Commons as to the returns upon such investment.
The UK has also experimented with providing longer-term use of management consultancy techniques provided internally, particularly to the high-demand consultancy arenas of local government and the National Health Service; the Local Government Association's Improvement and Development Agency and the public health National Support Teams; both generated positive feedback at cost levels considered a fraction of what external commercial consultancy input would have incurred.
European Standard EN 16114:2011 "Management consultancy services".
In 2011, Romanian management consultants managed to recover after the economic downturn and to re-initiate growth. At the end of 2010, the majority of the companies declared income stagnation or even decrease and at the end of 2011 about 70% of the companies declared increases or stagnation. The years 2010 and 2011 represented an important test for many Romanian consulting companies according to a European Federation of Management Consultancies Associations (FEACO) study.
In 2015, Romanian management consulting had a turnover of 350 Mln. € and an export of 10% of the overall turnover, 75% within the EU and 25% outside. The local leader of the Romanian management consulting market is Ensight Management Consulting.
In 1988, the newly elected Greiner State Government commissioned a report into the State Rail Authority by Booz Allen Hamilton. The resulting report recommended up to 8,000 job losses, including the withdrawal of staff from 94 country railway stations, withdrawing services on the Nyngan- Bourke line, Queanbeyan – Cooma line and Glen Innes- Wallangarra line, the discontinuation of several country passenger services (the Canberra XPT, the Silver City Comet to Broken Hill and various diesel locomotive hauled services) and the removal of sleeper trains from services to Brisbane and Melbourne. The report also recommended the removal of all country passenger services and small freight operations, but the government did not consider this to be politically feasible. The SRA was divided into business units – CityRail, responsible for urban railways; CountryLink, responsible for country passenger services; FreightRail, responsible for freight services; and Rail Estate, responsible for rail property.
Many smaller players have also been cited as organisations who have government contracts.
In New Zealand the government has historically had a greater role in providing some infrastructure and services than in some other countries. Contributing reasons included insufficient scale in the private sector, smaller capital markets and historic political support for government service provision. Current infrastructure investment plans are open to a range of public/private partnerships. New Zealand governments hire in expertise to complement the advice of professional public servants. While management consultants contribute to policy and to strategy development, the Government tends to use management consultants for strategic review and for strategy execution. There is a distinction between management consultants (who generally provide advice and fixed deliverables, often for a fixed fee) and professional contractors (who work for an hourly or daily rate providing specialist services). Official figures from 2007 to 2009 show annual expenditure of about NZ$150 to NZ$180 Million by the New Zealand Government on consultants, but this may be understated.[need quotation to verify] While multinational consultancy firms provide advice on major projects and in specialist areas, the majority of management consultants providing advice to the New Zealand government operate as sole practitioners or as members of small consultancy practices. The range of services provided is large, covering change management, strategic review, project and programme management, procurement, organizational design, etc.
Management consultants are sometimes criticized for the overuse of buzzwords, reliance on and propagation of management fads, and a failure to develop plans that are executable by the client. As stated above management consulting is an unregulated profession so anyone or any company can style themselves as management consultants. A number of critical books about management consulting argue that the mismatch between management consulting advice and the ability of executives to actually create the change suggested results in substantial damages to existing businesses. In his book, Flawed Advice and the Management Trap, Chris Argyris believes that much of the advice given today has real merit. However, a close examination shows that most advice given today contains gaps and inconsistencies that may prevent positive outcomes in the future.
Ichak Adizes and coauthors also criticize timing of consultant services. Client organization, which is usually lacking knowledge it wants to obtain from the consultant, cannot correctly estimate right timing for engagement of consultants. Consultants are usually engaged too late, when problem is visible at the organizational iceberg tip, so proactive checkup, like regular medical checkup, is recommended. On the other side, this opens additional danger for abuse from disreputable practitioners.
More disreputable consulting firms are sometimes accused of delivering empty promises despite high fees, and also with "stating the obvious" or lacking the experience upon which to base their advice. These consultants bring few innovations, instead offering generic and "prepackaged" strategies and plans that are irrelevant to the client’s particular issue. They may fail to prioritize their responsibilities, placing their own firm’s interests before those of the clients.
Further criticisms include: disassembly of the business (by firing employees) in a drive to cut costs, only providing analysis reports, junior consultants charging senior rates, reselling similar reports to multiple clients as "custom work", lack of innovation, overbilling for days not worked, speed at the cost of quality, unresponsive large firms and lack of (small) client focus, lack of clarity of deliverables in contracts, not customizing specific research report criteria and secrecy.
ISO published the international standard ISO 20700 Guidelines for Management Consultancy Services on June 1, 2017. This document represents the first international standard for the management consultancy industry.
An international qualification for a management consulting practitioner is Certified Management Consultant (CMC).
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- Big Three (management consultancies)
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Action areas of consultingEdit
- Strategic management
- Operations management
- Industrial engineering
- Industrial/Organizational Psychology
- Industrial Psychology
- Organizational Psychology
- Organizational Development
- Project Management
- Case interview
- Motivational speaking
- Business coaching
- Management fad
- Business philosophies and popular management theories sub system organization and effect on the entire managemental culture
- Big Three (management consultancies)
- Nathan for You and House of Lies - television programs parodying management consulting
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