Management consulting

35.2 Management and operations structure

Corporate governance and top management

The pattern of the consulting organization’s top management depends very much upon its legal statute. In firms constituted as corporations (limited companies) there will be a board of directors. In a small firm the directors would generally be the general manager (managing director) and the senior consultants (partners). In a large firm there may also be external board members who, being non-executive, can play a useful role in the sense that they may preserve the same detachment in guiding the firm as the consultants have in advising their clients. They also tend to be chosen because of their range of business interests and contacts. In partnerships, decisions on key policy matters may be reserved for periodical meetings of all partners.

Consulting units that are not independent firms may have a governing body comprising a cross-section of managers from private and public enterprises, representatives of chambers of commerce and employers’ associations, senior government officials, and possibly other members in addition to one or more senior managers from the unit.

The key position in the management hierarchy is that of the chief executive officer (CEO), who may be called principal, general manager, president, managing director, managing partner, director-general, or simply manager or director. In a partnership, the CEO would be elected by a partners’ meeting for a fixed period.

The CEO may use a management committee in the usual way for involving other managers or designated senior partners in dealing with issues requiring collective discussion or decision. Other committees may be established for dealing with issues such as strategy, quality, business promotion and marketing, IT, or staff compensation. They may be permanent or ad hoc. As in other businesses and public organizations, there may be a tendency to create a committee each time an issue cannot be immediately resolved or needs to be examined in a collective. A proliferation of overlapping committees, and meetings of the same people under different committee denominations, are not signs of effective management.

The individual at the top will most probably be a career consultant (a senior partner) with considerable experience and managerial talent. On reaching the top, he or she may experience problems similar to those faced by managers of research and other professional services – he or she must stop thinking and operating primarily as a technician and concentrate on managing (see also Chapter 27). Some consulting organizations have recruited top managers from outside, from among individuals who have been excellent business managers but not necessarily practising consultants. There is no universal rule – the candidate’s competence and personality will determine whether he or she will be able to cope with the challenge of the job, provide strategic leadership and strengthen the firm by subtle but persistent coordination and control.

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Structuring a consulting firm

Operating core

Consultants spend most of their time working for clients on specific assignments. Normally they do most of their work at clients’ premises, and once an assignment is completed, they move physically to another client. In the management system of a consulting firm, individual assignments are treated as basic management cells with precisely defined terms of reference, resources and responsibilities. However, assignments are only temporary management cells and structuring by assignments would not provide for stability and continuity of internal organization. Most consulting firms therefore structure their operating core – the professional staff – in more or less permanent “home” units (called “practice groups” in some professions). Consultants are attached to these units according to some common characteristics in their background, clientele served, or areas of intervention.

Functional units. Functional units, the most common type of internal structure in the past and still quite widespread, used to be organized by the basic functions of management, such as general management, finance, marketing, production and personnel. A consulting assignment may be fully within the function area covered and the unit can therefore staff and supervise the assignment from its own resources. In other cases, the unit would “borrow” staff from other units for the duration of the assignment. This is particularly common in complex assignments dealing with various aspects of a business.

Service line units. Recently, consulting firms have started to give priority to units established by technical problem areas and new product lines, such as strategy and policy, organization development, total quality management, business restructuring, mergers and acquisitions, knowledge management or customer relationship management (CRM). As a rule (though not always), these service lines cut across functions and disciplines and focus on a particular approach or method of business improvement. Such units are regarded as more flexible and dynamic structures that can be closer to clients, enjoy more autonomy within a larger firm, change and innovate more easily and behave as entrepreneurs.

Sectoral units. Units that are sectorally specialized (e.g. for construction, banking, insurance, road transport, health) are often established if this is justified by the volume of business done in a sector and by the need to have teams that are recognized as sectoral experts. It is impossible to suggest a minimum size for such a unit. Even a smallish unit with all-round experts in a sector may play a useful role in developing and managing assignments, which can also make use of specialists from other units. If a certain sector generates a sizeable amount of work, a sectoral unit may become more or less selfcontained and employ a wider range of specialists on a permanent basis in addition to its sector generalists.

Geographical units. Geographical (territorial) units are often established when a consulting firm decides to decentralize in order to get closer to the

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clients and increase efficiency (e.g. by reducing transport and communication expenses). They exist in two basic forms:

–offices whose main purpose is marketing and liaison with clients in a delimited geographical area; these units tend to be small, staffed by a few generalists, and equipped by certain services for supporting operating assignments; assignments can thus be staffed by consultants from the unit and from headquarters;

–fully staffed local (area) branches that can take care of most assignments using their own personnel; these units are effective if the volume and structure of business done in the area concerned are relatively stable, or if the business is expanding steadily. A major advantage for the consultants is that they do not have to be absent from their homes for long periods.

Geographically decentralized units are most common in large consulting firms. A small firm must weigh the advantages of getting close to the clientele against the cost of the operation and the firm’s ability to keep technical and administrative control over geographically distant units. There are, in addition, various combinations. For example, a decentralized geographical unit may specialize in the sector or sectors featuring most prominently in the area covered by the unit.

Some examples

Figure 35.1 shows a general organizational structure used by a number of large consulting companies in various countries. In contrast, figure 35.2 shows the structure of the professional core of a consulting unit employing 29 consultants. It is a hypothetical example, which we will use to illustrate typical organizational considerations. A unit of this size can make up a whole consulting company, or constitute a division in a larger company or a management services department in an industrial concern.

The unit employs six senior consultants, of whom four work as team leaders and supervisors of operating assignments, and two concentrate on marketing and management surveys. The 20 operating consultants will, as a rule, be specialists in various management functions. Among the supervisors in the unit, three may also specialize in managing assignments in functional areas, while the fourth may be an all-round general management expert, able to manage assignments covering several functional areas. The 20 operating consultants can work in assignment teams or individually on small assignments. Thus, the supervisors will either work as team leaders on large assignments, or supervise several operating consultants working individually for different clients.

The general criteria concerning the firm’s leverage (section 27.3) should be kept in mind. Significant factors determining expansion are market demand, and the availability of operating consultants with sufficient experience and knowledge to be appointed as supervisors or team leaders. At least three to five

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Structuring a consulting firm

Figure 35.1 Possible organizational structure of a consulting company

Board of directors

Managing director

Management committee (policy-making)

years of experience, encompassing both a range of assignments with companies and a variety of techniques, are required. To replace the operating consultants as they rise to higher levels or leave, new consultants must be already trained. For this reason a stable organization includes two or three trainee consultants in every group of 25 to 30, as shown in figure 35.2.

Another factor affecting expansion is the ratio of specialist to generalist consultants. Where an assignment calls for several disciplines, the supervising consultant may accept overall responsibility but call on a specialist to oversee special techniques as required. To meet the full range of client demands, the consulting firm may have to call on some highly specialized consultants, e.g. in productivity measurement, logistics, operations research or franchising. It is of course difficult to find a constant demand for these types of service within a smaller unit.

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