Management consulting

out attitudes and patterns of behaviour that any individual consultant or firm can adopt that will help them to cope with future events for which they will be largely unprepared. Many readers are probably aware of these principles and may already be applying them purposefully or intuitively.

38.1 Your market

The thrust of what a consulting firm can do for its clients’ and its own future is to be alert to the changes occurring in the consulting market. This means the changes that have already taken place and to which many firms have probably started to react, as well as emerging changes that may be hardly perceptible, and changes that are predicted but not yet certain.

The principal long-term change, which has already generated important demand for consulting in the past decade and will continue to do so for many more years, is the shift to an information and knowledge-based economy. Firms active in all productive and non-productive sectors, including those in the IT sector themselves, are less and less capable of following all the developments that may affect their business, and maintaining up-to-date capabilities for making choices and decisions concerning their markets, strategies, alliances, customer relationships, logistics, financing, intellectual capital and its protection, effective management and control systems, outsourcing, productivity improvement, and so on. Hence they are turning to external sources of expertise, in particular to management, business and IT consultants.

A common challenge faced by firms in all sectors concerns the Internet and e-business: How important is it really to them? How deeply will firms be affected? How should the Internet and e-business be reflected in corporate strategy? How should physical and virtual processes in the value chain complement and reinforce each other? What pitfalls and inefficiencies are to be avoided? What lessons must be drawn from recent experience? Who can provide the best help? Even very large industrial and service concerns have to be selective in deciding about their core activities and strategies and need to purchase a great amount of knowledge, know-how and expertise from external sources. They need consultants and other professional service providers now and they will need them even more in the future. This is also the main reason why outsourcing has been progressing so rapidly as to become a major source of income for large consultancies in management and IT.2

How far can this go and where will it stop? It is difficult to say, but it is possible to visualize extreme scenarios in which the totality, or a very large portion, of the management function is outsourced to external management-cum-IT service providers, while the client provides the basic business directions, resources and corporate governance. This is already happening in contexts where consultants are used for managing turnarounds, or company management is subcontracted to them for prolonged periods by firms in difficulties. A reverse trend can also be seen, however: insourcing from consultants and other professional service

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Box 38.1 Change in the consulting business

The way to change a management consulting business is to stay focused on your market. The key success factor, the only way to survive, is to stay very very close to what is in the minds of the managers you are dealing with… What I have learned over the last year is that you might have thousands of people organized to deal with the big projects but if it is not what clients want to buy, you can forget it…

Last year we were being attacked by “little animals” that hadn’t existed before, with exotic names, and they did not just have exotic names but they behaved in an odd way… At first we were really shaken because these people were claiming to be the ones actually shaping the business in the United States. As a manager of a consulting firm I was pretty scared by all that and we were asking ourselves how we were going to get out of this mess, collectively and personally too. All these new jobs were not offered to us. As managers we were far too expensive for these little start-ups, so they were the ones who were going to have all the benefits of the outsider and they were going to have a lot more fun in the process.

A year later where are we? Most of the competitors who really scared us last year have practically disappeared. Most of them could not cope with classic delivery problems. The big companies, like Cap Gemini, Accenture and so on, were a bit slow to make their move but once they made it they were difficult to beat… It is amazing what new activities exist now. Personally I manage an activity I knew nothing about a year ago. The speed and agility with which these big firms have evolved in the course of last year is really something worth studying.

We have learned quite a few things. Above all, that in the Internet area strategy and technology are completely interdependent. As someone who grew up in a strategy environment, I dare say that without IT we would not go very far in our area. Basically the technology in my area defines the strategy… Business-to- business marketplaces are today the most challenging area in the field of strategy: how do you get competing firms to cooperate in this area? This is as important as outsourcing… We need to think about transition issues: how to move from one world, where these two things were completely separate, to a world where integration is much more important.

Of course, consulting companies will survive the Internet. The best consultants will have the modesty to recognize that they don´t know all the answers, but they can deal with the issues that are foremost in the minds of the clients. And they can demonstrate it by results.

Author: Claude Hoffmann, Executive Director of B2B Market Place, Cap Gemini Ernst & Young, addressing a consultants’ conference in Lyons, March 2001.

providers. Clients have already started to question the wisdom of overdependence on external sources of knowledge and experience in preparing strategic and operational decisions and running or restructuring important business processes. The e-business euphoria of 1999–2000 and its sudden death proved to be a useful

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lesson to businesses that were relying excessively on enthusiastic but inexperienced and sometimes fairly pushy “e-consultants”.

In any event, major market trends and forces will continue to shape and reshape the consulting market and, in the information economy, powerful forces will fuel the growth of demand for consulting. These include globalization and the need to address seriously some of its negative consequences and unresolved problems, the impact of demographic changes, migration trends, the emergence of new markets, the interaction of different cultures, changing consumer criteria and priorities, radical changes and small shifts in global and regional geopolitics, new and more powerful communication technologies and networks, to name a few. Some consultancies have already worked with governments and large multinational businesses to research, monitor, shape or mitigate even some of these fundamental development trends. However, more and more businesses will be affected by developments that in the past looked remote and even irrelevant to them.

The consulting sector also faces trends and forces whose origin can be traced to research, entrepreneurship and strategic options of consulting or IT firms themselves. Consultants are inventors and creators of their own markets and their own future, probably more so than other professionals. The demand for many current consulting services and products exists thanks to some consultants who invented, structured, packaged, sold and delivered such services to certain clients, thus whetting other clients’ appetite, and inciting other consultants to copy and try to improve these services, or present them under different labels. For example, the current trend to outsourcing is being shaped by IT and management service providers working on software for particular activities and processes and for systems integration. Integrated and more user-friendly and easy-to-apply software packages will not only become a new commodity; they will make redundant the services of many consultants who currently advise businesses on software selection, purchasing, adaptation, upgrading, compatibility, coordination and integration. Management and IT consultants have to swim with the stream, looking for new issues where clients need and appreciate help – as engineering and work study consultants had to do when production automation started to embrace and integrate whole processes rather than single operations in process and manufacturing industries.

Peter Drucker’s words are as true today as they were when written 20 years ago: “The management consultant is not only a major part of the practice of management. He has been, above all, central to the development of the theory, the discipline and the profession of management.”3 Yet some consultants feel that they are not really concerned with this role of pathfinder and creator of new responses to their clients’ problems and new business opportunities. They feel that only very large consultancies with huge professional and financial resources, and a small number of “management gurus”, can aspire to such a role. They consider that most consultants can be followers and copiers at best, and will only be picking the leftovers anyhow. Experience points to the contrary. There is no such thing as a market divided, dominated and blocked once and for

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all. It is well known that even IBM’s position was weakened for several years by the advent of the personal computer, the importance and impact of which were underestimated by IBM’s management. Currently, even in the IT software business dominated by large players such as Microsoft, IBM, Oracle or SAP, we can see that there is great scope for smaller inventive players, not only in very specific business applications, but also in the basic and generic operating systems underlying the Internet, as demonstrated by open-source software such as Linux, and by new applications addressing issues for which even the large software developers may be short of expertise, staff and sometimes even ideas.

Advancing commodification of consulting and IT services, and of knowledge transfer more generally, is a trend that needs close monitoring. Many consultants will face strategic decisions with far-reaching implications for their firms’ profiles and the development of their personal competencies. As more and more systems for planning, record-keeping, control, customer relationships, supply management, diagnosis, benchmarking and learning become standardized, structured, packaged and available for wide use as computer software, guides, manuals, checklists, or other self-help and do-it-yourself tools, clients will increasingly be in a position to purchase these products off the shelf and perform themselves many tasks for which they used to turn to consultants. The question will then be: what is left for a consultant who is not a major producer of commodified products and services? It may be futile to compete with the producers of such services unless you are in a position to create, and also to sell, better, more attractive or very special products. Recent experience tends to demonstrate that this will always be possible, though not for everyone since commodified products will increasingly require extensive research and development, upfront investment and intensive marketing.

However, commodification of consulting and IT products has limits and will never deprive consultants of all opportunities to seek creative solutions to their clients’ unique problems. Management cannot be reduced to installing and operating computerized systems, however promising and user-friendly they may appear to be. In respect of standard products that will be available to managers in growing numbers, consultants will be needed to help with assessment, selection, adaptation, application, training, and so on. Sophisticated clients will not necessarily welcome products that have been sold to thousands of different businesses as “the” solution. There will continue to be a vast array of choices, problems and opportunities faced by management in running businesses and other organizations, where information technologies will be applied as a routine, but professional judgement and initiative will still be needed to make and implement decisions, to innovate, and to react better and more quickly and efficiently than competitors.

Many of the problems and opportunities will concern the human and social side of the enterprise, which will always be affected by a wide range of factors, many of them emotional, irrational, cultural and unpredictable and which do not lend themselves to standard packaged solutions. Consultants who have started

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seeking the remedies to all clients’ problems in sophisticated systems and technologies will need to re-learn some old truths about business and people. People will make the difference even in the Internet and knowledge-economy era, but only in companies where managers and leaders care for people and understand how to motivate, inspire and develop them. Human resources and human capital will constitute a challenging consulting market in any period, even when qualified staff appear to be abundant and many companies seek to cut expenses by investing less in people.

Many challenges faced by companies will reflect changes in the external environment, to which companies have to adapt and which are mostly outside their control, but which can often be anticipated and analysed and to which an endless range of new responses can be found by innovative managers and consultants. Consultants are already helping clients to cope with many new issues requiring creative and innovative responses consistent with the clients’ external and internal environments. Examples include the social role and responsibility of business, corporate governance, human capital management and development, education and learning, knowledge management and knowledge-sharing, using emotional intelligence, networking and alliances, providing management expertise to organizations of civic society and voluntary social services, coping with new roles of public administration and searching for efficiency in public services, and e-government. Some of these issues have been somewhat overlooked or viewed as less important or less pressing during the “new economy” euphoria of the late 1990s, but since then the harsh economic and social reality has returned to the forefront of attention and no business can ignore it.

Consultants will also have to cope, and help clients cope, with changes that are difficult if not impossible to anticipate, including crises and natural or manmade disasters. The events of 11 September 2001, and the subsequent deterioration of the political and business climates, caught many companies unprepared not only for a disaster of unprecedented magnitude (against which it was virtually impossible to plan adequate protective measures or get full insurance), but for any major crisis. These events showed the importance of risk and crisis management, contingency and business continuity planning, leadership, courage and responsibility in difficult times, security, insurance and reinsurance, disaster recovery management, and other fields and measures usually regarded as a luxury and a financial burden when business “goes as usual”. Companies worldwide are increasingly looking for expert advice and help with these concerns, which are not entirely new, but currently require new approaches and resources.

In summary, there are signs that we may be witnessing a fairly deep polarization of two major strands of consulting:

●one concerned with the creation of increasingly standardized and commodified, and in most cases also computerized and Internet-based, systems and tools and their dissemination to large numbers of clients (which may no longer be called consulting);

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●one helping managers to cope with new, changing and often hardly predictable trends, situations and challenges, that concern various dimensions of businesses and other organizations and their interface with the economic, social, institutional, political and other environments (the core of consulting).

It may well happen that the first strand will turn out to be an essentially defensive use of consulting services and products, since it will provide largely affordable services and tools that anyone can easily acquire, and indeed will have to acquire in order to stay competitive. Conversely, the second strain will be predominantly offensive, forward-looking, continuously seeking new and non-standard responses to new challenges and aiming to provide clients with a competitive advantage. In practice this polarization may not be so absolute and both strands will be needed by clients in various combinations.

Consulting firms, then, will have to choose between the two strands, or make a deliberate decision to be in both, with all the implications for strategic positioning, staff profiles, consulting style, and management of the firm. Not all consultants will be able to choose freely, since it will be impossible to ignore existing competition and market segmentation. The freedom of decision will also be constrained by the firm’s own culture, competencies and other resources.

An equally important market choice concerns the sort of clients for whom the consulting firm works. Large professional service firms have always preferred large clients and large contracts, but over the past decade this inclination has become even stronger. This segment of the market cannot, however, maintain a two-digit growth rate for ever, especially when new application software, outsourcing, systems integration and commodification will take some work away from the consultants and also result in price reductions. It will be important for consulting firms of all sizes, but small and medium-sized consultancies above all, to find ways and approaches that make them more accessible and attractive to small clients. In the small-business sector in any country, but in transitional and developing economies in particular, the use of external expert services has usually been confined to accounting. At present, small firms can buy many standard software programs and outsource business processes and functions. This, however, is only a partial remedy to their problems. Many of them are disoriented and lack resources for choosing and implementing the most appropriate IT solutions. Their use of e-commerce is limited to poorly designed and inefficient Web sites and they are unable to fully understand and exploit all the opportunities created by deregulation, opening of public markets, falling trade barriers, changing consumer behaviour, networking with large firms and other small businesses, and the Internet in particular.

In the highly competitive consulting markets, small and medium-sized consultancies will also have the tremendous weight of advertising against them. To conquer the markets, large consultancies use publicity and spare no resources to put their current and potential clients in the right mood, create and solidify emotional links with clients in addition to technical links, suggest to clients that looking for their brand is equal to going for the best expertise, and make the clients

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