Management consulting

Company transformation strategies

Management consultants are often called in when the development pattern of a company deviates substantially from normal. These tend to be difficult assignments, with an uncertain chance of success, often carried out under severe time pressure, for example if the client organization is in serious financial difficulties, or feels that it would miss an exceptional opportunity if the consultant takes too much time over the analysis or in helping to identify candidates for a merger or an acquisition. These assignments usually involve radical and deep changes in most activity sectors of the firm and strongly affect its management. Examples are mergers and acquisitions, turnarounds, large-scale outsourcing, divestment, downsizing, changes in ownership structures, and privatization of state-owned companies, all pursuing the objective of making the company more competitive, profitable and effective. These company transformation and renewal strategies will be reviewed in more detail in Chapter 22.

12.3 Processes, systems and structures

The structuring of an organization concerns the division of tasks and responsibilities among people, the grouping of tasks and people in units, the definition of vertical and horizontal information flows and collaborative relations, and arrangements for coordination. The purpose of structuring has in the past been to provide a more or less stable framework for the effective functioning of organizational processes and the total organization, i.e. of all its members, resources and units, in achieving common goals. This is yet another area in which rapid shifts are taking place, as structures become less rigid and formal.

The products of structuring are various systems and subsystems – organization systems, management information systems, decision-making systems, control and evaluation systems, systems for handling emergencies and crises, and so on. Any complex organization is operated through and with the help of these systems. However, experience shows that structures and systems can easily become a straitjacket, for example, if they try to standardize and prescribe behaviour for situations that are very specific and where standardization does more harm than good. The design and maintenance of systems is a costly affair; some kind of cost–benefit analysis is therefore required in starting a project to design or revise a system. Many organizations need help to prevent proliferation and overlapping of systems, as well as to avoid lack of coordination and conflicting requirements of various systems for supplying and interpreting information.

The process perspective

Recent thinking has emphasized core organizational processes as the principal criteria for developing systems and structures. Traditional fragmentation of

272

Consulting in general and strategic management

activities and tasks is tending to give way to integration which is made possible by modern technologies, in particular information technology. In describing the business process re-engineering approach, Michael Hammer and James Champy stress “focus on redesigning a fundamental business process, not on departments and other organizational units”. As they put it, “the fragmented processes and specialized structures are unresponsive to large changes in the external environment – the market, ... and display appalling diseconomies of scale, quite opposite of what Adam Smith envisioned”.5

Other current trends, however, are leading in a somewhat different direction. The focus may be on the core process, but there is increasing recognition that much of the process is likely to take place outside the organization itself. This is sometimes referred to as the development of the “virtual company”, and is itself an outcome of the “information revolution”. A recent article notes: “We reject a virtual organization as a distinct structure (like functional, divisional or matrix). Instead, we treat virtualness as a strategic characteristic applicable to any organization.”6

The thrust of the concept is that developments in information and communication technology have made it possible for the organization to develop much closer links with its customers, suppliers and distributors, to the extent that key parts of the overall “process” can now take place outside the organization itself. The Internet, for example, facilitates the testing and modification of product design in conjunction with “consumer communities”. Relations with such communities present both opportunities and dangers. Used properly, they can enhance the organization’s image and prestige, but misused, they have the potential to do immense damage. Information technology provides other kinds of opportunity for interacting with customers: remote sensing of the performance of consumer products, and problem diagnosis and even problem solution over an Internet link.

The implications for the organization’s interaction with its suppliers are even more far-reaching, and it is not surprising that it is the “B2B” ( i.e. business-to- business) sector of Internet activity that has developed most rapidly. Most large organizations recognize the importance of good supplier relations. Many are now going far beyond this, and recognizing that a range of activities that were previously carried out in-house could be more efficiently performed by external specialists. Thus National Semiconductor, for example, has recently outsourced all of its logistics operations to FedEx, and Fidelity Funds Management distributes its funds through the Charles Schwab organization. Perhaps the process has been taken furthest by the Nike company, which has entrusted all of its manufacturing and much of its marketing and public relations to outside specialists.

Some critics have argued that such a process eventually leaves a company with no real reason for existence: one coined the phrase “the hollow company” to apply to such organizations. Other commentators, however, see an exciting possibility

– of organizations that concentrate entirely upon creating value in the form of intangible assets – intellectual properties – and outsource all tangible assets and activities to outside specialists. This is an area that offers much for the consultant to think about, and on which many clients will need an outside opinion.

273

Management consulting

Decision-making systems and practices

In many organizations it may be the method and organization of decisionmaking (for both key and routine matters) that cause trouble. Excessive centralization of operational decisions may deprive the organization of the flexibility needed to react to new market opportunities. Fragmentation of processes and responsibilities makes quick decisions extremely difficult. The “virtualization” process adds a further complication, namely the need to include a variety of external agencies in the decision process.

The need to examine and reform the decision-making system may be the very reason why the consultant has been brought in. It may concern:

–the classification of decisions in groups by their nature, urgency, financial implications, degree of complexity, etc.;

–the ways in which typical decisions are taken (this may be quite difficult to find out);

–the respective decision-making roles played by staff specialists and line managers;

–the role of collective bodies in preparing and adopting decisions;

–the participation of employee representatives in decision-making;

–the decision-making and advisory roles of individuals in informal positions of influence;

–the responsibility for decisions, their implementation, and control of implementation;

–the use of decision-making techniques, models or formalized procedures.

The possibilities for improvement in this area are tremendous and general management consultants are well advised to pay close attention to them.

Management information systems

Most managers are aware that information has become a strategic asset of business and that the world is undergoing an information revolution. However, it is a long way from recognizing the new role of information to actually developing and implementing effective management information systems.

Many general management consultants focus on this area and offer services such as: analysing the existing information system; defining the information required for strategic management and operational control; harmonizing and integrating systems used in various departments; and choosing and introducing appropriate information processing technology. This work concerns both external information (on the environment and the enterprise’s relations with this environment) and internal information (on resources, processes and results achieved). The purpose is to make sure that the client has the information that is essential for strategic and operational decisions, but at the same time avoids collecting and developing information that is of no direct use. To decide where

274

Consulting in general and strategic management

the limits are is difficult, and it may be preferable to cast the “information net” more widely rather than to save money at the risk of missing some essential information.

In today’s consulting, management information systems are often handled as a problem of information technology, including the choice, installation and effective use of appropriate hardware and software. Yet this is only one side of the problem. Information technology is a key factor determining what sort of information and how much of it a company will be able to collect, process and analyse. Choosing the information that is needed for preparing and making decisions is not the computer specialist’s problem but the information user’s (and his or her management consultant’s) problem. Close collaboration between the two has to be established and maintained in developing effective information systems (see also Chapter 13).

Organizational structure

Examining and redesigning the organizational structure used to be the classical intervention of many general management consultants. When the basic structure was agreed, the consultant produced detailed diagrams and charts, as well as job descriptions for each unit and position within the client organization. The endproduct was often a set of organizational charts and instructions but, in fact, the principal benefit to the client was the effort and analysis that went into this job. Forgotten and “orphan” activities were rediscovered, activities for which nobody seemed to be responsible were defined, and overlapping activities were reassigned or done away with.

Today’s management consulting goes beyond the rather narrow approach taken by the “reorganization experts” in the past. Structure is treated as one of the factors of excellence, which is linked in many ways with strategy, organizational culture, the competence and motivation of employees, new technology and other factors. Competent and committed staff working in a loosely organized framework will produce better results than incompetent people inserted in a perfect formal structure. In any event, every consultant must realize that formal organization reflects only a small part of the very complex network of relations existing in an organization.

Reorganizations destroy existing work relations, collaboration patterns and socialization habits. Unjustified and frequent reorganizations paralyse enterprises and institutions, and generate lethargy rather than innovation and efficiency. A decision to reorganize often reflects management’s failure to identify and tackle the real issue. Therefore consultants are more and more cautious, and tend to prescribe reorganization only if there are very valid reasons for it (e.g. a new division must be established because the existing structure is clearly not able to put a new product on the market in the shortest possible time). Conversely, major changes of organizational structures are often necessary in companies in transformation, as will be discussed in more detail in Chapter 22.

275