Management consulting

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", although the specific nature of situations under consideration may limit the transferability of 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.

History

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.[1] 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.[2] 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 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.[3]

An earlier wave of 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 onwards 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.

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,[4] 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.[5]

Function

The functions of consulting services are commonly broken down into eight task categories.[6] Consultants can function as bridges for information and knowledge, and that external consultants can provide these bridging services more economically than client firms themselves.[7]

Marvin Bower, McKinsey's long-term director, has mentioned the benefits of a consultant's externality, that they have varied experience outside the client company.[8]

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.

Approaches

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 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.

Specialization

Management consulting refers generally to the provision of business services, but there are numerous specialties, such as information technology consulting, human resource consulting, virtual management consulting 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 emphasised 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 industry

Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s ([9]) 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.

Rise of Big Four in the strategy consulting market

Big Four audit firms (Deloitte, KPMG, PwC, Ernst & Young) have been investing significantly into the strategy consulting market since 2010.[10] In 2012, 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.[11] EY followed the trend, with acquisitions of the Parthenon Group in 2014 and the BeNeLux business of OC&C in 2016.

Deloitte has been named as the largest consulting firm for six years running as per Gartner's annual consulting report.[12]

Firm Revenues Fiscal year Source
Deloitte $14.7bn 2015 [13]
PricewaterhouseCoopers (PwC) $12.7bn 2015 [14]
Ernst & Young (EY) $12.1bn 2015 [15]
KPMG $10.7bn 2015 [16]

The future of the industry

In 2013, Harvard Business Review discussed the prevalent trend within the consulting industry to evolve.[17] 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.

Government consultants

United Kingdom

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,[18] raising questions in the House of Commons as to the returns upon such investment[19]

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