CHALLENGES AND OPPORTUNITIES IN MANAGEMENT CONSULTING

Setting an Agenda for Future Competitiveness

REPORT 1

Research Project part of

Supported financially by

CHALLENGES AND OPPORTUNITIES IN MANAGEMENT CONSULTING

Setting an Agenda for Future Competitiveness

Prepared by:

Professor Elena Antonacopoulou, GNOSIS Director, AIM Senior Fellow Dr Daniel Muzio, GNOSIS Associate, AIM Scholar Dr Daniel Geiger, GNOSIS Researcher, AIM Fellow Mr Swetketu Patnaik, GNOSIS Researcher, AIM Research Assistant Mr Mo Roohanifar, GNOSIS Researcher

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Contents
Contributors Introduction Executive Summary of main themes Themes Professionalism Procurement Risk Innovation Business Model Human Resources Issues Summary Acknowledgements Contact 6 7 8 9 10 11 12 14 14 3 4 5

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Contributors We acknowledge the contribution of the participants at the first GNOSIS workshop Challenges and Opportunities in Management Consulting: Setting an Agenda for Future Competitiveness. Their ideas have formed the core of the issues detailed in this Report. Prof. Elena Antonacopoulou, AIM and University of Liverpool Mr Vincent Bryant, Pi Consulting Ms Fiona Czerniawska, Management Consultancy Association Ms Nicola Davis, N2 Consulting and Deputy Chair of IMC Dr Sarah Dixon, Kingston Business School Mr Chris Gamblin, Rethinking Consultancy Ms Heidi Gardner, LBS Dr Daniel Geiger, AIM and University of Liverpool Dr Karen Handley, Oxford Brookes University Prof. Ian Kirkpatrick, University of Leeds Mr Brian Langham, Hay Consultants Ltd Dr Chris McKenna, Said Business School Mr Sean McMorrow, BT Prof Tim Morris, Said Business School Dr Daniel Muzio, AIM and University of Lancaster Mr Swetketu Patnaik, AIM and University of Liverpool Ms Lynda Purser, IMC Mr Mo Roohanifar, GNOSIS and University of Liverpool Mr Laurence Smith, EDS Consulting Mr Robert Stephens, OGC Ms Janice Southway, Red To Green Consulting Dr Georges Tsogas, Cass Business School Ms Sharon Vannet, University of Dundee Dr Sudhir Varadarajan, Tata Consultancy Prof. Robin Wensley, University of Warwick Mr Chris Wyatt, ESRC

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Executive Summary of Themes The main issues for action that were generated in the discussion during the first GNOSIS workshop were the following: Professionalism o Standardisation o Benefits to clients o Brand/identity o Accountability Procurement o Dealing with specifics in each project o Cost of resourcing process Risk o Professionalisation o Brand and organisational processes o Role of consultants as releasing risk in clients Innovation o In consulting dependent on client relations process outcome o Risk to innovate o Larger firms in a better position o Consultants are seen as a source of innovation for client o Capacity to absorb novelty/innovation by client o Tension with need for standardisation o Where does innovation come from (sources)? Within project R&D centres o The Next big thing in Consulting Competitors o DIYs Internal Consultants Business models o Film firms o Associate model small firms oriented :- consultant specific o Multi-sourcing projects :- client specific o Strategies for growth Staffing Clients Strategic Learning o To Collaborate With clients Other consultants Other consulting firms o Educating Clients on how to use consultants o HR issues Career development of young consultants Qualifications and legitimacy Loyalty to company/founder Selection (hiring) of right kind

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Gender women consultants o Knowledge IP issues Who should own it? Knowledge sharing Quality o Value-added as perceived by clients o What purposes are consultants used for? o Relationships between clients and consultants Transactional Partnerships o Relationships between consultants and sub-consultants o Relationships with academics o Image of consultants/value-added o What consultants sell content skills knowledge? These issues are grouped in six main headings and form the basis of this report and of the subsequent workshops scheduled for 2007.

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Professionalism
Professionalisation was a heavily discussed issue. Throughout the discussion, the need for a higher degree of professionalisation was acknowledged, either through governmental regulations or through self regulation. The issue of professionalisation was discussed along two lines: One was whether professionalisation would make consulting firms more liable for the consequences of their advice. The other line of enquiry was centred on the issue of quality. In this context, professionalisation is seen as providing and guaranteeing a general quality framework which the consultancy market could usefully operate under. This was thought to be particularly beneficial to both producers and consumers of consultancy services. Consultants could use standard professional credentials to validate their expertise and differentiate themselves from competition in what remains an open, contested and uncertain marketplace. Professional standards would also act as a powerful protective mechanism, guaranteeing minimum industry-wide competence and ethical standards helping clients to evaluate quality and to navigate the uncertainties connected with purchasing expert advice. Thus, in this context it is clear that professionalism helps to address a wide ranging number of important issues, including procurement, risk management and quality control.

Despite these arguments, it was recognised that professionalisation generated very different levels of support across the management consultancy industry. In particular, this idea was much more popular with the smaller consultancy firms, who clearly saw the benefits connected with the external accreditation and validation of their skills. Larger practices tended to guarantee quality through the reputation of their own brand and to validate competences through their own internal standards and accreditation processes. There was a consensus that large firms do not have a big interest in professionalisation, since they hold their internal standards as sufficient to ensure the quality of their services. The clients would therefore

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benefit from professionalisation since it could be seen as making the dispersed and unconsolidated consulting market more coherent. Indeed, there is an interesting and lively debate on whether professionalism, regulation and quality control could be better served at the occupational level, through a dedicated professional institute (such as the IMC) or at the organisational level, within the boundaries of the individual consultancy practices. Equally challenging would be the way these two distinct but related levels of activity could be connected.

One of the related issues discussed around professionalisation was the importance of brand name and identity with particular reference to small firms. Small firms were seen as lacking an established brand equity as compared to the bigger practices. Thus, the smaller firms tend to develop their brand name around the founding team (or the founder himself) and exploit existing contacts in order to generate new revenues. Relationship building becomes essential when a brand name is not powerful enough. Therefore, building relationships with individuals within client firms is of key importance for smaller practices. Whereas, because of their existing brand equity, the bigger consulting firms find it relatively easier to get access to potential clients and new accounts.

Procurement
The logic of professionalisation is strongly related to procurement. How can clients make sure that they purchase the right skills sets, negotiate appropriate contractual terms and manage the consultancy project effectively? This is the main challenge procurement presents.

Professionalism, with its quality and competence guarantees, secured through formal credentials and official certification processes, may prove a useful mechanism in guiding and

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supporting client decisions. Yet, the reliance on professional standards and credentials should not disengage clients from the procurement process and from the co-production of consultancy knowledge. In this context procurement was discussed as being an entry barrier for small consultancy firms, especially in the public sector where e-procurement seems to be a widely used strategy. Here, the costs for drafting proposals were considered as being substantial, so that small firms are implicitly discouraged from bidding.

Successful consultancy projects are often individually tailored to a specific set of client requirements and emerge from the delicate negotiation and continuous interaction between practitioners and purchasers. Standardisation may indeed guarantee a minimum common denominator, which could help the marketplace to operate more expediently; however, this route could also threaten to displace deeper forms of engagement, devaluing the consultancy experience for both producers and consumers whilst divorcing the end-user from the consultancy process and its outcomes. These deeper forms of engagement, which could go beyond the resources and expertise of many procurers, are thought to be particularly difficult to achieve and maintain but can be encouraged through training programmes designed to help clients to buy consulting services and manage consultants.

Risk
All consultancy projects involve putting clients at risk for a certain period of time. Thus, risk is an inherent element of consultancy as an activity. However, certain steps can be taken to minimise this. Professional standards as well as industry-wide best practices and organisational processes within individual firms (such as training, quality control and accreditation) can help to reduce risk. In particular, brand reputation is often perceived by clients as a good indicator of quality and consequently relied on as a risk-management

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strategy. Again training as well as more systematic engagement through the procurement process may play an important role in equipping clients to assess, negotiate and manage risk for themselves.

Another aspect of risk was discussed around the issue of the consultants role in seeking to deliver value along the lines of help managing risks (or risk management), and or help release clients potential. The smaller consulting firms generally pick up clients that either bigger consulting firms will not consider or those clients who have hired bigger consulting firms in the past but are exploring the possibility of approaching specialists. Sometimes the larger consulting firms help to facilitate the latter. It was discussed that sometimes bigger consulting firms tend to evaluate the potential of a client on the basis of their ability to pay and not simply because of the project. As a result this approach means that the bigger consulting firms will tend to look to sectors which are booming in order to match their annual revenue targets.

Innovation
Clients have ambivalent attitudes towards innovation (and therefore its associated risks). In particular, whilst they sought and welcomed innovative outcomes and solutions, clients tended to be much more conservative with regards to innovative processes. It seems that clients fear the risks associated with untested approaches and methods and, throughout the bidding process and the initial stages of a consultancy project, clients tend to favour the safety associated with established models. The establishment of trust, often achieved in the later stages of a client/consultant relationship, is seen as essential in nurturing and supporting innovation. Thus, trust plays an important role in removing risk, uncertainty and minimising transaction costs within consultancy projects.

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Against widely-held assumptions, it is suggested that bigger consulting practices may be more inclined to take risks and pursue innovation in management consultancy. These firms (especially when they also operate in markets other than consultancy) can leverage the resources and expertise of the larger group and use these to shelter and support the development of more innovative (and often more risky) solutions. This makes for an interesting contrast with the popular tendency in the literature to associate innovation with smaller firms, who are thought of as being more dynamic and responsive.

Innovation also raises a series of proprietary issues. Who should own, control new knowledge, techniques and technologies, which may emerge from a consultancy assignment? How can we negotiate between competing ownership claims? Is such knowledge generic or client (or even project) specific? What rules should govern the transferability of this knowledge? Would the client benefit from licensing agreements, which allow the consultants to re-deploy such knowledge in exchange for royalties?

Business Model
Our discussion indicated how, especially, in the smaller management consulting practices there is a shift towards an associate model of consultancy, whereby practices contract-in teams of freelance or external consultants to meet the ad-hoc requirements of specific timebound projects. This core/periphery business model is particularly attractive to the smaller firm who can use it as a convenient method to acquire the necessary breadth and depth of expertise required by many contemporary assignments, without internalising these in their cost-structure.

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HR issues
The changing business model in management consulting, coupled with the range of external forces in the business environment are creating a range of Human Resources issues. Among the most significant issues discussed was the need for clearer career paths for young consultants. This greater focus on supporting the development of young consultants was seen as both a source of attracting the right calibre of staff as well as, retaining talent. In relation to this issue greater attention to the qualifications that management consultants may need to obtain in the future as part of more clearly defining their professional identity is seen to be important.

Moreover, qualifications were considered to be a means of enhancing the legitimacy of management consultants for the role and contribution they make to addressing client issues. It was not clear what these qualifications might be, however, parallels were drawn with other professional groups (e.g. Lawyers, HR specialists) and their corresponding professional association bodies as a means of supporting their ongoing development.

Furthermore, it was noted that more women are now entering the management consulting field and the demographics and gender dimensions of the workforce are changing. This point calls for greater consideration of these issues particularly in building a clearer proposition about the personal development opportunities the management consulting profession provides to those seeking a career in management consulting.

Finally, considering the more fluid relationships that govern the growing business models in the sector the issue of loyalty to the firm and/or the founder was also considered critical. The HR issues reflect several key challenges in the management consulting sector particularly in

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the way consultants get socialised into their role. This observation also reflects a key opportunity to review hitherto neglected HR practices, such as Staff Induction and socialisation as a source of attracting and retaining the right staff.

Summary
All these issues taken together reflect both challenges and opportunities that deserve more analysis before an agenda for action can be drawn. The issues listed in this report that call for action whether they are currently seen as challenges they also reveal a number of opportunities that lie ahead. The course for action that will determine the future competitiveness of the sector unquestionably will be shaped by the various stakeholder groups and the way the interrelated.

To better understand how a course of action can be defined and to adequately prepare for the intended and unintended consequences there is clearly a need to examine further how management consulting can continue to add value through the services and products it provides. Two further workshops will be designed to allow for the systematic analysis of these issues following the GNOSIS approach of integrating the perspectives and knowledge of Business Practitioners, Policy-makers and Academics.

It is proposed that the second workshop in the series be focused on the themes of Regulation, Professionalisation and Procurement. The second workshop will explore the opportunities and challenges presented to Management Consulting by each of these issues and the implications for Quality and the value adding role of management consulting, as well as, the management of risk.

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The third workshop will focus on the themes of Innovation, Strategic Learning and Competitiveness and the opportunities and challenges these present to management consulting considering in particular their implications for knowledge sharing, modes of working and organising.

Collectively the issues that will emerge for the workshops and will continue to be recorded in subsequent reports will form the Agenda for Action for the Future Competitiveness of Management Consulting in the Knowledge Economy, which will be produced after the International Conference in September 2007.

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Acknowledgements
This document is based on data gathered at the event Opportunities and Challenges in Management Consulting: Setting an Agenda for Future Competitiveness held at the London Business School on 24th November 2006. We are grateful to everyone who participated in the event and provided support in making this event happen, particularly our guest speakers Robin Wensley, Fiona Czerniawska and Chris McKenna. The authors would like to acknowledge the support of the ESRC/EPSRC Advanced Institute of Management Research under grant number RES-331-25-0024 for this research.

Contact
If you would like to know more about the themes raised in this document, or have any questions about GNOSIS research and subsequent workshops, please contact: Professor Elena Antonacopoulou AIM Senior Fellow Director GNOSIS University of Liverpool Management School Chatham Building Chatham Street LIVERPOOL L69 7ZH Tel.: +44 (151) 795 37 27 Fax: +44 (151) 795 37 24

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