Management consulting is generally a contract advisory service provided to organizations in order to identify management problems, analyze them, recommend solutions to these problems, and when requested, help implement the solutions. Although there are few formal educational or professional requirements to be a consultant, these services are ideally provided by individuals who are specially trained or qualified in a particular field, such as information technology or organizational change, and who strive to provide independent, objective advice to the client organization.
Only a moderate amount of research has been done on the management consulting industry, although the industry has experienced a phenomenal growth rate since essentially emerging during the 1980s. Management consultants perform a variety of services and use many different methods to complete their tasks. These external consultants do not take the place of managers and have no formal authority, although they are responsible for the value of their advice—occasionally in a legal sense.
The practice itself has existed since the early 1900s. Management consulting pioneers such as Arthur D. Little and Harrington Emerson contributed much to the foundations of the concept. The two were also involved with the founding of the first consulting firms. In the first half of the twentieth century, consultants began to expand on the earlier work. They began offering what was termed "business research" and introduced such business practices as budgeting, divisionalized organization, merit-based compensation schemes, and forecasting methods. During the early postwar years, and in many cases growing out of wartime experience, consulting experienced a big rush, with the formation of such firms as Cresap, McCormick & Paget, William E. Hill, Hay Associates, and Towers Perrin. In the 1960s, major accounting firms began to take notice of the growing market for consulting and began to offer consulting services of their own (however, by the late 1990s charges of conflicts of interest would cause some of these firms to distance their accounting practices from their consulting activities). Also at this time, with the formation of the Cambridge Research Institute and Management Analysis Center, consulting firms began to integrate methodology of the bigger firms and consolidate practices.
In the early 1980s there were an estimated 18,000 management consultants. Only 30 to 40 percent of these were employed in the large, institutionally organized firms. Since then the industry has experienced robust growth, with a particular surge during the 1990s dot.com period. Money magazine's February 1992 issue cited a 52 percent increase in the management consulting industry from 1978 to 1992. Today, management consulting is a $70 billion industry. There were an estimated 140,000 management consultants worldwide in 2000, with 70,000 residing in the United States alone. This can be compared to the estimated 150,000 American executives that management consultants interact with in the business world. For every executive, there are 0.5 management consultants, as opposed to 1980, when there were 0.1 for every executive. This exemplifies the dramatic growth the industry has undertaken in recent years.
There are four basic areas within the Consulting industry. Management Consulting consists of looking at a company's organization to assess its ability to achieve its goals. Strategic Consulting focuses on the direction and goals of a company as they relate to their specific industry. Information Technology (IT) Consulting brings technology advice to a company to improve its effectiveness and efficiency. Industry Specific Consulting brings expertise to highly specialized businesses.
E.H. Schein has divided the role of the management consultant into three categories. These roles are classified as purchase of expertise, doctor-patient, and process consultation. The purchase of expertise role is considered a "hands-off" approach in which the consultant brings his/her own views or opinions into the situation. The doctor-patient role is a more personal relationship between the client and consultant in which the consultant analyzes and assesses the threats to the company. In the process-consultation method, the consultant plays more of a facilitator role. The client provides the information necessary while the consultant defines the problems and creates the possible solutions. The client makes the final decision on how to resolve the problem.
D.B. Nees and L.E. Greiner have also divided the interaction between consultants and clients into five similar categories. The "mental adventurer" assesses long-term scenarios by using economic models and personal experience. The "strategic navigator" makes decisions based on quantitative data of the industry and makes choices without input from the client. The "management physician" makes decisions based on knowledge of the organization as opposed to the industry as a whole. The "system architect" directs the client by redefining and improving the routines and processes of the organization. Lastly, the "friendly copilot" acts as a counselor to senior management and does not offer any new ideas or knowledge to the client. The mental adventurer role correlates to Schein's expert model; the strategic navigator, management physician, and system architect to Schein's doctor-patient model; and the friendly co-pilot to Schein's process-consultation model.
Over the years, the relationship between the client and consultant has evolved into an intimate partnership. A.N. Turner has developed several task categories to describe management consulting approaches. These categories include supplying information to the client; figuring out clients' problems; making a diagnosis of the problem; producing proposals based on the diagnosis; aiding with the implementation of recommended actions; providing client learning; and perpetually improving organizational effectiveness. The first categories represent traditional roles of consultants, while the last represent newer, evolving tasks. Although the relationship is becoming more sophisticated and complex, it still has a long way to go. An executive is still more likely to be influenced by his or her own instincts, followed by the advice of the planning staff, board of directors, and investment bankers, before he or she is persuaded by management consultants.
The existence and phenomenal growth rate of the management consulting industry cannot be easily explained. However, Marvin Bower, of McKinsey & Company, a large consulting firm, offers six reasons why companies should hire consultants. First, consultants offer extensive knowledge and access to resources not available internally. Consultants also contribute broad experience in the field. Next, consultants possess the time to research and analyze the problem. Consultants are also professionals. They are also independent of their clients and are able to make objective decisions the client might not be able to make. Lastly, consultants have the ability to implement the recommendations they provide to their clients. In large organizations, many of the problems encountered should be able to be handled internally because they have dealt with them in the past. In this case, time would be the deciding factor on whether the problems were handled internally or outsourced to management consultants.
Depending on the respective firms, consultants most often have certain requirements for targeting potential clients. The level of engagement or difficulty is one factor to be considered. Some firms such as Gemini Consulting, another major player, are looking for "multidimensional engagements that address bottom-line business issues." These companies would rather deal with "high-end engagements" as opposed to routine supply chain work. The length of time involved is another factor to be considered. Some firms like to work with long-term engagements, where strategy can be developed and implemented over time. Other firms are content with taking on short-term discrete jobs. Larger firms tend to focus their attention on larger companies, and companies like McKinsey & Company tend to focus on engagements that "excite" their consultants. They enjoy making transformations and radical changes not only to the companies themselves, but to the industry as a whole.
Management consultants are becoming increasingly discriminating about the clients they accept in order to protect their reputations and ensure the success of the engagements. Some consultants base their evaluations on whether the proposed project will have a profound impact on the company. Some will only accept a client if they believe the project will be successful, while others look for clients that share their core values. It is not uncommon for prospective clients to ask for a proposal over the telephone. A work session is usually conducted to gather information and address problems. If the prospect states it does not have the time for a work session, the case is usually not taken. Consultants clearly avoid prospective clients who have already decided what they want to do before soliciting the consultant. It is estimated that up to 70 percent of clients begin the consulting process by asking the wrong questions. It is the consultant's responsibility to get the client's priorities in line and have the management focus on problems facing the company. This may explain the current rise in "relationship consulting" whereby a consultant works with a company for several years to see strategies implemented and changed as new challenges are faced by the company.
Revised by Deborah Hausler
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