The Management Consultancy Industry: Issues in Consultant-Client Relationships

James HuntTrimester 1, 2012

GSBS6120: Managing Organisational Change

A Review of Our Last Lecture

Organisational DevelopmentIntervention Processes

1. Three criteria of an effective OD intervention:

1. Diagnosis – obtain valid and useful information

2. Provide client organisation with alternatives for action

3. Build internal commitment

2. Importance of determining the client’s readiness for change

3. Choosing the depth of intervention: system-wide intra-personal

4. The OD Cube:

1. Focus of attention: whole organisation or sub-system

2. Diagnosed problems

3. Modes of intervention

Primary Distinguishing Characteristics of OD

1. OD focuses on organisational culture and processes

2. OD encourages collaboration between organisational members of different levels.

3. Teams are considered to be vital to an organisation.

4. OD focuses on the human, social, technological and structural aspects of organisations.

5. Participation and involvement in problem-solving efforts.

6. OD focuses on total system change.

7. OD practitioners are facilitators, practitioners and co-learners.

W. Warner Burke

Data gathering is an important element in OD Interventions.

WHAT IS ORGANSATIONAL DEVELOPMENT?

Organizational development is an ongoing, systematic process to implement effective change in an organization.

Organizational development is known as both a field of applied behavioral science focused on understanding and managing organizational change and as a field of scientific study and inquiry.

It is interdisciplinary in nature and draws on sociology, psychology, and theories of motivation, learning, and personality.

HISTORY OF ORGANISATIONAL DEVELOPMENT

In the late 1960s organisational development was implemented in organizations via consultants, but was relatively unknown as a theory of practice and had no common definition among its practitioners.

Kurt Lewin (1898–1947) is widely recognised as the founding father of OD, although he died before the concept became current in the mid-1950s.

From Lewin came the ideas of group dynamics and action research which underpin the basic OD process as well as providing its collaborative consultant/client ethos.

Lewin founded the "Research Center for Group Dynamics" at MIT (Massachusetts Institute of Technology), which moved to Michigan after his death. Lewin’s colleagues were among those who founded the National Training Laboratories (NTL), from which the T-group and group-based OD emerged. In the UK, the Tavistock Institute of Human Relations was important in developing systems theories. The joint TIHR journal Human Relations was an early journal in the field. The Journal of Applied Behavioral Sciences is now the leading journal in the field

HISTORY OF ORGANISATIONAL DEVELOPMENT

Richard Beckhard (1969), an authority on organisational development and change management, defined organisational development as:

“An effort, planned, organisation-wide, and managed from the top, to increase organization effectiveness and health through planned interventions in the organisation's processes, using behavioral-science knowledge" (Beckhard 1969).

Throughout the 1970s and 1980s organisational development became a more established field with courses and programs being offered in business, education, and administration curricula.

HISTORY OF ORGANISATIONAL DEVELOPMENT

Between 1990 and 2010 organisational development has continued to grow and evolve and its influences can be seen in theories and strategies such as:

Total quality management (TQM)Team buildingJob enrichmentRe-engineeringKnowledge managementThe intellectual capital movementSemi-autonomous working teamsEmpowered work groupsParticipative employee practices generally such as those at Walmart and Semco.

THE FUTURE OF ORGANIZATIONAL DEVELOPMENT

There are contradictory opinions about the status and future prospects of organizational development.

• Is it a theory whose time has come and gone? • Does its basis in behavioral science, a "soft" science, make it unappealing? • What are the challenges for the future?

Bunker, Alban, and Lewicki (2004) propose six areas that could revitalize the field of organizational development in the future: virtual teams, conflict resolution, work group effectiveness, social network analysis, trust, and intractable conflict. These authors suggest that focusing on these areas will help bridge the gap between research theory (i.e., academics) and practice (i.e., consultants). Getting these two groups to communicate with each other will benefit both groups and promote organizational development efforts.

Reference: Bunker, B.B., B.T. Alban, and R.J. Lewicki (2004) "Ideas in Currency and OD Practice: Has the Well Gone Dry?" Journal of Applied Behavioral Science 40, no. 4 (December): 403–22.

THE FUTURE OF ORGANISATIONAL DEVELOPMENT

In a survey conducted by Church, Waclawski, and Berr (2002), twenty individuals involved in the study and practice of organisational development were questioned about their perspectives and predictions on the future of the field. The most in-demand services at the beginning of the new century, according to those polled, were:

• executive coaching and development • team building and team effectiveness • facilitating strategic organizational change • systemic integration • diversity and multiculturalism.

Reference: Church, A. H., Waclawski, J., & Berr, S. A. (2002). Voices from the field: Future directions for organization development. In J. Waclawski & A. H. Church (Eds.), Organization development: A data-driven approach to organizational change (pp. 320–336). San Francisco: Jossey-Bass.  

THE FUTURE OF ORGANIZATIONAL DEVELOPMENT

They list the daily challenges in the field as the need for speed, resistance to change, interpersonal skills and awareness, and differentiating organizational development, which refers to the variety of definitions of organizational development among practitioners and how this impacts consultants, clients, and the clients' needs.

The opinions on the future direction of the field vary among its practitioners. Nevertheless, the continuing interest in and value of optimizing an organization's needs and goals with the needs, wants, and personal satisfaction of its employees indicate that organizational development will continue to be relevant to and vital for organizational reform in the future, either in its present form or through evolution into other theories and practices.

Reference: Beckhard, Richard. Organization Development: Strategies and Models. Reading, MA: Addison-Wesley, 1969.

The Growth of the Modern Management Consultancy Industry

and

Issues in Consultant-Client Relationships

The Modern Management Consultancy Industry

Consulting firms usually fall under three broad categories:

1. Strategy consultants work with senior management to assess such big-picture issues as whether to merge with another company or enter new markets.

2. Operations consultants examine the internal workings of an organization and ways a client can reach operational goals by cutting costs, restructuring departments or allocating resources differently, raising product quality or other methods.

3. Information-technology consultants help clients use or adopt new technologies. Information technology and operations consultants often remain on site to ensure their recommendations and changes are enacted, which produces a steady income stream for their firms.

Major Management Consultancy Firms

1. McKinsey & Co

2. Bain & Co.

3. The Boston Consulting Group

4. Monitor Co.

5. Arthur D. Little

6. Booz Allen and Hamilton

7. Mercer Management Consulting

8. AT Kearney

9. Mitchell Madison Group

1. Accenture (formerly Andersen Consulting)

2. LEK Consulting

3. Saville & Holdsworth

4. Deloitte Touche Tohmatsu

5. Ernst & Young

McKinsey and Co.

McKinsey is the most powerful consulting firm in the world. In boardrooms and corporate offices around the world, it is known simply as “The Firm,” and is often the first recourse for advice when business woes strike.

Such a reputation makes McKinsey consultants highly sought after and expensive to hire; its 4,500 consultants, citizens of 81 countries, generate an estimated $450,000 per person annually.

Customers include some of the bluest-chip companies in the world, such as PepsiCo, AT&T, GE, IBM and General Motors Corps.

Since many ex-McKinsey consultants serve on company boards (up to a third of all boards in the USA, according to some estimates), the firm has long-term ties and relationships with CEOs at many major organizations.

McKinsey and Co.

Specialties: McKinsey is known as a strategy firm; its consultants are usually are engaged to help create long-term strategic plans for a company, product or operation. In most cases, consultants work with senior-level executives at client companies.

Good: McKinsey tops most consulting firms for prestige and name-recognition; the firm is in a class of its own. The firm is consistently tapped for world-wide assignments, which means peerless opportunities for diverse experience and travel (65% of the firm’s revenues are generated overseas). Because of great connections, ex-consultants have excellent career prospects.

Bad: Allegations of sexual discrimination have created unwanted publicity. Former McKinsey associate Suzanne Porter claimed the firm discriminated against her by not promoting her to partner despite outstanding reviews. McKinsey has since settled the suit.

McKinsey and Co.

McKinsey & Co. is one of the oldest of the major management consultancy firms.

McKinsey consultants have strong reputations as intelligent and highly effective executives.

McKinsey has its own management journal; The McKinsey Quarterly.

McKinsey has taken a strong lead in the area of strategic management consulting, leadership and executive development.

Bain and Company

After being plagued by lawsuits, layoffs and near-bankruptcy in the early 1990s, Bain has leaped back to the top of its game.

Bain is ranked among the world’s most prestigious consultants, along with McKinsey and the Boston Consulting Group — which once employed founder William Bain.

Bain is rare among major consulting firms for having a woman, Chairman of the Board, Orit Gadiesh, at the top.

The firm employs 1,500 consultants.

Bain and Company

Specialties: Bain is a world leader in strategy consulting and has a strong international bent. Unlike some other strategy firms, Bain stresses that all its strategy recommendations must be immediately useful. Everything “comes down to what the client will do differently Monday morning,” says Ms. Gadiesh.

Good: Equal in prestige to its close competitors, Bain has a smaller, more congenial feel than larger rivals and views encouraging a friendly environment as a worthwhile expense.

Bad: Bain employees must embrace conservative dress codes and travel extensively. Work hours are long as well — consultants can expect to spend at least one day per weekend working or at the airport.

The Boston Consulting Group

The Boston Consulting Group is also one of the ‘elite’ worldwide consultancy groups, with a reputation for excellence, and successful innovation.

It charges high-end fees for its services, but spends a lot of time diagnosing the organisation’s needs, before suggesting a change initiative.

BCG solutions are often highly individualised, and make use of the latest innovations in management thinking.

Accenture

Accenture typically works in organisations using a team-based structure consisting of 8 -12 consultants (or a variation of this).

Problems and issues are broken down into specialist areas, and individual consultants are assigned specific tasks: accounting, org. structure, executive leadership profiles, corporate culture, information technology.

Detailed reports are generated from the investigations.

Many consultants are learning on the job, and include some fresh graduates.

The team leader is usually highly experienced.

Saville and Holdsworth

Saville & Holdsworth typically works with organisations to conduct meaningful research into their strengths and weaknesses.

They use various forms of psychometric profiling and competency analysis, to diagnose current skills levels.

Their corporate knowledge reservoirs consist of extensive profile-maps of high performance managers, leaders and teams at various levels.

These profiles are used as benchmarks, for comparative purposes.

Change initiatives are sometimes suggested, but are generally driven by internal managers.

The Growth of the Management Consultancy Industry

Deregulation around the world means that many once-safe industries are facing new competitors.

Increased competitiveness has driven the pace of change within organisations, creating additional pressure on managers and employees.

Increasingly, managers around the world are sensing that they are inadequately equipped to manage change.

The Kennedy Research Group (1996) predicted an average growth rate of more than 16% for the global management consultancy services market.

The United Nations Conference on Trade & Development (1993) noted a similarly rapid growth trend.

These growth rates levelled off in 2001, and more modest global growth rates of around 6% (estimate) have occurred over the past 9 years.

Much of the continued growth over this period has been fuelled by public sector demand for consultancy services and advice.

0

50

100

150

200

$US (billions)

Figure One: Global Revenue Growth in the Management Consultancy Industry

UNCTD 25 30 36 43.2 51.84 62 73 84.75 98.39 114.24 132.63 152.98

Kennedy 25 30 36 43.2 51.84 62 71.982 83.57 97.02 112.64 130.78 151.83

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Dangerous Company - Major Contention

The decision to hire management consultants can place at stake the careers of the very people who bring them in, the jobs of thousands of employees, millions of shareholder dollars, and long-term relationships with customers. A corporation’s reputation can be put on the line.

Authors: James O’Shea and Charles Madigan

Dangerous Company - Quotes: page 5

The one characteristic in all of these engagements is weak management. You don’t go out and spend all that money if you are in a position of strength.”

To have a situation where there is chronic dependence on consultants is an implicit admission of ineptitude in management. This is absolutely very worrisome.

The other thing is that because of this mutual dependence of the consultant and the customer, it is often not to the consultant’s advantage to come up with some delicate issues which should be addressed.

A Blueprint for Successful Consultancy Intervention

1. Acknowledge and agree upon the relationship between client & consultant:

• Who is responsible for the diagnosis?

• Who will drive the change?

• What is the intended timeframe for the change process?

• Are the external consultants merely facilitators or are they diagnostic specialists?

• Are the consultants drivers of the change process, and if so do they have authority over line managers?

A Blueprint for Successful Consultancy Intervention

2. Agree upon the fee structure for the entire intervention up-front.

• Determine the number of external consultants to be involved in the intervention.

• Determine the level of expertise of each external consultant (you don’t really want to pay novices).

• Determine the expected timeframe for the intervention.

• Make fees contingent upon verifiable results, and agree upon these results at the outset.

A Blueprint for Successful Consultancy Intervention

3. Determine precisely the scope of the intervention:

• Is this merely a definitive diagnosis?

• Is the diagnosis to be followed by consensual (two-party) analysis?

• Has the protocol for feedback been clearly established?

• Are there clear guidelines for the transfer of ownership of expertise relating to the change process?

• Is there a definitive disengagement plan?

The Vault Reports

Up-to-date information on the management consultancy industry through Vault.com - career intelligence

http://www.vault.com

Top Six Professions listed on Vault.com:

1. Analyst – consulting

2. Accounting

3. Management Consultant

4. Analyst – Private Equity

5. Investment Banking

6. Management and Strategy Consulting

Concluding Comments

• The management consultancy industry has continued to grow and diversify both domestically and internationally over the last 20 years.

• More and more medium and large organisations have become reliant on external expert advice, as a result of the move toward leaner organisational configurations, heightened competition, and outsourcing.

• The vast majority of management consultants are able to utilise their expertise to bring noticeable improvements to modern organistions.

• The success of any consultancy intervention depends upon the health and viability of the consultant-client relationship.

• The responsibility for managing this relationship effectively, lies with the client.

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