Thomas Deelmann, Michael Mohe (Eds.): Selection and Evaluation of Consultants Management Consulting Research, Volume 1 ISBN 3-86618-077-2 / ISBN 978-3-86618-077-2, Rainer Hampp Verlag, München und Mering 2006, 227 S., € 24.80
The selection and evaluation of consultants, consultancies, and consulting services belong to probably the most critical issues in management consulting research. However, the research in these areas is still sparse and does not yet reflect their importance in an adequate manner. Additionally, in recent years new developments in management consulting have taken place, which have still not yet been covered. Observations of the consulting market indicate that both clients’ firms and consultancies have begun to professionalize their selection and evaluation procedures. This, in turn, changes the previous rules in the consulting market and stimulates the birth of new business models such as econsultancies or meta consultancies. This book tries to capture these new developments, and intends to consolidate the existing research and stimulate new research implications in the area of selection and evaluation in management consulting. Key words: Consulting Research, Management Consulting, Evaluation, Selection
MANAGEMENT CONSULTING RESEARCH Volume 1 edited by Thomas Deelmann Michael Mohe
Thomas Deelmann Michael Mohe (Eds.)
Selection and Evaluation of Consultants
Rainer Hampp Verlag
München, Mering 2006
The project within this publication was financed by the German Federal Ministry for Education and Research (Bundesministerium für Bildung und Forschung), project number 01HQ0554. All content, comments, ideas, and opinions are the sole responsibility of the authors.
Bibliographic information published by the Deutsche Nationalbibliothek Die Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de. ISBN: 3-86618-077-2 ISBN: 978-3-86618-077-2 Management Consulting Research: ISSN 1863-2815 1. Auflage, 2006 © 2006
Rainer Hampp Verlag Meringerzeller Str. 10
München, Mering D – 86415 Mering
www.Hampp-Verlag.de All rights preserved. No part of this publication may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publisher. In case of complaints please contact Rainer Hampp Verlag.
Preface This book addresses two crucial issues in management consulting: selection and evaluation. Indeed, both the selection and evaluation of consultants, consultancies, and consulting services are probably the most critical issues in management consulting research. And, there is some literature covering these two fields. However, the inventory of research in these areas is still sparse and does not yet reflect their importance in an adequate manner. Additionally, in recent years new developments in management consulting have taken place, which also still have not been covered. Observations of the consulting market indicate that both clients’ firms and consultancies have begun to professionalize their selection and evaluation procedures. This, in turn, changes the previous rules in the consulting market and stimulates the birth of new business models such as e-consultancies or intermediaries like meta consultancies. This collection of papers tries to capture these new developments, and aims to consolidate existing research and stimulate new research implications in the area of selection and evaluation in management consulting. For this, it first covers both practical and academic points of view, as we believe that consulting practice and consulting research can learn from each other. Second, as selection and evaluation procedures can be viewed from multiple perspectives, the articles in this book offer different ways on how to look at selection and evaluation procedures: from the client’s view, the consultant’s view, and the market’s view. Third, as conceptual and empirical research are valuable research strategies for learning more about our two topics of interest, the papers within this book follow both conceptual and empirical approaches. The following figure shows these different views on the two fields of interest and suggests some exemplary questions which will be discussed: Selection of Consultants Perspective
Conceptual
Evaluation of Consultants Empirical
Perspective
Conceptual
Empirical
Client
How do clients choose their consultants? What are their criteria?
Client
How do clients evaluate their consultants and consulting projects?
Consultant
How do consultancies choose their consultants (recruiting, staffing)? How do consultants select their clients?
Consultant
How do consultancies evaluate their consultants and consulting projects? How do they react to the client’s evaluations?
Market
How do intermediaries, meta-consultants etc. act in the market place? What kind of role do they play?
Market
How can players in the market place be analyzed and evaluated? How can the efficiency of consultancies be evaluated and increased?
Fig. 1: Perspectives, structure, and exemplary questions to be discussed in the following chapters
This book is structured into two sections according to its subjects:
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The first six articles in section 1 address different problems of selection in management consulting. Thomas Deelmann suggests using the consultant’s business model as one selection criterion. In short, a business model is the abstract description of the regular business activity of an organizational unit. Beneath the classical management consultancies, which act as professional services companies, there are other players in the consulting marketplace, e.g. senior consulting companies, student consultancies, and internal corporate consultancies. They have different goals, strategies, and business models. Knowledge about these aspects gives advice on when to select which consultant type during the process of selecting a consultant. Sandra Niewiem and Ansgar Richter investigate the choices of clients in favor of or against the involvement of external consultants in the execution of project work. The study draws on data from 86 projects gathered through interviews with 41 managers. The authors analyze these data using content analytical approaches that combine both deductive and exploratory methods. They find that the mode of co-operation typically found between clients and consultants can be characterized as an intermediate mode of governance between procurement from the market and an integrated, internal setting. The results provide tentative support for the transaction cost economic framework underlying the study. On this basis, the authors derive important implications for both consultants and managers. Dieter W. Kaiser suggests that strategic HR management is a core competency for consultancies. A consulting firm establishes its position in a competitive market by cultivating its competence profile and through the verifiable successes of its work for clients. This requires consulting firms to have continuous access to the required skill profile. Thus, the main challenge facing human resource management at a consulting firm is to define the profile of the consultants, find the desired individuals, support their ongoing development, and ultimately tie them to the company on a long-term basis – during their employment as a consultant and, if possible, thereafter. The author shares his insights into the process of human resources planning, recruiting, staffing, and personnel development of a top management consultancy. Michael Mohe attends to the question of what consultancies expect from graduates and universities. The starting point of the article is an interesting observation: On the one hand, a job in management consulting is very attractive for many graduates, but on the other hand, a very vague and mythical picture of recruiting criteria remains for the external observer. Therefore, the article provides empirical data from consulting companies in
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Germany. The consultancies were asked about their expectations regarding recruitment criteria for graduates. Furthermore, this article focuses on the role of universities as one option for qualifying students for a later occupation as a management consultant. Here, the consultants were asked about their expectations of both learning volumes and methods to find out the criteria upon which a special study course “Management Consulting” should be based. The article concludes with implications for graduates, universities and consulting firms. Axel Gloger noticed that the current forces of change in the consulting marketplace are in the first place value neutral. What is more interesting is the following way of looking at things: It could be rewarding to recognise and describe in detail the changes that are emerging in the market. Both sides of the market, consultants and their clients, could recognise what energies and forces are being produced by the changes. Experience suggests that it would be advisable in future activities not to resist these forces, but to use them as a lever to improve one’s own position. The aim of his article is therefore to describe these changes, to assess what their further effects are likely to be, and to draw conclusions for the agenda of the market participants. Bettina Türk and Thorsten Posselt consider the changes initiated by the increasing relevance of web based technologies in the economy. They focus on the future significance of web based intermediaries using the example of the German consulting market. For the derivation of the success or non-success of an e-intermediation, chances and risks (which are linked with the use of intermediary services in the field of consulting) are identified and evaluated. These relationships are empirically verified by a logistic regression analysis of data, based on a survey in German client and consulting firms. That a general interest exists concerning an e-intermediation of consulting services can be essentially explained by the fact that web-based intermediaries offer the chance to reduce transaction costs for both clients and consultants. The second part of this book focuses on different evaluation issues in management consulting. André C. Wohlgemuth attends to the topic of performance evaluation in management consultancy, which continues to be the subject of strong debate. In every consultancy engagement there are situations or phases when the client wants to obtain a full picture of the consultants’ performance by carrying out an evaluation. Usually at the end of an assignment there is a need for systematic assessment. This article presents the Swiss questionnaire for the evaluation of quality in management consultancy promoted by ASCO, the Association of Management Consultants Switzerland. The questionnaire is “generic”
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because it covers many management consultancy situations and can be adapted to the specific needs of the user. Sven Haferkamp and Sabine Drescher present results from a study concerning several aspects of knowledge management of consulting projects. For the examination of the current state of client professionalization in the relationship with strategic management consulting firms, interviews were conducted with seven experts of German DAX-listed companies in the period from May 2005 to July 2005. The study and the best-practice approach for the holistic management of management consulting projects derived from it shows that clients can make a critically important contribution to the success of management consulting projects. The systematic application of the measures described within the article will have the effect of professionalizing the co-operation with consulting firms and perpetuating the knowledge gained as a result of consulting projects within the organization. Guido Klenter and Niels Möllgaard look at the increasingly knowledgeable use of consulting services by many companies and present the consequences of this development from the perspective of a consulting firm. Growing customer demands for more precisely quantifiable consulting results represent a significant factor shaping the business model “consultancy”. These new expectations have already led to considerable changes in the sector, and the process is far from complete. Two aspects are closely examined in the context of the development that the business model is currently undergoing: the selection, evaluation and further training of consulting staff, and the systematic analysis and development of projects. Consultants face new challenges in all phases of the project life cycle – in the preparation stage, during project work, and subsequent to the conclusion. Matin Ebrahimchel, Michael Mohe, and Richie Sternzeld address the problem of evaluation from the consultants’ point of view. For this, they conducted an interview series with different consultants from major and medium-sized consultancy firms, in which the consultants were asked how they perceive a) their own evaluation systems within their consulting firm, b) the clients’ evaluation systems, c) the relevant (restricting and/or promoting) social and political conditions for a project evaluation. Additionally, the consultants were asked for alternative or “ideal conceptions and/or ideas” about project evaluation as well as their limitations. The findings reveal remarkable insights in the evaluation practice within consultancies’ and clients’ companies as well. Michael Scholz noticed that efficiency is often used as a qualitative or quantitative measuring instrument to determine the success of business consulting projects. In his article, he aims to implement an integral explanation model of the efficiency of business consulting projects, which comprises all relevant elements and their interdependencies in a system-
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theory approach. Different disciplines of consulting research and perspectives have been considered to build the integrated explanation model. A software-based representation of the model allows the simulation of different consulting situations and the anticipation of changes that are being undertaken by the system’s actors. The model is configured for typical consulting situations, and recommendations are derived to improve consulting efficiency. The recommended proceedings give consultants as well as clients general advice with practical relevance on how to deal with challenging consulting situations from a system-oriented perspective. Thomas Deelmann, Andreas Huchler, Stephan A. Jansen, and Arnd Petmecky present the results of an empirical study on internal corporate consultancies. With respect to the professionalization of clients, one can especially mention the trend towards the organizational implementation of internal consulting departments. While this phenomenon is already quite common in business practice, it has not yet attracted much interest in social scientific research. Empirical knowledge about the characteristics of internal corporate consultancies might help to better evaluate and assess their working results and to compare internal corporate consultancies with external consultancies. We would like to thank the authors for their contribution to this selection of papers concerning conceptual and empirical work on the issues of selecting and evaluating consultants. We are indebted to the German Federal Ministry for Education and Research (Bundesministerium für Bildung und Forschung) for supporting this project. Last but not least, we are grateful to Rainer Hampp for supporting our idea of combining a selection of research papers in the area of management consulting.
Thomas Deelmann and Michael Mohe Siegburg and Oldenburg, 2006
Table of Contents Preface ............................................................................................................................................. V Table of Contents .........................................................................................................................XI
Section 1: Selection of Consultants ......................................................................................... 1 Selection of Consultancies Based on the Business Model-Criterion....................................... 3 Thomas Deelmann Why do Clients Work with Management Consultants? – An Empirical Analysis ............. 21 Sandra Niewiem, Ansgar Richter Strategic HR Management – A Factor to Success for Consulting Firms in Competition 41 Dieter W. Kaiser What Do Consulting Firms Expect from Graduates and Universities? Empirical Insights from the German Consulting Market ........................................................................................ 53 Michael Mohe How intermediaries are accelerating radical change in the consultancy market................. 69 Axel Gloger E-Intermediation in Corporate Consulting – An Empirical Investigation from the Perspective of Clients and Consultants ..................................................................................... 91 Bettina Türk, Thorsten Posselt
Section 2: Evaluation of Consultants.................................................................................. 109 Evaluation of Consultancy Engagements: The Swiss Questionnaire for Quality in Management Consultancy.......................................................................................................... 111 André C. Wohlgemuth Client Professionalization: Proposed Approach for the Knowledge-Centered Management of Consulting Projects........................................................................................ 121 Sven Haferkamp, Sabine Drescher
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Return on Consulting – Value Added by the Consultants is All that Counts ................... 139 Guido Klenter, Niels Möllgaard Evaluation of Consulting Projects – The Consultants’ View............................................... 159 Matin Ebrahimchel, Michael Mohe, Richie Sternzeld Increasing the Efficiency of Business Consulting Services through Comprehensive, System-Oriented Thinking and Action in the Consulting Process...................................... 179 Michael Scholz An Empirical Analysis of Internal Corporate Consultancies ............................................... 197 Thomas Deelmann, Andreas Huchler, Stephan A. Jansen, Arnd Petmecky
Authors......................................................................................................................................... 211
Section 1: Selection of Consultants
Selection of Consultancies Based on the Business Model-Criterion Thomas Deelmann1
Introduction McKinsey & Company, The Boston Consulting Group, Monitor Group, and other management consultancies have taken a prominent role in the business arena. In research and popular management literature, these professional services companies have got major attention. Beneath these companies, a more alternative group of suppliers for management and business consulting services has established itself. However, these suppliers tend to be strongly underrepresented in the media, have lower attention in the business arena, and are seldom subject to research. Aim of this chapter is to give a brief overview to some of these kinds of consultancies which can be seen more or less as direct competitors of the major consultancies mentioned above (Walter and Deelmann 2005). It wants to narrow the identified gap in consulting research. The discussion of the consultancies’ business models will be used to describe and differentiate the service companies. Subjects to the investigation are so-called Senior Consulting Companies, Student Consultancies, Accountants and Tax Consultants, and Internal Corporate Consultancies. Within this chapter, for each group its business idea, advantages and disadvantages of an engagement for their clients, and its basic business model will be discussed. Additionally, this paper will have a brief look on the consulting capacities provided by non-profit organizations, professional associations and lobbying groups. This chapter focuses on a different consulting market, which today is to a large extent out of scope for many clients and the public. Nevertheless it can be considered as an alternative to the classical consultancies. Clients might use the alternative business models of consultancies as a criterion for the selection of their suppliers for consulting services. The following paragraph introduces the business model as a framework for analyzing business units. Subsequently the generic business model of a classical consultancy is introduced. It will serve as a reference model for this chapter. In the following chapters each of the more alternative suppliers of consultancy services is discussed and its business model
1
I would like to thank Estela Walter for her valuable input.
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is depicted as well as a brief recommendation when to select the very supplier is given. A brief conclusion closes this chapter. Business models as an analysis tool Based on an extensive literature review and an empirical refinement, various elements and building blocks of a business model were identified (Scheer et al. 2003). The most important points were on aggregation and abstraction of the reality into the model, the organization as scope of the model, the notice of technology, actors and their roles, the competitive environment, and the flows of money, information, and goods. However, profits, produced value, and processes were seldom mentioned. In the following an interpretation of these elements in more detail will be given. Abstraction, aggregation: The model itself is an abstract construction of the reality. The elements of the business under investigation are represented in a more simple way in order to allow a focused view from a bird’s perspective and to support the analysis of the organization. Organization, actor, role: The subjects within a business model are one of its most important elements. An actor might represent a single person as well as an organizational unit or the combination of organizational units. Governmental organizations might be treated in the same way and can be represented by a business model as well. If not mentioned otherwise, the terms ‘organizational unit’, ‘business’, and ‘organization’ are used synonymous within this chapter. Value creation: The creation of goods and services reflect a production process in which – based on a given initial state – a transformational process will reach a final state. This hopefully reflects an increased value in comparison to the initial situation. Technology: It reflects a tool or resource for value creation and has variable importance, depending on industry and environment: An internet business start-up might be influenced by technology more intensive than a local hairdresser. Influencing factor: The competitive environment might consist of market forces (e. g. price wars, entry of new competitors) as well as other influencing factors (e. g. shift in the age structure of the customers). Flow of money: Financial transactions and revenue streams are relevant in order to represent the business or economic aspects within the model. The flow of money will mostly be identified in duality with a product flow of equal value. The flow of money takes place between two organizational units. It is therefore called transfer flow. Product flow: Produced goods and services are mostly delivered from one organizational unit to another. It is therefore a transfer flow, too. Product flows will mostly be identified in duality with a flow of money of equal value.
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Flow of information: Literature often disregards the flow of information in the discussion of the key elements of a business model. However, information which is transferred and exchanged between organizational units is often a driver to business success. Therefore this paper includes the flow of information as one kind of a transfer flow. The definition of a business model in this paper combines the relevant aspects discussed above (Scheer et al. 2003, p. 22): A business model is the abstract description of the regularly business activity of an organizational unit. The model consists mostly of organizational units, transformational processes, transfer flows, influencing factors, supporting tools, or a selection thereof. Figure 1 suggests graphical representations for the single elements of which a business model consists. The next section will discuss a certain business model in more detail and show the combination and interaction of the several model elements, too. (1)
(2)
(3) Transformational process
(4) Tool, Technology
+ Influencing Factor
Organizational Unit (5)
(€) Flow of Money
(6)
(X) Product Flow
(7)
(i) Flow of Information
Fig. 1. Elements of the Business Modelling Language (Deelmann and Loos 2004, pp. 14-16)
Generic business model of a consultancy The business model of most consultancies insists on consultants, who use their knowledge and capabilities in order to solve business problems of their very clients. Therefore, they use appropriate methodologies, consulting styles, and tools (Smith and Smith 2003). In a straightforward way the generic business model looks like this: A client gives a problem to the consultant. The consultant in turn solves the problem and hands over the solution. For this activity, the consultant gets a fee from the client. In a more sophisticated specification of the business model, there is a team of consultants which serve one or more clients. The team members use a knowledge management system in order to store, distribute, and share client-, problem- and methodical-related information. The very kind of consulting projects which could be managed depends on the individual consultants, their knowledge and the used methodologies. However, the finan-
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cial streams depend on the type of consulting project and on the leverage effect. This leverage effect is determined by the numerical relation of the consultants in a ‘partner’ position and the rest of the consultants. A larger leverage states that one partner could train more consultants (the partner can leverage the knowledge). Larger projects (e.g. IT implementation projects) with relatively low daily fees could be managed. On the other hand, in consultancies with a lower leverage fewer consultants are trained by one partner. Smaller projects (e.g. strategy development) could be managed, but the daily fees will usually be much higher (Maister 1982). In consultancies, project work dominates traditional office work. The organizational structures as well as the processes are dynamic. Projects consist of several phases (Cope 2001; Niedereichholz 1997a; Niedereichholz 1997b). From a consultancy viewpoint, a project has three phases, which in turn might be again split up: Project initiation (with request, proposal, and contracting), project work (with analysis, conception, pilot, and implementation), and project completion (with project evaluation, documentation, and client satisfaction measurement). Distinctive for the work in a consultancy is the changing physical and mostly distributed workplace. Therefore, the staffing of consultants is critical for the project success. The elements discussed above can be summarized as the generic business model of a consultancy. A graphic representation is shown in figure 2. With respect to the supplier of consultancy services discussed below, this way of doing consulting work can be named as classical or traditional consulting service. The business idea, the advantages and disadvantages in engaging on of the more alternative suppliers, and their business models are discussed and mirrored with the classical business model of a consultancy in mind. The goal is to show that various business models of consultancies are appropriate for different client situations.
Goal, strategy, business model, and recommendations for selection In brief, the goal of the classical management consultancies can be described as (1) maximizing the profit margin and as (2) generating sustainable growth. Therefore they try to create new management trends and to sell advice and problem solving capacity and capability in these newly designed areas. In addition to this, they permanently have to optimize their leverage effect between the number of partners and the number of consultants. The main driver of the business model can be found within this leverage effect, the management and transfer of knowledge, and in a key account management. Clients should consider the usage of external, classical consulting companies, if they want to work with highly reputable consultants who know state of the art tools, trends, and techniques,
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and/or if they want business-oriented solutions which might have an alibi-function in some cases.
KnowledgemgmtSystem
Problem solving Consultant
(i)
Knowledgemgmt System
f In
m or
(i)
n io at
f In (i)
m or
a
n tio
(X )P Pa ar r ti tia al ls pr olu ob tio lem n
Problem solving
(i) Information
Information process.
Knowledgemgmt System
(i) Information
(i) Problem (X) Solution (€) Fee
Project Lead
Consultancy (i) (i)
In fo rm
In fo rm
at ion
at ion
r Pa (i)
tia
l
ob pr (X
m le
tia ar P )
o ls
Client
n tio lu
Problem Knowledge- Solving mgmt System
Consultant
Fig. 2. Generic Business Model ‘Consultancy’ (Deelmann and Petmecky 2005, p. 246)
Senior consulting companies
Business idea Senior Consulting Companies consist of ‘senior experts’ which are people who often want to bring in their professional experience into the business context without being a line management employee. Senior experts decide about their workload themselves. This workload ranges from a few hours per month up to a full-time engagement. There are two main reasons for the emergence of Senior Consulting Companies. The first one is on a business level: There is a possibility for employees who will eventually retire in the foreseeable future to reduce their working engagement step by step. On the one hand, senior experts can refer to a self-determined workload reduction. On the other hand, there is a chance for companies which support Senior Consulting Companies to use the expert
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knowledge of their senior employees and to transfer their knowledge to more junior employees. The second major reason for the emergence of Senior Consulting Companies is based on the socio-demographic change which currently hits Western Europe. Corporate functions responsible for HR-Development have to cope with age management issue because of (1) the lack of younger specialized employees, (2) the upcoming retirement-boom of the socalled baby boomers, and (3) the increasing lifespan and the resulting public force to rise the pension age. Therefore, the set up of a Senior Consulting Company can be considered as one way to employ senior employees as ‘senior experts’ and to work with them on a more flexible basis. For corporations, Senior Consulting Companies fulfil two concrete tasks: They substitute in some ways the classical Consultancies and they act as a role model within age management programs. In addition to this more or less economical character of the Senior Consulting Companies there are non-profit Senior Consulting organizations as well. They focus on the delivery of development aid and the support of reform processes in third world countries. These non-profit organizations are not in scope of this article. (ASEP 2005, Consenec 2005, SES 2005)
Advantages and disadvantages for individual consultants and clients In the following, some chances and risks will be identified for senior experts and clients of Senior Consulting Services. Advantages for the senior expert are the gain of flexibility, new challenges, and more freedom: Project driven activities support part-time jobs, which in turn lead to a more flexible working environment. The possibility to engage oneself in projects and to leave repetitive and routine tasks behind leads to new challenges. And finally the chance to define scale and scope of the workload might be seen as a new kind of freedom. A disadvantage for the senior expert is the salary reduction, the loss of power, and resistance within the company. Salary models in Senior Consulting Companies often consist of a fix-based salary and a variable salary which is based on the personal engagement and activity of a senior expert. Together, they might be less than the last regularly salary the employee got before becoming a senior expert. One aspect which is differentiating consultants and corporate senior staff is the usage of support functions. While the corporate executive often has a secretary, one or more assistants and some departments which report to the executive, the Senior Expert will mostly have to work without these reporting
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structures. This loss of personal power often goes in line with an increasing degree of resistance by the employees, which consultants in many companies are facing. Clients of Senior Consulting Companies are often their parent companies. They can claim several advantages because of engaging these service units. First, clients hold and maintain access to knowledge, which was collected over long years. Second, by phasing out their existing senior employees and transferring them to a Senior Consulting Company, there are new career perspectives and chances for younger employees. High potentials can be empowered. Third, there might be a classical economic reason: The costs of a layoff or high indemnifications for senior executives might outnumber the operational and capital expenditures of running a Senior Consulting Company. On the opposite to these advantages, there are some disadvantages, too – mainly if the services are offered to third-party companies. Third party customers can refuse to engage an external consultancy because of confidentially reasons. Internal knowledge can spread to competitors. Second, the Senior Consulting Company’s parent company might be afraid that certain activities and behaviour of the senior experts will last a damning light on the parent company.
Areas of engagement Clients might wonder whether to engage a Senior Consulting Company or a classical external consultancy. The following table compares both in terms of advantages and typical tasks: Table 1. Advantages and typical tasks for Senior Consulting Companies and Classical Consultancies
Advantages for using Senior Consulting Companies − Experience − Personal network within the company − Processes and procedures are well known − Costs for external consultants will be reduced Typical tasks for Senior Consulting Companies − Implementation tasks − Coaching − Subject matter expert-style consulting − Interim management − Partly the undertaking of external tasks and projects
Advantages for using classical consultancies − Industrial and methodical competencies − External and neutral view on the customer − Innovative and more loadable Typical tasks for classical consultancies − Business process redesign − Implementation of large-scale strategy projects − Classical management consulting − Benchmarking − Know how transfer from third-party companies
Goal, strategy, business model, and recommendations for selection In short, the goal of most of the Senior Consulting Companies can be described with knowledge management and transfer, and the work as an age management instrument.
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Their strategy is to dispense and distribute organizational knowledge. They support the goal of the learning organization. This makes it relatively easy to have a co-existence with the classical consultancies. Compared with the business model of the classical consultants, Senior Consulting Companies tend to have a one-on-one assignment of consultants and projects. There is no leverage effect between partner and consultants. Its main product is to offer guidance for their clients. Prospective clients should think about selecting Senior Consulting Services if they seek guidance within their day to day work; if they want to learn about organizations and organizational behaviour, or if they need effective help in steering and managing a project – not for doing operative project work. Student consultancies
Business idea The roots of consultancies run by students are based in France. Students wanted to consult businesses during their studies and apply their theoretical knowledge to real life cases. The driving force was the independent project work. Student Consultancies create a link between practical business and academic education because of the transfer of theoretical knowledge into praxis via real cases and the support of businesses with new and inspiring ideas. The first Student Consultancy was founded in 1967, the first consultancy in Germany in the 1980s. Meanwhile there are more than 80 consultancies in Germany which mostly consist of 20 to 60 consultants. The size of the Student Consultancy is often driven by the size of the university, where the consultancy is located. (Graf et al. 2006, BDSU 2005, James 2005, JCNetwork 2005, Oscar 2005)
Advantages and disadvantages for individual consultants and clients Students, the members of Student Consultancies, face several advantages and disadvantages while working as a consultant. Undoubtedly, the collection of practical experience during the study could be named. Students can meet a challenge, network via the direct link into the economy, gather some skills which are relevant for the consultant’s job (e.g. social competence), and get trained on several aspects.
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Beneath the several positive aspects, one has to describe the disadvantage as well. Mainly the high priority of the consulting projects has to be named. This situation can be blamed for disregarding the study. There are several reasons for clients to choose student consultancies. One is the good price-performance-ratio. With daily fees of mostly € 200-250 per consultant, the client pays only a fraction of the daily fees for classical consultants. Student consultants are often described as unbiased, interdisciplinary, and highly motivated. They reflect actual research results and new methods and have broad experience and innovative approaches because of the widespread academic background. These advantages for the clients lead to a situation in which clients perceive Student Consultancies as a pool of high potentials and talented people during recruiting activities. The disadvantage for clients if they engage a student consultancy is the lack of experience of the student consultants and perhaps a constraint with respect to time and availability of the consultants which have to cope with their regularly studying activities.
Areas of engagement The service offering portfolio of Student Consultancies regularly corresponds with the course portfolio of the university, where the consultancy is settled. However, they often offer a wide range of consulting services. Popular focus points are strategy, research, and IT. Typical engagements of Student Consultancies are sub-projects within larger consultingprojects of the client as well as independent engagements in a smaller financial frame. Projects mostly have a volume of up to € 5.000. Student Consultancies have a mixed client structure. Large corporations give assignments as well as start-ups, medium-sized enterprises, and universities.
Goal, strategy, business model, and recommendations for selection The main goal of Student Consultancies is to learn about the economy and to transfer academic knowledge into the business environment. A desirable side-effect is revenue generation and the possibility to cross-finance the study. Strategy of these junior consultancies is often to substitute more traditional service companies and to offer a “low price – high quality” work to their clients. Mostly, they focus on mainstream business themes and state of the art methods because of their university roots. Compared to the business model of the classical consultancies, Student Consultancies work with a smaller team size, while their work style is often based on task modulariza-
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tion. However, they are often more aware of research activities than classical consultants. Clients should choose Student Consultancies if they have a limited budget and/or do not want to spend enormous daily fees to the established consultants. Clients mostly will find extremely engaged consultants with an affinity towards actual academic trends. They are at times used to work as an elongated workbench within larger projects. Accountants and tax consultants
Business idea Historically, Accountants and Tax Consultants were the birthplace of many of the larger business consultancies, e.g. Accenture and BearingPoint. Business and regulatory reasons led to many split-ups of the accounting and consulting divisions in the years 2000-2002. Nowadays, many Accountants and Tax Consultants start to offer consulting services again. Beside the more traditional business areas ‘tax’, ‘audit’, and ‘assurance’ more and more ‘advisory services’ or ‘audit-related consulting services’ are offered again with respect to a higher profit margin. Goal of this integrated service-offering is to work on more holistic solutions for the clients while respecting the legal requirements of lawyers, tax consultants, and accountants. (Heuermann and Herrmann 2003, Deloitte & Touche 2005, Ernst & Young 2005, PricewaterhouseCoopers 2005)
Advantages and disadvantages for individual consultants and clients While the advantages and disadvantages for individual consultants are very similar to the situation in classical consulting companies – and therefore are not further described in this section – clients might have to cope with the special situation and the different underlying business model. Surely, one advantage is the co-operation of business consultants, tax consultants, accountants, and lawyers. Altogether, they dispose of a multi-layered picture of the client who in turn reduces the danger of narrow-minded recommendations. In addition, the offered combination of services helps clients to fulfil several legal requirements due to the audit-related consulting services. However, many Accountants and Tax Consultants have a more decentralized office structure compared to classical business consultants. Some clients will regard this fact as very desirable.
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On the other hand, clients face some disadvantages while working with audit-related consulting service providers. In some times, the linkage to the consultants core business (tax, auditing) is too strong and the consultants mindset is ‘numbers-driven’. Additionally, the single service lines of the consultant might want to cross-sell the services of the other lines – even if there is no urgent need for using these services. Clients have to act very professional in order to cope with this situation.
Areas of engagement The service offering portfolio of audit-related consultancies seems to differ seldom from the services offered by classical consultancies. Therefore, only a few keywords describing the portfolio will be listed below: − − − − − − − − −
Process Optimization Performance Improvement, Process Management Crisis Management and turnaround Finance & Controlling Enterprise Applications Due Diligence and M&A-Support IFRS implementation Integrity Services Sarbanes-Oxley 404-Implementation
Goal, strategy, business model, and recommendations for selection Accountants and Tax Consultants enter the field of business consulting in order to deliver full service advisory to their clients in all business related questions. In addition to this, the consulting activities tend to have higher profit margins than accounting tasks have. Therefore, the strategy tends in many cases towards an enforcement of cross-selling activities around the accountant’s core business and to adopt an expert’s role. The business model is very similar to the model of classical consultants. Eventually the leverage between partner and consultants is a little bit larger but also Accountants and Tax Consultants focus strongly on knowledge management and an excellent customer relationship. Clients will do no harm if they choose Accountants and Tax Consultants for general economic topics and if they need support with a very low training period or set-up time. The service provider can turn up trumps because of its legacy knowledge about the clients business.
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Internal corporate consultancies
Business idea Especially larger corporations established Internal Corporate Consultancies during the last years. In the 1990s a number of foundations took place. For the parent companies it is often more cost-efficient to build up an own consulting unit, than to engage external consultants on a large scale. In most cases internal and external consultants work together in one way or another. In addition to the cost-related reasons, confidentially aspects and HR development activities are the driving forces for establishing Internal Corporate Consultancies. As part of the same organization clients and consultants can share confidential information and sensitive data more safely. If a parent company wants to entrust their high potentials and youngsters with various tasks in a short timeframe and enforces them with insights in several business functions, an internal consulting unit could serve as a traverse with their various projects to staff (Ebel and Grass 1999, Johri et al. 1989, Hansen et al. 1999, Lacey 1995).
Advantages and disadvantages for individual consultants and clients Again, there are several advantages and disadvantages for people who want to become an inhouse consultant. First, the Internal Corporate Consultancy offers its consultants interesting career perspectives. A lean and flexible management structure – especially if compared with the parent company – opens the early possibility to take leadership positions. The internal character of the consultancy makes the gathering of information often easier than compared with the work within an external consultancy. Finally, in comparison with a prospective entry into an external consultancy, the lesser travel activities are often an advantage for Internal Corporate Consultancies. On the other hand, one might identify some disadvantages – especially if compared with the work in an external consultancy. The consulting activities are often industry-specific and while doing consulting work, the ability to get things done could be lower compared with external consultancies. As a third point, members of Internal Corporate Consultancies have to ensure that they do not become routine-blinded. One major advantage for the clients of Internal Corporate Consultancies, in most cases the parent company, is the cost reduction. A set-up of an internal consulting unit has economic advantages if on the other hand, external consulting engagements are reduced. The second advantage goes in line with the following argument: The owner of an Internal Corporate Consultancy is more or less independent from the cyclic ups and downs of the
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external consulting market. In addition to these two more economic advantages, there are operational advantages, too. First, one can anticipate that internal consultants need a shorter set-up time when starting a new project. They are informed about the company structure, the culture, the processes etc. Furthermore, they have better access to information by other parent company employees – because they are colleagues. On the other hand, there are at least two reasons why a client should hesitate to engage Internal Corporate Consultancies. First, they often lack the cross-industry experience compared with classical consultants. The creation of a benchmark might be more difficult, the industry-spanning experience is not available, and the ‘neutral’ view is hard to get. The insight that, in some cases external consultants are furthermore necessary goes in line with the above mentioned argument. Secondly, the usage of an Internal Corporate Consultancy and external consultants might be a starting point of conflicts concerning the relative position, reputation, and tasks to be done.
Areas of engagement Many Internal Corporate Consultancies have a similar service offering portfolio compared to external consultancies. Typical projects are in the area of strategy development, business reengineering, internal services improvement, merger integration etc. Compared with external consultancies, Internal Corporate Consultancies are integrated into a larger organizational context, they are limited with respect to size, growth rate, and have slightly different leadership guidelines.
Goal, strategy, business model, and recommendations for selection The business goal of most Internal Corporate Consultancies is to contribute to its parent companies cash out reduction strategy, to support in HR development activities, and to act as a knowledge manager. Therefore, in many cases they have the task to breakeven but not to work profit-oriented. The strategy is determined in substituting external consultants, mostly focusing on mainstream topics and to become early adopters with management trends. However, Internal Corporate Consultancies often support the ‘learning organization’. The business models of Internal Corporate Consultancies range from a direct mapping of classical consultancies to project coaches. If the focus is laid on cash-out reduction, the business model copies the external consultant. If the focus is set on HR development activities, the business model consists of more consultants as necessary with respect to the training effects.
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Clients should consider the engagement of Internal Corporate Consultancies (supposed the parent company disposes of such an organizational unit) if they seek business support to favourable prices which has state of the art experience. With respect to the organizational environment there might me micro-political reasons as well as those based on competitive advantages. Other organizations with consulting capabilities Beneath the classical consultancies and the alternative consulting units discussed above, there are some other organizations with consulting capabilities. With respect to the German consulting market, associations like the Industrie- und Handelskammer, the Bundesverband der Deutschen Industrie, the Rationalisierungs- und Innovationszentrum der Deutschen Industrie might be named. Some times, they have an official field of duty which is to support and consult their members in special tasks. Local and central governments have in many cases special departments for economic development which are able to give qualified advice to enterprises with questions in certain areas. A separate Inititative Mittelstandsförderung focuses on small and medium sized companies and tries to encourage the focused companies via a kind of best practice award. The named organizations will not be discussed in more detail with respect to the limited focus on Germany. One might guess that several other European countries had set up similar organizations. However, the common goals, strategies, business models, and recommendations for selection are stated below. Recapitulative, one might say that these organizations fulfill tasks of classical consultancies but are not placing themselves in this area. They have established a ‘grey market for consulting services’ (IHK 2005, BDI 2005, IM 2005, RKW 2005).
Goal, strategy, business model, and recommendations for selection The spread of tasks and responsibilities of the above-mentioned organizations makes it a little more difficult to find and describe the ‘typical’ or ‘ideal’ grey market consulting organization. However, they mostly offer a service to their members and see themselves as a service provider whose activities are not primarily profit-oriented. The strategy seems to be in focusing on the basics of economical and business-related aspects. They are more followers with respect to management trends than creating trends by themselves.
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The business model differs for each organizational type. But these Other Organizations with Consulting Capabilities comprise about huge and deep intra-industry knowledge. They act with great empathy and communicate responsive to their clients needs. Clients should consider an engagement of this kind of consulting service provider if they have a membership of an organization which offers this service and if they want to become excellent value for money with respect to certain tasks. Also, they can expect consultants with a sense of the client’s needs. Conclusion Beneath the more classical consultancies (e.g. McKinsey & Company, Roland Berger Strategy Consultants, The Boston Consulting Group), a group of more alternative consultancies has established itself. However, the second group lacks the media attention and awareness within the businesses of the classical consultants. A differentiation of the various business models might sharpen the differences, enhance the awareness, and steer and influence the usage. This article first introduced the business model as a (visual) tool for analyzing businesses. In a second step, several of the consulting organizations, which serve as direct or indirect competitors for the classical consultancies, were introduced. Therewith, it was aim of this article to close the identified lack of knowledge. In detail, Senior Consulting Services, Student Consultancies, Accountants and Tax Consultants, and Internal Corporate Consultancies were investigated in more detail. The underlying business idea was presented, advantages and disadvantages of working for/with the type of consultancy discussed, and typical areas of engagement depicted. For all consulting units, their goals, strategy, business model, and typical selection behaviour were briefly pointed out. As a result, it can be stated, that the more ‘alternative’ consulting business models show advantages as well as disadvantages for their prospective clients. However, in many areas they might serve as an alternative to the classical consultancies even if they are today mostly unconsidered by media, public and clients. References ASEP (2005), Austrian Senior Experts Pool, www.asep.at, last visit at 2005-12-05. BDI (2005), Bundesverband der Deutschen Industrie e.V., www.bdi-online.de, last visit at 200512-05.
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BDSU (2005), Bundesverband Deutscher Studentischer Unternehmensberatungen e.V., last visit at 2005-12-05. Consenec (2005), Consenec – Consulting by Senior Executives, www.consenec.ch, last visited at 2005-12-05. Cope, M. (2001), Consulting mit System, Financial Times Prentice Hall, Munich. Deelmann, T. and Loos, P. (2004), “Vorschlag zur grafischen Repräsentation von Geschäftsmodellen”, Working Papers of the Research Group Information Systems & Management, paper 14, Mainz, Germany 2004. Deelmann, T. and Petmecky, A. (2005), “Optionenraum für Geschäftsmodell, Strategie, Aufbau- und Ablauforganisation einer Unternehmensberatung” in: Petmecky, A. and Deelmann, T. (eds.), Arbeiten mit Managementberatern – Bausteine für eine erfolgreiche Zusammenarbeit, Springer, Berlin et al., pp. 245-255. Deloitte & Touche (2005), Deloitte & Touche GmbH, www.deloitte.com, last visit 2005-1205. Ebel, B. and Grass, B. (1999), “Inhouse Consulting: Gefahr für die Branche? Untersuchung Inhouse Consulting (III)”, Management-Berater, vol. 3 no. 6, pp. 33-34. Ernst & Young (2005), Ernst & Young GmbH, www.ey.com, last visit 2005-12-05. Graf, V.; Voßkamp, D.; Hagen, T.; Bergenthal, T. and Hesse, M. (2006), “Studentische Unternehmensberatung – Uni und Beratung im Doppelpack”, Wirtschaftsinformatik, vol. 48, no. 2, pp. 143-146. Hansen, M. T.; Nohria, N. and Thierney, T. (1999), “What´s your strategy for managing knowledge?”, Harvard Business Review, March, pp. 106-116. Heuermann, R. and Herrmann, F. (2003), Unternehmensberatung: Anatomie und Perspektiven einer Dienstleistungselite - Fakten und Meinungen für Kunden, Berater und Beobachter der Branche. Vahlen, Munich. IHK (2005), Deutscher Industrie- und Handelskammertag, www.ihk.de, last visit 2005-12-05. IM (2005), Initiative Mittelstandsförderung, www.mittelstandsfoerderung2005.de, last visit at 2005-12-05. James (2005), james consulting GmbH, www.james-consulting.de, last visit 2005-12-05. JCNetwork (2005), Junior Consultants Network, www.jcnetwork.de, last visit 2005-12-05. Johri, H. P.; Cooper, C. J. and Prokopenko, J. (1998), “Managing Internal Consulting Organizations: A New Paradigm”, SAM Advanced Mgmt. Journal, pp. 4-10. Lacey, M. Y. (1995), “Internal Consulting: Perspectives on the Process of Planned Change”, Journal of Organizational Change Management, vol. 8 no. 3, pp. 75-84. Maister, D. H. (1982), “Balancing the Professional Service Firm”, Sloan Management Review, Fall, pp. 15-29. Niedereichholz, C. (1997a), Unternehmensberatung – Band 1: Beratungsmarketing und Auftragsakquisition, Oldenbourg, Munich et al.
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Niedereichholz, C. (1997b), Unternehmensberatung – Band 2: Auftragsdurchführung und Qualitätssicherung, Oldenbourg, Munich et al. Oscar (2005), Oscar GmbH, www.oscar.de, last visit 2005-12-05. PricewaterhouseCoopers (2005), PricewaterhouseCoopers AG, www.pwc.de, last visit 200512-05. RKW (2005), Rationalisierungs- und Innovationszentrum der Deutschen Wirtschaft e.V., www.rkw.de, last visit at 2005-12-05. SES (2005), Senior Experten Service, www.ses-bonn.de, last visit at 2005-12-05. Scheer, Chr.; Deelmann, T. and Loos, P. (2003), “Geschäftsmodelle und internetbasierte Geschäftsmodelle – Begriffsbestimmung und Teilnehmermodelle”, Working Papers of the Research Group Information Systems & Management, paper 12, Mainz, Germany 2003. Smith, B. and Smith, D. (2003), “The Global Consulting Marketplace 2003: Key Data, Forecasts & Trends”, in Kennedy Information, Inc. (ed.), Market Intelligence, Peterborough, New Hampshire, USA. Walter, E. and Deelmann, T. (2005), “Der ‚andere’ Beratungsmarkt in Deutschland”, Schriften zur Unternehmensberatung, vol. 5, 2005.
Why do Clients Work with Management Consultants? – An Empirical Analysis Sandra Niewiem, Ansgar Richter
Introduction Management consultants are an important feature of today’s economy. With more than 315,000 consultants in Europe alone (FEACO 2004), the industry is of significant size. Almost no large-scale organization throughout the private and public sectors does not procure the services of external advisors. Although the empirical evidence attests to the importance of management consultants, it is not entirely clear under which circumstances clients buy services from external consultants, rather than to use their own internal resources for the initiation and execution of management projects. Even those organizations that have set up in-house consulting units or similar project organizations often continue to involve external consultants in their projects. Clients’ reliance on the services of outside advisors is particularly puzzling because contracting and cooperating with consultants is beset with risks and difficulties (Clark 1995). For example, due to the nature of consulting services as credence and experienceintensive services, choosing the “right” consultants ex ante and controlling them ex post can be challenging (Mitchell 1994). There are few established principles and guidelines for procuring consultants’ services, in particular as top industry players have resisted the establishment and enforcement of universal quality standards, minimum qualification levels, codes of conduct, and so on. Kieser and his co-authors (Kieser 1999; Ernst and Kieser 2002) have argued that due to the lack of objective performance criteria, clients resort to satisfaction measures that emphasize procedural aspects for assessing their consultants’ work, if they do so at all. In addition, following a series of high-profile scandals involving consultants and the publication of a large number of books that shed critical light on their work (e.g. Pinault 2000; Hochhuth 2003), clients have reason to be sceptical about external consultants. Against this background, the purpose of this chapter is to analyze clients’ decisions in favor of or against the involvement of external consultants in management projects. As indicated above, with respect to most projects, clients have at least two – and frequently more than two – alternative options for executing them. They can either carry them out
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through their own line or staff management, or rely on outside consultants (Furusten and Werr 2005). These two alternatives mark the extremes of an entire spectrum of options that may also include, for example, the involvement of an in-house consulting arm or dedicated project unit. Even if clients choose to involve outside consultants, different forms and degrees of involvement may be possible, as indicated by measures (such as the proportion of a project team that is constituted by external consultants), or the location of consultants’ team (on the client’s premises or out of house). Our aim is to identify the conditions under which clients choose a more “internal” versus a more “external” relationship. The theoretical framework on which we base the empirical analysis is the transaction cost economic theory in which the distinction between “markets” and “hierarchies” as two alternative forms of organizing economic activity was first developed (Williamson 1975). The empirical data on which the chapter draws was generated through a series of over 41 interviews with executives of 34 client firms, which covered a total of 86 management projects. Our research design combined deductive and exploratory elements. Theoretical framework Management consulting can be defined as the process of advice and assistance rendered by a consultant to a client on matters of business administration (Kubr 2002). In many cases, the use of consulting services involves a joint effort, a “co-production” of clients and consultants based on a intimate relationship. We focus on the intensity or closeness of this relationship from the client perspective. Figure 1 provides an overview of five options for the execution of project activities (with plenty of space in between these options). Clients may either decide to use internal resources from their units in order to carry out particular projects. Alternatively, they may involve in-house or external consultants for this purpose. Furthermore, they may influence factors that affect the intensity of the relationship between the client organization and the consulting team, such as the exact composition of the team and its primary working location. The standard framework for analyzing alternative contractual arrangements for carrying out economic activity is the transaction cost economic (TCE) theory developed by Oliver Williamson (1975; 1985; 1989; 1996), drawing on the groundbreaking work of Ronald Coase on The Nature of the Firm (1937). Coase analyzed why many economic activities are integrated in firms, rather than to be carried out via market transactions among independent actors. He argued that vertically integrated firms may have advantages, as markets carried inefficiencies in the form of transaction costs, such as search and screening effort as well as the cost of monitoring contracts. On the other hand, vertical integration may also carry costs, e.g. in terms of administration and internal monitoring costs. Therefore,
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from an efficiency perspective, economic activities will be integrated into a firm as long as the benefits associated with the integration exceed its costs. Organization of managerial activity
Unique Time-limited Under particular conditions only, e.g. high complexity
Competencies/ resources
Contract
Team setting/ activity/ownership Primarily consultants
With the involvement of consultants
External consultants Primarily internal resources
Project activity Primarily consultants
Managerial activity
In-house consultants Regular activity Recurrent On-going Under normal conditions
Without the involvement of consultants
Internal resources (Managers/employees)
Primarily internal resources
Solely internal resources
Fig. 1. Managerial Projects and the Contractual Relationship Between Clients and Consultants
According to Williamson, transaction costs arise as a result of three classes of conditions under which economic activity takes place. First, economic actors are subject to behavioral conditions, specifically, bounded rationality and opportunism. Second, economic activity occurs under general environmental conditions, namely uncertainty and complexity. Third, contractual relationships themselves are characterized by phenomena such as relationship specific investments between two or more parties, namely asset specificity. Empirical tests of transaction cost economics have largely focused on asset specificity as a major determinant of vertical integration, and confirmed its importrance (see Boerner and Macher 2001; Lohtia et al. 1994). Some other hypotheses that can be derived from the TCE framework have not found clear empirical support. In addition, the empirical research on TCE has largely focused on industries involved in the production and distribution of physical goods. Relatively few studies so far have tested transaction cost economic predictions in the context of professional service industries. On a conceptual level, however, various authors – in particular Canbäck (1998, 1999) – have applied institutional economics (a group of economic theories that includes TCE) to address the question why the provision of management advice is often outsourced by
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clients to external specialists. Dedicated management consulting firms, they argue, have developed mechanisms to keep the transaction costs of clients within reasonable levels, while exploiting economies-of-scale properties of information, knowledge and experience more fully than individual clients could. The purpose of this chapter is not to discuss the conceptual strengths and weaknesses of the institutional economics approach to the existence of consulting firms. In contrast, we provide empirical evidence with respect to core propositions that can be derived from the application of TCE to clients’ choices among alternative options for carrying out particular projects. The results provide in-depth insights into the factors that drive the decisions of managers in favor of or against procuring services from external management consultants. Empirical study
Information sources We conducted semi-structured, personal interviews with decision-makers in 34 companies. Two considerations led us to choose the interview method as our primary data generation approach. First, interviews provided us access to information on client choices regarding the execution of management projects, which is not easily available otherwise. Second, the personal settings of the interviews enabled us to explore potentially sensitive issues, which clients might have been hesitant to divulge in questionnaires. In contrast to most prior studies on TCE, our interviews focused on clients in the German-speaking region of Germany, Austria and Switzerland. Two thirds of the firms in our sample had their headquarters within Germany. The sample of companies included large, for-profit firms from 16 industries. We excluded non-profit and public organizations because contractual choices in these entities tend to differ from those taken in business enterprises due to lower efficiency pressures. Nine of the companies in the sample had an in-house consulting unit. We conducted interviews with experienced executives from 34 companies who were involved in and had at least partial responsibility for making decisions for the execution of managerial projects. In total, 41 executives were interviewed, yielding a reasonably large sample size (e.g. Dwyer 1980). We expected our interview partners to have taken part in decisions regarding the involvement of external consultants or internal resources with respect to at least five projects, and received confirmation that they met this minimum threshold. They included
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several top managers (members of the management boards), but also members of the corporate strategy/development and the purchasing departments of the firms involved. All interviewees held at least a university degree. Interestingly, about half of them had worked in consulting at an earlier stage of their careers.
Interview focus We asked our interviewees to review with us one or more recent managerial projects which they had been responsible for defining how and with whom the project should be carried out. We then discussed the nature of each project and the process through which they had decided as to how it should be executed, using a semi-structured interview guide. In total, we were able to discuss 86 managerial projects, which constitute the primary database of our study. For each of the 86 cases, we covered the entire decision-making process, from the first idea of setting up a project until the final choice. Therefore, our study was based on “real” (experienced) rather than on hypothetical scenarios or the mere opinions of our interview partners. We were interested in the context in which they made their decisions, rather than what they saw as the reasons for these decisions. The 86 projects were characterized in four generic functions. The clear majority of projects (41 per cent) were either in operations (including supply chain management), or in strategy (36 per cent). The third largest segment (18 per cent) contained projects related to IT, e.g. systems integration. Four projects (almost five per cent) were in HR, e.g. the development of a qualification program.
Data analysis Existing empirical studies on TCE largely rely on quantitative methods such as regression techniques, although some researchers complement quantitative with qualitative methods of analysis (Muris et al. 1992). Qualitative research on TCE is largely dominated by case explorations, despite the problems associated with this approach (Bronner et al. 1999; Eisenhardt 1989b). In contrast to these approaches, we used content analysis as our primary analytical approach. Content analysis is used across academic disciplines for multiple types of communication such as verbal and non-verbal information, figurative and textual formats, distributed by individual and collective media (Schnell 1999). Most authors consider content analysis to be a qualitative technique, despite its focus on the quantification of data (Friedrichs 1980).
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We applied two basic types of content analysis in this study, namely conceptual analysis and relational analysis. Conceptual analysis aims at furnishing evidence on the empirical basis of particular constructs represented by words or sentences. It involves quantifying the presence of measures with a focus on the occurrence of selected terms stated by the interviewees, explicitly as well as implicitly. By means of extensive coding of data, exploration and validation of constructs, we established the descriptive body of our analysis. Interview passages were allocated to so-called content categories and frequency counts were used to assess the importance of these categories. Relational analysis seeks to explore the relationships among different constructs. We used relational analysis in order to analyze any potential associations between the extent to which consultants were involved in project work and a battery of independent variables. In order to assess the statistical significance of the relationships uncovered, we conducted a series of statistical tests including chi-square tests and tests on the significance of the correlation coefficients. Content analysis has undergone massive growth and sophistication with the advent of computer-based software and tools, most of which are variations of the The General Enquirer, a computer program designed in the 1960s to electronically manipulate textual material (Bouchard 1976). We used NVivo, a software for the analysis of qualitative data, specifically large-scale datasets (see Figure 2). The program combines subtle coding with qualitative linking and modeling, and provides some of the most advanced tools available at present, such as manipulating multimedia data records, search and data access, coding and annotating, management and synthesis of ideas as well as results reporting and visualization. Using NVivo added speed and rigor to the analytical process.
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Fig. 2. Content analysis with NVivo Software – Screenshot
For quantitative analyses exceeding the scope of NVivo’s capabilities, we used a statistical software package (STATA). These techniques helped to ensure that initial impressions and theoretical ideas were validated by rich sets of qualitative and quantitative evidence. Compared to traditional qualitative research, such as case explorations, the results of this study should be, therefore, characterized by a high degree of reliability and validity, being grounded on a rigorous and systematic analytical process. Results
Results of the conceptual analysis Table 1 provides frequency counts for three constructs developed using content analysis, which describe the extent to which consultants were involved in the projects under investigation. The primary dependent variable (contractual spectrum) was initially specified as part of the deductive research phase, while the two secondary dependent variables (team composition and project location) were developed inductively during the analysis. While the entire sample of 86 projects was included to investigate the contractual spectrum variable, only the subset of those 64 projects that were carried out at least in part by external consultants was used to analyze the two other measures.
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Table 1. Results for Primary and Secondary Dependent Variables
Measures and attributes (N = 86 projects) Contractual spectrum (primary dependent variable) External consultants, contracted for the first time External consultants, loose relationship External consultants, strong relationship In-house consultants Managers/employees (no consultants involved)
Number of projects 86 14 19 31 8 14
per cent of projects 100.0% 16.3% 22.1% 36.3% 9.3% 16.3%
Team composition (secondary dependent variable) Mixed client-consultant team Pure consultant team
64 49 15
100.0% 76.6% 23.4%
Project location (secondary dependent variable) On site (clients’ premises) Off site (consultants’ office) Total number of projects
64 51 13 86
100.0% 79.7% 20.3% 100.0%
The contractual spectrum variable is of an ordinal nature. It ranges from the “integration” option, the internal provision of a managerial project, to a market solution, i.e. the procurement of project services from external consultants with whom the client concerned did not have a prior relationship. The category “external consultants, contracted for the first time“ includes all projects carried out by outside consultancies, which at the time of the decision, had not worked before for the client organization concerned. 14 out of the total of 86 projects fell into this category. The category “external consultants, loose relationship“ includes those projects carried out by outside consulting firms, with which the client concerned had worked before, but no more than three times. Consequently, the relationship between the client and the consulting firm was not very close. Nevertheless, our data show that the consulting firm was typically engaged on the basis of internal references, rather than a formal tender process. 19 of the 86 projects fell into this category. The largest group of projects (31 out of the total of 86) fell into the category entitled “external consultants, strong relationship”. This category includes all projects carried out in cooperation with an outside consultancy that has maintained a long, continuous engagement history with the client concerned. In some cases, the relationship was supported by framework agreements. Another indicator for the closeness of the relationship was the existence of an intimate, trustful bond between the key stakeholders of a client firm such as board members and senior consultants. In many cases, our interview partners talked about their “preferred consultant”. The category entitled “in-house consultants” includes all projects carried out by internal consulting units operated by a client firm. Of the 86 projects investigated, eight cases fell into this category.
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The group Managers/employees includes those projects carried out without the assistance of outside or in-house consultants, but rather by members of the staff or line organization of the client firm (14 projects). We draw two conclusions from the frequency counts presented above with respect to the contractual spectrum variable. First, the clients we interviewed had a clear preference for cooperating with external consultants with whom they had an established relationship, rather than with providers of consulting services with whom they had not worked with before. Of the 64 projects carried out with the help of outside consultants, fifty (78 percent) were carried out by consulting firms with whom clients had worked together before, at least on an occasional basis. In general, clients were open to considering consultants with whom they had not cooperated before, and reported that they did engage in “cherry picking” among new providers of consulting services on an occasional basis. Some of them even reported that they had become more selective and that they were more prepared to switch than they had been in the past. Nevertheless, when making decisions about which consultant to engage for particular projects, in the clear majority of cases clients still decided in favor of those players with whom a long-standing working relationship existed. Clients sought to establish long-lasting partnerships and tended to contract with consultants whom they knew on a personal basis. Second, for many clients the in-house consulting unit did not appear to constitute a viable alternative to the co-operation with external providers of consulting services. These nine firms in our sample that operated an in-house consultancy carried out a total of 29 of the projects contained in our sample. Of these 29 projects, two thirds (19) were carried out by or in co-operation with external consultants, eight by the in-house consulting units, and two by internal line or staff managers. In other words, even in situations where the option of working with in-house consultants unit existed, clients tended to prefer outside consultants. Our data suggest that procuring services from an in-house consulting unit primarily serves as a substitute for the services of internal staff or line managers, rather than for external consultants. In terms of their decision-making process as to how to carry out a particular project, clients’ first and foremost decisions concerned the question of whether or not to procure the services of an external consulting firm. Once this decision was made, only then, as a secondary step, did clients address the question of whether managers in line or staff functions, or members of an in-house consulting unit should provide the internal resources required for the execution of the project. In the perception of those clients who did have
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an in-house consulting unit, the in-house consultants were considered similar to internal line or staff managers, rather than as external consultants. With respect to the composition of consulting teams that they retain, clients may choose between a pure consultant team and a mixed team structure, consisting of both consultants and client representatives. Mixed client-consultant teams are typically characterized by a personal and close interaction between internal and external team members, e.g. through regular work meetings and shared responsibilities, whereas retaining a pure consultant team indicates a more distanced relationship between the client and the consultants concerned. The active involvement of members of both the consulting and the client organization in a single team is a sign of close co-operation in which the boundaries between the two organizations may easily blur. According to the data, mixed client-consultant teams were chosen significantly more often than pure consultant teams. In 77 per cent of all projects carried out with the help of outside consultants, members of the client organization were active members of the team. Only 15 projects in the sample were carried out by pure consultant teams. The location of a consulting team serves as a further indicator of the closeness of the relationship between clients and consultants. In many instances, clients provide office space on their premises to a team of external consultants. In other cases, the consultants may work from their own offices, and only visit the client’s premises for the purpose of meetings and presentations. The choice between these two modes of operation is often driven by the nature of the consulting project, the question of whether the consulting firm maintains an office close to a client, and the composition of the consulting team. On the other hand, the regular presence of a team of external consultants on the client’s premises supports the development of a close relationship between members of the client organization and the consulting firm, even if that presence would not strictly be necessary for practical reasons. As can be seen in Table 1, 51 of the 64 projects carried out with the support of external consultants (80 per cent) could broadly be categorized as on-site projects, whereas only 13 projects (20 per cent) were conducted off-site. Our data suggest that external consultants usually provide their services on the premises of their clients, which may further blur the (already indistinctive) boundaries between the consultant and the client organization. In order to investigate the relationship between team setting and project location, we crosstabulated the data and performed two statistical tests of association. The results reported in Table 2 reveal that, in line with our expectations, the two variables were strongly asso-
Why do Clients Work with Management Consultants? – An Empirical Analysis
31
ciated with one another. Projects carried out on the client’s premises were often run by mixed client-consultant teams, whereas pure consultant teams often worked off-site. Table 2. Cross-tabulation of Results of the Secondary Dependent Variables
Team/project settings Mixed client-consultant teams Pure consultant teams Total Pearson’s χ2 (1) = 26.00 p = 0.000 Spearman's ρR = 0.64 p = 0.000
Project location On site Off site # % # % 46 93.9% 3 6.1% 5 33.3% 10 66.7% 51 80.0% 13 20.0%
Total number of projects 49 15 64
Overall, our findings provide evidence for the closeness of the relationship between external consultants and clients. Our interview partners favored consultants with whom they had already established working relationships over those with whom they did not have any prior contact. Their relationships were reinforced by the fact that consultants and managers often worked together in mixed teams, and that external consultants often maintained a presence on their clients’ premises during the project.
Results of the relational analysis According to the results presented in the previous section, almost three quarters of the 86 projects discussed with our interview partners had been carried out with the involvement of external consultants. The purpose of this section is to identify the conditions under which our interview partners decided to procure the services of external consultants, rather than to use internal resources. Table 3 provides an overview of 18 conditions that we identified as influencing clients’ decisions as to whether they procured project services from external or internal providers. We evaluate the strength of the influence of these conditions on the choice variable, distinguishing between moderate, strong and very strong influence. The evaluation is based on a three-step process. First, we counted the number of project scenarios in which a particular condition had been mentioned at all by our interview partners. Second, we cross-tabulated each individual condition with the contractual spectrum variable. We analyzed these cross-tabulation tables in order to determine whether any particular condition influenced the contractual spectrum variable in a consistent way. If a condition was associated with the contractual spectrum variable in a consistent direction in more than 75 per cent of all cases, we judged the relationship between the condition and the contractual choice variable to be “very strong”. A relationship was labeled “strong” if the condition concerned was associated with the contractual spectrum variable in 51 to 75 per cent of all cases, and
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“moderate” if the two variables were associated in 26 to 50 per cent of all cases. Third, we used statistical tests of association in order to further validate the results of the crosstabulation. We analyzed a total of 61 conditions with respect to any potential associations with the contractual choice variable. Of these, we found the 18 conditions listed in Table 3 to be at least moderately strongly associated with the contractual choice variable. For ease of presentation, these 18 conditions are grouped into nine categories in Table 3. The results presented in Table 3 suggest that our interview partners decided to procure services from external consultants primarily in three types of situations. First, they involved external consultants in projects that required functional or industry knowledge which was not available in the client organization, such as market benchmarks. In several interviews, clients said that they had searched for individual consultants with particular “knowledge profiles” who would be able to provide the functional or industry expertise deemed necessary for the execution of a project. Second, highly political project conditions tended to favour the involvement of external consultants. In projects that had the potential to alter the power structure within organizations, clients sought the involvement of outside advisors for their ability to guide the process and “work through” the politics involved. External consultants were particularly sought after with respect to projects that involved numerous units in the client organization, such as corporate strategy projects dealing with various divisions or restructuring projects that affected the staff allocations in all units across the organization. The following quote illustrates the division of roles between internal staff members and external consultants: “This project involved managers from several divisions. We recognized that we had a lot of internal expertise, but we felt that we needed to supplement our own capabilities with those of an external process manager and mediator. We asked an external consultant to play this role, but much of the content work was done by our own staff.” Interestingly, clients had little hesitation to involve external consultants even if the information that the external advisors may have received access to was highly sensitive or proprietary in nature. They did not perceive the fact that outsiders might opportunistically exploit this information to their own advantage as a threat.
Very strong Very strong Very strong Very strong Very strong
Specialist knowledge (+) Methodological and political functions (+) Industry benchmarks (+) Firm-specific knowledge (–) Personal identity and rapport (–)
Very strong Moderate Moderate Moderate
Extra capacity needs (+) Length, detail of a contract (–) Implementation issues (–) Bad image of consultants (–)
Strong
Strong
Task complementarity (–)
Return on consulting investment (+)
Strong
Number of direct alternatives (+)
Very strong
Strong
Project duration (–) Number of consultants involved in proposal process (+)
Strong
Ready work relationships (–)
Very strong
Moderate
Learning/Time to productivity (–)
Trust and acceptance (–)
Moderate
Empirical support
Proprietary content (+)
Variables with significant effects1) on the involvement of external consultants
1) Assessment of relationship strength based on the analysis of cross-tabulation tables and the assessment of Pearson’s chi-square and Spearman’s rho
Cost
Prior negative experiences with consultants
Effort to write a contract
Recurrence and resources
Availability of capable consultants
Project duration
Importance of relationships
Type of Knowledge
Confidentiality/sensitivity
Content category
External consultants
In-house consultants or managers
In-house consultants or managers
In-house consultants or managers
External consultants
In-house consultants or managers
In-house consultants or managers
External consultants
In-house consultants or managers
In-house consultants or managers
In-house consultants or managers
In-house consultants or managers
In-house consultants or managers
External consultants
External consultants
External consultants
In-house consultants or managers
External consultants
Project commissioned to / Involvement of…
Why do Clients Work with Management Consultants? – An Empirical Analysis
Table 3. Antecedents of the Consultant-Client Relationship 33
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Third, clients involved outside consultants for their ability to absorb additional workload. Even in situations in which the internal execution of a project would have been an option, decision-makers decided to involve external consultants if the latter had clearly devoted significant resources into the development of a project proposal, thus indicating that sufficient capacity to carry the extra workload associated with the execution of the project was readily available. On the other hand, clients preferred internal resources for carrying out lengthy projects (i.e. projects exceeding six to eight months) or those whose expected duration could not be clearly determined at the outset. Overall, short and intensive projects requiring significant extra workload on short notice favoured the involvement of external consultants, whereas lengthy projects where the extra workload was spread over an extended period of time were more often carried out by internal teams. In total, the analysis of our interview data yielded three major project conditions in which clients decided to involve external consultants: The need for industry or functional expertise and knowledge which was unavailable in the client organization; highly political project situations in which the consulting provider could play the role of a process manager, moderator, mediator and possibly scapegoat; and the occurrence of an unusually large amount of work in the context of a project. The following quote from one of our interview partners who had procured the help of an external consulting firm for the purpose of a restructuring project summarized these three conditions as follows: “We expected the consultants to drive the restructuring process. We also sought outside support in order to get access to external benchmarks, especially since this project involved layoffs on our part. […] We could not have done this project with our internal employees. First, the project involved a huge amount of work and we simply did not have the capacity to do that. Second, it was important for us to get an independent perspective. Our employees would not have been able to provide the industry benchmarks. And third, bear in mind that this was a restructuring process. It was quite helpful for management to have a scapegoat for decisions that had adverse effects on our staff. We could not have done that if the project had been carried out by our own people.” The three types of conditions favouring the involvement of external consultants can be described as project characteristics. Moreover, the data suggest that market conditions had a bearing on clients’ decisions whether to involve external consultants or not. Specifically, the greater the number of external service providers deemed appropriate for providing consulting services with respect to a given project, the greater the likelihood that clients actually chose one of these external providers, rather than to carry out the project with their own in-house resources.
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In addition to the conditions summarized above which favoured the procurement of consulting services from external consultants, the data also point to situations in which clients preferred to use internal resources over those of external service providers. First, projects that required a significant amount of firm-specific knowledge and the existence of ready working relationships within the organization were more often carried out by in-house consultants, line or staff managers than by external consultants. External service providers were at a particular disadvantage in situations in which an existing network of trust-based relationships with a large number of individuals in the organization was regarded as critical for the success of a project. Whereas external consultants were often expected to play a role as “neutral moderators” or “impartial process managers” (see above), in-house consultants or internal managers were employed in order to leverage the breadth and depth of their personal networks within the organization, as well as their expertise in their functional area of competence. Second, clients often resorted to internal staff when the type of activity required by a project was complementary with the regular responsibilities of the people chosen for project execution. In addition, client decision-makers assigned internal staff to projects in order to ensure that as little friction as possible would take place between the completion of the project and the ongoing business of the firm. In many cases, clients assigned internal staff to projects with external consultants in order to provide their staff with learning opportunities and to ensure that the insights generated through the project would remain in the organization after project completion. Several clients were hesitant to employ “purely external consultant teams” (Table 1) as they often regarded them as unable to ensure that the organization would be able to benefit from the project beyond its completion date. They saw internal staff as important bridgeheads between the project and the general operation of the company. In addition, the results suggest that the propensity of clients to involve the help of external consultants was influenced by the clients’ prior experience with external consultants and their subjective image of the consulting profession. Several managers said that after successive “bad experiences” with external consultants, they were more hesitant to work with them, and more discerning in their choice of consulting providers. These “negative experiences” related almost exclusively to the perceived inability of consultants to support the implementation of their recommendations, rather than flaws in their analytical and diagnostic work. In several instances, clients expressed disappointment in junior consultants’ inability to instill “change readiness” in the organization and take responsibility for the implementation of the project results. While our interviews did not focus on the clients’ opinions about external consultants as such, clients reported these experiences that
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had influenced their choices between internal and external service providers for the execution of project work. Implications for clients and consultants From our point of view, our findings harbor many important implications for both clients and consultants. We limit ourselves to the discussion of two sets of implications for each of these two parties, beginning with the implications for clients. First, clients should carefully choose the consultants involved in the execution of their managerial projects. Careful selection processes are time- and resource-intensive, but by the same token crucial for successful consulting service provision. Prudent decision-making in the preparation phase of a project contributes to the minimization of hazards ‘emerging’ during the project execution and the prevention of ex post ‘repairs’. In that context, the choice of consultants goes beyond simple screening. Careful selection processes should be based on a comprehensive analysis of the client-consultant relationship and should include aspects, such as the composition of the team, the degree of interaction between employees and consultants, and contextual aspects such as time and location. The uniqueness and novelty of project activities call for a tailored approach, which is reflected in the diversity of preconditions and decision-making approaches shared by clients during the interviews. For example, some projects are (and should be) tendered, while others do not necessarily require requests for proposals (RFPs) and similar “formalized” processes, depending on the circumstances. The advice often found in business magazines and books about working with consultants is too broad-based and neglects the specific situation of the client decision-maker. Wise managers invest into a decision-making team to account for the complexity of the consultant-client relationship. They also listen to consultants and include their ideas in the specification of a project, without relying blindly on the proposals submitted by external consultants. Hence, a careful definition of the relationship is a pivotal activity prior to every managerial project. Second, clients should tend to their relationship with consultants. Doing so is a fundamental precondition for deriving value from the use of consulting services and the involvement of consultants, respectively. In this study, the majority of consulting projects were based on personal and continuous relationships between consultants and clients. Project execution by a team without personal contacts or references was not considered an option by the majority of decision-makers. Relationships appear to be one of the most fundamental aspects in management consulting. However, recent market developments put close client-consultant bonds at risk, as suggested by Niewiem and Richter (2004) in their economic analysis of recent changes in the consulting industry. This sector is in the process
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of turning from a sellers’ into a buyers’ market. In contrast to the past, today’s consulting markets are characterized by high rivalry and substitutes on the supply side and increasingly choosy and price-sensitive clients on the demand side. With respect to consultants, they should consider most notably the two following implications of our study. First, consultants should focus on those areas, in which they can add maximum value to the relationship. As explained earlier, the classical functions of external consultants, such as the provision of specialized know how and industry experience, are still highly competitive as compared to the provision of these activities by in-house parties. Hence, consultants should continue to invest into their intellectual capital, even in times of decreasing fees and margins. When firm-specific knowledge and internal relations are crucial for the success of a particular project, external advisors should deliberately not submit a proposal, unless they have a privileged relationship with the client concerned. At the same time, professionals should reconsider their client portfolio and focus their relationship-specific investments on those organizations with the highest current and future potential. Consultants who carry out a variety of projects for fewer clients allow these clients to know and to trust them (Maister 1993). In this way, consultants will be able to add value and to defend themselves against the price and competitive pressures they are currently facing in their market. Second, our study has shown that consultants face a clear image problem. Although they make frequent use of consulting services, clients’ attitudes towards many consultants are rather ambivalent. The image problems that consultants face range from the fact that their attitudes are often perceived as “arrogant” and the production of too many (supposedly meaningless) presentation charts, to the misrepresentation of junior consultants as experienced professionals. Our study has shown that the damage to a consultant respectively a consulting firm from a project in which the consulting provider was – rightfully or wrongfully – perceived as having performed badly is substantial and long-lasting. Clients react sensitively to such image problems, e.g. by excluding consultants from future selection processes. External consultants put their client-relationships at risk if clients experience “implementation issues”, i.e. difficulties in the implementation of their consultants’ advice. Therefore, consultants should ensure that their recommendations are actionable. As an executive in a consumer goods company put it, “it is the responsibility of the consultant to get the buy-in from the client organization”. Intimate and interaction-intensive project settings should help in the development of actionable concepts.
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Our study also harbors recommendations for in-house consultants. They are often perceived as “low-budget consultants” or as a “second-best option” as compared to “real”, external consultants. Stronger coalitions with other in-house consultancies could prove helpful for developing organizational standards and sharing professional practices. Inhouse consultants should also sharpen their unique value propositions as reliable partners that can establish firm-specific knowledge better than their external competitors. They should communicate their success stories more widely to their internal clients. All in all, both in-house and external consultants will improve their image best by acting in accordance with the highest ethical and professional standards. References Baker, P. (2002), “Color your Judgment”, Works Management, vol. 55 no. 12, pp. 26-28. Boerner, C. S. and Macher, J. T. (2001), “Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences”, Working Paper, Georgetown University, Georgetown, University of California, Berkeley. Bouchard, T. J. J. (1976), “Field Research Methods: Interviewing, Questionnaires, Participant Observation, Systematic Observation, Unobtrusive Methods” in: M. D. Dunnette (ed.), Handbook of industrial and organizational psychology, Chicago, McNally College Publishing pp. 368-413. Bronner, R.; Appel, W. and Wiemann, V. (1999), Empirische Personal- und Organisationsforschung, Munich, Vienna, Oldenbourg. Canbäck, S. (1998), “The Logic of Management Consulting” (part one), Journal of Management Consulting, vol. 10 no. 2, pp. 3-12. Canbäck, S. (1999), “The Logic of Management Consulting” (part two), Journal of Management Consulting, vol. 10 no. 3, pp. 3-12. Clark, T. (1995), Managing Consultants: Consultancy as the Management of Impressions, Ballmoor, Open University Press. Coase, R. H. (1937), “The Nature of the Firm”, Economica, New Series, vol. 4 no. 16, pp. 386-405. Coles, J. W. and Hesterly, W. S. (1998), “The impact of Firm-specific Assets and the Interaction of Uncertainty: An Examination of Make-or-Buy decisions in public and private Hospitals”, Journal of Economic Behavior and Organization, vol. 36 no. 3, pp. 383409. Dawson, R. A. (2000), Developing knowledge-based Client Relationships: The Future of Professional Services, Woborn, Butterworth-Heinemann. Dwyer, F. R. (1980), “Response Errors in Survey Research”, California Management Review, vol. 23 no. 1, pp. 39-45.
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Eisenhardt, K. M. (1989b), “Building Theories from Case Study Research”, Academy of Management Journal, vol. 14 no. 4, pp. 532-550. Ernst, B. and Kieser, A. (2002), “In Search of Explanations for the Consulting Explosion”, in: Sahlin-Andersson, K. and Engwall, L. (ed.), The Expansion of Management Knowledge, Stanford, Stanford Business Book, pp. 47-73. FEACO (2004), Survey of the European Management Consulting Market, in: Murmann, J. (ed.), European Federation of Management Consulting Associations, Brussels. Fernández, A.; Arrunada, B. and González-Díez, M. (2000), Quasi Integration in Lessthan-truckload Trucking, in: Ménard, C. (ed.), Institutions, Contracts and Organizations, Cheltenham, Northampton, Edward Elgar, pp. 293-312. Friedrichs, J. (1980), Methoden empirischer Sozialforschung, Oplanden, Westdeutscher Verlag. Furusten, S. and Werr, A. (ed.) (2005), Dealing with Confidence, The Construction of Need and Trust in Management Advisory Services, Copenhagen, Copenhagen Business School Press. Graubner, M. and Richter, A. (2003), “Managing tomorrow's Consulting Firm”, Consulting to Management, vol. 14 no. 3, pp. 43-50. Hochhuth, R. (2003), McKinsey kommt, München, DTV. Kehrer, R. and Schade, C. (1995), “Interne Problemlösung oder Konsultation von Unternehmensberatern? Ein Rahmenkonzept zur sukzessiven Entscheidungsfindung auf transaktionskosten- und organisationstheoretischer Basis”, Die Betriebswirtschaft, vol. 55 no. 4, pp. 465-479. Kennedy (2003), Fees, Utilization, and other Key Metrics: Managing Profitability in the Consulting Profession – Metrics, Forecasts and Trends of the Profession, in: Smith, D. and Smith, B. (Eds.), Market Intelligence. Peterborough. Kieser, A. (1999), “Zwischen Beruhigung und planmäßiger Verunsicherung – Über die Rolle von Unternehmensberatern”, eco Managementwissen für Führungskräfte, vol. 1 no. 3, pp. 26-29. Klein, P. C. and Shelanski, H. A. (1995), “Empirical Research in Transaction Cost Economics: A survey and Assessment”, Working Paper, University of California, Berkeley. Kubr, M. (2002), Management Consulting: A guide to the Profession (3rd ed.), Geneva, International Labor Office. Kubr, M. (2002), “Coping with the Future – Consulting's Future”, Consulting to Management, vol. 13 no. 4, pp. 25-32. Lohtia, R.; Brooks, C. M. and Krapfel, R. E. (1994), “What constitutes a Transaction specific Asset? An Examination of the Dimensions and Types”, Journal of Business Research, vol. 30 no. 3, pp. 261-270. Maister, D. H. (1993), Managing the Professional Service Firm, New York, Free Press Paperbacks.
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Maister, D. H. (1997), True Professionalism, London, Simon & Schuster. Mitchell, V.-W. (1994), “Problems and Risks in the Purchasing of Consultancy Services”. The Service Industries Journal, vol. 14 no. 3, pp. 315-339. Monteverde, K. and Teece, D. J. (1982), “Appropriable Rents and Quasi Vertical Integration”, Journal of Law and Economics, vol. 25 no. 2, pp. 321-328. Muris, T. J.; Scheffman, D. T. and Spiller, P. T. (1992), “Strategy and Ttransaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry”, Journal of Economics and Management Strategy, vol. 1 no. 1, pp. 83-128. Niewiem, S. and Richter, A. (2004), Dynamics of the consulting market and implications for clients and consulting firms, Paper presented at the Academy of Management – Management Consulting Division; 2nd International Conference on Management Consulting, Lausanne. Niewiem, S. and Richter, A. (2004), Strategische Optionen für Berater und ihre Klienten, in: Petmecky, A. K. and Deelmann, T. (ed.), Arbeiten mit Managementberatern - Bausteine für eine erfolgreiche Zusammenarbeit, Berlin, Heidelberg, New York, pp. 219-232. Pinault, L. (2000), Consulting Demons, Inside the Unscrupulous World of Global Corporate Consulting, New York, Harper Collins. Polanyi, M. (1996), The Tacit Dimension, Garden City, New York. Schein, E. H. (1998), Process Consultation revisited, Building the Helping Relationship, Reading, Addison-Wesley. Schnell, R. (1999), Methoden der empirischen Sozialforschung (6th ed.), Munich, Oldenbourg. Williamson, O. E. (1975), Markets and hierarchies: Analysis and Antitrust Implications, A Study in the Economics of internal Organization, New York, London, Free Press. Williamson, O. E. (1985), The economic Institutions of Capitalism: Firms, Markets, Relational Contracting, London, Free Press. Williamson, O. E. (1989), Transaction cost economics, in: Schmalensee, R. and Willig, R. D. (ed.), Handbook of Industrial Organization, 1st ed., North Holland, Reed Elsevier, pp. 135-182. Williamson, O. E. (1996), The Mechanisms of Governance, New York, Oxford, Oxford University Press.
Strategic HR Management – A Factor to Success for Consulting Firms in Competition Dieter W. Kaiser
Introduction A consulting firm establishes its position in a competitive market by cultivating its competence profile and through the verifiable successes of its work for clients. Both of these factors require methodological know-how, industry knowledge, and the ability to bring about change in the companies being advised. Consultants must pave the way for their success by meeting these three requirements, and they must put them to the test daily. Continuous delivery on these requirements demands that consulting firms have continuous access to the required skill profile. Thus, the main challenge facing human re-sources management at a consulting firm is to define the profile of the consultants, find the desired individuals, support their ongoing development, and ultimately tie them to the company on a long-term basis – during the time of their employment as a consultant and, if possible, thereafter. This presents a challenge in times of a stagnating market and also during the cyclical growth periods that occur in the consulting market. Market demands that ask for dynamic and flexible consulting services can-not, however, be allowed to compromise the continuity of human resources management. In that context, the requirements for the marketing of consulting services have undergone a fundamental change. Since its inception at the beginning of the last century and through its burgeoning internationalization, most notably of American consulting firms in the 1960s, the consulting branch has grown due primarily to the compelling individual rather than the market image of the firm. Today consulting is still today a “people business”, yet the processes involved in the selection of a consultant, requests for proposals and proposal reviews, as well as contract awarding and commissioning are be-coming increasingly more professional as client companies deepen their knowledge of the consulting market and can more accurately assess its competence as well as its price/performance ratio. In virtually every company that decides to make use of consulting services, at least one of the individuals involved in the decision-making process has experience in dealing with consulting firms. Larger groups have long since begun including employees with consulting experience or even former consultants in the selection of a consultant for a previously defined task.
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What would seem a threat to many consulting firms actually represents, upon closer examination, an opportunity for professional consultants to convincingly convey their differentiation potential. On its own, the image of a consulting firm does not prove its competence, nor does it lend legitimacy to its price/performance ratio – it is an important but single competitive element. On the other hand, high quality consulting services provided to clients by competent consultants can be the sole determinant of success in a competitive environment – and these derive from high quality human resources management. During the course of this developing consulting market, the two basic demands placed on consulting firms since the very beginning of this service sector have become more radical; in addition to analysis and a convincing concept for a specific consulting project, the client also demands major contributions to the implementation of the respective solution from the same consultant. This market development is changing the consultant profile to such an extent that industry knowledge, methodological know-how and implementation experience must be embodied by one and the same consultant. Demanding clients are decreasingly willing to tolerate a distribution of competence and skills among several project members working side-by-side with the consultant. Consequently, today’s consultant profile must include both appropriate academic qualifications and technical and methodological skills, as well as comprehensive industry experience. At the same time, it is essential that a consultant has the social competence and professional experience necessary to implement changes. The ability to change mindsets and actions, reduce resistance and defuse conflicts requires a level of experience that can only be acquired through many years in industry, ideally in management positions. Equipped with this ability, the consultant is a problem-solving partner for management and the top performers in the company he is hired to advise. These market demands must be taken into account by professional human resources management. If HR management is to fulfill its role as a factor in the success of a consulting firm, it must be an integral part of the firm’s strategic orientation. Consequently, the principles applied to strategic HR management in consulting must be closely linked to the strategic orientation of the consulting company. − The search for personnel should adhere to a requirements plan based on the mediumterm business development plan, on the one hand, and the current capacity profile on the other.
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− The search for and selection of personnel should be undertaken in accordance with defined search profiles which state the requirements regarding the knowledge, ability, and experience of the candidates as well as the criteria for their “fit” to the company. − Selection of consultants for a specific task should aim primarily to satisfy the client’s demands and needs and, secondarily, to bolster the consultant’s personal development. − HR development, encompassing everything from wage policies to training measures and career planning, should be geared to market orientation and efficiency and fairness. Strategic HR management is an integrated concept and as such is one of the main tasks of management. Following these principles, it involves four processes: − Human resources planning: from requirements planning to the definition of search profiles − Recruiting: the search for and selection of candidates − Personnel placement/Staffing: the selection of suitable consultants for a specific consulting project − Personnel development: the promotion and development/continuing education/further qualification of the consultants Strategic HR management must be firmly anchored in the consulting philosophy of a consulting firm and implemented strictly (cf. figure 1). Development Project team
Career Career reviews
Acquisition monthly
Engagement
Capacity
annual
Staffing conference (monthly)
Personnel conference (annual)
Consulting projects Consultant
Internal projects Development of competence / skills
Project performance
Recruiting needs
Fig. 1. Strategic personnel management consists of two intersecting control loops
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Human resources planning The recruiting of personnel by a consulting firm with long-term competitive success adheres to a requirements plan that, on the one hand, follows a medium-term business development plan, and, on the other, is geared to the current capacity profile of the entire consultant pool. Additionally, the competence areas – whether they are defined by core industries or functional competences – should plan their business development on an annual basis both in the medium-term as well as short-term. Those responsible for the competence areas can then deduce their medium-term and short-term personnel requirements from the business development plan and prepare clearly defined requirement profiles. The requirement profiles take into account the necessary functional and methodological knowledge, the specific professional experience within the branch as well as international experience. The needs of the individual competence areas are then consolidated, reconciled with business planning for the entire company and furnished with detailed search profiles. The search profiles define not only the knowledge, ability, and experience levels, but also criteria for the candidate’s “fit” to the company. The more accurately these last criteria are defined and the more closely they mesh with the company’s consulting philosophy, the faster the future consultants will become true team members. The HR requirements of the entire company should thus not be defined only in terms of quantity but, more importantly, in terms of quality. During the consolidating of the individual plans from the industry groups, there is regular overlapping which makes deployment of a consultant in different branches or functional areas possible. In consulting firms whose competence areas are managed as independent profit centers, this may result in a conflict of interest. Consultants who are not limited in their consulting activities either to a branch or a functional competence are an advantage both for clients as well as for the firm. However, general deployment of the consultant requires that HR planning be conducted by the service company’s top management as part of its strategic corporate development. Experience shows that the requirements plan should be updated at least once per quarter during the financial year and compared to the recruiting results. This process ensures that recruiting measures fulfill the medium-term business plan and it also considers the current personnel situation. Continuous and specific human resources planning not only increases the competitive strength of the consulting firm, but also serves its clients. Ultimately, the high fluctuation
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in personnel which frequently accompanies short-sighted human resources management contradicts the valid interest of clients in the continuity and quality of the consulting. Recruiting For consulting firms which, like MANAGEMENT ENGINEERS, rely on consultants with professional experience, college and university recruitment with its own particular formalities governing the search for and selection of candidates is of less significance than cooperation with specialized HR consultants and the placement of advertisements in the media. Here, too, quality counts more than quantity. For both types of recruiting it should be clear that the search for and selection of candidates is based-strictly on search profiles derived from HR planning. This is the only way to guarantee permanently the quality of consultant profiles. The goal of quality should then also be kept vigilantly separate from the goal of image creation through personnel recruiting. Candidates are pre-selected on the basis of submitted application documents. It is at this juncture that search profiles are consistently employed and only those candidates who meet the requirements of a certain search profile are invited to the subsequent interviews. The key component of the recruiting process is a series of at least three interviews conducted by experienced consultants from the consulting firm’s management – partner or principal level – before candidates sign an employment contract with the firm. In most cases a member of senior management should also participate. The series of interviews begins with an initial meeting that introduces the candidate to the company and its consulting philosophy and in which the candidate introduces himself. Following this initial meeting, the interviewers decide whether the candidate still fits the pre-selection requirement profile. If so, the actual interview sessions proceed. The goal of the meetings that take place at this point is to make a decision that promises success for both parties – for the candidate as well as for the consulting firm – and consequently, also for its clients. In one or several meetings, the candidate’s specific professional competence and familiarity with methods and procedures as well as industry and international experience is verified by the relevantly experienced partners and principals of the consulting firm. Ideally, the atmosphere of these meetings is more similar to a work discussion than to a selection or job interview. This is where image creation in the recruiting of consultants with industry experience differs significantly from recruiting at universities or colleges. The goal of
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consulting firms such as MANAGEMENT ENGINEERS is to create an atmosphere that matches as closely as possible the later work situation of a consulting project and which corresponds to the expectations of experienced managers. Exquisite hotels, remote locations, or activities reminiscent of an adventure holiday would not meet the recruiting expectations of candidates with professional experience and would not convey a realistic picture of the consulting activities. All consultants involved in the interview sessions should, of course, be familiar with the evaluation criteria for candidates – both the professional criteria in the broadest sense and, particularly, all criteria which are used to assess the soft skills of the consulting firm’s employees. Consultant interviewers must also be able to assess the candidates’ ability to embrace the corporate and consulting philosophies and implement them in specific consulting activities for the benefit of the client. A personal liking for the candidate is important but by no means sufficient or even decisive. Ideally, on the day of the interview, the consultants who participated in the meetings should openly express their impression of the candidates, compare their assessment of the criteria demanded in the search profile and make the decision whether the candidate should be made an offer. In this discussion, every participating partner should be able to veto a candidate without having to give his or her reasons. This ensures that all recruiting decisions are made as a team and can likewise be supported by the team. Based on the decision from the interview sessions, the candidate is invited to a meeting at which he is made an offer and only the conditions of employment remain to be discussed. The candidate is then offered a contract of employment on the basis of this discussion. This recruiting process is short and efficient. Experience shows that, due to this fact, contacts established during the recruiting process that did not result in employment frequently lead to a successful business relationship for both parties at a later stage. Personnel placement – “Staffing” HR management that ends with a signature on the contract of employment has failed in its role as a competition factor just as fully as HR management that does not begin until the contract is signed. Strategic HR management rests on both pillars. Consequently, personnel placement, referred to as “staffing”, is also a task of the top management of a consulting firm. Ultimately, the interests of both the service provider and the clients are affected by staffing decisions.
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The consultants suitable for a specific consulting mandate should be assigned to the projects in a joint staffing conference. This meeting should include at least the individuals responsible for the competence areas, and ideally all partner-level consultants responsible for projects. They will not only select every single team member for the specific tasks of a consulting project, but also verify the composition of the entire team to ensure its suitability for the client’s company. Client-specific project and marketing activities should also be discussed during the meeting and the available resources assigned to them. Staffing as part of HR management thus ensures that the client finds consultants assigned to his project who possess the project-specific professional/procedural and industry competence and skills as well as the soft skills and experience required for implementation in the client’s company. Staffing also sets the course for the consultant’s further personal development. Thus, in addition to the suitability and availability of a consultant for the respective task within the consulting project delineated by the client, the personal preferences of the individual consultant also play a role. Strategic man-power planning brings both criteria together with an overall analysis of the individual aspects, and also in consideration of the medium-term projected business development. To conduct this process successfully it is ideal to have an open system in which there is no fixed assignment of consultants to functional or industry-specific cost or profit centers. Moreover, top management must recognize that the associated deployment is an investment worth making. It actually costs those responsible for a project far more time and effort to gather the required competences in their team when staffing is conducted by HR managers who are not familiar with the content of the consulting projects. Joint staffing conferences have the further virtually inevitable advantage of spawning regular and personal discussions of consulting projects, clients, and the performance of individual consultants. More-over, all consultants who serve as project leaders responsible for the quality of their consultant teams vis-à-vis clients and who mentor the career development of consultants receive a current status report on the performance of all consultants discussed. Experience shows that industry-wide trends and developments can frequently be derived from joint planning of staffing. The results applied to the personnel requirements of the consulting company will also be reflected in HR planning and the definition of search profiles as well as in personnel development.
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Personnel development The continuing development and long-term commitment of the consultant to the consulting firm is an integral part of strategic HR management – not least of all because continuity is one of the most important goals of HR management (cf. Figure 2). Personnel development at ME Marketing
Learning period and training
Recruiting
Productivity in projects
Fast and individual development
Attractiveness for clients
Attractiveness for employees
Innovative solutions
Raise career / market opportunities
Qualitative and quantitative growth Client satisfaction
Profitable growth
Employee satisfaction
Fig. 2. Goals of systematic personnel development and the training programs based thereon
The life cycle of the consultant comprises four elements: − Newcomer program: from industry-experienced practitioner to corporate consultant − Continuing education: consultants can and must constantly expand their functional/industry-specific knowledge − Career development: consulting must open up career prospects. − Outplacement: consultants seeking a career change should be given active support. Helping an industry-experienced practitioner understand the processes and methods of consulting is just as demanding an undertaking as making a consultant out of a university graduate. A business model that relies on consultants with professional experience benefits from the fact that managers in industry generally already have experience with consultants and are already familiar with consulting practices “from the other side of the desk”. It will thus be easier for these newcomers to understand consulting methods and client demands and, ultimately, to integrate in the team of consultants. It is still necessary, however, to acquaint newcomers not only “on the job”, but also familiarize them cross-company (and thus also cross-border) with the specific consulting phi-
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losophy and practice of the company. In addition to intensive knowledge acquisition, a Newcomer Program allows participants to expand and strengthen their internal contact base – both to partners with country and industry responsibilities, as well as within their “peer group”. The Newcomer Program should be accompanied by an individual training program to fully integrate the consultant as a permanent member of the team and to help him launch his career as a consultant. This process includes both individual discussions with mentors as well as social activities with partners outside of the job setting. The goal of this Newcomer Program is to familiarize new consultants with the “mindset” of the consulting firm within the first twelve months of their job. At the same time, newcomers are assigned mentors (experienced consultants at the partner level) from the very beginning and are supported in their career within the company. The role of the mentor is assumed by a partner who has a particular connection to the competence profile and to the personality of the new entrant and whose presence and advice will extend well beyond the starting period and into his career development at MANAGEMENT ENGINEERS. Continuing education is obligatory for every consultant and it is his own responsibility to pursue it. The consulting firm must create conditions that allow the consultant to attend continuing education courses and functions and offer suitable programs. The continuing education offerings should focus on professional, industry, and methodological competence, as well as communications training and personal training. To the extent that training courses are not held in-house, it is best to cooperate with well-known university institutes and business schools, wherein the programs should ideally be tailored specifically to the needs of the consulting firm. All work results, the progress of individual performance and continuing education measures should be discussed annually between the consultant and his mentor and incorporated into the specific planning of further career steps. The results of this discussion must then be consolidated in an annual closed meeting attended by all partner-level consultants in which decisions for promotion are also made. In regard to career development, there is a principle known as “up-or-out”. It foresees a window of time until the next career move that varies depending on the type of consulting and sanctions a termination of employment for exceeding this window of time. In contrast to many other consulting firms, MANAGEMENT ENGINEERS does not adhere to the “up-or-out” principle: experienced consultants who decide against a career within the
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Dieter W. Kaiser
consulting firm possibly for personal/family reasons still have competences and abilities that can be valuable to the client. In the event that a consultant wishes to make a career move, he should be actively supported by the consulting firm in his outplacement intention. This support can take the form of a positive dialog regarding existing offers as well as the specific search with the assistance of experts. At MANAGEMENT ENGINEERS personnel development is an integral part of strategic HR management and targets a reconciliation of internal personnel development with mediumterm HR requirements planning to avoid undesirable developments in the recruiting process. At the same time, it is an important element for guaranteeing the continuity of consultants for clients. Consultants who after many years of working for MANAGEMENT ENGINEERS have decided for generally private reasons to continue their career path in industry remain part of the company as alumni and are still considered members of the “ME Family”. Conclusion Strategic HR management accompanies consultants with different processes at the various phases of their “life cycle”. HR management always pursues three simultaneous goals: − Best results for the clients − Competitive advantage for the consulting firm − Optimum support of the consultant. These three goals can only be achieved if all of the company’s consultants with project responsibility are actively included in strategic HR management. The results of strategic HR management at MANAGEMENT ENGINEERS are convincing: − Clients willingly accept even newcomer consultants with industrial management experience – the consultants contribute convincing services / performance from day one to projects for client companies. − The consulting firm profits from the new stimuli and expands its own performance base with the competences of the new consultants – managers who move to consulting from industry experience new opportunities for applying their knowledge and experience. Fully realizing the potential of strategic HR management requires open structures, flat hierarchies, and freedom from organizational barriers. These prerequisites support and
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51
promote the freeing of potential and talents, encourage a willingness to perform, and produce motivation – within the consulting firm as a service provider as well as within the client company.
What Do Consulting Firms Expect from Graduates and Universities? Empirical Insights from the German Consulting Market Michael Mohe1
Introduction Management consulting grew in the last decade in such a manner that Ernst and Kieser (2002) speak about a “consulting explosion.” In the European consulting market, revenues from 1998 to 2003 doubled from about 24 billion euros to 47 billion euros. During the same time, the number of management consultants in Europe exploded from approximately 200,000 to over 300,000 (FEACO 1998; FEACO 2003). During these “golden years” many consulting firms noticed a capacity shortage, and extended their endeavors to recruit new candidates for management consulting. This situation has accelerated with the beginning of the internet economy. Many consulting firms lost their experienced consultants who established their own internet business. To refill these capacity gaps, consultancies recruited young and inexperienced junior consultants, benefiting from the situation that many students were striving to get a job in management consulting (Armbrüster 2004). About 40 to 50 percent of graduates from leading business schools in the US worked in the late 1990s for a management consulting firm (Ruef 2002; Stumpf 1999) with some even signing work contracts before they completed their university degrees. Now, like a boomerang, these developments have caught up with the consulting firms. They are paying a very high price for their accelerated growth: More and more criticism is arising about their work (Byrne 2002; Clark and Fincham 2002; Craig 2005; Micklethwait and Wooldridge 1996; O’Shea and Madigan 1997). Their formerly elitist image has been damaged. Some are already speaking about a legitimacy crisis (Wimmer et al. 2003) and predict an uncertain future for management consulting (Kipping 2002; Ringland and Shaukat 2004). Facing these developments, some authors call for more professionalism of management consultants (Alvesson and Johansson 2002), but as a matter of fact there are – with the exception of Austria, Malaysia, and the Philippines – still no professional standards regulated by law (Armbrüster 2004; Kyrö 1995; Glückler and Armbrüster 2003; Gross 2003). 1
I would like to thank Susan Adams for her valuable comments on a previous draft.
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Everybody who wants to be a consultant can simply claim to be one. As a way to counter lacking regulative standards, consulting associations like the European Federation of Management Consultancies Associations (FEACO) or the German Association of Management Consultants (BDU) offer memberships and certificates for consultants. But these certificates have been devaluated or even rejected by the larger management consultancies. Looking at the German consulting market, it could be observed that most of the top 40 consultancies, which generate almost half of the total industry revenues, are not members in the BDU. A prominent example is Roland Berger Strategy Consultants who opted out of the BDU in 2000. As Gross (2003) has found out, nearly all of the bigger management consultancies are highly skeptical of all forms of regulation, and instead provide their own training program – normally two-week crash courses in which their junior consultants learn about the different consulting tools and the cultural values of the company (Adams and Zanzi 2004a). In view of the increasing criticisms of consultants, the question arises whether these company programs will suffice for the future. An alternative approach (Adams and Zanzi 2004a; 2004b) suggests the need for more specialized courses for management consultants at universities, all the more because some consulting companies are increasingly skeptical on whether the traditional management courses at business schools meet their demands and that they will be as effective in serving new clients’ expectations (Chao 2005; Nevins 1998). In fact, today’s consultants have to cope with fundamental changes in clients’ companies. So it is observed that more and more clients’ companies take systematic professional approaches when dealing with consultants (Czerniawska 2003; Mohe 2005, Werr and Pemer 2005). To give just a few concrete insights from clients’ companies in Germany (Mohe 2005): Some clients like the Deutsche Telekom professionalize by building up databases for consulting projects or by implementing obligatory organizational rules for buying consulting services. Companies like the Deutsche Bahn have set up central project offices for buying and controlling consulting projects, while DaimlerChrysler works with internal project coaches who oversee consulting projects. Infineon has developed a consulting handbook which guides the employees through the consulting process. In contracts, clients more frequently secure the names of the individual consultants who will be staffed on the projects. This indicates that clients give more value to the performance and the personality of the individual consultant than to the consulting firm. These developments will provide fundamental changes in the consulting market in favor of the clients (Niewiem and Richter 2004). As a matter of fact, “consultancies must adapt to new customer requirements”, as Schwenker (2004, p. 80), the spokesman of the execu-
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55
tive committee of Roland Berger Strategy Consultants, states. Following Graubner and Richter (2003, p. 43) it will be inevitable that “these developments will have a significant effect on the internal organization of consulting firms, especially their human resource management policies and practices.” Therefore the consultancies have to think over their professional approaches, including their recruitment criteria for graduates. But what are these criteria? On the one hand it is well known that graduates who apply for a job with a management consultancy have to meet very high expectations: One sometimes gets the feeling that the ideal candidate must be in his early 20s, have an excellent degree (or two), have written an award-winning Ph.D. thesis, should be fluent in various languages, must have done several internships with well-known companies in several states, and must have also performed exceptionally in other areas. On the other hand, for the external observer a very vague and mythical picture of recruiting criteria remains for graduates and academics alike. It should be noted that the profession itself is very interested in maintaining this image (Nevins 1998), because it fulfils a very important signaling function for two purposes: to attract graduates (Armbrüster 2004; Pudack 2004), and to bridge uncertainty from clients about the quality and qualifications of the consultants (Glückler and Armbrüster 2003). Remarkably, up to now there has been no work which provides empirical information either about recruiting criteria of management consultancies or their expectations towards universities and, respectively, courses for management consulting. This article takes these information gaps as a starting point. It focuses first on the expectations management consultancies have towards graduates, particularly regarding the following questions: Which skills should graduates possess to work as a consultant? What knowledge should they possess? And which qualifications should they have achieved? Secondly, this article deals with the role of universities as one option to qualify students for a later occupation as a management consultant. Here, the consultants were asked about their expectations of both learning volumes and methods to find out the criteria upon which a special study course “Management Consulting” should be based. To answer this question, empirical findings will be presented and discussed. Against this background, the article draws some implications for graduates, universities, and management consultancies. Literature review The literature concerning recruiting and careers in management consulting is two-fold. There are many publications (e.g. Fuscass 2000; Lu 2001; WetFeet 2004), which advise graduates applying as consultants, but there is only limited academic research. Frank and Pudack (2000), Franck et al. (2001) and Pudack (2004) show why management consultan-
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cies have superior advantages in recruiting top candidates. Alvesson (2002) focuses on personnel concepts and compares them with two IT/management consulting firms. Armbrüster (2004) describes why the leading consultancies ignore modern HRM practices, e.g. assessments, and use the inferior method of case studies instead to select their consultants. Adams and Zanzi (2005) discuss implications for careers when management consultancies change institutionally from partnerships to publicly traded firms. Notably, most of this research focuses more on the process and policies of recruiting and development for consultants rather than on selection criteria for junior consultants. Additionally, there is some literature which tries to bring consultancies and universities together. In particular, consulting courses and student consulting projects are discussed to bridge the gap between consulting practice and academia. Although consulting courses have a relatively short history in academic programs (Kesner 2002), there are early suggestions for introducing consulting projects in the management curriculum (Gelders 1981). Similarly, in the current discussion, Lamond (1995), Neumann and Banghart (2001), and Kesner (2002) stress the usefulness of consulting projects as part of a management education program to prepare students for practice. Jeschke (1999) asked what consultants could do to enhance the practice-orientation in university courses. Smid (2001) compares typical conventions in academia and consulting firms to explore the way in which it is possible for universities in the Netherlands to develop learning opportunities for experienced management consultants. Adams and Zanzi (2004a; 2004b) take a look at consulting courses at US business schools and discuss ideas for the design of consulting courses, and explore in which way they could serve the consulting industry. Indeed, this kind of literature reflects consulting issues in universities, but provides no empirical insights about the expectations of the consultants towards universities and consulting courses. Furthermore, there are no suggestions for combining recruiting criteria of consultants with the design of consulting courses. Following Kesner (2002), ignoring this linkage could be precarious, because “faculty and university administrators began to see crucial gaps between what their students demonstrate and what recruiters want.” By the same token, Smid (2001) states that it is not easy for universities to develop adequate learning opportunities for management consultants, because they tend to be unaware of the peculiarities of what is needed in consulting practice. Against this background, this article aims to complement this area of research by asking the consultancies about the expectations they address towards graduates, universities, and consulting courses.
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57
Methodology The survey focuses on Germany, which is the second largest consulting market in Europe after the UK, having a total turnover of €12.2 billion in 2004 (BDU 2005). In the survey, the consultancies were asked (i) for their recruitment criteria for graduates, in particular regarding expected skills, knowledge, and qualifications, (ii) for their expectations towards universities, and (iii) what they expect form consulting courses at universities. Along with this, the survey collected data about the consultancies and their staff. To gain a broad picture, a questionnaire was sent via e-mail to a total of 502 consultancies which consist of: − Consultancies which are members of the BDU (normally small- and medium-sized consulting firms), − The top 25 management consultancies in Germany according to the ranking of Lünendonk (www.luenendonk.de), − In-house consulting divisions of large-scale companies. Where no specific e-mail address of the consultancies’ HR department was available, the official company e-mail address of the consultancies was used. Against this background it cannot be ensured that the respondents are from the same population and/or that they are consistent across the addressed consultancies. At first glance, this might lead to a key informant bias (Hurrle and Kieser 2005) that could distort the findings. However, this problem is not as profound as it seems. In practice, several consultants from different levels and HR managers often come together in the selection process (Armbrüster 2004), so that it could be assumed that HR managers and consultants have shared meanings about the specific recruiting criteria of their consulting firm. Findings In the following, the findings are presented in three sections. First, the data of the consultancies who responded to the survey are presented; second, the expectations of the consultancies towards graduates are shown; and third, their expectations towards universities and consulting courses will be discussed. All percentages presented below refer to valid percentages. Data of the interviewed consultancies 89 questionnaires were returned, which corresponds to a rate of return of 17.73 percent. The main attendees of the survey were external consultancies (95.4 percent) and members
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of the BDU (91.0 percent). Regarding the company size, small consultancies with up to ten consultants provided the main segment (57.6 percent). This high involvement of rather smaller consultancies correlates with the high percentage of BDU members, as its members are predominantly small- and medium-sized consulting firms. This pattern of distribution fits to an overall observation of the structure of the German consulting market. In Germany, only a few hundred consultancies exist which have more than ten consultants (Staufenbiel and Friedenberger 2004). As a survey of the BDU (2005) shows, about 70 percent (9,900 consultancies with a total of 15,500 consultants) of all consultancies (14,340 consultancies with a total of 67,300 consultants) in Germany are small consultancies that earn less than 500,000 Euros per year. Expectations of the consultancies towards graduates In this section, the consultancies were asked to state what they feel the relevance is regarding the specific skills, know-how and qualifications they would expect from graduates. They were asked to rank the four most relevant criteria from a given list of predetermined criteria. The criteria were gathered from an a priori analysis of 70 randomized job advertisements for (junior) consultants in two print and two online media sources (Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Jobpilot.de, Stepstone.de). The data in Table 1 indicates how many of the consultancies ranked the criteria as the four most desired.
Skills: Consultancies seek graduates with analytical and communication skills The consultancies were asked to rank the specific skills which are often displayed in job advertisements. The findings show that they give the most importance to analytical ability. Four out of five consultancies choose this as one of the four most important skills (81.4 percent). Two out of three consultancies demand communications skills (66.3 percent) and problem-based thinking (62.8 percent). In the middle of the pack, the consultancies place service orientation (44.2 percent) and the ability to work under pressure (43.0 percent). “Softer” skills like the ability to work in a team (32.6 percent), sensibility (32.6 percent), or creativity (16.3 percent) do not play a very important role in the eyes of the interviewed consultancies.
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Table 1. Expected skills, know-how, and qualifications
Rank
Skills
%
Know-how
%
Qualifications
%
1
Analytical ability
81.4
Methodical know-how
80.2
Functional internships with companies
69.0
2
Communications skills
66.3
Practical know-how
67.4
Work experience up to two years
66.7
3
Problem-based thinking
62.8
Know-how about strategic management
66.3
Internships with consultancies
56.3
4
Service orientation
44.2
Expert know-how in specific domains
63.9
Apprenticeships
54.0
5
Ability to work under pressure
43.0
Know-how in presentation and moderation
58.1
International experience
54.0
6
Ability to work in a team
32.6
Know-how about future trends
31.4
University degree with honors
52.9
7
Sensibility
32.6
Know-how about societal challenges
20.9
Extra-curricular activities
41.7
8
Ability to abstract
22.1
Know-how about the consulting industry
16.3
–
9
Creativity
16.3
–
–
Know-how: Consultancies seek graduates with methodical and practical knowhow According to the question on what know-how the graduates should possess, the consultancies prefer a rather technical base of knowledge. Here, the data show that methodical know-how leads the ranking. Four out of five consultancies rank this first (80.2 percent). About two out of three consultancies also give high priority to practical know-how (67.4 percent), e.g. experiences acquired in projects, strategic management know-how (66.3 percent), and expert know-how in specific domains (63.9 percent), e.g. expertise in the automotive branch. At least every second consultancy attributes importance to know-how in presentation and moderation (58.1 percent), while know-how about future trends (31.4 percent) and societal challenges (20.9 percent) is considered not very relevant. Interestingly, know-how about the consulting industry itself is ranked last (16.3 percent).
Qualifications: Consultancies seek graduates with practical experience Asked for the qualifications the graduates should have, the consultancies attribute great importance to practical experience. Functional internships with companies e.g. in marketing (69.0 percent), and work experience of up to two years (66.7 percent) are ranked first. In more than every second consultancy, internships with consultancies (56.3 percent), apprenticeships (54.0 percent), international experience (54.0 percent), and a university
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degree with honors (52.9 percent) are important qualifications, whereas extra-curricular (41.7 percent) activities seemed to be of secondary importance. Expectations of the consultancies towards universities and consulting courses In the second part of the study, the consultancies were questioned about their expectations towards universities and special study courses for management consulting. They were asked to evaluate in detail the relevance of different teaching concepts and upon which concrete criteria a special study course for management consulting should be based. The data in Table 2 indicate how many of the consultants ranked the criteria as the three most desired. Table 2. Teaching concepts and criteria for a consulting course
Rank
Teaching concepts
%
criteria for a consulting course
%
1
Consulting projects with companies
77.7
Practice-orientation
89.7
2
Project management
66.7
Interdisciplinary
76.7
3
Case studies
54.2
Methodological-orientation
66.7
4
Presentation/moderation
42.2
Social competencies
44.8
5
Obligatory internships
38.6
Science-orientation
14.3
6
Team building
25.6
Societal-orientation
8.3
Teaching concepts: Universities should impart practical experiences The consultants had clear expectations and requests concerning teaching concepts. Universities should primarily impart project experiences, and in particular arrange concrete consulting projects in which the students work on the actual problems of companies. 77.7 percent of the interviewed consultancies ranked this first, followed closely by project management (66.7 percent). For more than every second consultancy (54.2 percent), case studies, which are very popular in management consulting for selecting candidates, should also be integrated into teaching concepts. Less desired were teaching concepts which focus on techniques of presentation and moderation (42.2 percent), obligatory internships (38.6 percent), and team building (25.6 percent).
Study courses for management consulting: Practice-orientation and interdisciplinary work are important requisites Finally, the consultancies were asked for their expectations about study courses for management consulting, particularly regarding the criteria on which such a special study course should be based. Again, the answers of the consultants clearly indicated the rele-
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61
vance of practice-orientation (89.7 percent). Furthermore, a consulting study course should be interdisciplinary (76.7 percent) and include methodological skills (66.7 percent), whereas the imparting of social competencies (44.8 percent) seems to not have been a very important criterion. Topics concerning science-orientation (14.3 percent) and societal-orientation (8.3 percent) were ranked last. Discussion and implications The findings display a very clear picture of the consultancies’ expectations towards graduates and universities. The respondents seek candidates with strong analytical ability and communicative skills. Furthermore, the “ideal” candidate should possess methodological and practical know-how, have appropriate practical experiences through functional internships with companies, and have work experience of up to two years. Noticeably, most of these criteria are rather technical or concrete. So-called “soft” criteria seem to be relatively unimportant for a job in a consulting firm. Criteria like creativity, sensibility, empathy, and the ability to work in a team were all ranked last by the interviewed consultancies. However, there is evidence that they undervalue these soft criteria: Many observers of the consulting market state the importance of soft criteria and predict that they will become more and more important in consulting business. For instance, a team of Matthias Horx, probably the most well-known futurologist in Germany, provides a future report of the consulting industry sector. They make the case that “soft” skills such as the ability to work in a team or empathy are especially essential for consultants (Brühl 2004). A research study of Accenture, AIESEC and the initiative “Neue soziale Marktwirtschaft” arrives at a similar conclusion. Here, 1,186 students and 211 managers were asked to assign relevance to different skills university courses should impart and convey. They discovered that managers especially agree that soft skills are fundamental, ranking them over methodological or technical skills (Accenture 2004). Furthermore, there is an additional argument which highlights the importance of soft skills. In the course of evaluating consulting services, clients often focus on soft facts, because the technical outcome of these services is very difficult to measure (Ernst and Kieser 2002). Empirical work reinforces the fact that clients often evaluate their personal relationship to the consultant, instead of the technical or concrete outcomes of the project (McGivern 1983; Ernst 2002). To create such a well-established co-operation with the client, the consultants particularly need empathy, sensibility and the ability to work in a team – precisely those factors which the interviewed consultants rank last. Interestingly, in this context are the findings of Armbrüster (2004, p. 1266) who shows that the recruitment of candidates with soft skills is often a fortunate coincidence: “It is perfectly possi-
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ble that the leading consulting firms hire candidates with additional social and communicative skills. However, this is more a coincidental than systematic outcome of the selection process.” The consulting companies are well advised to pay more attention to these criteria in the course of their recruitments – all the more so as the former winners of the “war for talent” now lose ground. A comparison of studies of the Trendence Institute, in which German graduates in economics were asked about their favorite employer, confirms that consulting firms have suffered a loss of their former enormous popularity. From 1999 to 2005, McKinsey went from being ranked third to 15th; the Boston Consulting Group descended from rank six to rank 19; and Roland Berger dropped from rank 14 to rank 48 (Trendence 1999; Trendence 2005). As personnel is the most significant resource of a consulting firm in attracting clients (Alvesson 2000; Armbrüster 2004), the companies will have to adjust themselves to these new circumstances. Regarding the expectations towards universities, the interviewed consultants gave the most significance to practice-orientation. However, the downplay of theory is astonishing. In the past there was a strong and inseparable relationship between management science and management consulting. Waldrop and Butler (2001, p. 2) state that “people who make their careers in management consulting almost look more like business academics than ‘business people’.” As a matter of fact, many consultants publish articles in scientific journals, almost all of the bigger consultancies edit their own journal, e.g. the McKinsey Quarterly, and have their own research centers “to undertake original research and develop substantive points of view on critical economic issues facing businesses and governments around the world” (cited from the website of the McKinsey Global Institute). Furthermore, the consultants aim for a scientific grounding to give their concepts a “patina of rationality” (Abrahamson 1996, p. 129) and to mark them as “serious and true” (SahlinAndersson 1996, p. 88). Some of the consultants’ concepts were denoted themselves as science, and in fact, most of the concepts were developed from management consulting and not from academics (Payne and Lumsdum 1987). So the question arises whether the consultancies really know what they want when preaching practice over theory. It may be possible that the consultants will lose their fascination to attract both students and clients. Ideally, according to the consultancies asked, universities should apply consulting projects with companies, project management, and case studies in teaching concepts to prepare students for a later occupation as a consultant. Obviously, in order to meet the consultancies’ wishes, German universities have to adopt teaching concepts which are rather domiciled and used at American business schools. Therefore, German universities, in particular those who offer courses for management consulting, have to re-define their relationship
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of theory and practice, as theory does not play a significant role for the interviewed consultants. However, both theory and practice follow different rules and requirements, which are very difficult to match (Luhmann 1989; Kieser 2002; March and Sutton 1997; Nicolai 2004). Role conflicts or even a “schizophrenic tour de force” (March and Sutton 1997, p. 703) could be reassigned at a time where one should combine critical-distant consulting research and practice-orientated teaching. Therefore Kieser (2002, p. 222) recommends that universities should have to decide whether they want to recruit consulting professors or research professors, because it is “not appropriate to expect high profile consulting and excellent research from the same faculty member.” But – and in accordance with this argument – universities may consider selecting not only scholars but also practitioners from management consultancies as teachers. By doing this, there is added value in having an experienced consultant on the faculty to teach some of the courses to give credibility to the program and to consultancies who recruit from the program. So students, universities, and the consultancies as well could benefit from such a cooperative resolution. Besides this, it is possible to develop new learning architectures between academics and consultants, for example doing team-teaching in selected courses. Those cooperative architectures could have at least two benefits: On the one hand, they bring academics and consultants closer together, which is a precondition for building trust, which is in turn necessary for consulting researchers to gain access to consultancies. In light of the frequently mentioned complaints that there is no real transaction between researchers and consultants (Macdonald and Simpson 2001) and that consulting researchers often gain no access to their empirical field (Kieser 2001), this may be an appropriate attempt. On the other hand, such cooperative teaching relationships could help to explain students consulting from multiple viewpoints. Experienced practitioners as teachers could provide insights into the consultants’ industry conventions and habits that academics may not have (Smid 2001). Theory-grounded reflective knowledge about consulting could provide alternative views to a practice which is not only interpreted by practitioners, and would reduce the often-stated risk that in consulting firm-based trainings “recruits tend to receive a mono-cultural view of consulting” (Adams and Zanzi 2004a, p. 560). An example illustrates this: While scholars highlight that consultants are often called in for reasons of legitimizing management decisions (Ernst and Kieser 2002) consultants like Roland Berger (2003, p. 65) downplay this as “gossip”. However, it should be noted that there is no proof that students who have studied consulting are better consultants than students who have studied other disciplines; but there may be evidence that those students who not only know about different tools but also
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about possibilities and limits of e.g. interventions are more sensitive to clients’ needs. When Chao (2005, p. 27) states that new consultants often “stumbled through their first projects”, and when Stumpf (1999, p. 394) observes that many junior consultants in their early phase report feelings of anxiety and loneliness, consulting courses at universities might give them a better preparation and orientation for their career entry. Finally, it should be noted that the bulk of the participants of the study were smaller consultancies with up to ten consultants. So there is an underlying assumption that the large consultancies like McKinsey or The Boston Consulting Group may have different recruiting criteria than smaller ones (Gloger 2005). For example, given the point of practiceorientation, one reason for the importance of this criterion might be that smaller consultancies do not have the capacity for in-house training, and that they seek graduates whom they could deploy relatively quickly into clients’ projects. Future research could scrutinize these coherencies as well as identify different types of consultancies, e.g. IT- and management consulting, and other professional services, e.g. audit firms, and their specific criteria. Last but not least, as the data of this study refer to the German consulting market, it might be an interesting research project to compare the recruiting criteria of the German consulting market with those in other geographical or national consulting markets. The same should be considered concerning the design and content of consulting courses at universities. Whereas in this study knowledge about the consulting industry was ranked last by the consultants, the Adams and Zanzi study (2004a) delivers a contradictory result for this point. Here, the interviewed members of the Academy of Management’s Management Consulting Division found consulting industry knowledge to be the most relevant element of academic consulting courses for junior consultants. A study comparing US and Europe consulting courses at universities could tackle and show the depth of these differences. References Abrahamson, E. (1996), “Technical and Aesthetic Fashion”, in: Czarniawska, B. and Sevón, G. (ed.), Translating Organizational Change, Berlin, New York, pp. 117-137. Accenture (2004), Das richtige Wissen? Kompetenzvermittlung an deutschen Hochschulen, Kronberg. Adams, S. M. and Zanzi, A. (2004a), “Academic development for careers in management consulting”, Career Development International, vol. 9 no. 6, pp. 559-557. Adams, S. M. and Zanzi, A. (2004b), “Course preparation for management Consultants”, Journal of Management Education, vol. 28 no. 6, pp. 655-673. Adams, S. M. and Zanzi, A. (2005), “The Consulting Career in Transition: From Partnership to Corporate”, Career Development International, vol. 10 no. 4, pp. 325-338.
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Alvesson, M. (2000), “Social identity and the problem of loyalty in knowledge-intensive companies”, Journal of Management Studies, vol. 37 no. 8, pp. 1101-1123. Alvesson, M. (2002), ‘Up-or-out’ versus ‘fun-and-profit’: a study of personnel concepts and HR themes in two IT/management consulting firms, Working Paper 2002/2, Institute of Economic Research, Lund University, Sweden. Alvesson, M. and Johansson, A. W. (2002), “Professionalism and Politics in Management Consultancy Work”, in: Clark, T. and Fincham, R. (ed.), Critical Consulting: New Perspectives on the Management Advice Industry, Oxford, Malden (Mass.), pp. 228-246. Armbrüster, T. (2004), “Rationality and its Symbols: Signaling Effects and Subjectivation in Management Consulting”, Journal of Management Studies, vol. 41 no. 8, pp. 12471269. BDU (2005), Facts & Figures zum Beratermarkt 2004, Bonn. Berger, R. (2003), “Perspektiven zur Brachenentwicklung in der Unternehmensberatung,“ Organisationsentwicklung, vol. 22. no. 3, pp. 65-67. Brühl, K. (2004), High Trust: Die Zukunft der Beratung, Zukunftsinstitut, Kelkheim/Taunus. Byrne, J. A. (2002), “Inside McKinsey,“ Business Week, Jul 08, 54-62. Chao, C. (2005), “Toward full participation in management consulting practice”, Education & Training, vol. 47 no. 1, pp. 18-30. Clark, T. and Fincham, R. (2002), Critical consulting: New perspectives on the management advice industry. Blackwell, Oxford. Craig, D. (2005). Rip-Off! The scandalous inside story of the management consulting money machine, original Book Company, London. Czerniawska, B. (2003), “Client! Manage that Consultant!”, Consulting to Management, vol. 14 no. 3, pp. 1-4. Ernst, B. (2002), Die Evaluation von Beratungsleistungen – Prozesse der Wahrnehmung und Bewertung, Gabler, Wiesbaden. Ernst, B. and Kieser, A. (2002), “In Search of Explanations for the Consulting Explosion”, in: Sahlin-Andersson, K. and Engwall. L. (ed.), The expansion of management knowledge, Stanford University Press, Stanford, pp. 47-73. FEACO (1998), Survey of the European Management Consulting Market 1998, Brussels. FEACO (2003), Survey of the European Management Consulting Market 2003, Brussels. Franck, E. and Pudack, T. (2000), “Unternehmensberatungen und die Selektion von Humankapital“, Die Unternehmung, vol. 54 no. 2, pp. 145-155. Franck, E.; Pudack, T. and Opitz, C. (2001), Zur Funktion von Topmanagement-Beratungen als Karrieresprungsbrett für High Potentials, Working Paper No. 3, Lehrstuhl für Unternehmensführung und -politik, University of Zurich, Switzerland. Fuscass, A. (2000), “So You Want to be a Consultant: Some Tips on How to Prepare”, Review of Business, vol. 21 no. 3/4, pp.63-67.
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Gelders, L. F. (1981), “Introducing field consulting in the industrial management curriculum”, Interfaces, April 1981, pp. 1-8. Gloger, A. (2005): “Beraterbranche stellt wieder ein”, Financial Times Deutschland, 21.06.2005, p. A5. Glückler, J. and Armbrüster, T. (2003), “Bridging uncertainty in management consulting: The mechanisms of trust and networked reputation”, Organization Studies, vol. 24 no. 2, pp. 269-297. Graubner, M. and Richter, A. (2003): “Managing Tomorrow’s Consulting Firm”, Consulting to Management, vol. 14 no. 3, pp. 43-50. Gross, C. (2003): “Unternehmensberatung – auf dem Weg zur Profession?“, Soziale Welt, no. 54, pp. 93-116. Hurrle, B. and Kieser, A. (2005), “Sind Key Informants verlässliche Datenlieferanten?”, Die Betriebswirtschaft, vol. 65 no. 6, pp. 584-602. Jeschke, K. (1999), “Was können Unternehmen für eine stärkere Praxisorientierung in der Lehre leisten? Die besondere Rolle der Unternehmensberatung“, in: Stauss, B.; Balderjahn, I. and Wimmer, F. (ed.), Dienstleistungsorientierung in der universitären Ausbildung, Schäffer-Poeschel, Stuttgart, pp. 235-259. Kesner, I. F. (2002), “Partner with academia to build your firm”, Consulting to Management, vol. 13 no. 1, pp. 15-20. Kieser, A. (2002), “On Communication Barriers Between Management Science, Consultancies and Business Organizations”, in: Clark, T. and Fincham, R. (ed.), Critical consulting: New perspectives on the management advice industry, Blackwell, Oxford, pp. 206-227. Kipping, M. (2002), “Trapped in their wave: The evolution of management consultancies”, in: Clark, T. and Fincham, R. (ed.), Critical consulting: New perspectives on the management advice industry, Blackwell, Oxford, pp. 28-49. Kyrö, P. (1995), The Management Consulting Industry Described by Using the Concept of ‚Profession’, Yliopistopaino, Helsinki. Lamond, D. A. (1995), “Using consulting projects in management education”, Journal of Management Development, vol. 14 no. 8, pp. 60-72. Lu, M. (2001), The Harvard Business School Guide to Careers in Management Consulting 2002 Edition, Harvard Business School Publishing Corporation, Harvard. Luhmann, N. (1989), “Kommunikationssperren in der Unternehmensberatung“, in: Luhmann, N. and Fuchs, P. (ed.), Reden und Schweigen, Surkamp, Frankfurt a. M., pp. 209-227. Macdonald, S. and Simpson, M. (2001), “Learning from Management Consultants: the Lesson for Management Researchers”, Prometheus, vol. 19 no. 2, pp. 117-133. March, J. G. and Sutton, R. I. (1997), “Organizational performance as a dependent variable”, Organization Science, vol. 8. no. 6, pp. 698-706.
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McGivern, C. (1983), “Some Facets of the Relationship Between Consultants and Clients in Organizations”, Journal of Management Consulting, vol. 20 no. 3, pp. 367-386. Micklethwait, J. and Wooldridge, A. (1996), The witch doctors: What the management gurus are saying: Why it matters and how to make sense of it. Heinemann, London. Mohe, M. (2005), “Generic Strategies for Managing Consultants: Insights from Clients’ Companies in Germany”, Journal of Change Management, vol. 5 no. 3, pp. 357-365. Neumann, B. and Banghart, S. (2001), “Industry-university ‘consulternships’: an implementation guide”, The International Journal of Educational Management, vol. 15 no. 1, pp. 7-11. Nevins, M. D. (1998), “Teaching to learn and learning to teach: notes toward building a university in a management consulting firm”, Career Development International, vol. 3 no. 5, pp. 185–193. Nicolai, A. T. (2004),“Der ‘trade-off’ zwischen ‘rigour’ und ‘relevance’ und seine Konsequenzen für die Managementwissenschaften“, Zeitschrift für Betriebswirtschaft, vol. 74. no. 2, pp. 99-118. Niewiem, S. and Richter, A. (2004), “The Changing Balance of Power in the Consulting Market”, Business Strategy Review, vol. 15 no. 1, pp. 8-13. O’Shea, J. and Madigan, C. (1997), Dangerous company: The consulting powerhouses and the businesses they save and ruin, Times/Random House, New York, NY. Payne, A. F. T. and Lumsdum, C. (1987), “Strategy Consulting – A Shooting Star?”, Long Range Planning, vol. 20 no. 3, pp. 53-64. Pudack, T. (2004), Signale für Humankapital: Die Rolle von Unternehmensberatungen beim Berufseinstieg von Hochschulabsolventen, Gabler, Wiesbaden. Ringland, G. and Shaukat, A. (2004), “An Uncertain Future for Management Consulting”, European Business Forum, Autumn 2004, Issue 19, pp. 58-61. Ruef, M. (2002), “At the interstics of organizations: The expansion of the management consulting profession, 1933-1997”, in: Sahlin-Andersson, K. and Engwall, L. (ed.), The expansion of management knowledge: carriers, flows, and sources, Stanford Business Books, Stanford, pp. 72-95. Sahlin-Andersson, K. (1996), “Imitating by editing success: The construction of organizational fields”, in: Czarniawska, B. and Sevón, G. (ed.), Translating Organizational Change, De Gruyter, Berlin, New York. Schwenker, B. (2004), “The Challenge of Growth – How to Manage a Consultancy”, in: Thommen, J.-P. and Richter, A. (ed.), Management Consulting Today – Strategies for a Changing Environment, Gabler, Wiesbaden, pp.63-82. Smid, G. (2001), “Consultants’ Learning within Academia: five devices for the design of university-based learning opportunities for management consultants”, Studies in Continuing Education, vol. 23 no. 1, pp. 55-70. Staufenbiel, J. E. and Friedenberger, T. (2004), Karriere Inside Consulting, Staufenbiel, Köln.
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Stumpf, S. A. (1999), “Phases of professional development in consulting”, Career Development International, vol. 4 no. 7, pp. 392-399. Trendence (2005), Das Absolventenbarometer 2005 - Deutsche Business und Engineering Edition , Berlin. Trendence (1999), Das Absolventenbarometer 1999 - Deutsche Business und Engineering Edition, Berlin. Waldrop, J. and Butler, T. (2001), “Is Management Consulting the Right for Career – for You?”, in: Lu, M. (ed.), The Harvard Business School Guide to Careers in Management Consulting 2002 Edition, Harvard Business School Publishing Corporation, Harvard, pp.1-4. Werr, A. and Pemer, F. (2005), “Purchasing management consultants – from personal ties to organizational procedures”, Academy of Management Proceedings, pp. B1-B6. WetFeet (2004), Careers in Management Consulting 2005 Edition, WetFeet Inc., San Francisco. Wimmer, R.; Kolbeck, C. and Mohe, M. (2003), “Beratung: Quo vadis?“, Organisationsentwicklung, vol. 22 no. 3, pp. 60-64.
How Intermediaries are Accelerating Radical Change in the Consultancy Market Axel Gloger
Initial situation The consultancy market in Germany has entered the mature phase. The upturn, lasting for some years, that produced comfortable growth rates for all the existing suppliers and immediately absorbed the capacity of any companies that were newly founded, is now a thing of the past. Today, the use of consultants is standard in many businesses and is no longer, as it was in the industry’s founding years in the 50s and 60s, an exception. Concurrently the market conditions have changed. In the days when the overall market grew at a percentage rate in double figures – at least 10 or 20 per cent per annum – the consultancy companies determined the conditions. All the signs of a typical supplier market were evident. Business conditions lacked transparency and in many cases the consultants could dictate terms and daily rates. From the customer’s point of view the availability of consultants was relatively limited and in boom periods like the New Economy years from 1998 to 2000 customers could even consider themselves lucky to be given the input they required, so busy was the consultancy industry. In the 80s there was a rumour about McKinsey which suggested that the supplier was choosing their own customers, and would not accept just anybody who was in search of consultancy advice. This is not the place to discuss whether this rumour reflects the truth or not, but it can be seen as an indicator of the position of consultancy firms in this period of growth. This imbalance has since changed, and the market has undergone radical change in the years since 2001 (Gloger 2005). As with other markets, the consultancy market has now become a buyer market. Customers for business consultancy have grown up and become mature. It is they who to a great extent determine terms and conditions. As in other mature markets, like for example those for cars and consumer goods, it is the companies that are chasing customers. Many consultancy companies found themselves faced, in the consolidation phase of the market after 2001, with something that has long been an everyday phenomenon in other market sectors: excess capacity (Ringland and Shaukat 2004). Just as there are too many car factories in the world market or a surplus of retail space in Germany, consultancy firms have had to live with the fact that their total capacity is no longer required by their customers. Individual companies, and by now even the market as a whole, have had to shed capacity, as market reviews by the Federal German Federation of Business Consultants and market sector analysts show. Thus, for example, the industry
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analyst Thomas Lünendonk showed that in 2004 McKinsey had to take a drop in turnover by 50 million Euros to 540 million Euros, and as a result downsized its consultancy staff by 20. In 2003 the Boston Consulting Group suffered a similar effect – turnover dropped by 23 million Euros to 235 million Euros, and the number of consultants by 100. The consultancy market also fulfils other criteria of a mature market. It is not just that the relative scarcity of capacity has vanished: business consultancy is now a well-known product in customer circles. The market leaders have now become brand leaders: customers associate specific values, activities and spheres of influence with names like McKinsey, Boston Consulting Group (BCG) or Booz Allen Hamilton. Additionally, this business area has now reached a remarkable size. The market volume as calculated by the BDU was 12.3 billion Euros in 2004 (BDU 2005) – that is no longer a minority business. A business consultant today no longer has to explain to anyone what they do and how they contribute to value creation. Consultants are permanent collaborators in nearly all market areas, from heavy industry to E-commerce businesses or small start-ups. Consultancy firms have also tapped into the business of non-profit organisations. They advise major companies, as well as public administration, governments or universities. As their services have become known, they have managed to achieve penetration of the national economy – admittedly not as much as in the Anglo-Saxon countries. Nevertheless, consultants have achieved a high level of visibility, acceptance and participation in the processes of business value creation. Now the pressure to achieve efficiency is growing in the market. The customers have professionalized their purchasing behaviour. Originating in the effort to acquire the services of the consultants quickly, reliably and at a good price, new organisational formats are becoming established in the market. Changes in the market no longer come about by means of increasing volume and the entry of new providers and new advice areas: in this mature phase, the way in which advisers and customers come into contact is changing. It is here, at the interface of choice, evaluation, contractual arrangements and the performance of tasks, that the most noticeable changes are taking place and will take place in the next few years (London 2005). For the consultancy industry this is a continuing process. The consultants will have to live with these changes which can only partly be influenced and guided by those in the business – and moreover a return to the previous state of affairs is no longer possible. The changes that have been introduced have long been irreversible and have rewritten the rules that govern the functioning of the market.
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These forces for change are in the first place value neutral. They are neither good or bad per se for the business consultancy industry, and there is no cause to close one’s eyes or one’s mind to this new view of the market. What is more interesting is the following way of looking at things: it could be rewarding to recognise and describe in detail the changes that are emerging in the market. Then both sides of the market, both consultants and their clients, could recognise what energies and forces are being produced by the changes. Experience suggests that it would be advisable in future activities not to resist these forces, but to use them as a lever to improve one’s own position. An old strategic maxim suggests: use the energy that is coming towards you for your own aims. That is always better than closing one’s eyes to or simply running away from innovation. The aim of this article is therefore to describe the changes, to assess what their further effects are likely to be and to draw conclusions for the agenda of the market participants. The basic concepts
How intermediaries function, explained by means of examples As in other mature markets, intermediaries have come into being. They offer the active partners – the customers more obviously than the consultancy firms – extra value: they create transparency, make transactions faster or easier, remove imbalances and eliminate extremes in the conditions. A look at other markets also helps to make clear exactly what intermediaries do, and how they contribute to changes in the contacts between the supply side and the demand side. One example of a classical intermediary is the Stock Exchange. This is where the buyers and sellers of shares meet. Businesses that have shares to offer find those who want them here. Investors who have previously bought shares can also put their shares on sale here when they need liquidity. The Stock Exchange also has the function of setting prices. By means of a permanent auction (comparing prices acceptable to sellers and buyers) it provides a price level that at any given point makes the maximum number of transactions possible. The Stock Exchange regulations and its regulators also ensure that transactions take place under specified conditions in terms of the way they proceed and the determination of prices. This prevents either side of the market obtaining an excessive advantage over the other. The Stock Exchange’s business model assumes that those who participate in the exchange market will remunerate it for its services at previously determined prices. Without the Stock Exchange market participants would find it considerably more difficult to find each other. There would be considerably more hindrances, and much more effort
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would be required to find someone to do business with. Price setting would be more difficult and more complicated, and would in most cases require much more extensive negotiation. Even other associated aspects of business dealing would give rise to considerably higher transaction costs than if the same deal were closed using the Stock Exchange. The existence of the Stock Exchange also demonstrates the market’s level of maturity. If there were only a few businesses that wished to sell their shares to the public, this market situation would not suffice to produce an intermediary. There would be no Stock Exchange as a meeting point for the transactions. The critical mass would not be reached. Only when there is enough volume and a permanent need for transactions on both sides of the market – both buyers and sellers of shares – is the formation of an intermediary market place justified. Another example: On the property market, estate agents take on the role of intermediaries. They bring supply and demand together. They underpin the way prices are reached – they make sure, for the sellers, that the transaction takes place at an acceptable market price. They help uncertain buyers to find a property that meets their needs. In this case, as with the Stock Exchange, the intermediary ensures that all the conditions are transparent. They also maximise the number of transactions that are possible at any given time. The business model is similar to that of the Stock Exchange. Estate agents earn their money from the contracts that are made. Admittedly in this business the whole market is by no means completely covered by the estate agents. Estate agents serve a portion of the market, because buyers and sellers are partly self-organised, or find each other using other channels. Intermediaries fulfil similar functions on other markets. Import-export agents introduce partners to each other on the world market, who without this help might never have come into contact. The wholesale trade bridges the gap between producer and end-customer, by taking on specific activities that make the market both speedier and more transparent.
What intermediaries do The benefits of a typical intermediary on the market have a number of different dimensions. There is a benefit for at least one side of the market. If we isolate the intermediaries’ added value creation, the following individual dimensions result: − Creating transparency: If they act in isolation from one another, individual participants in the market lack an overview of the whole market. They are unable to reach a position from which they can observe everything that is going on. The individual market participant typically adopts the worm’s-eye view, since from the perspective of the individual participant it is not worth investing time, energy and money in the creation of transpar-
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ency. In this context, intermediaries play a different role: they take the bird’s-eye view – they have made creating transparency an economic good, which they market in accordance with their business model. Participants in the market can purchase the information required for transparency at a price that is far below what they would have to pay to produce it themselves. − Consolidating market information: Intermediaries, as a rule, deal with a large number of market participants simultaneously. They can create further economic benefit from these connections. In the position of an intermediary it is possible to collect information which is also helpful to the other market participants. This is why intermediaries mostly have the function of consolidation: they collect individual data, collate them centrally – and can draw conclusions from this aggregation that would not be possible for individual market participants in the same way. − Making conditions clear: Market research about prices and conditions is only possible for the individual market participant in a limited way within the bounds of their own business. The data available to them is, as a rule, based on the compilation and analysis of their own history. However, this process has its limits, because comparisons with other market participants are not possible if this information – which is relevant in a competitive market – is not open to scrutiny. By contrast, intermediaries have more scope in this area. They can initiate a benchmarking process by acquiring data about prices and conditions, because they link this with a guarantee that any further processing of this data will be carried out anonymously (market research firms, industry associations). In the case of some intermediaries this information automatically falls within the framework of their own business model, because they themselves are involved in transactions with the companies involved (wholesalers, agencies). In many cases individual market participants have the comparative data for their own benchmarking returned to them. − To produce new benefits for everyone involved by the scaling of their own business model: Some things that are not worth undertaking for the individual market participant may be completely rational for the intermediary in terms of organisation or as an entrepreneur. It makes little sense for the individual market participant to concentrate on the collection of market data, the production of transparency and other such matters – because as a rule these lie outside its core competences and core business. This is different for intermediaries. They can make these tasks the goal of the organisation (or business) and thus create their own business model. The effort will then be incurred not just once, but many times repeatedly. Thus specialisation becomes worthwhile because economies of scale are possible: the individual market participant will probably assess the benefits of a market study as being less than the costs, unlike the intermediary who performs the study using the market participants and can at the same time sell the results to its subjects.
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− Establishing market standards: If a market is atomised, individual market participants will only rarely succeed in establishing standards or in altering those that already exist. From the point of view of the individual this task is a public good which benefits everyone but at the same time cannot be financed in terms of price. Thus it is worthwhile delegating the task to an intermediary. The latter can work towards a situation where all their clients act within same predefined framework and thus create an industry-wide standard – like the conditions on the Stock Exchange, for example, or the conditions under which transactions will take place, methods of establishing prices or minimum quality standards. All the methods of added value creation described here can be transformed into market activities. They can be imbedded in an organisation or a business whose objective is the marketing of these activities. Many intermediaries produce non-material goods – for example, wholesalers do not produce anything physical, but rather set up the connections between producer and customer for goods that have already been produced. A trade association is also an organisation that produces a portfolio of non-material goods (mostly a combination of public and private) for which its members pay. Most intermediaries are the result of spontaneous organisation. They do not come into being as a result of government action or the activities of an administration, but because of an entrepreneurial impulse. Changes in markets and the emergence of new requirements, both material and immaterial, are what give rise as a rule to the creation of a new intermediary (for a fundamental text on the functioning of spontaneous organisation cf. von Hayek 2003). In the founding years of the German Federal Republic, for example, the combination of group interests was a demand that was not met. Many of the old associations had disappeared, and at the same time the economic boom and the modernisation of the enterprises gave rise to a large number of new interests. The result was a wave of new foundations among the associations, which can also be seen from the fact that between 2000 and 2005 a large number of these associations celebrated their 50th anniversaries. No one had given orders to found the associations at the time: they simply came into being as a result of both evolution and spontaneous organisation – because a sufficient number of founders thought it worthwhile to create an organisation with a certain degree of permanence which would concern itself with the performance of intermediary activities. From the economic perspective these intermediaries improve the allocation of resources. In this way these organisations make a contribution to higher general economic productivity. If, for example, a business saves resources because of the services of an intermediary, they can use them for more productive purposes – the strengthening of core compe-
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tences, perhaps. Other intermediaries can have the effect of producing discipline and improved quality in the activities of producers or providers, by taking on the function of a Watchdog to ensure quality standards and provide incentives to avoid poor performance. The activities of these intermediaries can also bring about a fall in transaction costs not only on a private but also on a general economic scale. Empirical considerations
How the change in the consultancy market is changing the conditions for everyone In the market for business consultancy the radical change that has taken place has encouraged the demand for intermediary services. The beginning of the mature phase in the business meant that the consultants themselves were in need of advice – a new theme that was almost unknown before 2000. In a period of turbulence, however, the providers of consultancy services also desire to evaluate their own business. The strategic questions which the industry had so far only answered for their customers were now the focus for the analysis of their own activities: What do we stand for? What is the value that our clients can only get from us? What do our customers pay us for today? What will they require in the future? What is the opposition doing? All these questions are interesting when business is difficult or even shrinking in scale. Intermediaries serve these interests, such as university chairs, advisors who advise advisors, associations and market researchers. On the customer side, too, the demand for intermediary services arose as a result of the change in the market. It was not only expenditure on personnel, pre-formed products or C-parts that was thoroughly investigated as a result of the recession and the pressure on costs. The services of business consultants also came under the spotlight. What the companies particularly wanted to know was: What do we absolutely need business consultants for, where can we do without them? Do the business consultants achieve what we require of them? What business consultancies are there that can achieve similar results, apart from the ones we know? Can consultancy services be acquired at lower cost? How can the effectiveness and management of the consultancies be improved? All these questions require intermediary forms of organisation which have long been in existence in other markets. The fact that intermediaries have come into being is a sign that the markets are functioning. The intermediary channels that affect either the providers or the consumers of business consultancy services have established themselves in their appropriate niches. To
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some extent they show strongly expansionist tendencies, which shows that there is a real demand to be met here.
Industry analysts make previously unavailable data public. The industry analyst fulfils the function of providing information to all concerned. Specialist market observers can provide most of the typical services that are required by the participants in the market and other interested parties. One example is the sector analyst Thomas Lünendonk. His activities follow an interesting business model. By means of annual surveys he acquires figures and other information about their business activities from business consultancies. In the main, this service provider, who is located in Bad Wörishofen, Germany, turns to the major companies in the sector as the source of his enquiries. Lünendonk and his co-workers aggregate the data and deduce trends in the industry from them. For the general reader this results in a simple product, called the Lünendonk Lists. These include the figures for turnover and personnel for the relevant sector. Lünendonk produces a comparison of two years, where the companies are sorted into a ranking list in order of magnitude of turnover, which clearly shows who the market leader is in the relevant year. The lists have been published since 1983, and since the turn of the century, which brought the decline in the market, the material offered for the consultancy market has been considerably expanded. It is part of his business model to provide this data free to the public. Lünendonk publishes the turnover ranking once a year: it is available on the Internet at http://www.luenendonk.de, which is also used by the business press as material for published reports. There are sector ranking lists for 9 different sectors or parts of sectors, mostly from the business consultancy sector, but partly also from other service businesses. The market research has also been extended to include France. With each ranking list, Lünendonk provides a brief text containing a rough assessment of the latest trends. This method publicises his work and simultaneously acts as a marketing instrument. This is because at the same time Thomas Lünendonk also offers material which has to be bought. This includes the more detailed evaluations produced by his studies. This serves market participants and others who are interested in having comprehensive data for selfanalysis, comparison and strategic development. For instance, Lünendonk sells the study “Führende Managementberatungs-Unternehmen in Deutschland 2005” (Leading management consultancy companies in Germany 2005, which is issued each year with new data) for 1,800 Euros. It provides information about turnover, per capita turnover, markets, structures and important developments in the industry for the next two to eight years. It is about 175 pages long. Lünendonk also distributes a monthly industry news report, entitled “Berater im Wettbewerb” (consultants in competition), which can be sub-
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scribed to for 1100 Euros per annum. On the surface, these prices appear high when compared with what is normally offered by book and periodical publishers. But in this case there is a definite difference, which justifies the prices. Lünendonk supplies specialised technical information for a small market with a limited number of participants. If the latter can use only three or four items of information from one of the publications for the benefit of their own business, it produces a profit which may be a large multiple of the cost of purchasing one of the studies. Even acquiring the data and comparative figures would cost several times what the analyst charges for the information. In this respect Lünendonk fulfils the classical intermediary role: he collects, collates, interprets and sells information about the industry which the industry itself is incapable of doing. The main users are business consultancies, but also possibly clients who wish to find out about the details of their suppliers in order to be better prepared for purchase negotiations. As well as publishing the studies, Thomas Lünendonk also acts as an advisor on subjects related to his core competence – the consultancy market.
Brokers bring both sides together to do business In many cases brokers are mainly concerned with enabling agreements. They bring both sides of the market, supply and demand, together. This produces connections which would often not have arisen but for the activity of the broker. Brokers have an overview of the market – they know what is on offer and what is required, or at least where they can find the necessary parties for the deal that is in question. Cardea AG, Zurich, Switzerland, is an example of a broker in the consultancy market which performs the function of a link between supply and demand. The service provider bridges a white gap on the market map. According to the client’s wishes they seek the consultant who will suit their requirements. In the face of the complexity of the enterprises and the multiplicity of offers on the consultancy market, that is a sensible way of proceeding. Until now only major enterprises of the magnitude of a firm quoted on the DAX, such as Siemens, Deutsche Telekom or DaimlerChrysler have been able to afford professional consultancy purchase. One should note, however, that they mostly know themselves where they can find a suitable provider. Whether it is a matter of market entry in Argentina or pricing for a product in Indonesia, there should be either knowledge or search tools that will lead them to the consultant they require. This should be different for many companies that are outside this sphere. In the mediumsized group the distribution of orders often comes about in a random way – the management has a house consultant who is brought in for all subjects, or they rely on recommendations provided on the golf course, trust the work to acquaintances or ask the consultant who provided good advice in their last project.
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This may all function to some extent, but the risk of sub-optimal solutions is high, because this method of making a choice is an expression of the lack of transparency in the consultancy market. “Is the consultant really suitable for our project?” is a question that is often asked after the completion of the project, that is, when it is actually too late. However, many enterprises lack both the knowledge and tools as well as the staff resources for professional consultancy purchase. How to evaluate consultants who in the view of the management are unknown appears to be a book with seven seals. Admittedly, the management usually knows what to do when it is a question of capital investment goods. A machine can be assessed in terms of throughput per hour, maximum running time per day, monthly maintenance costs, calculated useful life and similar criteria. Where real estate is concerned, surface area, storey level, location, and transport connections are important. But how can one buy in the right consultant, of whom one can be sure that he will meet a particular need? This problem area is connected with a special characteristic of the consultancy market: most consultants present and market themselves in a non-specific way. With a collection of rather general statements they declare that they are competent in many areas. Their profile is very hard to discern at first glance, even if they do actually specialise in particular industry sectors or functions. One cannot deduce from advertising slogans like “Restructuring is our business” or “We will help you to success” if the consultant is actually suitable for the job in hand. Even if there is evidence of experience in the industry or other suitable characteristics – who knows if the service provider in question is the best person for the job? It would seem sensible to out-source this responsibility. Finding, testing and allocating consultants for oneself is a task which is only worthwhile in large businesses as an inhouse solution. For small and medium enterprises in particular, but also for many larger ones, the number of jobs requiring a consultant is too low to justify having and maintaining the necessary knowledge and instruments oneself. An intermediary can take on this task to the benefit of all concerned: Cardea’s success is an example of this. In principle the service provider acts as an outsourced purchase department. His functions can be sketched more or less as follows: 1. Formulating the requirements of the job and the contract: “What exactly needs to be done?” This question sounds simple, but can by no means be answered in a trivial way. That is why the intermediary helps his client to discover what is required by internal analysis and to describe it in such a way that the job is linked with an objective and is comprehensible to an external consultant.
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2. Finding the consultant: The intermediary can concentrate his energy on a search that fits the required profile. In case of doubt, the intermediary already possesses the experience of where and how he should search. This is where consolidation of the search function pays off. Cardea can easily find a considerably higher number of search results than any one of their clients. Thus the clients of an intermediary can purchase experience by means of collaboration – they reach a higher point on the learning curve than would be possible by their own efforts. 3. Evaluation: By routine and consolidation Cardea can simply sense which the best consultant for the client’s needs is. They normally produce a written job description. These are then sent to consultancies which have already proved themselves in the field of the particular service required – they are either discovered by research or are already in the company’s own database, which represents a part of the market and stores the knowledge gained from the assessment of consultancies and cases that have been evaluated. Because of the large number of consultancy jobs they have brokered, Cardea has collected evaluative information that is useful in every single job allocation situation. 4. Qualification and contract: The intermediary can contribute to balancing out any asymmetries of knowledge in the relationship between the consultancy firm and their clients. This is because inexperienced clients are only too glad to rely on the consultant’s work – they let the consultant work out both the job description and the contract, and at most ask for marginal changes. It is not usually mentioned that this kind of agreement is more likely to favour the commercial interests of the consultant. In these cases, Cardea takes the necessary precautions: the broker provides the client with the necessary knowledge and supports them in the contract negotiations. 5. Continuous direction and monitoring: In this area, too, the average client’s knowledge is likely to be rather limited. Precisely in the case of middle sized enterprises the level of resources is so limited that the management can only concern themselves with those activities that are important in terms of their core competences. There is often no time left for supplementary areas and additional projects. Consultants are bought in incidentally – with the well known results and failings. This is why the intermediary’s activities are important: they can provide important knowledge and instruments here as well, so that the project does not run aground before reaching its objective or take off in a direction which is not what the client intended. 6. Evaluation: Evaluating the success of the consultancy is ultimately in Cardea’s own interests. The broker has to record for the use of future clients whether the initial assessment of the project was correct, whether the client was satisfied and also whether the quantitative and qualitative objectives of the project were achieved as intended. Cardea can also use the information acquired in this way for benchmarking in comparison with other consultants who have proved themselves in similar jobs.
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All in all, consultancy brokers have an important informative function. They produce added value, which the clients would normally not be able to achieve by their own efforts. They create transparency which transcends the consultancy client’s narrow horizons thus producing an increase in benefit. Cardea is also important for the supply side, because by means of their rational search system (it is not only familiar or larger firms that are considered) they can in the service of their clients pick out particular, possibly unknown niche service providers on the consultancy market. In this way Cardea brings smaller specialist providers into the spotlight, because their search and purchase activity is confined to those fulfilling the criteria of effectiveness and experience. The reputation and size of a consultancy company are no longer the sole criteria for the award of a contract. In Cardea’s practice, small and larger consultancy companies are sometimes both found together on the shortlist. Not infrequently it is not the well-known brand name that gets the nod, but the small, unknown consultancy company, because it has greater competence in the specialty required. Thus Cardea demonstrates that it is also a market maker for the supply side. Cardea’s business model is interesting: it is the consultancy firm that gets the job that pays the broker. This modus operandi is somewhat similar to that on the insurance market. There too the client makes use of the broker’s selection, evaluation and advice activities, apparently without any further cost. The insurance broker makes his living by the commission that he receives from the insurance company. The remuneration of the broker in the consultant-client relationship is similarly structured. Cardea receives a commission payment from the consultant who wins the contract which is a percentage of the value of the contract. If it is required, this practice can be varied: there have been cases in which the client alone paid for the broker’s services. From the consultant’s point of view the use of the broker’s services is easily understandable: they act as a supplementary acquisition channel. The consultant can acquire more contract work without worrying about the otherwise normal acquisition costs because Cardea is knocking on their door with the contracts.
Internet platforms can, in the ideal case, perform a function comparable to that of the Stock Exchange The Internet can take on an important function when it is a matter of bringing supply-side and demand-side together. It brings market partners who are geographically distant from each other into contact, can produce suitable supply and demand profiles according to standardised criteria, and thus bring down the transaction costs in the market. There have already been positive experiences in some markets.
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− For instance, Transaction platforms on the Internet have made access to the Stock Exchange considerably easier – even laymen now have access to share trading at any time. There is no need for contact with one’s bank, many transactions can be carried out in real time. Banks or online banks have taken on this business. − Employment exchanges on the Internet bring people seeking work in the market and employers into contact. This way of proceeding has established itself as the standard, especially where entry qualifications are concerned. − Contact portals have brought flirting onto the Internet. Specialised platforms bring single people in search of a relationship into contact. The services provided by the contact portals have increased considerably in comparison provided by the contact advertisements that were previously the norm. Portals on the Internet can also take on intermediary functions in the sphere of business consultancy. Admittedly the extent and volume of business is smaller than in the cases named above, but nevertheless this intermediary channel has already become established. One example: in 2003 the Internet service company Viando was set up. It is aimed at introducing companies, private individuals and government to consultants efficiently. According to its own information, Viando is the first European platform to invite tenders for consulting projects. Consultants and clients are brought into contact with one another by means of the portal, thus reducing transaction costs. Companies that require the assistance of consultants can advertise their requirements on the Internet without having to pay any fee. Qualified consultants then apply for the individual projects – the companies that are looking for consultants then enter the evaluation phase. They select from among the consultancies’ offerings and in so doing those who are purchasing the consultants’ services can also look back at the evaluations of previous clients. In this way Viando functions as a platform for the publishing of invitations to tender. The intermediary brings providers and consumers who might not otherwise have found each other into contact. There are very few hindrances to accessing what is on offer because it can be reached from any Internet PC. Consultants who apply for contracts using the portal pay for Viando’s services: In 2005 Viando charged the consultants who use the platform 49 Euros membership fee and 10 percent of the project value as commission. In this way we have here a similar variant of the financing of intermediary services to that on the insurance market. In this case the brokers act as an introduction platform. They find the client contact, advise them about the choice of the appropriate contract and set up contact with the insurer. The latter pays the broker with a commission for the introduction.
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The Internet portal could perform an important function on the consultancy market, but activity in this sector is severely fragmented. Most business consultants are not specialist providers. Given the poorly profiled efforts at self-marketing it would probably be very hard for a client to find a small specialist on the consultancy market by their own efforts. The transaction costs are too high for an individual company, even of medium size, to afford. In this case the intermediary is a way out, because they perform the function of a lighthouse for the market. They show the way, even to those who from their own position have little or no overview of the market. Admittedly the platform creates little added value. It does not undertake the evaluation or qualification of the either side of the market. The consultant does not know if, using the platform, they will find a solvent and serious client who will actually carry the project through and pay for it as well. Nor does the client discover if the consultant’s profile exists only on paper, or if they are actually qualified to perform the required services as a result of previous projects of the same kind and relevant experience. The task of checking qualifications is thus left to the businesses concerned. They have to check for themselves if the consultant-client contact made using the Internet is suitable to meet their requirements. Clearly this concept has already led to the awarding of contracts. 10 per cent of the companies quoted on the DAX exchange have already successfully invited tenders for projects using the platform according to Viando. In the period between January 2004 and March 2005 900 projects had been put out to tender. That is a beginning. As with every other real market it will take a while until its virtual counterpart is accepted. Internet service companies like the Amazon bookshop, the E-Bay auction site or the online booking functions of the airline companies took some years to reach the critical mass needed to make a smoothly running business using the www application. It will probably be the same with virtual intermediaries in the consultancy business. First there must be examples of successful deals and then the market participants must begin to develop trust in the new contact format. The beginning was made with the Viando portal founded in 2003; further steps may follow.
Associations consolidate the interests of the consultancy companies Industry associations are a typical instance of consolidation. They gather market interests under a single unified roof and can be mouthpiece, organiser and also quality controllers, as well as taking on other functions. One example is the insurance market. Here there is a client group, the Bund der Versicherten (BDV – Association of Insurance Clients), which consolidates the clients’ inter-
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ests and works as a kind of consumer protection organisation. On the other side of the market we have the Gesamtverband der Deutschen Versicherungswirtschaft (GDV – General Association of the German Insurance Industry). Its members are the insurance companies – the Association acts as a political lobbyist, represents the industry’s interests to the public and performs services for its members. There are similar constellations in other industries, but the business side is usually better organised than the client side. There is a similar practice in the consultancy business. There is no client association, but the business side is organised. There is the Bundesverband Deutscher Unternehmensberater (BDU – Federal German Association of Business Consultants), until 2004 there was also the Verband Deutscher Executive Search Berater (VDESB – Association of German Executive Search Advisers), which, however, was dissolved. The Bundesverband Deutscher Unternehmensberater BDU e.V. is the business and professional association of the German management and personnel consultancy industry (quoted from a BDU publicity document). It is the largest Business consultancy association in Europe, and a member of the European umbrella organisation for business consultants, the Fédération Européenne des Associations de Conseil en Organisation (FEACO) which has its seat in Brussels, and of the International Council of Management Consulting Institutes (ICMCI), the global federation for quality assurance in business consultancy, which has its seat in the USA. The major responsibilities of the association include exerting a positive influence on the commercial and legal frameworks governing the activities of the consultancy industry and to establish quality criteria based on professional principles in order to increase and further develop the industry’s standards of service. The association also offers a broad range of services and practical help to its members. There are currently 13 different subject areas, each with its own sector association where the individual experts meet regularly to share specialist experience and for further educational purposes. This work produces both new concepts of consultancy as well as a know-how network that is increasingly giving rise to strategic alliances. There are approximately 13,000 consultants in the association, divided among 530 member firms. The companies that are members of the BDU have a market share of roughly 25 per cent of the total industry turnover. Thus the association is of a size to be relevant on the market because of its coverage. As well as its services to its members it also performs the function of an intermediary: − Quality assurance: It should be possible to quote membership of the BDU as proof of the quality of one’s services, and thus a consultant who applies for membership of the association must fulfil certain criteria. These include 5 years’ professional experience as a full-time consultant as well as 3 years as an independent consultant or in a management
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position in a consultancy company. Before accepting the application, the BDU also checks references from other members and from clients of the applicant company. In the general run of their work the members can also commit themselves to the professional principles that the BDU has established. In this respect, this association fulfils not only the typical functions of this type of organisation, but also serves the members as proof of service quality. Clients can also use membership of the association as a criterion when looking for a suitable consultancy company. − Navigation: Consultancy clients who are looking at the market for a consultant to suit their needs can use the platforms set up by the BDU. There are a directory of consultants (printed and as a CD-ROM), an online database of consultants, and an input mask for project requests (also online). In this respect the association fulfils the function of a market maker – by means of its platforms it brings both sides of the market together. Both members and clients derive direct benefit from this. The association thus creates an added value which the individual market participants could not produce on their own. − Exchange of information: Numerous congresses, conferences and subject area meetings make it possible for the industry to exchange information beyond the boundaries of individual companies. This enables the consultancy companies to benchmark with other service providers in the industry, and they can also discuss trends in the business which are of interest to them all. Networking enables them to discuss mutually interesting themes without affecting the competitive relationship between them (e.g. forms of contract, personnel development, consultancy products, business principles). In this way those of the association’s platforms that are devoted to information exchange fulfil an intermediary function, which is now also used on the client side – for instance, the personnel consultancy congress of the BDU, which is held annually, is also open to the participation of consultancy clients.
Academics become established as suppliers of the consultancy market The academic world has also become aware of its function as an intermediary. Set in motion by a discussion of strategy (cf. e.g. Drucker 1985, pp. 41ff.) which has been going on for some time, but is constantly being revived by Peter Drucker and other management authors, business consultancy as the intellectual vehicle for this theme also entered the purview of academic research. For instance, Horst Albach who in 1961 took up his chair in Business Studies at Bonn University was as early as the seventies offering an optional course with the title “Economic testing and business consultancy”. Later the theme of business consultancy was also established in the definitions of university chairs. One example is the Chair of Business Studies, Accounting, Auditing und Consulting held by Wolfgang Lück at the Technical University in Munich. It was here in 2005, for example, that an independent course focussing on “Management & Consulting” was set up.
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The Werner Kirsch Business Studies Chair at Munich University has also taken up the theme of business consultancy. It provided a platform for the consultancy industry which had so far not been available in that form. The conference “Boundaries of Strategic Consulting” took place from the 14th to the 16th October 2004 at Munich University (Seidl et al. 2005) and was attended mainly by the management of many leading consultancy companies, but also individual representatives of client companies. At this conference the specific mode of functioning of the intermediary was revealed. The University of Munch was able to provide the consultancy industry with neutral ground for a meeting. Because the organiser is not a participant in the consultancy market himself, but an intermediary, it was possible to formulate this theme,, which is somewhat critical for the industry. Neither a consultancy company nor an industry association would have been able to hold a conference on “The Boundaries of Strategic Consultancy” (Admittedly, the BDU has ventured quite far into the open for what one expects of a business association – though, granted, the theme did not become the direct subject of a conference. However, the representative of an automobile company and a major consultancy client, DaimlerChrysler, was given a great deal of space at the BDU’s Jubilee Conference in Wiesbaden in 2004 to make critical remarks about the behaviour of consultancy companies) – the members, mostly orientated towards positive external presentation and business interests, would probably not have allowed the association to make this theme the main topic of a publish discussion, although an internal committee on the subject appears conceivable. On the one hand, however, the fact that it was being transmitted through the neutral medium of academia meant that the speakers necessary to guarantee the high quality of the content of the conference could be persuaded to attend. Moreover the speakers and participants discussed the changes in the market freely and openly. Thus members of the boards of Deutsche Bank and Hochtief spoke about the opportunities and, what was more important given the topic, the limits and risks implied by the use of consultants. Another example of an intermediary in the academic world is a junior professorship that was inaugurated at the University of Oldenburg. Under the guidance of Michael Mohe, who is also co-editor of this work, they are setting up a research topic focussing on Consulting Research with the Consulting research (CORE) group at Oldenburg University. As with other academic projects, this also involves close networking with people who are practically involved in the industry: CORE maintains contacts both with the consultancy industry and also the client side which are used in a number of ways, for instance, for the production of studies. As an example, let us show what the bird’s-eye view of the Oldenburg researchers is doing for the market participants: − Advising the Advisers − Portal for consultancy and client companies
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− Professionalisation of consultancy clientele − Evaluation of consultancy services − Consulting Research Thus CORE is adopting the position of a service provider working closely with practitioners which has an effect on the market. As can be seen here, academics as intermediaries in the consultancy market can fulfil some typical functions: they increase transparency for participants on both sides, they can contribute to quality assurance and quality improvement – and they advise both consultancy firms and the clients of business consultants. This shows once again that the intermediary can act as a crossroads: information congregates at this point, which the intermediary can use for his own benefit and consolidate products that subsequently benefit the market. Studies, surveys, literature and consultancy services are examples of this.
Other Intermediaries and the way they work Other intermediaries also affect the business consultancy market. The industry is undergoing radical change, and so both on the client side and the industry side there is an increased need for information. That is why in the near future all forecasts suggest that new intermediaries will come into existence, while others, because their business model is unsuccessful, may possibly disappear At an informal level there has been an exchange between purchasers of consultancy services. Various people who are responsible for the acquisition of consultancy services in large companies have therefore combined in a loose, inter-company network. These include e.g. Deutsche Post, Lufthansa, and Deutsche Bahn. This exchange of experience may well lead to the demand side of the market acquiring information which would not be independently available to the individual because this is an information flow that does not affect the competitive relationship of the participants. Thus consultancy purchasers from the automobile industry would hardly exchange information about who is the best consultant for a particular purpose. But if representatives of a bank, an electrical company and a machinery manufacturer talk to one another, this information might well be revealed. In this way the information exchange circle produces information which is of benefit to all of the participants – perhaps when evaluating a consultancy company, providing knowledge about successful projects, or even the level of the daily charges of individual consultants or consultancy firms. Even on the media side one can see that material which is of benefit to consultancy firms and the purchasers of consultancy services is being produced. Nowadays there are numerous industry publications which provide information about what is going on in the market, such as “Consulting Intern” (Newsletter), “Consultingstar.de” (Internet-service
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with additional functions) as well as industry media in English speaking countries abroad. At the same time the general business press is also concerning itself with the topic of business consultancy, for example by means of articles in newspapers like “Handelsblatt”, “Financial Times Deutschland” or “Frankfurter Allgemeine Zeitung”. Magazines like “Wirtschaftswoche”, “Manager Magazin” and “Brandeins” also report regularly on the consultancy industry, individual consultancy companies and topics connected with business consultancy. Nevertheless, the frequency with which material concerned with consultancy is published has markedly decreased since the beginning of the fall in turnover on the general market: the “Financial Times Deutschland” for instance has severely reduced its regular reporting of the consultancy market. At the same time the media perform an important function as intermediaries – they create the public arena. They can report on new consultancy topics, on successful and failed projects, they publish the opinions of individual consultants on questions of management and use consultants as sources if they need an overview of a functional or industry theme. For the business consultancy clients as for the consultancy service providers themselves the media have the function of providing a particular overview.
Intermediaries as an institution are now firmly established in the consultancy market To sum up, one can claim that intermediaries have now conquered their place in the consultancy market. Lünendonk or the BDU now have a very strong presence and other intermediaries provide evidence of the dynamic that exists in all these intermediary instances. It seems probable from what we see today that this will continue to be very much in motion. Existing intermediaries will grow and expand their activities, others may possibly disappear because they have found no demand for their kind of value creation. It is also very probable that new companies will be founded to meet as yet unfulfilled demand. Closing assessment In a quantitative respect intermediaries are quite a new phenomenon on the consultancy market. They existed individually before the nineties, for instance the BDU as an industry association. A greater number of intermediaries were however only brought into being in 1990 and later – they arose in parallel with the beginning or the mature and consolidation phase of the market. Since then this form of organisation has shown that they are an integral part of the consultancy market. Functioning intermediaries in a market are always evidence of a functioning division of labour and sufficiently low transaction costs, which allow the intermediaries to find a new position in the value chain. Just as there is a value
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creation chain producer – wholesaler – retailer, intermediaries have established themselves as an intermediate link in the relationship between client and consultancy company, partly serving one side of the market, partly serving both sides. Since intermediaries are organised almost exclusively as purely private businesses one can suggest that they all fulfil a current need and in this respect provide entrepreneurial as well as economic benefits. If one compares the intermediaries’ activity profiles it seems clear that the need for transparency in the market is particularly great, because most intermediaries are concerned with this subject in one way or another. This demand comes particularly from the client side which suggests that in the years before 1990 the industry was lagging somewhat behind. The consultancy industry was at that time a black box, and outsiders, even clients, knew very little about its internal workings. There were practically no instruments to create this knowledge in a business-to-business way. It is only since the arrival of the intermediaries that there has been a supply to meet this demand. Admittedly it is by no means clear which intermediaries will make the running. For instance, Viando is facing an uncertain future. The concept corresponds to the way they thought in the nineties, when markets were euphorically reproduced on the Internet. At the end of that decade there were many projects which aimed at transporting established businesses into the online world by means of portals and online exchanges. Many of them never survived the initial phase. The great run on this format has come to a halt since the turn of the millennium. Consultancy services are a complex business. It is questionable if the matching phase can be transformed into an anonymous Internet application. The idea is admittedly convincing in theory, that is, creating contact between geographically distant potential market partners. But in practice consultancy is a business that requires a lot of explanation and personal contact. Its services cannot be traded like shares or other homogenous goods on an anonymous market, which is an obstacle to the sustainability of this concept. Even Cardea is not assessed universally positively. Granted, the company points to high and increasing demand on the part of the client, who is seeking a consultancy company to suit their needs and therefore turn to the broker for this purpose. Many who were seeking consultancy services found a better solution using Cardea than would ever have been possible without this service provider. Smaller consultancy companies are also happy to find new clients using the broker. Admittedly there is marked hostility to this concept on the part of the consultancy market. They doubt that these services will retain their value, and sometimes openly refuse to accept any intermediary at all in the client-consultant relationship, as the author discovered
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in conversation with individual business consultants from the league of the 25 biggest companies in the market. How far this hostility simply originates in the fear that a third party will thoroughly investigate one’s own working practices is not totally clear. This kind of judgement is admittedly always evidence that a process of change can be localised. The market for consultants is changing, and will change yet further. Every change has its winners and losers. The cards are being reshuffled; not everyone will have the same, possibly privileged, position as before in the new game. This gives rise to criticism and hostility – but can be accepted with confidence, because it is simply a matter of a normal market process. The opportunities and the possibilities of change that have arisen and can still be expected are interesting. Interesting business opportunities await the new intermediaries that will be founded in future. The demand for transparency, industry analysis, mediation and metaconsultancy is, as far as can be seen, far from being met. Market participants who work with the forces for change have a good chance of improving their position still further. References Bund Deutscher Unternehmensberater BDU e.V. (2005, ed.), Facts & Figures zum Beratermarkt 2004. Bonn. Drucker, P. F. (1985), Managing in turbulent Times, Harper Collins, New York. Gloger, A. (2005), Trends in der Management-Beratung, Lecture, Zürich, 27.01.2005. Ringland, G. and Shaukat, A. (2004), “An uncertain Future for Management Consulting”, European Business Forum (EBF), no. III, vol. 19, pp. 58 ff. von Hayek, F. A. (2003), “Evolution und spontane Ordnung” in: von Hayek, F. A. (ed.) Rechtsordnung und Handelnsordnung – Aufsätze zur Ordnungsökonomik, edition Streit, Tübingen. London, S. (2005), “Advice is once more in Demand”, Financial Times, 28.04.2005. Seidl, D.; Kirsch, W. and Linder, M. (eds.): Grenzen der Strategieberatung – Eine Gegenüberstellung der Perspektiven von Wissenschaft, Beratung und Klienten. Haupt, Bern et al.
E-Intermediation in Corporate Consulting – An Empirical Investigation from the Perspective of Clients and Consultants Bettina Türk, Thorsten Posselt
Introduction The rapid advance in the realm of web-based technologies had, starting a while ago, already started a controversial discussion on the future meaning of intermediaries. In this context, the so-called “threat theory” (or disintermediation theory) postulates a substantial loss of meaning for the intermediary in the electronic market (Wigand and Benjamin 1995). Supporters of this theory argue on the basis of transaction cost theory, which, with the establishment of the internet, can complete transactions between suppliers and customers at the lowest price possible. Based upon the transaction cost school of thought, it is more favorable to circumvent the intermediary. On the other hand, the phenomenon of “information overload,” strongly fragmented markets, along with an increasing division of labor and the resulting higher coordination requirements, indicate a growing need for intermediary services (re-intermediation theory) (Malone et al. 1988; Gebauer and Buxmann 1998, p. 5; Picot et al. 1997). The recent past has seen the literature on intermediation bring a multitude of arguments for a possible re-intermediation in electronic markets (Belz and Bussmann 2000, p. 135; Sarkar et al. 1996; Palmer and Mc Cole 1999, p. 8; Schmitz 2000). These arguments are mostly based upon the savings potential of transaction costs. The following article shall provide a discussion on the future meaning of electronic intermediaries using the example of the field of corporate consulting. According to Schneider/Schnetkamp, this topic has now been in the initial phase of electronic market development for a few years (see the so-called three-phase model by Schneider and Schnetkamp that portrays the varying development of virtual markets in various fields, Schneider and Schnetkamp 2000, pp. 5862). The growing relevance of virtual intermediaries in other fields brings up the question of which developments will take place in the consulting services realm regarding this issue. The German corporate consulting field currently finds itself in a path-finding phase of development. Demand is characterized by clients who critically examine the price, quality, and necessity of consulting services. The consulting needs of companies are subject to constant change (BDU 2003; Götz 2003, p. B2).
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The reason for this change in needs on the part of companies needing consultancy services includes not just the tense overall economic situation, but the increasing relevance of new technologies, along with growing demands on competency management (for the distinction between competence management and the term knowledge management, see Felser 2003, p. 3) by companies as well. They lead to changes in traditional consulting processes, which affect not only the execution of a consulting project, but the initiation phase as well. Against this background, it is interesting to investigate whether web-based intermediaries possibly display advantages over traditional initiation processes, which as a rule are characterized by a direct personal contact between the client and consulter. The success of electronic intermediaries will in this case be essentially dependent upon which chances and risks are connected with the initiation of consulting projects from the perspective of clients and consultants. The following will identify and evaluate these chances and risks. After a brief presentation of the theoretical foundations of electronic marketplaces for consulting services, a formulation of the hypotheses on the advantages and disadvantages of e-intermediation will follow (In the following, the term e-intermediation indicates webbased placement (= intermediation) of consulting projects between consultancies and client companies by means of electronic, independent placement agencies, the so-called “electronic marketplaces”). This will be concluded by an evaluation of the interrelations derived by means of a primary statistical data survey and analysis. Foundation of the Investigation
Electronic Marketplaces for Consulting Services Various types of electronic marketplaces exist which can virtually support the arrangement of traditional projects between clients and consultants (for the theoretical foundations of electronic markets, see e.g. Kollmann 1998; Schmid 1993; Segev et al. 1998; Zbornik 1995; Archer and Gebauer 2000). Electronic marketplaces are understood as an internet-supported system of doing business whose transaction of goods or services and interactions take place between any and all (n to n)/(1 to n) companies (business to business). This can include processes, functions, and information either partially or in their entirety that are necessary for inter-company co-operation (Holzmüller and Schlüchter 2001, p. 4 as well as alternative definitions of electronic marketplaces by Kollmann 1998, p. 198; Schmid 1993, p. 8; Eggenberger 1996, p. 24). Depending upon the basic business model of the e-intermediary, the uniting of consultants and clients can be accomplished
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by means of web-based matching systems (e.g. data banks with search functions that offer potential candidates), or through the personal services of placement agencies. Depending upon the degree of specialization, a difference is made between electronic markets for standardized products, and platform services that are exclusively specialized for the negotiation of consulting services. Well-known examples of virtual marketplaces that first and foremost deal in standardized goods are eBay Pro, Atrada Pro, or mercateo (see e.g. the internet services of www.ebaypro.de, www.atradapro.de and www.mercateo.de). However, the volume of trade in these marketplaces is currently insignificant in the field of consultation services (Schoen & Company 2000, p. 1). The reason for this, according to experts, is that consulting services cannot be easily standardized, and due to this, negotiations on the type and magnitude of services are normally necessary before signing a contract. The problem therefore lies in the exact specification of the service, which cannot be grasped and displayed as four or five items in a product catalogue. For this reason, a few marketplaces have developed that specialize in the negotiation of consulting services, and that have acclimated the nuances of these services to the functionalities and value-added performances of these services (see for example www.smarterwork.com or various portals that serve to describe projects, e.g. www.gulp.de, www.projektwerk.de, www.freelancer.de). Some e-intermediaries additionally offer company-specific virtual marketplaces whose transaction product is comprised of consulting and coaching services. The company-specific realization corresponds, as opposed to open marketplaces, to an “n to n” solution, and/or an “n to 1” formation, in which a selection of various consulting firms are available to one individual company. The online support of leadership personnel can be the focal point of this selection. Online support involves various forms of consultation which are done on an e-mail basis. As part of this ad-hoc consultation, the client can ask any minor questions which are answered within two to four hours, or within two days by external consultants. Such eintermediation also allows the possibility for a comprehensive project inquiry that is carried out as an overall traditional consulting project. Normally, only the contact and acquisition phases are virtually supported; the final selection of consultants is carried out at the respective location.
System of Investigation Hypotheses The following will contrast the traditional initiation of consulting projects with the external acquisition of these services by means of e-intermediaries as part of a comparison from the perspective of clients and consultants. The previously-described business model of company-specific marketplaces is seen as representative of the web-based start for project negotiation, which also makes the negotiation for coaching services possible. The goal
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of this comparison is to derive hypotheses on future possibilities regarding the possibility of use of e-intermediaries. The focal points of the comparison criteria are first and foremost: − The influence of alternative business models on transaction costs of project initiation, − The effects on information and uncertainty problems of clients, as well as − Potential obstacles, such as the high relevance of personal business contacts which could have a negative effect on the usefulness of e-intermediaries. The comparison particularly observes the contact phase as well as partial processes of the acquisition phase as part of the initiation of traditional consultation projects from the perspective of clients and consultants. The ensuing phases of the consulting process are not part of the investigation, as they are not shown in the web-based business model displayed here. The alternative initiation forms are judged solely upon their advantageousness as procurement and sales alternatives from the perspective of clients and consultants. For the business model of e-intermediaries, this means that online coaching can be considered and offered independent of the potential initiation of traditional consulting projects. This comparison underlies the assumption that clients also aim for an optimized consultant portfolio for traditional projects though co-operation with the intermediary. In the same way, for the consultant, the goal of acquiring new customers for traditional consulting projects stands at the forefront as part of the co-operation with the intermediary. Hypotheses from the Perspective of the Client After determining a need for consulting in the client company, the challenge for those seeking consulting services is to find the consultant from among a multitude of offers who can best fulfill expectations. In the language of the “principal agency” theory, this means that the principle contracts the agent that creates the lowest agency costs, assuming the same cost of production. Transaction costs theory defines the problem as the search for the most suitable contract partner at the lowest possible transaction cost (Däfler 1998, pp. 99-100). When a business makes the decision to take on an intermediary as part of the initiation of a consulting project, it is aiming to reduce its acquisition costs in the form of decreased transaction costs (for the individual phases of consultant selection, see e.g. Kohr 2000, p. 79ff.). Acquiring complex, highly valuable contract-based consulting carries with it the issue of confidentiality regarding information and quality safety issues (for the details of contractual clause consultation, see e.g. Däfler 1998; Schade 1997). The necessity of a sufficient basis of information as part of the selection leads to transaction costs in the form of search and information costs. In this context, intermediaries offer the possibility to reduce acquisition-related transaction costs. They achieve this by supporting and,
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therefore, simplifying the process of information acquisition by means of providing neutral information on various consulting agencies. Depending on the magnitude of the consulting project, some client companies award a “test project” (the so-called “beauty contest”) during the acquisition phase to the consulting companies being considered, and present the results afterwards (Kohr 2000, p. 86). In doing this, they can learn more about the consultants’ way of doing things, and from this, draw conclusions regarding their competence. From the perspective of clients and consultants, the offer for and carrying out of these test projects is connected with the creation of transaction costs. The e-intermediation model offers a similar concept. As part of the online support, minor requests and projects are offered, but not with the intention of “testing” consultants. Instead, they are to be taken advantage of as a kind of professional coaching. They can be incorporated into the selection process of a traditional project, and used as an uncertainty-reducing factor in the interaction with consultants. A further efficient tool for minimizing uncertainty of clients is seen in the possibility to make accessible to all members of the client organization the experiences from cooperation(s) with various consultants. This can be done in the form of a supplier and project evaluation. In the event of a positive experience, this can serve as a recommendation or second-hand experience to significantly overcome client problems (Schade 1997, p. 216). Offering such a neutral system of evaluation leads to a reduction in transaction costs. Based upon the preceding considerations, the following hypothesis can be formulated (in the following, the Index HiX is used to define the ongoing investigation hypotheses, where H = hypotheses; i = index for hypothesis sequence, and X = index for each perspective, from which the hypotheses were formulated, K = Clients; B = Consultants): H1K (Transaction Costs): The greater the anticipated transaction cost savings (from the client’s perspective) through the e-intermediaries when compared to traditional consulting selection, the greater the likelihood that the client will use e-intermediaries. The aspects presented up to this point describe a positive correlation between the use of e-intermediaries and a potential reduction of transaction costs. But correlations also exist that represent a negative influence of comparison criteria upon the likeliness of use of eintermediaries. This involves the potential obstacles regarding the use of e-intermediaries. A multitude of theories and empirical studies place the high relevance of contact development in personal networks as the focal point of initiation of consulting projects. Schade arrives at the conclusion that the network of business friendships represents “the central institution for ‘matching’ corporate consultants and their clients, whose disciplined
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effect creates the necessary foundation of trust” (Schade 1997, p. 1369). Therefore, from the client’s perspective, an efficient, acknowledged institution is the key, which can build upon the competence as well as the trustworthiness of the consultant. A network of business friendships can be described as a mandatory necessity for the reduction of information and uncertainty problems that are connected with the acquisition and production of a consultant’s performance. As this is one of the most important institutions from the client’s point of view, and one that the e-intermediation model does not initially offer, it is reasonable to think that the possibility for using the e-intermediary, in light of the increasing meaning of personal networks regarding consultant selection, will be negatively influenced. H2K (Personal Contacts): The greater the expected transaction cost advantage brought about through using personal contacts as compared to e-intermediaries (from the client’s point of view), the lower the likelihood that this client will use e-intermediaries. The use of experiences as part of the “business friendship network” takes place on a very high aggregation level, in the form of trust and the building up and destruction of reputation. Due to a lack of better information, potential clients are often dependent upon this relatively unspecific information and upon personal recommendations from business friends (Schade 1997, p. 200). More specific information is available when experiences from actual consulting projects can be used. Uncertainty regarding the future performance of a consultant is at its lowest when the client has already completed one (or more) project(s) with this consultant, and can carry over the resulting experiences to the new project. The main issue here involves the business relationship between a client and consulting firm (An important aspect regarding the explanation of business relationships is the economic connection between the business partners. In this context, Kaas emphasizes the binding effect of partner-specific investments, Kaas 1992). Against the background of a high degree of meaning allocated to the building up and maintenance of business relationships between client and consulting firms, it can be assumed that the possibility for using an e-intermediary is negatively influenced regarding the selection of the consultant. A high level of satisfaction with previous work with selected consultants generally manifests itself in repeated contracting of the consultant by the respective company. A client will therefore overwhelmingly contract a consulting firm with which it is satisfied, or with which it maintains a trust-filled, solid business relationship. When this is the case, the necessity of an intermediary decreases. A negative correlation therefore results between a client who is clearly satisfied with the services of its contracted consulting firms, and the use of e-intermediaries.
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H3K (Satisfaction): The greater a client’s satisfaction with its existing business relationships with consultants, the lower the likelihood that this client will use e-intermediaries. Hypotheses from the consultant’s perspective An important criterion for determining the profitability of e-intermediaries from the consultant’s perspective is also found in the possibility for a transaction cost reduction resulting from the acquisition of new clients. A goal of the contact phase is most of all the achievement of an “evoked set” of potential clients (Däfler 1998, p. 124). Here, transaction costs arise in the form of information expenses. These occur due to the necessity of information acquisition about potential clients and focus groups, who over the ensuing course of time are contacted either directly or indirectly (Kohr 2000, p. 144). This contact follows on the basis of collected and assessed information, which as a result creates transaction costs. These costs are incurred from presentations, articles, mailings, brochures, or individual projects (Niedereichholz 2001, p. 48ff). Furthermore, costs can come from the development and maintenance of social networks (networking costs), whose goal is creating third-party word-of-mouth recommendations to potential new customers (for information on the theoretical foundations of networks, as well as on the development of network costs see Becker and Schade 1995). The use of e-intermediaries during project acquisition provides numerous potential transaction cost savings. For example, the consultant can achieve the “evoked set” of customers without the described acquisition expenditure. The following hypothesis summarizes the positive correlation between the expected transaction cost savings in the intermediation model and its use: H1B (Transaction Costs): The greater the expected transaction cost savings (from the consultant’s perspective) through e-intermediaries when compared to traditional new customer acquisition, the greater the likelihood that this consultant will use e-intermediaries. Along with potential transaction cost savings, an increase in the range of the offer by the e-intermediary plays an additional, significant role in this assessment. An expanded role of the intermediary during new customer acquisition can increase the chances of landing companies as clients, i.e. in a situation which would not have been achieved using traditional means and with the consultancy’s own proposition. The following hypothesis summarizes these ideas: H2B (Range of Offer): The greater the increase in the range of the offer (from the consultant’s perspective) by the e-intermediary when compared to traditional new customer acquisition, the greater the likelihood that this consultant will use e-intermediaries.
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The possibility of the consultant using e-intermediaries is furthermore dependent upon whether the transaction cost advantages resulting from the use of e-intermediaries can be considered large enough to compensate for the disadvantage of paying an administrative fee for the intermediation service. That the administrative fee (percentage-wise) is comparably lower than that of traditional intermediaries indicates an increasing likelihood of use of e-intermediaries by consulting firms. It must however be assumed that a negative correlation exists in view of this. The more critically the consultant views the payment of a compensation percentage for intermediation services, the more negative its influence will be upon the possibility of using the intermediary. Positively formulated, this means: H3B (Willingness to Pay): The greater the willingness to pay (from the consultant’s perspective) in the case of a successful project administration, the greater the likelihood that this consultant will use e-intermediaries. The meaning of personal networks as part of the initiation of consulting projects has already been discussed as a determinant which has a negative effect (from the client’s perspective) on the possibility of using e-intermediaries. At the same time, from the consultant’s point of view, they can represent a potential obstruction for e-intermediaries. This can be especially attributed to the fact that the initiation of projects through traditional networking can be estimated as comparably more efficient than through the use of eintermediaries: H4B (Personal Contacts): The greater the expected transaction cost advantage obtained through personal contacts when compared to e-intermediaries (from the consultant’s perspective), the lower the likelihood that this consultant will use e-intermediaries. The investigation of future possibilities of use of e-intermediaries from the consultant’s perspective requires an additional consideration of the various company sizes. With this in mind, it can be assumed that from the perspective of smaller consulting firms, the motivation to use an intermediary is comparably larger, as by doing so they see a chance to reduce the competitive advantages of a larger consulting firm in the acquisition of new clients that result from the popularity of their brand name. By increasing market transparency, intermediaries can help decrease the necessity of having to have a brand name, leading to a reduction in uncertainty (Kohr 2000, p. 154; Miethe 2000, p. 127). In this way, during consultant selection, the more transparent qualities of a smaller consultancy’s services when compared to a large consulting firm could cause it to be selected instead. This saves the consulting field time and money, which from the customer’s point of view can create clearer lines of delineation in the market. From this, a correlation results between the possibility of the use of e-intermediaries and the size of a consulting firm.
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H5B (Company Size): Small and medium-sized consulting firms are more likely to use eintermediaries than large companies. The Empirical Study
Study Design Data The analysis of the hypotheses formulated above was done by means of an evaluation of primary statistical data which were analyzed from the time period of February to June 2003 in client and consulting firms. The data analysis was conducted using a standardized survey form. Of the 195 total surveys sent to appropriate participants in client firms, 87 completed surveys were returned, which corresponds to a 44.6 return percentage. Participants from various fields took part (telecommunications; lending and insurance companies; various service branches; the processing industry; etc.). From a total of 101 surveys sent to consulting firms, the return percentage was around 74%. 137 companies were contacted. Most of the firms offer a multitude of various kinds of consulting (strategy consulting; IT consulting; organizational and employee consulting). Analysis In the analysis of the influence of several independent variables on the categorically defined variable “use” or “non-use,” it can be determined that the linear regression analysis is not suited to analyze such dichotomously dependent variables. This is because binary independent variables lead to a violation of the premise of normally distributed residuals and, as a result, make inferential statistical statements and interpretations impossible (Krafft 1997, p. 626; Urban 1993, p. 16ff). Along with the (to this point) standard use of discrimination analysis (for the theoretical foundations of discrimination analysis, see Backhaus et al. 1994, p. 90ff.), the recent past has seen the use of logistical regression in the analysis of dichotomous formulations. This has shown itself to be a robust estimation method that also allows analyses in which the premises of the two-group discrimination analysis is violated, e.g. in the analysis of non-metric influence factors. With the help of logistical regression, the differences between the various groups studied can be determined (user vs. non-user), which can contribute to an explanation of the business models of e-intermediaries from the perspective of companies that either seek or offer consulting services (Backhaus et al. 2000, p. 105ff).
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Discussion of Empirical Results General Results of the Analysis As part of the decision for or against the use of e-intermediaries when selecting the consultant and/or acquisition of new customers, 69% of the clients and 45.5% of the consultants could be identified as potential users. A classification resulted on the basis of a conceivable future usage. Hypothesis-Specific Results of the Analysis Hypotheses from the Client’s Perspective: On the basis of the hypotheses to be tested and the assumed influence factors, three different groups of independent variables can be defined in the following. These are the “eintermediary influence factors,” which include general transaction cost savings; transaction cost advantage through the use of personal contacts; and the satisfaction with existing business relationships. The second group of variables, the “transaction cost reduction variables,” involve concrete transaction cost savings by means of an evoked set; through evaluation of any company making an offer; and through the use of online coaching. The third group of variables is made up of the potential “e-intermediation obstacles,” i.e. age; insufficient information security of web-based technologies; as well as lacking experience with e-intermediaries. From the client’s perspective, the evaluation of a complete overall model incorporating all variable groups is not possible in the case mentioned above. This is because the variable of overall “transaction cost savings” from the first group is in most cases very highly correlated with the factors from the second group of variables, and with this displays the facts of multi-co-linearity (for more on the term multi-co-linearity, see Backhaus et al. 1994, p. 33f.). For this reason, the following will only observe reduced logistical regression models. Here, all imaginable combinations of variables and variable groups were investigated. A comparison of the quality criterion of the best three alternative models arrives at the conclusion that Partial Model 3 displays the best conformity with the above data; the grade of conformity can be described as “very good.” At the same time, it can be initially determined that the variable group “e-intermediation obstacles” does not make a significant contribution towards explaining e-intermediation. Because of this, it is not included in the Partial Model 3 observed in the following.
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Table 1. Logistical Regression Model for Explaining E-Intermediation from the Client’s Perspective Hypothesis Sign
Partial Model 1
Partial Model 2
Partial Model 3
E-Intermediation Influence Factors
-
Transaction Cost Savings
-
-3.781/0.003
-4.309/0.002
-4.548/0.015
Personal Contacts
+
1.548/0.117
2.129/0.034
1.613/0.033
Business Relationships
+
-0.519/0.616
-0.938/0.344
Satisfaction
+
1.639/0.269
Transaction Cost Reduction Consulting Portfolio
-
Assessment of Those Offering Consulting Services
-
Wrong Choice
-
E-Intermediation Obstacles Age
-
-1.205/0.377
Information Security
+
0.154/0.783
Experience
+
-1.494/0.0067
Quality Criterion Deviance
23.51
20.44
17.39
LR Test
79.68
84.24
83.45
Significance
0.000
0.000
0.000
Goodness-of-Fit
7.461/0.488
0.389/1.000
0.357/1.000
Nagelkerkes R2
0.864
0.888
0.902
Classification
95.2 %
95.3 %
95.1 %
83
85
82
N
As part of the hypothesis examination, it can be stated that the assumed positive correlation between the expected transaction cost savings and the use of e-intermediaries (H1K) is confirmed at a significance standard of α = 5 %. This means that clients rest their decision for the use of e-intermediaries (among other things) on the transaction cost savings made possible by using them. This assumption is additionally based on the results of various independent random T-tests. The mean value comparison in regards to time and information cost savings by preparing a pre-selected consultant portfolio resulted in a highly significant difference (α = 1 %) between the estimation of users and non-users. In the same way, the mean value comparison between the time and information cost savings by means of an available evaluation of consultants and the use of online coaching delivered a highly significant difference. Overall, it is safe to assume a noticeable separability of the variable “transaction cost savings” in the above-mentioned model.
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In addition, the expected negative correlation between the importance given to personal contacts and the use of e-intermediaries for the selection of consultants (H2K) is confirmed at a significance level of α = 5 %. This result supports the assumption that this is a substantial obstacle for the use of e-intermediaries. The hypothesis of satisfaction with existing business relationships (H3K) cannot be confirmed on the basis of the existing data. However, the regression coefficient correctly postulates a negative correlation between a clear satisfaction on the part of clients with existing business relationships and the use of e-intermediaries. The “satisfaction with existing business relationships” probably does not play a significant role in the separation of users and non-users, as expanding the existing consulting portfolio is what matters here. The primary goal from the client’s perspective is therefore (independent of the level of satisfaction with existing business relationships with consulting firms) meeting new consultants and, with that, being able to achieve an optimization of the current portfolio. This objective is also confirmed by the previously mentioned reasons for the use of eintermediaries. The most frequently-named reasons for approving an intermediary were increased market transparency, potential time savings, as well as the identification of new alternatives as part of the development and care of the consultant portfolio by the respective companies. Satisfaction with existing business relationships is thus not seen as an obstacle for the use of e-intermediaries, which indicates a more complementary than substitutive character. Additionally, the identified advantages of intermediaries seem to be of greater importance for small and medium-sized companies than for large firms. This conclusion can be made based upon the results of a cross-table analysis (for the basic principles of a cross-table analysis, see Backhaus et al. 1994, p. 166 ff.) of the variables “company size” and “use of e-intermediaries.” About 60% of the identified users are from a medium-sized company. The comparably larger possibility of use by small and medium-sized companies can possibly be explained by the fact that these firms generally have less experience with consulting firms and/or consulting services when compared to larger companies. Hypotheses from the Consultant’s Perspective: Table 2 shows the results of the alternative logistical regression model that explains eintermediation from the consultant’s perspective. Because no multi-collinearities exist, the evaluation is possible via the complete, entire model that encompasses all possible variable groups. Along with the three variable groups, which are also included from the client’s perspective, a fourth group (“company characteristics”) is also observed, which is comprised solely of the variable “company size.” The results of the quality criteria make it clear that Partial Model 1 displays the best conformity.
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Table 2. Logistical Regression Model for Explaining E-Intermediation from the Consultant’s Perspective Hypothesis Sign
Total Model
Partial Model 1
Partial Model 2
Transaction Cost Savings
-
-1.234/0.033
-2.216/0.003
-2.061/0.002
Range of Offer
-
-1.031/0.132
-0.855/0.121
-0.480/0.346
Willingness to Pay
-
-0.023/0.965
-0.988/0.030
-0.588/0.214
Personal Contacts
+
0.448/0.286
1.583/0.003
1.682/0.002
Evoked Set
-
-0.723/0.157
Online Coaching
-
0.051/0.940
Travel Costs
-
-1.427/0.016
+
0.541/0.614
Age
-
1.721/0.159
-2.102/0.140
Information Security
+
-0.705/0.124
-0.857/0.084
Experience
+
0.628/0.176
1.283/0.019
Deviance
43.10
42.56
44.60
LR Test
74.71
75.16
74.43
Significance
0.000
0.000
0.000
6.92/0.437
2.942/0.890
3.465/0.902
0.780
0.783
0.773
88.2 %
87.1 %
86.0 %
85
85
86
E-Intermediation Influence Factors
Transaction Cost Reduction
Company Characteristics Size
1.069/0.294
E-Intermediation Obstacles
Quality Criterion
Goodness of Fit Nagelkerkes R Classification N
2
An evaluation of the hypothesis on transaction cost savings as part of new customer acquisition (H1B) leads to a confirmation of the assumed positive correlation at the significance level of α = 1 %. As a result, the variable “transaction cost savings” has a significant effect on the use of e-intermediaries. This result is furthermore supported by the outcome of various independent random T-tests. The mean value comparison regarding time- and information cost savings by the automatic assimilation into the evoked set of the clients resulted in a highly significant difference (α = 1 %) between the estimation of users and non-users. The variable “increase of the range of offer” tends only towards having a slight impact on the use of e-intermediaries. The corresponding hypothesis (H2B) cannot be confirmed. It does however have the expected indication (from which it can be strongly assumed) that
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with an increasing approval of the increase in the range of offer, the likelihood for use of the intermediary will also increase. The hypothesis of “willingness to pay” (H3B) can be confirmed on a significance level of α = 5%. The regression coefficient indicates the correct sign, and with this, supports the assumption that the possibility of use of the intermediary rises with an increasing willingness to pay. An interesting result is found in the T-test regarding the willingness to pay for a successful intermediation among consultancies of various sizes. A very clear difference results between medium-sized and large consulting firms: A significantly lower willingness to pay a commission is found on the part of the latter as compared to their middle-sized competitors. The variable “personal contacts” also has a highly significant impact on the decision regarding the use of e-intermediaries. The corresponding hypothesis (H4B) can be supported on a significance level of α = 1 %. Consultants deciding against the use of an eintermediary therefore attribute a higher value to the efficiency of a successful acquisition by means of traditional networking than by using an intermediary. As a result, the use of personal contacts as part of new client acquisition represents an obstacle to the success of e-intermediaries. The variable “company size” was not included in Partial Model 1 due to the results of the comparison of all alternative regression models. As a result, the theory forming the basis of this hypothesis (H5B) cannot be confirmed. However, in all observed models, the corresponding regression coefficient displays the expected positive sign. In principle, it can be assumed that it is the predominantly smaller and medium-sized consulting firms that decide to use e-intermediaries. A close look at the frequency of use supports this assumption: 75% of the users are from small to medium-sized firms, and 25% are from large consultancies. A possible explanation for the not-significant influence of company size could be the unequal distribution of the size attribute in the consultant sampling (onethird large consultancies verses two-thirds medium-sized firms), which can lead to a distortion of the results. Additional results of T-tests support this assumption: Here, significant differences in the estimation of selected aspects among various-sized consulting firms are revealed. These include the significant difference in terms of the willingness to pay for a successful intermediation of a consultation project as well as the weakly significant difference regarding a potential increase in the range of offer. Both differences indicate that small and medium-sized consultancies place a higher value on e-intermediation than their larger competitors. In this way, they hope for a reduction in the competitive advantage of large consulting firms in acquiring new clients and are therefore prepared to pay significantly more for these services.
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When looking at potential obstacles of e-intermediation, a trend towards the significance in terms of age can be assumed. The corresponding hypothesis stating that people using e-intermediaries tend be younger cannot however be confirmed. In contrast, the meaning of available experience values of other users for the decision to use an intermediary is at a level of α = 5 %. Resultantly, a lack of availability of experience can be an impediment to the decision to use an intermediary. This is probably the case when considering the current lacking amount of experience with e-intermediation in the corporate consulting field. Conclusion The empirical study showed that a fundamental interest in e-intermediation exists from both those seeking consulting services and those offering them. In light of the previously low meaning of intermediaries in the consulting field and the reigning doubt of the “online abilities” of consulting, the results of the study are quite surprising. About 70% of the polled clients would use an e-intermediary when selecting a consultant. On the other hand, consultants are more critical towards the use of an intermediary – an indication that the potential of this model and its demand from clients is presently (from the consultant’s perspective) underestimated. The empirical findings make it additionally clear that it is primarily small and mediumsized companies that favor the use of an intermediary for new client acquisition and/or selecting a consultant, and this from both the consultant’s and client’s perspective. Clients value most of all the advantages of a meta-consultation in traditional consulting projects. Particularly in strongly fragmented markets, intermediaries are a neutral institution that allow a better determination of the service quality of various consultants (from the client’s perspective). This saves the consulting market time and money. By reducing the uncertainty associated with the selection of consultants, meta-consulting acts as a new, efficient institution in the field of consulting. From the perspective of consulting firms, the investigation findings show that the appeal of using an intermediary is much greater for smaller companies than for their larger competitors. The comparably greater willingness to use intermediaries manifests itself in a significantly higher willingness to pay in the case of a successful project intermediation. In this way, medium-sized consulting firms hope for a reduction in the competitive advantage of larger consulting firms when acquiring new clients. Should a future reintermediation be necessary in the initiation of classical consulting projects, it is likely that large consulting companies will be confronted with an intensification of the competition for market share in favor of smaller companies.
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Literature Archer, N. and Gebauer, J. (2000), “Managing in The Context of The New Electronic Marketplace” presented at the 1st World Congress on the Management of Electronic Commerce, held January 19-21, 2000, in Hamilton, Ontario, Canada. Backhaus, K.; Erichson, B.; Plinke, W. and Weiber, R. (1994), Multivariate Analysemethoden – Eine anwendungsorientierte Einführung, 8th edition, Berlin et al. Backhaus, K.; Erichson, B.; Plinke, W. and Weiber, R. (2000), Multivariate Analysemethoden – Eine anwendungsorientierte Einführung, 9th edition, Berlin et al. Becker, U. and Schade, C. (1995), “Betriebsformen der Unternehmensberatung – Eine Erklärung auf der Basis der Netzwerktheorie und der Neuen Instititutionenlehre”, zfbf, vol. 47, no 4, pp. 327-354. Belz, C. and Bussmann, W. (2000), Vertriebsszenarien 2005, St. Gallen. Bundesverband Deutscher Unternehmensberater (2003), Facts & Figures zum Beratermarkt 2002, Bonn. Däfler, M. N. (1998), Franchising in der Unternehmensberatung: eine institutionenökonomische Analyse, Hamburg. Eggenberger, C. (1996), Elektronischer Markt für internationale Telefondienstleistungen (EMITS), St. Gallen. Felser, W. (2003), Die Kompetente Gesellschaft: Der Weg aus der Krise – Version 0.7 (zur Diskussion), Düsseldorf, http://www.competence-site.de/C1256AC7005889B7/0/ 270350339BF8E64CC1256CD9005C2776?Open, visited 29.10.2003. Gebauer, J. and Buxmann, P. (1998), “Internet-Based Intermediaries – The Case of the Real Estate Market”, CMIT Working Paper 98-WP-1027, March 1998, University of California, Berkley. Götz, O. (2003), “Unternehmensabschnittsgefährte – Wie in Unternehmen integrierte Berater einen Mehrwert schaffen können”, Consulting, Frankfurter Allgemeine Zeitung, no. 197, 26.08.2003, p. B2. Holzmüller, H. and Schlüchter, J. (2001), Elektronische B2B-Marktplätze in der Zukunft – Ergebnisse der Delphi Studie, Dortmund. Kaas, K. P. (1992), “Kontraktgütermarketing als Kooperation zwischen Prinzipalen und Agenten”, zfbf, vol. 44, pp. 884-901. Kohr, J. (2000), Die Auswahl von Unternehmensberatungen: Klientenverhalten – Beratermarketing, München. Kollmann, T. (1998), “Elektronische Marktplätze: Spielregeln für Betreiber virtueller Handelsräume”, der markt – Zeitschrift für Absatzwirtschaft und Marketing, vol. 37, no. 146/147, pp. 198-203. Krafft, M. (1997), “Der Ansatz der Logistischen Regression und seine Interpretation”, Zeitschrift für Betriebswirtschaft, vol. 67, no. 5/6, pp. 625-642.
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Malone, T.; Yates, J. and Benjamin, R. (1988), “Electronic Markets and Electronic Hierarchies” in: Greif, I. (Ed.): Computer Supported Cooperative Work – A Book of Readings, Los Angeles, CA, pp. 581-607. Miethe, C. (2000), Leistung und Vermarktung unterschiedlicher Formen der Unternehmensberatung: Gutachterliche Beratungstätigkeit, Expertenberatung und Organisationsentwicklung, Wiesbaden. Niedereichholz, C. (2001), Unternehmensberatung, Bd. 1 Beratungsmarketing und Auftragsakquisition, 3rd edition, München. Palmer, A. and McCole, P. (1999), “The Virtual Re-Intermediation of Travel Services: A conceptual framework and empirical investigation”, submitted to the Journal of Vacation Marketing, Revised (2) 15 October. Picot, A.; Bortenlänger, C. and Höhrl, H. (1997), “Organization of electronic markets: Contribution from the new institutional economics”, The Information Society, vol. 13, pp. 107-123. Sarkar, M.B.; Butler, B. and Steinfield, C. (1996), “Intermediaries and Cybermediaries: A Continuing Role for Mediating Players in the Electronic Marketplace”, Journal of Computermediated Communications, vol. 1, no. 3, http://www.usc.edu/dept/annenberg/vol1/issue3/sarkar.html, visited 29.10.2003. Schade, C. (1997), Marketing für Unternehmensberatungen, 2nd edition, Wiesbaden. Schmid, B. (1993), Grundlagen und Entwicklungstendenzen Elektronischer Märkte, St. Gallen. Segev, A.; Gebauer, J. and Färber, F. (1998), “Internet-based Electronic Markets”, Working Paper, Berkley. Schmitz, S. W. (2000), “The Effects of Electronic Commerce on the Structure of Intermediation”, Journal of Computer-Mediated Communication, vol. 5, no. 3. Schneider D. and Schnetkamp, G. (2000), E-Markets – B2B-Strategien im E-Commerce, Wiesbaden. Schoen & Company GmbH (2000), Virtuelle Marktplätze für Dienstleistungen, Düsseldorf. Urban, D. (1993), Logit-Analyse: Statistische Verfahren zur Analyse von Modellen mit qualitativen Response-Variablen, Stuttgart u.a. Wigand, R. T. and Benjamin, R. I. (1995), “Electronic Commerce: Effects on Electronic Markets”, Journal of Computer-Mediated Communication, vol. 1, no. 3. Zbornik, S. (1996), Elektronische Märkte, elektronische Hierarchien und elektronische Netzwerke, Konstanz.
Section 2: Evaluation of Consultants
Evaluation of Consultancy Engagements: The Swiss Questionnaire for Quality in Management Consultancy André C. Wohlgemuth
Developmental Background and Origins of the Swiss Questionnaire Performance evaluation in management consultancy has always attracted much interest and continues to be the subject of strong debate. In every consultancy engagement there are situations or phases when the client wants to get a full picture of the consultants’ performance by carrying out an evaluation. Usually at the end of an assignment there is a need for systematic assessment, both from the client’s and the consultant’s point of view. Taking the opportunity to learn and improve “best practice” is an integral part of a professional attitude in the service industry. This article presents the ASCO questionnaire for the evaluation of quality in management consultancy. In the early nineties the Association of Management Consultants Switzerland established a task force named “Excellence in Consultancy” and appointed six experienced management consultants to the group.1 Their task was to make recommendations and to develop tools, which would help to improve quality in management consultancy. When the task force commenced their work “Total Quality Management”, or TQM, was one of the dominant buzzwords in management (David and Strang 2006, p. 229 and Literature as Juran 1988, Akpolat 2004). Sensitivity to all aspects of quality was at a peak – for the first time in the knowledge-based service industry. In the USA – not least as a reaction to Japanese economic success – the government established the Malcolm Baldrige National Quality Award and many conferences in the western world addressed the subject of “Quality Management”. Within FEACO, the European Federation of Management Consultancies Associations, its UK member association (MCA – Management Consultancies Association) tried to establish ISO guidelines for quality assurance in Europe. This was triggered by the idea that criteria for quality in management consultancy should be applied as standards across all of Europe. It should also be borne in mind that because of the fall of the Iron Curtain in 1989 many “new” countries, which were not familiar with the management consultancy profession, joined the European market. There had previously been no place for such a liberal profession in state-planned economies.
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Jörgen Biedermann, Peter Ehrensperger, Marjan J. Frank, Robert Schnyder von Wartensee, Thomas Seidel, André C. Wohlgemuth
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The UK approach was no resounding success, because, amongst other reasons, these ISO guidelines were still driven too much by the perception of quality usually applied in industry. However, the fierce debate about quality contributed fundamentally to a higher awareness of the national consultancy associations of their role as developers and guarantors of standards. During its one-year existence the ASCO task force “Excellence in Consultancy” developed various recommendations and tools for management consultants and for management consultancy firms (e. g. internal quality assurance), which were accepted and adopted by the ASCO board. The ASCO Questionnaire for Quality in Management Consultancy was developed as one of these tools and is described on the following pages. Selected thoughts on the theoretical base of the Swiss Questionnaire Here it will be shown what the base definition for the task force was. As is generally known there are different views on quality in the service industry. The perception of quality deriving from the traditional manufacturing sector looks for conformity between required and delivered specifications. Required specifications are seen as “objective” values and criteria. You simply have to set the standard of required specifications and to measure them. A very different approach is to see quality as a totally subjective “matter”. Only the client’s view, i. e. his evaluation based on his satisfaction, counts (Wohlgemuth 2006, p. 53 and p. 167). Management consultancy is generally perceived as a typical professional service. The process of interaction between the client and the consultant is a core element of this service. Consultancy is a process, in the course of which the (joint) product of the consultancy service evolves. The task force based its deliberations on the following definition of Management Consultancy: “Management Consultancy is a project related process of interaction between people of a client system and a consultant system. The consultant system has to be independent and has to help in a professional way (with a holistic view of the problem) to optimise the success potential of the client system.” (Wohlgemuth 2001, p. 21 f. and p. 24; Wohlgemuth 2006, p. 30 f.) In this definition the main goal of professional management consultancy is to help the client system to become more successful in its aims. An evaluation of the management consultancy services has to build on this. The ASCO task force was also well aware of the different views on quality. They decided to use the following definition: “Quality in management consultancy consists of the level
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of client's satisfaction (subjective element) and of the conformity between the required and delivered specifications of the professional service.” The Swiss Questionnaire for Quality in Management Consultancy (promoted by ASCO, the Association of Management Consultants Switzerland) The task force decided to develop a new questionnaire only after they had studied several dozen questionnaires. Questionnaires from various countries were made available to the task force, both by professional quality assurance organisations and by various consultancy firms. It was interesting to note that the key questions, that is, what the task force regarded as key questions, turned up in most of the questionnaires. The task force also had long discussions about the psychological aspects of management consultancy and the relevance of the consultant's behaviour and social competence vis-àvis the client. As the subjective element (the client perspective) was felt to be very important in the assessment of quality it was necessary to design the questions accordingly. Of course there are also many unexpressed client needs in subjective assessments of consultancy services. It is important to be aware of these, for example, “personal appreciation”, “understanding of the client’s situation”, “reliability” or “confirmation that the consultant has control over the task”. The aim of the task force was to develop a general questionnaire, which would cover many management consultancy situations. The questionnaire should be “generic”, so that it would act as a tool, which could be adapted to the specific needs of the individual ASCO member. To allow for individual tailoring, the questionnaire contains more questions than are necessary in each case. The questionnaire will typically be completed by a diverse group of persons involved in the consultancy project (person hiring the consultancy firm, member of the client's project team, person(s) primarily affected by the project, project manager, partner of the consultant etc.). The timing of the use of the questionnaire is also quite flexible. In principle, the questionnaire is meant to be completed at the end of an assignment (ex post). But most of the items can also easily be assessed at any checkpoint of the assignment and, if needed, such preliminary results can be compared with a final evaluation. The questionnaire comprises the following six sections: − Professional Knowledge and Expertise − Professional Conduct and Behaviour − Project Management
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− Implementation To-Date − Economics of Consultancy − Additional questions The questions or items addressed under the above section headings were selected on the basis of the practical experience of the task force members (expert knowledge) with particular relevance to quality in management consultancy. The section “Professional Knowledge and Expertise” contains not only the common questions, but also factors in the code of conduct for management consultants (ICMCI) (see ICMCI (http://www.icmci.org) and ASCO Certification Committee (http://www.asco.ch)). One item (1.5) shows whether the consultant is aware of his limitations and whether he behaves professionally in line with the code. “Professional Conduct and Behaviour”, the second section, includes many relevant “sensitive” factors in the process of interaction. Elements from the code of conduct also played a role here. The section “Project Management” mainly contains the organisational aspects of an assignment. In the section “Implementation To-Date” all important items are integrated, making it possible to see to what extent the goals agreed at the beginning were attained through consultancy. Of course a complete questionnaire also contains items concerning the “Economics of Consultancy”. As the use of technical facilities (ICT, presentation means etc.) can be a significant expense factor, an item about this is added here. The question of the appropriate task splitting between the consultant's and the client’s resources is again based on the code of conduct for management consultants. The “Additional questions” are deliberately open, because they add to the structured sections of the questionnaire. These are general questions, which are especially designed to improve professional “best practice” and learning processes on the part of the consultant. It is strongly recommended that these questions be discussed verbally (exclusively or additionally). The rating scale (“to measure the items”) has been made deliberately easy. Of course, there must be an option to state that there is no basis for evaluation of an item. Then, if an evaluation is possible, there are three categories to choose from: requires improvement, adequate/acceptable, above average. The mark in the middle means that the service quality was as expected and gives no reason for complaint. The marking possibilities on the left and on the right of this can highlight criteria, which stood out significantly – in both positive and negative terms. These are the items, which must be the subject of additional review and discussion.
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Fig. 1. The Swiss Questionnaire for Quality in Management Consultancy (part 1 of 2)
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Fig. 2. The Swiss Questionnaire for Quality in Management Consultancy (part 2 of 2)
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The questionnaire can be processed statistically (co-operation over time, between clients etc.). In a bigger assignment with several management consultants and many assessors a dozen or more questionnaires can easily accumulate. Of course the questionnaire can be prepared in digitalised form, so that it can be completed on-line. This allows for results to become available quickly and to be followed up by further comparison and evaluation. Consultant and client specific analyses can also be made very easily. In order to visualize the results the five sections of the questionnaire can be shown graphically as five dimensions in the form of a circle. The various items within a section can also be weighted. ASCO has put such an option into practice with the tool “ROC” (Return on Consulting; see http://www.asco.ch/download (ROC Scorecard)). In most cases the questionnaire will be mailed after the final invoice for a project has been sent to the client. The results may be made available to all partners of the management consultancy firm. Concluding Remarks The original questionnaire has been made available to all members of the Swiss association. The questionnaire presented here has been improved slightly compared to the original version (The original German version is printed in Wohlgemuth 2006, p. 176 f.). ASCO has not kept track of its application. However, the task force knows that several member firms have used the original questionnaire or have used it as a basis for developing an evaluation methodology of their own. As the task force deliberately concentrated on the key questions of quality in management consultancy, the items are still up-to-date and of continuing significance today. The basic idea of the task force was to create a practical and useful tool for a frank and fair assessment of consultancy performance. This is based on the awareness that the quality of management consultancy depends not only on the consultant, but also on the client. Therefore, this process foregrounds neither incentives nor rewards but simply aims at increasing the effectiveness of the consultant and his firm, as well as the quality of interaction with the client. References Akpolat, H. (2004), Six Sigma in Transactional and Service Environments, Gower, Aldershot Hampshire/UK. Argyris, C. (2000), Flawed Advice and the Management Trap, Oxford University Press, Oxford. ASCO, Association of Mangement Consultants Switzerland (Ed., 2003), Code of Professional Conduct 'CMC', (Original Version in German 1996), Zürich.
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David, R. J. and Strang, D. (2006), “When Fashion is fleeting: Transitory collective Beliefs and the Dynamics of TQM Consulting”, Academy of Management Journal, vol. 49, No. 2, pp. 215-233. FEACO, European Federation of Management Consulting Associations (Ed., 1996), How to get the Best from Management Consultancy: A guide for the European Commission, Brussels. ICMCI, International Council of Management Consulting Institutes (Ed., 1992), Uniform Body of Knowledge for Management Consultants, Toronto. ICMCI, International Council of Management Consulting Institutes (Ed., without year), Code of Professional Conduct, Toronto. Juran, J. M. (1988), Juran on Planning for Quality, The Free Press / Macmillan, New York. MCA, Management Consultancies Association (Ed., 1990), Quality Assurance: Guidelines for Management Consultancy, London. Wohlgemuth, A. C. (2001), “Unternehmensberater und ihre Verantwortung: Wird die "klassische" Unternehmensberatung zunehmend Opfer ihres eigenen Erfolges?”, Unternehmensberater, vol. 5, no. 4, pp. 21-25. Wohlgemuth, A. C. (2006), Unternehmensberatung (Management Consulting). Dokumentation zur Vorlesung «Unternehmensberatung» (WS 2005/06: Folien – Texte – deutsch- und englischsprachige Fachliteratur, 7th ed., vdf Hochschulverlag, Zürich. Further Readings ACME, The Association of Management Consulting Firms/Council of Consulting Organizations, Inc. (Ed., 1992): Professional Profile of Management Consultants: A Body of Expertise, Skills, and Attributes, New York. Block, P. (1981), Flawless consulting: A Guide to Getting Your Expertise Used, Learning Concepts/University Associates, Austin, Texas. Ernst, B. (2002) Die Evaluation von Beratungsleistungen: Prozesse der Wahrnehmung und Bewertung, Deutscher Universitäts-Verlag, Wiesbaden. IMC, Institute of Management Consultants (Ed., 1987), Professionalism and Quality: Notes for clients and potential clients, London. Maister, D. H. (1986), “The Three E's of Professional Life”, Journal of Management Consulting, vol. 3, no. 2, pp. 39-44. McLachlin, R. D. (2000), “Service quality in consulting: what is engagement success”, Managing Service Quality, vol. 10, no. 4, pp. 239-247. Sangüesa Sanchez, M. (2003), Modell zur Evaluierung von Beratungsprojekten, Diss., Technische Universität Berlin. Shays, E. M. (1983), “Learning Must Be a Lifelong Job for Consultants”, Journal of Management Consulting, vol. 1, no. 2, pp. 38-43.
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Wohlgemuth, A. C. (2001), “ASCO - The Swiss Association of Management Consultants since 1958” in Curnow, B.; Reuvid, J. (Ed.), The International Guide to Management Consultancy: The Evolution, Practice and Structure of Management Consultancy Worldwide, Kogan Page, London, pp. 402-404.
Client Professionalization: Proposed Approach for the Knowledge-Centered Management of Consulting Projects Sven Haferkamp, Sabine Drescher
Background Due to the growing dissatisfaction with the services of management consulting firms, a new trend in the co-operation between client companies and management consulting firms has arisen: Clients are recognizing that they too have an important role to play in assuring the success of management consulting projects and are beginning to establish a higher degree of professionalism in their dealings with consulting firms. From the standpoint of the client company, the purpose of this professionalization is to manage the consulting process in a holistic manner in all its phases, from the selection and evaluation of consultants to the transfer of knowledge gained in consulting projects to the company’s organization, so as to cooperate with consulting firms on an equal basis. In short, client companies are playing a much more active role in the consulting process. A special problem encountered in the holistic management of the consulting process relates to the peculiar nature of the knowledge gained from management consulting projects. Firstly, the experiences gathered by the participants within and as a result of the project are very difficult to codify. Secondly, information concerning project results is generally considered to be highly confidential and therefore cannot be freely distributed within the company in a codified form. Consequently, traditional methods of knowledge distribution are inappropriate for managing this kind of knowledge and therefore new forms and possibilities of knowledge distribution must be identified and pointed out to advance the holistic management of consulting projects. Against the backdrop of these trends, different companies have adopted different approaches in recent years to conceive and implement a more efficient, holistic process for managing consulting projects. Companies have in some cases employed knowledge management methods to systematically structure the knowledge flows, exploit synergies in consulting projects and thereby enhance the benefit of management consulting services. In order to identify suitable methods and instruments in this regard, an empirical study of seven companies in total was conducted in the time from May to July 2005. The objective
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of the study was to examine the current status of client professionalization and identify concrete measures for the knowledge-centered management of consulting projects. Knowledge transfer in management consulting projects Before discussing the systematic management of knowledge gained from consulting projects as a critical resource, let us first define some key terms. In the following, the terms “management consulting” and “consulting” always refer to strategic management consulting, which purports to aid in the development, selection and implementation of solutions of strategic problems for the overall company or individual units of the company. Co-operation with management consulting firms generally occurs in the form of projects. To ensure the successful execution of such projects, temporary teams consisting of employees of the consulting firm and the client company are assembled in advance. Practical experience has shown that the knowledge gained in the process of co-operation is often not communicated within the company. This failure must be attributed to an absence of structures and processes for the networking of key persons in possession of critical knowledge and for perpetuating this knowledge within the company. Moreover, the basic prerequisites for effective knowledge transfer and the optimum use of knowledge beyond the scope of an individual project are often lacking. Based on these circumstances, the core question to be asked with regard to the holistic management of consulting projects is the following: How should corporate processes and structures be organized to ensure the preservation and dissemination of the knowledge gained in consulting projects? The model shown in Figure 1 serves to illustrate the knowledge transfer process with regard to consulting projects. The morphology of the knowledge transfer model suggests that communication and knowledge-sharing processes within an individual project can be easily managed, due to the physical closeness of the project participants. However, the desirable transfer of experiences, expertise and findings obtained in the co-operation between the consultants and the client company representatives frequently occurs only to a limited degree and not systematically. The reason repeatedly cited for this deficit is that consultants are reluctant to support knowledge transfer out of an interest in protecting their privileged expert
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status and clients have reservations about cooperating with outside consultants (Kipp 2005). Knowledge transfer within the project
Knowledge transfer from the project to the organization
Experience in dealing with consultants
Results (content)
Information/knowledge Evaluation Consulting Beraterseite firm
Client
Project
Storage and usage of knowledge
Synergy potential
Lessons learned Information/knowledge Organizational learning processes
Change measures
Fig. 1. Knowledge transfer model in management consulting projects
In addition, questions regarding the long-term preservation of project knowledge are frequently not asked at this early stage. The project participants often lack a basic awareness of this issue. In general, they only become aware of the need for suitable methods during this phase when they themselves seek out past project results and documentation to satisfy their information needs for the current project and discover that this knowledge is unavailable. The situation with regard to measures aimed at promoting the transfer of project knowledge within the company is even less satisfactory. Companies often simply lack the methods needed to conduct professional-quality project controlling of the knowledge gained in consulting projects. Although the project findings are documented at the end of the project and/or subsequent measures are permanently established within the organization, the preconditions for the long-term evaluation and preservation of the knowledge and experience gained in management consulting projects are most often not fulfilled. As a result, the newly acquired knowledge exists only in the minds of the project participants and does not find its way into the permanent knowledge base of the client company. The reason for this deficiency can be found in the lack of proactive efforts to ensure the transfer within the company’s organization of the results, experiences and learned lessons
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of consulting projects. While consulting firms have long applied appropriate methods and tools for this purpose, there is tremendous unused potential for efficiency gains in the client companies because the necessary preconditions are not in place. The solutions practiced at present are often only “island solutions,” the potential of which is not fully exploited (Kolbeck and Mohe 2005). In summary, we can say that solutions must be found for the transfer and dissemination of the project knowledge acquired through the co-operation with outside consulting firms. Considering the peculiar characteristics of the “management consulting” product, such solutions can and should make a valuable contribution to the preservation and dissemination of the knowledge acquired in such projects. Empirical study of the state of client professionalization For the examination of the current state of client professionalization in the relationship with strategic management consulting firms, interviews were conducted with seven experts of German DAX-listed companies (three companies in the shipping and logistics sector, two companies in the pharmaceuticals and chemicals sector, one company in the automotive sector and one company in the telecommunications sector) in the period from May 2005 to July 2005. All interviews were conducted with the organizational unit responsible for purchasing consulting services or hiring consulting firms. A total of six action fields, described below, were identified in the companies studied. To preserve anonymity, the company names have been replaced with numbers (1-7).
Establishment of a coordination office for management consulting services In all the companies interviewed, there was a coordination office for management consulting services on the organizational level, which performed some or all of the functions described below, depending on the company: 1. Concentration of management consulting knowledge for the purpose of usage, transfer and further development 2. Evaluation of management consulting services 3. Multiplication of knowledge through personalized knowledge transfer to staff that has a need for such knowledge In the case of Companies 4, 5, 6 and 7, the coordination office also performed process support functions. There were differences in the organizational status of the coordination
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office. In most cases, this function was performed by a service unit within central procurement or by an independent internal service unit.
Professionalization of consultant selection and procurement of management consulting services Five of the companies interviewed have already entered into master agreements with selected management consulting firms as the basis for the easier and quicker processing of project-related contract terms. Six of the interviewed companies have designated or soon plan to designate "preferred suppliers" as a special indication of a trusting and valued cooperation relationship with selected management consulting firms. An important indication of the advanced state of professionalism of the interviewed client companies can be seen in the consultant selection process. In this regard, all the interviewed companies engage in close consultations with the organizational unit in need of the consulting services. The companies all have binding guidelines in place that govern the process of hiring management consulting firms and strictly forbid any circumvention of the central coordination office. As part of their supplier selection process, all the companies draw up a “short list” of three to six management consulting firms. At this point, it is common practice to hold socalled “beauty contests,” under which the candidate firms present themselves and their methodology to the client company. The final choice is usually a multilateral decision of the coordination office, the organizational unit in need of consulting services, and (in the case of Company 4) also the legal department, controlling department and other specialists. To establish clarity with respect to the reasons for choosing a particular firm, five of the interviewed companies utilize an evaluation matrix and subsequently document the reasons for the final selection. An interesting development is the growing importance of success-driven compensation models. By this means, client companies are seeking to force the management consulting firms to accept more responsibility for their results.
Evaluation of management consulting firms The evaluation serves as the basis for a variety of things, including performance-based compensation, negotiations of master agreements, targeted consultant development and for the purpose of establishing clarity within the company about the efficiency of consulting services. All the companies interviewed already conduct or plan to conduct a project evaluation at the end of the project.
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An important developing trend in this regard is the departure from a standardized evaluation in favor of a partially standardized or individualized evaluation of each project. In all the companies surveyed, the evaluation is based on more or less fixed categories, in some cases derived from the supplier evaluation tool used by the company. On the other hand, the weighting and elaboration of the evaluation criteria for management consulting firms are left open to varying degrees. Aside from the answers to closed-end questions in the interviews, the importance of the documentation of supplementary statements was emphasized repeatedly because these “original comments” often hold the key to understanding the quantitative evaluation results. In all the companies surveyed, the evaluation process tends to focus on the outside service provider’s performance. In none of the companies does the standardized evaluation process include an evaluation of the company’s own employees. Only in Company 3, where the evaluation is conducted in a qualitative, narrative format of a debriefing session, and in Companies 5, 6 and 7, in which the evaluation is partially conducted in the form of interviews, is there any attention given to the company’s own internal performance. Even in these companies, however, no systematic evaluation of the interviews is performed. The request for an evaluation at the end of a project is usually sent to the project manager or head of the organizational unit for which the consulting services were provided; a supplementary evaluation by the stakeholders is conducted only in Company 5. At Company 6, the evaluation is always conducted in the form of an interview, while in Company 5 the evaluation is conducted in this form only for large or strategically important projects. Company 7 uses the interview as a supplementary measure when the standardized evaluation produces surprising results. With the exception of Company 7, all the companies that conduct an evaluation of the completed project inquire about the performance of specific individuals, in addition to the general quality and methodology of the management consulting firm. That is to say, the professional methods and social skills of individual consultants are also evaluated and the results are stored in a database. The results of the evaluation process are used in particular for making decisions on future project assignments, aside from the points mentioned above. Moreover, the importance of conducting an evaluation of interim project results appears to be growing. One of the interviewed companies offers such an evaluation in all cases, while two other interviewed companies have already developed plans for this purpose. All the interviewed persons gave a thoroughly positive assessment of such programs. The big
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advantage of conducting such evaluations during the course of the project as opposed to only at the end of the project is that only the former makes it possible to detect problems and take appropriate counter measures at an early stage of the project. Obviously, an evaluation at the end of the project does not allow for corrections during the course of the project.
Survey of lessons learned through briefing/debriefing sessions Briefing and debriefing sessions (Schindler and Eppler 2002) involving the coordination team, the organizational unit for which the consulting services are to be performed and the management consulting firm are conducted fairly often. However, the purpose of such meetings is not so much to generate project knowledge and experience for the organization as it is to reach definite goal agreements with the consulting firms at the start of the project. The degree of goal achievement is evaluated at the end of the project in a debriefing session, based on the goals defined in the initial briefing, and the lessons learned are formulated for those persons directly involved in the project. In none of the interviewed companies were the lessons learned systematically documented or the project results formally communicated. The reason for this omission, according to the statements repeatedly made in the interviews, is the absence of a department charged with responsibility for such a function. The client companies consistently affirmed the need for the professional management of consulting project results, but none of the persons interviewed considered himself or herself personally responsible for such measures, nor were any of the coordination offices in the surveyed companies equipped with the necessary resources to perform this function.
Use of knowledge databases for knowledge documentation Surprisingly, client companies have consistently refused to build up best-practice databases for knowledge documentation and experience preservation, although consulting firms have long done so with great success. In their co-operation with management consulting firms, and considering the highly sensitive nature of the knowledge generated in management consulting projects, data processing technology is not considered to be a suitable form of knowledge representation and transfer. In connection with the professionalization measures for the management of consulting projects, six of the companies surveyed use data processing systems only within a single department for supporting the work of the coordination team. Only Company 7 uses data processing technology to create a company-wide database of management consulting projects. But even in this case, access to this information is highly restricted, effectively curbing the distribution of knowledge on this subject.
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Networking of key personnel All the interviewed companies consider the direct networking of key personnel in possession of critical knowledge (in this case the organizational unit that ordered the services or the project manager) to be a much more promising and effective approach. Unfortunately, such networking is conducted at present only by the coordination team members; and – as already mentioned above – only one company, Company 7, has an information platform for central networking. Figure 2 summarizes the examination results with regard to the knowledge transfer model presented above. The figure clearly lists the measures employed in the examined companies and those instruments that are generally given too little attention. Even though the following description should be understood only as a general orientation, it does serve to illuminate important tendencies. All the surveyed companies report that the introduction of professionalization measures has produced clear improvements both with regard to the management of the knowledge gained in consulting projects and the transparency of knowledge within the company. Professionalization can generate economic and contentrelated synergies and optimize the partnerlike co-operation with management consulting firms. Measures
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Never conducted Sometimes conducted Very frequently conducted Always conducted
Fig. 2. Professionalization measures in the examined companies
C7
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Proposed approach for the knowledge-centered management of consulting projects The process model presented in Figure 3 shows the integration of the identified measures into the typical consulting process. Knowledge transfer within the project
Project assignment
Offering phase
Project briefing
Project phase
Evaluation of interim project results
Knowledge transfer from project to organization
Concluding phase
Subsequent project evaluation
Project debriefing
From project to organization
Knowledge documentation
Networking of key staff
Fig. 3. Knowledge management measures along the consulting process
Based on this process model, a typified ideal approach for the knowledge-centered management of consulting projects is described below. This approach can help to rectify the current deficiencies in the holistic management of the consulting process on the part of client companies.
Assigning the project to a management consulting firm The holistic consulting process actually begins before the offering phase, with the decision of whether the company has sufficient internal resources to solve the problem or if a given project should be assigned to an outside management consulting firm. The precision with which the commissioning department formulates the specifications of the given project has a lasting effect on the selection process and ultimately also on the project’s success. Companies should not underestimate the knowledge communication needs in this early phase. The organizational unit for which the consulting services are to be provided should take steps to ensure that the persons bearing operational responsibility for hiring the consultants are provided with complete and precise information about the problem in question. They need this information in order to apply their knowledge of the consultancy market to the benefit of the commissioning department and assist in the selection of suitable consultants for the problem in question. A good way to optimize knowledge transfer in this phase would be to use a structured questionnaire for collecting the relevant information from the organizational units in need
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of consulting services. After all, inadequate knowledge communication in this phase is not necessarily due to unwillingness, but can simply be the result of inadequate knowledge of the information needs.
Offering phase If the company decides to assign a project to an outside consulting firm, the offering phase ensues. The results of the study suggest that the decision by larger companies to hire outside consulting firms is usually reached by numerous persons working in different departments. It was possible in the present study to identify the concept of a procurement team, based on the premise that different members of the organization form a single group responsible for the procurement process. The composition of the procurement team varies from one project to the next and from one company to the next. Generally speaking, however, it would seem advisable to involve the following functions or function areas into the selection process: − Commissioning department − Specialized department (in which the management consulting project is to be conducted) − Procurement and possibly also controlling − Knowledge promoter (with knowledge of best practices, lessons learned etc.) − Other experts (with specialized knowledge relevant to the problem at hand) There have been only few empirically verifiable instances of a “knowledge promoter for management consulting” in actual practice, making it impossible to draw any inferences concerning the optimal organizational mechanism from the study results. Peters and Dengler recommend the creation of a special function of knowledge promoter, in order to promote the communication of knowledge related to management consulting projects and to separate the more knowledge-centered duties from the direct project duties (Peters and Dengler 2004). The knowledge promoter facilitates knowledge-sharing among key staff working on the same projects but in isolation from each other; and also helps to minimize duplicate work and errors of repetition. He aids in the creation of meta knowledge, applies his own knowledge to identify potential experts for the problem at hand and brings them together. The functions performed by a knowledge promoter are listed in Figure 4. The study showed that there is little confidence in the success prospects of a codification strategy in dealing with the knowledge from management consulting projects. It is all the more important, therefore, to designate knowledge promoters and charge them with the task of networking the knowledge of key staff and promoting the transfer of project knowledge to other areas of the company.
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Functions of the knowledge promoter Benchmarking
The knowledge promoter compares the methods applied within a successful project with those of other projects and promotes the transfer of best-practice solutions.
Process support
The knowledge promoter provides ongoing support to similar projects, both concurrent and subsequent, supplies up-to-date knowledge and/or organizes multi-project meetings to promote information exchanges.
Catalyst
The knowledge promoter refines the knowledge gained in a given project for later use within the company.
Evaluation
The knowledge promoter initiates and/or carries out lessons learned activities to expressly formulate the experience and success of the project, in order to perpetuate and transfer such knowledge.
Memory
The knowledge promoter continues to serve as the contact person for a given project even after it is completed.
Fig. 4. Functions of a knowledge promoter (Peters and Dengler 2004)
The advantage of a heterogeneous procurement team lies in the fact that different points of view are represented during the entire selection process and decisions are made as a team, which can help prevent conflicts at a later time. Thus, a procurement team should be appointed at as early a stage as possible, preferably already before the first potential consultants are identified. The better a company is at supplier management, the better it will be able to conduct the consultant selection process (Kraus 2005). A broad knowledge base – consisting of a project database containing key information on past management consulting projects (e.g. name of consulting firm, time period, the client company‘s project manger and the consulting firm’s project manager, etc.), as well as evaluation results and personal evaluations of individual consultants – can strengthen the negotiating position of client companies enormously. With regard to the selection process, such a knowledge base leads to better and more objective decisions. Experience has shown that the cost-benefit ratio of creating and maintaining such a database is positive. Effective management of the knowledge gained from management consulting projects absolutely depends on the willingness of all participants to distribute and make use of the knowledge gained. As for the procurement team, the members of which rely on the internal information resources of the company to do their work, they should themselves make a contribution to expanding the information base. They do this by entering into the pro-
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ject database the offers received from consulting firms and the evaluation matrix which they have filled out in connection with the final selection of a consulting firm.
Project phase The next phase of the consulting process from the client’s perspective is the project execution phase. In order to establish efficient knowledge communication with the consulting team from the very beginning, a briefing should be held with the consultants, commissioning/specialized department and the knowledge promoter before the operational start of the project. In this phase, the targets, wishes and expectations of the company should be explained as precisely as possible, so that the consultants know exactly what is expected of them and the co-operation proceeds smoothly. In such briefings, the parties can also reach an agreement on the goals that will later form the basis for the performance-based compensation. It is of crucial importance in this phase that all agreements and resolutions be documented and centrally archived. The project is executed by the internal department and the consulting company acting together. Often enough, problems occur in the communication and knowledge transfer between the consultants and the company. In the worst case, these problems can lead to a negative project outcome. In addition to the end-of-project evaluation, therefore companies should also perform an ongoing evaluation of the project as it unfolds, assessing the satisfaction with and goal achievement of the project team at certain milestones. Whether such an ongoing interim evaluation is best conducted in writing, or tool-based or through interviews conducted by the knowledge promoter could not be empirically determined within the confines of this study, because only one of the surveyed companies has implemented a holistic approach to interim project evaluation. However, the need for such a measure appears to be undisputed.
Concluding phase The consulting process ends with the evaluation phase at the end of the project. Various criteria should be applied to evaluate the quality of consulting services and results and therefore the evaluation should not be conducted in a purely standardized form, or it will not produce useful results. To assure comparability, a certain basic question set can be advisable, but the questions should always be elaborated upon with freestyle answers. In the evaluation, the project manager, as well as other stakeholders – especially in the case of large or strategically important projects – will evaluate various criteria, such as, by way of example, the methodological competence and specialized expertise of the consultants. In addition, the procurement department will evaluate various aspects related to purchas-
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ing. All sides must be considered in order to produce an informative final evaluation of the efficiency of a consulting project. In the medium-term future, companies should also strive to expand the evaluation to encompass the entire project. A one-sided evaluation of the consultants’ performance does not constitute a holistic evaluation of the project results. The success of a project depends on the interaction and quality of co-operation between the management consultants and the client company. Therefore, it only seems logical to consider the client’s contribution to the project’s success. The evaluation results should be centrally stored and used internally in subsequent selection processes. Externally, these results form the basis for talks with suppliers, master agreement negotiations and the performance-based compensation of management consulting firms. They also form the basis for the debriefing to be held with the consultants upon conclusion of the project. To promote constructive, trustful co-operation in the spirit of partnership, open communication is of key importance. The debriefing session between the consultants, the specialized department and the knowledge promoter should be a learning experience for all sides and an opportunity to formulate the experience gathered in the joint project work. In such debriefing sessions, the originally established goals should be reviewed, any problems encountered in the project should be discussed and the lessons learned should be gathered, documented and archived for use in connection with future projects (Schindler and Eppler 2002). This is the best and only way to collect and preserve specialized project knowledge and general knowledge, so as to perpetuate the results for the organization. The knowledge promoter, who should be equipped with the relevant know-how for this purpose, is responsible for systematically conducting the debriefing session, formulating the results and communicating the lessons learned.
General considerations relevant to all projects The question of how best to communicate the project results and lessons learned to other members of the organization could not be entirely answered within the confines of this study. The surveyed persons showed little enthusiasm for central archiving within a database that is generally accessible within the company because it is thought that the organizational units that utilize consulting services would be loathe to accept such a database. The reasons cited for this presumption included the risk of “information overload” on the employees and quality assurance problems due to the fact that project results tend to become outdated (Probst et al. 2003).
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It would seem preferable, therefore, to archive the results under the control of the knowledge promoter (see above) and to promote direct exchanges through the efficient networking of personnel in possession of key knowledge. This would be an effective means of transferring not only the documented knowledge, but also the non-formalized, implicit project knowledge and the wealth of experience of the personnel in possession of key knowledge, in such a way as to generate new knowledge. Success factors for knowledge transfer In addition to the concrete measures proposed above, the study also purported to identify general factors critical to the success of the knowledge-centered treatment of management consulting projects. The six success factors described below are to be considered essential to the success of any professionalization efforts.
Corporate culture and top management support A corporate culture that is conducive to knowledge is an indispensable prerequisite for the knowledge-centered treatment of management consulting projects. Senior managers can have a positive and lasting effect on the attitudes of their employees towards the concepts of “knowledge” and “knowledge transfer” by actively living out these principles and thus serving as a role model (Davenport and Prusak 1999). An unfortunate finding of the present study is that even senior executives who have personally issued guidelines concerning the knowledge-centered treatment of management consulting projects will fail to observe these guidelines themselves. Senior managers should be more aware of their responsibility and role model function in this regard. Besides intensively communicating the new principles to their employees, they should act out these principles themselves, to serve as a role model.
Do not expect overly quick results The benefits of successfully transferring the knowledge gained in management consulting projects are not immediately visible, and not within the scope of the transfer project. These benefits become apparent at a later time, when other organizational units make use of the transferred knowledge. With regard to the evaluation, it should be remembered that a sufficiently extensive data basis is needed to arrive at conclusive statements concerning the co-operation with management consulting firms. Thus, the benefit of the evaluation becomes apparent only after a certain delay. Therefore, project participants should be continually reminded of the importance of continuous documentation of project results,
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especially in the starting phase of a project, and measures should be taken to ensure that these instructions are being followed.
Measures must be geared at the users Employees will be inclined to participate in knowledge transfer activities when the results of such activities make their own jobs easier. Therefore, successful measures will be geared to the information needs of employees. For example, consulting project manuals could be put out in support of the internal department involved in the consulting project, along with check lists and procedures for process compliance; or document aids can be produced to support the knowledge transfer process.
Only provide relevant information Many knowledge management projects have failed because the necessary information was not provided in a coordinated and systematic manner. The same danger exists with regard to the knowledge-centered treatment of management consulting projects. Therefore, companies should first determine what knowledge should be made available for repeated use and what benefits this knowledge generates for the company, before proceeding to plan the concrete measures (Thiel 2001). In a second step, measures should be conducted for these knowledge areas only. One of the findings of the present study is that participants in the area of data processing technology are only interested in the networking of key personnel, which is to say, in the creation of databases in the form of a telephone directory, and tend to reject the creation of documentary databases.
Intensive marketing The benefits of the systematic transfer of the knowledge gained in management consulting projects must be actively communicated to all participants by means of intensive marketing, especially in the starting phase. Those persons who make the decision to hire strategic management consultants, who will generally be senior managers, are not used to having third persons involved in their decision-making processes. In order to promote the acceptance of a coordination office and a knowledge promoter for management consulting in this environment, the advantages of such an office must be actively communicated to the participants. Suitable communication channels for this purpose may include internal media, the intranet, and presentations by the knowledge promoter. Naturally, concrete successes will be convincing as well, once they become apparent.
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Economic benefit Finally, it is worth noting that the success of measures to improve the procurement of management consulting services must ultimately be measured in terms of the economic benefit, as with any other business activity. Such measures will constitute a sensible investment of resources by the company only if the project costs are more than offset by the total savings, which may result, for example, from the use of economic and contentrelated synergies. The experiences gathered in the case studies lead one to expect that the economic benefit of the recommended professionalization measures would materialize fairly quickly, also in other companies. In order to even quantify these successes, however, companies should step up their efforts to implement an efficient consulting project controlling instance. Such a controlling instance will make it much easier to obtain the lasting support of top management and ultimately the acceptance within the entire company. Conclusions and outlook The study and the best-practice approach for the holistic management of management consulting projects derived from it have shown that clients can make a critically important contribution to the success of management consulting projects. The systematic application of the measures described herein will have the effect of professionalizing the cooperation with consulting firms and perpetuating the knowledge gained as a result of such consulting projects within the organization. The advantages of such an approach are summarized below: − − − − − − −
Targeted consultant development through evaluation and documentation Transfer of expertise regarding consulting projects Better use of project results within the company Exploitation of potential for synergies and efficiencies Reduction/avoidance of costs through knowledge exchange Savings through consolidation of the quantity base Adoption and monitoring of uniform processes to avoid corruption
The fact that the surveyed companies employed only some of the instruments listed above makes it abundantly clear that no standard solution has yet been found for dealing with management consulting projects and the knowledge gained as a result of such projects. The reasons cited for the relative lack of measures and instruments employed to manage the co-operation with management consulting firms include the lack of sufficient time or personnel, and the presumption that the initial costs of such measures would be too high, compared to the benefits for the client company, which are not immediately visible. However, the experience with the companies examined for the study has shown that such measures, consistently applied, can improve the co-operation with management consult-
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ing firms and the transfer of knowledge gained in consulting projects into the own company, and therefore lead to economic and content-related synergies. The analysis also showed that this issue is only slowly attracting the attention of companies and that existing approaches are one-sided in their focus on evaluating the performance of outside management consulting firms. On the other hand, there are very few who will ask the question of the client’s contribution to the knowledge transfer and ultimately the success of the project. In the medium-term future, such considerations should also be incorporated in the client’s professionalization efforts, because the lasting success of a management consulting project is always the result of successful co-operation between two business partners. Literature Davenport, H. and Prusak, L. (1999), Wenn ihr Unternehmen wüsste, was es alles weiß... Landsberg, Lech. Kipp, T. (2005), “Creating Impact – Ansätze zur Erzielung nachhaltiger Ergebnisse bei Beratungsprojekten” in: Petmecky, A. and Deelmann, T. (ed.), Arbeiten mit Managementberatern – Bausteine für eine erfolgreiche Zusammenarbeit, Berlin, Heidelberg, pp. 153168. Kolbeck, Ch. and Mohe, M. (2005), “Strukturwandel in der Unternehmensberatung” in: Petmecky, A. and Deelmann, T. (ed.), Arbeiten mit Managementberatern – Bausteine für eine erfolgreiche Zusammenarbeit, Berlin, Heidelberg, pp. 233-243. Kraus, A. (2005), “Der Einkauf als Intermediär zwischen Berater und Beratenem” in: Petmecky, A. and Deelmann, T. (ed.), Arbeiten mit Managementberatern – Bausteine für eine erfolgreiche Zusammenarbeit, Berlin, Heidelberg, pp. 65-75. Peters, S. and Dengler, S. (2004), “Wissenspromotion in der Hypertext-Organisation” in: Schnauffer, H.-G.; Stieler-Lorenz, B. and Peters, S. (ed.), Wissen vernetzen. Wissensmanagement in der Produktentwicklung, Berlin, Heidelberg, pp. 72-92. Probst, G.; Raub, S. and Romhardt, K. (2003), Wissen managen – Wie Unternehmen ihre wertvollste Ressource optimal nutzen, Wiesbaden. Schindler, M. and Eppler, M. J. (2002), “Vom Debriefing zum kontinuierlichen Erfahrungslernen – Methoden zur Gewinnung von Schlüsselerfahrungen in und aus Projekten”, Organisationsentwicklung 1, pp. 58-71. Thiel, M. (2001), “Erfolgsfaktoren für produktiven Wissenstransfer” in: Rossbach, G. (ed.), Mobile Internet, Heidelberg, pp. 341-349.
Return on Consulting – Value Added by the Consultants is All that Counts Guido Klenter, Niels Möllgaard
The role of project management in business success The magic word today in project management is “implementation”. A few years ago, a project was often considered successful as soon as a promising concept was developed. In light of the economic challenges of the new millennium, however, this rather simplistic and one-dimensional approach to project evaluation no longer applies. Today, only after a practicable implementation plan has been carried out according to a well thought-out concept – and has yielded measurable value added for the customer’s business – can a project be deemed a success. Yet many companies lack transparency with regard to precisely these quantitative parameters of a project’s success. As the value added results from the difference between the project benefits (i.e. objectives accomplished) and project costs, a realistic assessment requires not just data on the expenses involved, but also quantifiable project results, stated in advance as clearly defined project goals. A large proportion of companies remain unable to produce reliable data on both points. Project expenses are often only half-heartedly documented. Payroll costs for company staff involved in the projects, for instance, are frequently ignored, as these are considered part of ongoing operating expenditures incurred whether the project is launched or not (Gröger 2004, pp. 12–14). Even more significant than the lack of transparency on project costs is the failure to clearly define the desired results of a project, by setting unambiguous goals that present the project benefits as measurable quantities, based on key performance indicators. The typical result, as many studies show, is that no evaluation of the actual return on consulting takes place. At the same time, the aspect of value added – in other words, a project benefit that can be quantified in concrete terms, as a position on a profit & loss or balance sheet – is an increasingly important criterion in choosing and initiating projects. This is confirmed by a long-term study on implementation management in projects, conducted by Droege & Comp. Although more than half of the companies surveyed still select and judge the quality of projects in terms of how well they fit their respective business
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strategies, the project’s impact on bottom-line results has become the second-most important criterion (see fig. 1). Day-to-day project experience also confirms consulting clients’ focus on financially measurable results. Proportion of respondents using various criteria (multiple choice)
51%
Fit with strategy 29%
Bottom-line effect (P&L) 11%
Process improvement
7%
Qualitative risk assessment
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Other Fig. 1. Criteria in the selection of projects
To a large extent, these changed expectations and the expanded view of project management result from the current economic situation. At the same time, the role – and thus the significance – of project management continues to grow in comparison to day-to-day operations. The study shows that only 11% of respondents in the companies surveyed consider the importance of project management low. Also, more than half of respondents expect the role of project management to expand further (see fig. 2). High importance of project management …
… with a trend toward significant increase
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Fig. 2. Importance of project management
Despite the greater importance now placed on project and implementation management, many projects still fail for various reasons, causing considerable damage to the company involved. There are three main reasons for these failures, all of which directly affect the company’s business success:
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1. Project targets are not fully achieved and components of the company’s optimization potential remain unrealized or only partially realized. 2. Projects are delayed and components of optimization potential are realized significantly later than planned – liquidity and cash value of project investments suffer. 3. Internal resources are tied up for an unnecessarily long period. As a consequence, planned costs for external consulting are (unnecessarily) driven up. The proportion of objectives achieved and the average delays occurring in project realization are thus key characteristic values in assessing the success of a project. The survey carried out for the study by Droege & Comp. yielded striking results regarding this aspect. The majority of projects achieves their goals only partially and with considerable delays (see fig. 3). Approximately 75% of projects accomplish less than 70% of their stated objectives. Moreover, 60% of projects run over 25% longer than their planned duration. The resulting financial damage to the companies involved is immense. Yet, in contrast to losses in day-to-day operations, such damage is rarely recognized and even less frequently analyzed and quantified. Delays in project implementation
Degree of target achievement in projects Targets met (> 70%) Missed targets (< 30%) 30%
Extended delays (> 50%)
25%
Limited delays (< 25%)
24% 40%
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39% Targets met only partially (30–70%)
Moderate delays (25–50%)
Fig. 3. Proportion of objectives achieved and average delays
But what are the reasons behind the failure of these projects? An empirical analysis by Droege & Comp. closely examined which negative factors during implementation are most critical to the success or failure of a project (see fig. 4). Developments over the period from 2002 to 2004 demonstrate with striking clarity that projects are becoming increasingly diverse (project inflation) and that the necessary controlling instruments are not applied (no tight project controlling).
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Fig. 4. Negative factors in project management
In order to counteract these negative factors, many companies try increasingly to optimize their project management via external business consulting services. The external consultants’ support is no longer limited to concept development. More and more, customers ask for help in implementing concepts, as reflected in the results of a study by Lechner et al., in which the Professor for Strategic Management at the University of St. Gallen looked at the business consulting sector (Lechner et al. 2005, pp. 6–7). But what precisely does the consultant contribute to project management and the realization of project goals? An initial answer is offered by the various recent studies and rankings related to return on consulting, in which the value added by the consultancy plays a key role. Consulting is regarded as an investment, representing more than just one of many unavoidable expenses. In the past, evaluation of consultancies was based on turnover and the number of staff. The Lünendonk list – one of the most important and frequently cited business consultancy rankings in Germany – set the tone for such analyses. To complement this purely quantitative ranking and thus more accurately assess the performance of consulting services, Lünendonk has now added a qualitative study.
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Lünendonk is not alone in introducing new evaluation methods in recent years to reflect the changing demands on project and implementation management. A number of other current studies aimed at measuring brand strength and return on consulting also go beyond merely quantitative comparison. For example, the Höselbarth-Lay Index measures the value of a consulting brand according to three criteria: level of familiarity, image/reputation and value added, i.e. quantifiable results achieved by carrying out and implementing projects in co-operation with the customer. In their multi-sector study, Höselbarth and Lay surveyed executives in medium-size and large German companies. The decision-makers were asked which business consultancies were most familiar to them, how they judged the image or reputation of the firms and – above all – to what extent their business results had been increased through consulting services. Based on the answers to these questions, an overall score was calculated to represent the consultancies’ brand equity. But how are the consulting firms themselves reacting to the changed market demands? What adjustments have consultancies made to their business models in order to precisely meet the increased expectations of their customers? What modifications are still required? Value added by the consultancy in the context of a project To answer the question of how a consulting firm should adapt its business model, the target values according to which value added is measured must first be clarified. While these were often measured in terms of quality only – or not at all – in the past, quantifiable parameters now play an increasingly important role. Given the growing significance of measurable project benefits, quantitative target values are indispensable in project controlling, especially when a large number of projects are conducted simultaneously. Today, investment calculations and economic viability analyses are carried out not only for company assets. A consultancy must also stand up to judgment according to clearly defined objectives. A direct, quantitative measurement of value added according to defined criteria provides a basis for calculating an accurate return on consulting, which is reflected in the company’s shareholder value as well as in its bottom line, balance sheet and liquidity figures. Typical target values used include goals set for turnover, market share, costs and cycle times, e.g. as shown below:
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Shareholder value: Turnover: Market share: Costs: Timeframe:
boost share price by 10% increase turnover in the domestic market by 10% expand market share by 5% reduce utilities costs by 20% shorten cycle time by 10%
Based on these target values, the success of a project can be calculated on the basis of cleansed key data. An evaluation thus generally involves minimal effort. Depending on the level of sophistication of the IT systems used, information updated on a daily basis is often readily available. Qualitative aspects like customer satisfaction are more difficult to assess. However, even where purely quantitative target values play a minor role or are nonexistent, efforts are made to render qualitative criteria measurable by means of scaling. In the case of customer satisfaction, for example, a baseline value can be established by measuring the status quo according to individual sub-criteria (satisfaction with price, quality and service) on a scale of 0 to 5. This score is then compared to the result of a second measurement taken subsequent to completion of the project. Even for soft criteria, it is thus possible to set clear, quantitative targets such as the following: “Boost customer satisfaction from 3 points to 4 points.” In some cases, however, the benefits of consulting cannot be reduced to the achievement of quantified project goals alone. To complete the picture, the quality of the work with the customer and level of know-how transfer provided by the consultancy should also be taken into account. The consultant’s view from outside helps the customer generate new expertise within the company, a significant competitive advantage in today’s knowledgedriven business world. The fact that the consultant’s external perspective helps in overcoming internal resistance is also measurable in terms of quality only, yet it is an integral component of any holistic assessment of consulting benefits. Even a project that appears at first glance to have no measurable effect on bottom-line business results can generate value added in some cases by providing impetus in an otherwise deadlocked situation. Parameters of value added measurement In order to gauge the value added by a consultancy and further optimize it from the consultant’s standpoint, it is advisable to first establish a structure for measurement and further development. Three phases should be looked at as parameters for measuring value added:
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1. Ahead of the project 2. During the project 3. Subsequent to completion of the project Furthermore, the following two questions should be answered: 1. How do consulting firms evaluate their consultants? 2. How do consulting firms evaluate their projects? The following matrix juxtaposes these two sets of questions. The individual points are to be developed and optimized in order to generate a business model for a consultancy that precisely meets customer needs (see table 1). Table 1. Matrix – development areas of the “consultancy” business model
Assessment of consultants Ahead of the project
• Which qualities/qualifications do consultants require? • Are suitable consultants available?
During the project
• How are consultants evaluated? • How can the know-how transfer be enhanced?
Subsequent to completion of the project
Project assessment • What are the project goals? • How will goal achievement be measured? • How are the quantified goals implemented? • How is implementation monitored?
• What measures are in place for an efficient further development of consultants?
• How is goal achievement compared to the targets quantified in advance?
• How does the promotion process work?
• How is the final degree of goal achievement assessed?
It is insufficient to systematically carry out a retrospective assessment of the consultants and the project after completion. The consultants and customer must work together in advance of the project to establish the general requirements and goals according to which results will be gauged. While the project is ongoing, the implementation of the agreed measures and objectives is to be continuously monitored, allowing timely intervention in the project work to dismantle obstacles or to keep the project on target. In a project review subsequent to completion, the results achieved are compared to the stated objectives, in order to sum up the value added generated by the consultants and the project.
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How do consultancies evaluate their consultants? There is scarcely another area of business that values its human capital as highly as the consulting sector. Identifying the right staff members and consultant types – and winning their long-term loyalty – is the key success factor for every consulting firm (Lünendonk and Hossenfelder 2005, pp. 192–198). In addition to the consultancies’ brand names, customers differentiate between firms in the highly competitive consulting market based on the level of expertise and professionalism shown by the consultants during the pitch process and in the subsequent project. As a result, social and communicative skills – along with a high level of professional know-how – are essential prerequisites for a consultant. As implementation, in addition to pure concept development, has become a key component of consulting projects, it is more important than ever to win over people within the customer’s company to support the measures carried out. A charismatic manner, self-confidence and leadership skills, sensitivity in dealing with people and creativity are thus among the main requirements for a successful consulting career. For this reason, systematic assessment and further development of the consultants are success factors for every consultancy.
Ahead of the project Due to the great importance of staff, consultancies have installed sophisticated recruiting processes. The consulting market utilizes all of the most up-to-date employee procurement instruments. Along with assessment centers, emphasis is placed on personal interviews that offer deep insight into the candidate’s personality and communication skills. In the end, which personality fits which company determines who gets the job. Case studies are a further key component of recruiting. Virtually every well-known consultancy in Germany relies on this instrument. Cleverly though-out case studies with assignments for the candidate help in examining how well-developed essential skills are, such as healthy pragmatism and the capacity to structure new sets of challenges. At the same time, the ability to present the conclusions reached on short notice, and to argue in favor of them with clarity despite a tense situation, can be tested. Only applicants who demonstrate considerable strengths in implementation at this stage are suitable for a career in today’s result-oriented consulting business. One effect of the ever-greater demands on candidates is that the typical consultant is no longer a 25-year-old top graduate of an elite university, but rather a skilled expert with hands-on business experience. The consequences of the customer focus on implementation go beyond the recruiting policies of consulting firms. Their organizational structures are also continuously developing. The typical organizational pyramids of the past are increasingly tending toward a
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structure that places greater emphasis on the middle and upper management levels of consultancies. This results in a significantly narrower span of control than is typical in industry. It corresponds with many customers’ wishes for small, high-impact consulting teams of experienced professionals (Lechner et al. 2005, pp. 7–8). Targeted staffing of individual project teams according to customer needs represents an even greater challenge than effective recruiting and the development of appropriate organizational structures. Here, as in recruiting, consultants must possess numerous qualities that correspond to the customer’s demands. Not only should the consultant’s professional expertise match the problems to be solved, he/she must also be a good fit in terms of track record and human qualities. For example, the type of consultant required for an assignment with an old and well-established company is entirely different from the ideal type for a young start-up company. For this reason, profiles of future project team members are often presented during the pitch phase in the form of short profiles or CVs, affording customers an opportunity to influence staffing. The diverse demands and great flexibility expected by customers often lead to considerable difficulties for smaller consultancies. Due to customers’ increasingly short-term decisions on launching projects, consulting firms require an ever greater “planned idle capacity.” A staff pool of a certain size is necessary in order to react flexibly to new projects. Optimizing this planned idle capacity is a significant strategic challenge in the development of every consultancy, which can be overcome using various approaches. Through expansion, for example, an ideal size can be achieved to ensure that suitable specialists are available for all projects. While IT consultancies have realized this growth mainly via mergers in recent years, management consultancies have generally grown based on their own impetus. At the same time, consulting firms are working to further improve the staffing process by means of greater transparency of information. Project planning is increasingly supported by instruments that go beyond pure scheduling and in many cases include modules that document the experiences gathered by staff during a project and systematically make it available for the next round of staffing. A precise profile of each individual consultant is thus stored centrally for reference when selecting the ideal staff member for a given project. These profiles are also linked to details on planned deployment of the consultant in other projects, meaning that expertise and staff availability can be effectively coordinated. In this manner, consultancies try to precisely tailor their consulting teams in advance to match the customer and ensure the success of the project, and thus measurable value added.
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During the project For every consultancy, the key to accurate staff assessment is the evaluation of the individual consultant during a given project. This is where the staff member demonstrates his/her implementation expertise and capacity to generate value added for the customer. The project manager is responsible for the assessment. Even among large consulting firms, however, this evaluation still takes on many different forms and levels of emphasis. While in some cases a structured assessment interview is conducted systematically after each project, other companies hold open, loosely structured employee interviews every six months or even only once a year. However, in light of the changed overall situation and increased customer demands on consultants, this staff development instrument continues to gain importance. A clearly structured evaluation tool, which reveals development needs as well as opportunities, is essential to the ongoing improvement of consulting quality. Such an instrument helps in determining which development measures are appropriate for each individual employee. At the same time, it serves as a further component in generating expertise profiles, which in turn represent the basis for well-targeted staffing. Consultancies’ reactions to the changes in customer demands are also increasingly reflected in the evaluation criteria. The areas of expertise according to which a consulting firm judges its staff now go far beyond pure concept development skills. Attributes like capacity for teamwork, communication skills and an implementation-oriented mindset are becoming more and more important. Keywords such as entrepreneurship and pragmatism again underscore the customer’s wish for a consultant who can not only deliver a perfectly thought-out concept but also efficiently realize it, generating measurable value added. A further challenge alongside developing suitable evaluation tools is applying the full spectrum of knowledge the consultancy has to offer to the project. This is possible only with sophisticated knowledge management. Expertise developed for other projects should be effectively and individually utilized for the task at hand. Absolute discretion must of course be exercised: no information from other customers may be revealed, and all data must be rendered anonymous. By means of appropriate information technology tools, important knowledge can be made available to involved staff. Through tight company-internal social networks, consulting firms attempt to further encourage knowledge-sharing between colleagues. Group events and office days, on which work takes place not only on the customers’ premises but also in the offices of the consultants, contribute to closeknit and efficient networking. In addition to such internal networks, consultancies are intensifying the development of external links, such as contacts to universities and other research institutes, in order to
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draw on a broad base of knowledge and experience in addressing individual customer problems. Here again, the emphasis is on implementation: “How can I find and realize a solution to my customer’s problem as fast as possible?” All efforts to render in-house knowledge transparent and accessible place special demands on the consultant to safeguard the customer’s anonymity and leave the so-called Chinese Walls intact. The objective of knowledge management in consultancies is thus less to achieve transparency in company-internal facts and figures than to share and further generate business and process know-how. At the same time, every consulting firm must aim to develop methods and instruments as well as to implement standardized or transferable solutions and products, yet without losing sight of each customer’s individuality.
Subsequent to completion of the project Along with measures to support and evaluate consultants with regard to concrete problems within a project, subsequent staff development steps are also required. Individual development needs are generally determined in assessments during ongoing projects, which are compiled in their final form as a consolidated project evaluation after completion of several projects. Here, a consultant’s performance is gauged based on his/her entire project portfolio over a defined period. In this context, many consultancies explicitly judge the customer benefits delivered by the consultant, and/or to what extent his/her project work has focused on customer benefits. The consequence of the emphasis customers currently place on bottom line results can be summed up as follows: if you want to think with your customer’s mind, you have to make your own personal contribution to customer benefits fully transparent. The demands vary according to the seniority level of the respective consultant. The higher he/she is in the internal company hierarchy, the higher the demands on his/her customer-benefit focus. While a project manager generally has customer benefits in mind within an ongoing project, a partner in the firm carries greater responsibility. He/she must work to generate benefits for the client company in its entirety, with a perspective that extends far beyond the current project requirements. Further possible career options for the staff member are established based on the project evaluations. Here it is important that individual project assessments are calibrated according to the consultant’s peer group. A consultant’s performance as compared to that of his/her colleagues has a decisive influence on his/her next possible promotion. Mentor and coaching systems are useful in supporting this peer group comparison. These systems put experienced colleagues at the sides of young consultants to provide career coaching and guidance in personal development as well as to help consolidate their project evaluations.
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Evaluation of an employee in a consultancy – as in other businesses – during the various phases of a project is truly constructive only when the necessary instruments for further development are offered along with it. For this reason, larger consulting firms have begun introducing in-house staff development programs, employing internal and external trainers to expand consultants’ personalities and professional expertise independently of specific project demands. In addition to such training measures, which often focus on broad, interdisciplinary skills, workgroups and competency centers are maintained. Here, depending on the individual staff member’s interests and professional background, specialized expertise can be fine-tuned and trends in specific markets or sectors analyzed. Alongside professionally oriented training measures, current evaluation and staff development processes in the consulting sector focus strongly on entrepreneurship and an implementationoriented approach. Seminars aimed at developing project management and communication skills are thus increasingly common in consultancies. Summing up, new instruments are being created to help the consultant in efficient implementation of project work and to support the customer’s value added processes. At the same time, qualities like communication skills and pragmatism play a growing role throughout all phases of professional life: in hiring, staffing, project evaluation and promotion. Internal staff assessment in consulting firms reflects the market trend toward an approach to project work that is not limited to concept development, but also regards implementation as a key component of project management. How do consultancies evaluate their projects? Staffing with expert, qualified professionals is a suitable method of achieving differentiation in the consulting market. Beyond this, however, the marketing strategy must build on successful projects and the associated references. Consultancies should carefully document the respective value added achieved in individual projects, in order to use the data later – in anonymous form! – to canvass new clients. Here again, the special demands of maintaining the Chinese Walls must be met.
Ahead of the project In order to ensure the measurability of value added, preparations in advance of the project are necessary. Only by precisely defining the goals of a project can the degree to which they are achieved be gauged at a later date. Foggy target values render evaluation impossible. This also means that the customer and consultancy must agree on an assessment of the status quo and jointly establish the parameters for measuring the achievement of goals. A target definition like reducing the purchase price of materials costs by 10% is
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generally insufficient to serve as a “clean” basis for assessing goal achievement. A number of additional factors must be established: which materials groups are relevant, how the company defines materials costs, at what point the baseline measurement should take place and when the targeted savings are to be realized. Only if all of these parameters have been precisely defined is an accurate assessment during and after the project possible, to determine the actual value added generated. Consultants can make an important contribution in setting quantitative project goals. Many consultancies maintain benchmark databases, which play a decisive role in goal definition. Experience gathered in other comparable projects can be utilized, to set ambitious yet realistic goals for a current project. To a large extent, the further course of the project is determined at this early stage. For example, the motivation of project team members depends a great deal on the (objective) feasibility of the stated goals. Sights must be set high enough – yet not too high – to achieve optimum staff motivation for the project. Frequently, when problems arise in a company, desired project benefits are not initially defined as absolute values. In such situations, some consulting firms offer preliminary studies that examine the involved areas of the customer’s company in the form of short, pragmatic audits to quantify the relevant optimization control levers and possible project benefits. This usually leads to a win-win situation for the customer and consultancy. Both parties get to know one another and their possibly different respective approaches. It is essential to the success of the project that the consultant makes valid judgments on feasible improvements based on this brief but intensive look at the inner workings of the company. General – and somewhat unprofessional – statements like “We can always achieve 10%” can be prevented. The customer increases the reliability of his/her planning, in that he/she begins working toward improvements based on a transparent and understandable set of goals rather than an unpredictable project situation. Precisely set project goals and associated parameters are also useful as points of reference for controlling the project portfolio. Due to the increasing complexity of multi-project management in companies, the decision as to which projects to start, which to continue and which to cancel have to be reached in a structured process according to precisely defined decision thresholds (Gröger 2004, p. 14). A carefully prepared project approval concept can help advance the success of promising projects even before they begin, by equipping them with sufficient resources. At the same time, projects with less potential or higher risks can be cancelled before they get off the ground (see fig. 5). In the context of a targeted project selection, one of the greatest areas of potential improvement besides tighter project controlling is multi-project management.
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Ideas
Request Approval of project proposal
Project portfolio
Rough concept
Final concept
Implementation
Approval of project Audit of Approval of project development plan development plan realization
Transparency
Expression in concrete terms
Validation (benefits, resources etc.)
Realized projects
Fig. 5. Decision thresholds in launching projects
Clearly defined roles for all involved parties are also essential as a basis for further project work. The project goals can be achieved only when those responsible are endowed with the necessary authority. Especially when a consultant works closely with the customer within a team, role definition takes on great importance in the initial project phase (Rigall et al. 2005, p. 121). Which respective responsibilities the customer and consultant are to assume must be clarified. In addition, the project team’s level of authority to take action must be established. Rapid implementation is virtually impossible without the required executive powers – especially where critical issues are concerned. In many projects involving co-operation between consultants and customer staff, the division of responsibilities assigns the consultant a role as coach or sparring partner. The actual authority to take action automatically remains in the hands of the client’s staff. The situation is different in recovery projects, for instance, in which the consultant often assumes kind of interim manager role. In this type of project, it is possible for consultants to take on direct executive powers.
During the project Once the project goals have been clearly defined and established in advance, the first challenge at the beginning of a project is to break down these objectives into operational measures and steps. In doing so, it is highly important that the MECE principle is maintained (mutually exclusive, completely exhaustive). In other words, any duplication occurring in the measures is to be avoided and, at the same time, the problem must be addressed and solved in its entirety. A key basic prerequisite is the establishment of a structured action plan, in order to measure the degree of implementation and success achieved after completion of the project (Rigall et al. 2005, p. 123). Yet defining the measures to be carried out is only a first step toward a result-oriented implementation roadmap. The parties responsible for implementation must also be clearly
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established. Staff members with knowledge of the project and the required expertise must be named to carry out each step. To what extent such an action plan appoints a consultant or a member of the client’s staff depends on the given project situation and the role of the consultant as defined in advance. To complete a structured implementation roadmap, a clear timetable including realistic deadlines for starting and finishing each measure is required. The scheduling should not be so tightly planned that almost every step fails to meet its time targets. Otherwise, the purpose of tight implementation controlling would soon be defeated, as the responsible employees would become accustomed to missed deadlines. Nor should scheduling be too generously structured, since this could undermine the associated staff incentive. Such an action plan, consistently monitored throughout the implementation process, is the key instrument for project communication and controlling. The structure of the action plan also represents the basis for breaking down potential into individual steps. It is thus an essential instrument for gauging the value added generated, even in the course of an ongoing project. This requires some preparation in terms of detailed breakdowns and projections of the expected improvements to business results. As delays in completing work and failures in meeting set goals strongly influence the business success of a project, it is especially important that the action plan supports adherence to project and time targets. Consulting firms are equipped with extensive and multifaceted experience in establishing and maintaining action plans. A consultant’s standard toolkit includes not only know-how in developing implementation programs, but also knowledge of possible obstacles and achievable value added in projects. Experiences gathered in other companies and sectors provide consultants with the necessary knowledge of benchmarks to quickly assess possible potential for optimization. In this manner, the consultancy makes a decisive contribution to setting realistic yet ambitious goals for each individual implementation measure. Once such an action plan – including the steps, responsible parties, deadlines and quantifiable, itemized goals of a project – has been developed, the completion of the individual measures must be consistently monitored. An ongoing target/actual comparison ensures that planned measures can be carried out on time, obstacles identified at an early stage and potential realized. Numerous IT instruments are now available to support implementation controlling, automate reporting and escalation processes and guarantee the necessary transparency regarding a project’s implementation status.
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Along with a structured implementation roadmap, achieving project objectives also demands a conscientious operational project management organization that reports to a group of highly qualified experts – e.g. a steering committee. This committee must have the capacity to reach key decisions for the project and to quickly and efficiently dismantle obstacles that may arise (Rigall et al. 2005, p. 79). In addition, effective implementation controlling requires transparent hierarchical reporting processes. Reporting must begin with employees responsible for individual implementation steps and continue from that level on up through the project hierarchy to the steering committee. Problems or obstacles to implementation, depending on the level of difficulty they present, are resolved by one of the higher project management levels. The larger the problem, the higher the decision-making level. Committees, processes and instruments applied must be known and accepted, in order to ensure sufficient commitment to reporting. Such structures guarantee the necessary transparency on all projects, including the current implementation status of each one. Especially in the context of the growing significance of project management, many companies are expanding and remodeling their structures to handle several projects simultaneously (multi-project management). The study carried out by Droege & Comp. on implementation management shows that 40% of companies have now established a central coordination hub for projects. Moreover, it indicates that in companies with such “project offices,” considerably greater transparency exists on project portfolios as well as on the current implementation stages of the projects (see fig. 6). Transparency of the project portfolio
52% 46% 39%
37%
15%
Low
Medium
High
Without project office
ut witho 59% t office c proje
11%
Low
Medium
High
With project office
Fig. 6. Transparency on the project portfolio with and without a project office
with 41% office t c proje
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Subsequent to completion of the project Provided the goals have been clearly defined in advance of the project and its implementation consistently controlled while ongoing, the level of goal achievement can be accurately assessed and summarized after the project is completed. As described above, the objectives can be of qualitative or quantitative nature, depending on the goals defined. In the case of quantitative target values, the level of goal achievement can be simply evaluated by means of an objective key data comparison. Evaluation is disproportionately more difficult when qualitative goals as judged by the customer are involved. Especially in the case of quantitative objectives, when financial details and other key data or a precisely defined target status – which can be assessed by a qualified third party as achieved or not achieved – are available, consultancies increasingly offer their customers success-oriented fee structures (Lünendonk and Hossenfelder 2005, pp. 207-214). Rather than set hourly, daily or monthly consulting charges, fee structures are arranged to reflect the degree to which project goals are achieved. This trend toward success-oriented components in fee schedules was also observed in the study conducted by Lechner et al. In general, success-oriented fee structures can be divided into two different categories. In one variant, fees are due according to the achievement of established target results. Alternatively, remuneration can be calculated as a percentage of the project’s business success. The type of project determines which model is most suitable. As long as unambiguous goals have been defined, success-oriented fee structures represent a win-win situation for both customer and consulting firm. By offering variability in their fee schedules, consultancies demonstrate a clear commitment to the success of the project for the customer: the consulting firm shares the risks with the client, and boosts the level of team spirit between the customer and the consultants involved in the project. Such a fee system is also a source of additional motivation for the consultancy, as it is placed in a more strongly entrepreneurial role. Every decision directly affects the business success of the customer and the consulting firm. The customer has the decisive advantage of incurring costs only if the project succeeds. In addition or as an alternative to success-oriented fee structures, some consultancies offer review meetings subsequent to completion of a project. These can include a structured interview with the customer conducted by managers of the consultancy, in which the project work is closely examined (Lünendonk and Hossenfelder 2005, pp. 215-216). Such an interview is intended to determine the level of customer satisfaction with the project as a whole, as well as to gain insight into the performance of individual consultants. By ad-
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dressing these two aspects in review meetings, the consultancy is able to further optimize its customer-orientation. Topics for a structured interview: − Overview of the project structure − Review of the project goals − Quantitative report on the degree of goal achievement for each project segment, if appropriate − Qualitative report on the degree of goal achievement for each project segment − Reasons behind problems and obstacles (project management success factors) − Overall score on project results (customer satisfaction) − Performance of individual consultants The results of this review meeting provide more than a basis for further improving the quality of the consultancy’s co-operation with its customer. In fact, reexamining the project offers considerable benefits for both parties. With relatively little effort, the consultancy gains insight into success factors and critical points in its work with its customers. At the same time, the interviews offer an external quality assessment of their own consultants. And such meetings also present an opportunity to maintain good customer relations. The consulting firm is by no means alone in profiting from review meetings: the customer is afforded the chance to address weak points in the work and thus to help clearly define the basis for co-operation with the consultancy in future projects. A review meeting also helps the client company look at the success (or failure) of a project in retrospect. It can conduct its own analysis of strengths and weaknesses, and use it as a source of knowledge for future projects. How do consultancies react to client evaluations? The assessment of the tangible results of consulting – the return on consulting – by customers has led to considerable rethinking in the consulting sector. Although consultants initially observed the development rather skeptically, the consultancies’ interest in systematically evaluating their project successes has risen along with the customers’ increasing focus on value added generated by consulting. A consultancy that succeeds in positioning itself as a strong provider of value added has a significant advantage over its competitors. For this reason, consulting firms develop concepts to achieve transparency regarding the implementation success of a project. In this context, the joint definition of goals and division of responsibilities with the customer play a decisive role. This supports the project as
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a whole by supplying a clear concept of the target results, while also strengthening communication and the quality of co-operation between customers and consultants. Open dialogue allows the consultancy to ideally meet customer demands and generate value added in all project phases as well as to render the results transparent for the client. The customers and the consultants themselves have recognized the growing importance of a transparent, measurable assessment of benefits in project management. Both sides are taking steps aimed at further optimizing the processes and instruments employed in client-consultant co-operation. In this area, numerous initiatives can be expected in coming years. Especially in terms of tools for systematic project evaluation, the development process is far from completed. The challenge of advancing and implementing these new solutions presents consultancies with excellent opportunities to differentiate and position themselves in the market. References Gröger, M. (2004), “Projekte – Wertgewinner oder Wertvernichter?”, projektMANAGEMENT aktuell, vol. 15, no. 4, pp. 12–14. Höselbarth, F. and Lay, R. (2005), Höselbarth-Lay-Index 2005, www.hoeselbarth-lay-index. com, visited 13.09.2005. Klenter, G. and Möllgaard, N. (2005), Umsetzungsmanagement von Projekten 2004/2005, Droege & Comp. GmbH, Düsseldorf. Lechner, Chr.; Gesing, N. B.; Kreutzer, M. and Müller-Stewens, G.: (2005), “Berater unter Druck”, Harvard Businessmanager, August 2005, pp. 6–8. Lünendonk, T. and Hossenfelder, J. (2005), Lünendonk®-Studie 2005: Kriterien für den Einkauf von strategischer Management-Beratung in Deutschland; Bedarfsermittlung – Marktinformationen – Auswahlkriterien – Prozesse – Verantwortlichkeiten, Lünendonk GmbH, Bad Wörishofen. Rigall, J. et al. (2005), Change Management für Konzerne – Komplexe Unternehmensstrukturen erfolgreich verändern, Campus Verlag, Frankfurt, New York.
Evaluation of Consulting Projects – The Consultants’ View Matin Ebrahimchel, Michael Mohe, Richie Sternzeld
Introduction The consulting sector has come under increased criticism in recent years (e.g. Byrne 2002, Clark and Fincham 2002, Craig 2005, Micklethwait and Wooldridge 1996, O’Shea and Madigan 1997, Steppan 2003). This criticism can be summarized as follows (Erhardt and Nippa 2005, p. 1): “The performance of management consultants has recently come under criticism as a result of exploding consulting fees, rising skepticism towards the concepts and recommendations delivered, and embroilment in the increasing occurrence of corporate scandals.” A considerable amount of this criticism stems from the media. Having once “hailed” consultants as “prophets of efficiency” (Kurbjuweit 1996), the press’ current critical reporting has put tremendous pressure on the entire consulting industry. Numerous “consulting flops”, such as those at Enron, Swiss or the German military, have been disclosed. In academic circles, inquiries into the amount and usefulness of consulting projects are on the rise (e.g. Clark and Fincham 2002, Kieser 1998, Schaffer 1998, Wright and Kitay 2002). Moreover, lots of popular scientific publications written during the last few years show that the consulting sector is coming under increased pressure from the public sector, e.g. those with lurid titles such as the following: − “Consulting Demons: Inside the Unscrupulous World of Global Corporate Consulting” (Pinault 2001) − “Rip-off!: The Scandalous Inside Story of the Management Consulting Money Machine” (Craig 2005) − “House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time” (Kihn 2006) Against this background, it is hardly surprising that consultants, clients and academics are increasingly reflecting on the way in which consulting services are measured and evaluated. So far, there are not, however, many scientific, empirical studies in this regard. Indeed, the discussion has mainly taken place on a conceptual level – a fact about which Wright and Kitay (2002) have already complained. A complex empirical study of evaluation practices, from the perspective of both the consultant and the client, was presented by Ernst (2002, see also Ernst and Kieser 2002,
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Ernst and Kieser 2003, Ernst and Kieser 2004). However, the results of this study date back several years. In the intervening period many changes have taken place in the consulting sector. Some major clients’ companies have, for example, begun to professionalize their relationship with consulting services (Höner and Mohe 2006, Mohe 2005, Mohe et al. 2006, Werr and Pemer 2005). This, in turn, puts additional pressure on consultants, who must justify high fees by demonstrating the corresponding performances and the effectiveness thereof. Therefore, one may suspect that the evaluation practice on the side of the consultants has changed during the last years, too. Against this background, the article aims to gain empirical insight into the way in which consulting performances are currently evaluated in practice. In order to gather information, we interviewed six consultants from major and medium-sized consulting firms. The consultants were asked how they perceive a) their own evaluation systems within their consulting firm, b) the clients’ evaluation systems, and c) the relevant (restricting and/or promoting) social and political conditions for a project evaluation. In addition, the consultants were asked for alternative or “ideal conceptions and/or ideas” about project evaluation, as well as their limitations. The structure of this paper is as follows: Initially, in the following chapter we will explore the different approaches to evaluating consulting services. Then, we will introduce the methodological basis of our research. Subsequently, we will present the most important major results from our survey. These will then be compared with findings from earlier studies and discussed. Finally, a summary and perspectives for further research requirements will be given. Approaches to evaluating Consulting Services Literature relating to the topic “Evaluation of Consulting Services” may be divided into three sections. The first two sections are predominantly positivist or functionalist in nature. They are interested in developing evaluation methods (e.g. Phillips 2001) or in identifying critical success factors for consultancy (e.g. Appelbaum 2004). The third section, on the other hand, offers a more critical enquiry into the topic of evaluation (Clark 1995, Ernst 2002, Ernst and Kieser 2004, Jackall 1988, Mohe 2003, Starbuck 1992). Here, for instance, the emphasis lies on the different perceptions of consulting projects, the difficulties in evaluating them and the strategies for influencing evaluations, for example, the impression-management-strategies pursued by the consultants (Berglund and Werr 2000, Clark 1995, Clark and Salaman 1996, Werr and Styhre 2002).
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The most complex empirical research relating to the topic of evaluation to date was undertaken by Ernst (2002). Ernst critically inspects the evaluation of consulting services and summarizes her findings concerning the importance of formal evaluations as follows (Ernst 2002, p. 83f.): − for the clients, a formal post-project evaluation only plays a minor role (concerning the subjective assessments of managers with regard to consulting services, see also the findings of Redman and Allen 1993) − one reason for this, amongst others, is the considerable effort required to produce such evaluations, but on the other hand, the problem that consultants fulfill unofficial functions which cannot be evaluated, plays a role, too (e.g. the legitimization of already made management decisions by the consultants) − the evaluation of consulting performances is made on the basis of a communication process on which the consultants try to exert as much influence as possible (on this also see Clark 1995) − consultants chiefly use evaluations for the purpose of both the reduction of the intangibility of the performance and the acquisition of new projects. In fact, it is not easy to evaluate consulting performance. For example, the intangibility of the service leads to difficulties in clearly and precisely assessing its quality even after a project has been completed. The fact that this service requires much interaction between consultant and client also means that the outcome largely depends on the client (Ernst 2002, Mitchell 1994, Mohe 2005). The respective contribution to the result of the project cannot be explicitly allocated to one or the other party. Further problems mentioned in literature concern the quality of consultants’ recommendations which can only be assessed some time later (Mitchell 1994) or the differences in know-how leading to the client lacking competency in correctly assessing the performance of the consultants at all (Starbuck 1992). Mitchell (1994, p. 334) also takes into account that, in some cases, it might be absolutely impossible to determine the “correctness” of a consultant’s solution: “Post-purchase evaluation for professional services is also more difficult because it may be impossible to determine whether or not the problem was solved correctly, not because of lack of skill, but because there is rarely a correct or incorrect solution. Even if another expert were employed to evaluate the consultant, who is to say that his evaluation is correct?” But despite all these familiar difficulties, it seems that the desire to make consultant projects measurable does not decline (Erhard and Nippa 2005).
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Methodology Due to the explorative, open nature of our research questions, we used a qualitative research design (i.e. specific in-depth interviews with a target-group) to obtain a deeper insight of how, when and why consultants evaluate their own projects, and how they perceive the corresponding attempts by the client. Our data collection was via a semi-structured interview constructed around key domains linked to the literary evaluation of consulting projects, in particular the consultants were asked about: 1. their perception of the actual clients’ vs. consultants’ evaluation systematic and their handling in recently finished projects, 2. their perception of the relevant (restricting and/or assisting) social and political conditions for a project evaluation in the company, 3. the uncovering of alternative or “ideal conceptions and/or ideas” about project evaluation as well as their limitations As we wanted to include as many different consultants’ views as possible, we looked for interview partners from the well-known management consulting firms (e.g. McKinsey & Company, The Boston Consulting Group, Bain & Company, A.T. Kearney, and Roland Berger), as well as for interviewees from less well-known and medium-sized consulting companies offering IT consulting services and IT implementation, or consulting services in the area of corporate HR activities. It was however, interesting to note that while searching for interview partners most consulting firms were “officially” not willing to participate in our study and refused to share their methods for evaluating projects. In the end, our six interviewees all came from the authors’ circle of acquaintances. They agreed to participate under the condition of anonymity. The final panel of the interview partners – called IP henceforth – was as follows: − IP 1, 42 years old, from a medium-sized IT consulting company, project manager, fifteen years experience within his current company. − IP 2, 32 years old, from a large IT consulting company, project manager, five years experience with his company. − IP 3, 34 years old, from a medium-sized IT consulting company (different from IP 1’s company), business analyst, who has been working for his current company for one year. − IP 4, 35 years old, from a medium-sized HR consulting company, partner, eight years experience with his present company.
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− IP 5, 27 years old, from a large top management strategy and change management consulting company, business analyst, one year’s experience in current position. − IP 6, 32 years old, from a large top management strategy consulting company, junior project manager, with five year’s experience. Two of six interviews were conducted by telephone, the other four face-to-face. The interviews lasted between 35 and 90 minutes. All interviews were recorded on tape and subsequently transcribed. In order to analyze the data we applied the qualitative content analysis as developed by Mayring (1997). With the summarizing qualitative content analysis extensive raw data material is shortened systematically on substantial contents. Hereby, content-related arguments are ranked before procedure arguments, i.e. validity is preferred to reliability. Further, we chose a deductive category structure for the main categories based on the main research questions mentioned above. Then, we derived the subcategories within each main category, i.e. depending on what the respective interview partners considered to be important and relevant, a sub-category was allocated that topic and compared with other statements from the interviewees. Findings
Perceptions of consultants’ evaluation systems Five out of six of our interview partners stated that they systematically evaluate performance. Only IP 4 stated that there was no noteworthy project evaluation system in place in his company. The other consultancies mainly make systematic summary evaluations at the end of each project rather than formative ones (see the overview in table 1).1 However, the evaluation systems differ greatly in quality and depth. IP 1’s company uses a so-called “Customer Satisfaction Index”, consisting of four to ten “relatively abstract” (IP 1) questions. Here, the client is asked to a) asses whether each criterion was important and b) comment on its evaluation. In IP 2’s case, the projects are evaluated on the basis of a standardized questionnaire which investigates the following criteria: customer satisfaction, expectation and performance, expert knowledge, communication and social competency. These are collected via a telephone interview after each project.
1
Scriven (1972) differentiates these two evaluation forms as follows: formative evaluation is the formative and process accompanying evaluation, in which intermediate performance measurements or evaluations are already made during the ongoing operation, in the first place aiming to optimize the operation. On the other hand, the summative evaluation determines and ultimatively rates the overall findings at the end, in most cases aiming to come to a decision whether the operation shall be terminated or continued.
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Table 1. Overview of the interviewed consultants’ evaluation systems
IP 1
Systematically at project termination
2
3
Timing of evaluation Systematically at project end Systematically at project termination
4 5
Non-systematically at the end of the project Systematically once around half way through the project, once at project end, subsequently again 6 months after the project
6
Periodically and systematically (every fortnight) during the project, at the end of the project and projectspanning on a higher level every two years regularly.
Evaluation criteria
Evaluation mode
(Consultant’s) Project leader and client’s principal from the management circle
Persons involved
Not specified in interview
Standardized questionnaire, quantitative Standardized questionnaire, followed up by a telephone interview
Standardized questionnaire, quantitative (except for free text elements)
Team-external partner (“Quality Officer”), client’s project leader and principal
Client, consultant’s “Key Accountant” and sometimes the consultant himself Client’s project leader and consultant’s project leader
“Team Barometer” standardized, web-based questionnaire Project End: Interview and questionnaire based on “impact reviews” written by the consultant 2-year-review: Conversation and discussion
“Team Barometer”: between all participants of the client’s team and those of the consultant’s team Project End: team-external consultant partner with the client’s principal and the respective project leaders 2-year-review: between the client’s CEO and the consultant’s Senior Executive
Non-standardized
Standardized questionnaire, partly with qualitative elements
4 to 10 questions on an abstract level to be ticked off, concerning client satisfaction, the client’s assessment of relevance and importance of the dimensions. − Client satisfaction − Expectation and performance − Expert knowledge − Communication − Social competency “Feedback papers” for the rating of the project results and concerning the behavior of the consultant (not closer specified) No project-spanning, systematically evaluated criteria, but only the initially defined “Key Performance Indicators” and deliverables plus basic rating concerning quality, quantity and time (without sub-criteria) among others: − Over-all satisfaction − Methodological competency − Personal competency − Knowledge, methods, skills, expertise of each team member − Co-operation of the team with the organization − Communication and concretion plan − The wish to work together with the consultancy again − Readiness to reference − Improvement suggestions and proposals for further proceeding (free text) During the project (“Team Barometer”) and at the end of the project. − Competency − Process − Communication − Professionalism − Financial impact − Motivation − Implementation readiness − Distinctive content (different weighting in each case, dependent on the kind of the project; weighting is determined beforehand between principal and ”Client Relation Owner”)
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The most sophisticated evaluation system is that of IP 6. It includes summative and formative components and consists of three levels. On the first level, i.e. the project level, eight criteria are evaluated and weighted according to the type of project. Each criterion is, in turn, divided into sub-criteria. The weighting is determined between the client and the consultant heading the project. This allows, for example, for different criteria being more important in cost reduction projects than in organizational change projects. The eight criteria are evaluated from both the client’s team and the consultant’s team by a web-based survey every fortnight. Subsequently, the results are reflected to both parties directly, which equates an early warning system of how the progress of the project is perceived. On the second level a so-called impact review is made at the end of the project, namely between the sponsor of the project (i.e. the party paying for it all), a neutral person from the consultancy who has not been involved in the project and the respective project leaders from both parties. In this connection, a target-performance comparison is made, “target” versus “impact”. In order to be promoted, the consultant’s project leaders, and partly also the consultants, regularly have to prepare written impact reviews, which are used as a basis for conversations between the neutral party and the client. Due to this regulation the consulting companies obtain under estimation of IP 6 information, which are obviously not being discussed between the project team and the client during the direct feedback, especially if they effect personnel changes on the project. The third and final level consists of a structured dialogue between the client’s senior executive and the consultancy’s senior executive that takes place every two years and where they discuss the impact of the most recent projects, how the consulting firm views the client, to what extent the client was “shaped” (IP 6) by them and vice versa, what the client’s view is and what the consulting firm can improve. All consulting firms use evaluations and their results to influence the personal rating of the respective consultant at least. But in terms of the consequences of this personal rating and the consequences concerning follow-up projects, the assessments of the consultants differ. Especially, if the rating of the client is critical, the respective consultant and the project will be subject to a high management attention on the part of the consultancy. In these cases, top management consultancies react most quickly and the most “merciless”: “This may lead to drastic measures. That the team is re-organized ... or that the direction the team is heading for is changed, or that it is re-structured, or that other experts join it. So, for example, a meeting takes a bad course, somebody says ‘what you’re doing there is rubbish, you haven’t got an expert in
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there’. In this case, if you are the assumed expert, you will be called one day later, and you will be taken on the team. That happens.” (IP 6)
Perceptions of the client’s systems of evaluation Initially, advances are noticed in the area of the purchase process by the client. Here, an increasing professionalization is noticed, above all in major enterprises within the last twelve months. Even if our interviewed consultants were frequently unable to specify exactly which criteria the clients use when purchasing, they at least all noticed during the ‘beauty contest’ that the clients do have a list of criteria. “So, meanwhile, at the beauty contest, a complete auditorium is sitting in front of you, and they all have … a more or less structured option list with criteria. … These have only come to our attention by error. They attached it [the list] by mistake to the bottom of an e-mail. ... There were relatively trivial and subjective criteria such as ‘first impression’, ‘personal standing’, ‘is the consultant likely to fit with the internal members of the project team’ and of course, some hard, fact-based criteria: price, experience of similar projects, clarity of proceeding structure. All criteria will then be discussed down to the last detail with them.” (IP 4) Nevertheless, two consultants (IP 4 and 6) explained that the ‘beauty contest’ or the initial call for bids often serve as the official legitimization for the decision to hire a certain consultant, even if it has already been unofficially determined who is going to get the project. However, the ultimate decision within the company often lies with the business unit which will pay for the consulting services, and which has the right to veto the decision of the central purchasing department. The systematic selection processes as described above do not correspond with the final project evaluations. Here, our interviewees recognized insufficient procedures on the clients’ side. However, there are some exceptions. IP 4 describes a client, a major bank, which conducts a detailed standard selection process, but also makes a detailed project evaluation after each project, and then centrally stores the results and enters them in an internal ranking system. It depends on this ranking whether the consultant will be hired again for further projects (or maybe belongs to the top 10 of the preferred consultants) and even which maximum day rate of the consultant is allowed. However, this more sophisticated, systematic evaluation is, in the consultants’ eyes, in no way the general rule among the clients.
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Perceptions of relevant (restricting and/or assisting) social and political conditions for an internal project evaluation The factor which mostly influences the development and use of evaluation systems in clients’ companies, according to our interviewees, is the pressure to reduce consulting costs. For this, some clients’ companies have centralized the purchase of consulting services. “… that you make cost saving efforts, and finally, that’s, what it’s all about. The aim [of the client] was, as far as I noticed, the optimization of purchase performances, the optimization of purchase processes, i.e. to bundle, thus using scale effects and being able to purchase services at a lower cost.” (IP 4) Furthermore, three out of six consultants (IP 4, 5, and 6) cited the professionalization of the consulting industry, the increasing maturity of the sector and the associated challenge for clients to learn how to evaluate consultants and their performances more efficiently. Also the increased public attention, which results in a more sensible conduct with consulting services and consultant budgets, was noticed to have an effect on evaluation procedures. Basically, all consultants are aware of the general difficulties inherent in evaluating their services. One main problem is how to measure performance against certain criteria. For example, it is not always possible to measure how closely the end product matches the initial project brief. Especially in strategic projects it often turns out only after a few years if the recommended strategy was useful and “right”. A further factor to be taken into consideration is that goals agreed on at the beginning of the project may change over the course of time, especially if the project period is long. The original project goal becomes a “moving target” as the initial goals do not necessarily correspond with what is identified as being important and relevant in the middle or at the end of the project. This was the experience of both IT-consultants and top management consultants. “But then something happens over the year that changes the basis of the planning. … If you make an offer for a one-year-period, you can only be wrong.” (IP 3) “In most cases, the actual consulting object is vital. This means, at the beginning something is said, but in the middle of the project you recognize that there are actually five or six other things that have to be done additionally.” (IP 6)
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Furthermore, the effort perceived to be required to make an evaluation may discourage managers. IP 5 highlighted the following as possible obstacles to the introduction of a detailed evaluation system in his client’s firm: “Of course, an even stronger commitment to the project is required, if I have very detailed criteria. When I only have very rough criteria, I may only have a record of my own thoughts, but not of the success of the project. If I do have some very detailed criteria, I possibly have to invest a lot of work. ... [It is] clearly dependent on the significance of the project. This means that it might not be reasonable to completely tie up a resource – for example, my employees – for three months when my project costs 30,000 euros. If it costs 400,000 euros, then I will.” (IP 5) Besides this, the consultants noticed that the result of a project never depends solely on the influence of the consultant, but also relies on the input of the client’s staff. “It depends on the customer, on the relationship between customer and consultant and on the situation the customer is in; for example, if the client has to survive any kind of power struggles or if he is able to work in a normal way. A project always has a certain context. ... Even if a consultant has delivered work of the highest standard, the project may nevertheless be a flop, even though the consultant cannot be held responsible. In this respect, it is very difficult to evaluate where the responsibility lies.” (IP 1) In addition to the possible reasons why – in comparison with the consultancies – many clients still have rather insufficient consultant evaluation systems, the consultants draw on social and political conditions within the clients’ companies. This may also be the reason why clients might have no definite interest in a systematic evaluation. For example, when it turns out that an expensive project has not produced any benefit, this may lead to unpleasant consequences for the managers. “Nobody who signed one of our invoices wants to know that a project that costs two million euros had no impact. Absolutely nobody wants to know that. ... Nobody wants to acknowledge that he has lost in some way, because he has a problem if he puts ten percent of his annual budget into a consulting service that produces no impact. … When I purchase something and it turns out badly, I have to justify myself.” (IP 6) The attempts of an IT-consultancy to gather documented statistics about a project’s effectiveness also leads to resistance from the affected clients’ departments. “We record the profit and costs involved in our projects. However, we do not always make many friends by doing this. … It leads to difficulties in so far as
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the calculations are not very popular within the clients’ firm. However, I try to document it myself in this way, but it is not very popular.” (IP 3) IP 6 also hints at the existence of rather unofficial consulting functions that circumvent the evaluation practice: “Just the fact that we are present, engage in a concrete topic and push something forward, is in most cases already a great help for them [the clients]. Because of our fees, we are not called upon for irrelevant projects.... And, of course, purchasing a brand name means purchasing certain validity. Clearly our consultants are also aware of this.” (IP 6) In the consultants’ eyes, several clients seem to be comfortable with specific projects assuming priority due to their presence on the project, which in turn attracts internal attention. IP 5 sees the role of the consultants in ensuring the pressure required for changes within the company is exerted. “We also maintain high pressure on achieving the initial goals. These goals are fulfilled through the procedures we identify. … However, if you do not maintain the pressure, the targets you set out can easily slip away.” (IP 5) According to the consultants both single quantitatively measurable factors (e.g. saved costs or grade of cost reduction) and also qualitative “mood” factors are important when it comes to evaluation. These factors are neither explicitly communicated nor mentioned in contracts, but materialize during the course of the project and are definitely crucial for the execution of the consultants’ proposals. IP 5 experienced this within a project, which had the final goal of reducing costs: “Even after having reached our project goal, we are also evaluated against the mood of the staff. We were confronted with open resentment from members of staff and had to bear the consequences in the meetings. Without the cooperativeness of the staff a project might still not be measured as a success, even if we saved two million euros.” (IP 5)
Alternative proposals for project evaluation and their limitations In response to providing possibilities for improving the clients’ evaluation systems, our interview partners mainly considered improvements within the purchase and pre-purchase phase. In particular, the consultants recommend a more critical self-assessment of the motivation for the project, the selection of the consultants or whether a consultant is actually needed.
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“You could just choose the service specifically or you could also really question the necessity for a consultant at all. For me, this is where the greatest potential for improvement and savings lies.” (IP 3) “At first, I would think twice about placing consultants in certain projects. Because, when I watch what the consultants are actually doing, I notice that they are always doing the same things in many respects. This surely has an impact, but I would ask myself, if a consultant is doing the same thing over a period of 10 years, why does my own organization not manage this work on its own and why should I pay a consultant for 10 years?” (IP 6) Furthermore, the clients should monitor the staffing of the consultancy’s team and intervene if they believe a project is over-staffed. In this context, IP 6 makes an interesting suggestion. He recommends that clients should favor experienced consultants from smaller and less well-known consulting firms instead of a top management consultancy, which often deploys graduates from university (“rookies”): “I would rather take a team from a smaller consultancy which employees have seven or eight years of experience each, than consultants from a first-class consultancy who will all be rookies. I would send them back immediately, send them home straight away. Meanwhile, some clients have realized that the levels of the consultants play a crucial role. … Experience on CV’s of similar projects is seen as a priority.” (IP 6) Regarding the suggestion of a performance-related fee structure (contingency fees), no homogenous picture resulted from our interviewees’ answers. They identify, in particular, the risks of “short-term orientation”, as well as the more general difficulty of setting targets which can be easily measured and attributed to a single consultant or consulting team. However, in IP 5’s opinion, some specific components can be isolated from the project as a whole. In these cases, contingency fees offer a realistic alternative. “I would definitely consider a contingency fee … at least, for parts of a project, because within a big project there are also parts that can be cut out and made success-based. ... From my own experience, I would say that there are opportunities to make contracts more performance-orientated. ... This restricts consultants’ room for maneuver, but also provides a greater guarantee for success.” (IP 5) IP 6 recommends a tandem based team structure, paring external consultants with internal employees. This would allow the client’s employees to learn more from the consultants and, in the long run, potentially facilitate a shift from external to in-house consulting. “I would place my own internal consultants next to them [the external consultants] and then I would say, if the consultant goes to the toilet, my own con-
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sultant will follow him. I would copy their best practices and services. And then I would set up an internal consultancy which would function independently within my company and produces a similar impact.” (IP 6) Almost all consultants who made proposals regarding possible criteria for evaluation highlight the importance of using both “soft” and “hard” criteria (for example, priceperformance ratio). “From my point of view, one criterion must be mood. By that I mean, ‘was he [the consultant] well-liked and, if so, to what extent? Did he make a good impression? Did he deal flexibly with the internal decision makers?’” (IP 4) “As a matter of fact, there are criteria that simply are subject to personal evaluation. They depend on the members of a particular project team, but do not make a project incomparable. Certain aspects of a project simply exist – like the satisfaction of the project members and client’s employees.” (IP 5) Discussion Our findings described above confirm diverse prior research findings. Our interview partners’ perception that clients never or rarely evaluate consultancy projects has already been observed elsewhere (Erhardt and Nippa 2005, Ernst 2002, Kieser 1998). The potential reasons for this, as outlined by our interviewees, also correspond with existing research results. Mitchell (1994) and Ernst (2002), for example, have already pointed out the difficulty in separating the importance of a consultant’s individual performance from the contribution of the client-consultant relationship to the success of a project. Our interview partners highlighted other problems of evaluating performance, which have previously been examined by Ernst and Kieser (2003) and Mitchell (1994) amongst others. These included the question of the long-term effects of consulting services, the influence of external factors on a consulting project and its result, as well as the differences in knowledge and skills between clients and consultants. Similarly, the subjectivity of assessment criteria, for example “client satisfaction”, has also been previously criticized (Ernst 2002, Mohe 2003, for more general information concerning the problems of subjectivity see McMullan et al. 2001). Other aspects also echo earlier research. Ernst (2002) identified the way in which resource-related problems can restrict the client’s ability to carry out a systematic evaluation. She also observed the potentially negative consequences that a disappointing systematic post-project evaluation may have for the client. The role of unofficial consulting functions must also be emphasized here as these represent a reason for insufficient evaluations.
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“In order to explain why an evaluation was of little practical relevance, the interviewees named the difficulties of undertaking an evaluation and estimated that the effort involved was disproportionate. But one of these difficulties is also the fact that consultants fulfill functions that cannot be officially communicated and, as a result, may not be evaluated.” (Ernst 2002, p. 83) Consequently, if the consultant’s official function takes a back seat in certain projects and instead the unofficial functions fulfill the original goals of the project, then there is understandably little interest in a systematic evaluation. To sum up, many of the points that were illustrated by our interview partners confirm hitherto prior research results. Nevertheless, several new findings have also come to light. For example the fact that more complex evaluation systems within the consultancies do only exist for a relatively short time (since the middle or the end of the last year), illustrates that evaluation is of increasing importance for consultancies. Against this background, one could assume that the consultancies are looking for better ways to assess clients’ expectations and satisfy their requirements. However, Ernst (2002, p. 80) sees another (and in her opinion more likely) additional aspect playing a role here: “For the consultants feedback surveys serve as an insurance policy. As evaluations of consultant services involve much uncertainty and ambiguity, the danger exists that an assessment that was once ‘positive’ may become ‘negative’ in the future due to a change of emphasis or assessment criteria. In such cases, if a consulting firm does not have written evidence, it is unable to prove the quality of the service that it has rendered thus far. Vice versa, it is nearly impossible for the client to distance himself from an evaluation which he has given in documented form, as he would have to contradict himself.” Correspondingly with this, IP 6’s evaluation approach, which seeks to establish an agreement between the client and the consultant to the assessment criteria and their respective weighting, could be seen as the attempt to influence the “construction process through the whole project” (Ernst 2002, p. 81) by − influencing the client to adapt the consultant’s evaluation criteria, − being informed about possible changes in the client’s assessment at an early stage as a result of the small time intervals between evaluations and thus being able to react accordingly, − increasing the chance to be evaluated positively, and using this positive assessment to acquire follow-up projects (or even for the acquisition of new clients). But this may also be viewed from another perspective. For example, in order to give consideration to the great variety of different consulting projects, Erhardt and Nippa (2005)
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suggest several contingency factors. Therefore, an evaluation should not be made following the “one size fits it all” principle or by using a universal catalogue of assessment criteria for all kinds of consulting projects: “The degree of uncertainty, ambiguity, and quantification inherent in different consulting tasks has a major impact on the evaluation process. Therefore, one should prove very cautiously as to whether the proposed evaluation criteria can be adjusted or applied to all forms of management consulting.” (Erhardt and Nippa 2005, p. 4) A choice of weighted criteria from a manageable “overall pool”, as this is utilized by IP 6’s consultancy, could be seen as the attempt to give consideration to the specific requirements and characteristics of a project. Whether this may lead to a more valid evaluation than using, for example, a fixed, standardized list of criteria could not yet be assessed by IP 6 due to the newness of the system. Furthermore, the interviewed consultants perceived important enhancements on the clients’ side. In particular, purchasing practices have changed in the last twelve months. This reflects the findings of Werr and Pemer (2005, p. B5), who observed a “sharp break with current practices of purchasing management consultants”, which increasingly pressurizes the consultants. In fact, the efforts of clients to evaluate consulting projects and to make the results centrally available, as well as the direct impact on follow-up projects and consulting fees, have had a great impact on consultants, “… which, in turn, leads to the consultant, who knows what the clients want to achieve, thinking in much more detail about questions like: will he be able to provide a top quality service? Or is it a rather a pick-up business where he runs the risk of maybe providing a poor service and consequently sliding down in the total rankings.” (IP 4) Nevertheless, the interviewed consultants gave several constructive suggestions how the evaluation of consulting services could be improved from the clients’ point of view: For example, the clients should ask themselves whether external consultants are necessary, pay closer attention to the staffing of the consulting team and the nature of the contract, consider how to “skim” and copy the consultants’ knowledge and think about creating an internal consulting team. As a result, according to the consultants, clients could optimize the employment and the management of consultants in several respects. It seems, however, that client firms obviously lack will and motivation required to undertake more complex and more systematic evaluations. In fact, from the consultants’ point of view, the methods of evaluation used by clients until now seem to be mainly extrinsically motivated (e.g. by cost saving or as a
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result of pressure from the public or the shareholders). As long as this is the case, one may assume that the assessment procedures are not targeted at a real systematic evaluation, but rather serve to keep up “facades” (Nyström and Starbuck 1984, Ernst and Kieser 2004). Concluding Remarks As the main results of our empirical study, we can note that, from the point of view of consultants, internal evaluations have become more important in the recent times. However, our results also show that there remain great differences regarding the quality of the evaluation systems hitherto employed. Nevertheless, it seems that there is a tendency towards more professional evaluation approaches. Future research could test this presumption by executing a broader (quantitative) study. Concerning the clients’ side, the interviewed consultants noticed that particularly large firms have professionalized their purchasing procedures. According to our interviewed consultants, however, this is mainly the result of attempts to reduce consulting costs and to legitimize them. However, most client firms are still reluctant to evaluate consulting projects (e.g. due to political and social motives). In light of this, the question arises if it makes sense to search for more and improved evaluation systems. Further research could analyze how much effort such an evaluation system would take compared with the added value that it would offer in terms of transparency, benefits and cost reduction. For this purpose, the clients’ companies that work with such complex and systemic evaluation approaches could be studied. Finally, we would also like to refer to some limitations of our empirical study. There are some limitations associated with data generation from the social situation of an interview like e.g. social desirability with certain questions, evading tendencies, “response errors” (Schnell et al. 1999, p. 330), unconscious influencing by the interviewer because of his age, sex, appearance, clothes, and personality (see Moehring and Schluetz, 2003, p. 54), and constellation effects by place and time of the interview. In addition, the question arises as to whether the results can be generalized. As mentioned above, there is a wide range of what is called “consulting services”. They involve a variety of completely different occasions, activities, basic conditions, and persons involved. Also, our sample covers only one glimpse of reality – we can not exclude the possibility that the results might have shown a different pattern if different consultants from other consulting companies had been interviewed. Nevertheless, our interviewed consultants even coming from different consultancies and contexts had several things in common and there was
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some overlap in their statements and observations. Their perceptions particularly contribute valuable insights to the understanding of social and political constraints within a company linked to the evaluation of consulting projects. Further research has to show to what extent these results can be generalized to other consulting firms. References Appelbaum, S. H. (2004), “Critical Success Factors in the Client-Consulting Relationship”, The Journal of American Academy of Business, March 2004, pp. 184-191. Berglund, J. and Werr, A. (2000), “The Invincible Character of Management Consulting Rhetoric”, Organization, 7(4), pp. 633–655. Byrne, J. A. (2002), “Inside McKinsey”, Business Week, Jul 08, pp. 54-62. Clark, T. and Salaman, G. (1996), “Telling Tales: Management Consultancy as the Art of Story Telling” in: Grant, D. and Oswick, C. (eds.), Metaphor and Organizations. Sage, London, pp. 167-184. Clark, T. and Fincham, R. (2002), Critical consulting: New perspectives on the management advice industry, Blackwell, Oxford. Clarke, T. (1995), Managing Consultants: Consultancy as the Management of Impressions, Open University Press, Buckingham. Craig, D. (2005), Rip-off! The Scandalous Inside Story of the Management Consulting Money Machine, Original Book Co, London. Ehrhardt, A. and Nippa, M. (2005), Far Better Than Nothing at All – Towards a ContingencyBased Evaluation of Management Consulting Services, Technical University Bergakademie Freiberg, Freiberg Working Papers No. 09/2005. Ernst, B. and Kieser, A. (2003), Do practitioners know what they are getting from consultants? Working paper, Faculty of Business Administration, University of Mannheim. Ernst, B. and Kieser, A. (2002), “Consultants as agents of anxiety and providers of managerial control”, Academy of Management Proceedings, pp. C1-C6. Ernst, B. and Kieser, A. (2004), “Wissen Manager, was Ihnen Beratung bringt?” in: Nippa, M. and Schneiderbauer, D. (eds.), Erfolgsmechanismen der Top-Management-Beratung, Physica-Verlag, Heidelberg, pp. 39-61. Ernst, B. (2002), Die Evaluation von Beratungsleistungen: Prozesse der Wahrnehmung und Bewertung, Deutscher Universitäts-Verlag, Wiesbaden. Höner, D. and Mohe, M. (2006), “Behind Clients’ doors”, Paper presented at the 22.th EGOS conference in Bergen (Norway), Jackall, R. (1988), Moral Mazes, Oxford University Press, Cambridge, Mass. Kieser, A. (1998)‚ “Unternehmensberater: Händler in Problemen, Praktiken und Sinn”, in: Glaser, H.; Schröder, E.F. and Werder, A. V. (eds.), Organisation im Wandel der Märkte, Gabler, Wiesbaden, pp. 191-226.
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Kihn, M. (2006), House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time, Warner Business Books, New York. Kurbjuweit, D. (1996), “Die Propheten der Effizienz”, Die Zeit, 1st January, pp. 9-11. Mayring, P. (1997), Qualitative Inhaltsanalyse. Grundlagen und Techniken, 6. Auflage, Deutscher Studienverlag, Weinheim. McMullan, E.; Chrisman, J. J. and Vesper, K. (2001), “Some problems in using subjective measures of effectiveness to evaluate entrepreneurial assistance programs”, Entrepreneurship: Theory and Practice, 26(1), pp. 37-54. Micklethwait, J. and Wooldridge, A. (1996), The witch doctors: What the management gurus are saying: Why it matters and how to make sense of it, Heinemann, London. Mitchell, V.-W. (1994), “Problems and Risks in the Purchasing of Consultancy Services”, The Service Industries Journal, 14, pp. 315-339. Moehring, W. and Schluetz, D. (2003), Die Befragung in der Medien- und Kommunikationswissenschaft, Westdeutscher Verlag, Wiesbaden. Mohe, M. (2005), “Generic Strategies for Managing Consultants – Insights from Clients’ Companies in Germany”, Journal of Change Management, 5(3), pp. 357-365. Mohe, M.; Kolbeck, C.; Neunhoeffer, P. and Mildenberger, J. (2006), “Daimler-Chrysler’s Consulting InfoBase”, C2M, Consulting to Management, 17(2), pp. 32-34. Mohe, M. (2003), Klientenprofessionalisierung: Strategien und Perspektiven eines professionellen Umgangs mit Unternehmensberatung, Metropolis, Marburg. Nyström, P. C. and Starbuck, W. H. (1984), “Organizational facades”, Academy of Management Proceedings, pp. 182-186. O’Shea, J. and Madigan, C. (1997), Dangerous Company: The Consulting Powerhouses and the Businesses they Save and Ruin, Times/Random House, New York. Pinault, L (2001), Consulting Demons: Inside the Unscrupulous World of Global Corporate Consulting, Harper Business, New York. Phillips, J. J. (2000). The consultant’s scorecard: Tracking results and bottom-line impact of consulting projects. McGraw Hill, New York. Redman, T. and Allen P. (1993), “The use of HRM consultants: evidence from manufacturing companies in the north-east of England”, Personnel Review, 22(2), pp. 39–54. Schaffer, R. H. (1998), “Overcome the Fatal Flows of Consulting: Close the Results Gap”, Business Horizons, September-October, pp. 53-60. Schnell, R.; Hill, P. B. and Esser, E. (1999), Methoden der empirischen Sozialforschung, Oldenbourg, München. Starbuck, W. H. (1992), “Learning by Knowledge-Intensive Firms”, Journal of Management Studies, 29, pp. 713-740. Steppan, R. (2003), Versager im Dreiteiler: Wie Unternehmensberater die Wirtschaft ruinieren, Eichborn, Frankfurt am Main.
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Increasing the Efficiency of Business Consulting Services through Comprehensive, System-Oriented Thinking and Action in the Consulting Process Michael Scholz
Introduction Efficiency as both a qualitative and quantitative measuring instrument if often called upon for the assessment of consulting projects. Excessively high costs and/or insufficient quality are often cited as reasons for failed consulting projects/consulting projects having only limited success. An assessment based upon objectively measurable as well as subjectively experienced efficiency criteria demonstrates however only the results of a preceding project formation and the interaction of its actors. For consultants and consulting clients, equally essential for an improvement of consulting efficiency is the recognition of the causes and/or the complex interplays of all influence factors of the highly complex socio-technical system of business consulting. This is needed in order to effectively carry out improvements that promote efficiency in the consulting situations defined. This paper will present an explanatory model on the efficiency of business consulting services that aggregates all relevant elements and their interrelations into a system-theoretically founded model. An allencompassing model presenting comprehensive networkings and interdependencies does not exist in the research field of business consulting. Instead, the scientific literature contains works regarding the specification of partial realms of the entire system. The following will apply these contributions to help ascertain selected interrelations. The model considers various research disciplines and points of view regarding business consulting in an attempt to achieve a view of these complex services that is as comprehensive as possible. Additionally, the model underwent a validation process by experts from both the client and consulting realms. This provides a significant contribution towards the consolidation of consulting research which, currently, is strongly fragmented. An exemplary application of the model is shown using a software-technical imaging and simulation of the model. Its simulation allows the identification of well-suited and meaningful control levers for the improvement of consulting efficiency.
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The model simulations carried out for the selected consulting situations clearly show that individual consulting situations should be considered every time in the selection of suitable control levers. It is therefore essential for efficient consulting projects that the actors allow sufficient time for situation analyses and the selection of an appropriate consulting strategy. The use of prefabricated consulting procedural models, which normally only take consulting content into account, and not the characteristics and abilities of the actors on either the client or the consulting side, cannot ensure an efficient project per se. This paper will in summary provide consultants and clients applicable recommendations for action and formation that can be derived from the model, and which can be used to ensure efficient, sustainable projects. The next chapters will first illustrate the selected procedure for the model’s setup (Chapter 2), followed by the actual results and an application example that was developed on the basis of the system-theoretical explanation model. Based upon these findings, a comprehensive regulatory model for business consulting will be conceptualized that can serve to continually guide efficiency (Chapter 3). Recommendations for action in the consulting process can be derived from the explanation and regulatory models (Chapter 4). The paper will conclude with a forecast on how the findings obtained can be meaningfully applied to existing consulting instruments (Chapter 5). Development of a Comprehensive Explanation Model on the Efficiency of Business Consulting Services Our goal is the creation of an explanation model that is reality-based, scientifically founded, and at the same time applicable in real-life situations. It should allow the presentation of the complex dependencies and interdependencies of all the determining factors of consulting efficiencies. This paper understands efficiency according to the definition of productivity and/or profitability as an input-output relationship between consulting expenses and consulting quality. Figure 1 gives an overview of the development procedure for the model. The comprehensive explanation model should focus on the explanation of consulting efficiency. Consequently, an operationalization of consulting efficiency is to be conducted (Step 1) before the system elements of business consulting are identified and described which have a direct or indirect influence on consulting efficiency (Step 2). Business consulting is influenced by a multitude of factors that can be of both a qualitative (e.g. willingness to learn and cooperate on the part of clients, project controlling in-
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tensity) as well as a quantitative nature (e.g. personnel costs, additional expenses). Before the dynamics and interplays of all elements can be displayed in a model, a complexity reduction, i.e. a decrease in the total amount of elements, is necessary (Step 3). The subsequent determination of interrelations between system elements represents the next important step towards a comprehensive system-theoretical explanation model. The result of this research step is a logical hypothesis model (Step 4). The hypothesis model was derived from the business consulting literature. A variety of authors have investigated the factors of influence on consulting success and/or consulting efficiency. A few examples include Czerniawska (2002), Althaus (1994), Najda (2001), Hoffmann and Hlawacek (1991) and Türk (2004). Information is given regarding how strongly, with what kind of time delay, and in what direction all model elements work in relation to the other model elements. To increase the quality of the hypothesis model, a validating expert survey is conceptualized and conducted in companies that both employ and offer consulting services (A total of 40 clients and/or consulting firms were surveyed. For more details see (Scholz 2005, pp. 170; Step 5). The analysis and synopsis of the survey results flow into the logical explanation model of business consulting.
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Step Step 1: 1: Operationalization Operationalization of of the the Goal Goal Dimension Dimension Preparation and Selection of Relevant Model Elements
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Fig. 1. System-Theory-Based Procedure Model
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Results As shown in the last section, several iterations are necessary for the creation of the explanation model. In the analysis of the key factors, a total of 69 key factors and 49 components of consulting efficiency could be identified. The system-theoretical consideration that a multitude of the identified components of consulting efficiency and key factors in the temporal development are subject to dynamic changes, and with this, do not represent static, constant values, is essential for the developed model. The consideration of the key factors from the sphere of the consultant, the client, and the consulting project describe a specific and individual consulting situation at a given point in time. The described interplay of all identified system components can be presented in the form of an initial conceptual efficiency model of business consulting services (Figure 2).
Fig. 2. Conceptual Explanation Model
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During a consulting project, the model presented behaves dynamically, i.e. consulting efficiency, actor behavior, and the kind of project formation/the changes in environmental conditions alternately act upon and with one another. The conceptual model gives additional information on how the changes in individual key factors affect the entire system/consulting efficiency, and which control possibilities exist for the actors. For this, the model was further developed, according to the selected system-theoretical procedure, into a logical hypothetical model. Figure 3 shows the results of the investigation of interdependencies in the complex system of business consulting – the logical explanation model for the efficiency of business consulting. All elements, effect relationships and intensities, as well as the nature of goals of the model relations are presented. The visualization once again emphasizes the complexity of the system and the multitude of interrelations of the individual elements. The high dynamic can already be sensed that can result from the changes in single elements for the entire system in the elapsed time. The model represents an important contribution to the consolidation of consulting research, as previously only isolated realms of the system were researched, or the effects of single elements upon the overall success of consulting were focused upon and, with this, resulted in an overall mono-causal perspective. The dynamics and interdependencies of the entire system were therefore not directly apparent; our explanation model will help to improve this. The model presented strongly emphasizes the importance of considering the individuality of the features of all relevant system elements in business consulting, i.e. the specific consulting situation. Depending upon the individuality of all system factors, various control measures lend themselves to improving the project situation. A standardized scheme for action (and one applied in various situations) therefore does not promise success per se in business consulting. Similarly, it can be derived from the importance of the consulting situation that a qualitative and quantitative location and/or situation designation is essential in business consulting. As a rule, at the start of consultation, or during its planning, a situation designation wears itself out with purely quantitative aspects such as time or budgetary guidelines, or in the analysis of processes. A sole concentration upon these aspects can therefore lead to inappropriate control measures being selected, as the system is not observed with all qualitative and quantitative influences in mind. A wrong selection can have fatal consequences for the entire system condition. For example, a decrease in co-operation intensity and coordination between the consultant and client in the case of exceeding a budget may reduce personnel costs short-term, but in certain cases this can lead to a significant reduction in the homogenous cognition of the consulting goal, which resultantly (in the worst case scenario) can cause an abandonment of the project.
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Fig. 3. A Logical Explanation Model of the Efficiency of Business Consulting Services (Source: Own)
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In practice, in can also be determined that the real reasons for improper developments in consulting projects are not or only rudimentarily uncovered, and other arguments that ensure a better “marketability” of errors for the decision makers are pushed to the forefront. This kind of attitude that turns a blind eye to errors simply cannot lead to an improvement in service efficiency. From a system-theoretical perspective, business consulting services cannot be described and controlled through mono-causal cause and effect relationships, but instead must be understood as a complex, networked system. Such a system can only be efficiently mastered not by partial interventions, but by means of a permanent observation of all influence factors. Now that the development of the logical explanation model of efficiency of business consulting services has been explained, the following will present an exemplary application field for the model.
Application Example: Business Game for the Simulation of Efficiency of Business Consulting Services In many ways, the explanation model can be used for further research or practical applications in the context of business consulting. The following will describe how the explanation model can serve as a basis for a computer-supported business game. The business game was conceptualized for consultants and clients for the systematic management of efficient business consulting services. It is displayed using the network and simulation tool HERAKLIT software and its integrated scenario manager (http://www.heraklit.com). The business game can assist both consultants and clients in becoming more aware of the interrelations, dependencies, and intensities in the consulting process. While the classical methods and instruments of business consulting concentrate nearly exclusively on purely contextual aspects such as project management methods, analysis techniques etc., there are hardly any contributions to business consulting that extend beyond these contextual aspects. The business game can contribute to an analysis and simulation of nonquantitative measurable results and processes of the complex socio-technical system of business consulting and, with this, can serve to improve the parallel-running procedures that are superior to the contextual processes. The business game should sensitize the decision maker particularly to interrelations, allowing him/her to recognize the effects of his/her actions early on. Strategies for consulting
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projects can be tested by the model, and a conceptualized success logic can be evaluated. In addition, the users learn the interplay with the complexity and networking of the system of business consulting. The business game can furthermore be applied as an instrument of communication between the consultant and client. It is highlighted for the actors that a sole concentration upon consulting content and figures such as quality, time, and costs cannot in itself secure the success of a project; the individual consulting situation must always be considered. The business game and simulation however have limits. As has already been shown, the model represents a simplification of and a sample from reality. The simulation result is strongly dependent on the quality of the model. It is therefore neither logical nor advisable to make decisions in a consulting project based merely upon the simulation results. As is the case with the simulation model, the business game is also not a tool that automatically generates solutions and that can serve as a substitute for thinking and interpretation. Instead, it is meant to promote systematic thinking for comprehensive processes. The business game should encourage people to think, but in no way can it replace thinking itself. The capacity to make decisions on the part of people is always the more important step in finding suitable system applications. While participating in the business game, users can apply various control measures in the system, and in doing so, simulate the development of the system condition as well as individual elements. Through this, users have the possibility to evaluate control measures and strategies for any situations that extend beyond the scope of this project. Coincidental occurrences are also a factor. With this, the environmental conditions can change during the consulting process. Coincidental occurrences are integrated into the business game in advance and can be manually triggered by the user. An overview of the simulation cockpit visualizes the temporal course of the various system elements and/or indicators. The representation follows the fundamental concepts of a balanced scorecard, i.e. the condition of selected system elements are consolidated by this overall indicator. The control of a consulting project represents a complex undertaking when the dynamics and multitude of interdependencies described in chapter two are considered. The following will develop an overall regulatory model.
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Fig. 4. Simulation Cockpit for the Dynamic Condition Display of Selected Indicators of the Overall Business Consulting Model
Conception of a Servo-Mechanical Regulatory Model of Business Consulting Service Efficiency A servo mechanism makes possible the fundamental principle of a basic feedback and creates the foundation for each control mechanism of a higher level. Beer and Hodge and Hodgson understand the terms “servo mechanism” and “feedback” to be the same (see Beer 1967, p. 154, Hodge and Hodgson 1971, p. 24). According to Ashby, a strengthened intelligence occurs when a mechanism is found that can monitor and regulate the occurrence of disturbances (see Ashby 1970, p. 268). The principle of strengthened intelligence represents a central aspect of the servo mechanism. It allows the early detection of certain conditions so that they may be regulated properly. The function of a servo-mechanical regulatory model consists of preparing strategies for problem solving and, correspondingly, the observation of these strategies (see Gomez
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1978, p. 128). The regulatory model is therefore a meta-model that methodically supports system-evolutionary management. The following figure shows a regulatory model having an expanded form, and that is adapted for business consulting. The time-related consulting situation represents the central element of the control model whose display and simulation is instrumentally supported by the logical explanation model and/or the simulation model described in chapter 2. Indicators make it possible to display a critical condition of the system and/or selected elements. Particular attention must be paid to these values, i.e. they have to be continually monitored. Regarding the role of individual system elements, the indicators particularly represent those elements that have already been classified as indicators, i.e. all elements that operationalize the goal dimension of consulting efficiency. However, at any time, further relevant elements can be added to the test values if they happen to possess a particular relevance and require a continual monitoring. The servo-mechanical control model furthermore possesses three interface mechanisms that serve the continual monitoring and direction in business consulting. The first mechanism is feedback that creates a connection between the indicators and the controllable elements. Particular attention must be paid to the continual measurement of indicators, as these can indicate critical system developments early on. The operationalization of the conditions of the measurable elements is necessary for the measurement. The measurement readings can be further processed by means of a decision that can be conducted in the form of rules that select various problem-solving strategies using measurement readings. In the case of two exemplary extreme conditions, measurement readings can exist on the one hand in the form of determined mathematical functions or, on the other hand, in the form of a human decision. Concrete actions are ultimately what are needed for the implementation of control; they specify the changes in the controllable system elements that are to be carried out, as these lie in the direct realm of influence of the problem solver. The second mechanism in the control model, the pre-connection, sees to it that, similarly, the non-controllable system elements are continually monitored. For this, they must also be measured and investigated regarding whether they exceed thresholds. Analogue to feedback, and due to the measurement, problem-solving strategies are selected using a decision rule; these strategies are implemented in actions and/or controlling measures. A pre-connection is especially wise because it can determine improper system developments
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very early on. Without them, undesired conditions of non-controllable elements would only be observable later on through delays in effects, and indirectly in the development of test values. Non-Controllable Non-Controllable Elements Elements --Consultant’s Consultant’sconsulting consultingexperience experience --Homogenous Homogenouscognition cognitionofofthe theconsulting consultinggoal goal --Willingness Willingnesstotocooperate cooperateon onthe thepart partofofthe the consulting consultinginstitution institution --Environmental Environmentalfactors factorsofofthe theconsulting consulting institution institution --Consulting Consultingability abilityof ofthe theclients clients --Ability Abilityofofthe theclients clientstotoprovide provideinformation information --Environmental Environmentalfactors factorsofofthe theclient clientcompany company --Complexity of the consulting Complexity of the consultingtask task --How Howoften oftenthe theconsulting consultingproblem problemrecurs recurs --Degree Degreeofofstructure structureof ofthe theconsulting consultingproblem problem
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Fig. 5. Regulatory Model for Efficiency in Business Consulting Services
The third mechanism, test interconnection, prohibits the wrong amount of controlling measures and aims to prevent oscillation that results from a control measure. With this, it achieves the principle of a successive convergence and can also be interpreted as a “feedback fine-tuning.” Control measures that reduce/increase the consultant’s work load by e.g. 10% can lead to a permanent system oscillation. By implementing a successive approach of corresponding smaller share sizes, the test interconnection prevents this effect. The closer the test values correspond to a desired condition, the smaller the changes in the proportion of work will be.
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The control model makes possible a system-evolutionary efficiency management of the entire system of business consulting. It allows improper system developments to be detected at an early stage. The following chapter will recommend courses of action based upon the findings achieved so far in this research work. Our opinion is that their use on the part of the actors can create a significant improvement in business consulting project efficiency. Recommended Courses of Action for a Fundamental Improvement in Business Consulting Project Efficiency The previous chapter’s findings on the analysis, modeling, and control in selected situations, and the considerations regarding a continual regulation of the complex system of business consulting allow, in summary, a few important implications for a “systemoriented business consulting” to be extracted and generalized. The consideration of the success factors defined from the actions recommended can, from the author’s point of view, lead to a clear improvement in any business consulting when it comes to co-operation in consulting situations, their results, and their quality. They apply to all actors – consultants as well as clients.
System-oriented Business Consulting Consequently Maintains a Comprehensive Point of View System-oriented business consulting does not equate problems with facts. In the analysis of problems, situations are observed from various perspectives as a way to expound the issue(s). As a result of the networked, dynamic overall system of business consulting, problems are not sorted into small, manageable partial issues as a way to find separate, isolated solutions; in doing this, the danger would arise that incompatible solutions would result. System-oriented business consulting maintains a viewpoint of the overall system. Subsystems can indeed be observed, but in the conception of solutions, as well as in their organizational creation, the effects upon the entire system must be considered and evaluated before a solution can be achieved.
System-oriented Business Consulting Thinks in a Way Based Upon Networks and Cycles In system-oriented business consulting, system behavior and the condition of certain elements are always attributed as stemming from the system characteristics. Mono-causal
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cause-effect thinking is not conducted and is consciously avoided. A reduction of problems to one singular cause is therefore neither done nor necessary. System-oriented consultants support clients by using a networked point of view of his/her own company, the embedded subsystem of consulting, and the resulting variety of networked, inter-working interdependencies. They do not prefer isolated measures that cater to selective changes. In the complex system of business consulting, achieving change is much more dependent upon several points, under constant consideration of the temporal dynamics of the system. Here, consultants and clients consider temporal delays that may occur following control. This is true for the time prior to the selection of controlling, helping to prevent measures being selected that would not be effective due to project delay, as well as following the time after controlling by allowing sufficient time for the effect to take hold. Furthermore, system-oriented consulting itself uses strengthening or stabilizing cycles. A consequence of the networked, circular perspective and the inherent dynamic of the entire system is also that solutions arrived at cannot be accepted as permanent, because problem situations and the solutions that build upon them are both seen as a result of the system interactions. The goal of a system-oriented business consulting is therefore also to create specific system situations that prevent in advance the occurrence of certain problem constellations.
System-oriented Business Consulting Recognizes and Keeps in Mind the Individuality of Problem Situations System-oriented business consulting is based on the premise that complex corporate problems almost always are of a unique character. This means that consulting concepts and procedures cannot be applied in various contexts without adaptations or modifications. The individual and specific features of a problem situation are always explicitly considered in system-oriented business consulting. Already-existing concepts and methods can also be applied in system-oriented business consulting, but not without testing and classification into the overall networked system, something making modifications necessary. A modification does not automatically mean that e.g. method context must be changed, but more so that the kind of conveyance and formulation for the specific situation and the actors’ characteristics must be adapted.
System-oriented Business Consulting Recognizes and Keeps in Mind the Individuality of System Actors That which applies for problem situations is also consequently applicable in systemoriented business consulting for the system actors as well. Their individuality is not re-
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duced to purely corporate functions and the constructivist theses of theoretical exchangeability. Rather, all essential primarily qualitative features of the “human factor” are to be considered and integrated into the complex overall network (as is the case with the quantitative values). The success of a consulting project requires a consideration particularly of personality-related characteristics. For example, a limited level of consulting experience on the part of the consultant, and the consulting abilities of the client and their existence must be taken into consideration and cannot be ignored. What is important is that this also remains true for the consultant, whose actions and characteristics greatly influence the system. The characteristics and abilities of individuals are not treated as static values. Instead, as with material-related values, they can make dynamic temporal changes.
System-oriented Business Consulting Assumes a Quantitative and Qualitative Determination of Location and Its Observation Correlating the consulting process to situational events and the determination of suitable control levers for the improvement of consulting efficiency requires a thorough location analysis. As already mentioned, this analysis does not simply comprise a pure observation of quantitative aspects that are relatively simple to measure. The observation of qualitative and quantitative features together allows first of all the diffusion of complex occurrences and effectuates a realistic display, not an idealized, polished-over picture. A detailed location determination of the characteristics and capabilities of the system actors is therefore necessary for the start of a project. Without this analysis, the danger exists of the selection of unsuitable control mechanisms, which can cause a system destabilization. From the actors’ point of view, without a determination of position, the danger exists that the complex system of business consulting could be oversimplified, and that the problems would constantly be reduced to basic symptoms, which in turn would increase the selection of unsuitable control levers and, in the worst case, lead to termination of a project. Location determination is essential, especially in small and medium-sized companies having little experience with consulting, as well as with particularly complex projects. Actor characteristics and elements are furthermore not to be gathered only once and viewed statically; they are to continually be observed through a regulatory model. Only this kind of mechanism allows an early detection of deviation and an appropriate handling of the system condition by means of controlling.
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System-oriented Business Consulting Considers the Levels of Control and Controllability Determination of location in system-oriented business consulting always includes consideration of control levels and the controllable elements derived from them by the decision makers. This contributes to consulting efficiency, as it eliminates unnecessary discussions on non-controllable and/or other items. Additionally, escalation mechanisms can be derived from this analysis in case an action/decision cannot be decided on a certain level, i.e. another decision maker needs to be involved on a higher control level. The analysis of control levels of a consulting project should be done transparently and before the start of the project for all actors.
System-oriented Business Consulting Encounters Complexity with Flexibility and Viability Highly volatile environmental factors, an increasing network of economic occurrences, and a resultantly more difficult prognostication can only be dealt with using corporate flexibility and a strong ability to react. This rule can be derived from Ashby’s law of necessary variety (Ashby 1970). System-oriented business consulting therefore focuses on not just a pure improvement of the status quo, but also promotes flexibility, openness, and a company’s ability to act. Through this, the variety and viability of the company and actors is increased among the complex surroundings. This kind of promotion can be especially triggered by learning processes. Learning processes also include letting go of old habits and ways of doing things; it is difficult for an institution and its personnel to give up wellknown structures and processes. However, this can represent a possible solution to problems. As a meta-goal, a system-oriented business consulting always pursues a company’s development as a “viable system” and promotes self-organizing system tendencies.
System-oriented Business Consulting Promotes Learning and the Consulting Ability of the Institution and Its Actors A significant success factor for consulting is an adequate contribution to the process formation by the client and the corresponding methods and instruments. Consulting ability represents the key factor in this because it is involved in a multitude of cycles in the business consulting system. Promotion of the client’s consulting ability is therefore an important success factor for a system-oriented business consulting. System-oriented consultants therefore promote and cultivate the ability to learn and the consulting ability of their clients. They have recognized from the networked business world and cyclical effect mechanisms that such a self-opportunistic conduct that does not encourage knowledge transfer can be advantageous neither for them nor for the clients, and that such behavior over time can backfire and display a kind of “boomerang effect.” A system-oriented business
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consulting neither practices nor promotes the takeover and sale of finished concepts. The learning process is first set in motion by means of a critical and repeated interaction of all actors that takes place among the observation from various points of view. Systemoriented business consulting thus promotes the ability of clients to solve problems on their own.
System-oriented Business Consulting Accepts and Considers the Uncertainty of Complex Systems A system-oriented business consulting takes on the challenges of complex systems. It accepts the fact that they are uncertain and that exact prognoses regarding their progression are not possible. System-oriented business consulting does not consider it possible to achieve exact predictions by means of apparently “exact” analysis, from which control measures can be analytically deduced. Instead, qualitative simulation makes it possible to anticipate trends in system behavior and derive recommendations suitable for discussion. The recommendations for action discussed above were taken from a variety of findings achieved through the research work. They are not to be interpreted as dogma or hard-set guidelines. Rather, from the author’s viewpoint, in sensitive consulting environments, as seen e.g. in IT consulting for small and medium-sized companies, they can serve to achieve a fundamental improvement of consulting efficiency through a comprehensive understanding of the complex and highly-dynamic system. This is particularly attributable to the fact that the recommendations are not made based upon the symptoms, but rather upon the actual causes of current deficits in business consulting services. It is important for future research that recommendations for action in actual practice are evaluated and validated, and continually developed onward. Outlook: Implications for the Use of Consulting Instruments In the author’s opinion, the findings achieved on the importance of qualitative and situational factors for consulting projects that can principally be applied to further project situations should be incorporated into consulting project controlling instruments and project reporting. These tools currently are involved almost exclusively with easy-to-qualify values such as time, budget, and the directly measurable quality features of a project. In no way do they deliver (not even primarily) multi-causal explanatory interrelations in the case of variation of potential values. The complex interplay of quantitative and qualitative factors is not taken into consideration. Values that cannot be measured or are difficult to measure, along with situational factors that result from a variety of qualitative features are not at all considered with these instruments.
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To be sure, additional ascertainment and a continual controlling of qualitative aspects principally means additional effort. From the author’s point of view, this could nevertheless be compensated for in a short period of time through more efficient consulting projects (client’s viewpoint) and an increased intensity of demand (consultant’s viewpoint). The regulatory model presented in chapter 3 delivers essential and fundamental indications for the development of such a system-oriented consulting project controlling instrument. References Althaus, S. (1994), Unternehmensberatung – Gestaltungsvorschläge zur Steigerung der Effizienz des Beratungsprozesses, Dissertation Hochschule St. Gallen, Hallstadt. Ashby, W. R. (1970), An introduction to cybernetics, Methuen young books, London. Beer, S. (1967), Management Science, Aldus, London. Czerniawska, F. (2002), The intelligent Client, Hodder & Stoughton, London. Gomez, P.; Malik, F. and Oeller, K.-H. (1975), Systemmethodik. Grundlagen einer Methodik zur Erforschung und Gestaltung komplexer soziotechnischer Systeme, Teil I. Paul Haupt, Bern. Gomez, P. (1978), Die kybernetische Gestaltung des Operations Management: Eine Systemmethodik zur Entwicklung anpassungsfähiger Organisationsstrukturen, Paul Haupt, Bern. Hodge, B. and Hodgson, R. N. (1971), Management Informations- und Kontroll-Systeme, Munich. Hoffmann, W. and Hlawacek, S. (1991), „Beratungsprozesse und -erfolge in mittelständischen Unternehmen“ in: Hofmann, M. (ed.): Theorie und Praxis der Unternehmensberatung. Physica Verlag, Heidelberg, pp. 1-44. Malik, F. (2002), Strategie des Managements komplexer Systeme. Ein Beitrag zur ManagementKybernetik evolutionärer Systeme, Paul Haupt, Berlin. Najda, L. (2001), Informations- und Kommunikationstechnologie in der Unternehmensberatung: Möglichkeiten, Wirkungen und Gestaltung des Einsatzes, Dissertation, Univ. Hohenheim, Dt. Univ.-Verlag, Wiesbaden. Marner, B. (1990), Unternehmensberatung und Weiterbildung mittelständischer Unternehmer: Ergebnisse einer empirischen Untersuchung, Erich Schmidt Verlag, Berlin. Scholz, M. (2005), Ein ganzheitlicher Ansatz zur Erklärung und Steigerung der Effizienz von Unternehmungsberatungsleistungen für KMU: Konzeption eines systemtheoretischen Erklärungsmodells und simulationsgestützte Ableitung von Gestaltungsempfehlungen für Beratungsprojekte, Dissertation, University of Paderborn. Sommerlatte, S. (2000): Lernorientierte Unternehmensberatung: Modellbildung und kritische Untersuchung der Beratungspraxis aus Berater- und Klientenperspektive, Deutscher Universitäts Verlag, Wiesbaden.
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Türk, B. (2004), E-Consulting: der Einsatz webbasierter Technologien in der Unternehmensberatung, Dissertation, University of Leipzig. Wurdack, A. (2000): E-Consulting - Entwicklung eines Rahmenkonzeptes, Dissertation, University of Mannheim.
An Empirical Analysis of Internal Corporate Consultancies Thomas Deelmann, Andreas Huchler, Stephan A. Jansen, Arnd Petmecky
Consulting – From exception to routine In the last years, several changes have taken place in the business of consulting. Among various trends and consulting issues, the frequency of access on consulting support has changed, too: It has increased enormously. At first, the service of consultancies had a temporary character and was limited to certain situations. A dedicated situation was considered, a certain problem was solved. In the meantime, business consulting has established itself as a lasting and permanent appearance in many corporations. One indication of this development is the increased so-called intensity level of consulting on a worldwide as well as on a Germany-based level. The set-up of Internal Consultancies in larger corporations is another indication. The problem-solving process with the support of consultants is regarded as a regular task and therefore integrated in the company’s organizational structure. With the boom of external consultancies, the relevance of Internal Corporate Consultancies also increased in the 1990s. They have interfaces into the internal organization and also several interfaces towards external actors. Especially while dealing with external consultancies, there is the question for internal consultancies how to interact together: cooperation vs. competition (Maaßen 2005). Many companies have established internal consulting units. However, the practical experiences are not reflected by scientists in a sufficient way. Above all, a lack of empirical work can be identified (cf. for example the existence of a small series of semi-structured interviews in Hoyer 1999). Knowledge about the characteristics of Internal Corporate Consultancies might help to better evaluate and assess their working results and to compare Internal Corporate Consultancies with external consultancies. The aim of this chapter is to give a contribution for closing the identified gap in research. Therefore selected results of an empirical study about the as is-situation of Internal Corporate Consultancies are presented.1
1
Basis for this chapter is a more extensive discussion paper by the authors; cf. Deelmann et al. 2006.
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The next section first specifies the terms Consulting and Internal Corporate Consulting, gives a brief overview of the history and rise of internal consultancies, and describes the market for Internal Corporate Consultancies. Section three presents selected results of an empirical study of Internal Corporate Consultancies concerning the years of foundation, employee structures, daily fees, utilization rates etc. The last section gives a brief summary of this chapter and includes an outlook on further research topics in this area. Internal Corporate Consulting
Definition Several definitions of the term consulting give a very general and a quite heterogeneous interpretation of the institutional and functional perspective of consulting (e.g. Feaco 2004, p. 8; Kieser 2002, p. 25; Sangüesa Sanchez 2003, pp. 14-21; Smith and Smith 2003, p. 41). This is especially true for internal consultancies. They act not only business-driven, but also have – based on their internal character and their environment – various additional tasks to fulfill. Or to sharpen this statement: Nothing would be more interesting for internal consultants than the answer of the question what they are doing. At this point, not the lack of answers is the problem but the plenty of answers (Baecker in Klein 2003, p. V). To be sufficiently flexible towards various roles of consultants in the foretime as well as those in the future, the following definition of organizational consulting is suggested: Organizational consulting is a (1) professional, (2) contractually appointed (3) service and transformation process of an (4) intervening attendance by a (5) consultancy system for the (6) analysis, description, and solution of a (7) problem of the client system – under the tenor of a (8) work on decision premises – with the goal of (9) transformation. There are several relevant elements in this definition: (1) Professionalism: This attribute distinguishes consulting from various other support activities. (2) Contractual appointment: Is a relevant criterion because of formalistic reasons. The relationship between client and consultant is initialized and stands out against other working relationships, e. g. employer-employee-relationship. (3) Process: Organizational consulting is understood as a process and distinguishes from singular events as lectures, training sessions etc. This is also true for consulting types with low interaction (e.g. expertise in written form).
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(4) Intervening attendance: This is an open genus with respect to the several types of consulting, containing different kinds of intervention: expertise-oriented consulting, expertoriented consulting, process-oriented consulting, and systemic consulting. The term ‘attendance’ distinguishes from other forms of co-operation (e.g. co-management) or replacing work (e.g. interim management). (5) Consultancy system: This depicts a marked system – consisting of one or more persons and their emergent interaction relationships – which is not identical with the client systems. In the case of external consultancies, this is additionally symbolized via legal and economically separated entities. In the case of internal consultancies, the point of demarcation is the drawing of boundaries within the internal structure of an organization (strictly speaking: a separate department). Relevant is the lack of direct involvement of the consultancy system with respect to the problems of the client system. However, an indirect involvement always exists (Niedereichholz 2000, p. 14). (6) Analysis, description, and solution: These terms describe the main tasks of a consultancy. One has to indicate that there – in principle – is an information asymmetry towards the client. Therefore, consulting has to support the client’s irritations and selfdescription of problem situations (with respect to a Socratic maieutics) and should not give recommendations only based on external and environmental knowledge. (7) Problem of the client system: This is to stress that not projected problems of the consultancy (perhaps with a root in available solutions) have to be solved. Rather virulent problems of the client have to be solved in co-operation. (8) Work on decision premises: The client is the only one who can decide for the client organization within a consultant-client-relationship. The act of consulting only supports the realization, evaluation, and (if necessary) change of decision premises, decided on in the past. This situation points out the relevant difference between (internal and external) consultancies and the client: The decision is exclusively made by the client. This is also true if the consultant influences the client in a more or less strong way. In contrast to external consultancies, the results of ‘bad consulting’ might have sustainable effects on the development potential of internal consultancies because of the regularly direct relationship between the internal consulting unit and the parent organization with respect to legitimating and financing issues. (9) Transformation: The primary goal of consulting is to support a self-driven change of the client system. From an economic perspective, consulting – with respect to its characteristics – has to be described as a service: Consulting services are immaterial; they can only be (industrially) produced, transported, stored, standardized, and automated in a limited way. More precisely, consulting can be labeled as a variant of prosumerism: production and consumption take place in parallel. The immateriality expresses itself in (1) the lack of the client’s ability
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to examine the service before purchase and (2) the problems for evaluating the consulting service as efficient and/or effective after the purchase. There are only limited ways to describe and measure the agreed service with objective and measurable data. However, it is highly relevant that the client – the consumer of the consulting services – co-produces the results and the benefit. The quality is dependent on the individual efforts of (1) the consultancy, (2) the client, and (3) the working relationship between the former and the latter. After the production the client is neither able to change the achievements nor to pass them back due to the coincidence of production and consumption (Kuntz 2004, p. 52).
History of Internal Corporate Consulting It can be assumed that the phenomenon ‘Internal Consulting’ is as old as organizations are. However, the academic, Anglo-American organizational development literature reflects this very term (above all in differentiation to the external consultancies known since the 1920s (Kipping 1999)) not before the beginning (Margulies 1971; Walton 1969), respectively the mid (Swartz 1975) of the 1970s. There are good reasons for the thesis that Internal Consultancies have emerged only since the end of World War II with the increase of an ‘organized’ and ´managed´ business world. Thenceforward, academics, journalists, and external consultancies have been able to perceive Internal Consultancies as ‘relatively autonomous operating units’ – although the semantics vary strongly. The boom of foundations of Internal Consultancies since the 1990s corresponds – possibly with a little delay – with the strong increase of revenues of external consultancies (BDU 2005). This leads to the assumption that corporations have built their own consulting units because of the frequency of engagements of external consultants, the intensity of consultancy, the increase of costs, and own recruiting problems of external consultancies. An explicitly strategic purpose of founding an Internal Consultancy was often lacking. Most of the Internal Consultancies have grown evolutionary and with respect to special corporate situations, e. g. as a result of restructuring, centralization, or merger activities. The individual history of the various Internal Consultancies is manifold: They find their starting points in spin-offs from controlling or auditing departments, corporate universities, in the institutionalization of a project group, initiatives of HR or knowledge management, and in the strategic business development.
Market for Internal Corporate Consulting: No numbers, but trends During the last years, the phenomenon ‘Internal Consulting’ got some media attention (cf. for example: Hamacher 2005; Kleff 2005; Kort 2000). However, the amount of available publications with a practical and in particular with an academic background seems to be in
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contrast with the empirical relevance of the topic. Existing work focuses on singular case studies of existing Internal Consultancies (e.g. Niedereichholz 2000; Wurps et al. 2002) or discusses specific questions, e. g. concerning drivers of success (Büchsenschütz and Baumgart 2005), positioning of the consultancy (Maaßen 2005), differentiation towards external consultancies (Klanke 1992), or integration into a systemic context (Klein 2002). There was empirical work about consulting in general and about Internal Consulting published within the last years. Unfortunately, this work is only loosely coupled and presents partly contradictory results (Mohe 2004). In the following, three available studies shall be presented. Ebel and Grass (1999) did an empirical research in 1998 and 1999 about the diffusion of Internal Consultancies based on 66 interviews. This work allows certain empirically based statements. Research topic was the organizational integration of Internal Consultancies (mostly as a staff function), their goals and service offering portfolio (main services offered were corporate development, IT, Marketing; the most prominent goal was the optimization of distinct business units), their available human resources (vast majority with not more than ten consultants, mostly academics), and their future development (41% growth perspective, 53% stable, 6% reduction in personnel). A study conducted by The Hackett Group in 2002 comprised the results of 22 interviews with Internal Consultancies and 15 interviews with external consultancies (Campagna et al. 2002). Internal Consultancies had an average age of eight years. They could be regarded as established in the organizational landscape. Main reasons for engagements of Internal Consultancies were the set up and the usage of internal process knowledge. The projects of the Internal Consultancies were distributed on several functional areas, with a focus primarily on project management and only secondarily on specialized tasks. In 2003, during a study about the professionalism of client companies, Mohe and Kolbeck found that 75% of the interviewed companies had Internal Consultancies. Theses consultancies covered only 10% to 20% of the parent companies’ demand for consulting services. However, the demand for internal consulting services was generally higher, the lower the total budget for consulting services was. The number of employees had a range from six up to 150 (Mohe and Kolbeck 2003). As a result of the conducted review, it can be stated that there is a high diffusion rate of Internal Consultancies at least in large enterprises. Its part of the total consulting budget is worth mentioning. Up to the present, neither descriptive (scientific observation) nor pre-
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scriptive research (advising management philosophy) in the field of Internal Consulting research has developed to a satisfying level (Bamberger and Wrona 2005, p. 14). Selected empirical results
Methodology of the analysis and characteristics of the sample The presented results are based upon an empirical evaluation among the members of an informal group of representatives of Internal Corporate Consultancies. The survey was conducted in 2003 based on a written questionnaire. At least 18 Internal Consultancies participated in the survey. Emphasis of the evaluation were general information about the Internal Consultancy, about the parent company, their strategic alignment, the areas of consulting activities, on financial issues, the employee structure, the applied consulting methodology, and the consulting process. After making the data anonymous, uni- and bivariate analyses were conducted with the statistical software package SPSS. The sample in more detail: 18 Internal Corporate Consultancies participated in the survey. 14 of them are located in Germany. The other four units are located in other European countries. The consultancies in the sample represented in 2003 a total of 1,000 employees. Their parent companies unite more than two million employees and have combined annual revenues of some 440 billion Euros. One might call the parent companies as experienced clients: The absolute consulting expenditures of 13 parent companies (where data was available) cumulate up to more than 900 million Euros per year. The range starts with a single digit million Euro consulting budget and goes up to more than 200 million Euros per year. Eleven consultancies were founded in the 1990s. In three cases the foundation took place in 2000 or later. Four consultancies existed for 15 years or more at the point of the survey. The consulting activities are very similar with those of external consultancies: Process optimization, supply chain management, change management, project management, and organizational development were main project types.
Name of the Internal Corporate Consultancy Especially within the consulting market with its very features (cf. above), the name of the consultancy seems to be important for building reputation, trust, and relationships to the clients (see the well documented example of the rebranding of Accenture on 2001-01-01 in Henning 2002 and Henning 2004). Five out of the 18 Internal Corporate Consultancies have an explicit indication towards their internal character (add-ons like “internal” or “inhouse”) in their brands. Four consultancies emphasize the target group “management” within their name. The names of seven
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Internal Consultancies give a hint on the primary service offering (three times “process”, three times “organization”, once “technology”). However, in contrast to external consultancies no Internal Corporate Consultancy has chosen to weave the term “strategy” into its official name. One consultancy chose an artificial name. It can be assumed that the naming of Internal Consultancies follows company rules for the denotation of organizational units. The overall result differs significantly from the names of external consultancies. Most external consultancies use a person-related name for focusing and polarization (cf. for example Lünendonk 2005 where 16 out of the 25 largest management consultancies relate to a person with their firm name).
Year of foundation At the time of the survey, the average age of the evaluated Internal Consultancies was eleven years. Eleven percent were founded in the years before and including 1980 and another eleven percent in the 1980s. Exactly two out of three consultancies in our sample were founded in the 1990s and for additional eleven percent the year of foundation was 2001 or later. These results go in line with the study of Ebel and Grass (Grass and Ebel 1999, p. 33-34). Compared with external consultancies, a similar increase in the foundations in the years 1991 to 2000 can be identified for internal units – followed by a strong drop in the following years. It is only in the period before 1980 that there were relatively more foundations of external consultancies than of internal consultancies. However, this is not very surprising, if we have the nearly one century spanning history of external consultants in mind (Fink 2005) (see figure 1).
Number of employees The evaluated consultancies comprise an average of 53 employees. 44 employees on average do consulting work and nine employees have other functions (e. g. back office, research). A more detailed view shows that two consultancies have 100 or more employees; six consultancies have between 50 and 99 employees. Additional six consultancies employ 15 to 49 people and four consultancies have less than 15 employees. The minimum is with 9, the maximum is with 163 employees. The range of nonconsulting employees goes from zero to 39 people. The overhead (measured by ratio of non-consulting employees and consultants) is between 0 and 75 percent.
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Internal Consultancies External Consultancies
44% 33%
16% 11%
11%
11% 7%
till 1980
1981-1990
1991-2000
2001 +
Fig. 1. Comparison of years of foundation of external and internal consultancies (for the years of foundation of external consultancies: Mohe 2005)
Daily fees Internal Corporate Consultancies mostly have adopted the charging practices of their external colleagues. Most of the evaluated consultancies use the method of charging daily fees to their clients. This kind of compensation is based on the amount of time which was necessary to fulfill a task (time-dependent remuneration). Two compensation methods are different hereof: (a) the compensation is agreed upon before the project starts and a fixed sum is paid, and (b) the compensation is based on the success of the consulting engagement (performance-related remuneration). A combination of the basic types is possible, too (Heuermann and Herrmann 2003, p. 81). The structure of the time-dependent remuneration mostly follows the seniority of the consultants staffed in the project. The seniority takes into account a general professional experience as well as specific consulting experience, industry knowledge, and topic and methodology know-how. For a hierarchical separation of single roles a two or three layer model is often used. In the two-layer model, partner and consultants are differentiated. In the three-layer model, partner, project manager and consultants are differentiated. From an organizational point many consultancies have five levels of seniority: Senior Partner, Junior Partner, Project Manager, Senior Consultant, and Junior Consultant (Petmecky and Deelmann 2004). At the Senior Partner level, the maximum daily fee within the sample is 2,500 Euro; the minimum fee is 833 Euro. The mean is 1,411 Euro. At the Junior Partner level, the spread
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is the same. However, the mean is slightly higher at 1,429 Euro. For both, Project Manager and Senior Consultant, the maximum fee is 2,000 Euro per day; the minimum fee is 833 Euro. The mean for Project Managers is 1,287 Euro, for Senior Consultants is 1,188 Euro. For the Junior Consultant, the spread goes from 1,471 to 750 Euro with a mean of 1,025 Euros. Figure 2 depicts the spread and their means. Daily fees (max., min., average; in Euro)
2.500 2.000
2.000
1.500
2.500
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1.411
2.000
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1287
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833
833
833
833
Senior Consultant
Project Manager
Junior Partner
Senior Partner
500 Junior Consultant
Fig. 2. Daily fees of Internal Consultancies for several levels
Training and HR development Consulting is regularly termed as people business (cf. for example Barber and Strack 2005). Characteristic is – compared with other industries – the higher need of investment in the human capital. This leads to a higher need for training itself and a close attention to the individual training demand of every single consultant. The number of dedicated training days has a maximum of 15 days and a minimum of 5 days. On average every consultant within the sample has 10 days available for training activities.
Utilization rate The utilization rate (ratio) is an important parameter for the financial success of a consultancy. A utilization rate of 100% can be interpreted in the way that all consultants of the consultancy were able to bill every working day to their clients. Among external consultancies it can be observed that consultancies with a focus on strategic issues have lower utilization ratios than consultancies focusing implementation tasks.
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The consultancies in the sample have an average utilization rate of 77 percent. The maximum was at 106 percent – this might be due to overtime or an abdication of holidays. Figure 3 represents the average utilization rate of the evaluated Internal Corporate Consultancies. Utilization rate (in %) more than 90%
less than 60% 7
14
80% - 89%
37
21
60% - 69%
21
70% - 79% Fig. 3. Distribution of Internal Consultancies based on their utilization rate
Relative and absolute turnover The share of the total consulting expenditure as percentage of the parent company’s turnover is at an average 0.42 percent – with a minimum of 0.06 and a maximum of 1.03 percent. The turnover of the Internal Corporate Consultancies ranges from 1 up to 15.7 million Euros. The average is 6.75 million Euros. The ratio of the Internal Corporate Consultancies’ revenues of the parent companies’ total consulting spends is at an average 16.61 percent. The minimum is 3.85 percent, the maximum is 49.61 percent. If the numbers of the evaluated sample are roughly representative, one might say that Internal Corporate Consultancies have developed towards a highly relevant player in the consulting market. However, the larger part of the consulting expenditure still goes towards external consultancies.
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Additional results of the bi-variate analysis Beneath the presented uni-variate examinations, various bi-variate analyses were conducted, too. In the following, three of them are presented shortly: (1) Consultation with respect to organizational complexity: First, the intuitive relationship between the complexity of the parent company – measured by the number of employees – and the chance of consultation of the Internal Corporate Consultancy – measured by its share of the total consulting spend – was identified. The resulting range diagram shows that – contrarily to the intuitively plausible assumption – there is no (linear) correlation between the two indicators. An increase of the organizational complexity due to the numerical increase of employees did not force the parent companies to fall back on an increased usage of Internal Corporate Consultancies. (2) Mandatory usage of Internal Consultancies with respect to the share of consulting costs: It is remarkable that the Internal Consultancies whose parent companies have an obligation to contract with respect to their Internal Consultancy have a lower ratio of consulting expenditures and turnover (0.352%) than the Internal Consultancies whose parent companies do without obligations to contract. The other companies with a higher ratio of consulting expenditure and turnover (between 0.6 and 1.02 percent) did not have any obligations to contract. As a result, this means that there is a negative relationship between the parent obligation to contract and the amount of consulting costs spent for internal consulting services, measured by the turnover of the parent company. Therefore one might add the thesis that parent companies establish an obligation to contract with respect to the purchase of consulting services in favour of their Internal Consultancies especially in those cases where the total amount of consulting expenditure is anyway not that high. (3) Consulting spending with respect to the per-employee revenue of the parent company: This analysis tends to result in a slightly negative linear correlation. If the revenue per employee of the parent company increases by 10 percent points, the rate of consulting spend and total revenue decreases by 20 percent points. The higher the revenue per employee, the lower the consulting costs (relative to the revenue). Conclusion For the last decades, the market for management consulting services developed in an impressing speed. However, during the last five years the industry has faced major chal-
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lenges: A slowdown and partial decrease of growth rates, an erosion of reputation, and an increasing professionalism of clients. Focusing on client professionalism, one has to name the trend of setting up Internal Corporate Consultancies. This trend can be observed in practice. The scientific literature does barely reflect this development up to now. This chapter started with a definition of the term Internal Corporate Consulting, a short survey of the current market, and the statement of deficits of consulting. Based on an empirical evaluation of German and European Internal Consultancies, some elements of a future theory of Internal Corporate Consulting have been introduced. This empirical analysis of Internal Corporate Consultancies has shown that Internal Consultancies have formally co-evolved with their external competitors in a manner which can be described as mainly mimetic. The project areas, the years of the boom of foundations, and the career paths are some examples. On the other hand, the results of this study suggest that a more detailed reflection on this topic is required with respect to potential consequences both for social scientific theorizing and for empirical strategizing. Knowledge about the characteristics of Internal Corporate Consultancies might help to better evaluate and assess their working results and to compare Internal Corporate Consultancies with external consultancies. References Bamberger, I. and Wrona, T. (2005), “Konzeption der strategischen Unternehmensberatung” in: Bamberger, I. (ed.): Strategische Unternehmensberatung: Konzeptionen – Prozesse – Methoden, 4. ed., Gabler, Wiesbaden, pp. 1-48. Barber, F. and Strack, R. (2005), “The Surprising Economics of a ‚People Business’”, Harvard Business Review, 6/2005, pp. 80-90. Büchsenschütz, A. and Baumgart, K. (2005), “Quo vadis Inhouse Consulting? Strategische Erfolgsfaktoren interner Unternehmensberatungen” in: Petmecky, A. and Deelmann, T. (eds.), Arbeiten mit Managementberatern – Bausteine für eine erfolgreiche Zusammenarbeit, Springer, Berlin, Heidelberg, pp. 25-35 Bund Deutscher Unternehmensberater BDU e.V. (2005, ed.), Facts & Figures zum Beratermarkt 2004, Bonn. Campagna, C.; Kenk, A.; Metzger, M. and Thomiak, M. (2002) in: The Hackett Group (ed.): In-House Consulting Benchmark Assessment, Eschborn. Ebel, B. and Grass, B. (1999), “Inhouse Consulting: Gefahr für die Branche? Untersuchung Inhouse Consulting (III)”, Management-Berater, no. 3, vol. 6, pp. 33-34. Feaco (2004), Survey of the European Management Consultancy Market 2003, Brussels.
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Authors
Thomas Deelmann Thomas Deelmann is Head of IT-Strategy and -Architecture of Deutsche Telekom’s Group Headquarters and Shared Services. He has worked as external and internal consultant, and as program manager for Global Sourcing of Consulting Services. He is a doctoral student at the University of Mainz, Germany. His research interests are in the areas of business modelling and consulting services. Email:
[email protected]
Sabine Drescher Sabine Drescher was born in 1979. After her apprenticeship with a publishing company, she studied business and knowledge management on the University of Apllied Sciences Cologne. In 2005 she graduated from university. In her diploma thesis, Sabine Drescher investigated how knowledge management can help to improve the selection, management and evaluation of external management consultants. Beyond she has participated in several knowledge management projects and owns much experience in the field of consulting, change management and communications (e.g. Deutsche Telekom AG, OSTO Systemberatung GmbH). Email:
[email protected]
Matin Ebrahimchel Dipl. Kfm. Matin Ebrahimchel, born 1977, has studied Business and Administration in Oldenburg and Barcelona. He is a visiting lecturer and doctoral student at the professorship for Business Consulting at the University of Oldenburg and works with DaimlerChrysler. He has practical experience in project management and is the manager for several consulting projects at DaimlerChrysler. Email:
[email protected]
Axel Gloger Axel Gloger, business journalist, is an expert on business strategy and the consultancy industry. His articles can be read in the major periodicals and newspapers, including “Financial Times Deutschland”, “Die Welt”, “Handelsblatt”, “Frankfurter Allgemeine Zeitung” and “Manager Seminare”. He is also chief editor of “Trendletter”, the information service that is read by entrepreneurs and managers, as well as the author of numerous books on management themes. As a member of advisory and supervisory boards he makes his knowledge of strategy available to several companies and organisations. Education: Studied Economics at the Universities of Bonn, Freiburg i. Br. and Köln. Postgraduate Education at the Management Centre St. Gallen, the Goldmann Foundation and at Insead. Email:
[email protected]
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Authors
Sven Haferkamp Dr. Sven Haferkamp (born 1966) holds a PhD in Mechanical Engineering and a Master Degree in American Studies from Aachen University of Technology. He joined Deutsche Telekom in 2000 and served as Marketing/Sales Manager for T-Com and Head of Knowledge Management for the Inhouse Consulting. In July 2005, Mr. Haferkamp assumed the responsibilities of Human Resource Development Manager for Deutsche Telekom Group. Email:
[email protected]
Andreas Huchler Dipl.-Soz. Andreas Huchler, born 1976, is scientific assistant at the chair of Strategic Organization and Finance at the Zeppelin University Friedrichshafen. He is currently working on a PhD thesis about the role of business consultants with the modernization of public administrations. Email:
[email protected]
Stephan A. Jansen Prof. Dr. Stephan A. Jansen, born 1971, is President and Managing Director of the Zeppelin University in Friedrichshafen. In his second job as Professor for Strategic Organization and Finance (SOFI), he is interested in developments in the consulting industry and has recently co-published a paper on Internal Corporate Consulting. Email: scesnik @zeppelin-university.de
Dieter W. Kaiser Dieter W. Kaiser joined Management Engineers in 1981. He brought within the practical knowledge gained from a diverse industry career of more than 13 years. He was one of the founding partners who acquired the consulting firm in 1988 and have retained it to the present. Until 2005, Dieter was the company's Executive Vice-President, being responsible among other tasks for personnel management and recruiting. He adapting the methods and tools to the requirements of a growing consulting company and developed it to be one of the success factors of the firm.
Guido Klenter Dr. Guido Klenter, born in 1963, is Partner with Droege & Comp., International Management Consultants. He is located at headquarters in Düsseldorf and stands for eleven years of consultancy experience in terms of “Making Things Happen”. Therefore he is responsible for the Competence Center “Project Management”. He studied Industrial Engineering and Management at the Fridericiana-University of Karlsruhe and worked at
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the Institute of Industrial Management at the Gerhard-Mercator-University of Duisburg for his doctoral dissertation. Email:
[email protected]
Michael Mohe Jun.-Prof. Dr. Michael Mohe, born 1971, is a Junior Professor for Business Consulting and head of the research group Consulting Research (CORE) at the University of Oldenburg, Germany. He has worked with internal and external consultancies (e.g. KMPG, Volkswagen Consulting) and in a meta-consulting (e.g. with Infineon Technologies and DaimlerChrysler). Email:
[email protected]
Niels Möllgaard Niels Möllgaard, born in 1975, studied business administration at the Christian-AlbrechtsUniversity of Kiel (Germany) and the Keele University (UK). He has five years of experience in management consulting (Mummert und Partner AG, Droege & Comp. GmbH). Currently he works as a principal at the management consultancy Droege & Comp. at the office in Hamburg. He is member of the Competence Center “Project Management“. Email:
[email protected]
Sandra Niewiem Dr. Sandra Niewiem has been a management consultant at A.T. Kearney since 2000 and has gained valuable experience in strategy and organization in various industries and countries. Before joining A.T. Kearney, she studied Business Administration in Germany and the U.S. and completed her doctoral studies in the Department of Management and Leadership at the European Business School (ebs) in Germany. Her dissertation provides an analysis of the contractual relationship between clients and consultants on the basis of the transaction cost economic framework.
Arnd Petmecky Arnd Petmecky has more than ten years of experience in the Telecom Industry and is currently leading the Shared Service Organisation of Deutsche Telekom AG. Here he has to lead the intelligent integration of internal corporate services such as Travel Management, Procurement, Healthcare and IT. Besides acting as a restructuring expert, Arnd has a solid consulting background leading the Deutsche Telekom Inhouse Consulting Organisation and being part of A.T. Kearney Telecom & Hightec Practise in Berlin for several years. Before joining A.T. Kearney, Arnd Petmecky was part of Mannesmann´s strategy, sales & procurement organisation, where he managed post-merger activities and large scale IT-projects on a group wide scale. He holds an MBA degree from the University of
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Authors
Bayreuth and Ann Arbour, Michigan. Arnd Petmecky has issued multiple books and articles analysing the development of the global consulting industry.
Thorsten Posselt Prof. Dr. Thorsten J. Posselt holds a diploma in Economics (1986). He spent one year in the Stanford PhD program in Economics and was awarded a doctorate for a thesis in industrial organization at the University of Frankfurt in 1992. In 1999 he received a habilitation degree from the University of Frankfurt for a thesis in marketing. In April 2000 he became Professor of Service Management at the University of Leipzig. Professor Posselt was visiting researcher at the University of California in Berkeley in 2003 and the University of California in Davis 2003 – 2006. He also worked as consultant for companies dealing with issues of franchising and customer satisfaction. He teaches Executive Management courses in Germany and did so in Budapest, Helsinki and Prague. Since October 2005 he holds the Chair of Retailing and Service Management at the University of Wuppertal. He is head of the Marketing-group of the Schmalenbach-Gesellschaft (a group of executives of German companies and university professors) and member of several professional committees.
Ansgar Richter Ansgar Richter, PhD is the Chair of Management & Consulting and co-director of the Institute of Industrial Services Management, both located at the European Business School (ebs), Germany. He studied Philosophy and Economics at the universities of Frankfurt and Bochum, before completing a Master’s degree and a PhD in Management at the London School of Economics. He has also been a visiting scholar at the University of California at Berkeley and at Stanford University. Prior to his duties at ebs, Mr. Richter worked for several years as a management consultant with McKinsey & Company.
Michael Scholz Dr. Michael Scholz, born 1974, studied industrial engineering and computer science for business in Lemgo, Paderborn, and England. He is a certified consultant of the St. Galler Business School (SGBS) in Switzerland. Michael Scholz has accumulated numerous years of experience as a consultant and project manager at a consulting and software development company in Frankfurt, Germany as part of major projects with a focus on IT and EBusiness strategy and IT applications. In his work as a consultant in Berlin, he consulted and advised clients from small and medium-sized businesses. He is a freelance consultant at Netskill Inc. and heads an online competency center as a consulting coach. Along with these activities, he was an academic assistant at the Decision Support & Operations Research Lab at the University of Paderborn, conducted seminars for business and com-
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puter science students, coordinated a research project on the establishment of a Germanywide virtual university course of study, and performed research on the topic of increasing the efficiency of business consulting services as well as the use of information and communication technologies in business consulting. Email:
[email protected]
Richie Sternzeld Dipl.-Psych. Richie Sternzeld, born 1978, founded a Junior Consultancy during his psychology university studies and gained experience in the context of consulting projects for major and small-scale enterprises (e.g. from the Top 10 of the world-wide media industry). At present he is doing a PhD at the professorship for Business Consulting at the University of Oldenburg. Email:
[email protected]
Bettina Türk Dr. Bettina Türk, born in 1972, holds a diploma in business administration (1999) after having passed a bank traineeship at Dresdner Bank/Frankfurt. In 2004 she received a doctorate in business administration (University of Leipzig). She has special experiences in web-based business models (e-consulting, virtual communities, e-intermediation, onlinemarketing, etc.). Since 2004 she is head of office Frankfurt of NetSkill AG (www.competence-site.de), among others responsible for sales and business development. Email:
[email protected]
André C. Wohlgemuth Dr. André C. Wohlgemuth is a CMC (Certified Management Consultant) and has carried out more than 80 assignments over the past 20 years. He is owner of ARCOM Management Consulting, a strategy consulting boutique in Zurich and professor at the University of Zurich. He is past president and honorary member of ASCO (Association of Management Consultants Switzerland) and founding member of the European Independent Management Consultancies Network IMCN (www.imcn.biz). Email: wohlgemuth @arcom.ch.
Ausgewählte Veröffentlichungen im Rainer Hampp Verlag
Malcolm Schauf (Hrsg.): Unternehmensführung im Mittelstand. Rollenwandel kleiner und mittlerer Unternehmen in der Globalisierung ISBN 3-86618-035-7, Rainer Hampp Verlag, München u. Mering 2006, 392 S., € 34.80
Die zunehmende Internationalisierung verändert die Rahmenbedingungen auch für den Mittelstand. Forschung und Praxis müssen sich mit den daraus ergebenden Herausforderungen beschäftigen und Lösungsalternativen aufzeigen. Renommierte Vertreter aus der KMU-Forschung und -beratung befassen sich in diesem Sammelband mit den Auswirkungen der Globalisierung auf kleine und mittlere Unternehmen. Neben einer statistischen und definitorischen Positionsbestimmung erfolgen Auseinandersetzungen mit Internationalisierungstrends, strategischer Planung, Marketinginstrumenten, E-Business, Personalführung, Organisation und Krisenmanagement. Die Inhalte sind modular aufgebaut, so dass einzelne Themen auch isoliert behandelt werden können. Das Buch richtet sich an Dozenten und Studierende der Betriebswirtschaftslehre mit den Schwerpunkten Mittelstand und Unternehmensführung sowie an Führungskräfte der mittelständischen Wirtschaft.
Peter Niermann: Der organisationale Veränderungsprozess und die Sicht des Beobachters. Die Rückkehr des Subjekts. Systemische Beratung im Spannungsfeld zwischen Anspruch und beobachteter Wirklichkeit Schriftenreihe ORGANISATION & PERSONAL, hrsg. von Oswald Neuberger, Band 14 ISBN 3-86618-017-9, Rainer Hampp Verlag, München u. Mering 2006, 282 S., € 24.80
Unternehmen sind komplexe Systeme aus Regeln, Strukturen, Zielen und Ideen. Sie operieren nach ihrer eigenen Dynamik und ihren eigenen Regelverletzungen. Das Aufeinandertreffen komplexer dynamischer Systeme zeigt sich in der Turbulenz der Märkte. D.h. die Unternehmen werden mit ihrem eigenen Handeln konfrontiert. Der beobachtete Wandel ist ein zirkulärer Prozess von der Erstehung bis zum Zerfall und retour. Der Wandel ist das Abbild konkurrierender Wirtschaftssysteme und zugleich ein Spiegel, in dem wir nur das sehen, was wir selber sind: Die menschliche Vergänglichkeit. Im Prozess der Veränderung, an der Grenze zwischen System und Umwelt nimmt der Beobachter bzw. Berater – der zugleich Subjekt und Akteur ist – seine Zwischenposition ein. Von hier aus hat er die Möglichkeit, hinter die Kulissen der Organisation zu blicken. Veränderung heißt zugleich Neues und Loslassen vom Bewährten. Das Neue weckt Ängste, aber auch Hoffnungen. In diesem Prozess sind Unternehmens- und Akteursziele vielschichtig. Akteure, betroffen oder nicht betroffen, werden sich die Frage stellen: „Was bedeutet das für mich?“ Aus Sicht der Beratung oder der Begleitung von Veränderungsprozessen ist die Frage nach dem Subjekt oder dem Akteur in der Architektur der (Luhmannschen) Systemtheorie zu klären und zugleich die Problematik der Intervention in soziale Systeme. „Der Berater ist Täter!“
