The Nature of Consulting

PART ONE SettInG tHe StaGe COPYRIGHTED MATERIAL c01 1 20 June 2017 1:15 AM c01 2 20 June 2017 1:15 AM CHAPTER ONE THE NATURE OF CONSULTING onsulting has become an important source of employment and pro- Cfessional satisfaction for tens of thousands of people in the United States and around the world. Despite the industry downturn in 2009, according to the U.S. Office of Personnel Management and the Associa- tion of Management Consulting Firms, major consulting firms continue to expand their global reach as well as their areas of consulting practice. It would appear that this $350 billion global industry will remain an attrac- tive career for many years to come (Top-consultant, 2011; U.S. Depart- ment of Labor, 2006). Consulting is a large and vital industry. A hundred years’ growth in the consulting industry indicates that clients have valued the services provided by consultants. Indeed, consultants have been a powerful force in shaping and influencing the very market they have pursued. Yet with its size and scope, the consulting industry could benefit from some close examination if it is to enjoy a second hundred years in the face of technologies that are changing the way information and advice are delivered. This chapter lays out the nature of the industry as well as some of its major issues and challenges: • Scope of the industry • Types of consulting • Concept of the trusted advisor 3 c01 3 20 June 2017 1:15 AM 4 The Practice of Professional Consulting • Consultant qualifications • Professionalism in the industry Thus the chapter sets up and summarizes the main themes of this book: the values, knowledge, skills, and professional behavior needed by new consultants to the industry. It’s an Industry Thousands of business consulting firms, ranging in size from one-person operations to perhaps a dozen people, have emerged over the last twenty- five years across the United States and around the world. Their consulting ranges from executive coaching and leadership development to advising on how to build and run a corporate learning academy; from corporate social responsibility and crisis management to sustainability, security, and integrating technology systems; from business turnarounds to personal financial planning. Consultants in “think tanks” such as the Brookings Institute, Rand Corporation, Cato Institute, American Enterprise Institute, Heritage Foundation, and the Hudson Institute conduct research and offer advice on a comprehensive range of international and domestic issues. In addition to the global consulting companies and research institu- tions, many self-appointed individuals travel the world offering advice on a wide range of business and personal effectiveness problems. Finally, since the 1950s, the industry has also included professors from university business schools who have consulted to business and industry on a pleth- ora of management and executive education topics (Verlander, 1986). Christopher McKenna (1995), a historian of consulting at Oxford Univer- sity, explains that man agement consulting has been around for more than a hundred years. First there were the big consulting firms, such as Arthur D. Little (founded in 1886), Booz, Allen & Hamilton (1914), A. T. Kearney (1926), McKinsey (1926), The Boston Consulting Group (1963), Cap- gemini (1967), and Bain & Company (1973), followed by a tidal wave of small, specialized boutique firms that hired MBAs and trained them in their methods and procedures to be first-class strategy and business consultants. The big accounting firms had developed their own management consulting units early in the twentieth century and believed—until recently—that using their audit and tax client base they could leverage those relationships to build management consulting and information technology (IT) consulting practices. But in the 1980s and 1990s this produced internal management conflicts, as the revenue from consulting c01 4 20 June 2017 1:15 AM The Nature of Consulting 5 in those firms started to exceed the audit revenue, and conflicts of inter- est, as the Enron, WorldCom, and Tyco scandals put their independence into question. According to McKenna: In 1998, the Big Five (accounting firms) employed more than 65,000 consultants and billed more than $12 billion annually. By 2002, four of the five largest consulting firms had new names and new owners: Anderson Consulting had become Accenture; Ernst &Young Consulting was bought up by Cap Gemini, PricewaterhouseCoopers Consulting was sold to IBM, and finally KPMG Consulting became a publically traded company and renamed itself BearingPoint. In the end, only Deloitte Consulting . remained attached to a leading international accounting firm. (McKenna, 2006, p. 238) Perhaps the most recent large shift in business models for technology companies is that of IBM. From its origins as the leading manufacturer of IT hardware, the company now produces most of its revenue from consulting services (2007 pretax earnings: software 40 percent, services 37 percent, hardware/financing 23 percent). IBM competes with Electronic Data Sys- tems (EDS, acquired by Hewlett Packard in 2008), and Microsoft, which has operated its own consulting services division since 1995. Since the 1970s there has been a rise in the number of consulting companies devoted to and specializing in such areas of consulting as human resources benefits, organization development and training, and what might more broadly be called change management consulting—helping clients to build learning organizations, employee development systems, and leadership development strategies. Many management consulting firms have a practice in technology consulting, as it is such a rapidly growing area of business development and profits. As Table 1.1 shows, however, management consulting firms generally specialize in something other than technology and have built their reputa- tions and fortunes in the strategy and organizational change areas of practice. They have built formidable, high-quality client bases in health care, government, business, and education, and include Oliver Wyman (formerly Mercer Delta), Mercer Consulting, A.T. Kearney, The Forum Corporation, AchieveGlobal, Dale Carnegie Corporation, HayMcBer, FranklinCovey, and the now defunct Harbridge House. All of the traditional accounting firms (McKinsey started as one)—such as KPMG, Price- waterhouseCoopers (PwC), and Ernst & Young—divested their consulting practices, except Deloitte & Touche (which recently dropped Touche from its brand name), which continues to offer a range of management c01 5 20 June 2017 1:15 AM 6 The Practice of Professional Consulting TABLE 1.1 LEADING CONSULTING FIRMS Firm Name Start Revenue Number Traditional Focus Date Employed Accenture 2001 $25 billion1 244,000 Information Technology (2011) Arthur D. Little Inc. 1886 Unknown 1,000 Strategy and Technology Acquired by Altran in Innovation 2011 AT Kearney 1926 $79 million 2,700 Management Purchased back from (2008)2 EDS in 2006 Bain & Co. 1973 $2 billion 5,000 Business Strategy (2007)3 Operations Boston Consulting 1963 $3 billion 4,800 Business Strategy Group (2009)4 Management Booz Allen & Hamilton 1914 $5.5 billion 25,000 Management Technology (2011) Booz & Co. 2008 $1 billion 3,300 Business Strategy (2009)2 Management Capgemini 1967 $12 billion 91,000 Strategy and Merged with E&Y in (2008) Transformation 2005; sold NA business HR, Supply Chain to Accenture, 2005 Marketing/Sales Deloitte Consulting 2000 $6.3 billion 15,000 Human Capital (2009)5 Strategy and Ops Technology HP Enterprise Business 2008 $53 billion Information Technology (2009)6 (Acquired Electronic Data Systems in 2008) IBM Global Svc Group $60 billion 100,000 Management (2008) Information Technology Monitor 1983 $300 million 1,500 Strategy (2001)7 Management McKinsey & Co. 1926 $6 billion 17,000 Business Strategy (2009)8 Management Oliver Wyman $4.6 billion 3,400 Management Strategy Subsidiary of MMC (2009) and Economic Analysis PricewaterhouseCoopers 1998 $7.5 billion 38,000 Operations (PwC) (2011) Management Process Finance—Sarbanes-Oxley Source: 1. Plunkett Research, Ltd. 2. FT.com January 26, 2011 3. Slideshare.net 4. BCG website, March 8, 2010 5. www.careers-in-business.com/consulting/mc.htm 6. HP 2010 Annual Report, p. 38 7. Boston Business Journal, July 23, 2001 8. Forbes October 28, 2009 estimate c01 6 20 June 2017 1:15 AM The Nature of Consulting 7 consulting services. KPMG’s divestiture became BearingPoint, which in 2009 liquidated and ceased its operations. The particular field of management consulting grew, by some esti- mates, over 20 percent during the 1980s and 1990s. Unlike other parts of the broader professional services industry, it tends to be cyclical and linked to overall economic conditions. Although figures vary, it is clear that the consulting industry declined along with the general North American and global economy. For example, according to Plunkett Research (2009), the consulting industry shrank during the 2001–2003 period but has been growing slowly since. Ibisworld (2012) reported that the consulting industry declined by 2.6 percent in 2009 and fell another 3.5 percent in 2010. And according to the Economist, during the Great Recession of 2008–2009 the consulting industry experienced a severe reduction in client work, with a corresponding trimming of fees, cuts, or contract delays. In 2009 the global consulting industry shrank by 9.2 percent, the worst year since 1982 (“Advice for Consultants,” 2011). Add to this the fact that Marsh & McLennan

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