Impact of Management Consulting Perspectives on Value Creation, Performance Evaluation, and Governance of the Client-Consultant Relationship
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Impact of management consulting Perspectives on value creation, performance evaluation, and governance of the client-consultant relationship Schriftliche Promotionsleistung zur Erlangung des akademischen Grades Doctor rerum politicarum vorgelegt und angenommen an der Fakultät für Wirtschaftswissenschaft der Otto-von-Guericke-Universität Magdeburg Verfasser: Julian Stahl Geburtsdatum und -ort: 21.06.1988, Hannover Arbeit eingereicht am: 15.04.2018 Gutachter der schriftlichen Promotionsleistung: Prof. Dr. Roland Kirstein Prof. Dr. Marko Sarstedt Datum der Disputation: 25.09.2018 Impact of management consulting Perspectives on value creation, performance evaluation, and governance of the client-consultant relationship Preface Discussions about the added value by consultants can leave all parties involved in and effected by consulting projects puzzled. While consulting companies are obviously interested in claiming substantial positive effects of their work, several critical authors have characterized consultants as overpaid quacksalvers who sell their clients useless pieces of advice. Not surprisingly, the critical attitude towards consultants is occasionally expressed on client site. Critical client managers may ask questions such as ‘What are we paying for?’, ‘What is your impact?’, ‘What will be the return on our investment?’, ‘Who is responsible in case a project fails?’ – questions which are in most cases difficult to answer. Having worked as a consultant for several years in three different companies – ranging from a 30-employee local boutique player to a world-wide giant with over 400,000 employees – prior to pursuing a PhD, my personal interest in the consulting industry comes natural. I have been very lucky to have had the opportunity to spend more than two years of working academically in order to unravel the concept of value of consulting services and to bring together the results by means of this dissertation. For this, I am deeply indebted and thankful to a number of persons. First of all, to Prof. Dr. Roland Kirstein for accepting me as PhD candidate and for supervising my thesis work. Many interesting thoughts have been sparked in numerous discussions with him which have had a great influence in shaping this dissertation. Moreover, I have also received highly valuable feedback by faculty members Dr. Annette Kirstein, Michael Karas, Matthias Peiß, Julia Felischak, and Mariia Shkolnykova. Furthermore, I am very thankful to Prof. Dr. Marko Sarstedt for agreeing to be the second reviewer of this thesis. Outside of the university in Magdeburg, I would like to thank my friends Philipp Letzgus and Tim Sadler for several fruitful discussions around several aspects covered in this book. Moreover, I would like to thank Dr. Marc Baaij whose course on Strategic Management Consulting I attended in 2010/2011 at the Rotterdam School of Management and who thereby introduced me to thinking about consultants’ work and impact from an academic point of view What has enabled me to pursue a PhD has been the support by my employer, OC&C Strategy Consultants GmbH (EY-Parthenon as of 2018). The possibility to go on a PhD leave while being funded by the company and being able to work from my desk in the Hamburg office has been a great starting condition for writing my dissertation. I Last but not least, I would like to thank my wife, Elizabeth Jöcker, my family, and my friends for their support during the time of working on my PhD. If one person stands out in motivating me to work academically, this would be my grandfather, Klaus Schaefer. I am convinced he would have been an outstanding scholar. It was mostly due to the difficult circumstances in post-war Germany in the mid- and late 1940s that he did not have the opportunity to attend a university and pursue an academic career. Being thankful that I was given the opportunity, I dedicate this book to him. II Table of contents List of figures and tables .................................................................................................................. V List of abbreviations ......................................................................................................................... VI List of variables................................................................................................................................. VII 1. Introduction .................................................................................................................................. 1 2. Consulting: Literature Review and Synthesis .................................................................... 5 2.1 General background on consulting ............................................................................... 5 2.1.1 Definitions, boundaries and characteristics of consulting ............................. 5 2.1.2 Development of the consulting industry ............................................................ 13 2.1.3 Criticism faced by consultants ............................................................................. 19 2.2 Client organization and the relationship with consultants.................................... 21 2.2.1 Reasons to use consulting services ................................................................... 21 2.2.2 Roles within the client organization .................................................................... 25 2.2.3 Combined view: client-consultant relationship ................................................ 27 2.3 Procurement of consulting services, contracts and fees ...................................... 32 2.3.1 Procurement process for consultancy projects ............................................... 32 2.3.2 Contract structure for consultancy projects ..................................................... 42 2.3.3 Costs of consultancy projects .............................................................................. 44 2.4 Impacts of consulting ...................................................................................................... 57 2.4.1 Measurements for project results and success factors ................................. 58 2.4.2 Consultancy impacts beyond the context of projects .................................... 71 3. Empirical research ................................................................................................................... 74 3.1 Methodology ...................................................................................................................... 74 3.2 Empirical findings ............................................................................................................ 78 3.2.1 Trends .......................................................................................................................... 79 3.2.2 Criticism towards consultants .............................................................................. 80 3.2.3 Procurement and tendering ................................................................................... 81 3.2.4 Contingency fees ...................................................................................................... 86 3.2.5 Success factors and measurements ................................................................... 91 3.2.6 Emerging topic 1: Optional consulting contract .............................................. 93 3.2.7 Emerging topic 2: Third party monitoring ......................................................... 93 3.3 Discussion of results ....................................................................................................... 98 4. Temporal divisibility of fees ................................................................................................ 101 4.1 Relevant context in consulting literature ................................................................. 101 4.2 Theoretical background ................................................................................................ 102 III 4.3 The basic model .............................................................................................................. 104 4.4 The model with a partial pre-payment ...................................................................... 107 4.4.1 The NEV case ........................................................................................................... 109 4.4.2 The case of initial board proposal by M alone ................................................ 111 4.5 Summary of results ........................................................................................................ 112 4.6 Implications for future research ................................................................................. 113 5. Monitoring of consulting projects ...................................................................................... 115 5.1 Theoretical background ................................................................................................ 116 5.2 Choice of monitor ........................................................................................................... 118 5.3 Model of Bayesian enforcement for consulting projects ..................................... 123 5.3.1 The consultants’ choice ........................................................................................ 125 5.3.2 The project sponsor’s choice .............................................................................. 126 5.3.3 Equilibrium analysis .............................................................................................