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Management consulting defined

A lot of people have trouble describing what a consultant does, because ‘consulting’ is such broad term. The Australian Concise Oxford Dictionary defines a consultant to be a person who provides information or advice. Since consultants are typically employed to analyse the problems and challenges faced by management and to develop plans for improvement, they are called ‘management consultants’. In October 2003, the Institute of Management Consultants defined management consultants as “objective professionals who provide advice and assistance in the process of management across national boundaries.” Traditionally, consultants were employed to help management in the private sector but are now also used by government and non-governmental organisations.

It seems that consultants are able to assist management in two main ways, by

1. providing expert knowledge, and
2. facilitating an impartial, organised and speedy investigation of a business problem.

Firstly, consultants may be able to provide management with specific expertise in order to tackle a particular problem that needs solving. For example, a company that needs to update its computer systems can employ an IT consultant. One of the benefits of bringing in a specialist is that they have experience, a track record of success and an understanding of industry best practice. Employing a skilled individual consultant may be a good option for a small company but this may not be a good solution for larger companies. A large corporation may have multiple problems or may not understand the cause of its problem. Instead of employing an individual consultant, it may therefore make sense to employ a consulting firm. Large consulting firms are able provide clients with a range of different services because they can draw on a broader skill base.

Areas of expertise that consultants can bring to clients include

• Industry specific knowledge
• Business strategy, which includes looking at
  • assessing and responding to industry trends,
  • defining strategic priorities,
  • restructuring a company’s organisation,
  • developing a strong brand image,
  • increasing profitability (cutting costs and boosting revenues),
  • creating growth (developing new products, expanding into new markets, acquiring assets and companies),
  • improving marketing and distribution of products, and
  • deciding whether and how to outsource activities.
• Information technology
• Tax
• Risk management
• Human resources

Secondly, consultants can assist management by being able to facilitate the examination of a business problem. The fact that consultants are often employed on a short term contract and are paid high fees to produce results, gives them an incentive to work quickly, be organised and to produce high quality work. Since the consultant does not work at the company full time, they are able to talk freely and openly with employees at all levels within the company, to collect and put together good ideas, and to provide a more objective analysis and recommendation to the company. For example, consultants are able to provide disinterested advice about cost saving measures. Introducing more efficient work practices might save a company millions of dollars, but lead to the dismissal of a large number of workers. Existing employees may be aware that more efficient work practices could be used, but they are unlikely to suggest such measures because they have an interest in keeping their jobs.

Management consulting stereotypes

Management consultants are often loudly criticised. Why is this so? Just as there are shonky lawyers and quack doctors, there are bound to be crummy consultants. However, the fact that leading corporations continue to fork out big dollars to employ management consultants seems to indicate that, on the whole, the services provided by consultants represent value for money. A consulting joke one of my good friends told me recently provides some insight into the negative stereotypes surrounding the profession

A man drives up to a farmer who is herding his sheep and says “if I tell you how many sheep you have, can I have one of your sheep?” Intrigued, the farmer agrees. The man sits down, pulls out his laptop, does some calculations, makes some phone calls, takes some satellite photos and finally announces, “you have exactly 413 sheep.” The farmer is impressed, “that’s exactly right, you can have the sheep of your choice.” The man picks one of the animals and the farmer says “now can you do something for me? If I can tell you what you do for a living, will you give me back my sheep?” The man agrees and the farmer immediately replies, “you’re a consultant!” The man is amazed, “yes, how could you know that?” “Well”, says the farmer, “you came without being asked, you told me something I already know, and you don’t know anything about my business… Now give me back my dog.”

Here are 6 of the main management consulting stereotypes that I have come across

1. Consultants provide cookie cutter solutions without providing real insights. Maybe, but it seems unlikely that a competent consultant would be able to use a one size fits all solution to solve a company’s problems. Every company faces a unique set of circumstances and the experienced consultant would have to draw upon their experience and knowledge of the industry to solve the specific problems at hand.
2. Consultants generally state the obvious. This may be true, but it is not necessarily a bad thing. Whether consultants use their own expertise or develop solutions through interviewing employees of a company, their job is to present a case that supports a particular recommendation. The recommended actions may be straightforward, but the important thing is that the analysis and reasoning behind the recommendations is sound. By obtaining an outside opinion, management avoids the risk of reckless decision making, which is a common and often fatal leadership flaw (more on this in a later post).
3. Consultants are extremely intelligent. Believing that this stereotype always holds and blindly hiring Slimy Joe & Associates is probably a good way to throw away large amounts of money. However, consultants working at the large established consulting firms will generally fit the mold. The big consulting firms only interview the top graduates and the interview process is pretty gruelling. I intend to have an in depth look at the consulting interview process in a later post.
4. Consultants work extremely long hours. This is almost certainly true. Scott Adams, the creator of Dilbert, amusingly speculates that this is done to make the regular staff feel like worthless toads for working only sixty hours a week.
5. Consultants are paid too much money. I am sure that consultants don’t see it the same way. If you are perpetuating this particular stereotype, what you probably mean to say is that consultants are paid more money than you are. As good rational economic agents, consultants appear to be happy to charge the highest fees that the market will bare. This money go some way towards compensating consultants for working long hours, meeting tight deadlines, travelling and working constantly, and for their extreme intelligence (see stereotype 3).
6. Consultants overuse jargon and buzzwords in order to make themselves sound more intelligent than they really are. With consultants throwing around words like ‘change management’, ‘synergies’, and acronyms like MECE (mutually exclusive and collectively exhaustive) consultants are certainly up there with lawyers for their use of acronyms and seemingly incomprehensible jargon.

Management consulting opportunities

According to Graduate Careers Australia, most of the opportunities in consulting for graduates, in 2007, were in business consulting services including strategic business planning, corporate financial services, human resource management services and increasingly, information management and e-commerce strategy development.

Consulting firms typically caste a very wide net when employing graduates and recruit from a diverse range of disciplines including commerce, science, engineering, liberal studies and law. It is interesting to note that 43% of consultants employed at Port Jackson Partners, a boutique consultancy in Sydney, are from an engineering background. Science and engineering disciplines place a strong emphasis on analytical problem solving skills. As such, it seems to me that these courses, engineering in particular, are the perfect training ground for people looking to get into the consulting game. I wish I’d know that six years ago.

The management consulting industry - some history

The first management consulting firm was Arthur D. Little, founded in 1886 by a professor at MIT.

Almost 30 years later, Booz Allen Hamilton was founded in 1914 as a management consultancy. Booz was the first management consultancy to serve both industry and government clients.

Interestly, the first pure management and strategy consulting company was McKinsey & Company. McKinsey was founded in 1926. The culture of the firm has been heavily influenced by a man named Marvin Bower, who served as managing director from 1950 to 1967. Bower believed that management consultancies should adhere to the same high professional standards as lawyers and doctors. McKinsey is currently the world’s most prestigious management consulting firm.

If you enjoyed this article and would like to read about investment banking, visit the James Cox finance blog.