What are consultants for? - Financial Times - FT.com

BUSINESS of
CONSULTING
FINANCIAL TIMES SPECIALREPORT | MondayNovember 19 2007
www.ft.com/consulting2007
Advisers prepare for life on the edge
After benefiting from
a healthy global
economy, the sector
could be facing
a downturn, writes
Stefan Stern
Amanagement consultant’s
work is never
done. That, at least, is
the devout belief of the
management consultancy industry.
As long as businesses and
organisations need advice and
guidance, consultants will tell
you, there should be a market for
their services.
It is hard to fault their logic.
Bosses may be too busy to find
the time for “blue-sky thinking”.
They may not have all the expertise
they require in-house to deal
with a pressing challenge. Consultants
may have advised clients
in similar situations before,
whereas individual managers
may face the problem confronting
them only once. Even
supremely confident executives
have to accept, perhaps reluctantly,
that they do not know
everything.
Insidethisissue
Europe Andrew Baxter reports
on regions where history makes
a difference Page 2
The Americas Markets in cities
such as Buenos Aires (below)
are growing, writes
Paul Gronwall Page 3
These are the facts of management
life that have supported the
growth of consultancy over the
years to the point where, in the
US for example, the amount of
money spent on consultancy
services annually is well in
excess of $100bn a year – about 1
per cent of GDP. A healthily
growing global economy has
boosted the demand for strategic
and operational advice around
the world.
If financial institutions
were to reduce
spending, consultants
would struggle to
replace the shortfall
But while the consultancies
report that they are as busy as
ever, they cannot be certain that
the outlook for 2008 will be as
bright. The full extent of the
damage caused by the US subprime
lending crisis is as yet
unknown. But the knock-on
effect of substantial write-downs
Accounting Jennifer Hughes
on the battle to dispel conflicts
of interest Page 4
Private Equity Andrew Baxter
looks at one of consulting’s
fastest growing sectors Page 6
Environment Companies
want advice on turning
green, says Fiona Harvey
Page 8
Niche firms A mix of
small and large firms are
needed to cope with
change, writes
Rod Newing Page 11
by the banks, and greatly
reduced liquidity, will do nothing
to boost business’s prospects in
the wider economy, with their
budgets for discretionary consultancy
work possibly taking a cut.
The consultancy firms will tell
you, of course, that tougher
times in the economy can create
work: cost reduction projects and
restructurings crop up to replace
change management and growth
programmes.
But continuing trouble in the
financial services sector could
spell difficulties for consultants
in a more direct way. This sector
has been a big purchaser of consultancy
advice, generating, in
the UK for example, as much as a
third of all fee income, according
to the Management Consultancies
Association (MCA). It has
been “the engine room of
demand”, says Fiona Czerniawska,
director of the MCA. If the
banks and other financial institutions
were to reduce spending,
consultants would struggle to
replace the shortfall.
The imminent, much-predicted
wave of redundancies in financial
centres is likely to release
quite a lot of specialist talent
into the labour market, some of
which will be snapped up by
employers looking to “insource”
management experience, and
thus reduce their need for external
advisers. Meanwhile, where
corporate management is growing
more sophisticated and experienced,
the need for consultancy
advice is reduced. Assignments
may be more limited and tightly
focused, and therefore less remunerative.
Private equity clients
embody this trend rather well.
“This new environment is certainly
a tougher one, but we welcome
that,” says Alan Middleton,
the new chief executive of PA
Consulting. “Our private equity
clients know what they want.
They are looking for operational
improvements and cost reduc-
Onthebrink:thecreditsqueezecouldaltertheconsultinglandscape Corbis
tions [in their acquired assets].
That’s how they will create value
and ultimately create more jobs.
They are tough taskmasters, but
they get things done.”
John Drzik, chief executive of
Oliver Wyman – the rebranded
and restructured consulting firm
that includes the well-known
Mercer consulting business –
echoes this point. “The great
thing about PE clients is that
they usually do execute the
advice you have offered,” he
says.
In the UK market, another of
the rich sources of demand in
recent years is being steadily
reduced: public sector projects.
The British government’s spending
commitments for the next
three years have been tightened
quite sharply in comparison with
the massive increase in public
spending over the previous five
years. With the obvious exception
of the London Olympic
games in 2012, the number of big
ticket consultancy projects
will come down fast. Political
Continued on Page 2

2 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007
Business of Consulting
Markets that are determined by history
EUROPE
Andrew Baxter on
how size and the past
can significantly
vary prospects
When Katzenbach Partners, a
fast-growing US strategy consulting
firm founded in 1998 by three
former McKinsey partners, opens
its first European office next
year, London will be the location.
It is not just that US companies
entering the European market
tend to start in the UK because
of cultural affinity and “because
we speak the same language”,
says Gus Vlak, the Katzenbach
partner in charge of the European
expansion. “The consulting
market is very deep in the UK,
and London is such a huge commercial
hub,” he says.
Initially he expects that
roughly 60 per cent of the London
office’s work will be for UK
companies, with the rest from
mainland Europe. Offices in
mainland Europe may follow.
Katzenbach’s plan makes good
sense as the UK is the world’s
second-biggest market for consultancy
after the US. Leading consultants
offer various reasons for
why UK companies and public
sector organisations are more
hooked on third-party advice
than their mainland European
counterparts.
Contributors
Stefan Stern
Management writer
Andrew Baxter
Senior Reports Writer
Jennifer Hughes
Financial Correspondent
Fiona Harvey
Environment
Correspondent
FT Contributors
Paul Gronwall, Rod
Newing, Emily Rotberg
Seb Morton­Clark
Commissioning Editor
Steven Bird
Designer
Arnel Hecimovic
Picture Editor
For advertising details,
contact: Robert Grange
on: +44 (0) 207 873 4418;
or robert.grange@ft.com
This special report
appears online at
ft.com/bizconsulting2007.
All special reports, past
and present, can be
accessed at ft.com/reports
Keith Burgess, European chairman
of BearingPoint, says the
difference probably goes back to
the beginning of the 20th century
and a greater natural tendency in
the UK to use professional
advice, underpinned by the earlier
development of the accounting
profession.
The post-second world war settlement
in mainland Europe has
also emphasised social issues
more strongly, he says, making it
harder to implement some of the
advice that consultants may give
– such as a restructuring involving
redundancies. “The sensible
solution becomes very difficult to
do in parts of Europe because the
costs of change are so high,” says
Mr Burgess.
Carl McNicholas, director in
Oliver Wyman’s insurance practice
and UK market manager,
says that UK and US organisations
should be relatively lean
after years of change and cost
reduction programmes, so hiring
expertise to deal with flows of
demand or cyclical events works
better than owning it full-time.
“You only pay for what you use,”
he says.
Paul Forrest, a partner at BDO
Stoy Hayward, says continental
European businesses are more
conscious of the need to help
themselves, whereas in the UK,
businesses turn to advisers more
readily because it is a good insurance
policy. “If they can get
someone to come in and say
‘Incentive is
more powerful
than risk’
UKPUBLICSECTOR
Rod Newing
reports on
cost­cutting by the
UK government
where they can get savings, they
can go back and give them a
good kicking if the savings are
not achieved,” he says.
The greater need for external
diagnosis in the UK’s large, complex
enterprises is emphasised by
Andrew Hooke, chief operating
officer of PA Consulting Group.
“It can be difficult to see the
problem within the organisation,
so people have gone outside for
advice,” he says.
A second factor has been the
need for quick turnrounds and
solutions in a very competitive
‘The sensible solution
becomes difficult to do
in parts of Europe
because the costs of
change are so high’
marketplace, says Mr Hooke. The
much earlier adoption in the UK
of the outsourcing and shared
services agenda has also played
its part, he says.
Differences in attitudes
towards consultants across
Europe may never fully be
smoothed out, but there are signs
of convergence. All three of the
factors cited by Mr Hooke are
coming into play increasingly
across Europe, he says – albeit at
different levels of usage.
Mr Burgess at BearingPoint
says the drivers for using consultants
– regulation, mergers
and acquisitions and the need for
efficiency – are becoming
stronger across the continent.
“Things have improved significantly,”
he says. “In Germany
the whole structure of business
was such that it was very difficult
for professional advisers to
make headway 20 years ago, but
it’s a lot easier today. Elsewhere,
such as France, there are still
barriers but it is much better
than it was.”
Size may also be a more important
factor than country in shaping
different attitudes to consulting.
Mr Hooke believes that
many smaller companies prefer
not to seek external advice. “I
think they view it as a failure if
they have to call people in,” he
says. We have seen this in Germany,
where we target the bigger
firms, but it’s not just a German
thing.”
The variations that consultants
still encounter across Europe
may be influenced by the type of
engagement. Among less international
financial services companies,
the needs of an Italian or
German bank may be much the
same if they are buying a relatively
commoditised piece of
work such as financial modelling,
says Mr McNicholas,
because it would be based on
pan-European standards. But in
the case of a change programme,
the cultural differences could be
quite profound, requiring the
consultancy to adapt its
approach and delivery.
Internationalisation could help
stimulate a more uniform European
consulting market over the
next five or 10 years. For example,
Germany’s Mittelstand companies,
the small- and mediumsized
enterprises that form the
backbone of its economy, may
lack the internal skills to expand
globally, says Mr Forrest.
But the composition of the providers
in each consultancy market
is likely to be an enduring
difference. This is particularly
the case with IT consulting, says
Mr Burgess – in Germany, for
example, deep SAP expertise is at
a premium, while in France the
international consultancies vie
with lower-priced local software
suppliers.
In some markets, the consultancies
have made little or no
impact in areas that elsewhere
would be a big part of their business.
In most cases business
turnround and insolvency work
in Spain, for example, is done by
law firms, says Mr Forrest. “With
corporate finance-type transactions,
you get a lot of that in
other countries – people
encroaching on our traditional
turf,” he says. “It’s a different
market dynamic.”
For additional comment on public
sector trends, see this article on
www.ft.com/consulting2007
Top UK management consultants
Ranked by fee income for fi nancial year 2006
Rank Firm 2006 Fee income Fee income
(£m)
change (£)
1 Accenture 851.8 16.8
2 IBM Business Consulting Services 649.0 39.0
3 Deloitte 403.0 42.0
4 Xansa 397.7 27.9
5 Capgemini 319.0 28.0
6 PwC 289.0 73.0
7 LogicaCMG 263.0 27.0
8 KPMG 242.6 27.5
9 PA Consulting Group 230.5 27.9
10 Ernest and Young 197.9 27.3
11 McKinsey & Co 185.0 13.0
12 Fujitsu 172.5 12.5
13 Detica 149.5 48.2
14 Management Consulting Group 146.9 17.3
15 Atos Consulting 141.3 12.7
16 CSG Computer Science Corp 102.1 28.1
17 Bain & Company 82.0 10.0
18 Towers Perrin 78.0 4.0
19 Ove Arup & Partners International 76.7 11.5
20 Boston Consulting Group 64.0 7.0
21 Morse 63.3 22.4
22 Methods Consulting 58.5 5.5
23 Atkins Management Consultants 58.0 13.0
24 LEK Consulting 56.0 21.0
25 BT Global Consulting 48.5 4.5
26 REL Consultancy Group 45.9 7.9
27 Penna Consulting 44.6 2.8
28 AT Kearney 44.5 5.5
29 Hedra 34.3 2.5
30 The Hay Group 33.2 2.9
31 Analysys Mason Group 32.5 -0.9
32 OC&C Strategy Consultants 25.0 3.5
33 PKF (UK) 23.0 2.5
34 EC Harris 22.1 1.6
35 Oliver Wyman 20.7 1.7
36 Charteris 20.1 0.8
37 Serco Consulting 19.0 3.9
38 Chaucer Group 18.7 1.7
39 AMTEC Consulting 18.5 0.5
40 Hornagold & Hills 17.6 1.6
41 Advantage Business Group 17.5 2.2
42 The Nichols Group 17.0 2.6
43 Collinson Grant 15.4 3.4
44 Capita Advisory Services 14.5 4.8
45 EA Consulting Group 13.4 10.2
46 Axon 12.0 1.2
47 Compass Management Consulting 10.7 0.7
48 Hitachi Consulting 10.7 0.9
49 Dbi Consulting 10.5 -3.1
50 The Structure Group 9.6 2.5
Source: Managementconsultancy.co.uk; Accountancy Age
Advisers prepare for life on the edge as good times near an end
Continued from Page 1
pressure to reduce often controversial
spending with management
consultants will also have
an effect.
Concern has been expressed
over the large budgets assigned
to big public sector reforms –
such as the reorganisation of IT
systems in the UK’s National
Health Service – that do not
always seem to have delivered
the promised improvements.
Capacity constraints now
apply, within the context of
According to the
National Audit
Office, total UK
public sector spending
on consultants was
£2.8bn in 2005-6, of which
central government
accounted for £1.8bn. It suggests
that better use of consultants
by central government
could realise 30 per
cent efficiency gains within
three years, amounting to
£540m a year.
“Some progress has been
made in recent years,” says
Keith Davis, head of the
National Audit Office’s efficiency
practice, “but government
has a long way to go.
There are very significant
improvements that can be
made by making more use of
inhouse staff; negotiating
better contracting terms;
and getting improved results
for the money spent.”
The National Audit Office
Value for Money Report on
central government’s use of
consultants, published in
December 2006, found that
most departments do not
make a proper assessment of
whether internal resources
can be used instead of consultants.
Neither do they
transfer skills to build their
internal capabilities. Its findings
were supported by the
House of Commons Committee
of Public Accounts’
report on central government’s
use of consultants in
June this year.
In response, the Office for
Government Commerce has
embarked on a Consultancy
Value Programme. It is
addressing clearer objectives
and measurement of success,
reinterpreting existing
project management guidance
to cover consultancy,
contract management, better
management information,
closer engagement with key
suppliers, and promoting
shared learning.
“One of our major findings
was how inter-related most
of these issues are,” says
Peter Walmsley, the programme
manager. “For
example, it is very difficult
“framework agreements” set up
by government departments, to
reduce the cost of consultancy
services bought with taxpayers’
money. “We have to provide
‘brains on seats’, not ‘bums on
seats’,” says Robert Osborne,
chief executive of Augmentis, a
consultancy, acquired this summer
by the US firm Navigant.
“It’s about delivering expertise,
not a volume of people.” In this
way the public sector is catching
up with private sector practice,
where concerns over “resource
substitution” – a senior partner
to define a good way to
measure performance without
clarity of objectives in
the business case at the outset
and a good project structure
within which to control
it. In the past, attempts to
solve some of the issues
piecemeal have therefore
had limited effect.”
The National Audit Office
has launched a toolkit for
government departments to
improve their use of consultants.
Departments complete
an online questionnaire and
the toolkit responds with
areas of weakness and guidance
on improving value.
The consulting community
feels that problems start
with the difficulty of clearly
specifying objectives in the
public sector. Andrea Di
Maio, vice president at
Gartner, the analyst firm,
explains that whereas the
objective could be increased
efficiency or improved service
delivery, there may also
be political objectives.
“Other European public
sectors are addressing the
problem of clearly defining
public value a little bit better
than the UK,” he says.
“It is fundamentally different
to the private sector,
where there is a chain from
the mission, strategic objectives
and strategic plan to
the consultancy engagement.
There is no link
between political objectives
and consultancy contracts.
Countries like Australia,
France, Germany and the US
are attempting to come up
with public value frameworks
that articulate objectives
more transparently.”
Accenture has set up the
Institute for Public Service
Value to focus on measuring
the outcomes that drive
value. “In the private sector,
shareholder value acts as a
unifying factor for measuring
project success,” says
Jeremy Oates, head of
Accenture’s government
practice. “There is no easy
equivalent measure in the
public sector.”
Mr Davis feels that too
pitches for work that is then provided
by several much more junior
people – have been rife for
years.
Consultancy is now a mature
market. A positive tale is told by
some of its participants, about a
world inhabited by savvier buyers
and more professional vendors.
Some of this optimism is probably
overdone. As Raju Patel,
managing director of the advisory
firm Fulcrium, points out in
his guest column in this report,
too many clients are still too
Healthyself:theNAOfoundthatgovernmentdepartmentsdonotproperlyassesswhetherinternalresourcescanbeusedinsteadofconsultants Reuters
much use is made in consultancy
contracts of time and
materials, and not enough of
either fixed-price contracts
or, ideally, incentive-based
payments. According to the
Committee of Public
Accounts, only 1 per cent of
consulting projects use
incentivised contracts,
which compares with 12 per
cent in the private sector.
“Performance-related fees
are something that our
industry would like to see
more of,” says Peter Hill,
chief executive of the Management
Consultancies Association.
“However, whilst clients
are intrigued with the
concept, they shy away from
the reality. If a consultant
takes the risk, they need
more management responsibility.
This can be difficult
for the public sector, which
tends to be more risk averse
and gets very nervous about
releasing control. It is also
nervous about being seen to
give rewards or incentives to
consultants, instead of to the
tax payer.”
Ian Lever, director in the
social housing consultancy
at NCC Group, points out
that in the private sector,
many of the risk-reward
projects are based upon
increased revenue. However,
the government sector has
still not woken up to the
very real opportunities that
can be realised by revenue
generation.
Neil Beer, a member of PA
Consulting’s government
team, finds that clients are
sometimes concerned that
the costs of incentive-based
contracts cannot be exactly
predicted in advance. As a
result, some insist on more
predictable time-based fees.
Part of the same problem
is that consultancies see
public sector procurement
procedures as over-bureaucratic,
using generic processes
and forms that are not
appropriate for consulting.
“Potential providers must
complete a long pre-qualification
questionnaire,” says
Paul Marshall, managing
director of Protiviti, a consultancy.
“These are often
used to evaluate organisations
as diverse as builders,
caterers and consulting
vague at the start of an assignment
about what it is they want
to achieve, and how they propose
to measure how successful the
work has been.
Smarter clients are asking
tougher questions of their advisers.
This can also happen when
there is a big management
change at the top of a business.
In October, Tony Hayward, the
new chief executive of BP,
announced a big cost-cutting and
restructuring programme, having
taken advice from both McKinsey
and Bain. The latter firm has
firms. They are not tailored
for the services required.”
The concern is that these
procedures focus on keeping
costs down rather than maximising
the potential benefits,
which could actually
reduce the value. “Government
contracting is done to
protect government against
failure, rather than making
‘I am not surprised
that the number of
risk­reward
contracts is low.
And it will remain
low for a long time’
sure the programme is a success,”
says Mr Oates. “The
contract should encourage
both sides to behave in a
way that maximises the
chances of success.”
Alan Russell, head of LogicaCMG’s
consulting division,
argues that contracts are
designed to punish a supplier
for not meeting require-
been growing fast recently. Its
famously data-driven approach
has been in tune with the
PE-inspired deal flow of the last
couple of years.
This hard graft of consulting
work is the modern reality. The
popular stereotype of the consultant
as a more fanciful “out of the
box” innovator is out of date, if it
was ever true.
According to Prof Andrew
Sturdy, of Warwick Business
School, who has just completed a
three-year study of consultants
at work, consultants are more
ments. “If you allocate risk
disproportionately,” he says,
“it can make one party very
defensive. If you have an
excess of risk, you manage
the project differently than if
it is shared equally. Incentive
is more powerful than
risk.”
Mr Di Maio argues that
although time and materials
is seen as a bad thing, it can
allow a government agency
to engage with a consultant
to understand and refine its
objectives. “I am not surprised
that the number of
risk-reward contracts is
low,” he says, “and it will
remain low for a long time.”
Many consultants feel that
procurement procedures are
used to keep consultants at
arm’s length in order to
avoid giving unfair advantage.
“If people in the public
sector talk to potential suppliers
in a more free and
open way it would dramatically
improve the quality of
work done,” says Alan
Downey, head of government
at KPMG.
Jonathan Cooper-Bagnall,
a member of PA Consult-
“knowledge brokers” than visionaries.
Their job involves collaborating
with management to
obtain ideas accepted within an
organisation – and then leaving
management to carry on with the
work.
Even if the reality of the work
is unglamorous, there is no
shortage of candidates looking to
join consulting firms. And this,
too, is a global phenomenon. The
most popular career choice
among Indian business school
students is management consulting,
according to a recent Nielsen
ing’s management group,
points out that consulting
relies heavily on trust,
which means that individuals
on both sides have to
know each other.
Building trust at the start
also carries through a successful
project. Patrick
Smith, a partner at Atos
Consulting, argues that an
honest exchange of ideas
and post contract flexibility
are more likely to secure
success than stubborn
adherence to a contract.
The Consultancy Value
Programme should help to
address these areas of concern.
Mr Walmsley reports
that there was widespread
agreement between users
and the consulting industry
on nearly all of the issues.
“The drive for efficiency
means the public sector will
continue to need top-quality
independent advice,” says
Chris Loughran, head of
technology consulting at
Deloitte. “The better consultancies
have little to fear
from government getting
better at managing this
expensive resource.”
survey, beating both investment
banking and IT.
But how many of them should
be hired, and how should they be
deployed? Anticipating future
demand for consultancy services
has never been harder, which
makes “resource allocation” a
challenge for the consulting
firms just as much as it is for
their clients. But who will advise
the consultancies on how they
should be managing themselves?
It will take more than a nifty
two-by-two matrix to work that
one out.

FINANCIALTIMES MONDAYNOVEMBER 19 2007 ★ 3
Location becomes a deal­breaker
THEAMERICAS
Paul Gronwall assesses
the two continents’
variegated markets
North America has long
been a stronghold of
management consulting.
Companies have
been eager users and did not hesitate
to pursue outsourcing and
offshoring as the capabilities and
cost savings available in other
regions became evident.
While the US continues to be
the largest consulting market, it
has to a large degree matured,
and is no longer the fastest-growing.
In Latin America there is a
big appetite for consulting services,
although the total market is
substantially smaller. The region
is attractive to multinational businesses
because of relatively low
costs and highly-skilled labour,
and consultants can benefit from
high foreign direct invesment levels
and the global aspirations of
local companies.
A sampling of large publicly
listed consulting firms indicates
Companies are setting
up in regions of the US
where skills are high,
labour costs are low,
and English language
skills are not an issue
healthy revenue growth in 2007.
In most cases total revenue across
all services in the Americas
increased by more than 10 per
cent compared to the previous
year. The consulting services component
of these numbers reflect
the best performance, with outsourcing
usually lagging behind
and in many cases responsible for
less revenue compared with 2006.
While some industry observers
have been quick to declare the
demise of outsourcing, recent
trends do not necessarily support
that hypothesis. Outsourcing continues
to grow in popularity as a
necessary business tool. As buyers
improve at making outsourcing
decisions, they are carving up
the business into smaller parcels
that each go to a best-of-breed
service provider. They are also
shortening the duration of contracts
to provide themselves with
greater downstream flexibility.
The result? Contracts are smaller,
and big providers are securing
less of the work.
In fact, outsourcing is taking
some new twists in the US.
Prompted by criticism of sending
jobs offshore and the desire to
keep work closer to home where it
can be more easily managed,
some companies are setting up in
regions of the US where skill levels
are high, labour costs are low,
and English language skills are
not an issue.
Many of the forces driving consulting
demand are not unlike
those in other markets – runaway
energy costs, foreign competition,
private equity investing, and
more complex and stretched supply
and distribution chains. In
fact, as companies become
increasingly global, the lists of
business challenges are becoming
more uniform.
“Innovation” continues to be
the most popular buzzword in
consulting. As with most hot markets,
it quickly becomes filled
with eager practitioners, not all of
whom are experts. Consultancies
are experiencing high levels of
interest despite client frustration
with the failure of some projects
to yield the expected results.
The US government’s sizable
expenditures for its military and
security programmes provide a
huge additional market for consultants
working in the public
sector. ACS, for example, reports
that its government revenues
grew by 12 per cent in 2007, while
commercial work increased by
8 per cent. Computer Sciences
Corporation grew its US government
revenue by nearly 6 per
cent, while revenue from US commercial
clients declined by over 4
per cent during the same period.
Consultancies operating in
Latin America have enjoyed
healthy growth, particularly over
the past year or two. But as other
firms contemplate entering the
market or consider how broadly
to invest, they invariably compare
the region’s potential to other
investment opportunities, such as
those in Asia Pacific. Market size,
political and economic risk, and
the lack of maturity in some country
markets can detract from
Latin America’s appeal.
Latin America consulting is
BuenosAires:afterBrazilandMexico,Argentinaisasignificantgrowingmarketforconsulting AP
dominated by Brazil and Mexico,
which together account for nearly
70 per cent of the revenue. In
addition to being the largest, they
are the fastest growing. The next
most significant country markets
are Argentina, Chile, Colombia,
and Venezuela.
Despite the diversity and youthfulness
of the Latin America market,
the needs of its clients are not
unique. Businesses have the same
objectives as their counterparts in
the US, Europe, and Asia. And as
client organisations graduate to
cross-border and global operations,
their shopping lists for consulting
services increasingly
match those of other multinational
clients.
Growth of the US consulting
market is in the high single digits.
All firms do not experience the
same success, with growth varying
significantly across firms and
service offerings. So while some
are seeing 20 per cent or more in
annual growth, others are finding
it more difficult.
The Canadian consulting market
has been growing at a moderate
pace. Public sector work dominates
consulting, with manufacturing
and financial services clients
running a distant second at
about one-half the size of the public
sector work. IT consulting is
by far the largest consulting segment,
and locally-based CGI leads
in this market.
The demand for significant strategic
change within companies
has never been as high as it is
today. And the need for change is
not simply a response to some
immediate threat; it is a cornerstone
of long-term business success.
As clients address both
growth and cost containment,
innovation provides the opportunity
to get more output for what
is spent, thereby addressing both
objectives.
Consultancies, whether in the
Americas or elsewhere, that can
help companies with innovation
while minimising disruption to
the current business and bottom
line will continue to be in
demand.
Paul Gronwall is editor of Management
Consultant International
Business of Consulting
Leaderswhocopewithchange
Although volatility and its
impact on business is greater
in Latin America, the
differences between south and
north America have lessened
recently. “In both markets you
think about the
macroeconomic climate, the
commodities cycle, and the
strength or weakness of the
balance sheets of companies,”
says Steve Gunby, chairman of
north and south America at
The Boston Consulting Group
(BCG). “The last year is not a
story of the acute difference
between Latin America and
north America.”
The north American market
appears to be a healthy one
with room for growth.
“Commercial work in north
America, year to date, is up 20
per cent year on year. We do
not see any slackening of
that,” says Barry Jaruzelski,
vice president and lead
marketing officer at Booz Allen
Hamilton. And this is despite
the weakening economy.
“There is increasing angst from
clients about the prospects for
their industries and businesses,
particularly in automotive and
financial services,” observes Mr
Jaruzelski. “But it has not
translated into a lack of
willingness to engage
consultants.” What it has done
is change client focus. There
has been a rapid shift in
emphasis to cost issues with
companies preparing for a
trough or a recession.
Even rising energy costs are
creating a lift for consulting.
“Rising oil prices affect
transportation companies,
causing them to seek ways to
cut costs elsewhere,” reports
Mr Jaruzelski. “Similarly,
industries using plastics or
other petroleum­based
materials are looking for other
ways to cut costs or to buy
the raw material more
efficiently. This creates
sourcing work.”
The need for companies to
improve or overhaul the
business tends to be present
in all economic environments.
“It is the pressure to re­invent
business models, fundamentally
improve business models, or
create new business models
while meeting near­term profit
pressures,” says Mr Gunby.
Perhaps the most significant
new force in the marketplace
is sustainability, and interest is
growing as businesses realise
they can be green and yet
save money. “We have been
having discussions on
sustainability in consumer
packaged goods, automotive,
and other industrial sectors,”
says Mr Jaruzelski. “Green
sourcing results in generating
less pollution, having less
waste, and it turns out to be
cheaper.”
Clients increasingly are
expecting solutions that
address all facets of the
business. The approach needs
to be multi­functional, including
strategy, organisation, process,
and technology. “You have to
be able to pull all those levers.
Clients are looking for more
multi­dimensional answers,”
notes Mr Jaruzelski.
There is also a real need for
technology to support changes
in the enterprise, but
organisations today are less
willing to hand the entire effort
to IT in the hope that
technology will effectively
transform the business. “What
is being required is
business­driven, IT­supported
change efforts,” claims Mr
Gunby.
In some cases, getting that
multi­functional solution will
prompt clients to assemble
best­of­breed providers, but
the need for an integrated
answer then puts the client in
the role of prime contractor,
having to co­ordinate all the
contributors. Global
multi­dimensional consultancies
have an advantage in winning
such projects from clients that
do not wish to take on the
added complexity and risk.
“The number of people who
can do everything that is
necessary – the insight, the
collaboration, the drive for
impact – is not unlimited,”
warns Mr Gunby. But
consultancies soon may have
the upper hand in the north
American war for talent.
Graduates of MBA
programmes have been most
interested in pursuing careers
in four industries – private
equity firms, hedge funds,
investment banks, and
consulting firms. “Consulting is
rising rapidly among the elite
professions in graduate
business schools,” asserts Mr
Jaruzelski.
Paul Gronwall

4 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007
Business of Consulting
Audit firms once again making ‘consulting hay’
ACCOUNTING
Conflicts of interest
have mostly been
settled, writes
Jennifer Hughes
Its official: The Big Four are
back. Figures published this
month showed that strong fee
growth at the consulting arms of
the top tier accounting firms
have pushed them back into the
top 10 of UK consultancy.
Three of the four – KPMG, PwC
and Ernst & Young – sold their
consultancy businesses in the
wake of the Enron scandal and
the regulatory scrutiny that then
turned upon perceived conflicts
of interest between the firms’
auditing core and their consulting
interests. Only Deloitte held
on to its operations.
Now, the non-compete agreements
related to the business
sales have all passed and this
year, according to Accountancy
Age, all four are back in the top
10 of UK consulting fee earners.
The returnees posted exceptional
growth: 25 per cent, 14 per cent
and 11 per cent respectively at
PwC, E&Y and KPMG, and 10 per
cent for Deloitte. The growth picture
is little different worldwide;
this has been a bumper year for
their consulting arms.
But they are keen to stress
how this time, it is different.
For one thing, no longer are
they the systems implementation
behemoths of the past – excepting
Deloitte, they tend to dismiss
that as low-margin “commodity”
work. Instead, they emphasise
their ability to bring together a
number of services from tax to
accounting and actuarial skills.
“Now we’re working with our
clients to figure out what is the
best business solution for them,”
says Aidan Brennan, head of the
advisory business at KPMG
Europe. “The market is saying
we want advice independent of
the solution – there’s been a real
demand for us to provide that.”
Streamlining
through trust
CASESTUDY
RIJKSWATERSTAAT
Rod Newing hears
how proven results
and a clear goal are
essential to success
“The politicians were saying
we were too large and too
fat,” says Hugo Kramer,
director of the new
corporate service centre of
Rijkswaterstaat, the
government body
responsible for managing
the infrastructure of roads
and waterways in the
Netherlands. “Overhead
accounted for 25 per cent of
our workforce and costs
and it had to be reduced to
15 per cent.”
Under pressure to put
more of its resources into
its maintenance programme
of the heavily-used road and
dyke infrastructure,
Rijkswaterstaat (RWS)
centralised 85 different
support functions in 17
offices in only 18 months,
reducing overheads by 40
per cent and achieving high
user satisfaction. This was
only possible by working
with a consultancy that had
already carried out a
similar project in London.
When it was founded
more than 200 years ago,
RWS had a branch in each
province of the Netherlands.
As a result, it had 17
separate offices, all
providing the same support
functions. To escape the
inefficiency of the old
structure, the organisation
decided to centralise these
overhead services. Based in
Utrecht, it would provide
support for human
resources, finance,
communications, legal and
facility management
functions.
“We needed to change
fast, but we didn’t have the
experience or knowledge to
plan and execute it
quickly,” says Mr Kramer.
“We needed consultancy
experience from a proven
project, so we looked for
successful government
organisations that had
implemented a similar
solution.”
London’s Westminster
City Council had
implemented a
multifunctional shared
service centre, with support
from PA Consulting Group.
RWS went through an
invitation to tender process
and PA Consulting Group
was appointed. “The
appointment was a matter
of trust, not cost,” says Mr
Kramer. “We wanted a
proven solution and there
are not many
multifunctional shared
service centres.”
The appointment was
made in March 2004 with a
plan for the shared service
centre to become fully
operational in only 18
months. This involved
defining new processes,
adapting systems, testing
them and training 800
people who then had to be
transferred.
The new service model
was designed to encourage
users first to seek an
answer to their query
themselves on the corporate
intranet. If this was
unsuccessful, they would
contact the call centre.
Only if it could not be
resolved at this stage would
they be transferred to an
expert. PA provided the
knowledge, but supplied an
average of only five
consultants during the
project. RWS wanted to
maximise the involvement
of its own staff and harness
their knowledge of its
organisation in applying
PA’s advice to its own
system of working.
“At the beginning we
came up with the problems
and PA came up with the
best proven solutions,” says
Mr Kramer. “Because of our
lack of knowledge we were
very dependent on them
and it looked at times as if
they were managing us.
However, they had the
expertise to train our people
and made it easy for us to
learn quickly and
efficiently. They soon
transferred their skills and
eventually we started to
take the lead.”
The result was a 40 per
cent headcount reduction,
saving 750 full-time
equivalents at a cost saving
of €45m per year. The call
centre dealt with 50,000
requests for support during
its first year of operation. It
resolved 85 per cent of all
questions and received an
average online customer
satisfaction score of 70 per
cent. The specialists no
longer waste time on easy
questions and can focus on
more complex work.
The contract with PA was
on the basis of time spent,
not a fixed price. It came to
less than a twelfth of the
first year’s saving.
“We have a lot of
experience of fixed price
contracts, and the cost is
always higher than we
estimated, because we
cannot specify the total
work in advance,” says Mr
Kramer. “There are always
changes that give rise to
unforeseen work that has to
be negotiated at an
additional price. It is much
easier to work on a trust
basis, where you manage
the consultant’s work and
balance their cost against
the benefits. A fixed price is
easy if you know exactly
what you want from the
consultant, but if you
cannot be certain you end
up paying much too much.”
Clear deliverables were
defined for each stage of
the project and reviewed in
evaluation meetings, but
the relationship was
characterised by trust and
continuous informal
communication. “When
there is trust you work in
less formal ways,” says Mr
Kramer. “It is much more
expensive if you mainly
communicate formally,
because you have to
prepare documents and sit
in meetings. Trust is a
better way to manage such
processes than formal
reviews of the contract.”
RWS had to change
radically and fast. PA
provided the initial skills,
but RWS did most of the
work itself. Its people
learned very fast and in a
short time were much more
professional in their skills.
“You have to have a clear
goal and find a partner
with proven results,” Mr
Kramer concludes. “It isn’t
the number of consultants,
but the quality of their
input. They must be quick
and effective at teaching
your own people, as that is
the best way to get results.”
The income data would back
that up. Accountancy Age has
PwC’s UK consultancy business
bringing in fees of £289m for
sixth position in the top 10 and
globally, the firm’s advisory business
income rose 15 per cent in
the year to June 30. Deloitte,
with its IT work, ranked third in
the top 10 with £403m. KPMG
brought in £243m for eighth, and
E&Y £198m at number 10.
“Clients are asking for someone
to sit on their side of the
table and get the best advice and
put the right people in front of
them,” says Steve Varley, head of
the advisory services at E&Y.
In some cases, they dispute the
very notion of a return.
“What we ended up selling off
was the big-ticket IT implementation
and what we held on to was
the group that did other aspects
of consulting, so we’ve always
been in this market anyway,”
says Jeff Thompson, head of performance
improvement consulting
at PwC. “Then, there were
500 of us and 30 partners, now
we’ve grown to 1,500 and 70 partners.”
Mr Thompson uses a building
analogy to explain the consulting
role played by the Big Four: “If
you’re going to build a house,
you commission an architect,
he’ll help you design it and
orchestrate the plumbers and
‘The market is saying
we want advice
independent of the
solution – there’s
been a real demand
for us to provide that’
bricklayers, but he doesn’t lay
the bricks,” he explains. “Clients
today want an architect. They
may have commissioned work
from a high-level strategy house,
but they’re not sure what to do
with it and that’s where we come
in.”
This is likely to incense other
firms who have derided the
return of the Big Four, focusing
on the inherent potential conflict
of interest between audit and
non-audit work.
“It’s proven to be a conflict to
have those two under the same
roof,” says Jonathan Burnett,
managing director of European
operations at Protiviti and a
former Big Four partner. “Fundamentally
an auditing and
accounting firm works for a company’s
shareholders. Advising
management is therefore an
inherent conflict.”
Richard Pile, managing director
at Parson Consulting notes
how non-audit fees for audit clients,
including advisory work,
often outstrip the actual audit
income. The firms counter that
they follow guidelines that mean
they cannot provide consulting
or advisory work for anything
they would themselves audit.
“Now, safely protected behind
newly-created limited liability
partnership structures, and with
more pricing power than ever in
a smaller oligopoly [since the collapse
of Arthur Andersen, the
Big Fifth], audit firms are once
again making consulting hay
from their audit relationships,”
says Mr Pile.
Mr Burnett believes that the
firms cannot offer the best advice
and talent either, since because
they are led by auditors the bulk
of investment and interest will
naturally flow in that direction.
“So as a consultant, you’re not
necessarily working with the
best tools,” he says.
They may not be working with
the best consultants either,
according to a new report from
Smart, the US consulting and
services group, on the growth
potential of the mid-sized niche
consultancies. It believes graduates
are becoming quickly disillusioned
with big-company life.
“They are now migrating to
the smaller firms where they can
get the opportunity to use their
full suite of skills and potential.
‘A’ team talent is fast becoming a
What are consultants for?
MISSIONSTATEMENT
Rod Newing asks
how organisations
should use them
Are consultancies
change-makers or
body shops?
C o n s u l t a n t s
believe their primary mission
is to bring about permanent
change in their clients’
organisations that they
could not achieve for themselves.
However, research suggests
clients see them more
as a “body shop” to fill skills
shortages.
A survey by the Management
Consultancies Association
(MCA) found that the
single most important reason
why organisations use
consultants (70 per cent) is
access to specific skills not
available internally. A similar
report from LogicaCMG
came up with the same figure,
with facilitating a significant
change programme
(65 per cent) trailing behind.
“Our research shows that
people want to access specialist
skills they need for a
short period of time,” says
Fiona Czerniawska, director
of the MCA’s think tank,
“and the management consulting
firms have those
skills. There are ‘economies
of knowledge’ because the
client gets the benefit of
using a consultant who has
worked for different businesses
in different places
within a particular field.
They can then use the skills
of these ‘warm bodies’ to
change their organisation.”
Lynda Purser, managing
director of the Institute of
Business Consulting, a professional
body, says an
organisation may be at a
point of strategic change it
cannot bring about on its
own because it lacks internal
knowledge and skills.
What they are doing might
not necessarily be leadingedge
in the outside world,
but is to them. “They may
not have invested in the necessary
skills and knowledge
in the past,” she says, “and
this is where consultants
can help.”
Hiring a consultancy just
for their skills is fine for a
short term where the organisation
will have no further
use of the skills afterwards.
However, longer term needs
are met at lower cost by hiring
an individual, either
onto the payroll or on a
finite contract.
Ms Purser points out that
the survey figures are likely
to include the public sector,
which has divested itself of a
huge number of people since
the Gershon efficiency
review. “As they reduced the
headcount, they found themselves
filling skills gaps with
consultants for quite considerable
times,” she says. “It is
entirely wrong and they
have begun to address the
situation.”
The same situation exists
in the private sector. Futurologist
and business angel
Peter Cochrane says that clients
are looking for just
skills because most are now
operating at very high efficiencies.
With people working
50 or 60 hours a week
instead of 40, they are often
working 110 per cent of their
available time.
“There are no lightly
loaded people and no slack,”
he says. “Most people no
longer have time to think or
keep-up with the latest
trends and changes. In con-
trast, consultants can devote
as much as 30 or 40 per cent
of their time to keeping up
to speed.” Richard Rawlinson,
a partner at Booz Allen
Hamilton says that it is
often impossible for an
organisation to maintain the
same range of specialist
skills or to provide the broad
comparative experience that
consultants develop.
David Thomlinson, managing
director at Accenture
warns of the danger that
weak management at clients
can cause them to become
used to having consultants
around. “In these convenient
relationships the consultant
become an expensive cost
and part of the scenery,” he
says. “If there are elements
of the consulting profession
that do ‘body shopping,’ they
bring the consulting name
somewhat into disrepute.
Consultancy is not about
providing people with skills,
but bringing the knowhow,
drive and capability to
deliver transformation.”
He says the way to avoid
incorrect use of consultants
is to create a continuing tension
in which the client continually
questions the value
of the work and the consultant
constantly justifies the
value they are bringing.
Alan Russell, head of con-
sulting at LogicaCMG, is surprised
by the number of clients
that do not formally,
and rigorously, assess the
value and business benefits
achieved.
An individual contractor
may be a good solution
where just one person is
needed for a finite period to
supplement internal
resources. “In this way, they
can meet demand and
reduce costs more easily
when the business requirements
change,” says Ian
Lever, director at NCC
Group. “Contractors and
consultants are not one and
the same, and consultants
should be used only for specialist
projects that have a
significant impact on the
transformation of the organisation.”
Mr Russell says that the
knowledge base and “horsepower”
of a consultancy is
more appropriate for largescale
or global projects. They
have the ability to mobilise
resources quickly and efficiently
wherever they are
needed and can work with a
consistent approach. This is
especially valid in Sarbanes
Oxley and other regulatory
requirement work.
“Hiring consultants to fill
missing skills is a misunderstanding
of the role of con-
sultants,” says Aidan Bocci,
chief executive of Commercial
Advantage, “and is the
best way to prevent them
from adding value. Genuine
value is added only when
consultants unlock the existing
capabilities within an
organisation.”
He argues that consultancy
is about working with
people to change their mindset
and working patterns.
Clients should not ask the
consultants for answers, but
to help them find answers
for themselves.
Gerald Dunn, a director at
Qedis, says that undoubtedly
there is the time and the
place for bringing in the
expert who has done a task
many times before. “However,
if you are using consultants,”
he says, “you are
usually looking for smart,
pragmatic, organised problem
solvers who can adapt to
what they find and deliver
value.”
A critical role of consultants
is to use their arm’s
length relationship to bring
objectivity to the client’s
problems. Even if the client
has the skills in-house, it
can be blocked by resistance
to change, turf wars, outdated
bonus schemes, obsolete
technology and many
other causes.
“Rarely does the chief
executive have easy access
to all the information they
need,” says Claire Arnold,
managing partner at
Maxxim. “One of our jobs is
to get that information
‘come hell or high water’
and to help them understand
why people might not want
to give it up or ‘spin’ it. Consultants
can help facilitate
and even force a decision,
because inertia is often the
cause of the problem.”
David Ketchin, lead practice
director at Parson Consulting,
points out that skills
alone are not enough.
Whereas technical skills are
required to challenge the
status quo, client companies
often lack change management
expertise. It is the
blend of the two that delivers
true value to an organisation.
“One of the most
important and enduring
rationales of a consultancy
is to bring external insights
characteristic of these niche
firms,” the report says, noting
the irony in the fact that these
smaller firms were begun by ex-
Arthur Andersen staff after that
firm’s famous implosion.
Deloitte is also dismissive of its
rivals’ strategy regarding information
technology work.
“We don’t see them very much
in IT, apart from IT assurance
and some high-level advisory
work,” says John Reeve, a partner
in the consulting practice at
Deloitte. “They haven’t rebuilt
capacity in development and
implementation [and] in our
view, this severely reduces their
credibility as IT consultants and
is reminiscent of the scope of
services of audit firms in the
mid-80s.”
Different strategies clearly produce
very different results with
growth rates in the UK top 10
consultants ranging from 2 per
cent (Accenture) to 25 per cent
(PwC). But with a healthy average
of 11 per cent, it would seem
there is currently room for all.
Asssesingtheblueprints:accordingtotheMCA,companiespredominantlyuseconsultantstoplugskillsgaps Alamy
‘Consultants can be
brought in, set
clear deliverables
and aggressive
timelines’
and experience in different
industries from around the
world,” says Mr Thomlinson.
“These insights are both
with regard to the ‘what’
and the ‘how’ of change.”
Another reason to use consultants
is because they can
speed up the process of
change. “Often the requirement
is for a burst of effort
to get something done by
people that do not have
other obligations or a day
job to attend to,” says Mr
Dunn. “Consultants can be
brought in, set clear deliverables
and aggressive timelines
and provide the catalyst
or momentum to get
things done.”
Another reason for a
broader use of consultants is
that projects take place in a
constantly changing business
environment, so the
skills needed may change as
a project proceeds. As Mr
Russell points out, very few
companies stand still for the
duration of even a six-month
project.
“Consultants often look
expensive,” concludes Mr
Cochrane, “but their flexibility,
dynamism, knowledge
and creativity come from
their low utilisation. Creativity,
problem-solving and
solution-engineering take
time!”

FINANCIALTIMES MONDAYNOVEMBER 19 2007 ★ 5

6 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007
Business of Consulting
Buy­out firms favour Jacks of all trades
PRIVATEEQUITY
Andrew Baxter
reports on a sector
that is increasingly
tapping the expertise
of consultants
The rapid growth of the
private equity houses
over the past five years
has brought plenty of
work to a wide range of consultancies.
It may still account for a
small part of their business, but
for many consultancies it has
been the fastest growing sector.
This summer’s credit squeeze
could take a little wind out of the
consultancies’ sails, but none see
any reason to abandon ship. A
slight twitch on the tiller to shift
the emphasis of their work seems
more likely.
Specialists focusing on discrete
parts of the acquisition process,
such as pre-deal due diligence
work, are active in the private
equity market. However, what
private equity clients really
want, according to Chris Lewis, a
senior manager in Ernst &
Young’s private equity business
advisory service, is consultancies
that can offer a full range of services,
helping them buy, transform
and sell companies.
“Private equity firms are looking
for integrated service providers
that can transfer knowledge
from transaction due diligence to
helping the management
improve operations,” says Mr
Lewis. “At the end of our due
diligence engagements we gather
together our finance and operations
advisers to identify the top
10 project ideas to deliver cash
and profit improvement within
the next years.”
Working for private equity clients
allows consultants to deploy
the full range of their skills.
“Post-deal it’s getting involved in
the change agenda, pre-deal it’s
strategic thinking and looking at
the operational effectiveness of
the business – kicking the tyres
on it,” says Paul Forrest, a partner
at BDO Stoy Hayward.
The work can vary from the
informal to the far-thinking, too.
In what has been a seller’s market,
private equity houses may
find themselves up against more
than a dozen rivals in the early
stages of an auction for a business,
says Peter Bertone, lead
partner in London for private
equity work at Booz Allen Hamilton.
“Under these circumstances,
they don’t want to spend huge
amounts of money, so they will
turn to a consultancy and access
their expertise – often on an
unpaid basis – to understand if
they want to bid at all,” he says.
Alternatively, to bypass auctions
where the chances of winning
are low, and of overpaying –
the “winner’s curse” – high, Mr
Bertone says Booz Allen has
occasionally been asked by private
equity houses to think about
long-term “mega-trends”, such as
the ageing workforce, and find
businesses that will benefit.
Whatever the specific role,
however, it is the expertise of
consultancies that private equity
firms are seeking to tap. “Their
model is to have low internal
resources and then to put in
resources when they need it,”
says Vincent Neate, head of
‘This is the added
dynamic: there is a
shareholder who
wants to know
what is going on’
KPMG UK’s private equity group.
The consultants can offer a
deeper knowledge of specific
industrial sectors than even the
larger private equity houses,
which have built some in-house
capacity, can offer.
“Private equity houses are
increasingly looking for advisers
with in-depth market, commercial
and technical understanding
of target companies, existing
knowledge of the players, insight
into market trends and the ability
to evaluate rapidly the credibility
of management plans,”
says Charlie Simpson, head of
transaction services at PA Consulting
Group.
As a result, says Mr Bertone at
Booz Allen, there is a particular
combination of qualities that private
equity houses need from
consultancies. “They don’t want
just newly-minted MBAs, but
want access to people who really
know their industry,” he says.
“By combining the young, financially-oriented
MBA types with
industrial expertise you can
reach deeper insights during due
diligence than you could just
with MBAs.”
However, the private equity
firms are beginning to specialise,
beefing up their expertise in certain
areas to differentiate themselves
and, if possible, to avoid
auctions. “They are all trying to
source proprietary deals, and the
way to do that is via their name
and track record,” says John
Romeo, head of the private
equity team at Oliver Wyman,
which focuses on the financial
services sector.
Mr Romeo says some private
equity firms have formed dedicated
financial services teams in
the past 12 months. “At the best
firms, they will specialise a little
further within that team, too,” he
says, “but they will never get to
the level of specialisation that a
consulting firm should have.”
Private equity firms are also
increasingly likely to have an
“intelligent client” within their
organisation who knows how to
buy consultancy, says Mr Forrest
at BDO: “We talk the same language,
and they will be able to
validate what they are hearing
very rapidly without relying
exclusively on a third-party perspective.”
For the clients, he
says, this is more important
than having internal
capacity to handle several
deals at once.
In many respects the
work that consultants do
for private equity houses
is much the same as for
any traditional client contemplating
an acquisition
or looking for
advice on reviving a
recently-acquired or
existing business. However,
the private
equity firms tend to
be far more focused
on execution and on
dealing with priorities,
says Andrew
Clinton, head of
Protiviti’s financial
services
industry practice
in London.
Engagements
tend to be short
and sharp, says
Mr Romeo. And
apart from yearend
meetings
when the clients
are planning for
the next year, interaction
may also be
slightly more informal, unstructured
and frequent than for traditional
clients.
Higher levels of flexibility are
demanded, adds Mr Simpson of
PA. “Pre-deal support is usually
required over short, intensive
and sometimes uneven timescales.
We need the ability to
ramp up quickly and flex input
with the deal timetable.” Clients
are also looking for the ability to
come to broad conclusions
quickly, he says. These can be
tested and refined later.
The big difference, however, is
the presence of an active and
interested shareholder – the private
equity owner – alongside the
management team of the company
that has been, or is about to
be, acquired. “This is the added
dynamic: there is a shareholder
who wants to know what is going
on,” says Mr Neate at KPMG. “If
there is collective buy-in between
the private equity firm and the
portfolio company, things move
very quickly. But it is quite a
delicate relationship.”
Inevitably, this situation can
lead to tensions. “We are there to
serve the private equity house,
but we like to work effectively
with the management and add
value to what they are
doing,” says
Creating value from day one
CASESTUDY
BIRDSEYEIGLO
Andrew Baxter
on the frozen food
group’s IT overhaul
Tania Howarth knew what
was awaiting her when she
joined Birds Eye Iglo Group
as chief information officer
in April. Martin Glenn,
chief executive, had already
told her that there was “a
knotty little IT problem”
that needed to be fixed.
“That’s a very interesting
way of describing it,” says
Ms Howarth, with due
understatement.
Mr Glenn heads a new
management team that had
taken over last November
at the European frozen
foods group – branded as
Birds Eye in the UK and
Iglo in continental Europe –
following its purchase by
Permira, the big European
private equity firm.
He knew that, following
its separation from
Unilever, the previous
owners, Birds Eye Iglo
would need a completely
new IT systems and
infrastructure. Ms Howarth,
previously CIO at PepsiCo’s
UK snack food business and
subsequently for Coca-Cola
in Europe, the Middle East
and Africa, was brought in
to lead the overhaul.
Under Unilever, she says,
all eight countries that the
future Birds Eye Iglo would
be operating in had
different IT set-ups.
“Effectively there were
eight country
implementations and no
common group operating
model.” Although all the IT
systems were based on
enterprise software from
SAP, the German software
group, different versions
were in use, and non-SAP
applications varied too.
“So [the creation of the
new business] was seen as
a really good opportunity to
simplify the way we
worked, standardise and
allow new technology to
deliver on its promise – that
is, if you implement it well
and with standards, you
can reduce your operating
costs quite substantially,”
says Ms Howarth.
The trouble was, Ms
Howarth was initially
virtually a one-woman IT
team at Birds Eye Iglo, and
knew she needed a
consultancy to work with
her. The approach was to
select outsourcing partners
to deliver both the new
systems and infrastructure
and provide support
thereafter, with a small
retained IT organisation.
Fujitsu was chosen as the
infrastructure partner and a
technology consulting
partnership was sought to
“make sure that we asked
for the right thing – to be
our chief technology officer,
effectively”, she says.
Speed was of the essence.
Permira had set a deadline
of a year from the sale for
the company to have
addressed its legacy IT
issues. Ms Howarth wanted
a consultancy that would
get on with it. “We wanted
a company with deep
technology skills that could
come in and start producing
real value from day one,”
she says. A pragmatic
approach was also needed,
unencumbered by endless
discussions over
methodologies – which is
often the way with large
consultancies, she says.
Within a few weeks of Ms
Howarth’s appointment, she
had chosen Xantus, an
independent IT consultancy
with offices in London and
Manchester, for the task.
Steve Watmough, managing
director, says the role was
that of a trusted adviser
working as part of the
client organisation. “It was
‘The consultancy’s
role [was as]
our chief
technology officer,
effectively’
a business assurance role to
start with,” he says, “with
us asking whether what
was proposed would be fit
for purpose now and in the
future.”
Permira, meanwhile, kept
a watching brief,
approaching the IT
programme with two views
that needed reconciling,
says Ms Howarth: “It
wanted us to have a new
set of systems that would
run the business efficiently,
in a fit-for-purpose way, and
with best-in-class costs. But
we needed to implement it
in a way that doesn’t stop
the business running.”
Ms Howarth says Permira
has “been very interested in
what we have been doing,
not to meddle operationally
or get too involved in the
choices we have made but
just to make sure that
we’re managing the risk
appropriately.”
For Xantus, the presence
of Permira as owner did not
make any particular
difference to the way it
worked, says Mr Watmough.
“Birds Eye Iglo is a very
focused business with clear
objectives,” he says, “and
by the very nature of that
fact, some of the deadlines
have really had to be very
concentrated. I think any
divestment which had the
same clear objectives in
terms of getting itself up
and running would have
had similar challenges.”
Although tried and tested
technology has been used,
with the same version of
SAP being put in across the
group, the complexities of
the job have pushed out
the completion date to next
May.
In October, Birds Eye
Iglo’s group headquarters
and UK business moved to
a new office near London’s
Heathrow airport. This was
a very important symbolic
step as the first big, visible
deliverable from the IT
project, says Ms Howarth.
“I believed that executing
the IT elements of this had
to be perfect. If we couldn’t
get this right, we would
lose a lot of trust and belief
that we can pull off the
bigger things, especially as
people generally don’t have
high expectations of IT
delivery!”
“So this one did delight
the customer and it was
one of those moments
where you have a team of
people who deliver great
things and nobody is
interested – or even notices
– whether they are
permanent employees or
consultants or third-party
providers.”
SteveWatmough,managingdirectorofXantus,andTaniaHowarth,CIOofBirdsEyeIgloGroup Daniel Lynch
Mr Forrest. “There are occasions
when some of our advice, especially
on restructuring, can be at
odds with what the management
think is the most appropriate
way forward.”
The solution, he says, is to use
the consultant’s tools – facts and
logic – to counter the emotional
perspective that management
may have, and try to encourage
them to think rationally.
As for the consequences of this
summer’s credit squeeze, the consensus
among consultants is that
it may reduce the number of private
equity-backed deals on
which due diligence work is
required, but increase the
number and extent of post-transaction
engagements.
This shift in the mix will see
private equity firms relying a little
less on financial leverage and
more on strategic repositioning
of assets and post-acquisition
restructuring if they are to make
a profit on their investments,
says Mr Bertone. Consultancies
that rely heavily on pre-deal due
diligence work could feel the
effects of a downturn considerably,
he adds.
Even within pre-deal work,
however, there may be a silver
lining to the cloud. “Compared
with three or four years ago, we
are seeing a shift to more operational
due diligence work to validate
the investment before the
deal,” says Mr Forrest. The
dynamics of pre-deal activity are
changing, he says, because the
post-deal strategy in a credit
squeeze may focus more on
obtaining synergies and eliminating
duplication than on out-andout
growth.
This renewed focus on operational
efficiency is not confined
to the private equity firms’
recent acquisitions. Even in the
past few months, consultancies
have seen renewed interest in
improving the performance of
existing portfolio companies.
“They are increasingly focusing
on value creation within portfolio
companies to position for
exits,” says Mr Lewis at E&Y.
At KPMG UK, which has a dedicated
team looking at private
equity portfolio companies, Mr
Neate says there is a positive
feeling about opportunities over
the next 12 months, but warns
against overstating the risks that
the credit squeeze represents for
portfolio companies.
Niche consultancies also hope
they can benefit as the tighter
Gritty consulting
on oil­rich sands
CASESTUDY
NACG
Andrew Baxter on
a project with a
series of logistical
challenges
Working in the Alberta oil
sands region – second only
to Saudi Arabia for the size
of its reserves – can take its
toll on any company.
Tough, constantly changing
operating conditions stretch
employees and managers of
the mining companies and
contractors who are
working there to the limit.
At the heart of the
region, 300 miles north of
Edmonton, is Fort
McMurray. “It’s
mind-boggling what is going
on there and it really is a
boom town,” says Eric
Tinker. “You see it
everywhere – from never
being able to get a hotel
room, to the prices you’re
paying at McDonald’s, to
just the traffic jam on a
little two-line highway.”
Mr Tinker is a US-based
principal at Celerant
Consulting, and headed a
changing cast from the
UK-founded, global firm
that collectively worked in
the region for more than a
year. Their task was to
shape up the Canadian
mining contractor North
American Construction
Group (NACG) for its US
parent company’s debut in
an environment that is just
as tough, albeit in a
different way – Wall Street.
Welcome to the world of
extreme consulting. “Just
the sheer physical
challenges made this a very
exciting opportunity for us,”
says Mr Tinker. “We’ve
done plenty of projects in
multiple locations, some of
them very challenging, but
this one took that to a more
extreme level.”
Just getting consultants
to the client was a logistical
problem in itself. “We had
flights, then more flights,
and then drives,” says Mr
Tinker. Choosing team
members who could cope
with the physical rigours of
the job, and rotating the
team for the various tasks
involved, was a further
challenge.
Celerant was engaged in
late 2005 by NACG’s
owners, a mainly US
consortium of private equity
investors who had bought
the company two years
earlier. Family owned for
the preceeding 50 years, it
had huge reserves of
expertise, a strong,
long-standing relationship
with customers and a
robust fleet of equipment.
But there was a raw,
highly individualistic
entrepreneurial culture and
an operational attitude that
could be summed up as
“dig first, measure later”.
Celerant’s task was to
transform the company’s
operational practices so that
it would be ready for the
scrutiny of public investors
and regulators – the owners
were planning an initial
public offering.
‘Just the sheer
physical challenges
made this a
very exciting
opportunity for us’
The task was right up
Celerant’s street as the
consultancy focuses on
operational transition,
getting down to the
nitty-gritty at all levels in a
company and straightening
out kinks in the linkages
between top and bottom. At
NACG, a programme called
Cobra – Changing
Organisational Behaviours,
Results and Attitudes – was
specifically designed with
the client and speaks for
itself.
Even so, there was initial
scepticism within NACG –
especially at middle and
lower management levels –
about whether Celerant had
bitten off more than it
could chew.
But Mr Tinker says there
was strong support from
top management, including
Rod Ruston, NACG’s
president.
By securing some early
credit conditions change the
dynamics of private equity
investment. With fewer deals and
less credit available, investments
will be held for longer, says Rick
Simmonds, a partner at
Alsbridge, which focuses on outsourcing
and shared services.
Cost-saving initiatives such as
these will be deployed more frequently,
he says, because private
equity owners will have to make
real changes to business operations.
Consultants, in any case, warn
against excessive pessimism on
deal flow. Nobody is expecting a
mega-deal for the next 12
months, says Mr Neate, but midsized
transactions, requiring up
to $200m of senior debt from two
or three banks, have been less
affected.
And in the financial services
sector, the past two or three
months have been the busiest of
the year, says Mr Romeo at
Oliver Wyman. Deals valued
under €2bn can still be completed,
he says, and a large
number fall within that.
Overall, most consultants
would agree with Booz Allen’s
Mr Bertone when he says: “I do
believe this is only a speed bump
in the road – the private equity
firms are still awash with money
and they will put it to good use.”
There is more on this subject in
the FT’s Business Turnround
report, published on October
11. See www.ft.
com/reports/turnround2007
Fillingupon
resources:a
dumptruck,
similartothe
onesusedby
NACG(below)
intheirAlberta
operations.
Privateequity
firmsare
seekingto
sourcethe
expertiseof
consultants
wins, bringing key NACG
employees into project
teams, and working to show
individuals how they fitted
into the big picture, the
Celerant team (which
reached 17 at its peak)
began to show it could turn
things round.
One particular challenge,
says Mr Tinker, was that
the engagement was really
a portfolio of many different
projects, each with their
own start and stop dates.
So the start-up elements of
Celerant’s approach had to
be repeated, working with
different client employees in
a particular location. “Once
you get the project rolling
and people are used to their
roles, things start to smooth
out a bit,” he says.
Celerant’s initial contact
was with the private-equity
owners but as the project
went on the management
team came more to the fore.
The consultants were
aware that an IPO was in
the offing, even though they
did not have details of the
timing, so there was
pressure on them and on
the management team as a
result of the ownership
structure. But, as Mr Tinker
notes: “We structure all our
projects so there is a sense
of urgency to deliver the
results.”
The vindication of the
project was the IPO in
November last year of
NACG’s parent company,
North American Energy
Partners, on the New York
Stock Exchange.
The project produced
annualised cost savings of
US$32m at NACG –
exceeding the US$22.5m in
the original business case
and based on improved
productivity and better
equipment utilisation. But
Mr Tinker also points to the
way it helped develop or
enhance leadership at all
levels in the company, and
arm managers at all levels
with the data to run the
company more
professionally.
“Celerant gave us an
unbiased assessment of our
needs, then provided the
drive to stay on focus and
get the job done,” says Mr
Ruston.

FINANCIALTIMES MONDAYNOVEMBER 19 2007 ★ 7

8 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007
Business of Consulting
Ridersonthestorm:therecentsurgeinNorthSealevelscausedbythepassingofastrongdepressionmayberepeatedoftenifthewarningsonclimatechangeturnouttobecorrect Getty
From car­borne to carbon
THEENVIRONMENT
Fiona Harvey on
why companies
want to cut their
carbon emissions
Environmental issues
have hit the mainstream
in the past
few years as growing
concerns over problems
such as climate change, pollution
in developing countries,
and the loss of biodiversity
have prompted consumers,
governments and
businesses to start finding
solutions.
Tom Woollard, a veteran
consultant and business
development director at
Environmental Resources
Management, has seen it all
before. He points to previous
waves of interest in green
issues, in the 1970s, 1980s
and 1990s. But this one, he
thinks, is here to stay.
He explains: “This is much
bigger. More people are
aware of the importance of
these problems. We are coming
to the point with issues
such as climate change that
now it is no longer an option
whether to do something
about it. It is now a must.”
Most companies in the
FTSE 100 – and an increasing
number around the
world – now report on their
carbon emissions, though
they are not obliged to. Wal-
Mart wants its suppliers to
start disclosing their carbon
emissions. Companies such
as Coca-Cola and Cadbury
Schweppes are taking steps
towards labelling their products
based on how much carbon
went into their production.
A few companies,
including HSBC, News Corporation,
Dell Computer,
British Sky Broadcasting
and Marks and Spencer, are
even going “carbon neutral”.
Governments around the
world are toughening environmental
regulations. The
US is considering a federal
regulation that would cap
companies’ carbon output
and allow them to trade in
Steady river of rules flushes out opportunities
FINANCIALSERVICES
An onslaught of
regulation is providing
the sector with a series
of challenges, writes
Jennifer Hughes
Financial services firms are tired.
A stream of sweeping regulation
has come their way, raising the
scrutiny they face, forcing them
to develop new systems and pay
a hefty bill for the privilege of
doing so.
But where managers have seen
headaches, consultants spy
opportunity and are energetically
expounding their ideas for the
future of the industry.
In Europe, there had been a
suggestion that consultancy
would slow as work linked with
Basle 2 settled down and as the
spike associated with the November
1 introduction of Mifid, the
Markets In Financial Instruments
Directive, eased.
Even if that were the case, consultants
say they are not having
to look far for other work, begin-
ERM:goinggreenhelpsitsclientsstayoutofthered
Companies are much more aware of
the potential damage to their reputation
of falling foul of environmental concerns
than they were in 1971 when
Environmental Resources Management
was founded.
In part, that is because of the rise of
global communications, says business
development director Tom Woollard. “It
is so easy to get information now from
remote places, non­governmental
organisations are much more active and
people can use the internet to
disseminate information. Companies
cannot afford to ignore environmental
and social issues, wherever they are
operating, or they will be exposed and
that could be very damaging.”
For ERM and companies like it,
concerns such as these have meant
substantial growth. ERM is one of a
small number of sizeable environmental
consultancies in the UK, alongside the
likes of RPS Group, SLR Consulting and
Hyder Consulting. In addition, the
mainstream management consultancies
now have environmental specialisms, as
do big engineering companies.
ERM was bought by Bridgepoint, the
private equity company, in 2005 for
$535m. The venture capital group 3i
sold the 52 per cent of the company it
acquired for £200m in a management
buy­out in April 2001.
permits to emit carbon,
along the lines of the system
in the European Union.
Waste is also increasingly
regulated, as is the use of
potentially harmful materials.
With so much corporate
and regulatory activity concentrated
on making companies
greener, the market for
environmental consultancy
has expanded substantially.
Quite how much is difficult
to say, because of differing
definitions of environmental
work. In the UK its growth
is estimated by Environmental
Data Services at nearly
20 per cent a year. The sector
in the UK has been estimated
at £1.5bn a year.
Environmental consultanices
range from one-person
firms advising companies on
energy efficiency or waste
management, to units of
large engineering groups.
ning with the headlines – there is
plenty of demand linked to the
current credit crunch, they
claim.
“That’s a boom area for specialists,”
says Nader Farahati at
Oliver Wyman, the strategy consultancy.
“Although people knew
a crunch would come at some
point, its astonishing how little
planning they did. It was talked
about as a stress scenario, but
they had no contingency plans in
place.”
Consultants also talk enthusiastically
of retail financial services
– “a model that basically
hasn’t changed in a hundred
years” according to one – and the
opportunities in various sectors,
notably asset management.
Yet through it all, the one constant
is still regulation – both the
slew of rules still coming down
the pipeline and ongoing work on
those already in place.
“You could argue with Mifid,
that some of the work is just
beginning in terms of changing
operations and systems to take
advantage of it,” says Andrew
Veal at Navigant.
Consultants think most manag-
ERM increased its revenues by 14 per
cent in the year to March 31 2007, with
gross revenues at about $533m. Its
earnings before interest, tax and
amortisation (ebita) were $47m over
the same period. ERM’s ebita was
$38m on turnover of $425m before its
takeover. In 2003, ERM’s gross
revenues were $318m and its ebita
$30m. In 2003, ERM decided to focus
entirely on serving the biggest in its
core markets. Consulting to
manufacturers and retailers brought in
22 per cent of ERM’s sales last year,
with oil and gas supply 19 per cent, the
chemical and pharmaceutical sector 12
per cent and transport, utilities and
construction about 11 per cent.
The broad range of sectors the
company works for reflects the growing
desire for all sorts of businesses to
incorporate environmentally sound
practices into their work. “Sustainability
issues are now integrating with business
development issues, and that is where a
lot of opportunities are for
environmental consultancies,” says
Wayne Holden of ERM.
The company has also widened its
geographical reach, now operating in
more than 40 countries. In March 2007,
the company had 3,171 staff – an
increase of about 14 per cent over the
previous year – and 342 partners, also
The Big Four and smaller
management consultancies
also now boast inhouse environmental
specialisms. For
instance, KPMG has a “carbon
advisory group” helping
companies tackle their
impacts on climate change.
It also helped Ecotricity, a
renewable energy company,
raise finance to build wind
farms. Booz Allen Hamilton
has developed a way to
measure the “carbon footprint”
of a company’s supply
chain, and has refurbished
its Savoy Court offices to
high standards of efficiency.
Deloitte says its activities
have included advising
investors in areas such as
renewable energy; helping
organisations to procure
waste management services;
auditing corporate social
responsibility reports; providing
services to financial
institutions that may have
ers have hardly begun to think
about the competitive threats
and opportunities that directive
introduces through its extra trading
transparency and the crossborder
competition it brings.
“People are beginning to say
‘OK, I’ve complied, but how do I
use it to benefit my business’,”
says Andrew Crowley, vice-president
of the European financial
services team at CSC.
“There are two camps – one is
just compliance, one is clients
who want to get more out of the
changes.”
More generally, consultants see
a potential wave of work from
businesses trying to trying to
streamline their compliance
efforts of recent years.
“Regulation is a question of
sink or swim and we’re urging
our clients to take control of it,”
says Stephen Christie at Ernst &
Young: “The leading businesses
are using regulatory change as
an enabler to get their operations
in the best shape they can.”
Drew Fellowes at KPMG adds:
“These organisations are complicated
beats. The regulatory pressure
is getting them to ask ‘Now
exposure to liabilities resulting
from climate change;
and advising the UK government
on policy options on
greenhouse gas reduction.
Charles Gooderham of
Deloitte says: “We help clients
respond to these chal-
‘Do we really want
to have professions
that rely on flying
their people around
the world?’
lenges through blending
environment expertise with
business advisory skills. Clients
benefit from sound commercial
advice underpinned
by a detailed knowledge of
the underlying environmental
drivers.”
He says companies should
a rise of 14 per cent. There is much
more fierce competition for staff among
environmental consultancies, reports Mr
Woollard. But he says that many
graduates are also now keenly seeking
a career in environmental consulting.
He says a focus on staff retention is
one of the key determinants of success
for companies such as ERM: “You have
to keep giving people interesting
projects that challenge and motivate
them. That’s what people join us for, to
do interesting work.”
These projects might include
involvement in the preparations for the
London Olympics of 2012; helping
companies to asess their impact on the
climate; or assessing the Republic of
Congo’s environmental and social
regulations, a condition of a World Bank
loan to the country.
Unlike many mainstream
consultancies, ERM prefers organic
growth and a sprinkling of small
acquisitions to large­scale mergers or
takeovers. Mr Woollard says: “It’s all
about the culture. Our value is all in our
staff. But you can destroy a culture
easily or it can disappear overnight.
Then if your staff think, ’the culture of
this place has changed, I don’t like it’ –
bingo, in six months they’re gone.”
see environmental issues as
a core part of their business
strategy, not an optional
extra: “The best way of sustaining
a paradigm shift in
corporate behaviour is by
making it integral to business
strategy and shareholder
value.”
Carmel McQuaid, a senior
consultant on sustainability
at PA Consulting, says businesses
want to prepare for
tougher regulation: “Clients
are increasingly seeking
guidance and support on
how to transform their business
to thrive in a carbon
constrained world. Management
consultancies play a
vital role in that, be it quantification
and reduction of
carbon footprints, developing
more next-generation
sustainable products and
packaging, or enabling public
sector projects to set leadership
examples.”
we’re measuring all these risks,
from operational, to credit, to
market risk, how do we amalgamate,
how do we put them in a
structure that drives value?’.
“A few years ago, they were in
a slightly different position
where they were all doing the
same thing and putting the systems
in place. Now they’re all
stepping back, and looking to differentiate
themselves.”
For many, the biggest focus is
information management.
“They’ve got these huge data
warehouses and are looking out
how they store and search it, and
how they get value from it,” says
Ian Holden at Bearing Point.
Graham Underwood, UK managing
director at GFT, the IT consultancy,
says there is a trend
towards a merging of management
and IT consultancy.
“It’s no longer enough to have
a solid understanding of business.
In the financial services
sector in particular, it is critical
to have a clear understanding of
how technology impacts business,”
he adds.
And the regulatory wave is not
over yet. There is still legislation
Fiona Harvey
Consultants are also keen
to develop their skills in a
specialism that is rapidly
expanding, and which interests
and motivates people at
a personal as well as an
intellectual level. For
younger people in particular,
it is increasingly important
to feel that their company is
not damaging the environment.
Mr Gooderham
reports: “Both the opportunity
to work on environment
related projects, and the
environmental performance
of Deloitte, are seen as
important factors by the
younger generation of
employees.”
But the environmental
performance of management
consultancies is itself a
tricky area. Consultancies
are working to cut their
“carbon footprint” – witness
AT Kearney’s decision to be
“carbon neutral” within two
years.
Achieving a lower environmental
impact can be hard.
Ms McQuaid notes: “Some
could argue that management
consultancy is not a
sustainable business model
due to the large footprint
associated with business
travel. In a carbon-constrained
world, do we really
want to have professions
that rely on flying their people
around the world?”
PA Consulting says staff
regularly ask questions
about the company’s environmental
impact, and,
increasingly, clients are also
asking for evidence of the
company’s commitment to
cutting its impact when procuring
services.
Ultimately, companies
may find consulting on environmental
issues is not so
different from advising on
general corporate productivity
issues. Andy Mulholland,
chief technology officer at
Capgemini, which helps
companies find ways to cut
the “carbon footprint” of
their computer operations,
says: “The environment
issue is nothing more than a
question of common sense –
much of the task is simply
good business practice.”
‘People are beginning
to say “OK, I’ve
complied, but how
do I use it to benefit
my business”’
AndrewCrowley
CSC
Vying to
be healthy,
wealthy
and wise
CASESTUDY
VIELIFE
Emily Rotberg on
how a project was
interrupted by the
sale of a client
Valtech, the business
consulting and technology
services company, had to
endure a hiccup halfway
through a project when its
client was sold.
Its client, Vielife, provides
health and wellbeing
services for staff at its
clients to access
information on sleep, stress,
fitness and nutrition.
Its programmes, which
include help with stopping
smoking and hydration
awareness, have been
shown to improve health
and reduce absenteeism.
“We can demonstrate that
to the companies, as a
direct productivity gain,
thereby making them more
profitable,” says Mike
Beason, Vielife managing
director.
Vielife, whose clients
include Bupa, the UK
health insurance provider,
and Standard Life, the life
assurance company,
decided to use Valtech
when it decided to upgrade
its website.
“Our original platform
was rather restricted in our
ability to incorporate
changes. We needed a much
more flexible model, where
anything we wanted to
change – be it content- or
program-driven – could be
done in real time,” Mr
Beason says.
Vielife’s product requires
software that generates
individual reports. Its
website had to take into
account a range of
health-relevant factors,
including age, weight,
gender, attitude to risk,
eating preferences, allergies,
illnesses, sleep patterns,
work life and family
structure.
“In order to add to the
capabilities of the current
version we needed a much
more scaleable, flexible
platform,” says Damian
Stafford, chief technology
officer at Vielife.
Although Vielife had
access to the medical
expertise vital to achieving
the desired outcome, it
lacked the technical ability
to realise the project. Mr
Stafford had worked with
Valtech in his previous role
at Yell.com and understood
the consultancy.
Valtech and Vielife
worked together on project
objectives one at a time and
incorporated the business’s
needs as they shifted
through the course of the
project.
“It enabled us to start
working when we didn’t
know everything that we
wanted, rather than having
to wait six months for any
demonstrable code,” Mr
Beason says.
“We were able to see the
results of our designs on a
coming down the pipeline in
Europe that should lead to big
consulting opportunities. According
to Mr Crowley, the Single
European Payments Area, or
SEPA, is probably the biggest,
involving harmonising payments
systems across the 27-member
bloc.
“In this work there are two
broad categories – pure advisory
and downstream implementation
– and those play to different consultancies’
strengths,” he adds.
Sean Wells, head of financial
services at Atos Consulting says
few companies had yet woken up
to the realities of SEPA: “For
some it will bring a realisation
that their current payment businesses
are lossmaking. For others
it will lead to consolidation
but greater market share.”
Solvency 2, involving massive
changes to insurers’ capital
requirements and harmonising
regulation across the EU, is also
looming with an expected implementation
date of 2012.
“That should get peoples’
attention for the next four or five
years. The industry is now gearing
up to get the thought leader-
two-weekly basis…so if we
made a mistake in the
design, we had a chance to
make amendments very
quickly.”
Development began in
June 2006. Halfway through
the design process, Vielife
was sold to Cigna, a health
insurer, which produced a
roadblock in the software
development process.
“The project did lose its
direction for a period of
time because the customer
was not investing the time
to follow the process
through with us as the
supplier,” says Jonathan
Poole, Valtech chief
executive. “From a
relationship point of view,
from a project point of
view, the biggest single
challenge we had was
trying to live through that
period of time when Vielife
was very, very defocused on
their product outcome, and
much more focused on [the
acquisition].”
In the end, senior IT staff
from Cigna joined the
project to smooth the
transition.
Vielife executives say the
new framework has
increased user flexibility
and enabled the deployment
of more sophisticated
products. “Previously, the
content was very, very
generic,” Mr Beason says.
“It wouldn’t talk about
what you were trying to
achieve…we weren’t able to
personalise our content and
use it in such a way that it
was actually about you.”
In contrast, when the
portal launches in January
2008, employees will log on
to pages tailored to their
specific healthcare needs.
Vielife says the portal will
make its users
better-equipped to make
more effective health-related
decisions.
“If people believe they’re
being engaged on a
personal level, they’re much
more likely to take notice
and follow through on that
information,” Mr Beason
says.
Mr Poole says the
consultancy’s Agile
methodology was the key to
the success of its
relationship with the client.
“With Agile, we document
business need and business
demand, but the customers
themselves are central to
the activity. As their
business changes, or as
specific needs are identified,
then by working with the
customer as a central part
of the development activity,
you discover these things
on almost a daily basis,” he
says.
Vielife executives are
equally positive about the
result of their collaboration
with Valtech.
“As with all projects,
requirements we set out at
the start changed
significantly but due to the
nature of the Agile process,
adjustments to development
could be made along the
way, ensuring each phase
met expectations,” Mr
Stafford says.
ship in place for this,” says
Andrew Clinton at Protiviti.
Despite the seemingly relentless
wave of work heading their
way, financial services consultants
are realistic about the
impact of any economic slowdown
that could follow the credit
crunch that is currently bringing
them business.
“The difficulty consultants
have with investment banks is
they’re either in fifth gear or
reverse. We either can’t meet the
demand, or the tap is turned off,
as you see now,” says Mr Clinton.
Regulatory work is a boon in
these times.
“That’s always going to be a
big driver not just because
there’s a lot of it, but also
because you can’t ignore it even
if there is a recession,” says
Andrew Veal at Navigant. “For
any piece of regulation, clients
need someone who understands
it, and knows the industry.”
And even the bad times might
contain some sort of silver lining
– there is always traditional cost
reduction and margin improvement
work.

FINANCIALTIMES MONDAYNOVEMBER 19 2007 ★ 9

10 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007
Business of Consulting
‘Pure’ advisers
may want to
dirty their hands
INDEPENDENCE
The line between
advice and
execution is
often not easily
drawn, reports
Rod Newing
The classic model of
consultancy had the
client receiving
truly independent
advice unsullied by any
desire to sell implementation
services.
But the revenue volatility
associated with unpredictable
one-off projects has long
encouraged most consultancies
to try to help implement
the solutions they propose.
Some offer to manage and
staff the transformed parts
of the organisation under an
outsourcing contract.
“Historically, consultants
were purely advisers who
wrote reports, but 20 years
ago they moved into implementation,”
says Fiona
Czerniawska, director of the
think tank at the Management
Consultancies Association.
“However, in the last
three years the pendulum
has swung [back] to advisory
work, particularly with the
re-entry into the consulting
market of three of the big
four accounting firms. It is
pretty balanced at the
moment, but the advisory
element is just in the
ascendency.”
Consultancies with this
approach tend to hold the
intellectual high ground and
attract the best consultants.
“The client gets deep capabilities
and competencies,”
says Michael von Uechtritz
und Steinkirch, market
research director at Gartner,
the analyst.
However, these skills come
at a price and day rates are
perceived as higher than
those of a more broadlybased
consultancy. Georgina
O’Toole, a senior analyst at
Ovum, says that it is partly
historical and partly that
they pay top salaries to
attract and hold on to higher
calibre people.
Another disadvantage of
this approach is that without
the implementation skills,
the strategy may be more
theoretical than practical.
This can lead to problems
later on, once the consultant
has moved on, that can
reduce the value realised
from the work undertaken.
“Neutrality is expensive
and is not always the best
Itcanbeatrickypathtotreadbetweenshow,andshowandtell Corbis
option,” says Ms O’Toole.
“Clients should question the
benefits of independence,
because they may not need
or benefit from neutrality.
There are often advantages
in using technology suppliers
to implement the strategy,
because of their experience
of doing, rather than
just advising on it. Clients
should be intelligent enough
to deal with the lack of neutrality
if they have a trust-
ing and open relationship
with the supplier.”
She also warns that pure
advisory consultancies are
accused of trying to make
work for themselves by creating
a long-term relationship
with the client. In a
changing world, they continually
want to update the
advice and strategy.
“Not everybody thinks the
pure-play businesses are
truly independent,” she says.
“They are also accused of
trying to sell other services
going forward.”
Even if strategic advice is
insightful and offers sound
solutions, its value depends
upon well-executed implementation.
A Deloitte survey
of 120 senior executives
found poor execution was
the factor most likely to
impede company growth.
Many consultancies therefore
offer to stay with the
client and implement their
own advice. This is good for
the client in ensuring the
strategy is implementable
and will be properly executed
by people who understand
the objectives. It is
also good for the consultancy,
in that it provides
ongoing income, and some
consultancies go further by
employing the staff and
managing the transformed
operation under an outsourcing
contract, so providing an
“end-to-end” solution.
Paul Toner, senior vice
president at BearingPoint,
says planning an operational
strategy with the knowledge
of how it will be executed
makes for a far more successful
and “implementable”
strategy.
“Many clients have
expressed dissatisfaction at
consultants who come in,
tell them what is wrong,
make change recommendations
and then leave,” says
Paul Marshall, managing
director at Protiviti. “This
misses out what clients seem
to value most, which is
assistance in implementing
the recommended changes.”
However, KPMG partner
Alan Downey argues that
few clients actually buy into
the lifecycle concept, from
strategy to outsourcing, and
are right not to. “Clients are
more sophisticated and want
a specialist at each stage,”
he says. “There are more
likely to be two or three consultancies
than one. There
are not many assignments
going from boardroom strategy
to managing desktop
computers!”
Mr von Uechtritz und
Steinkirch warns that the
sheer scale of big transformation
projects undertaken
by a single consultancy
means they may want to
exploit the intellectual property
they create.
“You must watch it carefully,”
he says. “Consider
who has the financial and
economic benefit after the
solution has been created. If
the consultant starts to replicate
the solution with other
clients, the end-user may
have paid for the standardisation
and industrialisation
of the solution for the next
client.”
Many consultancies claim
to have competencies across
a significant number of
industries and all have references.
Mr von Uechtritz und
Steinkirch advises clients to
try to understand the investment
the potential consul-
Theideasfactories
How can consultancies
justify their sometimes very
large fees? And how do they
persuade potential clients
that they are worth hiring in
the first place? Increasingly
consulting firms are having
to agree quite carefully
defined “deliverables” in
advance of a piece of work.
Clients will want proof that
there has been a return on
their investment. They also
want “knowledge transfer”
to take place – that is, the
client should benefit from
any new understanding that
the consultant has helped
bring about.
To prove they are worth
taking seriously, most
consultancies lay claim to a
“thought leadership” market
position – that is, they claim
to have better ideas than
anybody else. Clearly, not
everyone can be a leader at
the same time. So how can
a consulting firm truly mark
itself out?
The answer is to have at
least a few really smart
people on board who are
capable of original thought
and insight – and get them
to write books. This year
has been a bumper one in
terms of thought leadership,
as authors based at
McKinsey, Bain and Oliver
Wyman have all come up
with genuinely
thought­provoking work.
At Bain, Chris Zook has
now completed a trilogy of
tancy has made to create
innovative solutions, which
is what clients really
demand.
He also warns that not
every consulting company in
today’s market has consultants
with strategic, change
management and technology
skills. Even if they do, staff
turnover during a long
project can cause problems.
At the less glamorous end
of the market are the execution-only
consultancies, who
understand a particular
technology, process or industry
and may even be owned
by a leading supplier.
Although not independent,
they have deep knowledge of
implementation in their area
of specialism.
“They may lack strategy
perspective and objectivity,”
says Mr von Uechtritz
und Steinkirch, “but they
will have vertical solutions,
operational models and qual-
‘There are not
many assignments
going from
boardroom
strategy to desktop
computers’
ity assurance systems in
place and are good at execution.”
Ms O’Toole says they are
not coming at implementation
from a purely theoretical
stance, but have
hands-on experience of
implementing similar solutions
and strategies. “They
have a much more practical
viewpoint,” she says.
According to Ms Czerniawska,
clients sometimes just
want advice, sometimes just
implementation and sometimes
both. “It depends on
individual circumstances
and the type of consultancy
they are after, what sort of
relationship they have with
their supplier and whether
technology procurement is
involved.”
Ms Czerniawska points out
that in an economic boom,
organisations are both hungry
for advice and have
greater discretion to invest
in consultancy.
“It’s a time when they are
thinking about ideas and
strategy, rather than just
implementation,” she says.
“When times are hard, they
are more focused on rapid
implementation.”
books that began with Profit
from the Core in 2001. This
third book, Unstoppable, is a
crisp account of what firms
need to do to make the
most of the assets they
already have but have done
little or nothing to develop –
the “unknown knowns” of
the balance sheet.
At Oliver Wyman, Adrian
Slywotzky has produced The
Upside, an intriguing analysis
that overturns 100 years of
business orthodoxy.
Conventional wisdom has it
that to produce great
returns you have to take
great risks. Wrong, Mr
Slywotzky says. The biggest
successes come to those
businesses that
systematically eliminate risk
(or “de­risk”). You just have
to do the hard work.
At McKinsey, Lowell
Bryan, together with his
colleague Claudia Joyce,
have produced an analysis
of how the 21st century
business ought to be
designed. Their book,
Mobilising Minds, offers a
radical prescription, tearing
up conventional
organisational charts in
favour of a far less rigid
structure, one more in
keeping with the demands of
today’s knowledge economy.
Three good books, three
fresh ideas. Now that’s what
I call “thought leadership”.
Stefan Stern

FINANCIALTIMES MONDAYNOVEMBER 19 2007 ★ 11
Secret weapon in global war for talent
TALENTMANAGEMENT
Rod Newing looks
at a consultancy
sector experiencing
strong growth
In an otherwise flat human
resources consulting market,
talent management consultancy
is growing fast
The global leadership
development consulting market
has grown at more than
20 per cent to reach $1bn,
excluding training and
development, according to
research from Kennedy
Information, outperforming
all other sub-segments of HR
consulting.
“Talent management consultancy
is experiencing
high growth, as realisation
of an increasingly ageing
workforce hits home,” says
Judith Germain, managing
director of Dynamic Transitions,
a leadership consultancy.
“It is expected that as
many as three-quarters of
senior managers will retire
within the next two years.”
However, research from
the Management Consultan-
cies Association found that
less than a quarter of organisations
believe their current
talent management processes
will deliver the leaders
they need in the future. The
consultancies are naturally
offering themselves as the
secret weapon in the “global
war for talent”.
Talent management is so
vital to an organisation that
it should be a core skill,
fully resourced by internal
staff. But consultants say
most large organisations
have divested their routine
human resources functions
to a shared service centre or
outsourced them. They are
left with a lean corporate HR
function that can develop
strategic policies to support
business strategy, but cannot
bring about big changes,
operate a critical system or
carry out mass assessment
programmes.
“They have put responsibility
for talent management
with line managers, which is
no bad thing, so long as they
have skills and give it priority,”
says Mark Dawson, lead
partner at PwC’s people and
change practice. “However,
neither is happening, so
Niche outfits
work happily
with giants
SMALLERFIRMS
Both large and small
firms are needed in a
changing market,
says Rod Newing
The consultancy profession
continues to polarise. The
larger companies are growing
fast, both organically
and through consolidation, while
smaller consultancies are successfully
exploiting their specialist
areas.
The five largest firms accounted
for 73 per cent of income in 2005,
according to the Management Consultancies
Association (MCA).
But at the same time, smaller
firms are proliferating and thriving,
leaving very few medium-sized
consultants in the marketplace.
Firms with a fee income of less
than £20m accounted for 69 per
cent of MCA members, although
they accounted for just 3 per cent
of the association’s total fee
income.
“The parts of the market that are
consolidating are areas where services
are quickly commoditising and
scale is very important, such as
outsourcing and technology consulting,”
says Liann Eden, founding
director of Eden McCallum. “At
the other end of the spectrum, clients
are very sophisticated and the
last thing they want is a ‘one size
fits all’ solution. Niche firms bring
a lot of advantages, such as innovative
approaches, depth of expertise,
flexible working and alternative
fee models.”
Specialist consultancies will
always exist because however
much they grow, the large firms
will never be able to provide a
complete range of skills to meet
every possible client requirement.
“We are all strong in the areas
where we have most business, but
weak in others, even if we may be
slow to admit it,” says John Reeve,
a consulting partner at Deloitte.
“Our strengths are our range of
services, global reach, ability to
deploy in scale, quality control and
strong management processes, not
specialisation and depth of skills.
When we do specialise, it is in the
biggest themes of the moment.”
Consultancies with specialist
skills can thrive if they can successfully
exploit a niche, particularly
if their high level of expertise
enables them to command premium
charge-out rates. This
requires long experience, consultants
who have worked in the
industry and building a reputation
within their area. The depth is so
great that that the firm must be
able to concentrate on it to the
exclusion of everything else.
“Sectors with less generic areas
of knowledge are ‘islands’ in terms
of required expertise,” says Jason
Ambrose, managing director of Palantir
Solutions, which provides
decision analysis consultancy and
software to the oil and gas market.
“It therefore require ‘natives’ who
have been trained and drawn from
within the sector. The client wants
to collaborate with someone who
not only uses the same jargon but
has a deeper knowledge of the sector
and who has seen their problem
before and can offer a number
of solutions.”
Mr Eden says the best talent
either is not interested in working
for large firms or has become disillusioned
with their corporate culture.
Their best talent spins
off to set up, or work for, niche
firms to get closer to clients and to
experience the sense of purpose
and excitement of smaller firms.
“Large firms have career structures,
pay scales, billing rates and
training programmes geared
around large numbers of staff with
similar skills and aspirations,”
says Mr Reeve. “We specialise only
where there is significant repeat
business or where a skill is critical
to a large volume of work.”
The deep knowledge of specialists
can be a platform on which to
develop sector-specific solutions or
software, either to support the consulting
process or as part of a solution.
However, expanding the
range of services and solutions
offered can be dangerous for
smaller firms, which have to maintain
focus or their core specialism.
Such expansion can consume
resources, in terms of time and
money, but the new area can have
longer sales cycles. Specialist consultancies
must ensure they have
adequate resources and cash flow
to make the full investment
there is a big gap that consultants
are keen to step
into.”
Victoria Winkler, an advisor
at the Chartered Institute
of Personnel and Development,
says a lot of talent
management is about what
works in the culture of the
organisation and how it
meets business objectives,
which requires real in-house
expertise. But firms still
want to access external
knowledge and expertise,
and get an independent perspective.
Mr Dawson says talent
management is not a problem
in a stable business environment
in a home market but it
is harder when responding to
the realities of globalisation.
“The consultancy will
know how to develop talent
in Kazakhstan or Angola,”
he says. “It also knows how
to give incentives to the
high fliers, so that the idea
of three years in Angola followed
by two years in Algeria
will not an anathema.”
Simon Mitchell, a director
at business leadership consultancy
Development
Dimensions International,
says that big global organi-
sations know about talent
management and what they
should be doing, but are
struggling to implement it.
Consultants are needed to
apply the talent management
process consistently
across the globe.
“The talent management
systems in North America
and Europe must be similar
to those in Russia and
China,” he says. “Then the
‘It is expected that
three­quarters of
senior managers
will retire within
two years’
organisation knows its talent
pool is truly equitable
and not just ‘the most like
me,’ which succession plans
sometimes are.”
Development of talented
leaders is a key strategic
issue for Siemens, so much
is managed internally. “Consultancies
have an important
role to play, especially
in respect of running development
and assessment cen-
tres,” says Teresa Frost,
head of talent management.
“This enables external
benchmarking for leadership
and gaining an independent
view as to someone’s further
potential.”
Chris Watkin, head of talent
management at Hay
Group, points out that
organisations have invested
a lot over the years in developing
their own competency
and leadership models.
However, they are being
overcome by events as
organisations make dramatic
shifts in strategy or the way
they operate and need to
know the implications for
people. “The organisation
can come up with its own
answer,” says Mr Watkin,
“but if it is going to bet the
delivery of its strategy on
the way people behave, it
often needs robust research
to back it up.”
Mr Dawson makes an
interesting point when he
says 80 per cent of development
takes place “on the
job”. This means that talent
management must be much
more closely related to performance
management than
to HR processes.
“The best talent management
work probably isn’t
identified as such,” he says,
“because it is part of performance
management consulting.
HR consultants will
focused on the process,
whereas performance consultants
will work on what
talent needs to do to achieve
performance.”
Just as the war for talent
is global, so the market is
global. The consultants
report strong demand from
emerging economies, where
indigenous companies are
not only looking for the
talent they need but are
also finding themselves in
competition with organisations
from the developed
world whose talent management
strategies are sending
them overseas to search for
talent.
Scott McArthur, executive
consultant at Atos Consulting,
warns that the industry
must remain flexible. “When
the ‘Facebook’ generation
become the leaders and managers
in businesses,” he
says, “current techniques for
staff development, reward
and motivation will no
longer apply.”
‘Sectorswithlessgenericareasofknowledgeare‘islands’intermsofrequiredexpertise’ Corbis
required and to exploit it fully.
They must also ensure they do not
become distracted from the core
competency.
Specialists will survive onlywhere
there are economic barriers
to prevent large firms from competing.
This could be by targeting
smaller clients and starting relationships
with a smaller project
than a large firm could undertake.
“We cannot sustain our utilisation
if we have too many specialists
for whom continuous work
‘The client wants to
collaborate with
someone who has
a deeper knowledge
of the sector’
may not exist,” says Mr Reeve,
“and if we deploy them elsewhere
we quickly dilute their skills. A
small focused firm will have a better
chance of keeping those people
busy on the right work.”
However, niche firms are very
susceptible to changing market
conditions and their fee income
can be volatile, as large projects
starting and finishing can have disproportionate
effect. They need to
have enough reserves to cope with
a lean year if they are to thrive in
the long term.
Another problem is a lack of
large marketing budgets with
which to build brand. Niche firms
have to work harder, often targeting
industry or consulting awards,
in order to get their name known.
“The fact that we are specialists
makes us a leading authority,”
says Helen Ricardo, European marketing
manager at Alsbridge,
which advises on outsourcing. “We
have turned this into our marketing
advantage and actively promote
thought leadership and
knowledge sharing within the outsourcing
industry. Our aim is to
improve standards industry-wide
with market-leading originality,
because the industry is our bread
and butter. As a result we are
proving that innovation is possible
in the advisory process, no matter
what the size of the firm.”
Another area where specialists
gain is client service. Directors and
partners can build relationships
with clients, carrying out the sales
process and then supervising delivery,
rather than simply pitching
for work and passing it to junior
staff members.
“The people allocated to do the
work are those with relevant experience,”
says Steve Watmough,
managing director of Xantus, a
niche IT consultancy that has
increased its billings by more than
90 per cent in a year. “This has
significant value to the client, as
they have access to high-level deci-
sion makers at any time.”
Most of the large firms are flexible
enough to bid jointly with specialist
firms or to subcontract work
to them. In contrast, the specialists
have to take a hard commercial
view and not let their professional
pride turn down scraps from the
big firm’s table.
“Combining our structure, processes
and management ability with
their deep specialist skills can be
unbeatable,” says Mr Reeve. “We
can build them into diverse teams
and put around them management
and quality processes beyond the
resources of their own firms. We
should not let arrogance – or focus
on short-term profit – prevent us
from finding the right solution for
our clients.”
While the big firms offer security,
brand name and depth of
resource if things go wrong, small
consultancies offer focus,
value-for-money and close relationships,
with the seller overseeing
delivery.
Trevor Bargh, chief executive of
Charter Solutions, a strategy and
marketing consultancy, says being
a specialist is all about being really
different.
“It’s much more exciting than
doing what everyone else does,” he
says.
“It’s about being energetic, entrepreneurial
and challenging in
order to motivate and inspire clients.”
Business of Consulting
More bang
for your buck
GuestColumn
RAJU PATEL
Despite the platitude, one
often hears, that strategy
consultants should be
independent, clients want
their consultants to be
partial. They want them to
“express and justify views
put forward” rather than
sit on the fence.
Strategy consultants such
as Roland Berger, Monitor
Group, Bain, Boston
Consulting Group and
McKinsey are generalists.
So clients are really hiring
them to help manage “the
key stages in a strategy
consulting process” –
which means identifying
the problem or question to
investigate, framing the
business problem, scoping
the work, staffing it, and
helping manage the
execution or delivery of the
engagement.
Typical issues these
consultants addressed
include mergers and
acquisitions, new market
entry, portfolio
rationalisation (chopping
and changing business
units), organisation
(structure) and economic
modelling.
Examples of their advice
include recommending the
strategy that “Abbey will
significantly increase
shareholder value if it
expands beyond its core
mortgage franchise by
entering the commercial
banking market”
(reminiscent of a strategy
that distressed Abbey,
leading ultimately to its
takeover by Spain’s
Santander). Or the strategy
that the “life insurer
Standard Life should
demutualise” (of course
strategy consultants will be
taken a lot more seriously
than carpetbaggers who had
previously reached the same
conclusion after conducting
a quick back-of-the-envelope
analysis).
And finally, remember the
strategy that “the NHS can
save the government a
bundle by taking budgetary
authority away from
professional doctors and
clinicians and redeploying it
to business-style commercial
managers (who would then
be able to overrule doctors
and determine what
treatment patients can and
cannot receive)”.
The good news is that
clients are getting more
innovative in the way they
engage and manage strategy
consultants. For example,
they may mix and match
consultants from different
firms – like engaging
McKinsey and Bain
simultaneously.
Clients may also evaluate
individual consultants
rather than simply be
blinded by mystical brands.
It is not uncommon for
clients to demand that
individual strategy
consultants be swapped-out
as the engagement
progresses.
Such client assertiveness
has been commonplace
when using non-strategy
consultants for technology,
systems integration or
outsourcing projects, but
board executives and to a
lesser extent government
officials now seek similar
consistency in value
delivery from strategy
consultants.
There is also a greater
inclination to challenge
consultants’ invoices
because billing transparency
is still a concern to many
clients who often cannot
understand how a strategy
firm can charge monthly
fixed fees of £500,000 or
more, for a team of four to
six strategy consultants
(meaning a single
engagement could easily
cost £10m).
The bad news, on the
other hand, is that clients
are all too easily their own
worst enemies. A classic
case is where the client
secures the right
individuals from the
consulting firm but then
pays much less attention to
selecting the right calibre
and number of employees
from his or her own side,
resulting in a sub-optimal
consultant-client mix.
Seldom will a strategy
consultant walk through
the door and find the key
question all ready and
waiting to be addressed. It
is through a process of
structured diagnosis and
dialogue with the client
that issues are highlighted.
These might be shrinking
market share, margin
erosion, and structural
market shift. Such issues
might be linked but a
decision is needed on how
to maximise bang for buck.
Clients cynical about this
early collaborative inquiry
process are highly unlikely
to settle on the key
question, and in such cases
there would be no basis for
a consulting engagement.
Some clients fail to
deliver on their own
commitments, especially in
providing contextual
information or arranging
internal interviews in a
timely manner.
If the client is
overly challenging...
then the strategy
consultant might as
well withdraw
Lack of maturity can be
another problem, as some
client employees allow egos
and emotions to get in the
way. This comes down to
team skills. If the client is
overly challenging,
inflexible or personally
insecure as hypotheses are
tested and ideas generated,
then the strategy consultant
might as well withdraw or
risk a failed engagement.
Another common trap is
where a budget-rich client,
typically an individual well
below board level, hires a
strategy consultant and
belatedly realises the
outputs are unusable. This
is because strategy
consultants are usually
good at providing
board-level advice (blue-sky
thinking) but poor at
translating it to actions
taken by junior managers.
The whole reason for
engaging a strategy
consultant is so the client
can gain a competitive
advantage, but clients may
fail to see the forest for the
trees by failing to focus on
“value”.
It is the responsibility of
the client constantly to
monitor the value being
delivered and if needed to
alter the direction of the
engagement mid-stream
rather than cry foul after
three months when fees
have been racked-up.
Consulting is a people,
ideas and knowledge
business. The smart client
who proactively manages
each stage of the strategy
consulting process will reap
enormous value.
Raju Patel is chief
executive of Fulcrium,
which advises on buying
professional services

12 ★ FINANCIALTIMESMONDAYNOVEMBER 19 2007