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

More documents

Recommendations

Info

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 organisations 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 decision 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
Page 1 and 2: BUSINESS of CONSULTING FINANCIAL TI
Page 3 and 4: FINANCIALTIMES MONDAYNOVEMBER 19 20
Page 9: FINANCIALTIMES MONDAYNOVEMBER 19 20

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

Create successful ePaper yourself

Delete template?

Save as template?