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

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
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This special report
appears online at
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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.