A consulting firm or simply consultancy is a

professional service Professional services are occupations in the service sector requiring special training in the arts or sciences. Some professional services, such as architects, accountants, engineers, doctors, and lawyers require the practitioner to hold profe ...

firm that provides expertise and specialised labour for a fee, through the use of consultants. Consulting firms may have one employee or thousands; they may consult in a broad range of domains, for example, management, engineering, and so on. Management consultants, in particular, typically work with company executives and provide them with generalists and industry-specific specialists, known as

subject-matter expert A subject-matter expert (SME) is a person who has authority, accumulated great knowledge in a particular field or topic and this level of knowledge is demonstrated by the person's degree, licensure, and/or through years of professional experience ...

s, usually trained in management or in business schools. The deliverable of a management consultant is usually recommendations for achieving a company objective, leading to a company project. Many consulting firms complement the recommendations with implementation support, either by the consultants or by technicians and other experts. Consulting services are part of the tertiary sector and account for several hundred billion dollars in annual revenues. Between 2010 and 2015, the 10 largest consulting firms alone made 170 billion dollars growth revenue and the average annual growth rate is around 4%.

Segments

The segmentation of advisory services varies widely across organizations and countries. Categorization is unclear, in part because of the upheavals that have occurred in this industry in recent years. One approach is to separate services into five broad service delivery families, considering the managers they are targeting: * Services related to the company's overall strategy, which are addressed to the

CEO A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...

, * Services related to marketing, communication, sales and public relations, which are addressed to the CMO, * Services related to management, financial management, taxation, accounting, compliance with regulations, for the CFO, * Services related to the company's operations, intended for operational management, which may be different depending on the industrial sector (technology director, plant managers, operations directors, Research and Development managers), for instance

COO COO or coo may refer to: Business * Certificate of origin, used in international trade * Chief operating officer or chief operations officer, high-ranking corporate official * Concept of operations, used in Systems Engineering Management Process ...

and CTO, * Service related to information technology (see IT consulting) intended for information management, which are addressed to the

CIO CIO may refer to: Organizations * Central Imagery Office, a predecessor of the American National Geospatial-Intelligence Agency * Central Intelligence Office, the national intelligence agency of the former Republic of Vietnam * Central Intellige ...

Types

There are different types of consulting firms serving different sectors. They mainly fall under the following fields: * Architecture and Engineering *

Financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...

Health care Health care or healthcare is the improvement of health via the prevention, diagnosis, treatment, amelioration or cure of disease, illness, injury, and other physical and mental impairments in people. Health care is delivered by health profe ...

* Hotel and hospitality industry * Human resources * Information technology * Legal * Management * Music *

Regulatory compliance In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Compliance has traditionally been explained by reference to the deterrence theory, according to which punishing a behavior will decrease the viol ...

Some consulting firms also serve niche sectors, such as: * advertising/ marketing/ public relations *

environmental consulting Environmental consulting is often a form of compliance (regulation), compliance Consultant, consulting, in which the consultant ensures that the client maintains an appropriate measure of compliance with environmental regulations. There are many t ...

* entertainment/ media * energy * logistics * consulting in politics and the public sector * real estate * recycling *

small business Small businesses are types of corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to ap ...

commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a comm ...

Models of business

A consulting firm's model of business is comparable to staffing, wherein the objective is to effectively lower labour costs for clients for an intended result, or relative to an intended result or output, in order to charge for a profit margin for the consulting firm. Clients are essentially looking to procure or purchase external help and assistance. Consulting firms sustain themselves from a labour economic point of view as a method for distributing labour, where certain positions, roles or fields of expertise within the labour market find it more suitable for contract work, as contrasted to in-house employment, for a few conceivable reasons: * Due to client needs being incontinuous, or continuous but otherwise volatile in that they may vary from time to time in nature and scope, * Due to a potential scarcity of skilled labour available on the market, * Due to the possibility of offering a higher work level activity, consequently acting as a source of profit for clients, consulting firms and society as proffered. As such, the consulting business model can be seen as a result of the

knowledge economy The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in technical and scientific inno ...

, and as a subset of the

knowledge industry Knowledge industries are those industries which are based on their intensive use of technology and/or human capital. While most industries are dependent in some way on knowledge as inputs, knowledge industries are particularly dependent on knowledg ...

. Today it is not rare for consulting firms to offer solutions to their business clients.

Knowledge transfer Knowledge transfer is the sharing or disseminating of knowledge and the providing of inputs to problem solving. In organizational theory, knowledge transfer is the practical problem of transferring knowledge from one part of the organization t ...

is also a common sales argument for consulting services. As consulting firms grow larger, in a modern, globalised and interconnected business environment, a lot of times they will take what could be seen as a 3rd party position, as it relates to one or more clients, that are engaged in b2b business. The consulting firm utilises its

networking Network, networking and networked may refer to: Science and technology * Network theory, the study of graphs as a representation of relations between discrete objects * Network science, an academic field that studies complex networks Mathematics ...

capabilities (due to its high number of clients, often within diverse markets) to connect actors in for example M&A activity. Since the private sector isn't allowed to use officials, nor attempt to create any such equivalent as this would be regarded as

antitrust Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...

behaviour, there is a natural demand for other such private or business services to offer an alternative to this type of coordinating services.

Outsourcing

It is common for consulting firms practices to be involved in the selling of

outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...

services as well. Similarly, outsourcing firms may offer consulting services as a way to help integrate their services with the client. Many consulting firms offer several service packages as part of their business portfolio. While consulting services and outsourcing services are compatible, issues arise if the clients are not aware of the differences between the two. From an ethical standpoint, it is important that clients are aware of what type or types of services they're procuring, as consulting services are meant to be a complementary service to the client firm, whereas outsourcing effectively aims to replace parts of the client firm that are imperative to their operational ability.

Successful consulting firm cases

Mexico

In 2013, there was a randomized trial in Mexico where 432 small and medium enterprises were allowed access to management consulting services for one year. As a result of this trial, there were many positive impacts. Such positive impacts include: increase in entrepreneurial spirit, increases in employment and higher wages for employees. Even after 5 years after the trial, positive impacts are still active. These results were achieved by advertising a consulting program to 432 enterprises and recorded data on the positive effects.

Money laundering in consulting firms

A consulting firm is a suitable instrument for

money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...

. Illegally obtained money is laundered by the employment of consulting companies. The reason consulting firms are so effective at laundering money is because consulting services are immaterial, therefore, pricing is non-transparent. Another reason consulting firms are effective at laundering money is because sometimes consultants regularly leverage their clients into charging higher prices. When a client of the consulting firm is satisfied, the consultant can charger higher fees through more leverage while setting prices through the contracting prices. Therefore, when auditors inspect financial statements provided by the consulting firm, the consulting firm can state that a certain consulting project costed an 'x' amount of money and auditors are unable to detect fraud, thus allowing money laundering to occur.

Impact of consulting firms in emerging economies

Negative impacts

The impact of consulting firms on local businesses in emerging economies do not always have positive effects. One reason for this is that firms in emerging economies suffer from the inferiority of their technologies and innovation capabilities, thus, although they have access to consulting firms, they cannot make the most of the advice given. Advice given by consulting firms to clients may not be used efficiently as clients firms in emerging markets tend to suffer due to a lack of infrastructure, organisation, and education. Another reason firms in emerging economies struggle to effectively use consulting services is that innovation is very costly and risky.

Positive impacts

As noted above, consulting firms in emerging economies do also have positive impacts. Positive impacts include: increases in employment, increase in entrepreneurial spirit and higher wages for employees.

Impact of consulting firms in developed economies

One study shows that there is a significant difference between efficiency between consulting firms in America ( developed economy) and consulting firms in Asia Pacific regions (emerging economy). Efficiency scores of consulting firms in America were significantly higher than consulting firms in Asia Pacific regions. This is because firms in developed economies have better infrastructure, organisation and education, thus advice given by consulting firms is used efficiently.

References

{{reflist Knowledge firms