Management consulting
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Management consulting is the practice of providing consulting services to
organization An organization or organisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences) is an legal entity, entity—such as ...
s to improve their
performance A performance is an act or process of staging or presenting a play, concert, or other form of entertainment. It is also defined as the action or process of carrying out or accomplishing an action, task, or function. Performance has evolved glo ...
or in any way to assist in achieving organizational objectives. Organizations may draw upon the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice and accessing consultants' specialized expertise regarding concerns that call for additional oversight. As a result of their exposure to and relationships with numerous organizations, consulting firms are typically aware of industry "
best practice A best practice is a method or technique that has been generally accepted as superior to alternatives because it tends to produce superior results. Best practices are used to achieve quality as an alternative to mandatory standards. Best practice ...
s". However, the specific nature of situations under consideration may limit the ability or appropriateness of transferring such practices from one organization to another. Management consulting is an additional service to internal management functions and, for various legal and practical reasons, may not be seen as a replacement for internal management. Unlike interim management, management consultants do not become part of the organization to which they provide services. Consultancies provide services such as: organizational change management assistance, development of coaching skills, process analysis,
technology Technology is the application of Conceptual model, conceptual knowledge to achieve practical goals, especially in a reproducible way. The word ''technology'' can also mean the products resulting from such efforts, including both tangible too ...
implementation,
strategy Strategy (from Greek στρατηγία ''stratēgia'', "troop leadership; office of general, command, generalship") is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the " a ...
development, or operational improvement services. Management consultants often bring their own proprietary methodologies or frameworks to guide the identification of problems and to serve as the basis for recommendations with a view to more effective or efficient ways of performing work tasks. The economic function of management consulting firms is in general to help and facilitate the development, rationalization and optimization of the various markets pertaining to the geographic areas and
jurisdiction Jurisdiction (from Latin 'law' and 'speech' or 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, the concept of jurisdiction applies at multiple level ...
s in which they operate. However, the exact nature of the value of such a service model may vary greatly across markets and its description is therefore contingent.


History

Management consulting grew with the rise of
management Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a Government agency, government bodies through business administration, Nonprofit studies, nonprofit management, or the political s ...
, as a unique field of study. One of the first management consulting firms was Arthur D. Little Inc., founded in 1886 as a partnership, and later incorporated in 1909. Although Arthur D. Little later became a general management consultancy, it originally specialized in technical research. As Arthur D. Little focused on technical research for the first few years, the first management consultancy was that of Frederick Winslow Taylor, who in 1893 opened an independent consulting practice in Philadelphia. His business card read "Consulting Engineer – Systematizing Shop Management and Manufacturing Costs a Specialty". By inventing Scientific Management, also known as Taylor's method, Frederick Winslow Taylor invented the first method of organizing work, spawning the careers of many more management consultants. For example, one of Taylor's early collaborators, Morris Llewellyn Cooke, opened his own management consultancy in 1905. Taylor's method was used worldwide until industry switched to a method invented by W. Edwards Deming. The initial period of growth in the consulting industry was triggered by the Glass–Steagall Banking Act in the 1930s, and was driven by demand for advice on finance, strategy and organization. From the 1950s onwards, consultancies expanded their activities considerably in the United States, and also opened offices in Europe and later in Asia and South America. The management consulting firms Stern Stewart, Marakon Associates, and Alcar pioneered value-based management (VBM), or "managing for value", in the 1980s based on the academic work of Joel Stern, Bill Alberts, and Professor Alfred Rappaport. Other consulting firms including McKinsey and BCG developed VBM approaches. Value-based management became prominent during the late 1980s and 1990s. The industry experienced significant growth in the 1980s and 1990s, gaining considerable importance in relation to national
gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...
. A period of significant growth in the early 1980s was driven by demand for strategy and organization consultancies. The wave of growth in the 1990s was driven by both strategy and information technology advice. In the second half of the 1980s, the big accounting firms entered the IT consulting segment. The then Big Eight, now Big Four, accounting firms ( PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte Touche Tohmatsu) had always offered advice in addition to their traditional services, but after the late 1980s these activities became increasingly important in relation to the maturing market of accounting and
auditing An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing al ...
. By the mid-1990s these firms had outgrown those service providers focusing on corporate strategy and organization. While three of the Big Four legally divided the different service lines after the
Enron scandal The Enron scandal was an accounting scandal sparked by American energy company Enron, Enron Corporation filing for bankruptcy after news of widespread internal fraud became public in October 2001, which led to the dissolution of its accounting ...
and the ensuing breakdown of Arthur Andersen, they are now back in the consulting business. In 2000, Andersen Consulting broke off from Arthur Andersen and announced their new name Accenture. The name change was effective starting January 1, 2001, and Accenture is currently the largest consulting firm in the world in employee headcount. They are publicly traded on the
NYSE The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...
with ticker ACN. The industry stagnated in 2001 before recovering after 2003 and then enjoying a period of sustained double-digit annual revenue growth until the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
. As financial services and government were two of the largest spenders on consulting services, the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
and the resulting
public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, pu ...
austerity drives hit consulting revenues hard. In some markets such as the UK there was a recession in the consulting industry, something which had never happened before or since. There has been a gradual recovery in the consulting industry's growth rate in the intervening years, with a current trend towards a clearer segmentation of management consulting firms. In recent years, management consulting firms actively recruit top graduates from
Ivy League The Ivy League is an American collegiate List of NCAA conferences, athletic conference of eight Private university, private Research university, research universities in the Northeastern United States. It participates in the National Collegia ...
universities, Rhodes Scholars, and students from top MBA programs. In more recent times, traditional management consulting firms have had to face increasing challenges from disruptive online marketplaces that are aiming to cater to the increasing number of freelance management consulting professionals.


Function

The functions of consulting services are commonly broken down into eight task categories. Consultants can function as bridges for information and knowledge, and external consultants can provide these bridging services more economically than client firms themselves. Consultants can be engaged proactively, without significant external enforcement, and reactively, with external pressure. Proactive consultant engagement is engaged mainly with aim to find hidden weak spots and improve performance, while the reactive consultant engagement is mostly aimed at solving problems identified by external stakeholders. Marvin Bower, McKinsey's long-term director, has mentioned the benefits of a consultant's externality, that they have varied experience outside the client company. Management consulting could be classified into two categories: * General management consulting, which concerns
strategy Strategy (from Greek στρατηγία ''stratēgia'', "troop leadership; office of general, command, generalship") is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the " a ...
,
corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...
,
organization An organization or organisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences) is an legal entity, entity—such as ...
, environmental social and corporate governance, risk and compliance, and so forth. It entails questions that are relevant to the entirety of the client organization as a whole, on a management level. * Specialized management consulting, which concerns questions that are specific to a certain function or subset of the client organization, such as
legal Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a Socia ...
management consulting, financial management consulting, digital management consulting,
technology Technology is the application of Conceptual model, conceptual knowledge to achieve practical goals, especially in a reproducible way. The word ''technology'' can also mean the products resulting from such efforts, including both tangible too ...
management consulting,
operations management Operations management is concerned with designing and controlling the production (economics), production of good (economics), goods and service (economics), services, ensuring that businesses are efficiency, efficient in using resources to meet ...
consulting, and Executive search. Management consulting often involves a mix of both of these categories. In the modern economic environment, management consulting firms are typically classified under the umbrella term of corporate service providers. Consultants have specialized skills on tasks that would involve high internal coordination costs for clients, such as organization-wide changes or the implementation of information technology. In addition, because of
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of Productivity, output produced per unit of cost (production cost). A decrease in ...
, consultants' focus on and experience in gathering information across markets and industries enables a higher cost-efficiency than if clients were to perform research themselves.


Trends


Big Three management consultancies

Three consulting firms are widely regarded as the Big Three or MBB: * McKinsey & Company * Boston Consulting Group * Bain & Company


Big Four accounting firms in the management consulting market

The Big Four audit firms ( Deloitte, KPMG,
PwC PricewaterhouseCoopers, also known as PwC, is a Multinational corporation, multinational professional services network based in London, United Kingdom. It is the second-largest professional services network in the world and is one of the Big Fo ...
, Ernst & Young) have been working in the strategy consulting market since 2010. In 2013, Deloitte acquired
Monitor Group Monitor Deloitte is the multinational strategy consulting practice of Deloitte Consulting. Monitor Deloitte specializes in providing strategy consultation services to the senior management of major organizations and governments. It helps its cl ...
—now Monitor Deloitte—while PwC acquired PRTM in 2011 and Booz & Company in 2013—now Strategy&. From 2010 to 2013, several Big Four firms have tried to acquire Roland Berger. EY followed the trend, with acquisitions of The Parthenon Group in 2014, and both the
BeNeLux The Benelux Union (; ; ; ) or Benelux is a politico-economic union, alliance and formal international intergovernmental cooperation of three neighbouring states in Western Europe: Belgium, the Netherlands, and Luxembourg. The name is a portma ...
and French businesses of OC&C in 2016 and 2017, with all now under the EY-Parthenon brand.


Trends

In 2013, an article in ''
Harvard Business Review ''Harvard Business Review'' (''HBR'') is a general management magazine published by Harvard Business Publishing, a not-for-profit, independent corporation that is an affiliate of Harvard Business School. ''HBR'' is published six times a year ...
'' discussed the prevalent trends within the consulting industry to evolve. The authors noted that with knowledge being democratized and information becoming more and more accessible to anyone, the role of management consultants is rapidly changing. Moreover, with more online platforms that connect business executives to relevant consultants, the role of the traditional 'firm' is being questioned. Large management consulting firms and professional networks have adopted a
structure A structure is an arrangement and organization of interrelated elements in a material object or system, or the object or system so organized. Material structures include man-made objects such as buildings and machines and natural objects such as ...
of industry-specific branches, with one branch per industry or market segment served. As such, the firms utilize their ability to serve as knowledge brokers within each market segment and industry addressed.


Nonprofit consultants

Some
for-profit Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." A business entity is not necessari ...
consulting firms, including McKinsey and BCG, offer consulting services to nonprofits at subsidized rates as a form of
corporate social responsibility Corporate social responsibility (CSR) or corporate social impact is a form of international private business industry self-regulation, self-regulation which aims to contribute to societal goals of a philanthropy, philanthropic, activist, or chari ...
. Other for-profit firms have spun off nonprofit consulting organizations, e.g. Bain creating Bridgespan. Many firms outside of the Big Three offer management consulting services to nonprofits, philanthropies, and mission-driven organizations. Some, but not all, are nonprofits themselves.


Liability

As with all client-contractor work, liability depends heavily on the subject of contract terms. While the management consulting service provider for obvious reasons has a business reputation to protect, legally there is little protection for the client. This is due to the scope of the contract being the only thing subject to potential insurance claims as well as lawsuits. As with other client-contractor relationships, settling for liabilities that exist outside the scope of the contract deliverables has been proven to be of considerable difficulty, also in management consulting. For this reason, it is important that clients procuring management consulting services think twice about what type of help they need, so that the scope, length and content of contract reflects such need.


Criticism

Management consultants are sometimes criticized for the overuse of
buzzword A buzzword is a word or phrase, new or already existing, that becomes popular for a period of time. Buzzwords often derive from technical terms yet often have much of the original technical meaning removed through fashionable use, being simply ...
s, reliance on and propagation of
management fad Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a government bodies through business administration, nonprofit management, or the political science sub-field of public administr ...
s, and a failure to develop plans that are executable by the client. As stated above, management consulting is an unregulated profession; anyone or any company can style themselves as management consultants. A number of critical books about management consulting argue that the mismatch between management consulting advice and the ability of executives to actually create the change suggested results in substantial damages to existing businesses. In his book, ''Flawed Advice and the Management Trap'', Chris Argyris believes that much of the advice given today has real merit. However, a close examination shows that most advice given today contains gaps and inconsistencies that may prevent positive outcomes in the future. Ichak Adizes and coauthors also criticize the timing of consultant services. Client organizations, which are usually lacking the knowledge they want to obtain from the consultant, cannot correctly estimate the right timing for an engagement of consultants. Consultants are usually engaged too late when problems become visible to the top of the client's organizational pyramid. A proactive checkup, like a regular medical checkup, is recommended. On the other side, this opens additional danger for abuse from disreputable practitioners.


International standards

ISO The International Organization for Standardization (ISO ; ; ) is an independent, non-governmental, international standard development organization composed of representatives from the national standards organizations of member countries. Me ...
published the international standard ISO 20700 ''Guidelines for Management Consultancy Services'' on June 1, 2017, replacing EN 16114. This document represents the first international standard for the management consultancy industry.


Training and certification

An international qualification for a management consulting practitioner is Certified Management Consultant (CMC) available in the United States through the Institute of Management Consultants USA. Additional trainings and courses exist, often as part of an MBA training; see .


See also

* Big Three (management consultancies) *
Big Four accounting firms The Big Four are the four largest professional services networks in the world: Deloitte, Ernst & Young, EY, KPMG, and PwC. They are the four largest global accounting networks as measured by revenue. The four are often grouped because they ar ...
* Business development * Business process re-engineering * Consultant * Consulting firm * ICMCI *
Industrial engineering Industrial engineering (IE) is concerned with the design, improvement and installation of integrated systems of people, materials, information, equipment and energy. It draws upon specialized knowledge and skill in the mathematical, physical, an ...
* Industrial psychology * Institute of Consulting *
Knowledge economy The knowledge economy, or 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 innovation. ...
* Management cybernetics *
Management science Management science (or managerial science) is a wide and interdisciplinary study of solving complex problems and making strategic decisions as it pertains to institutions, corporations, governments and other types of organizational entities. It is ...
*
Operations management Operations management is concerned with designing and controlling the production (economics), production of good (economics), goods and service (economics), services, ensuring that businesses are efficiency, efficient in using resources to meet ...
* Organizational development * Organizational psychology * Organizational studies * Outline of consulting *
Outline of management The following outline is provided as an overview of and topical guide to management: Management (or managing) is the administration of organizations, whether they are a business, a nonprofit organization, or a government body. The following ou ...
*
Strategic management In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of Resource management, resources ...


Notes


References


Further reading

* *


External links

* {{Management consulting Market intelligence