introduction to management consulting

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Management ConsultingA Guide for Students

David Biggs

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PART I

An introduction to managementconsulting

1 Management Consultancy: The Context of theIndustry

2 Benefits and Critiques of Consultancy

3 Different Types of Consultancy

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The first part of this book introduces the topic of management consultancy.Chapter 1 creates a context for the book giving a historical overview of the in-dustry. This is useful in providing a background to the industry describing thefactors that led to the rise or demise of consultancies over the years.

Chapter 2 takes the context further defining management consultancy as bothan industry and practice. It initially concentrates on the concept put forward bythe Management Consultancies Association of ‘adding value’. Criticism of man-agement consultancy is introduced here from both an academic and practitionerstandpoint. Impression management, management rhetoric and related conceptsare critically appraised using the latest research providing a critical understandingof consulting. The chapter then goes back to basics and asks the fundamental ques-tion, ‘Why use consultants?’ This question is answered using a well-known modelin psychology, the Johari window, but applied to an organizational setting. Thechapter then details research of what consultants and clients themselves haveagreed on ‘Why use consultants?’

The final chapter in this section examines the different types of consultancies intoday’s global economy. The issue of size is introduced, with the larger consultan-cies compared with more specialist organizations. Different fields of consultancyactivity are detailed examining assignments for markets which include: SMEs,public sector, private sector and international.

2 Part I An introduction to management consulting


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CHAPTER 1

Management consultancy: Thecontext of the industry

Learning Objectives

At the end of this chapter students will be able to:

l Understand the early origins of management consultancy and the keyfigures involved

l Understand that applying solutions that fitted in with the client needencouraged the early industry

l Be able to describe external events that stimulated the industry

l Understand patterns in the industry such as how the 70s and 80s weresimilar to earlier periods of growth in the industry

l Recognize the context of the management consultancy industry today

The early history of McKinsey & Company

1920sManagement theory was still in its infancy whenJames O. McKinsey (or Mac, as he was known byfriends and colleagues) founded the firm thatbears his name in 1926. He had left his academiccareer as a professor of accounting at the Univer-sity of Chicago to build a firm that provided financeand budgeting services, but quickly gained a repu-tation for providing advice on organization andmanagement issues.

Mac was determined to help senior manage-ment in American companies solve their most im-portant business problems. In an era when‘management engineers’ were largely efficiencyexperts, Mac set out to enlarge the profession’sscope by persuading clients that his young firmcould not only help inefficient companies butalso assist healthy companies in reorientingthemselves to thrive in a turbulent businessenvironment.

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Mini Case Study 1.1

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Introduction

As our opening case study demonstrates, the management consultancy industryhas an extensive history that can be traced back even further than the 1930s to thenineteenth century (Ferguson, 2002). This chapter details the fascinating history ofthe management consultancy industry using academic sources and material fromwell-known consultancies. This involves examining how consultancies havethrived, survived or died in a notoriously demanding industry. In detailing thishistory, the text is able to describe the context of the industry, which then serves asa background for many of the following chapters.

The History of Management Consultancy

The early yearsWith the onset of the industrial revolution in late eighteenth century Britain, thesharing of ‘management’ knowledge and ways to encourage productivity were

1930sIn 1933, the arrival of Marvin Bower providedJames O. McKinsey with a strong advocate and afellow visionary. Bower held both a J.D. and anM.B.A. from Harvard University. He adamantly be-lieved that management consulting should be heldto the same high standards for professional con-duct and performance as law and medicine.

Following Mac’s early death, Bower began tocarefully shape the firm into its present form by in-sisting on a few core principles :

l Client interests must be placed before those ofthe firm.

l Engagements should only be undertaken whenthe value to the client was expected to ex-ceed the firm’s fees.

l The firm’s ownership should be restricted to ac-tive partners.

Firm members must be professionals trainedand motivated to do outstanding work and makea permanent career with the firm. By the end ofthe 1930s, under Bower’s stewardship, the term‘management consulting’ began to replace ‘man-agement engineering,’ and the professional

management consultant was born. Bower, wholater became managing director, served clientsuntil the late 1980s and remained a valued friendand counsellor to the firm until his death in 2003.

1940sWorld War II profoundly affected the Americanbusiness landscape, and our work shifted to issuesof national import as we helped several majorcompanies convert their production facilities tosupport US troops.

As our client base continued to grow, we estab-lished new offices in Chicago, Los Angeles, andSan Francisco. As we grew, so too did our commit-ment to our ‘one firm’ concept. We believed then(and now) that only by remaining a single organ-ization, rather than a loose confederation of of-fices, could we simultaneously deliver the bestpossible client service and treat our own peoplewith utmost fairness and integrity.

It’s our belief in ‘one firm’ that allows us to viewour consultants as a global talent pool – one wecan draw on as needed to provide the best serviceto our clients, regardless of location.Source: http://www.mckinsey.com/ Reproduced with permis-sion of McKinsey & Company.

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common practices. Employees trained in one technique of manufacturing mightmove to another employer and share what they had learnt (Evans, 2001; Fergu-son, 2002). Internationally, this activity occurred also with less well developedcountries observing how things were done abroad. In Britain a century later in1849, Harding and Pullein founded a partnership later joined by Frederick Whin-ney that would be the British origins of Ernst & Young although the companyhas extensive American roots being formed as separate partnerships in Chicagoand in Cleveland at the start of the twentieth century (Ernst & Young, 2009). Sowhat was happening in the US that made the industry possible? McKenna(2006a) provides us with a good account of the early management consultancyindustry.

McKenna (2006a) explained that in the US during the 1870s, the traditional pat-terns of employment were altered in what is described as a second industrial revo-lution. Researchers and scientists often had to commercialize their own patentsexternally and engineers started to sell their knowledge as consultants to the ‘sci-ence based’ industries (McKenna, 2006a). At the same time investments into theseindustries produced much profit and as such directors of firms such as StandardOil, General Electric and AT&T employed freelance engineers as either short-termconsultants or research staff thereby facilitating innovation within their industry(McKenna, 2006a).

In the 1880s, two firms were created that can today be recognized as the begin-nings of the management consultancy industry in the US (McKenna, 2006a). Dur-ing 1886 a Massachusetts Institute of Technology (MIT) professor Dr ArthurD. Little created the first management consultancy firm of his own name (Saint-Martin, 2000). The company emphasized science, engineering and invention in itsoriginal form. However in 2002, the company filed for bankruptcy although thebrand name was bought out by a French consultancy Altran Technologies so stillexists today (see http://www.adl.com/about-us.html for more details).

During the 1890s Frederick W. Taylor worked as a management consultant(Riordan, 2009) performing studies at the time that would be influential in hisScientific Management theories published in 1911 (Matthewman, Rose andHetherington, 2009). McKenna (2006a) stated that many individuals, such asF.W. Taylor, worked at this time as consultants and many engineering basedfirms started around this period. Indeed, Taylor may be thought of as the firstmanagement consultant installing his systematic working practice for a fee(Kipping, 2002).

It would be a while for the first management consultancies to emerge in theUS. Indeed, Arthur D. Little and other similar firms in the Boston region such asStone & Webster weren’t really the archetypal management consultancy andwere instead ‘general management know how’ hired for a price (McKenna,2006a). This was also the practice outside of the US although anecdotally someargue that due to managers not wanting to appear incompetent and asking forconsultancy support the spread of management consultancy outside of the USwas limited.

Nevertheless, just before and during the early part of the twentieth century not-able firms emerged in the US. During 1898, the practice that would becomeCoopers & Lybrand and then PricewaterhouseCoopers was founded (Riordan,2009). In 1914, Arthur Andersen and Clarence DeLany founded an accountingpractice that would become Arthur Andersen LLP. In addition, Edwin Booz

Chapter 1 Management consultancy: The context of the industry 5


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develops his own consultancy practice performing research for companies such asGoodyear, the Canadian Pacific Railroad and Photographers Association of theUnited States (Riordan, 2009). This company then becomes Booz and Companyand is regarded as one of the earliest true management consultancies (McKenna,2006a).

In Europe, at the beginning of the twentieth century, organizational con-sultancy became increasingly sort after by firms interested in what was hap-pening in the US economy just as the actual process of manufacturing wasadopted by the US from Europe. In Sweden, Oskar Sillacuteen a professor atthe Stockholm School of Economics worked in both an academic role and alsopart-time as a consultant in the newly established Industrial Office (Engwall,Furusten and Wallerstedt, 2002). This meant that practical matters of businessin the growing Swedish economy could be addressed through academic in-quiry and expertise – a practice that still exists today (Wright, Clarysse, Lockettand Knockaert, 2008) and that is highlighted in Thought Provoking points 1.1and 1.2 below.

Academia in consultancy – PositivesThe link between academia and consultancy thrives today, with academics often be-coming employed as part-time consultants. Academics who offer their skills as a con-sultant are welcomed as they can provide a valuable academic rigor to consultancypractices.

Academia in consultancy — NegativesAlthough individual academics working as consultants are often applauded, someconsultancies do not like it when universities in their own right as businesses bid formanagement consultancy work. This is because universities invariably do not havethe same running costs of consultancies, e.g., the office space, support staff, IT, etc.Universities in this regard are already being paid for by student fees and taxpayers’money and don’t have to rely on consultancy income. Thus, there is unfair competi-tion between consultancies and universities if the two compete for managementconsultancy assignments.

During the early years of the twentieth century, well known promoters ofthe theories of scientific management rose to fame in the US, including influ-ential figures such as Henry Gantt who in 1910 published Work, Wages andProfits (Riordan, 2009). Gantt was most famous for influencing the project man-agement tradition with the chart that bears his name that marks time as a

Thought Provoking point 1.1




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resource. However, many of the proponents of F.W. Taylor ’s theories, such asGantt, Frank Gilbreth, Harlow Person, Morris Cooke, etc., worked as independ-ent consultants (McKenna, 2006a). Companies in the US such as Bedaux,founded by a French immigrant in the US in 1916, went international to Eur-ope and other regions from 1926 onwards (Kipping, 2002). Indeed, Bedauxwent from strength to strength and in the 1920s onwards spawned several sub-sidiaries most notable of which was British Bedaux Ltd founded in the UK in1926 (Ferguson, 2002).

In Europe, Berend Willem Berenschot joined an engineering practice in1922 and strived to change the reputation of consultants who were seen asreorganizers and drivers of efficiency (Karsten and van Veen, 2002). In 1925,Berenschot actively supported the founding of an Institute for Efficiencywhich enhanced the role of consultants within the Netherlands (Karsten andvan Veen, 2002). In Norway in 1928 Industrifondets Rasjonaliseringskontor(IRAS) was established as the first consulting firm which would later bemerged into PA Consulting in 1989 (PA Consulting, 2009). Many of theseearly European roots of consultancy were still strongly wedded to the prin-ciples of scientific management, which came under increasing attack (Henry,2002).

During the 1920s, America became increasingly disinterested with striving forefficiency. This resulted in many of the firms wedded to scientific managementdying out during the 1930s (Henry, 2002). In Europe, Germany produced its ownversion of scientific management called industrial rationalization. This was per-ceived as a more humane version of scientific management which was subse-quently adopted by other European countries (Ainamo and Tienari, 2002). Theexceptional companies that didn’t perish with the fall in popularity of scientificmanagement tended to survive in the international market till the 1960s. Thesesurviving companies altered themselves drastically to survive, delivering moreservices than those proposed by scientific management principles alone (Henry,2002; McKenna, 2006a).

From the 1920s into the 1940sIn the early management consultancy industry it was the alliance betweenengineers and accountants that paved the way forward rather than the rigidprinciples of scientific management (McKenna, 2006a). In 1926, JamesMcKinsey founded a consultancy with his own name (see Mini Case Study1.1 ) and soon after formed a partnership with Andrew Thomas Kearney(Riordan, 2009). The firm described themselves at this point as ‘consultantsand engineers’ but mainly completed auditing work for clients during thisearly period (Riordan, 2009). This union is the start of the two consultanciesMcKinsey & Company and A.T. Kearney both of which thrive in the twenty-first century.

Booz Allen Hamilton also forms a partnership in 1929 hiring its third employee,Jim Allen to form the core of the firm. Interestingly though, the initial formation ofthe company is listed as 1914 (see Industry snapshot 1.1 for more details), a timewhen Ed Booz allegedly shared an office with a man who sold bath towels(Riordan, 2009).



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In the US during the 1930s, regulatory change increased the impact of the man-agement consultancy industry. In 1929, the stock market crashed heralding the be-ginning of the Great Depression (Djelic, 2004). McKenna argued that rather thanbeing a slow progress of evolution that strengthened the industry, it was the for-mation of policies such as the Glass-Steagall Banking Act passed by the US Con-gress in 1933 that stimulated the industry (McKenna 2006a). This legislationprohibited commercial banks from collaborating with brokerage firms or partici-pating in investment banking activities (Djelic, 2004). In essence, the act stoppedthe practice of auditing by the banks putting this activity into the grasp of the earlymanagement consultancy industry. At the same time, the US Securities and Ex-change Commission prevented professionals such as lawyers, accountants, andengineers from acting as consultants (McKenna, 2006a). This served as a stimulusto the industry whereby the number of management consultancy firms grew froman average of 100 in 1930 to 400 in 1940(ACME,1 1964). Nevertheless, managementconsultancies were still less common in the US and in Europe than other profes-sionals such as accountants or engineers (McKenna, 1996).

However, by the end of the Second World War consultancies were increasinglybeing used by corporate America (McKenna, 1996). Indeed, the growth rate ofmanagement consultancies in the 1930s was about 15 per cent each year and thiscontinued on at about 10 per cent each year during the 1940s (McKenna, 1996;2006). During this time, new consulting firms such as PA Consulting, Akins, Proud-foot Consulting and Bossard Consultants were formed.

In 1939, James McKinsey died of pneumonia at the age of 48. This event causedthe original firm to split as Marvin Bower and Andrew Tom Kearney differed on

A summary of the history of Booz Allen Hamilton

In 1914, Edwin Booz had an idea. He believed thatcompanies would be more successful if they couldcall on someone outside their own organizations forexpert, impartial advice. In doing so, he created anew profession – management consulting – and thefirm that would bear his name, Booz Allen Hamilton.

In our role as consultants, Booz Allen has beenprivileged to see, take part in, and catalyze manykey events in the spheres of both business andgovernment. We have been involved in the emer-gence of modern corporations in the 1920s and1930s, the Allied mobilization in World War II, thebeginning and end of the Cold War, the dawnof the Space Age, the evolution of the personalcomputer, the break-up of old telephone systems

and the creation of new ones, early public-privatesector work in the European Union, the emergenceof strong economies in Asia and South America,the waves of deregulation in the 1980s, the move-ment of environmental protection, and the birth ofthe modern US National Football League.

In addition, we have been witness to or partici-pant in the reunification of Germany, the Gulf Wars,the response to the terrorist attacks of 9/11, therise and fall of business cycles, and dramatic shiftsin the ways that commerce, war, and peace havebeen conducted.

Source: http://www.boozallen.com/about/history. Reproducedwith permission from Booz Allen Hamilton.

1ACME served as the professional voice of the industry and still exists today rebranded as the Associ-ation of Management Consulting Firms (AMCF)

Industry snapshot 1.1



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how the practice could grow. Kearney kept the Chicago office and renamed itA.T. Kearney. Bower encouraged the development of McKinsey & Company bybringing in fresh new talent. This talent, although lacking in business knowledge,applied analytical techniques learnt from the major business schools of the day thatwere directly relevant to industry (Riordan, 2009). Indeed, the practice of hiringMBA students from the top business schools still exists today. Bower also insisted onhaving the professional standards of a leading law firm, instigating three rules:

1. put the interests of the client ahead of revenues

2. tell the truth and don’t be afraid to challenge a client’s opinion, and

3. only agree to perform work that is necessary and something McKinsey can do well.

Cited from Riordan (2009)

Bower was adamant that creating the right impression was essential for the con-sultancy role. Consultants, Bower allegedly said, should wear hats and long socksalthough he later relaxed his ruling on wearing hats through his own actions (seeIndustry snapshot 1.2).

Other companies in the US were also emerging during the 1940s. ProudfootConsulting, for instance, was founded by Alexander Proudfoot in 1946 who wantedto partner with clients ensuring positive change (Alexander Proudfoot, 2009). Thecompany activity was implementing effective organizational change throughusing, specialist knowledge and concepts such as the ‘Produfoot Concept of LostTime’ (Alexander Proudfoot, 2009). The company exists today rebrauded in 2009back to their original name the Alexander Proudfoot Company, who form part ofthe Management consulting Group (Alexander Proudfoot, 2009)

Marvin Bower – the father of management consultancy

Marvin Bower has been called the father of themanagement consultancy industry (Byrne, 2003;Edersheim, 2004). Marvin was born on the 1st Au-gust 1903 raised in Cleveland. After high school,Bower attended Brown College (Edersheim, 2004).At Brown two professors caught the youngBower’s attention. The first was, not surprisinglygiven Bower’s business prowess, was an econom-ics professor. The second was a psychology profes-sor who demonstrated the importance of effectivecommunication and competencies in dealing withpeople (Edersheim, 2004).

Indeed, Bower found using different techniquesin dealing with people extremely useful in a sum-mer job working for Thompson, Hine and Flory(TH&F). TH&F were given bad debts from firms that

supplied retailers but who had failed to recapturethe debt. Bower found that by successfully en-gaging the retailers in person rather than by send-ing a ‘dunning’ letter that was more common inthe 1920’s that companies that owed money weremuch more likely to pay the debt (Edersheim,2004).

Bower, with the finances received through vari-ous summer jobs was able to fund himself throughlaw at the Harvard Law School (Edersheim, 2004).After graduating, he worked for a Cleveland lawfirm for a short while before returning back toUniversity to strengthen the business side of hiscurriculum vitae (Edersheim, 2004). Bower thengraduated with an MBA from the fledgling HarvardBusiness School and in 1930 worked for the

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corporate law practice at Jones, Day, Reavis & Poguein Cleveland (Edersheim, 2004; Hindle, 2002).

Although, some have said that Bower’s firstchoice of career was the legal profession (Hindle,2002). Fortunately for us, Bower was still very muchattracted to business. The business side of Bowerwas to be realised in 1933, when he caught the at-tention of James McKinsey. McKinsey likedBower’s ideas especially about ‘the firm’ being aprofessional management based practice (Martin,2003). McKinsey consequently offered Bower ajob in the New York branch of the Chicago basedfirm (Edersheim, 2004; Martin, 2003).

Following McKinsey’s death in 1937, the twooffices based in Chicago and New York split. TheChicago office was taken over by AT Kearney butin New York, Bower grew the business as McKin-sey & Company (Martin, 2003). Bower was fierceabout quality and professional standards and up-held these at all times (Edersheim, 2004).

Schleler, (2000) cites one example where Bowerdemonstrated that giving the client the correct ad-vice meant much more than business revenue. Inthis example, the project results for an importantproject were being delivered to a major client.However, the presentation was being frequentlyinterrupted by the autocratic head of the company,who was arguably the source of the company’slosses. After many frequent interruptions, Bowerstood up and said to the autocratic head, ‘the mainproblem in this company is you’. This led to astunned silence. Nevertheless, many of the peoplein the board meeting agreed with Bower. None-theless, the rest of the board did not usurp thehead. This ultimately led to the consultancy teamnot being hired again. Nevertheless, an importantprinciple was made that in detailing the truth, how-ever unpalatable to the client, is in the long terminterests of the client and the consultancy andshould always take precedent over revenue (Mar-tin, 2003).

Bower’s professional approach was allied withthe ability to use effective interpersonal communi-cation with the client. This often meant simplifyingconcepts down so they made common sense

(Martin, 2003). Allied to this approach, Bowerbrought in the brightest graduates of Harvard Busi-ness School growing the McKinsey firm. Bowerwould turn down work that was not in the firm’sinterest to pursue. He concentrated the firm’s prac-tice not only on giving sound business advice butalso becoming almost business partners in ex-change (Schleler, 2000). This meant that as Boweronce put it, ‘If you looked after the client, the profitswould look after themselves’ (Hindle, 2008, p219).

Through his work at McKinsey, Bower took thefledgling industry and set its course towards theprofession it has become. This included not onlythe types of management consultancy servicesthat could be sold but also the professional stand-ards it must uphold for it to be respected. Indeed,throughout his life Bower regarded himself moreas a professional rather than as a businessman(Edersheim, 2004). Some suggest that this profes-sionalism is a return of Bower’s want of being alawyer (Hindle, 2002). Conversely, it may be thatBower took great pride in developing a professionalstance for ‘the firm’ an aspect that James McKinseyidentified with back in 1933.

Bower served as managing director of McKin-sey and Company from 1950 to 1967, remaining akey leadership figure as director and partner until1992. Bower died aged 99 on the 22nd January2003 in Florida and his legacy, through his firm andhis influence on the industry, lives on.

ReferencesByrne, J.A. (2003), Goodbye to an ethicist. BusinessWeek ;

2/10/2003, Issue 3819, p38Edersheim, E.H. (2004), McKinsey’s Marvin Bower: Vision,

Leadership, and the Creation of Management Consult-ing. New Jersey:John Wiley and Sons Inc

Hindle, T. (2008), Guide to Management Ideas & Gurus. Lon-don:The Economist/Profile Books Ltd

Martin, D. (2003), . The New York Times. Retreived fromhttp://www.nytimes.com/2003/01/24/business/marvin-bower-99-built-mckinsey-co.html#

Schleler, C. (2000), Consulting Innovator Marvin Bower: Put-ting Customer Needs First Was A Key For Him. Investor’sBusiness Daily. Retrieved from http://www.mckinsey.com/aboutus/mckinseynews/pressarchive/pdf/mckinseyIBDpt2.pdf

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In the UK, the engineering firm WS Atkins & Partners was established in 1938by Sir William Atkins. This company rapidly expanded to include specialist ser-vices such as engineering sciences, architecture and project management. Laterthe firm would be one of the largest engineering and multidisciplinary consultan-cies in the world with a sizeable management consultancy division. Also in theUK, PA Consultants was founded in 1943 by Ernest Butten, a former employee ofBedaux (Kipping, 2002). PA stands for ‘Personnel Administration’ and the com-pany was initially formed aiding the recruitment and development processes ofother organizations (PA Consulting, 2009). PA Consulting would become a sizeablemultidisciplinary consultancy with over 3000 people reported in 2008 (Inside Car-eers, 2008). Ove Arup established offices in London and Dublin in 1946 foundingwhat would become a global firm of designers, engineers, planners and businessconsultants which today has more than 9000 employees worldwide and an annualturnover exceeding £475 million (Arup, 2009).

Consultancy firms in France were created during and after the Nazi German occu-pation (Henry, 2002). In 1943 the Compagnie d’organization rationnele du travail,which later became CORT Consultants was probably the first to be formed (Henry,2002). After the defeat of Nazi Germany by the Allies, Europe needed much in theway of rebuilding and restructuring. This profited engineering based consultancyfirms such as Arup and Atkins. Furthermore in France, Yves Bossard formed an or-ganization in 1946 and into the early 1950s that would become Bossard Consultants,a management consultancy with a distinct European accent (Henry, 2002; Riordan,2009). Indeed, before its merger with CapGemini in 1996 Bossard Consultants had800 consultants in total, 450 of which were based in France (Computergram, 1996).

In the Netherlands, there was a rapid programme of industrialization after theeconomy had been severely damaged during the Second World War (Karsten andvan Veer, 2002). The Dutch government at this time embarked on massive traininginitiatives for all types of roles supported by unions and employers. Nevertheless,it lacked the facilities to deliver the training considered to be invaluable employ-ability skills. And, just as in the US example with the Glass-Steagall Banking Act,consultancies developed to meet this urgent demand offering training services(Karsten and van Veer, 2002). Indeed, one of these Dutch companies, Berenschot(founded by Berend Willem Berenschot who helped initiate the Dutch consult-ancy industry in the 1920s) grew quickly and even began exporting consultancyand training services to the US in 1951(Karsten and van Veer, 2002).

The 1950s and 1960sMcKenna argued that just as in the 1930s the adoption of specific legislation servedas a boost to the industry (McKenna, 2006a). The same was also the case in the1950s, where policies aimed to restrict collusive information between firms and todiscourage monopolies served as a stimulant to the consultancy industry. Com-puting firms such as IBM were prohibited from offering computer consultancy ad-vice and gave ‘the emerging field of information technology consulting to thelarge accountancy firms’ (McKenna, 2006a; p. 21).

Arthur Andersen and Company benefited greatly from providing this serviceinto corporations encouraging the IT industry to evolve. Indeed, Andersen’swere involved with the first installation of computer systems for General Electricspecifically for business purposes (McKenna, 2006a). Due to the anti-monopoly



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laws that restricted IBM’s activities, other computer based consultancies de-veloped. Indeed, IBM fell into decline up until 1991 when the last remnants of theanti-trust legislation were lifted. Shortly after Lou Gerstner (a former McKinseyconsultant) took over the leadership of the company reigniting the consulting as-pect of the group (Gerstner, 2002; McKenna, 2006a). IBM’s changes at this time aredetailed in Chapter 3 where we examine large corporations in the industry. It mustalso be noted that IBM was listed in 2008 as having the highest number of employ-ees for a firm with a substantial consultancy element (Inside Careers, 2008).

The need for management consultancy services also brought the need for ex-pertise. In the 1950s, recruitment for management consultancy talent was fierce es-pecially in terms of hiring MBAs from leading business schools as firms followedBower’s example in McKinsey & Company to recruit the best (Riordan, 2009).James Allen being the sole surviving founder of Booz, Allen & Hamilton, restruc-tured the consultancy by hiring large numbers of graduates who had strong ana-lytical skills. Booz, Allen & Hamilton became a leading management consultingfirm by 1970 and is still strong today (see Industry snapshot 1.3).

During the 1950s most of the first generation consultancies diversified their activ-ities from their original Taylorist inspired roots (Kipping, 2002). In the UK in 1956, theManagement Consultants Association (MCA) was formed by the big four consultan-cies at the time which included: British Bedaux Ltd; Production Engineering; Urwick,Orr and Partners; and PA Consulting. However, with the possible exception of PAConsulting the market share of the big four declined from the 1960s and survivedonly through mergers or takeovers of other companies in the 1980s and 1990s.

Nevertheless, the management consultancy industry was not in decline – in-stead there was a new breed of consultants (Kipping, 2002). The second generationof consultancies emerged from the late 1950s from the US. Companies like ArthurD. Little and Booz, Allen & Hamilton thrived. The difference between these con-sultancies and the first generation was the focus on people rather than processesand organization. In a 1968 interview, James Allen stated that:

The thing that gave management consulting its greatest impetus was the approach thatEd Booz took, that is : thinking in terms of people and the organization of them as beingthe key factors in successful management. This has been borne out by many individualswho founded great corporations.

Higdon, 1969; p. 129

Booz Allen’s opening website greeting

Booz Allen Hamilton has been at the forefront ofstrategy and technology consulting for 95 years.Providing a broad range of services in strategy,operations, organization and change, informa-tion technology, systems engineering, and pro-gram management, Booz Allen is committed to

delivering results that endure. Headquartered inMcLean, Virginia, Booz Allen has 20,000 em-ployees and generates annual revenue of over$4 billion.Source: http://www.boozallen.com. Reproduced with permissionfrom Booz Allen Hamilton.




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McKinsey and Company had rapidly been taken over in terms of market shareduring the 1950s by companies such as Booz Allen. Nevertheless, by 1959 theorganization had set up their first international office in London and by the endof the 1960s had a third of its revenue being generated by international business(Kipping, 2002).

Strategy also became an essential commodity of the management consultancyindustry and the re-emergence of some of the early firms not wedded to Tayloristprinciples inspired other companies. Bruce Henderson started his career off inGeneral Electric as a strategic planner moving swiftly into the Arthur D. Little con-sultancy practice. Then in 1963, Henderson set up the Boston Consulting Group,the first pure strategy based consultancy (Kipping, 2002).

Indeed, in the 1960s the management consultancy industry was starting to es-tablish itself as a multi-billion-dollar industry (Saint-Martin, 2000). During thisperiod, audit work had generally declined so many of the accountancy firmslooked for new areas to exploit, joining the consultancy industry. The big eightfirms then emerged at the end of the 1960s that had these accountancy roots bring-ing more professionalism into the industry seen as particularly important in coun-tries outside the US (Saint-Martin, 2000). The big eight consisted of:

1. Arthur Andersen

2. Coopers & Lybrand

3. Ernst & Whinney

4. Arthur Young

5. KPMG Peat Marwick

6. Deloitte, Haskins & Sells

7. Touche Ross

8. PriceWaterhouse

Quoted from Saint-Martin, 2000; p. 44

Nevertheless, there were plenty of other consultancies around in 1969 with Hig-don (1969) citing 54 major consultancies in total. Table 1.1 demonstrates the majorconsultancies listed in 1969 in rank of revenues based on Higdon’s work. However,revenues cited in 1969 were converted to a comparable basis by multiplying bygrowth in the CPI which rose from 34.8 in 1968 to 160 in 1996. Interestingly, theconsultancy ranked top in terms of revenue in Table 1.1, the Planning ResearchCorporation, no longer trades today although during the 1970s they were in-volved in project work as diverse as examining the effect of increased tax on cigar-ettes through to creating FORTRAN compilers in the US. Other companies listedas marked not applicable are where the revenues in 1996 were not available due tothe firm’s disappearance. Indeed, by 1996, 24 of the 54 companies listed had eitherstopped trading or had been merged into other companies, so only 15 had sur-vived into the late 1990s.

The 1970s and 1980sThe 1970s was a period of slow economic growth for many companies, althoughconsultancies such as the Boston Consulting Group (BCG), McKinsey & Company



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Table 1.1 Top consulting firms ranked by revenues in 1968

FirmNo of

consultantsReal

revenues ‘68Real

revenues ‘96Ave. growth

rateRevenuerank ‘68

Revenuerank ‘96

Planning ResearchCorporation

3000 236 #N/A #N/A 1 NA

Booz Allen & Hamilton 1500 215 1100 15% 2 8Peat, Marwick, Mitchell & Co. 700 129 990 24% 3 10McKinsey 462 103 1500 48% 4 4WOFAC Company 550 69 #N/A #N/A 5 NAArthur D. Little 230 64 514 25% 6 15Alexander Proudfoot PLC (UK) 300 64 165 6% 7 30URS Corporation 400 53 #N/A #N/A 8 NAH. B. Maynard & Company 450 43 #N/A #N/A 9 NAErnst & Ernst 400 43 1390 112% 10 5Diebold Group 450 34 #N/A #N/A 11 NALybrand, Ross & Montgomery 318 32 1324 143% 12 6Management Science

America300 32 #N/A #N/A 13 NA

A. T. Kearney 255 30 346 38% 14 20Kurt Salmon Associates 200 28 62 4% 15 38Lester B. Knight & Associates 225 28 #N/A #N/A 16 NACreasap, McCormick & Paget 160 26 #N/A #N/A 17 NAOperations Research 240 23 #N/A #N/A 18 NAStone & Webster Consultants 275 21 #N/A #N/A 19 NAArthur Andersen & Company 150 21 4220 699% 20 1Touche, Ross, Bailey & Smart 150 21 1045 173% 21 9Auerbach Corporation 190 21 #N/A #N/A 22 NAPrice Waterhouse 125 21 1200 196% 23 7Arthur Young & Co. 150 21 1390 228% 24 5Worden & Risberg 150 17 #N/A #N/A 25 NAHaskins & Sells 180 16 1045 230% 26 9EBS Management

Consultants100 13 #N/A #N/A 27 NA

Harbridge House 60 13 #N/A #N/A 28 >40S. D. Leidesdorf & Co. 100 13 #N/A #N/A 29 NABonner & Moore Associates 100 13 #N/A #N/A 30 NAGlendinning Associates 100 13 #N/A #N/A 31 NAFantus Company 100 11 #N/A #N/A 32 NACase & Company 100 11 #N/A #N/A 33 NADonahue, Groover &

Associates100 11 #N/A #N/A 34 NA

Woods, Gordon & Co. 125 11 #N/A #N/A 35 NAGeorge S. May 400 26 85 8% 36 36Handley-Walker Company 60 9 #N/A #N/A 37 NAS. J. Capelin Associates 70 9 #N/A #N/A 38 NAR. Dixon Speas Associates 63 9 #N/A #N/A 39 NA

Source: http://www.careers-in-business.com/consulting/crank68.htm. Reproduced with permission from careers-in-business.com.



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and Booz Allen still remained successful. BCG, Booz Allen and other consultanciescreated symbiotic links with leading business schools such as Harvard based inBoston, Massachusetts. Organizational theories and techniques developed at lead-ing business schools aided the creation of analytical tools and approaches. It wasfrom this type of link that the new field of strategic management emerged, whichset the groundwork for many consulting firms to follow (Riordan, 2009). Indeed,Boston in the early 70s became almost a Mecca for consultancies where one appar-ently could not walk the streets without bumping into a consultant (Riordan,2009). Notable consultancies, such as formed by William W. Bain, developed dur-ing this period combining client relationship management with analytical tech-niques learnt from the business schools (Riordan, 2009).

During the 1970s, the IT industry filling the gap that IBM was forced out of byfederal law expanded rapidly. In 1977 Nolan, Norton & Company was formed spe-cializing in information technology management consulting. The company wassubsequently bought out by KPMG and Richard Norton now works as an Ameri-can business school professor (see http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo5bio&facEmId5rnolan for more details). Indeed, other organizations, suchas Axent Technologies based in southern England that specialized in IT protectionand firewalls emerged. This company had originated as an idea in a consultancyby individuals who thought computer systems of the future may be attacked fromoutside by unscrupulous individuals. The consultancy decided not to develop theidea; however, not disheartened the former consultants went it alone formingtheir own company that was eventually merged with the Symantec Corporationin 2000.

In the rest of Europe, similar expansion was also being made. The Frenchcompany Sogeti acquired two large IT services companies, CAP and GeminiComputer Systems in 1975 eventually becoming Capgemini. During the later70s and 80s, Capgemini became a European leader in consultancy expandinginto the American market and in 1989 was positioned as being among the fiveleaders in its sector worldwide (see Industry snapshot 3.1). In the Dutch bankingsector, AD Little and McKinsey & Company both contributed towards the raft ofmergers and acquisitions that took place in the Netherlands (Arnoldus andDankers, 2005).

In the UK, the Bank of England was reorganized in a high profile assignmentthat led McKinsey & Company to perform similar projects for the World Bank(McKenna, 2006a). BCG also examined the British motorcycle industry focusing oncompetitive strategy using theoretical business models from Japanese rather thanAmerican sources (McKenna, 2006a).

The management consultancy industry continued to grow during the1980s and into the 1990s (Fincham and Clark, 2003). By the end of the 1980s,rather than there being just a handful of firms. The industry had significantlychanged, becoming one of the fastest growing aspects of most advancedeconomies concerned with companies both big and small (Fincham andClark, 2003).

The 1990s into the twenty-first centuryThe expansion of the industry during the 1990s continued at a double digit pace(McKenna, 2006a). In the UK, consultancy demonstrated consistent growth, with



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typical revenue returns increased by 19 per cent (Ferguson, 2002). Fergusonargued that there were two main streams in consultancy: strategy and oper-ations or performance improvement. Ferguson also noted that during thisperiod there was the development of e-business services and globalization ofconsultancy (Ferguson, 2002). E-business arrived due to the development of theInternet and this underpinned many of the developments associated with thespread of IT through organizations. This included B2B, business to businessapplications but also B2C, business to customer applications that was revolu-tionized by the Internet and associated products such as instant messaging(Bailey and Biggs, 2005).

However, as noted in this chapter this was not a young profession emergingfrom the 1980s (Ferguson, 2002; McKenna, 2006a). Interestingly during this period,academics became interested in the industry. Higdon (1969) was probably theearliest academic book written on the subject, but during the 1990s notable figuressuch as Robin Fincham, Timothy Clark, Matthias Kipping and Lars Engwall toname but a few arose in the literature. Some of these early accounts were quitescathing of the industry and will be examined in depth in later chapters, especiallyin the next chapter.

Ironically though, some of the more practical consultancy books written high-lighting the services of consultancies benefited these firms. Saint-Martin (2000)stated that the consultancy that employed Hammer and Champy after their 1993groundbreaking book on business process reengineering more than doubled itsannual revenue from $70 million to $160 million the year after. Other books havealso been published from consultancies such as Deloitte (Bishop and Hydoski,2009), AT Kearney (Laudicina, 2004), BCG (Stern and Deimler, 2006) and McKinsey& Company (Friga, 2009; Rasiel & Figa, 1999; 2001). Most consultancies also con-tribute to leading business management publications such as the Harvard Busi-ness Review or even publish their own journals, a few of which are shown inTable 1.2.

Table 1.2

Journals produced byleading consultancyfirms

Consultancy Journal Website journal (or example journal) located

Accenture Outlook http://www.accenture.com/Global/Research_and_Insights/Outlook/default.htm

AT Kearney Executive Agenda http://www.atkearney.com/index.php/Publications/ea-volume-xi-number-2.html

Booz Allen Hamilton Strategy & Business http://www.strategy-business.comBoston Consulting

GroupPespectives http://www.bcg.com/impact_expertise/

publications/files/Perspective_411_Richer_Sourcing_Sept04.pdf

Deloitte Deloitte Research http://www.deloitte.com/dtt/section_node/0,2332,sid%253D15288,00.html

McKinsey & Company McKinsey Quarterly http://www.mckinseyquarterly.com



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Naming consultancies in case studiesMany books written often do not mention the consultancies that the case studies arefrom, presenting watered down versions of the original. Yet, consultancies have trad-itionally done well from advertising what they do. For instance, a Director interested instrategy will soon find the BCG book and guess what consultancy can help with strat-egy, BCG of course. So in this text the author has invariably sought publish case studiesdirect from the firms involved.

During the later 1980s and into the 1990s, Anglo-American consultancies startedto emerge as the dominant players in the management consultancy industry(Saint-Martin, 2000). The ‘Big six’ accountancy firms in 1989 became the ‘Big five’in 1999 and are now the ‘Big four’ in 2009 and comprise: PriceWaterhouseCoopers,Ernst & Young, KPMG, and Deloitte. Only Accenture is now not listed as they donot have anything to do with accountancy practice having had a rather problemat-ic split with Arthur Andersen in 2000. The range and type of consultancies thatexist today are highlighted to a greater degree in Chapter 3 that examines the ex-tent of the industry. Nevertheless, before we can explore the industry in depth, amore critical examination of the industry and what it does is called for.

Conclusion

This chapter has presented a rather whistle stop tour of management consultancyaimed to give context to the industry. Interestingly, several events that occurredduring the twentieth century really boosted the industry. And during its inception,the industry has tried hard to rid itself of the criticisms it faced and present a pro-fessional image (Higdon, 1969). The early years of the industry dominated by en-gineers and accountants still exists in part today, with the ‘Big four’ accountancyfirms completing consultancy as do engineering firms like Atkins and Arup. Oneof the most recent developments was the rise of information technology based con-sultancy practices. Again, this will be examined more in Chapter 3, but in essencefirms such as Capgemini, Hitachi Consulting and IBM without its historical restric-tions have strengthened the management consultancy industry.

Chapter Summary

l Knowledge sharing of management and improving productivity has arguablybeen around since the industrial revolution started in the UK in the mideighteenth century

l McKenna (2006a) argued that it was the second industrial revolution led by theUS that heralded the origins of the management consultancy industry

l Ernst & Young trace their history back to a British partnership formed in 1849but the firm also has strong American roots




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l Arthur D. Little was formed by an MIT professor of the same name in 1886

l Consultancy served to stimulate the economies of countries such as Swedenaround the turn of the twentieth century

l F.W. Taylor was arguably one of the first freelance management consultants atthe turn of the twentieth century

l Taylor’s ideas gave a short boost to the industry but by the 1930s most firmsthat did not go beyond his ideas failed

l Taylor’s ideas did go international but again were most famous in Germanywhich produced its own industrial rationalization and then exported that toother European countries such as Finland

l In America, in 1929 ACME was founded and later rebranded to be theAssociation of Management Consulting Firms emphasizing the professionalnature of the industry

l Regulatory change of the 1930s, especially the Glass-Steagall Banking Act 1933,stimulated the industry as banks could no longer conduct company audits

l Growth of the industry during the 1930s and 1940s was evident

l In the 1940s, leading consultancies hired top business school graduates asopposed to industry experts changing recruitment practices

l After the Second World War, consultancy grew in Europe

l In the UK, the American company Bedaux spawned several consultancies thatfounded the Management Consultancies Association in the 1950s to improvethe professionalism of the industry

l During the 1950s anti-monopoly legislation restricted IBM’s position and led togaps in the market in consulting and IT that were rapidly filled by othercompanies

l During the 1960s accountancy firms increasingly received more revenue fromtheir consultancy business

l The 1970s saw the economy slowing and more strategy based consultanciesemerged

l IT firms started getting into the consultancy market during the 1990s and theanti-monopoly legislation was finally lifted from IBM in 1991

l Practitioner orientated books sold consultancy services and many of the topconsultancies hired authors to write practical guides about their service provision

l Now in the early part of the twenty-first century, the industry is dominated byaccounting practices, IT firms and engineers, all of whom have historical claimsto the industry

Review Questions

1. When in the nineteenth century can the origins of Ernst & Young be traced to?

2. Although knowledge sharing was evident in the eighteenth century when doesMcKenna (2006a) trace the origins of the management consultancy industry to?



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3. What are the positives and negatives of academia in consultancy?

4. Why did McKinsey and Company split in 1939?

5. What area of business management did Booz Allen and the Boston ConsultingGroup specialize in?

6. What are the three dominating influences in management consultancy today?

Assignment Questions

1. Did the ideas of F.W. Taylor influence the early management consultancy industryand did these ideas persist?

2. Critically discuss the differences between the European and US managementconsultancy industries before the 1940s.

3. Describe Marvin Bower’s impact on the management consultancy industry.

4. Describe how the Big 8 in 1969 became the Big 5 in 1999 and then the Big 4 in 2009.

Deloitte’s one firm strategy

By Angela Mitchell, Merlin Gardner

The consultancy market has experienced unpre-cedented change through the 1990s and over thelast decade. Strong growth over this period hasbeen driven by waves of new ideas, not least theintroduction of technology in all its forms: from en-terprise resourcing planning systems during theboom years of the late 90s, through the inflationand bursting of the internet bubble, a trend to-wards offshoring, to today’s market where cost re-duction is the service in demand.

Throughout this time, the competitive land-scape has been in flux. Of particular significancewas the major restructure in the early 2000s asmost of the ‘big 5’ professional services firms soldoff their consultancy practices in response to mar-ket perceptions and regulatory pressures in theaftermath of Enron. Ernst & Young, KPMG and Pri-cewaterhouseCoopers all sold their consultingbusinesses – to CapGemini, BearingPoint and IBMrespectively. Deloitte, however, retained its consult-ancy business and embarked on a new ‘One Firm’

strategy to maximize the opportunity from thisunique positioning.

This case study outlines how the delivery of anend-to-end service, involving multiple service lines,can add exponential value to the client. It also setsout some of Deloitte’s lessons learned in organiz-ing and incentivizing the practice to achieve this.

Traditionally, professional services firms havegone to market and sold work by service line (forexample: consulting, audit, tax, corporate finance).This model is not always conducive to offering thebest client service. Firstly, staff working in one areamay not understand the competencies and skillsoffered by other parts of the firm, and so will missout on opportunities for these to provide morerounded and complete client advice. Secondly, andperhaps more seriously, the firm’s recognition andreward structures may motivate staff to work inservice silos, delivering as much as possible of anengagement from within their own team or div-ision, when perhaps other teams have additional

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Case Study 1.1



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or more relevant skills. The result is rarely the bestoutcome for the client, who may receive very dif-ferent service depending upon which part of thefirm was originally engaged. It is important to re-member that clients do not care which service linethey are speaking to. They have a challenge – andthey would like it solved. The best solution to thischallenge will often come from a multi-disciplinaryteam, possessing a blend of different skills.

In 2000, Deloitte was perhaps best known as anaudit and financial advisory firm, but consultancy wasalso a core and expanding part of the business. Hav-ing retained its consultancy capability, whilst otherfirms sold theirs, Deloitte had a valuable differentiator.In particular, the firm was well positioned to providea broad and comprehensive service, supporting theclient from the start of an issue or initiative, throughto the implementation of a solution. Whilst manyfirms could compete on advisory services and manyothers could compete on implementation and oper-ational services, few could offer such a full breadth ofsupport through the lifecycle of the business.

For example, consider a company that has en-joyed success in its local market, but is now seek-ing to develop and grow its business. Typically, thiswill trigger a series of questions :

1. Which products and services should be de-veloped? Where and how should they betaken to market?

2. What technology systems, processes andorganizational structures will best supportcost effective operations and the plannedstrategic changes and growth?

3. How should the company be organizedand located to maximize investment incen-tives and to minimize its tax burden?

4. What structure will best meet the com-pany’s ongoing financing needs and howshould these needs be secured?

5. How should the organization plan and de-liver this significant business change?

Organizations in such a position need a broadconsultancy advisor, and preferably one that can sup-port them through the journey, from the initial strat-egy through to its execution and implementation.

Emphasizing the breadth and integration of ourcapability, we moved to a single brand, ‘Deloitte’ in2003, and subsequently introduced the ‘One Firm’strategy in 2004. Our overall strategy was to focuson the client, not the service organization, at a timewhen other organizations were looking internally atdivesting and rebuilding their consulting businesses.

Deloitte’s approach was based on the followingstrategic choices :

1. Collaborate as one Deloitte team, going tomarket with a portfolio of businesses thatcan team effectively to serve clients withdistinction.

2. Develop and maintain four world-classbusinesses (audit, tax, consulting and cor-porate finance).

3. Attract and retain the best people, becom-ing known as the place where the bestchoose to be.

4. Be a client-centric organization and deliverexceptional client service with an unrelent-ing focus on quality.

5. Own the high ground, leading the profes-sion in restoring public trust in auditing andbusiness advisory services.

We planned to drive incremental value for ourclients by leveraging synergies across the differentfacets of our capability. The One Firm approachsupported the delivery of more complex engage-ments. By offering co-ordinated support across avariety of different areas, clients received a morejoined up and valuable service. Client relationshipswere strengthened and staff benefited from morechallenging and rewarding work.

The ‘One Firm’ strategy started to break down in-ternal barriers, with staff going to market as‘Deloitte’ for all services, adopting an integrated ap-proach to marketing supported by a high profile‘Have you asked Deloitte?’ campaign. However, em-bedding this culture needed considerable effort andrequired incentives. Our lessons learned include:

l The approach requires staff (especially se-nior managers and above) to understand allthe firm’s service lines. This does not mean

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Further Reading

Ferguson, M. (2002), The Rise of Management Consulting in Britain. Aldershot: AshgateFincham, R. and Clark, T. (2003), Management consultancy: Issues, perspectives, and agendas, Inter-

national Studies of Management & Organization, 32(4), 3–18Kipping, M. (2002), Trapped in their wave: The evolution of management consultancies, in Clark, T. and

Fincham, R. Eds Critical Consulting: New Perspectives on the Management Advice Industry. Oxford:Blackwell Publishers Ltd

McKenna, C.D. (2006a), The World’s Newest Profession: Management Consulting in the Twentieth Century.New York: Cambridge University Press

Riordan, W. (2009), A brief history of the management consulting profession. Careers in BusinessRetrieved from http://www.careers-in-business.com/consulting/hist.htm

Saint-Martin, D. (2000), Building the New Managerialist State: Consultants and the Politics of Public SectorReform in Comparative Perspective. Oxford: Oxford University Press

making a technology consultant an expert intax, for example, but it does mean that thetechnology consultant needs to understandwhere we can help clients on tax issues andwho to go to for advice on this internally.

l Firm-wide propositions are necessary sothat clients can understand the value ofhaving a broad and end-to-end serviceoffering at their disposal. We invested inthe development and marketing of pro-positions such as ‘Business Critical Pro-grammes’, ‘Enterprise Cost Reduction’ and‘Finance Transformation’.

l It is key to focus on relationships within cur-rent and target clients. We establishedcross-firm client target lists, representing abalance of industries and organizational ma-turity. We targeted and approached theseorganizations in a co-ordinated manner,drawing on our full range of competencies.

l Forming multi-disciplinary client teams andaccount development teams gives hugebenefits in cross-fertilization of ideas andskills and understanding of other areas ofthe business.

l It is important to formally recognize crossservice line activity and referrals. Ourassessments of partner and staff perform-ance recognize sales for any service line asstrongly as the originator’s own service line.

l Communication of examples and reward-ing of successes is important and needs tobe constantly reinforced.

l The co-ordinated approach needs to beapplied at all levels of the organization,not just partners, in order for it to besuccessful.

Deloitte’s strategy has :

l differentiated the firm in the market placethrough unmatched breadth and depth ofservices ;

l created an ability to deliver comprehensivesolutions and become ‘advisor of choice’for clients ;

l introduced a more collaborative culture ;l facilitated the delivery of more challenging

and interesting engagements ;l through the above, created a reputation

that has helped the firm to attract and re-tain the best talent.

However the market and competitor landscapecontinues to evolve and as such so too doesDeloitte’s strategy and approach to maintain andfurther expand its position.

Questions1. In what ways might a consultancy structure

its workforce to maximize its success?2. What advantages does a consultancy offer

compared to a team of contractors?3. What are the key advantages of a ‘full ser-

vice’ consultancy compared with a moreniche operator?

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