O’Mahoney and Markham: Management Consultancy, 2nd edition Dr. Joe O’Mahoney and Calvert Markham O’Mahoney and Markham: Management Consultancy, 2nd edition Chapter 8: Running a Consultancy

Chapter Objectives By the end of this lecture, you will be able to: Explain the concept of leverage. Describe the various consultancy strategies. Outline people management strategies in consultancy. Explain knowledge management strategies in consultancy. Outline the operational challenges of consultancy.

8.1 Key Metrics

Profit per partner

The importance of leverage (1) AAA: large, low skill, BPR consultancy BBB: niche, high skill, strategy consultancy

The importance of leverage (2) AAA: Charge = £400/day, wage = £40k BBB: Charge = £1200/day, wage = £90k Utilisation: 70%

Measuring Performance

8.2 Strategy

Strategy The difficulty of strategising The influence of partnerships

Strategy Private Partnership Publicly Floated Companies General HRM Principles Linked to professional values and scope given to consultants to interpret the rules. Detailed and formal prescriptions for each type of consultant. Recruitment Excellent general skills sought, often with MBA. Excellent commercial and technical skills sought. Selection Based on personal interaction with senior consultants. Formal selection (e.g. assessment centre) run by HRM function. On-the-job Based on observation of senior consultants Based on observation of peers. Training Focused on professional and interpersonal skills. Run by senior consultants. Focused on technical and analytical skills. Run by HR trainers. Feedback Mostly on personal skills. Mostly on technical and analytical performance Ownership Owned by partners who buy into their share. Ownership bought back on retirement. Widely distributed in publicly traded companies. Ownership maintained until sale of shares. Exit ‘Up or out’ culture frequently forces exit Usually voluntary exit. Support for Leavers Excellent support through alumni network. Limited support at all levels other than partner.

Strategic directions Growth Quality Cross-selling Pile ‘em high Buy me Outsourcing Audit IT Pile ‘em high Buy me

Strategic checklist Can the firm: Hire or train people to provide higher value services? Develop superior methods or products? Share expertise more effectively within the firm? Organise consultants more effectively? Find out better information about the clients’ needs? Do any of this in a way that competitors cannot imitate? Ensure that the strategy is put into practice?

8.3 Finance

Case-study: Clever Consultancy Co. 5 Partners, 10 Senior Consultants 30 Consultants 5 support staff   Daily Rate Salary Target Utilisation Partner £1,500 £90k 52% Senior Consultant £1,000 £65k 69% Consultant £600 £35k 85%

CCC: Target Utilisation (2) Target Utilisation figures

CCC: Profit per Partner (3)

CCC: Profit related to utilisation rate (5)

CCC: Break-even analysis (5)

8.4 People

People Valuing the assets Planning Culture management Training

Managing Culture Procedures and Rules Socialisation & Education Symbols and Rituals Individuals Recruitment from top business schools; Up or out promotion criteria; Appraisals. Induction programme; Professional associations; Partner mentoring. Clothing; First in, last out; Professional conduct. Teams Team-working rules; Knowledge management processes; Team targets. Team review meetings; After-work drinks; Away days; Alumni networks. Communal work space; Team branding. Organisations Organisational Structure; Business Processes; Partnership agreements; Legal reporting requirements. Industry newsletters; Benchmarking reports; Market research; Corporate PR. Myths and stories,;Image of the CEO; Logos and name. Membership of professional associations.

Knowledge Management What does KM mean in consultancies? KM Strategies Codification Personalisation Strategy Commodification and re-use using IT Creative people-based problem solving Economic Model Invest once in knowledge asset and re-use many times. Generate large revenues. Customised and personalised solutions though personal expertise. Generate high profit margins. Knowledge Strategy People  Documents. Use IT to codify, store and share knowledge assets. People  People. Use personal interactions to create bespoke knowledge solutions. IT Strategy Invest heavily in IT. Focus on commodification and sharing. Invest modestly in IT. Focus on connecting people. HR Strategy High leverage ratio. Recruit graduates who can store and re-use commodified solutions. Low leverage ratio. Hire creative, expert problem-solvers who can tolerate ambiguity. Examples Accenture McKinsey

8.4 Internationalisation

Internationalisation Drivers and enablers of internationalisation Selling consultancy internationally From imperialist to localist strategies Centres of excellence Joint ventures Transplantation Acquisition Difficulties with internationalisation

Summary

Summary This chapter has shown: Leverage is a central concept in understanding the different strategies of consultancy companies. Different strategies must be consistent with the firm’s leverage ratio, its structure, and its culture. Professional partnership is a different beast from the publicly listed company and, therefore, poses different challenges in everything from financing to people management. The finances of professional service firms are a complex but essential area to understand if long-term stability is to be achieved in a firm. People management strategies must be aligned with the firm’s financial and marketing strategy.