1. 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

2. 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.

3. 8.1 Key Metrics

4. Profit per partner

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

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

7. Measuring Performance

8. 8.2 Strategy

9. Strategy
The difficulty of strategising
The influence of partnerships

10. 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.

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

12. 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?

13. 8.3 Finance

14. 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%

15. CCC: Target Utilisation (2)
Target Utilisation figures

16. CCC: Profit per Partner (3)

17. CCC: Profit related to utilisation rate (5)

18. CCC: Break-even analysis (5)

19. 8.4 People

20. People
Valuing the assets
Planning
Culture management
Training

21. 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.

22. 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

23. 8.4 Internationalisation

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

25. Summary

26. 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.