What's the point of management consultants?

What's the point of management consultants, and more importantly, can an engineer become one?

The first management consultant I met had studied engineering at Glasgow University and gained a Double First. He had gained a lot of kudos for turning around a major loss-making retail chain.

"It wasn't so difficult," he said. "We cut out dead wood, then we identified and improved the good parts and concentrated on improving marketing fire-power, followed by affordable new investment." Management consultancy is something engineers can be good at, so why aren't more doing it?

Management consulting has become a huge business, boosted by the chill winds of change, slower growth and tougher competition and the challenge of advancing technology. The UK consultancy market is the largest outside the US with a current estimated annual value of £10bn, including outsourcing and IT advice and implementation. Management consultants are brought in by organisations needing wider expertise than is available internally, or to provide an objective appraisal, advice on a new strategy, improve performance, install new systems or equipment, launch new projects, or supply experts to cope with temporary workloads.

Counting profits

In 2006, leading management consultancy firms enjoyed their third consecutive year of fee income growth of 12 per cent, much of which is attributed to financial services companies and central government. The financial services sector contributed more than a third of total fee income. Although the most profitable market for consultants, it is also the most volatile. When the economy slows, spending on consultants can fall off dramatically.

Fee income from local government, manufacturing, healthcare and the pharmaceutical industry spending on consultancy increased at well above average rates. Aerospace and defence were up by 15.7 per cent. This is a market spending £200m a year on consultancy shared by some 20 firms.

The second largest market - central government - has been awash with consultants. But will this continue? After more than a decade, can there be much more improvement under the government's reform agenda? There is clearly more to be done in the National Health Service, if only, says one insider, to tackle some of the failures. But many parts are improving. Some loss-making NHS trusts and missed targets don't tell the full story.

The third largest market for consultancy has, for some time, been communications and the fourth-largest manufacturing industry, including aerospace and defence. Forty-three small to medium size firms (SMEs) with an income below £20m shared the fastest combined growth rate of between 12.4 and 14.5 per cent. Smaller firms are picking up the business. Many smaller practices offer a strong value proposition and even big clients are using them for service, skills and sector, and functional knowledge.

But can the profession count on continuing year on year double-digit growth? The more optimistic have few doubts. The pessimists point to key markets for consultancy, which have learnt some valuable lessons from consultants or appointed, or strengthened their own internal teams of consultants, rather like internal auditors. Management consultants have had a field day, or rather several years of super growth. The question is, can it last?

Long may it continue?

There must be a question mark about future levels of business from the public sector. Can other key markets, like financial services, yield more consultancy projects, following huge demand from banking, notably institutions requiring advice on compliance Sarbane-Oxley and Basel II, besides outsourcing and IT?

Manufacturing has been a profitable source of business. Britain can't compete with low cost Far East manufacturing, but we still have quality production, which can benefit from strategic advice, operational efficiency improvement and change management.

Major multinationals must constantly need to improve their performance, and more SMEs will look for help to achieve profitable growth.

Like many service companies, management consultants have had their share of criticism. The latest - 'Plundering the Public Sector - How Labour are letting consultants run off with £70billion of taxpayers money', by David Craig and Richard Brooks, suggests it will cost £20bn of taxpayers money on management consultants and at least £50bn on IT systems consultants to modernise delivery of public services - spending criticised by the House of Commons Public Accounts Committee (PAC) for apparent profligacy without being confident of the scale of likely benefits.

The PAC also criticised Customs & Excise for its use of management consultants, apparently costing £28m on 300 consultants over 17 months without any clearly identifiable results. Craig and Brooks conclude that as new Labour progressed and as thousands of millions were spent on consultants' fees, the government found that it was much harder than it imagined to get the results that all the management consultancy and huge new IT systems should have delivered.

To be fair, the UK Government has learnt to be more astute in its use of management consultants. The Office of Government Commerce's 'Catalyst' system approves selected consultancies following, it's claimed, a thorough prequalification process and encourages the wider use of smaller consultancies and providers of interim managers. There is increased pressure on practices operating in the public sector.

Why is management consultancy enjoying explosive growth all over the world, making it one of the most successful businesses to be associated with, a secretive profession which just grows and grows and prospers, charging high fees, promising blue skies, but not always leaving its clients bubbling over with joy? Consultants must do a lot of things right, or they wouldn't enjoy the success they do. But they are also very good at selling and promising 'to improve your bottom line'.

Making your mind up

Can consultants work for companies not in the giant league, companies that don't just want reassurance that the board has made or is making the right decision with a recipe for cutting costs or advice on a new strategic move?

Good advice can be priceless. Bad advice can be a waste of money, as one of the best books on the subject - 'Dangerous Company' by O'Shea and Madigan, testifies. Top management can be very gullible bringing in consultants because they can't make their own decisions, or seem afraid to stick their necks out.

The dominating consultancies - Accenture, IBM Consulting, Deloitte, Xansa, PWC Boston and McKinsey - operate in many parts of the world. At one point, Accenture's forerunner, Andersen, had 4,000 people in Asia and McKinsey is believed to have played a key role in India's growth record.

If your company ever contemplates bringing in consultants, the question must be how to choose and use them? How does the relationship work and what are the pitfalls to guard against?

It's horses for courses. Large organisations opt for the big name consultancies and invite a few to pitch for the business. Impressive presentations follow with lots of buzzwords about high-tech visions, world-class ambitions or new growth strategies. Invariably the consultants' most senior people make the presentations and if they win the business, stay briefly to reassure the client. Thereafter, younger colleagues, not long out of university or business school, take over. Make sure they charge less per hour or daily basis than the top brass.

Recent years have also seen a fast-growing demand for consultants who don't only analyse and prescribe solutions to problems but stay to implement their advice. These are the interim managers, referred to earlier, who can be hired for days or weeks and come with board level experience, a general management background or specific strengths, whether in production, marketing, finance, distribution or sales. They can cost from £500 to £1,500 or more per day, often half the cost of a consultant.

Consultant check list

If you are thinking of bringing in consultants or interim managers, decide first exactly why and what you expect to achieve. Your team must have a shrewd idea of what's wrong and where specialist help is needed. Having defined the problem, is consultancy really the right answer? Is there anyone in the business who can be assigned to dealing with the problem, or a semi-retired specialist known to the company?

The following check list is designed to help you make the right choice:

  • Check with other local businesses, leaders in your section of the market, or your trade association, whether they've used consultants for a particular problem and can they make any recommendations;
  • Invite two or three consultancy firms or individual consultants to pitch for the business. Don't be fooled by glossy brochures or glib sales talk. Check their experience and track record. What experience have they had actually running a business? That always quietens them down. Even McKinsey once admitted that making real decisions in a business is a lot harder than getting paid to advise people what to do;
  • Ask them how many successful assignments they have handled personally, in which industries and over what period and with what level of success. Can these former clients be referred to for a reference?
  • How long will the assignment under discussion take and what will it cost? Who will be working on it?
  • If you decide to go ahead, reach a clear understanding about costs, expenses and invoicing. Otherwise you might be shocked to receive an invoice for £10,000 on account. Expenses and disbursements, as some professions like to call them, can cover a multitude of items that were never mentioned before;
  • Once consultants are booked and make a start, don't let them scare your staff or talk down to them. Don't give up control. Downsizing or cutting out 'dead wood' are among consultants' favourite ploys. If you don't take charge they can start taking your business apart on the basis that cutting costs is bound to impress, without realising the damage they could cause;
  • Insist on stage reports and keep a close eye on progress. Consultants are not infallible. Even the biggest and best have been responsible for some awful howlers in their recommendations, reports and studies;
  • Beware of fancy textbook ideas that are more likely to enrich consultants than your business. Bad advice can lead to worse problems that you started with. On the other hand, consultancies aim to build long-term relationships with clients;
  • Be wary of the products or services consultants may try to sell you on top of the business you've agreed. They can be quite shrewd in developing so-called packages, for example information technology service, 'hot' market research, new telecom systems or energy-saving schemes. 

Every company that has used consultants tends to have its own favourite experience and tale of woe. If they are good, the risk is that they stay too long, because you come to rely on them. Often the individual on the job may be good at analysis or report writing, but poor at problem solving and getting your own people properly involved.

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