Management consulting indicates both the industry of, and the practice of, helping organizations improve their performance, primarily through the analysis of existing business problems and development of plans for improvement.

Organizations hire the services of management consultants for a number of reasons, including gaining external (and presumably objective) advice and access to the consultants’ specialized expertise.

Because of their exposure to and relationships with numerous organizations, consulting firms are also said to be aware of industry “best practices”, although the transferability of such practices from one organization to another may be problematic depending on the situation under consideration.

Consultancies may also provide organizational change management assistance, development of coaching skills, technology implementation, strategy development, or operational improvement services. Management consultants generally bring their own, proprietary methodologies or frameworks to guide the identification of problems, and to serve as the basis for recommendations for more effective or efficient ways of performing business tasks.

Approaches

In general, various approaches to consulting can be thought of as lying somewhere along a continuum, with an ‘expert’ or prescriptive approach at one end, and a facilitative approach at the other. In the expert approach, the consultant takes the role of expert, and provides expert advice or assistance to the client, with, compared to the facilitative approach, less input from, and fewer collaborations with, the client(s). With a facilitative approach, the consultant focuses less on specific or technical expert knowledge, and more on the process  of consultation itself. Because of this focus on process, a facilitative approach is also often referred to as ‘process consulting,’ with Edgar Schein being considered the most well-known practitioner. The consulting firms listed above are closer toward the expert approach of this continuum.

Many consulting firms are organized in a matrix structure, where one ‘axis’ describes a business function or type of consulting: for example, strategy, operations, technology, executive leadership, process improvement, talent management, sales, etc. The second axis is an industry focus: for example, oil and gas, retail, automotive. Together, these form a matrix, with consultants occupying one or more ‘cells’ in the matrix. For example, one consultant may specialize in operations for the retail industry, and another may focus on process improvement in the downstream oil and gas industry.

Specializations

Management consulting refers generally to the provision of business consulting services, but there are numerous specializations, such as information technology consulting, human resource consulting, virtual management consulting and others, many of which overlap, and most of which are offered by the large diversified consultancies listed below. So-called “boutique” consultancies, however, are smaller organizations specializing in one or a few of such specializations.

Current state of the industry

Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and linked to overall economic conditions. The consulting industry shrank during the 2001-2003 period, but has been experiencing slowly increasing growth since.

Currently, there are four main types of consulting firms:

1. Large, diversified organizations that offer a range of services, including information technology consulting, in addition to a strategy consulting practice (e.g. Accenture, ABeam Consulting, Capgemini, Cognizant, Deloitte, Ernst & Young, IBM, KPMG, Logica, PA Consulting, CSC). Some very large IT service providers have moved into consultancy as well and are also developing strategy practices (e.g. Wipro, Tata Consultancy Services, Infosys)
2. Medium-sized information technology consultancies, that blend boutique style with some of the same services and technologies bigger players offer their clients.
3. Management and strategic consulting specialists that offer primarily Strategy Consulting and Business Intelligence Models to any industries (e.g. McKinsey & Company, The Boston Consulting Group, Bain & Company, Booz & Company, Monitor Group, A.T. Kearney, Roland Berger Strategy Consultants and Arthur D. Little).
4. Boutique firms, which have focused areas of consulting expertise in specific industries, functional areas or technologies. Most of the boutiques were founded by famous business theorists. Small firms with fewer than 150 employees are often referred to as niche consultancies (e.g. Qedis Consulting Ltd, Nonprofit Empowerment Group), who help keep prices down and sometimes introduce new ideas emulated by larger competitors. If they have a unique concept and market it successfully, they often grow out of this segment very fast or are bought by larger players interested in their know-how.(e.g. Tecnova India Pvt.Ltd.,Visnova, CPL Business Consultants)

A fifth type that is emerging is the sourcing advisory firm, that advises buyers on sourcing choices related to insourcing, outsourcing, vendor selection, and contract negotiations. The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were TPI, Gartner, Hackett Group, Everest Group, PwC, Avasant, PA Consulting, and EquaTerra. Although a fast growing sector, the largest sourcing advisory practices would likely be classified as boutiques when considering the management consulting industry as a whole – with one of the largest players, TPI, for example, citing 2006 revenues of less than US$150M during its acquisition by ISG.

Another method of differentiation of consulting firms is on the basis of revenue model:

1. Based on time & effort: Most firms charge only on a time & effort basis. They use case studies & past record to justify the fees. e.g Mckinsey, BCG, etc.

2. Based on results delivered only: Very few & usually boutique firms which have an excellent success rate charge on this basis. e.g., The Lab Consulting

3. Combination of both: Many of the larger firms take a part of the remuneration on the basis of delivered results. But usually the variable component is only 20-30% of the total.

Trends

Management consulting is becoming more prevalent in non-business related fields as well. As the need for professional and specialized advice grows, other industries such as government, quasi-government and not-for-profit agencies are turning to the same managerial principles that have helped the private sector for years.

An industry structural trend which arose in the early part of the 21st century was the spin-off or separation of the consulting and accounting units of the large diversified professional advisory firms most notably Ernst & Young, PwC and KPMG. For these firms, which began business as accounting and audit firms, management consulting was a new extension to their business. But after a number of highly publicized scandals over accounting practices, such as the Enron scandal, these firms began divestiture of their management consulting units, to more easily comply with the tighter regulatory scrutiny that followed. In some parts of the world this trend is now being reversed where the firms are rapidly rebuilding their management consulting arms as their corporate websites clearly demonstrate.

Rise of Internal Corporate Consulting Groups

Added to these approaches are corporations that set up their own internal consulting groups, hiring internal management consultants either from within the corporation or from external firms employees. Many corporations have internal groups of as many as 25 to 30 full-time consultants.

Internal consulting groups are often formed around a number of practice areas, commonly including: organizational development, process management, information technology, design services, training, and development.

Advantages

There are several potential benefits of internal consultants to those who employ them:

* If properly managed and empowered, internal consulting groups evaluate engagement on projects in light of the corporation’s strategic and tactical objectives.

* Often, the internal consultant requires less ramp up time on a project due to familiarity with the corporation, and is able to guide a project through to implementation — a step that would often be too costly if an external consultant were used.
* Internal relationship provides opportunities to keep certain corporate information private.
* It is likely that the time and materials cost of internal consultants is significantly less than external consultants operating in the same capacity.
* Internal consulting positions can be used to recruit and develop potential senior managers of the organization.

Note: Corporations need to be conscious of and consistent with how internal consultant costs are accounted for on both a project and organizational level to evaluate cost effectiveness.

* Internal consultants are often uniquely suited to

1. Lead external consulting project teams, or
2. Act as organizational subject matter experts ‘embedded’ with external consulting teams under the direction of organizational management.

A group of internal consultants can closely monitor and work with external consulting firms. This would ensure better delivery, quality, and overall operating relationships.

External firms providing consulting services have a dichotomy in priority. The health of the external firm is in aggregate more important than that of their client (though of course the health of their client can have a direct impact on their own health).

Disadvantages

* The internal consultant may not bring the objectivity to the consulting relationship that an external firm can.
* An internal consultant also may not bring to the table best practices from other corporations. A way to mitigate this issue is to recruit experience into the group and/or proactively provide diverse training to internal consultants.
* Where the consulting industry is strong and consulting compensation high, it can be difficult to recruit candidates.
* It is often difficult to accurately measure the true costs and benefits of an internal consulting group.
* When financial times get tough, internal consulting groups that have not effectively demonstrated economic value (costs vs. benefits) are likely to face size reductions or reassignment.

Source: Multiple including Wikipedia