Management Consulting
What is Management Consulting?
Management consulting in a nutshell is solving business problems. Businesses today face numerous problems many of which are detrimental to operating efficiently. With the ever-changing market landscape and the emergence of new technologies, businesses need to continue to evolve. Companies often need assistance to implement changes vital to their economic health. Management consultants provide their expertise to help their clients attain efficiency through the proposed changes or in other words through ‘better management', which includes strategy, governance, operations, finance, HR, and marketing.
What Does Management Consultant Do?
You may have heard of a management consultant talk of solving business problems, travel, clients, presentations, and spreadsheets, but, well, what do they actually do all day? What do they actually mean by solving business problems? How come people with no prior experience in a certain industry end up helping the C-level executives of those industries solve their problems?
It turns out that industry expertise doesn’t come from you, but rather the massive back-end network behind you. So all you need is a problem-solving attitude and sleepless nights ;)
Also, you need more than just industry knowledge to solve problems. Proper interpreting and analytical skills are some of the basic requirements. Moreover, there are times when the client is unable to identify the problem and sometimes they aren’t able to convey what is wrong. It’s in situations like these when a consultant is needed.
At the beginning of a project, much of the time is spent getting to know the client’s business, which includes employee interviews and data collection. The young consultants basically act as a bridge between a complicated client context with various needs, conditions, and attributes and a massive back-end network of knowledge and experts.
Consultants (depending on their level) are often responsible for the data analysis as well, taking the data they gather and turning it into digestible information to share with the company.
As you have guessed earlier one a big part of consultants' day involves travelling to the client sites, the work hours are usually long and you need to spend a lot of time in the client site. But needless to say, consultants are well compensated for what they do ;)
Types of Management Consulting
Management consulting is a vast sector with consultants working in varied industries on various segments of the businesses. Consultants work on almost all kinds of tasks imaginable in a business scenario such as – marketing strategy, market entry, risk management, M&A, talent acquisition and many more.
Based on the type of help they provide they might be segregated into different segments – Strategy consulting, Operations consulting, Financial consulting, HR consulting. Traditionally in India, we find these to be a career option only for the B-school Grads and thus in-depth knowledge of this industry is unknown to the undergrads. We would look into each of the four verticals in details below to give a better understanding of this industry
Strategy Consulting
Strategy consulting or strategy consultancy is often considered to be the most prestigious segment of the consulting industry. Its estimated market worth is about $40 billion and is constantly growing at an increasing rate.
Strategy is basically a plan for the long term aims of companies and the companies often hire consulting firms to help them to develop and layout their plans according to their goals.
For example:
Consider there is a telecom company that is well established in the US, say company ‘Z’.This company wants to introduce handset leasing into the market to improve the overall profitability of the company.
Introducing something new in the market, of which the company has no prior experience, makes the amount of risk in this venture really high for the company. Since the stakes are high, companies often start second-guessing their decisions. In such a situation company Z hires the consulting firm to help them in introducing handset leasing in the market and thus the market entry strategy.
Strategy consultants usually have considerable industry knowledge and are expected to assess high-level business issues objectively. They take a holistic look at specific problems companies are dealing with and advise on how they should approach them.
The consultants look into various aspects of the market entry problem, study other markets where handset leasing has been already introduced, estimate the approximate cost which the company would incur for implementing this venture, when will the return from this start and many other aspects and provide the company with a proper market entry strategy or whether it should at all go forward with it.
A strategy consultant brings an outside perspective. They’re not bound by personal investment in the company. Their judgment is supposed to be clear and impartial. This way, executives can get an opinion from a source that’s free of emotion and personal sensitivity.
We would discuss cases like these in details later on.
The market for strategy consulting services consists of eight disciplines: Corporate Strategy, Business Model Transformation, Economic Policy, Mergers & Acquisitions, Organisational Strategy, Functional Strategy, Strategy & Operations, and Digital Strategy.
However, it is rare to see a pure “strategy consulting” firm, doing only “strategy” nowadays
Operational Consulting
Operations consulting or operations management with an estimated market size is around $80 billion and is the largest segment of the management consulting industry along with financial advisory.
Operations consulting is the advisory and/or the implementation services provided to the company for improving its internal operations and the overall efficiency in the value chain. These services include developing and implementing target operating / service delivery models, executing cost reduction programs and optimizing business processes.
For example:
Consider an FMGC firm say ‘X’ who have operation only in India and is the 3rd largest FMGC firm in the country in terms of market share. The director of company X wants to improve their channel management functioning given some recent change in their competitor’s channel management strategy which has affected company X’s demand and thus revenue.
The Director has approached a consulting firm to provide him with suggestions on how he could improve their channel management strategy to survive in the competitive environment.
Now it’s the task of the operations consultants to help the director in whichever way possible to solve the problem at hand. It’s the consultant’s job to identify which trade or channel (among General trade, modern trade and e-commerce) in particular to focus on i.e., which section of the client’s business is affecting the revenue of the firm, question the employees to locate the problem, look into the channel characteristics, the engagement strategy of the firm, the potential of savings of the different channels, etc. Then the operations consultant proposes relevant changes such as delivering the unmet needs of the distributors, focusing on non-monetary operations benefits etc.
We shall discuss such cases in detail later on when we deep dive into operations case solving.
Most of the big names in the operations business turn to the consulting firms when it comes to transforming their operating model to gain a distinct and sustainable competitive advantage.
Operations management consulting projects create more effective client operations by advising on and supporting the implementation of changes, to target operating models, functional business processes, management systems, culture, and other elements part of the value chain.
Financial Advisory
The Financial Advisory or Financial consulting segment has a rough estimated market of about $75 billion. It basically delivers consulting services that build on a strong financial-analytical fundamental.
Financial advisory consists of Transaction Services like M&A strategy, company valuation etc., Corporate Finance, Crisis & Recovery, Risk Management, Accounting Advisory, Tax Advisory.
For example:
Consider that our client is a community bank with a worth of about $3 billion operating mainly in northern England. There have been quick growth of the institution and to keep it that way the client company has decided to merge with another local community bank.
The client has hired your firm as he had doubts regarding the valuation and transaction issues.
It is now the financial consultants’ job to guide the client through the Merger. The consultant has to perform various task such as performing due diligence on target companies balance sheets and quality of earnings, getting a proper valuation of the net assets and liabilities of the target firm and how this merger might affect future incomes, understanding the issue related to loan portfolios, post-merger updating the valuation of assets and liabilities and implementing post-acquisition integration.
By providing the bank’s leadership with a clear valuation picture, and other due diligence services, the bank is able to come to a decision and close the deal.
We shall further look into such cases in detail later on.
Unlike the other consulting segments, the main disciplines within Financial Advisory are less related from a functional perspective – the grouping is based on the dependency on financial skills and competencies, combined with analytical rigor in many cases. As a consequence, the disciplines can, to a large extent, be seen as separate service areas: a corporate finance or M&A consultant, for example, performs substantially different activities from a risk expert, while forensics engagement entails completely different activities from property valuation projects.
HR Consulting
Human resource (HR) consulting also referred to as human capital advisory has an estimated market worth of around $35 billion. It basically provides advisory and implementation activities related to the management of the companies HR and human capital function.
The scope of services ranges from comprehensive work on the human capital strategy to the design and deployment of a compensation & benefits framework, down to the transformation of the HR function.
For example:
Your client is a bank that is facing problems with the quality of customer service and it has been receiving complaints regarding long waits on the phone, being transferred to multiple branches, separate accounts requiring multiple calls, etc.
In such a situation your firm has been hired to help the bank resolve this issue as soon as possible, since delay may cause the bank to lose customers and thus affect the revenue and profitability of the bank as a whole.
Now, the consultant performs various functions to identify the root cause of the problem such as – identifying customer service function at each of the individual branches, finding out whether it’s a branch-specific problem or not, look into the compensation structure of the employees, etc. Based on the finding the consultants recommend an appropriate solution to the bank.
We shall look into such cases later on.
They provide various services such as Human Capital Strategy, Compensation & Benefits, Organisational Change, HR Function, Talent Management, HR Analytics, Learning & Development and HR Technology.
Human resource consultants are generally hired by three types of clients. Firstly, HR advisors support HR directors and managers of client organisations for mainly improving the HR function of the organisation. Secondly, HR consultants are hired by clients to support broader human capital issues. Lastly, HR consultants are typically staffed on large transformations to ensure that the necessary people and human capital expertise is on board.
Top Consulting Firms
If we talk about the top Consulting firms, the first image which comes to mind is that of the strategy giants i.e., the Top 3 strategy consulting firms McKinsey, Boston Consulting Group (BCG), and Bain & Company (Bain), also known as MBB. However, there are several other divisions of consulting firms which specialize in different fields. Some consulting firms might specialize in one or a few industries and functions, while others are generalist, covering hundreds or thousands of areas.
If we look at the revenue of consulting firms, the Big4 steals the show. The big four consulting firms that account for nearly 40% of the industry are PwC, Deloitte, EY and KPMG. Further, there are Tier 2 and boutique firms that also perform substantially in the consulting industry.
Consulting firms are divided into many groups, according to size, prestige, as well as areas of specialization. Among the top consulting firms, the most notable groups are:
Top 3 or MBB
MBB stands for McKinsey, BCG and Bain these are three of the most prestigious consulting firms in the world. Most of the work McKinsey, BCG and Bain does for their clients is focused on big strategic questions across general strategy, organization, marketing, operations, digital, and M&A issues. Each of these firms charges HUGE amounts for their services, which usually goes to millions.
These firms are also known to have the highest standards in terms of work quality and pay the most generous salaries in the consulting industry.
The Big 4
In the 20th century, there were essentially the Big 8 accounting firms which over the years underwent numerous mergers and ended up being The Big 4 – Deloitte, KPMG, EY and PwC. The Big 4 accounting firms that entered into the management consulting business in the 1990s and became the Big 4 consulting firms. Basically, this group consists of the consulting division of the Big 4 accounting firms.
Most of the Big 4’s consulting work is concentrated in their ‘Advisory’ practice. They focus on the implementation of transformations, responding more to a “help me do it” question type than to a “what should I do” question type.
The Big 4 also engage with strategy consulting, such as Strategy& at PwC and Monitor at Deloitte, however, this contributes to a very small portion of their total revenue.
Tier 2 Consulting Firms
The Tier 2 consulting firm provides similar services to their clients as done by MBB. The only difference which lies between Tier 2 consulting firms and MBB is that of prestige. The Tier 2 firms also charge much lesser fees as compared to MBB.
Some of the well-known firms in this category are Kearney, Oliver Wyman, LEK consulting, etc.
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Boutique Firms
Boutique consulting firms are small, localized and specialized consulting firms and usually handle small projects. They often hold elite status in the market owing to the quality of service they provide. Boutique consulting firms usually focus on industries where their staff has expertise.
Career Path in Consulting
At every firm, the growth path can take shape differently, but on the whole, consultants go through at least five to seven ranks in the consulting firm before reaching the highest tier positions (Partner/Director). One usually joins these firms post-MBA or they may also join the undergrad/entry-level positions (Analyst/Business Analyst) where they continue working for a few years before getting an MBA.
Now let’s take a look at the career path at some of the top firms.
