Clients have to be aware of these problems, and we shall therefore return to them in the final section of this chapter. Management consulting and the world of the professions At this point it may be useful to broaden our perspective, for management consulting is only one of the wide range of professional services that are available to decision-makers in private businesses and the public sector. As shown in figure 1. Auditors, business lawyers, investment bankers and others are often recruited together with management consultants to deal with various aspects of a complex business problem, transaction or project.
In other instances, different professional services may compete with each other, in particular if the problem is multidisciplinary, and the client has alternative choices in deciding whether the lead should be taken by a management consultant, an accounting firm, an investment banker or another professional firm. A detailed description of professional services as shown in figure 1.
Yet we find it necessary to give a short overview and comment on their changing roles and relationships. The international professional service infrastructure Auditors, accountants and tax advisers A wide range of professional management services is provided by independent accountants working as sole practitioners or in public accounting firms. Acting as independent auditors, accountants examine and verify company financial statements such as balance sheets and income statements as presented by management and render expert opinion also called accountant's opinion as to their fairness, reliability and conformity with generally accepted accounting standards.
They refrain from expressing opinion on the quality of management and the possibility of improving it. Normally the auditor's report is short and is issued in a written form.
It can be unqualified or qualified. In the latter case, there will be an uncertainty that prevents the auditor from forming an unqualified opinion, or the auditor's opinion will differ from the view presented by management in financial statements.
Accountants also provide advice and assistance to management on many questions of accounting and reporting procedures, systems and techniques, taxation, financial planning and management, sources of capital and credit, dealing with banks, and so on.
The scope and form of this advice or assistance are agreed between the accountant and the client and are not fixed by official regulations. Some accountants perform the bookkeeping and accounting function for business clients, e. An accountant performing an audit may also be able to form an expert opinion on the weaknesses of management and give other useful practical advice on what to improve, although this is not in the auditor's terms of reference.
Tax advice has developed into a specialized service, provided by separate departments in some accounting firms, or by independent tax advisers. The distinction between the auditing function and providing advice on how to improve accounting and management and, possibly, even performing accounting operations for the client is significant since different duties, interests and liabilities are involved, and may be called into question with far-reaching consequences.
While accounting and management advice is essentially a private service to management which retains the discretion to act or not to act on this advice , auditing is primarily a service to investors, lenders and, in a sense, the public at large. Independent and objective auditing is regarded as essential for the functioning of financial and stock markets.
An accountant who has done extensive work for a client on financial policy and management questions may be unable or even unwilling to produce an unbiased and disinterested audit of financial statements reflecting his own expertise and advice. Therefore, some countries insist on keeping auditing and other accounting work strictly separate and have legislation that bars auditors from doing other accounting and consulting work for their audit clients. In contrast, in most Anglo-Saxon and other countries, providing management advisory and other services to clients in addition to auditing is regarded as perfectly correct and efficient by both the legislators and the organizations of the accounting profession.
The synergy effect in doing both audits and other professional work for the same client is obvious. Auditing not only identifies weaknesses and opportunities for accounting and consulting work, but establishes a rapport with the client and makes it easier to market new services to him.
Consulting done for an audit client provides the auditor with invaluable knowledge of the client's business, helping to avoid erroneous judgement and wrong conclusions when attesting the fairness of financial reports.
The leading international accounting firms moved into management consulting in the early s and are currently earning a considerable part of their income from management consulting, information technology, systems design, mergers and acquisitions, and other non-audit services. Many other accounting firms have followed the same path. Investment bankers Investment bankers are firms whose principal traditional function has been to serve as intermediaries between issuers of securities and the investment public.
In the underwriting business, investment bankers, acting individually or as members of underwriting groups or syndicates, purchase new issues of securities and distribute them to investors, either directly or through brokers and dealers. They make profit on the underwriting spread, i. In addition to their basic investment banking functions, most investment bankers also run broker-dealer operations and offer a wide range of financial and advisory services, including services that can also be obtained from accounting, consulting or other professional service firms.
Mergers, acquisitions and similar major business and investment deals may involve, in varying proportions, the services of management consultants, accountants and auditors, business lawyers and investment bankers.
Thus, any of these professional service firms can act as a finder, i. For company valuation, the client might consider using a management consultant, an accounting firm, an investment banker or even another professional firm. In cases where alternative choices apply, it will be important for the client to be aware of the strengths, weaknesses and possible biases of each sort of professional service firm. For example, assessing potential future earnings of a manufacturing company requires an excellent knowledge of demand and sectoral trends, maturity level of the technologies used, emerging technologies, local competitors, existing and potential foreign competitors, factors affecting the prices of principal inputs and the like.
Accountants and investment bankers normally do not possess this information, but can obtain it through management consulting and business research firms. Legal services Legal advice is required in connection with many business and management decisions. Numbers of organizations, especially the larger ones, employ in-house lawyers, who may be able to handle a great deal of the legal work required.
For example, over lawyers are employed by General Electric and more than by General Motors. Even large corporations turn to independent law firms in cases that are reserved to independent lawyers by legislation, or when particular expertise is unavailable in the corporation. Independent law firms range from sole practitioners through medium-sized generalist or specialized firms to large firms employing over 1, lawyers this, however, is considerably less than the number of professionals employed by large firms in accounting and management consulting.
While the markets for legal services have been expanding steadily and reputable firms could not complain about a shortage of work, in competitive markets, such as the United States, lawyers have been looking for new ways of improving their competitive advantage and rendering new services to clients. Law firms have started specializing in services such as legal advice to financial institutions, bankruptcy, environmental law, space law or even sunken treasury law. Specialization is increasing within traditional areas such as corporate law, and clients want to be served by lawyers who are recognized experts in precisely defined areas of legal practice.
A recent change has been the legal firms' branching out into non-traditional services, including those that are outside the scope of the legal profession. This has included consulting and counselling services to clients in business management and economics, finance, environmental protection, real estate, engineering, psychology and others.
The idea of full service or one-stop shopping has thus found its way to the legal profession. If a country's legislation or the code of conduct of the profession prevent lawyers from providing such a service within the firm alongside legal services, or if non-legal professionals cannot become partners of the law firm, alternative organizational formulas are sought, such as working through subsidiaries and sister companies.
In the United States, this formula was pioneered by the Washington-based law firm Arnold and Porter, which established three subsidiary firms for non-legal services in general-purpose consulting, consulting to non-profit organizations and services to banks and savings institutions. A parallel development has been the expansion of legal services to clients by accounting, management consulting, investment banking and other professional firms. As a rule, these services are provided as part of a wider service package, e.
Instances of collaboration between professional firms in law and other sectors are also common. The initiative often comes from the legal side: a lawyer may identify the need for management, accounting or financial advice in dealing with a legal problem, and turn to a management consulting or accounting firm, which may or may not already be on contract to a common client.
Conversely, it may be the management consulting or accounting firm that perceives the need for legal advice and suggests that the client should seek consultation with internal counsel or recommends that the client should engage outside counsel, either directly, or through a subcontract issued by the consulting or accounting firm. Information technology consultants Over the past two decades, information technology IT has become a critical factor of competitiveness and success in all areas of business.
The speed with which hardware and software have been changing, and the number of new applications, has been staggering.
This has required considerable capital investment and growing operational spending on information processing. Despite increases in the number of information systems and computer specialists employed in companies, managers have also been increasingly interested in ad hoc and short-term special services concerning various aspects of information technology selection and use.
A new area of professional and support services to management has emerged that started operating as an essential link between the producers and the users of commercial hardware and software.
Consultancy, accounting and other professional service firms from various backgrounds have moved into IT services. At the present time, all important accounting and management consulting firms treat IT as a priority growth area in their service portfolio. Their focus is on management applications, systems design tailored to specific management needs, adaptations of standard software packages, equipment selection and systems integration. Computer service companies represent a second group.
Their services include systems design and programming, education and training, network development and management, telecommunications, and systems integration. A third group includes computer equipment manufacturers and producers of commercial software.
Their involvement in IT services and consulting is of more recent date, but has progressed rapidly and is likely to grow. In all these cases it is often difficult to determine what IT services should be categorized as management consulting. The limits of management and IT consulting are increasingly blurred. Furthermore, management and IT services tend to be ever better integrated and offered to clients as parts of one service package. While associations of management and computer consultants are separate organizations in several countries, the cases of the BDU in Germany or the SYNTEC in France are worth mentioning since they link management and computer consultants in one intersectoral professional federation.
Engineering consultants The terms "engineering consultants" or "consulting engineers" are used generically to cover persons and organizations intervening in a consultant capacity in areas such as civil engineering, architecture, the construction industry, land and quantity surveying, transportation, urban and country planning, project design, planning, supervision and evaluation, mechanical, electrical and chemical engineering, patent services, technology transfer and so on.
Even management consultants used to be called consulting engineers in the early years of consultancy. A common characteristic of consulting engineers is that they are qualified professionals in private practice. Therefore clients can turn to them for independent counsel and assistance, as well as in seeking special help in areas where they are short of expertise. This includes independent and objective advice on contract preparation and negotiation, as well as on the selection of contractors and suppliers of equipment and materials.
Management consultants and consulting engineers may collaborate or compete in areas such as project planning, organization and management, production engineering, planning and control, plant design, factory layout, materials handling, maintenance management, quality management, productivity improvement or feasibility studies.
In some instances the client has the possibility to choose between management consultants with engineering and production background, and consulting engineers versed in organizational and economic aspects of production and other processes.
Executive search consultants Executive search head-hunting has developed as a special field of consultancy in response to an ever-growing demand for executive and specialist talent, combined with a shortage of qualified individuals and recruitment difficulties in key areas of competency. The service is offered by executive search firms, or by specialized units within larger multi-functional consulting and professional service firms.
In the latter case, executive search can be performed as a separate assignment, or as part of a wider service package concerned with company restructuring and reorganization, or human resource management.
Businesses turn to executive search specialists if they do not want to advertise a job publicly, if they seek candidates in areas where advertising does not normally work and, in particular, if they feel that an executive search firm has a better chance of locating the best candidate owing to its knowledge of the sector and sources of talent, information base, and methods used for locating and screening candidates.
An executive search firm does not operate as a general employment agency, but as a focused service, knowledgeable about the industry or service sector served, recruitment, interviewing and assessment techniques, organizations where candidates can be located, and the ways in which offers have to be made and negotiated in order to attract qualified candidates. Executive search firms aim to develop in-depth knowledge of the market for high-level managerial and specialist talent in particular sectors e.
They operate impressive databases on potential candidates and also use advertising. The leading firms are international, or cooperate with other firms to be able to serve international clients and locate candidates in other countries. A new service added to their portfolio by several leading firms is the identification and provision of temporary executives. As executive search has to comply with local labour and employment legislation in every country, various practices are used. There are, however, certain common rules and principles, such as strict confidentiality, the rule that the fee is paid by the client company and never by the candidate presented, or the principle that search is undertaken exclusively at a client's request.
Some executive search firms have expanded their services into various aspects of human resource management, development and compensation. Management development and training services Finally, one sector of professional management services is probably closer to management consulting than any other service. We have in mind management development and training provided either as an internal service within the organizations where managers are employed, or externally by a wide range of institutions and organizations, private and public, including many consulting firms.
The general purpose of management development is to increase managerial competence and effectiveness by improving the managers' knowledge, attitudes and skills, and helping to apply in practice what the managers have learned in various training and development events. The relationship between management consulting and management development has many facets which ought to be kept in mind in selecting and using consultants.
Let us point out the most important ones. The first facet was mentioned in section 1. If the client participates actively in the consulting assignment and if the consultant works in a way that enables and encourages the client's learning, consulting also plays the role of managerial and human resource development.
People learn and develop by working with consultants on new tasks and acquiring their consultant's diagnostic, interpersonal, organizational and change-agent skills. Secondly, management consulting and management development can supplement and support each other in pursuing specific objectives in improving management competence and organizational performance.
In addition to identifying and solving problems, the consultant's work also identifies needs and suggest suitable approaches to developing managers and employees. Changes proposed by consultants, such as new management techniques and systems, may require considerable management and staff training, which may be provided directly by the consultants as part of an assignment, or by specialized training and development services, internal or external.
Conversely, training and development generate needs and specific requests for consulting. If a manager decides to apply what he has heard and appreciated in a course, he may turn to a consultant with a request for practical advice. Thirdly, in certain cases the client can choose between consulting and training. He may turn to a consultant with a request to help in finding a solution of a specific problem, such as introducing more appropriate and productive scheduling and control systems.
Or the production manager and his specialist staff may attend a course on production planning and control and then prepare and introduce the required changes without calling any consultant. These close relationships and the possibilities of making alternative choices have influenced the profiles and intervention methods of both consulting firms and management development institutes and centres.
As regards consulting firms, they have always used management training and development as one of their intervention techniques combined with other techniques in executing particular assignments. More recently, many consulting firms have started offering training programmes that are not necessarily linked to one particular assignment, but aim to provide information, skills and know-how reflecting the consulting firm's general experience gained through a number of assignments.
Some consulting firms offer open training and development programmes in addition to tailor-made or bespoke programmes that are designed and mounted for specific clients. Quite a few consulting firms operate management centres and institutes offering a wide range of courses, seminars and workshops. Turning to management centres and institutes, including university-level institutes and business schools, their involvement in consulting, and the sort of consulting services they are able to provide, differ from case to case.
Some of them have established full-time consulting services operated by special consulting departments. In most institutes, however, consulting is a part-time activity in which faculty members engage in addition to delivering a certain amount of training through courses and seminars.
As a rule, their consulting is quite individualized, i. Most of these assignments would be of smaller size, e. Many assignments are in the area of human resource management and development and include the design and delivery of in-company training programmes adapted to the company's specific problems and needs. A client considering whether to use management teachers and trainers as consultants should be able to establish whether they are merely looking for some practical experience and additional income, or are able to provide special knowledge or practical expertise that are not available from consulting firms or are offered by management consultants under less interesting terms.
Options available to large and small business clients Certain lessons can be drawn from our review of particular sectors of professional services. Clearly, the world of professional services has changed quite considerably in the last ten years and will continue to change. Hence, the first conclusion - if you want to be a well-informed user, you cannot view these services as they were ten years ago, but must keep informed about their trends and changes to be able to tap up-to-date expertise in the most efficient way.
The traditional borders between professions have become blurred. Lawyers are in management consulting and tax advice, accountants in mergers, acquisitions and legal advice, management consultants in education and training, computer firms in management consulting, and so on. There are two main reasons for this: competition and the client's interest in integrated services.
Competition is an important driving force affecting the structure and behaviour of professional service firms. They compete for clients and markets with other firms within the same profession accountants with other accountants and with other professions management consultants with computer firms. Thus, several accounting firms and investment bankers have decided to offer legal advice to clients rather than sending them to independent law firms.
Thanks to these developments, in most countries clients enjoy considerable possibilities of choosing among professional service firms offering various arrangements and conditions.
In Chapters 3 and 4 we shall see that technical proposals and price quotations can be requested from several professional firms and then negotiated with one or two firms whose offers look most interesting both technically and financially.
The client also has several options in deciding with how many partners to deal in handling various aspects of a complex project or transaction.
It can make a lot of sense to clients if they can seek and obtain financial and technical services supplemented by and coordinated with advice on various aspects of the problem at hand managerial, fiscal, legal, technological, etc.
Some clients prefer to purchase services that have been selected, co-ordinated and packaged for them by one service firm rather than going through lengthy selection, negotiation and co-ordination in dealing with several firms separately. In such a case the client may be able to obtain an integrated service portfolio directly from one larger firm or agency; or one firm e.
The client may then use these firms as subcontractors to the lead firm, or recruit them directly. These are merely examples, since large business and government clients use and coordinate professional services in many different ways.
Turning to small business clients, their problem is that they need nearly the same range and diversity of professional advice on various aspects of the business as large firms, but normally this advice will be simpler and should be provided in ways that make it easily accessible and "user-friendly" from the viewpoint of small entrepreneurs. If you are a small business client, and if you can afford it, you can of course decide to deal directly with various independent professional advisers - a management or business consultant, a lawyer, an accountant, a tax adviser and so on.
Many small business people prefer to call on organizations, private or public, able to provide an integrated service package virtually under one roof one-stop or one-window service.
There are many different types of such organizations. As a rule, they can combine general business consulting with training, information and specialist advice on questions such as marketing, quality, credit or taxes, and also help to find and negotiate credit and obtain the necessary loan guarantees. Professional standards If there is one distinctive feature that characterizes consulting and other professional services and underlines their difference from other goods and services, it is neither technical expertise nor the art of providing advice to clients, but professional integrity.
Professional services can exist as such and play their role in economic and social life if the principle of integrity and ethical standards permeates all their activities, opinions, statements, and relations with clients. Whenever this principle is forgotten or sacrificed to the commercial interests of the consultants, the service provided can no longer be called independent, objective and professional.
A consulting firm was engaged by a client to test the adequacy and effectiveness of security in place at various company locations, including a highly sensitive research - and - development facility, and identify possible vulnerabilities. The consulting firm obtained an executed engagement letter and a form signed by the client authorizing the consultants to carry out their planned engagement activities.
Two consultants arrived at the research - and - development facility after business hours, with the authorization form in hand to carry out the engagement activities. The tests performed by the consultants ultimately triggered the security system as expected. When law enforcement arrived, the consultants calmly presented a copy of the authorization form to explain the intrusion.
However, it was not accepted by law enforcement, as they were not made aware of the engagement prior to the planned break - in attempt. As a result, the consultants were arrested and their mugshots taken. What unfolded was a saga of differences in interpretations of the engagement scope between the firm and the client, and a lack of communication about the engagement by the client to other affected parties.
The client had not anticipated that the engagement would involve attempting a forced entry into a building and did not communicate to law enforcement in advance that the penetration test was to occur.
Additionally, the executed engagement letter included contradictory statements about whether testing could occur after business hours. This unfortunate event reminds us of the importance of:. Careful and objective assessment supported by appropriate risk management measures can help mitigate the professional liability risk associated with consulting services.
Preparation and planning are important, but look out for unexpected bumps in the road or questions from clients. When a question or request for services appears to be high - risk despite the application of the aforementioned safeguards, remember that it's OK to say no rather than advising clients in haste. For more information about this article, contact specialtyriskcontrol cna. This article provides information, rather than advice or opinion. It is accurate to the best of the author's knowledge as of the article date.
Moving up the pyramid toward more ambitious purposes requires increasing sophistication and skill in the processes of consulting and in managing the consultant-client relationship.
But reputable consultants do not usually try to prolong engagements or enlarge their scope. As the need arises, both parties may agree to move to other goals. Perhaps the most common reason for seeking assistance is to obtain information. Compiling it may involve attitude surveys, cost studies, feasibility studies, market surveys, or analyses of the competitive structure of an industry or business.
Or the company may be unable to spare the time and resources to develop the data internally. Often information is all a client wants. But the information a client needs sometimes differs from what the consultant is asked to furnish. One CEO requested a study of whether each vice president generated enough work to have his own secretary. Many clients have never thought about that.
In any case, no outsider can supply useful findings unless he or she understands why the information is sought and how it will be used. Consultants should also determine what relevant information is already on hand. Seemingly impertinent questions from both sides should not be cause for offense—they can be highly productive. Moreover, professionals have a responsibility to explore the underlying needs of their clients.
Managers often give consultants difficult problems to solve. For example, a client might wish to know whether to make or buy a component, acquire or divest a line of business, or change a marketing strategy.
Or management may ask how to restructure the organization to be able to adapt more readily to change; which financial policies to adopt; or what the most practical solution is for a problem in compensation, morale, efficiency, internal communication, control, management succession, or whatever. Seeking solutions to problems of this sort is certainly a legitimate function.
But the consultant also has a professional responsibility to ask whether the problem as posed is what most needs solving. Very often the client needs help most in defining the real issue; indeed, some authorities argue that executives who can accurately determine the roots of their troubles do not need management consultants at all. To do so, he or she might ask:. Suppose the problem is presented as low morale and poor performance in the hourly work force. The consultant who buys this definition on faith might spend a lot of time studying symptoms without ever uncovering causes.
On the other hand, a consultant who too quickly rejects this way of describing the problem will end a potentially useful consulting process before it begins. As the two parties work together, the problem may be redefined. Thus, a useful consulting process involves working with the problem as defined by the client in such a way that more useful definitions emerge naturally as the engagement proceeds.
Nevertheless, the process by which an accurate diagnosis is formed sometimes strains the consultant-client relationship, since managers are often fearful of uncovering difficult situations for which they might be blamed. Competent diagnosis requires more than an examination of the external environment, the technology and economics of the business, and the behavior of nonmanagerial members of the organization.
The consultant must also ask why executives made certain choices that now appear to be mistakes or ignored certain factors that now seem important.
Although the need for independent diagnosis is often cited as a reason for using outsiders, drawing members of the client organization into the diagnostic process makes good sense. They, not us, must do the detail work. While this is going on, we talk with the CEO every day for an hour or two about the issues that are surfacing, and we meet with the chairman once a week.
We get some sense of the skills of the key people—what they can do and how they work. When we emerge with strategic and organizational recommendations, they are usually well accepted because they have been thoroughly tested. Top firms, therefore, establish such mechanisms as joint consultant-client task forces to work on data analysis and other parts of the diagnostic process. As the process continues, managers naturally begin to implement corrective action without having to wait for formal recommendations.
The engagement characteristically concludes with a written report or oral presentation that summarizes what the consultant has learned and that recommends in some detail what the client should do. Firms devote a great deal of effort to designing their reports so that the information and analysis are clearly presented and the recommendations are convincingly related to the diagnosis on which they are based.
Many people would probably say that the purpose of the engagement is fulfilled when the professional presents a consistent, logical action plan of steps designed to improve the diagnosed problem. The consultant recommends, and the client decides whether and how to implement. Though it may sound like a sensible division of labor, this setup is in many ways simplistic and unsatisfactory.
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