Thomas Deelmann, Michael Mohe (Eds.): Selection and Evaluation of Consultants Management Consulting Research, Volume 1 ISBN 3-86618-077-2 / ISBN 978-3-86618-077-2, Rainer Hampp Verlag, Mnchen und Mering 2006, 227 S., 24.80

The selection and evaluation of consultants, consultancies, and consulting ser-vices belong to probably the most critical issues in management consulting re-search. However, the research in these areas is still sparse and does not yet re-flect their importance in an adequate manner. Additionally, in recent years new developments in management consulting have taken place, which have still not yet been covered. Observations of the consulting market indicate that both clients firms and consultancies have begun to professionalize their selection and evaluation procedures. This, in turn, changes the previous rules in the consulting market and stimulates the birth of new business models such as e-consultancies or meta consultancies.

This book tries to capture these new developments, and intends to consolidate the existing research and stimulate new research implications in the area of se-lection and evaluation in management consulting.

Key words: Consulting Research, Management Consulting, Evaluation, Selec-tion

MANAGEMENT CONSULTING RESEARCH Volume 1 edited by Thomas Deelmann Michael Mohe

Thomas Deelmann Michael Mohe (Eds.) Selection and Evaluation of Consultants

Rainer Hampp Verlag Mnchen, Mering 2006

The project within this publication was financed by the German Federal Ministry for Education and Research (Bundesministerium fr Bildung und Forschung), project number 01HQ0554. All content, comments, ideas, and opinions are the sole responsibility of the authors.

Bibliographic information published by the Deutsche Nationalbibliothek Die Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de. ISBN: 3-86618-077-2 ISBN: 978-3-86618-077-2 Management Consulting Research: ISSN 1863-2815 1. Auflage, 2006

2006 Rainer Hampp Verlag Mnchen, Mering Meringerzeller Str. 10 D 86415 Mering

www.Hampp-Verlag.de

All rights preserved. No part of this publication may be reprinted or repro-duced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publisher. In case of complaints please contact Rainer Hampp Verlag.

Preface

This book addresses two crucial issues in management consulting: selection and evalua-tion. Indeed, both the selection and evaluation of consultants, consultancies, and consult-ing services are probably the most critical issues in management consulting research. And, there is some literature covering these two fields. However, the inventory of research in these areas is still sparse and does not yet reflect their importance in an adequate manner. Additionally, in recent years new developments in management consulting have taken place, which also still have not been covered. Observations of the consulting market indi-cate that both clients firms and consultancies have begun to professionalize their selec-tion and evaluation procedures. This, in turn, changes the previous rules in the consulting market and stimulates the birth of new business models such as e-consultancies or inter-mediaries like meta consultancies. This collection of papers tries to capture these new developments, and aims to consoli-date existing research and stimulate new research implications in the area of selection and evaluation in management consulting. For this, it first covers both practical and academic points of view, as we believe that consulting practice and consulting research can learn from each other. Second, as selection and evaluation procedures can be viewed from mul-tiple perspectives, the articles in this book offer different ways on how to look at selection and evaluation procedures: from the clients view, the consultants view, and the markets view. Third, as conceptual and empirical research are valuable research strategies for learning more about our two topics of interest, the papers within this book follow both conceptual and empirical approaches. The following figure shows these different views on the two fields of interest and suggests some exemplary questions which will be discussed:

Client

Consultant

Market

Perspective Conceptual Empirical

Selection of Consultants

Client

Consultant

Market

Perspective Conceptual Empirical

Evaluation of Consultants

How do clients choose their consultants? What are their criteria?

How do consultancies choose their consultants (recruiting, staffing)? How do

consultants select their clients?

How do intermediaries, meta-consultants etc. act in the market place? What kind

of role do they play?

How do clients evaluate their consultants and consulting projects?

How do consultancies evaluate their consultants and consulting projects? How do they react to the clients evaluations?

How can players in the market place be analyzed and evaluated? How can the

efficiency of consultancies be evaluated and increased?

Fig. 1: Perspectives, structure, and exemplary questions to be discussed in the following chapters

This book is structured into two sections according to its subjects:

VI Thomas Deelmann, Michael Mohe

The first six articles in section 1 address different problems of selection in management consulting. Thomas Deelmann suggests using the consultants business model as one selection criterion. In short, a business model is the abstract description of the regular business activity of an organizational unit. Beneath the classical management consultancies, which act as profes-sional services companies, there are other players in the consulting marketplace, e.g. sen-ior consulting companies, student consultancies, and internal corporate consultancies. They have different goals, strategies, and business models. Knowledge about these aspects gives advice on when to select which consultant type during the process of selecting a consultant. Sandra Niewiem and Ansgar Richter investigate the choices of clients in favor of or against the involvement of external consultants in the execution of project work. The study draws on data from 86 projects gathered through interviews with 41 managers. The authors ana-lyze these data using content analytical approaches that combine both deductive and ex-ploratory methods. They find that the mode of co-operation typically found between cli-ents and consultants can be characterized as an intermediate mode of governance between procurement from the market and an integrated, internal setting. The results provide ten-tative support for the transaction cost economic framework underlying the study. On this basis, the authors derive important implications for both consultants and managers. Dieter W. Kaiser suggests that strategic HR management is a core competency for consul-tancies. A consulting firm establishes its position in a competitive market by cultivating its competence profile and through the verifiable successes of its work for clients. This re-quires consulting firms to have continuous access to the required skill profile. Thus, the main challenge facing human resource management at a consulting firm is to define the profile of the consultants, find the desired individuals, support their ongoing develop-ment, and ultimately tie them to the company on a long-term basis during their em-ployment as a consultant and, if possible, thereafter. The author shares his insights into the process of human resources planning, recruiting, staffing, and personnel development of a top management consultancy. Michael Mohe attends to the question of what consultancies expect from graduates and universities. The starting point of the article is an interesting observation: On the one hand, a job in management consulting is very attractive for many graduates, but on the other hand, a very vague and mythical picture of recruiting criteria remains for the exter-nal observer. Therefore, the article provides empirical data from consulting companies in

Preface VII

Germany. The consultancies were asked about their expectations regarding recruitment criteria for graduates. Furthermore, this article focuses on the role of universities as one option for qualifying students for a later occupation as a management consultant. Here, the consultants were asked about their expectations of both learning volumes and meth-ods to find out the criteria upon which a special study course Management Consulting should be based. The article concludes with implications for graduates, universities and consulting firms. Axel Gloger noticed that the current forces of change in the consulting marketplace are in the first place value neutral. What is more interesting is the following way of looking at things: It could be rewarding to recognise and describe in detail the changes that are emerging in the market. Both sides of the market, consultants and their clients, could rec-ognise what energies and forces are being produced by the changes. Experience suggests that it would be advisable in future activities not to resist these forces, but to use them as a lever to improve ones own position. The aim of his article is therefore to describe these changes, to assess what their further effects are likely to be, and to draw conclusions for the agenda of the market participants. Bettina Trk and Thorsten Posselt consider the changes initiated by the increasing relevance of web based technologies in the economy. They focus on the future significance of web based intermediaries using the example of the German consulting market. For the deriva-tion of the success or non-success of an e-intermediation, chances and risks (which are linked with the use of intermediary services in the field of consulting) are identified and evaluated. These relationships are empirically verified by a logistic regression analysis of data, based on a survey in German client and consulting firms. That a general interest exists concerning an e-intermediation of consulting services can be essentially explained by the fact that web-based intermediaries offer the chance to reduce transaction costs for both clients and consultants. The second part of this book focuses on different evaluation issues in management con-sulting. Andr C. Wohlgemuth attends to the topic of performance evaluation in management con-sultancy, which continues to be the subject of strong debate. In every consultancy en-gagement there are situations or phases when the client wants to obtain a full picture of the consultants performance by carrying out an evaluation. Usually at the end of an as-signment there is a need for systematic assessment. This article presents the Swiss ques-tionnaire for the evaluation of quality in management consultancy promoted by ASCO, the Association of Management Consultants Switzerland. The questionnaire is generic

VIII Thomas Deelmann, Michael Mohe

because it covers many management consultancy situations and can be adapted to the specific needs of the user. Sven Haferkamp and Sabine Drescher present results from a study concerning several aspects of knowledge management of consulting projects. For the examination of the current state of client professionalization in the relationship with strategic management consulting firms, interviews were conducted with seven experts of German DAX-listed companies in the period from May 2005 to July 2005. The study and the best-practice approach for the holistic management of management consulting projects derived from it shows that cli-ents can make a critically important contribution to the success of management consulting projects. The systematic application of the measures described within the article will have the effect of professionalizing the co-operation with consulting firms and perpetuating the knowledge gained as a result of consulting projects within the organization. Guido Klenter and Niels Mllgaard look at the increasingly knowledgeable use of consulting services by many companies and present the consequences of this development from the perspective of a consulting firm. Growing customer demands for more precisely quantifi-able consulting results represent a significant factor shaping the business model consul-tancy. These new expectations have already led to considerable changes in the sector, and the process is far from complete. Two aspects are closely examined in the context of the development that the business model is currently undergoing: the selection, evaluation and further training of consulting staff, and the systematic analysis and development of projects. Consultants face new challenges in all phases of the project life cycle in the preparation stage, during project work, and subsequent to the conclusion. Matin Ebrahimchel, Michael Mohe, and Richie Sternzeld address the problem of evaluation from the consultants point of view. For this, they conducted an interview series with dif-ferent consultants from major and medium-sized consultancy firms, in which the consult-ants were asked how they perceive a) their own evaluation systems within their consulting firm, b) the clients evaluation systems, c) the relevant (restricting and/or promoting) so-cial and political conditions for a project evaluation. Additionally, the consultants were asked for alternative or ideal conceptions and/or ideas about project evaluation as well as their limitations. The findings reveal remarkable insights in the evaluation practice within consultancies and clients companies as well. Michael Scholz noticed that efficiency is often used as a qualitative or quantitative measur-ing instrument to determine the success of business consulting projects. In his article, he aims to implement an integral explanation model of the efficiency of business consulting projects, which comprises all relevant elements and their interdependencies in a system-

Preface IX

theory approach. Different disciplines of consulting research and perspectives have been considered to build the integrated explanation model. A software-based representation of the model allows the simulation of different consulting situations and the anticipation of changes that are being undertaken by the systems actors. The model is configured for typical consulting situations, and recommendations are derived to improve consulting efficiency. The recommended proceedings give consultants as well as clients general ad-vice with practical relevance on how to deal with challenging consulting situations from a system-oriented perspective. Thomas Deelmann, Andreas Huchler, Stephan A. Jansen, and Arnd Petmecky present the results of an empirical study on internal corporate consultancies. With respect to the profession-alization of clients, one can especially mention the trend towards the organizational im-plementation of internal consulting departments. While this phenomenon is already quite common in business practice, it has not yet attracted much interest in social scientific re-search. Empirical knowledge about the characteristics of internal corporate consultancies might help to better evaluate and assess their working results and to compare internal corporate consultancies with external consultancies. We would like to thank the authors for their contribution to this selection of papers con-cerning conceptual and empirical work on the issues of selecting and evaluating consult-ants. We are indebted to the German Federal Ministry for Education and Research (Bundesministerium fr Bildung und Forschung) for supporting this project. Last but not least, we are grateful to Rainer Hampp for supporting our idea of combining a selection of re-search papers in the area of management consulting. Thomas Deelmann and Michael Mohe Siegburg and Oldenburg, 2006

Table of Contents

Preface ............................................................................................................................................. V Table of Contents .........................................................................................................................XI Section 1: Selection of Consultants ......................................................................................... 1 Selection of Consultancies Based on the Business Model-Criterion....................................... 3 Thomas Deelmann Why do Clients Work with Management Consultants? An Empirical Analysis ............. 21 Sandra Niewiem, Ansgar Richter Strategic HR Management A Factor to Success for Consulting Firms in Competition 41 Dieter W. Kaiser What Do Consulting Firms Expect from Graduates and Universities? Empirical Insights from the German Consulting Market ........................................................................................ 53 Michael Mohe How intermediaries are accelerating radical change in the consultancy market ................. 69 Axel Gloger E-Intermediation in Corporate Consulting An Empirical Investigation from the Perspective of Clients and Consultants ..................................................................................... 91 Bettina Trk, Thorsten Posselt Section 2: Evaluation of Consultants.................................................................................. 109 Evaluation of Consultancy Engagements: The Swiss Questionnaire for Quality in Management Consultancy.......................................................................................................... 111 Andr C. Wohlgemuth Client Professionalization: Proposed Approach for the Knowledge-Centered Management of Consulting Projects ........................................................................................ 121 Sven Haferkamp, Sabine Drescher

XII Table of Contents

Return on Consulting Value Added by the Consultants is All that Counts ................... 139 Guido Klenter, Niels Mllgaard Evaluation of Consulting Projects The Consultants View............................................... 159 Matin Ebrahimchel, Michael Mohe, Richie Sternzeld Increasing the Efficiency of Business Consulting Services through Comprehensive, System-Oriented Thinking and Action in the Consulting Process...................................... 179 Michael Scholz An Empirical Analysis of Internal Corporate Consultancies ............................................... 197 Thomas Deelmann, Andreas Huchler, Stephan A. Jansen, Arnd Petmecky Authors......................................................................................................................................... 211

Section 1: Selection of Consultants

Selection of Consultancies Based on the Business Model-Criterion

Thomas Deelmann1

Introduction

McKinsey & Company, The Boston Consulting Group, Monitor Group, and other man-agement consultancies have taken a prominent role in the business arena. In research and popular management literature, these professional services companies have got major attention. Beneath these companies, a more alternative group of suppliers for manage-ment and business consulting services has established itself. However, these suppliers tend to be strongly underrepresented in the media, have lower attention in the business arena, and are seldom subject to research. Aim of this chapter is to give a brief overview to some of these kinds of consultancies which can be seen more or less as direct competitors of the major consultancies men-tioned above (Walter and Deelmann 2005). It wants to narrow the identified gap in con-sulting research. The discussion of the consultancies business models will be used to de-scribe and differentiate the service companies. Subjects to the investigation are so-called Senior Consulting Companies, Student Consultancies, Accountants and Tax Consultants, and Internal Corporate Consultancies. Within this chapter, for each group its business idea, advantages and disadvantages of an engagement for their clients, and its basic business model will be discussed. Additionally, this paper will have a brief look on the consulting capacities provided by non-profit organizations, professional associations and lobbying groups. This chapter focuses on a different consulting market, which today is to a large extent out of scope for many clients and the public. Nevertheless it can be considered as an alternative to the classical consultancies. Clients might use the alternative business models of consultancies as a criterion for the selection of their suppli-ers for consulting services. The following paragraph introduces the business model as a framework for analyzing business units. Subsequently the generic business model of a classical consultancy is intro-duced. It will serve as a reference model for this chapter. In the following chapters each of the more alternative suppliers of consultancy services is discussed and its business model

1 I would like to thank Estela Walter for her valuable input.

4 Thomas Deelmann

is depicted as well as a brief recommendation when to select the very supplier is given. A brief conclusion closes this chapter.

Business models as an analysis tool

Based on an extensive literature review and an empirical refinement, various elements and building blocks of a business model were identified (Scheer et al. 2003). The most impor-tant points were on aggregation and abstraction of the reality into the model, the organi-zation as scope of the model, the notice of technology, actors and their roles, the com-petitive environment, and the flows of money, information, and goods. However, profits, produced value, and processes were seldom mentioned. In the following an interpretation of these elements in more detail will be given. Abstraction, aggregation: The model itself is an abstract construction of the reality. The ele-ments of the business under investigation are represented in a more simple way in order to allow a focused view from a birds perspective and to support the analysis of the or-ganization. Organization, actor, role: The subjects within a business model are one of its most important elements. An actor might represent a single person as well as an organizational unit or the combination of organizational units. Governmental organizations might be treated in the same way and can be represented by a business model as well. If not mentioned other-wise, the terms organizational unit, business, and organization are used synonymous within this chapter. Value creation: The creation of goods and services reflect a production process in which based on a given initial state a transformational process will reach a final state. This hopefully reflects an increased value in comparison to the initial situation. Technology: It reflects a tool or resource for value creation and has variable importance, depending on industry and environment: An internet business start-up might be influ-enced by technology more intensive than a local hairdresser. Influencing factor: The competitive environment might consist of market forces (e. g. price wars, entry of new competitors) as well as other influencing factors (e. g. shift in the age structure of the customers). Flow of money: Financial transactions and revenue streams are relevant in order to represent the business or economic aspects within the model. The flow of money will mostly be identified in duality with a product flow of equal value. The flow of money takes place between two organizational units. It is therefore called transfer flow. Product flow: Produced goods and services are mostly delivered from one organizational unit to another. It is therefore a transfer flow, too. Product flows will mostly be identified in duality with a flow of money of equal value.

Selection of Consultancies Based on the Business Model-Criterion 5

Flow of information: Literature often disregards the flow of information in the discussion of the key elements of a business model. However, information which is transferred and exchanged between organizational units is often a driver to business success. Therefore this paper includes the flow of information as one kind of a transfer flow. The definition of a business model in this paper combines the relevant aspects discussed above (Scheer et al. 2003, p. 22):

A business model is the abstract description of the regularly business activity of an organizational unit. The model consists mostly of organizational units, transformational processes, transfer flows, influencing factors, supporting tools, or a selection thereof.

Figure 1 suggests graphical representations for the single elements of which a business model consists. The next section will discuss a certain business model in more detail and show the combination and interaction of the several model elements, too.

+InfluencingFactorTool,

Tech-nology

(i) Flow of Information

Trans-formational

process

(X) Product Flow() Flow of Money

Organizational Unit

(1) (3) (4)(2)

(5) (6) (7)

Fig. 1. Elements of the Business Modelling Language (Deelmann and Loos 2004, pp. 14-16)

Generic business model of a consultancy

The business model of most consultancies insists on consultants, who use their knowl-edge and capabilities in order to solve business problems of their very clients. Therefore, they use appropriate methodologies, consulting styles, and tools (Smith and Smith 2003). In a straightforward way the generic business model looks like this: A client gives a prob-lem to the consultant. The consultant in turn solves the problem and hands over the solu-tion. For this activity, the consultant gets a fee from the client. In a more sophisticated specification of the business model, there is a team of consultants which serve one or more clients. The team members use a knowledge management sys-tem in order to store, distribute, and share client-, problem- and methodical-related in-formation. The very kind of consulting projects which could be managed depends on the individual consultants, their knowledge and the used methodologies. However, the finan-

6 Thomas Deelmann

cial streams depend on the type of consulting project and on the leverage effect. This lever-age effect is determined by the numerical relation of the consultants in a partner position and the rest of the consultants. A larger leverage states that one partner could train more consultants (the partner can leverage the knowledge). Larger projects (e.g. IT implementa-tion projects) with relatively low daily fees could be managed. On the other hand, in con-sultancies with a lower leverage fewer consultants are trained by one partner. Smaller pro-jects (e.g. strategy development) could be managed, but the daily fees will usually be much higher (Maister 1982). In consultancies, project work dominates traditional office work. The organizational structures as well as the processes are dynamic. Projects consist of several phases (Cope 2001; Niedereichholz 1997a; Niedereichholz 1997b). From a consultancy viewpoint, a project has three phases, which in turn might be again split up: Project initiation (with request, proposal, and contracting), project work (with analysis, conception, pilot, and implementation), and project completion (with project evaluation, documentation, and client satisfaction measurement). Distinctive for the work in a consultancy is the changing physical and mostly distributed workplace. Therefore, the staffing of consultants is critical for the project success. The elements discussed above can be summarized as the generic business model of a con-sultancy. A graphic representation is shown in figure 2. With respect to the supplier of consultancy services discussed below, this way of doing consulting work can be named as classical or traditional consulting service. The business idea, the advantages and disadvan-tages in engaging on of the more alternative suppliers, and their business models are dis-cussed and mirrored with the classical business model of a consultancy in mind. The goal is to show that various business models of consultancies are appropriate for different cli-ent situations.

Goal, strategy, business model, and recommendations for selection

In brief, the goal of the classical management consultancies can be described as (1) maxi-mizing the profit margin and as (2) generating sustainable growth. Therefore they try to create new management trends and to sell advice and problem solving capacity and capa-bility in these newly designed areas. In addition to this, they permanently have to optimize their leverage effect between the number of partners and the number of consultants. The main driver of the business model can be found within this leverage effect, the manage-ment and transfer of knowledge, and in a key account management. Clients should con-sider the usage of external, classical consulting companies, if they want to work with highly reputable consultants who know state of the art tools, trends, and techniques,

Selection of Consultancies Based on the Business Model-Criterion 7

and/or if they want business-oriented solutions which might have an alibi-function in some cases.

Consultancy Client

(i) Problem

() Fee

(X) Solution

Project Lead

Consultant

(i) Pa

rtial p

roblem

(X) P

artial

solut

ion

Consultant

(i) Partial problem

(X) Partial solution(i)

Inform

ation

(i) Information

(i) Information

Knowledge-mgmt-System

Pro-blem

solving

Knowledge-mgmt

System

Pro-blem

Solving

Know-ledge-mgmt

SystemPro-blem

solvingKnow-ledge-mgmt

System

Infor-mation

process. (i) Information

(i) Information

(i) Inf

ormati

on

Fig. 2. Generic Business Model Consultancy (Deelmann and Petmecky 2005, p. 246)

Senior consulting companies

Business idea

Senior Consulting Companies consist of senior experts which are people who often want to bring in their professional experience into the business context without being a line management employee. Senior experts decide about their workload themselves. This workload ranges from a few hours per month up to a full-time engagement. There are two main reasons for the emergence of Senior Consulting Companies. The first one is on a business level: There is a possibility for employees who will eventually retire in the fore-seeable future to reduce their working engagement step by step. On the one hand, senior experts can refer to a self-determined workload reduction. On the other hand, there is a chance for companies which support Senior Consulting Companies to use the expert

8 Thomas Deelmann

knowledge of their senior employees and to transfer their knowledge to more junior em-ployees. The second major reason for the emergence of Senior Consulting Companies is based on the socio-demographic change which currently hits Western Europe. Corporate functions responsible for HR-Development have to cope with age management issue because of (1) the lack of younger specialized employees, (2) the upcoming retirement-boom of the so-called baby boomers, and (3) the increasing lifespan and the resulting public force to rise the pension age. Therefore, the set up of a Senior Consulting Company can be considered as one way to employ senior employees as senior experts and to work with them on a more flexible basis. For corporations, Senior Consulting Companies fulfil two concrete tasks: They substitute in some ways the classical Consultancies and they act as a role model within age manage-ment programs. In addition to this more or less economical character of the Senior Consulting Companies there are non-profit Senior Consulting organizations as well. They focus on the delivery of development aid and the support of reform processes in third world countries. These non-profit organizations are not in scope of this article. (ASEP 2005, Consenec 2005, SES 2005)

Advantages and disadvantages for individual consultants and clients

In the following, some chances and risks will be identified for senior experts and clients of Senior Consulting Services. Advantages for the senior expert are the gain of flexibility, new challenges, and more freedom: Project driven activities support part-time jobs, which in turn lead to a more flexible working environment. The possibility to engage oneself in projects and to leave repetitive and routine tasks behind leads to new challenges. And finally the chance to define scale and scope of the workload might be seen as a new kind of freedom. A disadvantage for the senior expert is the salary reduction, the loss of power, and resis-tance within the company. Salary models in Senior Consulting Companies often consist of a fix-based salary and a variable salary which is based on the personal engagement and activity of a senior expert. Together, they might be less than the last regularly salary the employee got before becoming a senior expert. One aspect which is differentiating con-sultants and corporate senior staff is the usage of support functions. While the corporate executive often has a secretary, one or more assistants and some departments which re-port to the executive, the Senior Expert will mostly have to work without these reporting

Selection of Consultancies Based on the Business Model-Criterion 9

structures. This loss of personal power often goes in line with an increasing degree of resistance by the employees, which consultants in many companies are facing. Clients of Senior Consulting Companies are often their parent companies. They can claim several advantages because of engaging these service units. First, clients hold and maintain access to knowledge, which was collected over long years. Second, by phasing out their existing senior employees and transferring them to a Senior Consulting Company, there are new career perspectives and chances for younger employees. High potentials can be empowered. Third, there might be a classical economic reason: The costs of a layoff or high indemnifications for senior executives might outnumber the operational and capital expenditures of running a Senior Consulting Company. On the opposite to these advantages, there are some disadvantages, too mainly if the services are offered to third-party companies. Third party customers can refuse to engage an external consultancy because of confidentially reasons. Internal knowledge can spread to competitors. Second, the Senior Consulting Companys parent company might be afraid that certain activities and behaviour of the senior experts will last a damning light on the parent company.

Areas of engagement

Clients might wonder whether to engage a Senior Consulting Company or a classical ex-ternal consultancy. The following table compares both in terms of advantages and typical tasks:

Table 1. Advantages and typical tasks for Senior Consulting Companies and Classical Consultancies

Advantages for using Senior Consulting Com-panies

Advantages for using classical consultancies

Experience Personal network within the company Processes and procedures are well known Costs for external consultants will be reduced

Industrial and methodical competencies External and neutral view on the customer Innovative and more loadable

Typical tasks for Senior Consulting Companies Typical tasks for classical consultancies Implementation tasks Coaching Subject matter expert-style consulting Interim management Partly the undertaking of external tasks and pro-

jects

Business process redesign Implementation of large-scale strategy projects Classical management consulting Benchmarking Know how transfer from third-party companies

Goal, strategy, business model, and recommendations for selection

In short, the goal of most of the Senior Consulting Companies can be described with knowledge management and transfer, and the work as an age management instrument.

10 Thomas Deelmann

Their strategy is to dispense and distribute organizational knowledge. They support the goal of the learning organization. This makes it relatively easy to have a co-existence with the classical consultancies. Compared with the business model of the classical consultants, Senior Consulting Com-panies tend to have a one-on-one assignment of consultants and projects. There is no leverage effect between partner and consultants. Its main product is to offer guidance for their clients. Prospective clients should think about selecting Senior Consulting Services if they seek guidance within their day to day work; if they want to learn about organizations and or-ganizational behaviour, or if they need effective help in steering and managing a project not for doing operative project work.

Student consultancies

Business idea

The roots of consultancies run by students are based in France. Students wanted to con-sult businesses during their studies and apply their theoretical knowledge to real life cases. The driving force was the independent project work. Student Consultancies create a link between practical business and academic education because of the transfer of theoretical knowledge into praxis via real cases and the support of businesses with new and inspiring ideas. The first Student Consultancy was founded in 1967, the first consultancy in Germany in the 1980s. Meanwhile there are more than 80 consultancies in Germany which mostly consist of 20 to 60 consultants. The size of the Student Consultancy is often driven by the size of the university, where the consultancy is located. (Graf et al. 2006, BDSU 2005, James 2005, JCNetwork 2005, Oscar 2005)

Advantages and disadvantages for individual consultants and clients

Students, the members of Student Consultancies, face several advantages and disadvan-tages while working as a consultant. Undoubtedly, the collection of practical experience during the study could be named. Students can meet a challenge, network via the direct link into the economy, gather some skills which are relevant for the consultants job (e.g. social competence), and get trained on several aspects.

Selection of Consultancies Based on the Business Model-Criterion 11

Beneath the several positive aspects, one has to describe the disadvantage as well. Mainly the high priority of the consulting projects has to be named. This situation can be blamed for disregarding the study. There are several reasons for clients to choose student consultancies. One is the good price-performance-ratio. With daily fees of mostly 200-250 per consultant, the client pays only a fraction of the daily fees for classical consultants. Student consultants are of-ten described as unbiased, interdisciplinary, and highly motivated. They reflect actual re-search results and new methods and have broad experience and innovative approaches because of the widespread academic background. These advantages for the clients lead to a situation in which clients perceive Student Consultancies as a pool of high potentials and talented people during recruiting activities. The disadvantage for clients if they engage a student consultancy is the lack of experience of the student consultants and perhaps a constraint with respect to time and availability of the consultants which have to cope with their regularly studying activities.

Areas of engagement

The service offering portfolio of Student Consultancies regularly corresponds with the course portfolio of the university, where the consultancy is settled. However, they often offer a wide range of consulting services. Popular focus points are strategy, research, and IT. Typical engagements of Student Consultancies are sub-projects within larger consulting-projects of the client as well as independent engagements in a smaller financial frame. Projects mostly have a volume of up to 5.000. Student Consultancies have a mixed cli-ent structure. Large corporations give assignments as well as start-ups, medium-sized en-terprises, and universities.

Goal, strategy, business model, and recommendations for selection

The main goal of Student Consultancies is to learn about the economy and to transfer academic knowledge into the business environment. A desirable side-effect is revenue generation and the possibility to cross-finance the study. Strategy of these junior consul-tancies is often to substitute more traditional service companies and to offer a low price high quality work to their clients. Mostly, they focus on mainstream business themes and state of the art methods because of their university roots. Compared to the business model of the classical consultancies, Student Consultancies work with a smaller team size, while their work style is often based on task modulariza-

12 Thomas Deelmann

tion. However, they are often more aware of research activities than classical consultants. Clients should choose Student Consultancies if they have a limited budget and/or do not want to spend enormous daily fees to the established consultants. Clients mostly will find extremely engaged consultants with an affinity towards actual academic trends. They are at times used to work as an elongated workbench within larger projects.

Accountants and tax consultants

Business idea

Historically, Accountants and Tax Consultants were the birthplace of many of the larger business consultancies, e.g. Accenture and BearingPoint. Business and regulatory reasons led to many split-ups of the accounting and consulting divisions in the years 2000-2002. Nowadays, many Accountants and Tax Consultants start to offer consulting services again. Beside the more traditional business areas tax, audit, and assurance more and more advisory services or audit-related consulting services are offered again with re-spect to a higher profit margin. Goal of this integrated service-offering is to work on more holistic solutions for the cli-ents while respecting the legal requirements of lawyers, tax consultants, and accountants. (Heuermann and Herrmann 2003, Deloitte & Touche 2005, Ernst & Young 2005, Price-waterhouseCoopers 2005)

Advantages and disadvantages for individual consultants and clients

While the advantages and disadvantages for individual consultants are very similar to the situation in classical consulting companies and therefore are not further described in this section clients might have to cope with the special situation and the different underlying business model. Surely, one advantage is the co-operation of business consultants, tax consultants, ac-countants, and lawyers. Altogether, they dispose of a multi-layered picture of the client who in turn reduces the danger of narrow-minded recommendations. In addition, the offered combination of services helps clients to fulfil several legal requirements due to the audit-related consulting services. However, many Accountants and Tax Consultants have a more decentralized office structure compared to classical business consultants. Some clients will regard this fact as very desirable.

Selection of Consultancies Based on the Business Model-Criterion 13

On the other hand, clients face some disadvantages while working with audit-related con-sulting service providers. In some times, the linkage to the consultants core business (tax, auditing) is too strong and the consultants mindset is numbers-driven. Additionally, the single service lines of the consultant might want to cross-sell the services of the other lines even if there is no urgent need for using these services. Clients have to act very professional in order to cope with this situation.

Areas of engagement

The service offering portfolio of audit-related consultancies seems to differ seldom from the services offered by classical consultancies. Therefore, only a few keywords describing the portfolio will be listed below:

Process Optimization Performance Improvement, Process Management Crisis Management and turnaround Finance & Controlling Enterprise Applications Due Diligence and M&A-Support IFRS implementation Integrity Services Sarbanes-Oxley 404-Implementation

Goal, strategy, business model, and recommendations for selection

Accountants and Tax Consultants enter the field of business consulting in order to deliver full service advisory to their clients in all business related questions. In addition to this, the consulting activities tend to have higher profit margins than accounting tasks have. There-fore, the strategy tends in many cases towards an enforcement of cross-selling activities around the accountants core business and to adopt an experts role. The business model is very similar to the model of classical consultants. Eventually the leverage between partner and consultants is a little bit larger but also Accountants and Tax Consultants focus strongly on knowledge management and an excellent customer rela-tionship. Clients will do no harm if they choose Accountants and Tax Consultants for general economic topics and if they need support with a very low training period or set-up time. The service provider can turn up trumps because of its legacy knowledge about the clients business.

14 Thomas Deelmann

Internal corporate consultancies

Business idea

Especially larger corporations established Internal Corporate Consultancies during the last years. In the 1990s a number of foundations took place. For the parent companies it is often more cost-efficient to build up an own consulting unit, than to engage external con-sultants on a large scale. In most cases internal and external consultants work together in one way or another. In addition to the cost-related reasons, confidentially aspects and HR development activi-ties are the driving forces for establishing Internal Corporate Consultancies. As part of the same organization clients and consultants can share confidential information and sensitive data more safely. If a parent company wants to entrust their high potentials and young-sters with various tasks in a short timeframe and enforces them with insights in several business functions, an internal consulting unit could serve as a traverse with their various projects to staff (Ebel and Grass 1999, Johri et al. 1989, Hansen et al. 1999, Lacey 1995).

Advantages and disadvantages for individual consultants and clients

Again, there are several advantages and disadvantages for people who want to become an inhouse consultant. First, the Internal Corporate Consultancy offers its consultants inter-esting career perspectives. A lean and flexible management structure especially if com-pared with the parent company opens the early possibility to take leadership positions. The internal character of the consultancy makes the gathering of information often easier than compared with the work within an external consultancy. Finally, in comparison with a prospective entry into an external consultancy, the lesser travel activities are often an advantage for Internal Corporate Consultancies. On the other hand, one might identify some disadvantages especially if compared with the work in an external consultancy. The consulting activities are often industry-specific and while doing consulting work, the ability to get things done could be lower compared with external consultancies. As a third point, members of Internal Corporate Consultan-cies have to ensure that they do not become routine-blinded. One major advantage for the clients of Internal Corporate Consultancies, in most cases the parent company, is the cost reduction. A set-up of an internal consulting unit has eco-nomic advantages if on the other hand, external consulting engagements are reduced. The second advantage goes in line with the following argument: The owner of an Internal Corporate Consultancy is more or less independent from the cyclic ups and downs of the

Selection of Consultancies Based on the Business Model-Criterion 15

external consulting market. In addition to these two more economic advantages, there are operational advantages, too. First, one can anticipate that internal consultants need a shorter set-up time when starting a new project. They are informed about the company structure, the culture, the processes etc. Furthermore, they have better access to informa-tion by other parent company employees because they are colleagues. On the other hand, there are at least two reasons why a client should hesitate to engage Internal Corporate Consultancies. First, they often lack the cross-industry experience compared with classical consultants. The creation of a benchmark might be more difficult, the industry-spanning experience is not available, and the neutral view is hard to get. The insight that, in some cases external consultants are furthermore necessary goes in line with the above mentioned argument. Secondly, the usage of an Internal Corporate Consultancy and external consultants might be a starting point of conflicts concerning the relative po-sition, reputation, and tasks to be done.

Areas of engagement

Many Internal Corporate Consultancies have a similar service offering portfolio compared to external consultancies. Typical projects are in the area of strategy development, busi-ness reengineering, internal services improvement, merger integration etc. Compared with external consultancies, Internal Corporate Consultancies are integrated into a larger organ-izational context, they are limited with respect to size, growth rate, and have slightly dif-ferent leadership guidelines.

Goal, strategy, business model, and recommendations for selection

The business goal of most Internal Corporate Consultancies is to contribute to its parent companies cash out reduction strategy, to support in HR development activities, and to act as a knowledge manager. Therefore, in many cases they have the task to breakeven but not to work profit-oriented. The strategy is determined in substituting external consult-ants, mostly focusing on mainstream topics and to become early adopters with manage-ment trends. However, Internal Corporate Consultancies often support the learning or-ganization. The business models of Internal Corporate Consultancies range from a direct mapping of classical consultancies to project coaches. If the focus is laid on cash-out reduction, the business model copies the external consultant. If the focus is set on HR development activities, the business model consists of more consultants as necessary with respect to the training effects.

16 Thomas Deelmann

Clients should consider the engagement of Internal Corporate Consultancies (supposed the parent company disposes of such an organizational unit) if they seek business support to favourable prices which has state of the art experience. With respect to the organiza-tional environment there might me micro-political reasons as well as those based on com-petitive advantages.

Other organizations with consulting capabilities

Beneath the classical consultancies and the alternative consulting units discussed above, there are some other organizations with consulting capabilities. With respect to the Ger-man consulting market, associations like the Industrie- und Handelskammer, the Bundesverband der Deutschen Industrie, the Rationalisierungs- und Innovationszentrum der Deutschen Industrie might be named. Some times, they have an official field of duty which is to support and consult their members in special tasks. Local and central governments have in many cases special departments for economic de-velopment which are able to give qualified advice to enterprises with questions in certain areas. A separate Inititative Mittelstandsfrderung focuses on small and medium sized compa-nies and tries to encourage the focused companies via a kind of best practice award. The named organizations will not be discussed in more detail with respect to the limited focus on Germany. One might guess that several other European countries had set up similar organizations. However, the common goals, strategies, business models, and rec-ommendations for selection are stated below. Recapitulative, one might say that these organizations fulfill tasks of classical consultancies but are not placing themselves in this area. They have established a grey market for consulting services (IHK 2005, BDI 2005, IM 2005, RKW 2005).

Goal, strategy, business model, and recommendations for selection

The spread of tasks and responsibilities of the above-mentioned organizations makes it a little more difficult to find and describe the typical or ideal grey market consulting or-ganization. However, they mostly offer a service to their members and see themselves as a service provider whose activities are not primarily profit-oriented. The strategy seems to be in focusing on the basics of economical and business-related aspects. They are more followers with respect to management trends than creating trends by themselves.

Selection of Consultancies Based on the Business Model-Criterion 17

The business model differs for each organizational type. But these Other Organizations with Consulting Capabilities comprise about huge and deep intra-industry knowledge. They act with great empathy and communicate responsive to their clients needs. Clients should consider an engagement of this kind of consulting service provider if they have a membership of an organization which offers this service and if they want to be-come excellent value for money with respect to certain tasks. Also, they can expect con-sultants with a sense of the clients needs.

Conclusion

Beneath the more classical consultancies (e.g. McKinsey & Company, Roland Berger Strategy Consultants, The Boston Consulting Group), a group of more alternative consul-tancies has established itself. However, the second group lacks the media attention and awareness within the businesses of the classical consultants. A differentiation of the vari-ous business models might sharpen the differences, enhance the awareness, and steer and influence the usage. This article first introduced the business model as a (visual) tool for analyzing businesses. In a second step, several of the consulting organizations, which serve as direct or indirect competitors for the classical consultancies, were introduced. Therewith, it was aim of this article to close the identified lack of knowledge. In detail, Senior Consulting Services, Student Consultancies, Accountants and Tax Con-sultants, and Internal Corporate Consultancies were investigated in more detail. The un-derlying business idea was presented, advantages and disadvantages of working for/with the type of consultancy discussed, and typical areas of engagement depicted. For all con-sulting units, their goals, strategy, business model, and typical selection behaviour were briefly pointed out. As a result, it can be stated, that the more alternative consulting business models show advantages as well as disadvantages for their prospective clients. However, in many areas they might serve as an alternative to the classical consultancies even if they are today mostly unconsidered by media, public and clients.

References

ASEP (2005), Austrian Senior Experts Pool, www.asep.at, last visit at 2005-12-05. BDI (2005), Bundesverband der Deutschen Industrie e.V., www.bdi-online.de, last visit at 2005-

12-05.

18 Thomas Deelmann

BDSU (2005), Bundesverband Deutscher Studentischer Unternehmensberatungen e.V., last visit at 2005-12-05.

Consenec (2005), Consenec Consulting by Senior Executives, www.consenec.ch, last visited at 2005-12-05.

Cope, M. (2001), Consulting mit System, Financial Times Prentice Hall, Munich. Deelmann, T. and Loos, P. (2004), Vorschlag zur grafischen Reprsentation von Ge-

schftsmodellen, Working Papers of the Research Group Information Systems & Manage-ment, paper 14, Mainz, Germany 2004.

Deelmann, T. and Petmecky, A. (2005), Optionenraum fr Geschftsmodell, Strategie, Aufbau- und Ablauforganisation einer Unternehmensberatung in: Petmecky, A. and Deelmann, T. (eds.), Arbeiten mit Managementberatern Bausteine fr eine erfolgreiche Zusammenarbeit, Springer, Berlin et al., pp. 245-255.

Deloitte & Touche (2005), Deloitte & Touche GmbH, www.deloitte.com, last visit 2005-12-05.

Ebel, B. and Grass, B. (1999), Inhouse Consulting: Gefahr fr die Branche? Unter-suchung Inhouse Consulting (III), Management-Berater, vol. 3 no. 6, pp. 33-34.

Ernst & Young (2005), Ernst & Young GmbH, www.ey.com, last visit 2005-12-05. Graf, V.; Vokamp, D.; Hagen, T.; Bergenthal, T. and Hesse, M. (2006), Studentische

Unternehmensberatung Uni und Beratung im Doppelpack, Wirtschaftsinformatik, vol. 48, no. 2, pp. 143-146.

Hansen, M. T.; Nohria, N. and Thierney, T. (1999), Whats your strategy for managing knowledge?, Harvard Business Review, March, pp. 106-116.

Heuermann, R. and Herrmann, F. (2003), Unternehmensberatung: Anatomie und Perspektiven einer Dienstleistungselite - Fakten und Meinungen fr Kunden, Berater und Beobachter der Bran-che. Vahlen, Munich.

IHK (2005), Deutscher Industrie- und Handelskammertag, www.ihk.de, last visit 2005-12-05. IM (2005), Initiative Mittelstandsfrderung, www.mittelstandsfoerderung2005.de, last visit at

2005-12-05. James (2005), james consulting GmbH, www.james-consulting.de, last visit 2005-12-05. JCNetwork (2005), Junior Consultants Network, www.jcnetwork.de, last visit 2005-12-05. Johri, H. P.; Cooper, C. J. and Prokopenko, J. (1998), Managing Internal Consulting Or-

ganizations: A New Paradigm, SAM Advanced Mgmt. Journal, pp. 4-10. Lacey, M. Y. (1995), Internal Consulting: Perspectives on the Process of Planned

Change, Journal of Organizational Change Management, vol. 8 no. 3, pp. 75-84. Maister, D. H. (1982), Balancing the Professional Service Firm, Sloan Management Review,

Fall, pp. 15-29. Niedereichholz, C. (1997a), Unternehmensberatung Band 1: Beratungsmarketing und Auftrags-

akquisition, Oldenbourg, Munich et al.

Selection of Consultancies Based on the Business Model-Criterion 19

Niedereichholz, C. (1997b), Unternehmensberatung Band 2: Auftragsdurchfhrung und Quali-ttssicherung, Oldenbourg, Munich et al.

Oscar (2005), Oscar GmbH, www.oscar.de, last visit 2005-12-05. PricewaterhouseCoopers (2005), PricewaterhouseCoopers AG, www.pwc.de, last visit 2005-

12-05. RKW (2005), Rationalisierungs- und Innovationszentrum der Deutschen Wirtschaft e.V.,

www.rkw.de, last visit at 2005-12-05. SES (2005), Senior Experten Service, www.ses-bonn.de, last visit at 2005-12-05. Scheer, Chr.; Deelmann, T. and Loos, P. (2003), Geschftsmodelle und internetbasierte

Geschftsmodelle Begriffsbestimmung und Teilnehmermodelle, Working Papers of the Research Group Information Systems & Management, paper 12, Mainz, Germany 2003.

Smith, B. and Smith, D. (2003), The Global Consulting Marketplace 2003: Key Data, Forecasts & Trends, in Kennedy Information, Inc. (ed.), Market Intelligence, Peter-borough, New Hampshire, USA.

Walter, E. and Deelmann, T. (2005), Der andere Beratungsmarkt in Deutschland, Schriften zur Unternehmensberatung, vol. 5, 2005.

Why do Clients Work with Management Consultants?

An Empirical Analysis

Sandra Niewiem, Ansgar Richter

Introduction

Management consultants are an important feature of todays economy. With more than 315,000 consultants in Europe alone (FEACO 2004), the industry is of significant size. Almost no large-scale organization throughout the private and public sectors does not procure the services of external advisors. Although the empirical evidence attests to the importance of management consultants, it is not entirely clear under which circumstances clients buy services from external consult-ants, rather than to use their own internal resources for the initiation and execution of management projects. Even those organizations that have set up in-house consulting units or similar project organizations often continue to involve external consultants in their projects. Clients reliance on the services of outside advisors is particularly puzzling because con-tracting and cooperating with consultants is beset with risks and difficulties (Clark 1995). For example, due to the nature of consulting services as credence and experience-intensive services, choosing the right consultants ex ante and controlling them ex post can be challenging (Mitchell 1994). There are few established principles and guidelines for procuring consultants services, in particular as top industry players have resisted the es-tablishment and enforcement of universal quality standards, minimum qualification levels, codes of conduct, and so on. Kieser and his co-authors (Kieser 1999; Ernst and Kieser 2002) have argued that due to the lack of objective performance criteria, clients resort to satisfaction measures that emphasize procedural aspects for assessing their consultants work, if they do so at all. In addition, following a series of high-profile scandals involving consultants and the publication of a large number of books that shed critical light on their work (e.g. Pinault 2000; Hochhuth 2003), clients have reason to be sceptical about exter-nal consultants. Against this background, the purpose of this chapter is to analyze clients decisions in favor of or against the involvement of external consultants in management projects. As indicated above, with respect to most projects, clients have at least two and frequently more than two alternative options for executing them. They can either carry them out

22 Sandra Niewiem, Ansgar Richter

through their own line or staff management, or rely on outside consultants (Furusten and Werr 2005). These two alternatives mark the extremes of an entire spectrum of options that may also include, for example, the involvement of an in-house consulting arm or dedicated project unit. Even if clients choose to involve outside consultants, different forms and degrees of involvement may be possible, as indicated by measures (such as the proportion of a project team that is constituted by external consultants), or the location of consultants team (on the clients premises or out of house). Our aim is to identify the conditions under which clients choose a more internal versus a more external rela-tionship. The theoretical framework on which we base the empirical analysis is the trans-action cost economic theory in which the distinction between markets and hierar-chies as two alternative forms of organizing economic activity was first developed (Wil-liamson 1975). The empirical data on which the chapter draws was generated through a series of over 41 interviews with executives of 34 client firms, which covered a total of 86 management projects. Our research design combined deductive and exploratory elements.

Theoretical framework

Management consulting can be defined as the process of advice and assistance rendered by a consultant to a client on matters of business administration (Kubr 2002). In many cases, the use of consulting services involves a joint effort, a co-production of clients and consultants based on a intimate relationship. We focus on the intensity or closeness of this relationship from the client perspective. Figure 1 provides an overview of five options for the execution of project activities (with plenty of space in between these options). Clients may either decide to use internal resources from their units in order to carry out particular projects. Alternatively, they may involve in-house or external consultants for this purpose. Furthermore, they may influence factors that affect the intensity of the rela-tionship between the client organization and the consulting team, such as the exact com-position of the team and its primary working location. The standard framework for analyzing alternative contractual arrangements for carrying out economic activity is the transaction cost economic (TCE) theory developed by Oliver Williamson (1975; 1985; 1989; 1996), drawing on the groundbreaking work of Ronald Coase on The Nature of the Firm (1937). Coase analyzed why many economic activities are integrated in firms, rather than to be carried out via market transactions among independ-ent actors. He argued that vertically integrated firms may have advantages, as markets carried inefficiencies in the form of transaction costs, such as search and screening effort as well as the cost of monitoring contracts. On the other hand, vertical integration may also carry costs, e.g. in terms of administration and internal monitoring costs. Therefore,

Why do Clients Work with Management Consultants? An Empirical Analysis 23

from an efficiency perspective, economic activities will be integrated into a firm as long as the benefits associated with the integration exceed its costs.

Managerial activity

Project activity

Regular activity

External consultants

In-house consultants

With the involvement of

consultants

Without the involvement of

consultants

Internal re-sources (Mana-gers/employees)

Unique Time-limited Under particu-

lar conditions only, e.g. high complexity

Recurrent On-going Under normal

conditions

Organization of managerial activity Competencies/resources ContractTeam setting/

activity/ownership

Primarily consultants

Primarily inter-nal resources

Primarily consultants

Primarily inter-nal resources

Solely internal resources

Fig. 1. Managerial Projects and the Contractual Relationship Between Clients and Consultants

According to Williamson, transaction costs arise as a result of three classes of conditions under which economic activity takes place. First, economic actors are subject to behav-ioral conditions, specifically, bounded rationality and opportunism. Second, economic activity occurs under general environmental conditions, namely uncertainty and complex-ity. Third, contractual relationships themselves are characterized by phenomena such as relationship specific investments between two or more parties, namely asset specificity. Empirical tests of transaction cost economics have largely focused on asset specificity as a major determinant of vertical integration, and confirmed its importrance (see Boerner and Macher 2001; Lohtia et al. 1994). Some other hypotheses that can be derived from the TCE framework have not found clear empirical support. In addition, the empirical re-search on TCE has largely focused on industries involved in the production and distribu-tion of physical goods. Relatively few studies so far have tested transaction cost economic predictions in the context of professional service industries. On a conceptual level, however, various authors in particular Canbck (1998, 1999) have applied institutional economics (a group of economic theories that includes TCE) to address the question why the provision of management advice is often outsourced by

24 Sandra Niewiem, Ansgar Richter

clients to external specialists. Dedicated management consulting firms, they argue, have developed mechanisms to keep the transaction costs of clients within reasonable levels, while exploiting economies-of-scale properties of information, knowledge and experience more fully than individual clients could. The purpose of this chapter is not to discuss the conceptual strengths and weaknesses of the institutional economics approach to the exis-tence of consulting firms. In contrast, we provide empirical evidence with respect to core propositions that can be derived from the application of TCE to clients choices among alternative options for carrying out particular projects. The results provide in-depth in-sights into the factors that drive the decisions of managers in favor of or against procuring services from external management consultants.

Empirical study

Information sources

We conducted semi-structured, personal interviews with decision-makers in 34 compa-nies. Two considerations led us to choose the interview method as our primary data gen-eration approach. First, interviews provided us access to information on client choices regarding the execution of management projects, which is not easily available otherwise. Second, the personal settings of the interviews enabled us to explore potentially sensitive issues, which clients might have been hesitant to divulge in questionnaires. In contrast to most prior studies on TCE, our interviews focused on clients in the German-speaking region of Germany, Austria and Switzerland. Two thirds of the firms in our sample had their headquarters within Germany. The sample of companies included large, for-profit firms from 16 industries. We excluded non-profit and public organizations because contractual choices in these entities tend to differ from those taken in business enterprises due to lower efficiency pressures. Nine of the companies in the sample had an in-house consulting unit. We conducted interviews with experienced executives from 34 companies who were in-volved in and had at least partial responsibility for making decisions for the execution of managerial projects. In total, 41 executives were interviewed, yielding a reasonably large sample size (e.g. Dwyer 1980). We expected our interview partners to have taken part in decisions regarding the in-volvement of external consultants or internal resources with respect to at least five pro-jects, and received confirmation that they met this minimum threshold. They included

Why do Clients Work with Management Consultants? An Empirical Analysis 25

several top managers (members of the management boards), but also members of the corporate strategy/development and the purchasing departments of the firms involved. All interviewees held at least a university degree. Interestingly, about half of them had worked in consulting at an earlier stage of their careers.

Interview focus

We asked our interviewees to review with us one or more recent managerial projects which they had been responsible for defining how and with whom the project should be carried out. We then discussed the nature of each project and the process through which they had decided as to how it should be executed, using a semi-structured interview guide. In total, we were able to discuss 86 managerial projects, which constitute the primary da-tabase of our study. For each of the 86 cases, we covered the entire decision-making process, from the first idea of setting up a project until the final choice. Therefore, our study was based on real (experienced) rather than on hypothetical scenarios or the mere opinions of our interview partners. We were interested in the context in which they made their decisions, rather than what they saw as the reasons for these decisions. The 86 projects were characterized in four generic functions. The clear majority of pro-jects (41 per cent) were either in operations (including supply chain management), or in strategy (36 per cent). The third largest segment (18 per cent) contained projects related to IT, e.g. systems integration. Four projects (almost five per cent) were in HR, e.g. the de-velopment of a qualification program.

Data analysis

Existing empirical studies on TCE largely rely on quantitative methods such as regression techniques, although some researchers complement quantitative with qualitative methods of analysis (Muris et al. 1992). Qualitative research on TCE is largely dominated by case explorations, despite the problems associated with this approach (Bronner et al. 1999; Eisenhardt 1989b). In contrast to these approaches, we used content analysis as our primary analytical ap-proach. Content analysis is used across academic disciplines for multiple types of commu-nication such as verbal and non-verbal information, figurative and textual formats, dis-tributed by individual and collective media (Schnell 1999). Most authors consider content analysis to be a qualitative technique, despite its focus on the quantification of data (Frie-drichs 1980).

26 Sandra Niewiem, Ansgar Richter

We applied two basic types of content analysis in this study, namely conceptual analysis and relational analysis. Conceptual analysis aims at furnishing evidence on the empirical basis of particular con-structs represented by words or sentences. It involves quantifying the presence of meas-ures with a focus on the occurrence of selected terms stated by the interviewees, explicitly as well as implicitly. By means of extensive coding of data, exploration and validation of constructs, we established the descriptive body of our analysis. Interview passages were allocated to so-called content categories and frequency counts were used to assess the importance of these categories. Relational analysis seeks to explore the relationships among different constructs. We used relational analysis in order to analyze any potential associations between the extent to which consultants were involved in project work and a battery of independent variables. In order to assess the statistical significance of the relationships uncovered, we conducted a series of statistical tests including chi-square tests and tests on the significance of the correlation coefficients. Content analysis has undergone massive growth and sophistication with the advent of computer-based software and tools, most of which are variations of the The General En-quirer, a computer program designed in the 1960s to electronically manipulate textual ma-terial (Bouchard 1976). We used NVivo, a software for the analysis of qualitative data, specifically large-scale datasets (see Figure 2). The program combines subtle coding with qualitative linking and modeling, and provides some of the most advanced tools available at present, such as manipulating multimedia data records, search and data access, coding and annotating, management and synthesis of ideas as well as results reporting and visu-alization. Using NVivo added speed and rigor to the analytical process.

Why do Clients Work with Management Consultants? An Empirical Analysis 27

Fig. 2. Content analysis with NVivo Software Screenshot

For quantitative analyses exceeding the scope of NVivos capabilities, we used a statistical software package (STATA). These techniques helped to ensure that initial impressions and theoretical ideas were validated by rich sets of qualitative and quantitative evidence. Compared to traditional qualitative research, such as case explorations, the results of this study should be, therefore, characterized by a high degree of reliability and validity, being grounded on a rigorous and systematic analytical process.

Results

Results of the conceptual analysis

Table 1 provides frequency counts for three constructs developed using content analysis, which describe the extent to which consultants were involved in the projects under inves-tigation. The primary dependent variable (contractual spectrum) was initially specified as part of the deductive research phase, while the two secondary dependent variables (team composition and project location) were developed inductively during the analysis. While the entire sample of 86 projects was included to investigate the contractual spectrum variable, only the subset of those 64 projects that were carried out at least in part by external consultants was used to analyze the two other measures.

28 Sandra Niewiem, Ansgar Richter

Table 1. Results for Primary and Secondary Dependent Variables

Measures and attributes (N = 86 projects) Number of projects per cent of projects Contractual spectrum (primary dependent variable)

External consultants, contracted for the first time External consultants, loose relationship External consultants, strong relationship In-house consultants Managers/employees (no consultants involved)

86 14 19 31

8 14

100.0% 16.3% 22.1% 36.3%

9.3% 16.3%

Team composition (secondary dependent variable)

Mixed client-consultant team Pure consultant team

64 49 15

100.0% 76.6% 23.4%

Project location (secondary dependent variable)

On site (clients premises) Off site (consultants office)

64 51 13

100.0% 79.7% 20.3%

Total number of projects 86 100.0% The contractual spectrum variable is of an ordinal nature. It ranges from the integration option, the internal provision of a managerial project, to a market solution, i.e. the pro-curement of project services from external consultants with whom the client concerned did not have a prior relationship. The category external consultants, contracted for the first time includes all projects carried out by outside consultancies, which at the time of the deci-sion, had not worked before for the client organization concerned. 14 out of the total of 86 projects fell into this category. The category external consultants, loose relationship in-cludes those projects carried out by outside consulting firms, with which the client con-cerned had worked before, but no more than three times. Consequently, the relationship between the client and the consulting firm was not very close. Nevertheless, our data show that the consulting firm was typically engaged on the basis of internal references, rather than a formal tender process. 19 of the 86 projects fell into this category. The largest group of projects (31 out of the total of 86) fell into the category entitled ex-ternal consultants, strong relationship. This category includes all projects carried out in co-operation with an outside consultancy that has maintained a long, continuous engagement history with the client concerned. In some cases, the relationship was supported by framework agreements. Another indicator for the closeness of the relationship was the existence of an intimate, trustful bond between the key stakeholders of a client firm such as board members and senior consultants. In many cases, our interview partners talked about their preferred consultant. The category entitled in-house consultants includes all projects carried out by internal con-sulting units operated by a client firm. Of the 86 projects investigated, eight cases fell into this category.

Why do Clients Work with Management Consultants? An Empirical Analysis 29

The group Managers/employees includes those projects carried out without the assistance of outside or in-house consultants, but rather by members of the staff or line organization of the client firm (14 projects). We draw two conclusions from the frequency counts presented above with respect to the contractual spectrum variable. First, the clients we interviewed had a clear preference for cooperating with external con-sultants with whom they had an established relationship, rather than with providers of consulting services with whom they had not worked with before. Of the 64 projects car-ried out with the help of outside consultants, fifty (78 percent) were carried out by con-sulting firms with whom clients had worked together before, at least on an occasional basis. In general, clients were open to considering consultants with whom they had not cooperated before, and reported that they did engage in cherry picking among new pro-viders of consulting services on an occasional basis. Some of them even reported that they had become more selective and that they were more prepared to switch than they had been in the past. Nevertheless, when making decisions about which consultant to engage for particular projects, in the clear majority of cases clients still decided in favor of those players with whom a long-standing working relationship existed. Clients sought to estab-lish long-lasting partnerships and tended to contract with consultants whom they knew on a personal basis. Second, for many clients the in-house consulting unit did not appear to constitute a viable alternative to the co-operation with external providers of consulting services. These nine firms in our sample that operated an in-house consultancy carried out a total of 29 of the projects contained in our sample. Of these 29 projects, two thirds (19) were carried out by or in co-operation with external consultants, eight by the in-house consulting units, and two by internal line or staff managers. In other words, even in situations where the option of working with in-house consultants unit existed, clients tended to prefer outside con-sultants. Our data suggest that procuring services from an in-house consulting unit pri-marily serves as a substitute for the services of internal staff or line managers, rather than for external consultants. In terms of their decision-making process as to how to carry out a particular project, cli-ents first and foremost decisions concerned the question of whether or not to procure the services of an external consulting firm. Once this decision was made, only then, as a secondary step, did clients address the question of whether managers in line or staff func-tions, or members of an in-house consulting unit should provide the internal resources required for the execution of the project. In the perception of those clients who did have

30 Sandra Niewiem, Ansgar Richter

an in-house consulting unit, the in-house consultants were considered similar to internal line or staff managers, rather than as external consultants. With respect to the composition of consulting teams that they retain, clients may choose between a pure consultant team and a mixed team structure, consisting of both consultants and client representatives. Mixed client-consultant teams are typically characterized by a per-sonal and close interaction between internal and external team members, e.g. through regular work meetings and shared responsibilities, whereas retaining a pure consultant team indicates a more distanced relationship between the client and the consultants con-cerned. The active involvement of members of both the consulting and the client organi-zation in a single team is a sign of close co-operation in which the boundaries between the two organizations may easily blur. According to the data, mixed client-consultant teams were chosen significantly more often than pure consultant teams. In 77 per cent of all projects carried out with the help of out-side consultants, members of the client organization were active members of the team. Only 15 projects in the sample were carried out by pure consultant teams. The location of a consulting team serves as a further indicator of the closeness of the rela-tionship between clients and consultants. In many instances, clients provide office space on their premises to a team of external consultants. In other cases, the consultants may work from their own offices, and only visit the clients premises for the purpose of meet-ings and presentations. The choice between these two modes of operation is often driven by the nature of the consulting project, the question of whether the consulting firm main-tains an office close to a client, and the composition of the consulting team. On the other hand, the regular presence of a team of external consultants on the clients premises sup-ports the development of a close relationship between members of the client organization and the consulting firm, even if that presence would not strictly be necessary for practical reasons. As can be seen in Table 1, 51 of the 64 projects carried out with the support of external consultants (80 per cent) could broadly be categorized as on-site projects, whereas only 13 projects (20 per cent) were conducted off-site. Our data suggest that ex-ternal consultants usually provide their services on the premises of their clients, which may further blur the (already indistinctive) boundaries between the consultant and the client organization. In order to investigate the relationship between team setting and project location, we cross-tabulated the data and performed two statistical tests of association. The results reported in Table 2 reveal that, in line with our expectations, the two variables were strongly asso-

Why do Clients Work with Management Consultants? An Empirical Analysis 31

ciated with one another. Projects carried out on the clients premises were often run by mixed client-consultant teams, whereas pure consultant teams often worked off-site.

Table 2. Cross-tabulation of Results of the Secondary Dependent Variables

Project location On site Off site Team/project settings

# % # %

Total number of

projects Mixed client-consultant teams 46 93.9% 3 6.1% 49Pure consultant teams 5 33.3% 10 66.7% 15Total 51 80.0% 13 20.0% 64Pearsons 2 (1) = 26.00 p = 0.000 Spearman's R = 0.64 p = 0.000

Overall, our findings provide evidence for the closeness of the relationship between ex-ternal consultants and clients. Our interview partners favored consultants with whom they had already established working relationships over those with whom they did not have any prior contact. Their relationships were reinforced by the fact that consultants and managers often worked together in mixed teams, and that external consultants often maintained a presence on their clients premises during the project.

Results of the relational analysis

According to the results presented in the previous section, almost three quarters of the 86 projects discussed with our interview partners had been carried out with the involvement of external consultants. The purpose of this section is to identify the conditions under which our interview partners decided to procure the services of external consultants, rather than to use internal resources. Table 3 provides an overview of 18 conditions that we identified as influencing clients decisions as to whether they procured project services from external or internal providers. We evaluate the strength of the influence of these conditions on the choice variable, dis-tinguishing between moderate, strong and very strong influence. The evaluation is based on a three-step process. First, we counted the number of project scenarios in which a particular condition had been mentioned at all by our interview partners. Second, we cross-tabulated each individual condition with the contractual spectrum variable. We analyzed these cross-tabulation tables in order to determine whether any particular condition influ-enced the contractual spectrum variable in a consistent way. If a condition was associated with the contractual spectrum variable in a consistent direction in more than 75 per cent of all cases, we judged the relationship between the condition and the contractual choice vari-able to be very strong. A relationship was labeled strong if the condition concerned was associated with the contractual spectrum variable in 51 to 75 per cent of all cases, and

32 Sandra Niewiem, Ansgar Richter

moderate if the two variables were associated in 26 to 50 per cent of all cases. Third, we used statistical tests of association in order to further validate the results of the cross-tabulation. We analyzed a total of 61 conditions with respect to any potential associations with the contractual choice variable. Of these, we found the 18 conditions listed in Table 3 to be at least moderately strongly associated with the contractual choice variable. For ease of pres-entation, these 18 conditions are grouped into nine categories in Table 3. The results presented in Table 3 suggest that our interview partners decided to procure services from external consultants primarily in three types of situations. First, they in-volved external consultants in projects that required functional or industry knowled