Management Consulting

96B09_93_engl
MANAGEMENT
I .CONSULTING
A G U I D E T O T H E P R O F E S S I O N
Edited by MILAN KUBR
INTERNATIONAL LABOUR OFFICE GENEVA

Copyright O International Labour Organization 1996
First published 1976
Third edition 1996
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Kubr, M. (ed.)
Management consulting: A guide to the profession (third edition)
Geneva, International Labour Office, 1996
/Guide/, Management consultancyl,Management consultant/. 12.04.1
ISBN 92-2-109449-9
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CONTENTS
Authors and acknowledgements . ........................... xv

Foreword ........................................ XVII
Part I Management consul ti^ in perspective
Chapter 1 Nature and purpose of management consulting . . . . . . . . . . . .

1.1 Definition: What is consulting? . . . . . . . . . . . . . . . . . . . . . .
1.2 Why are consultants used: Five generic purposes . . . . . . . . . . . .
1.3 How are consultants used: Ten principal ways . . . . . . . . . . . . . .
1.4 Fundamentals of the consulting approach . . . . . . . . . . . . . . . .
Chapter 2 Range and scope of consulting services . . . . . . . . . . . . . . . .

2.1 A historical perspective . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Range of services provided . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Generalists and specialists . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Main types of consulting organization . . . . . . . . . . . . . . . . . .
2.5 Internal consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.6 Management consulting and other professions . . . . . . . . . . . . . .
2.7 Management consulting. training and research . . . . . . . . . . . . . .
Chapter 3 The consultant-client relationship . . . . . . . . . . . . . . . . . . .
3.1 Defining expectations and roles . . . . . . . . . . . . . . . . . . . . . .
3.2 A collaborative relationship . . . . . . . . . . . . . . . . . . . . . . . .
3.3 The client system . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Behavioural roles of the consultant . . . . . . . . . . . . . . . . . . . .
3.5 Further refinement of the role concept . . . . . . . . . . . . . . . . . .
3.6 Methods of influencing the client system . . . . . . . . . . . . . . . . .
3.7 Counselling as a tool of consulting . . . . . . . . . . . . . . . . . . . .
Chapter 4 Consulting and change . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1 Understanding the nature of change . . . . . . . . . . . . . . . . . . .
4.2 How organizations approach change . . . . . . . . . . . . . . . . . . .
Management consulting
4.3 Gaining support for change . . . . . . . . . . . . . . . . . . . . . . . .

4.4 Managing conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.5 Structural arrangements and intervention:; for assisting change . . . . . .
Chapter 5 Consulting and culture .........................

5.1 Understanding and respecting culture . . . . . . . . . . . . . . . . .
5.2 Levels of culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.3 Facing culture in consulting assignments . . . . . . . . . . . . . . . . .
Chapter 6 Professionalism and ethics in consulting ................

6.1 Defining a profession . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 The professional approach . . . . . . . . . . . . . . . . . . . . . . . .
6.3 Professional associations and codes of conduct . . . . . . . . . . . . . .
6.4 Certification and licensing . . . . . . . . . . . . . . . . . . . . . . . .
6.5 Legal liability and professional responsibility of management consultants
Wlt I1 'Ihe consulting process
Chapter 7 Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1 Initial contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Preliminary problem diagnosis . . . . . . . . . . . . . . . . . . . . . .
7.3 Terms of reference . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4 Assignment strategy and plan . . . . . . . . . . . . . . . . . . . . . .
7.5 Proposal to the client . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.6 The consulting contract . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 8 Diagnosis .................................

8.1 Conceptual framework of diagnosis ....... . . ..........
8.2 Diagnosing purposes and problems ....... . . ..........
8.3 Defining necessary facts . . . . . . ....... . . ..........
8.4 Sources and ways of obtaining facts ....... . . .........
8.5 Fact analysis . . . . . . . . . . . . ....... . . ..........
8.6 Feedback to the client . . . . . . . ....... . . ..........
Chapter 9 Action planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1 Searching for ideas on possible solutions . . . . . . . . . . . . . . . . .
9.2 Developing and evaluating alternatives ................
9.3 Presenting action proposals to the client . . . . . . . . . . . . . . . . . .
Chapter 10 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1 The consultant's role in implementation . . . . . . . . . . . . . . . . .
10.2 Planning and monitoring implementation . . . . . . . . . . . . . . . .
10.3 Training and developing client staff . . . . . . . . . . . . . . . . . . .
10.4 Some tactical guidelines for introducing #changesin work methods . . .
10.5 Maintenance and control of the new prac-ice . . . . . . . . . . . . . . .
Contents
Chapter 11 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1 Time for withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.2 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.3 Follow-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.4 Final reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part Ill Consulting in various m a s of management
Chapter 12 Consulting in general and strategic management . . . . . . . . . . .

12.1 Nature and scope of consulting in corporate strategy
and general management . . . . . . . . . . . . . . . . . . . . . . . . .
12.2 Corporate strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3 Processes, systems and structures . . . . . . . . . . . . . . . . . . . . .
12.4 Corporate culture and management style . . . . . . . . . . . . . . . . .
12.5 Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 13 Consulting in financial management ..................

13.1 Financial appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.2 Working capital and liquidity management . . . . . . . . . . . . . . . .
13.3 Capital structure and the financial markets . . . . . . . . . . . . . . . .
13.4 Mergers and acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
13.5 Finance and operations: Capital investment analysis . . . . . . . . . . .
13.6 Accounting systems and budgetary control . . . . . . . . . . . . . . . .
13.7 Financial management under inflation . . . . . . . . . . . . . . . . . .
13.8 Cross-border operations and the use of external financial markets . . .
Chapter 14 Consulting in marketing and distribution management . . . . . . .

14.1 The marketing strategy level . . . . . . . . . . . . . . . . . . . . . . .
14.2 Marketing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.3 Consulting in commercial enterprises . . . . . . . . . . . . . . . . . .
14.4 International marketing . . . . . . . . . . . . . . . . . . . . . . . . . .
14.5 Physical distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.6 Public relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 15 Consulting in production management . . . . . . . . . . . . . . . . .

15.1 Basic choices in the production area . . . . . . . . . . . . . . . . . . .
15.2 The product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.3 Methods and organization of production . . . . . . . . . . . . . . . . .
15.4 The human aspects of production . . . . . . . . . . . . . . . . . . . . .
Chapter 16 Consulting in human resource management . .............

16.1 The changing nature of the personnel function . . . . . . . . . . . . . .
16.2 Policies. practices and the human resource audit . . . . . . . . . . . . .
16.3 Human resource planning . . . . . . . . . . . . . . . . . . . . . . . . .
16.4 Recruitment and selection . . . . . . . . . . . . . . . . . . . . . . . . .
16.5 Motivation and remuneration . . . . . . . . . . . . . . . . . . . . . . .
16.6 Human resource development . . . . . . . . . . . . . . . . . . . . . . .

16.7 Labour-management relations . . . . . . . . . . . . . . . . . . . . . . .
16.8 New areas and issues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 17 Consulting in information technology . . . . . . . . . . . . . . . . . .
17.1 ThechangedroleofIT . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.2 The impact on management thinking . . . . . . . . . . . . . . . . . . .
17.3 The requirements for consulting . . . . . . . . . . . . . . . . . . . . . .
17.4 The range of services provided . . . . . . . . . . . . . . . . . . . . . . .
17.5 The providers of consultancy . . . . . . . . . . . . . . . . . . . . . . . .
17.6 Selecting an IT consultancy . . . . . . . . . . . . . . . . . . . . . . . .
17.7 Making effective use of consultants in the IT area . . . . . . . . . . . .
Chapter 18 Consulting in small-business management . . . . . . . . . . . . . . .
18.1 Characteristics of small enterprises . . . . . . . . . . . . . . . . . . .
18.2 The role and profile of the consultant . . . . . . . . . . . . . . . . . .
18.3 Consulting assignments in the life-cycle of an enterprise . . . . . . . . .
18.4 Areas of special concern . . . . . . . . . . . . . . . . . . . . . . . . . .
18.5 Consulting in policy development . . . . . . . . . . . . . . . . . . . . .
18.6 Innovations in small business consulting . . . . . . . . . . . . . . . . .
Chapter 19 Consulting for the informal sector . . . . . . . . . . . . . . . . . . . .
19.1 What is different about micro-enterprises? . . . . . . . . . . . . . . . .
19.2 Management problems of informal sector entrepreneurs . . . . . . . . .
19.3 The special skills of micro-enterprise consultants . . . . . . . . . . . . .
19.4 Outreach to micro-enterprises in the info~malsector . . . . . . . . . . .
Chapter 20 Consulting for the public sector . . . . . . . . . . . . . . . . . . . . .
20.1 Current trends and challenges . . . . . . . . . . . . . . . . . . . . . . .
20.2 Programme responses . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.3 The public sector environment . . . . . . . . . . . . . . . . . . . . . . .
20.4 Success factors for consulting to the public sector . . . . . . . . . . . .
20.5 Special areas of consulting . . . . . . . . . . . . . . . . . . . . . . . . .
20.6 Future perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 21 Consulting in privatization . . . . . . . . . . . . . . . . . . . . . . .
21.1 The principal clients . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.2 Profiles of privatization advisers . . . . . . . . . . . . . . . . . . . . .
21.3 Selection of consultants and contracts . . . . . . . . . . . . . . . . .
21.4 The consultant's tasks in a typical privatization process . . . . . . . . .
21.5 Issues and risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.6 Post-privatization consulting . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 22 Consulting for productivity and performance improvement . . . . .
22.1 A short history of productivity consulting .................
22.2 Measuring and analysing productivity and performance . . . . . . . . .
22.3 Designing and implementing productivit:~and performance
improvement programmes . . . . . . . . . . . . . . . . . . . . . . . . .
Contents
Wlt IV Managing a comulting firm
Chapter 23 Fundamentals of consulting firm management . . . . . . . . . . . .

23.1 The management challenge of the professions . . . . . . . . . . . . . .
23.2 Managing a professional service . . . . . . . . . . . . . . . . . . . . .
23.3 Managing a professional business . . . . . . . . . . . . . . . . . . . . .
23.4 The management matrix . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 24 The consulting firm's strategy ..............

24.1 A strategic approach . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.2 Services and products . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.3 The client base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.4 Growth and expansion . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.5 Going international . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.6 Profile and image of the firm . . . . . . . . . . . . . . . . . . . . . . .
24.7 Strategic management in practice .....................
Chapter 25 Marketing of consulting services . . . . . . . . . . . . . . . . . . . .
25.1 The marketing approach in consulting . . . . . . . . . . . . . . . . . .
25.2 A client's perspective . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.3 Techniques for marketing the consulting firm . . . . . . . . . . . . . .
25.4 Techniques for marketing consulting assignments . . . . . . . . . . . .
25.5 Marketing to existing clients . . . . . . . . . . . . . . . . . . . . . . .
25.6 Managing the marketing process . . . . . . . . . . . . . . . . . . . . .
Chapter 26 Costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26.1 Income-generating activities . . . . . . . . . . . . . . . . . . . . . . .
26.2 Costing chargeable services . . . . . . . . . . . . . . . . . . . . . . . .
26.3 Marketing-policy considerations . . . . . . . . . . . . . . . . . . . . .
26.4 Principal fee-setting methods . . . . . . . . . . . . . . . . . . . . . . .
26.5 Fair play in fee-setting and billing . . . . . . . . . . . . . . . . . . . .
26.6 Towards value billing . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.7 Costing and pricing an assignment . . . . . . . . . . . . . . . . . . . .
26.8 Billing clients and collecting fees . . . . . . . . . . . . . . . . . . . . .
Chapter 27 Assignment management . . . . . . . . . . . . . . . . . . . . . . . .

27.1 Structuring and scheduling an assignment . . . . . . . . . . . . . . . .
27.2 Preparing for an assignment . . . . . . . . . . . . . . . . . . . . . . . .
27.3 Managing assignment execution . . . . . . . . . . . . . . . . . . . . .
27.4 Controlling costs and budgets . . . . . . . . . . . . . . . . . . . . . . .
27.5 Assignment records and reports . . . . . . . . . . . . . . . . . . . . . .
27.6 Closing an assignment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 28 Quality management and assurance . . . . . . . . . . . . . . . . . .

28.1 What is quality management? . . . . . . . . . . . . . . . . . . . . . . .
28.2 Key elements of a quality assurance programme . . . . . . . . . . . . .
28.3 Quality certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608

28.4 Sustaining quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612
Chapter 29 Operational and financial control . . . . . . . . . . . . . . . . . . . . 615

29.1 Operating work plan and budget . . . . . . . . . . . . . . . . . . . . . . 615
29.2 Performance monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . 619
29.3 Bookkeeping and accounting . . . . . . . . . . . . . . . . . . . . . . . . 625
Chapter 30 Structuring consulting firms . . . . . . . . . . . . . . . .

30.1 Legal forms of business . . . . . . . . . . . . . . . . . . .
30.2 Structuring the operating core . . . . . . . . . . . . . . . . . . . . . . .
30.3 Organizing for marketing . . . . . . . . . . . . . . . . . . . . . . . . . .
30.4 Organizing other client services . . . . . . . . . . . . . . . . . . . . . .
30.5 Organizing for international operations . . . . . . . . . . . . . . . . .
30.6 Administrative support services . . . . . . . . . . . . . . . . . . . . . .
30.7 Library and documentation . . . . . . . . . . . . . . . . . . . . . . . . .
30.8 Office facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.9 General management organization and cotsrdination . . . . . . . . . . .
Chapter 31 Information technology in consulting firms . . . . . . . . . . . . . . . 647

31.1 Current trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 647
31.2 Support to business administration . . . . . . . . . . . . . . . . . . . . . 650
31.3 Support to professional service productivity and quality . . . . . . . . . 652
31.4 Information for marketing of services . . . . . . . . . . . . . . . . . . 656
31.5 Realizing benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657
31.6 Information technology in small consulting firms . . . . . . . . . . . . . 660
Wrt V Developing management consultanls and the consulting profession
Chapter 32 Careers and compensation in consulting . . . . . . . . . . . . . . . . 665

32.1 Personal characteristics of consultants . . . . . . . . . . . . . . . . . . 665
32.2 Recruitment and selection . . . . . . . . . . . . . . . . . . . . . . . . . 668
32.3 Career development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672
32.4 Compensation policies and practices . . . . . . . . . . . . . . . . . . . 677
Chapter 33 Raining and development of consultants ................ 683

33.1 What should consultants learn? ...................... 684
33.2 Training of new consultants . . . . . . . . . . . . . . . . . . . . . . . . 689
33.3 Training methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698
33.4 Further training and development of cons~iltants . . . . . . . . . . . . . 701
33.5 Options available to sole practitioners . . . . . . . . . . . . . . . . . . 706
Chapter 34 Preparing for the future . . . . . . . . . . . . . . . . . . . . . . . . . 709

34.1 The changing demand . . . . . . . . . . . . . . . . . . . . . . . . . . . 709
34.2 The changing geographical perspective . . . . . . . . . . . . . . . . . 711
34.3 Increasing professionalism in management consulting . . . . . . . . . . 715
Contents
Appendices
Appendix 1 The client's Ten Commandments . . . . . . . . . . . . . . . . . . .

Appendix 2 Associations of management consultants in selected countries . . .
Appendix 3 Professional codes (examples) . . . . . . . . . . . . . . . . . . . . .
Appendix 4 Outline of a management survey . . . . . . . . . . . . . . . . . . .
Appendix 5 Terms of a consulting contract .....................
Appendix 6 Case history of consulting to a growing small business .......
Appendix 7 Case history of process consulting . . . . . . . . . . . . . . . . . .
Appendix 8 Case history of senior management team development . . . . . . . .
Appendix 9 Person-to-person communication in consulting . . . . . . . . . . . .
Appendix 10 Consultant report writing . . . . . . . . . . . . . ..........
Appendix 11 Selected bibliography for management consultants ..........
Index . . . .
Generic consulting purposes ...........................

Phases of the consulting process . . . . . . . . . . . . . . . . . . . . . . . . .
Professional service infrastructure . . . . . . . . . . . . . . . . . . . . . . . .
Description of the consultant's role on a directive and non-directive
continuum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time span and level of difficulty involved for various levels of change . . . .
The consultant's approach to a management survey . . . . . . . . . . . . . .
Force-field analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various bases for comparison . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of the effects on eventual performance when using
individualized versus conformed initial approaches . . . . . . . . . . . . . . .
Comparison of spaced practice with a continuous or massed practice
approach in terms of performance . . . . . . . . . . . . . . . . . . . . . . . .
Generalized illustration of the high points in attention level of a captive
audience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The human resource audit (data for the last 12 months) . . . . . . . . . . . .
The changed structure of computer systems . . . . . . . . . . . . . . . . . . .
The public sector decision-making process . . . . . . . . . . . . . . . . . . .
Responses to the challenge of large-scale change . . . . . . . . . . . . . . . .
Fundamental framework of productivity measurement in management . . . .
Structure of production value and value-added variants . . . . . . . . . . . .
The framework of productivity analysis . . . . . . . . . . . . . . . . . . . . .
The performance improvement planning process . . . . . . . . . . . . . . . .
Potential areas for a productivity improvement programme . . . . . . . . . .
Three approaches to improving productivity . . . . . . . . . . . . . . . . . .
The "Royal Road" of productivity improvement . . . . . . . . . . . . . . . .
22.9 Phases I and I1 of the "Royal Road" .......................

22.10 Phase I11 of the "Royal Road" ..........................
22.1 1 The results-oriented human resource development cycle ............
23.1 The management matrix in a consulting firm . . . . . . . . . . . . . . . . . . .
27.1 Notification of assignment ............................
29.1 Expanded profit model for consulting firms . . . . . . . . . . . . . . . . . . .
30.1 Typical organization of consulting companies . . . . . . . . . . . . . . . . . .
30.2 ...................
Professional core of a consulting unit
31.1 Functionality is dependent on power and structure .............
33.1 Consultant development matrix . . . . . . . . . . . . . . . . . . . . . . . . . .
33.2 Training report form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A1 Subject areas of a comprehensive management survey . . . . . . . . .
A2 Critical elements in reception and transmission of person-to-person
communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....
26.1 Chargeable time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559

29.1 Operating budget of a consulting firm . . . . . . . . . . . . . . . . . . . . . . 617
29.2 Typical structure of expenses and income . . . . . . . . . . . . . . . . . . . . 618
A1 Precautions to facilitate the listening process . . . . . . . . . . . . . . . . . . 801
Boxes
On giving and receiving advice . . . . . . . . . . . . . . . . . . . . . . . . . .

What do we mean by problems? . . . . . . . . . . . . . . . . . . . . . . . . .
Should consultants justify management decisior~s? . . . . . . . . . . . . . .
Define the purpose. not the problem . . . . . . . . . . . . . . . . . . . . . . .
Factors differentiating research and consulting . . . . . . . . . . . . . . . . .
What it feels like to be a buyer . . . . . . . . . . . . . . . . . . . . . . . . . .
Various categories of clients within a client system . . . . . . . . . . . . . . .
Soft and hard participative process consulting . . . . . . . . . . . . . . . . . .
Which change comes first? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reasons for resistance to change . . . . . . . . . . . . . . . . . . . . . . . . .
What do we address in planning change? . . . . . . . . . . . . . . . . . . . . .
Ten overlapping management styles. from no participation to complete
participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How to manage conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business process re-engineering . . . . . . . . . . . . . . . . . . . . . . . . .
What do we mean by culture? . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cultural factors affecting management . . . . ..................
Japanese culture and management consulting ..................
Contents
Cultural values and norms in organizations ...................

Is management consulting a profession? ....................
The power of the professional adviser . . . . . . . . . . . . . . . . . . . . . .
Is there conflict of interest? Test your value system! ..............
International model for consultant certification .................
Examples of licensing ..............................
What a buyer looks for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information materials for preliminary surveys .................
Terms of reference -- Check-list ........................
Confidential information on the client organization . . . . . . . . . . . . . . .
What to cover in contracting -- Check-list ...................
The focus purpose ................................
Minor changes or radical improvements? . . . . . . . . . . . . . . . . . . . .
Issues in problem identification .........................
Principles of effective interviewing . . . . . . . . . . . . . . . . . . . . . . .
Cultural factors in data gathering . . . . . . . . . . . . . . . . . . . . . . . .
A minicase of fact analysis ............................
Difficulties and pitfalls of causal analysis . . . . . . . . . . . . . . . . . . . .
Check-list of preliminary considerations ....................
Variables for developing new forms of transport . . . . . . . . . . . . . . . .
Searching for an ideal solution -Three check-lists . . . . . . . . . . . . . .
Various images of the firm ............................
Performance criteria of production .......................
Major types of manufacturing choice . . . . . . . . . . . . . . . . . . . . . .
Current issues of Japanese production systems . . . . . . . . . . . . . . . . .
Central themes in ineffective and effective development projects . . . . . . .
Key characteristics of high-performance work systems . . . . . . . . . . . . .
Human resource management in "high-tech" companies . . . . . . . . . . . .
Current issues in Japanese human resource management ............
Current issues in European human resource management . . . . . . . . . . .
A minicase of consulting in the informal sector .................
Private consulting services for micro-enterprises . . . . . . . . . . . . . . . .
Challenges facing public sector decision-makers . . . . . . . . . . . . . . . .
Reinventing government . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The consultant-client relationship in support of decision-making . . . . . . .
Minicase: Rail safety regulations in Canada . . . . . . . . . . . . . . . . . . .
"Shoulds" and "should nots" in consulting to government . . . . . . . . . . .
Taxonomy of privatization strategies ......................
..............
VBclav Klaus on the Czech privatization experience
Example of a "family of measures" .......................
Problems to watch and principles to observe in productivity measurement

and analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage and profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hunters and farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Could consultants live without fads? . . . . . . . . . . . . . . . . . . . . . . .
Five prototypes of consulting firms . . . . . . . . . . . . . . . . . . . . . . . .
Strategic audit of a consulting firm: Check-list of questions . . . . . . . . . . .
What do we want to know about competitors? . . . . . . . . . . . . . . . . . .
Environmental factors affecting strategy . . . . . . . . . . . . . . . . . . . . .
Marketing of consulting: Seven fundamental principles . . . . . . . . . . . . .
Criteria of consultant selection . . . . . . . . . . . . . . . . . . . . . . . . . .
Hard data on the cost of marketing efforts . . . . . . . . . . . . . . . . . . . .
Information on clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information provided in a bill . . . . . . . . . . . . . . . . . . . . . . . . . . .
Check-list of points for briefing . . . . . . . . . . . . . . . . . . . . . . . . .
Assignment reference report - A check-list . . . . . . . . . . . . . . . . . . .
Primary stakeholders' needs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Responsibility for quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Introducing a quality assurance programme . . . . . . . . . . . . . . . . . . .
Assuring quality during assignments . . . . . . . . . . . . . . . . . . . . . . .
Outline of a quality manual . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eight steps to QA certification . . . . . . . . . . . . . . . . . . . . . . . . . .
Methods of achieving efficiency and higher profits . . . . . . . . . . . . . .
Monthly controls -A check-list . . . . . . . . . . . . . . . . . . . . . . . . .
ACME surveys of key management information . . . . . . . . . . . . . . . . .
Qualities of a consultant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Career levels in a consulting firm . . . . . . . . . . . . . . . . . . . . . . . . .
Minicase: Consultants'careers and compensation at INTRA . . . . . . . . . .
Criteria for partners' compensation . . . . . . . . . . . . . . . . . . . . . . . .
Areas of consultant knowledge and skills . . . . . . . . . . . . . . . . . . . .
Training in process consulting . . . . . . . . . . . . . . . . . . . . . . . . . .
Significant trends that will shape consulting . . . . . . . . . . . . . . . . . . .
Removing barriers to trade in services . . . . . . . . . . . . . . . . . . . . . .
Principles of clear writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XIV
AUTHORS AND
ACKNOWLEDGEMENTS
This book is the result of a collective effort and reflects collective

experience of the international consulting profession.
The first edition (1976) was written by the following team: James Dey,
George Kanawaty, Milan Kubr, Frederic Latham, Philip Neck and J. Geoffrey
Rawlinson, with contributions from Derek Bowland, Gerry Y. Elliot, Alan
Gladstone, Colin Guthrie, W. J. C. McEwan, Alan C. Popham, Edgar H. Schein,
P. W. Shay and W. Trevor Utting.
The second edition (1986) had the the following co-authors: Alan
Gladstone, Colin Guthrie, John Heptonstall, George Kanawaty, Milan Kubr,
Gordon Lippitt, Leonard Nadler, Philip Neck and John Wallace. Valuable
material, ideas or comments were provided by Maurice C. Ashill, Daniel Bas,
Bengt Bjorklund, Kenneth L. Block, George Boulden, Joseph J. Brady,
Praxy Fernandes, Stelan Friberg, S. R. Ganesh, John F. Hartshorne,
James H. Kennedy, Emile Laboureau, Lauri K. Leppanen, ~ a n s - A k eLilja,
William J. McGinnis, Klaus Molenaar, Lewis S. Moore, Alex Morley-Smith,
M. S. S. El Namaki, Robert Nelson, Graham Perkins, Edgar H. Schein,
Howard L. Shenson, Carl S. Sloane, Sten Soderman, Fritz Steele,
Arthur B. Toan, and Arthur N. Turner.
The list of authors who are responsible for the current (1996) revised and
expanded edition includes several new names together with the names of
co-authors already involved in the previous edition: Michael Bauer, Roland
Berger, George Boulden, Chris Brewster, Chris Cooper, George Cox, Alan
Gladstone, Colin Guthrie, Malcolm Harper, John Heptonstall, Hari Johri,
George Kanawaty, James H. Kennedy, Milan Kubr, David Maister, Rebecca
Morgan, Philip Neck, Klaus North, Joseph Prokopenko, Edward A. Stone, John
Syme and Denis Tindley.
Furthermore, short contributions (most presented in box form) and other
valuable materials and comments used in the book were provided by Moi'se Allal,
William J. Altier, Ole Bovin, Ken Dawson, Takeyuki Furuhashi, Ed Hendricks,
Michael Henriques, Shozo Hibino, Pierre Hidalgo, Geert Hofstede, Kate Hook,
Jean-Marie van Houwe, Osamu Ida, Vhclav Klaus, Eiji Mizutani, Gerald Nadler,
Brian O' Rorke, Jean-Franqois Poncet, John Roethle, Steven E. Sacks, Emmanuel
S. Savas, Edgar H. Schein, Karl Scholz, E.Michae1 Shays, Marko Simoneti and
Hedley Thomas.
Milan Kubr served as team leader and technical editor for the three editions
of the book.
There are many colleagues in consulting firms and their associations,
management institutes and business companies, and in the ILO, whose ex-
perience, ideas and constructive suggestions made the publication of this book
possible. The ILO extends its sincere thanks to all co-authors and contributors,
including those who could not be mentioned by name.
FOREWORD
Management consulting has long been recognized as a useful professional

service that helps managers to analyse and solve practical problems faced by
their organizations, improve organizational performance and learn from the
experience of other managers and organizations. Hundreds of thousands of
private businesses and public organizations in both industrialized and less
developed countries have used the services of management consultants,
separately or in combination with training, project management, information
technology consulting, financial advice, accounting, engineering consulting and
other professional services.
The Entrepreneurship and Management Development Programme of the
ILO has therefore from its inception in the early 1950s paid considerable
attention to the development of management consulting and the promotion of
effective consulting practices in member States. Through its technical
cooperation projects, the ILO has assisted many of its member States in
establishing local consulting services for the various sectors of the economy, and
in developing management consultants and trainers.
To respond to a pressing demand for a comprehensive, practically oriented
guide to management consulting, two editions of this book were published in
1976 and 1986. The book quickly became a basic reference work and learning
text on management consulting, published in 12 different language editions in
addition to the English original and used worldwide by management consultants
and educators, and by many clients of consultants.
However, management consulting is a dynamic and rapidly changing
sector of professional services. To be relevant and useful to clients, consultants
have to keep abreast of economic and social trends, anticipate changes that may
affect their clients' businesses, and offer advice that helps the client to achieve
and maintain high performance in an increasingly complex, competitive and
difficult environment.
A fundamental reference text on consulting has to take the same approach.
Therefore the third edition of our guide aims to describe state-of-the-art
consulting practices, issues of major concern to consultants and clients alike,
current and emerging trends, and approaches likely to enhance the value of the
services provided by consultants. The text of the second edition underwent a
major revision. A number of new topics of growing concern to consultants were
added. Several recognized authorities, including experienced consulting
practitioners, were invited to join the author team. A consistently international
perspective was maintained: as in the past, this third edition of the guide aims
to give a balanced picture of consulting as it is known and practised in various
parts of the world, including the developing countries.
The concept of consulting

In this book management consulting is treated as a method for improving
management practices first of all. This method can be used by an independent
private firm, an internal consulting (or similar) unit in a private or public
organization, a management development, productivity or small enterprise
development institute, an extension service, or an individual (e.g. a sole consult-
ing practitioner or a university professor). Even a manager can act as a consultant
if he or she provides advice to peers or subordinates.
At the same time, however, management consulting has been developing
into a profession. Thousands of individuals and organizations make consulting
their full-time occupation, striving for professional standards in the quality of
the advice provided, methods of intervention and ethical principles. Even
individuals who do some consulting without being full-time members of the
profession can comply with the profession's standards and principles, and should
be helped to do so.
There is no conflict between these two ways of viewing consulting. Indeed,
consulting as a method and consulting as a profession constitute two sides of
one coin, and a guide such as ours has to deal with both these sides of consulting.
Management consulting is practised in many different ways. These reflect
the diversity of the business and management contexts in which consultants
operate, the different personalities of clients and consultants, and the various
conceptual approaches and intervention methods developed by consultants.
Therefore to generalize about consulting and recommend a best way of
approaching it is difficult and risky. In our book we have opted for an eclectic
approach, providing the reader with a comprehensive and balanced picture of
the consulting scene, including the different methods, styles, modes or
techniques applied, and pointing out their advantages and shortcomings. Thus
the reader can make his or her own choice, consistent with the technical,
organizational and human context of the given organization.
However, to say that the authors of this book have no bias whatsoever for
any approach to consulting would not be correct. We do have a bias, and a strong
one, for a form of consulting in which: (i) t'ne consultant shares expertise with
the client instead of trying to hide it; (ii) the client participates as closely and
intensively as possible in the assignment; a-nd (iii) both parties spare no effort
to make the assignment a valuable learning experience. Many different methods
and techniques can apply within this broad concept.
Foreword
Purpose of the book

The main purpose of the book is to contribute to the upgrading of
professional standards and practices in management consulting and to provide
information and guidance to individuals and organizations wishing to start or
improve consulting activities. The book is an introduction to professional
consulting, its nature, methods, organizational principles, behavioural rules, and
training and development practices. It also suggests guidelines to consultants for
operating in various areas of management. However, it is not intended to replace
handbooks and manuals which deal in depth and detail with various management
functions and techniques: for this the reader is referred to special sources, some
of which are suggested in our selected bibliography. The same point applies to
certain special areas of consulting, such as executive search, market studies,
advertising or information technology, which are mentioned briefly in this book,
but can be studied in detail from special publications.
In summary, the book is intended for:
new entrants to the consulting profession;
independent management consultants and consulting firms, companies and
services;
consulting departments of productivity, management and small business
development institutes and centres;
departments and divisions performing internal management consulting and
advisory functions in large private and public organizations, including
management services, organization and methods services, and so on, in
governments;
management teachers, trainers and researchers who may be part-time
consultants, and whose work is closely related to that of consultants;
students of management and business administration taking courses in
management consulting or involved in in-plant projects where they can use
some consulting techniques;
managers, business people and administrators wishing to use consultants
more effectively, or to apply some consulting skills in problem solving and
in improving productivity, quality and performance.
Finally, many principles and techniques described in the book apply to
consulting in general; hence consultants operating in areas other than manage-
ment and business may also find it useful and inspiring.
Terminology
The most common terms used in management consulting in various
countries are explained in the text of the book. But the meaning and use of two
basic terms warrant a definition at this early point:
- the term management consultant is used in the book as a generic term and
applies to those persons who perform all or some of the typical consulting
XIX
functions in the field of management on either a full-time or a part-time

basis;
- the term client is also used as a generic term and applies to any manager,
administrator or organization using the services of management con-
sultants in private businesses, public enterprises, government agencies or
elsewhere.
The two terms relate to consultants arid clients in general, regardless of
their sex, sectoral, ethnic, country or other characteristics. Both terms are some-
times used in the masculine gender for the sake of style, although it is fully
appreciated that in practice there are more and more women among business
people, managers and consultants.
Unless specified otherwise, the term consultingfirm applies to any type of
organizational unit whose function is to provide consulting services. This term
is sometimes used interchangeably with the terms consulting unit or consulting
organization.
The term consultingprocess is used as a generic term to describe the range
of activities and the consultant-client interact ion in solving the client's problems.
A particular job done by a consultant for a particular client is normally called a
consulting assignment (project, case, engagtzment).
Plan of the book

The guide is divided into 34 chapters grouped in 5 parts. These are followed
by 11 appendices.
Part I (Chapters 1-6)presents an overall view of the consulting method and
profession. Emphasis is placed on the consultant-client relationship, on the role
of management consultants in the process of change and on the principles of
professional ethics.
Part I1 (Chapters 7-11) is a systematic review of the consulting process,
divided into five major phases: entry, diagnosis, action planning, implementation
and termination.
Part I11 (Chapters 12-22) provides an ir~troductionto consulting in various
areas of management. The areas covered are general management and corporate
strategy, finance, marketing, production, human resources, information tech-
nology, small businesses, informal sector enterprises, privatization, public ad-
ministrations and enterprises, and productivity and performance improvement.
Part IV (Chapters 23-31) deals with the management of consulting firms.
The main aspects examined are the nature of management in the professions and
in consulting, the strategy of consulting firm:j, marketing of consulting services,
costs and fees, assignment management, quality management and assurance,
operational and financial control, structuring of consulting firms and the use of
information technology in consulting.
Part V (Chapters 32-34) focuses on careers and remuneration in consulting,
the training and development of consultants, and the future perspectives of the
international consulting profession.
Foreword
The appendices provide information supplementing the main text, as well

as material for a deeper study of consulting methods and communication tech-
niques discussed in various parts of the book. They also include a selected
bibliography intended to facilitate an in-depth study of the aspects of consulting
treated in this book.
Appendix 1is a concise memento addressed to clients who want to become
more competent and effective in choosing and using consultants.
PART I
MANAGEMENT CONSULTING
IN PERSPECTIVE
NATURE AND PURPOSE OF
MANAGEMENT CONSULTING
1.I Definition: What is consulting?

There are many definitions of consulting, and of its application to manage-
ment situations and problems, i.e. of management consu1ting.l Setting aside
minor stylistic and semantic differences, two basic approaches to consulting
emerge.
The first approach takes a broad functional view of consulting. Fritz Steele
defines consulting in this way: "By the consulting process, I mean any form of
providing help on the content, process, or structure of a task or series of tasks,
where the consultant is not actually responsible for doing the task itself but is
helping those who Peter Block suggests that: "You are consulting any time
you are trying to change or improve a situation but have no direct control over
the implementation . . . Most people in staff roles in organizations are really
consultants even if they don't officially call themselves consultant^."^ These and
similar definitions emphasize that consultants are helpers, or enablers, and
assume that such help can be provided by persons doing different jobs. Thus, a
manager can also act as a consultant if he or she decides to give advice and help
to a fellow manager, or even to subordinates rather than directing them and
issuing orders to them.
The second approach views consulting as a special professional service
and emphasizes a number of characteristics that such a service must possess.
According to Larry Greiner and Robert Metzger, "management consulting is an
advisory service contracted for and provided to organizations by specially
trained and qualified persons who assist, in an objective and independent
manner, the client organization to identify management problems, analyse such
problems, recommend solutions to these problems, and help, when requested,
in the implementation of solution^".^ Similar more or less detailed definitions
are used by other authors, and by professional associations and institutes of
management consultants.
We regard the two approaches as complementary rather than conflicting.
Management consulting can be viewed either as a professional service, or as a
method of providing practical advice anti help. There is no doubt that

management consulting has been developing into a specific sector of
professional activity and should be treated as such. At the same time, it is also
a method of assisting organizations and executives in improving management
and business practices, as well as individual and organizational performance.
The method can be, and is, applied by many technically competent persons
whose main occupation is not consulting but teaching, training, research,
systems development, project development and evaluation, technical assistance
to developing countries and so on. To be effective, these persons need to master
consulting tools and skills, and to observe the fundamental behavioural rules of
professional consulting.
In our book, we have chosen to address the needs of both these target
populations. Although it has been written primarily about and for professional
management consultants, the needs of any other person who intervenes in a
consulting capacity, even though he or she is not a full-time consultant, are borne
in mind.
Let us start by reviewing the basic characteristics of management
consulting.
Professional service
Whether practised as a full-time occupation or an ad hoc service,
management consulting provides technical knowledge and skills relevant to
practical management and business problems. An individual becomes a manage-
ment consultant by accumulating, through study and practical experience,
considerable knowledge of varying manageinent situations, and by acquiring
skills needed for solving problems, improving organizational performance and
sharing experience with others: understanding the nature and goals of
organizations; finding information; analysing and synthesizing; developing
proposals for improvement; communicating with people; planning changes;
coping with resistance to change; motivating people; helping clients to innovate
and learn from experience, and so on.
It could be objected that managers, too, need to possess this range of
knowledge and skills, and that each management situation is unique. What then
can be gained by bringing in a newcomer who has no management responsibility
and is not familiar with a given situation?
Over the years, management consultants pass through many different
organizations and learn how to use experience from previous assignments in
helping their new clients, or their existing clients, to face new situations. Because
they are exposed to varying combinations O F circumstances, consultants learn
how to discern general trends and common causes of problems with a good
chance of finding an appropriate solution; they also learn how to approach new
challenges and opportunities. Professionals employed by consulting firms can
learn from the experience of their colleagues who have worked for other clients,
and use the whole firm's accumulated know-how. In addition, consultants aim
continuously to keep abreast of developments in management theories, concepts,
methods and systems.
Nature and purpose of management consulting
Box 1.1 On giving and receiving advice

"Every man, however wise, needs the advice of some sagacious friend inthe affairs
of life."
Plautus
"To accept good advice is but to increase one's own ability." Goethe
"Many receive advice: few profit by it." Publius Syrus
"To profit from good advice requires more wisdom than to give it."
John C. Collins
"Men give away nothing so liberally as their advice." La Rochefoucauld
"Never give advice in a crowd." Arabian Proverb
"We give advice by the bucket, but take it by the grain." William Alger
"Do not have the conceit to offer your advice to people who are far greater than
you in every respect."
Rabindranath Tagore
"Harsh counsels have no effect; they are like hammers which are always repulsed
by the anvil."
Helvetius
"Good counsellors lack no clients." Shakespeare
'Rdvice is like mushrooms. The wrong kind can prove fatal." Unknown
"Free advice is often overpriced." Unknown
Selected by James H. Kennedy.
Thus, consulting can be essentially experience based, or research based, or

both. Research-based consulting has become important with the development
of operations research, systems theories, computer science and information
technology, behavioural sciences and other scientific investigations in the
functioning and behaviour of human organizations and systems in the business
and social sectors. While these developments have brought a number of
management professors and researchers to consulting, they have also stimulated
quite a few consulting firms to start their own research programmes for
developing new research-based client services.
Another key characteristic of a professional approach is professional ethics

(to be discussed in detail in Chapter 6). In serving clients, management
consultants observe a number of principles a.dopted by the profession in order
to protect clients' interests and demonstrate to clients that they can rely on the
consultants' integrity.
Advisory service
Consulting is essentially an advisory service. This means that consultants
are not used (with certain exceptions) to run organizations or to take delicate
decisions on behalf of the managers. They have no direct authority to decide on
changes and implement them. Their responsibility is for the quality and
integrity of their advice; the clients carry all the responsibilities that accrue from
taking it.
Of course, in the practice of consultir~gthere are many variations and
degrees of "advice". Not only to give the right advice, but to give it in the right
way, to the right persons and at the right time - these are the basic skills and
art of a consultant. Above all, the consultant's art consists in "getting things done
when you are not in ~ h a r g e " The
. ~ client in turn needs to become skilful in taking
and using the consultant's advice and avoiding any misunderstanding on who is
responsible for what. These points are so important that we will be returning to
them many times in the text that follows.
Independent service
Consulting is an independent service. A consultant must be in a position
to make an unbiased assessment of any situation, tell the truth and recommend
frankly and objectively what the client organization needs to do without having
any second thoughts on how this might affect his or her own interests. This
detachment of the consultant has many facets and can be a very tricky matter in
certain cases.
Technical independence means that the consultant is in a position to
formulate a technical opinion and provide advice independently of what the
client believes, or pretends or wishes to hear. Even if their collaboration is very
close, the consultant is able to make and pr:sent his or her own independent
conclusions and recommendations.
Financial independence means that the consultant has no interest in the
course of action taken by the client, e.g. in a decision to invest in another
company or to purchase a particular system. The desire to get more business
from the same client in the future must not affect the objectivity of the advice
provided in a current assignment.
Administrative independence implies that the consultant is not the client's
subordinate and cannot be affected by his or her administrative decisions. While
this does not present a problem to autonomous consulting organizations, it is a
rather complex, although not insurmountable, problem in internal consulting
(see section 2.5).
Political independence means that neither the client organization's

management nor employees can influence the consultant informally, using
political power and connections, political party membership, and similar
influences.
Emotional independence means that the consultant preserves detachment,
irrespective of empathy, friendship and other emotional affinities that may exist
at the beginning or develop in the course of an assignment.
Temporary service
Consulting is a temporary service. Clients turn to consultants for help to
be provided over a delimited period of time, in areas where they lack technical
expertise, or where additional professional manpower is temporarily required.
This may even be in areas where the requisite skills are available in the
organization, but managers or staff specialists cannot be fully released for a
major problem or project. Consultants not only provide the time and expertise
required, and give undivided, 100 per cent attention to the problem at hand, but
will leave the organization once the job is completed.
Commercial service
A practitioner who does consulting for a living has to charge a fee for all
the work done for clients. Consulting firms are sellers of professional services
and clients are buyers. In addition to being professional service organizations,
consulting firms are also businesses.
Therefore a consulting assignment must be not only a technically justified
activity, but also a financially feasible and profitable commercial undertaking
according to both the client's and the consultant's criteria. From the client's point
of view, the benefits obtained should exceed the costs incurred, including the
fee paid to the consultant and other costs to the client such as staff time or the
purchase of new computer programs. From the consultant's point of view,
consulting must be a profitable activity measured by criteria normally applied
by professional service firms. This will be examined in detail in Part IV.
In certain cases, the fee paid by the client will not cover the full cost of the
consulting service provided. As we shall see later, consulting may be subsidized
on account of government economic policy or for another reason, which may
be economic, political or social. An institution may provide consulting in
conjunction with training and subsidize it from the income earned from training.
A not-for-profit social organization may provide consulting and counselling as
a fully or partially subsidized service to entrepreneurs in underprivileged social
groups or neglected regions.
What should not be required from consulting

There is an abundance of case histories of successful assignments carried
out by some of the world's best management consultancies in order to rescue
companies facing bankruptcy, or to give new life to ageing firms. They have
created a reputation which implies that some consulting firms can resolve
virtually any management difficulty. This reputation is not justified. There are
situations where nobody can help. And even if help is still possible, it would be
unrealistic and unfair to expect that consultants can work miracles.
Also, the consultant should never be expected to take a problem away
from the client, on to his or her own shoulders. A consultant's presence and
intervention may provide considerable relief to a troubled client, but it will not
liberate the client from inherent managerial responsibility for decisions and their
consequences.
To be recognized as such, consulting does not have to be a full-time
occupation. If other professional criteria are met and the advice provided helps
the client to make real improvements, it is not important whether the consultant
is primarily (and for most of the time) a business school professor, a researcher,
a retired executive or any other sort of professional worker. Also, if quality and
independence are assured, consulting does not have to be an external service.
Internal consultants are also consultants. Sorne consultants' associations may
not share these views in defining membership criteria. This, however, is a
different matter.
Our definition
Following this short discussion of the basic characteristics of management
consulting, let& offer our definition:
Management consulting is an independent professional advisory

service assisting managers and organizations in achieving organ-
izational purposes and objectives by solving management and
business problems, identifying and seizing new opportunities, en-
hancing learning and implementing changes.
We have chosen a definition that omits certain characteristics which are

not common to all consulting, such as "external7' service, or service by "specially
trained7' persons. Conversely, our definition includes the fundamental, or
generic, purposes of consulting that are discussed in the next section.
1.2 Why are consultants used:

Five generic purposes
A manager may turn to a consultant if he or she perceives a need for help
from an independent professional and feels that the consultant will be the right
source of this help. But what sort of help are we talking about? What can be the
purpose of using a consultant?
Consulting purposes can be looked at from several angles and described in
various ways. Let us look, first, at five broad, or generic, purposes pursued by
clients in using consultants, irrespective of differences in the technical area of

intervention and in the specific intervention method used (figure 1.1):
- achieving organizational purposes and objectives;
- solving management and business problems;
- identifying and seizing new opportunities;
- enhancing learning;
- implementing changes.
Figure 1.1 Generic consulting purposes
/ purpos& and objectives \
Identifying
Achieving organizational purposes and objectives

All consulting to management and business tends to pursue a general and
overriding purpose of helping clients to achieve their business, social or other
goals. These goals may be defined in various ways: sectoral leadership,
competitive advantage, customer satisfaction, total quality or total productivity,
corporate excellence, high performance, profitability, improved business results,

effectiveness, growth and similar. Different concepts and terms reflect the
thinking and the priorities of both clients and consultants, the current state of
the art of management and consulting, and even fashion. Different purposes will
be stressed in commercial enterprises, public :services and social organizations.
The time horizon of a consultancy will differ from case to case. Yet the common
denominator remains the same: consulting has to add value to the client
organization, and this value should be a tangible and measurable contribution to
achieving the client's principal purposes.
This global purpose of management consulting provides a rationale and a
sense of direction for all consulting work. What would be the sense of organ-
izational learning or costly and risky organizational changes if the client
organization could not get closer to its principal goals? What would be the sense
of successfully solving a few seemingly pressing management problems if "like
the mythological hydra that grows two heads for every one cut off, the solutions
we develop are often rapidly overwhelmed by a plethora of new problem^"^?
The purpose of achieving the client organization's goals assumes that the
client has defined such goals. In some organizations this is not the case, and
management operates without any perspective, goal and sense of mission. The
consultant's main contribution may well be in helping the client to develop a
vision of the future, set ambitious but realistic goals, develop a strategy, focus
on results, and start viewing current problems and opportunities in the light of
longer-term and more fundamental organizational goals.
Consultants must appreciate that client organizations can pursue different
sorts of goals. At times, the objective of a consiiltancy may be to advise the client
on how to maintain the status quo or even how to get out of business.
Solving management and business problems

Helping managers and other decision makers with problem-solving is
probably the most frequently mentioned purpose of consulting. The consultant's
task is described as professional assistance in identifying, diagnosing and
solving problems concerning various areas and aspects of management and
business. The term "problem" is used to describe a situation where there is a
difference or discrepancy between what is actually happening or will be
happening and what should or might be happening. Therefore, a problem can
only be described in relative terms, as a diffuence between two situations. In
addition, someone has to be concerned about this difference and aim to overcome
it, or to reduce it. A situation per se is not a problem (box 1.2).
Frequently a current situation of the client organization is compared to a
situation that existed in the past. If there has been a deterioration such as
plummeting sales or profits, the problem is defined as a need to restore the
original condition. This explains why consultants are sometimes called
"troubleshooters", "company doctors" or "business healers".
Alternatively, the current situation i.3 compared to some standard
(benchmark) and this comparison reveals that the current situation is not
Box 1.2 What do we mean by problems?

The term "problem" is probably the most used, and misused, label in the
literature on management and consulting. It can mean almost anything. We tend
to use it as a matter of convenience if we do not want to be, or cannot be, more
precise. The risk of misunderstanding is considerable. Do you mean what I mean
if both of us speak about problems?
For example, within a business firm, a "problem" justifying the use of a con-
sultant can result from any of the following (and you can think of many other
reasons):
Complaining clients Unrealistic expectations
Poor business results Unrealistic self-image
Unexpected loss Lack of resources
Natural disaster Idle resources
Lack of competence Pressure of competition
Lack of perspective Failure to meet targets
Obsolete control system Lack of self-confidence
Wrong decision Excess of self-confidence
Missed opportunity Slowness of action
Emerging new opportunity Disagreement over action
Rapidly changing environment Lack of information
Reluctance to change Excess of information
Feeling of insecurity Internal conflicts
Feeling of frustration Ambitious business goals
The reader should be aware of the various uses of the term "problem" and of
their practical implications.
If "problem" stands only for mistake,failure, shortcoming or missed opportunity,
the client's and the consultant's perspective tends to be essentially backward
looking and narrow. Focus will be on corrective action (with implied criticism and
determination of responsibilities). Unfortunately, in management and consulting
practice this use of the term "problem" prevails.
The term "problem" is also used as a more general and global concept to
describe the difference between any comparable situations (past, present or future)
about which we are concerned. In this sense, even a successful and forward-
looking company that has been pursuing and achieving ambitious business
objectives has "problems" -a desire to further enhance its competitiveadvantage,
to become a sector leader, not to miss a new marketing opportunity, to identify a
new business partner or to explore an emerging technology, and so on. Clearly,
this will be a different class of problem . . .
In our guide, the term "problem" will be used in this second way -as a generic
term describing a client's dissatisfaction with the difference between any
comparable situations in the client organization. Thus, some of these problems will
be past errors and shortcomings that will need to be corrected. Many others will
concern perspectives, opportunities and strategies for improving the business in
future years.
satisfactory. The problem is then defined as the need to meet or surpass the
standard, e.g. a competitor's product quality, range of models offered or after-
sales service.
Consulting whose purpose is confined to corrective measures aiming to
restore a past situation or attain a standard already met by other organizations
may produce significant and urgently needed benefits. A crisis will be avoided,
negative developments will be arrested and the client's business will survive.
There may be general satisfaction and a feeling of relief. Yet ensuring a mere
return to an already existing condition or catching up with competition gives the
client no competitive advantage, no additional competence and strength for
coping with new situations and achieving superior performance in the future.
Identifying and seizing new opportunities

For the reasons stated above, consulta.nts are not especially happy to be
called troubleshooters. After all, if a company has no trouble, it has no reason
to use a troubleshooter. Yet consultants feel that they can offer much more than
helping organizations to get out of difficulties. This has been perceived by many
business corporations and other organizations that are well managed, successful
and ambitious. At times they may also call on a consultant for tracking back the
deviations that have taken place, and finding and correcting the reasons for them.
However, they prefer to use consultants for identifying and taking new
opportunities. They regard consulting firms as a source of valuable information
and ideas that can be turned into a wide range of initiatives, innovations and
improvements in any area or function of business: developing new markets and
products; assessing and using state-of-the-art technologies; improving quality;
becoming more useful to customers; developing and motivating staff; optimizing
the use of financial resources; finding new business contacts (and contracts), and
so on. Experience shows that even strong and important corporations have
developed many ideas for action and have seized major business opportunities
with the help of their consultants.
Enhancing learning
"The only work that is really worth doing as a consultant is that which
educates - which teaches clients and their staff to manage better for
themselves", said Lyndon Urwick, one of the main contributors to the
development of professional management consulting. In the modern concept of
consulting this dimension is omnipresent. Many clients turn to consultants, not
only to find a solution to one distinct probler,, but also to acquire the consultant's
special technical knowledge (e.g. in environmental analysis, business re-
structuring or quality management) and the methods used in assessing
organizations, identifying problems and opportunities, developing improve-
ments and implementing changes (interviewing, diagnosis, communication,
persuasion, feedback, evaluation and similar skills).
Consulting assignments become learning assignments. The purpose is to
empower the client by bringing new competence into the organization and
helping managers and staff to learn frorn their own and the consultant's
experience. It is often stressed that in this way "organizations are helped to help
themselves" and become "learning organizations". This is a two-way exchange,
since by helping clients to learn from experience a management consultant
enhances his or her own knowledge and competence.
The learning effect of consulting is probably the most important and
durable one. The choice of the consulting methods and the degree of the client's
involvement can increase or reduce this effect. We shall, therefore, pay
considerable attention to these questions in our guide.
Implementing changes
"Change agent" is another label frequently given to consultants. They are
proud to be referred to in this way since this is a reflection of another general
purpose of consulting: helping client organizations to understand change, live
with change and make changes needed to survive and be successful in an
environment where continuous change is the only constant. The importance of
this consulting purpose has considerably increased in the current period owing
to the complexity and pace of environmental changes, the need to keep informed
about changes that may affect the organization and to think constantly of possible
implications, the speed with which organizations have to adapt, and the increased
demands on people's flexibility and ability to cope with change.
1.3 How are consultants used:

Ten principal ways
In pursuing the generic purposes outlined in the previous section,
consultants can intervene in many different ways. Both clients and consultants
can choose among so many alternatives that trying to give an exhaustive and
complete picture of these alternatives would be an impossible task. However,
most of the consulting assistance to management will be given in one or more
of the following ten ways:
providing information;
providing specialist resources;
establishing business contacts and linkages;
providing expert opinion;
doing diagnostic work;
developing action proposals;
improving systems and methods;
planning and managing organizational changes;
training and developing management and staff;
providing personal counselling.
Providing information
Better, more complete and more relevant information is often the main or
only thing that a client needs to make the right decision. It can be information
on markets, customers, sector trends, raw materials, suppliers, competitors,
potential partners, sources of engineering expertise, government policies and
regulations, or other. The consulting firm may have this information in its files,
or know where and how to find it. Information gathering and analysis may be
the only or the main objective of an assignment. Finally, any consulting
assignment will have an information dimtmion and function. There is no
consulting without working with information and providing better information.
In providing information, a delicate question of confidentiality may be
faced. Consultants have to distinguish between information that can be provided
to a client because it is publicly available or has been gathered and developed
specifically for that client, and information developed for previous clients or
obtained from private sources, which may need to be treated as confidential.
Providing specialist resources

A consultant can be used to supplement the client organization's staff.
Usually these consultants will be specialists in areas where the client is looking
for short-term expertise, or wants to avoid recruiting a new employee. Some
clients, mainly in the public sector, use consultants in this way to bypass
restrictive regulations preventing them from recruiting new staff and/or paying
appropriate salaries to specialists. Other clients have been forced to cut down
their technical departments and find it convenient to recruit short-term specialists
from consulting firms.
A special case is "interim management". Recently this way of using
consultants has become more widespread and some client firms may "borrow"
staff members of consulting firms to occupy a position in their management
hierarchy on a temporary basis.
Establishing business contacts and linkages

Many clients turn to consultants in their search for new business contacts,
agents, representatives, suppliers, subcontractors, joint-venture and merger
partners, companies for acquisition, sources of funding, additional investors and
so forth. The consultant's task may involve identifying one or more suitable
candidates (people or organizations), presenting their names to the client,
assessing their suitability, recommending a choice, defining and negotiating
conditions of an alliance or business deal, and acting as intermediary in
implementation. Often these contacts will be in sectors or countries not
sufficiently known to the client.
Providing expert opinion

Various uses fall under this heading. The consultant may be approached to
provide expert opinion in cases where the client can choose among several
alternatives and prefers to seek impartial and independent third party advice
before taking an important decision. Consultants can be invited to act in an expert
witness (testifying expert) capacity in lawsuits or arbitrations calling for
specialized knowledge.
Conversely, expert opinion can be provided in a totally informal way.
This is the case of decision makers who like to use their consultants as a
sounding-board without asking for a formal report or expertise. It should be
stressed that any consultancy involving assessment and choice will engage the
consultant's expert opinion, in particular if management decisions risk being
affected by shortage of information, company myopia, lack of expertise,
emotions or vested interests.
Doing diagnostic work

Diagnostic skills and instruments are among the consultants' principal
assets. Clients therefore use consultants for a wide range of diagnostic tasks
concerning the organization's strengths and weaknesses, positive and negative
trends, potential for improvement, barriers to change, competitive position,
underutilized resources, technical or human problems requiring management's
attention and so on. Diagnostic work can concern the entire business or its part
- a department, sector, function, product line, information system,
organizational structure or other.
Developing action proposals

Effectively completed diagnostic work may be followed by the
development of specific action proposals in an area that was diagnosed. The
consultant may be asked to do the whole job, share the task with the client or
act as an adviser to a client who has chosen to develop new proposals with his
or her own resources. Action proposals may involve one or more alternatives.
Also, the consultant may be asked to present alternatives with or without
recommendations on the course of action to be taken by the client.
Improving systems and methods

A major portion of all consulting services concerns systems and methods
in areas such as management information, business planning, operations
scheduling and control, business process integration and management, inventory
control, client order processing, sales management, personnel records, com-
pensation, social benefits, and other systems. Traditionally, many consulting
firms have developed one or more of these areas as special lines of expertise.
The systems can be custom-made or standard. The consultant can take full
responsibility for establishing the system's feasibility, choosing the proper

system, adapting it to the client's conditions and putting it into effect in
collaboration with the client's staff. Alternatively, clients can play a more active
role in developing and adapting the system with the consultant's support.
Some systems are proprietary and the consultant firm holds copyright or
is authorized by the holder of the copyright to sell the system as part of its
services.
Many organizations prefer to retain the consultant until the system gets
"debugged", becomes operational and achiwes the promised parameters. In
today's consulting, most of the systems provided are computerized and their
development, design and application require a combination of management and
information technology consulting.
Planning and managing organizational changes

A fairly common case is that of a client who possesses the technical and
managerial expertise to run the organization, but has difficulties and feels
insecure when organizational changes are anticipated and cannot be avoided.
Often these changes will put a lot of strain on people, since deeply rooted
relationships, work habits and individual or group interests will be affected. In
such situations, the special expertise sought from a consultant would be in
change management -in identifying the need for change, developing a change
strategy and plan, choosing and applying the right approaches to encourage
change and overcome barriers to change, monitoring the change process,
evaluating the progress made and results obtained, and adjusting the approach
taken by management at all stages of the change cycle.
The consultant may provide expertise and advice both on specific methods
and techniques that are being changed, and on how to deal with interpersonal
Box 1.3 Should consultants justify management decisions?

From time to time consultants are approached with a request to undertake
assignments and submit reports so that a manager can justify a decision by
referringto an external consultant's recommendations. In other words, a manager
may have determined his or her aims and have reached a personal decision, but
wants to be able to say that he or she is putting into effect suggestions made or
endorsed by an independent and respected professionaladviser.
This can turn out to be another straightfonvard and correct case of providing
expert opinion. It can also be a trap. A consultant who accepts such an assignment
may be pulled into the hidden and intricate world of in-companypolitics. His or her
report will have a political role in addition to the technical message it carries. This
role may be constructive and useful if a manager is facing strong resistance to
changes that are inevitable, and needs to refer to the consultant's authority. It can
also happen that a consultant produces a report that will be misused for
in-company politics and for promoting vested individual or group interests.
Independent and impartial assessment of every situation will help the consultant
to avoid being used as a scapegoat.
relations, conflicts, motivation, team building, and other issues in the organi-
zational and human behaviour field. The weight given to behavioural skills will
be higher in assignments where change will put a lot of strain on people,
resistance to change can be expected and management feels that its own change
management skills are inadequate. In addition to behavioural skills, which are
sometimes referred to as "soft" skills needed for change management, the
consultant's help may also concern the "hard" skills area: effective change
scheduling; sequencing; coordination; redefining structures; responsibilities and
relationships; reallocating resources; adjusting recording and control systems;
preventing gaps and disorder caused by poor monitoring of change operations;
ensuring smooth transition from old to new work arrangements, costing the
project and measuring the results, and similar.
Training and developing management and staff

While learning is a general purpose inherent in all consulting, training and
development of managers or staff can be a distinct client service provided in
conjunction with and in support of other services, or separately.
The client and his or her staff can be trained in the new methods and
techniques provided by the consultant, so that they become autonomous in using
and improving them. There are many ways in which diagnosis, advice, systems
development and training can be combined in consulting practice.
Training can be organized instead of the other interventions and ways of
using consultants described above. It may be the client's deliberate choice.
Rather than asking a consultant to work on a specific diagnostic, problem-
solving or change management assignment, the client may prefer the consultant
to prepare and conduct a course or a workshop for managers and/or staff
specialists on the subject area where the assignment would have taken place. For
example, a set of workshops on productivity diagnosis and improvement is
organized instead of requesting the consultant to identify specific productivity
improvement measures and present a productivity improvement programme.
Providing personal counselling

Management consultants can render an excellent service to managers and
entrepreneurs who need strictly personal feedback and relaxed friendly advice
on their leadership style, behaviour, work habits, relations with colleagues,
weaknesses that could be damaging to the business (such as the reluctance to
make decisions or the failure to seek the collaborators' advice) and personal
qualities that need to be well utilized. Personal counselling is necessarily a
one-to-one relationship based on trust and respect. It can be fully confidential.
Despite its obvious potential, few consultants offer such a service to clients and
few clients ask for it.
1.4 Fundamentals of the consulting approach

This whole book is about the consulting approaches and methods applied
to various types of management and busin.ess problems, organizations and
environments. Indeed, there is an extremely wide range of consulting
approaches, techniques, methods, modes and styles. This diversity is one of the
exciting features of management consulting. It allows even clients with very
peculiar problems and characters eventually to find a consultant who fits their
organization and personality.
However, consulting exhibits not only diversity but also certain common
principles and methods. Some of them are quite fundamental; they are used by
the vast majority of consultants. For example, every consultant must be able to
use interviewing, diagnose the client's problerns and purposes, structure and plan
the work to be done in his or her particular area of intervention, and present
proposals and conclusions to clients orally and/or in writing.
The key dimensions of consulting

In a nutshell, an effective consulting approach suggests how to deal with
two critical dimensions of change in client organizations:
(1) The technical dimension, which concerrls the nature of the management or
business problem faced by the client and the way in which this problem
can be analysed and resolved.
(2) The human dimension, i.e. interpersonal relationships in the client
organization, people's feelings about the problem at hand and their interest
in improving the current condition, and the relationship between the
consultant and the client as persons.
For methodological reasons, our text WI11 often deal separately with these
two dimensions. In consulting practice they are not separated; technical and
human issues of management and business are interlinked. In consulting, it is
absolutely essential to be aware of these two sides of problems in human
organizations, but mere awareness is not enough. In working for a client, the
consultant must be able to choose approaches and methods needed to uncover
and understand both the technical and the human issues involved, and help the
client to act on both of them.
It should be noted at this point that, as regards the balancing of the technical
and human aspects of management and change, three major strains can be
observed in management consulting.
The first strain is essentially technical. Its protagonists are fine technicians
competent in providing advice on structures, systems, resource allocation and
utilization, and similar tangible, quantifiable and measurable issues in areas such
as production, technology, finance and accounting. The consultants' back-
grounds may be various - in technology, industrial engineering, computer
science, statistics, mathematics, operations research, accounting, and so on.
Some of them may have a strong research background, as mentioned in
section 1.1. They view the client's problem:, as mainly technical - the client
needs a better cost control system, better information on customers' require-

ments and complaints, a stable network of reliable subcontractors, and similar.
The second strain focuses on the human side of organizations. Its roots are
in behavioural sciences and its doctrine is that, whatever the client feels and tells
the consultant, there is always a human problem behind any other organizational
problem, whether technical or financial. If human problems can be resolved in
ways that will motivate, energize and empower people, all other problems will
be resolved, or at least their solution will be greatly facilitated. Organizational
development (OD) and human resource development (HRD) consultants are the
typical representatives of this second strain. Its share of the whole consulting
industry has been relatively small, but its influence has been remarkable and out
of all proportion to its numbers. As distinct from the previous group, the
behavioural scientists have been not only practising consulting but also writing
extensively about their approaches and experiences. Most of the writing on
consulting concepts and methodologies comes from this group.
The third strain groups a wide range ofpractical andpragmatic approaches
to diagnosing organizational problems and helping clients to run their businesses
more effectively. Most consultants in this group are practitioners and their advice
is based more on experience and common sense than on behavioural science or
another theory. Many of them have been in business practice before turning to
consulting. Experience, not research, has taught them that organizational
problems and achievements are affected by a mixture of technical, financial,
human, political and other factors. They view a business as a whole and their
approach is interdisciplinary by nature. It may, however, lack depth, if it comes
to specific and complex issues of particular systems and functions.
As usual, these archetypes cannot be taken as exclusive models. We shall
see later (Chapters 3 and 33) that, thanks to general progress in consulting
methodologies and better education and training of consultants, more and more
consultants can either deal with various aspects of the client's business, or
suggest the use of other specialists when facing issues outside their main field
of competence.
Consulting and problem solving

Another basic and frequently debated issue is the consultant's approach to
problem solving. In section 1.2 we stressed that our definition of "problems"
will be a broad one - a difference between two situations (which can be past,
present or future situations) can be described as a problem if someone is
concerned about this difference and wants to overcome it, or at least to reduce
it. If this definition is accepted, all consulting can be described as problem
solving. Indeed, it is a special kind of problem solving: a consultant deals with
"other people's problems".
A correct definition of the problem to be resolved, and the purpose to be
achieved by the consultancy, is critical. Observers of consulting warn against
accepting the client's perception of the problem at face value: the problem may
be wrongly defined and the consultant will be caught in a trap. Either he or she
Box 1A Define the purpose, not the problem

The way consultants define a problem is critical to the quality of their solution.
If they define the problem in terms of its origin or cause, they tend to focus on who
or what is to blame. This is a fruitless exercise because fixing blame doesn't really
matter. It actually gets in the way of the best solution. It also inhibits the initiative of
people who will do little to risk having blame directed towards themselves in the
future. Instead, management consultants car1 achieve breakthroughs for their
clients and higher fees for themselves by focusing first on a hierarchy of
incrementally larger purposes to be achieved.
Traditional consulting approaches -focusing on the problem, startingwith data
collection, copying others, taking the first solution that can be made to work, failing
to involve others -create other problems of their own. These approaches lead to
excess costs and time, early obsolescence of solutions, wasted resources and
rework in the consulting process.
BreakthroughThinking provides a more effective approach. It is not a step-
by-step process but seven ways of thinking about problems and their solutions,
based on the following principles:
The uniqueness principle: Whatever the apparent similarities, each prob-
lem is unique and requires an approach that dwells initially on its own
contextual needs.
The purposesprinciple: Focusing on expanding purposes helps strip away
non-essential aspects to avoid working on the wrong problem.
The solutionafternext principle: lnrlovation can be stimulated and
solutions made more effective by working backwards from an ideal target
solution. Having a target solution in the future gives direction to near-term
solutions and infuses them with larger purposes.
The systems principle: Every problem is part of a larger system of problems,
and solving one problem inevitably leads to another. Having a clear
framework of what elements and dimensions comprise a solution assures its
workability and implementation.
The limited informationcollection principle:Excessive data gathering may
create an expert in the problem area, but knowing too much about it will
probably prevent the discovery of some excellent alternatives. Always
determine expanded purposes of any proposed informationcollectionbefore
doing it.
The people design principle: Those who carry out and use the solution
should be intimately and continuously involved in its development by getting
involved in the first five principles. Also, in designing for other people, the
solution should include only the critical details in order to allow some
flexibility to those who must apply the solution.
The betterment time-line principle:The only way to preserve the vitality of
a solution is to build in and then monitor a programme of continual change
to achieve larger purposes and move towards target solutions.
Author: E. Michael Shays. A detailed discussion can be found in G. Nadler and S. Hibino:
Breakthrough Thinking: The seven principles of creative problemsolving (Rocklin, California, Prima
Publishing, 1994).
will work on a wrong problem, or the problem may not justify the consultant's
intervention and the costs incurred. To avoid this elementary flaw, the real
professionals insist on making their own independent assessment of the problem
presented to them by the client, and on developing a common definition in
discussion and collaboration with the client.
Equally important is to clarify the purpose of the consultant's intervention
(see box 1.4). It could be argued that "the purpose is to solve the client's
problem7', but this would be a tautology. It has been observed that "effective
leaders and problem solvers always placed every problem into a larger ~ o n t e x t " . ~
This implies asking and clarifying a number of questions about the purposes of
the client organization and its key constituents, the focus and the significance of
the proposed assignment, and the immediate and ultimate benefits to be obtained
by the client if the current problem is resolved. It will be thus be possible to
select the "focus p u r p ~ s e " , avoiding
~ purposes that are too narrow and
meaningless, and those that are too wide and too distant to be tackled by the
client at the present time. However, these wider and future purposes ought to be
kept in mind in order to place the client's problem in a proper time perspective
and work on solutions that will not block the path to the future.
An overview of the consulting process

During a typical assignment, the consultant and the client undertake a set
of activities required for achieving the desired purposes and changes. These
activities are normally known as "the consulting process". This process has a
beginning (the relationship is established and work starts) and an end (the
consultant departs). Between these two points the process can be subdivided into
several basic phases. This helps both the consultant and the client to be
systematic and methodical, proceeding from phase to phase, and from operation
to operation, as they follow each other in logic and in time.
Many different ways of subdividing the consulting process, or cycle as
some authors call it, into major phases can be found in literature. Various authors
suggest models ranging from three to ten phase^.^ We have chosen a simple
five-phase model, including the following major phases: entry, diagnosis, action
planning, implementation and termination. This model, shown in figure 1.2
(overleaf), will be used consistently in our book. Obviously, a universal model
cannot be applied blindly to all situations, but it provides a good framework for
explaining what consultants actually do and for structuring and planning
particular assignments and projects.
When applying the model to a concrete situation it is possible to let some
phases overlap, e.g. implementation may start before action planning is
completed, or a detailed diagnosis will not be necessary or will be integrated
with the development of proposals. It may be useful to cycle backwards from a
later to an earlier stage. Thus evaluation serves not only for a final assessment
of the results of the assignment and of benefits drawn from change (termination
phase) but also for deciding whether to move back and take a different approach.
Figure 1.2 Phases of the consulting process
First contacts with clients

Preliminary problem diagnosis
- P,ssignment planning
Assignment proposals to client
C:onsulting contract
Purpose analysis
Problem analysis
2. Diagnosis Fact finding
Fact analysis and synthesis
Feedback to client
F
Developing solutions
3. Action planning Eivaluating alternatives
F'roposals to client
Planning for implementation
Lr
P,ssisting with implementation
4. Implementation PIdjusting proposals
Training
- Evaluation
Final report
Settling commitments
5. Termination
Plans for follow-up
Withdrawal
Every phase can be broken down into several sub-phases or parallel activities.
The whole model has to be applied flexibly and with a great deal of imagination.
The reader may also have seen various models of planned organizational
change and may be interested in comparing .them with the model in figure 1.2.
The consulting process can be viewed as a variant of the change process
(Chapter 4), one in which the need for change is identified, the purpose of the
change defined and specific change measures prepared and implemented with a
consultant's help.
The consulting process will be examine.d in detail in Chapters 7-11, but at
this point it may be helpful to have short descriptions of its five basic phases.
Entry
In this phase the consultant starts working with a client. This phase includes
their first contacts, discussions on what the client would like to achieve and
change in his or her organization and how the consultant might help, the
clarification of their respective roles, the preparation of an assignment plan based
on preliminary problem analysis, and the negotiation and agreement of a
consulting contract.
It is a preparatory and planning phase. It is often emphasized that this phase
lays down the foundations for everything that will follow, since the subsequent
phases will be strongly influenced by the quality of conceptual work done, and
by the kind of relationships that the consultant will be able to establish with the
client at the very beginning.
In this initial phase it can also happen that an assignment proposal is not
prepared to the client's satisfaction and no contract is agreed, or that several
consultants are invited to present proposals but only one of them is selected for
the assignment.
Diagnosis
The second phase is an in-depth diagnosis of the problem to be solved.
During this phase the consultant and the client cooperate at identifying the sort
of change that is required, defining in detail the purposes to be achieved by the
assignment and assessing the client's performance, resources, needs and
perspectives. Is the fundamental change problem technological, organizational,
informational, psychological or other? If it has all these dimensions, which one
is the crucial one? What attitudes to change prevail in the organization: is the
need for change appreciated, or will it be necessary to persuade people that they
will have to change? The results of the diagnostic phase are synthesized and
conclusions drawn on how to orient work on action proposals so that the real
problem is resolved and the desired purposes achieved. Some possible solutions
may start emerging during this phase.
Fact finding and fact diagnosis often receive the least attention. Yet
decisions on what data to look for, what data to omit, what aspects of the problem
to examine in depth and what facts to skip, predetermine the relevance and
quality of solutions that will be proposed. Also, by collecting data the consultant
is already influencing the client system, and people may already start changing
as a result of the consultant's presence in the organization. Conversely, fact
finding has to be kept within reasonable limits, determined by the basic purpose
of the consultancy.
Action planning
The third phase aims at finding the solution to the problem. It includes
work on one or several alternative solutions, the evaluation of alternatives, the
elaboration of a plan for implementing changes and the presentation of proposals
to the client for decision. The consultant can choose from a wide range of
techniques, in particular if the client's participation in this phase is active. Action
planning requires imagination and creativity, as well as a rigorous and systematic
approach in identifying and exploring feasible alternatives, eliminating
proposals that could lead to trivial and unnecessary changes, and deciding what
solution will be adopted. A significant dimension of action planning is
developing strategy and tactics for implementing changes, in particular for
dealing with those human problems that can be anticipated, for overcoming
resistance to change and for gaining support for change.
Implementation
Implementation, the fourth phase of consulting, provides an acid test for
the relevance and feasibility of the proposals developed by the consultant in
collaboration with the client. The changes proposed start turning into reality.
Things begin happening, either as planned, or differently. Unforeseen new
problems and obstacles may arise and false assumptions or planning errors may
be uncovered. Resistance to change may be quite different from what was
assumed at the diagnostic and the planning stage. The original design and action
plan may need to be corrected. As it is not possible to foresee exactly and in
detail every relationship, event or attitude, 2nd the reality of implementation
often differs from the plan, monitoring and inanaging implementation is very
important. This also explains why professional consultants prefer to be
associated with the implementation of changes that they have helped to identify
and plan.
This is an issue over which there ha!; been much misconception and
misunderstanding. Many consulting assignmtmts end when a report with action
proposals is transmitted, i.e. before implementation starts. Probably not more
than 30 to 50 per cent of consulting assignments include implementation. If the
client is fully capable of handling any phase of the change process alone, and is
keen to do it, there is no reason why he or sht: should finance a consultant. The
consultant may leave as early as after the diegnostic phase. Unfortunately, the
decision to terminate the assignment after the diagnostic or action-planning
phase often does not reflect the client's assessment of his or her own capabilities
and determination to implement the proposak without any further help from the
consultant. Rather it mirrors a widespread conception, or misconception, of
consulting according to which consultants do not have to achieve more than
getting their reports and proposals accepted by the clients. Some clients choose
it because they do not really understand that even an excellent consulting report
cannot provide a full guarantee that a new scheme will actually work and the
promised results will be attained. Other clients may be happy with it because
what they really wanted was a report, not a change.
Termination
The fifth and final phase in the consulting process includes several
activities. The consultant's performance during the assignment, the approach
taken, the changes made and the results achieved have to be evaluated by both
the client and the consulting firm. Final reports are presented and discussed.
Mutual commitments are settled. If there is an interest in pursuing the
collaborative relationship, an agreement on follow-up and future contacts may

be negotiated. Once these activities are completed, the consulting assignment or
project is terminated by mutual agreement and the consultant withdraws from
the client organization.
A consulting assignment
Services to clients are normally organized and delivered through particular
consulting assignments (also called engagements, cases, consultancies, projects
or client accounts). In a typical assignment, the consultant and the client agree
on the scope of the job to be done:
- the purposes (objectives, results) to be achieved;
- the expertise to be provided by the consultant;
- the nature and sequence of tasks to be undertaken by the consultant;
- the client's participation in the assignment;
- the resources required;
- the timetable;
- the price to be paid;
- other conditions as appropriate.
This agreement is confirmed in a consulting contract, which is written in
most cases, but can also be verbal (section 7.6).
A retainer
An alternative to an assignment covering a distinct task and period of time
is a retainer. Under a retainer contract, the client books, or purchases in advance,
a certain amount of the consultant's working time. The nature and purpose of
the work to be done are defined in general terms only and will be specified at
the beginning of each period covered by the contract. For example, the client
may use the consultant's services for two days every month during the first week
of the month to review jointly the general situation of the business, the problems
and opportunities that have developed during the previous month, and the key
decisions that will have to be taken.
There are various types of retainer arrangement, but from a technical
viewpoint two types tend to prevail:
a generalist retainer, under which the consultant follows global results and
trends of the client's business, looking for improvement opportunities in
various areas and feeding the client with new information and ideas;
a specialist retainer, providing the client with a permanent flow of
technical information and suggestions in an area where the consulting firm
is particularly competent and advanced (e.g. computer systems, quality
management, international financial operations, identification of new
markets).
'Some management consultants prefer to call themselves "business consultants", or

"management and business consultants", to stress that their firms are able to deal with a wide range
of issues faced by business companies.
F. Steele: Consulting for organizational change (Amherst, Massachusetts, University of
Massachusetts Press, 1975), p. 3.
P. Block: Flawless consulting: A guide to gelting your expertise used (Austin, Texas,
Learning Concepts, 1981), pp. v and 2.
L. E. Greiner and R. 0.Metzger: Consulting to management (Englewood Cliffs, New
Jersey, Prentice-Hall, 1983), p. 7.
See G. M. Bellman: Getting things done wheJzyou are not in charge (San Francisco,
California, Berrett-Koehler, 1992).
P. Stroh: "Purposeful consulting", in Organizntional Dynamics (New York, American
Management Association), Autumn 1987, pp. 49-67.
G. Nadler and S. Hibino: Breakthrough Thinking:: The seven principles of creativeproblem
solving (Rocklin, California, Prima Publishing, 1994), 11. 128. See also Stroh, op. cit.
ibid., p. 149.
Frequently referred to is the Kolb-Frohman model, which includes the following seven
phases: scouting, entry, diagnosis, planning, action, evaluation, termination. See D. A. Kolb and
A. L. Frohman: "An organization development approach to consulting", in Sloan Management
Review (Cambridge, Massachusetts), Vol. 12, No. 1, Fa11 1970.
RANGE AND SCOPE OF
CONSULTING SERVICES
2.1 A historical perspective

A historical perspective will help us to understand the present scope,
strengths and limitations of management consulting. Where does management
consulting have its historical roots? How far back can they be traced? What
principal events and personalities have given the consulting business its current
shape?'
Management consulting has its origins in the Industrial Revolution, the
advent of the modern factory, and the related institutional and social
transformations. Its roots are identical with those of management as a distinct
area of human activity and a field of learning. Consulting in or for management
becomes possible when the process of generalizing and structuring management
experience attains a relatively advanced stage. Methods and principles
applicable to various organizations and situations have to be identified and
described, and the entrepreneur must be pressed - and motivated - to seek a
better way of running and controlling the business. These conditions were not
fulfilled until the latter part of the nineteenth century, a period which saw the
birth of the "scientific management" movement.
The pioneers of scientific management

There were a number of predecessors of scientific management. One of
them was the American manufacturer Charles T. Sampson, who in 1870
reorganized the whole production process in his shoe-making factory in order
to be able to staff it by unskilled Chinese labour. One year later, acting in a
consulting capacity, Sampson passed on his experience to an owner of a laundry,
who accepted the advice and applied the approach previously used by Sampson.
The pioneers of scientific management, including Frederick W. Taylor,
Frank and Lillian Gilbreth, Henry L. Gantt and Harrington Emerson, gave a
major impetus to the development of consulting. Their technical and method-
ological approaches to simplifying work processes and raising workers' and
plant productivity were not the same and in certain cases even conflicted with
each other. However, they all believed in the application of the scientific method
to solving production problems. They believed, too, in the benefit of combining
several methods for disseminating their scientific approach and making sure that
it would be used by the business corporations. They were tireless in lecturing,
making studies, writing books and articles, organizing practical demonstrations,
and providing advice in every possible way. Later in his life, Taylor chose to
become a full-time management and productivity consultant.
These pioneering efforts gave rise to a very important strain in management
consulting, one which has strongly marked the profession and its image.
Consulting that emerged from the scientific management movement focused
mainly on factory and shop-floor productivity and efficiency, rational work
organization, time and motion study, eliminating waste and reducing production
costs. This whole area was given the name of "industrial engineering7'. The
practitioners, often called "efficiency experts", were admired for their drive,
methodical approach and improvements achieved (which were often
spectacular). But their interventions were also feared and detested by workers
and trade unions because of their often ruthless approach.
The negative early image of some management consultants has changed
considerably over the years. New areas of management and new types of
problem were tackled and became a normal part of the consulting business, thus
reducing the share of work in production and work organization. Important
changes in the social and labour-relations fields tended to limit the use of
techniques unacceptable to the workers; negotiation and collaboration became
indispensable methods of handling many assignments affecting workers' and
other employees' interests. The positive side of the efficiency expert's image has
been very much preserved: consultants continue to be regarded as persons able
to find new opportunities for saving resources and raising productivity even
where others see none.
Towards a general management approach

The limitations of the industrial-engineering and efficiency-expert
approaches have led to a broadened interest in other aspects and dimensions of
business organizations, and to the birth of new areas of consulting. One of the
first, perhaps the first, consulting firm of the kind known today was established
in Chicago in 1914 by Edwin Booz under the name "Business Research
Services".
In the 1920s, Elton Mayo, with his Hawthorne experiment, gave impetus
to research and consulting in human relations. Important consulting work in
human resource management and motivation was started by Mary Parker Follett.
Interest in more effective selling and markeling was fostered by people such as
the Englishman Harold Whitehead, the author of Principles of salesmanship
written in 1917. A number of consulting firms were established during the 1920s.
These were increasingly able to diagnose business organizations in their totality,
treating manufacturing and productivity problems in a wider perspective of sales
and business-expansion opportunities.
Range and scope of consulting services
Consulting in finance, including financing the enterprise and financial

control of operations, also started developing rapidly. A number of the new
management consultants had a background in accountancy and experience
drawn from working with firms of public accountants. One such was James
0 . McKinsey, a protagonist of the general management and comprehensive
diagnostic approach to a business enterprise, who established his own consulting
firm in 1925, and today is regarded as one of the founders of the consulting
profession.2
In the 1920s and 1930s, management consulting was gaining ground, not
only in the United States and in Great Britain, but also in France, Germany,
Czechoslovakia and other industrialized countries. Yet its volume and scope
remained limited. There were only a few firms, prestigious but rather small, and
their services were used mainly by the larger business corporations. The
consultant remained unknown to the overwhelming majority of small and
medium-sized firms. On the other hand, assignment requests began coming from
governments: this was the start of consulting for the public sector.
Consulting for governments, and for the army, played an important role
during the Second World War. The United States in particular understood that
the war was a major management challenge and that mustering the country's
best management expertise was essential to winning on the battlefield. In
addition, operations research and other new techniques, applied first for military
purposes, rapidly found their way into business and public management, adding
a new dimension to the services offered by consultants.
The golden years of consulting

Post-war reconstruction, the rapid expansion of business coupled with the
acceleration of technological change, the emergence of new developing
economies and the growing internationalization of the world's industry,
commerce and finance, created particularly favourable opportunities and
demands for management consulting. This is the period in which most consulting
organizations that exist today were established and in which the consulting
business has attained the power and the technical reputation it enjoys at the
present time. For example, PA, the largest consulting firm based in the United
Kingdom, had only six consultants in 1943 but 370 in 1963, over 1,300 based
in 22 countries in 1984, and 1,700 in 1993. The total number of full-time
management consultants was assessed at 100,000 in the United States by the end
of the 1980s, six times the number that existed in the mid-1960s.
In this period, the expansion of management consulting has been
impressive by any standard. However, significant qualitative changes have also
occurred.
Service diversification. To meet their clients' needs and to attract clients
from new sectors of economic and social activity, management consultants have
developed varying strategies, offering new special services, specializing in
particular sectors or, on the contrary, providing a broad comprehensive package
of services to the most demanding clients.
At the forefront of technical progress. In doing this, most management

consultants have made it their policy to be associated with the latest
developments in management and related fields that can interest their clients,
and to offer a new sophisticated service before anyone else can do so. The
computer business, the use of information technologies in all aspects of
management and accounting, and new communication technologies belong to
such areas. Consultants do not hesitate to step out of the traditional limits of the
management field and deal with plant automation, communication systems,
quality control, equipment design, software development, economic studies,
environmental protection and the like if these are of interest to clients and if they
can enhance a consultant's competitive edge.
Growing competition in consulting. Competition in management
consulting has greatly increased over the pasi 20 years. In addition to improving
service quality and offering new sorts of services, management consultants have
become more dynamic and even aggressive in searching for new clients and
trying to convince potential clients that they can offer a better service than others.
This has brought about many developments in the advertising and marketing of
consulting services.
The "Big Eight" come on the scene. A major development has been the
new attitude of the Big Eight public accounting firms towards management
consulting. Considered for several decades as incompatible with professional
accounting and auditing, management cclnsulting started being promoted
vigorously by the Big Eight in the early 1960s, producing 15-20 per cent of their
income, and in some cases even more. By the end of the 1980s, the Big Eight
were reduced through mergers to the Big Six. However, their management
consulting services kept expanding more rapidly and generating higher profits
than traditional accounting and audit work. Currently six out of the seven world's
largest management consulting firms are those of the Big Six group.3
Continued internationalization. All larger and many smaller consulting
firms continued to internationalize their oper,~tions
in searching for new markets,
adapting to the changes in the international economy, and taking advantage of
the new opportunities for consulting in the less developed countries and, since
the late 1980s, in Central and Eastern Europe. In larger consulting firms, foreign
operations may contribute 30-70 per cent of income. Many new consulting firms
have been established in developing and reforming economies.
Internal consulting. Consulting services provided under various names
by internal units within private and public organizations are not a new
phenomenon, but their volume and role increased very considerably in the 1970s
and 1980s. The internal consultant has become a regular actor on the
management consulting stage.
Progress in the methodology of consnlting. Great efforts have been made
to increase the long-term benefits derived by clients from consulting assign-
ments, by diversifying and perfecting the intervention methods applied at all
stages of the consulting process. Greater emphasis has been placed on clients'
active participation in problem solving, new and more effective approaches to
organizational change, the development of clients' own problem-solving skills,
and the need for clients to learn from every consulting assignment generally.
Increased clients' competence in using consultants. Many organiz-
ations, private and public, have become real experts in using consultants
effectively. They have developed their own criteria and methods for selecting
consultants, collaborating with them during assignments, monitoring their
interventions, learning from their approach and evaluating results. The progress
made by the consulting profession would not have been possible without these
improvements on the clients' part.
The current market

The developments described in the previous paragraphs have shaped the
current market for management consulting services.
It is a global market, where all larger consulting firms operate
internationally and have offices or daughter companies in dozens of countries.
Consulting across country borders is common practice.
It is an important market as the figures bear witness: in 1992 management
consulting revenues worldwide attained some US$28.3 billion. This included
the world's largest market, the United States, with US$15.2 billion spent on
consulting, Europe with US$7.6 billion, and Asia with US$3.2 billion. The rest
of the world spent the remaining US$2.3 b i l l i ~ n . ~
It is a competitive market, where supply has matched and even outgrown
demand. Clients can be more and more selective; service quality and innovation
have become important criteria in judging consultants.
It is an open and liberal market. Entry, and work in foreign countries, are
easy, since there are minimal legal barriers to business consulting services.
Language and cultural barriers persist, but do not constitute serious obstacles to
consulting across national boundaries.
It is a market with relatively high and rapidly evolving centralization and
polarization. In 1990-92, the revenue of the 40 largest international consulting
firms exceeded 60 per cent of the entire world market. At least 25 international
firms employ more than 1,000 consultants (while only four law firms in the
whole world employ more than 1,000 lawyers). In 1992, Andersen Consulting
had 20 per cent of the whole United Kingdom consulting market. In contrast,
there are thousands of sole consulting practitioners and small firms with 2-10
consultants.
It is a professionally challenging market. In consulting, the share of
repetitive, routine and boring work is smaller than in law, accounting and
auditing. Demand has not only grown, but has also changed in nature.
Globalization, information and communication technologies, regional economic
groupings, the fall of the communist regimes, privatization and many other
developments have not only increased demand for consulting, but have also
changed the content and quality of demand. In consulting, the demand side
requires continuous creativity and innovation. The supply side provides

unlimited opportunities for initiative and intellectually rewarding work.
2.2 Range of services providled

Today's management consulting profe:jsionals can be asked to help with
any type of management problem in any sort and size of organization. If new
problems appear and new needs are identified, it is more than certain that some
management consultant will immediately make a special effort to become an
expert in such a new field.
There have been many attempts to list and classify the areas covered by
management consultants. The professional associations of consultants are
interested in such lists, both to define areas from which they accept members
and to be able to provide information on the types of service available from
members. The publicity and information booklets of individual consulting firms
normally list areas of the firm's competence. However, a generally acceptable
and "user-friendly" (easy to interpret and use) classification has yet to be
developed. Currently used lists and publicity brochures include many vague
terms and concepts, which can be easily misinterpreted by potential clients.
Areas and functions of management

Traditionally, management consulting services were structured in
accordance with the prevailing structuring of the management functions.
Services were offered in production organization and management, marketing
and sales, personnel management, office organization, financial management,
general management and organization, and similar fields. This structuring of
service offerings has been very much preserved until the present time. A
consulting firm may provide services in one or more of these areas, depending
on its size, specialization strategy and other factors. Conversely, a firm's or an
individual consultant's specialization can be deeper and may concern only one
segment of a management function, such as maintenance or stock control within
production management, or job evaluation and compensation within personnel
or human resource management.
Problems and challenges faced by management

Consulting services focus on particular sorts of problems and challenges
developed in response to challenges cutting across several management
functions and reflecting new business opportunities and constraints. Their range
is extremely wide. Examples are consulling in cost cutting, productivity
improvement, energy saving, joint ventures, mergers and acquisitions,
technology transfer, company turnarounds, project development and manage-
ment, cross-cultural management, privatization, environmental management
and so on.
Systems development and improvement

Management information, reporting, planning, scheduling and decision
systems have become another important strain of consulting services. This is
very much linked with the developments in underlying information technologies
- from manual systems, through simple but increasingly specialized
mechanical office technologies, to successive generations of computerized
information and communication technologies. Two key factors have triggered
off the growth of specialized systems-oriented and information-technology-
based consulting: the amount of special expertise temporarily needed for
systems analysis and development, and the speed with which systems become
obsolete and have to be modernized, or replaced by totally new systems. As
mentioned, a growing amount of consulting in this area is interdisciplinary,
combining assistance and advice in management, information and communi-
cation technologies and systems. The systems have become increasingly
integrated, unifying data and procedures from production, sales, purchasing, cost
control, quality management and other areas in one computerized system.
In this area management consulting is often provided in combination with
various information technology services, which may include the development
of customized software and assistance in installing the system and making it
fully operational.
Approaches to organizational performance

improvement and change
Other consultants emphasize that their main strength and usefulness to
clients lie not in a detailed knowledge of a specific technical area or system, but
in their ability to share with the client their effective work method - for
diagnosing and resolving organizational problems, devising action programmes
for organizational change and performance improvement, and making sure that
such programmes are implemented. Their service is defined neither by the area
of intervention (e.g. marketing) nor by the problem to be tackled (e.g. high
production or distribution costs), but by the consulting approach or method used.
Examples are organizational development with its wide range of inter-
vention techniques, action learning, business diagnosis, various problem-
analysis and problem-solving methodologies, total quality management,
creative thinking and innovation techniques, benchmarking, business process
re-engineering, organizational transformation, and so on. Some of these methods
and approaches are highly structured and applied as complete, often proprietary
and copyright-protected, consulting and training packages. Some are passing
fads or new labels for old things. Others are true innovations and their impact
on organizational effectiveness and the consulting industry itself can be
significant and lasting.
Consulting approaches to organizational change and performance
improvement are increasingly offered in combination with special knowledge
and skills in areas mentioned in the previous paragraphs.
Sectoral services
Some consultants have chosen a secto:ral approach: they do their whole
business for one sector, or have established sectorally specialized divisions. The
reasons are both technical (the need for iin intimate knowledge of sector
technologies, economics, and business practices and culture) and commercial
(many clients' preference for consultants who know their sector). As some
practitioners put it: "If you develop a reputation as a sugar-industry consultant,
you get sugar-industry clients." This is quite important in sectors that
traditionally regard themselves as different from other sectors (e.g. the
construction or mining industries) and are sceptical about the value of advice
coming from outside the sector.
The shifts in the sectoral focus of consulting reflect the structural changes
in the economy. Originally, most consultants used to work mainly for industrial
and commercial enterprises. In today's consulting, work for the service sectors
tends to be very important; this includes clients from banking and insurance,
communications, transportation, community development, central and local
government administration, education, health care, voluntary associations,
leisure and entertainment.
Complementary services
Sectorally specialized consulting firms often provide their clients with a
service package combining management, business and engineering consulting.
Other services offered by various management consulting firms include
technical and managerial training, training of supervisory and office personnel,
production and distribution of audiovisual training packages, information
processing services, collection and distribution of business information, book
publishing, psychological testing, opinion polls for market research, consumer
taste surveys, advertising, sectoral economic and market studies, management
and supervision of investment projects, real estate, statistical work, and so on.
Consulting firms have moved into areas such as choice and transfer of
technology, patents and licences, product design and testing, design of control
equipment, and similar fields.
All these are closely related to management consulting, but some of them
are clearly outside its framework. By branching out into new service areas,
management consultants are doing the same as other professions -looking for
new markets and aiming to satisfy their clients' demand for coherent and
complete service packages.
2.3 Generalists and specialists

One of the oldest issues debated by the observers of consulting is whether
both generalists and specialists have the right to be called management consult-
ants. Some contend that only an all-round generalist is a real management
consultant, while a specialist can be an industrial engineer, a financial analyst,
an expert in compensation techniques or an industrial psychologist, but not a
management consultant. Others object to this, pointing out that generalists lack
the in-depth knowledge required to solve problems in today's business; therefore
to be really useful a consultant must be a specialist.
The history and the current profile of the profession indicate that both
generalists and specialists have their place in management consulting. The issue
is not generalists versus specialists, but how to combine generalist and specialist
skills and perspectives to achieve a better total effect. This combination has
several facets.
Specialist work viewed from a generalist perspective

To manage an organization is an interdisciplinary and multifunctional task,
and measures taken in one specialist area relate to other areas. Therefore a
management consultant will always try to view specific (and often narrow)
problems, requiring the intervention of a specialist, in a wider context. To be a
good consultant, the specialist has to be able to look at the problem from the
generalist point of view. He or she must be able to apply diagnostic and other
methods common to all skilled consultants, and understand organizational
relationships. This is one of the main objectives of theoretical and practical
training in a consulting firm.
Generalists and specialists cooperate

It would be unrealistic to require every consultant to be both a complete
specialist and a generalist, although a few talented and experienced individuals
do achieve this. However, in most consulting firms there is some division of
work between those who are primarily specialists (and keep up to date in a special
area of knowledge and its applications) and those who are generalists (and deal
with several areas of management and focus on their interaction, coordination
and integration).
The so-called generalists prepare and coordinate global assignments
requiring combined specialist and generalist interventions. They normally take
care of preliminary organizational diagnoses, negotiations with clients,
assignment planning and coordination, drawing conclusions from specific
observations made by specialists, presenting final proposals to clients, and so
on. Supervisory and managerial functions in consulting are often in the hands
of the generalists.
Some assignments are totally or primarily in the general management field
and are undertaken by senior generalists. They concern issues such as corporate
policy and strategy, leadership and management style, organizational structure,
mergers, turnarounds and the like. Most consulting for small businesses is done
by generalists, capable of advising the client on the business in its totality. Clients
expect that the generalist will suggest the participation of a specialist consultant
whenever such a need is identified, just as they expect that the specialist will
exercise self-discipline and refrain from giving advice in areas beyond his or her
special competence.
The trend towards specialization

In today's management consulting there is a pronounced trend towards
greater specialization, which reflects the growing range and complexity of issues
handled by consultants. This trend concerns the service specialization of the
consulting firms (of all sizes, including individual practitioners) first of all.
Increasingly, clients are interested in working with firms that do not present
themselves as universal experts in solving business problems, but possess the
right specialist knowledge and expertise, e.g. in the industrial sector or functional
area concerned. Many firms have started rethinking their profile to comply with
this requirement.
Furthermore, management consulting firms have started modifying their
internal staff structure, that is, the number and the respective roles of the
specialists and generalists employed. There are more and more assignments that
clients wish to be undertaken by a specialist, and if a firm does not have full-time
employment for such a specialist, it will employ the person part time, or borrow
his or her services from another firm when necessary. However, many of these
specialists, highly competent in their technical fields, urgently need to widen
their outlook and improve their understanding of the functions of the total
organization.
As for all-round generalists, their role in dealing with interdisciplinary and
multifunctional problems will remain important. But there are various degrees
of generalization, and the trend seems to be towards generalists who do not try
to deal with all kinds of situation but become proven experts in certain sectors
(health, transportation) or types of organizational and business problems (mer-
gers and acquisitions, diagnosing and assisting organizations in difficulties).
2.4 Main types of consulting organization

The diversity of the clients and markets served, technical services provided,
approaches taken and personalities involved,, is reflected in the wide range of
types of management consulting organization. Without going into details
concerning their strategies and organization, which will be covered in Part IV,
we will now review the main types.
Large multifunctional consulting fir~ns

A consulting firm employing several hundred professionals can be
considered as large, but there are more than 25 giants in the consulting world
with over 1,000 management consultants on their staff. Most of them operate as
multinational firms, with branch offices or daughter companies in 20 or more
countries. Their size permits them to deal with a wide range of clients and most
complex management problems; they are soinetimes referred to as "full-service
management consulting firms7' able to provide "total service packages". They
prefer to serve large and multinational clients. Many of them have also developed
some special skills which make them different from each other, e.g. they may
be known for possessing special sectoral expertise and have important sectorally
specialized departments, or they may be strong in corporate strategy and business
restructuring (the strategy consultancies), or focus on management consulting
services based on information technology.
Management consulting services

of major accounting firms
The management advisory services (MAS), established as divisions of
major accounting firms, have in the last decade grown into large multifunctional
management consultancies. Today they are the world's largest professional firms
not only in accounting and audit, but also in management consulting measured
separately. They have drawn considerable benefits from the environment of
leading accounting firms in terms of expertise, image, contacts and assignment
opportunities. Some of them used to emphasize that they were not keen to
undertake just any type of assignment, but only those that "would be expected
from a reputable professional accounting firm". This, however, has changed
radically. At the present time, the Big Six also operate in areas such as human
resource management and development, organization development, production
engineering, total quality, integrated information and control systems, and small
business consulting.
Small and medium-sized consulting firms

This group embraces a variety of organizations, ranging from a few to
50-100 consultants. Obviously a firm small by American standards can be
extremely large in a smaller developing country. Their prevailing technical
profiles include:
- general management and business development consulting for small and
medium-sized client firms, as a rule in a limited geographical area;
- consulting in one or a few technical areas, such as corporate strategy (the
"strategy boutiques"), personnel administration, maintenance, quality
control and management, marketing, sales management, office manage-
ment, environmental auditing and management, and so on;
- full sectoral specialization, e.g. in urban transport, textiles, printing
industry, insurance.
Sole practitioners
The existence of thousands of sole consulting practitioners demonstrates
that, despite competition and aggressive marketing by large professional firms,
there is plenty of interest in working with independent individuals. These may
be generalists, emphasizing their broad management experience, problem-
solving and behavioural skills, or specialists working in a narrow technical area.
Their strength is in a highly personalized and flexible approach, more difficult
to apply consistently in a large consulting firm. The services of a senior

individual practitioner can also be less expensive, because he or she can
avoid many of the overhead costs of a larger organization. Before becoming
independent consultants, many sole practitioners worked as business executives
or spent the first part of their careers with larger consultancies.
Some clients prefer to entrust the whole assignment to a very senior person,
one who in a larger firm would probably work as a project leader, supervising
the work of several more junior consultants. Sole practitioners are often
connected with other colleagues in informal networks and so can team up to
undertake larger and more complex assignments, or can recommend another
person for work outside their own area of competence. Most of them consult for
smaller enterprises, but even larger enterprises sometimes use sole practitioners'
services for smaller assignments and special tasks.
The problem is that, alongside highly competent and committed
individuals, this group also includes medioc:re consultants and it is not always
easy to find out who is who.
The "consulting professors"

While a sole practitioner makes a living from consulting, there are manage-
ment professors, lecturers, trainers and researchers whose only job is not
consulting, but who are involved in it on a part-time, though fairly regular, basis.
Most of them provide ad hoc advice on management issues which may be quite
important from the client's perspective, but which do not require extensive
consulting time.
Some full-time consultants do not regard the "professor" as a real manage-
ment consultant. This, however, is a short-sighted view. Experience has shown
that outstanding benefits can be drawn from combining research, teaching and
consulting. The consulting professors' main contribution has been new
perspectives and new ideas, not routine corlsulting work. A small group has
attained the level of "guru consulting7', which influences the thinking of legions
of business executives and management consultants alike.
Consulting services of management institutions

To foster local management consulting capabilities and link management
teachers and trainers with the world of practice, a number of business schools,
management institutions and productivity centres, primarily (but not only) in
developing countries, have established consulting services to private and public
organizations. Often this has been done with technical assistance from inter-
national agencies and with the involvement of experienced consultancy firms
from other countries. These "institutional" units enjoy some independence in
choosing clients and selling services. Some of them employ full-time
consultants, while others staff assignments from the institution's teaching and
research personnel.
Range and scope of consulting sewices
A combination of teachingltraining and consulting services is highly

valued by many clients. However, there are institutions where this form of
consulting conflicts with individual "professor" consulting and teaching: the
best individuals on the teaching staff tend to give priority to their personal clients,
from whom they earn considerable income, before projets negotiated and
executed through the institution, and before classroom teaching.
Non-traditional suppliers of consulting services

A new group of suppliers of management consulting services has emerged
in recent years. This group is rather heterogeneous but has one common
characteristic: its original and main function is something other than consulting,
but consulting is viewed as a technically useful and financially profitable
addendum to its products and services. The group includes, among others:
suppliers and vendors of computer and communication equipment;
computer software houses;
commercial and investment banks, brokers, insurance companies and other
organizations in the finance sector;
suppliers of equipment and turnkey projects in energy, transportation,
drinking-water, irrigation and other utilities;
economic, statistical and sectoral research institutes and information
centres;
other organizations that have turned their internal management service
groups into external consulting services.
A number of organizations, usually those with a strong mathematical,
computer science, operations research or econometrics background, offer
special consulting services in areas such as strategic studies, model building,
forecasting of consumer demand, systems analysis and design, plant and office
automation, and others. Some of them are also referred to as "think-tank"
organizations. They may be independent, or associated with a computer firm, a
technological university or a research institute. These consulting services tend
to be research and/or technology based.
2.5 Internal consultants

An internal consulting unit is one which is established within an
organization - a business corporation, a public utility, a government ministry
or department - to provide consulting services to other units of the same
organization. Definitions and delimitations are not very precise. These services
are given many different names, but the term "management services" prevails.
They can be found at different places in the organizational structure. Some of
them are consulting services in the full sense of the term -they have a mandate
to intervene in an advisory capacity at the request of a senior manager, or a unit
manager within the organization. In other cases, consulting is one of the staff
functions, and the units concerned are also responsible for internal audit,
developing and maintaining accounting and information systems, records and
reporting procedures, organizational circulars, staff development programmes
and other similar functions.
The current trend

The growth of internal consulting has been impressive in recent years.
Internal units undertake many types of assignment which used to be given to
external consultants. To have some sort of internal management consulting
service has become common practice in larger business corporations; multi-
national corporations have large and versatile consulting units, available both to
headquarters and to foreign subsidiaries. These units are staffed with technically
competent specialists and generalists, some of whom have experience with
external management consulting or accounting firms. The same trend can be
observed in government administrations.
Total numbers of internal consultants are not known, but most probably
they are very large. Internal consultants started establishing their own pro-
fessional associations, and several professional bodies of external consultants
have recognized them. Already in 1976, the Institute of Management
Consultants in the United Kingdom agreed that the term independent practice
"shall include consultants engaged as in-house consultants who meet the
required standards of knowledge, experience and competence and are free at all
times to offer objective and independent advice".
The critics
There are many critics of internal consulting. The main criticism comes
from some larger consulting firms, which contend that internal consulting can
be a useful staff function, but does not deserve to be called management
consulting. They challenge the internal consultants' independence and
objectivity, and criticize their lack of exposure to different situations in various
companies, which it is believed leads to in-breeding. Also, it is said, only a large
firm or government department can really afford a sufficiently important and
competent internal unit for consulting work. 'This criticism does not seem to be
shared by organizations that continue to build up their own internal consulting
services.
Why such an interest?

First of all, the rapid growth of internal consulting is a recognition of the
power of the consulting approach. It is only logical that, having appreciated the
technical and methodological advantages of consulting, businesses and govern-
ments want to make more use of this approach. Many of them have found that
an internal consulting service is one way of achieving it. Consulting is thus made
accessible to many internal units and is available for makicg improvements
where previously consultants would not have been used.
Further reasons for retaining an internal consultant are quick availability,

an intimate knowledge of the organization's internal practices, work and man-
agement style, culture and politics (hence sensitivity and a more rapid orientation
in any work situation), and confidentiality. Internal consulting is often thought
to be more appropriate for problems that require a deep knowledge of the highly
complex internal relations and constraints in large organizations. In govern-
ments, they may be given priority for reasons of national security and interest.
The cost factor is not negligible. Because of reduced overheads, travel and
other expenses, even a well-paid internal consultant will cost 30-50 per cent less
than an external one - if the company has enough work for him or her.
Independence and other problems

Independence and objectivity represent a problem in some cases. This
occurs if the management of the organization and the internal consultants fail to
clarify the roles and mutual responsibilities of client and consultant within an
organization, if consultants are used for anything that comes into an executive's
mind, and if they know that they have to please top management or their direct
client instead of giving an impartial view. An internal consulting service which
has low status and has no access to top management (you are not a prophet in
your own house!) will not be able to deal with higher-level and strategy-related
problems, and its recommendations will lack credibility and authority.
If the role and status of internal consulting are properly defined and
respected, the independence, objectivity and credibility of this service can be
considerably enhanced.
Combining internal and external consulting

The use of internal consultants is not a passing fad, nor will it replace the
use of external consultants. The latter will continue to be preferred in situations
where an internal consultant does not meet the criteria of impartiality and
confidentiality, or lacks expertise. However, it is difficult to contest that internal
consulting has a definite role to play, and its obstinate opponents would do well
to stop denigrating its potential.
In a growing number of cases, assignments are entrusted to joint teams of
external and internal consultants. This is a technically interesting arrangement:
it can reduce costs; it helps external consultants to learn quickly about the client
organization; it facilitates implementation; and it contributes to the training of
internal consultants.
Many external consultants enjoy this way of working and regard internal
consultants as useful technical partners, not competitors. They have learned
not to underestimate and not to ignore any internal consultant in a client
organization. In many situations it is tactically better if proposals are endorsed
by an internal unit, or are presented by this unit, than if they represent only an
outsider's view. Internal consultants are more and more involvep in defining
terms of reference for external consultants, establishing short-lists for selecting
consultants, making the selection, negotiating the terms of contracts, discussing

recommendations, and monitoring implementation. Their use can improve the
quality and reduce the costs of implementation quite considerably.
An interesting way of increasing the competence and credibility of internal
consultants is to involve them in external consulting. For example, management
services units in several electricity corpora~:ions,railways and other public
utilities have developed performance improvement and staff training pro-
grammes that are of interest to public utiliti~esin other sectors or countries.
In-company management services units in various sectors have done a great deal
of work on project and systems design, consulting and training in developing
countries.
From cost centres to profit centres

The traditional way of using internal consultants prevented these units from
covering their costs from their income. Th8:y were treated as cost centres,
financed from the company budget as part of the general costs. Their growth
was not determined by client demand, or by the consultant's ability to develop
and sell better services, but by the company's budgetary process and the unit's
ability to negotiate higher allocations. If the allocation to the internal consulting
unit was insufficient, the demand for its services could probably not be met. The
unit's staff could not really be motivated to develop and sell more and better
services.
To change this set-up, many organizations have started treating their
internal consulting units as profit centres. This is more than a change in
budgetary procedures. A profit centre is rega.rded as a unit that creates value,
generates income and contributes to the company's profit. It must be able to sell
its services, thus demonstrating that there is demand even if the clients have to
pay. Internal clients, however, must have the right to choose. If the internal
consulting unit satisfies them, they buy its services. If not, they turn to external
consultants.
The helping relationship within an organization

Besides the activities of internal consulting units, there are many other
opportunities for making effective use of the helping relationship within
organizations. Examples are advisory missions of managers and specialists to
other subsidiaries and plants within a corporation, temporary task forces and
project groups, short-term detachments, personal coaching and counselling, and
so on. Some of these forms will be described in Chapter 4, when organizational
forms and interventions for managing and assisting change are discussed. They
are often used in connection with a consulting project carried out by an external
or internal consulting unit.
Although this sort of helping activity is not normally referred to as
consulting, it tends to produce better results if the individuals involved are
familiar with the principles and methods of professional consulting.
2.6 Management consulting and other professions

On the previous pages we have made several references to two trends:
firstly, management consultants have been increasingly moving into new service
areas, which may be emerging areas of management consulting, but also areas
outside the management consulting field; and, secondly, other providers of
professional and business services have tended to do more and more manage-
ment consulting. This shows that professions no longer enjoy impenetrable
borders and absolute protection against intruders. The world of the professions
is undergoing profound transformations, which are reshaping individual
professions, shifting their borders and changing their status, relationships and
methods of work.
Professional infrastructure of the market economy

To function smoothly, the market economy needs a well-developed,
reliable and effective infrastructure of professional services. Management
consulting is one of them. The total infrastructure comprises many other services
(figure 2.1, overleaf). They all serve the same private and public sector client
base, including business firms, administrations, social organizations and
individuals. They also serve each other.
The structural changes through which business and governments have
passed in the last decades have had a major impact on professions providing
services to them. The services of lawyers, accountants, investment bankers,
management consultants and others are in great demand as the pace of structural
changes accelerates and as these changes become radical and complex. Mergers
and acquisitions, joint ventures, privatization, trade liberalization, export
development, new forms of cross-border trade and financial operations, business
alliances, or new laws and agreements regulating business nationally and
internationally - are all green pastures for business- and management-related
professions.
Most of these business transactions and structural changes do not fall under
the jurisdiction of one single profession. They involve legal, financial,
accounting, organizational, managerial and other aspects, although one of these
aspects may dominate in a given case. In addition, an international perspective
and expertise is increasingly required from all professions.
Management consulting has grown and evolved in this context. It has been
changing in interaction with other professions, which has included both
competition and cooperation. This interdependence is best documented by the
spectacular growth of management consulting services of international
accounting firms. Within less than 20 years, these firms have been able to become
world leaders in consulting in addition to having achieved a leadership position
in accounting and audit.
Figure 2.1 Professional service infrastructure
Ll
search, etc:.)
Taking a bite out of other professions' cake

Tough competition is one of the maijn characteristics of the current state
of the professions. There is competition both within and among professions.
When a new market starts emerging, several professions may claim that this
market is primarily within their province. This has been the case of privatization,
where accounting firms, investment banke~s,management consultants and law
firms have all been competing for a leadership position and a bigger market
share.
If the work to be done requires an intcmlisciplinary approach - which is
more and more the case - a firm in one profession may decide to establish a
new service line in an area that falls under another profession from a strictly
technical point of view. A management consultant would branch out into tax
advice, or a computer firm decide to offer management consulting. Other
examples were given in section 2.4. Thus the firm becomes multi-professional,
Range and scope of consulting sewices
or multidisciplinary. If there are legal or other barriers preventing a combination

of certain service lines within one firm (e.g. legal advice and management
consulting or accounting and audit), a solution is usually found in establishing
a new sister or affiliated firm for the new service line.
In some grey areas competition is straightforward. For example, company
valuation is not a guarded domain of any profession in many countries.
Management consultants rightly emphasize their advantages: assessing potential
future earnings of a manufacturing company requires an ability to analyse
demand and sectoral trends, the maturity level of the technology used,
emerging technologies, raw materials, local and foreign competitors, quality
and cost of labour, and the like. Conversely, accountants and investment bankers
also offer valuation services, stressing the accounting and financial market
aspects and implications. There are, too, independent experts in property, real
estate and company valuation. Thus, valuation services are available from
several professions, and clients can choose which ones to use.
Cooperation among professions

Cooperation among different professions is an equally important trend.
Clients are not interested in interprofessional skirmishes and jealously guarded
borders between professions. They resent corporatist attitudes that put the
profession's self-interest before the clients' interest. What they want is a service
in which no important aspect of the problem in hand is ignored or treated
unprofessionally. If a management consultant cannot deliver such a service with
his or her own resources, well-organized collaboration with other professions
provides a solution.
Management consultants collaborate closely with lawyers on many issues
with legal aspects and implications. The initiative often comes from the legal
side: legal counsel may feel the need for management or financial advice in
dealing with a legal problem, and so turn to a management consulting firm,
which may or may not already be on contract to a mutual client. However, the
management consultant can also perceive the need for legal advice in a given
situation, invite a lawyer to participate in a joint assignment, seek consultation
with internal counsel or recommend that the client engage outside legal counsel.
Another area with numerous links to consulting is audit. It can be argued
that auditing in the narrow sense of the term, that is, checking and certifying
accounting records and financial reports, is not consulting. However, it is only
a small step to consulting. Auditors who make a value judgement on the client
organization's records and reports or recommend an improvement - and this
is what is increasingly required in many countries -act as consultants whether
they call themselves consultants or not. Auditing often prepares the ground for
important management consulting projects; this was well perceived by
accounting firms when they decided to enter management consulting (see also
the discussion of cross-selling in Chapter 25).
Engineering consultants (consulting engineers) constitute a vast and
diversified sector providing technical expertise in areas such as civil engineering,
the construction industry, architecture, land and quantity surveying, town and
country planning, project planning and supervision, mechanical engineering,
chemical engineering, patent services, computer science and systems, and so on.
The link between management consulting and consulting in engineering
has traditionally been very close and the boundaries are in many cases blurred.
On the one hand, some engineering consultants also deal with organization and
management questions, particularly in areas such as industrial or production
engineering and control, quality management, maintenance, feasibility studies,
patents and licences, plant design, or project design, implementation and
supervision. On the other hand, production management consultants with an
engineering background can deal with various production and productivity
improvement problems that are of both a managerial and a technological nature.
In many contexts the best results will be achieved if management and
engineering experts work together on interdisciplinary projects.
Several remarks on the relationships between management consulting and
information technology (IT) consulting have already been made on the previous
pages. Indeed, it is in this interface that the most spectacular and most rapid
changes have occurred in recent years -- and will continue in the future.
Computer software houses and hardware manufacturers first entered
management consulting in the area of systems design, development and
application, and then widened their interest and embraced general management
and strategy consulting, and other areas. Management consultants' strategies
have been very similar: they have been adding more and more IT services to
their portfolio. On both sides firms have come up with a widening range of
integrated management/systems/IT servic~:~,as well as highly specialized
services. This has been achieved through numerous mergers and acquisitions,
and also through authentic develop men^ of new service lines and new
competencies.
It is difficult to predict how far the rapprochement of management and IT
consulting will reach, but it is easy to see that the current situation is a transitional
one and that further changes will be forthcoming.
2.7 Management consulting, training and research

There is a very special relationship, different from what was described in
the previous section, between management consulting on the one hand, and
management training, development and research on the other hand. It could even
be argued that conceptually they constitute subsectors of the same profession,
since they have the same object of study and practical intervention and the same
educational background, and pursue the same ultimate purposes. What is
different is methodology, and immediate pnrposes.
There are professions where the relationships between practical
intervention, education, and training and research have been clarified and
arranged long ago. In medicine, no one would think of the practitioners, the
medical schools and the researchers as of different professions. In management,
we have not arrived at that point. We have not been able to overcome fully the
traditional dichotomy between the practically oriented consultant, committed to
producing tangible results for the client, and the professor-researcher, writing
and teaching about concepts and theories, but less concerned with practical
applications.
Consulting and training

Fortunately, there have been signs of real progress in bridging the gap
between consulting, and training and development, in the field of management:
In modern consulting, learning is pursued as one of the main purposes. In
choosing his or her work methods and collaborating with the client, the
consultant aims to pass on personal know-how and experience to the client.
Consultants view training (both informal and formal) as their key
intervention tool and use it extensively.
Some consulting firms have established management development and
training centres as a special client service, which can be used in conjunction
with consulting assignments, or separately.
Many consultants collaborate with business schools and other educational
and training establishments as part-time teachers or trainers.
Conversely, more and more management teachers and trainers practise
consulting alongside teaching and training (the "consulting professors"
mentioned in section 2.4) and use consulting experience to make training
more relevant and practically oriented.
In some educational and training establishments, consulting has become
an institutional function, organized through special consulting departments
and/or projects.
There are also hybrid firms and institutions, providing combined
consultingftraining services and stressing the benefits that the client can
obtain from their approach.
Consulting and research

Similar comments can be made on the relationships between management
consulting and management research. Many of the older-generation consultants
liked to stress that they were down-to-earth practitioners who had nothing in
common with the researcher. This dichotomy, however, reflected a poor theor-
etical preparation of the consultant and a lack of practical purpose on the side
of most academics, rather than a substantive conflict between the consulting and
the research approach. Despite their differences (see box 2.1 overleaf), research
and consulting have a lot in common and can be very useful to each other.
In dealing with practical management problems, consultants need to know
the results of research and draw from them -for example, before recommend-
ing an incentive technique it is better to know whether any research has been
made into the use of that technique in conditions similar to those experienced
Box 2.1 Factors differentiating research and consulting

Factor Research Consulting
Problem Mainly fashioned by Mainly fashioned by

researcher; more client, sometimes on
open-ended, especially in joint basis
exploratory research
Time scale Usually flexible More tight and rigid
End product New knowledge and new Better management
+
theories ? better practice
practice
Ownership of Usually publicly available Often confidential
information
Decision-making Focus may change at Discretion limited to
researcher's discretion main task only
subject to plan
Academic rigour Methodology tight Minimum level
appropriate to
problem
Evaluation External - by peers in Internal - by
scientific community, company
policy-makers
by the client. Consulting organizations increasingly encourage their members

not only to be informed about published results of management research, but
also to keep in touch with on-going research projects and with the leading
researchers.
Research, then, can only benefit from close links with consulting. The data
collected in client organizations by consultants can serve wider research
purposes. Data from a number of organizations can be used for drawing general
conclusions on sectoral or other trends, without infringing confidentiality. On
becoming aware of this, many consulting firms have also gone into research.
They have their own research programme, undertake contract research, and
publish books based on their own research, 01. they cooperate on research projects
with universities and individual researchers. Some consulting firms have gained
the reputation of being strongly research based. Business schools and research
institutes are increasingly interested in testing and diffusing the results of their
research through consulting assignments.
Methodologically, consultants learn a lot from researchers and vice versa.
Action research is an example of research that is on the borders of research and
consulting; it aims simultaneously at solving a meaningful practical problem
and yielding new knowledge about the social system under study. Action
research involves changing that which is being investigated; conventional
research does not.
1 For a fine account of the history of management consulting see H. J. Klein: Otherpeople's
business: A primer on management consultants (New York, Mason-Charter, 1977); and P. Tisdall:
Agents of change: The development and practice of management consultancy (London,
Heinemann, 1982).
2 See W. B. Wolf: Management and consulting: An introduction to James 0. McKinsey
(Ithaca, New York, Cornell University, 1978).
3 The "Big Eight" included the following international accounting firms: Arthur Andersen;
Arthur Young; Coopers and Lybrand; Deloitte Haskins and Sells; Ernst and Whinney; Peat,
Manvick, Mitchell; Price Waterhouse; and Touche Ross. In 1989, Ernst and Young was established
by merging Ernst and Whinney with Arthur Young. Deloitte Haskins and Sells merged with Touche
Ross. Peat, Marwick, Mitchell became KPMG following a 1986 merger with Klynveld Main
Goerdeler.
Consultants News (Fitzwilliam, New Hampshire), July 1993, and other sources.
THE CONSULTANT-CLIENT
RELATIONSHIP
The consulting process involves two partners - the consultant and the
client. The client has decided to purchase a professional service under certain
terms -for example, for an agreed number of days and a daily fee. During this
time, the consultant's expertise will be fully available to the client, and in theory
it should be easy to put this expertise to work on the client's project. It is fair to
assume that both parties are keen to achieve the same purpose.
The reality is infinitely more complex. The consultant remains an external
person to the organization, someone who is supposed to achieve a valid result
in the client organization without being part of its administrative and human
system. Even an internal consultant - an organization's employee - is an
external element from the viewpoint of organizational units where he or she is
supposed to intervene. Quite independently of its technical relevance and
quality, the consultant's advice may or may not be understood and accepted by
the client. The consultant can upset people and hurt their feelings in many
different ways. Rejection can take many forms. The history of consulting records
thousands of excellent reports that have been buried in managers' desks and
never implemented, although they were formally accepted. This underlines the
critical importance of creating and maintaining an effective consultant-client
relationship.
Experience shows that building this relationship is not easy. To achieve
success, both consultants and clients ought to be aware of the human, cultural
and other factors that will affect their relationship, and of the errors to be avoided
when working together on the assignment. They must be prepared to make a
special effort to build and maintain a relationship of understanding and trust that
makes the effective intervention of an independent professional possible. There
is no alternative.
3.1 Defining expectations and roles

To begin with, the client and the consultant may look differently at both
the expected outcome and the ways of carrying out the assignment. The client
may have only a vague idea of how consultants work and may be slightly
suspicious - possibly he or she has heard about consultants who try to
complicate every issue, require more information than they really need, ask for
more time in order to justify longer assignments, and charge exorbitant fees. The
client may be approaching the consultant with mixed feelings (box 3.1). But
even if there is no suspicion, and no fear on the client's side, there is a risk of
misunderstanding.
Box 3.1 What it feels like to be a buyer

(1) I'm feeling insecure. I'm not sure I know how to detect which of the finalists
is the genius, and which is just good. I've exhausted my abilities to make
technical distinctions.
(2) I'm feeling threatened. This is my area of responsibility, and even though
intellectuallyIknow Ineed outside expertise, emotionally it's not comfortable
to put my affairs in the hands of others.
(3) I'm taking a personal risk. By putting my affairs in the hands of someone
else, I risk losing control.
(4) I'm impatlent. I didn't call in someone at the first sign of symptoms (or
opportunity). I've been thinking about th~sfor a while.
(5) I'm worried. By the very fact of suggesting improvements or changes, these
people are going to be implying that Ihaven't been doing it right up till now.
Are these people going to be on my side?
(6) I'm exposed. Whoever I hire, I'm going to reveal some proprietary secrets,
not all of which are flattering. Iwill have to undress.
(7) I'mfeeling Ignorant,and don't like the feeling. Idon't know if I've got a simple
problem or a complex one. I'm not sure Ican trust them to be honest about
that: it's in their interest to convince me it's complex.
(8) I'm sceptical. I've been burned before by these kinds of people. You get a
lot of promises: How do I know whose promise Ishould buy?
(9) I'm concerned that they either can't or won't take the time to understand
what makes my situation special. They'll try to sell me what they've got rather
than what 1 need.
(10) I'm suspicious. Will they be those typical professionalswho are hard to get
hold of, who are patronizing, who leave you out of the bop, who befuddle
you with jargon, who don't explain what they're redoing or why, who . . . ,
who . . ., who . . .? In short, will these people deal with me in the way I want
to be dealt with?
Source: David Maister: Menagingtheprofessi0nalse~'cefim(New York, The Free Press, 1993).
p. 113.
Joint problem definition

First, the reason for which the consultant was brought in needs to be well
defined. A manager who wants to call for a consultant's help should not merely
recognize a need for such help, but define the problem as he or she sees it, as
precisely as possible. In many organizations, top management would not even
consider using consultants unless presented with a clear description of the
problem and the purpose of the consultancy.
The consultant-client relationship
Before accepting the assignment, the consultant must be sure that he or she
can subscribe to the client's definition of the problem. With the exception of the
most simple and clear cases, the consultant wants to be able to reach his or her
own conclusion as to what the problem is and how difficult its solution might
be.
There are many reasons why the consultant's definition of the problem
might differ from the client's. Frequently managers are too deeply immersed in
a particular situation, or have created the problem themselves. They may
perceive the symptoms but not the real issue. They may also prefer the consultant
to "discover" certain significant aspects of the problem.
Comparison of the client's and the consultant's definition of the problem
lays down the basis of sound working relations and mutual trust for the whole
duration of the assignment. It requires discussion. Both the consultant and the
client should be prepared to make corrections to their initial definition of the
problem and to agree on a joint definition. But this joint definition should not
be considered as final. Once the assignment has started, detailed diagnostic work
may uncover new problems and new opportunities, and impose a redefinition of
what was originally agreed.
Results to be achieved
Secondly, the consultant and the client should clarify what the assignment
should achieve and how this achievement will be measured. This may require
an exchange of views on how each party regards consulting, how far the
consultant should continue working on an agreed task (possibly exceeding
the scope of that task), and what his or her responsibility to the client is. As
mentioned in section 1.4, there is often a misunderstanding about the con-
sultant's role in implementation. The consultant may be keen to participate in
it, but the client may be used to receiving reports with action proposals, and to
deciding on implementation only after the consultant has left. If possible, the
consultant will try to be involved in implementation. If cost is what worries the
client, the consultant's presence during implementation can be a light one (see
also Chapter 10).
The consultant's and the client's roles

Thirdly, it is important to determine how the assignment will be conducted
by the two parties:
What roles will be played by the consultant and what by the client? What
will be their mutual commitments?
- Who will do what, when, and how?
- Does the client want to obtain a solution from the consultant, or does he
prefer to develop his own solution with the consultant's help?
- Is the client prepared to be intensely involved throughout the assignment?
- Are there specific areas that the consultant should cover without trying to
involve the client? And vice versa?
These and similar questions will clarify the client's and the consultant's
conception of management consulting and of the roles that can be effectively
played by consultants. The answers will define the strategy to be followed in
order to make the assignment a success by both the client's and the consultant's
standards.
During the assignment, many unforeseen events may occur and new facts
may be uncovered so that it becomes necessary to review the original definition
of expectations and roles. Both the client and the consultant should be alert to
this possibility and be flexible enough to adjust their contract and work
arrangements. The client's staff may find at some stage that they can easily
produce information or action proposals that the consultant was originally
supposed to work out, or that it would be more useful to use the consultant as a
trainer than as a problem solver. Insisting on keeping to the initial definition of
roles, although changed conditions require a new definition, may prove to be
counter-productive.
3.2 A collaborative relationship

Different situations and client expectat ions lead to different definitions of
the consultant's roles and intervention methods. Sections 3.4 and 3.5 will review
a number of role models from which to choose. Nevertheless, whatever choice
is made, the overriding objective should always be the creation and maintenance
of a true collaborative relationship. This is a golden rule of consulting. The
degree and form of client-consultant collaboration will differ from case to case,
but there should always be a strong spirit of collaboration, characterized by a
shared desire to make the assignment a success, by trust and respect, and by an
understanding of the other partner's technical and human roles.
Some clients imagine that by actively collaborating with the consultant
they would actually do the job themselves, paying the consultant a handsome
fee for nothing. The consultant who insists on the client's collaboration is
compared to "the guy who borrows your watch to tell you the time". Often the
real will to collaborate is tested at the fact-finding stage. The client feels that he
or she should not give the consultant all the data requested and even instructs
the staff to withhold information. This shows that the need for active
collaboration is not automatically perceived by every client and that various
misconceptions may have to be dispelled.
In some countries the client's reluctance to give the consultant all infor-
mation on the state of the business cannot be interpreted as a misunderstanding
of consulting, or as the client's unwillingness to establish a collaborative
relationship. Accounting and financial information may be regarded as strictly
confidential by a local business and the consultant should not ask for it unless
the assignment is in the area of finance. Clearly, it is not possible to provide
advice on financial matters without having access to financial data.
The modern concept of consulting methodology assumes strong client
collaboration for the following main reasons:
There are many things that the consultant cannot do at all or cannot do
properly, if the client is reluctant to collaborate. This happens if the
consultant is refused information or cannot exchange ideas with the right
people.
Often higher management is unaware of all the competence existing in the
organization, and important strengths may be concealed from it. Through
collaboration, consultants help clients to uncover and mobilize their own
resources.
Collaboration is essential so that the client associates fully with the
definition of the problem and with the results of the assignment.
Consultants emphasize that their client must "own" the problem and its
solution. The reason is that human systems often reject changes proposed
or imposed from the outside. By collaborating on a solution the client is
more likely to be committed to it and will not put all the responsibility onto
the consultant. This commitment will be not only rational, but also
emotional. We all know that we tend to have different attitudes towards
projects into which we have had to put long hours of hard work and a lot
of energy, and to those which we are asked to adopt without ever having
been consulted on them.
Most importantly, unless the client collaborates in the assignment, he or
she is unlikely to learn from it. Learning is one of the basic purposes of
consulting. However, it does not occur by defining terms of reference and
accepting or rejecting a final report, but by joint work at all stages of the
assignment, starting with problem definition and diagnosis, and ending
with the implementation and the assessment of the results actually
obtained.
3.3 The client system

With whom, then, and how, will the consultant collaborate? The client, in
the widest sense of the term, is the organization which employs the services of
a consulting firm. There we have an institutional relationship. A professional
service firm works for a manufacturing enterprise, or similar. But there are also
clients in a narrower sense of the term -individuals or groups of persons in the
client organization who initiate the bringing in of the consultant, discuss the job
with him or her, collaborate in the course of the assignment, receive reports and
recommend to higher management whether or not to accept them, and so on.
Often a number of managers, supervisors, staff members, workers and liaison
officers will be directly involved in the assignment at its various stages, or
affected by the conclusions reached. Here the consultant-client relationship is
personalized and will be influenced by psychological and other factors.
In professional advisory services the consultant-client relationship is
always personalized (see Chapter 23). There may be a formal contract between
the consulting firm and the organization using its services. However, the delivery
of the service occurs through direct contact between persons acting on behalf of
the two organizations. This is fundamental. A really productive relationship
cannot be fully guaranteed by any legal contract between organizations; it will

depend on the abilities and attitudes of, and on the "psychological contract"
between, the individuals directly involved.
Management consultants know that in working with client organizations
they can discover highly complex and recondite relations. They can face
conflicting expectations, hopes and fears, respect and disrespect, confidence and
distrust. Information may be readily offered or deliberately concealed or
distorted. Consultants refer, therefore, to "client systems", taking a systems view
of the client organization and trying to map out the network of relationships in
which they are going to operate. This may show that the client system embraces
only a part or an aspect of the client organization. Within the client system, the
consultant needs then to determine:
- who holds the real power for making d1:cisions related to the assignment
(at all stages);
- who has the main interest in the success or failure of the assignment;
- whose direct collaboration is essential.
Many consultants make the mistake of automatically considering and
treating the person at the top as their main client. This upsets those people who
know that they will have the main responsibility for implementing the
conclusions reached, and that they - not the top manager - will be directly
affected and will have to live with the results. On the other hand, it may also be
a great mistake to leave out the higher-level manager. He or she should be
informed and asked for support before it is too late.
During the assignment, the consultant continues to explore the client
system and improve his understanding of the roles played by various persons.
He does this because he cannot be sure that h1[soriginal assessment of roles was
correct, and also because assignments are living processes and shifts in role can
occur at any moment. The appointment of a nl:w manager can change the course
of a consulting assignment dramatically.
Some situations may be particularly intricate, e.g. if the consultant does
not really know who the main client is and w hom he or she should try to satisfy
first of all. This may happen if top management recruits the consultant, but leaves
it solely to a functional department to handle the job, if a consulting assignment
is recommended and sponsored by a bank as a precondition of a loan to its client,
or if a ministry sends consultants to a public enterprise. In these and similar
situations, the consultant needs to clarify whether he or she is supposed to act
as an inspector, an auditor, an informant, or a real management consultant. He
or she should find out who "owns" the problem and is keen to be helped -this
person or organization will be the main client.
3.4 Behavioural roles of the consultant

This section examines the concept of the consultant's behavioural roles
(consulting modes), which is very popular in literature on consulting. It tries to
show, in a condensed form, the most typical and frequent consulting behaviours,
and to describe how consultants relate to clients, what inputs they make, and in
Box 3.2 Varlous categories of clients within a client system

In a complex client system it is useful to think in terms of categories of clients,
aiming to understandtheir varying motivationsand roles, and deciding how to work
with each category (some clients may bekong to two or more categories
simultaneously):
(1) Contact clients: they approach the consultant initially.
(2) Intermediate cllents: they participate in various meetings on fact finding,
assignment planning, reviewing alternatives, and so on.
(3) Main or primary clients: they "own" a problemfor which they needand want
help and for which the consultant was brought in. They are likely to be the
consultant's principal collaborators.
(4) Contract clients: they play a key rob in the consultant selection procedure
and in negotiating and signing a consulng contract.
(5) Ultimate clients:their welfare and interests will ultimately be affected by the
assignment; they must be considered in planning the intervention, although
they may not be directly involved with the consultant.
(6) Sponsoring clients: they provide financial resources for the consultancy
and may or may not wish to play a role in determiningthe procedureto follow,
choosing the consultant and approving the proposals to be implemented.
Developed from a typology of clients orrginally proposed by E. Schem, in Process consultalim,
Vol. li (Reading, Massachusetts, Addison-Wesley, 1987), pp. 117-118.
what way and how intensively clients participate. It emphasizes that the roles
assumed depend on the situation, the client's preferences and expectations, and
the consultant's profile.
There is no shortage of different descriptions and typologies of consulting
roles. We have found it useful to make a distinction between basic roles, which
include the resource and the process role, and a further refinement of the role
concept, in which many more roles or sub-roles can be visualized in order to
facilitate the understanding of the various intervention modes used in consulting.
Basic roles: The resource and the process role

In the resource role (also referred to as an expert or content role), the
consultant helps the client by providing technical expertise and doing something
for and on behalf of the client: he or she supplies information, diagnoses the
organization, undertakes a feasibility study, designs a new system, trains staff
in a new technique, recommends organizational and other changes, comments
on a new project envisaged by management, and the like.
Management does collaborate with the resource consultant, but this
collaboration may be limited to providing information on request, discussing
the progress made, accepting or declining proposals, and asking for further
advice on implementation. Management does not expect the consultant to deal
extensively with the social and behavioural aspects of the change process in the
organization, although the consultant will have to be aware of these aspects.
In the process role, the consultant as the agent of change attempts to help
the organization to solve its own problems by making it aware of organizational
processes, of their likely consequences, and of intervention techniques for
stimulating change. Instead of passing on technical knowledge and suggesting
solutions, the process consultant is primarily concerned with passing on his or
her approach, methods and values so that the client organization itself can
diagnose and remedy its own problems. 1r1various descriptions of process
consulting, the organization behaviour (OD) approach comes across loud and
clear.
Expressed in simpler terms, while the resource consultant tries to suggest
to the client what to change, the process consultant suggests mainly how to
change and helps the client to go through the change process and deal with
human problems as they arise. Edgar Schein describes process consultation as
"a set of activities on the part of the consultant that help the client to perceive,
understand, and act upon the process events that occur in the client's
en~ironment".~ According to Schein, "the most central premise of process
consulting is that the client owns the problem and continues to own it throughout
the consultation process. The consultant can help the client to deal with the
problem, but the consultant never takes the problem onto his own shoulder^".^
While any consulting involves some collaboration with the client, the process
approach is a collaborative approach par excdlence.
Choosing between the basic roles

In past years, "pure" resource or expert consulting used to be quite
common. In today's consulting practice, it tends to be confined to those situations
where the client clearly wants to acquire and apply, in one way or another, special
technical expertise, and does not want the consultant to become involved in
human problems and organizational change. In most situations, the two roles
should be seen as complementary and mutually supportive. On the one hand,
this is possible thanks to progress in the comp~:tenceof management consultants:
today even technical specialists intervening in a relatively narrow area tend to
have some training in the behavioural aspecs of organizational change and of
consulting, and are keen to help in implementation. On the other hand, the "pure"
behavioural scientists, the traditional protagonists of process consulting, have
come to the conclusion that the possibility of their helping in organizational
change would remain modest if they did not improve their understanding of
technical, economic, financial and other problems and processes in client
organizations. Thus, more and more consultants feel comfortable in both roles.
Nevertheless, it is possible to refer to situations, or to phases in assign-
ments, where one or the other approach pre~rlominates.A consultant may start
an assignment as a resource consultant in order to become acquainted with key
data on the client organization and demonstrate to the client that he is a real
expert in the technical field concerned. He can then act more and more as a
process consultant, trying to involve the client in looking for solutions likely to
make effective use of the client's capabilities and to be internalized by the client
system. Temporarily he will switch back to the role of resource consultant to

provide missing technical knowledge so that the process of change does not stop.
Conversely, other consultants emphasize that they would start every
assignment in the process mode in order to ensure the client's active involvement
and develop a fair understanding of the organization's human problems right at
the beginning. They would then switch to other roles or models when they feel
that this is the right way to p r ~ c e e dI.t~is also useful to see that the concept of
process consulting continues to evolve (box 3.3).
Box 3.3 Soft and hard participative process consulting

William Altier and Miles Overholt have observed that Schein's concept of
process consulting is appropriate for a limited range of situations calling for an
intervention of an organizational development (OD) nature. They propose to use
an umbrella term, "participative process consulting", which covers a wide variety
of approaches and methodologies.These are described as either "soft", i.e. those
focusing on people's behaviour, attitudes, values and relationships, or "hard",
suitable for systematic, rigorous and disciplined problem identification and
problem solving, in ways suggested by Kepner-Tregoe in The rational manager. As
distinct from soft process consulting, in the hard sector the consultant suggests a
structured process methodology likely to lead the client on the path to correct
results, the intention being to limit the information used by the group to that which
is deemed to be relevant. The approach is illustrated by the minicase below. In
between the hard and the soft, there is an infinite range of combinations of
information-orientedand people-oriented processes.
Minicase
A multinational firm was acquiring a company whose strength in a particular
product area was the perfect answer to their weakness in that area. However, both
companies had extensive sales and distributionorganizationsthat were essentially
carbon copies of each other. They had serious concerns about their ability to
integrate these two organizations. If they were not able to accomplish this, the
merger would be a disaster.
They asked a consultant to help, utilizing the consultant's "merger integration
process", which is actually a composite of the fundamental processes of "situation
assessment" (SA), "decision analysis" (DA), and "potential problem analysis"
(PPA), operating within the environment of the specific merger situation. A merger
is undertaken to accomplish certain desired change. This body of desired change
also frames an unrecognized body of undesired change and resistanceto change
that, at worst, has the potential to destroy the merger. The merger integration
process employs the tools of SA, DA and PPA within the merger's change environ-
ment to identify and remove the undesired change and the resistance to change.
The consultant's role was to lead the participants through the steps of the
thinking processes by directing specific, targeted questions at them and then
recording their responses on flip charts in the relevant process formats. This
allowed them to see the analytical progression and conclusions that were being
developed for each issue.
A vice-president of the acquiring company and the consultant, along with the
Chief Executive Officer (CEO) of the company being acquired, selected four people
from each organization to make up the team to work on this. The vice-president
wanted them to meet at his headquarters, but the consultant vetoed this idea. He
suggested that the meeting be held on "neutral ground" - in a city located
between the two headquarters - so that none of the participants, consciously or
subconsciously, might feel that they had a "home court advantage".
The meeting started with a couple of hours devoted to SA, a tool that is
concerned with uncovering and stating the relevant issues and concerns in their
purest form, and then recognizing any dependent or independent relationships
between them. The SA session produced a list of four critical decisions and the
order in which they should be attacked. After a few minutes of discussion, the best
answer to the first decision was obvious. It was therefore accepted and the group
moved on.
The second situation was complex and the group proceeded to subject it to DA,
a tool that is used to define the relevant objectives which should influence the
choice, then to create the widest possible range of options, and finally to evaluate
the options against the objectives. Shortly into the DA process, it became obvious
that the statement of the second decision realky embodied two separate choices;
it was broken into two new decision statements and the analysis proceeded.
By the end of the second day, the team had completed decision analyses on
four complex issues. The morning of the third day was spent identifyingactions to
be taken to accomplish the changes, and deciding who should be responsible for
each. By noon, these elements had been meshed together into an implementation
plan and the group was able to adjourn.
Author: William J. A k r . See also M. H. Overholt and W. J. Altier: "ParHcipative process consulting:
The hard and soft of it",inJournal of ManagementConsulting (Milwaukee, Wisconsin), Vol. 4, No. 3,
1988.
In choosing a role, the consultant must never forget that it constitutes a

-
'communicating vessel" with the client's rob:. Both the consultant and the client
should feel competent and comfortable in their respective roles and believe that
they have made the right choice. No one should try to play a role which is alien
to his or her nature and in which he or she will be less effective. Also, the client
may be unaware of the various consulting roles, or may be used to a different
consulting style from previous projects. This should be discussed and clarified
as early as possible in starting an assignment.
3.5 Further refinement of the role concept

Reducing the various consulting processes to two basic roles or modes is
a simplification that is conceptually useful, but disregards a number of
situational variables. For practical purposes it is also instructive to visualize a
greater number of consultative roles along a directive and non-directive
continuum, as suggested by Gordon and Ronald Lippitt and shown in figure 3.1.
By directive we mean these behaviours where the consultant assumes a position
of leadership, initiates activity or tells the client what to do. In the non-directive
role he or she provides data for the client to use or not to use. Here again the
Figure 3.1 Description of the consultant's role on a directive and non-directive continuum
MULTIPLE ROLES OF THE CONSULTANT
Collaborator
Process Fact Alternative in problem- Trainer1 Technical
Reflector specialist finder identifier solving educator expert Advocate
LEVEL OF CONSULTANT ACTIVITY IN PROBLEM-SOLVING
Non-directive Directive
Observes Identifies Proposes

problem- alternatives Provides guidelines,
solving and information persuades,
processes resources Offers Trains and or directs
Raises and raises Gathers for client alternatives the client suggestions in the
questions issues data and and helps and and designs for policy problem-
for mirroring stimulates assess participates learning or practice solving
reflection feedback thinking consequences in decisions experiences decisions process
Source: Adapted from G. Lippitt and R. Lippitt: The consultingprocess in action (La Jolla, California, University Associates, 1979), p. 31.
situational roles are not mutually exclusive and manifest themselves in many
ways in a particular consultant-client rela1:ionship. The consultant can play
several roles simultaneously or consecutivel:y, switching from role to role as the
relationship evolves. These roles are "spheres of influence" rather than a static
continuum of isolated behaviour. Let us exa:mine these different role choices in
response to a client's needs.
Advocate
In an advocate role, the consultant endeavours to influence the client. There
are two quite different types of advocacy:
positional or "contact" advocacy is a role which tries to influence the
client to choose particular goods or to accept particular values;
methodological advocacy is a role which tries to influence the client to
become active as problem solver, and to use certain methods of problem
solving, but is careful not to become an advocate for any particular solution
(which would be positional advocacy).
In this role, the behaviour of the consultant is derived from a "believer" or
"valuer" stance on content or a methodological matter.
Technical expert
One of the roles adopted by any consultant is that of technical specialist or
expert. As mentioned above, the more traditional role of a consultant is that of
an expert who, through special knowledge, skill and professional experience, is
engaged to provide a unique service to the client. The client is mainly responsible
for defining the objectives of the consultation. Thereafter the consultant assumes
a directive role until the client is comfortable with the particular approach
selected. Later in the relationship the consultant may act as a catalyst in helping
to implement the recommendations he or she has made. Either the external or
the internal consultant may be a resource (content) specialist in the client's
problem, or a process specialist advising how to cope with a problem and how
to implement change. This particular role brings out the consultant's substantive
knowledge.
Trainer and educator

Innovative consultation frequently requires the consultant to initiate
periodic or continuous training and education within the client system. In this
aspect of the helping relationship, the consultant can play a role in bringing to
bear the learning process that can best be e.mployed, critically and creatively,
depending upon the situation and the need. 'The consultant may design learning
experiences, train or teach by imparting information and knowledge directly.
This work requires the consultant to possess the skills of a training methodologist
and developer of others' potential.
Collaborator in problem solving

The helping role assumed by the consultant uses a synergistic (cooperative)
approach to complement and collaborate with the client in the perceptual,
cognitive and action-taking processes needed to solve the problem. The
consultant helps to maintain objectivity while stimulating conceptualization
during the formulation of the problem. Additionally, he or she must help to
isolate and define the real dependent and independent variables that influenced
the problem's cause, and will ultimately influence its solution. He or she also
assists in weighing alternatives, aids in sorting out salient causal relationships
which may affect alternatives, and synthesizes and develops a course of action
for an effective resolution. The consultant in this role is involved in decision
making as a peer.
Alternative identifier
There are direct costs associated with decision making. While the value of
a decision is dependent upon the attainment of a given set of objectives, in
selecting an appropriate solution to a problem the consultant can normally
propose several identifiable alternatives, along with their attendant risks. The
alternatives, either because of economic or other identifiable implications,
should be discovered jointly by the client and the consultant. In this helping
relationship, the consultant establishes relevant criteria for assessing alternatives
and develops cause-effect relationships for each, along with an appropriate set
of strategies. In this role, however, the consultant is not a direct participant in
decision making, but a retriever of appropriate alternatives facing the decision
maker.
Fact finder
As we know, fact finding is an integral part of any consulting assignment,
both for developing a data base and for resolving intricate client problems. But
the consultant's role can be confined to fact finding. In this case he or she will
assist the client system by choosing the sources of data, using a technique that
will get the client more or less involved in gathering and examining data, and
presenting data to the client in a way that will show where and why
improvements are needed. In this role the consultant is functioning basically as
a researcher.
Process specialist
This is the "pure" process role as described in section 3.4. The consultant
focuses chiefly on the interpersonal and intergroup dynamics affecting the
process of problem solving and change. He must bring all his role skills to bear
on helping the client. He works on developing joint client-consultant diagnostic
skills for addressing specific and relevant problems in order to focus on how
things are done rather than on what tasks are performed. Furthermore, the
consultant helps the client to integrate interpersonal and group skills and events
with task-oriented activities, and to observe the best match of relationships. In
this role, an important function of the consulmnt is to provide feedback.
Reflector
When operating in the mode of a reflector, the consultant stimulates the
client to make decisions by asking reflective questions which may help to clarify,
modify or change a given situation. In utilizing this attribute, the consultant may
be an arbitrator, an integrator or an emphatic r1:spondent who experiences jointly
with the client those blocks which provided the structure and provoked the
situation initially.
3.6 Methods of influencing the client system

Whether the consultant likes to admit it or not, he or she exercises personal
influence on the client system in adopting any one of the behavioural roles
described in the previous sections. The consultant has to influence people in
order to obtain information, gain confidence and respect, overcome passive
resistance, enlist collaboration, and get proposals accepted and implemented.
This section will therefore review some general methods of exercising personal
infl~ence.~
To exercise personal influence on the client is not in conflict with a
professional approach. The consultant is committed to helping the client to
achieve a particular purpose and this may be impossible without influencing
certain people. The consultant will aim to energize and activate the client in the
client's own interest, not to manipulate the client in the interest of the consultant.
Nevertheless, the consultant must realize that his or her influence on some people
may be quite strong and that by exercising this influence he or she assumes
considerable technical and moral responsibility. Obviously, this is an important
issue of consulting ethics (see also Chapter 6). The consultant will be able
gradually to transfer this responsibility to the client by developing the latter's
knowledge and problem-solving skills. This will help the client to recognize
when and in what sense he or she is being influenced, and reach a judgement on
whether there are any alternatives.
Various methods are available, and it is difficult to say in advance which
one will produce the desired effect. These ml-thods reflect the fact that people's
attitudes and decisions have both rational and irrational (emotional) motives. In
one case it may be enough to show the client a few meaningful figures and he
or she will immediately draw practical conclusions from them. In another case
the client will be so impressed by the consultant's personality, which inspires
confidence, that he or she will blindly trust the advice received without
examining the rationale behind it. Conversely, clumsy and irritating behaviour
will make the client suspicious even if the consultant is absolutely right in his
or her conclusions. Here again, experience is the best guide in making the right
choice and combining the methods as appropriate.
Demonstrating technical expertise

The consultant should consider whether he or she enters the client
organization as a technical expert enjoying prestige or, on the contrary, as
someone totally unknown. Demonstration of theoretical knowledge and
practical expertise appeals mainly to technically oriented individuals who are
themselves experts in the consultant's field. This can be done in informal
discussions, by passing on information on developments in theory, new
techniques and equipment, successful firms or projects in which the consultant
was personally involved, and in similar ways. Technically superior findings or
proposals submitted by the consultant may speak for themselves and influence
the client's stance.
Exhibiting professional integrity at work

The consultant's behaviour at work is closely observed by the client, whose
attitude can be influenced by the way in which the consultant exhibits
commitment, integrity, a methodical approach and efficiency. These are
demonstrated at various stages and aspects of the assignment -the way of going
about collecting information, self-discipline and perseverance in fact finding,
the ability to discover pitfalls about which the consultant was not informed by
the client, persistence in looking for a better technique, rational use of time, tact
in handling delicate matters, and the like. A powerful effect can be achieved if
people see that the consultant is prepared to share knowledge and work methods
with them.
Demonstrating empathy with the client

The client's confidence is a condition of success in consulting. This
confidence is best earned if the client can feel that the consultant cares for and
enjoys working with him or her, and wants to be as helpful as possible. The
consultant's interest in the client's concerns must be genuine and sincere. It must
be expressed in deeds, not in nice words and promises. If the client feels that he
is regarded and treated just as another income opportunity, the consultant's
impact on the client will be considerably weakened even if the consultant's
proposals are technically correct.
Using assertive persuasion

This widely applied method uses the force of logical argument to convince
the other persons that what you want them to do is the right, correct or effective
action to take. As a rule, new ideas or suggestions are put forward followed by
reasons for and against, as the consultant presents arguments, facts or data to
support a position. The method is most effective when the consultant is perceived
as knowing what he or she is talking about and seen as relatively objective; the
consultant should, too, know enough about the other person's situation to speak
to specific needs. However, assertive persuasion tends to be overused in the
practice of consulting and people often think of it as synonymous with influence.
Developing a common vision

A common vision is a shared picture of where you are headed, what you
are trying to accomplish, and why it would be worthwhile for others to help.
Articulating exciting possibilities includes generating images of what the future
of the organization could be like if such anti such a course were followed. In
addition, the consultant can influence people by showing enthusiasm for what
is to be done and where that action will take the client. The method tends to be
more effective when the consultant must influence a number of people and
generate collective commitment to action. It does not work if it is not clear what
the other person can actually do towards achieving a common vision. In contrast
to assertive persuasion, common vision tends to be the least utilized mode of
influence.
Using participation and trust

This method implies recognizing and involving others by asking for their
contributions and ideas, giving them credit for an idea, and building on what
others have proposed. This is accompanied by sharing feelings with others and
being open about one's own mistakes, shortcomings and lack of knowledge. The
purpose is to develop an atmosphere of collaboration and co-responsibility for
achieving a common goal. The other person involved must believe that your
interest in participation and mutual trust is genuine and not just a facade, and
that collaborating with you is really the right way to achieve the desired results.
Attempts at one-way influence and control should be avoided. Also, partici-
pation is hard to achieve when the situation is such that it is not really in the
other person's best interest to cooperate. This method is absolutely essential in
collaborative consulting styles that emphasize the client's active involvement
and "ownership" of the problem, as well as of'the solutions representing the final
outcome of the assignment.
Using rewards and punishments

Consultants normally do not control the same kinds of rewards and
punishments that are available to management in the client organization.
Nevertheless, they can influence people by giving or taking away from
them certain things which seem desirable. It could be a public acknowledgement
(e.g. in a meeting) of a person's competence, achievement or exceptional
contribution to the assignment. Enhancing someone's self-esteem is a reward.
Omitting to invite someone to a meeting that he or she would probably like to
attend, or withholding some information from the person, could be a punish-

ment. Rewards and punishments which do not motivate people, which are out
of proportion to the importance of the issue involved, or which are chosen
arbitrarily, produce little or undesirable effect and should be avoided.
Using tensions and anxieties

Although it is not always realized, tensions and anxieties do play a role in
consulting. Often, the very presence of the consultant creates tensions because
there are speculations about the hidden causes of his or her presence, and about
possible outcomes that could upset the status quo and affect the positions and
interests of individuals or whole groups. The tensions that exist in the
organization can be exploited in collecting information to obtain a true picture
of the situation. Interdepartmental competition can be used when choosing the
unit in which to start applying a new method in order to demonstrate its
feasibility to other units.
In generating and strengthening desire for change, it may be useful to
explain what would happen to the organization and/or to the individual if the
necessary change were resented or delayed, thus creating a state of anxiety. It
may be enough to produce data showing that the organization already is or is
likely to be in trouble (see also section 4.4).
Here again, a wrongly focused and excessive use of tensions and anxieties
will produce negative rather than positive effects. Also, the consultant must be
careful not to become involved in internal power struggles and be perceived as
their instrument.
3.7 Counselling as a tool of consulting

Counselling is a method whereby individual persons are helped to discover,
understand, face and resolve their own personal problems, which may be those
of education, health, employment, competence, career, relations with col-
leagues, family relations and so on. Counselling is often thought of as a sort of
intervention that is very different from management and business consulting.
Yet there is tremendous potential for using counselling as a tool of consulting,
especially in helping individuals or groups to overcome personal difficulties and
become more effective as managers and entrepreneurs.
Counselling is necessarily a one-to-one relationship. In the case of small
businesses, the person and the business may even be the same. A counsellor is
consistently concerned in a very personal way with the problems and
opportunities facing a particular individual.
It is perfectly possible for the person being counselled to decide to leave
the organization altogether or close down the business as the result of an effective
counselling process, since the counsellor's aim is to help his or her personal
client rather than the organization, if their interests do not coincide. However,
a more frequent and typical result of personal counselling is a client who feels
empowered, more self-confident and more :independent in pursuing personal

objectives, and reconciling personal and organizational objectives. It may be not
too much of an exaggeration to suggest that the best evidence of an effective
counselling relationship is when the client denies that the counsellor has had any
role at all in the successful solution of his or her difficulties.
An effective counsellor is a good listener above all. All too often managers
need most of all someone who will listen to them in an understanding way. They
may be afraid of the people who are above them in the hierarchy, and those who
are "beneath" them are afraid of them in their turn. In some organizations, honest
admission of confusion and uncertainty is regarded as a sign of incompetence
or weakness, and few managers are fortunate enough to have friends outside the
organization who have the time or the ability to listen to them. A consultant who
has been called into what appears to be a traditional consulting assignment often
finds himself in the position of having to be a counsellor to a lonely and distressed
person. It is important not to regard time spent in this way as a distraction from
the main business: it may well be the most important contribution that an outsider
can make.
Good listening is not as simple as it might appear, but there is more to
counselling than sympathetic listening. A counsellor is clearly more of a process
facilitator than a specialist resource, and whose task is to help the client to think
through his or her own personal situation, diff'iculties, priorities, options and the
advantages and disadvantages of each, and then decide to act. Not only should
the counsellor not propose solutions to the client, but he or she may not even
participate too actively in the process of problem identification. The counsellor
should rather help the client to identify his or her own problems, and the solutions
to them, by asking questions, listening, and being supportive and encouraging.
At the same time he or she must be scrupulously neutral as to what the client
actually decides to do, since the objective is to develop the client's ability to
perform better in every way, and not merely to advise him or her what to do in
a given situation. The fundamental task of the counsellor is to help clients to
"think things through", to organize their own approach to thinking about their
work and perhaps their life in general.
The counsellor must have a genuine desire to "put oneself out of business"
by enabling the client to perform effectively without further counselling.
Personal development of this sort obviously requires very different skills and,
possibly, a different order of responsibility than is normally required of a
consultant. A counsellor may need no particular management skills or
experience, and these can even be a disadvantage, since he or she may be tempted
to make technical suggestions to the client when the task is to enable the client
to come up with his or her own ideas. The client will be more likely to expect
such suggestions and be diffident about putting forward ideas if he or she knows
that the counsellor is an expert in the topic al: hand.
Because the task is so personal, and so all-embracing, it is easy for
counselling sessions to devolve into unstruc1:ured chats. Like any consultancy,
counselling almost always involves a series of meetings, and it is important to
ensure that the client has a sense of progress being achieved from one session
to another. One way of doing this is to conclude each session by agreeing on

certain tasks that the client, and perhaps the counsellor as well, will complete
before the next session. It is important not to allow assignments of this kind to
turn into instructions which take the decision making away from the client.
Finally, it is all too easy for the client to become dependent on his or her
counsellor. This is exactly what must not happen, since the objective is to enable
clients to be independent. A good counsellor must "move in" and establish a
trusting relationship with the client, so that he or she draws out all the client's
feelings and all the information which may be relevant, but the counsellor must
also learn how to "move out" and leave the client at the end of the process. At
the beginning it may seem difficult to create the necessary trust, but in the end
breaking away is often even more difficult. An effective counsellor is able to do
both.
E. H. Schein: Process consultation, Vol. 11: Lessons for managers and consultants
(Reading, Massachusetts, Addison-Wesley, 1987), p. 34.
ibid., p. 29.
3 See also ibid., p. 38.
The description of assertive persuasion, common vision, participation and trust, and
rewards and punishments is taken and adapted from Ch. 8 in F. Steele: The role of the internal
consultant: Effective role shaping for staff positions (Boston, Massachusetts, CBI Publishing,
1982), which refers to a model developed by R. Hanison and D. Berlew.
CONSULTING AND CHANGE
Change is the raison d'etre of management consulting. If diverse consult-

ing assignments have any common characteristic, it is that they assist in planning
and implementing change in client organizations. In Chapter 1, organizational
change was mentioned as one of the fundamental and generic purposes of
consulting. Organizational change, however, is full of difficulties and pitfalls.
In managing change, consultants and clients tend to repeat the same mistakes.
Often the very behaviour of those who strive to make changes generates resist-
ance to change and brings the whole process to a standstill. The need for change
is recognized, yet there is no change. To avoid this, every management consult-
ant needs to be aware of the complex relationships involved in the change
process, and must know how to approach varying change situations and how to
help people to cope with change.
This chapter is, therefore, particularly important for understanding the
nature and methods of consulting and of the consultant-client relationship.
Throughout the chapter the consultant's point of view and intervention methods
will be emphasized. However, they will be reviewed in the wider context of
changes occurring in society, in organizations and in individuals, and related to
the managers' roles in generating and managing organizational change. The
chapter provides some notions of the theory of organizational change, and also
practical guidelines for planning and implementing changes.
4.1 Understanding the nature of change

The concept of change implies that there is a perceptible difference in a
situation, a person, a work team, an organization or a relationship, between two
successive points in time. How does this difference occur, what are its causes,
and what does it mean to a manager or a consultant? To answer these and similar
questions, we will first look at the various levels and areas of change, and at the
relations between them.
Environmental change
There is nothing new about change: it has always been a feature of the very
existence and history of the human race. We all know that without change there
is no life and that human efforts to obtain better living conditions imply coping
with change. There is a new phenomenon, however: the unprecedented depth,
complexity and pace of technological, social and other changes occurring at the
present time. Today's organizations operate in an environment which is
continually changing. The ability to adapt to changes in the environment has
become a fundamental condition of success artd survival in business.
It is not the purpose of this chapter to analyse current development trends
or predict future changes in the business and social environment. Other
publications are available which attempt to do this from various angles. They
show that today the processes of change concern all aspects of human and social
life, both nationally and internationally.
The former communist bloc is a case in point. The depth and magnitude
of political, economic and social changes, as well as the pace of change in most
countries of Central and Eastern Europe, have no historical precedent. The
current transformation of whole national economies is marked by a radical
departure from central planning, by massive privatization of state-owned and
state-controlled enterprises, and by a rapid transition to a market economy. All
this constitutes an exceptional challenge and work opportunity for the many
consultants who are interested in assisting total company restructuring and
renewal, new business creation and development, the forming of new
partnerships and alliances, and a revolutionary change in managerial thinking.
In a particular business or other organization, the practical question is what
to regard as its external environment. This question is increasingly difficult to
answer. Often managers are totally perplexed when they realize that their
organization can be affected by forces -economic, social or political -which
they would previously never have considered when making business decisions.
Competition can come from sectors and countries which in the past were never
thought of as potential competitors. New sources of finance and new ways of
mobilizing resources for business development and restructuring have required
profound changes in corporate financial strategies. New information and
communication technologies have enabled many new ways of doing business
and running complex organizations that were unthinkable with old technologies.
Environmental considerations, increased mobility of people and changing social
values have created new constraints and new opportunities for decision makers
responsible for running business firms.
This is where management consultants can step in to render an invaluable
service to their clients. Making clients aware of the new complexity and
dynamics of environmental changes and of new opportunities provided by them,
and helping them to react to these changes promptly and effectively, will be the
most important and forward-looking area of management consulting at the turn
of the millennium.
Consulting and change
Organizational change
Organizations do not change for the sake of change, but because they are
part of a wider process of development and have to react to new environmental
changes, constraints, requirements and opportunities. They are continually
forced to adapt to the environment within which they exist and operate. But more
than that - businesses and other organizations also generate changes in their
external environment, for example by developing and marketing new products
and services that capture a significant part of the market, launching and
publicizing products that will change consumer taste, or pioneering new
technologies that become dominant and change the shape of whole industrial
and service sectors. Thus they modify the business environment, both nationally
and internationally.
Change can concern any aspect or factor of an organization. Therefore it
can involve products and services, technologies, systems, relationships,
organizational culture, management techniques and style, strategies pursued,
competences, performances and any other features of a business. It also involves
changes in the basic set-up of the organization, including the nature and level of
business, legal arrangements, ownership, sources of finance, international
operations and impact, diversification, mergers and alliances with new partners,
and similar.
Change in people
The human dimension of organizational change is a fundamental one. For
it is people in the organization - its managerial and technical staff, and other
workers -whose behaviour ultimately determines what organizational changes
can be made and what real benefits will be drawn from them. Business firms
and other organizations are human systems above all. People must understand,
and be willing and able to implement, changes which at first glance may appear
purely technological or structural, and an exclusive province of higher
management, but will affect the working conditions, interests and satisfaction
of many other people.
In coping with organizational change, people have to change, too: they
must acquire new knowledge, absorb more information, tackle new tasks,
upgrade their skills, give up what they would prefer to preserve and, very often,
modify their work habits, values and attitudes to the way of doing things in the
organization. Change in values and in attitudes is essential. There probably
cannot be any real and lasting change without a change in attitudes.
It is important to recognize that in an organization this requirement relates
to everyone, starting with the top manager. Those who want their subordinates
and colleagues to change must be prepared to assess and change their own
behaviour, work methods and attitudes! This is a golden rule of organizational
change.
But how do people change? What internal processes bring about behav-
ioural change? Many attempts have been made to describe the change process
by means of models, but none of these descriptions has been exhaustive and fully
satisfactory. Different people change in different ways, and every person has
many unique features that influence his or her willingness and ability to change.
The influence of the culture in which a person has grown up and lived is
paramount, as will be explained in Chapter 5.
Social scientists tend to agree that a useful concept of change in people is
one developed by Kurt Lewin.l It is a three-stage sequential model, whose stages
are referred to as "unfreezing", "changing" and "refreezing".
Unfreezing postulates a somewhat unsettling situation as it is assumed that
a certain amount of anxiety or dissatisfaction is called for - there must be a
need to search for new information if learning is to take place. Conditions which
enhance the unfreezing process usually include a more than normal amount of
tension leading to a noticeable need for change - for example, an absence of
sources of information; removal of usual contacts and accustomed routines; and
a lowering of self-esteem amongst people. 113 some instances, these precon-
ditions for change are present before the consul.tant arrives on the scene. In other
instances, the need for change is not perceived and has to be explained if
unfreezing is to occur - for example, by making it clear what will happen if
the organization or the person does not change.
Changing, or the movement towards change, is the central stage of the
model, in which both management and employees start practising new relation-
ships, methods and behaviours. The subprocesses of changing involve two
elements:
- identification, where the people concerned test out the proposed change,
following the external motives presented to them (e.g. by management or
a consultant);
- internalization, where individuals trandate the general objectives and
principles of change into specific personal goals and rules; this process
may be quite difficult, usually requiring a considerable effort by the person
concerned, and a great deal of patience, creativity and imagination on the
part of the consultant in assisting the change, to convert the external
(general) motives to internal (specific and personal) motives for accepting
the change proposed.
Refreezing occurs when the person concerned verifies change through
experience. The subprocesses involved require a conducive and supportive
environment (e.g. approval by responsible management) and are usually ac-
companied by a heightening of self-esteem as ;I result of a sense of achievement
derived from task accomplishment. During the initial stages of the refreezing
step it is recommended that continuous reinforcement of the required behaviour
(by means of rewards, praise, and so on) should be carried out to encourage and
accelerate the learning process. At later stages, intermittent or spaced reinforce-
ment will help to prevent extinction of the newly acquired behavioural patterns.
Eventually the new behaviour and attitudes are either reinforced and internal-
ized, or rejected and abandoned.
Change in a particular person takes place at several levels: at the knowledge
level (information about change, understanding its rationale), the attitudes level
Figure 4.1 Time span and level of difficulty involved for various levels
of change
ORGANIZATIONAL OR GROUP BEHAVIOUR (4)
INDIVIDUAL BEHAVIOUR (3)

Difficulty
KNOWLEDGE (1)
(low)
(short) (loncI)
Time involved b
Source: F! Hearsey and K. H. Blanchard: Management of organizational behaviour (Englewood

Cliffs, New Jersey, Prentice-Hall, 1972),p. 160.
(accepting the need for change and a particular measure of change both rationally
and emotionally) and the behavioural level (acting in support of effective
implementation of change). The relationship between change in people and
organizational change is set out in figure 4.1. The diagram shows four levels of
change: (1) knowledge changes, (2) attitude changes, (3) individual behav-
iour changes, and (4) organizational or group behaviour changes. The relative
levels of difficulty and time relationship are also indicated in the diagram. This,
however, does not imply that change must always start at a lower level and
proceed to higher levels as shown in the diagram (see box 4.1, overleaf).
Change in individual persons within an organization is also directly
affected by changes in the external environment. This environment is not
something that "starts behind the factory gate", but permeates organizations
where people are employed. People bring the environment with them and
it stays with them when they come to work. Thus, changes occurring in the
environment of an organization may facilitate or hamper change in people
working within this organization. A frequent problem is that of individuals who
are simultaneously exposed to so much change and stress, both at work and in
their social and family life, that they are not able to cope and so break down. On
the other hand, many environmental changes, such as an increased penetration
of new information and communication technologies into all areas of human
life, greatly facilitate the changes that have to be made within particular
organizations.
Resistance to change
The history of the human race has taught us that, after all, people are
remarkably adaptable, can cope with change and generally accept it as a natural
Box 4.1 Which change comes first?

The relationship between the various change levels shown in figure 4.1 is an
open issue. Some behavioural scientists are consistent in suggesting that the best
results will be obtained if the sequence of changing knowledge - attitudes -
individual behaviour - group behaviour is fully respected. Others do not
subscribe, for either conceptual or practical rc?asons,to this sequence of change
levels. Fonviella points out that "trying to change behaviour by changing values
and attitudes is unnecessarily indirect . . . while attitudes influence behaviour,
behaviour influences attitudes".' Following a study of several organizational
change programmes, Beer, Eisenstat and Spector observe that "most change
programmes do not work because they are guided by a theory of change that is
fundamentally flawed . . . The theory that changes in attitudes lead to changes in
individual behaviour, and that changes in indhidual behaviour, repeated by many
people, result in organizational change . . . puts the change process exactly
back~ard".~ They conclude that the most effective way to change behaviour is to
put people into a new organizational context, which imposes new roles,
responsibilitiesand relationships on them.
1 W. Fonviella: 'Behaviour vs. attitude. Which wmes first in organizational change?", in

Management Review (New York, American Management Association), Aug. 1984, p. 14.
2 M. Beer, R. A. Einstat and B. Spector: "Whychange programmesdon't produce change",
in HawardBusinessReview (Boston, Massachusetts), Nov.-Dec. 1990, p. 159.
fact of life. Why, then, is change in people so often the bottleneck of organiz-
ational change? Why is "change" such a frightening word for many people?
People resist and try to avoid changes that will leave them worse off than
they are now in terms of job content, conditions of work, workload, income,
relationships, personal power-base, lifestyle and the like. This is understandable.
But a great deal of resistance may be met even if the proposed change is neutral,
or beneficial to the persons concerned. While there are many reasons for this,
psychological and other, the reasons listed in box 4.2 appear to be the most
common.
Some of these causes of resistance to change stem from human nature.
However, often they are reinforced by life experience (e.g. by negative
consequences of past changes). People who have experienced a great deal of
unnecessary and frustrating change, such as frequent but useless reorganizations,
or to whom harm was caused by changes presented to them as beneficial, tend
to become very suspicious about any further changes. This is very important.
Causes of trouble are often sought in inherent resistance to change, although
they lie elsewhere - for example, in wrong choice of new technology, in the
failure to explain why change is necessary or in poor coordination of various
change interventions. In such cases, resistance to change is only a symptom and
the real problem is change management which is hectic, messy and insensitive
to people's concerns and feelings.
There are then differences in the character of individuals so far as attitude
to change and the ability to cope with change are concerned. In section 4.3 we
shall see that some people are natural allies of managers and consultants in
preparing and introducing changes in organizations. Unfortunately, but not

surprisingly, those who are in greatest need of change often resist it more than
anybody else, and require special attention and support. These may be
individuals (both workers and managers), groups, organizations, and even whole
human communities.
Change is not an end in itself

Organizational change is not an end in itself. It is only a necessary means
of adjusting to new conditions and sustaining or increasing competitiveness,
performance and effectiveness. If an organization can achieve its objectives
without disturbing the established product and service lines, practices and
relationships, there may be no need for major changes, at least in the short term.
Certain changes are very costly (e.g. if a successful product is phased out and
replaced by a new product at the wrong moment). Some managers suffer from
chronic "reorganization disease": they feel that to be seen as dynamic, they must
Box 4.2 Reasons for resistance to change

Lack of conviction that change is needed. If people are not properly informed
and the purpose of change not explained to them, they are likely to view the present
situation as satisfactory and an effort to change as useless and upsetting.
Dislike of imposed change. In general, people do not like to be treated as
passive objects. They resent changes that are imposed on them and about which
they cannot express any views.
Dislike of surprises. People do not want to be kept in the dark about any
change that is being prepared; organizational changes tend to be resented if they
come as a surprise.
Fear of the unknown. Basically, people do not like to live in uncertainty and
may prefer an imperfect present to an unknown and uncertain future.
Reluctance to deal with unpopular issues. Managers and other people often
try to avoid unpleasant reality and unpopular actions, even if they realize that they
will not be able to avoid these for ever.
Fear of inadequacy and failure. Many people worry about their ability to adjust
to change, and maintain and improve their performance in a new work situation.
Some of them may feel insecure, and doubt their ability to make a special effort to
learn new skills and attain new performance levels.
Disturbed practices, habits and relations. Following organizational change,
well-established and fully mastered practices and work habits may become
obsolete, and familiar relationships may be altered or totally destroyed. This can
lead to considerable frustration and unhappiness.
Lack of respect and trust in the person promoting change. People are
suspicious about change proposed by a manager whom they do not trust and
respect, or by an external person whose competence and motives are not known
and understood.
periodically reorganize their enterprise or department. Consultants sometimes

lack the courage to tell the client that the best solution is to leave things as they
are, especially if the work is being done for a client who obviously is eager to
make some spectacular changes.
In a world where technological, social and other changes are occurring at
an unprecedented pace and frequency, people and organizations are in need not
only of change, but also of relative stability and continuity. Striking the right
balance between change and stability, and helping the client to maintain this
balance throughout the organization, is one of the vital tasks of the consultant.
4.2 How organizations approach change

Unplanned or planned change?
It is common knowledge that in eFery organization a great deal of
evolutionary, natural change occurs. A typical example is the ageing of
equipment and people, which has both problematic aspects (e.g. the need to
repair and replace equipment, or to replace managers who have lost dynamism
and drive), and positive aspects (technical artd managerial competence acquired
by years of experience). While most of these changes cannot really be kept under
full control, it is possible to anticipate preventive measures for avoiding and/or
mitigating negative consequences of evolutionary change.
A great deal of unplanned change is no).of an evolutionary nature. It occurs
because all of a sudden organizations nust react to new situations. A
manufacturing firm may be compelled by competition to drastically cut its
prices. A strike may force an organization to raise wages, and the like. Such a
change is adaptive or reactive. The organization has not planned it and, quite
often, has not foreseen its necessity until very late in the day. But the organization
does make the change to avoid a crisis, or an unplanned but radical and fast
change is made in order not to lose an unexpected new opportunity that has just
emerged.
It is a sign of poor management if an o -ganization confines its total change
effort to inevitable unplanned changes. Where this happens, it is a demonstration
of reluctance or inability to look ahead and prepare the organization for reacting
to future opportunities and constraints. True, no planning will completely
eliminate the need for unplanned chang,es. However, planning helps the
organization to prepare itself for changes that can be anticipated, and minimizes
the number of situations where hasty (and costly) changes have to be made in
an atmosphere of panic.
More than that, the planning of change enables the organization to be
proactive and "create the future", e.g. to shape its environment and its own profile
and outperform competition by creating new products and services, influencing
consumer taste and demand, restructuring the key organizational processes
before competition does so, pushing for changes in the regulatory environment,
and similar.
Box 4.3 What do we address in planning change?

Some typical questions addressed in planning change and choosing strategies
of organizational change are:
What changes are occurring in the environment?What will be their implications
for our organization?
What changes should we foresee in order to achieve our development
objectives, improve our performance, increase our share of the market, etc.?
What undesirable changes will occur in our organization if we do not take
timely steps to prevent them?
What sort of and how much change are we able to manage?
What sort of and how much change will our people be able to absorb and
support? How should we help them to cope with change?
Should we implement change in stages?
What will be the relations between various changes that we intend to make?
How will they be coordinated?
Where and how should the change process be initiated?
How should we manage change? Do we need a consultant? What would be
this consultant's role?
What should be our time horizon and timetable for implementing change?
The last question in box 4.3 is crucial. Both organizations and individual
people can absorb only a limited amount of change over a certain period of time,
and this absorptive capacity is not the same in different countries, organizations
and individuals. Conversely, delaying urgent changes can lead to crises and
hopeless situations. The pacing of change is therefore one of the main skills
needed in planning and implementing change.
Imposed or participative change?

In business practice, a great deal of change is decided and imposed on the
organization by management. After all, by acting in this way management
assumes its basic responsibility. However, change imposed from a position of
authority may cause unhappiness and resentment, in particular if people affected
by such changes believe that they should have been consulted, or at least
informed well in advance and in a proper way.
If change is initiated from a position of power and imposed upon people,
it could be inherently volatile; it could disappear with removal of the power
source, or in the absence of appropriate punishments and sanctions. Yet we
cannot say that every imposed change must be bad. There are emergency
situations where discussion is impossible and delaying a decision would be
suicidal. There are regulatory and administrative measures which will affect
many people, but which are of minor importance and do not justify long
discussion and consultation. Also, imposed change is considered to be more
effective when dealing with dependent rather than independent persons. In
general, the attitude to imposed change is very much influenced by culture,

education, access to information, the existence of alternatives, and other factors.
A manager should think twice before deciding to impose a change. He or
she should do it only if firmly convinced that there is no alternative - if, for
example, he or she was unable to gain the support of the group, yet feels that
change is inevitable. But the manager should always take the trouble to explain
the reasons for choosing to impose a change
People in different national and organizational cultures do not feel the same
way about change that is presented to them as an accomplished fact, and imposed
on them without prior discussion or con~ult~~tion. However, the trend towards
participative change is ever more pronounced in most parts of the world. People
want to know what changes are being prepared, and to be able to influence
changes that concern them. Managers and adininistrators are increasingly aware
of this fundamental demand and react to it by adopting a participative approach
to change.
In certain cases a participative change process may be slower and more
time-consuming and costly than imposed change, but it is considered to be long
lasting. It helps to prevent resistance and generates commitment to change. In
addition, participative change helps management to draw on people's experience
and creativity, which is difficult to do if change is imposed.
There are different levels and forms ofparticipation in the change process,
depending on the nature and complexity of the change itself, on the maturity,
coherence and motivation of the group, and on the relationship between
management and employees (see also box 4.4). At the first level, the manager
or the consultant informs the staff concermd about the need for change and
explains the specific measures that are being prepared. At the second level,
consultation and discussion about change take place in the course of the change
process -in identifying the need for change, proposing the specific changes to
be made and checking whether people would react negatively to the measures
proposed. Suggestions and criticism are solicited and management may
reconsider its plan for change on the basis of these. At the third level, manage-
ment seeks active involvement of the staff in planning and implementing change
by inviting them to participate in defining what to change and how to do it, and
in putting the agreed changes into effect. This is normally done through
workshops, task forces, special committee:$ and projects, staff meetings and
other methods reviewed later in this chapter (section 4.5).
In many situations change requires negotiation. This takes place when two
or more individuals or groups discuss together the changes to be made and the
benefits and costs to the parties involved. This may lead to a compromise that
neither party considers to be an ideal solution by its own standards. However,
the probability of support by those conce~ned,and hence the probability of
implementing the agreement reached, will be much higher.
There are, then, changes that require negotiation between management and
the representatives of employees, who ma) be trade union or other represen-
tatives. These sorts of change may be determined by law, through collective
bargaining, or by any other joint agreement, formal or informal. Managers and
Box 4.4 Ten overlapping management styles, from no participation

to complete participation
None: There is no participation and involvement. People express surprise if
the "boss" asks them a problem-solvingquestion. People are paid to "work",
not "thinkW.Managers"send down" decisions.
Persuasive autocracy: There is some recognition that an effort to "sell" the
project or the solution has been considered and will be incorporated "if there
is time and money".
Consultative: Responsible managers ask people many questions and seek
to obtain as many ideas as possible, but establishing criteria, weightings and
details are left entirely to managers.
Reactive control: The organizations do involve others with measuring,
comparing and assessing the performance of a satisfactory system. Citizen
groups, regulatory boards, peer review, and so on, are means whereby
participation is obtained. Policy formulation matters arise only occasionally.
Bargainlng: More adversarialor at least structuredformal involvement is built
into normal operations.
Anticipatory control: The organization consciously scans the horizon to
become aware of possible future occurrences. Groups are allowed to report
intelligence that could indicate developments. They can also develop
alternatives for responding and "controlling" the future.
Joht determination:Although decisions are usuallyjoint, there is a relatively
continuous interchange of ideas among those charged with the responsi-
bilities for operating a system and those working in it. Management operates
this way because it thinks it's desirable, and workers have no assurance of
its continuation. Most other stakeholders also may not be included in the
participatory effort.
Supportlvecollaboration:Efforts are likely to be moreformalized, with some
decision responsibilities spelled out (for example, advisory group, citizens'
commissions).
Permanent work groups: Employeesand managersmeet regularly (usually
during working hours) and seek to solve all types of problems that emerge
in any area of concern.
(10) Complete self-determlnatfon: A joint workerlmanagement board of direc-
tors or several joint groups share key decision-making responsibility
(budgets, new products, acquisition and divestiture, personnel policies and
practices, and so on).
Source: G. Nadler and S. Hibino: Breakthrough Thinking: The seven principles of creative problem
soking (Rocklin, California, Prima Publishing. 1994), pp. 283-284.
consultants should be particularly alert to the desirability of a dialogue with the

workers' and other employees' representatives, not only in cases explicitly
stipulated by laws or formal agreements, but also in preparing any changes that
may affect the interests of people in the organization and where employee
support may be essential.
A frequent and sincere dialogue with employees and their representatives
is the best means for preventing organized large-scale resistance to change,
expressed through strikes and similar forms of vigorous protest against decisions
taken or planned by management. Clearly, resistance to change is not the only
reason for strikes. It is, however, a frequent reason, and it can often be traced
back to management's failure to consult and inform people, explain why change
cannot be avoided, seek alternative solution:;, and implement change in ways
that minimize hardship to the people concerned.
Finally, in thinking of participative approaches our perspective is often
limited to employee participation, direct or through their representatives. In
managing change, this perspective may prove to be narrow and may miss
important inputs. It is useful to think of a wider circle of "stakeholders", i.e.
organizations and people having various stakes in the organization in question.
Customers are important stakeholders, and learning from them in preparing
important changes is absolutely essential. Other stakeholders include people and
authorities in the local community, suppliers of equipment, systems and raw
materials, banks and other providers of financial services, and so on. Not only
can they provide useful advice, but they have specific stakes, or interests, in the
organization which is implementing a change programme. They are likely to
make contributions reflecting the nature and importance of their stakes.
Managing the change process

Change requires leadership, and it is quite natural that this should be
provided by those managers who have the principal responsibilities in operating
the organization. This leadership is necessary even if an important role in the
change process is assigned to a consultant and if the approach taken is highly
participative. If senior management shows no interest and the handling of
particular changes is relegated to lower management or a functional department,
this signals to the organization that management has other priorities and does
not care much about the changes that are being prepared.
It is, of course, understandable that management must cope both with
restructuring, reorganization, launching new products, mergers with other
companies and similar major change measules and processes, and with routine
everyday activities of the organization. There may be competition for scarce
resources: some key people may be wanted both for preparing a major change
and for running current business. A consultant can be used to facilitate the
manager's task, but not to manage change on the manager's behalf.
This being said, management has to determine the specific change
measures requiring its leadership, and decide on the intensity and style of its
direct involvement. The complexity of the changes that are being prepared, and
their importance to the organization's future, are key criteria. In a larger
organization, senior managers cannot be personally involved in all changes, but
there are certain changes which they must manage personally, or they must find
a suitable way, explicit or symbolic, of providing and demonstrating support.
Reinforcing messages from the leaders are a key stimulus in a change effort.
The style of leadership should be consistent with the organizational culture,
the approach to change that has been chosen for the given situation, the urgency
of the changes to be made and the maturi1.y of the people involved. Thus, a
directive, or "telling", style of leadership will be appropriate for situations of
urgency and an audience of relatively low maturity. In contrast, a low-profile

delegating style can be used if responsibility can be given to mature followers
who understand the framework within which the changes need to be planned
and put into e f f e ~ t . ~
Various change processes within the organization need to be harmonized
with each other. While this may be easy in a small and simple organization, it
may be quite difficult in a large and complex one. Often various departments
work at similar problems (e.g. on new information systems). They may come
up with proposals that do not fit general management policy and standard
procedures, or present excessive resource requirements. Or one department
develops superior proposals, and other departments will have to be convinced
that they should give up their current system or their new proposals, and accept
the best proposal developed by another unit. These are situations where higher
management has to intervene with tact and an independent consultant can be of
great help.
The role of innovators and change agents

A change effort requires a successful start. Making a correct decision on
what to change and assigning responsibilities is not enough. There must be
people who have critical and innovative minds, enjoy experimenting, can
visualize the future, believe that change is possible, and influence others, not by
talking about change, but by demonstrating what can be achieved. These
"innovators", "prime movers", "champions" or "intrapreneurs", as they are
sometimes called, may be in managerial jobs, but they are often design
engineers, marketing specialists, project coordinators, work study technicians,
experienced workers and supervisors, or other staff members.
Organizations which are keen to change must encourage innovation,
experiments and entrepreneurship. To management this means not only tolerat-
ing departures from routine and tradition, and admitting that this is not possible
without some risk, but deliberately employing innovators, giving them chances,
observing their work, and referring to their example in showing what the
organization is able to achieve.
Innovative and entrepreneurial individuals and teams tend to play a
prominent role in successful strategies for organizational change. They are the
organization's principal change agents. Often it is in their unit that change will
start. Some of them will become managers of new units responsible for new
product lines or services, coordinators of change projects, or trainers and internal
consultants helping other individuals and groups in making the necessary
changes.
Different roles are played by two basic types of change agent: those whose
interest is and remains predominantly technical, and who may produce excellent
technical ideas without being able to convert them into business opportunities;
and those who are mainly entrepreneurs and leaders, and can help management
to generate and implement changes that require the active involvement of many
people, individually or in groups.
A strategy for organizational change may rely entirely on internal capa-

bilities and on managerial and specialist staff members who can play the role of
change agents. An alternative is to bring in a change agent from outside as a
consultant. This is an important managerial decision affecting the whole
approach to the change process. The consultant will not only be contributing
some missing technical competence and an alternative viewpoint, but, as we
know, will be influencing, by his or her presence and by action taken (or not
taken), the behaviour of those concerned in change. The consultant will possibly
influence the behaviour of the very person who has invited him or her. The main
factors to consider are:
the consultant's profile (knowledge, experience and personality: he or she
must be acceptable to and respected by people who are being helped to
change);
the mode of consulting to choose in order to assist change (as discussed in
Chapter 3, there are various modes; the question is, which mode is likely
to generate the desired effects in a particular human system).
Organizational culture supportive of change

It is easier to keep pace with environmental change and generate effective
changes from within if change has a promin'snt place in organizational culture
and if it is not handled as something exceptional, requiring a special campaign
and special arrangements in every single casE.
High-technology companies in electronics and other fields now operate in
an atmosphere of constant change. Yet people understand that this is a salient
characteristic of the sector with which they have to live. The required pace of
change in many other organizations is not as high. Every organization should
define what is the necessary and optimum pace of change in its sector, and try
to adopt it as a common value shared by management and staff. This helps to
balance change and stability, minimize hec.tic unplanned changes and avoid
change for its own sake.
People should know what preoccupies management and where they should
focus efforts at individual and group performance improvement in order to avoid
dispersion of resources and help the company where it needs help most.
However, every interesting idea should be examined, even if it is not in an area
defined as a priority.
To value change and meet the requirements of an organization where the
pace of change is high, people must know th,3t it pays to have a positive attitude
to change and constantly to look for changes from which the organization can
benefit. Innovation and creativity can be stimulated by financial rewards, public
recognition, promotions, making the job content more interesting, offering
training and self-development opportunities, and so on. Conversely, people must
be able to see that it does not pay to be conservative and resist innovation and
change.
Values, attitudes and collectively held norms that make up organizational
culture (see Chapter 5 ) develop over a number of years and, once established,
they are not easy to change. But it is not impossible to influence and eventually
to change them. Therefore if organizational culture constitutes the main obstacle
to change, or if it does not stimulate change in an environment that is rapidly
changing, managers' and consultants7 efforts may need to focus on organiz-
ational culture first of all.
4.3 Gaining support for change

One of the principal messages of this chapter is that effective change is
best achieved if it enjoys the support of the people involved. This can be a very
complex matter. Managers and consultants may feel uncertain about their ability
to mobilize support for the change envisaged. Owing to errors made by
management, the existing support may be lost and give way to resistance; to
redress the situation may then be a delicate task.
Inviting people to participate actively in a change effort at all its stages is
a useful general method for gaining support and reducing resistance. It helps to
create an atmosphere in which people feel they are the "owners" of a change
proposal: the idea comes neither from the top, nor from an external person, but
from within the group. If things go wrong, the group does not seek a culprit from
without, but examines the causes and willingly helps in redefining the proposals.
Arousing attention to the need for change

Undeniably there must be unlimited methods of drawing the attention of
individuals and groups to the need for a change. The reader should refer to
section 3.6 where various methods of influencing the client system are discussed.
However, two proven methods are of particular interest to consultants.
The most effective manner of arousing immediate attention occurs when
people become anxious. In special cases the introduction of a state of extreme
anxiety is undeniably effective - for example, a building will be cleared very
promptly if it is reported that a bomb has been placed in it. However, the
continued use of the heightened anxiety approach tends to be self-defeating.
Recipients eventually ignore such threats, especially if the alleged events do not
occur.
Notwithstanding, the use of minimal anxiety is effective as an attention-
arousing device which can be sustained over a long period. A particularly
successful combination is to use an anxiety state to draw attention to specific
needs (i.e. the unfreezing process described in section 4.1) and to follow up by
providing a solution meeting these needs.
The second method is called the two-step information process. The
underlying idea is that the acceptance and effective introduction of change
occurs as the result of a multiplier effect in the flow of information.
Detailed research findings suggest that people most likely to experiment
and to to be influenced by new approaches possess certain characteristics. These
individuals, labelled as "isolates", are inclined to be highly technically oriented;
to read widely on their chosen subjects; to attend meetings and conferences

frequently; and to travel in order to investigate new schemes. They may be
considered by their group to be something akin to "cranks". Surprisingly, they
are not likely to influence other members of their group directly.
Nevertheless, the activities of these technically oriented isolates are kept
under constant observation by a second type of person who possesses
characteristics similar to those of isolates but, usually owing to widespread
interests in other fields, does not have the same amount of time available to
experiment and test new methods in any considerable depth. This second type
of person, identified as an "opinion-leader", has considerable influence over the
group, and even beyond it. In addition to acknowledged technical expertise, this
type of person usually has considerable civic and social standing.
In tracing the life-cycle of the adoption of new procedures, it seems that
the new scheme is first investigated, along with other possible choices, by the
isolate and is eventually chosen over other alternatives because of its proven
technical superiority. At a later stage the opinion-leader adopts the new idea once
he or she is convinced that the isolate has firmly decided on this new approach.
Subsequently an "epidemic" phase erupts as the followers of the opinion-leader
also adopt the new approach. Therefore, when introducing change a strong case
can usually be made for emphasizing the highly technical aspects of the new
approach in order to attract and convince both the isolates and the opinion-
leaders who should under normal circumstances assist in influencing and
convincing the other members of the group.
Getting support for specific proposals

Once the audience's attention has been aroused, and interest created in
seeking change, then comes the time to develop a desire for the change proposal.
In presenting information to enhance the selection of a given proposal in
preference to alternative schemes, it is often necessary to mention some negative
aspects of the proposed scheme in addition to the more beneficial ones. Similarly,
the positive and negative aspects of existing or alternative schemes should also
be presented. This technique of providing all aspects of the case under review
is referred to as an "inoculation" effect; it weakens any counterproposals likely
to arise at a later date.
Experience has shown that an effective manner of presenting information
where proposal B is intended to displace proposal A is to employ the following
sequence:
(1) present a complete listing of all the positive and beneficial aspects of
proposal B;
(2) mention the obvious and real drawbacks associated with proposal B;
(3) describe a comprehensive listing of the deficiencies of proposal A;
(4) indicate the most pertinent positive features of proposal A.
Following this presentation of the positive and negative features of the
alternate proposals, the manager or the consultant should then draw conclusions
as to why the favoured proposal (B) should be employed by listing the benefits
to be accrued (i.e. service provided), the effectiveness of the new proposal (i.e.
technical and economic superiority) and, if applicable, instances where such a
proposal has been successfully employed.
Personality composition of the audience

To maintain control when dealing with a gathering or crowd of people is
difficult at the best of times. When dealing with individuals or small groups,
there are sometimes opportunities to use group members as enhancers of the
change process.
Individuals who are poised, confident and have a certain amount of self-
esteem appear to be able to influence others who lack these characteristics. In
turn, these individuals with relatively high self-esteem appear to be more
influenced by information containing optimistic rather than pessimistic or
negative connotations.
The consultant should use opportunities to enlist support for the change
process from persons who possess such traits of high self-esteem by drawing
attention to likely optimistic results. These persons are then in a position to
support the consultant's proposals before the group.
The informal communication network

Communications on a highly topical issue appear to produce a greater and
more rapid attitude change in an audience when the information is "accidentally
overheard", or leaked through informal communication networks than when
delivered through formal channels. Rumours, which flourish in the absence of
formal communications ("the grapevine"), are usually confined to informal
channels and can often be countered by appropriate use of the same network.
Even a fundamental piece of information, such as one stating that the future of
a particular programme or unit is highly uncertain, may affect people's attitudes
more strongly if spread informally than if officially issued by management.
Occasionally, both formal and informal channels should be combined to
reinforce the message.
Handling objections to change

An essential skill for managing and assisting change is the ability to handle
objections. Broadly speaking, objectors can be classified as "sharpeners" or
"levellers". Sharpeners include those people who ask specific, detailed questions
concerning the change process. They tend to be genuine objectors who want to
be convinced that the change proposal is justified, and are accessible to logical
argument. Levellers are those who generalize and broaden the issue under
review. They are usually quite difficult to convince as they are often more
interested in the form of their objections than in the content.
Objections and resistance to change can be expressed in many different

ways. Non-verbal messages, such as gestures, facial expressions, or repeated
attempts to avoid discussing the issue with the manager or the consultant, may
be significant and tell more than words.
In general, experience suggests that whenever a manager or a consultant
senses that people may object to the change proposed, he or she should help
those concerned to express their doubts or apprehensions by formulating
objections. The objections made have to be analysed: they may point to weak-
nesses of the proposed scheme, show that not enough information was given to
people affected by a change, reflect aversion to the manager's or the consultant's
behaviour, or express fear of resistance that will need to be dealt with.
When the consultant has to handle specific objections, it is more useful to
repeat the objection, put it in writing if appropriate, break it down into
component parts, and treat each componeni. as a separate entity rather than
attempt to deal with the problem as a whole. It is recommended to commence
with those items on which agreement is most likely to be reached and move later
to those items causing most disagreement. Should a total impasse be reached on
an issue, it is better to reword the disagreement in objective terms relating to the
new proposal rather than continue arguing in the often coloured and emotional
words originally proposed by the objector. The consultant should frequently take
the opportunity to recapitulate, and to refer to parts of the original objection on
which agreement has already been reached, before continuing with new points.
If a point is reached when the consultant does not have the appropriate
information to hand, this fact should be readily admitted and the objector advised
that the information will be obtained and transmitted to him or her at a later date.
The consultant should not fail to carry out this promise.
4.4 Managing conflict

When objections to change become a matter of intergroup conflict,
different problems requiring special treatment may arise. This may happen if a
group is to give up its work method to adopt one practised by another group. If
a group sees itself threatened, there will be a closing of the ranks and more
cohesive action, and the group will become more tolerant of authoritative rule
by its chosen leaders. Hostility to other groups is likely to arise, especially if the
situation is perceived as a "win-lose" encounter. Communication will become
distorted and difficult, as each group will be prepared to admit only the positive
aspects of its own argument and the negative aspects of the "enemy's".
Basic strategies to reduce intergroup conflict (box 4.5) require the
establishment of goals upon which both groups can agree in order to restore
valid intergroup communication. It may be useful to identify a common
"enemy", thus setting a superordinate goal. Emphasis should be placed on
common needs and goals of different groups rather than on partial goals. If
possible, a reward system which encourages effective communication should be
introduced. Groups should be exposed to numerous activities likely to enhance

empathy and mutual understanding.
I
I Box 4.5 How to manage conflict

In planning and implementingchange, interpersonalor intergroup conflict may
7
develop for a number of reasons:
poor communication;
disagreement on objectives and results to be pursued;
disagreement on intewention methods used;
differences over the pace of change;
resistance to change;
fear of losing influence and power;
competition for resources;
non-respect of commitments;
refusal to cooperate;
personality and culture clashes;
poor performance and inefficiency.
The principal methods of interpersonalconflict resolution were summarized by
Gordon Lippitt in the following terms:
Withdrawal: retreatingfrom an actual or potential conflict situation.
Smoothing: emphasizing areas of agreement and de-emphasizing areas of
difference over conflictual areas.
I Compromising: searching for solutions that bring some degree of satisfaction

to the conflicting parties.
Forcing: exerting one's viewpoint at the potential expense of another - often
I
open competition and win-lose situation.
Confrontation: addressing a disagreement directly and in a problem-solving
mode -the affected parties work through their disagreement.
As a rule, it is advisable to depersonalize conflict by ensuring that the disputants
1
do not sit in judgement over each other, and to focus the conflict on the basic issue
by concentrating disagreement on factual grounds. Withdrawal avoids the issue,
but the solution may be only provisional; it may be used as a temporary strategy
to buy time or allow the parties to cool off. Forcing uses authority and power and
can cause considerable resentment; it may be necessary in extreme cases where
agreement obviously cannot be reached amicably. Smoothing may not address
the real issue, but permits the change process to continue at least in areas of
agreement. Compromising heips to avoid conflict, but tends to yield less than
optimum results. Confrontation is generally regarded as most effective, owing to
its problem-solvingapproach involvingan objective examinationof alternatives that
are available and the search for an agreement on the best alternative. Finally,
adopting an attitude of one side winning and the other side losing is like pouring
gasoline on the fire of conflict.
Source: Gordon Lippitt: Organizationalrenewal (Englewood C l i , New Jersey, Prentice-Hall. 1982),
pp. 151-155. I
4.5 Structural arrangements and interventions

for assisting change
Since the manager bears the main responsibility for managing change in
his or her organization or unit, he or she may decide to take charge of a specific
change effort personally, involving direct collaborators and other staff members
as necessary. In many cases, no special structural arrangements are made, and
the manager and the staff work out and implement change proposals, handling
their other duties simultaneously.
In the practical life of organizations, however, the use of special structural
arrangements and intervention techniques for handling change may be required
for certain specific reasons:
(1) The regular organizational structure may be fully oriented towards current
business and could not cope with any additional tasks, for technical reasons
or owing to a high workload.
(2) Rigidity, conservatism and resistance to change may be strongly rooted in
the existing structure, and it would be unrealistic to expect that this
structure would generate and manage any substantive change.
(3) In certain cases it is desirable to introdu.ce change in steps, or to test it on
a limited scale before making a final decision.
(4) In many cases, management has to look for a suitable formula that is easy
to understand and will involve a number of individuals and/or groups in a
change effort (possibly including staff from different organizational units),
clearly establish a case for change, reveal objections and risks, develop and
compare alternative solutions, and mobilize support for the solution that
will be chosen.
Managers and consultants have access to a wide range of structural arrange-
ments and intervention techniques for managing and facilitating change efforts
of individuals, groups and whole organizations. This section will review some
commonly used arrangements and techniques, which can be applied for various
purposes and at various stages of the change process: to demonstrate the need
for change; stimulate thinking about the direction to take and generate new ideas;
develop an action programme; reduce resistance; help people to cope with new
tasks and conditions; generate commitment; gear initiative and creativity
towards priority goals; monitor and/or accelerate implementation, and so on.
Many of the techniques for assisting change are behavioural-science based,
and focus on changes in attitudes, values arid individual or group behaviour.
However, as Beckhard and Harris rightly pointed out,3 over the last decades we
have witnessed a shift in the technology of planned change. This technology has
moved from an emphasis on team building, intergroup relations and the like to
an emphasis on diagnostic and action-planning processes for coping with the
total organization and its environment, designing methods for organizational
diagnosis, and implementing comprehensive programmes for business re-
structuring and improving organizational performance. Essentially, there has
been a growing understanding of the fact that a one-sided approach, as fostered
by some behavioural scientists in the past, has limitations and should give way
to a comprehensive view of the organization, embracing all organizational
factors and subsystems as well as their interaction with the environment.
The experience of companies that have successfully completed challenging
change programmes demonstrates the desirability of combining "soft" tech-
niques for stimulating and assisting change (based essentially on a behavioural
science approach and aiming to improve people's attitudes to change and enlist
their active participation) with "hard" techniques, (aimed to ensure effective
problem identification, needs assessment, sequencing, coordination, resource
allocation, quality control, follow-up, and other measures without which even
the best-intended and fully participative change effort can turn into total
confusion).
The current panoply of approaches, methods and techniques for assisting
organizational change is impressive: over 300 of them have been identified by
surveys and this number keeps g r ~ w i n g .Many ~ consultants have specific
variants or packages of the "classical" change management and performance
improvement approaches and techniques: some of these variants are not
described in literature and are available only to clients as proprietary techniques.
In other cases, the technique used is a common one, but is presented under a
different name. If a consultant proposes to use a specific and not very well-
known technique, the client should ask him or her to explain what is unique in
the proposed technique and how it relates to the basic and commonly known
techniques. In fact, the consultant should take the initiative and give such an
explanation when proposing the method to the client.
This chapter is confined to a short review of selected and fairly well-known
techniques. For their detailed study, the reader may wish to refer to specialized
sources on change management, project management, organizational develop-
ment, process consulting, or organizational behaviour and psychology. Change
management approaches and techniques are also discussed in other parts of this
book, especially in Chapters 3, 8, 9, 10 and 22.
Structural arrangements
Structural arrangements are used to provide a suitable (as a rule temporary)
organizational setting for a particular change project or effort, and to use other
change management methods within this setting rather than throughout the
organization.
Special projects and assignments. This is a very popular form. A person
or unit within the existing structure is given an additional special task as a
temporary assignment. He or she may be given some additional resources for
this purpose if resources existing within the current structure are regarded as
insufficient. For mobilizing resources and taking decisions that are beyond his
or her authority, the project manager or coordinator would, of course, turn to the
general manager who appointed him or her. This is, in fact, a transitional
arrangement between a normal and a special structure.
Temporary groups. Task forces, working parties and similar arrange-

ments are frequently used as temporary groups, either at one stage of the change
process (e.g. to establish the need for change, gather new ideas, determine
priorities or develop alternatives), or throughout the whole process for its
planning and coordination. The group should pursue a clearly defined purpose.
Selecting the members of a temporary group is extremely important. They
should be people who can and want to do something about the problem that is
the focus of the change. Often they will come from different organizational units,
in particular if change efforts focus on processes cutting across boundaries
between units. The group should not be toc~large and its members must have
time to participate in group work. Task forces often fail because they are
composed of extremely busy people who give priority to running current
business before thinking about future change. They also fail if they are
dominated by individuals who use their formal authority to impose their views
on the group.
Thanks to modern telecommunication technologies, task forces and other
temporary groups can also work effectively in geographically dispersed and
multinational organizations. Expensive and exhausting travel can be replaced
by teleconferencing and other distance communication, reserving face-to-face
communication for situations where it is absolutely necessary.
The group should also have a defined life. A possibility is to introduce the
use of the "sunset calendar" - that is, at a predetermined point the group will
cease to exist unless there is a management decision to continue it. This avoids
the possibility of the group slowly disintegrating as more and more members
absent themselves from meetings.
The group may use a convener. This could be the consultant or somebody
designated by management, after discussion with the consultant. The convener
is not the chairperson of the group, but just the person who gets it moving
initially. The group may decide that they do not want a regular chairperson and
might even rotate the role of the convener.
As far as possible, the expected output of the group should be identified.
It should bear a direct relationship to the problem and be amenable to review.
Meetings. Meetings or workshops, which are used for many purposes, can
also be designed to bring about and manage change. The focus of the meeting,
as an intervention in support of change, is to enable various individuals to work
on the problem face to face. The purpose pursued must be consistent with the
organization's culture: where autocratic management has prevailed and people
know that at the end of the day their views will be ignored anyhow, a meeting
to discuss change will probably achieve very little.
It is important that the manager or consultant involved should establish the
appropriate climate. This may mean that the meeting may have to be held on
"neutral ground", where none of the parties has any territorial advantage. The
role that the consultant will play during the :neeting should be clarified as early
as possible. That role, essentially, is that of facilitator and process observer. The
consultant has the advantage of distance or stranger value, and his or her
comments can prevent the group from falling into the usual trap of complaining
about current difficulties without trying to come up with any practical
suggestions for improvement. It is also possible to use meetings as an inter-
vention without the consultant. When this is to be done, it is even more important
that the relative roles and expectations of all those attending should be made
clear prior to the meeting.
Experiments. Experiments are used to test a change process or its results
on a limited scale, e.g. in one or two organizational units, and/or over a short
time period, say several months. For example, flexible working hours or a new
scheme of bonuses may first be applied on an experimental basis in selected
departments and workshops.
A true experiment involves pre- and post-test control design. Two (or more)
units or groups are used. They should exhibit the same or very similar
characteristics (which may be very difficult to achieve and prove scientifically).
Data are collected about both groups. A change is then made in one group
(experimental group) but not in the other (control group). Once the change has
been made, further observations are made or data collected. The data collected
before and after the change in both groups are compared. However, as the famous
Hawthorne experiments illustrated, it is possible in a field experiment that some
other variable is influencing performance.
Pilot projects. A pilot project may be used to check on a limited scale
whether a new scheme - involving considerable (and costly) technological,
organizational or social change - is feasible, and whether adjustments will be
necessary before introducing the scheme on a larger scale. A great deal of
experience is normally drawn from a properly prepared and properly monitored
pilot project, and in this way the risks involved in an important new scheme are
minimized.
In drawing conclusions from the evaluation of pilot projects, certain
mistakes are made again and again. In order to demonstrate that the proposed
change is justified and feasible, both managers and consultants tend to pay
special attention to a pilot project (e.g. by assigning the best people to it,
intensifying guidance and control or providing better maintenance services). The
pilot project is thus not executed under normal, but under exceptionally
favourable, conditions. Furthermore, it is assumed that the conditions under
which a pilot project is undertaken can be replicated for a larger programme.
Often this is not possible, for a number of reasons. For example, the organization
may be unable to provide support services of the same quality to a large-scale
activity. Hence, learning from a pilot project also includes an unbiased review
of the conditions under which it succeeded.
New organizational units. These units are often established if manage-
ment has made up its mind to go ahead with a change measure (e.g. develop and
start marketing a new service) and decides that adequate resources and facilities
must be fully assigned to it right at the outset. As a rule, this would be done if
the need for change has been well documented, and the importance of the change
envisaged justifies an underutilization of resources which may well occur in the

first period after the establishment of the unit.
Organization development (OD) techniques

Below are some examples of techniques originally used by behavioural
scientists in organization development (OD) approaches and programmes. As
mentioned above, these techniques are now applied more and more in combi-
nation with other techniques, or within comprehensive and multidisciplinary
change management programmes.
Team building. This intervention is used frequently. Indeed, there are
those who contend that it has been overused and abused. In part, the tendency
to use this intervention is rooted in the early days of process consultation.
Coming from group dynamics, the T-group approach and the sensitivity move-
ment, there was an assumption that the basic factor in improving individual and
organizational behaviour resided in people working together in groups.
Although this is important, it is by no means the only nor the chief type of
intervention that should be considered. As with any other intervention, it should
be based on the diagnosed need.
Although there are many variations, the team-building approach focuses
on how the team functions, rather than on the content area of the team. Slowly
and carefully, the problem or task can be introduced into the situation, after work
on interpersonal relationships has indicated that the climate is appropriate for
moving into the real world.
Team building is not a one-off activity, although some consultants treat it
that way. In many organizations, there is a recurring need to engage in team-
building activities.
Confrontation. Within most organizations, there is generally competition
for limited resources. There are times when an organization appears to have
unlimited access to resources, but these periods do not usually last too long.
External influences impose limitations and restrictions. One way of dealing with
internal competition for limited resources is to ignore it, but this merely forces
various organizational members and units to devise ways to defeat other
elements of the organization.
This brings about the need for some kind of confrontation. This is a
situation where individuals must confront each other and take action. It can result
either in compromise (win-win), or in a situation where one unit or individual
wins points at the expense of the other (win-lose). Confrontation is not
necessarily negative - rather, it depends on how individuals deal with the
confrontation.
Confrontation meetings normally employ a structured approach in which
selected staff are exposed to: (1) historical and conceptual ideas about change
and organizations; (2) preparation of a list c~fsignificant problem-areas in their
own organization or unit; (3) classification of stated problems into categories;
(4) development of plans of action to remedy problems; (5) comparison of the

action proposals developed; and (6) planning for implementation.
There are cultures where confrontation is seen as negative behaviour. In
these it is considered impolite and counter-cultural to force an individual into
decision-making. This does not mean that decisions are not made, but rather that
they are not made through confrontation. The state of economic development
has little to do with this aspect of cultural behaviour. It can be found in places
as divergent as Japan and Malaysia. The consultant must also determine in which
areas confrontation is inadvisable, as such cultural behaviour may only be
appropriate for certain situations or between certain people.
When the need for a decision exists in a non-confronting culture, the
consultant can bring about the needed confrontation as an intervention. He or
she must do this very cautiously. One approach is to use a third party -that is,
the confronting groups or individuals in the organization do not meet face-
to-face. Instead, the consultant engages in what is sometimes called "shuttle
diplomacy". This can work effectively as the entry phase of a confrontation
intervention, with the plan that, at a later phase, the parties will actually meet.
In other situations, the entire confrontation may be dealt with indirectly.
Feedback. Feeding back data on individual, group and organizational
performance can help to bring about some change in individual or group
behaviour.
It is very important to provide feedback. Research and experience tell us
that without feedback, data may be meaningless. Particularly when an attitude
survey is used, it is important that the participants in the survey receive an
analysis of the data that they have provided.
The process of feedback must be handled very cautiously, because raw data
are frequently misunderstood. The analysis may prove critical or damaging to
some individuals, and in such a situation the results can be anticipated.
Obviously, those individuals will attempt to block any movement towards
change.
On a positive note, feedback can be extremely helpful. Many people in an
organization do not receive sufficient feedback to enable them to assess their
own performance or the performance of the organization as a whole. The
consultant should plan carefully, so that there will not be an information
overload. Care should be taken with both the process and the content of the
feedback.
Coaching and counselling. Commonly used change-assisting inter-
ventions are coaching and counselling (see also section 3.7). They are often used
in process consultation where the client as a person seeks help in improving his
or her own personal performance or interpersonal relationships. The basic
method is for the consultant to observe and review individual performance, listen
to the client, provide feedback on problems or behavioural patterns that hinder
operating effectiveness and inhibit change, and help the individual to gain
self-confidence, acquire new knowledge and skills and behave in a way required
by the changing nature of the job and the organization.
Training and developing people

Training and development of managers, and staff can be a powerful tech-
nique for change:
management workshops, both external and in-house, can be used to
sensitize managers and staff to the need for change, to environmental trends
and opportunities, to various options available to their organizations and
to them as individuals, or to performance and other standards already
reached elsewhere; experience has shown that managers can learn a great
deal at workshops where other managers describe and discuss specific
experiences with organizational change ;
training can help people to develop the skills and abilities for coping with
change effectively, such as diagnostic and problem-solving techniques,
planning, project management and evaluation techniques, or com-
munication and group work skills;
tailor-made and paced training can assist the change process at its various
stages by providing missing technical information and skills, thus helping
managers and staff to proceed to the next step, and overcoming fears and
resistance caused by lack of knowledge or of self-confidence;
training of "internal" change agents increases the pool of those on whom
management can rely in planning and assisting programmes of organ-
izational change.
Training in support of organizational change can be provided by pro-
fessional trainers, external or in-house, by management and OD consult&ts, or
by the managers who are in charge of particular change programmes. The
participants can themselves make significant inputs, for example by defining
their needs in a participative mode, or engaging in programmes of the action-
learning type as discussed below. Training can be both formal and informal. The
key objective is to facilitate learning of those concepts and skills that are
necessary and directly applicable to an on-going change programme.
In the current context of rapid technological, social and other changes,
training and learning are more than useful change techniques: organizations
where learning does not enjoy a prominent place find it increasingly difficult to
keep track of significant trends in business arid its environment, and to maintain
their managers and staff at the necessary level of competence.
Action learning. Action learning, pioneered by Reg Revans, is based on
the assumption that managers learn best by solving real problems either in their
own or in other organizations, and by exchan,ging relevant experience with other
managers. The problems tackled must be important enough to the organization
concerned and should involve both technical and human aspects. Emphasis is
placed on implementation - that is, on the most difficult part of the change
process. Exchange of experience with other managers involved in action
learning is organized as a regular part of the programme. If necessary, the
participants also receive technical assistance -missing information is supplied
or expert advice is given on the approach taken. The ultimate objective is to
achieve changes both in individual skills and attitudes, and in organizational

practices and perf~rmance.~
Learning company. The "learning company" concept (see section 16.6
for a detailed discussion) aims to link and integrate training and learning with
change processes that have a significant impact on company strategy and
performance. Emphasis is put on creating favourable conditions and incentives
for continuous individual learning and on innovation in training and self-
development. To turn individual learning efforts into "organizational learning",
various techniques and approaches are used to share and disseminate results of
individual learning, learn in teams, enhance managerial responsibility for
training and learning, combine the processes of learning with organizational
change processes and use learning to achieve a competitive a d ~ a n t a g e . ~
Organizational diagnosis and problem-solving techniques

There is a wide range of such techniques; some of them are known under
special names. Their main advantage is that they help to apply a systematic and
methodical approach, making sure that important factors, relationships or steps
are not omitted and symptoms not mistaken for their causes. In a consulting
project, the diagnostic phase and the action-planning phase (see Chapters 8
and 9) can also serve as an intervention for making people aware of the need to
change, involving them in identifying and analysing problems and opportunities,
and developing proposals meeting the organization's needs and objectives.
Box 4.6 (overleaf) provides an example of a recent technique in which
comparison at operational level (individual processes, activities, units, etc.)
with other organizations and units is used to identify and develop practical
suggestions for change.
Campaign-type, action-oriented change programmes

A campaign-type, action-oriented programme is a major organized and
planned change effort over a defined period of time to tackle a significant
practical problem, mobilizing fairly large teams and often requiring considerable
resources. The intervention has to be extended long enough for bottom-line
results to become visible or striking. Feedback on results achieved has to be
provided with a view to maintaining interest in the programme and adjusting the
approach as appropriate. Also, missing information, skills, equipment and
materials have to be made available when necessary. Examples of problems
tackled include total business performance, corporate strategy, labour pro-
ductivity, product and service quality, energy consumption, waste, accident
prevention and so on. As a rule, a great deal is at stake in such a programme and
demands on programme management and methodology are high. Business
process re-engineering, which has become popular in the 1990s, is an example
of such a comprehensive programme approach (see box 4.7, pp.100-101, and
section 22.3).
Box 4.6 Benchmarking

Benchmarking has been defined by the American Productivity and Quality
Center as "a process in which companies target: key improvement areas within their
firms, identify and study best practices by others in these areas, and implement
new processes and systems to enhance their own productivity and quality", and
as "the practice of being humble enough tc~admit that someone is better at
something and being wise enough to try to learn how to match and surpass them
at it". Pioneeredby the Xerox Corporationin the late 1970s in responseto Japanese
competition, benchmarking is currently practised by managers and consultants in
many different ways. Yet all benchmarking approaches tend to exhibit certain
common characteristics:
(1) Why benchmark?
The purpose is to stimulate and facilitate performance improvement and
organizational change by identifying and analysing specific and measurable
performance gaps, and establishing and achieving performance improvement
targets based on best or better practices used by others.
(2) What to benchmark?
Benchmarking deals with distinct activities, processes, services, units, etc.,
identied as weak points and/or areas of potential improvement.
(3) What should be the performancetarget?
While the current level is a logical starting-point and comparison base in any
benchmarking exercise, the performance improvement target can be established
at various levels, as shown in the figure below. The level chosen will reflect factors
such as the quality of information and i3nalysis, the resources and the
competencies needed to achieve a higher level and, in particular, the company's
vision and commitment to pursuing the "best-of-best" level of practice.
The benchmarking principle
Tomorrow's
Source: Adapted from C.Y. McNair and K.H.Y. Leibfried: Benchmarking: A tool for continuous
improvement (NewYork, Harper Business, 1992), p. Z.3.Copyright O 1992 C.J. McNair and
K.H.Y. Leibfried. Reprinted by permission of HarperCollins Publishers, Inc.
Mine of benchmarking steps

- -
Interview internal staff Establish entity goals

Gather internal information Develop action plans
Prepare questionnaire Communicate results
Conduct external interviews Implement specific actions
Analyse and contrast data Monitor programmes
Report Recalibrate benchmarks
- MEASUREMENT
Identify scope for benchmarking studies

Identify appropriate drivers and performance drivers
Identify potential external organization to benchmark
Source:W. Kreuz: Competitive benchmarking: Will it change your strategy?

(unpublished paper, 1992).
(6) Who can do the work?

Benchmarking teams from participating companies, involving managers, tech-
nical experts, experienced workers, informal leaders and others who "own" or
"co-own" the problems at hand, with consultants helping as facilitators and new
system developers, especiatly if several companies team up in one benchmarking
exercise.
Box 4.7 Business process re-engineering

Among the latest approaches to company productivity and overall performance
improvement, business process re-engineering (BPR) appears to have aroused
more interest in managers' and consultants' circles than many other techniques.
Michael Hammer and James Champy define re-engineeringas "the fundamental
rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary measures of performance, such as cost,
quality, service and speed". They stress four terms used in this definition:
Rethinking must be fvndamental, therefore BPR begins with no assumptions
and no givens, and takes nothing for granted. It ignores what is and
concentrates on what should be. Before asking how to do an operation more
effectively, it asks whether that operation needs to be done at all.
Redesignmustbe radical. Re-engineeringis about business reinvention-not
business improvement, enhancement or modification.
Improvementshould be dramatic, therefort3 BPR is the opposite of systematic
incremental improvements, and should be used only when dramatic
improvements are needed and possible.
BPR focuses on processes, not on tasks, jobs, people, structures or units. It
regards a business process as "a collectiori of activitiesthat takes one or more
inputs and is of value to the customer". It eliminates tasks that were invented
to satisfy internal demands of the company's own organization and have
nothing to do with meeting customer needs.
Hammer and Champy point out that the BPR approach is of interest to three
kinds of companies: companies that are in deep trouble and have no choice;
companies that see trouble coming and have the vision to start re-engineering in
advance of running into adversity; and thosc?that perform very well, but their
ambitious and aggressive management chooses to re-engineer in order to "raise
the competitive bar even higher".
The use of state-of-the-artinformation technology is a key characteristic of BPR
and can even trigger off a re-engineering effort, especially if IT professionals are
invited to apply the latest IT to tasks that probably should not be performed at all,
or to fragmented tasks that need radical rethinking and integration making use of
the current IT capabilities.This IT dimension of re-engineeringis fundamental. The
"business process" concept on which BPR is built uses IT to merge separate tasks,
integratetasks physically located in different places, integrate process control and
management with execution, automate choices and decisions that do not require
direct human control, radically cut process lead time, make the processes highly
reactive, flexible and adaptable to changing customer requirements, and make
sure that identical, up-to-date and reliable information can be instantly and
simultaneously used at different process stages.
The new concepts used in BPR include "case workers" and "case teams" -
de-specialized individuals and groups responsible for complete processes
(including coordination and management) rather than for small tasks within
fragmented processes held together by papemforkand supervision. The traditional
management hierarchies may undergo considerable"flattening" and "delayering".
In re-engineering, the following roles emerge in a company, either distinctly or
in various combinations:
- Leader: A senior executive who authorizes and motivates the overall

re-engineeringeffort.
- Process owner: A manager with responsibilityfor a specific process focused
on it.
- Re-engineeringteam: A group of individuals dedicated to the re-engineering
of a particular process, which diagnoses the existing process and oversees
its redesign and implementation.
- Steering committee: A policy-making body of senior managers which
develops the organization's overall re-engineeringstrategy and monitors its
progress.
A consultant may be engaged to structure and facilitate the change process
without necessarily knowing too much about the existing procedures - the aim
being to "reinvent".
Finally, BPR advocates a "big-bang" approach to rethinking business pro-
cesses, and a substantially more radical treatment of organizational change than
any other change management approach. Managing the people side of re-engin-
eering is therefore essential. This includes retraining, re-education, continuous
communication and providing leadership.
Source: Adapted from M. Hammer and J. Champy: Re-engineering the corporation:A manifesto for
business revolution (New York, Harper Bus~ness,1993).
Choosing among intervention techniques

We have seen that only rarely will one particular technique or approach
lead to a successful implementation of all stages of a change process. In many
situations, managers and consultants have to use a variety of interventions,
simultaneously or successively.
A fully competent consultant is flexible in choosing intervention and
change-assisting techniques, combining several interventions as appropriate and
switching to a new technique if the originally chosen technique appears to be
ineffective. As a rule, this choice is more effective if treated as one of the later
. ~trap to
areas of selection rather than being the subject of an early d e ~ i s i o nA
be avoided is choosing a wrong technique at the outset of the change process,
and so rapidly creating a great deal of disenchantment and missing the target,
but obstinately continuing to use the technique although it is obviously leading
nowhere. Two criteria are more important than any other:
(1) The structural arrangement or intervention technique chosen should be
compatible with organizational culture and, if it is not, great care should
be given to explaining why the technique had to be chosen and how it will
be used; also, adaptations of the technique may be required during its use.
(2) The consultant and the managers responsible for the change programme
should feel comfortable with the technique and be able to use it effectively.
It is knowledge and practice of skills in choosing an appropriate approach
and employing it in a life situation that set the consultant apart from the academic
theoretician. The techniques may be acquired in part by studying research
findings and publications, but, more particnlarly, they will be mastered and
fine-tuned by experience.
An American social psychologist, whose main writings on change date from the 1940s and
1950s. See, e.g., K. Levin: Field theory in social science (New York, Harper, 1951).
2 See also the discussion of situational leadership, ibid., Ch. 7.
3 R. Beckhard and R. T. Harris: Organizationcl transition: Managing complex change

(Reading, Massachusetts, Addison-Wesley, 1977), p. 5.
A. Huczynski: "Performance through intervention using organizational change methods",
in European Management Journal (Oxford, United Kingdom), Vol. 5, No. 1, 1987, p. 49.
See, e.g., G. Boulden and A. Lawlor: The application of action 1earning:Apractical guide,
MAN DEV/46 (Geneva, ILO, 1987).
6 See also P. M. Senge: Thefifth discipline: The art andpractice of the learning organization
(New York, Doubleday, 1990).
7 Beckhard and Harris, op. cit., p. 44.
CONSULTING AND CULTURE
In helping clients to plan and implement change, the consultant needs to

be aware of the power of culture. Culture is normally defined as a system of
collectively shared values, beliefs, traditions and behavioural norms unique to
a particular group of people. "Culture is the collective programming of human
mind that distinguishes the members of one human group from those of another
group. Culture, in this sense, is a system of collectively held values."l Or, in the
words of the French mathematician and philosopher Blaise Pascal, "there are
truths on this side of the Pyrenees that are falsehoods on the other".
Culture has its roots in basic conditions of human life, including material
conditions, the natural environment, climate, and ways in which people earn
their living, and in the historical experience of human communities which
includes interaction with other countries and cultures. People create culture as
a mechanism that helps them to cope with their environment and maintain the
cohesion and identity of the community in interacting with other communities.
In developing countries, in rural areas in particular, traditional cultures reflect
the people's poverty and helplessness before the forces of nature. Culture tends
to be deeply rooted in people's hearts and minds, and therefore cannot be easily
changed.
5.1 Understanding and respecting culture

The problem with culture is that, although it is omnipresent and its
influence on the functioning of organizations and whole societies is very strong,
it is difficult to identify and grasp. Culture is nowhere precisely described, and
it also includes taboos: values that people respect, but about which they do not
normally talk and sometimes resent talking. Individuals and whole communities
may be unaware of their culture because they have not learned it as a structured
subject or a technical skill. Values and beliefs that make up culture evolve over
generations, are transmitted from generation to generation, and are normally
acquired unconsciously, early in people's lives - in the family, at school,
Box 5.1 What do we mean by culture?

Culture is composed of many elements, ,which may be classified in four
categories: symbols, heroes, rituals and values
Symbols are words, objects and gestures which derive their meaning from
convention. At the level of national cultures, symbols include the entire area of
language. At the level of organizational culturtt, symbols include abbreviations,
slang, modes of address, dress codes and status symbols, all recognized by
insiders only.
Heroes are real or imaginary people, dead or alive, who serve as models of
behaviour within a culture. Selection processes are often based on hero models
of "the ideal employee" or "the ideal manager". Founders of organizations
sometimes become mythical heroes later on, a.nd incredible deeds are ascribed
to them.
Rituals are collective activities that are technically superfluous but, within a
particular culture, socially essential. In organizations they include not only
celebrations but also many formal activities defended on apparently rational
grounds: meetings, the writing of memos, and planning systems, plus the informal
ways in which these activities are performed: r ~ h ocan afford to be late at what
meeting, who speaks to whom, and so on.
Values represent the deepest level of culture. They are broad feelings, often
unconscious and not open to discussion, abol~twhat is good and what is bad,
clean or dirty, beautiful or ugly, rational or irrational, normal or abnormal, natural or
paradoxical, decent or indecent. These feelings are present in the majority of the
members of the culture. or at least in those persons who occupy pivotal positions.
Author: Geert Hofstede.
through religious education, at work and by socializing with other members of

the community.
A management consultant faces the same problem. His or her personality
and value system have been moulded by the culture in which he or she has grown
up, worked and socialized with other people. Yet the consultant may be unaware
of it. For as "the last thing that a fish will discover is water", often culture will
be the last thing that a management consultant, otherwise an outstanding expert
in a particular technical field, will discover.
Being culture-conscious
In management consulting, a concern for culture is as important as a
concern for the specific technical problem for which the consultant was brought
in. But what can he do to be sure that he is culture-conscious and that neither
his behaviour nor his suggestions clash with culture?
To be culture-sensitive, a management consultant does not have to become
a sociologist or an anthropologist. Some knowledge of culture can be gained by
reading about culture and discussing cultural issues with other people. Genuine
Consulting and culture
interest in the meaning of culture and in different cultures provides a good

background for understanding and correctly interpreting a particular cultural
context.
However, this is only the first step. Like any other person, a consultant who
has never lived and operated in a culture different from his own will find it
difficult to perceive and understand the full meaning and power of another
culture, and the role of various factors that may be unknown in his own culture.
Experience has shown that only people who have been in contact with a different
culture for some time start understanding not only that culture but also their own
culture. Social and working contacts with other cultures provide us with a mirror
in which we see our own culture.
Being culture-tolerant
Culture is very important to people. Their preference for fundamental
cultural values is emotional, not rational. They may even regard certain social
norms and traditions as eternal and sacrosanct. In contrast, a management
consultant may regard the same norms as anachronistic and irrational. There
may be a grain of truth in the consultant's view, since not everything is positive
and progressive in cultures: they often include values that perpetuate social
inequalities and inhibit development. Nevertheless, cultures reflect centuries of
society's experience and help people to cope with life. Respect for different
cultures and tolerance of values and beliefs alien to his or her own culture, but
dear to other people, are therefore essential qualities of a good consultant.
In attitude to other cultures, a consultant is strongly influenced by his or
her own culture. Tolerance towards other cultures, religions and ethnic groups
is a cultural characteristic, too: some cultures are highly tolerant of different
cultural values, while others are not. A consultant who has been moulded by a
less tolerant cultural environment should be particularly cautious when working
in other cultures.
5.2 Levels of culture

National culture
The term "national culture" is used to define the values, beliefs, behavioural
norms, habits and traditions that characterize human society in a particular
country. There can be one national culture in an ethnically and linguistically
homogeneous country, but in many countries there are several distinct cultures
and the country may be a mosaic of cultures. The question is, do these cultures
mix with each other, cohabit peacefully and tolerate each other, or do they make
the functioning of the State and of the economy difficult?
An important cultural phenomenon is the existence of minorities and their
relationship to other ethnic groups within society. Often minorities make a
special effort to preserve their particular culture in order to protect their identity
and ensure survival within an environment where a majority culture dominates

and tends to alter or even oppress minority cultures. Certain minorities possess
attitudes, skills, historical experience and material means, thanks to which they
have been extremely successful in business. The implications of this are well
known in many countries. Thus, while sensitivity to cultural differences is es-
sential in international consulting, a consultant operating within his or her own
country also needs to be aware of culture.
Another increasingly important factor is the movement of people across
the boundaries of countries and cultures. In many countries the workforce is
international and so may be the management team in the client company. People
coming from other cultures bring their cultural values and habits with them, and
because they are also influenced by the culture of their country of residence, the
result is an interesting and sometimes peculiar mix of cultures.
It would be impossible to review here all the factors embraced by the
concept of nat~onal(or local) culture. It would be even more difficult to point to
all the differences between cultures of which a consultant needs to be aware
because they may be related to the work assignment. The spectrum of cultural
values, norms and rituals can be extremely wide and can concern any aspect of
human, economic and social life. Some cultural factors affecting- management
are shown in box 5.2.
Box 5.2 Cultural factors affecting management

The following factors of national cultures tend to be reflected in management
structures and practices:
the distribution of social roles and the status assigned to them;
the criteria of success and achievement in economic and social life;
respect for age and seniority;
the role of traditional authorities and community leaders;
democratic versus autocratic traditions;
individualismversus collectivism;
spiritual versus material values;
responsibility and loyalty to family, community and ethnic group;
socialization and communication patterns;
the acceptability and the form of feedback, appraisal and criticism;
religion, its importance in social life and its impact on economic activity;
attitudes to other cultures, religions, ethnic groups, minorities;
attitudes to social, technological and other changes;
the conception of time.
Language plays a prominent role in culture. Cultural concepts are de-

scribed in words, the meaning of many words is culture-bound and language is
a vehicle for the functioning and interaction of cultures. Non-verbal expressions
lo6
and gestures are also culture-bound and may be very important. Non-verbal
communication is more difficult to control consciously than verbal com-
munication and tends therefore to be more trustworthy. Some cultures (e.g. North
American) attach importance to what is said, while in other cultures (e.g. Asian)
it is essential to understand non-verbal messages.
National cultures are unique, but they are not closed systems. There are
similarities between cultures for reasons such as common language or religion.
Long-term interaction of cultures (e.g. between neighbouring countries or
during domination of one country by another) also influences culture. In some
developing countries, the social groups most exposed to the culture of the former
colonial power ( e g administrators, intellectuals and the business community)
tended to adopt some of its values and behavioural patterns. Thus, strong
influences of French culture can be observed in French-speaking Africa, while
influences of Dutch culture are still present in Indonesia. Cultural changes occur
in many countries under the influence of growing material wealth, better general
education, a massive expansion of contacts with different cultures and other
factors.
There is a growing interest in exploring the role played by national culture
in the economic performance and development of particular countries. For many
decades, North American culture has been widely regarded as a major factor in
the dynamism, competitiveness and achievement of American businesses. At the
present time, managers all over the world are keen to get a deeper insight into
Japanese national culture (box 5.3, overleaf).
The term "culture" is also applied to values and behaviours that charac-
terize other social groups: professions, trade groups, organizations, clubs and
associations. Even small social units, such as families, may have their specific
cultures. All of these are sometimes called micro-cultures.
Professional culture
Professional culture is one shared by individuals who belong to the same
profession, e.g. by lawyers, medical doctors, civil engineers or accountants. It
is very much related to job content and to the role played in society by the
members of the profession. It is influenced by professional education and
training and tends to exhibit common characteristics across organizational and
national boundaries. One of the objectives of professional associations and
societies is to preserve and develop professional culture. Ethical values promoted
by professional associations tend to become a part of this culture.
The understanding of professional culture may help a management
consultant in establishing constructive relations with clients and other pro-
fessionals in foreign countries. It is useful to be informed about the background
of managers and staff in a client organization and know, for example, from which
universities they graduated. Some members of a client organization ( e g
accountants, internal consultants, training managers) may share common pro-
fessional values with the consultant: this may be of particular help in penetrating
the problems of local culture.
Box 5.3 Japanese culture and management consulting

Japanese culture, which is a historical growth of indigenous culture with the
medieval influence of Chinese culture and the moderninfluenceof Western culture,
has created a unique approach to management. Two of its key characteristicshave
strongly influenced business management in Japan:
(1) Group orientation

The values, attitudes and behaviours of managers and workers are oriented
towards the interest of the group to which they belong. The basic principle is that
the personal interest of the group must be served best. In the Japanese context,
the nation and the individual company are the two groups with which both
managers and employees identify most closely.
(2) Long-term orientation

Japanese managersand workers view their work, as well as their life in general,
from a long-term perspective and act accordingly. Time is money to them, too,
primarily in the sense that the more time is spent on a plan for an activity, the greater
the result of its implementation is likely to be. Typically, a Japanese employee
makes work decisions on the basis of a lifetime career with the organizationwhere
he or she is employed.
Only those management techniques- be they techniquesfor decision making,
problem solving, leadership, motivation, communication, negotiation or change -
which have met these two characteristics of Japanese culture have been
successfully transferred from Western culture. Now that consultants and managers
worldwide are trying to reverse the historical flow and transfer Japanese
management techniques to their own work environment, these characteristics are
becoming critical in judging the appropriateness of such a transfer and organizing
the environment for the transfer.
An additional complexity in such a transfer is the nature of Japanese language
which, as compared with Western language:%is rich in context ("high contextn),
reflecting the nature of its cultural foundations. Therefore, particular care must be
taken in correctly interpreting not only the cultural meaning but also the linguistic
meaning of Japanese techniques.
As the nation is becoming affluent and international, Japanese culture is
undergoing changes that go all the way down to its basic characteristics. The
change is already visible with the younger generation, whose attitudes and
behaviours are conspicuouslyless group orie~itedand less long-termoriented than
those of their seniors. These changes are likely to lead to significant modifications
of the Japanese management techniques in .the coming decades.
Author: Eiji Mizutani.
Organizational culture
Organizations, too, tend to have their specific culture: a peculiar mix of
values, attitudes, norms, habits, traditions, behaviours and rituals that, in their
totality, are unique to the given organization (box 5.4). Some organizations are
well aware of their culture and regard it as a powerful strategic tool, used to
Box 5.4 Cultural values and norms in organizations

Within organizations, the specific cultural values and behavioural norms may
concern, for example:
the organization's mission and image (high technology; superior quality;
pride in being a sector leader; dedication to the service ethos; customer
satisfaction; innovative spirit; entrepreneurial drive);
seniority and authority (authority inherent in position or person; respect for
seniorii and authority; seniority as a criterion of authority);
the relative importance of different management positions and functions
(authority of personnel department; importance of different vice-presidents'
positions; respective roles and authority of operations and marketing);
the treatment of people (concern for people and their needs; equitable
treatment or favouritism; privileges; respect for individual rights; training and
development opportunities; lifetime careers; fairness in remuneration; how
people are motivated);
the role of women in management and other jobs (acceptance of women
for positions of authority; jobs either unavailable or reserved for women;
respect for women managers; equal treatment; special facilities);
selection criteria for managerial and supervisory positions (seniority
versus performance; priority for selection from within; political, ethnic,
nationality and other criteria; influence of informal groups);
work organization and discipline (voluntary versus imposed discipline;
punctuality; use of time clocks; flexibility in changing roles at work; use of new
forms of work organization);
management and leadership style (paternalism; authoritative, consultative
or participative style; use of committees and task forces; providing personal
example; style flexibility and adaptability);
decision-making processes (who decides; who has to be consulted;
individual or collective decision making; need to reach consensus);
circulation and sharing of information (employeesamply or poorly informed;
information readily shared or not);
communication patterns (preference for oral or written communication;
rigidity or flexibility in using established channels; importance attached to
formal aspects; accessibility of higher management; use of meetings; who is
invited to what meetings; established behaviours in the conduct of meetings);
socialization patterns (who socializes with whom during and after work;
existing barriers and inhibitions; special facilities such as separate dining-
rooms or reserved clubs);
ways of handling conflict (desire to avoid conflict and to compromise;
preference for informal or formal ways; involvement of higher management);
performance evaluation (substantive or formalistic; confidential or public; by
whom carried out; how results used);
identification with the organization (manager and staff adherence to
company objectives and policies; loyalty and integrity; esprit de corps;
enjoying working with the organization).
orient all units and individuals towards common goals, mobilize employee
initiative, ensure loyalty and facilitate communication. They aim at creating a
culture of their own and making sure that all zmployees understand it and adhere
to it.2
Organizational cultures, or micro-cultures, reflect national cultures first of
all. But they also include other values and norms. Recent research has provided
some insight into organizational cultures of leading corporations in various
countries. It has shown that many companies which have been outstanding
performers over a long time exhibit a strong corporate culture. Many multi-
national corporations possess certain cultural characteristics world-wide, and
the parent company's culture has considerable bearing on the cultural norms and
behaviour of subsidiaries in other countries. The strong personalities of the
founders and of certain top managers also influence organizational culture even
in very large and complex corporations. This leads to an interesting mix of
cultures in the case of foreign subsidiaries, where the influence of local national
culture is combined with that of the parent company's culture.
The hidden dimensions of organizational culture tend to surface during
company mergers and takeovers, which in many cases fail to produce expected
results mainly because management is unable to harmonize different cultures.
Many organizational cultures develop specialized vocabulary and a wide
range of symbols and rituals that staff members have to use and respect if they
do not want to be regarded as outsiders by their colleagues.
A management consultant needs to learn about organizational culture as
early as possible in the assignment if he or she does not want to be perceived as
a stranger who does not know how things are normally done in the client
organization and whose presence therefore is an irritation. But there is another
much more important reason for this: the client organization's culture may be
one of the causes, or the principal cause, of the problems for which the consultant
was brought in. Even if changes in organizat lonal culture are not explicitly stated
among the objectives of the assignment, the consultant may have to deal with
them and recommend what in his opinion needs to be changed.
Changing organizational culture may be a difficult and painful exercise,
especially if it is necessary to change the values of the founders and leaders, and
habits and practices that have become coll~xtiveand have been widely estab-
lished. Changes in leadership and management styles, and patient re-education,
may be required. However, it has been pointed out that "organizational cultures
reside at a more superficial level of programming than the things learned pre-
viously in the family and at s ~ h o o l " Changing
.~ organizational culture is a top
management task, but the consultant's catalytic input can be essential (see also
section 12.4).
The consulting firm's culture

The above-mentioned characteristics of organizational cultures are present
in consulting firms as in any other organizations. Their cultures encompass
values and norms concerning a wide range of issues including consulting
methods and practices, commitment to clients, responsibilities and rights of

junior and senior consultants, career progression, transfer of know-how to
clients, the application of a code of ethics, and many others. Thus, a consulting
firm's culture is a unique mix of organizational, professional and national
cultural factors. It is essential to be aware of it, in particular if there is any risk
of incompatibility and clash with a client's culture.
5.3 Facing culture in consulting assignments

The consultant's behaviour
A great deal of useful guidance is available on how consultants should
behave when operating in other cultures. Most of it concerns interpersonal
relations and manners. For example, it is good to get advice on:
how to dress;
how to deal with people;
punctuality;
0 when and how to start discussing business;
0 written and/or oral communication with the client;
formal and informal interpersonal relations;
0 the use of go-betweens;
display or restraint of emotions;
0 what language and terms to use;
taboos to avoid.
Such things are relatively easy to learn and remember. Also, these days it
is helpful that more and more clients are becoming tolerant of other cultures.
Your client may know that a first contact with an American consultant will be
quite different from a contact with a Japanese consultant. However, there is no
guarantee that your particular client really is "culturally literate", and culture-
tolerant. It is therefore wise to find out beforehand how he or she expects a
professional adviser to behave.
However important, questions such as whether to use first names and what
topics must not be openly discussed represent only the tip of the iceberg in the
cross-cultural consultant-client relationship. The less visible and more profound
aspects of this relationship concern such issues as power and role distribution,
decision making, confrontation and consensus in problem solving, use of team-
work, consultation with employees, religious beliefs and practices, and any
criteria whereby management will judge the consultant's work and suggestions.
Some consultants feel that they must try to identify themselves with a
foreign culture, behaving as the client behaves ("when in Rome do as the Romans
do!"), and sharing the client's values and beliefs in order fully to understand
his or her environment and render an effective service. This may be impossible,
even undesirable, to achieve. It implies no longer being authentic and genuine,
thus abandoning key behavioural characteristics of a professional consultant.

Understanding and respecting other people's culture does not imply giving up
one's own!
How to find out

The consultant has to use all his or her experience and talent to learn enough
about the cultural factors which may be relevant to the assignment. In some
cases, direct questions on what values prevail, how things are normally done and
what pitfalls to avoid will be perfectly acceptable, in particular if the client is
keen to get a technically valid solution and is personally aware of the differences
between cultures. In other cases, tactful and patient observation of the client's
behaviour may produce an answer. A great deal can be learned by mixing with
people and observing how they act and socialize, what symbols they use and
what rituals they observe. Discussions of cultural issues should be informal;
formal and structured interviews are not well suited for dealing with culture.
Judgement should be suspended until the consultant has learned more. Also, the
consultant should try not to be nervous and uneasy in a new situation that appears
ambiguous. To detect and overcome cultural barriers, it may be useful to team
up with an internal consultant or another me-nber of the client organization who
is prepared to help.
A study of the client company's history can be revealing. The roots of
present corporate culture may be far back i:n the past: in the personality of the
founder, in past successes or failures, in the growth pattern (e.g. many
acquisitions or frequent changes of owners), and the like.
Establishing a climate of trust

We have already emphasized that it i:; important to establish as early as
possible a climate of trust among all the parties in the consultant-client
relationship. This can be difficult since not all cultures agree that trust of an
outsider is desirable. One way of looking at these relations is by comparing
high-context and low-context societies.
In a high-context society, relationships are based on friendship, family ties
and knowing each other well. The context, the total situation, is essential to
building relationships. The formation of these relationships is paced quite slowly
and includes many rituals or rites of passage. This can include eating certain
kinds of food, or engaging in various social activities unrelated to work.
In a low-contextsociety, the relationship generally is spelled out in a written
contract. The client is keen to obtain a precisely defined piece of technical work
and may not care all that much about the total relationship with the consultant.
What is not in the contract is not part of the relationship. Of course, there are
subtle forms of interaction even in a low-contkxt society. Generally, however,
the relationship is built first on the writkn document; the building of trust
follows.
In some cultures, developing trust takes time, but it is possible in most

cultures. This need for time should be recognized and built into the plan of the
assignment. Also, the concept of high- and low-context societies is a developing
one. The consultant should be careful about applying it to an entire country or
an entire people, since there are individual variations.
Criteria of rationality
In working for a client, a management consultant aims to find and re-
commend solutions which are in the client's interest. To justify the proposed
measures to himself and to the client, a consultant applies criteria that are rational
by his standards. For example, he may apply economic effectiveness as a
criterion and judge various alternatives by their impact on the productivity and
financial performance of the organization. He may use costbenefit analysis and
return on investment as the main assessment techniques.
Yet even the concept of rationality is culture bound. In Western industrial
economies, where the notions of efficiency, competitiveness and profitability
have not only an economic but also a strong cultural connotation, economic
rationality is not always the main criterion applied by top management in
evaluating alternative decisions. Personal, cultural, social or political pre-
ferences may prevail. The desire to maintain the status quo, fear of the unknown,
the company owner's social image, or reluctance to make changes affecting
collectively shared values, may eventually determine top management's choice
even in a European or North American enterprise. In several Asian countries,
certain cultural values tend to be applied as criteria of rationality: to preserve
harmony, to avoid dismissing employees, to maintain status differences and to
respect feelings about ethnic groups may be seen as more effective and more
rational than to optimize performance in strictly economic and financial terms.
Transferring management practices

Management consultants use their past experience in working with present
clients. This involves transferring management practices from one organization
or country to another organizational or national environment. Other items could
be substituted for "management practices". We could also speak about manage-
ment techniques, technologies, methods, expertise, systems, concepts, patterns,
approaches, and the like, but the question remains the same: to what extent and
under what circumstances are management practices transferable?
There are factors whose influence on the choice of management techniques
is evident - for example, the nature of the product, the technology used, the
technical skills of the employees or the size of the organization. The influence
of culture is more subtle and not so easy to perceive, but experience has shown
that it tends to be very strong.
Some management techniques are value laden. They were developed for
use in a particular culture and reflect its value systems and behavioural norms.
They concern the human side of organizations: individual and group interests,
interpersonal and intergroup relations, motivation and control of human

behaviour. The possibility of transferring these techniques has to be carefully
examined in each case. A value-laden technique may be difficult or impossible
to transfer. Remuneration techniques stimulating individual performance rather
than collective solidarity fail in collectivist societies; high wage differentials
may not be acceptable in an egalitarian society; organization development
methods based on confrontation cannot be used where harmony and conflict
avoidance are strongly valued; problem-solving approaches built on democratic
values are difficult to apply in a traditionally autocratic culture; matrix
organization does not work effectively in cultures where people prefer the unity
of command and want to receive orders from one single higher authority.
Examples of failures caused by a mechanistic transfer of value-laden techniques
are abundant.
Some other techniques were developed in response to organizational
characteristics such as the nature and complexity of the production process, or
the amount of data to be recorded and analysed; that is to say, they concern the
technological, economic and financial side of organizations. Such techniques
are relatively value neutral and their transfer across cultures is a simpler matter.
However, while a technique per se may appear value neutral, its application
creates a new situation that may be value laden. A production control or
maintenance scheduling technique required by the technology used may conflict
with the workers' beliefs and habits concerning punctuality, work organization
and discipline, justified absence from work, accuracy and reliability of records,
and the like. Every organization is unique, and the combined effects of national
and organizational cultures are key factors of this uniqueness. Thus a seemingly
universal and value neutral management technique may have to be modified to
fit a different cultural context, or it may be even more appropriate to develop a
new technique.
Culture and change

Values and beliefs concerning change have a prominent place in culture.
Generally speaking, modernistic and optimistic cultures regard change as
healthy; without i t business cannot flourish and society prosper. Cultures
dominated by traditionalism value the status quo, stability and reverence for the
past. They are suspicious about change and may perceive it as disturbing and
subversive even if, in the consultant's professional view, the need for change is
self-evident. To realize and appreciate this may be particularly difficult for a
consultant who has been used to working with dynamic clients, keen to apply
quickly any changes from which the company can derive benefits.
The presence of cultural factors impeding or retarding change does not
imply that change is impossible. Even the most conservative individuals and
groups are able to reconcile themselves to change if they realize its necessity, in
particular if change is imposed by strong external influences, such as the
deterioration of material conditions of living. Better information, education,
contacts with more dynamic cultures and new technology also affect the tradi-
tionalist societies' attitude to change. However, the process of change may be

slow and difficult.
When operating in an environment where resistance to change has cultural
roots, a consultant will be well advised to bear in mind:
the sort of change that is acceptable (refraining from proposals that the
client will judge to be culturally undesirable or unfeasible);
the pace of change (deciding whether to plan for a fundamental one-off
change, or for gradual changes in a number of small steps; assessing the
"acceptance time" needed by clients and their staff to convince themselves
about the desirability of proposed changes);
the client's readiness for change (it is unreasonable to press for change if
the client is not ready to face the cultural problems that change may cause
him);
the level of management and the particular person (authority) by whom
change has to be proposed and promoted in order to be accepted and
implemented;
the persuasion and educational effort needed to convince people that
maintaining the status quo is not in their interest.
Consulting in social development

At the present time more and more management consulting is done for
social development programmes and projects in sectors such as health, nutrition,
basic education, drinking-water supply, sanitation, community development or
population control. Many of these programmes requiring consulting inter-
ventions are in rural areas of developing countries. There are, too, many
programmes of assistance to small entrepreneurs and micro-enterprises in the
informal sector (see Chapter 19). Management consultants, including
consultants who have worked in developing countries and are aware of their
cultures, are as a rule familiar with the cultural setting encountered in industry
and central government administration, but the informal economy, and rural and
social development, are new worlds to them.
In social development, the consultant's clients are not managers operating
modern enterprises or well-established administrative structures, but managers,
social workers and organizers working with local communities, groups of
farmers, or even individual families and persons. The technology used is simple
and may be outdated. The concepts of "professional culture" or "organizational
culture" do not apply. In contrast, the power of traditional social culture is very
strong. Human behaviour, essentially fatalistic and conservative, is governed by
deeply rooted beliefs and prejudices. Cultural characteristics reflect difficult
living conditions, poverty and poor education. Passivity, resignation, lack of
personal drive, fear of change and uncritical respect for traditional authorities
may prevail.
In consulting, knowledge of these factors is essential, but it is not all that
is needed. Consultants need to possess cultural and social work skills rather than
knowledge of refined management techniques. They need to be patient, to be

able to live and operate under conditions o:f imperfection and uncertainty, to
know how to improvise using limited local resources, and to apply a great deal
of imagination in proposing solutions which cannot be found in any management
handbook. Personal commitment to and empathy with the underprivileged are
qualities without which it is hard to succeed.
G. Hofstede: "Culture and organizations", in ,'nternational Studies of Management and

Organization, No. 4, 1981. See also idem: Cultures and organizations: Software of the mind
(Maidenhead, Berkshire, McGraw-Hill, 1991). The word "culture", in English and some other
languages, also has another meaning. It is used when referring to the arts, literature, and so on.
Obviously, this is not the meaning intended here.
See, e.g., T. E. Deal and A. A. Kennedy: Corporate cultures: The rites and rituals of
corporate life (Reading, Massachusetts, Addison-We:dey, 1982); E.H. Schein: Organizational
culture and leadership (San Francisco, California, Jossey-Bass, 2nd ed., 1992); and Hofstede,
op. cit
3 G. Hofstede: "Business cultures" in Courier (Paris, UNESCO), Vol. 47, No. 4, 1994,
pp. 12-16.
PROFESSIONALISM AND
ETHICS IN CONSULTING
The growth of management consulting has given ample evidence that at

one time almost anyone could call himself or herself a consultant and set up in
practice. In its early years the business attracted the good, the bad and the
indifferent. The word "business" is used deliberately: "professions" seldom start
as such. Professional awareness and behaviour come when the early juggling
with a little knowledge gives way to skilled application of a generally accepted
body of knowledge according to accepted standards of integrity. The professions
of medicine, the law and the applied sciences all followed this path, and
management consulting is proceeding in the same direction.
6.1 Defining a profession

Before discussing in detail how consultants can enhance their professional
approach, we should mention the criteria normally used to define a profession.
These criteria, about which much has been said and written, can be summarized
under five headings.
Knowledge and skills

There is a defined body of knowledge proper to the profession, which can
be acquired through a system of professional education and training. The
necessary level of professional expertise is not reached without a certain number
of years of practical experience in addition to completed higher education,
preferably under the coaching of senior members of the profession. Furthermore,
the practising professional has to keep continuously abreast of relevant
developments in theory and practice.
The professions tend to have their own criteria and systems for verifying
and assessing required knowledge and experience, including examinations on
entry, assessment by professional bodies, testing the results of further training,
and similar.
The concept of service and social i~iterest

Professionals put their knowledge and experience at the disposal of clients
as a service against appropriate remunera.tion. The real professionals are
characterized by the "service ethos": they serve clients' needs and interests, to
which they subordinate their own self-interest. Furthermore, they view indi-
vidual client interests from a wider social perspective, and keep broader social
needs and interests in mind when serving individual clients.
Ethical norms
There is a set of recognized ethical rorms, shared and applied by the
members of the profession. These norms define what is proper and what is
improper behaviour in providing a professional service. They demand more than
respecting the law: a behaviour that is perfectly legal may not always be ethical
judged by the profession's norms.
Community sanction and enforcement

The community in which the profession operates and the clientele which
is served recognize the social role, the status, and the ethical and behavioural
norms of the profession. There may be explicit recognition ( e g by means of a
legal text governing and protecting professional practice). This may include
definitions of educational or other standards required and special examinations
to be passed, as well as of behaviours considered as unprofessional and illegal,
and of corresponding sanctions.
Self-discipline and self-control

While serving clients, an individual member of the profession applies
self-discipline and self-control in observing the profession's behavioural norms.
The profession organizes itself in one or more voluntary membership institutions
(associations, institutes, chambers, etc.), thus exercising collective self-
regulation and self-control over the application of an accepted code of
professional conduct and over the development of the profession. An equally
important purpose of membership institutions is to defend the collective interests
of the profession in dealing with representatives of the clients and the
community.
Is management consulting a profession?

There has been a long but inconclusite debate on whether management
consulting meets the criteria discussed above and deserves to be called a
profession. Both scholars and leading consulting practitioners have expressed
and defended diametrically different opinions (box 6.1). These opinions
illustrate the current state of management consulting. While consulting exhibits
Professionalism and ethics in consulting
Box 6.1 Is management consulting a profession?

In 1993, James Kennedy interviewed a number of leading personalitiesin American
consulting, to find out that not more than 60 per cent of the respondents regarded
management consulting as a profession.He received, among others, the following
answers:
"Management consulting is indeed a profession, but certification is irrelevant."
Victor Millar
"Sure it's a profession: management consultants offer professional services and

get paid for it. . . and, as such, are the elite of service occupations."
Bob Hayes
"Management consulting is actually several professions."

Pete Bradshaw
"No, because we lack precise methodologies, a body of knowledge, educational

link. Much of the work is professional and many consultants are professional, but
we are not a profession by a long shot!"
Ken Tunnel1
"Management consulting has never found its true identity as a professional field.
And management consultants as a group do not meet the test of being a
profession."
Phil Shay
"The clamour for professionalizationis years out of date. A profession is a social

construct (prestige, status, etc.), not a business construct, and it's too late to try
and grab for social status."
DavidMaister
"The very nature of the management consulting profession argues against a

clearcut definition of the term. Maybe the emphasis should not be labels or initials
but an imposing quality of services."
Ed Hendricks
"We have a nucleus of a profession, but it needs another 25 years to mature."

Glen Van Doren
Source: James H. Kennedy: Management consulting today - a look around and a look ahead
(Fiiilliam, New Hampshire, Consultants News, 1993).
a number of criteria applied to professions, it does not meet some other criteria.
We can call it an emerging profession, or a profession in the making, provided
that we are aware of the gaps that need to be filled and improvements that need
to be made.
We will comment on these issues in the following sections of the chapter,
trying to show what can be done to increase the professional level and quality
of management consulting.
6.2 The professional approach

What then are the salient characteristics of a professional approach in
management consulting? Some of them can be found, in succinct form, in the
codes of ethics or conduct adopted by the membership organizations of
management consultants; others are set out in information pamphlets issued by
consulting firms. These are the norms held collectively, i.e. by the members of
a consultants' association or of a consulting firm that has formally declared what
its ethical rules are. However, in many situations it is practically impossible to
refer to a formal declaration of norms defining truly professional and ethical
behaviour. In such cases the consultant will be guided by a personal code of
professional ethics and behaviour -his or her own conception of what is proper
and improper practice, and what is beneficial to the client and to the community
and what is not.
The consultant is in a position of trust; the client most probably believes
that certain behavioural norms will be respected without their even being
mentioned. Many clients believe that co~isultantswould never use false
credentials, and some clients are even unable to evaluate the consultant's
technical competence. The consultant ma:y be in a position of technical
superiority and possess knowledge and information denied to the client. The
Box 6.2 The power of the professional adviser

The "technical superiority" of the management consultant, and his or her "power"
over clients, are often different from what can be observed in some other
professions, e.g. in medicine. There are two main reasons for this. First, if there is
a knowledge and experience gap between management consultants and their
clients, this gap can be quite small. To many clients management consulting is not
a "black box*. Both the consultant and the client may have the same educational
background and similar practical experience. The client may be quite well prepared
for deciding to use or notto use aconsultantand to accept or reject the consultant's
advice, and for controlling the consultant's work during an assignment. Clearly,
this is not the normal position of a patient who turns to a physician, or of a layman
who seeks legal counsel and in certain situations must retain a lawyer even if he
would prefer to avoid him. Second, management consulting is not a closed and
highly protected profession. In most countriesthere are no barriers or only minimal
barriers to entering the profession. There are no jobs that would be reserved to
management consultants. The consultant's and the client's roles can even be
interchangeable. He or she who is client today can be consultant tomorrow. And
vice versa.
There are two typical situations where the consultant's ethics are clearly put to the
test: first, if he does enjoy technical superiority because he works for an uninformed
or technically weak client; and second, if he works for a client whose judgement
has been diminished by distress and difficulties and who desperately needs help.
Such clients may be very vulnerable yet easy to manipulate, and the choice of the
terms of the consulting contract, the intervention methods and the changes
proposed can be very much in the hands of the consultant. Even if participative
consulting is applied, the client may be a subdued, not a self-confident and strong
participant in the consultancy.
client, on the other hand, may be in a position of weakness, uncertainty, and even
distress (box 6.2).
Any consultant whose ambition is to become a real professional must
clarify his or her own conception of ethics and the norms to be observed in
working for clients. This applies equally to external and internal consultants, as
well as to persons who intervene in a consulting capacity although they are not
full-time consultants.
The following characteristics of a professional approach are essential.
Technical competence
The consultant's technical competence is the basis of his professional
approach. Above all, he must possess the sort of knowledge and skills needed
by a particular client. As a general rule, the consultant must be able and willing
to critically assess his own knowledge and skills when considering a new
assignment or when reaching a point in a current assignment where different
competences are required. A professional consultant will never misrepresent
himself, pretending that he can do a job that is beyond his competence, even if
he is short of work and keen to get any assignment. The consultant who wants
to tackle a new sort of problem (experience cannot be increased except by trying
out something new) will discuss this openly with the client.
The difficulty is that in management and business consulting there is a lack
of reliable and fully objective benchmarks for assessing competence to do a
particular job to the client's full satisfaction. Consulting associations have
attempted to define a common body of knowledge of professional consultants,
and the type and minimum duration of experience which is a condition of
association or institute membership, or certification (see section 6.4). These,
however, are general and rather elementary criteria of admission or certification,
which cannot show whether a consultant is competent for a given task. They are
not applied to consultants who are not members of associations or who do not
seek certification. In addition, the work on developing a generally recognized
body of knowledge for the consulting profession is far from being completed.
The documents that are available from various consulting associations are
useful, but cannot be regarded as authoritative texts establishing the knowledge
base of the profession (see also Chapters 32 and 33 dealing with the careers and
development of consultants).
The client's interest

During an assignment, the consultant makes his competence and time fully
available to the client, with the objective of achieving the best possible results
in the client's interest. This is a golden rule of consulting. Unfortunately, it is
not always obvious what "client's interest" means and what the client really
expects from the assignment. There is often a conflict between the client's
short-term and long-term interests, or between interests of various groups within
a client organization, but the client may not see this until the consultant brings
it to his attention. In agreeing to serve a client, the consultant must be sure that
his and the client's interests do not conflict. This can happen if the consultant
also pursues objectives that have little in com:mon with the client's objectives or
even conflict with these objectives.
Avoiding a conflict of interests is one of the most delicate and critical issues
of professionalism and ethics in current consulting. There may be many reasons
for this, including the complexity of business .ventures and transactions in which
consultants become involved as advisers or intermediaries, to the multidisci-
plinary structure of many larger professional firms and the rather liberal inter-
pretation of the very meaning of conflict of interest in some cultures and
countries.
Box 6.3 Is there conflict of interest?Test your value system!

An international consulting firm is an a.dviser to the government in a
privatization project, although it has long-standing work relationships with a
potentialforeign buyer of the public enterprise to be privatized, and is actually
executing, but through another branch office and a diierent team of
consultants, an assignment for this potentirtl buyer.
An auditor is suggesting that the client should turn to the consulting division
of his professionalfirm with a specific problem that surfaced during the audit,
although there are probably other consultants who could do the same job
better or for a lower fee.
A consultant keeps an eye on the client's staff and does not miss an
opportunity to offer a job to the most talented among the client's people,
especially if there is a malaise in the client organizationand the consultant can
offer a better salary. Another consultant pursues the same objective but
decency dictates to her to wait several months after the end of the contract
before approaching any candidate.
A client does the same in respect of the consultant working for him.
A consultant is pursuing an assignment step by step, rigorously respecting
the work plan defined in the contract, although it is almost certain that she will
get nowhere and the proposals will never be implemented.
A consultant is a leading professional expert on particular sectors -textiles,
automotive industry, machine tools, etc. This implies working simultaneously
or successivelyfor competing firms, which may or may not know about it. What
is the difference between providing the best sector-related expertise to every
client, and leaking informationfrom one competitor to another?
A consultant, who has been adviser to a number of public sector companies
to be privatized, participates in establishing an investment fund, or becomes
adviser to an investment fund, which takes a financial interest in these com-
panies during the privatization process.
Box 6.3 ~ o i n t out

s some situations where conflict of interest may not be
obvious at fir; glance. Conversely, certain instances of conflict of interest are
blatant and may therefore be explicitly mentioned in the codes of conduct (see
Appendix 3). Thus, consultants are required to disclose, prior to assignments -
122
all relevant personal, financial and other business interests which could not be
inferred from the description of the services offered. In particular this relates
to:
any directorship or controlling interests in any business in competition
with the client;
any financial interest in goods or services recommended or supplied to
the client;
any personal relationship with any individual in the client's employ;
any persona1 investment in the client organization or in its parent or any
subsidiary companies.1
The question whether to "empower" the client by sharing expertise,
transmitting know-how, and providing training in conjunction with advice, is
another complex issue in which conflict of interest may arise. In the previous
chapters we have said and repeated that a truly professional consulting approach,
as currently viewed by the overwhelming majority of consultants, has a strong
learning dimension. To "help clients to learn to help themselves" is a fundamen-
tal objective to which consultants adhere wholeheartedly. However, a general
declaration of a noble principle is not enough. The consultant must be sure that
the assignment is so designed, and the client so involved, that the consultant will
not retain for his or her own use the knowledge and expertise that should be
passed on to the client.
Consultants who are looking to the future do not see teaching and training
clients as a threat. They do not view the future as a simple replica of the present,
which would permit them to continue to do the same things indefinitely. Clients
will have new sorts of problems, and a consultant from whom the client has
learned useful skills may be called on again. Such a client will gladly recommend
the consultant to business colleagues. Other clients will come, and so on.
Impartiality and objectivity

Clients who turn to professional advisers believe that they will receive
impartial and objective advice. They assume that the consultant will be free of
any biases, prejudices, preconceived ideas or prefabricated and prepackaged
solutions, that may have worked in other contexts but may be totally
inappropriate to the given client. The true professional aims to be as impartial
and objective as possible. He or she is someone who has learned to control
emotions and not to let prejudices erode the value of advice. Yet experience has
shown that absolute impartiality and objectivity are an ideal that is difficult, if
not impossible, to attain.
In addition to conflicting interests, other factors may affect impartiality
and objectivity. Every consultant is influenced by his or her cultural background
and personal value system which may include political, racial, religious or other
beliefs and prejudices. In addition, consultants tend to have personalized
approaches to problem solving and working as helpers to clients who face
problems. Some consultants are strong believers in the power of behavioural
sciences and process consulting, while others favour a rigorous and systematic
approach to problem diagnosis, using highly structured procedures, techniques
or models.
The consultant must make every effort to become aware of his or her
personal values and biases, as well as of forces and interests within the consulting
firm and the client's environment, which may affect impartiality and objectivity.
An open discussion with the client on these issues may be necessary and helpful.
In many cases, objectivity can be increased by reviewing the approach and the
solutions envisaged with other members of the consulting firm, who have faced
similar problems with other clients. In an extr1:me case, a real professional would
decline an assignment where he or she cannot be objective.
Internal consultants should be particularly aware of their dependence on
their own organization and of the factors which might make them less impartial
than an external adviser. They should not be given assignments where they
clearly cannot think and behave impartially.
Confidentiality
Confidentiality is another universal principle of work done by independent
professionals for their clients. Management consultants engage themselves
neither to disclose any confidential information about clients, nor to make any
use of this information to obtain benefits or advantages personally for their firms
or other clients. The clients must be convinced that they can trust consultants.
Here too, the consultant has to exercise self-control. The client may forget to
specify what information must be treated as confidential and may be unaware
of the various risks in working with information.
In internal consulting, the situation with regard to confidentiality can be
complicated. In certain cases consultants have had an obligation to (or there is
a possibility that they might) disclose inforination on the client to a common
superior (minister, director-general or other official). Under such circumstances,
managers regard internal consultants as central management's spies and are
reluctant to use them. To counter this, many business corporations have declared
confidentiality as a principle that will be scrupulously respected in using internal
consultants as well as external ones. A similar approach tends to be increasingly
taken within the public sector.
Confidentiality can also be violated unintentionally - by carelessness in
handling documentation, na'ivety in discussing work-related issues in social
contexts, or lack of precautions in quoting confidential information in public
speeches or articles.
Commissions
All commissions are not equal to bribery. Yet certain commissions are
bribery, or can be perceived as such, if not disclosed to the client. In any event,
commissions are a delicate issue. Codes of ethics do not ignore them, but most
codes fail to provide sufficient guidance.
It is of course impossible to give universal guidelines on the acceptability

of commissions from the viewpoint of professional ethics. Local business
practices and cultures are difficult to ignore. In some countries, commissions
and discounts constitute an inevitable means of obtaining and doing any
business, including professional services. In other countries any unreported and
untaxed commission is illegal. As a general rule, the client should be informed
of commissions or similar favours received, paid or promised by the consultant
in connection with the assignment.
Within a professional firm, the issue of commissions may constitute an
ethical dilemma. Some consulting firms have lost important contracts only to
see that a less competent winner was chosen thanks to greater "flexibility" in
offering a commission to the right decision maker.
In consultants' circles, the prevailing position on commissions is the
following:
- a commission paid by the consultant to the client or his staff in order to
obtain an assignment, or to get the consultant's proposals accepted, is
unethical;
- a commission accepted by the consultant in order to make certain recom-
mendations, which may concern an issue within the client organization,
the selection of a supplier or another issue where the choice proposed by
the consultant is likely to affect the client's decision, is also contrary to the
code of ethics;
- a commission paid by the consultant to a person or organization that
introduced him to the client, or acted as an intermediary in a similar way,
is acceptable in most cases; such commissions are normal practice in many
countries; however, the client should be aware of such a possibility and
find it acceptable.
Value for money

The fees charged to clients (see Chapter 26) raise several ethical questions.
Professionals are concerned about the relationship between the benefits drawn
by the client and the cost of the assignment. If they feel that the outcome does
not justify the price, or that the benefit will be none or too small, they warn the
client before the job starts. Generally speaking, professional ethics require that
consultants charge "normal7' and "reasonable" fees, judged by the profession's
current standards and prevailing practice.
Charging excessive fees to uninformed clients is clearly unprofessional.
Undercutting fees and working at a loss in the hope that this will eliminate
competition is unprofessional too, in particular if the consultant does this with
a new client, knowing that he will soon have to readjust the fee to the normal
level. Furthermore, certain fee formulas may be regarded as less appropriate or
even unethical.
Wider social concerns and the client's ethics

Consulting assignments often involve is:jues where the client's interest may
be in real or potential conflict with wider social interests. Or the consultant may
uncover practices that, according to prevailing social norms or in his personal
opinion, are socially harmful and undesirable, if not illegal. The consultant may
face a real ethical dilemma. He may have an opportunity to seek advice from
senior colleagues and friends, but eventually he must himself resolve such a
dilemma, which may be a difficult thing to do.
Codes of consulting ethics provide some guidance on the consultant's
behaviour, e.g. on avoiding conflict of interest in working for a client; but they
leave it entirely to the consultant to distinguish between ethical and unethical
behaviour of the client.
Unfortunately, despite years of research and the proliferation of publi-
cations, the concept of managerial and business ethics has remained vague and
contr~versial.~ True enough, there are extreme situations of clients involved in
illegal or fraudulent dealings. A professional consulting firm would withdraw
from an assignment where such client behaviour has been discovered or
suspected. The vast majority of situations are less clear, and recommending a
course of action that meets both commercial and ethical criteria may involve
difficult choices. As a minimum, the consultant would draw the client's attention
to the possibility of conflict between these criteria. As an optimum, the consult-
ant and the client should work towards decisions where business and ethics are
in no conflict.
Defining what can be judged as ethical in a given context is in itself a
difficult choice. Ethical norms are social, culture-bound norms, and different
social groups may hold different views. Cor~sultantswould be of little help to
clients if they took a moralistic stance. They can be more helpful by suggesting
how to minimize potentially harmful consequences of business decisions, or
how to optimize these decisions in terms of financial and social benefits to the
various stakeholders who will be affected.
6.3 Professional associations

and codes of conduct
Professional associations
In a number of countries management consultants have established
voluntary professional associations to represent their common interests (for
names and addresses see Appendix 2). These associations have played a leading
role in promoting professional standards of consulting and helping this young
profession to gain the confidence of management circles and a good reputation
in society.
By and large, associations of management consultants contribute to the
strengthening of the profession by:
developing a common body of knowledge;

determining minimum qualification criteria for new entrants to the
profession (education, type and length of experience, references,
examinations);
certifying (accrediting) management consultants;
defining and applying a code of professional conduct and practice for their
members;
investigating complaints of violations of the code of conduct and taking
disciplinary action;
examining various aspects of management consulting, organizing an
exchange of experience and making recommendations to members on
improvements in consulting methods, management of firms, training of
consultants and other questions important to the development of the
profession;
organizing training events for consultants;
providing information on services available from members and helping to
identify suitable consultants at potential clients' request;
defending their members' common interests in dealing with governments,
organizations representing clients and other stakeholders interested in the
development of consulting and the use of consulting services.
Membership of a professional association is voluntary, but is governed by
several conditions defining the member's profile and commitment to a collec-
tively endorsed moral obligation. Not all consultants are members. There have
been cases of important consulting firms which do not subscribe to all conditions
of membership, or whose management has taken an elitist approach, feeling that
a well-established and strong professional firm can define its own standards and
does not need any guidance or supervision by a professional association. There
are individual consultants, too, who are not members because they do not meet
some admission criterion, or do not see what benefits they could draw from
membership.
In some countries, there are two types of consultants'organization: associa-
tions of firms, and institutes or associations of individual consultants. This
reflects the different perceptions of what consulting firms need as distinct from
individual persons employed in these firms or working as sole practitioners.
Associations of firms tend to focus on the development of firms and questions
in which the whole consulting industry is interested, while the institutes are
mainly interested in the qualifications and development of individual consult-
ants. This dichotomy is quite common in the Anglo-Saxon world, although
several attempts have been made to convert the "friendly cohabitation" of these
voluntary bodies into direct collaboration and even integration.
Where the two types of membership organization exist, dual and over-
lapping membership is quite common: a consulting firm is a member of an
association, while some or all of the consultants it employs are members of an
institute where membership is individual.
On average, about 50 per cent of consultants, practising individually or

employed by consulting firms, are organized in voluntary professional as-
sociations of management consultants in various countries. This figure includes
both consultants who are members as individual persons, and consultants who
are not members as individuals, but work for firms that are members of a
consulting association. It is a low figure bearing in mind the rapidly changing
shape of consulting and the need to strengthen professionalism. There are con-
sultants who would join the association if it were stronger and if it provided
more services to members. They do not realize that, to be more relevant and
influential, a voluntary association needs active members, and that associations
can be improved from inside, not by passive observation and criticism from
outside.
The international scene

At the international level, the management consulting profession lacks a
world federation that would organize collaboration among national associations
and harmonize national and regional efforts to develop the profession. The
leading organizations covering the three principal markets for consulting
services are ACME (United States), FEACO (Europe) and ZEN-NOH-REN
(Japan).
ACME (Association of Management Consulting Firms) is the oldest as-
sociation of firms, established in 1926. Its p::ofile is increasingly international
since ACME'S leading members are large IJnited States based multinational
consultancies, and non-American firms can also become members.
FEACO (European Federation of Management Consulting Associations)
is a regional federation of national associations of management consulting firms
(one per country). Most large United States based firms have branch offices or
affiliated companies in several European countries and participate in FEACO's
work through the national associations. FEACO also works directly with large
multinational consultancies through a specia:l committee.
ZEN-NOH-REN is a national associatic~nwith a wider membership base,
including other professional organizations in management and productivity in
addition to consulting organizations.
Thus the profiles of these three partners are different. Yet they have started
to cooperate on matters of common interest, e.g. by jointly organizing major
management consultants' conferences and comparing regional experiences.
Collaboration among national management consulting institutes (with
individual membership) has been organized by the ICMCI (International
Council of Management Consulting Institutes), established in 1987.The Council
has chosen to focus on professional develcpment and quality by promoting
consultant certification by individual member institutes (members must be
committed to the idea of certification), and its international recognition by the
profession and the users' community.
Codes of conduct
Professional associations of management consultants attach great import-
ance to the codes of professional conduct (ethics, deontology, professional
practice), which they use as basic instruments to establish the profession and
protect its integrity, and to inform clients about behavioural rules observed by
the consultants. They regard the codes as statements that signify voluntary
assumption by members of the obligation of self-discipline which can reach
above and beyond the requirements of the law.
Appendix 3 reproduces the full text of two codes: (a) the Code of Pro-
fessional Practice of the FEACO, to which all national associations grouped in
FEACO must subscribe, and (b) the Code of Professional Conduct of the
Institute of Management Consultants in the United Kingdom. Both codes are
supplemented by explanatory notes.
It is, of course, not the code of conduct itself, but its rigorous and intelligent
application by all members of the association which determines the real
professional value and integrity of consulting services. Many codes have a clause
by which the consultants engage themselves to do nothing likely to lower the
status of management consulting as a profession. This leaves much to the
discretion of the consultants themselves.
This is quite understandable. A code cannot be excessively detailed and
specific, since it would not be applicable to all members and all situations in
which they intervene. Furthermore, a code cannot anticipate new problems and
future situations in which consultants may have to weigh what is professional
and what is not. As pointed out by Gordon Lippitt, "the process of continually
evaluating one's code of ethics and the application of those ethics must continue
throughout one's professional life, with the use of trusted colleagues as testers
and clarifiers. The acquisition of ethical competence reduces anxiety and
increases effectiveness in the situational decision making that is a constant in
the consulting p r o ~ e s s " . ~
Assisting professional development

Consultants' associations can help their members to raise the standards of
professional service in many ways. These can include training courses for new
consultants, refresher training and workshops for experienced practitioners,
conferences aimed at broad information and experience exchange, research into
new consulting approaches and methods, information on useful literature and
on what goes on in other professions, examining new trends in management and
business and their implications for consulting, and so on.
As the consulting profession is a young one, all these activities should have
a strong educational dimension, by which we mean that in addition to
strengthening technical skills they should emphasize professional ethics and
behaviour as defined by the association's code.
6.4 Certification and licensing

Whether and how to apply certification (accreditation) or licensing to
management consultants is a notoriously controversial subject, debated not only
in consulting firms and associations but also in users' circles. This debate is
indicative of both the professional aspirations and the growing sense of social
responsibility of consultants, and of the various factors that slow down
professionalization.
Certification, it is felt in some quarters, would be a step towards a wide
recognition of management consulting as a true profession. Business, govern-
ments and the public at large want to have a guarantee that management
consultants associated with important decisions in the private and public sectors
are proven professionals. Certification should enhance the international position
of management consulting and help it to compete with other professions, where
certification has been a long-established practice. It should put more order into
the consulting business and help to separate the wheat from the chaff. Finally,
certification should be applied to individuals, not to firms: "No true profession
can be based on the qualifying of firms", wrote in 1962 James Sandford Smith,
Founding President of the United Kingdom Institute of Management
Consultants.
On the other hand, various objections are raised: that certification cannot
really guarantee anything more than the application of general and rather
elementary criteria of admission to the profession; that it cannot show whether
a consultant is actually suitable for a given job; and that, after all, consulting to
business is itself a business and a consultant who passes the market test by
finding enough clients does not need any paper certifying his or her competence.
Opponents to certification also evoke the difficulties involved in defining
the scope of management consulting, the lack of a generally accepted body of
knowledge, and the overlapping between consulting and other professional
sectors. Some larger firms contest the consulting institutes' legitimacy to certify
their employees. At best they would agree to the certification of individuals who
operate on their own.
Developments towards certification

Facts show that certification has been making modest progress. In several
countries the national management consulting institutes have introduced a
voluntary certification procedure; candidates who meet the criteria become
"certified management consultants" (CMC). Or the consultant must meet certain
criteria to become a full member of the institute; full membership is thus equal
to certification.
For example, full membership of the Institute of Management Consultants
(IMC) in the United Kingdom is available to consultants on the following
conditions:
- full-time engagement in management consultancy;
- a degree or equivalent professional qualification;

- a minimum of five years of full-time management consulting experience
(reduced to three years if the applicant is an associate member and
has been employed by a consulting firm with IMC-recognized training
arrangements);
- recommendation by two fellows or members of the Institute;
- an interview with a Membership Review Board.
Other institutes may have chosen different conditions, including written
examinations, participation in a special consultant development programme, or
membership reserved to external consultants.
To promote and standardize certification worldwide, the ICMCI has de-
veloped an international model (box 6.4) as a set of minimum requirements to
be met by national certification procedures. The model aims to achieve
international reciprocity among member institutes, whereby the certification
awarded by one member institute would also be recognized
- by other institutes
in the scheme.
Box 6.4 International model for consultant certification

Requirements
Experience Three years in management consulting
Education Recognized degree or professional qualification or addi-
tional five years in management consulting in lieu of a
degree
Age No minimum age requirement specified
Time spent 1,200 hours per annum in active management consulting
during the three qualifying years over the preceding five
years and currently active in management consulting
Independence Owner or employee of a firm in independent practice or
internal consultant where currently eligiblefor admission to
the institute
Qualification process
Examination Written examination or structured interview to test knowl-
edge of the code of professional conduct and common
body of knowledge
Sponsors Two sponsors who are full Members or Fellows (CMC,
FCMC, MIMC, FlMC or equivalent)
References Written descriptions of five assignments or five client ref-
erences verified through interview
Designations
Designation Professional designation exists
Retention Member may retain designation even after leaving man-
agement consulting as long as he or she remains amember
in good standing
Source: ICMCI.
However, the advancement of certification has been slow and the

controversial questions have yet to be answered. Few clients are aware of the
existence of certification, which is therefort: seldom used as a qualification
requirement in selecting consultants. The number of certified consultants has
remained small: some 3,600 in the United Kingdom (15-30 per cent of the
consultant population, depending on the definition used), but not more than
1,700 in the United States (some 2 per cent), which is less than in neighbouring
Canada (2,200).
Licensing
Certification and similar procedures are voluntary, and fully in the hands
of a private membership organization. Licensing or official registration can be
made compulsory. This means that, to be authorized to practise, a professional
(firm or individual person) must request and obtain an official licence, which is
granted if the professional meets certain criteria. Certification does not have to
be a criterion. The licence can be withdrawn in instances of malpractice.
Licensing can be directly by a government authority, or delegated to a semi-
official agency or a membership association, which carries it out under govern-
ment guidance and surveillance. Box 6.5 gives some examples of licensing.
By and large, management consultants have little experience of licensing;
their views on this practice reflect mainly their general attitudes to free
competition and to government intervention. Some consultants are strongly
opposed to the idea of licensing, which they regard as an unnecessary
infringement of their freedom. Others tend to recognize that progression towards
professionalism may require some form of flexible and non-bureaucratic
licensing, with a key role being played by professional membership
organizations enjoying a high reputation and the full confidence, not only of the
consultants, but also of clients, government authorities and the general public.
6.5 Legal liability and professional responsibility

of management consultants
Management consultants, as any other professional advisers, are not
immune from being held legally responsible in certain cases where their advice
or recommendations are deemed to cause pecuniary damage or loss to their
clients or, perhaps, others in a relationship with their clients. While the
possibility and size of such legal liability might be greater in the case of
engineering or computer consultants, it is not at all insignificant in the "pure7'
management consulting area. It is the purpose of this section to look briefly into
the standards used in various legal systems in determining liability and in
assessing the amount of recoveries awarded, as well as the question of insurance
available to consultants to cover such possible liability, and other means by
which consultants may protect themselves from liability.
Box 6.5 Examples of licensing

Licensing is common in several professions, although national practices vary
considerably. In France, for example, the public accounting practice is regulated
by legal texts in considerable detail. The experts comptables [accounting experts]
have to be registered members of the national Ordre des experts comptables et
des comprables agrees [Order of accounting experts and certified accountants],
which administers and supervises the professionwithin a framework stipulated by
law. The government can overrule the decisions of the superior council of the Order,
and the national disciplinary commission of the profession includes three
government representatives and two elected members.
An interestinginitiative has been taken in Canada through the efforts of the Institute
of Management Consultants of Ontario. In 1984, the Ontario provincial legislature
recognized management consulting as a self-regulating profession. The desig-
nation CMC is recognizedby law as certifyingthe competence and professionalism
of a management consultant, and the Instituteis authorized to determine conditions
of membershipand enforce the code of ethics. However, compulsory licensingwas
not introduced, so consultants can practise in Ontario even if they are not
recognized as CMC.
In contrast, in Austria, to be authorized to practise, management consultants have
to become members of the Bundeswirtschaffskammer [Federal Chamber of
Economy] and obtain a licence, which is granted if the candidate meets certain
requirements concerningeducation and experience,and succeeds in a written and
oral examination. However, Austrian consultants have doubts about the actual
impact of the procedure on the enhancement of professional standards in
consulting.
First, however, it should be pointed out that in those countries where the
courts have too easily found liability stemming from professional advice given
by consultants, and where clients/plaintiffs are awarded unduly large amounts
of damages, one undesirable effect has sometimes been to induce a certain
reticence on the part of consultants to recommend bold, novel and imaginative
solutions to their clients' problems. In other words, fear of possible legal action
can lead to over-cautiousness and risk avoidance on the part of consultants in
advising their clients. Even where insurance may be available (usually at
considerable expense) to mitigate the consultant's actual loss, the mere fact of
being deemed responsible for negligence or for contractual breaches, and the
repercussions on the consultant's reputation, may be sufficient to dampen his or
her enthusiasm and innovativeness in advising clients.
Liability: Why and when?

This being said, legal liability will normally, and in principle, flow only
from a clear showing of malpractice in the form of non-professionalism
bordering on or carrying over into the realm of gross negligence or fraud.
Although not always respected in practice, the rule should be that an honest error
of professional judgement in and of itself should not entail legal liability as
regards the consultant. As a minimum there should be a demonstration of non-

compliance with an accepted standard of care fbr the profession andlor deviation
from the requirements of the consulting contract.
While this is not often easy to establish, in certain legal systems (many cite
the very litigious American practice) lawsuits are more frequently brought and
won (and judgements or settlements are larger) than in others. Where this is the
case, a contributing factor may be the nature of the defendantlconsultant, i.e.
where a big firm is involved which, in the eye:sof a court or jury, can easily pay
large judgements. The same effect may be felt where it is known that the
defendant consultant is covered by insurance, and the insurance company itself
is seen as having "deep pockets7'. In both cases the finder of facts, jury or judge,
may pay less heed to a thorough search for real fault on the part of the defendant.
In fact, in some societies there may be an outlook that reflects the idea that where
there has been loss, there must be a legal remedy. In any case a trend towards
finding liability more easily, and compensating (sometimes problematical) harm
more handsomely, is in evidence and wanants consideration and possible
defensive action on the part of the professionid management c ~ n s u l t a n t . ~
It should be noted that it is normally no defence for the consultant to assert
that he or she was merely giving advice or recommendations. The client has the
"right" to rely on the expertise proffered by the consultant. The fact that the
client was under absolutely no obligation to fbllow such advice or accept such
recommendations counts for little, juridically speaking, where it can be
demonstrated that what the consultant has done was patently unprofessional and
did not meet the standards of the profession. Of course, in order for a plaintiff
to prevail, damages or loss directly consequential to following the advice and
recommendations of the consultant must in principle be shown as well. In other
words, the loss or "injury" must be directly traceable to the negligence (or
contractual non-performance) of the consultant.
Another significant aspect of this whole question is the financial situation
of the management consultant and, in particular, the single practitioner or the
very small firm. If the consultancy is organized as a limited liability company,
or even in the case of those without a corporate structure, its assets may not be
such as to offer the allegedly injured client the possibility of a financial recovery
consonant with the loss or damages suffered, cr even sufficient to make a lawsuit
economically worthwhile. Nevertheless, as suggested earlier, it is far from
pleasant to be accused of unprofessional conduct in the exercise of a consultancy.
Minimizing liability
One way of minimizing possible legal liability is for consultants to ensure
that the terms of reference and specifications of the consultancy are clearly and
unambiguously spelled out in the consultanc!~contract. It is not infrequent that
ambiguities in this regard lead to expectations on the part of the client which are
not intended by the consultant. Such misucderstandings can in turn lead to
allegations of failure by the consultant to perform the contract, and to claims
and lawsuits. Such a situation should be avoidable if due care is taken in drafting
the contract.
Another means of attenuating, if not eliminating, possible liability for the
consultant is for him or her to negotiate a clause in the consultancy agreement
in which such liability is limited to a specified amount. It would appear that it
is not uncommon to find clauses which specify that the consultant's maximum
liability for professional acts of misfeasance or nonfeasance (or breach of the
consultancy contract) is to be limited to a specified amount or to the total amount
of the fee. Obviously such a clause must be negotiated and mutually agreed, and
agreement will depend on the relative bargaining strength of the consultant and
the client.
In view of the tendency towards litigation shown in certain countries, there
is a practice in some of these for consultants to include an arbitration clause in
the consultancy contract. Such clauses normally provide that in case of dis-
agreement as to the fulfilment of the obligations of the contract, or in case of
disputes otherwise arising under the contract, recourse is to be had to agreed
arbitration (a single arbitrator or board of arbitrators) rather than to the courts.
In this alternative form of dispute resolution the idea is that arbitration of claims
by clients before an arbitrator or arbitration board which is knowledgeable and
impartial will guarantee that the consultant is not an innocent victim of the
tendency of certain parties to sue at the drop of a hat and for judgements to be
out of line with reality. Of course any such clause must be agreed to by the client
who, at times, may take the initiative to include an arbitration clause in the
consulting contract to better protect his or her interests.
Professional liability insurance

Insurance against professional fault and liability becomes a serious
consideration for management consultants who wish to protect themselves from
possible economic disaster resulting from the practice of their profession. In
some situations the client may insist that the consultant carry appropriate
insurance in order that the client is protected in case of damage or loss owing to
the activities of the consultant. It may also be mentioned that consultants may
insure themselves either generally over a period of time or in respect of a single
project. Indeed, the contracting of insurance is current practice for many of the
bigger consultancy firms, and particularly those whose practice can give rise to
the possibility of costly claims by clients. However, insurance coverage can be
quite expensive, with rather high "deductibles" (the insured's contribution in
meeting losses) and is not everywhere available. Where it is, premia can amount
to a significant percentage of gross billings (as much as 5 per cent or more for
consultants who are considered to present higher risks).
Such insurance coverage is not very standardized, even in the United States
and Great Britain where it is probably more common than elsewhere. Thus the
policies, both in terms of the risks covered, "deductible" amount, premia and
other aspects, are frequently to be negotiated between the consultant and the
insurer. Obviously, in these negotiations, the particular nature of typical or
specific consultancies performed by the cons~dtantwill figure prominently in

assessing the risk component. There appears to be some movement in certain
countries towards professional associations either arranging for or sponsoring
individual or group liability insurance for their members.
Finally, consultants would wish to consider whether their insurance
coverage should include personal injury claims of third parties (e.g. employees
or clients of the client) who may have claims allegedly resulting from the
activities and recommendations of the consultant.
Liability awareness and diverse jurisdictions

In any case, consultants should be aware, at least in a general way, of the
possible liability they may be exposed to in undertaking consultancies. This is
obviously of even greater importance (and more difficult) where consultants
operate internationally and hence are subject to differing legislation and
jurisprudence depending on the country in which the consultancy takes place.
There may, in this regard, be a possibility for the consulting contract to specify
the governing (applicable) law, in the event of legal claims arising out of the
agreement, by reference to a particular coumry that is related in one way or
another to the contractual relationship (e.g. place of conclusion of the contract,
domicile of one or the other of the parties, place where the contract is to be
performed, etc.).
For this and other reasons connected with the consultancy, consultants may
wish to seek competent legal advice, particularly where the assignment may
involve more than minimal risks of possible liability. In availing themselves of
recourse to legal advice, consultants, in particular cases, may seek out those
lawyers who have specialized in legal liability of professionals, a group of
lawyers which is growing in a number of countries.
Professional responsibility
It may be appropriate to conclude this chapter by some thoughts on the
relationship between legal liability and professional responsibility in consulting.
Generally speaking, it is a relationship between law and ethics. Legal
liability of professionals is a legal construct. It is imposed on professionals by
law and is applicable if there are appropriate rules or laws, and an institutional
framework able to enforce them. In contrast, professional responsibility can be
defined as a set of voluntarily adopted and self-imposed values, norms and
constraints, reflecting the professionals' conception of their role in the economy
and in society, and their responsibility towards the clients. It is an ethical and
cultural concept. Differences in the applicalion of legal liability in various
countries are due to different legal systems. Differences in professional responsi-
bility reflect different social and professional cultures.
As discussed in the previous sections of this chapter, professional
responsibility covers a wide range of issues in which a consultant can and must
choose among alternative modes of behavionr. The quality of the consulting
service is the best example. In most assignments, the quality of the services
provided will depend entirely or predominantly on the consultant's own judge-
ment, which in turn will be guided by his or her sense of responsibility towards
the client. Legal liability will be applicable only to a very small number of
extreme cases, where service quality has dropped to the level of malpractice that
has caused damage to the client.
A strong sense of professional responsibility, and not a cautiously for-
mulated consulting contract, is therefore the best safeguard in helping the
consultant to avoid legal liability. Most instances where the consultants' or other
professional advisers' legal liability is called into question are not due to bad
intentions but can be traced to obvious breaches of professional responsibility
such as inadequate research and fact finding, appointment of incompetent staff,
hasty and superficial judgement, or the failure to make the client aware of the
risks involved and issues that could not be taken into consideration.
As explained in this chapter, it is the policy of professional consulting
associations to define ethical and behavioural norms which express their
members' professional responsibility above and beyond the requirements of law.
In this way the professional associations guide and educate their members and
protect the profession. This protection also includes disciplinary procedures and
measures in cases of violation of the codes of conduct. However, in management
consulting these disciplinary measures tend to be rather exceptional and their
impact has remained limited. Professional associations can deal with cases of
conduct that are contrary to the adopted codes if such cases are brought to their
attention. They have no mandate and no resources for acting, on a continuing
basis, as inspectors of their members' professional behaviour.
Therefore, in the end it is the consulting firm which must define for itself
its perception of professional responsibility and integrity. This includes instilling
a high sense of professional responsibility in every consultant employed by the
firm.
'See Institute of Management Consultants: The ascendancy of professionalism (London,

1993), p. 15.
For a recent discussion of the topic see A. Stark: "What's the matter with business ethics?",
in Harvard Business Review, May-June 1993, pp. 38-48.
G. Lippitt and R. Lippitt: The consultingprocess in action (La Jolla, California, University
Associates, 1978), p. 74.
In some countries a counter-trend may be apparent in very recent years. This legislative
and practical development is probably a reaction by law-makers and the judiciary to the excesses
of past years.
PART II
THE CONSULTING PROCESS

ENTRY
Entry is the initial phase in any consulting process and assignment. During
entry, the consultant and the client get together, try to learn as much as possible
about each other, discuss and define the reason for which the consultant has been
brought in, and on this basis agree on the scope of the assignment and the
approach to be taken. 'The results of these first contacts, discussions, exam-
inations and planning exercises are then reflected in the consulting contract, the
signature of which can be regarded as the conclusion of this initial phase.
Entry is very much a matching exercise. The client wants to be sure that
he is dealing with the right consultant, and the consultant needs to be convinced
that he is the right person, or that his firm is the right consulting organization,
to address the problems of this particular client. Such a matching exercise can
be difficult technically, but there may be other even more difficult psychological
problems. True, it is the client who has invited the consultant, or agreed to
consider his offer, and when doing so the client certainly has had some purpose
in mind. It may be that he has turned to the consultant with great hopes, or regards
him as a last-resort solution in a crisis. Nevertheless, the consultant is a stranger
to the client organization. There may be mistrust, uncertainty, anxiety. The
consultant has probably been in similar situations before. He knows, however,
that his past successes with other clients are by no means a guarantee of repeated
success. Furthermore, the client may have decided to talk to several consultants
before choosing one for the assignment.
Thus the contacts and activities that constitute the initial phase of the
consulting process have to achieve considerably more than the definition of
terms of reference and the signature of a contract. Experience shows that the
foundations of successful assignments are laid down at this very early stage by
establishing mutual trust and empathy, fully agreeing on the "rules of the game",
and starting the assignment with shared optimism and a vision of what can be
achieved.
The full range of initial contact activities described in this chapter concerns
new assignments with new clients. If a consultant returns to a familiar client
organization in repeat business, entry will be simplified. But even in such cases
it must not be forgotten that a new assignment with a previous client may involve
making new relationships between people.
7.1 Initial contacts

The consultant makes the contact
Contacting potential clients without being solicited by them is one of the
ways of marketing consulting services (this will be discussed in detail in
Chapter 25). A cold call can arouse the interest of the client, who may decide to
keep the consultant's name in mind for the future. Only rarely would a cold
contact lead immediately to an assignment.
If the consultant contacts a client about whom he has enough information,
and can show that he knows about that client's problems and intentions and has
something very relevant to offer, the chances that such an initiative will produce
an assignment are better. This can also happen if the consultant is introduced by
another client for whom he has worked in the past.
A special case is when public authorities or other organizations publicly
announce their intention to carry out a consulking project, and invite consultants
to manifest their interest or submit proposals. In such a situation, the consultant
will almost certainly not be the only one who offers his services.
The client makes the contact

In most cases it will be the client who makes the first contact. This implies
that he or she senses some performance and management problems and some
need for independent advice in his or her organization, and for some reason
decides to bring in a management consultant. In addition, the client must have
a reason for turning to a particular consultant:
he or she has heard about the consultant's professional reputation;
a business friend was satisfied by the consultant's services and recom-
mends him or her (very frequent);
0 the client found the consultant in a register or directory (less frequent);
0 the consultant's publications or interventions at management conferences
have impressed the client;
0 the client may remember having been contacted by the consultant
previously;
0 the client likes to return to a consultant who satisfied him or her fully in
the past (as we know, repeat business can be very important).
In any event, the consultant will want to find out why the client selected
him or her. This will not be difficult.
Entry
First meetings
The importance of the consultant's behaviour and performance during the
first meetings with the client cannot be overemphasized. While meeting a client
to negotiate a specific assignment the consultant is marketing his or her services
and it is not certain whether a contract will be concluded. The first meeting
should therefore be regarded as a short opportunity to gain the client's confidence
and make a favourable impression.
The consultant wants to make sure that he or she will meet the decision
maker -the person who is not only technically interested in the assignment but
also able to authorize a preliminary diagnostic survey, and who will make sure
that resources required by an assignment will be available. If a top executive
(managing director, senior administrator) of an important organization agrees
to meet the consultant, the consulting firm should send a representative who is
at an equally high level.
The question of who should go to the first meeting with the client may
present a problem if a consulting organization uses one group of consultants
(partners or other seniors) for negotiating assignments, and another group
(including both senior and junior staff) for executing them. Some clients know
about this pattern of organizing professional services and do not object to it.
Many clients do not like it. They emphasize, rightly, that a productive
consultant-client relationship starts with the first meetings and preliminary
surveys and that it is at this moment that they decide whether they like to work,
not only with a consulting organization, but with particular persons in it. Also,
they resent an approach whereby the best people represent the consulting firm
at the beginning in order to impress clients, but execution is in the hands of
lower-calibre staff.
Preparing for initial meetings

Initial meetings require thorough preparation by the consultant. Without
going into much detail, he or she collects essential orientation facts about the
client, the environment, and the characteristic problems of the sector of activity
concerned. The client does not want the consultant to come with ready-made
solutions, but expects someone who is very familiar with the kinds of problems
that may be found in his or her company. The consultant should find some subtle
way of demonstrating this.
In collecting orientation facts, the consultant starts by finding out which
products or services the client provides. This information is easily obtained
during the very first contact with the client, or by asking for sales literature to
be supplied. The nature of the products or services will place the client within
a specific sector or trade, and the consultant will want to know its main
characteristics and practices. Usually he or she will gather information on:
- terminology commonly used;
- nature and location of markets;
- names and location of main producers;
- types and sources of raw materials;

- weights and measures used in the industry;
- processes and equipment;
- business methods and practices peculiar to the industry;
- laws, rules and customs governing the industry;
- history and growth;
- present economic climate, and main problems and development prospects
of the industry.
Trade journals and government publications will provide much of the
information, especially on industry sector trends. As regards technology, it is
important to find out if the client expects the consultant to know it well or merely
show some familiarity with its main characteristics and trends.
Turning to the position of the client's business, the consultant needs some
selected information before he meets the client. He may be able to learn the
client's financial position, recent operating r~?sultsand immediate expectations
and problems from published annual reports or returns filed in a public registry
or credit service. He can also scan brief biographies of the top managers in a
publication of the Who's Who type (if one exists in the client's country).
Agenda for the meeting

The meeting is a form of investigational interview in which each party
seeks to learn about the other. The consultant should encourage the client to do
most of the talking: he or she wants the client to speak about his or her firm, the
difficulties, hopes and expectations. It is as well for the discussion to develop
from the general situation to the particular and to focus eventually on the real
issue.
When listening and when putting his or her own questions, the consultant
assesses the client's needs in terms of sound management and business practice,
personal concerns, perception of consulting, and readiness to work with
consultants assuming different types of role. The consultant decides how best to
describe the nature and method of consulting as it applies to the client's context.
He or she must be sure that the client understands what his or her own role and
responsibility will be (see also Chapter 3).
The consultant's key objective at the meeting will be to convince the client
that he or she is making the right choice. "Unless their skills are truly unique,
professionals never get hired because of their technical capabilities. Excellent
capabilities are essential to get you into the final set to be considered, but it is
other things that get you hired7'l (box 7.1).
The individual who invited the consultant into the organization may be the
"contact client" and not the "main or primary client" as described in section 3.3,
i.e. the person who "owns the problem" and will play the main role in solving
it. All too often the consultant is invited in by top management to act as an adviser
to somebody lower in the hierarchy of the organization. This "client" may not
Entry
Box 7.1 What a buyer looks for

0 In selecting a professional, I am not just buying a service, Iam entering into a
relationship. Your selling task is to earn my trust and confidence - with an
emphasis on the word "earn".
0 How you behave during the interview (or proposal process) will be taken as
proxy for how you will deal with me after Iretain you.
0 The first thing that will catch my attention is your preparation. There is little so
off-putting as someone who begins by asking me some basic facts about my
company or situation that they could have found out in advance. Preparation
is your opportunity to demonstrate initiative.
0 Professionais who are over-eager to impress come across as insensitive to
me. Ido not want to hear about you and your firm, Iwant to talk about me and
my situation. Show a sympathetic understanding of my role in my company.
0 You've got to give a favour to get a favour. There is no better way to win my
trust than to be helpful to me right from the beginning.
0 Give me an education. Tell me something I did not know. Demonstrate your
creativity.
0 To avoid coming across as arrogant, patronizing and pompous turn your
assertions into questions. By doing so, you convert possible signs of
assertiveness into evidence that you'll respect my opinions and involve me in
the thinking process.
0 Don't start telling me how you can solve my problems until 1 have ac-
knowledged that there's a problem or an opportunity here. Convince me that
the issue is big enough to bother with.
0 If I interrupt you, deal with my question. I want to see how you handle yourself
if I ask a question, not how practised you are at your standard spiel.
0 Don't try any "closing techniques" on me. tf you try to rush me, I'H take it as a
sign that you are more interested in making a sale than in helping me.
0 The key is empathy -the ability to enter my world and see it through my eyes.
Source: Excerpts from D. Maister: "How clients choose", in Managing the professionalservice firm
(New York, The Free Press, 1993).
I
feel the need, or may even resent being forced into a consulting assignment by
a superior. The consultant may have to spend some time clarifying these
relations. Clearly, the client who will work with the consultant should be specifi-
cally identified and a rapport should be established between them.
The client may wish to discuss the proposed work with other clients of the
consultant, former or current, and may ask for references. This may happen at
any moment during the entry phase. In giving names, the consultant must
remember confidentiality and cite only those clients who have agreed to provide
references.
As regards fees, the client may know how consultants charge for their
interventions and be aware of the rates applied. If not, the consultant will have
to consider at what stage of the entry phase this information should be given to
the client. Some clients prefer to ask about standard fees and other costs right
at the outset; others wait with these questions until the consultant has formulated
a proposal and made an offer to the client (on consulting fees see Chapter 26).
The client may be eager to proceed without any preliminary diagnosis and
planning or, on the contrary, may be hesitant in making up his mind, even though
he obviously has problems with which the consultant can help. The consultant
should use care and patience in explaining and persuading, and keep mainly to
the potential benefits to the client. Pressing for an immediate decision is not a
good tactic; it can spoil everything. It is no good, either, if the client gets the
impression that the consultant badly needs the assignment because he does not
have enough work.
The consultant should not be insistent if he or she is clearly not on the same
wave-length as the client. If the client has firm ideas on how the consultant must
proceed, and the consultant does not subscribe to them, it is better to drop the
assignment. This could be suggested either by the consultant or the client.
Agreement on how to proceed

If the consultant and the client conclude that they are interested in principle
in working together, several further questions must be answered. With the
exception of straightforward cases, which are often an extension of past work,
it would not be reasonable to start an assignment immediately without some
preliminary problem analysis and work planning. The terms of business must
be discussed and agreed. These are the activities that follow the first meeting.
If the client is ready to agree to a preliminary problem d i a g n o s i ~ the
,~
discussion can move on to the arrangements for it, and cover:
scope and purpose of a preliminary diagnosis;
records and information to be made available;
who should be seen and when;
how to introduce the consultant;
attitudes of staff to the matters to be surveyed;
when to conclude the preliminary diagnosis and how to present proposals
to the client;
payment for the diagnosis.
In addition, the consultant wants to be informed about the selection
procedure. The client may have contacted several consultants in order to be able
to choose from alternative proposals. He should, in principle, tell the consultant
about it. In some cases a formal selection procedure is applied: the consultant's
proposals have to be presented in a predeternined format by a given date. The
client will then allow a period of time (say 30-45 days) for comparing the
proposals received and making a choice.
As regards charging for a preliminary diagnosis or survey, the prevailing
practice is that a very short diagnosis (say one or two days), which the consultant
needs to do in order to prepare a proposal for the client, is not charged for.
Entry
However, if the contract is awarded, the consultant may bill the client for the
time spent on this preliminary diagnosis. In contrast, if the preliminary diagnosis
is needed to prepare for a complex assignment, and requires a longer time, the
opinion prevailing in consultancy circles is that the client should pay for it. This
helps to avoid two practices that are considered as undesirable:
- some consultants' practice of using free diagnostic surveys as a marketing
tool (since the consultant cannot really work for nothing, another client
will then pay for this "free" survey); and
- some clients' practice of collecting a large amount of information and ideas
from several consultants (who were all invited to make the same survey),
without paying anything for this service.
The practice of free diagnostic surveys used to be quite common in some
countries in the past, but recently has tended to disappear.
7.2 Preliminary problem diagnosis

To be able to start an assignment, the consultant must know exactly what
the client expects from him. That is why, during the initial meetings, the
consultant encourages the client to say as much as he can about his personal
perception of the problem that needs to be resolved and the work to be actually
done by the consultant. Many organizations insist on doing a thorough internal
examination of the problem before deciding to contact a consultant. The client
may even have drafted terms of reference (see section 7.3) outlining what he
wants the consultant to do.
Yet there is no guarantee that the client's perception and description of the
problem is correct and that the consultant receives complete and unbiased
information. Before starting to plan the assignment and proposing a specific job
to the client, the consultant should undertake an independent problem diagnosis.
In fact, an experienced consultant starts such a diagnosis right from the very first
moment he is in touch with the client. Everything interests him: who contacted
him and how; how he is received at the first meeting; what sort of questions the
client asks; if there are any undertones in those questions; what the client says
about his business and his competitors; if he is relaxed or tense, and so on. There
comes a moment, however, when the consultant has to sort out this information,
get some hard data, and complete the picture by looking at the problem from
new angles - for example, by talking to people other than those who were
involved in the first meetings.
Scope of the diagnosis

The purpose of the preliminary problem diagnosis is not to propose
measures for solving the problem, but to define and plan a consulting assignment
or project which will have this effect. The preliminary diagnosis limits its scope
to a quick gathering and analysis of essential information which, according to
the consultant's experience and judgement, is needed to understand the problem

correctly, to see it in the wider context of the client organization's activities,
achievements, goals and other existing or potential business and management
problems, and realistically to assess opportunities for helping the client.
The scale of this preliminary diagnosis depends very much on the nature
of the problem. Very specific and rather technical issues do not normally require
a comprehensive survey of the whole client organization. On the other hand, an
experienced consultant knows that he or she inust avoid the trap of accepting a
client's narrow definition of a technical problem without personally looking into
constraints and tendencies that may make the solution of that problem an
impossible task, or may show that the problem is much more or much less serious
than the client assumes. Therefore even if the problem lies in one functional area
only, or concerns the application of some specific techniques, a truly pro-
fessional consultant will always be interested in the more general and global
characteristics of the client organization.
If the consultant is brought in to deal with a general problem, such as
deteriorating financial results, or inability to maintain the same pace of
innovation as competitors, a general and comprehensive diagnosis or manage-
ment survey of the client organization is essential.
The time allocated to preliminary problem diagnosis is relatively short. As
a rule, one to four days would be required. In the case of more complex
assignments concerning several aspects of the client's business, five to ten days
may be needed. If an extensive diagnostic survey is required (e.g. in preparing
company turnarounds, major reorganizations, buy-outs or mergers, or for any
other reason), this is no longer a preliminary diagnosis, but an in-depth
diagnostic survey, which will be described in Chapter 12.
An outline of a management survey, including checklists of topics to be
examined in various areas of management, is reproduced in Appendix 4.
Some methodological guidelines

Preliminary problem diagnosis follows the same basic rules and procedures
and uses the same analytical techniques as any problem diagnosis. These will
be reviewed in detail in Chapter 8. Many consulting firms have developed their
own approaches and guidelines for a quick assessment of clients' businesses.
The diagnosis includes the gathering and analysis of information on the
client's activities, performance and perspectives. It also includes discussions
with selected managers and other key people, and in certain cases also with
people outside the client organization. Basically, the consultant is not interested
in details, but is looking for principal trends, relationships and proportions. An
experienced consultant keeps his eyes open and can sense potential problems or
opportunities behind apparent details that may escape another observer: the way
people talk to each other and speak about each other, the respect for hierarchical
relations, the cleanliness of workshops and offices, the handling of confidential
information, the courtesy of the receptionist, and so on.
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It is essential to take a dynamic and comprehensive view of the organiza-

tion, its environment, resources, goals, activities, achievements and perspectives.
Dynamism in this context means examining key achievements and events
in the life of the organization and probable future trends as reflected in existing
plans and assessed by the consultant personally. The client's strengths and
weaknesses ought to be viewed in a time perspective - a present strength may
be merely short term, while a new weakness, hidden at the present time, may
become a threat to the client's organization in the long term. The consultant is
particularly interested in future opportunities - indeed, the detailed diagnosis
and further work to be proposed to the client should be oriented towards these
opportunities above all.
This approach is summarized in figure 7.1.
Figure 7.1 The consultant's approach to a management survey
state of client affairs

Future
Strengths and weaknesses
Possible improvements, opportunities
Action needed and help proposed

As already mentioned, even if the problem is, or is likely to be, in a single

functional area, the consultant will take a comprehensive view of the organ-
ization. How far and how comprehensive is ii matter of experience and judge-
ment, and no universal recipe can be given. As the purpose is to determine what
to achieve in the course of a consulting assignment of a certain size and duration,
most management consultants emphasize the need for some wider appraisal of
the organization before confirming the existence even of a fairly limited
problem, and the feasibility of handling it within certain terms of reference.
It is recommended that the consultant should proceedfrom the general to
the particular: from overall objectives and global performance indicators to the
reasons for substandard performance or missed opportunities (or to interesting
future opportunities), and then to an examinat ion in some detail of selected areas
of the organization's activities. An approach which starts the other way round,
by examining each management function (production, purchasing, marketing,
etc.) in turn and hoping for a balanced synt:hesis at the end, will entail much
unnecessary work and might well prove misdirected. The movement from the
general to the particular helps the consultant to limit the preliminary diagnostic
survey to matters of critical concern to the client organization, or conversely
may persuade him that, to stand the best chance of achieving the results expected,
the inquiry must take into account every aspect of the enterprise's operation.
Such an approach implies that the consultant's analysis will focus on basic
relationships and proportions in the client organization, such as the following:
relationships and proportions between major processes, functions and
activity areas (e.g. allocation of hu:man and financial resources to
marketing, research and development, production, administration);
relationships between main inputs arid outputs (e.g. sales related to
materials consumed, the wage bill and the total workforce);
relationships between the principal indicators of performance, effective-
ness and efficiency (e.g. productivity, profitability, resource utilization,
growth);
relationships between global performance indicators and main factors
affecting their magnitude in a positive or negative way (e.g. influence of
the volume of work in progress on working capital and profitability);
the contribution of the main divisions and product (service) lines to the
results (profitability, image, etc.) achieved by the organization as a whole.
The comprehensive, overall approach is combined with a functional
approach as necessary. For example, the precarious financial situation of a
company may be caused by problems in any functional area: by badly organized
production, by costly or ineffective marketing, by excessive spending on
unproductive research, by the shortage or high cost of capital, or something else.
As already mentioned, if an assignment is likely to be exclusively or mainly in
one technical area, this area will need to be examined in greater depth than other
areas, and the examination of the organization as a whole will be limited to what
is necessary.
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In summary, this approach will tell the consultant if the work envisaged
can make a meaningful contribution to the principal objectives of the client
organization and what critical relationships and linkages are likely to affect the
course of the assignment.
Using comparison
The consultant is fully aware that every client organization is unique and
will have to be treated as such. However, he or she needs reference points which
could guide him or her in a preliminary quick assessment of strengths,
weaknesses, development prospects and desirable improvements. The consult-
ant will find them by making comparisons with:
- past achievements (if the organization's performance has deteriorated and
the problem is essentially corrective);
- the client's own objectives, plans and standards (if real performance does
not measure up to them);
- other comparable organizations (to assess what has been achieved else-
where and whether the same thing would be possible in the client
organization);
- sectoral standards available in the consulting firm or another source of data
for inter-firm comparison.
A comparison of well-selected data with sectoral standards or with data
from specific similar organizations is a powerful diagnostic tool. It helps not
only in quick orientation, but also in making the client aware of the real situation,
which may often be quite different from what he or she believes.
The consultant would make comparisons not only when working with
figures, but also in assessing qualitative information ( e g the organizational
structure, the corporate culture, the computer applications, or the market-
research techniques used). In other words, the consultant's work is greatly facili-
tated if he can ask himself what levels of performance and what sorts of problems
he would normally expect to find in that type of organization to which the client
enterprise belongs.
Such a question is meaningful if the consultant has some method of
classifying and comparing organizations (e.g. by sector, product type, size,
ownership, market served and the like). For each class there would be a list of
various attributes that are characteristic of it. Well-established consulting firms
try to provide their consultants with such data and guide them by means of
manuals and check-lists for management surveys and company appraisals. It is
in the interest of the younger firms in the profession to acquire or develop such
do~umentation.~
Notwithstanding certain general rules, senior consultants undertaking
diagnostic surveys tend to have their personal priorities and specific approaches.
Many of them start by looking at principal financial data, since these reflect the
level and results of the activities of the enterprise in a way which best lends itself
to synthesis. Others emphasize production: they believe that a simple factory
tour is most revealing and tells an experienced observer a great deal about the
quality of management. Still others prefer to examine markets, products and
services before turning to a financial appraisal and further investigations. These
are just different starting-points reflecting personal experience and preferences:
eventually the consultant has to study all areas and questions needed for a global
diagnosis in order to see the problem in the right context and perspective.
The client's involvement

It would be an error to think that while the first contact meetings involved
intensive and direct interaction between the consultant and the client, the
consultant then carries out the preliminary problem diagnosis single-handed,
confining contacts with the client to interviewing certain people and requesting
information. The dialogue with the client is pursued during problem diagnosis.
This will show how the client feels about varllous aspects of the business: what
its goals, objectives and technical and human capabilities are, what its potential
is for making changes, and the style of consulting that should be applied in his
case. The client, on the other hand, learns to k.now the consultant better and has
an opportunity to appreciate his or her professional way of obtaining informa-
tion, establishing contacts with people, grasping the overall situation and dis-
tilling essential facts from the vast amount of data that can be found in any
organization.
Sources of information
A successful diagnostic survey is based on the rapid collection of selective
information that reveals the type and extent of help that the consultant can give
to the client. Diagnostic data tend to be global in nature. The consultant is
interested in details only if they are indicative of some major problems and help
to elucidate the problems for which he or she has been brought in. For example,
some detailed insights into the work style of top management may help to
diagnose overall management patterns and pr,xtices that determine the working
atmosphere in the whole organization.
The main sources of information for a preliminary diagnostic survey are
published material and records (box 7.2), observation and interviewing by the
consultant, and contacts outside the client organization.
Observing activities and interviewing key people are vital to information
gathering. Tours of the client's premises, seeing people in action and hearing
their views, worries and suggestions, give first-hand knowledge of how the
organization works in practice, how it lives, the pace it sets and the relationships
between its workers. These are invaluable insights which records cannot convey,
but extensive interviewing and observation of activities are beyond the
possibilities of preliminary surveys.
Contacts with other organizations associated with the client may be made
either by the consultant, or by the clienf personally. During their work,
consultants make contact with many organizations apart from those of their
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clients. These contacts not only assist the current assignment but also establish
a relationship which can be used in future work. For example, contacts may be
established with trade unions, employers' and trade associations, sectoral re-
search institutions, or management associations.
The consultant informs the client of the purpose and nature of any contact
made. The client personally may contact some outside bodies (e.g. employers'
associations), and should know of any consultant contact. Talking to the client's
customers is an essential source of information and ideas for management
consultants, but contacts with customers should not be made without the client's
agreement.
Box 7.2 Information materials for pretiminary surveys

Client's publications:
- annual financial and activity reports;
- financial, statistical, trade and customs returns to government, trade
associations and credit organizations;
economic surveys;
- sales promotion material such as catalogues and advertising brochures;
- press releases, interviews given by management, etc.
Information from other published sources:
- conditions and trends in the client's economic sector, includingtechnological
developments;
- information on business firms in the sector;
- industrial outlook studies;
- trade statistics and reports;
- industry norms and key business ratios;
- regulations which the client must observe;
- corporation income tax returns (if published);
- labwr-Managementrelations.
Client's internal records and reports:

information on resources, objectives, plans and performance;
information on plant, technologies and equipment used;
reports on financial results and costs of activities, services and products;
minutes of board and management committee meetings;
tax returns;
sales statistics;
movement of material;
staff appraisal, etc.
Documentation files of the consulting firm:
- information on the client if not a new one;
- information on the sector and similar organizations.
Alternative approaches
The approach described in the previous paragraphs is the classical
consultant's approach: it is the consultant who performs the diagnosis as an
expert, using data collection and analytical techniques of his or her choice, with
some participation on the part of the client. Moving closer to the process function
along the continuum of consulting roles, the client and his staff become more
active and the consultant focuses on providing effective diagnostic methods
instead of personally carrying out the diagnosis.
For example, some consultants have used problem-identification work-
shops which can be run as part of a problem- and action-oriented management
development programme, or used directly as a technique for identifying
problems on which the organization will have to act. In this workshop or group
approach, the members of the group develop their own lists of problems
requiring action, compare and discuss their lists, and agree on a joint list and on
priorities. They then work separately on a more detailed definition and analysis
of the principal problem(s) from each list, paying attention to relations between
various problems. This is followed by other meetings, where individual analyses
are compared, a collectively agreed analysis is made and action proposals are
developed.
This exercise can be organized in one group, or as a system of groups. The
initial groups can be heterogeneous (from various levels and functions of man-
agement), thus enabling one organizational process or problem to be examined
from several angles. Alternatively, technically homogeneous, functional or
departmental groups can first look at one problem from their specific technical
angles (financial, organizational, production, staffing, etc.), followed by work-
shops involving representatives of the groups, who meet to compare and har-
monize the different viewpoints and develop a problem definition that is
endorsed by all groups. Often it is more effective if groups look at organizational
processes rather than at fragmented tasks and units.
Management can decide to involve an external or internal consultant in
these group exercises. The consultant's approach may be low-key, reminding
the group of the appropriate procedure, ~f criteria that may have been
overlooked, and of methodological errors that might lead to false conclusions.
The use of the group approach is often p-eceded by a thorough explanation
of diagnostic, problem-solving and perforinance-improvement methods. If
appropriate, the consultant also provides technical information on the problem
under discussion (e.g. data from similar organizations for comparison), or helps
to collect input data on which the groups can start to work.
Self-diagnosis by individual business owners or managers is another
approach which has been used in assisting smaller firms in various countries.
The consultant meets with a group of owners or managers of small firms,
provides them with a self-diagnostic instrument adapted to their needs, and
explains the method to be used. He or she is then available to review the results
of the diagnosis and proposals for action with each individual. Alternatively, the
business people may agree to meet again and compare the ratios and other
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indicators characteristic of their firms, and exchange views on factors explaining

differences in performance. They will then decide individually or as a group on
the courses of action to follow in each firm. The consultant may be engaged to
help them in further group work, or work separately with individual members
of the group (see also Chapter 18).
Self-diagnosis can be an individual exercise undertaken by one client firm
from the outset. The consultant may supply check-lists and methodological tools
for the client's use. Or the client applies his or her own diagnostic approach
based on industry experience and practices, and the consultant's role is to check
the client's self-diagnosis for completeness and accuracy. The consultant would
also help the client to view the business from a wider perspective.
Further approaches are described in section 4.6.
7.3 Terms of reference

Terms of reference (see box 7.3) are the initial statement of the work to be
undertaken by a consultant. As mentioned in the previous section, when the
consultant first meets the client, he or she may find that the client has already
prepared terms of reference for the assignment. This is the approach taken by
one category of clients, who prefer to do their own problem identification and
diagnosis before talking to any consultant.
There is a second category of clients, whose practice is to draft the terms
of reference after preliminary problem diagnosis done by a consultant. They
may use one consultant specifically for preliminary diagnosis and drafting terms
of reference. These terms are then used for initiating a formal selection procedure
to designate a consultant who will execute the assignment. The consultant used
to produce the terms of reference may even be excluded from this procedure.
Box 7.3 Terms of reference - Check-list

1. Description of the problem(s) to be solved
2. Objectives and expected results of the assignment (what is to be achieved,
final product)
3. Backgroundand supporting information (onclient organization, other related
projects and consultancies, past efforts to solve problems, etc.)
4. Budget estimate or resource limit
5. Timetable (starting and completion dates, key stages and control dates)
6. Interim and final reporting (dates, form, to whom, etc.)
7. Inputs to be provided by the client (further information and documentation,
staff time, secretarial support, transport, etc.)
8. Exclusions from the assignment (what will not be its object)
9. Constraints and other factors likely to affect the project
10. Profile and competences of eligible consultants
11. Contact persons and addresses
A third category of clients does not use any formal terms of reference in
preparing an assignment and choosing a consultant. Such clients leave the
definition of the work to be done to the consulting contract.
The main reasons for these different p~acticesare explained below.
(1) If terms of reference are used:
- the client's policy is to do as much analytical and planning work before
considering to use a consultant; often this will be the case of assignments
dealing with relatively narrow and well-defined technical issues;
- the client (usually in the public sector) is obliged by existing regulations
to draft formal terms of reference, and obtain their approval, as an initial
step in a formal consultant selection procedure.
(2) If terms of reference are not used:
- the client (usually in the private secl.or) prefers to select a consultant
thoroughly, do preliminary problem di(3gnosisand define the scope of the
assignment jointly with him or her. The client then confirms the choice on
the basis of a proposal (offer) received from the consultant, without using
the intermediate stage of drafting terms of reference.
Most management consultants are able to adapt their approach to these
various client preferences. Yet when presented with terms of reference drafted
by the client or another consultant, the consultant must be cautious in deciding
whether to accept these terms at face value. If these terms describe an assignment
that is not feasible, the consultant might be caught in a trap.
7.4 Assignment strategy and plan

During his or her initial contacts with the client and the subsequent pre-
liminary problem diagnosis, the consultant should have collected and evaluated
enough information to be able to plan the assignment. This is what the client
expects at this stage: he or she will want to receive not only the consultant's
findings on the problem to be tackled, but a.lso a proposal describing what the
consultant suggests doing and under what terms help is offered.
In fact, right from the first contact wit:h the client the consultant has been
thinking of the approach to take, but has suspended judgement until after he or
she has become better acquainted with the situation. For example, the co-
operation of the client's staff during preliminary problem diagnosis shows what
consulting mode may be most appropriate (see Chapter 3), and the quality of
the data found during this activity suggests how much time will be needed for
detailed fact finding and analysis.
A fundamental aspect of designing and planning a consulting assignment
is the choice of assignment strategy. By this we mean the respective roles to be
played by the consultant and the client, the consulting mode chosen, the pace of
operations and the way (and the time sequence) in which they will apply and
harmonize their interventions, and the resources allocated to the assignment.
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The assignment plan, including the strategy that will be followed, is

formally presented to the client as a proposal, as described in section 7.5 below.
Assignment planning and drafting of a proposal are not normally finalized at
the client's premises. Unless it has been otherwise agreed, the consultant returns
to the office with the data collected during preliminary problem diagnosis and
works on the proposal, often in collaboration with other senior members of the
consulting firm. The consultant should never take more time than the client
expects. Momentum can be lost and relations can cool down if the client feels
that the matter is not receiving enough attention.
The main elements of assignment planning are given below.
Summary of problem identification

The conclusions from preliminary problem diagnosis are summarized and
the consultant presents a description of the problem. This may include a
comparison with the original problem definition made by the client: the
consultant may suggest widening or narrowing down this definition, or refer to
other problems discovered and to possible developments (e.g. the effects of
recession, or tensions in labour relations) that may take place during the
assignment. As appropriate, the problem will be set in the wider context of the
client's objectives, trends and resources.
Objectives to achieve and action to take

The assignment plan then outlines the objectives to be achieved and the
kind of technical activities which the assignment will consist of (redesigning an
information system, reorganizing distribution networks, introducing a new staff
training programme, and the like).
Whenever possible, the objectives should be presented as performance
measures in quantified terms, describing benefits that will accrue to the client if
the assignment is successfully completed. Global financial benefits are com-
mented on to ensure that the client understands the implications. For example,
savings from a reduced inventory of finished goods would only be achieved
when stocks had been run down, and this might require production to be cut
back for some time. Benefits in other terms are stated as appropriate, e.g. output
would increase from one level to a new level (in this case the client would be
warned of the need for orders to keep the factory occupied).
Social and qualitative benefits may be difficult to express in figures. They
are described as precisely and clearly as possible and carefully explained. Vague
notions that lend themselves to many different interpretations should be avoided.
However, at this early planning stage, before a detailed investigation has
been carried out and some work on alternative proposals done, it may be
impossible to indicate all benefits with absolute precision. If this is the case, it
is preferable to indicate the order of magnitude of the benefits to be achieved
(e.g. sales increased by 20 to 30 per cent). Also, if the consultant regards certain
objectives as feasible on condition that the client takes certain measures (which
may include difficult restructuring, organizational or personnel decisions), these

conditions should be specified as clearly as possible.
Phases of the assignment and timetable

The steps in which the assignment will be undertaken have to be pro-
grammed in some detail. Basically, the consultant will follow the logic of the
consulting process as briefly outlined in section 1.4 and described in detail in
Chapters 7-1 1, but will adjust it to the nature of the assignment and to the client's
conditions and preferences. This is essential, not only for work scheduling but
for several other reasons.
The nature of the consultant's and the client's activities will be changing
from phase to phase. Both parties must know exactly what the other party expects
at each phase. In particular, the client will want to know whether the assignment
is making headway towards its final objectives. To make control possible, the
assignment plan will describe the outcome of each phase and define what reports
to the client will be submitted at what points during the assignment. A major
phase may require an end-of-phase report, but in long and complex assignments
short interim reports may be required at the end of each subphase or periodically
(monthly, quarterly), for monitoring progress and allowing regular payments to
be made to the consultant.
The time dimension of the assignment plan is a key element of strategy.
What pace of work should be adopted? The urgency of the client's needs is the
main determinant. But there are other considerations, such as:
the client's and the consultant's technical, manpower and financial
capacities;
the feasible and optimum pace of change (as discussed in Chapters 4
and 5);
the desirability of a phased approach to implementation (starting in a unit
that is best prepared for change and willing to cooperate, introducing the
new scheme on an experimental basis First, etc.).
Role definition
This is another strategic dimension of assignment planning. The consultant
will suggest the style or mode of consulting 1hat he or she considers most appro-
priate with regard to the nature of the problem and the motivation and capabilities
of the client's staff. A general definition of the mode to be used is not enough.
Precise arrangements have to be proposed. They should specify:
- what activities will be carried out by the client or by the consultant;
- what data and documents will be prep,ued by whom;
- what meetings, working parties, project groups and other forms of group
work will be used and who will be involved;
- what special training and information activities will be undertaken.
It may be both possible and desirable to foresee a shift in roles during the
assignment. For example, intensive training of the client's staff in the subject
area covered and in problem-solving and change methodologies, carried out at
the beginning, may enable the consultant to suggest reducing his presence and
changing his role during subsequent phases.
Lack of precision in defining role expectations for each phase of the
assignment causes much misunderstanding. As already mentioned, this happens
frequently in connection with implementation. Is the consultant's objective to
design a new scheme and submit it in a report, or to help the client to implement
the scheme? Who is responsible for what? Where does the consultant's
responsibility end? What does the client actually want? Does he want another
report, or is he really keen to complete a change? In designing an effective
assignment these questions must not remain unanswered.
Following a detailed role definition, the consultant can determine the
resources required by the assignment in each phase. These include resources to
be made available:
by the consultant (consultant time, material, clerical support, special com-
puting, research, legal advice, and other services), including their cost;
by the client (management and staff time, liaison arrangements, adminis-
trative support, office facilities, resources for testing, experimental work,
computing, and so on).
Obviously, the client will want to know what resources provided by the
consultant will be used and paid for. But more than that: the client will
participate, too, and the inputs required from his or her organization may be
high. The failure to figure them out as precisely as possible may cause
considerable difficulties once work has started and the client learns, to his great
astonishment, that he is supposed to do something which he has not counted on
doing at all.
It may be difficult to tell the client at this stage how much implementation
will cost: it is the action planning phase (Chapter 9) that will generate precise
figures. None the less, a preliminary assessment ought to be made in all
assignments that are likely to propose costly changes (e.g. new investment or
compensation to staff whose employment will be terminated). The client should
have the opportunity to look into these probable financial implications before
deciding whether to embark on such an assignment.
The costing and pricing of an assignment is discussed in detail in
section 26.7.
Proposal to the client4

As a rule, the assignment proposed will be described in a document
presented to the client for approval and decision. It may be given different names:
survey report, technical proposal, project document, project plan, contract
proposal, and the like. Some clients require the consultant to present the
proposals in a predetermined format. This facilitates study by the client

and his evaluation of alternative proposals received from several consultants.
Furthermore, the format of the proposal may correspond to the format of the
consulting contract to be signed.
A proposal submitted to the client is an important selling document. It is
not enough for the consultant to have a clear vision of how to execute the
assignment to make it a total success: he or she must be able to describe this
vision on paper in a way that will make it clear to other people. This may include
individuals who did not meet the consultant on the first visit to the client
organization, and will be formulating their opinions of him or her solely on the
basis of the written proposal.
The client should be impressed by the technical quality of the proposal and
pleased by its business-like presentation. Writing "winning7' proposals is an art
that no consultant can afford to ignore.
Sections of the proposal

In most cases the following four sections are included in the proposal to
the client:
- technical section;
- staffing section;
- consultant background section;
- financial and other terms section.
The technical section describes the consultant's preliminary assessment of
the problem, the purpose to be pursued, the approach to be taken, and the work
programme to be followed. These topics were reviewed in sections 7.2 to 7.4
above.
One caveat has to be made: the consultant and the client may have a
different conception of how detailed and specific this technical section should
be. If it is too global, the client may feel that the consultant is not really explaining
what he or she proposes to do. In contrast, if' it is too detailed and specific, the
consultant may have gone beyond assignment planning, and may already have
embarked on executing the assignment without having obtained the client's
agreement. This may present no problem if a cooperative relationship has
already been established and the consultant is sure to get the assignment. If it is
not clear who will be chosen (e.g. if several consultants were invited to submit
proposals), this may prove to be a reckless approach: giving away free expertise
before the assignment has been approved.
The stafPing section gives the names and profiles of the consultant's staff
who will be executing the assignment. This also includes the senior consultants
(partners, project managers) who will be responsible for guiding and supervising
the team working at the client's organization As a rule, the proposal guarantees
the availability of particular persons for a limited period of time, say six to eight
weeks. If the client delays the response, or decides to postpone the assignment,
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he knows that he will have to accept other consultants of a comparable profile,

or renegotiate the assignment.
The consultant background section describes the experience and com-
petence of the consulting organization as it relates to the needs of the particular
client. There may be a general subsection with standard information given to all
clients (including a section on ethical standards and professional practice
adhered to by the consultant) and a specific subsection referring to similar work
done and providing evidence that the consultant will be the right partner to
choose. References concerning former clients will be used only with these
clients' prior agreement.
The financial and other terms section indicates the cost of the services,
provisions for cost increases and contingencies, and the schedule and other
indications for paying fees and reimbursing expenses, and settling all com-
mitments. If the client applies a selection procedure, the financial section may
have to be submitted separately.
The consultant may have a standard description of his or her terms of
contract or business and attach it to the proposal. Conversely, some clients insist
on using their own terms and the consultant may have to comply with these if
he or she does not want to lose the contract.
Presenting the proposal

Many consultants prefer not just to mail the proposal, but to hand it over
to the client in a meeting which starts with a short oral (and visual) introduction
of the report's summary. The consultant is ready to answer questions about the
start of the proposed assignment. If the client is keen and ready to begin, there
are obvious advantages in doing so while the enthusiasm is there and the contacts
established are fresh in people's minds. But an early date may not be easy to
meet because of existing commitments.
Although the consultant would obviously like to have a decision before the
end of the meeting, the client may have good reasons for not wanting to give
one. He or she should not be pressed. A professional consultant knows whether
his or her performance was good enough and can only exercise patience over
the outcome.
If the client wants to read the proposal prior to the oral presentation, or
wants no oral presentation, the consultant will hand the report over without
insisting on a meeting.
The client's reaction

A public-sector client is usually bound by rules which specify a minimum
number of tenders and an internal evaluation procedure before awarding a
contract. But private-sector clients may also use a selection procedure based on
the evaluation of alternative proposals, in particular for large and complex
assignments. In such cases it may take several weeks or months before the client
will be in a position to decide.
The consultant wants to know by what criteria he or she will be judged. As

a rule, the client will inform the consultant about these criteria in the original
invitation to submitting proposals. In most cases, the client will also give the
names of the competitors. The consultant should be aware of the relative weight
that will be assigned to the various aspects of the proposal in the selection
procedure. For example, the World Bank recommends its borrowers to give a
weight of 10-20 per cent to the consulting film's general experience, 25-40 per
cent to the work plan, and 40-60 per cent lo key personnel proposed for the
a~signment.~ Thus, even a highly competent consulting firm stands little chance
in a selection procedure if it does not propose consultants of the right calibre.
Negotiating the proposal

The client may be keen to use the consultant's services, but may not be
happy with some aspects of the proposal. For example, the client feels that he
or she can play a more active role than foreseen by the consultant and personally
undertake various tasks not requiring costky external expertise, or he or she
wishes to suggest a different timetable. It is i~ormalto review these and similar
technical aspects of the proposal and to make changes if the consultant is able
to modify his or her approach.
As regards fees, many consultants emphasize that their rates represent a
fair charge for a high-quality professional se vice and hence are not negotiable.
A minor provision for the negotiation of fee rates is sometimes made in countries
where this is the customary way of doing business (see Chapter 26).
What is not included in the proposal

In parallel with drafting his proposal to the client, the consultant is
preparing internal (confidential) notes on the client organization and ideas for
the approach to take (box 7.4). These notes (sometimes called "survey notes")
Box 7.4 Confidential information on the client organization

1. Names of managers met and information collected on them
2. Comments on organizational relationshi~s,management style, and cultural
values and norms
3. Attitudes of various people in the client organizationto consultants and likely
reactions to the assignment
4. Best sources of internal information. Soi~rcesthat cannot be trusted
5. Additional comments and data on the problem for which the assignment is
proposed
6. Other problems identified, potential problems, or areas of further work not
tackled in the proposed assignment and not discussed with the client
7. Useful background informationcollectecl and not used in the proposal to the
client
8. Any other suggestions to the operating team that will executethe assignment
Entry
are particularly important in a larger consulting firm if different professionals

are used for planning and for executing assignments, and if several units of the
same consulting or multi-service professional firm may be in touch with the
same client organization on various matters.
7.6 The consulting contract

The entry phase of the consulting process can be regarded as successfully
completed if the consultant and the client conclude a contract whereby they agree
to work together on an assignment or p r ~ j e c tWhat
. ~ is the usual form of such a
contract? What can we recommend to our readers?
Contracting practices regarded as normal and advisable depend very much
on each country's legal system and customary ways of doing business. New
consultants have to seek legal advice on the form of contracting authorized by
local legislation and preferred by business and government organizations. In
addition, they can get advice from the local consultants' association and from
professional colleagues. Where alternative forms of contract are admitted,
choosing one or more will be a matter of the consulting firm's policy and
judgement on what is most appropriate in dealing with particular clients. The
form chosen must ensure that mutual commitments will be understood and
respected, and misunderstanding avoided on either side.
In some countries the contracting practices in professional services are well
defined and enough literature is available. In other countries this is not yet the
case. Thus a consultant doing work abroad may have to compromise between
what is customary in the home country and what the law and practice in the
client's country demand.
The three main forms of contracting are verbal agreement, letter of
agreement and written contract. The aspects of consulting assignments that are
normally dealt with in contracting are listed in box 7.5 (overleaf). These aspects
do not represent sections of a standard contract since various arrangements are
possible (for detailed comments see Appendix 5).
Verbal agreement
A verbal agreement is one given by the client orally either after having
reviewed the consultant's written proposal, or even without having reviewed a
proposal if the client feels that the consultant is the right one and will have the
required professional approach. Verbal agreement was used extensively in the
first decades of management consulting, but now the tendency is to use written
contracts. Nevertheless, those who believe strongly in the power of the written
word and legal texts would be surprised to find out that even nowadays a lot of
consulting is undertaken on the basis of verbal agreements.
Verbal agreement may suffice if the following conditions exist:
- the consultant and the client are well versed in professional practice;
Box 7.5 What to cover in contracting - Check-list

Contracting parties (the consultant and the client)
Scope of the assignment (as discussed in sections 7.4 and 7.5: objectives,
description of work, starting date, timetable, volume of work)
Work products and reports (documentation and reports to be handed over
to the client)
Consultant and client inputs (expert and :staff time and other inputs)
Fees and expenses (fees to be billed, expenses reimbursed to the consultant)
Billing and payment procedure
Professional responsibilities (handling confidential information, avoiding
conflict of interest, and other aspects as appropriate - see section 6.2)
Copyright (covering the products of the consultant's work during the
assignment)
Liability (the consultant's liability for damages caused to the client, limitation
of liability - see section 6.5)
Use of subcontractors (by the consultant)
Termination or revision (when and how to be suggested by either party)
Arbitration (jurisdiction, procedure for handling disputes)
Signatures and dates
- they trust each other totally;

- they are familiar with each other's terms of business (the client knows the
terms applied by the consultant and the consultant knows what to expect
from the client, e.g. if the client is able to make any advance payment, or
can accept monthly billing, how long it takes to approve a payment, etc.);
- the assignment is not too big and complex (if this is the case, it may be
difficult to manage the relationship from both sides without any formal
document).
Verbal agreement would be used more frequently in repeat business than
with new clients. If a verbal agreement is used, the consultant may produce a
detailed record of what was agreed, for his or her own benefit and to make sure
that other colleagues in the firm are fully and correctly informed. Sending an
information copy to the client may be useful.
Letter of agreement
A letter of agreement (other terms used: letter of engagement, of appoint-
ment, of confirmation, of intent) is the prevailing way of contracting professional
services in many countries. Having received the consultant's proposal (proposal
letter), the client sends him or her a letter of agreement confirming that he or
she accepts the proposal and the suggested terms of reference. The letter may
set out new conditions which modify or supplement the consultant's proposal.
In this case it is the consultant who in turn replies as to whether or not he or she
Entry
accepts these new conditions. Or all this can be negotiated orally and then re-
duced to a written agreement.
Alternatively, it is the client who drafts the letter describing the work
required and the proposed terms of reference, and the consultant who gives the
written agreement.
Written contract
The use of a written consulting contract duly signed by the parties involved
may be required for various reasons. It may be imposed by law or by the client's
own regulations on the use of external services (this is the case in nearly all
public organizations and international agencies, and many private businesses).
It is often the best form to choose if the consultant and the client come from
different business and legal environments and might easily misinterpret each
other's intentions and attitudes. It is advisable, albeit not absolutely necessary,
in the case of large and complex assignments involving many different people
on both the client's and the consultant's side.
It may be the client's practice to use a standard form of contract. Most
management consultants are quite flexible and accept various forms of contract.
However, they should not underestimate the need for consulting their lawyer if
a new and unusual form of contract is proposed to them by a client.
As a rule, the consultant will know in advance that he or she will have to
sign a formal contract. He or she should obtain the standard form from the client,
show it to a lawyer, and keep it in mind in preparing proposals for the assignment.
Thus the consultant will be able to formulate the proposals so that they could be
directly included in the body of the contract, or attached to it without making
any substantial modifications.
A consulting firm should also have its own standard form of contract. It
will be used with clients who do not have a standard form of their own and expect
the consultant to propose one.
Built-in flexibility
The purpose of contracting is to provide a clear orientation for joint work
and to protect the interests of both parties. This implies a certain degree of
imagination and flexibility.
At any stage of the assignment, the nature and the magnitude of the problem
may change and other priorities may become more urgent. The consultant's and
the client's capabilities and perceptions of what approach will be effective are
also evolving. Obviously, a professional consultant will not insist on continuing
with a job (as stipulated in a contract) if that job is no longer required and causes
unnecessary expense to the client.
Whatever form of contract is used, it should be agreed under what
conditions and in what way either the consultant or the client can withdraw from
the contract, or can suggest a revision. In some cases it may be better to contract
only for one phase of the assignment (e.g. fact finding and detailed diagnosis)
and delay a decision on the work to follow until enough information has been
collected and examined.
Psychological contract
In an era in which more and more features of our lives are regulated and
constrained by legislation, and formal contracts tend to become more and more
common in professional sectors, it is useful to underline that the formal legal
side of contracting is not the main one. We have explained why a well-drafted
formal contract may be required. However, the reader should keep in mind that
excellent consulting assignments are those where another type of "contract7'
exists, which is not codified in any document and is not easy to describe: a
psychological contract, under which the consultant and the client cooperate in
an atmosphere of trust and respect, believing that the approach taken by the other
party is the best one to bring the assignment to a successful completion. Such a
"contract7' cannot be replaced by even the finest legal document.
D. Maister: "How clients choose", in Managinp the professional service firm (New York,
The Free Press, 1993), p. 112.
Various terms are used: preliminary problem ~diagnosis,diagnostic study, management
survey, diagnostic survey, consulting survey, diagnos~icevaluation, business review, business
diagnosis, pilot study, management audit, company appraisal, etc.
Similar classifications, with empirical or recommended performance data, can be obtained
from engineering consultants, sectoral research and information centres, suppliers of equipment,
centres of inter-firm comparison and other sources.
A more detailed discussion of consultant selection, including various procedures, criteria
and forms of contract used, can be found in M. Kubr: How to select and use consultants: A client's
guide, Management Development Series No. 31 (Geneva, ILO, 1993).
5 World Bank: Guidelines for the use of consultants by World Bank borrowers and by the
World Bank as executing agency (Washington, DC, 1981), p. 14.

6 See also Kubr, op. cit., Chs. 4 and 6; H. L. Shenson: The contract and fee-setting guide for
consultants andprofessionals (New York, Wiley, 1990); and N. Pyeatt: The consultant's legal guide
(Washington, DC, Bermont Books, 1980).
DIAGNOSIS
8.1 Conceptual framework of diagnosis

What is diagnosis?
Diagnosis, the second phase of the consulting process, is the first fully
operational phase. The purpose of diagnosis is to examine the problem faced
and the purposes pursued by the client in detail and in depth, identify the factors
and forces that are causing and influencing the problem, and prepare all informa-
tion needed for deciding how to orient work on the solution to the problem. An
equally important aim is to examine the relationships between the problem in
question and the global objectives and results achieved by the client organ-
ization, and to ascertain the client's potential to make changes and resolve the
problem effectively.
The diagnostic work should start with a clear conceptual framework in
mind. To embark on extensive and costly investigations without such a frame-
work could be a hazardous undertaking. In any organization the consultant
encounters a host of problems varying in importance and nature: technical and
human, apparent and hidden, substantial and trivial, real and potential. He or she
will hear many critical opinions as to what the main problems are and what
should have been done about them. In diagnosing the problem, the consultant
will be constantly exposed to the risk of taking a wrong direction, becoming
unduly influenced by the views expressed by others, and collecting interesting
but unnecessary facts while omitting essential facts and ignoring some important
dimensions of a complex problem, or interesting new opportunities.
Diagnosis is sometimes viewed as equal to collecting, dissecting and
analysing vast amounts of data, including a great deal of data that may have no
relevance to the purpose of the assignment. This is a misconception, however.
While there is no diagnosis without data and facts, it is equally true that (a) diag-
nosis embraces considerably more than data collection and analysis, and (b) ef-
fective diagnosis is confined to selected data and is consistently focused on the
purposes of the project.
In principle, problem diagnosis does not include work on problem sol-

utions. This will be done in the next, action-planning phase. Diagnosis may even
lead to the conclusion that the problem cannot be resolved, or that the purpose
pursued cannot be achieved and the problem is not worth the effort of resolution.
Yet in practice it is often difficult or inappropriate to make a strict dis-
tinction and draw a line between the diagnostic and the action-planning - and
even the implementation -phases of the consulting process. It is not only that
diagnosis lays down the bases for the work to follow. Frequently diagnostic work
will already identify and explore possible solutions. In interviewing people it
may be impracticable and undesirable to confine the discussion to problems and
their causes, carefully avoiding touching uplsn a wider context and possible
solutions. Thus, operations that are separated in our text for methodological
reasons will have to be combined by the practitioner in a pragmatic way, likely
to lead to results in the client's particular case.
Restating the problem and the purpose

The assignment plan prepared during the entry phase and confirmed by the
consulting contract (see sections 7.2 to 7.5) has provided guidelines and a basic
time-schedule for diagnosis. It may, however, require revision and adjustment
before diagnostic work is actually started. There may be a time-lag of several
months between the end of the entry phase and the start of the diagnostic phase,
and the client's situation and thinking may have evolved.
Furthermore, many consulting contracts are signed on the basis of general
and vague problem and purpose definitions. When the work is actually starting,
the consultant may find out that the client wants something else or has a different
interpretation of the general and inaccurate terms used in the contract text. Often
the reason is that the people who start working together on the project are
different (on both the client's and the consultant's side) from those who
negotiated and signed the contract. Explaining what was intended is not enough
since there may be a genuine disagreemenl. over the original problem and
purpose definition.
Thus, it is always useful to review and restate the problem and the purpose
of the consultancy when starting diagnosis. A special meeting with the client
may be arranged to this effect. Experience shows that in the vast majority of
assignments some adjustments in the objectives and the time-table are inevitable
when the work actually starts.
The people side of diagnosis

There is another significant phenomenon. As we know, the very fact that
a management consultant is present in the: organization and starts asking
questions puts the change process into motion. There may be an immediate
impact on the organization. Many of us do not have to be told what to do; it may
be enough if someone asks us a question which implies that there might be an
alternative way of doing the job. Sometimes an employee is heard to say, "I
Diagnosis
didn't know they wanted me to do the job that way. Had they spoken to me about
it, I would have done it!"
This can have very positive effects. By gradually developing a complete
picture of the situation, diagnosis increases awareness of the need to change and
indicates more specifically the sorts of change that will be required. If well
managed, data collection and analysis can involve the client's staff more and
more in the assignment, thus enhancing their sense of "ownership of the
problem". As a result, at the end of the diagnosis people in the client organization
will be better prepared to cope with the necessary changes than at its beginning.
There can be a useful learning effect, too. The client and his or her staff
should not only feel that they are themselves discovering the full truth about
their organization or unit and suggesting what to improve, but also gain a
conviction that the consultant is sharing his diagnostic method with them. The
client's problem-solving potential can be considerably enhanced during
diagnosis. If this opportunity is missed, it may be too late to start soliciting
people's involvement in developing and implementing action proposals.
Certain negative effects may also occur. Some clients try to maintain
secrecy within the organization about using a consultant. It is doubtful whether
such a secret can be kept but, even more important, an attempt to do so can cast
doubt upon the consultant and on the entire process. The informal communi-
cation network in an organization (all organizations have their "grapevines"!)
will quickly disseminate the information. In the absence of a formal communi-
cation from the client to the system, the informal communication system will
tend to generate negative data. This will seriously inhibit the ability of the
consultant to perform effectively.
Unless the client system is prepared to accept the consultant, the entire
relationship can be doomed to failure from the outset. Therefore, if possible, the
client should prepare the organization for the introduction of the consultant. As
clients are not always aware of this need, it may become necessary for the
consultant to plan a course of action during the entry phase. Obviously, such
preparation is in itself an intervention in the organization. It must be handled
with extreme care, with all the competence required of the consultant from the
outset (see also section 27.2).
The consultant must use a variety of approaches to dispel any fear or mis-
information. One way to do this is by being readily available to all those in the
organization who would like to meet him or her. Particularly when consulting
on human resources and organizational development, the consultant should be
generally visible and very accessible.
Diagnosis can be a painful exercise in an organization in difficulties. But
in any organization diagnosis may uncover situations and relationships of which
the client is not proud, which he or she is unable to handle, and which he or she
would have preferred to hide from anybody coming from outside, and even from
other colleagues within the company. The consultant, however, may badly need
this sort of insight to be able to do anything useful for the client. Diagnosing
delicate situations requires a great deal of tact. An aggressive diagnostic attitude
(e.g. if people can deduce from the consultant's questions that he or she is looking
for errors in their work and is going to criticize them) will invariably generate
resistance.
Another type of potentially negative effect is spontaneous change of work
methods before a new method has been properly developed, tested and adopted
for general use. Often such changes are not real improvements even if they are
well intentioned. Energy may be wasted if there is a misunderstanding about the
purpose of the project and likely direction of the change effort and about the
sequence of steps in which the consultancy is being carried out. Some people
may be disoriented -they change their method of work in good faith, but this
is not appreciated by the consultant and by the managers.
These and similar misunderstandings can be prevented by givingfvequent
feedback from diagnostic work. The client and his or her staff need to know how
the assignment has progressed, what facts have been established, what solutions
are shaping up m d what findings are preliminary -requiring further fact finding
and verification -or final, capable of serving as a basis for action. There should
be no ambiguity and no suspicion about the type of action that diagnosis is likely
to recommend and about the moment at which action can start.
On the other hand, getting the client's reaction to the feedback given to
him or her is feedback to the consultant. The consultant should seek this feedback
as much as possible during the whole diagnostic phase.
8.2 Diagnosing purposes and problems

Purposes
In Breakthrough Thinking, Gerald Nadler and Shozo Hibino explain why
focusing on purposes is fundamental to successful problem so1ving.l They
emphasize that defining the purposes of working on a problem ensures that you
will apply your efforts in areas where you can have the greatest impact. Instead
of starting diagnosis by asking "What's wrong here? What's the matter?", the
consultant should ask first "What are we trying to accomplish here? What are
we trying to do?" This will help to avoid (a) the conventional urge to start by
collecting data and analysing the situation, and (b) working on or being sold a
solution to a wrong problem ("moving faster in the wrong direction").
An array ofpurposes to be achieved by lhe project should be constructed.
In this way the consultant will acknowledge I he fact that there is a wide range
of motivations and results possible in applying change to an existing condition.
The problem will be seen in the right perspective if the array of purposes listed
is broad enough, including small and immediate purposes as well as very broad
and far-reaching purposes that are beyond any possibility of actually implement-
ing a solution.
It will then be important to identify the focus purpose. It will be one that
can meet all or most of the criteria discussed and chosen by the consultant and
the client (such as management's desires, potential financial benefits, cost and
capital factors, time limitations, constraints imposed by legislation, future
Diagnosis
development potential, employment potential, learning opportunities, etc.).

Small, limited and trivial purposes that cannot meet these criteria will be
eliminated. Excessively broad, distant, risky, costly and unrealistic purposes, as
well as purposes that the stakeholders are not prepared to support, will also be
eliminated.
- --
Box 8.1 The focus purpose

For example, in one company the problem presented to a consultant was
described as a deteriorating quality of several important products, and a growing
number and frequency of customer complaints about quality. The discussion of
possible purposes of a consulting project defined an array of purposes:
restoring quality to previous level and preventing its deterioration;
preventing customer complaints;
improving quality management (including better motivation for achieving and
maintaining quality);
increasing customer satisfaction;
achieving an image of a high-quality producer;
becoming a sector leader internationally in terms of quality.
The focus purpose chosen was "increasing customer satisfaction". This em-
braced narrower purposes such as improving product quality and assuring quality
management, but eliminated wider and probably too ambitious purposes, such as
international sector leadership in quality. Furthermore, it was agreed that im-
provements would need to be pursued in after-sales and maintenance services,
customer information, behaviour of the sales technicians, product modernization
practices, etc. This permitted a diagnosis and the subsequent activities of the
consultant and the client to be focused on a clear and realistic purpose.
Problems
It may be useful to recollect what was said about business and management
problems in section 1.2. There is a problem if (a) there is a difference between
two situations: one real (past or present) and one potential or desired (past,
present or future), and (b) someone is concerned about this difference and wants
to change it. This difference defines the problem with which the consultant is
supposed to deal.
Thus, to establish this difference or discrepancy we will be comparing two
situations. It is not so difficult to find out what was or is actually happening, i.e.
the actual situation. In this chapter we will describe a number of fact-finding
and analytical techniques whose mastery helps the consultant to identify and
understand the actual situation. To determine what should be happening in the
future, i.e. the ideal or desired situation, is infinitely more complex, but it is an
essential part of problem diagnosis. For it is only in this way that the problem
can be described and analysed, and the consultant's work focused on purposes,
future opportunities and improvements.
Box 8.2 Minor changes or radical improvements?

Let us take an example of growing production costs. The costs of a particular
product have increased from 10 to say, 10.80, i.e. by 8 per cent, over the last year.
But the market price has not increased and the distribution agents cannot reduce
their margin. There is a suspicion (or it has been established) that some
competitors offering the same product have maintained the same level of pro-
duction costs, and others have even been able to reduce them. Technologies
making production considerably cheaper are known and some radically different
technologies are being developed, but these, as usual, can be efficient only under
certain conditions.
What then is the problem?The actual level of production costs is known, but how
can the desired level be determined? What will be the purpose of the assignment?
Bring the costs back to the original level? Change the product radically? Drop the
product from the production line? Absorb the cost increase by making savings
elsewhere? These may be difficult choices. Without clarifying the purpose, the
client has no criterion for making these choiclas and directing the consultant. The
consultant could spend months on examining and developing alternatives only to
find out that most of them would be unacceptable.
The consultant and the client may have to face a very important choice: going for
minor improvements to bring the costs under control (knowing pretty well that this
will be a provisionaland not fully satisfactory sc~lution),or aiming at radicalchanges
in product design, technology and organization (which, however, will involve
different investment costs, risks, and requirements on management and
employees). The client's purpose may even be so defined that the product in
question could be dropped and another product line launched. Would the client
be ready for such a change? Would this be a long-term solution? How will
customers react? Do facts speak in favour 01 a radical approach or against it? Is
now the right time to take such an approach?
The client's problem will be identified by the following five principal

dimensions or characteristics:
Substance or identity. The substance or identity of the problem has to be
described (low performance; shortage of competent staff; lack of ideas on
how to invest idle capital; desire to improve after-sales services). It has to
be established what basis of comparison is used and how it is justified.
Why do we say that performance is low? Low by what standard? The
various symptoms of the problem have to be described as well.
Organizational and physical location. In what organizational units
(divisions, departments, subsidiaries) and physical units (plants, buildings,
stores, offices) has the problem been observed? What other units are or
might be affected? How widespread is the problem? Does it affect external
relationships (e.g. with customers or suppliers)?
Problem "ownership". Which people - managers, staff specialists,
workers - are affected by the existence of the problem and primarily
interested in resolving it? Who is likely to make difficulties?
Absolute and relative magnitude. How important is the problem in
absolute terms (e.g. amount of working time or money lost, volume of
Diagnosis
underutilized productive capacity, potential future gains)? How important

is it in relative terms (e.g. in comparison with other problems, or the total
turnover)? How does it affect the unit where it has been observed, and the
people who "own the problem"? How important is it to the organization
as a whole? What will the organization actually gain if the problem is
resolved?
Time perspective. Since when has the problem existed? Has it been
observed once, or several times, or is it recurrent? How frequently does it
appear? What is its tendency: has the problem been stabilized, or is it
increasing or decreasing? What forecasts can be made about the future
evolution of the problem? Are we anticipating a future problem?
Furthermore, diagnosis will aim to establish:
the causes of the problem;
other significant relationships;
the client's potential to solve the problem;
possible directions of further action.
The causes of the problem

A key task in diagnosis is to identify the forces and factors which are
causing the problem. The purpose is to understand the issue, not to point the
finger to one or more culprits. The exercise will start with some preliminary
knowledge or assumptions about what these causes might be. This will help to
establish hypotheses on possible causes. It is useful to form as many hypotheses
as possible, without, however, embarking on superficial speculation. Data
gathering and analysis will then focus mainly on the hypothetical causes,
eliminating hypotheses that cannot be justified by facts, and adding new
hypotheses which will emerge from interviews with the client or from other
sources. A rigorous scientific approach should be applied. The fact that it is
difficult to find data in support of a hypothesis does not mean that the hypothesis
should be dropped. Eventually the consultant should be able to identify the real
cause or causes amongst the many factors which are in some way related to the
problem (see section 8.4).
Other significant relationships

Any business and management problem is interwoven with other problems;
and there are other relationships in addition to that which can be established
between a problem and its cause or causes. There may be factors which aggravate
or alleviate the problem without being its direct cause. They can make the
solution of the problem more or less difficult. In solving one problem, new
problems may be discovered or created. Quite often a new bottleneck is created
by removing an existing one. These relationships and potential problems and
risks have to be investigated and identified.
The client's potential to solve the problem

The client's potential has several dimensions. It is necessary to find out
whether he or she possesses the material and financial resources and the technical
expertise required for solving the problem. If not, the consultancy will have to
provide for developing this potential and. extending help to the client as
necessary. The time perspective is important. What has been the client's ex-
perience in solving other problems and making organizational changes of
varying nature and magnitude? What is the client organization's culture as
regards change? How quickly is the client able to act? What will be the likely
future development of the client's resources in relation to the problem to be
solved? Can he or she mobilize other resources? What attempts have been made
to solve the given problem? Have past attempts failed? Why have they failed?
Considerable attention will be paid to the client's attitudes to the given
problem. How do people (at various levels and in various categories) perceive
the problem? Are they aware of it and keen to make a change? Are they motivated
to make a special effort? Are they prepared t'3 take risks? Have they experienced
the problem for so long that they have accommodated themselves to living with
it?
Possible directions of further action

The purpose of diagnosis is preparation for action. Throughout the investi-
gation, information and ideas on how the problem could be resolved and how
this would contribute to meeting the client's purposes and improving his or her
business will be collected, recorded and analysed with the same care and deter-
mination as data on the nature and the causes of the problem. This will provide
a link to the next, action-planning phase. Action proposals should emerge
logically from diagnosis. However, the consultant will keep in mind the pitfalls
of premature changes started before the facts have been established and
conclusions drawn from diagnosis.
Main steps in diagnosis

The general framework provided above can be used by the consultant when
making a detailed plan for diagnostic work.,bearing in mind that the scope and
methodology of the exercise will have to be adapted to the nature and complexity
of the problem, and to the profile and the attitude of the client. Diagnosis consists
in seeking answers to the questions in the areas reviewed above: the purposes
pursued; the nature and characteristics of the problem itself; the causes of the
problem; other significant relationships; the client's potential to solve the
problem; and possible directions of further action. The exercise starts with some
information obtained through preliminary problem diagnosis during the entry
phase, and with assumptions and hypotheses which the consultant will be able
to make at the beginning in collaboration with the client. Hypotheses and
tentative answers will be replaced by definite answers, and missing data will be
collected and evaluated.
Box 8.3 issues in problem identification
It is useful to recall briefly some common mistakes made not only by clients in
defining their problems,but also by some consultants. The way we define problems
limits our ability to solve them!
Mistaking symptoms for problems. This is the most common error. Some
very obvious issues which worry management (e.g. falling sales, shortage of
innovative ideas in the R&D department, absenteeism) are looked upon as
problems, although they may be only symptoms of more profound difficulties.
Preconceived ideas about the causes of problems. Some managers and
consultants feel that, thanks to their experience, they know pretty well what
the causes "must" be and that analysing facts cannot really reveal anything
new.
Looking at problems from one technical viewpoint only. This happens
frequently if the diagnosis is made by a manager or a consultant with a strong
background and bias in one technical area (e.g. engineering, accounting,
behavioural science) and if the interdisciplinary nature of management
problems is disregarded.
lgnoring how the problem is perceived in various parts of the organi-
zation. For example, the consultant may accept the definition made by top
management, without finding out how the problem is seen by the lower
management echelons.
Unfinished problem diagnosis. Owing to time and cost constraint or other
reasons, the consultant may be tempted to conclude diagnostic work pre-
maturely. He or she will not find out about further problems and opportunities
that may be directly related to the original issue presented by the client.
Failure to clarify the focus purpose. The purpose is vaguely defined and the
consultant wastes time and energy by looking into many issues that will
eventually be ignored. He or she works on a wrong problem or on totally
unrealistic proposals.
In planning the diagnostic phase it is essential to determine the degree and

form of the client's involvement in each activity. If the process-consulting mode
is chosen, the client and his team will accept the main responsibility for
collecting and analysing data, and the consultant will act mainly as a catalyst,
making the client aware of the approach taken and drawing his attention to
questions and to facts that should not escape his attention. In other instances,
however, the consultant will carry out the bulk of the diagnostic work. As a
general rule, it is useful to plan for gradually increasing the involvement of the
client and his or her staff in the course of the diagnostic phase.
The same approach and sequence of steps may not fit every situation and
every consultant's personality. Every client organization is unique and so is every
consultant-client relationship. This general rule also applies to the planning of
diagnostic work. For example, Jerome Fuchs described his experience in the
following terms:
My personal approach involves techniques which I find most useful. I do not
attempt to analyse or compartmentalize data into fact finding, analysis and
synthesis, but let it flow as it begins to come in. I let it overlap to a certain
extent in each of these stages until a pattern begins to develop. Only then do
I begin to weave raw factual material into the analytical phase. When my facts
are complete I want them to be so clear that they mirror what the ultimate
conclusion of the study will be.2
8.3 Defining necessary facts

Facts are the building-blocks of any consulting work. Consultants need a
considerable number of facts to get a clear picture of the situation, arrive at a
precise definition of the problem and relate their proposals to reality. Facts are
also needed if the assignment is trying to develop something very new and using
a great deal of imagination and creative thinking. Collecting facts may be the
most tiring and painful phase of the consultant's work, but there is no alternative.
When diagnosis starts, a certain amount of data will be handed over to the
operating consultants by their colleagues who did the preliminary problem diag-
nosis during the entry phase. The diagnostic phase will go much further, and
will define issues and collect facts in considerably greater detail.
The kinds of facts collected will depend on the area in which the assignment
takes place, and on the definition of the problem and the assignment objectives.
Facts should enable the examination of processes, relations, performances,
causes and mutual influences, with special regard to underutilized opportunities
and possible improvements. The conceptual framework reviewed in section 8.1
indicates the main areas in which facts are normally collected.
Plan for collecting data

Fact collecting has to be prepared for by thoroughly defining what facts
are wanted. Experienced consultants will continue to apply the principle of
selectivity, although they know that at this stage they need more detailed and
precise facts than their colleagues who did the preliminary diagnosis and
negotiated the assignment. They appreciate that virtually unlimited amounts of
factual information are available in any organization, but that an excessive
amount of such information easily becomes unmanageable and cannot be fully
utilized in any assignment.
The cost of fact gathering cannot be ignored, especially if some data are
not readily available and special schemes (observations, special record keeping,
numerous interviews) have to be established to obtain them. But the definition
of facts and their sources must not be too restrictive. If it is, this might exclude
facts from which significant information might be drawn, and these facts are
often found in unexpected places. At the beginning of the assignment, the
consultant may well cast his or her net fairly widely, rejecting some data after
preliminary examination, but adding other data, and so on.
In defining the scope of data the maragement consultant keeps in mind
that the purpose is neither research nor establishing responsibility for past flaws.
Diagnosis
"The purpose of diagnosis is to mobilize action on a problem. Action that will

improve the organization's f~nctioning."~
The facts to be collected and investigated have to be defined in closest col-
laboration with the client, especially with those members of the client organ-
ization who know what records are kept, how reliable they are, and what data
will have to be sought from other sources. This includes the definition of the
content of data, degree of their detail, time period, extent of coverage, and
classification and tabulation criteria, as described below.
Data gathering may be a lengthy process and in a complex case some logic
should be followed, e.g. by making sure that each step (finding data on marketing
and sales) provides information for the next step (data on production) and so on.
This should be reflected in a work plan to be agreed on with the client.
Planning for data gathering also includes deciding what aspects of the
problem and what relationships do not require detailed data. This concerns cases
when the consultant, thanks to experience, can arrive at reliable conclusions on
the basis of global data and through comparison with similar situations in other
organizations.
The client may not understand why the consultant insists on finding certain
sorts of information. This often happens if, in the client's opinion, the assignment
should be kept within a limited technical area and the consultant should not
become involved in other areas. The consultant has to explain why he or she
wants to obtain certain data on events, situations and problems that may be some-
how related to the problem at hand. This may make the client aware of relations
to which he or she was paying no attention, and provide further evidence of the
consultant's methodical approach.
Content of data
Every experienced consultant knows only too well that apparently identical
types of data may have a different meaning or content in different organizations.
For example "work in progress" may be defined in a number of different ways:
it may or may not include certain items, and its financial value may be
determined by various methods. The definition of categories of employees
(managers, technicians, supervisors, administrative personnel, production and
other workers, etc.) is also subject to many variations. In old firms with
established traditions definition is complicated by the existence of their own
jargon, which may differ from terminology prevailing in the industry to which
they belong. The uniformity of data used in the management of various
organizations will be higher in countries where accounting and reporting have
to observe government regulations. But even in these cases many differences
will be found, especially in the production area.
For quantities, the consultant specifies the units of measure, e.g. the number
of products, or their weight or volume, and sets the limits of accuracy, e.g. to
the nearest 100 or to the last unit. Accuracy depends upon the purpose for which
the data are to be used. Work study to set standard operating times may require
accuracy to the nearest second, with an error allowance of 5 per cent. By contrast,
a forecast of total volume of production per year may approximate to the nearest
thousand, with an error allowance of 10 per cent. If the consultant fails to set the
limits of accuracy before data are collected, he or she may not obtain what is
required and the recording process will have to be repeated, e.g. if operating
times are recorded in minutes or tenths or hu:ndredths of minutes, when seconds
are required.
Degree of detail
The degree of detail required for facts will generally be higher than that
needed for data used in preliminary diagnostic surveys. While general diagnosis
stems from aggregate figures (e.g. total time spent by machines on productive
work), change rests upon more detailed data (e.g. machining time for each
operation, or time spent on productive work by certain types of machines, or in
certain shops). Information on individual persons and their attitudes to the
problem concerned may be needed.
The more detailed the facts, the more ti me they will take to collect. At the
start of an assignment the consultant may have difficulty in evaluating the
advantages which detailed facts will yield. Hefore collecting the data he or she
cannot know what weaknesses or opportunities for improvement they will
reveal. He or she will probably point out problems that deserve close exam-
ination. Otherwise the consultant may first collect data in broad categories (e.g.
total number of days of sick leave taken by id1 workers). Analysis of these data
will suggest more detail for certain categories (e.g. number of days of sick leave
taken by each age group during the winter months). Data may thus be gathered
in several stages before the consultant has a sufficiently detailed picture of the
present situation to suggest ways of improving it.
Period of time
Defining the period of time is equally important. For example, to design
an inventory management system for finished products, the consultant must
know the number of products sold. For how many years must he or she calculate
the sales and at what intervals? The answer might be for each month over the
last three years. The period of time should be long enough to set a firm pattern
of activity, indicate rates of growth or declinz, and reveal fluctuations in activity
due to seasonal variations or economic cycles. A longer period will be chosen
in enterprises producing large capital goods: with a lead time of several years in
product design, manufacturing and installation, than in enterprises producing
current consumer goods.
Periods of time need to be comparable: months or weeks have to include
the same number of working days and so on. Periods when exceptional events
occurred should be excluded, but recognized and accommodated in the new
situation. Periods preceding major changes in operations (e.g. introduction of
new products and dropping of old ones) have to be examined separately from
periods of normal operation.
Diagnosis
The choice of a period close to the start of the assignment recognizes

that the mere presence of the consultant may affect the results. In a particular
instance, material wastage dropped substantially from the moment the con-
sultant began to ask questions about it and before he actually did anything.
Obviously the choice of the period of time takes account of the availability
of past records, and of changes that the client may have introduced in recording
procedures.
Coverage
When it comes to coverage, the consultant must decide whether to collect
total information (on all products, all employees, whole units and processes), or
a selection only. As a rule, information will be collected for the vital few items
that account for the bulk of activity in the current period, and for such items as
are likely to become vital in the future (prospective new products, etc.). If the
productive capacity is clearly limited by one group of machines which have
become a bottleneck, the solution of the problems of this group may be a key to
the solution of most other problems of the given department. In other cases, data
will be collected for representative samples.
Organization and tabulation of data

Finally, the preparatory work for fact collecting includes decisions on
organization and tabulation of data, which are made in the light of the ultimate
use of the data. Typical groupings are:
for events - time, frequency, rate, trends, cause, effect (e.g. number of
accidents resulting from specified causes that occurred each day of the
week during the past year);
for people - age, sex, nationality, family status, qualifications, occu-
pation, length of service, earnings (e.g. average annual earnings of female
employees with selected educational qualifications during each of the last
five years);
forproducts and materials -size, value, technical characteristics, source
(e.g. value of materials by type and size in the inventory at the end of the
last 12 calendar quarters);
0 for resources, inputs, outputs, processes andprocedures -rates of activity
(sale, consumption, production), location, control centre, geographical
distribution, use of equipment (e.g. numbers of specified parts produced
by selected processes during each of the last 24 months).
To arrange facts in digestible form the consultant plans how to tabulate
them. Descriptions and narratives may be noted under selected headings on a
separate sheet of paper or card for each heading (e.g. responsibilities of each
manager). Answers to a questionnaire can be tabulated on a "summary question-
naire", i.e. using the same form of questionnaire that will be distributed to
the respondents. Processes and procedures may be represented by a chain of
symbols, such as the activity symbols used by systems analysts or in work study.
Shapes are best shown on drawings. Figures are usually set out in table^.^
It may be useful to anticipate data prclcessing by a computer. This will
involve the selection of a suitable model and programme, or the elaboration of
a new one if none is available for the particular analytical purpose and the coding
of data for computer processing.
The consultant's preliminary notes will tend to be wordy and speculative
while he or she is feeling the way and getting the situation into focus. As the
course of the investigation becomes clearer, recording of the facts becomes more
systematic. General note-taking may give Wiiy to charting and other analytical
methods. The original decisions on tabulating and classifying data are verified
and amended.
The orderly way the operating consultant keeps his papers, and how he
files them for retrieval of information, will help him to keep on course and allow
for easy reference by the supervisor. The meaning of notes should be as clear
months after the event as when they were written. No figure should be recorded
without being precisely qualified by its term:<.
8.4 Sources and ways of obtaining facts

Sources of facts
By and large, facts are available to consultants in three forms:
- records;
events and conditions;
- memories.
Any of these sources may be internal (within the given organization), or
external (publications, statistical reports, data on customers and competitors,
opinions of people outside the organization)
Records are facts stored in forms that are readable or can be transcribed.
They include documents (files, reports, publications), computer files, films,
microfilms, tapes, drawings, pictures, charts, and so on. Facts from records are
obtained by retrieval and study.
Events and conditions are actions, and the circumstances surrounding
them, which can be observed. Hence facts of lhis kind are obtained by observing,
and recording the results of observations.
Memories are all the information stored in the minds of people who work
in the client's organization, are associated with it, or simply are able to provide
information of use to the consultant (e.g. fo: comparison). This encyclopaedia
of knowledge embraces hard proven facts, ~experiences,opinions, beliefs, im-
pressions, prejudices and insights. The mind stores all this data in the form of
words, numbers and pictures which the corsultant cannot see, but can obtain
from people by means of interviews, questionnaires, special reports, and so on.
Diagnosis
A skilful consultant will avoid having recourse to indirect and time-

consuming ways of collecting information if the same information can be
obtained directly and simply. In many cases this means - go and ask people.
People at all levels in industrial firms and other organizations possess an un-
believable amount of knowledge about their organization, and nearly everybody
has some ideas on needed and possible improvements. But they do not divulge
this information if they are not asked.
Retrieval of recorded data

Records are a prolific source of information, and some records will be
examined and studied in any management consulting assignment. Clearly, con-
sultants will give preference to the use of information which is already available
in records before looking to other ways of data collecting. There are, however,
certain pitfalls to be avoided in retrieving recorded data:
Many records are not reliable and give a distorted picture of reality. This
is common in such cases as records on machine breakdowns and stoppages,
or waste. Materials may be charged to products for which they were not
used. Factory plans and layouts may be claimed to be up to date but seldom
are. Organizational and operational manuals may include detailed des-
criptions of procedures which were abandoned long ago. Even fairly soph-
isticated computer systems may provide misleading data if inputs are
incomplete and unreliable. If the consultant or the client personally has
doubts, the validity of existing records should be verified before they are
used.
It is common in organizations, both business and government, to find that
various departments have different records on the same activities, inputs
or outputs. The departments may be more or less careful and disciplined
in record keeping. The records may differ both in the criteria used and in
the magnitude of the recorded data.
Criteria and values used in recording are modified from time to time and
the consultant must find out about all such modifications.
Special recording
Special recording can be arranged if information is not readily available in
existing records, or cannot be relied upon. It may be established for a limited
period, say a month or two, according to criteria proposed by the consultant. As
a rule, the client's employees working in a given area will be asked to record
data and pass them to the consultant. For economy reasons such recording should
be kept simple and last no longer than necessary for reliability. Everyone should
know at the start how long the period will be, and why special recording has to
be introduced.
Observing
Observing is the method the consultant uses to obtain information which
is not readily recorded. He or she is present while an event occurs (e.g. while a
manager instructs his subordinates, or while a worker performs a task), and uses
the faculties of sight and hearing to note how the event occurs, so that he or she
will be able to suggest an improved practice at a later date.
In process consulting, the consultant can observe management and staff
meetings during which it is possible to identify group processes and behaviours
that are related to the problem. Usually, the observation will be of groups, rather
than individuals. If, however, the purpose of the consultation is to help an
individual improve performance, then the otservation can focus essentially on
that individual. This would be the case where a high-level employee in the
organization has been experiencing interpersonal problems. This client may seek
an external consultant who could observe him or her in action in a variety of
situations, and provide help (e.g. by personal counselling) in improving the
interpersonal aspect of his or her manageme lt performance.
Alternatively, the consultant can observe socializing patterns. Where do
people gather to talk and exchange informat (on? Who has frequent working or
informal contacts with whom? Who is avoiding whom? What pattern emerges
from these contacts?
Information which the consultant usually obtains by observation includes:
0 layout of factory, warehouses and offices;
0 flow of operations, materials and people;
work methods, work pace and discipline;
0 working conditions (noise, light, temperature, ventilation, orderliness and
cleanliness);
attitudes and behaviour of higher and middle managers, supervisors, staff
specialists and workers;
interpersonal and intergroup relations.
Because most people feel uncomfortable under scrutiny, the consultant
must take special care to put them at their ease before starting to observe their
activities. First the consultant should tell thein what he or she is going to do. He
or she should never start watching workers or other employees without warning.
The consultant should explain the purpose cf the survey and make it clear that
it is in no way critical of particular persons but simply aimed at obtaining reliable
information on how the activity is performed. An exchange of views with those
under observation, allowing them an opportunity to point out all the factors
influencing the activity or the work relationships and inviting their suggestions
for improvement, will probably enlist their cooperation. As far as possible they
should behave normally under observation and make no attempt to give a better
or faster, or worse or slower, performance than usual. If there is any unusual
occurrence, the observation should be disregarded and repeated when conditions
return to normal.
Diagnosis
If procedures, operations and processes are observed, the consultant would

choose one of the many methods that have been developed for that purpose and
whose description is available in the l i t e r a t ~ r e . ~
Where the assignment deals primarily with human problems and relations
between individuals and groups, the consultant may have to explore the attitudes
and behaviour of the client's staff in depth. In other assignments he or she probes
less deeply into these aspects. Nevertheless, the consultant observes the
inclinations, preferences and prejudices of people to the extent necessary to
understand how these affect the problems he or she is concerned with, and to
enlist cooperation. Such observation continues throughout the assignment. It
starts during the introductory meetings when the consultant gains first im-
pressions. These will be verified during later encounters. To a considerable
extent the consultant gathers information on attitudes and behaviour as a by-
product of interviews to question memories, exchange ideas or develop
improvements. However, during interviews not directly concerned with personal
traits, the consultant would distract both himself and the client by writing down
his impressions. He should therefore make mental notes and only afterwards put
them into writing and classify them.
In doing this, the consultant will be interested in information such as:
experience;
beliefs;
degree of self-confidence;
ambitions;
likes and dislikes;
special interests or motives;
people the interviewee respects and those he or she doesn't;
sociability;
willingness to cooperate;
management style (autocratic, consultative, permissive);
extent of original thinking and innovation;
receptivity to new ideas;
motivation for change.
By taking such personal traits and attitudes into account, the consultant
will increase the chances of understanding factors that affect change in the client
organization.
Special reports
Individuals or teams in the client organization may be requested to help in
the assignment by giving thought to particular aspects of the problem and putting
suggestions on paper in the form of a special report. This would include any
supporting information that the author might be able to supply. This method is
selective - in cooperation with the client, the consultant would choose those
employees who are likely to have specific views on the problem in question,
who are aware of various pitfalls, and who are ii source of good ideas. If, however,
anybody in the client organization offers to prepare a special report on his or her
own initiative, this should be welcomed, although treated with some caution.
Questionnaires
In management consulting a questionnaire is useful for obtaining a limited
number of straightforward facts from a large number of people (e.g. in a market
survey), or from people widely separated from each other (e.g. reasons for
equipment failure from users throughout a whole region). They are generally
unsatisfactory for gathering all but simple facts.
The questionnaire may be distributed to correspondents with an
explanatory note asking them to complete and return it, or canvassers may
question people and note their answers on the questionnaire. Either case calls
for a full explanation, telling the respondent:
why he or she is being asked the questions;
who is asking them;
what the questioner will do with the replies;
who else is being asked.
Before drawing up the questionnaire the consultant decides exactly what
information is wanted, how it will be used, and how the answers will be sum-
marized and classified. Then precise, simple questions free from ambiguity are
framed. As far as possible, "yes" or "no" or numerical answers should be invited.
Where longer answers are required, it may be useful to provide a list of possible
answers and ask for the right one to be marked. Questions should be arranged
in logical order so that each answer leads to 1he next.
If there are some doubts about the respondents' ability to understand the
questions and give clear answers, the questionnaire should be subjected to
preliminary tests.
Interviewing
In management consulting, interviewing is certainly the most widely used
technique of data gathering, together with the retrieval of recorded data.
One advantage that questioning during an interview has over the use of
questionnaires is that every answer can be tested and elaborated. Questions
supplement and support each other, confirming, correcting or contradicting
previous replies. They also lead to related facts, often revealing unexpected
relationships, influences and constraints. The interview is flexible and adaptable.
If one line of questioning fails to produce required data, another can be tried.
This may be suggested by the interviewee's answers.
The consultant learns not only from the direct replies received but also
from the inferences, comments, asides, opinions, anecdotes, attitudes and ges-
Diagnosis
tures that accompany them - provided that he or she is alert and attentive. As
we know, non-verbal messages can be very significant!
In interviewing people the consultant is guided by general rules of effective
interviewing, which have been described in various texts6 Some more specific
experiences and suggestions concerning the use of interviews in management
consulting are given below.
In planning the interviews, the consultant determines what facts he or she
wants to obtain, from whom, when, where and how.
What facts. In setting down the facts needed the consultant takes account
of the knowledge he or she can expect the interviewee to have - for example,
a production manager is unlikely to know precisely what terms of credit are
extended to customers, while a district sales manager is probably not informed
about the planned maintenance of machines. For background information, a
general discussion may suffice. On the other hand, information that will help to
solve problems or develop improvements needs to be thoroughly examined,
probed and understood (e.g. workers' attitudes to simplifying working procedure
in order to raise output).
Who should be interviewed. Obviously interviewees should be those
dealing with the activities under study - for example, for billing procedures,
the invoice clerk should be the best source of information. To obtain full co-
operation and avoid slighting anyone, however, the consultant should first
approach the manager responsible and allow him or her to designate informants.
Later the consultant may refer to others to complement or confirm information.
During initial interviews he or she can ask who will have supporting information.
When to interview. Information gathered from interviews makes more
sense if it comes in logical order - for example, if products are known it is
easier to follow the operations for manufacturing them. Interviews should
therefore follow a sequence so that each builds on information derived from
those preceding it. They should be preceded by a careful study of records, so
that time-consuming interviews are not used to collect data available in another
form. The amount of time an interviewee can make available for the interview
and his state of mind cannot be ignored.
Where to meet. Selection of a meeting place takes into account the
following:
- proximity to the activity under study;
- the convenience of the interviewee;
- avoidance of noise and interruption.
Generally, people are more relaxed and communicative in their own sur-
roundings. They also have all information to hand there. Only if the interviewee's
workplace has serious drawbacks, such as noise, cramped space or frequent
interruptions, should the consultant invite him or her to meet elsewhere (perhaps
in the consultant's office at the client's premises).
How to proceed. Although the conduci: of an interview varies according

to the characters of the interviewee and the consultant, their relationship, and
the circumstances under which they meet, the guidelines summarized in box 8.4
usually apply.
In interviewing, the consultant may encounter unexpected resistance. This
can be expressed in many different forms: questions are not answered, answers
are evasive or too general, doubts are expressed about the usefulness of the
exercise and the consultant's approach, and similar (see also section 4.4). If this
happens, the consultant should quickly consider whether he or she is not
provoking resistance by aggressive or tactless questioning, or by asking ques-
tions that the informant considers banal or poorly prepared. It may be good
tactics to ask the informant directly about his or her feelings concerning the
interview: this may unblock the situation. There is, however, not much point in
pursuing an interview in which the informani clearly refuses to cooperate.
Data-gathering meetings
Another possibility in diagnosis is for ihe consultant to arrange a special
meeting, a sort of collective interviewing, the purpose of which is to generate
data related to the problem under consideration. Caution must be exercised, for
it is also possible for the meeting to move inlo discussing possible solutions in
general and in detail before sufficient data have been gathered.
Data gathering should involve all those who are related to the problem in
any way. Sometimes the consultant may suggest including others who are not
directly related, but whose presence could be helpful for data gathering. How-
ever, a data-gathering meeting should not be too large; this can inhibit some of
those present and prevent the sharing of needed information. It may be preferable
to schedule several small meetings in order lo offer the more intimate climate
essential for data gathering, and to hold separate meetings with people who
would not give their views openly in the presence of their superiors or other
colleagues (e.g. supervisors may speak more openly in a meeting where the
production manager and the personnel manager are not present).
Employee attitude surveys

Attitudes of people in the client organization play some role in most con-
sulting assignments. The consultant is alert to attitudes in observing operations
and processes, in interviewing people, and in any other contacts with the client
and the staff. There are, then, assignments where a special employee attitude
survey may be required. This may be necessary in assignments involving
changes in employment and working conditions if the consultant needs to
establish how people feel about present conditions and how they could react to
the change likely to be proposed. As a rule, a survey is more likely to be needed
in a larger organization than in a small one if it is suspected that different opinions
and attitudes exist, but the number of people concerned makes it difficult to judge
Diagnosis
-
Box 8.4 Principles of effective interviewing
(1) Before the interview
Prepare questions likely to reveal the required facts (the list will merely serve
as a guide and a check that the interview covers all the necessary ground, and
will not prevent the exploration of related topics).
0 Inform yourself about the interviewee's job and personality.
0 Inform the interviewee of the purpose of discussion.
(2) During the interview

Give further detailed explanations to the interviewee at the beginning and
request help in solving the problem.
Start the interview in a relaxed and pleasant atmosphere, making sure that you
break the ice at the opening.
Ask questions likely to lead towards required information, allowing the
informant to follow his or her own line of thought so long as it does not stray
too far from the subject under review or become too trivial.
Encourage a spontaneous flow of information by asking further questions,
making judicious comments supplementingthe interviewee's statements, and
showing interest by smiling, nodding, mentioning that information is really
interesting and new to you, etc.
Exceptfor such encouraging interjections, don't interrupt.Don't appear critical
of the way things are done now since this may antagonize the informant. Don't
argue and don't jump in with suggestions for improvements.
When the questions are answered vaguely, pursue them in a non-aggressive
and pleasant way until they are fully clarified.
Be alert to non-verbal messages, feelings and impressions.
Note facts and opinions during the interview (with the respondent's
agreement), note impressions and feelings after the interview.
Before leaving, confirm what you have noted. Thank the informant for help,
thus leaving the way open for further interviews if necessary.
(3) After the interview

e Read over the notes of the interview, list points to be checked and transcribe
reliable information in the assignment's classified data record.
If appropriate send the interviewee a typed summary for verification.
Use informationfrom one interview to prepare questions (e.g. cross-checking
or tentative) for other interviews.
the relative importance of different attitudes without surveying them in a sys-

tematic manner.
The organization and the techniques of attitude surveys are described in
specialized publication^.^ If he or she is competent in this area, a man-
agement consultant may undertake such a survey. Alternatively, the consultant
can turn to a specialist in social and behavioural research. The main techniques
used would be those described above, including observation, interviews and
questionnaires. There are, too, special techniques, used for instance in socio-
metric studies or motivational research. Their effective use requires special
training, but they would not be needed in most management consulting
assignments.
Estimates
An estimate is makeshift and never fully replaces established data. Only
when proven facts are not available, or for some reason are difficult to obtain,
should the consultant consider estimates.
Estimates are best made by people performing the activity concerned, who
have first-hand knowledge and who, in addition, will more readily accept
proposals based on data they themselves have supplied. But wherever possible
estimates should be obtained from more than one source and checked. If there
are significant differences, the informants themselves should try to resolve them.
If they cannot do so, a test may be applied, observations taken, or special re-
cording installed.
The consultant may accept the client's estimates:
0 in respect of facts familiar to the client (e.g. frequent machine operations,
or regular patterns of work);
0 on aspects of the present situation that need not be precise (e.g. percentage
of total costs represented by administrative overheads, in order to decide
whether to control these costs closely);
to indicate whether further observation would be rewarding (e.g. incidence
of machine breakdowns, or stock-outs of finished products);
0 to ascertain whether benefits from improvements are worth more accurate
measurement (e.g. savings from substi1:ute materials or change of product
design);
0 where the estimate can be tested (e.g. if estimates of operating times to be
used for production planning and control would result in a product cost
permitting the client to sell at a fair profit).
The last example illustrates a sound use for estimates. For both control of
production and control of costs it is necessary to know for each product the
quantity of each material used in production, and each manufacturing operation
and the time taken to perform it. Obtaining all this information by observation
and measurement is a lengthy and painstaking task which would cause long
delay in installing controls. Supervisors, technicians and workers, however, can
provide close estimates because they are familiar with the materials and oper-
ations. From their estimates a product cost can be calculated. If this permits the
client to sell the product at a fair profit, estimates can be used to start production
control and cost control systems. Later, precise measurements can replace the
estimates and improve controls.
Before using estimates the consultant checks their validity against proven
experience. An effective way of doing this is to use a known total volume,
Diagnosis
quantity, or cost for a recent period or a known capacity. This is compared with
the measurement or capacity that results from multiplying an estimate for a
single item by the total number of items. For exa~nple,the estimated quantity of
material required to manufacture a product is multiplied by actual numbers
produced during a recent period. This is compared with the quantity of material
actually issued from store to production.
Another means of checking estimates is to compare them with data
recorded elsewhere. Such a comparison must be made with care and will only
be valid if the data being compared relate to identical circumstances. Data for
comparison may be found in trade publications, in the files of the consulting
organization or from organizations that have agreed to collaborate in
benchmarking projects.
In addition to checking the validity of estimates the consultant needs to
consider the degree of error they entail and decide whether this is tolerable.
Where there is a strong probability that the error will remain within the limits
of tolerance, the estimate will be used. For example, procedures can be installed
to trigger remedial action by management when the limit is reached. In an
opposite case the consultant has to devise ways of obtaining more precise and
reliable data instead of using an estimate.
Estimates often concern data on developments and trends that are
independent of the enterprise concerned (e.g. market prices, energy prices,
transportation tariffs, exchange rates, interest rates, inflation). Many of these
estimates can be obtained from competent specialized sources, such as
government agencies, banks, business research institutes, or financial and
market analysts. The consultant should choose an external source of estimates
with extreme caution, bearing in mind that not all sources are equally reliable.
It is good to know how the estimate was made -is it a "best guess", a common
opinion shared by many experts on the topic, or was a forecasting model used?
On what concepts was that model built? In particular, the consultant should never
blindly accept, and provide to the client, estimates on the basis of which the
client will have to make important investment and financial decisions. This does
not mean that all risks can be eliminated, but the use of false information must
be avoided.
Cultural issues in data gathering

Sensitivity to cultural factors, a general characteristic of excellence in
consulting (see Chapter 5), is very important in data-gathering activities, in
which the consultant interacts with many different individuals and groups in the
client organization. In this respect the consultant must keep in mind both the
country's and the organization's culture (box 8.5, overleaf). Even the particular
micro-culture in different parts of an organization can be expected to influence
how an interview is conducted or whether the group can be observed during
work. It may be difficult and time-consuming for the consultant to determine
the cultural norms of different groups, but it is essential.
Box 8.5 Cultural factors in data gathering

In many countries, the interview cannot possibly start until the host (res-
pondent or consultant) has first offered a beverage to the visitor.
There may be cultural biases that hamper the use of a data-gathering
technique. In a country where English was not the first language, a consultant
went through the usual steps in preparing a questionnaireto be administered
to a large group of people. When the data were reviewed, the unanimity of
responses was surprising.As the consultant pursued this with some members
of the client system, he discovered that it was the custom in that country for
those answering a questionnaire to provide the information that they thought
was wanted by those administering the questionnaire. It would have been
impolite to do otherwise! The respondents had all shrewdly determined the
kind of answer the consultant would want and had provided it.
In a Muslim country, a consultant was on an assignment that required
gathering data from workers, some of whom were female. When the interview
was held, the consultant was surprised 63 find that the respondent brought
along another woman, even though the consultant was herself a woman.
Obviously, having another person present during the interview raised a
question as to the validity of the data. After several interviews had been
conducted, the consultant discussed this with the client. Only then did she
learn that in that Muslim country (and there are differences among Muslim
groups) a woman was not permitted to converse with a stranger, even another
female, without an older female from her own household being present.
8.5 Fact analysis

Data cannot be used without analysis, whose purpose goes beyond research
and appraisal. The ultimate aim of the consulting process is to initiate and im-
plement change, and fact analysis should bring us closer to achieving this.
A correct description of reality, i.e. of conditions and events and their
causes, is therefore only one aspect of analysis. The other, more important aspect
is to establish what can be done, whether the client has the potential to do it, and
what future benefits should be obtained from the envisaged changes.
There are, therefore, no clear-cut limits between analysis and synthesis.
Synthesis, in the sense of building a whole from parts, drawing conclusions from
fact analysis and developing action proposals, starts somewhere during fact
analysis. Thus, fact analysis evolves gradually to synthesis. Indeed, to an experi-
enced consultant analysis and synthesis are two sides of one coin, and he or she
applies them simultaneously. The consultant does not have to discover new
wholes by combining parts each time he or she undertakes an assignment -
theoretical knowledge and practical experience help in synthesizing while he or
she is analysing.
If the consultant knows a general rule and can establish that the problem
observed falls under that rule, he or she will apply the deductive method. Instead
of collecting and analysing a vast number of facts in order to establish what rule
applies in a given case, he or she will proceed in the opposite direction, assuming
Diagnosis
that the relationships described by the rule also exist in the case being dealt with.
But the consultant has to avoid the traps that data and past experience may set
for him or her, such as the temptation to draw hasty conclusions from super-
ficially analysed facts and allow ideas to become fixed before examining facts
in depth ("This is exactly the same case I have seen many times before!"). Put
in other terms, it is not possible to use deduction where induction applies, and
vice versa. In practical consulting work, the two methods are combined and
complement each other as analysis and synthesis do.
Box 8.6 A minicase of fact analysis

In a manufacturing enterprise, production records and observations have indicated
that an important share of productive capacity is wasted owing to machine
breakdown and stoppages. Waiting for the arrival of qualified repair workers has
been given as a cause of the length of stoppages -in fact, the maintenanceservice
is physically centralized in one place and organized in one unit reporting to the
production manager, although the enterprise has a number of workshops located
in various parts of a vast urban area. The consultant is tempted to suggest a
decentralized organization of maintenance (e.g. a repair worker in every shop, or
several maintenance centres each located close to a group of shops). In this
connection, the consultant gives consideration, among other things, to repair
workers' waiting time, since decentralization would increase their number and full
use of their time could not be guaranteed. The next step reveals that the production
manager is opposed to decen%alizationof technical support services and generally
refers their centralization. For a while the consultant is tem~ted
to see this attitude
i s a major obstacle to solving the problem. But he hits on the idea of re-examining
the technical causes of machine stoppages and the attitude of workers to machine
breakdown. He collects more data and discovers that the wages of machine
operators are not related to the effective working time of the machines. He also
finds that most stoppages are caused by minor faults, and that the operators could
easily be trained to remove certain defects themselves. In his proposals, the
consultant finally concentrates on changes in the wage system in order to motivate
workers to keep machine stoppages to a minimum, on training operatives in minor
maintenance and repairs, and on some adjustments in the functions of the central
maintenance service.
Editing the data

Before being subjected to the analytical operations described below, data
need to be edited and screened. This includes checking their completeness,
verifying clarity of recording and presentation, eliminating or correcting errors,
and making sure that uniform criteria were applied in data gathering.
The most obvious case is that of recording a production operation: if 19
recordings show a duration of between four and five minutes, one recording
indicating 12 minutes cannot be used for calculating an average figure. But this
happens in quite different contexts - for example in accounting, where
overhead costs may be inaccurately distributed among various products, or
where one account may include items which should be put in a different account.
Cross-checking helps in some instances: for example, in the case of

information obtained in an interview, which can be verified by subsequent
interviews. In other cases there is no possibility of cross-checking and it is the
consultant's experience and judgement, together with advice sought from the
client's staff, that help to "clean" the data prior to using them for analytical
operations.
Classification
The classification of data was started before the beginning of fact finding
by establishing criteria for the organization and tabulation of data (section 8.2).
Further classification, and adjustments in clas3ification criteria, are made during
fact finding (e.g. the consultant decides to use a more detailed breakdown of
data than originally planned) and after it. If facts are recorded in a way which
enables multiple classification (e.g. in a computer), the consultant can try several
possible classifications before deciding which one is most relevant to the purpose
of the assignment.
Both quantified and other information n,:eds to be classified. For example,
if complaints about the shortage of training opportunities come only from certain
departments, or from people in certain age groups, the classification must reveal
this.
The main classification criteria used by consultants are:
0 time;
0 place (unit);
0 responsibility;
0 structure;
0 influencing factors.
Classification of data under time indicates trends, rates of change, random
and periodic fluctuations.
Classification by place or organizational unit helps in examining problems
of various parts of the organization and devising solutions related to specific
conditions of each unit.
Classification by responsibilityfor fact:; and events is a different question
- in many cases responsibility is not identical with the place (unit) where a fact
has been identified. The consultant may need to identify responsible organ-
izational units and/or particular persons in these units.
Classification according to the structure of entities and processes is an
essential one and uses a number of criteria. Employees, materials, products, plant
and equipment, customers, and so on, can be classified from many different
points of view. An important objective in this case is to define how changes in
components affect the magnitude of the whole entity, and to direct action towards
those components which have major influence on total results. For example, the
total lead time of a steam turbine may be determined by the machining and
assembly time of one component - the rotor. Classification of customer
Diagnosis
complaints by products or production units indicates where to focus quality

improvement efforts.
Operations in a production process can be classified according to their
sequence in time and presented in a table or diagram, or on the plan of the
workshop (which makes it possible to indicate the directions and distances of
material movements in reduced proportions). Organizational relations and
informal relationships in organizations can be classified by means of charts,
diagrams, matrix tables, and so on.
Classification by influencing factors is a preparatory step in functional and
causal analysis. For example, machine stoppages may be classified by factors
that cause them: lack of raw material, break in energy supply, absence of worker,
delay in scheduling, lack of spare parts, and so on.
In many cases simple classification (by one criterion) does not suffice:
cross-classification is used, which combines two or more variables (e.g.
employees classified by age group, sex, and length of employment with the
organization).
Analysing organized data

Data that have been prepared and organized by classification are analysed
in order to identify relationships, proportions and trends. Depending on the
nature of the problem and the purpose of the consulting assignment, a variety
of techniques can be used in data analysis. The use of statistical techniques is
common (averages, dispersion, frequency distribution, correlation and
regression), and various other techniques, including the use of mathematical
modelling or graphical techniques, are often used. The reader is referred to
specialized literature for detailed discussion of these.
Statistical and other quantitative analysis is meaningful only where
qualitative relations can be identified. For example, association between two
variables can be measured by correlation, but correlation does not explain the
nature and the causes of the relationship.
The main objective is to establish whether a specific relationship exists
between various factors and events described by data and, if so, to examine its
nature. If possible, the relationship is quantified and defined as a function (in
the mathematical sense of the term), where one or more dependent variables are
in a specific relationship to one or more independent variables. The purpose is
to discover and define relationships which are substantive and not just accidental.
For example, the consultant may find out from data gathered in various firms
that the cost of a major overhaul of machine tools is in some relationship to their
purchase price. If such a relationship is defined as a function, the consultant can
forecast the cost of overhaul and its influence on production costs in other firms
using similar equipment.
Using ratios
A common way of expressing and measuring relationships is ratios. They
may test whether inputs to an activity generate commensurate outputs, examine
whether resources and commitments are properly balanced, or express the
internal structure of a particular factor or resource.
In detailed analytical work the ratios of global aggregate data may be
broken down into analytical ratios. For example, a series of ratios is often used
to measure labour productivity:
where V = value of production,

E = total number of employees,
DH = total direct labour hours,
PW = total number of production workers,
W = total number of workers.
There are no limits to the construction of detailed analytical ratios in any
business and any functional area of management. Here again, working with a
quantitative ratio makes sense if there is some qualitative relationship, and if
using a ratio makes the analysis more meaningful by measuring this relationship
and comparing it to a standard or another kmwn case.
Causal analysis
Causal analysis (see also box 8.7) aims lo discover causal relationships be-
tween conditions and events. It provides a key to planning change and improve-
ments. If causes that have brought about cer~.ainsituations, results or problems
are known, these causes can be examined in greater depth and action can focus
on them.
But how do you discover that there is a causal relationship? Remember
that in most cases you would start the investigation with one or more hypotheses
as to what the cause(s) of a problem may be. As a consultant, you are approaching
causal analysis with a certain amount of knowledge and experience. Therefore
you may have an idea about possible main causes - and to confirm this you
need to have a comprehensive, synthetic view of the total process or system you
are examining, and of the whole organizational context.
Only rarely would a consultant face situations in which unusual causal
relationships would be discovered. But this happens as well; for example, a
consultant from an industrialized country working in a developing economy may
discover causal relationships between certain cultural factors and the economic
performance of an organization which are unknown to him from his previous
studies and work (such as different causes of absenteeism, or ethnic factors
affecting the distribution of roles within a factory).
Diagnosis
Box 8.7 Difficulties and pitfalls of causal analysis

Cause and effect. Frequently conditions are observed that influence each
other and there is a risk of mistaking an effect for its cause. A typical example
is the relationship between poor staff morale and low performance of the
organization. Is poor staff morale a cause of low business results, or do low
results depress the staff and lower morale? If a static view is taken, these
conditions influence each other, and there may be a vicious circle; but which
condition is the cause of the other?
Basic or primary cause. Suppose that the consultant establishes that falling
sales and profits are the cause of low staff morale. What then is the cause of
poor business results? The consultant finds out that it is the loss of an
importantforeign market. But why was that market lost? It was lost owing to a
serious mistake in pricing policy. Why was that mistake made? And the
exercise goes on . . .
In diagnosing business and management problems, consultants face chains
of causes and effects. The issue is how deep and how far to go in looking for
basic (or primary) causes. Here again, it helps to keep the purpose in mind.
The consultant will have to consider one cause as basic. It will be "relatively"
basic. As a rule, it will be one upon which the client will be able to act. The
consultant will thus be able to propose solutions that will address fundamental
causes, without suggesting the impossible.
Multiplecauses of one effect. A problem frequently has two or more causes,
although one of the causes may be more important than the others. This is
often observed in personnel problems (a manager's behaviour and
performance are affected simultaneously by problems encountered in the
office or at home), or in organizational problems caused by parallel but
independent events (e.g. changed foreign-exchange rate and death of an
outstanding marketing manager).
Multiple effects of one cause. The opposite also happens frequently: one
condition is found to be the cause of a number of effects. For example, the
existence of a political or ethnic clique in an organization can be the cause of
numerous personnel, managerial and performance problems.
Cause or culprit? The temptation to designate a person responsible k r the
existence of a problem may be strong. While this may be inevitablein instances
of flagrant mismanagement or personal irresponsibility,in most situations the
identification of a real cause will thus become more difficult and resistanceto
change will increase.
It is always necessary to proceed very methodically, examining in detail,

on the basis of the information collected, whether a hypothetical cause could
really have created the effect actually observed. A theoretically ideal situation
is one in which the removal of one hypothetical cause does not result in the
disappearance of the effect, indicating that we have not found the main cause.
For example, in a workshop with bad working conditions workers get tired
quickly and every day the output drops considerably after three or four hours of
work. If these conditions (eg. ventilation or lighting) are changed and output
does not increase, or only very slightly, we have to look for a different cause. It
may be malnutrition. Bad working conditions may aggravate the situation, but
are not its main cause.
Unfortunately, to experiment by removing one or more hypothetical causes
is not possible, or would be too lengthy and costly, in dealing with management
and business problems. In most cases it is the quality of diagnostic work that has
to eliminate some hypothetical causes and establish the real one.
Force-field analysis
A possible way of looking at relationships and factors affecting change is
force-field analysis, developed by Kurt Lewin (figure 8.1). In this concept, the
present state of affairs in an organization is thought of as an equilibrium main-
tained by two sums of forces working in opposite directions: driving (impelling,
helping) forces move towards change, while restraining (impeding, hindering)
forces hamper change.
Figure 8.1 Force-field analysis
Degree RESTRAINING FORCES

of strength
of forces
Present forces Future forces
100"-
80"-
Improved
level of
60"-
fun1:tioning
40"-
20"-
Present
level of --
functioning
20"-
Future forces
40"-
60"-
80"- 'resent forces
looo, DRIVING FORCES
In analvtical work, these two sorts of forces have to be identified and the
relative strength of each force assessed. Change occurs when imbalance is
created between the two groups of forces (e.g. by adding one or more new forces,
or increasing or decreasing the strength of a.1 already existing force). When a
new state of affairs is attained, a new balance between driving and restraining
forces is established. And the process continues.
Diagnosis
Comparison
Comparison is an essential analytical tool, closely interlinked with the
methodological tools discussed above. The principal alternatives for comparison
which are commonly used in preliminary diagnostic surveys were mentioned in
section 7.2. In detailed diagnostic work the same alternatives apply, but in
addition to global appraisal, comparison is used to examine operating details
and develop solutions. The various bases for comparisons made within the client
organization are represented in figure 8.2. The consultant can compare C with
A, C with B, C with D, E with C and so on.
Figure 8.2 Various bases for comparison
potential achievement
Progressive
improvement
potential achievement
real achievement
real achievement
Time +
Of special interest is comparison which helps to establish future standards

(of potential achievement) and thus provides guidance for the development of
future-oriented proposals. It is particularly in this connection that comparison
turns to examples, models and standards from outside the organization and even
outside the sector and country. The consultant considers whether the diversity
of conditions permits such comparison, especially if this is to be used for more
than general judgement - namely for specific suggestions to the client as to
what he or she should do.
Interfirm comparison is often used to assess global performance indicators
against comparable data from other firms, or against sector standards. Bench-
marking is a more analytical technique owing to its focus on specific processes,

operations and functions within organization:;. It has been used by many firms
to identify standards achieved by other organizations collaborating in the same
benchmarking project or scheme, compare experiences and conditions, and
develop specific proposals for improvements (see also section 4.6).
Analysing the future

Owing to its focus on action and results, all consulting work must be essen-
tially future oriented. Whether the consultant works for a client struggling for
survival or for a highly profitable company looking for new business oppor-
tunities, the key questions will always be: What will be our future opportunities?
What shall we do in the future to achieve our purposes? Shall we focus on cor-
recting past errors or shall we take a completely new path?
This future orientation gives a particular slant to fact analysis. For consult-
ants have to collect or establish data on a siruation that does not yet exist, in
addition to collecting data on existing realities. They have to assess these data
and recommend desirable courses of action that the client should take.
This statement is not exactly correct, sir ce the future is related to the past
and to the present. Many future events and relationships can be predicted. It is
therefore essential to analyse trends in data describing the environment and the
organization concerned. All consultants are interested in trends, whether the
assignment deals with business strategy or with a narrower technical problem
such as simplifying production records.
Unfortunately, the most common approach to future-trend analysis is
simple extrapolation. We tend to think of the future as a mere extension of past
trends, because we are unable or unwilling to ~sonsiderwhether these trends will
really continue and what new developments may alter them radically. In periods
of rapid technological, social and other changes -and we are living in one such
period - it is normal for past trends not to continue into the future without
substantial alterations.
Data on future trends collected from various external sources of informa-
tion have to be examined cautiously and their reliability needs to be assessed.
For example, a consultant working for a client enterprise with highly energy-
intensive production processes obtains information on new power-generating
capacities in construction, on their planned completion dates and on foreseen
changes in the price of electricity. He should know that new power plants can
be years behind schedule, that their actual cost tends to be higher than the original
projected cost and that the price of energy will depend on many variables,
including the government's tax policy. How l ~ i lthisl affect the future develop-
ment structure of costs in a client organization which is a major consumer of
electricity? It may be necessary to develop alternative plans and estimate with
what probability they are likely to become a -eality.
Careful analysis is required when think]ng of future developments within
the client organization. These developments will be affected by environmental
changes. For example, in analysing the time dimension of a product-life cycle
Diagnosis
it is necessary to consider whether the curve which is usual in a given sector

applies, or whether progress in technology imposes the use of a different curve,
as has been amply documented by the pace of developments in the computer
industry.
The same applies to ratio analysis. Some ratios may become less important
or even meaningless. In retail selling the ratio of sales per employee retained its
meaning with the transition from small shops to department stores, super-
markets and self-service. However, it is losing its meaning with the advent of
automatically controlled sales surfaces if even the cashiers are replaced by
electronic control and billing equipment. Ratios such as sales per square metre
of selling surface, or sales per $1,000 of invested capital, become more sig-
nificant. In general, ratios permitting the assessment of total factor productivity
are becoming more important than labour productivity ratios, and so on.
Synthesis
To a management consultant the analytic method and the synthetic method
are two sides of one coin. As fact analysis is progressing, the consultant's
approach will increasingly involve synthesis - he or she will be identifying
basic relationships, trends and causes, differentiating between fundamental and
secondary events and factors, and defining factors and conditions that have to
be changed if a whole process or organization is to change. In particular, the
consultant operates as a synthesist when looking ahead and helping the client to
define an action programme for preparing the future of the organization.
In management and consulting practice, synthesis is considerably more
difficult than purely analytical work. Many bulky analytical reports are difficult
to use, although they are based on vast numbers of facts and define long lists of
problems. But they lack synthesis and key measures are not identified. As all the
measures proposed cannot be introduced at the same time or with the same
vigour, action starts in a haphazard way or is soon abandoned.
The spirit to synthesize and skill in synthesis are not given to everybody.
Using synthesis is probably one of the main things that a new management
consultant has to learn. Of course, consultants are not the only people who may
have problems with synthetic thinking and using the synthetic method effec-
tively. As Alvin Toffler has pointed out:
Our civilization placed an extremely heavy emphasis on our ability to dis-
mantle problems into their components: it rewarded us less often for the ability
to put the pieces back together again. Most people are culturally more skilled
as analysts than synthesists. This is one reason why our images of the future
(and of ourselves in that future) are so fragmentary, haphazard and wrong . . .
Today we stand on the edge of a new age of synthe~is.~
Synthesis is the aspect of diagnostic work that provides a link with the next
phase of the consulting process - the action-planning phase, which will be
discussed in Chapter 9.
8.6 Feedback to the client

Throughout this chapter we have been referring to the desirability of
actively involving the client in data gathering and other diagnostic operations.
The objective is to build a truly collaborative consultant-client relationship at an
early stage of the assignment, and to prevent various negative attitudes and
reactions on the part of the client. These are difficult to avoid if he or she is
poorly informed about what is actually going on, and if the consultant's findings
and conclusions come as a surprise. We have mentioned, too, the need to give
feedback to the client during the diagnostic ph.ase.
What is giving feedback?

Giving feedback provides the client with information that can:
tell the client something new and meaningful about his or her organization;
0 make the client aware of the approach taken by the consultant and the
progress made in the investigation;
0 increase the client's active contribution to the assignment;
help the consultant to stay on the right track, or reorient the investigation
if necessary.
The notion of feedback implies that it concerns not just any useful
information, but information collected, analysed and selected by the consultant
while working with the client.
Feedback used during diagnosis is itself a diagnostic method. The
assumption is that properly selected and presented information will provoke
some reaction on the part of the client, and so you should keep firmly in mind
what reaction you want to generate:
- Do you need more information on the topic?
- Do you seek information on a new topic, about which the client was
reluctant to speak?
- Should the client criticize your data?
- Do you want to shake up a lethargic client by showing alarming data?
Giving feedback to the client is simultaneously an intervention technique
used to stir up change:
0 Is this what is wanted?
0 Do you have enough reliable informaticln to feed back to the client with
the intention of stimulating change?
0 Is there is a risk of generating premature changes?
Should the client be warned against this risk?
Diagnosis
When to give feedback

Feedback is more than reporting on the work performed. Therefore it
should be given at moments when it can serve a specific purpose. An example
is when feedback shows the client that the data collected so far indicate the
existence of some new problem or opportunity, not foreseen in the negotiation
and planning of the original assignment, or when the consultant feels that he or
she has enough information to eliminate certain hypotheses formed at the
beginning, but prefers to discuss this with the client. A consultant who pursues
the strategy o f " many small steps" may give feedback each time he or she has
enough information to decide on the next step to take.
To whom to give feedback

In principle, feedback should be given to those from whom the consultant
expects further help, more information, or some action related to the problem
concerned. It is often emphasized that if feedback is too restrictive (reserved to
selected individuals or small groups of senior managers), it is unrealistic to
expect that other people will be interested in helping the consultant. Some
authors regard this as a question of consulting ethics: if people readily provide
information and demonstrate their interest in the assignment, they have the right
to receive feedback on what has been done with their information. In theory, all
people interviewed should thus receive some feedback fairly soon after the
interview.
In practice there are limits to this. Some information will clearly be
confidential and cannot be divulged to a large number of employees. Deciding
who should be informed on the consultant's findings, and at what stage, is also
a question of consulting tactics. For example, individuals who originally refused
to give information to the consultant may change their attitude if they see that
the consultant is sharing information with them.
What feedback to give and how

The consultant wants to show that he or she has not been wasting time and
has important information to share. But the purpose is not to impress people.
The consultant should be selective, sharing information that is meaningful, about
which the client is likely to be really concerned, to which he probably will react,
and which will activate him.
Giving feedback is not telling the client what he or she knows. This is a
general rule, to be consistently observed in reporting and communicating with
the client. But when the information collected contains factors that are genuinely
news to the client, or shows unsuspected links between effect and cause or hidden
strengths and weaknesses, it is wise to give feedback on these issues.
Giving feedback is not evaluating the client. Therefore, the consultant
avoids value judgements; it is the client who should be able to draw such
conclusions from information chosen and presented to him in an impartial
manner. The purpose should always be kept in :mind. For example, it is not good
tactics to speak only about problems and diffiiiculties, and more problems and
more difficulties, encountered by the consultant. Feedback should also point to
the client's problem-solving potential, and suggest strong points that might be
developed.
Form of feedback
The need for careful preparation of the data and of the form of feedback
to be used cannot be overemphasized.
Individualized oral feedback to important members of the client organ-
ization is very common. Another form is written information (e.g. interim reports
or memos). Many consultants like to use feedback meetings with various groups
in the client organization. These meetings can provide valuable additional
information and help the consultant to focus the investigation on key issues.
They invariably reveal attitudes to the problem at hand and to the approach taken
by the consultant.
Closing the diagnostic phase

The end of the diagnostic phase provides an important opportunity for
feedback. Before submitting a diagnostic report, consultants may find it useful
to suggest one or more feedback meetings to review the main findings; this may
help them to identify the last gaps in the anal,ysis, and also prepare clients for
the conclusions that will be formally presented to them.
Even if the assignment is to continue (i.t:. if it is clear that there will be a
smooth transition from the diagnostic work to action planning and then to
implementation), there may be a good case for submitting a progress report at
what is ostensibly the end of a predominantly diagnostic stage in an assignment.
The period of obtaining and examining facts may have been lengthy, and costly
to the client. Many managers may not have been involved very deeply, although
they are interested in what the assignment will produce. A good progress report
will certainly be welcomed. It should tell the client clearly how the work was
focused, whether diagnosis has confirmed the choices made or discovered new
problems and opportunities, and how the work on action proposals should be
oriented.
There are, then, assignments that will have no further phase, such as
management audits and comprehensive diagnostic studies of organizations, in
which the consultant is required to establish and analyse facts, but for some
reason the client does not want him to go beyond this point. In such cases
the diagnostic report will also serve as an end-of-assignment report (see Chapter
11).
If the assignment is to continue, obtaining the client's agreement before
embarking on action planning (e.g. on designing a new information system or
workshop layout and planning its application) is essential. Consulting contracts
Diagnosis
often specify in detail what exactly will happen at the end of the diagnostic phase,
before deciding if and how to pursue the assignment.
This section is inspired, with the acknowledgement of the origin, by the discussion of the
"purpose principle" in G. Nadler and S. Hibino: Breakthrough Thinking: The seven principles of
creative problem solving (Rocklin, California, Prima Publishing, 1994).
Jerome H. Fuchs addressing the Society of Professional Management Consultants in New
York.
P. Block: Flawless consulting: A guide to getting your expertise used (Austin, Texas,
Learning Concepts, 1981), p. 141.
Many books on business research methods are available on the market. For various methods
of representing work processes see G. Kanawaty (ed.): Introduction to work study (Geneva, ILO,
4th (revised) ed., 1992). See also S. Nagashima: 100 management charts (Tokyo, Asian
Productivity Organization, 1987).
See, e.g., Kanawaty, op. cit.
See M. Kubr and J. Prokopenko: Diagnosing management training and development needs:
Concepts and techniques, Management Development Series No. 27 (Geneva, ILO, 1989), or
J.-Quay: Diagnostic interviewing for consultants and auditors (Columbus, Ohio, Quay Associates,
1986).
See, e.g. T. K. Reeves and D. Harper: Surveys at work: A practitioner S guide (London,
McGraw-Hill, 1981).
W. Toffler: The third wave (London, Pan Books, 1981), p. 141.
ACTION PLANNING
With action planning the consulting process enters its third phase. This
phase includes developing solutions to the problem diagnosed, choosing among
alternative solutions, presenting proposals to the client, and preparing for the
implementation of the solution chosen by the client.
The continuity between diagnosis and action planning cannot be over-
emphasized. The foundations of effective action planning are laid in excellent
diagnostic work, i.e. by defining and analysing problems and purposes as well
as the factors and forces that stimulate or hamper the change process in the client
organization. Diagnosis provides basic orientation for action-planning efforts.
However, despite this emphasis on continuity and on the need to base action
planning on diagnosis, there are significant differences in approach and method-
ology. The emphasis is no longer on analytical work, but on innovation and
creativity. The objective is not to find more data and further explanations for the
existence of one problem or another, but to come up with something new.
Obviously, not all solutions to clients' problems will involve totally fresh ap-
proaches. Often there will be no need to develop a new solution from scratch
because a suitable one already exists somewhere else. Yet, even transfer and
adaptation require imagination and creativity. Ignoring the uniqueness of the
client's condition and mechanically transplanting solutions that have worked in
other organizations is one of the worst (though not one of the rarest) consulting
mistakes.
It is highly desirable that in action planning the client's involvement should
become even more active than in the diagnostic phase. There are several reasons
for this:
- extensive conceptual, design and planning work on one or a small number
of alternative solutions should not be undertaken if it is not certain that the
client is fully familiar and in complete agreement with the approach taken,
and will be able to go along with the alternatives that are being pursued;
this agreement can best be established by working jointly with people who
are in a position to ascertain what the client organization will accept and
be able to implement;
- action planning requires mobilizing the best talents and examining all good
ideas; it is ineffective if the client organization's talents do not contribute
to this effort;
- as with diagnosis, the client's personnd can do a great deal of design and
planning work with backstopping from the consultant, thus reducing the
cost of the project;
- participation in action planning generates commitment that will be necess-
ary, and put to a test, at the implementation stage;
- lastly, action planning provides a new range of learning opportunities for
the client; these opportunities are even more interesting that those offered
by diagnosis, but will definitely be lost if the consultant is left to proceed
alone.
Once more, the reader should refer to section 4.6 describing various inter-
vention techniques for assisting change. Some of these techniques can be used
for working on action proposals in a team with the client and his or her staff.
Time may have become a constraint. I n many assignments too much time
is spent on collecting and examining facts, and when it comes to the development
of proposals there is a general desire to finish the project as soon as possible.
The consultant is left with little time to prepz.re alternatives and rapidly develops
only one solution. But even work on one p-oposal may have to be concluded
somewhere short of perfection. This can be avoided by properly scheduling the
assignment and making sure that enough time is left for creative search for the
most appropriate solution.
9.1 Searching for ideas on possible solutions

The client expects that the consultanl. will find and recommend the best
solution to the problem, or suggest the best way of taking a new opportunity.
However, it is seldom possible immediately to point to an obvious best solution
(although this can happen). Most business artd management problems have more
than one solution and in some cases the number of alternative solutions is high,
especially if the purposes pursued are complex. The consultant may be aware
of some possible solutions, but unaware 01' other alternatives. Often the com-
plexity and the originality of the situation are such that no clear-cut solution
comes to anybody's mind immediately. New situations cannot be dealt with by
old approaches, and management consultants operate in a field which is
changing extremely rapidly.
The action-planning phase starts therefore by searching for ideas and
information on possible solutions to the problem. The objective is to identify all
interesting and feasible alternatives and sutject them to preliminary evaluation
before starting detailed design and planning work on one proposal. Thus the
consultant will be sure to offer the client the best possible solution. The client,
on the other hand, will feel confident that he or she is not being forced into
accepting one solution without being infonned about other possibilities.
Action planning
Orienting the search for solutions

The main factor to be considered is the nature of the problem, especially
its technical characteristics (functional area; techniques or methods to be
changed), complexity (technical, financial, human and other aspects of manage-
ment involved; importance to the client organization; need to respect sectoral
technical standards), and degree of newness (whether the consultant and the
client are familiar with the problem involved; whether a completely new solution
has to be developed, or an established solution can be applied with or without
adaptation).
The consultant, in collaboration with the client, will have to decide whether
to direct the search towards solutions that may be available (e.g. purchasing a
standard software package from a computer firm), or towards a new original
solution (developing new software using the client's own resources, or com-
missioning such work from a specialist in software design). It is necessary to
decide how far this search should go. Should it be limited to the client organ-
ization? Could possible solutions be found in other organizations, sectors, or
countries? Is it necessary to screen technical literature? Should we turn to re-
search establishments? Box 9.1 (overleaf) provides a check-list of some ques-
tions to consider in deciding how to focus the search for feasible solutions to the
problem.
Using experience
In devising ways of improving the client's situation, the consultant often
draws on experience. He or she considers methods successfully used elsewhere,
on the basis of knowledge derived from a variety of sources:
previous assignments and clients;
the consulting organization's files and documentation;
colleagues in the consulting organization who have worked in similar
conditions;
0 professional literature (books, periodicals, research reports, etc.);
producers of equipment and systems software, who may have developed
improvements or have been working on them;
staff in other departments of the client organization, who may have
knowledge of the particular process;
organizations which are prepared to communicate their experience.
An obvious purpose is to avoid reinventing the wheel. An even more
important purpose is to make sure that all available experience will be identified
and considered, so that the client gets advice that could be qualified as "state of
the art", or a solution reflecting the best experience that could be found.
This is an acid test for the consultant, who must not cede to the obvious
temptation to choose the most comfortable way - suggesting what he or she
has done in similar situations with previous clients, or choosing the first solution
- -
Box 9.1 Check-list of preliminary considerations
(1) What should the new solution achieve?

what basic purpose?
0 what other purposes?
0 what level of performance?
0 what quality of output?
0 what new product, service or activity?
0 what behaviour?
(2) How will the new situation differ from the present?
different products, services or acWi:ies?
different method?
different system(s)?
0 different equipment?
0 different location?
0 different way of managing?
(3) Are the effects likely to last?
0 are the client's business and market changing rapidly?
0 is competition likely to come with better solutions?
0 is there a possibility that people will revert to present practices?
0 should further developments be for~xem?
(4) Where could solutions or ideas be found?
0 in the same unit?
0 in the same enterprise?
0 from business partners or friends?
0 in literature?
0 in a research institution?
0 in the consulting firm?
0 from other consultants?
0 in different sectors?
0 anywhere else?
(5) What difficulties may arise?
0 technical problems?
0 managers' and staff resistance?
0 work hazards?
0 quality problems?
0 over-production?
0 shortage of materials?
I 0 customers' reactions?
0 shortage of finance?
Action planning
(6) Who will be affected?

are employees receptive?
is management receptive?
what should be done to prepare them?
how should they be involved?
do matching changes have to be made elsewhere?
(7) When is the best time to change?
e at the end of a season?
during holiday time?
0 at the close of a financial period?
e at the beginning of a new calendar year?
any time?
as soon as possible?
in several stages?
that will come to mind. For example, a solo practitioner may have completed a
thorough diagnosis of the client's problem, but when it comes to proposing a
better system there clearly is a need for expertise that he does not possess. What
will he suggest? Will he go for the second-best solution or admit that another
professional should be brought in? The same problem exists in larger consult-
ancies, where the partners and other managers do not always appreciate the need
to back up the operating consultants with all the collective expertise and infor-
mation sources of the firm when looking for the best solution of a particular
client's problem.
Creative thinking
In current consulting, there are more and more situations where experience
cannot offer any satisfying solution and where both the consulting team and the
client organization will have to come up with a totally new approach. In this
connection, it may be useful to review some principles and methods of creative
thinking.
Creative thinking has been defined as the relating of things or ideas which
were previously unrelated. It combines a rigorous analytical approach with
intuition and imagination. The purpose is, of course, to discover or develop
something new. Nothing is taken for granted. The history of science and business
is full of examples of discovery based on creative thinking, and there is no reason
why the consultant could not approach many practical industrial and manage-
ment problems by the same method. Creativity can be learned, and is worth
learning.
There are five stages in the creative thinking process, and all need to be
practised consciously to get the best results:
PREPARATION: Obtaining all the known facts; applying analytical

thinking as far as possible; getting the problem defined in different ways,
i.e. restating the problem and the purposes pursued.
EFFORT: Divergent thinking, which will generate multiple ideas, concepts
and approaches. It will lead either to possible solutions or to frustration.
Frustration is an important feature in the effort stage and in the full creative
thinking process. It is usually followed by the production of really good
ideas.
INCUBATION: Leaving the problem in one's subconscious mind while
one gets on with other things. This also gives time for inhibitions and
emotional blocks to new ideas to weaken, and gives opportunities to pick
up additional ideas from what one sees or hears in the meantime.
INSIGHT: The flash of illumination that gives an answer and leads to
possible solutions of the problem.
EVALUATION: Analysing all the ideas obtained in the last three stages so
as to find possible solutions.
Two of the stages - preparation ancl evaluation - require analytical
thinking. The three central stages - effort, incubation and insight - require
suspended judgement and free-wheeling. Wild ideas are deliberately fostered,
the aim being quantity, not quality. Large numbers of ideas are obtained, new
ideas being sparked off by earlier ideas. The key to successful creative thinking
is the conscious and deliberate separaticln of idea-production and idea-
evaluation.
Techniques of creative thinking include, among others:l
Brainstorming. This is a means of obtaining a large number of ideas from
a group of people in a short time. Typically 2. group of eight to 12 people take a
problem and produce ideas in a free-wheeling atmosphere. Judgement is
suspended and all ideas, particularly wild ones, are encouraged. In fact the
wildest ideas can often be stepping-stones to new and very practical ones. Ideas
are displayed on sheets of newsprint and art: produced very quickly; a session
may produce over 200 ideas in about an hour. Brainstorming is the best known
and most widely used of the techniques. Its main disadvantage lies in the fact
that all ideas are to be evaluated. Many of them are foolish or totally irrelevant
and have to be discarded to arrive at a few really good ideas. Also, the term
"brainstorming" is often misused, to describe any discussion about an existing
problem.
Synectics. In this technique, which is similar to brainstorming, a group of
about nine people take a problem. The "client", whose problem it is, explains it,
and participants put forward a suggestion for solving it. After a few minutes the
client analyses the suggestion, saying what he or she likes about it before
touching on the drawbacks. Then new suggestions are put forward and analysed
until possible solutions are found.
Attribute listing. This technique lists, the main attributes of the idea or
object, and examines each one to see how it can be changed. It is normally used
Action planning
on tangible rather than intangible things. For example, a screwdriver has the
following attributes: round steel shank; wooden handle; flat wedge end; manual
operation; torque by twist. Each attribute is questioned and changes are
suggested. Some modern screwdrivers, i.e. with ratchets or a cruciform head
instead of the wedge end, are examples of improvement.
Forced relationships. This technique takes objects or ideas and asks the
question, "In how many ways can these be combined to give a new object or
idea?" For example, a manufacturer of furniture could take the items he makes
and see if two or more could be combined to give a new piece of furniture.
Morphological analysis. This technique sets down all the variables in a
matrix and tries to combine them in new ways. For example, if a new form of
transport is required, the variables could be as shown in box 9.2. Although the
matrix does not give all possible alternatives, the various combinations of the
variables listed give an impressive number of forms of transport, many of which
exist. Many alternatives will be discarded, but some are worth considering and
may suggest new, practical, useful and feasible solutions.
Box 9.2 Variables for developing new forms of transport

Travelling in air, water, space, land surface, underground
Travelling on wheels, rollers, air cushion, magnetic cushion, skids,
moving belt, aerial ropeway
Travel path reserved, shared with other vehicles
Control under operator's control, externally controlled
Energy provided by electricity, petrol, gas, special fuel, atomic power, wind,
water
Energy transmitted by pulling, pushing, ejecting, own engine
Energy transmission internal: to wheels, propeller (air), propeller (water),
caterpillar tracks, ejection
external: magnetic, hydraulic, pneumatic, mechanical,
via cable, via moving belt, via screw transmission
Position of traveller sitting, lying, standing, hanging
Lateral thinking and PO. If a problem is tackled analytically, it is

necessary to go into greater and greater depth and detail - this is vertical
thinking. Creative thinking involves the examination of all options, including
those that appear to be outside the given problem area - that is to say, lateral
thinking. Edward de Bono has recommended deferring judgement by prefacing
an idea with the letters "PO", which stands for "give the idea a chance, don't
kill it too quickly, it may lead to useful idea^".^
Check-lists. These may be used as pointers to ideas. Lists may be particular
to an area (e.g. marketing, design) or general. Osborn's generalized check-list3
is well known; the main headings are: Put to other uses? Adapt? Modify? Minify?
Substitute? Rearrange? Reverse? Combine? Check-lists need to be used with
care, as they can inhibit creativity by limiting the areas of inquiry.
The Six Thinking Hats. This approach, developed by Edward de Bono,

suggests the use of different thought processes for different purposes. Each hat
has a different colour and is used as a symbol for a particular way of thinking
(white - for assessing available and required information; red - for feelings
and emotions about the issue; yellow - for looking at gains and advantages;
black - for constraints, criticism and risks; green - for creativity, new ideas
and possibilities; and blue - for pulling the whole thinking process together
and managing it). Participants in creative thinking sessions are asked to actually
wear these hats during the session when the:y are applying a particular way of
thinking.4
Breakthrough Thinking. This approach, developed by Gerald Nadler and
Shozo Hibino and mentioned in section 1.4 (box 1.5)and other parts of our book,
provides "seven principles of creative problem solving". It does not follow a
constant pattern of inquiry, but proposes a general flow of reasoning. An
opportunity for a breakthrough must be continually sought in order to increase
the probability of one of the three distinct types of breakthrough: (1) the
brilliantly creative idea; (2) the solution that produces significantly better results;
or (3) bringing to fruition the "good idea", in order to make it real and implement
an outstanding system or s ~ l u t i o n . ~
The search for new creativity techniques continues. For example, day-
dreaming has been suggested if long intensive work on a problem does not
generate any innovative solution; in such a situation complete relaxation and
virtual dreaming may bring about creative insight. The "group-genius" tech-
nique gathers in one group several individuals who normally use different ways
of creative thinking, thus forming a team able to combine these technique^.^
In summary, no matter which technique is used, the following four
guidelines apply:
SUSPEND JUDGEMENT - Rule out premature criticism of any idea.
FREE-WHEEL -The wilder the ideas the better the results.
0 QUANTITY -The more ideas the beter.
CROSS-FERTILIZE - Combine and improve on the ideas of others.
Barriers to creative thinking

In business and management practice, there is a need to struggle against
barriers to creative thinking. Most people are educated and trained to think
analytically, but only a few are trained to use their creative ability. Creative
thinking is also restricted by:
- self-imposed barriers;
- belief that there is always one right answer;
- conformity or giving the expected answer;
- lack of effort and courage in challenging the obvious;
Action planning
- evaluating too quickly;

- fear of looking a fool.
Awareness of the barriers to creative thinking, and a conscious effort to
break them down in a creative situation, open a vast area of new ideas, or ways
of tackling problems. Suspending judgement is a particularly pertinent example
of how a better understanding of the creative thinking process can help towards
a fuller use of creative abilities in seeking solutions to difficult management
problems.
Respectfor authority is a major barrier which is difficult to overcome. Even
if a person perceived as an authority (a manager, a chief designer, a consultant,
a writer, an older person) does not explicitly require conformity and uniformity,
and encourages colleagues to look for new ideas, challenging his or her views
may be difficult if not impossible in many organizational and national cultures.
This is one more reason why managers in both consulting firms and in client
organizations should refrain from expressing preference for one solution if the
search for the best solution is to continue!
Success can be a serious barrier to creativity. In a successful company,
management can easily become locked into methods and practices that have
been its strong points, and may be unwilling to recognize that there can be an
even better approach, or that owing to its success the company has stopped
working on further improvements.
Excessive individualism and the failure to use teamwork is another serious
barrier. If people work in a team examining a complex problem from various
angles, information on a new idea put forward by one team member usually
helps other members to widen or correct their outlook, and to come up with other
new ideas. Members of a team can not only help but also emulate each other.
The solution-after-next principle

This principle of Breakthrough T h i n k i ~ ~ referred
g,~ to earlier, suggests
developing alternative solutions that take into consideration future needs. The
principle states that the change or system you install now should be based on
what the solution might be when you work on the problem the next time.
This implies anticipating future changes: in the environment, in demand
for the client's services or products, in competition and within the client
organization itself. An obvious requirement is that by adopting a new solution
we must not block the way to further solutions that may become necessary in
the future (e.g. by building a production capacity or a data base that cannot be
expanded). Viewing the problem and the solution from a future perspective helps
to arrive at the best possible current solution. It may be useful to visualize an
ideal future system. Even if such a system cannot be implemented immediately,
certain elements will be usable and the vision of the future will improve the
quality of the solution that will be adopted. Box 9.3 gives three check-lists as
pointers when searching for an ideal solution.
9.2 Developing and evaluating alternatives

Preselecting ideas to be pursued
As mentioned in the previous section, in the search for innovative ideas
judgement has to be deferred to avoid blocking the process of creative thinking.
There comes a moment, however, whe:n new ideas have to be sorted out,
reviewed, discussed and assessed (e.g. very interesting; interesting; trivial;
useless; not clear). Since it would be impossible to pursue a large number of
ideas, a preselection is made. For example, oinly "very interesting7'ideas will be
followed up.
How many ideas should stay on a short-list and what criteria to use in
classifying certain ideas as "very interesting" is a matter for judgement. The
selection should be made in close collaboration with the client. If the client feels
that several ideas may lead to acceptable solutions, he or she should also realize
that, while parallel work on several solutions .may increase the chance of arriving
at an ideal solution, the length and the cost of the assignment will probably have
to be increased, too.
Box 9.3 Searching for an ideal solution - Three check-lists

A. To inspire group creativi& you might:
(1) Prohibit any criticism when ideas are being generated, allowing a later time
for judgement and assessment.
(2) Encourage free-wheeling, however wild the ideas that may emerge.
(3) Involve someone who is not a stakeholater in the project.
(4) Record all ideas so that each receives due consideration.
(5) Pose questions that stimulate or motivate creativity:
(a) What system or value-added services and outcomes would make us an
acknowledged world leader?
(b) What would the solution be if we faced no constraints?
(c) What would the ideal system look like if we could achieve all the
purposes larger than the one we selected?
(d) What would the solution look like if we started all over again (clean slate,
green field, blank piece of paper)?
(6) Focus discussions on how to make suggested solutions work, rather than
on why they won't work. Play the believing game.
(7) In using all of these tools, have fun with humorous activities that stimulate
imagination. In generating ideas, humour is a serious matter.
6. Here are some "red flags" to watch out for

on your solution-findingjourney:
"We can't go beyond our scope."
0 "Stay on your own turf."
"Don't exceed the local budget."
0 "If it looks like it will work, we'll make it work."
Action planning
e "Let's get on to the next problem."

"There's only one correct solution for this problem."
0 "That's totally unrealistic."
"Let's get real here."
"In our department (group, organization) that's not possible."
"That's just not done in our industry (profession)."
"It won't work. Ten per cent of our customers want rhubarb pie."
"We can't go back to zero."
C. Always ask yourself these specific questions:

- Have Igenerated many solutions-after-next or ideal systems?
- How should we achieve these purposes if we had to start all over again?
- How do I see this purpose and each bigger purpose being accomplished
ten years from now?
- What regular occurrences can help us develop the best ideal solution?
(Remember to avoid the trap of 15 per cent irregularity. Focus on the 85 per
cent that a solution will work.)
- What today is impossible to do but, if we could, would fundamentally change
the business?
- Am I seeing the right targets toward which our recommendations should
lead?
- Have I looked for a second right answer? A third? A fourth?
Source: Excerpts from Ch. 6 ("The solut~on-after-nextprinciple"), in G. Nadler and S. Hibino:

Breakthrough Thinking: The seven principles of creative problem solving (Rocklin, California, Prima
Publishing, 1994).
Working on alternatives
If the preliminary screening of ideas has retained more than one alternative,
the detailed design, systems development and planning work should in theory
be started on all alternatives that were short-listed. In practice a pragmatic
attitude is needed since the client and the consultant may be short of resources
for working on a number of possibilities simultaneously, and detailed design and
planning of several alternatives may be inefficient if only one is to be retained.
A phased approach may help. For example, work may be started on two
or three alternatives, but carried only to a pre-project or sketch-plan level. This
will make it possible to collect more factual data, including tentative figures on
potential costs and benefits. An evaluation of alternative pre-projects can result
in the conclusion that from that moment only one will be pursued or, on the
contrary, that the client wishes the design of two or more alternatives to be
completed.
Another possibility is to start by developing the alternative that received
the highest preliminary rating as an idea. This alternative may be pursued as
long as facts show that it would provide a satisfying solution. It would be
dropped, and work on a second alternative started, only if assessment revealed
that the course of action taken was incorrect, or that cost-benefit analysis was
not showing satisfactory results.
It could be objected that these (and similar) approaches do not give a 100
per cent guarantee that the ideal solution will be found and applied. This is true,
but the solutions are being developed in real life, within given time, financial,
human and other constraints. The ideal solution may be within the consultant's
and the client's reach -but the time or cost required could be prohibitive.
Evaluating alternatives
It can be seen that the evaluation of alternatives is not a one-off action to
be undertaken solely at a defined point in time in the assignment. When data are
collected and analysed, this is being done with due regard to the forthcoming
evaluation exercises. At the beginning of the assignment, the consultant pays
attention to the definition of the reference period during which data will be
collected and used for comparing new solutions with the existing ones. When
action planning has started, preliminary evaluation may be made in several steps
to eliminate ideas and to reduce the number of alternatives on which the consult-
ant and the client will start doing detailed work. A comprehensive evaluation is
required when the client finally opts for one particular alternative.
Some comments on the evaluation criteria may be useful. There are some
comparatively easy cases, such as the choice between two or three machine tools
(of different technical level, productivity, service and maintenance requirements,
and price) for the same production operation. The number of criteria is limited
and can be quantified, especially if production records are reasonably good. In
contrast, there are complex cases, such as a major reorganization in a manu-
facturing company, an acquisition of another company or a new marketing
strategy, which are very much "open-ended". There may be several alternatives.
Personnel and training measures will be involved, and so on. In these cases some
criteria lend themselves to fairly exact calculation of costs and benefits (e.g. the
cost of training needed). Others do not (e.g. the greater effectiveness of decision
making obtained following decentralization of authority and responsibility in
marketing and product-policy matters, or the improved image of the company
following a merger with a well-chosen partner).
In consulting on management and business issues, the following situations
prevail:
- alternatives which are ideal by all criteria used are rare, and in most cases
there is a need to compare positive and. negative consequences of several
alternatives;
- the number of criteria is high: certain basic criteria are met by all alter-
natives and further criteria have to be examined;
- some important criteria (especially environmental, social, cultural and
political criteria) are difficult, if not impossible, to quantify;
- the evaluation involves some assessme!nt of criteria which are not directly
comparable (e.g. financial and po1itica:l criteria);
Action planning
- this introduces a strong subjective element into evaluation: in the absence

of hard data somebody has to decide how important various criteria are in
the given case, and make the evaluation using these "soft" criteria in
addition to hard data.
To overcome this last difficulty, and to increase the element of objectivity
in subjective evaluations, various attempts have been made to associate
numerical values with adjectival scales. The principle is to use a group of experts
(from the client organization, the consulting firm or other) to assign point values
to particular criteria. The values thus obtained are then used in an evaluation
model, e.g. in decision analysis. The scale may be as follows:
Major improvement = 10
Considerable improvement = 7
Some improvement = 4
No change = 1
Some deterioration = -2
Considerable deterioration = -5
The evaluation technique used will be selected with regard to the nature
and complexity of the particular case. It may be a simple break-even analysis,
cost-benefit analysis, return on investment analysis, linear programming tech-
nique, decision analysis, or some other technique. Broader social and environ-
mental consequences of managerial decisions will, as mentioned, be difficult to
quantify and compare with economic and financial costs and benefits. Notwith-
standing, the number of techniques which attempt to account for these aspects
in evaluation models and schemes is growing.
9.3 Presenting action proposals to the client

When work on action proposals and the evaluation of alternatives has
reached an advanced stage, the consultant has to consider the time and form for
the presentation to the client. This will depend mainly on the type of project
undertaken and the working relationships between the consultant and the client's
managerial and specialist staff.
In long and complex assignments, involving strategic issues and costly
investment or other measures, the client's staff is usually very much involved
and keeps the senior management informed about progress. The consultant
submits progress reports and seeks further guidance from the client at several
points during the assignment, so the presentation of final proposals does not
bring up anything completely new. Essentially, information that the client has
had from previous reports and other contacts with the consultant is summarized,
confirmed and put up for approval.
In other cases, the reporting which has preceded the presentation of
proposals may have been limited. The scope of the assignment may not require
reporting and discussions at each step; or, in assignments that will affect some
vested interests (e.g. reorganizations), the client does not want to hold many
meetings and have information circulated before the solutions have been defined
and thoroughly examined by a restricted managerial group. Hence the need for
a well-prepared presentation which, in the latter case, may convey completely
new information to a number of people.
The presentation
Most consultants prefer to be able to make an oral presentation with the
backing of all written evidence and any audiovisual aids needed to support the
case. A combination of written and oral presentation is often required. The
consultant can make an oral presentation, introducing documentation that will
be left with the client, to be followed by another meeting once the client has
examined the proposal in more detail. Alternatively, the client may prefer to
receive the proposal in writing first and arrange a presentation meeting after
having read the proposal.
The objective of the presentation is, of course, to obtain the client's
acceptance of the recommendations. The degree of persuasion will depend on
many factors and must be anticipated, prepared for and built into the pre-
sentation. The presentation meeting is held between the consulting team
(including the supervisor), the client and those members of the staff chosen to
attend. The client's liaison officer and other staff specialists may have an
important role to play. Having taken part in the investigation they may be
informed about many details and should be completely in favour of the
recommendations.
The consultant's presentation works through a logical series of steps,
building up the case for the recommendations in so effective a manner that the
client should have little or no hesitation in accepting them. At least, that is the
idea. No presentation should be made unless the consultant believes that the
probability of acceptance is high.
The presentation must never flood decision makers in the client organiza-
tion with analytical details, or try to impress them by techniques that are
normally the specialist's domain. However, the techniques used in evaluation
should be described. A clear picture of all solutions that have been envisaged is
given and the choice proposed by the consulta.nt is justified. The consultant must
be absolutely honest with the client, especially when he or she is explaining:
0 the risks involved (the solution has never been used before; some em-
ployees will probably be against it; the real investment and /or operating
costs may be higher than foreseen);
0 the conditions that the client must create and maintain (a high discipline
in recording primary data is needed; maintenance has to be improved; some
members of senior management must be transferred);
0 the tasks that could not be completed (the search for potential partners
could not cover all countries; some evaluation criteria had to be ignored
due to lack of data or time);
Action planning
the future perspectives (the solution proposed does or does not anticipate
future developments such as capacity expansion, automation, transfer to
affiliated companies, more stringent environmental protection norms).
There may be circumstances known to both parties owing to which accept-
ance at this point may be in principle only. There may be an agreed intention,
but a final decision may be contingent on a detailed study of written proposals
by the client, on consultations with important shareholders or on the recom-
mendations being explained to and accepted by employees' representatives.
Where there have to be further presentations to representatives of trade
unions, staff associations or other stakeholder groups, the role of persuader and
negotiator shifts to the client. Under no circumstances should the consultant take
this on alone. He or she is, of course, ready to back up the client and help to
organize whatever explanatory campaign is necessary - and he or she should
strongly advise against trying to get everything over at one mass meeting.
Plans for implementation

One section is often missing from action proposals presented to clients: a
realistic and feasible plan for the implementation of the proposals. The client
receives a static picture, describing the new project or scheme as it should look
when implemented. Yet there may be a long way to go to achieve this desired
condition, and several different paths may be available. Moreover, the planning
of stages and activities to put the new scheme into effect can reveal further
problems and needs, allowing the proposal to be further improved before the
final version is submitted to the client.
Thus an effective action proposal shows not only what to implement but
also how to do it. A plan for implementation should be included in the proposal
in any case. The client and the consultant can agree that this plan will be a global
one, leaving the details to a later stage, immediately preceding each step towards
implementation.
The decision
It is the client and not the consultant who decides what solution will be
chosen and applied. On no account should the client feel that the consultant has
made his own choice which the client must follow in order not to upset the whole
scheme. A client who feels that a solution was imposed on him will not be very
active during the implementation phase, and will take the first opportunity to
put the blame on the consultant if matters do not work out as suggested.
The client's decision on the consultant's proposal is subject to the same
influences as any other management decision. The number of important deci-
sions that are determined by emotional rather than rational criteria is surprisingly
high. Furthermore, the client's conception of rationality may differ from the
consultant's conception because their cultural background is not the same.
It is essential that the consultant is aware of the client's personal pre-

ferences, and of cultural and other factors affecting decision making in the client
organization. This awareness helps him or her to avoid proposals which will not
be accepted, and to recognize again that consulting is much more than presenting
technically perfect solutions: it also involves patient persuasion and explanation
to the client and the staff so that they will accept rational measures as their
favourite personal choices.
The decision taken on the consultant's proposals may be the final point of
an assignment if proposals are accepted for immediate or later implementation,
and the client wants to undertake the work personally. It will act as an intro-
duction to the next step in an assignment if the client prefers to involve the
consultant in implementation.
See, e.g., J. G. Rawlinson: Creative thinking and brainstorming (Farnborough, Hamp-

shire, Gower, 1981), and various publications by Edward de Bono.
2 E. de Bono: Lateral thinking: A textbook of creativity (Harmondsworth, Middlesex,
Penguin, 1977).
A. F. Osborn: Applied imagination (New York. Charles Scribner's Sons, 1957).
E. de Bono: Six Thinking Hats: An essential auproach to business management from the
creator of lateral thinking (New York, Bowker, Ingram, 1987).
5 See G. Nadler and S. Hibino: Breakthrough Thinking: The seven principles of creative
problem solving (Rocklin, California, Prima Publishing, 1994).
See R. L. Bencin: "How to keep creative juices flowing", in International Management
(Sutton, Surrey), July 1983.
See Nadler and Hibino, op. cit., Ch. 6.
IMPLEMENTATION
Implementation, the fourth phase of the consulting process, is the culmi-

nation of the consultant's and the client's joint effort. To implement changes that
are real improvements from the client's point of view is the basic purpose of any
consulting assignment. The consultant, too, wants to see his or her proposals not
only well received in meetings with the client, but put into effect with good
results.
If there is no implementation, the consulting process cannot be regarded
as completed. This is the position if the client does not accept the consultant's
proposals presented at the end of the action-planning phase. It demonstrates that
the assignment has been poorly managed by both parties. If the consultant and
the client collaborate closely during the diagnostic and action-planning phases,
the client cannot really reject proposals that are the product of joint work. If
there is any doubt about the focus of the consultant's work during action plan-
ning, and about the feasibility of the proposals that will be forthcoming,
corrective measures should be taken immediately, without waiting until the
proposals have been finalized.
It may happen, too, that the consultant does not find any solution to the
client's problem. Maybe the problem as formulated does not have a solution
(e.g. the goal set was too ambitious and unrealistic). Such a situation should also
be discovered and the work on proposals redirected at an earlier stage, so that
action planning comes up with realistic proposals on how to deal with a redefined
problem.
In planning an assignment and negotiating a contract, the client and the
consultant should not forget to define what they mean by "implementation" and
"results ". If the consultant is developing and helping to introduce a customized
information system, what operations have to be completed and what parameters
have to be achieved so that the system can be regarded as fully implemented?
What do we mean by implementation in an action-learning programme -
increased competencies of the participants, an approval of the proposals
developed in action-learning teams or the actual completion of all the change
measures proposed? To agree when a very complex project, such as a business
restructuring or turnaround, should be regarded as completed may be difficult

indeed. However, the failure to clarify these questions early enough is a frequent
cause of misunderstanding between consultants and their clients.
10.1 The consultant's role in implementation

Why the consultant should be involved
In Chapter 1 we gave some arguments justifying the consultant's involve-
ment in the implementation phase of an assignment. The issue is important
enough to be reviewed once more.
As we know, the ultimate responsibility for implementation is with the
client. It is the client, not the consultant, who makes all the management de-
cisions and sees to it that they are put into effect. This, of course, is more easily
said than done. The more complex the assignment, the higher the probability
that implementation will be an equally or more difficult matter than diagnosis
and action planning. The plan or project pre:sented by the consultant is a model
of future conditions and relationships, assurning certain behaviours on the part
of the client, as well as particular environmental and other conditions affecting
the client organization. The consultant can make mistakes in developing such a
model. In addition, many of the conditions can change after the proposal has
been presented and accepted. The consultant's co-responsibility for implemen-
tation helps to overcome these difficulties.
The issue of the consultant's participation in implementation should never
be underestimated, but always thoroughly ex.lmined and discussed when design-
ing a consulting project. Both the consultant and the client should give their
arguments for and against this participation and consider various alternatives.
The consultant does not have to be involved in implementation:
if the problem is relatively straightforward and no technical or other diffi-
culties with implementation are anticipated;
if joint work during the diagnostic and action-planning phases shows that
the client has developed a very good understanding of the problem and a
capability to implement the solutions proposed without further assistance.
The client's reluctance to involve the consultant may be motivated by
financial reasons. By the end of the action-planning phase the cost of the assign-
ment may already be high and the budget may be exhausted. Or the manager
who has to approve the contract may feel that involving the consultant in
implementation implies expenditures that can be avoided. Here again a frank
discussion helps. The consultant can suggest a more economical design for the
assignment in order to free resources that will allow him or her to be involved
in implementation.
Implementation
Finding a suitable arrangement

The failure to involve the consultant in implementation often reflects a lack
of imagination and flexibility on either the consultant's or the client's part. Of
course the client worries about the cost of the assignment, and the more time the
project takes, the stronger may be the feeling that the consultants are staying for
too long. The following arrangements can keep the consultant involved in
implementation without imposing high charges on the client:
- the size of the consulting team present at the client's premises will be
gradually reduced during the implementation phase;
- only one consultant will stay during the whole implementation phase,
providing advice and bringing in additional expertise from the consulting
unit if appropriate;
- the consultant will deal only with the more difficult tasks in implemen-
tation, leaving all other work to the client;
- the consultant will visit the client periodically, or at agreed points during
implementation, to check progress and provide guidance;
- the consultant will be available to intervene only at the client's special
request.
Clearly, every consulting unit will not be able to offer all these options.
Larger firms can be more flexible. A sole practitioner will be working with a
new client when a former client calls for help in implementation. It may be
necessary to warn the new client that the consultant has not fully completed a
previous assignment, though he is phasing himself out of it.
The alternative arrangements described above ought to be given consider-
ation irrespective of the fee formula used (section 26.4). If a lump-sum or
contingency fee is applied, the consultant will make a provision for involvement
in implementation when calculating the total fee. The client should be aware of
this. In addition to defining the end result of the project, the assignment plan and
contract should be as precise as possible in defining the roles played by both the
consultant and the client in the implementation phase.
10.2 Planning and monitoring implementation

A set of proposals for implementation should be part of the action plan
presented to the client, for reasons explained in section 9.3. Before implemen-
tation starts, a detailed work programme will be prepared.
Steps to take
Planning a campaign to introduce a new method or system is another
instance of the usefulness of network planning or bar-charting techniques. The
day chosen as "implementation day" will be more definite if planned for in this
way. The time needed to obtain equipment and to design detailed procedures
may be relatively easy to estimate. When there is a major physical move, as

required by, say, a new factory or general office layout, a scheduled sequence of
individual moves is necessary. When there has to be "business as usual" during
the move, the schedule recognizes the need For the minimum of upset. Some-
times a short, sharp campaign can take place (duringan annual shutdown. When
it does, all employees are briefed on what they will find when they return so as
to avoid some days of chaos.
Defining responsibilities and controls

Implementation will create new tasks and relationships, while abolishing
old ones. People's commitment and participation cannot be solicited without
specifying their contributions. Such a specification will be particularly helpful
in drawing up a training programme and in establishing controls for monitoring
implementation.
Furthermore, the programme of implemmtation should define controllable
and, if possible, measurable results of individual tasks, operations and steps.
This is essential for monitoring.
Pace and lead-time of implementation

Obviously, various technical and resource factors will have a bearing on
the pace and lead-time of implementation. As a matter of principle, the consult-
ant will aim to schedule implementation in the client's best interest (e.g. to make
new production capacity operational as early as possible, or to avoid situations
in which the client has to deal with several difficult projects or use old and new
information systems simultaneously).
The feasible and desirable pace of change (see Chapter 4) is a most
important criterion. It may be necessary to gain the commitment and support of
a number of individuals, who will constitute a kind of critical mass. Considerable
time and persuasion may be needed to create this critical mass, but once attained
its existence will accelerate the whole process. These are important aspects of
the strategy of planned change.
Built-in flexibility and contingency

The more complex and innovative the assignment, the greater the chance
that the work programme will need to be adjusted several times during the
implementation phase. Monitoring will show this need. However, adjustments
are easier if some flexibility is built in. Completion of the assignment should
not be scheduled for the very last moment (i.e. the time when the new scheme
or plant must be in operation); some time should be kept in reserve for final
adjustments. The same may apply to the allocation of resources and to provision
for further help by the consultant during implementation.
Implementation
Detailing procedures
When a good deal of new methodology is involved, it is usual to prepare
a manual for guidance in the procedures to be followed. Virtually all forms of
reorganization, irrespective of their functional or interfunctional aspects, and all
new systems, require instructions on how to operate them. New stationery has
usually to be designed. The consultant may do this personally or may adopt part
or all of some proprietary system.l
Monitoring implementation
When implementation is about to start, the consultant checks that all
conditions have been fulfilled and all prerequisites are on hand.
At the commencement of the running of the new system and for a time
after, the consultant is available to answer any queries and to help the client's
staff to deal at once with any problem that may arise. This is as much a question
of tactics as of techniques, since little deficiencies and misunderstandings at the
moment when a new system is starting up have a tendency to grow and become
major difficulties if not dealt with immediately. In this the consultant may have
more experience than the client.
It is not uncommon for decision makers, including the consultant, to ex-
perience uncomfortable afterthoughts once a decision has finally been reached
and implementation commences. This phenomenon is known as cognitive
dissonance. Prior to reaching a decision, the decision makers usually spend an
inordinate amount of time focusing on the benefits of the new scheme and the
disadvantages of the present, or alternative, scheme. However, once a firm de-
cision has been reached, the implementation process commences and the first
problems inevitably appear, it seems that a good deal of time is now spent on
reviewing the advantages of the previous, or displaced, scheme, while comments
are voiced on the drawbacks of the new scheme currently being implemented.
It is readily conceded that it takes considerable talent to examine an existing
scheme and, on the basis of investigations and results obtained, devise a new,
more effective one, but it also takes considerable courage to proceed with the
implementation of the new scheme when problems are met with in the early
stages of the implementation phase (as is usually the case). When this happens
the consultant would do well to take note of the maxim: "Take time to plan your
work, then take time to work your plan."
Jointly with the client, the consultant makes a regular and frequent assess-
ment of the progress of implementation. Attention is paid to the pace of im-
plementation and its broader consequences (e.g. whether the changes in plant
layout and organization of the production department are proceeding according
to schedule and the delivery of any new product will start as promised).
Adjustments in the time schedule, the approach taken, or even the original design
of the new scheme are made as appropriate, but in an organized manner, avoiding
ad hoc, blind panic decisions.
The consultant's poised behaviour during this phase of the work affects the
attitudes of the client and his or her staff towards implementation. The consultant
must be seen as an enthusiastic senior colleague who feels fully involved and
co-responsible, who has a vision of what should be achieved, and who is able
to explain the roles and responsibilities of others engaged in the project.
10.3 Training and developing client staff

In Chapters 1 and 2 we have shown th2.t the link between consulting and
training is logical and natural. Both have the same ultimate objective - to
improve organizational performance and results -and they support each other.
In most operating assignments some training and development of client staff is
foreseen in the work programme. It may take a variety of forms and its volume
will differ from case to case.
Developing the cooperating team

Perhaps the most interesting and efficitmt, although the least formalized,
method is the development of client personnel through direct cooperation with
the consultant during the assignment. In a smaller enterprise this may concern
the owner-manager personally. In other organizations it will concern some man-
agers, the liaison officer and other members of the team who are responsible for
the project jointly with the consultant. A good consultant uses every opportunity
not only to pass on routine jobs (such as data collection) to client staff, but
increasingly to involve them in the more sophisticated operations demanding
skills and experience, and stimulating self-education. As this is an excellent
learning opportunity, it is useful to assign to this job talented people with good
development potential, and not just those who can be spared from their normal
duties for the period of the assignment.
Managers in senior positions will also learn from the assignment if the
consultant knows how to communicate with them and if they are keen to find
out what the consultant's work methods are. That is why it is more interesting
for a senior manager who finds a really good consultant to interact with him or
her frequently instead of just meeting formally at the beginning and then reading
the report at the end of the assignment.
Training for new methods and techniques

A common element in assignments is the training of client staff in specific
techniques. This concerns those staff members who are involved in the intro-
duction and use of the technique (e.g. time measurement, statistical quality
control, standard costing). A number of people may have to be trained; this may
necessitate a precisely defined and scheduled training programme which pre-
cedes implementation and may continue during its first stages. A number of
approaches are possible, such as:
Implementation
on-the-job training by the consultant;

training of in-company trainers by the consultant;
training of experimental groups whose members will then train the re-
maining staff;
formal in-company training courses (run by the consultant, by special
trainers brought in for this purpose, or by the organization's internal
trainers);
participation of selected staff in external training courses;
appreciation programmes for those who are not directly involved, but
should be informed.
Staff development in complex assignments

As the problems tackled by the consultant become increasingly sophisti-
cated and complex, the related training and development of staff also become
more difficult to design and organize. This is the case, for example, in assign-
ments aimed at major changes, such as extensive reorganizations and restruc-
turing, important changes in product and market strategies, or the establishment
of a new plant including the installation of a new management system. In
addition to specific training in new techniques which may be needed, there is a
case for a collective development effort which should bring about more sub-
stantial changes in management concepts, strategies, communication and styles.
In these situations, training in particular work techniques may have to be
supplemented by programmes aimed at behavioural change. These may include
seminars, working groups, discussion groups, special project teams, individual
project work, exchange of roles, counselling by the consultant and by in-plant
trainers, and so on. Some of these intervention techniques were described in
Chapter 4.
In addition to practicality, another important feature of training provided
in connection with consulting assignments is that it generates interest in further
training and self-development. Sound management stimulates and nurtures this
interest, which may actually be the most lasting contribution of many consulting
assignments.
10.4 Some tactical guidelines for introducing

changes in work methods
In this section we summarize a few practical guidelines on how to introduce
new work methods and help people to master them without major difficulties.
Here again, the purpose of the guidelines is to make the consultant alert to what
might happen and suggest in what direction to search for a remedy, not to provide
universal recipes for handling any situation. The guidelines that follow should
be read in conjunction with Chapter 4, which the reader may wish to review at
this point.
Tactic 1: The best method

It was mentioned in Chapter 4 that the process of change involves (i) identi-
fication with the change, and (ii) internalization of the change. Whether these
phases are carried out in sequence or simultaneously is not very important. The
essential point is that they require commitment, involvement or partici-
pation by the person doing the changing. The change must be tested by the
individual as he or she moves from the general (identification) to the specific
(internalization).
Therefore the people concerned in the change process should be involved
as early as possible, so that these two vital elements can be comprehensively
covered. However, a strong note of warning is offered as to how participation
might be achieved. Apart from attending meelings or brainstorming sessions for
specific purposes (such as to provide a data bank of ideas for the solution of
creative problems), individuals should not start using their own new methods
for performing tasks if the idea is to develop a best method for general use.
Results of studies show that where individuals are encouraged to adopt their own
approaches and the best method or approved solution is later imposed, those
people will exhibit some conformity to the new proposal but will still diverge
significantly from the approved method in following their own.
However, where persons in groups are provided with a best method or
approved approach in the first instance, it is found that subsequently individuals
will vary only insignificantly from the set procedures. Diagrammatically, these
results can be shown as in figure 10.1.
In case 1the end result is that individuals perform in a manner significantly
different from the approved method, although not quite as widely different as
during their initial trials. There is some tendency towards the norm. In case 2
there is in subsequent performance much less divergence (significant in a
statistical sense) from the approved norm because individuals have not had an
opportunity to rehearse in any other manner than the approved one.
Thus, where feasible, the consultant should attempt to introduce the
approved method as a scheme applying to the whole group where individual
differences can be kept to a minimum (often as a result of normal group
pressures, coupled with the fact that no oppormnity to develop individual ad hoc
approaches is provided).
Tactic 2: Spaced practice

Improvement in performance occurs more quickly, in greater depth and
lasts for a longer time (i.e. the decay or erttinction curve is longer) if new
approaches are introduced in relatively short periods, with ample provision for
rest periods, than if continuous or massed practice periods are employed.
A generalized improvement in perfomlance noted where the "quick and
often" tactic is employed (compared to a continuous practice scheme) is shown
in figure 10.2 (page 230).
Implementation
Figure 10.1 Comparison of the effects on eventual performance when using

individualized versus conformed initial approaches
Case 1 : Subsequent behaviour diverges significantly from the conformed approach

when individualized approaches are used prior to the introduction of the
conformed approach.
Initial use of Introduction of Subsequent

individualized forced conformed behaviour
approaches approach
Note: Although subsequent behaviour usually differs significantly from the conformed
approach, it is not as widely divergent as the initial individualized approaches.
Case 2: Subsequent behaviow diverges very little from the conformed approach if
no opportunity is provided for individual experimentationprior to the
introduction of the conformed approach.
Conformed approach Continuation of Subsequent

used from the outset conformed approach behaviour
Note: Subsequent behaviour is significantly less divergent from the conformed

approach in case 2 when compared to case 1.
Figure 10.2 Comparison of spaced practice! with a continuous

or massed practlce approach in terms of performance
A Xn Spaced practice performance curve

_.------
..--- --- --.
Units of
performance :
' Continuous practice performance curve
improvement
0 Yl Y2 Y3
Units of time .
Ym
From figure 10.2 it can be seen that when a spaced practice approach is
used and the results are compared with those of a continuous or massed practice
approach for the same period:
improvement using spaced practice is quicker, i.e. the performance curve
is sharper;
improvement using spaced practice is greater, i.e. the performance curve
is higher;
improvement lasts longer, i.e. the decay or extinction curve is shallower.
These performance curves will almost invariably be obtained where im-
provement in skill can be measured as a result of practice or rehearsal. Thus the
consultant is well advised to consider int~oducingchange gradually using
relatively short practice sessions rather than relying on one great training input.
Tactic 3: Rehearsal
It is a proven fact that where skill is involved, results constantly improve
with spaced practice, provided, of course, that the correct procedures are
followed.
As shown in figure 10.2, performance constantly improves with continued
practice until a ceiling or plateau of performance is reached. Continued practice
is then required to maintain this level of performance.
Implementation
Although there may be grounds for debate as to whether or not learning

(i.e. the cerebral functioning involved) of a new technique takes place:
- as a sequ-ntial process, i.e. a little-by-little approach,
- as an all-or-none process ( e g the "Eureka - I've got it!" type of
phenomenon),
- or by repetitive exposures of the same input in different settings,
the learning method is not really relevant since the learning process cannot, as
yet, be appropriately measured. However, there is no escaping the fact that
performance, which can be measured, always improves with practice. Constant
practice can eventually lead to a condition known as over-learning in which
routine and procedures become virtually automatic reactions.
The consultant must therefore make provision for appropriate training and
practice sessions (rehearsals) when introducing new approaches.
Tactic 4: Moving from the known to the unknown

There is considerable evidence that the knowledge of a prior skill can have
either a positive or negative transfer effect on the acquisition of a new skill.
As mentioned earlier, the consultant is usually faced at the beginning with
the need for an "unfreezing" phase, designed to break down old habits. Sur-
prising as it may seem, in order to be able to facilitate new learning it is usually
more effective to have the learner in an "anxious" rather than a "comfortable7'
state, because he or she is then more likely to actively seek information to reduce
the level of anxiety. In a "comfortable" state, the learner is more likely to select
information which will continue that state, to reinforce old habits rather than
seek new approaches.
The consultant can use this attention-rousing device by showing that the
"known" procedures are no longer suitable for present purposes. If we move
directly to the introduction of new methods without first breaking down
established practices, there is a grave risk of negative transfer effects taking
place.
When introducing a totally new approach, however, there may be some
benefit in building it on an appropriate existing procedure. In short, when
introducing change, move from the known to the unknown (new approach).
Tactic 5: Setting demanding but realistic goals

According to S.W. Gellerman, "stretching7' is desirable when goals are
being e~tablished.~ By this he means that targets should be set a little higher than
would normally be expected. D. C. McClelland supports this notion and adds
that the goals should be realistic and neither "too easy" nor "impossible", but
such that a feeling of achievement can be experienced when they are r e a ~ h e d . ~
There is ample evidence to show that high expectations coupled with
genuine confidence in a prestigious person often result in an individual under-
going change attaining higher performance and productivity. This effect can
become cumulative - the improved performance encourages the individual to

assume more responsibility and so creates in him or her greater opportunities
for achievement, growth and development. Conversely, low expectations may
lead to low performance and substandard results which, in turn, leads to a situa-
tion in which credibility is lost and distrust and scepticism become the order of
the day.
When introducing change, the consultiint has to ensure that all those
involved readily understand what this means in terms of goals. Such goals should
be expressed in terms which are:
- quantitative (able to be measured in numerical terms);
- qualitative (able to be described specifically);
- time-phased (provision of commencement dates and expected duration
before final attainment).
It is important to correctly determine the time by when a new goal has to
be achieved. Because attitudes and work habits take a long time to form, time
must be allowed for replacing them by new ones. ~nless'thereis a perceived
dramatic need to institute a change immediately, the process may take longer
than originally expected.
Tactic 6: Respecting the absorptive capacity

People differ tremendously in their capacity to absorb new information and
their ability to undertake new activities. Many writers have argued that there is
a maximum number of "units of information" which an individual can absorb
and process at any one time. In this connection (3.W. Miller refers to the "magical
number seven" (plus or minus two, to allow for variations in individual capa-
~ i t y ) By
. ~ confining information inputs to the lower end of the scale (namely
five), the consultant can avoid overtaxing any of his audience, although he may
cause some degree of impatience among the most gifted.
The information can first be presented as a single whole and can then be
broken down into subunits for more detailed study, or it can be built up gradually
by synthesis of the individual parts. The method chosen will depend on the nature
of the problem, the composition of the audience and the consultant's personal
preference.
During the introductory and concluding phases of an information session,
it is as well to provide a summary of the complete presentation. There is support
for the idea that the attention of an audience reaches its highest level shortly
after the commencement of a session and again shortly before its conclusion. At
the outset the exposition probably has a novelty value, which begins to be
dissipated as physical and mental fatigue build up. Shortly before the conclusion
is reached, however, the decrease in the level of attention accounted for by lack
of concentration is usually removed as the audience begins to anticipate the end
of this activity and the beginning of a new one. 'These high points in concentration
are illustrated in figure 10.3.
Implementation
Figure 10.3 Generalized illustration of the hi h points

in attention level of a captive audlience
, High High points
Generalized attention level curve
Attention
(#--
--
__----- -\
\
0•‹ Distraction due to
level of 0000 mental fatigue
audience 0
0
0
0
0
0
0~~
0•‹
_--- _---
__----
0
_---
-.--
___----
C _ C . ~ - - -
Distraction due to
.-- #.---
physical fatigue
Low -
tart
Presentation
Finish
.
Tactic 7: Providing evidence and feedback
Verbal persuasion is inherently unstable and requires support in terms of
proven facts. Action speaks louder than words. The consultant must keep records
of all performance improvements as support for the change process. For
example, although daily output figures may decrease immediately following a
change process, it is possible that errors or accident rates may decrease even
more significantly at the same time.
Successful introduction of change requires presentation of appropriate
feedback information to permit the necessary adjustments on the part of those
undertaking the change process. The consultant must make provision for review
and reporting sessions, not merely as morale-boosting devices, but as a requisite
for control and correction.
10.5 Maintenance and control of the new practice

If a new scheme is to survive and yield more in benefits than it costs, it has
to be protected against a number of more or less natural hazards. Standards,
systems and procedures are as prone to deterioration through wear and tear and
neglect as are machines. Like machines, their performance may be eventually
reduced to zero.
Maintenance and control should start while the consultant is still with the
client organization, but must continue after hi:; or her departure.
Backsliding
A maintenance and control system has to guard against simple backsliding,
which is liable to occur as long as people remember what they used to do before
the change. Backsliding is not always reactionary. If a new method breaks down
through trouble with a computer system, equipment, supplies, and so on, work
can only continue by doing something else. The most natural thing is to revert
to the old practice if that is still possible. While the consultant is well advised
never to stop anyone working to the old method until it can be completely
replaced, he or she should also make sure tha.t after the new method has been
proved it is im2ossible to revert to the old one.
The way this is done will depend, as always, on the function of the assign-
ment and the nature of its problem. A few examples are given below.
Paperwork. When a new documentation procedure is installed, the stock
of old forms is destroyed. Some official is made responsible for maintaining
stocks of new forms and signing orders for reprints. The purchasing clerk does
not pass on orders for printing signed by any other person.
Operating standards. The maintenance of factory work standards
requires similar vigilance. Working to standards must be made easier than
working to non-standards. Any work outside the specification of the product or
method should not be feasible using the standard forms and documentation. This
is not to say that departures from standard are never allowed, but when they are
they are made self-evident.
Drawings. In an engineering drawing office it must not be easier to make
a new drawing for a part than to find whether an existing part may be used. When
a drawing is permanently changed, all old prints are tracked down and removed.
An adequate control system would prevent unauthorized prints being in circula-
tion at any time.
All such measures are, of course, preventive. In their absence, the alterna-
tive is often not a cure but a temporary expedient with a strong likelihood of a
recurrence of the problem.
Control procedures
A system of control does not necessarily stop at maintenance in the narrow
sense of keeping a scheme in the same state. After a time, any piece of
reorganization will begin to suffer from old age, if nothing else. Other changing
influences may render it less and less appropriate; the objective for which it was
designed may no longer be there. Without a rneans of control, opportunities to
modify and develop in line with changing circumstances may be lost.
Implementation
It is, however, as easy to overdo control for its own sake as it is to become
fascinated by any other technique. The consultant needs only to identify the key
points at which significant departures will show up and choose the times at which
they are to be checked. It is unnecessary to check everything every day: the
criterion is usually how long it would take for anything serious to happen if it
were not checked. More frequent checks are needed immediately after a change
than later on, when stability at a new level has been reached.
In financial areas, checks are part of budgetary control and made as often
as the sensitivity of the situation demands. Labour performance checks may be
built into weekly payroll/production analyses. Inventory controls may be in
accordance with the main categories of stores.
Business companies accept the annual audit of their books as a matter of
course, but may forget that a periodic internal audit of their organization and
administrative methods is equally necessary. Apart from those detailed safe-
guards already mentioned, a periodic audit may be the only way of checking the
whole system. Only an audit may reveal whether the total objectives are still
being met, or are even still the same. Failure to make such a check allows the
passage of time to erode insidiously the good work and its benefits.
Staff turnover is a common source of danger. If new staff members are not
adequately briefed, they have little option but to act as they think fit. They may
pursue surprisingly different objectives. The number of shortcomings that the
consultant has met in the client organization may be an indicator of habitual
neglect. If he or she does not change the client's basic attitudes to controls, his
or her own work may get no better treatment.
Further improvements
Conversely, it would be unrealistic and totally wrong to assume that the
implementation of the consultant's proposals will make the client's business
perfect and that for a long time no further changes will be required. Improve-
ments may be suggested by the managers, specialists and workers involved in a
new scheme, by customers, by the consultant personally or by other pro-
fessionals working for the same client. Improvements may become possible and
necessary due to developments in information technology and other changes that
could not be fully considered in the course of the current assignment. Any such
improvements may be suggested and become necessary surprisingly soon, much
sooner than the consultant imagined when submitting the new scheme to the
client.
There will be improvements that can be easily accepted and introduced
during the implementation phase. Other improvements will not fit the scheme
that has been chosen, but it will be useful to record them and keep them in mind
for the future. Remember the "solution-after-next" principle discussed in
Chapter 9. There is no point in aiming to propose and implement definitive and
closed solutions to clients' problems if we know only too well that change is the
only constant of our times and that better scdutions will become both feasible
and necessary in the future.
1 In the latter event it has to be remembered that suppliers of such systems have a vested
interest in selling stationery and that standard packages may not fit the given situation very well.
2 D. C. McClelland and D. G. Winter: Motivatircg economic achievement (New York, The
Free Press, 1969).
3 S. W. Gellerman: Management by motivation (New York, American Management Associa-
tion, 1969).
4 G. W. Miller: "The magic number seven, pluf or minus two" in Psychological Review,
Vol. 63, No. 2, Mar. 1956.
TERMINATION
Termination is the fifth and final phase of the consulting process. Every
assignment or project has to be brought to an end once its purpose has been
achieved and the consultant's help is no longer needed.
It is not enough to execute the assignment in a professional manner. The
disengagement also has to be fully professional: its timing and form have to be
properly chosen and all commitments ought to be settled to the mutual
satisfaction of the client and the consultant.
It is the consultant who has primary responsibility for suggesting at what
point and in what way he or she would withdraw from the client organization.
He or she bears in mind that the client may feel uncertain about the right moment
for terminating the project, in particular if the consultant's presence has clearly
contributed to important improvements in management and the client has
become used to seeking advice on important items. The client may feel more
secure if the consultant continues to be available to help with any new problems
that may arise. This, however, could make the client excessively dependent on
the consultant, who would, to use an analogy, function as a crutch needed by a
permanently handicapped patient instead of an orthopaedist who helps the
patient to recover all physical capabilities.
Termination concerns two equally important aspects of the consulting
process: the job for which the consultant was brought in, and the consultant-
client relationship.
First, the consultant's withdrawal means that the job in which he or she has
participated:
has been completed;
will be discontinued;
will be pursued, but without further help from the consultant.
In deciding to terminate the assignment, the consultant and the client
should make it clear which of these three applies in their particular case. There
should be no ambiguity about this. It is of no benefit to anybody if the consultant
is convinced of having done a good job while the client waits only for the
consultant's departure in order to stop the project. Thus the consultant and the
client should jointly establish whether the assignment can be qualified as a suc-
cess, a failure, or something between these two extremes.
Second, the consultant's withdrawal terminates the consultant-client
relationship. The atmosphere and the way in which this relationship is discon-
tinued will influence the client's motivation to pursue the project, and his attitude
to possible future use of the same consulting organization. Here, too, the assign-
ment should not be terminated with uncertain and mixed feelings. Ideally, there
should be satisfaction on both sides about the relations that existed during the
assignment. The client should be convinced ;hat he has had a good consultant,
to whom he would gladly turn again. The consultant should feel that he has been
trusted and respected, and that working again for the same client would be
another stimulating experience. The relationship has a financial dimension, too:
both parties should feel that a proper price was paid for the professional service
provided.
Professional consultants attach great importance to the way in which they
terminate assignments. The last impressions are very significant, and an
excellent performance at the end of assignments leaves the door open for future
work. We know how important repeat business is to management consultants.
Repeat business, however, is available only to those whose performance remains
flawless until the very end of every assignment.
11.I Time for withdrawal

To choose the right moment for withdrawal is often difficult, but if a wrong
decision is made a good relationship can be spoiled and the success of the project
jeopardized.
Planning for withdrawal

Some assignments are terminated too early. This is the case if:
the consultant's work on the project could not be completed;
the client overestimated his or her capability to finish the project without
having been sufficiently trained for it;
the client's budget does not permit the job to be finished;
the consultant is in a hurry to start anol.her assignment.
Instances of assignments that finish later than necessary are also frequent.
This happens if:
- the consultant embarks on a technica1l.y difficult project without making
sure that the client is properly trained to take over from him or her;
- the job is vaguely defined, and new problems are discovered in the course
of the assignment;
- the consultant tries to stay longer than necessary.
Termination
To avoid these situations, the question of timely withdrawal should be

discussed right at the beginning of the consulting process, when the consultant
presents the whole assignment cycle to the client. The consulting contract should
define when and under what circumstances the assignment will end. As already
mentioned, the choices are numerous. The assignment can end after the
diagnostic phase, after action planning, at some stage during implementation,
or when implementation is completed and agreed results achieved.
It may be difficult to determine the right moment for withdrawal when
signing the contract. At such an early stage it is often impossible to foresee how
implementation will progress, how deeply the client's staff will be involved, and
what new relations and problems will emerge or be discovered during the
assignment.
That is why it is recommended that the assignment plan is reviewed at
critical points during the assignment; at each review it should be asked how
much longer the consultant should stay, and what remains to be done before the
assignment could be terminated.
Gradual withdrawal
Gradual withdrawal has already been mentioned in section 10.1. In many
situations this can be the best arrangement from both the client's and the
consultant's point of view.
Watching withdrawal signals

Withdrawal signals, as some consultants call them,l show the consultant
that the client would like to terminate the assignment. They can be very overt,
or indirect and hidden. The client may start being less frequently available to
meet the consultant, or may indicate in some other way that enough time has
been spent on the project. It is essential to be alert to these signals. This does
not necessarily mean that the consultant should immediately pack up and leave
if he or she has valid professional reasons for pursuing the work, but the point
should be frankly discussed with the client.
Never stay longer than necessary!

If the client is convinced that he can proceed alone, the consultant should
never insist on staying longer even if he does not share his client's opinion. After
all, he who pays the piper calls the tune. It is the client who is paying the
consultant, not vice versa.
Staying longer than necessary is unprofessional and damaging to the
consultant's image. Unfortunately, as one practitioner has put it, "some
consulting outfits are like a fungus that gets inside the client and keeps finding
new areas not in the original agreement and stays on and on, sucking the blood
out until someone pulls the plug and says 'enough'. Their advice is superb, but
it just gets to be too much".2
11.2 Evaluation
Evaluation is a most important part of the termination phase in any
consulting process. Without evaluation, it is impossible to assess whether the
assignment has met its objectives and whether the results obtained justify the
resources used. Neither the client nor the consultant can draw lessons from the
assignment if there is no evaluation.
Yet many assignments are never evaluated, or their evaluation is superficial
and of marginal interest. This is due to certain difficulties inherent in the
evaluation of change in organizations and human systems. The number of factors
affecting such systems is considerable and to isolate factors changed following
a discernible consulting intervention may be difficult. For example, if the
purpose of the assignment was to increase output, evaluation cannot take for
granted that any higher output achieved by the end of the assignment is due only
to the intervention of the consultant. It may be that the increase is due to other
factors and the assignment actually made no contribution. Some changes are
difficult to identify, measure, describe and assess.
In addition, evaluation can be the most delicate part of the consultant-client
relationship and it may be more comfortable to avoid it, in particular if the client
is not very happy with the consultant's performance and if there is a feeling that
they would not collaborate again. Financial reasons also play their role: even the
simplest evaluation exercise will cost some t-ime and money and the client may
feel that this money can be saved, because it is not used for developing anything
new.
Who should evaluate

As with the whole consulting process, effective evaluation requires col-
laboration. Both the client and the consultant need to know whether the
assignment has achieved its objectives and c m be qualified as a success story.
The client has, of course, certain specific interests and viewpoints. He is
evaluating not only the assignment but also the consultant and his performance.
If the client is keen to perform better next time, he also makes a self-evaluation,
assessing his own technical and managerial performance in cooperating with the
consultant, monitoring the progress of the zssignment and making use of the
advice received. In the same way, the consu'ltant will evaluate his own and the
client's performance.
How much of this will be a joint exercise and what information will be
shared is a matter of confidence and judgement. In an assignment that has been
a true collaborative effort, evaluation is usudly open and constructive. Yet no
one can force the client and the consultant to share all conclusions from their
evaluations.
Evaluation will focus on two basic aspects of the assignment: the benefits
to the client and the consulting process.
Termination
Evaluating the benefits to the client

The reasons for evaluating the benefits of the assignment are self-evident.
The benefits define the change achieved, a change that must be seen as an
improvement, as a new value added to the client's business. Remember our
discussion of consulting purposes and objectives in Chapters 1and 7. Basically,
the benefits are evaluated by comparing two situations, one before and one after
the assignment. This is possible if the evaluation was foreseen in designing the
assignment, i.e. in defining results to be achieved and criteria whereby the results
actually achieved will be measured and assessed.
Evaluation will seek answers to the following questions:
- Has the assignment achieved its purpose?
- What specific results and benefits to the client have been achieved?
- What expected results could not be achieved?
- Has the assignment achieved some unexpected and supplementary results?
In typical management consulting assignments there are six kinds of

benefit or result:
new capabilities;
new systems;
new relationships;
new opportunities;
new behaviour;
new performance.
New capabilities. These are the new skills acquired by the client: diag-
nostic and other problem-solving skills, communication skills and change-
management skills, as well as special technical or managerial skills in the
particular areas affected by the assignment (e.g. new ways of raising finance for
the business). New client capabilities in serving customers are particularly
important (e.g. ability to deliver new products and services or to meet quality
standards in new countries). New capabilities also include qualities such as the
client's increased ability to take action, creativity, entrepreneurial spirit, ability
to innovate, sensitivity to environmental issues and similar. In a nutshell, the
client should have become a more competent and more independent decision
maker.
New systems. Many assignments help to introduce specific systems
changes, such as new information systems, marketing systems, production and
quality management systems, personnel recruitment and appraisal systems,
preventive maintenance, and so on. These systems can be considered as assign-
ment outcomes if they are, or are likely to become, operational.
New relationships. The assignment may have helped to establish new
business and other relationships essential to the future of the client's business,
such as new strategic alliances, subcontracting arrangements, consortia for

implementing complex construction projects or agreements on benchmarking.
New opportunities. These may concern various parts and aspects of the
client's business. The consultancy may have identified new potential markets,
cheaper sources of raw materials, new technologies to be explored, land and
buildings to be acquired and so on.
New behaviour. Changed behaviour means doing things in a different way.
This term is mainly applied to interpersonal relations (e.g. between managers
and their subordinates, or between cooperating teams from two different
departments). However, it also embraces individual behaviour in work situations
(e.g. whether or not a worker uses a safety device preventing accidents, how
sales personnel treat customers or whether a general manager has actually
stopped postponing unpleasant decisions).
New performance. New performance is achieved if changes in the five
areas mentioned above produce improvemenl s in economic, financial, social or
other indicators used to measure performancs. These changes can be observed
at individual (workstation), unit (workshop, t~:am, group, plant, department), or
organizational (enterprise, agency, ministry) level.
Higher performance is an overriding g o d and should be used for evaluating
outcome and showing benefits whenever possible. Consulting which would
improve capabilities without aiming at improved performance could be an
academic exercise, and a luxury from the financial point of view. It does happen,
however, that changed performance cannot be used to assess results (e.g. new
capabilities have been developed and opportt.nities identified, but the client has
to postpone the application of measures that will bring about superior
performance). Also, the client's improved business and managerial capabilities
can under certain circumstances be regarded as more important benefits, and of
longer duration, than immediate measurable improvements in economic and
financial performance.
Short-term and long-term benefits

In some assignments it may be necessary to distinguish and compare the
short-term and long-term benefits. Impressive short-term results may ignore the
future prospects and needs of the business and may be achieved to the detriment
of the client's longer-term interests. Conversely, modest or no short-term results
may be justified if the assignment has focused on longer-term benefits. The
future prospects of the client's business, and long-term results, should be always
kept in mind, even if the assignment has pucjued short-term benefits above all.
Termination
Evaluating the consulting process

The evaluation of the consulting process is based on the assumption that
the effectiveness of the process strongly influences the results of the
assignments.
This concerns assignments aimed at behavioural changes above all: if new
sorts of behaviour and processes are to become established in the client
organization (result), the consultant must choose and propose to the client a
consulting style and intervention method (process) that can produce the desired
outcome. For example, it is unlikely that a real change in the client's problem-
solving capabilities will be achieved by giving a lecture or distributing a
technical note on problem solving and decision making.
The consultant-client relationships and the intervention method develop
during the assignment. Different methods can be used, and the process can
become more or less collaborative and participative, and more or less effective.
The evaluation should reveal this. The principal dimensions of the consulting
process to be evaluated are as follows.
The design of the assignment (the contract). It is useful to start by
examining the start of the relationship. The questions to be raised include these:
0 How and by whom was the need for the consultancy established?
0 How was the consultant chosen? What criteria and procedures were used?
Was the purpose of the consultancy clear? Was it not unduly narrow or
vague?
0 Was the design of the assignment clear, realistic and appropriate with
regard to the client's needs and particular conditions?
0 Did the original definition of purposes, objectives and inputs provide a
good framework and guidance for the assignment plan? Were the
objectives sufficiently demanding but not impossibly so?
0 Was the consulting style properly defined, discussed and understood? Were
people briefed about their roles and responsibilities right at the outset?
The quantity and quality of inputs. In addition to assessing the original
definition of required inputs made in the assignment plan, evaluation includes
the examination of inputs that were provided by the consultant and the client.
The main questions are:
Did the consultant provide a team of the required size, structure and
competence?
0 Did the client provide the resources (human and other) needed for the
assignment?
The consulting mode (style) used. In this section, the consultant and the
client assess in retrospect the events that took place and the relationship that
existed during the assignment. They ask in particular:
0 What was the nature of the consultant-client relationship? Was there an
atmosphere of mutual trust, understanding, respect and support?
Was the right consulting mode (style) used? Was it adapted to the client's
capabilities and preferences, and adjuwed to the task at hand?
Was every opportunity taken to incresse the client's involvement in the
assignment?
Was proper attention paid to the learning dimension of the assignment?
What was done to transfer knowledge and know-how to the client?
a Did the consultant scrupulously observe all ethical and behavioural norms
of the profession?
The management of the assignment by the consultant and the client.
Gaps and errors in the original assignment plan can be corrected and
modifications required by changed conditior~scan be made if the assignment is
aptly managed by both partners. An ev,;iluation addresses the following
questions:
Was the necessary flexibility built into the original design of the assign-
ment?
How did the consulting firm manage and support the assignment?
How did the client control and monitor the assignment?
Did the consultant and the client respect the timetable?
Was there an interim reporting and evaluation at key points in the
assignment? What action was taken on the basis of it?
Evaluation tools
Priority is given to collecting and examining hard data permitting
measurement and quantitative assessment. [n addition, identifying and exam-
ining opinions is important, particularly for evaluating the consultant-client
relationship and the consulting style. Classcal techniques are used, including
interviews, observations, questionnaires a.nd discussions at meetings (see
Chapter 8).
A frank discussion between the client and the consultant is essential. Step
by step, the discussion should try to review what happened in the client's and in
the consultant's opinion, as well as the causes underlying particular attitudes and
behaviours, achievements and errors.
Evaluation should be summarized in a short report, which can become a
part of the final assignment report, or be presented separately (e.g. if the
evaluation of results takes place several months after the completion of the
assignment).
When to evaluate
There is a case for evaluation when the assignment is coming to an end.
Some benefits to the client may already b~eidentifiable and it is possible to
evaluate the consulting process in retrospect. The end-of-assignment evaluation
Termination
is certainly the most important one. But it should not be the only one. Delaying
evaluation until the end of implementation can mean that it is too late to suggest
any improvements in the assignment strategy, methodology and management.
Such suggestions are of interest only for future assignments. That is why interim
evaluations should be foreseen at the end of the diagnostic and the action-
planning phases. They should be treated as a normal part of the joint control and
monitoring of the assignment by the consultant and the client. If necessary (e.g.
in long and complex assignments), even within diagnosis, action planning and
implementation, there may be a need for several evaluation exercises to review
progress and interim results and, possibly, to adjust the assignment plan and the
work methods used.
On the other hand, it is often impossible to complete evaluation right away
at the end of the assignment. If measurable results cannot be identified
immediately, or if the projected performance cannot be achieved until some time
later, there is a case for follow-up evaluation.
Independent evaluation by the consultant

Clients have their own policies and practices for evaluating the use of
consulting and other professional services. A client may even choose not to
evaluate a completed assignment at all. To a consultant, assignment evaluation
is one of the basic tools for managing quality, controlling and developing staff,
and building excellent relations with existing clients. As a matter of principle, a
consultant should evaluate every assignment for his or her own benefit, even if
the client has decided to skip the evaluation.
The questions to be asked are not different from those mentioned above,
although their focus may be slightly modified. The consultant will stress
self-evaluation, looking specifically at issues where the consulting firm has
experienced problems and is keen to make improvements.
It is difficult to be objective and unbiased in practising self-evaluation.
Excellent consulting firms therefore seek feedback from clients, using various
data-gathering and evaluation instruments.
Questionnaires submitted to clients are the preferred instrument. The
questions asked should invite the client to be outspoken about every aspect of
the relationship and the work performed, including the competence and attitude
of the consulting staff, their flexibility, behaviour, creativity, availability, help-
fulness and other qualities that make the difference between mediocre and
excellent assignment^.^ If the client takes the trouble to answer, the consultant
should in turn provide feedback to thank the client and tell him what action will
be taken on his answers and suggestions.
Other frequently used instruments include interviews, discussions with
senior personnel in client firms, follow-up visits, study of the client's internal
evaluation reports (if made available to the consultant) and similar.
It should be noted that in quality certification according to I S 0 9001
standards, assignment evaluation using feedback from clients is a compulsory
procedure (see Chapter 28).
The client and the consultant often agree to terminate a particular assign-
ment without completely discontinuing their working relationship. If further
work done by the consultant is still related to the current assignment in some
way, we call it follow-up. The desirability of some follow-up is often identified
in evaluating the assignment. If the consultant is convinced that follow-up is in
the client's interest and that he or she has something more to offer to the client,
this may be suggested in the final report and meeting with the client.
The advantages to the consulting organization are obvious. A follow-up
service is an invaluable source of information on the real impact of operating
assignments and on new problems which may have arisen in the client
organization. New assignments may develop from these visits, which may not
cost the consulting organization anything if the follow-up is provided on a paying
basis.
Many client organizations may also find that follow-up services are a
useful form of assistance through which new problems and opportunities can be
discovered and addressed before they become a headache. However, no client
should be forced to accept a follow-up arrangement if he or she is not interested
in it.
Follow-up of implementation
There are many options for the consultant's involvement in implemen-
tation. In addition, new technical developments will take place in the area
covered by the assignment and there may be other reasons why the client wishes
the consultant to take a fresh look at the situation created by the implementation
of the proposals.
Therefore the client may be interested in a follow-up arrangement. For
example, the consultant will pay him or her a short visit every three months over
a two-year period. The purpose will be to r:view progress on implementation,
to help to take any necessary corrective measures, and to find out whether or not
new problems have arisen. If a new intervention is required that exceeds the
scope of these periodic visits, the client will receive a separate proposal for this,
but will be absolutely free to accept or decline it.
Retainer arrangements
Follow-up visits related to specific ass1gnments are normally programmed
for a limited period of time. The client may be interested in maintaining a more
permanent working relationship with a consultant who gave satisfaction. This
can lead to a retainer arrangement (see section 1.4).
Many retainer arrangements are the result of successfully implemented
consulting projects. This is quite logical. Why should a client enter a long-term
collaborative relationship with a consultanl. without having seen him or her at
work?
Termination
11.4 Final reporting

Before and during the assignment the client has received several reports:
- the report in which the assignment was proposed, based on a quick (pre-
liminary) diagnostic survey;
- progress reports, whose number and scope varies, and in which modifi-
cations in problem definition and assignment plans may have been
proposed;
- reports and documentation linked with the submission of proposals for the
client's decision prior to implementation.
Whatever the pattern of interim reporting, there is normally a final assign-
ment report issued at the time the consultant withdraws from the client
organization. Furthermore, the consulting firm requires reports which will be of
help, above all, to its members who may be called upon to undertake similar
assignments.
Report to the client

For a relatively short assignment, this may be the only report and so has to
be comprehensive. For longer assignments, the final report may make passing
reference to previous reports and go into detail only on the events since the last
report was written. In every case, as a closing report, it tidies up all the loose
ends and covers the essential end-of-assignment facts and confirmations. It
should be known before it is written whether the consultant is to provide a
follow-up service. If so, the report may not be quite as "final" as it otherwise
would be.
In addition to a short comprehensive review of work performed, the final
report points out the real benefits obtained from implementation and makes frank
suggestions to the client on what should be undertaken, or avoided, in the future.
Some consultants, especially in the OD sector, regard final reports as
redundant if the client has worked closely with the consultant throughout the
assignment and there is obvious satisfaction with the approach taken and the
results. Final reports are not compulsory. However, the fact that one has to be
produced (it can be a very short one) encourages discipline and rigour and
stimulates thinking on what was really achieved and what could have been done
in a better way.
Evaluation of benefits
An evaluation of benefits is included in the final report if this is practical,
i.e. if the consultant is leaving the client after a period of implementation which
lends itself to evaluation. In other cases, it may be submitted later as already
discussed.
Through the evaluation of real benefits the consultant proves the correct-
ness and accuracy of both the preliminary assessment (given when proposing
the assignment to the client) and the evaluation of alternative solutions (pre-
sented to the client for decision prior to implementation).
Clearly, implementation must have progressed far enough, and the con-
ditions of operating the new technique or system must have become normal and
stabilized, if an evaluation of benefits is to give objective information. The
consultant emphasizes direct benefits obtained as a result of the assignment and
leaves the consideration of indirect benefits (e.g. no increase in fixed costs) to
the client.
In presenting the benefits the reports should focus on measurable
economic, financial and social benefits that have been or will be drawn from
superior performance. However, the report should also describe the new
capabilities and new systems, opportunities and behaviours created by the
assignment and show their impact on superior performance, as discussed in
section 11.2.
Most management consulting firms prefer not to point out the savingslfee
ratio. Such analysis is left entirely to the client, who appreciates that all benefits
cannot be costed and that this ratio may be high in many simple, low-risk
assignments, whose impact on overall and long-term business results is limited.
Evaluation of the consulting process

Whether to include the evaluation of he consulting process in the final
report is a matter of judgement. There may be a strong case for doing so if the
client can learn from it for the future, and if the client's behaviour during the
assignment was the reason for some superior or substandard results achieved.
The consultant and the client should agree on how detailed and open this section
would be, and what matters would be discl;.ssed, but not included in the final
report.
Suggestions to the client

Although the job is completed, the consultant shows that he or she sees the
client organization in perspective by pointing out possible further improvements,
opportunities, bottlenecks, risks, action that should not be delayed, and so on.
In any case the consultation has to make suggestions on how the new system
introduced with his or her help should be mzintained, controlled and developed
after his or her departure. An agreement reached on a follow-up service would
also be confirmed in the final report.
A good consulting report should be capable of commanding the respect of
the client, who will consider it a source of further learning and guidance. He or
she will also be pleased to show it to business friends and associates as the record
of a worthwhile achievement.
Further suggestions on writing and presenting consulting reports can be
found in Appendix 10.
Termination
Assignment reference report

In addition to the final report to the client, consultants compile an assign-
ment reference and evaluation report for their own organization (see also
section 27.5).
The client's internal report

Some organizations using consultants prepare internal reports on com-
pleted assignments. In addition to summary information the report includes the
client's assessment of the job done and of the consultant's approach and
performance. Although this is a most useful practice, it is not very common. This
report is not intended for the consultant. Nevertheless, some clients are happy
to share it with the consultant, who in turn should not miss an opportunity to
obtain a copy.
See, e.g., D. Casey: "Some processes at the consultantlclient interface in OD work", in

Leadership and Organization Development Journal (Bradford, West Yorkshire), No. 1, 1982.
Consultants News (Fitzwilliam, New Hampshire), JulyIAug. 1991, p. 6.
See, for example, the client feedback questionnaire suggested by David Maister in
Managing the professional service firm (New York, The Free Press, 1993), pp. 85-86, and also
reproduced in M. Kubr: How to select and use consultants: A client'sguide, Management Develop-
ment Series, No. 31 (Geneva, ILO, 1993), p. 176.
PART Ill
CONSULTING IN VARIOUS AREAS

OF MANAGEMENT
CONSULTING IN GENERAL
AND STRATEGIC
MANAGEMENT
This chapter is the first of a series of 11, each dealing with consulting in
a specific area of management. The authors' intention is not to provide an
exhaustive analysis of management techniques, practices and problems in each
area covered, but, in keeping with the spirit of the book, to show how manage-
ment consultants can help clients and how they normally operate in these areas.
This opening chapter, and the following ten chapters, can serve, therefore,
as an introduction to a more detailed study of consulting in various areas of
management. Appendix 11 provides selected reading lists for all chapters in
Part 111.
12.1 Nature and scope of consulting in corporate

strategy and general management
A considerable amount of management consulting concerns the very
existence, the basic goals or "mission", the business policy and strategy, and the
overall planning, structuring and control, of an organization. These problems
were at one time defined as general management, but are now more commonly
referred to as corporate strategy or strategic management. Consultants who
concern themselves with these issues are strategy or general management
consultants - as distinct from specialists who intervene in one functional area
(finance), or deal with a particular technique such as computerized production
control or employee incentive schemes.
But how do we find out if an enterprise requires the assistance of an
all-round management consulting generalist? In some cases this is quite obvious
from the state of the business: its deteriorating overall performance, the growing
dissatisfaction of the staff, the generally bleak prospects of the industrial sector,
and so on. The business may be in crisis, or very close to it, and it is not clear
how to restore prosperity. In other cases, a problem that seems at the outset to
be a special or functional one (inadequate marketing methods, say) has
ramifications in other areas of management and eventually is found to be only
a symptom of a much deeper general management problem affecting the whole

organization.
In such organizations it is common to find that top management lacks any
clear idea of where the company is going or what it is trying to achieve. In short,
there is a lack of strategic direction. In others, top management has some sense
of strategic objectives but has failed to communicate its vision to middle and
lower management and to the workforce - and, in consequence, the strategies
are never implemented. These problems are addressed in later sections of this
chapter.
Multifunctional and interdisciplinary problems

The most prominent characteristic of problems handled in general manage-
ment consulting is that they are:
- multifitnctional: the consultant deals with several functions of the business
(production, technology, organization, marketing, etc.) and focuses on the
interaction between these functions and on problems involving more than
one function;
- interdisciplinary: the consultant must be able to view business problems
from several angles; typically, a business strategy problem may have
technological, economic, financial, legal, psycho-sociological, motiva-
tional, political and other dimensions.
General managers, too, have been chosen for their ability (real or expected)
to deal with multifunctional and interdisciplinary problems. Experience shows
that many of them find this difficult. There are cases of general managers,
previously excellent plant managers, who continue to be plant managers in their
new position! This is an area where a management consultant can be of great
help to the client - the general manager who has to change his habits, learn
how to deal with new functions, look at the problems of the business from new
angles, and above all free himself from day-to-day operating concerns suffi-
ciently to be able to think about longer-term strategy.
In fact, a general management consultant is also a kind of specialist: his or
her speciality lies in combining other specialities into a balanced and coherent
multifunctional and interdisciplinary approach. Like the general manager,
however, the general management consultant turns to other specialists when
appropriate. He or she must know how to use the specialist's skill and advice,
and help the client to do the same, to prevent situations where specialists (e.g.
market researchers or financial analysts) would dominate the business.
Paths to organizational excellence

In Chapter 1, achieving the organization's basic goals and organizational
excellence was shown to be a common "super-ordinate" goal of management
consulting. Consultants help to nudge orgar~izationstowards excellence. They
therefore require a validated vision of excellence in order to raise the expec-
Consulting in general and strategic management
tations and ambitions of managers to the effort necessary to change organizations

for the better. They need, furthermore, a conceptual framework for devising
action objectives and programmes that lead to excellence, or at least bring
organizations closer to it.
Interest in organizational excellence waxes and wanes; it is now higher
than it has been for decades.l Research on excellent organizations shows that
they mutate: excellent organizations today are not exactly like those of yesterday.
They tend to share certain common features: for example, many of them exploit
technological frontiers -the railways of the 1860s, the motor companies of the
first half of our century, and the electronics companies of the 1980s. Another
common feature is that they are well adapted to the needs and aspirations of their
workforces, and, paradoxically, this is where they can differ very considerably
from one another, because of the differences in both workforces and cultures.
Invariably, excellent organizations are more sensitive than other organizations
to their environments, and to the needs, wishes and satisfaction of the clients in
particular. This sensitivity to the needs of customers has engendered a growing
emphasis on quality, and the "total quality management" (TQM) philosophy is
currently recognized as a hallmark of excellence.
Thus there is no one single, simple path to excellence. The management
of today's organization requires a holistic and integrated approach in devising
and implementing programmes for achieving excellence. The consultant should
beware of simplistic solutions and explain to the client that there is no panacea,
no "quick fix7' for achieving high performance, productivity, effectiveness or
excellence (see also Chapter 22).
Unfortunately, management theory does not provide the general manage-
ment consultant with a research-based and generally accepted conceptual
approach to designing and evaluating action programmes leading to excellence.
What is available, and certainly of interest to the consultant-practitioner, is a
range of pragmatic and experiential models describing organizations and
analysing the causes of their successes or failures. Some of these models assist
in the determination of corporate strategies, through a better understanding of
the industry structure and competitive forces. Some models of this type will be
examined in the following section. Others are more concerned with the ways in
which strategy is implemented.
For example, the so-called "seven-S" framework developed by the
McKinsey organization in the 1980s examined high-performance organizations
under the following main headings: strategy, structure, systems, style, shared
values, staff (people) and skills, emphasizing that these variables constitute an
interdependent reinforcing network. Implementation is facilitated by identifying
the blocks and obstacles likely to be encountered in each of these areas, and
considering how they can be a ~ o i d e d .Another~ framework suggests the
following five tracks: (1) culture; (2) management skills; (3) team-building;
(4) strategy structure; and ( 5 )the reward ~ y s t e mResearch
.~ into factors affecting
organizational excellence is likely to continue, and will no doubt pay increased
attention to factors that are specific to various socioeconomic and cultural
settings, especially those which differ from the environments of the United
States and Japan where most current research into organizational excellence has
been based.
Diagnosing organizations
As explained in detail in Chapter 7, many consultants prefer to carry out a
quick preliminary survey of the organization before proposing a specific
problem-solving assignment. Thus the first technical contact between the client
and the consultant is often at the general management level, before the consultant
moves into specific areas identified by the survey.
There are situations where a very thorough diagnostic survey (diagnosis,
audit, etc.) of the whole organization is required in preparation for important
decisions on the future of the business. A comprehensive diagnostic survey may
precede a major restructuring or reorganization, an acquisition, a merger, a
privatization or a decision to close down a business. The consultant's mandate
is to help the client to diagnose the organization concerned; he or she may even
be asked, as an independent expert, to examine the organization in order to
provide an objective and neutral report on the status, strengths, weaknesses and
development prospects of the business. The assessment of the management
systems used and of senior managerial personnel may be included. The
assignment may end with the consultant submitting a report on the diagnosis.
Diagnostic surveys of this type may be fairly extensive and difficult assignments.
While a quick survey is a matter of a few days, comprehensive and in-depth
surveys may take several months, depending, of course, on the size and
complexity of the organization and on the nalure of its problems.
Some comprehensive diagnostic surveys intervene too late, when the
company concerned is no longer susceptible of rescue, or when rescue would
require resources that are not available. In certain cases such a crisis could have
been prevented by undertaking a thorough diagnosis at an earlier date, and
arranging for a periodic business diagnosis, or self-diagnosis, as a preventive
measure. The consultant may have an opportunity to help a client to design and
install a self-diagnostic scheme on a regular basis. This opportunity should not
be missed!
Organizational level of interventions

In many cases the general management consultant intervenes at the highest
level in the organization: with the chief executive in person, or the top
management team. Even leaders keen to introduce change often do not realize
what will be involved, or do not see that they ought to start by changing
themselves. They frequently have a particular self-image, though the consultant
may find that this image is not shared by other people in the organization. The
consultant's problem then lies in persuading management of the need to change
thinking and behaviour at the very top.
The possibility of working directly with the chief executive and the
management team provides an excellent introduction to the organization, rapid
access to key data, a true picture of the operating style of top management, and
usually strong support from the top for the consultant's work. Yet it is often risky
to confine intervention to top management level. The general management
consultant needs to find out how top management is perceived throughout the
organization, and how management policies influence the work style, per-
formance and job satisfaction of employees. Furthermore, general management
is also practised at intermediate and lower levels in the management hierarchy,
and eventually affects every single worker. For example, supervisory manage-
ment is often underestimated and constitutes one of the weakest links in the
management hierarchy.
Consulting style
In general and strategic management more than in any other area, the
consultant cannot avoid dealing with issues affecting management's personal
interests, self-image and authority. Advice on crucial issues of a company's
direction, strategy and leadership can easily be perceived as criticism aimed at
particular persons. Yet the objective is to strengthen and improve management,
not to undermine it. Also, the consultant does not want to see his or her proposals
rejected by senior management. Experienced consultants therefore attach great
importance to choosing the right consulting style.
Many entrepreneurs and senior managers are very lonely and isolated
people when it comes to discussing their basic goals and values and their style.
The general management consultant may well be the first person able and willing
to talk to them about these issues. Personal counselling (see section 3.7) may be
needed, and the consultant should not hesitate to offer it tactfully to the client.
A frequently debated issue is the choice between participative and process
consulting approaches, and those where the consultant acts primarily as an expert
in the subject. If the client is not able or willing to participate, the consultant
may decide to give the best expert advice possible, which the client may decide
to use or to ignore. However, in strategy and general management consulting,
the risk of rejection is extremely high as witnessed by countless consulting
reports, plans and proposals that have been ignored by the client. Furthermore,
core issues concerning the very existence, mission, strategic direction or
organizational structure of a client company can hardly be fully understood and
properly resolved if handled by outsiders only. All the reasons that speak in
favour of participative consulting in any area of management are doubly valid
when dealing with strategy, organization, corporate culture and similar general
management issues.
12.2 Corporate strategy

The concept of corporate strategy has made a significant contribution to
the advancement of management practice and theory over the last 30 years.
Consulting in corporate strategy (business strategy, strategic analysis, strategic
planning, etc.) has become a rapidly growing area of management consulting.

Some consultants have made corporate strategy their main or exclusive field of
intervention. Consulting in corporate strategy has been strongly influenced by
changing fads and fashions. During the 1970s there was a growing use of
quantitative techniques and models, and strategic studies began to be dominated
by young econometricians and operational researchers, with excellent education
but often without business experience, and with no knowledge of people, or of
social and other problems that determine strategy in reality. The following
decade saw a welcome swing back to pragmatism.
A further development of the 1960s and 1970s was that many business
firms created strategic planning units, and planning was seen as a distinct staff
department function. The 1980s saw a strong swing away from such depart-
ments, which in any case rarely commanded the attention or respect of top
management. It is now increasingly recognized that strategic planning is far too
important to be left to planning staff, and that participation in the formulation
of strategies is an intrinsic part of the work of senior management.
Even though the role of the planning department has diminished, however,
the need for the external consultant has increased. Senior operating executives
must always have some difficulty in stepping back from their immediate
priorities and thinking about the longer term. Their workloads make it difficult
for them to track all those developments in the company's environment that need
to be taken into account in the formulation of strategic plans, and it is notoriously
difficult for them to make an honest evaluation of their organization's
weaknesses relative to competition. The consultant brings an open mind to these
issues. Many boards of directors develop long-term relationships with
consultants who advise them on strategy development, and clearly find such
advice invaluable.
Strategic vision
Corporate strategy is usually defined as the organization's response to
environmental opportunities, challenges and threats, consistent with its
resources and its competences relative to its competitors. This latter point is so
important that some writers define strategy entirely in terms of the search for
competitive advantage. It is important to remember, however, that strategy is not
an aim in itself but a set of paths and choices for achieving the organization's
goals in the future. This is where a consultani can start helping the client. Many
organizations practising strategic planning actually lack a vision of the future.
Some do not even have a clear understanding of the present; they have not asked
the strategist's fundamental question: "What business are we in?". Yet an
understanding of this must be the starting-po int of any sound strategic analysis.
A strategic vision should be as rational as possible and not a result of
wishful thinking. However, total rationality is not achievable for one simple
reason -the future is unknown and is being shaped by a myriad of independent
actions all over the globe; the client's own actions will form only a tiny fragment
of this future, however important his business is. Nor is it possible to evaluate
every possible course of action. The personal values and judgement of the key
decision-makers therefore play a vital role in positioning the organization for
the future. Harold Leavitt has described this role as "~athfinding".~
Other writers
describe it as a "sense of mission".
It is for this reason that current thinking on corporate excellence and
strategy puts so much emphasis on organizational leadership. A leader is an
individual (or team) with a vision of the future position of the organization.
Furthermore, a leader is able to express this vision in goals understandable to
people in the organization, and influence and motivate people to achieve these
goals. There is a unity of vision, and a unity of actions guided by this vision.
Industry and competitor analysis:

Determining competitive advantage
A competitive advantage is a key dimension of survival and success in
environments where organizations must compete with each other. This
advantage is not a trick that can last a few months (e.g. a smart advertising
campaign), but an inherent capacity to sustain superior performance on a
long-term basis. The search for such advantage must therefore start with a
systematic analysis of the industry and sector in which the enterprise operates,
and of the competitive forces at play.
Much of the most important development in strategic thinking in the past
decade has been in concepts and models that facilitate this kind of analysis. The
"five forces" model proposed by Michael Porter identifies five key areas that
management needs to understand: (1) the competitive structure within the
industrytsegment itself; (2) the threat of new entrants; (3) the threat of substitute
products or technologies; (4) the power of suppliers; and (5) the power of
customer^.^ Kenichi Ohmae suggests "key success factors" on the basis of which
the business unit should compare itself with its c~mpetitors.~Another of Michael
Porter's concepts, the "value chain", assists in determining where in the
enterprise's operating cycle these key factors are to be found. Products and
market positions can be brought into better perspective by using producttmarket
life-cycle models. None of these models claim to describe reality for any one
particular company: rather, they are an aid to thinking about reality. They are
certainly tools which any consultant working in this area needs to have in his or
her tool-kit.
Equipped with such tools, the consultant can be most helpful in examining
whether the client business does indeed enjoy any competitive advantage, or in
developing a strategy for achieving one. He or she can draw the client's attention
to the ways in which organizations regarded as excellent achieved and
maintained their competitive advantage. He or she can point out certain factors
that tend to be characteristic of all firms that possess such an advantage (for
example, priority attention paid to the clients' needs and satisfaction, and to the
quality of products and services). But above all, the consultant can help the client
to think honestly about the industry's characteristics, the keys to success, and
just how the client's enterprise matches up to the competition in these key areas.
After the analysis comes the moment of truth: specifying the strategy to
be followed. The consultant can help the client organization in choosing from
alternatives that are available to it, and which reflect the real possibilities of the
technical and production staff, production facilities, marketing networks,
business experience and the like. Once again, recent thinking on the subject of
corporate strategy has provided insights that can clarify the decisions that have
to be made. Michael Porter has highlighted the distinction between two
fundamental approaches or, as he terms them, "generic strategies". One of these
is to concentrate upon becoming competitive through "cost leadership", i.e. by
having the lowest costs in the industry (though this does not, of course,
necessarily mean having the lowest selling prices). The other is to concentrate
upon "differentiation", which means offering the customer superior quality and
a unique package of features. Clearly, no enterprise can afford to ignore either
costs or quality completely. Porter believes, however, that no company can hope
to dominate its field in both cost and differentiation, and that any attempt to do
so will lead to being "stuck in the middle" with neither the most competitive
costs nor superior product features.
Practical examples of the strategic cho~cesto be made are:
- offering state-of-the-art technologically advanced products not available
from other firms or available from very few (differentiation), and regularly
abandoning these products and moving on when the technology becomes
common and prices start dropping;
- providing service to clients with speed and reliability superior to that
offered by competitors (a further form of differentiation);
- selling high-quality and particularly reliable products for relatively high
prices, and/or producing "tailored" products to the particular needs of
clients who find standard products unsatisfactory (differentiation again);
- selling standard products of acceptable but not particularly high quality at
very competitive prices (cost leadership).
In defining a competitive advantage, emphasis is put on the adjective
"sustainable". This stresses the fact that the client will have to evaluate, and
enhance as appropriate, his or her ability to adapt to changed conditions, and to
innovate. For example, only organizations that are closely linked to techno-
logical research and where the flow of techi~ologicalinnovation has become a
permanent internal process can choose the provision of state-of-the-art
technology as their business strategy and hope to sustain differentiation on this
basis.
Technology in corporate strategy

The role of technology in developing differentiation and implementing
"winning" corporate strategy is another area where management consultants can
be extremely useful to their business clients. There are several reasons for this:
A company that integrates technology into its strategy significantly improves
its chances of reaping benefits from techr.ologica1changes. Whether it decides
to be a technological leader or not, the results of integrating technology into

strategy can improve a company's determination of priorities among tech-
nology options, identify the technical resources needed to achieve business
goals and speed up the movement of ideas into prod~ction.~
However, technological developments occur simultaneously in so many
areas, and so rapidly, that even large companies with well-staffed R & D
departments and information services find it increasingly difficult to keep
abreast of developments, and think of possibilities offered by technologies and
materials created in other sectors and countries.
Increased emphasis on technology strategy and its impact on manufac-
turing, marketing and other strategies is a new challenge to many management
consultants, who often used to handle strategy simply as a factor affecting
marketing and finance decisions. Some consultants have already responded
by establishing R & D departments which can both participate in consulting
assignments in corporate strategy and undertake specific R & D tasks for their
clients. Evaluating the potential of new technologies and providing techno-
logical information analysed from the viewpoint of its potential business
applications has become a rapidly growing service. Several important consulting
firms already offer such a service to their clients. Consultants advising on
business development opportunities and projects in developing countries are
increasingly involved in questions of technology transfer, helping to choose both
the appropriate technology to be used and the terms under which such a transfer
can be effectively implemented.
This trend is likely to continue, and management consultants who devise
new services in response to clients7pressing needs will themselves gain a distinct
competitive advantage.
The environment of business

The whole environment in which organizations operate is becoming so
complex, variable and even confused that managers find it more and more
difficult to identify significant information and monitor changes that should be
reflected in corporate strategy. Writers in the field of strategy increasingly refer
to the need for systematic "PEST " analysis - a convenient shorthand for the
areas that such an analysis needs to examine:
0 the political environment;
0 the economic environment;
0 the sociological environment;
0 the technological environment.
Here again, management consultants can be of great help. Some clients
may need guidance in order to become more aware of the environment and so
realize that ongoing or forecasted environmental changes can have far-reaching
consequences for their businesses. Other clients may be aware of the scope and
depth of environmental changes, but are short of the skills and resources needed
to collect necessary information and draw the right conclusions from its analysis.
They find it difficult to consider what inform,~tionis relevant, or may be relevant
in the future.
As a result, many consulting firms provide services to clients in matters of
corporate strategy which focus increasingly on environmental information and
analysis. In addition, these firms help clients to devise systems and procedures
in which environmental analysis is not undertaken as a special study, but is
internalized to become a standard part of the strategic management system in
the client organization. In some cases (e.g. in small and medium firms in rapidly
changing industrial and service sectors), the clients may require long-term
support from a competent information agency, which would screen and monitor
the environment, or some aspects of it, on their behalf. Some consultants have
already decided to build up a new client service for this purpose.
Environmental analysis tends to embrace new issues in addition to classic
marketing, economic, demographic and finan.cia1information. For example, new
regulations concerning product quality, safety, or the protection of the natural
and living environment, can determine the life or death of firms whose products
or technologies are affected. Some of these regulations have a long gestation
period, while others become adopted very quickly. Political and social interests,
as well as organizations, are involved in the promotion of new regulations. Seen
from another angle, new regulations also offer new opportunities to firms which
adapt their products faster than their competitors, or which come up with new
products that specifically serve the purpose of increased safety or reduced
pollution.
As regards the legal environment of business in general, many companies
find it impossible to keep track of all strategically significant changes in their
home country, let alone changes having ;mimpact on foreign operations.
Management consultants can respond (in collaboration with law firms if
appropriate) by helping the clients with this task.
Implementing strategy
Strategy that remains on paper is of little use. It is essential to help the
client to develop operating systems, procedures and technical capabilities for
putting the strategy into effect. This raises, among other questions, that of
communications. While certain strategic choices may have to be kept strictly
confidential for obvious reasons, the failure to communicate important choices
to staff will mean that no one in the orgar.ization (with the exception of the
planners and top managers) will adhere to the strategy chosen. Activities such
as production planning and control, inventory management, quality
improvement and staff development, as w d l as leadership and management
style, become critical to the successful implementation of strategy.
The consultant can help the client, too, in developing competence for
adapting strategy to new opportunities and constraints. No strategy is valid
forever, and the rapid pace of change in the business world and its environment
means that strategy formulation and review must be an ongoing process. There
is a clear need for a monitoring, or "early warning7', system for detecting trends,
events and ideas that may lead to a change in corporate strategy. Once again,
internal management may have neither the time nor the detachment to undertake
this task properly. The company's management system, including procedures
for auditing and redefining strategy, should be flexible enough to make
adaptation possible. This means, in particular, encouraging people in marketing,
production, R & D and other departments to "keep their eyes and ears constantly
open" for signals and ideas that may have a bearing on strategy and should lead
to its modification sooner or later. It is in pulling all of this information together
and determining its implications that the consultant's role is invaluable.
Consistency with internal capabilities

Emphasis on implementation and adaptability to new conditions under-
lines the principle whereby consistency with the internal capabilities of a com-
pany is as important in consulting on strategy as the alignment of the firm with
the business environment. Every pattern of corporate strategy has its own
requirements as regards the technical profile and capabilities of the staff, as well
as managerial and work style and employee motivation. Clearly, an ambitious
differentiation strategy intended to maintain the company at the cutting edge of
technological innovation, without much concern for costs and prices, requires a
different style and working climate to a strategy which is not too demanding as
regards latest technology but seeks to achieve cost leadership through rigorous
cost control of standardized, high-volume work operations.
Ideally, not only management but also other staff members should be
associated with strategy formulation. The process of defining strategy is even
more important than the content for achieving staff commitment and a shared
belief that the strategy chosen is a way to success.
Some special strategic patterns

Management consultants are often called in when the development pattern
of a company deviates substantially from the normal pattern. These tend to be
difficult assignments, uncertain as to the chances of success, often carried out
under severe time pressure if the client organization is in financial difficulties,
or, on the contrary, feels that it would miss an exceptional opportunity if the
consultant takes too much time over the analysis.
How to cope with an excessively high rate of growth has been a problem
faced by companies wanting to take the maximum opportunities offered by a
favourable business climate. In such cases the consultant can point out the
possible negative impact of rapid growth on liquidity and on the capability to
sustain operations if growth suddenly slows down. In trying to maximize sales,
a company is often tempted to expand production capacity and increase
inventories beyond reasonable limits, instead of looking for better utilization,
modernization and maintenance of existing capacity, or product and service
quality. In the expansion new staff are recruited, but training is inadequate. All
this can be a serious threat to long-term survival, and adaptation to new con-
ditions may be very painful.
Mergers and acquisitions

The systematic analysis described above may well point to the fact that the
enterprise can best fulfil its objectives through a programme of growth through
acquisitions. Advising clients on mergers and acquisitions has become an
"elitist" area of consulting. This is not totally unjustified as wide business
experience and sound judgement are required in these cases. The financial side
of the scheme has to be examined carefully (see Chapter 13). However, the
consultant should not by any means confine himself to the financial aspects of
the acquisition proposal; a good "strategic fit'' must come first. A scheme which
is perfectly feasible and looks very attractiw: from the financial point of view
may involve unrealistic strategic choices as regards marketing, production
capacity, staff capabilities or compatibility of organizational cultures, and in
such a case the elusive "synergy" will not be realized.
Company turnarounds
A general management consultant may be asked to assist with a turnaround
of a company that is in trouble. A turnaround strategy often involves total
restructuring and reorganization, and usually affects all functions and activities
of a company. This is a particularly difficult kind of strategic assignment.
Probably the consultant will be brought in at a very late stage, when the threat
of bankruptcy is imminent. He may be regarded as a potential saviour - or the
last hope. The management of the company is often paralysed and starts
panicking under extreme pressure from creditors, banks, trade unions, tax
collectors and others.
The consultant should consider whether his experience is adequate for an
assignment involving so much risk and responsibility - and what the cost of
failure will be. If he accepts the assignment, he should make sure that his and
the management's roles are clearly defined and understood, since there will be
no time for lengthy discussions and negotiations and some measures will need
to be approved and executed immediately. If the consultant feels that senior
management itself is the cause of trouble, or one of the major causes, he should
make it clear that personnel changes may be necessary before committing
himself to the assignment.
A quick preliminary diagnosis will help the consultant to evaluate the
overall situation. In particular, he has to assess whether the company can still be
rescued, and if so, how much this is likely to cost and whether the task is beyond
the management's capabilities or not. If it is too late, or the cost of a turnaround
operation would be prohibitive, there may be no other solution than to sell or
liquidate the company.
Following this preliminary assessmen::, it is not advisable, and often not
possible, to start a turnaround by lengthy in-depth diagnostic studies. There is a
crisis situation; some creditors have to be paid today, others tomorrow, and the
most competent people may be thinking of leaving the sinking ship. Emergency
measures have to be given priority: for example, a dialogue with the creditors is
essential, and resources ought to be concentrated in order to make those
payments that cannot be postponed in any way.
The emergency measures needed will involve decisions that produce
immediate savings, or that stop a further deterioration in the company's financial
condition (e.g. recruitment freeze, restrictions on foreign travel, termination of
temporary help, increased emphasis on timekeeping and work discipline, cuts
in entertainment costs). Though spectacular, some of these measures do not
produce major savings, but rather help to create a new atmosphere in which
people start realizing how serious the situation is. At this point the consultant
should make sure that employees are invited to contribute to the turnaround in
every possible way. This may involve the establishment of various means of
making such participation possible, without, however, divulging information
that has to be kept confidential.
Stock should be taken as quickly as possible of existing resources and
financial and other commitments since the company will have to avoid further
crises, pay interest and settle certain liabilities, while progressing with the
turnaround. Step by step, the consultant will be able to complete the picture of
the client company's condition. It is essential to identify the real causes of
trouble. They may be external (depression in the whole sector, prices of raw
materials too high, important markets lost for political reasons), or internal
(incompetent management, antagonistic conflict between management and
trade unions). In many cases, external and internal causes are combined (external
factors cause serious trouble because management did not spot them early
enough, or management gradually became depressed and paralysed under the
influence of adverse external conditions). Financial and other controls have to
be tightened in all departments.
The external partners in the game, in particular the creditors, must see that
a serious turnaround exercise has been started and is producing results. In some
countries (e.g. in the United States under Chapter 11 of the Bankruptcy Code)
a company can obtain temporary protection from creditors' claims while it is
restructuring its finances and reorganizing operations in order to become solvent
again.
Following the inevitable emergency measures, the turnaround programme
should turn to strategic measures needed to recover financial health and viability
in the long term. Time continues to be short, therefore every change planned has
to be carefully programmed and the timetable controlled. Also, responsibilities
of all managers and departments must be clearly defined, and their contribution
to the total programme specified to permit evaluation and rewards corresponding
to real results.
It sometimes happens that, when helping with a turnaround, the manage-
ment consultant, with the client's formal or tacit agreement, steps out of his
strictly advisory position to tell the client what to do, or even to give direct
instructions to the client's employees. No general rule can tell how far such
behaviour can go, in particular if it helps avoid a crisis. Then, there have been
cases of consultants recruited to assist in a major turnaround who have accepted
managerial positions with the client company in order to bring the whole
programme to successful completion.
12.3 Processes, systems and structures

The structuring of an organization concerns the division of tasks and
responsibilities among people, the grouping of tasks and people in units, the
definition of vertical and horizontal information flows and collaborative
relations, and arrangements for coordination. The purpose of structuring is to
provide a more or less fixed and stable framework for an effective functioning
of organizational processes and the total organization, i.e. of all its members,
resources and units, in achieving common goals. The products of structuring are
various systems and subsystems - organization systems, management
information systems, decision-making systems, control and evaluation systems,
systems for handling emergencies and crises, and so on. Any complex organ-
ization is operated through and with the help of these systems. However,
experience shows that structures and systems can easily become a strait-jacket,
for example, if they try to standardize and prescribe behaviour for situations that
are very specific and where standardization does more harm than good. The
design and maintenance of systems is a costly affair; some kind of cost-benefit
analysis is therefore required in starting a project to design or revise a system.
Many organizations need help to prevent proliferation and overlapping of
systems, as well as to avoid lack of coordination and conflicting requirements
of various systems for supplying and interpreting information.
Current thinking emphasizes core organizational processes as the principal
criteria for developing systems and structures. Traditional fragmentation of
activities and tasks tends to give way to integration enabled by modern tech-
nologies, by information technology in particular. In describing the business
process re-engineering approach, Michael Hammer and James Champy stress
"focus on redesigning a fundamental business process, not on departments and
other organizational units". As they put it, "the fragmented processes and
specialized structures are unresponsive to large changes in the external
environment - the market, . . . and display appalling diseconomies of scale,
quite opposite of what Adam Smith en~isioned".~
Decision-making systems and practices

In many organizations it may be the method and organization of decision-
making (for both key and routine matters) which cause trouble. Excessive
centralization of operational decisions may deprive the organization of the
flexibility needed to react to new market opportunities. Fragmentation of
processes and responsibilities makes quick decisions extremely difficult. In
another case, an autocratic owner may be taking decisions without conferring
with professional experts on his or her own staff, who could easily prove that
many of his decisions were based on wishful thinking rather than rational
analysis.
The need to examine and reform the decision-making system may be the
very reason why the consultant has been brought in; it may concern:
- the classification of decisions in groups by their nature, urgency, financial
implications, degree of complexity, etc.;
- the ways in which typical decisions are taken (this may be quite difficult
to find out);
- the respective decision-making roles played by staff specialists and line
managers;
- the role of collective bodies in preparing and adopting decisions;
- the participation of employee representatives in decision-making;
- the decision-making and advisory roles of individuals in informal positions
of influence;
- the responsibility for decisions, their implementation, and control of
implementation;
- the use of decision-making techniques, models or formalized procedures.
The possibilities of improvement in this area are tremendous and general
management consultants are well advised to pay close attention to them.
Management information systems

Most managers do not ignore the fact that information has become a
strategic asset of business and that the whole world is undergoing a real
"information revolution". However, it is a long way from recognizing this new
role of information to actually developing and implementing effective manage-
ment information systems.
Many general management consultants focus on this area and offer services
such as analysing the existing information system; defining information required
for strategic management and operational control; harmonizing and integrating
systems used in various departments; and choosing and introducing appropriate
information processing technology. This work concerns both external infor-
mation (on the environment, including the enterprise's relations to this environ-
ment) and internal information (on resources, processes and results achieved).
The purpose is to make sure that the client does not ignore information essential
to strategic and operational decisions, but at the same time avoids collecting and
developing information that is of no direct use to him. To decide where the limits
are is difficult, and it may be advisable to cast the "information net7'more widely
rather than to save money at the risk of missing some essential information.
In today's consulting, management information systems are often handled
as a problem of information technology, including the choice, installation and
effective use of appropriate hardware and software. Yet this is only one side of
the problem. Information technology is a key factor determining what sort of
information and how much of it a company will be able to collect, process and
analyse. Choosing information that is needed for preparing and making
decisions is not a computer specialist's problem but an information user's (and
his or her management consultant's) problem. Close collaboration between the
two has to be established and maintained in developing effective information
systems (see also Chapter 17).
Organization structure
To examine and redesign the organizational structure used to be the
"classical7' intervention of many general management consultants. When the
basic structure was agreed, the consultant continued his work by producing
detailed diagrams and charts, as well as job descriptions for each unit and
position within the client organization. The end-product was often a set of
organizational charts and instructions but, in fact, the principal benefit to the
client was the effort and analysis that went into this job. Forgotten and "orphan"
activities were rediscovered, activities for which nobody seemed to be
responsible were defined, and overlapping activities were reassigned or done
away with.
Today's management consulting has ov:rcome the rather narrow approach
taken by the "reorganization experts" in the past. As mentioned above, structure
is treated as one of the factors of excellence, which is linked in many ways with
strategy, organizational culture, the competence and motivation of employees,
new technology and other factors. Competent and committed staff working in a
loosely organized framework will produce better results than incompetent
people inserted in a "perfect" formal structure! In any event, every consultant
must realize that formal organization reflects only a small part of the very
complex network of relations existing in an organization.
Reorganizations destroy existing work relations, collaboration patterns and
socialization habits. Unjustified and frequent reorganizations paralyse enter-
prises and institutions, and generate lethargy instead of enhancing innovation
and efficiency. A decision to reorganize often reflects management's failure to
identify and tackle the real issue. Therefore consultants are more and more
cautious, and tend to prescribe reorganizatior~only if there are very valid reasons
for it (e.g. a new division must be established because the existing structure is
clearly not willing and able to maximize efforts and resources to put a new
product on the market in the shortest possible time).
12.4 Corporate culture and management style

Finally we have to turn to the "soft" and "intangible" side of organizations.
The meaning of culture was explained in Chapter 5. We emphasized that, when
entering a new organization, the consultant nas to find out as much as possible
about its specific culture. This is done in order to develop a full understanding
of values and motives underlying managerial and employee behaviour, and so
assess the organization's potential for making improvements. Organizational

culture may be found to be one of the causes, or even the main cause, of the
difficulties experienced (e.g. due to the conservatism of senior management and
the impossibility of submitting new ideas). In such a case, culture may even
become the central theme on which the assignment would focus.
Consulting in corporate culture became extremely popular at the beginning
of the 1980s, in the United States in particular. Some consultants have not
escaped the danger of regarding and prescribing cultural change as a panacea:
"Corporate culture is the magic phrase that management consultants are
breathing into the ears of American executives", wrote The New York Times in
1983.9 Nevertheless, in warning against the corporate culture fad we must not
throw out the baby with the bath-water. Interest in corporate culture and in the
impact of culture on long-term organizational performance is basically a positive
phenomenon, needed to reinstate a balanced approach to organizational
problems. If organizational culture is ignored, a sophisticated planning or
management information system is unlikely to lead to any improvements in
performance.
A change in corporate culture will rarely be an explicitly stated task in a
consulting assignment.1•‹Yet in some situations corporate culture requires the
consultant's special attention:
when a company is in difficulties. A strong traditional and intransigent
culture may prevent the company from assessing its condition realistically
and proceeding with changes that have become inevitable;
when a company has grown very rapidly. There may be various problems.
The original culture of a small family company may have become a
strait-jacket. There are many new managers and workers, coming from
different cultures. Growth by acquisitions may lead to serious cultural
clashes;
when major technological and structural change is planned. Revolutionary
changes in products, technologies, markets, and so on have strong cultural
implications;
when there seems to be a conflict between the company's culture and
values that prevail in the environment - for example, if the public
increasingly requires a company to behave in ways that are contrary to its
culture;
when the company's operations are internationalized and the problem is
how to adapt to foreign cultures.
Corporate culture: What to recommend

The consultant will try to "separate wheat from chaff', and ascertain what
in corporate culture stimulates and what inhibits further growth and performance
improvement. He or she will point to values and norms that need to be discarded
or changed, and to those that should be preserved and even reinforced. If the
consultant has had enough experience with corporate culture issues, he or she
may be able to be more specific in suggesting what to do (e.g. in defining
corporate mission and objectives; explici1:ly affirming the value system;
enhancing consultation and participation; modifying symbols used to obtain
cultural cohesion; changing established role models; reorienting the rewards
system; or providing training and information needed to support new cultural
values and norms), and similar. The consultant who finds out that the client
organization's culture is hardly noticeable may be able to suggest how to create
a stronger culture, congruent with the goals, resources and external environment
of the organization.
Leadership and management style

Leadership and management style are closely related to corporate culture,
and certain aspects of style can become part of the organization's culture.
Managers in organizations tend to behave in coherence with the culture, in ways
in which the owners, other managers and employees expect them to behave. At
the same time, the style of an individual manager is co-determined by his or her
personality, which may be in harmony or i ! conflict ~ with existing corporate
culture. If there is a conflict, it is usually resolved in one of two ways: either the
style of a strong personality at the top will affect corporate culture, and be
accepted as a feature of a new culture, or the existing strong culture will reject
the person's style and he or she will have to alter it, or leave the organization.
Here again the consultant may face a wide range of rather delicate
situations in which, even if he or she has no explicit mandate to make proposals
in respect of leadership and management style, it may be necessary to find a
tactful way of making the client aware of the problems, and help to resolve them
by coming up with a feasible solution.
The following situations and problems are quite common in organizations:
People would like to support the manager, but they do not really know what
he or she wants and they do not understand his or her priorities; there is a
problem of formulating ideas and goals clearly enough, and of com-
municating them to people.
The manager uses an authoritarian style rather than consulting people,
discussing problems and priorities witl- them, and explaining decisions.
People are puzzled by the way in which the manager allocates his or her
time: he or she speaks about priorities, but spends time in dealing with
trivial issues.
Innovation is encouraged on paper, but the manager neither gives it any
overt support in planning and distributing work, nor shows personal
interest in innovative projects, nor rewards innovators for their
achievements.
Although the situations with which the manager deals are different, he or
she consistently treats them in the same way; this rigidity means that the
style used is adequate in one situation imd inadequate in another.
(6) Because a strong personality at the top exhibits a strong style (which can
have either positive or negative characteristics), and favours people who
use a similar style, managers throughout the organization try to copy this
style even if it does not fit their own personality.
The consultant can achieve a great deal by making a manager aware,
through personal counselling, of the strong and the weak sides of his or her style.
Awareness of one's style is a first step towards its improvement! Even if you do
not wish or are not able to change your style radically, it is useful to be aware
of your weaknesses, to mitigate them and to compensate for them.
12.5 Innovation
Whether a consulting assignment deals with strategy, structure, systems,
culture, staff development, motivation or any other aspect of managing a
company (including aspects and functions that will be discussed in the following
chapters), there is usually an overriding theme: the client wants his or her
organization to become more innovative and more flexible, and hopes that the
consultant can help. Typically this is a problem of established companies which
have performed well for years, but eventually find out, at a moment when new,
aggressive competitors enter the market, that their ability to innovate and change
is no longer what it used to be. When faced with this problem the consultant tries
to find out whether the client lacks technical know-how, or whether the existing
policies and systems or corporate culture inhibit innovation.
If lack of technical expertise is the reason, solutions may be costly but quite
straightforward. Either the client company will be able to strengthen R & D and
accelerate the transfer of new ideas from research into production, or it will have
to look for know-how outside (e.g. by purchasing a patent or licence, or
establishing a joint venture with another company).
The task is more difficult if innovation is inhibited owing to archaic
procedures and cultural barriers. A thorough diagnosis will be required, and the
consultant will try to learn as much as possible from managers who head units
with direct responsibilities for innovation (technological information, new
product design, testing, production engineering, quality control, technical
marketing).
The main sources of information will be the "doers" - professional
researchers, design engineers and salespersons as well as shop-floor supervisors
and experienced workers. Essential information can be obtained directly from
the customers. The consultant will probably come to the conclusion that the
company could recover its innovative capability if it removed red tape, reduced
centralization of decisions and controls, encouraged experiments, appointed
managers who understood what innovation meant, used financial and other
rewards to show how innovation was valued by the company, and fostered a
climate favourable to innovation.
The 1980s saw the advent of new formulas and incentives that encourage
entrepreneurship within large business corporations. The term "intra-
preneurship" has been used by some authors. The object is to tap valuable
innovative talent existing within the company and create conditions under which
enterprising and dynamic people will not only stay with the company but be able
to act with considerable freedom, as if they were running their own "business
within a business". Under these formulas, the "intrapreneurs" (individuals or
teams) have broad authority to gather and organize resources and decide what
to do to achieve the object of their venture. This includes responsibility for profits
and losses, and the possibility to do business directly with other partners outside
their mother company.
The search for new approaches and methods that stimulate creativity and
innovation in business and other organizations is likely to continue. The manage-
ment consultant will be well advised to be at the forefront of these efforts.
See, for example, T. Peters and R. H. Waterman: In search of acellence: Lessons from
America's best-run companies (New York, Harper and Row, 1982); or T. Peters: Liberation
management: Necessary disorganization for the nanosecond nineties (London, Macmillan, 1992).
2 ibid.
3 R. H. Kilmann: Beyond the quick@: Managingfive tracks to organizational success (San
Francisco, California, Jossey-Bass, 1984).
H. J. Leavitt: Corporate pathfinders (Chicago, Illinois, Irwin, 1986).
See M. Porter: Competitive strategy (New York, The Free Press, 1980), and idem:
Competitive advantage (New York, The Free Press, 1985).
6 K. Ohmae: The mind of the strategist (New York, McGraw-Hill, 1982).
7 A. L. Frohman: "Putting technology into stratesic planning", in California Management

Review (Berkeley, California), Vol. XXVII, No. 2, Winter 1985, p. 48.
8 M. Hammer and J. Champy: Re-engineering the corporation (New York, Harper Business,
1993), pp. 40 and 29.
S. Salmans: "New vogue: Corporate culture", in New York Times, 7 Jan. 1983.
'"For a more detailed discussion of corporate culture, see T. E. Deal and A. A. Kennedy:
Corporate cultures: The rites and rituals of ccrporate life (Reading, Massachusetts,
Addison-Wesley, 1982); and E. H. Schein: Organizational culture and leadership (San Francisco,
California, Jossey-Bass, 1985).
CONSULTING IN FINANCIAL
MANAGEMENT
All consulting projects and assignments involve the use of financial and
accounting data, and all management consultants, whatever their particular field
of specialization, inevitably find themselves concerned with financial issues and
practices. There are two reasons for this. The first is quite simply that finance
and accounting provide the working language of business, and it is virtually
impossible to analyse the operations or results of any complex organization
except in financial terms. The second reason is that there are close and complex
linkages between the finance function and all other functional areas. Decisions
made in any area of line operations (such as an increase in the social benefits
provided to workers) will have an impact on the organization's overall financial
position, and may call for a revision in existing financial plans and budgets.
Equally, a decision which appears to be entirely financial in nature, such as a
reduction in short-term bank borrowing, may lead to a shortage of working
capital that imposes a real constraint on other operating areas, particularly
marketing and production. Virtually all consulting assignments uncover such
linkages.
The purpose of the present chapter is to focus upon the special problems
of consulting in decision areas that are specifically financial in nature, such as
the financial structure of the company and the analysis of capital investment
projects, rather than the use of financial information in general. Even here,
however, the impact of financial decisions and policies on other areas of activity
cannot be overlooked, and such issues will be examined as they arise in the
course of the chapter.
It remains to ask whether the management consultant is the person best
qualified to assist clients in this complex area. After all, there are other pro-
fessionals who work in the financial area: bankers and accountants. Are they not
the obvious source of such advice? Both groups are specialists, however, whose
competence covers only a part of the financial area.
Managers who need advice on financial matters will frequently turn first
to a firm of independent accountants, and in many cases this will be the firm
which has also been charged with the responsibility of auditing the company's
financial statements. Most accounting firms regularly provide such assistance,

and are a valuable source of advice on the dcsign of budgeting and reporting
systems, and on taxation. The accounting company which has an ongoing
relationship with the client has the advantage of a close working knowledge of
many aspects of operations, and will have a shorter "learning curve" than another
consultant brought in from outside.
There are, however, some serious limitations in the use of accountants as
general management consultants. There is a fundamental difference between
advising (where the client is the management of the company) and auditing
(where the accountant's responsibility is to the shareholders, creditors and the
general public). The potential conflict of interest is clear. An accountant who
has advised the company in key financial decisions should not be placed in the
position of having to produce a critical evaluation of the results of those decisions
in the audit report. Some countries, indeed, legislate to keep audit and advisory
work separate, although the combination continues to be accepted in Anglo-
Saxon countries.
Apart from the question of probity, there is also an issue of competence.
A distinction must be made here between the major public accounting firms and
the smaller firms and sole practitioners. The larger companies have developed
"management services" divisions, organizalionally separate from the audit
function and equipped with a wide range of consulting skills. The smaller firms
and independent accountants, however, are often far from being "full range"
financial specialists, and the specialist training of a conventional accountant may
make it difficult for him or her to recognize the limitations in established accrual
accounting and to think in cash-flow terms, to plan on the basis of probabilities
and alternative scenarios, or to accept some o F the more recent developments in
costing and budgeting.
The company's commercial bank is an alternative source of financial
advice. In the field of liquidity management and credit control, the advice of the
local bank manager may be very useful, part ~cularlyas it will be supported by
specialized knowledge about the financial situation and general credit rating of
actual and potential customers. But again, it must be recognized that the training
and experience of commercial bankers are hissed; they may be highly skilled in
credit assessment, but are likely to know little about company valuation or the
workings of the securities markets.
The merchant banker (investment banker in United States terminology, or
banque d'affaires in France) is much more actively involved in consulting. The
traditional role of merchant banks has been to act as agents and intermediaries
in the issue of securities, advising as to the terms of the issue and providing
underwriting services. In recent years, houever, their role has expanded to
include a wider range of advisory services. J e t their role remains a specialized
one; they are actively involved in merger and acquisition activities, and are
increasingly in competition with the commercial banks in risk management and
other treasury operations, but they are not much involved in day-to-day corporate
financial operations such as credit and liquidity management.
Consulting in financial management
The constraints and specializations of these various types of organization

provide an opportunity to the general consultant who can take a wider viewpoint
spanning the full range of financial decisions. Preparation for such a role
involves a major investment of time, but the consultant willing to make such an
investment will be in a position to offer a unique service to the client.
13.1 Financial appraisal

It will be difficult for the consultant to assist his client in the finance area
unless the client is himself "financially literate": that is, possesses some basic
understanding of accounting and financial terms and procedures, and is able to
use them in a simple financial analysis. Bringing the client "up to speed7' in
financial appraisal is therefore a prerequisite for further consulting work in
finance.
This book is not the place to set forth the basic principles of accounting or
of financial analysis. We assume that a professional consultant has already
mastered some basic financial skills. It may still be in order, however, to offer
some advice as to how he or she should go about educating those clients who
do not yet possess such skills. A wealth of instructional material on financial
analysis and appraisal is now available. So much material is offered, in fact, that
the consultant can play a useful role by reviewing as much as possible of it and
selecting an appropriate combination for the client's needs.
Whatever medium is selected to provide instruction for the client, however,
there are certain essential elements that need to be covered, and which therefore
form the basic criteria that the consultant will bear in mind in putting together
a training package.
Bookkeeping
The conventional approach to the teaching of accounting invariably started
with bookkeeping. We believe that for managers this is time-consuming and
unnecessary. The concepts of "credits" and "debits7'can also be dispensed with.
The emphasis should not be upon how financial information is collected, but
upon how it is used in managerial decisions.
Accounting principles
There are some basic accounting principles which clients must understand
because financial statements will otherwise be meaningless. The essential items
here are:
- the accrual concept, and the resulting differences between " accounting"
and "cash-flow" figures;
- conservatism, and the "lower of cost or market" rule;
- the concept of non-cash charges (depreciation and amortization);
- the distinction between the company (corporation) as a "legal entity" and

its owners.
Financial statements
Clearly, the client must be familiar with the basic components of a financial
report. Understanding the balance sheet is important. Some trainers and consult-
ants, however, give undue emphasis to the balance sheet and largely ignore the
income statement. The consultant should seek out material which not only gives
"equal time" to the analysis of the income statement, but then brings together
information from both documents to produce a "sources and uses of funds"
analysis.
Ratio analysis
Virtually all financial analysis involve:; the calculation and use of ratios.
Here the problem is that there are so many ratios, and so many variations on
them, that the client is likely to become 1:horoughly confused. Fortunately,
nobody needs to be familiar with scores of different ratios. It is much better to
select a dozen or so, and then become completely proficient in their use. But
although a very few ratios will suffice, the short-list must include representatives
of four quite different areas. They are:
Ratios concerning liquidity, or the ability of the company to pay its bills
as they become due. The "quick ratio", or "acid test", is clearly the most
important ratio in this respect. For coinpanies making significant use of
debt financing, the "times interest earned" or "interest coverage" ratio is
equally important.
Ratios concerning managerial efficiency, as expressed in turnover figures.
The most important ratios here are accounts receivable expressed in
average daily sales, and inventories expressed in average daily cost-of-
goods sold.
Ratios concerning capital structure: the relative proportions of debt and
equity funds. The actual ratio used may be long-term debt to equity, total
debt to equity, total debt to total capil.al, or one of many other possible
formulations. It is important to choose one of these ratios and to use it
consistently.
Lastly, but most important of all, ratios which measure profitability. These
include return on total assets, return on equity funds, and many possible
variations on these. While all of these are acceptable, it is important to
supplement them with the one ratio which removes the influence of
existing financial structure on profitability: "earnings before interest and
taxes as a percentage return on total assets".
Equipped with these basic tools and concepts, the client will now be better
able to explain his requirements and to understand the consultant's analysis and
recommendations. There are, of course, instances in which the client will prefer
276
the consultant to do the financial appraisal, or comment on the financial appraisal

done by the client himself. Here again, the consultant should use these oppor-
tunities for developing the client's competence in basic financial analysis.
13.2 Working capital and liquidity management

It should be asked at this point what financial management seeks to achieve.
Most current financial theory is based upon the assumption that the underlying
objective of all financial decisions should be the maximization of long-term
stockholder (shareholder) wealth - a viewpoint that has led to the pre-
occupation with the formulation of models to determine the value of financial
securities under " efficient market" conditions that now dominate financial
literature. Some commentators reject this view, and argue that the organization's
responsibilities are to all its "stakeholders", creditors, employees, and society
in general as well as to the stockholder group. It is certain, however, that the
organization cannot benefit anybody unless it continues to exist, and that in order
to survive it must be able to meet all its commitments as they fall due. In everyday
language, it must be able to pay its bills on time.
Working capital definitions

Accountants define working capital in accounting terms as the difference
between current assets and current liabilities. This is a static approach, and not
a very useful one. Liquidity -the ability to meet commitments and to pay bills
- comes from the availability of cash. A company could have considerable
working capital in the accounting sense (because of very large inventories) but
no cash at all, and thus be on the point of insolvency. The approach taken here
will be based upon cash flowsrather than upon accounting concepts, and one of
the most useful services that the consultant can perform is to educate the client
to think, and to plan, in cash-flow terms.
Working capital and the operating cycle

Every manufacturing business has an intrinsic "operating cycle", in which
materials are purchased, stocked, converted into finished products and finally
sold. Even service industries have such a cycle, though its duration is shorter.
Cash flows out of the organization when purchases are made, and returns when
accounts receivable are collected. The task of the consultant is to help the client
to understand his or her organization's own unique operating cycle, and then to
find ways of increasing operating efficiency so that the cycle is shortened and
cash is conserved. Experience has shown that in most organizations improve-
ments of 25 to 40 per cent in cash utilization may often be made simply by
careful analysis and the use of common sense.
One of the factors that the consultant should remember here (and one of
the advantages he or she has over the banker or the accountant in this area) is
that the changes leading to these improvements in cash utilization are as likely
to be in production or other operating areas as in purely "financial" ones.
Improvements in inventory control leading to a reduction in average stock levels,
and improvements in quality control that produce a fall in wastage and scrap,
will reduce the cash tied up in the operati.ng cycle just as effectively as an
improvement in collection of accounts receivable, or an acceleration in the
transfer of funds from remote locations to a central concentration account. The
very fact that most managers working in these non-financial areas do not fully
understand the cash-flow consequences of their activities makes this a field in
which the consultant has a particularly valuable contribution to offer.
Managing cash
Even though the entire operating cycle has cash-flow implications, the
management of cash itself should not be overlooked. Here, the banks are indeed
the experts, and most major banks have actively developed and marketed cash
management systems in recent years. The consultant can play a useful role even
here, however, by assisting the client in evaluating the bewildering array of
different "packages" in which the banks offer combinations of concentration
banking, lock-box collection systems, remote disbursement, zero-balance
accounts, intra-group payments netting and so forth, and in finding a solution
appropriate to the client's needs.
13.3 Capital structure and the financial markets

Every business organization needs an adequate capital base to support its
operations. It has been repeatedly demonstrated that operating a business with
inadequate capital - which in British financial circles is called "overtrading7'
-is one of the most widespread causes of business failure. In addition to having
adequate capital, the business must have an appropriate capital structure: the
right mix of equity funds and debt. All of this is easily said, but difficult to achieve
in practice.
Determining an effective capital structure

A major portion of current financial theory is concerned with the capital
structure of companies and with the effect of long-term financing decisions on
the organization's cost of capital. Most of the theory is based upon assumptions
that do not reflect reality. however. In addition, such theory is usually expressed
in a highly quantitative form. Once again, a consultant who is conversant with
the current financial literature can play an invaluable role in helping clients to
identify the usable and useful concepts which are now beginning to emerge from
this mass of theory.
The management of an organization's capital structure actually involves a
two-stage decision process. The first task, when any new financing operation is
proposed, is to review the organization's current capital structure in the light of

management's policies, accepted debtlequity ratios, market conditions and, most
important of all, expected cash generation and use over a period of some years.
On the basis of this analysis a decision can be made whether to seek new equity
funds or additional debt. Once this is complete, the second stage involves the
determination of the exact type of security to be issued, the selection of under-
writers, the pricing and timing of the issue, and so forth. These second-stage
decision areas are the distinct professional field of the investment banker
(merchant banker in British terminology), and the general consultant should
ensure that the client seeks such specialist services at the appropriate time. But
in the first stage of the process - reviewing the overall financial position to
decide what kind of funds should be sought - the consultant's help can be
invaluable.
Using debt funds

The advantages of using debt funds are very great: judicious amounts of
debt increase the earnings per common (ordinary) share through the leverage
effect, and the fact that interest charges are tax-deductible makes the net cost of
borrowed funds relatively low. In general, debt financing will be the first choice
if the company can safely add the proposed new borrowing to its existing debt.
The key task in capital structure management, then, is to determine the
company's debt capacity. There are many possible approaches to this question,
but few of them are satisfactory. Policies which allow some external standard or
institution to determine the decision (for example, keeping a debtlequity ratio
more or less equal to the average for the industry, or limiting borrowing to what
can be done without lowering the "rating" of the company's debt securities by
the rating agencies) are unlikely to produce optimal results.
In most cases, the consultant will face a difficult task in this area. He will
have to "re-educate" clients away from rules of thumb, and convince them that
nothing can replace a systematic analysis. The ability of a company to use debt
depends upon its ability to service that debt: to meet all interest charges and
repayments of principal as they fall due. This in turn depends upon cash flows.
The importance of debt management has recently been brought into sharper
focus by the experiences of many companies during the recession of the early
1990s. The period of rapid growth in the countries of the Organization of
Economic Co-operation and Development (OECD) during the period from 1985
to 1989 was characterized by an unprecedented increase in both corporate and
consumer debt, particularly in the United States, Japan and the United Kingdom.
The reasons for this were complex. Although strong growth in output (over 4
per cent in 1988) gave rise to an upsurge in capital investment, conditions in the
capital markets made many companies reluctant to issue equity. A particular
factor in the United Kingdom was that the large privatization issues, all of them
somewhat underpriced, tended to squeeze corporate issuers out of the equity
market. In consequence, the average "gearing" or leverage of the British
corporate sector doubled between 1987 and 1989. The economic slowdown after
1990 therefore caught many United Kingdom companies with unprecedented

levels of debt. Interest rates were kept high by the Government's Exchange Rate
Mechanism (ERM) policy. Companies quickly found that cash flow fell below
their debt servicing commitments, and a high rate of corporate failures and
liquidations was the result.
Could such problems have been foreseen and avoided? Yes: but in times
of high growth the attention of line management is understandably concentrated
on expanding output to meet demand rather than thinking about the next
downward cycle. Yet we know that a GDP' growth rate of 4 per cent is not
sustainable for long in mature economies, and by 1989 there were clear warning
signals from the commodities markets as well as from the financial world. Both
consultants and outside directors should have been looking ahead and advising
caution.
The consultant's task, then, is to persuade the client company to undertake
a long-term projection of the cash likely to be generated by its operations, not
only under "normal" economic conditions, but also during periods of economic
uncertainty and recession. This is likely to require the use of simulation tech-
niques, and the development of a computer-based model of the company's
financial dynamics.
Few companies can undertake such projects without outside assistance.
Effective consulting work in this area depends upon the availability of a
consulting team which combines financial expertise with electronic data
processing (EDP) systems analysis and programming skills. Consulting
organizations that are willing to develop such teams can expect growing needs
for their services as more and more companies realize the fundamental
importance of such an analytical approach to financial decisions.
13.4 Mergers and acquisitions

Mergers between companies or the acquisition of one company by another
provide many opportunities for consulting work. Most of these opportunities
come in the post-merger phase, when work begins on the rationalization of the
production and marketing activities, and the task of reconciling the different
budgeting systems, personnel policies and a host of other procedures. There is,
however, one key financial task that must be undertaken before the merger, and
in which consultants are very often needed: the determination of the fair value
of one or both of the companies involved. 'The consultant may also be called
upon to advise as to the method of payment lo be used. He or she will normally
have either the acquiring company or the one to be acquired as a client, but in
some cases of "friendly merger" may be adpising both organizations.
Valuation of a company
There are essentially four approaches to the valuation of a going-concern
company. Value can be based upon:
the current market price of the company's common stock (if the stock is
listed and actively traded);
the market value of the assets;
capitalized future earnings; and
"replacement" or "duplication" value which involves an attempt to esti-
mate the cost of building up a similar organization from scratch instead of
making the acquisition.
The first of these, the current market approach, is widely used. It does not
in fact give the fair value of the company, but provides a "floor price" below
which negotiations cannot go: if the common shares have recently been changing
hands at, say, $50, then any offer price that values the total company at less than
$50 per share is unlikely to be acceptable. The other three approaches do try to
establish a real fair value. The consultant may be called upon both to advise upon
the method to be used and to assist in its implementation.
In recommending a basis for valuation, the consultant will obviously pay
close attention to the client's particular situation and needs. If the client is the
company which is receiving the offer, then the appropriate method will be
whichever yields the highest value: the consultant will not suggest a price based
upon current earnings if he estimates that the realizable value of the physical
and financial assets of the company might be higher. But when the client is the
acquiring company (that is, the company making the offer) the situation is more
complicated. The appropriate valuation method now depends upon the
company's motives for making the acquisition, and these motives in turn are
vested in its corporate strategy and long-term plans. If the acquisition is being
made simply as part of a diversification strategy and the company that is being
purchased will be allowed to continue its operations largely independently, then
a figure based upon capitalized earnings will be appropriate. In this case the
main task of the consultant will be to scrutinize the current and forecast earnings
of the company being taken over to ensure that they are credible and based upon
sound accounting practices, and that no special "window dressing" has taken
place to increase reported earnings at the expense of long-term financial health.
The consultant is likely to be most deeply involved in those cases in which
the client organization is making an acquisition for operating reasons rather than
pure diversification: in order to gain additional production capacity, for example,
or to acquire new products that will complement its own existing product range.
In such a situation it will be necessary both to establish asset values and to adopt
the "replacement" approach. Some consultants have developed particular
expertise in asset valuation and have become known specialists in this area.
Method of payment
The selection of the method of payment to be used in making the
acquisition is a highly complex question which requires both expert knowledge
of the financial markets and special skills in determining the tax consequences
of the method used. The choice of possible methods includes a simple cash
payment for the shares of the other company, a cash payment for assets, a "stock
for stock" exchange, and the use of bonds or notes, preferred stock, convertible
bonds, convertible preferred stock, or any coinbination of these. The transaction
may be at a fixed price, or may use a sliding-scale payment contingent upon
future performance. The complexity of the rnatter is such that the consultant is
urged to recommend to the client the use of an appropriate team of specialists,
which will include investment bankers, tax specialists and legal advisers.
Methods of control
Where the client organization has been systematically growing through
acquisitions and now has many subsidiaries and affiliates, an important question
now arises as to how these activities should be controlled. The optimal pattern
of relationships between corporate headquarters and the operating entities will
in fact depend upon the nature of the underlying growth or diversification
strategy and the extent of the diversification
In those organizations in which acquisitions have been made only in areas
and activities closely related to the original business, an approach often called
the "core strategy7' (and also known more colloquially as "sticking to the
knitting"), the relationship is typically one of continuing determination of all
key policies by the corporate headquarters. This approach is described as
"strategic control". In such an organization the line executives in operating units
will make major decisions on current operations only after discussion with the
corporate level or within clear policy guidelines, and heads of staff activities in
the subsidiaries will be similarly subject to supervision and control by their
corporate counterparts.
An alternative philosophy exists, however. The completely unlimited
approach to diversification, buying whatever appears to be a bargain without
consideration of its strategic fit, was the hall nark of the "conglomerates" of the
1960s and 1970s and is now in disrepute. Organizations created in this way
proved eventually to be unmanageable. But a number of large organizations -
with the Hanson Group in the United Kingdom and United States markets being
the best-known example - have been very successful through a policy of
expansion into "manageable" activities: any product or service that can be
allowed to operate largely independently with a minimum of head office
involvement. For Hanson, this means activities which are concerned with
"commodity" type products and services, requiring little capital investment and
no sophisticated research and development.
The significance of this philosophy is that in such an organization the
corporate headquarters directs through a system of essentially financial control.
The management teams appointed to run the subsidiary activities are given
performance objectives set in financial term:;, particularly return on investment.
Superior performance is rewarded, and under-performers are replaced. In such
an organization the setting and monitoring of financial objectives are clearly
amongst the most vital of all activities.
13.5 Finance and operations:

Capital investment analysis
Most business organizations tend to generate more investment proposals
than they can immediately finance. They therefore require a systematic method
of calculating the economic attractions of such investment proposals, and of
ranking them in order of preference so that the limited funds available go to the
most productive investments. In a majority of companies the analysis of capital
investment proposals is still done partly or wholly on the basis of "rules of
thumb" or personal preference, so yet again the consultant has a useful task to
perform.
Choosing among analytical methods

The consultant's first task in this area is to persuade the client that outdated
and simplistic methods of investment appraisal, such as a simple rate-of-return
analysis or the "years to payback" principle, are unsatisfactory and yield
misleading results. He should instead encourage the use of one of the techniques
based upon the time value of money. The general term used for this approach is
discounted cash flow (DCF) analysis. There are, however, two different methods
of implementing this approach. Most textbooks advocate the calculation of net
present value (NPV) and the use of net present value per dollar invested as the
decision criteria. The consultant should note, however, that this method requires
the company to calculate its overall average cost of capital, which is then used
as the discounting rate, and that this figure is difficult to develop and often
unstable. The alternative approach, the internal rate of return (IRR), has some
theoretical disadvantages but also enjoys the practical advantage of not requiring
a cost-of-capital calculation. It is much more widely used than the NPV approach
and should be the consultant's first choice.
The selection of an analytical method and a decision criterion, however,
by no means solves all the problems in this area. The various investment
proposals facing a company are likely to be very different in nature. In particular,
some of them, such as proposals to replace old machinery which is giving rise
to high maintenance costs with new but similar equipment, involve neither risk
nor uncertainty. Other projects, such as the replacement of a known but outdated
technology with an advanced but unfamiliar one, clearly involve both
uncertainty and risk. It becomes very difficult to rank one project against the
other unless some adjustment is made for the differing degrees of risk.
Sensitivity analysis
In order to arrive at a ranking for proposed projects, many companies will
need outside assistance. The most satisfactory solution is to adopt a "sensitivity
analysis" approach. Those projects that are seen as important but also as
involving a high degree of uncertainty should be modelled (simulated), so that
the model can be run many times with different values for key variables. A
project to build a plant for the production of a radically new product, for example,
may involve considerable uncertainty both about the time needed to bring the
new product into production and about its market acceptance. The model would
therefore require numerous reruns ("iterations") with different assumptions
about the time needed to bring the plant on stream and about the likely sales
volumes, and a probability distribution of expected net cash flows will be
developed from the results.
It will be obvious from the above paragraph that this is yet another area in
which the consulting organization will best be able to help its clients if it can
offer the services of specialist teams in which financial consultants work closely
with computer experts.
Follow-up of project effectiveness

There is yet another valuable service that the consultant can provide in this
area. Many companies, even those that have adopted relatively sophisticated
procedures for the evaluation of project proposals, overlook the need for
systematic follow-up and monitoring of subsequent project performance. A
project is adopted because it appears to promise a very high discount-adjusted
rate of return. If it fails to perform as well as the project proposal promised, it
is important to find out why. Was there an unexpected downturn in the economic
environment? Did the project encounter technical problems that were not
foreseen? Was the marketing staff unduly optimistic in predicting sales? Or were
the forecasts of sales and earnings consciously inflated for political purposes by
an "empire-building" divisional head? The development and installation of a
follow-up system to answer such questions will rapidly pay off in improvements
in project selection, and is one of the most useful tools that the consultant can
provide.
13.6 Accounting systems and budgetary control

Financial consultants may be invited to assist their clients in the develop-
ment of accounting systems by means of which various transactions are
recorded, collected and classified, entered inlo the various ledgers and books of
account, and finally used to prepare the organization's formal financial
statements. This, however, is properly the work of qualified accountants, and
consultants who are not themselves also accountants will recommend their
clients to obtain proper professional assistance in this area.
Budgetary versus accounting systems

Consultants participating in general "management services" activities are
very likely to find themselves called upon to assist in the design of budgetary
systems rather than formal accounting systems. The emphasis here will be upon
"management accounting": methods of collecting and analysing data to support
internal decision-making rather than formal financial reporting. Both the

objectives and the methods of management accounting are different from those
of financial accounting, and the difference is essentially one of timeliness versus
accuracy. Financial accounting emphasizes accuracy and detail, but produces
reports that are historic. If decisions are not made until formal financial accounts
are available, it is likely to be too late for those decisions to be effective. The
consultant realizes that clients need information quickly to support their
decision-making, and that information which is approximate but timely is of far
more value than that which is accurate but three or more months late.
The budgetary and control system should be developed for an individual
organization rather than bought "off the shelf', and will therefore differ from
company to company. For most manufacturing companies, the component parts
will include:
- a profit plan;
- the capital investment budget;
- wage and salary budgets;
- purchasing budgets and inventory control procedures;
- manufacturing direct cost budgets;
- general overhead budgets;
- sales, marketing and promotion budgets;
- recruitment and training budgets;
- the overall cash budget.
Most of these budgets will be further broken down by division and by
department, reflecting the structure of the company.
Budgetary control
The consultant needs to keep in mind the multiple objectives that underlie
any system of budgetary control. They are:
that expenditures of funds and commitments of resources resulting from
decisions in the various operating areas do not reach an overall aggregate
that places an unacceptable strain on the company's financial structure and
resources;
that all revenue and cost items be planned and coordinated in order to
ensure a positive stream of earnings and cash flows, and to guarantee the
organization's liquidity;
that all actual revenue, cost and expense items can be monitored and
compared with budgeted levels, and the variances understood and
corrected.
One consequence of the recent recession and the resulting strain on
corporate cash flows has been a growing temptation to depart from carefully
prepared list prices and to accept any order which appears to cover direct costs
and to make at least a contribution to overheads. This places a renewed emphasis

upon the distinction between "full" and "marginal" costs as a basis for pricing
and output decisions.
The issue is clearly not well understood by many managers. Enthusiasts
of marginal costing point to situations in which the company will clearly
maximize its cash flow by taking decisions on a contribution basis. Others point
out that in the long run an organization can stay viable only by ensuring that all
of its costs are safely covered by its revenues. Both are of course correct.
Marginal costing should not be the basis of pricing strategy, but it may still be
valid to use it in tactical decisions. The key 1s to understand the importance of
lead times and of opportunity costs. Although it has been said that in the long
run no costs are fixed, on a shorter time scale most of them are in fact fixed, and
any additional contribution to covering them is welcome. The consultant can be
of great help in identifying appropriate time scales for the various categories of
decision.
The contribution concept is not only used in making pricing decisions and
in deciding whether or not to accept a particular order. It is also widely used in
making product mix decisions. These decisions lie on the borderline between
financeJaccounting and productionJoperatior~s,and like many other borderline
decisions are often made on the basis of' imperfect knowledge and mis-
conceptions. Most managers will readily accept the logic of trying to maximize
the production of those product lines on which the contribution appears to be
greatest. Developments in the operations area, however, increasingly raise
questions about the validity of this approach in some important cases. Where
scarce capacity in some particular process acts as a "bottleneck", it is the
contribution per product per unit of scarce resource time that should be the basis
for decision-making. Consultants will find that this is yet another area in which
they may have to educate clients -and should note that there are some excellent
and enjoyable personal computer (PC) based simulation games to assist them.
The consultant must be acutely aware of'the fact that designing a budgetary
control and management information system involves much more than itemizing
what budgets are needed and how often they should be prepared. Attention will
have to be given to the company's organizational structure and existing pro-
cedures. In a large company it may be necessary to create a number of "profit
centres" or "investment centres", or even to designate some divisions as near-
autonomous "strategic business units". In smaller organizations, a simple "cost
centre" approach is likely to be used.
Once the organizational structure is agreed, it will be necessary to design
procedures for the collection and submission of data for the development and
review of budgets by higher authorities and for the determination of corrective
action. Paper forms and/or EDP programmes and documentation must be
selected. In this, as in most other areas, the development of the new procedures
will involve a partnership between the consul.ants and key company people from
the finance, organization development, EDP and personnel departments, while
Iine management must be consulted at all s;ages to ensure that the completed
system meets all its needs. Finally, the consultants will be actively involved in
training company staff to operate the new procedures and will probably remain
on call until the system has successfully been implemented.
13.7 Financial management under inflation

In the mid-1990s, inflation was not an immediate problem in any of the
major industrialized countries. In the countries of Western Europe, North
America and Japan the rate of increase in both producer and consumer price
levels was below 5 per cent per annum, and in such conditions inflation can be
overlooked in business decision-making without disastrous consequences.
Companies which operate in other parts of the world, however, need to take
inflation more seriously, particularly if they anticipate making capital invest-
ments in such areas. In many parts of Latin America (and in the former USSR)
the rate of price escalation approaches hyperinflation. Few managers fully
understand how to take anticipated inflation into account in their planning and
budgeting.
Inflation accounting
The aspect of inflation that has been most widely discussed in business
circles is its impact on reported earnings. Conventional accounting permits only
the original purchase value of capital goods and of inventory items to be used
in calculating operating earnings. The resultant profits figure is therefore
seriously overstated because the calculation of profit has not made proper
provision for the replenishment of inventory or for the replacement of capital
assets as they wear out. There has been very widespread debate concerning the
introduction of new accounting rules that would provide for "inflation
adjustment" and thus generate a lower but more realistic earnings figure.
Much of the "inflation accounting" debate has hinged upon the method of
adjustment to be used. All the proposed systems seek to establish the use of more
realistic current values of assets rather than using the historic (original) ones,
but differ in their methods.
One approach, the "replacement cost7' or "current cost" method, necessi-
tates finding the current price in the market of equipment similar to that being
used, and using this current market price as the basis for depreciation.
The alternative method - "index adjustment" or "current purchasing
power" - retains the historic purchase price as its basis but multiplies this
historic price each year by a factor obtained from an inflation index to give a
new depreciation base.
The first method is clearly more accurate but administratively tedious and
costly; the second method is more approximate but much easier to apply.
Up to the present time, the "inflation accounting" debate has been sterile
for three reasons:
(1) accountants have been unable to agree as to which adjustment method
should be used;
(2) some accountants do not accept any form of inflation adjustment, believing
that any such system would turn accounting into a highly arbitrary and
inexact process;
(3) most serious of all, very few tax authorities will accept inflation-adjustment
accounts for the determination of corporate tax liabilities, and until such
accounts are acceptable for tax reportin!: purposes it is unlikely that many
companies will be willing to adopt them as the primary reporting vehicle.
Financial operations under inflation

Successful management under high inflation is not simply a matter of
changing accounting procedures. There are practical operating steps to be taken.
The consultancy can provide services to its clients in many areas, primarily the
following:
the development of inflation rate forecasts, either by primary analysis on
the basis of monetary aggregates or by combining the forecasts readily
available from official bodies and financial institutions;
the incorporation of inflation expectations in the company's strategic plan-
ning procedures;
the modification of capital investment analysis procedures to take explicit
and systematic account of inflation expectations, particularly inflation
differentials where wage costs, for example, are expected to rise more
quickly than selling prices;
the review of working capital management procedures, in recognition of
the increased need to speed up the conversion of financial assets and to
minimize unproductive cash balances under inflationary conditions;
the recognition of the close relationship between inflation rates and interest
rates, and the anticipation of likely interest rate changes in planning the
company's capital structure;
continuing emphasis upon the close relationship between inflation rates
and changes in the value of currencies in the foreign exchange markets,
leading to an increase in the importance of foreign currency exposure
management.
Although at the time of writing inflation rates have fallen below their peaks
in most OECD countries, this area is likely to be one of uncertainty and concern
for many years to come. Yet many executives still find it difficult to think
logically about inflation or its effects, and a.ttempt to ignore it - with grave
results. The educational requirement in this area is one of the greatest challenges
facing the financial consultant at this time.
13.8 Cross-border operations and the use

of external financial markets
Where the client company is engaged in any form of cross-border oper-
ation, either selling its products and services in foreign countries or purchasing
some of its own materials from foreign suppliers, a number of important
additional complications arise. Many of the issues involved are unfamiliar to
corporate executives. The field of international finance is, then, a fruitful one
for the consultant who develops the requisite expertise.
The most important issues arising in this area can be grouped under three
subheadings, as follows:
- determining foreign exchange exposure;
- hedging techniques and decisions;
- using external money and capital markets.
Determining foreign exchange exposure

Very few companies engaged in cross-border trading are able to invoice
their products and purchase their imported supplies entirely in their own
domestic currency. As soon as sales are invoiced in a foreign currency, or the
company contracts to purchase items priced in a foreign currency, a foreign
exchange exposure exists. Many companies are unable to identify the exact
extent of their exposure, and the consultant may be of considerable assistance
here. The confusion which exists in many companies arises from the fact that
there are three distinct kinds of foreign exchange exposure. The consultant needs
to understand them all and to be able to assist the client in recognizing them,
determining their relative importance and deciding what to do about them.
Many multinational companies, especially those whose headquarters are
located in the United States, are much concerned with translation exposure: the
risk of gain or loss when the assets, liabilities and earnings of a subsidiary are
"translated7' from the foreign currency in which the subsidiary's books are kept
into the parent currency (US dollars). Such losses are "real" in so far as they
influence the parent's overall reported profit and loss, and taxes on income. In
another sense, however, they are "unreal" in that they arise from a particular
accounting convention, and that a change to a different accounting basis may
change a translation "loss" into a translation "gain". The consultant must be
familiar with the current rulings of the client's national taxation authorities and
the degree of freedom permitted under those rulings. Where there is no freedom
of manoeuvre under the regulations, it may be necessary to advise the client to
change the currency denomination of his or her liabilities to minimize the
translation exposure.
Transaction exposure is simpler to understand and affects all companies
which engage in international trade. Whenever a company commits itself to a
transaction -whether a sale or a purchase denominated in a foreign currency,
there exists the risk of gain or loss if the value of that foreign currency changes
in relation to the company's own domestic currency. If a Swiss company supplies

pharmaceutical drugs to a British buyer, giving 90 days credit and invoicing in
pounds sterling, then that Swiss exporter will make a loss if the value of the
pound falls relative to the Swiss franc during 90 days: the seller will receive only
the agreed number of pounds, and those pounds will now buy fewer francs. The
exporter's home currency cash flow is reduced, and the loss in this case is very
clearly a real one. The consultant will probably not need to become much
involved in the determination of exposures of this type: most companies are
aware of their transaction exposures. They may still, however, be very unsure
what to do about them.
The third type of exposure, which is now increasingly referred to as
economic exposure, is more complex. It deals with the impact of an exchange
rate change upon the organization's overall long-term profitability, rather than
simply its effect upon currently outstanding t~ansactions.Assume, for example,
that a Swiss exporter sells watches to a distributor in the United States, and that
the value of the dollar now falls abruptly against the Swiss franc. The immediate
effect may be a transaction loss if a recent :shipment of watches, invoiced in
dollars, has not yet been paid for. The longer-term effect is much more serious:
the Swiss manufacturer must choose between keeping the same dollar price,
which will now yield fewer francs for every watch sold or, alternatively, holding
the price in Swiss francs constant, which means increasing the dollar selling
price, probably losing sales and market share, and handing customers over to
competitors from Japan and other lower-cost countries. The need for pro-
fessional advice in this area is clear.
It is surprising to recall that when earlier editions of this book were being
prepared the size of the currency market was unknown. Best estimates suggested
that total transactions in the foreign exchange markets probably amounted to
something like US$200 billion per working day, a very large amount of money.
The first systematic measurement of the market (by the Bank of International
Settlement) was not undertaken until 1989, and published in early 1990. It
revealed that transaction volume had reached US$650 billion per day. By early
1993 the market was believed to have grown further, and to have approached
1-trillion dollars. These astonishing figures mean that total currency
transactions in a year are now more than ten times as large as total world trade
in goods and services. It now becomes questionable whether the central banks
of the world - even when acting together - can hope to control these markets
effectively.
The importance of understanding and managing currency exposure was
even more clearly underlined by the events of September 1992. During the
previous 18 months there had been increasing reason to believe that, at least in
Western Europe, exchange rate volatility could be discounted: the Portuguese
escudo and the pound had joined the ERM of the European Monetary System,
and both the Swedish krona and the Finnish markkaa had been linked to the
ECU. It appeared that both the actual and th~:prospective members of the then
European Community were moving rapidly towards currency unification. The
need for currency management was expected to diminish accordingly.
The wave of speculation that was triggered by the Danish referendum

dramatically changed the nature of the currency markets. Within a very few days
the lira and the pound had left the ERM, the Spanish peseta had been devalued
within the mechanism, the Swedish krona and the markkaa had been cut loose
from their ties to the ECU, and the French franc was under heavy downward
pressure. Volatility, which had been unusually low for more than a year, rose to
its highest level since the collapse of the dollar in 1985. The lesson is clear. The
currency market is unpredictable, and its size makes it unmanageable. Com-
panies cannot afford to ignore or be complacent about their exchange exposures.
Hedging techniques and decisions

Once the foreign exchange exposures have been determined, the next step
is to decide whether they should be "hedged" or "covered", and if so, how? Many
companies turn to their commercial banks for advice. The local bank manager,
however, probably has no experience of, or special training in, foreign exchange
management. Consequently, his advice is likely to be highly conservative. Many
bankers tell their clients: "You are in the business of making and selling products,
not speculating in the foreign exchange markets. You should therefore cover all
outstanding exposures by buying or selling the foreign currency in the forward
market."
Any consultant working in this area should realise that this advice is an
oversimplified answer to a very complex problem. A policy of 100 per cent cover
by using the forward market does at least lock in a known rate of exchange, but
not necessarily an advantageous one. Using the forward market can in fact be
considered just as much a speculation as holding an open (uncovered) foreign
exchange position: both policies will ultimately provide either a gain or a loss,
depending upon the relation between the forward price when the transaction was
generated and the spot price on the day the transaction matures. Beware of text-
books offering nonsensical formulae which claim to calculate the "cost" of
hedging at the time the transaction is undertaken: the cost can only be calculated
retrospectively when the final spot price is known.
The most important service that the consultant can provide in this area is
to show the client that there are no simple golden rules or magic formulae
available, and that foreign exchange operations require a systematic step-by-step
analysis and decision process. The required steps are as follows:
(1) Determine overall foreign exchange exposures and distinguish between the
different types of exposure as described above.
(2) Evaluate these exposure positions in the light of the best available forecasts
and expectations concerning foreign exchange price movements, and
decide if there are serious exposures that may produce foreign exchange
losses. If so, hedging will have to be considered. For most companies, it
will only be practical to cover transaction exposures on a continuing basis.
(3) Consider the possibility of hedging the exposures by operational means,
rather than purely financial ones. A company which is regularly exporting
goods to Italy and invoicing those sales in lire, for example, may be able
to offset this exposure by purchasing some of its own raw materials and
supplies from Italian companies. Another method, particularly useful for
large transnational companies with a high level of intra-group transactions,
is "leading and lagging": a deliberate acceleration of some payments and
delay of others in order to take advantage of expected exchange-rate
movements.
If operational hedging is not possible and some form of financial operation
is to be used, the next question is whether the risk is so serious as to require
100 per cent cover, or whether partial hedging is acceptable. The special-
ized services which supply foreign exchange forecasts will usually also
advise upon this point.
The next step is to obtain from the banks the best available quotation for a
"forward" transaction, and to compare this with management's expec-
tations about what might happen to the spot rate. A British company has,
for example, an exposure in French francs, and the exposed position is
expected to continue for 90 days. The spot rate is, say, f 1 = 7.80 French
francs, but the banks quote a 90-day forward outright bid rate as •’1= 8.20
French francs, a significant "forward discount" on the franc. The question
now is not whether the French franc will fall, but whether the spot price in
90 days' time will fall below 8.20. If it is expected to fall to a price below
this, then the transaction should be covered. If it is expected to fall, but
only to, say, 8.10, then it will be cheaper not to cover the transaction.
The consultant will find that many client companies, including some that
have been making regular use of the forward markets for hedging purposes
and consider themselves quite sophisticated in this area, do not realize that
it is possible to achieve the same result by using the money markets. For
example, a company which is based in Switzerland, but sells regularly to
the United Kingdom and invoices in sterling, will have regular "long"
sterling exposure. Rather than hedge such exposures by selling the pounds
forward, the company could borrow pcunds in the London money market,
use those pounds to buy Swiss francs, and use the francs for working capital
purposes. The pound borrowing creates a sterling liability which offsets
the long sterling position arising from the exports. The consultant should
be able to show the client how to compare the cost of such an operation
with conventional hedging, and to explain that when the local currency
generated (Swiss francs in this example) can be used to repay an existing
overdraft or credit line, the interest saving may be enough to make this the
least-cost form of covering.
The period since 1982 has seen the development of another and quite
different approach to foreign exchange hedging in the form of the currency
option. Active trading in such options started in the Philadelphia stock
exchange, but is now spreading rapidly. Other exchanges (Chicago,
London) are offering similar facilities and, even more significantly, major
banks are selling such options on a "custom-tailored" basis. The option is
essentially different from any other fonn of hedging in that its use is indeed
"optional": the right to buy or sell currency at a stated price if the option-
holder chooses. There is no obligation to exercise the option if it is not

advantageous to do so. This approach therefore offers a degree of downside
protection if the currency movement is adverse, coupled with the
possibility of still making a profit if the movement is in a favourable
direction. The pricing of options is very complex, and the markets have
unique procedures and jargon.
(8) The option form itself is still not well understood by many treasurers, some
of whom consider it to be an exotic instrument that can only be used by
"rocket scientists" with advanced degrees in mathematics. This is particu-
larly unfortunate in that the basic option is now being supplemented by
more specialized derivatives such as the "double option", the "average
rate" option, the "knockout" or "exploding" option and the "compound"
option. These are very important developments, and can be used to solve
some kinds of exposure in uniquely effective ways.
Space limitations preclude the examination of all of these recent develop-
ments, but one in particular will be described to illustrate the kinds of unique
feature they offer. Many companies are engaged in exporting their products to
foreign buyers on a regular basis. A British company, for instance, exports
monthly consignments to a buyer in Germany, and invoices the sales in Deutsche
marks (DM). The exchange rate of the pound to DM fluctuates. In those months
in which the DM is strong the company makes additional sterling profits, while
in those months in which sterling has strengthened against the DM the company
loses out. However, the company's overall profit at the end of the year will not
depend upon the exchange rate at any particular point in time but on the average
poundPM exchange rate over the year. The development of a form of currency
option based upon the average rate enables the company to hedge its real
exposure position -and compared with the alternative of hedging with options
on each individual shipment the cost saving will be about 40 per cent.
Here again there is an opportunity for the consultant to perform a valuable
service. The client needs to be assured that options and other recent derivative
financial instruments are both relevant (even for the smaller company) and
readily available. But even once the client has accepted the usefulness of such
techniques, the pace of development is such that he will have great difficulty in
keeping his understanding up to date. There is a need for continuing assistance
here.
Using external money and capital markets

Smaller companies in most countries automatically and quite logically
look to commercial banks in their own country as the normal source of external
funds. As companies grow in size and sophistication, however, the possibility
of using external financial markets presents itself. Corporate management will
initially have little knowledge about such markets, and probably believe them
to be very exotic, perhaps dangerous or open only to the multinational giants.
This is a further area, therefore, in which the management consultant's role is
primarily an educational one.
The consultant will point out to the client that a number of international
financial markets exist: the Eurocurrency market (sometimes called the
Eurodollar market, although the dollar segment is only a part of it), the Eurobond
market, and several "foreign bond markets" existing in various centres,
particularly New York, London, the Swiss and German financial centres, and
Tokyo. The various international bond markets cater primarily to the "high
quality" borrower and a relatively small company may find access difficult. The
Eurocurrency markets, however, despite their ability to accommodate single
transactions of US$5 billion or more on a "syndicated" basis, are readily
accessible to the medium-sized company, both as a source of loan funds and as
a temporary investment medium for corporate cash that will later be needed for
working capital purposes.
Corporate management will probably be surprised that banks operating in
the "Euro" market can often pay a slightly higher interest rate on funds deposited
than can the domestic banks, but at the same time can charge a slightly lower
rate on the loans they make. The consultant will point out that this is a perfectly
logical outcome of the fact that the Eurohanks have cost structures that are
significantly different from those of doniestic banks, the most important
difference being the absence of any reserve requirements against their deposits.
The lower operating costs allow them to work on a smaller "spread7' between
their borrowing and lending costs than can domestic banks, and their customers
benefit accordingly.
Nevertheless, the area is a complex one, and the consultant will have to
guide the client through a mass of new terms and procedures. In Eurocurrency
lending virtually all loans are "floating rate", and are priced not at a stated
percentage of interest rate but at a "spread7' or "mark-up" over a base rate such
as LIBOR (the London interbank offered rate), this latter being the wholesale
cost of money in the interbank market. The procedures for determining "value
dates" for repayment are complex, and these in turn can affect the overall interest
cost. Lastly, although most financial institutions active in these markets are of
undoubted superiority and creditworthiness, a few are of distinctly lower quality.
There is much for the consultant to learn here. It can be a rapidly developing
field for his professional services once the consultant has become familiar with
these fascinating markets.
CONSULTING IN MARKETING
AND DISTRIBUTION
MANAGEMENT
Consulting work involving the client's marketing activities differs in

several ways from that dealing with other functions. It is in its marketing that
the firm finds itself in contact with external entities (competitors and customers)
having an independent existence. The firm's very survival depends upon how
well it manages to adapt to the market conditions influenced by the activities of
these entities.
One of the paradoxes of the marketing function is that when it is looked at
closely it tends to disappear, like a stream going underground. It is first found
at the very highest level of the firm, in its overall strategy formulation. It then
resurfaces in the organization and management of the various market-related
activities: sales, advertising, product development, market research, and so on.
This leaves a definite gap in the organization chart. Matters concerning the firm's
overall strategy, of which marketing strategy is an important part, can only be
decided at the topmost level of the organization, while running the various
activities is predominantly a middle management function. As compared with
his or her counterparts in the other management functions (production, finance,
and so on), this leaves the senior marketing manager in a somewhat ambiguous
position, and the same necessarily applies to a management consultant working
with this manager.
Thus a consulting assignment that embraces the marketing function will
usually develop into two quite separate tasks, one at the strategy formulation
level and the other at the activities or implementation level. These two tasks are
treated separately below. It is convenient here, however, to note briefly a third
type of consulting activity.
The third type is market research, the study of the prospects and
performance of a firm's products in the market. Market research consultants do
not necessarily carry out marketing consultancy, but their findings can notably
affect strategic direction. However, marketing management consulting assign-
ments may involve some market research to verify (or invalidate) the client's
assumptions about the corporate image, the nature of customers, and so on. Since
this work is often very specialized and may require the availability of substantial
numbers of trained interviewers, the consultmt, unless he belongs to an organ-

ization with its own market research division, may find it more efficient and less
time-consuming to subcontract the research to a specialist rather than to under-
take it internally. The consultant should therefore keep informed of market
research organizations, the areas in which they specialize and the quality of their
work. The consultant should also keep up to date on trends and changes in the
market research field.
Information technology (IT), based on computers linked together by the
telephone network or other means, is now firmly established in many areas of
marketing and distribution. Its growth is likely to be explosive. Applications, for
the next few years at least, will be limited more by the ingenuity of the users
than by the capabilities of the technology. Its effects have been profound, and
the marketing consultancy which does not keep in touch with developments in
this field will rapidly become obsolete. Some newer developments that are of
interest to consultants will be reviewed in Chapter 17.
14.1 The marketing strategy level

Strategic decisions in marketing have far-reaching implications for the
enterprise as a whole and for the management of particular functions, such as
production, product development or financial control. It is no wonder, therefore,
that even minor proposals may meet with strong objections from senior manage-
ment of other departments. Major changes, such as dropping or adding product
lines, committing substantial funds to advertising or product promotion, or
changing overall pricing policies, are clearly general management decisions to
be taken at top levels.
A useful starting-point is to classify the client's orientation towards the
market. Three classifications are recognized: product-oriented, production-
oriented, and market-oriented. In a product-oriented firm the emphasis is on the
product itself, while in the production-oriented firm the dominant considerations
in product design or modifications are those of ease, cost-efficiency or capacity
of production. In either case market considerations are ignored or suppressed.
In a market-oriented firm the decisions are based upon the analysis of market
needs and demands. The object is to capitalize on the opportunities the market
offers. This approach can produce any of l.he good effects of the other two
orientations, and avoids their drawbacks. More importantly, it can identify new
opportunities. Figuratively speaking, the management of the firm asks the
following questions:
What are the problems of our customers that our products (or services) can
solve more efficiently or better than products of other suppliers?
Who, in addition to our current customers, has these same needs?
What are the particular circumstances oFour customers, actual or potential,
which would suggest modifications in our products, conditions of delivery,
service after the sale, etc.?
Consulting in marketing and distribution management
Can we offer an effective and affordable solution to the problem and still
produce an acceptable profit?
The idea of thinking in terms of providing solutions to problems is a very
useful one in marketing. It helps considerably in identifying new markets,
finding new products for existing customers, finding new customers for existing
products and, most importantly, discovering potential and possibly unsus-
pecting competition.
As a very simple case, consider a manufacturer of nuts and bolts. This
enterprise probably thinks of itself in the metalworking business, and looks for
new business on this basis. But what about its customers? Their problem is
joining things together. So the firm could meet competition from firms making
welding equipment, rivets, cotter pins, or glues. This threat is also an opportunity,
since the firm's sales force and distributors are already in touch with people who
form a potential market for these items, which suggests that they could profitably
be added to the firm's product line if they could be manufactured with existing
facilities. The costs of marketing are high, so that anything that can add to the
effectiveness of the various marketing functions (i.e. reduce the unit costs of
marketing activities) can be surprisingly profitable. Such help can come from
selling more items per sales visit, sending out shipments with more items, and
turning small, unprofitable accounts into at least medium-sized ones. Creatively
developing unique products is a key to success.
Another theme emerging is that of the "global market". The thesis here is
based on the observation that a very wide range of branded goods, from jet
aircraft to cars, compact disc players and jeans to hamburgers, are being sold
worldwide with little or no adaptation to local conditions. Production for a global
market gives substantial economies of scale compared with production for a
national market, and even compared with multinational firms which adapt their
production to what they believe are local national preferences. Thus national
and multinational firms are vulnerable in the face of firms which adopt a global
strategy.
Stated in this way, this thesis appears to advocate a product orientation
rather that a market orientation, and it is ironic that the chief proponent of the
global market strategy is Theodore Levitt, whose 1960 article was such a
devastating attack on those firms obsessed with their pr0ducts.l It can also,
however, be interpreted as an assault on the marketing excesses of the boom
years when marketers became hypnotized with their own jargon, marketing
departments were swollen beyond all reason, markets were segmented for
segmentation's sake, and so forth.
The global market concept is still a controversial subject, but it appears to
be widely accepted that the firms which most successfully weathered the recent
hard years were those which had adopted and understood the marketing concept,
and applied it in pursuit of clear objectives. Marketing has emerged leaner and
fitter.
Marketing strategy analysis

Since the firm's products are the hub of its whole marketing strategy, the
first step in a marketing assignment shoulcl be to analyse the client's whole
product line in the way described above. checking whether the products
(1) provide answers to consumers' problems, (2) are mutually supportive, and
(3) can be modified to solve consumer or market problems. Ideally, all the
products in the line should be of interest to every customer, and should fit in
well with the production facilities. This ideal is unlikely to arise in practice, of
course, and a certain amount of departure from it must be tolerated. Consultants
should pay attention, however, to the "odd" product, which is in line because it
fits the production facilities but requires a different set of customers and thus
requires undue sales effort in proportion lo its potential sales. Such spare
production capacity might be better used in producing for other firms under
contract or subcontract. Also, a check needs to be made for gaps in the product
line which could be filled by buying-in, in order to make full use of the available
sales efforts. Since each product maintaine'd in inventory requires space and
cash, seeking opportunities to eliminate slow-selling items (line consolidation)
can be equally beneficial as a cost-cuttinglprofit improvement issue.
Such an analysis should provide a sound basis for the consultant's recom-
mendations for product additions or deletions. Sometimes it will indicate areas
that need further investigation. For example, I he marketing manager might insist
that some sizes in a product line, although very small sellers, are necessary
because the firm's distributors demand a "full" line from their suppliers. This
should be investigated (sometimes "demand" means simply a mild preference),
as should the possibility of "buying-in" the more extreme sizes. The analysis is
also, of course, a prerequisite for a review of the client's new product develop-
ment programme.
One of the interesting points noted by various studies during recent
recessionary periods (and recessions are widely believed, probably correctly, to
bring managers back in touch with business basics that are too easily forgotten
in boom times) was that quality of goods and reliability of delivery (supply)
were generally perceived as more important than price, especially by industrial
purchasers. The implications of this marketing strategy are clear.
In many enterprises pricing is reg,xded as a special province of
accountants, who determine at what prices the marketing staff must sell. Yet this
is an area in which both marketing considerations and cost criteria apply. If a
marketing consultant finds that prices are set by unilateral decisions of
accountants, the consultant will be interested in reviewing how this affects
marketing and the volume of sales. This may lead to a revision of pricing policy,
including the establishment of new procedures for price setting in the client
organization. The ultimate objective would be to make better use of prices as a
marketing tool, but without running the risk that an increased volume of sales
of underpriced products would cause a financial 1 0 ~ sIt. ~should be noted that
absorption costing and other cost accounting methods can give rise to misleading
ideas about the profitability of different items in the product line.
Another problem area for consideration by top management is the firm's

public image - the opinion that customers, actual and, more importantly,
potential, have of the firm. This should be broadly consistent with the image the
firm has of itself, and which its product line, advertising, public relations and
salespersons are expected to create (box 14.1).
The consultant who suspects that such a clash between the client's internal
and external images exists should investigate this possibility thoroughly. How
to approach it is a question of consulting strategy. To change the firm's image
is a difficult decision to take; the case for change must therefore be very strong.
For example, the marketing consultant may call for the help of an independent
market research consultant of good reputation, familiar with attitude research
techniques. In any case, the relevant evidence should be collected and presented
by a disinterested party, so that the client is assured of the objectivity of the
recommendations.
I BOX14.1 Various images of the firm

Different perceptions of a firm's image can be illustrated by the results of research
into the public image of three department stores in a North American city, carried
out by a local business school. When the students interviewed the store managers,
one manager said that his store's image was built on quality, the second said his
was built on prices, and the third said his store's strength lay in service. The
research on consumer attitudes revealed that the same three images, of price,
quality, and service, indeed existed, but that each of the three managerswas wrong
about the image attributed to his own store. Thus each manager was, and for some
years had been (1) wasting most of the advertising expenditure; (2) wasting most
of the effort expended in training salespersons: and (3) failing to give customers
the type of treatment they expected from his store. It was extremely fortunate for
each of these managers that the other two had misread the market as badly as he
had himself. In the meantime the smaller stores in town were profitingfrom the way
the big three were failing to cash in on their advantages.
Concentration in retailing
The trend towards concentration, apparent for many years in food retailing,
is, if anything, intensifying and extending into other goods. For example,
hardware is being sold increasingly through do-it-yourself outlets, themselves
often subsidiaries of other retailers. This trend will have increasingly profound
effects on the marketing of such goods:
(1) The major firms will obviously use their purchasing power leverage to get
the greatest possible discounts; this drive will be strengthened as the chains
fight for market share. In order to maximize purchasing power many chains
have moved to centralized purchasing, which means that all buying, for
many regional divisions, is being consolidated into one central buying
office.
(2) The major retailers will try to influence and to participate in the
manufacturer's advertising. In recent years, the "power" has shifted from
the manufacturer to the retailer; retailers now aggressively sell advertising

and merchandising support without which a manufacturer's products
cannot survive.
(3) Selling techniques have changed. A large part of the role of the salesperson
dealing with independent firms and srr~allchains is to function as "order
takers", and the actual selling function is relatively limited. With
re-ordering being increasingly automated through the use of sophisticated
computer programs and electric point-of-sale ordering, the order-taking
function is being reduced, and centralized purchasing means that the sales-
person now deals with buyers who are sophisticated negotiators with
abundant data at their disposal. This will entail corresponding training for
sales representatives if they are to hold their own in these negotiations.
(4) The spread of "house brands" and "generics" means that in many lines of
goods major retailers are in effect competing directly with manufacturers
on ground of their own choosing. Some brands such as Sears Craftsman
or Kenmore have built brand identity and brand loyalty.
( 5 ) New retail formats, which reflect the Further specialization in merchan-
dising, are proliferating: in the United States, for example, club stores
(Sam's, Pace, Price Club) and specialty retailers such as Circuit City
(appliances), Toys 'A' Us (toys), Kids 'A' Us (children's clothing), Home
Depot (home improvements and hardware), Office Depot (office supplies),
CompUSA (computers), PetSmart (pet supplies), etc.
At the other end of the scale, many small food retailers are being forced to
find a niche for survival by becoming conve lience stores. The different mix of
goods sold by such stores is reflected in changed stocking and purchasing
patterns by their wholesalers; this may work back in due course to different
assemblages of manufacturing facilities.
These trends are affecting, and will continue to affect, the overall and
marketing strategies of all the firms involved, and the marketing consultant must
become aware of them and of the effect they will have if he or she is to provide
sound advice to clients.
What the advice is will depend on various factors, such as the strength of
the client's brand name, the technology behind the products (a new product
which can be copied in a matter of months has no market strength), the
negotiating skills of salespersons, and so on. One practice that must be looked
at with concern is that of recouping the discounts exacted by large customers by
charging high prices to small customers. This hastens their demise and makes
the manufacturer even more dependent on 3 few large customers, any one of
whom could de-list his products and bankrupt him in a matter of months.
There would seem to be very good prospects for the consultant who knows
how to show groups of (non-competing) manufacturers how to provide low-cost
support to corresponding groups of wholesalers and retailers. It must surely be
safer for a manufacturer to have a hundred healthy customers than four or five
overgrown ones. Whether the client has the vision to perceive this is a matter for
question.
14.2 Marketing operations

Different firms have different ideas about which operations are part of the
marketing function and which are not. Selling, advertising, promotion, dealing
with distributors, packaging, package design, new product concept develop-
ment and market research are considered by almost all enterprises to be the
responsibility of the marketing manager, but the responsibility for transportation
and storage of finished goods (physical distribution) is usually less clear.
For example, the case has been reported of a Canadian firm that for over
two years deferred action on a consultant's report which recommended building
an intermediate storage and distribution warehouse, with expected savings to
the firm of about Can$2 million a year. The simple reason was that no one could
decide which department was to operate the proposed warehouse. While this
degree of organizational futility is rare, the case nevertheless shows that top
managements may have difficulty in making positive decisions concerning the
administration of activities that cross departmental boundaries.
Such situations should be detected at the diagnostic stage and the assign-
ment formulated to include the appropriate recommendations. The operating
marketing consultant who detects such a case would be well advised to consult
his or her supervisor, because organizational fuzziness in these areas could slow
the progress of the assignment very substantially.
Sales management
The consulting activities in this field are straightforward. Proper training
and motivation of salespersons are key items to be checked, as is the way that
sales staff share their effective selling time between existing and potential
customers, and among large, medium and small accounts. Another point to check
is whether the client's advertising is being used to increase the salesperson's
effectiveness by generating curiosity and interest in the minds of customers.
Such interest makes it easier to obtain appointments and helps interviews to get
off to a good start. This aspect of advertising is particularly important in
marketing industrial goods.
Motivation of sales staff is a complex matter, given the conditions under
which they work. A wide variety of incentive programmes are in use. The
primary motivator, of course, is the payments system which usually includes a
base salary (or draw), a commission and a bonus component. The consultant
should check that the incentive system is at the same time fair to the salesperson
and is designed to obtain the results desired by the enterprise (to encourage the
selling of profitable items in preference to less profitable ones.)
Application of information technology can do a great deal to increase sales
effectiveness. It can save much time spent in producing reports, preparing orders,
and so on, and leave more time for active selling, and it can promote more
effective selling by making up-to-the-minute information on stock position and
other relevant matters available during the sales call.
As the marketplace becomes more diverse and complex, so must the sales
management process. The vice-president of sales must manage field sales man-
agers, sales channel specialists (i.e. club stores, convenience stores, military
commissaries, etc.), sales promotion or sales merchandizing specialists, private
label specialists, and so on. Many of these field sales managers must also be
trained to motivate brokers and/or distributors through whom they sell.
Advertising and promotion

Usually the consultant's client can obtain good advice on these activities
from an advertising agency, but occasionally a situation can arise in which those
responsible for advertising and promotion are rather uninspired, both at the
client's end and at the agency's. The consultant should check that the role of
advertising and promotion in the client's marketing mix has been fully thought
out, and is consistent with the type of product being sold: for example,
"push-pull" advertising for fast-moving consumer products, producing leads for
salespersons of industrial goods, or image-building for prestige goods; next, the
consultant should ensure that this role has been properly communicated in the
instructions given to the advertising agency; finally, the consultant should ensure
that the agency has correctly interpreted the instructions in terms of the
advertising message and the choice of media.
A common but undesirable practice is that of setting advertising expen-
ditures purely as an arbitrary percentage of sales, either past sales or forecast
sales. It is much sounder to plan advertising campaigns in terms of objectives
and to calculate the money needed to attain these objectives. This amount may
be quite out of line with the resources available, in which case the objectives
should be redefined on a more modest scale. This method has the advantage of
giving the client some idea of what might be expected from the advertising
expenditure.
Recent advances in information technology, allowing the use of large
demographic data bases, are leading to changes in advertising practices and the
way campaigns are planned and managed.
In working with a client's advertising agency, or with issues which may be
considered "the agency's responsibility7', the consultant must continually be
aware of the political sensitivity of the clientlagency relationship and should
avoid becoming an adversary of the advertising agency; such a situation is
unproductive and could lead to the consultant's dismissal from that phase of the
project.
Distribution channels
The trend towards concentration in the retailing of consumer goods is
bringing with it corresponding changes in the channel structures for these goods,
the manufacturer being increasingly replaced by the retailer as the "channel
captain". The reduction in numbers of independent retailers, and their share of
trade, is also reducing the importance of the wholesaler, and this trend is being
reinforced by the increasing sophistication of the physical distribution process,

which reduces the need for the intermediate storage function performed by
wholesalers. Interest charges increase the costs of holding stock and also
contribute to the weakening of the wholesaler. This reduction in available options
will mean that the marketing consultant will be less involved than previously in
assignments involving channel policies. These will be replaced to some extent
by assignments concerning physical distribution.
In developing countries this increase in retail concentration is also present,
although so far it is not as advanced as in the developed countries. In developing
countries the wholesaler is still an important factor in the distribution channel.
However, the consultant should be aware that many manufacturers, particularly
the larger ones, have a tendency to maintain large sales forces who visit retailers
directly, bypassing the wholesalers. This may be due to a desire by marketing
managers to keep tighter control, but unless the manufacturer has a wide product
range it is likely to be excessively costly. The consultant should be able to
evaluate the costs of these alternatives.
Franchising is a form of distribution channel which has been widespread
in the United States for many years, and is now increasingly being found
elsewhere. Marketing consultants have seldom had much work with franchises,
but this will probably change as an ever wider variety of goods and services are
marketed through this type of structure.
New product development

This is very much an interdepartmental process, involving overall strategy,
marketing, R & D, engineering, production, finance, sales, and so on. Infor-
mation about the size of the potential market, competing products, competitors7
possible reactions, prices, the way customers will use the product, even the levels
of skill that the distributors' staff will be able to devote to servicing and repairing,
should be analysed and evaluated at the inception of the product, if the design
work is to start off in the right direction. The marketing department's involve-
ment should, if anything, increase as the development progresses.
The consultant's role in this function is twofold. In the first place, the con-
sultant should verify that the marketing department can supply reliable infor-
mation of the type described and, if not, advise on how to develop that capability.
Secondly, he or she must ensure that accurate and usable data are provided to
all functional groups involved in the process.
New product development is a vital function, because the firm's future lies
in these products or services. Yet the process of new product development is very
often a hit-and-miss affair, which attracts little top-management attention (unless
a top manager has suddenly had a "brilliant idea7', usually with disastrous
consequences).
Packaging
Package design, both structural and graphic, is an intrinsic part of new
product design (and is often the major component in refurbishing existing
products) and its importance, particularly in the case of fast-moving consumer
goods, is often underrated. The package can be used, as in the case of window-
cleaners in spray containers, to enhance convenience of use (or even in after-use,
as when honey manufacturers package their products in coffee mugs or beer
mugs), and thus give otherwise indistinguishable products a distinct competitive
edge.
Packaging design is an indispensable way of attracting customers' attention
on crowded supermarket shelves, particularly in health and beauty aids, which
also offers the talented designer the opportunity of creating a coherent brand
image by developing a "matched set" of conrainers for a range of products. At
the same time the package must satisfy retailers' requirements for stackability
(there was a case of an otherwise excellent product which flopped because it
was in a wedge-shaped package which coulcl not be stacked on the shelf), and
protection against pilferage and damage in transit and storage, or tampering at
the retail stage. At the wholesaler and bulk transport level the package has to
adapt to the dimensional requirements of palletization and containerization,
without excessive waste of space.
In the industrial goods field as well, packaging must primarily take into
account the requirements of palletization and containerization. But even here
the "value added in packaging" concept can be used constructively. For example,
diesel-generator sets could be shipped in standardized containers which could
be reassembled on site to form sheds for the equipment.
Modern materials and techniques are making packaging a rapidly
developing area. The consultant who expects to undertake marketing assign-
ments should keep abreast of these developments. Subscriptions to one or two
of the relevant trade journals and visits to exhibitions could be good professional
investments.
14.3 Consulting in commercial enterprises

In this sector stock turnover is one of the key issues. In a well-run firm this
forms the focal point of all activities; purchasing and stock level planning are
based on target stock rotation objectives. The consultant's first task in such
enterprises is to check the stock-control procedures. Often these will be found
to be unsatisfactory and suitable procedures R ill have to be established. Different
types of goods need different stock-control systems.
The establishment of stock (inventory) control procedures comes first,
because further work will need the data such procedures will produce. Indeed,
very often the assignment aims to achieve no more than installing good
stock-control procedures and training management in using stock-control data
in planning and administration.
In recent years the concept of just-in-time (JIT) inventory management has

become very popular. It allows a business to keep inventory levels at a minimum
while reducing the risks of out-of-stock situations.
Some assignments, however, will also have various general management
aspects (e.g. setting up management-by-objectives - MBO - programmes in
multidepartment firms), and sometimes training in specialized techniques will
have to be arranged.
The above account for the bulk of what might be called corrective or
remedial consulting activities in commercial enterprises. But there are firms that
get themselves into more serious trouble through unsound policies. In these cases
the remedies are usually obvious, if drastic, and the consultant's main function
is to provide management with the support needed to make disagreeable or
unpalatable decisions.
For example, a retailer of luxury goods (watches, sports goods, and so on)
might have been enticed into giving extended credit terms because it is so much
easier to sell such goods in this way, only to find accounts receivable equal to
six months' sales or more, which are largely uncollectable.
Quite often retailers will pick store locations unsuitable for the goods they
handle, for example, trying to sell large household items in a convenience store
site or vice versa. A variation of this situation is the case of the real-estate
developer, innocent of all knowledge of retailing or consumer behaviour, who
builds a shopping centre and then leases space to retailers who are inappropriate
for that location. Problems of this kind appear and consultants are called to deal
with them, soon after the shopping centre "boom" starts in any area. They are
quite common in many developing countries and areas.
14.4 International marketing

There was a time when international trade meant that developing countries
exported raw materials to, and imported manufactured goods from, developed
countries. This simple dichotomy is no longer valid. A rapidly growing variation
of this theme (which will probably become dominant in the not-too-distant
future) is that developed countries export manufacturing technologies to
developing countries, with manufactured goods flowing in the other direction.
This leads to corresponding changes in marketing consulting, with developed-
country consultants being asked to evaluate prospective host country markets in
connection with proposed technology-transfer activities through joint ventures
or other arrangements, and developing-country consultants having to evaluate
developed-country markets for manufactured goods and set up suitable
marketing channels. Consultants in both developed and developing countries
will have to polish up their knowledge of export credit guarantee systems,
preferential tariff systems, "most favoured nation" and GATT agreements, and
other arrangements that influence international trading. They will also, of
course, have to find out how much of their marketing experience is culture
specific, and so not transferable to other countries.
In the future, international trade alliances such as the North American Free
Trade Agreement (NAFTA) between the United States, Canada and Mexico, or
the Maastricht Treaty in Europe could sub~~tantially alter or change the way
products are produced and marketed in these areas.
In addition to these new trends in international marketing, the consultant
may be asked to advise on the more traditional form of export marketing. This
differs from international marketing in degree rather than in kind, the principal
differences being the complications of the required paperwork (shipping firms
will usually take the responsibility for executing this) and the additional
difficulties of working with distributors in a remote country (language, distance,
product training and support, etc.). Bankers. with their international contacts,
can be helpful in checking references and credit ratings, and the exporter and
his consultant can call upon the services of the commercial attach6 of the national
embassy in the destination ~ o u n t r y . ~
The main point to keep in mind about going into exporting is that it is not
a quick fix for getting rid of surplus goods or finding an outlet for spare
production capacity. Developing an effective international distribution network
requires time and effort, and must be taken very seriously if any success is to be
obtained. There must be a definite commitment of financial and human resources
to a planned programme with a specific objective.
14.5 Physical distribution

At long last physical distribution is comi ng to be regarded as a distinct (and
serious) activity, accounting for a substantial part of the total costs of an
enterprise. Consultants will find themselves increasingly being asked for advice
in this area.
Complications arising in such assignments will have three sources. First,
there is the problem of arriving at a clear definition of the authority and
responsibilities of the distribution manager, as the physical distribution function
is affected by decisions made in all departments, from purchasing through to
sales, and procedures that minimize costs within each department will not
necessarily result in the lowest overall cost. This can result in difficulties in
reconciling conflicting objectives. Secondly, very few firms have cost-
accounting systems geared to reporting physical distribution costs, so the
assignment will usually have to be extended to include changes in cost
accounting. Thirdly, although a substantial amount of operations research work
has been done in this area and some useful results obtained on some topics (for
example, vehicle scheduling), there are still no algorithms which can
conveniently be used in physical distribution planning, for calculating how to
arrive at overall lowest costs. Trial and error methods are too time-consuming
to be practicable in a system of any complexity. Computer-based simulation
programmes ease this problem, and the advent of decentralized computer
availability can make such programmes part of the regular tool-kit of physical
distribution management.
14.6 Public relations

This is an area which is both a part of marketing, in that it is a component
of the marketing mix, and at the same time transcends marketing in that it
addresses a much wider audience than simply the firm's customers. This
audience includes the general public, government regulating agencies, share-
holders, and the firm's employees themselves. However, it is in the nature of
public relations (PR) that the corporate image which PR seeks to create in the
minds of these various sub-audiences will inevitably feed back into and affect
the image held by the firm's customers - a presentation given to stock market
analysts and reported in the financial pages of the newspapers cannot be kept
secret from customers - so it is important for the marketing department to be
involved in the design of PR campaigns; if not, conflicting images could be
created.
Expenditure on PR has increased dramatically in recent years, as com-
panies have started to use it proactively rather than simply reactively. Press
conferences are tending to replace (at much greater expense) press releases. PR
consultants are being brought in, some to train executives how to handle media
interviews, and others to advise on corporate image creation.
As far as the consultant is concerned, this tendency means that he or she
should check that the images which the client's advertising and PR efforts seek
to create are consistent with each other, and that the client's internal organization
is such that there is close liaison between the marketing and the PR functions.
The consultant may also recommend training in dealing with media interviews
for a selection of the client's senior managers. Statements made by named
officers of the firm carry much more conviction than those made by an
anonymous spokesperson, but this is a two-edged weapon, and a poorly handled
interview can generate undesirable publicity even if the underlying situation is
favourable to the firm.
T. Levitt: "Marketing myopia", in Harvard Business Review, July-Aug. 1960. See also
idem: The marketing imagination (New York, The Free Press, 1983).
See R. A. Garda: "The successful marketing managers gain the decisive pricing edge", in
Management Review (New York), Nov. 1983, pp. 19-22.
Very useful publications on export marketing, market studies, trade fairs, packaging and
other topics are available from the International Trade Centre (ITC) in Geneva.
CONSULTING IN PRODUCTION
MANAGEMENT
Production is essentially a process of transforming certain inputs into some

required outputs in the form of goods or services. As such, a production function
does not apply exclusively to manufacturing operations but also to other activi-
ties, such as construction and transport operations, health or even office services.
This process of transformation requires decision-making on the part of the
production manager with a view to getting an output of the desired quantity and
quality delivered by the required date and at a minimum cost. The consultant's
task is to advise management, whenever necessary, on the best means of achiev-
ing such an objective. In most cases, production management consultants are
able, in the performance of their functions, to measure and assess the fruits of
their work quite tangibly.
Production forms part of the value chain which comprises marketing, in-
bound logistics, production, outbound logistics, sales and after-sales service.
Production consultants will therefore consider the effect of their propositions on
the overall value chain. There are many examples where improved production
efficiency leads to a reduced performance of the overall value chain.
15.1 Basic choices in the production area

How can production consultants contribute to improving the performance
of production systems having in mind an optimization of the whole value chain?
Problems submitted to the consultant may have very different degrees of
importance to the client organization.
At one end of the scale there are problems which belong to the group of
"basic choices". A production consultant may have an important say in a team
which is examining the client's business strategy.
At the opposite end of the scale there are myriad problems whose common
denominator is the need to meet certain criteria with regard to productivity, cost,
or job satisfaction in the performance of specific production tasks. Such prob-
lems tend to be operational in nature. But the consultant will be well advised
not to lose sight of the broader needs of the client organization, as it is not unusual
for assignments in very specific production fields to disclose problems that are
much more profound and lie outside the sccpe of the production area itself.
Therefore, in defining an improvemenl programme or project, consultants
should, together with their clients:
- establish competitive performance criteria and levels;
- develop a clear understanding of available production choices (best
practice);
- select the consulting approach.
Performance criteria and levels

Speed, quality, productivity and customer focus, as well as their continuous
improvement, characterize the worldwide production objectives of the 1 9 9 0 ~ : ~
The speed imperative is translated into criteria such as time to market for
new products or services, response tirne to orders of internal or external
customers, and manufacturing lead time for production.
Quality and productivity are increasingly defined in terms of the cus-
tomers' desire and translated into product specifications by using tools such
as quality function deployment.2 In product development, productivity and
quality mean achieving high leverage from critical resources, as well as an
increased number of successful prqjects developed in a truly cross-
functional development process. With tools such as total quality manage-
ment (TQM), efforts are made to improve quality and productivity in
operations by increasingly concentrating on processes and not only on
products.
Customerfocus, the third competitive imperative, aims at meeting increas-
ing expectations of ever more segmented customers who are offered, for
most products, a wide variety of choice. Here, the efficient translation of
these demands into products and services with distinction and integrity has
to be tackled.
Consultants are used to implement all three performance criteria or com-
petitive imperatives, as shown in box 15.1. In the present drive to restructure
production, consultants should, however, be careful not to generate too many
projects which cannot be "digested" and sustained by existing production facili-
ties and staff.
To define performance criteria and set performance standards, a client
company assisted by a consultant is well advised to search for those best
practices of superior companies, competitors and non-competitors, which are
relevant to achieving superior performance.
Benchmarking (see description in section 4.6) has been used by many
consultants in helping clients to establish performance levels in production and
operations by comparing the client's current practices with those of sectoral
leaders, competitors or other companies able to offer, and willing to share, useful
Consulting in production management
practical experiences. In the approach developed by the Xerox Corporation, the

interfirm comparison methodology, traditionally used with financial data, has
been applied to product design, manufacturing and customer services by seeking
to identify, evaluate and use the best approaches developed by successful
competitors."
Box 15.1 Performance criteria of production
Performance Driving force Consultants contribute to

criterion
Speed - Intense competition - Shorter development cycles

- Fast-changing - Better targeted
customer expectations products
- Accelerated - Accelerated capital
technological change rotation
- Shrinking product life - Reorganization of processes
cycle emphasizing speed
- Reduced contribution - Instigate continuous
margins improvement
Quality and - Exploding product - Promote creativity combined
productivity variety with total product quality
- Sophisticated, - Emphasize quality of
discerning customers manufacturing processes
- Increasing complexity - Tap and develop knowledge of
of process technology all staff
- Environmental - Develop cross-functional
concerns problem solutions
- Focus on "value added"
Customer - Customer expects to - Define quality in terms of
focus be treated as individual customer
- lntense competition - Streamline supply chains
insideloutside the company
- Crowdedlsaturated
markets
Source: Adapted from: S. G. Wheelwright and K. B. Clark: Revolutionizing product development

Making production choices

In implementing performance improvement programmes according to the
above criteria, the most complex task is perhaps the wide variety of choices a
consultant faces, a summary of which is given in box 15.2 (overleaf). Often these
choices are sold as a complex package such as "lean prod~ction".~ Lean
production advocates a reduced vertical integration, where the original equip-
ment manufacturer (OEM) produces only about 20-30 per cent of the product
value. Parts and components are bought from a reduced number of suppliers
with whom close collaboration is developed. Suppliers take up product develop-
ment tasks and synchronize their production (just-in-time) with the OEM.
Consultants are often called in either by the OEM or by suppliers (vendors) to
develop lean production practices which make such an enterprise network oper-
ate efficiently.
Another package of choices concerns the implementation of information
technology in operations aiming at compiiter-integrated manufacturing. In
several cases, this introduction has been made or is being sought to "keep up
with the others", and without the necessary preparatory work being thoroughly
done. Computer applications have found their way into production through
computer aided design (CAD) and computer aided manufacturing (CAM). There
have been several developments in CAM, as well as the introduction of flexible
manufacturing systems (FMS). Production consultants would do well to remind
their client organization that if the layout is poor, the product design old,
production planning and control not the best, and standards loose, transferring
these ills to a computerized manufacturing system is not going to help much.
Furthermore, it is the rule rather than the exception that new technology is
introduced side by side with traditional technology. This may be a permanent
feature or a transition phase, and the consultant must be able to diagnose the
problems and improve the efficiency, particularly of traditional technology,
either for increasing productivity and cutting costs or as a prelude to the intro-
duction of new technology.
Box 15.2 Major types of manufacturing choice
Capacity Amount, timing, type

Facilities Size, location, specialization
Equipment and Scale, flexibility, interconnectedness
process technologies
Vertical integration Direction, extent, balance
Vendors Number, structure, relationship
New products Hand-off, start-up, modification
Human resources Selection and training, compensation, security
Quality Definition, role, responsibility
Systems Organization, schedules, control
Source: S. G. Wheelwright and R. A. Hayes: "Competing through manufacturing", in Harvard

Business Review, Jan.-Feb. 1985, p. 101.
Selecting the consulting approach

There is not only a wide variety of production choices, but also a variety
of consulting approaches that are applicable to production and operations.
Process or product focus. In order to improve the performance of pro-
duction systems, consultants have to decide together with their clients whether
to focus on certain products or certain processes, or concentrate on cutting over-
head costs independently of products and processes. For a company wishing to
improve delivery speed, for example, it would be useful to look into order
processing, which generally would be similar for a whole range of products. If
the task is to increase the contribution margin of A-products (products which
have a high share of sales), then the consultant would be well advised to analyse
the production sequence for this product. An overhead reduction approach would
be appropriate if there is a high percentage of overhead costs and if there are too
many products and processes to achieve short-term performance improvements.
Technical expertise or change management skills. While production
consultants have traditionally acted very much as industrial engineering or
technology experts, they have had to learn how to lead and assist in complex
organizational and technological change processes. And it is still a major
challenge for an engineer to acquire process consulting skills and be sensitive
to people's concerns in proposing changes in established production practices.
The failure of consulting projects can often be attributed to an imbalance
between technical expertise and the skills required to lead change processes.
Radical re-engineering or incremental improvements. If a client de-
cides to call in a consultant in production management, it is increasingly due to
a need to modernize operations and to achieve "quantum leaps" in speed and
efficiency. For such cases, consultants have devised the business process re-
engineering (BPR) approach, described in section 4.6. BPR aims to identify and
radically improve processes that are essential for creating value and meeting
customers' demands; other processes are not restructured, but are discontinued
and dismantled. State-of-the-art production and information technologies are
essential factors for achieving process integration and reorganization, which is
the opposite to traditional process fragmentation into thousands of small tasks.
Re-engineering ignores what is and concentrates on what should be; thus
it is more like business reinvention than restructuring. The traditional question
of a consultant is, for example: How can we perform customer credit checks
more efficiently? In a re-engineering approach the consultant would ask: Does
customer credit need to be checked at all?
In contrast, continuous and incremental improvement following the
principles of Kaizen (in Japanese, "gradual unending improvement") builds on
existing systems with the objective of using every opportunity and involving
everyone - top and middle management, supervisors, specialist staff and
workers -to make small improvements. To achieve incremental improvements,
a consultant may be given the task of "installing" continuous improvement
processes: a total quality approach, for example. Such an evolution of production

systems instead of the re-engineering revolution is appropriate if a company is
already a leader in quality, productivity and speed, and wants to sustain this
leadership on a long-term basis. For example, "if a company falls 10 per cent
short of where it should be, if its costs come in 10 per cent too high, if its quality
is 10per cent too low, this company does not need re-engineering but incremental
impr~vement".~
Radical re-engineering should be followed by an incremental improvement
approach to sustain overall high performance levels, as there is a well-known
tendency of production systems for performance levels to erode with time.
Furthermore, even if the latest production and information technologies have
been applied, there is always scope for sma1:ler improvements suggested by the
customers, the company's own staff, the suppliers of the technology or the
consultants.
Notwithstanding the approach taken, the consultant in most cases will have
to deal with three major components of procluction systems:
- the products;
- the methods and organization of work;
- the people involved.
The consultant can concentrate on any of these areas in line with the
agreement reached with the client. In many cases, however, this classification is
somewhat artificial - problems to do with product quality, for example, may
be due to poor methods of work, or poor training of workers, and so on.
Nevertheless, for the purpose of structuring his or her thoughts the consultant
will find this approach helpful.
Within each area, the consultant has at his or her disposal a variety of pro-
duction and management techniques ranging from the simple to the more
Box 15.3 Current issues of Japanese production systems

Since the 1960s. production systems and methods that have their origin in the
Japanese manufacturing secto; have revolutionized production organization and
management worldwide. Their impact on productivity and quality has been
dramatic. The best-known examples include:
0 TQM (total quality management): A programme to provide an environment in
which the employees are involved in the process of management and make
constant efforts for improvement on a daily basis.
JIT (just-in-time): A system to integrate the sales, development, production
and physical distribution in which only what is really needed in the market is
provided.
Techniques and tools for improvement and individual systems to promote the
above: 5 Ss (which in Japanese stand for organization, neatness, cleanliness,
standardization and discipline); visual control; suggestion schemes; quality
circle (QC) activities; productive maintenance (PM) activities; Kanban system
(just-in-timeinventory management).
However, the recession of the early 1990s, and recent economic and social
changes in Japan, demonstrate that no production and management system can
provide a long-term guarantee of high competitive advantage and performance.
Various elements of Japanese production methods have been effectively utilized
in the United States in developments such as lean production systems or business
process re-engineering. In Japan, lifelong employment has started to be
challenged, the need to base remuneration and careers on merit is becoming
pressing, and organizational structures and information systems require
modernization.
In response to these challenges many manufacturing businesses are currently
addressing the following issues:
to organize the flow of the logistics of product distribution - manufacturing
- procurement in order to shorten lead time and to obtain faster speed and
response to market;
to shorten the lead time of product development and productionpreparation;
to simplify and clarify the rules, control items and evaluation criteria, and to
open the information to all employees;
to make the organizationflat, self-disciplined and self-controlled;
to reorganize systems so that the overseas production bases can act on their
own;
to improve the productivity of management, support and functional
departments;
to place emphasis on the merit system in personnel evaluation and to
develop specialists;
to improve the information system, which is critical in order to achieve the
above goals. Positive investment will be seen in this area from now on.
Theoretical development has not been seen for the past 20 years in terms of
production control information systems, but there are signs of development
with new concepts in this area;
to develop education programmes that will activate an entrepreneurialspirit.
Furthermore,the role of government regulation and protective policies will need to
be revised. While Japanese industry has benefited from them in numerous ways,
they have now turned into barriers with the result that market principles can no
longer work.
Many (but not all) Japanese companies have already started reforming their
production and management systems. Other businesses will follow. Once more,
major innovations can be expected. Management consultants will have excellent
opportunities to contribute to these changes, while simultaneously widening their
perspective and practical knowledge of modern and highly competitive production
systems.
Author: Takeyuki Furuhashi.
complex. In the production planning area, for example, techniques used in

solving planning problems can range from simple bar charts to network planning
to more advanced operation research tools such as waiting line models. The
choice invariably depends on the situation faced and the degree of sophistication
of the industry concerned. No attempt will be made in this chapter to describe
these techniques. They can be referred to in various publications dealing with

production management and operations research. Instead, we will concentrate
on the systematic approach to identifying and prescribing methods for improv-
ing productivity, reducing production costs, and improving quality, speed and
customer focus, so that the consultant develops an approach which is process
and problem oriented rather than single technique oriented.
15.2 The product

The product range
A product starts as a single substance or a multitude of raw materials,
processed so as to give quality characteristics that match a predetermined
standard. It is rare, however, to find enterprises that produce only one product.
What we usually have is a "product line", or a composite of many products,
which are sometimes produced to order or produced for stock, or both. In the
majority of cases, only a few products will either form the bulk of items produced
or represent the most expensive (and presumably yield the highest rate of return).
The consultant would then be well advised to start the assignment by analysing
these product lines to identify the one or more products representing the bulk of
production, or the highest value, and to focus attention on certain major areas
in respect of this particular product or products. At the same time, this analysis
may help to bring another question to the fore: Is there a need for all these product
variations, or can some products be eliminated or standardized?
In recent years, outsourcing (make or buy) has become a major strategy
not only to concentrate on the core competer ces of a company but also to offer
a wide range of complex products.
Increasingly, environmental considerations play a part in decisions about
the continuation, modification or discontinuittion of products. The selection of
reusable or biodegradable materials, product modifications to enable cleaner
production processes, and a "cradle to grave" approach in defining product
specifications open a whole range of new consultancy tasks in p r o d ~ c t i o n . ~
Consequently, "pruning" the product range would be the first task in
systematically restructuring production systems before looking closer into the
remaining products and their production.
Why do some companies move quickly and efficiently to bring to market
outstanding new products, while other:$ expend tremendous resources to
develop products that are late and poorly designed? How do designers,
engineers, marketers, manufacturers, and senior executives in these companies
combine their skills to build competitive advantage around product and
process development? . . . What can managers do to bring about significant
improvement in the performance at their development process?
These are questions that clients increasingly ask their consultants with a
view to restructuring product development processes.
To render product development efficient, consultants will have to look into

the following four areas.
Product development strategy

In assisting a client to define a product development strategy, a number of
common problems arise (see also box 15.4, overleaf)?
The moving target: The basic product or process concept misses a shifting
technology or market.
Mismatches between functions: What one part of the organization expects
or imagines that another part can deliver may prove to be unrealistic or
even impossible, e.g. engineering may design a product that the production
department cannot produce, or only with difficulty.
Lack of product distinctiveness: New product development terminates in
disappointment because the new product is not as unique or justifiable as
the organization anticipated.
Unexpected technicalproblems: Delays and cost overruns can be traced to
overestimates of the company's technical capabilities or to its lack of
resources.
Unresolved policy issues: If major policies have not been articulated
clearly and shared, short-term decisions will have to be made during the
"heat of the battle", often with negative implications for the whole
organization.
Translation of customer demands into products

Here the consultant has to focus on cross-functional information flows,
particularly between marketing and research and product development, and
on the structural processes of translating this information into product
specifications via techniques such as quality function deployment, for example.
The tendency of engineers to "over-engineer" products should be limited by
introducing target costing techniques. A cost target is set for the whole product
and subsequently broken down into cost targets for components, to avoid cost
and price overruns which are quite common for new products. Target costing
also allows better negotiation with suppliers based on a fixed cost target.
Design for manufacturing (DFM)g

In many cases, a traditional or a successful product will continue to be
produced for years without enough thought being given to its design features.
In other cases, product design is considered to fall solely within the domain of
the marketing staff, and it is left to them to make all decisions in this area.
Development work leading to a design involves more than just producing an
appealing product. It should be based on the full cooperation of several enterprise
functions, particularly marketing, production and costing.
Box 15.4 Central themes in ineffective and effective

development projects
Problematic projects Outstanding projects

-
Characteristics Consequences Selected themes
Multiple, ambiguous Long planning stage; Clear objectives and

obiectives; different project becomes vehicle shared understanding of
functional agendas for achieving consen- project's intent throughout
sus; late conflicts organization; early conflict
resolution at low levels
Focus on current Moving targets, Actively anticipating future
customers and surprises and dis- customers' needs;
confusion about appointments in marrtet providing continuity in
future target tests; late redesigns; offerings
customers mismatch between
design and market
Narrow engineering Slipping schedules; Maintaining strong focus
focus on intrinsic schedule compression on time-to-marketwhile
elegance of solutions; in final phases solving problems
little concern with time creatively; system view
of project concept
Reliance on engineer- Poor, unrepresentative Testing and validating
ing changes and prototypes; many lat's product and process
manufacturing ramp- changes; poor manu- designs before hard tooling
up to catch and solve facturability; scramble in or commercial production;
problems; "we'll put a ramp-up; lower than "design it right the first
change order on it planned yields time"
when we get to
manufacturing"
Narrow specialists in Engineering "ping- Broad expertise in critical
functional "chimneys" pong"; miscommuni- functions, team responsi-
cation and misdirected bility, and integrated
effort; use of time to problem solving across
substitute for integration functions
Unclear direction; no Lack of a coherent, Strong leadership and
one in charge; shared vision of proj~sct widespread accountability
accountability limited concept; buck passing;
many false starts anti
dead ends
Source: S. G. Wheelwright, I. Clark and R. A. Hayes: Dynamic manufacturing (New York, The Free
Press, 1988), p. 14.
On the production side, the consultant is concerned with the fact that a
design will normally predetermine the process and method of work, the type of
raw materials, jigs or fixtures, or materials-handling equipment that will be used.
This is true of the product as well as of its constituent parts. The most frequent
questions that the consultant needs to ask are:
How many parts is the product composed of? Can some parts be elim-
inated through better design, and have any unnecessary features been
removed?
Can certain component parts be standardized to match parts of other prod-
ucts and so enable the use of the same machines, tools, jigs and fixtures?
Can some components be replaced by cheaper ones which would perform
the same function?
Does the design lend itself to easy handling?
Can a change in the design eliminate one or more processes? (For example,
a process of stamping a metal production may eliminate one or more
processes of assembly, though it could also alter the appearance of the
product.)
Can some component parts be standardized, and yet by using them in
different combinations can variety in the product line still be obtained?
The consultant knows that products have to be matched with the equipment
on which they are manufactured (e.g. with its dimensions, precision, pro-
ductivity and cost), and vice versa. In a number of cases, he or she may have to
examine this relationship and make recommendations to the client concerning
either the product, or the equipment used, or both. As mentioned earlier, any
proposed modifications in product design should be checked with the marketing
specialists for their marketing penetration potential.
Organization of the product development process

By reorganizing the product development process, it is not unusual that
development time and costs are reduced to one-third compared with traditional
systems.1•‹To reach such results, consultants should look into the following:
cross-functional problem solving (including at least marketing, R & D,
manufacturing, purchasing, logistics, financial controlling);
0 development team structure;
project management techniques.
These elements should ensure that products are designed for marketing and
manufacturing in a simultaneous (concurrent) engineering process, entailing a
substantial reduction in costs and time to market.
15.3 Methods and organization of production

Under this major heading, attention will be given to the following areas:
- characteristics of high-performance work systems;
- flow of work and layout;
- materials management;
- production planning;
-
setting and improving performance standards (at workplace level);
- maintenance;
- cleaner production and energy saving;
- quality control.
Characteristics of high-performance work systems

Companies worldwide are trying to overcome autocratic, highly hier-
archical and Taylorist organization concepts which cannot cope with the
competitive imperatives of customization, speed, productivity and quality.
Consultants play a major part in facilitating the transition process to high-
performance work systems exhibiting the characteristics shown in box 15.5.
From this list it becomes clear that a consultant in production management
will have to be qualified to deal with the human and technical aspects of
production in an integrated manner. Furthermore, the consultant has to help the
client to choose among all these practices and techniques, and to effectively
combine and apply those that are appropriate in a particular client context.
It is sometimes difficult for consultants to convince their clients that the
traditional approach of fine-tuning subsystems without reviewing the overall
organizational structure will not yield the desired success. Therefore, opti-
mization of the aspects of production systems described below should always
be carried out with a view on the overall concept of production organization.ll
Flow of work and layout

The organization's production operations normally fall under three major
descriptions. The first is production by fiedposition, in which case the product
is stationary and the workers and equipment move, as in building aeroplanes,
heavy generators, or ships. Improvement in layout can sometimes be brought
about by attempting to shorten the distances travelled by workers, materials and
equipment. However, the margin of manoeuvrability is rather limited.
The second is in-line production, where the equipment and machinery are
arranged according to the sequence of operations, as in bottling plants, car
assembly and food canning operations. In these cases, the layout is more or less
inherent in the sequence of operations which determines how the machinery is
placed. Nevertheless, two sorts of issue can tle examined by the consultant: the
original balance of operations; and the problems which result from the fact that,
in many cases, as the enterprise develops ,and the product line expands, or
demand for the product changes, additional lines may be added which do not
often work in harmony with the original line. The operations can therefore
become unbalanced with certain stages producing at a faster rate than subsequent
or preceding stages. A schematic diagram sk40wingthe sequence of operations
and the time it takes to perform each one can be quite helpful. Depending on the
type of problem faced and the complexity of the situation, correcting for balance
Box 15.5 Key characteristics of high-performance work systems

Clearly expressed and communicated "management philosophy"
Emphasis on training, career planning and personal development
Flat management hierarchy
Efficient continuous improvement systems
Salaried status with common fringe benefits package
Skill-based payment system with gain sharing
Allocation of meaningful "whole pieces of work" to teams
Self-managed teams with elected leaders
Team responsibility for goal setting and task allocation
Team control over quality and absenteeism
Teams select new members
"Multiskilling" and skill sharing
Team review of skills and salaries
Process layout supports continuous flow teamwork and communications
Some support functions carried out in teams
Fewer support personnel in engineering, scheduling and quality control
"Zero defect" quality policy
Just-in-time production philosophy and systems
Flexible manufacturing equipment or specialization via "plant in the plant"
concept
Provision of team meeting-rooms with personal facilities
Common entrance and car parking
Common plant eating and recreation areas
Source: Adapted from E . E. Lawler: High involvement management: Partic~pativestrategies for
improving organizationalperformance (San Francisco,California,Jossey-Bass,1986).
can range from simple proposals, e.g. increasing workstations on parts of the
line, additional machines or improvement in the method of work, to more
sophisticated heuristic methods.
The third type of organization is that offunctional arrangement, where all
identical machinery is grouped together and the products move between these
machines, depending on the sequence required for each. This is the case in many
woodworking workshops and in the textile industry. This type of arrangement
allows the consultant to do more to improve productivity through a better layout
and organization of operations. The key is to identify whether among the many
finished products there is one or more constituting a sufficiently high percentage
in terms of volume. The machinery needed to produce such items is then
detached from a functional layout and arranged along a line layout flow. The
gains in productivity in this case can be substantial.
The consultant could arrive at improvements, both for a functional and a
line type of layout, by looking for the following:
0 bulky or heavy material that is moved further than smaller or lighter

material;
0 a workplace that is either too congested (making access to machinery or
equipment difficult) or too large for requirements;
backtracking of work in progress or crois-flow with other products;
unused space overhead, particularly in stores;
0 aisles that are not free or marked, materials lying about, and untidy working
conditions.
Once the need for tackling a layout .issignment becomes apparent, a
consultant must collect information on the space requirements for machinery,
storage, work in progress, and auxiliary services (canteens, washrooms,
telephone installations, etc.), calculate the space required, determine and plot
the flow of work, and then integrate the space needs with the plotted flow. An
important consideration is that of making cost estimates of the proposed layout
by comparing savings in space, equipment and labour costs with the cost of
additional space, handling or storage equipmznt.
Materials management
With reduced contribution margins per unit of product sold, the increase
of capital rotation has become an important srrategy to maintain profitability of
a company at acceptable levels. In this respect, computerized materials
requirement planning (MRP) packages and inventory reduction programmes
have become quite popular, with consultants offering a wide range of services
to reduce materials costs and improve turnover of assets. In the following, we
mention only briefly what can be done in thi.,'' area.
Inventory control
The consultant needs to keep in mind three types of inventory: raw
materials, work-in-progress andfinishedproducts. One general principle should
govern all these: the need to keep them at a minimum but safe level. For raw
materials and finished products, a safe level is one that allows for uncertainty of
delivery or avoids opportunity costs resulting from lost sales. This "safety
stock", usually known as "buffer stock", is not a justification for having a high
stock level, nor is it to be used indiscriminately to take advantage of quantity
discounts or special modes of delivery.
For finished products, the desired level of stock needs to be determined in
close consultation with the marketing and finance specialists in an effort to
balance opportunity costs (the probability of lost sales if one runs out of stock)
against carrying charges (the cost of carrying the inventory).
Great savings in carrying charges can be made if the work-in-progress
inventory is kept to a minimum. To achieve this, however, the consultant may
have to look at the balance of operations, remove or reduce bottlenecks, and
propagate the virtues of a system whereby no or very little inventory is allowed
to accumulate beside each machine.
In most industries, stock levels were reduced dramatically in recent years

owing to the implementation of just-in-time (JIT) concepts for all three types of
inventory. JIT requires close cooperation between suppliers, the producer and
clients, a stable production process, and a "zero defect" quality policy. The JIT
concept is also a powerful tool to stabilize production processes incrementally
by reducing stock levels step by step and solving the emerging problems as
inventory levels go down. Thus imbalances in production lines, planning errors,
bottlenecks and so on can be reduced in a systematic manner.
Conversely, JIT is sometimes difficult to implement for reasons such as
more frequent transport from suppliers to producers, congested transport
networks, especially in big cities, and the tough requirements on the suppliers.
Most consultants approach the problem of the raw materials inventory by
analysing the values of the various items to distinguish the "A" items (which are
few in number but very costly) from "B" and "C" items (the latter being the great
multitude of relatively cheap items that are carried in stock).
An ordering strategy is then developed for the "A" items resting on the use
of inventory models to determine the economic order quantity by balancing
ordering costs against carrying charges. Quantity discounts can also be evaluated
against incremental carrying charges, and a decision can then be reached as to
when a quantity discount offer can be attractive. The problem, however, lies in
the determination of the buffer stock level. Under normal circumstances, this is
calculated by balancing opportunity costs against carrying charges. For the "B"
items, ordering is carried out through regular review of stock, or whenever a
minimum level is reached. For "C" items, mass orders may be placed at certain
points in time.
Materials handling
Before looking deeper into the ways of improving materials handling, a
consultant should bear in mind that materials handling in production operations
is a non-value-adding task and should be avoided or reduced as much as possible.
For the remaining handling tasks, attention should be given to:
the means of intermediate storage such as containers, pallets, etc.;
0 the means of transport such as conveyors, cranes, trucks, robots, etc.;
0 computer-assisted materials handling and retrieval equipment.
The consultant should consider three important issues. First, economy in
handling can be achieved as the size of the unit and speed of transportation are
increased. Secondly, versatile equipment and methods which can be used for
several products are to be preferred to those that are mainly designed for a single
product. Thirdly, gravity should be used as much as possible.
Utilization of materials
While the focus of attention here is on the raw materials which go towards
shaping the final product, the assignment can be extended to cover other
materials used in the production process, such as packaging material, fuel, and
even paints and lubricants. This is an area where substantial savings can be
achieved without too much effort, particularly in certain industries such as
garment making, furniture, metallic products and the like. It stands to reason
that the higher the percentage of material cost, the more there is a need for a
proper investigation of this area. There are three approaches to reducing waste
material:
- design changes, with a view to reducing waste of raw material;
- if the design cannot be changed, then efforts may be undertaken to improve
the yield, by changing the method that is used in cutting garments, metal
or wood so as to reduce waste to a minimum, or by changing the original
size of the raw material used;
- inevitably some waste will result during the various sequences of pro-
duction. Two questions should come tc~mind: can this waste be reworked
to yield another by-product or component, or can it be sold?
These questions have gained a particular relevance because of a number
of environmental regulations forcing producers to recycle materials, operate
closed systems or take responsibility for the reuse of wastes. Recycling and waste
management have become a special area for consultants.
Production planning
The choice of the planning method to be used depends on the nature of the
operation. In normal functional (also known as process) or line production
operations, as mentioned earlier, various methods of planning can be applied,
ranging from simple and traditional scheduling and charting to the sophisticated
use of mathematical models for queuing, or waiting line models. However,
special projects, such as the construction of a plant or building of a ship,
necessitate the use of network planning methods such as the critical path method
(CPM) or the programme evaluation and review technique (PERT), which allow
a more rational allocation of resources.
In the case of production that is geared for distribution (as distinct from
made-to-order or special projects), the starting point for a planning process is
the forecast of demand which is worked out with the marketing specialists. A
consultant should check the reliability of such a forecast before going into
production planning itself. A discrepanc:y between sales forecasting and
production planning can result in either lost orders or carrying excess inventory,
and is often a subject of contention between the marketing and production
departments. In addition to the forecast, which is translated into an aggregate of
operations for various products in the producl. mix, the consultant has to calculate
the machine hours required for each product component, determine the total
working time, and introduce a certain flexibility in the planning system to allow
for emergency situations.
The difficulty lies in the fact that invariz.blythere are bottleneck operations,
but instead of concentrating on them, many consultants gear their planning and
scheduling to all operations. An effective analytical and planning exercise should

indicate shortages of machines or operators' hours in certain work centres and
present to management proposals to relieve these difficulties.
Production planning, particularly with a large product mix, or where
hundreds of components are involved, becomes far more manageable if a
computer is used. This is also true of network planning involving more than 200
activities. Finally, a control system must also be established with a feedback
mechanism to check progress and adjust plans accordingly.
Setting and improving performance standards

This is probably one of the most intricate problems that faces a production
consultant. Performance standards are needed for a variety of reasons, including
the determination of labour costs, and hence the ability to decide on matters of
pricing and bidding, in "make or buy" decisions, in machine replacement pro-
blems, and so on. Such standards are essential for production planning, wages
and incentive schemes. Invariably a certain standard exists for every piece of
work performed, either a formal recorded standard, or a perceived informal
standard which a foreman or a worker estimates for a given job. The consultant
is called upon either to review a formal standard or to establish one. A crucial
point is the need to perform the assignment with the knowledge and approval of
the persons whose performance is to be assessed, and of the workers'
representatives.
Before setting standards, a consultant working in this field examines the
way a certain operation is being performed and attempts to develop an easier
and more effective method. He or she utilizes a number of well-known charts
such as the operation chart, the flow chart and activity charts. The consultant
should also understand ergonomics and essential elements of job design.
While numerous jobs lend themselves to methods improvement, the
consultant should give priority to those that are critical, because they either
constitute a bottleneck or are repeated by a number of operators.
A consultant will find it most useful to invite suggestions from workers,
foremen or supervisors, and managers, to involve them in the working out of a
new method. In many cases, production workers and technicians will be able to
point to improvements that can well escape the consultant.
To determine performance standards for the improved systems, generally
speaking, one of three methods can be used: works sampling, a stop-watch time
study, or predetermined time standards. Alternatively, the consultant may opt
for a combination of two or all of these methods at a given working place. For
example, work sampling may be used to determine the allowances to be included
in a "standard time" based on stop-watch observations.
Work sampling is probably the easiest method of assessing the percentage
of time worked, and the distribution and causes of idle time. Since it is based on
random observations, its reliability depends on sampling and sample size that
can give a certain degree of confidence.
Stop-watch time study is probably the most widely used method of

measuring performance. Through sampling and timing, a consultant arrives at
a certain "observed time for a given job". This has to be converted into "normal
time" by a process of performance rating in which a certain pace of performance
is rated as "standard".
The transformation of a "normal time" into a "standard time" requires the
addition of allowances for delays normal to the job, allowances for personal
needs, and fatigue allowances. The latter two. sometimes grouped together under
the title of relaxation allowances, again raise controversy. In most cases, there
is no scientific basis to what the fatigue allowance should be for a given job
content and working conditions.
Predetermined time standards (PTS) offer certain advantages. They permit
a quantitative means of comparing alternative methods of work without
disturbing the existing methods, and can be used even before an operation has
been established. They also avoid the rating problem and hence help to develop
more consistent standards. They do, however, suffer from several weaknesses.
They are generally designed for mass production and can become expensive for
individual jobs; they also have limitations in machine-controlled operations, and
the basic principle on which they are based, that motions can be added and
subtracted, has been challenged.
Another issue is that over 200 different systems of PTS exist at present and
are known by trade names, such as Methods-Time Management (MTM), Work
Factor (WF), Dimensional Motion Times (DMT), and so on. A consultant has
to decide which one is most appropriate for his or her purposes.
It may be useful to summarize the ,~pproachthat should be taken to
determine the standards of performance, and to ensure as much consistency as
possible. The main steps can be as follows:
identify the jobs or the activities for which standards are desirable, taking
into consideration the cost and practicality of developing and applying such
standards;
on that basis determine the degree of coverage needed (standards to be
established for all or certain jobs, depa.rtments and/or products);
break the jobs into elements and attempt to have as many common elements
as possible;
decide whether to use macroscopic systems (e.g. stop-watch time study)
or microscopic systems (predetermined time standards), or a combination
of both, in which case decide what parts of the job will be measured by
what system (the nature of the job and costs being a determining factor);
if stop-watch time study is used, check for consistency among common
elements performed in various areas of the workplace.
Maintenance
The consultant should enquire about the methods used for maintaining and
repairing equipment and machinery. In particular, he should find out:
- if a preventive maintenance scheme exists, whether it is justified and how

it is implemented;
- whether a proper inspection schedule exists;
- if a cost estimate of repairs is made and kept for each machine;
- how normal greasing and lubrication are done and whose responsibility it
is to do these jobs.
The consultant should also enquire about emergency repairs and consider
whether increasing the size of the maintenance crew could reduce the length of
time machines are down. In addition, a consultant can examine whether the life
of certain individual components of equipment or machines could be prolonged
through either redesign or change of lubricant. Finally, machine replacement
problems should be studied in relation to maintenance costs.
If major equipment is to be overhauled, especially in process industries,
the consultant can help the client to achieve considerable savings by introducing
scheduling for such operations (applying network planning techniques if
necessary).
Because disruption of production due to machine breakdowns can be very
costly, there is a growing trend towards making production staff more
maintenance-conscious. Seminars on proper identification of causes of
breakdowns, and on the training of both production operators and maintenance
crew (which may suggest assigning a certain responsibility to operators for
simple oiling and lubrication), could be followed up with performance review
seminars at a later stage. Approaches involving all personnel, not only
maintenance specialists, can pay handsome dividends such as the total
productive maintenance (TPM) approach.12
Cleaner production and energy savings

The discussions on sustainable development, along with tighter environ-
mental regulations, have made many companies review their ways and means
of production under ecological criteria.13 Consultants are called in, for example:
0 to audit production facilities and propose improvement programmes;
0 to assist with environmental impact assessments of major investments;
0 to perform life-cycle analyses of products;
0 to implement "pollution prevention pays" initiatives, often integrated in
total quality management (TQM) or in staff suggestion schemes.
With the steep rise in energy costs, in many client companies there is a
need to achieve substantial savings in the use of energy. These can result from
simple good housekeeping (such as checking that thermostats are functioning
and properly set, steam and air leaks repaired, and so on) through minor invest-
ments in additional insulation, heat recuperators, power-factor correction and
the like, up to major investment decisions about changing over to low-waste,
low-energy processes. Many of these issues can be highly technical in nature
and would require the intervention of specialists. Nevertheless, the production
consultant's contribution lies essentially in examining whether a potential saving

in energy costs can be achieved, bringing this to the attention of the client, and
assisting management in deciding how to set up and implement an energy-
conservation programme.
Quality control
In the area of quality control, consultant:; are increasingly called in to assist
companies in the adoption of a quality system conforming to the international
standard I S 0 9000.14The analysis of a company's operational procedures and
systems during the implementation of the I S 0 series of quality standards will
throw a spotlight on areas of weakness, ad hoc working methods, waste of
resources and avoidable quality costs, and will thus result in an improvement
programme. Productivity or quality management consultants are also often used
by companies that want to become suppliers to original equipment manu-
facturers (OEM) and, therefore, need to prepare for the evaluation procedure
used by a specific OEM.
The implementation of total quality management (TQM) may be another
reason to look for an external consultant. A consultant is well advised not to
underestimate the amount of work and time necessary to implement TQM. It is
generally accepted that TQM means that quality activities are conducted with
the total involvement of everyone throughout the company. A consultant will
therefore have to assist in a long-lasting process of continuous improvement and
change in attitudes. Several TQM experts have published their experiences in
implementing TQM as an aid to clients and consultants coming to the topic for
the first time.15
15.4 The human aspects of production

The quality issue is perhaps the best proof that the human element is the
determining factor in any operation. It would be naive to propose, let alone
implement, any recommendation without the involvement of the employees
concerned and without examining its impact on people. There are two major
areas in production management consultations to be considered in this respect:
physical working conditions and safety improvement; and job enrichment and
group work.
Physical working conditions and safety

The consultant needs to pay attention to measures at the place of work to
protect the worker from adverse conditions of temperature, humidity, light and
noise levels, as well as air contaminants, dust and radiation, exposure to which
may cause poisoning or occupational diseases.16
The ideal situation exists if hazards can be either eliminated altogether, or
the workers removed from direct contact with hazardous situations. If this proves
not to be feasible, then either the source of hazard should be isolated or the
worker provided with protective equipment and clothing.
A common misconception is to concentrate on the so-called technical
aspects of accident prevention - the provision of protective gloves, boots or
goggles, and guards for machinery. In most plants, however, over half of the
accidents are caused more through human misjudgement and negligence than
through the absence of guards or protective equipment.
The consultant can discover much revealing information by analysing,
from past accident records, the causes of accidents, the department, hour of the
day, and day of the week in which they most frequently occur, and even the
person injured. This information can prove invaluable for a concerted plan of
action to introduce a scheme of safety which should invariably include training.
Since accidents can happen despite all precautions, it is appropriate to
check on the availability and adequacy of health care, first aid and emergency
and sanitation facilities, as well as fire protection systems.
Job enrichment and group work

Many production consultants are productivity conscious and under-
estimate both the need for job satisfaction, and the impact of job satisfaction on
productivity.
In a production environment, the process design, the method of work, the
arrangement of work assignments and physical working conditions greatly affect
the worker's satisfaction. There are several ways that job satisfaction may be
increased, including the possibility of both job enlargement and job enrichment.
Task time cycles can be lengthened, particularly in the case of tedious
monotonous jobs; work can be made more varied by adding other tasks to the
original one; or more authority may be delegated to workers who can then take
their own decisions on certain work-related matters.
In the last 20 years considerable research has been done on group work
under various names: new forms of work organization, socio-technical systems,
industrial democracy and semi-autonomous groups. Whole factories (for
example, the Volvo plant in Kalmar, Sweden) have been designed around these
concepts, and many industries in Japan, Europe, North America, Australia, and
some developing countries, have introduced such systems with a reasonable
degree of success. These systems rest on two fundamental concepts. First, in
designing and modifying work, it is necessary to consider the technical and
social issues together. Thus improved methods of work have to be reconciled
with the social needs of the working group in terms of factors such as the variety
and the degree of challenge the job offers, the opportunities of learning and
advancement and so on. Secondly, people performing a certain task should
participate in redesigning their own job.17
In this respect, small-group activities in particular are well known. Quality
circles have over the years extended their scope of activities to cost reduction
and productivity improvement. The success of the quality circles idea prompted
many companies in developed and developing countries alike to follow the
Japanese model, adapting several of its features, with varying degrees of success.
It is clear that the participation of production workers and supervisors in issues
relating to their work is gaining wider acceptance.
Involvement and participation at the shop-floor level may sound at odds
with a production consultant's job perceived 1.n a traditional way. This is not the
case; all depends on the consultant's and the client's attitudes. A consultant who
approaches the assignment claiming to k n o 1 ~all the answers and wanting to
impose his views will invariably fail. There are many technical and human
aspects of each job that have to be taken into consideration when designing or
modifying an operation, and a consultant cannot be expected to know every
detail. He may be surprised to find how readily people will respond to his
enquiries (and offer helpful suggestions or improvements) if they feel he is
sincere, appreciates their views and has their needs and interests at heart. A
consultant who develops such an attitude w:ill soon find out that involvement
and participation, far from being obstacles, are key factors in the success of any
assignment in production and operations.
See, for example, S. G. Wheelwright, I. Clark and R. A. Hayes: Dynamic manufacturing

(New York, The Free Press, 1988); or R. Schonberger: World class manufacturing (New York, The
Free Press, 1982).
J. R. Hauser and D. Clausing: "The house of qua ity", in HarvardBusinessReview (Boston,
Massachusetts), May-June 1988, pp. 63-73.
See, for example, R. C. Camp: Benchmarking: The search for industry bestpractices that
lead to superior performance (White Plains, New York. Quality Resources, 1989). The American
Productivity and Quality Center (APQC) at Houston, Texas, runs an International Benchmarking
Clearing House.
See J. Womack, D. Jones and D. Roos: The mcchine that changed the world (New York,
Rawson Associates, 1990).
Cf. M. Hammer and J. Champy: Re-enginee,~ingthe corporation (New York, Harper
Business, 1993).
See, for example, K. North: Environmental business management: An introduction,
Management Development Series, No. 30 (Geneva, ILO, 1992).
7 S. G. Wheelwright and K. B. Clark: Revolutionrzingproduct development (New York, The
Free Press, 1992), p. xi.
ibid., pp. 29-31.
9For an introduction see D. E. Whitney: "Manu-'acturing by design", in Harvard Business
Review, July-Aug. 1988, pp. 83-91.
I n For an example from the automobile industry see K. Clarly and T. Fujimoto: Product
development performance (Boston, Massachusetts, Haward Business School Press, 1991).

fl Many of the topics covered here are treated in more detail in G. Kanawaty (ed.):
Introduction to work study (Geneva, ILO, 4th (revised) ed., 1993).
'?See S. Senju (ed.): TQC and TPM (Tokyo, Asian Productivity Organization, 1992).
l 3 See North, op. cit.
'"ee, for example, UNCTADIGATTIILO: I S 0 9000 quality management systems:

Guidelines for enterprises in developing countries (Geneva, 1993).
'5 See A. V. Feigenbaum: Total quality control (New York, McGraw-Hill, 1983); or
R. Collard: Total quality (London, Institute of Personnel Management, 1993).
Ih Extensive literature of these topics is available from the ILO.
l7 See J. E. Thurman et al.: On business and work (Geneva, ILO, 1993).
CONSULTING IN HUMAN
RESOURCE MANAGEMENT
16.1 The changing nature of the personnel function

Personnel management, one of the traditional areas of management con-
sulting, has undergone many changes over the last 20 to 30 years.
When consultants started dealing with the "people" side of business
organizations, most of them tended to confine their interventions to problems
grouped under the term "personnel administration7'. In French-speaking
countries personnel problems were included in the so-called "gestion admin-
istrative" (administrative management). In nearly all countries, a personnel
administration specialist typically dealt mainly with personnel records,
regulations and procedures, questions of job evaluation and remuneration, and
"employment" issues such as recruitment, selection, induction, discipline and
termination of employment, and grievance handling. Over the years this has
broadened considerably. The main changes that currently affect the nature and
role of the personnel function occur in the following areas.
First, the subjects of personnel management - people working in
organizations - have changed in many respects. People have become better
educated and prepared for their jobs, more aware of their rights, better informed
and more interested in many issues of national and even international economics
and politics. Their value systems have changed; their employment and life
aspirations have increased. Human relations within organizations have become
complex, diversified and difficult to handle. These changes in organizations
reflect not only technological changes but also the significant trends of political
and social change, such as the democratization of life in more and more countries
(most dramatically, of course, in the former communist bloc), or the emergence
of new social organizations and pressure groups (e.g. the environmentalists or
the consumerists).
Second, an increased number of personnel issues, including conditions of
employment, work and remuneration, are affected by legislation, or have
become the subject of collective agreements between workers' and employers'
organizations. When dealing with these questions the personnel consultant must
be fully aware of the existing legal and labour-relations frameworks, of the role
of the trade unions, and of the need to inform or consult them in conformity with
local practice.
Third, it is apparent, particularly in the developed countries, that organ-
izations are increasingly recognizing the value of their human resources, both
in terms of cost and contribution. For most organizations labour is the major
operating cost item. Even where it is not, as in high-technology organizations,
the skills and abilities of individual employees become critical. Human resources
are the only ones which can generate added value out of other resources. Thus,
achieving the right balance between the cost and capacity of human resources
becomes a critical factor in organizational effectiveness and success. Hence,
along with the previous points, has arisen the concept of "human resource
management" (HRM), as distinct from the more narrow concept of "personnel
administration" or "personnel management". According to this concept,
employees are viewed as the most valuable resource of an organization and a
number of conclusions can be drawn from this basic premise as to ways of
treating people and motivating them for higher performance, the role of
leadership, the investment in training and development, or the choice of staff
development systems.
This has been linked with advances in the behavioural sciences, in
particular in psychology and sociology applied to the functioning of organiz-
ations and to the relations between individuals and groups within organizations.
A wide range of "organizational development" theories and concepts emerged,
and began to be applied to the analysis of hunian problems in organizations, and
to methods likely to increase the effectiveness of individuals and groups in
achieving organizational goals. On the other hand, a focus on the cost side of
the equation would involve a series of steps to limit spending on human resources
and to link people more closely to results. It cmld include, for example, "buying
in" labour capacity from outside the organization. It would be an error to think
that any "human resource manager" will by definition apply a more scientific
and more comprehensive approach to managing people than his predecessor -
the "personnel manager7'. Yet the understanding of human aspirations and
motives and of interpersonal processes has increased quite considerably, and a
growing number of personnel specialists, as well as general managers, make use
of this knowledge in their work.
Fourth, technological changes have had a significant impact on the way
people are managed. This impact has taken place throughout the environment
of HRM, ranging from its effect on the gl3bal integration of business right
through to the way that communication wit1 employees is conducted. Before
identifying a few key effects it is worth making the point that throughout the
world there are vast numbers of employees almost untouched -at least directly
- by technological change. Even within highly technical industries,
international airlines for example, there are still people whose job is mainly to
shift heavy materials by hand. Having made that point, however, it is also true
that the impact of technological change operates at all levels. At the global level
technological change has "shrunk the globe", making it easy to transfer goods
Consulting in human resource management
and services around the world, improving the position of some nations and
putting others under real pressure. At the national level technological change
has led to a transfer of employment from primary industry (agriculture, forestry,
fishing) to manufacturing and from manufacturing to services. In broad terms,
the richest countries have the highest proportions of people in services and the
lowest proportions in the primary sector. Within industrial sectors, technological
change has led to the collapse of some industries or companies and the
emergence of others, and to the reduction in employment in some workplaces
and the expansion of others. Inside the organization, technological change has
had a major impact on the structure of jobs, on the way work is done and even
on the shape of the organization. In the information-technology sector, for
example, it is now possible for employees to work hundreds of miles away from
their employer's offices, in their own time, linked to their superiors just by the
telecommunications system. At the most practical level, the new technology
enables an employer to address "personal" letters to each of a large number of
employees. This vast range of effects of new technology, from very significant
to very local, has had an inevitable and extensive impact on HRM.
Fifth, the increasing internationalization of economies, the development
of multinational trading blocs and the growth of international organizations
(profit or policy based) have also had an impact on HRM. It is increasingly
recognized that the management of people is more culture bound and value laden
than any other area of management. Practices regarded as standard in one
country or organization may be unthinkable in another environment (e.g. flexible
Box 16.1 Human resource management In "high-tech" companies

"High-tech companies" are not all the same, either in the way they are managed
generally or in their management of human resources. However, they do have
many- aspects in common which makes them distinctly different from traditional
employers as regards their HRM practices:
Employees are often highly educated and highly skilled, and their skills are in
short supply. They are often highly individualistic.They are less inclined to join
trade unions.
Employees are technologically capable, able to use the full range of
technology available and to work in small units, at distance, etc.
Workplaces are usually small; rarely do they include large numbers of
individuals. They sometimes have new work practices (such as "warm desks",
where workspace is shared with one employee taking over from another as
and when space becomes available).
Jobs are often flexible or project-based, with a focus on the achievement of
particular tasks rather than attendance or the performance of set routines.
Jobs are often short-term, with the employees changing to different tasks on
a fairly frequent basis. The employees are also more likely than others to
change firms.
This is a new, vibrant and mobile sector attracting people who take similar
approaches to work.
working hours, open-plan offices, dining-roorns common to all staff irrespective

of position and grade, direct access to top managers, or the use of confidential
personnel files). Both personnel practitioners snd management consultants have
become more cautious and more selective in transferring personnel practices
from one environment to another when dealing with people of different ethnic,
social, cultural, religious and educational backgrounds. Sensitivity to these
differences has increased with the growth of international business, the advent
of modern enterprises and organizations in developing countries, the expanding
employment of foreign workers and manage::s, and improvements in manage-
ment education.
Thus, we find ourselves living in an era in which the role of personnel and
human resource management is being reassessed and enhanced, new demands
are formulated and new approaches deve:loped. This creates many fresh
opportunities for consultants. Both the personnel specialists and the general
managers face increasingly complex human problems and find it difficult to keep
informed about all conditions and factors to be considered in personnel
decisions. In many cases they will appreciate help from an independent and
objective human resource professional.
16.2 Policies, practices and the human

resource audit
Human resource management consulta~cycan take many forms, from the
most comprehensive (the assessment of the labour force of a company that the
client may be considering purchasing, or a total evaluation of the way in which
the client's employment practices contribute to overall corporate strategy) to the
very limited (a single management seminar 01. advice on dealing with a difficult
employee).
In the early stages of an assignment the consultant and the client may agree
that a thorough diagnosis of the human resource management function is a
desirable starting-point and should be undertaken before deciding how to focus
the consultant's intervention. Often the consultant will be told that there are
organizational policies for dealing with the major elements of the personnel
function -for example, recruitment, staff de\relopment, promotion and transfer,
salary increments, labour-management relations, and so on. The consultant may
first attempt to conduct an appraisal of existing personnel policies and pro-
cedures by investigating, analysing and comparing policies with actual results
obtained over a set period, by means of a systematic, in-depth audit.
Before starting to prepare a research design to uncover the necessary hard
data, the consultant is likely to find that the alleged "policies" are often only
pious hopes and good intentions. For a person ?el policy to be worthy of the name
it should fulfil several criteria:
policy should be written, understandable, and present a comprehensive
coverage of the function;
Consu!ting in human resource management
provision should be made for ensuring dissemination and comprehension

of important elements of policy to all the relevant sections of the
organization;
policy should be soundly based, and consistent with public policy and
current legislation;
policy should be internally consistent with the organization's stated general
objectives and policies;
specific personnel policies (e.g. staffing, development and administration)
should be mutually supportive;
policy should be established as a result of multi-level discussion and
consultation throughout the organization, including consultations with
employees' representatives as appropriate.
The major purpose of the audit is to provide information for and expla-
nation of human resource management and development practices. To achieve
this, information should be sought both vertically through the personnel
department and horizontally across other departments. In other words, the audit
is conducted throughout the organization.
The procedures for conducting the audit can vary considerably. Basically,
they consist of obtaining information of a quantitative and qualitative nature
from various records and reports, supplemented by interviews, questionnaires,
surveys, informal discussions, and so on. Information may be obtained by means
of a latitudinal study (e.g. a department-by-department assessment of safety
records or absenteeism in which the percentage of lost time and other ratios are
calculated on a comparative basis). Alternatively, a longitudinal study may be
used in which a sample of individuals is examined in depth over time, in the
light of the effects of the organization's policies on their performance. Hard data
should be sought.
If possible, data (e.g. on turnover, absenteeism, grievances, accidents, etc.)
should be compared with those available from other organizations.
A recommended method for setting out a human resource audit is to list
the organization's policies in sequence, to write down the practices regularly
employed by the organization and the results obtained from the study, and then
to draw the appropriate conclusions and recommendations. An example is given
in figure 16.1 (overleaf). A list of personnel policies for audit purposes would
include references to the full range of practices influencing the cost, capability
and effectiveness of employees: organization; manpower planning; recruitment;
selection; induction; transfers and promotions; assessment; training and devel-
opment; communications; remuneration and allowances; job evaluation; fringe
benefits; social and welfare benefits; safety and health; industrial relations;
discipline; motivation; and administration.
A commonly used approach to obtaining information required by the audit,
or by any other interventions in human resource management and development,
is the interview. General principles of interviewing were discussed in Chapter 8
and there is no need to repeat them here. However, for the consultant working
in HRM there is an additional, very significant element - confidentiality.
Figure 16.1 The human resource audit (data for the last 12 months)
Stated policies Regular practices Findings of audit
1. Recruitment
To promote, Recruitment from 95% of appointments
where possible, external sources is made from external
from within the an ongoing and sources. High staff
organization continual procedure turnover of 40%
per annum
2. Training
No stated policy Organization sends Staff claim only limited
senior members to opportunities for
courses conducted promotion and
by professional development,
associations at feel they have to go
request of individuals elsewhere to "get on"
concerned
3. etc
The consultant can expect to receive a good deal of information that must
be held in confidence. The higher the level of trust engendered by consultants,
the more they can expect to receive data that is confidential or private. Not all
of the data may be related to the identified problem. New problems may surface
that had not been anticipated during the entry phase. The consultant may have
to go back to the client to renegotiate the problem and the focus of the
consultation.
If the interviews are to be effective and ;ire to produce the data needed, the
consultant must work at a high ethical level. If the respondent requests that the
material gathered during the interview be regarded as confidential, the consultant
has some choices and decisions to make. He clr she can establish the ground rule
that all data gathered will be merged and individual sources will not be revealed.
This must be approved by the client, who may have other expectations. If the
client agrees, then the consultant can indicate this to the individual respondent
when arranging for the interview. If a respondent is still hesitant, this could
indicate a low level of trust in the organization and the consultant may have to
drop that person from the list of those to be interviewed.
The results of the human resource audit should, if necessary, point out the
need for definition, refinement, or rewriting of organizational policies. Similarly,
a review of the organization's regular practices may suggest improvements to
facilitate conversion of policies to procedures. Inadequacy or total absence of
data indicates that urgent attention is required in the field of personnel admin-
istration. The principal result of an effective audit is a set of conclusions as to
what needs to be improved in one or more areas of HRM to be reviewed in the
following sections. The client may be satisfied by the audit and convinced that
enough guidance has been received to implement the conclusions without further
help from the consultant. The client may agree to the consultant's suggestions
in principle, but may decide not to put them into effect because they would cause
difficulties among the organization's personnel. Or the consultant may be
requested to assist in planning and implementing the changes that are required.
16.3 Human resource planning

The purpose of human resource planning is to make sure that the
organization has the right number of people of the right profile at the right time.
Many organizations do not discover this elementary truth until they face a major
problem - either the shortage of competent people becomes an obstacle to
further expansion or technological change, or the organization employs more
people than it can afford and has to prepare itself for staff retrenchment.
In most cases a management consultant will be called in, once the problem
has manifested itself, to help identify emergency measures to be taken if there
is an acute shortage of competent staff, or if important redundancies are antici-
pated. However, an emergency situation provides an opportunity to demonstrate
the advantages of human resource planning treated as part of, and coherent with,
strategic corporate planning.
The consultant will be able to help the client in combining various human
resource planning techniques, either global or analytical. If enough detailed
information is available on the structure of production or other processes, it may
be possible to define and describe all necessary job positions. This implies that
a detailed job description is worked out for every job. In contrast, if detailed lists
of jobs cannot be established with accuracy, or if manpower is to be planned for
units with changing functions and a need to adapt easily to new conditions, it
may be preferable to define broader technical profiles of the kinds of people who
will be needed, describing their educational background and experience, rather
than to produce a detailed list of tasks to be done.
Here again, interfirm comparison and benchmarking techniques may be of
help. But they should not be used mechanically: the consultant must be able to
show the client with what numbers and profiles of staff comparable organ-
izations achieve the similar or better results, and the reasons for this difference.
This underlines the relationship between the planning of human resources and
of productivity and performance improvement.
Some authors advocate the consistent use of job descriptions in manpower
planning and recruitment processes in all types of organizations and for all
employees. There are valid reasons for this in many organizations, where
detailed job descriptions are used for recruitment, planning training, evaluating
performance, deciding on promotions and transfers, and handling organizational
conflicts. Job descriptions are particularly appropriate where the organization
and the environment are stable.
In many developed economies and in high-technology or high-knowledge
content jobs (e.g. research, professional services), there is less emphasis on job
descriptions and more emphasis on flexibility, creativity and adaptability to
change (see section 16.8).
16.4 Recruitment and selection

The consultant may be asked to provl.de advice on how to improve the
recruitment and selection of various categories of personnel, including
management personnel.
Recruitment
Recruitment is the process of attracting applicants to apply for jobs within
the organization. Here the consultant can help with advice on specifying the
details of the job and the person required, and can clarify the means of adver-
tising the vacancy. This may well include the perhaps most common and cost-
effective method - using word-of-mouth channels - but could also involve
the use of government or private employment agencies, or advertising in the
local press or radio. Attention should also be paid to the efficient processing of
applications.
Executive search
Executive search ("head-hunting") is a special service offered by some
larger management consulting firms, or by consultants who are fully specialized
in this function. It is increasingly used by a number of business and other organ-
izations to fill important managerial or specialist positions. The advantage of
using an executive search specialist is that such a person can develop information
on potential sources of recruitment and undertake a systematic search and
objective selection in a way that is usually outside the normal capabilities of a
line or personnel manager.
Business firms turn to executive search specialists if they do not want to
advertise a job publicly, or if they seek candidates in areas where advertising
does not work. Most candidates also find executive search useful: some of them
are glad to learn that they could have a more challenging career with another
employer, while others appreciate a confidential discussion on alternative job
opportunities, since their current position does not permit them to make the first
contact or show interest in another job.
The executive search function involves: the building up of files and contacts
needed to identify potential candidates and recruitment sources (an international
search firm may have from 5,000 to 10,000 names of potential candidates in its
computerized files); assistance to clients in analysing the job to be filled and
defining the ideal candidate; active and methodical search for candidates (by
direct approach, search through various business contacts, in some cases
advertising, etc.); contacts with candidates for the purpose of interviewing them
and interesting them in the job evaluation and preliminary selection of
candidates; arranging the client's interviews with preselected candidates; and
follow-up contacts with the selected candidate and the client.
Executive search consultants often have their own professional asso-
ciations (as in the United States) or are members of national associations of
management consultants. Codes of ethics for executive search have been adopted
in several countries. For example, such codes forbid charging fees to the
candidates and accepting any payment from them; the cost of the search op-
eration is charged to the client according to an agreed scheme (as a rule, 30 per
cent of the annual salary of the candidate recruited). Several specialized
publications on executive search are listed in Appendix 11.
Selection
Selection is the process of choosing between applicants. Both the selection
procedure and the criteria applied should reflect factors such as:
0 the importance of the given positions in the organizational structure (job
content, authority and responsibility, the possibility of correcting errors,
etc.);
the terms of employment that are to be offered (selection for long-term or
short-term employment) and the possibility of terminating employment
contracts;
the normal career path of the employees concerned (likely promotions,
assignments abroad, job relations);
0 the legislation to be observed.
In many instances the solutions to the problems identified are straight-
forward. Often the selection is not done well: an insufficient number of
candidates is considered, references are not checked, and recruitment interviews
are superficial and conducted by personnel officers who may know little about
the job. In some organizations the problems faced are delicate. Political,
ethnic or other criteria may prevail over technical competence, or trade union
membership may be required as a condition of employment or maintenance in
employment.
The consultant's professional responsibility requires him or her to tell the
client what should be changed in the best interests of the organization. But the
client will be unlikely to follow advice that is deemed unrealistic owing to
political or other constraints that are not under his or her control.
In most instances, however, improvements in selection and recruitment
will be feasible. The consultant may identify a more objective procedure and
more precisely defined criteria, or may suggest and carry out a training
programme for staff responsible for selection. Particular attention will be paid
to the selection of staff who will be offered permanent employment contracts in
technical and managerial positions, with a view to minimizing the risk of
selection errors (which are costly and difficult to correct).
Some consultants assist clients with testing and assessing candidates for
managerial or technical jobs. This is done through interviews, multiple tests,
special tasks and exercises, very careful checking of references and in various
other ways. For example, this kind of assistance has been found useful by
enterprises recruiting managerial and marketing staff for work abroad, yet
lacking experience of management patterns and living conditions in foreign
countries.
16.5 Motivation and remuneration

Motivation
Every organization aims to achieve certain economic and social objectives,
but has limited resources at its disposal. It tries, therefore, to motivate its
personnel towards the achievement of a range of goals. These may include
societal, organizational, group and individual goals.
A HRM consultant may be requested to assist in determining what
motivational tools and strategies should be used. This may concern, for example:
the improvement of the overall organzzational climate (the psychological
and motivational environment of the organization). The underlying
assumption is that this climate strongly affects the motivation of people at
every level in the organization to work and to achieve. It is determined
primarily by the people management practices of top and senior managerial
staff, by the employment and working conditions, and by the encourage-
ment given to individual and group ijlitiative, innovation, creativity and
self-development;
the enrichment ofjob content, where, by changing the structure of the work
to be performed, the consultant endeavours to assist in creating intrinsic
job interest and increasing job satisfacl ion, and developing a more flexible
and efficient workforce. There is evidence that increased team working,
increased autonomy for teams and employee involvement generally have
a positive motivational effect;
reward systems, where the appropriate behaviour is shaped as a result of
certain rewards, particularly financial and material ones. This requires a
feedback system, so that the incentive used (e.g. pay) is tied as directly as
possible to actual individual or group performance. However, the role of
non-financial rewards or incentive. is important and must not be
underestimated when trying to enhance staff motivation.
These methods do not operate independently, but affect separate
components of the motivational process and call for different levels of
intervention on the part of the organization and of the consultant. A common
problem faced by consultants is complaint:; made by clients about the lack of
motivation of the managers or their staff for achieving higher performance in
organizations where people are relatively well paid. A thorough study has to be
prepared to determine the weight of various factors affecting staff motivation.
The study may reveal that the client assunles that a good salary is a stronger
motivational factor than it really is. It may be that the salary level is taken for
granted by the employees concerned, that the client and the employees differ in
their views on what salary level is adequate, or that certain adverse factors in
the working environment negate the effect of good salaries. For example,
employees often regard interesting job content and real prospects for future
careers as more important for job satisfaction than the level of their salary.
Wages and salaries

In some assignments, the consultant will be requested to assist above all
in the examination and reorganization of the wage and salary system. This kind
of consultancy is becoming more and more frequent as increasing competition
(or spending restrictions in the public sector) focuses attention on the costs of
employment - a major operating cost for all organizations. In addition, the
requirements of new technology and the consequent abolition or reorganization
of tasks, or demands for flexible working practices, mean that pay systems have
to be adjusted to fit a new reality. The challenge to existing and well-accepted
structures is obvious and the importance of establishing acceptance of any new
structures is clear.
In Europe and elsewhere this problem has been compounded by moves
towards the "individualization" of pay (i.e. a non-union approach) and "pay for
performance7'(where individuals in the same job may receive different salaries
depending upon managerial judgement of their performance). This has increased
pay variability.
Variable pay presents major problems, particularly in the following areas.
First, there is the problem of establishing clear targets and monitoring per-
formance against them so that managerial assessments are acknowledged to be
fair and not arbitrary. Second, there is the issue of what percentage of pay is
variable: too much and it threatens individuals' livelihoods, too little and it fails
to motivate. Third, the issue of guaranteed limits has to be addressed: if the
organization is successful or people perform well, they receive pay increases -
but what happens in other circumstances? Do individuals take a pay cut? These
are all issues that well-prepared consultants can bring to the organization's
attention and help to resolve.
In most of the developing world, and still in much of the developed world,
wage and salary fixing is more traditional and a clearly structured approach will
be required. The problems will be to build or develop a salary system that works
efficiently and fairly from the point of view of both the organization's
management and its employees (and, where appropriate, their representatives).
Logically, the consultant approaches such a problem by conducting a job
analysis, followed by job evaluation and the building of a job structure so as to
develop an equitable salary system and a plan which will accommodate per-
iodic reviews, supplementary remuneration and appropriate fringe benefits.
Obviously, the consultant cannot see wage and salary problems as purely
technical ones and has to be well informed on legislation and industrial relations
practices related to wages, especially on collective bargaining.
The problems most frequently met in this area include:
- distorted salary systems (e.g. the wage differentials do not reflect the
relative difficulty and importance of particular categories of jobs);
- no relationship, or a very weak one, between salary and real performance
at work;
- wage and salary differentials that do not motivate employees towards

training and self-development and to seek promotion to more responsible
and more rewarding jobs;
- obsolete salary and pay structures, which have not been adapted to the
requirements of new technologies and to the changing structure of jobs;
- the absence of flexibility in using individual and group bonuses and special
rewards for encouraging high performance, and in demonstrating that such
performance is important to the organization and is therefore properly
remunerated by management;
- excessive secrecy in matters of salaries and other rewards, giving rise to
various suspicions about the actual pay levels of certain individuals, and
reducing confidence in the objectivity and fairness of management over
questions of pay.
The sensitivity of pay issues, particularly in certain cultures, means that
these problems are rarely easy to handle, although from a strictly technical view-
point the solution may be straightforward. The consultant should be cautious in
establishing, and assessing with the client, the feasibility of changes, and the
way in which the necessary changes are to be introduced, announced and
maintained.
Social benefits
There are other issues in the field of salaries and compensation which now
attract considerable amounts of consultancy work: in particular those related to
financial benefits other than pay - social benefits, tax and actuarial services,
pensions and insurance. Throughout much of the world there are specialized
consulting firms (some are quite large) whose task is to ensure that employers
and employees obtain the maximum benefits from their investment of money in
these areas. That often involves advising or source and location of investment
opportunities and on minimizing taxation. This type of consultancy requires a
detailed knowledge of financial markets and the laws of the relevant country. It
is often controlled by legislation so that only qualified individuals can become
involved. As financial and legal requirements become ever more complex, this
is likely to be a growth area in consultancy.
Job analysis, evaluation and classification

Job analysis includes the collection, organization and examination of
information on what people do in a particular job. Job analysis is used not only
to produce job descriptions for recruitmer.t and other purposes as discussed
above, but also for job evaluation, that is, determining job worth. Depending on
the job in hand, the order of complexity of the job evaluation system employed
usually moves from (1)whole job ranking schemes through (2) job classification
to (3) points evaluation systems and to (4) factor comparison methods. World-
wide, whole job ranking is probably the most frequently used, although larger
companies often prefer the points evaluation system.
Job classification involves the setting of wage and salary levels by classify-
ing jobs within the organization and comparing the levels of pay with contri-
bution to organizational success, and to competitive firms or other firms with a
comparable job structure and conditions of business. The "market value" of
individual jobs is given consideration, using various sources of information such
as surveys and reports published by management associations, government
departments, or independent business information services.
In practice, however, many jobs are not evaluated, or, if they are, their
evaluation is only one of the factors determining the pay rate:
While many employers believe that employees' pay should be differentiated
on the basis of current performance, many others (perhaps a majority) believe
that seniority, age and past performance and loyalty should have equal or
greater weight in individual pay determination. Managers may claim that they
have merit or performance-based pay systems, but many studies indicate that
they are more accurately based on current performance plus seniority, or
seniority alone.'
Changes in the way work is done (e.g. as a result of new technologies and
particularly developments in new forms of work organization) have changed the
jobs people do in critical ways. Thus, while some consultants started believing
that in this traditional area of personnel management no further challenging
assignments could be expected, the dramatic changes in technologies, job
structures and staff competence requirements are generating new demands for
advice and assistance. The human resource consultant should be ready to help.
16.6 Human resource development

In the last two decades human resource development (HRD) has become
the most popular and fastest growing area of consulting in personnel and human
resources management. There are consultants who specialize in this area, while
many other firms have established important HRD divisions and trained most
of their staff members in various aspects and technologies of HRD. At the same
time, quite a few charlatans have tried to take advantage of the "HRD boom" by
selling quickly concocted and superficial package deals to clients hoping for
spectacular improvements by putting employees through crash courses on
communication, team building or personal effectiveness. Fortunately, in most
countries the situation has become clearer; clients tend to be better informed
about HRD, and hence more cautious and competent in selecting HRD
programmes and consultant^.^
The main purpose of HRD is to help people in organizations to face the
challenges created by technological and other changes, to adapt to new
requirements and develop skills, and hence achieve the levels of performance
needed for survival and staying competitive. A true HRD professional does not
promise spectacular changes in attitudes and competence as a result of a few
workshop sessions. The HRD specialist makes the client aware of the complexity
of the human side of the enterprise, and of the need to consider all factors
affecting motivation, behaviour, interpersclnal relations and performance of
people in organizations. It is important to warn the client against inconsistencies
in personnel and HRD practices, as these can devalue the impact of many
well-intentioned but partial and uncoordinated staff development measures.
Ideally, HRD should be allied to significant ongoing or projected changes
in the organization or its policies so that the change and the development are
mutually reinforcing. The specialist needs to be informed about the availability
of a wide range of techniques for human resource and organization development
(OD) and for productivity and performance improvement (see section 22.3), but
must also be aware of the cultural bias of certain techniques and the need to
avoid a mechanistic transfer which disregards differences in local cultural values
and social systems.
HRD is an area which is to a considerable extent bound by national culture.
The approach to career planning, the exposure of inadequacies that require
training and the informal, even humorous, training style that may work very well
in the United States, for example, would be totally inappropriate in China.
Consultants need to be aware of this variety. Even with these wide variations,
however, some general trends are discernible. There are moves to raise the profile
of HRD within organizations, to make it more flexible and tailored to individuals
and to take a broader view of HRD, so that people would develop through job
rotation, through careful "mentoring" by a superior and by directed self-study
as much as through classroom-based courses. At the same time, and perhaps
rather paradoxically, companies are increasingly likely to insist that HRD is
tailored to the immediately foreseeable needs of the organization, so that the
cost-benefit equation is more obviously positive.
HRD is a very broad topic and this section cannot review all the approaches
and techniques used. Rather it will point to certain management concerns that
may call for a consultant's intervention. The reader should also refer to
Chapter 4 on consulting and change, where several HRD and OD techniques
are discussed in some detail.
Staff training and development

An HRD consultant can act as an adviser on how to increase the effective-
ness of staff training and development, or can be directly involved in preparing
and delivering in-company training. Typically, assignments in this area aim to
answer such questions as:
How can staff training and development be related to the goals and prob-
lems of the organization and make it performance-oriented?
How can the training needs of va-ious categories of personnel be
identified?
What should the content, methodology and organization of staff develop-
ment programmes be?
How can the real impact of staff development on organizational per-

formance be evaluated and the level of investment in HRD determined?
How can the training unit be organized and the competence of the training
director and in-company trainers increased?
What benefits can be drawn from sending managers and staff specialists
to external courses at business schools, management institutes, consulting
firms, productivity centres, and elsewhere? What sort of relationship
should be established with external units offering training programmes,
and should these units be used for mounting tailor-made in-plant
programmes?
How can employees be motivated for training and self-development and
for using the results of training in their work? What obstacles are to be
removed if training is to have the desired impact on both individual and
organizational performance?
In some countries trade unions are heavily involved in the provision of
training. In others the trade unions or employee representatives can be partners
in training, helping to ensure that its importance is recognized, that its content
is relevant and that employees themselves are enthusiastic about undertaking it.3
Where the consultant is directly involved in the organization and delivery
of training, it is useful to go through the same check-list of questions that are
noted above in relation to training policy to ensure that the programme offers
maximum benefit.
One question which consultants often have to answer concerns the cost of
training individuals who, in a free labour market, may leave, taking their ac-
quired skill to another organization. Part of the answer is that few organizations
can afford not to invest in the skills of their employees whatever the risk, and
part is that a clear and coherent human resources management and training
policy often motivates people to stay. There are also examples of competitors
working together to ensure that costs are shared and cost-effectiveness of
training is increased.
Career development
Career development is a significant aspect of human resource development,
although its importance may not be the same in all cultures. The consultant
should be able to explain the consequences of the absence of career planning to
the client. Although in many organizations a detailed plan of the career path of
every individual may be impossible, or undesirable, it should be possible to
establish a career development policy as guidance for staff development and for
motivating individual performance. Without constituting a legal commitment to
every individual concerned, such a policy provides a clear model against which
employees can compare their individual expectations and gear their self-
development and work improvement efforts, with obvious gains in motivation
and productivity.
Performance appraisal
Performance appraisal has been one of the weakest links in HRM systems.
Many small organizations do not practise any performance appraisal on a regular
basis. Medium-sized and large organizatior~shave introduced structured per-
formance appraisal schemes in many cases, but the reality tends to be very
different from declared objectives and policies. The consultant is likely to find
that even where regular performance appraisals do take place and performance
reports are duly produced and signed, no conclusions are drawn and no use is
made of the appraisals in deciding on staff development, promotions, transfers,
merit increments and so on. In some organizations annual appraisals have
become formalities that must be carried out but do not reflect real performance.
In other cases the appraisal reflects only the subjective views and preferences
of direct supervisors.
While it is not hard to find out about the formalism and other weaknesses
of performance appraisals, it is much more difficult to change a deeply rooted
practice. The consultant can help the client t~srealize that appraisal ought to be
concerned with actual performance rating, that appraisers require training in
performance assessment techniques, and that sensible performance appraisal
commences with well-established organizational, group and individual goals.
Whatever organization and techniques of appraisal are chosen, the improved
system will require the support of employees' representatives and strong
management commitment.
Organizational development
Many consulting interventions in the HRD field are of the OD type. The
original definitions of OD emphasized the application of behavioural sciences
for assisting organizations in identifying, planning and implementing organ-
izational changes. Interventions focused on organizational processes such as
communication, sharing of information, interpersonal relations, team building,
the use of meetings or the ways of resolving conflicts, rather than on providing
solutions to substantive technical issues invdved in the process. More recent
approaches aim to combine "classical" 01) with diagnosing and resolving
specific (technological, organizational, financial) problems, and to implement
organizational performance improvement programmes in which many other
diagnostic, problem-solving, process re-engineering and change management
techniques are used in addition to behavioural techniques regarded as the
province of OD specialists. This requires that an OD consultant should become
versed in a particular area of management and business, while consultants in
various technical areas of management, as well as all-round generalists, can
increase their effectiveness by mastering OD principles and some OD techniques
in addition to the specific technical fields they cover (finance, business strategy,
etc.).
Towards a learning organization

A powerful concept reflecting contemporary thinking about change and
organizations, as well as recent experience of a number of dynamic companies,
is the "learning organization7'. It brings a new dimension to corporate strategy
and to training and development. Instead of speaking of a separate training and
development function, the whole organization is viewed as a learning system
where individuals learn from the organization's actions and from developments
shaping its environment, and where the organization as a whole learns from
actively participating individuals. Both individual and organizational learning
are used as two inseparable elements of strategic management and change.
These features have been stressed in the various definitions of learning
organizations. For example, according to the Training Commission in the United
Kingdom, "a learning organization is one which facilitates learning and personal
development of all its employees, whilst continually transforming i t ~ e l f ' . ~
In learning organizations, continuous learning by individuals is regarded
as a necessity for organizational survival and for achieving organizational
excellence in a rapidly changing business environment. It is therefore facilitated
and stimulated in accordance with the following principles:
- learning is linked both to organizational strategy and individual goals;
- emphasis is on-the-job development and action learning;
- specialist training courses are available across the knowledge/skill/value
spectrum;
- training to fill existing competency gaps related to current business
activities is not neglected. However, the principal focus is on learning about
developments in the company's environment, science and technology, and
new management and business concepts that could and should be used to
improve organizational performance and competitiveness in the future;
- new and open forms of training activity are utilized, including distance
learning and self-development, and individuals have the main say in
choosing the forms they prefer;
- learning is regarded as a continuous process, not as a sequence of separate
and mutually unrelated courses or other events;
- the career and reward systems provide strong recognition for learning.
However, encouraging individual learning is not enough to become a
learning organization. Individual learning must be turned into organizational
learning. Therefore learning organizations exhibit the following characteristics:
learning in teams is encouraged;
various formulas are used to share information and results of individual
and team learning throughout the organization; results of individual
learning must be available to any other collaborator who may need them;
managers act as trainers and coaches and are responsible for the transfer
of information, ideas and competences among individuals and teams
within their units, and with other units in the organization;
managers focus learning on the organization's goals, opportunities and

future perspectives without neglecting training needed for achieving short-
term objectives and making immediate improvements;
management makes sure that learning is effectively used for planning and
implementing organizational changes;
the main responsibility for staff development is vested in line managers;
but human resource and training managers have a prominent position in
the company's power structure and participate in conceptual and strategic
thinking and planning concerning the organization's future.
Learning organizations learn from their own internal environment and
experience, making sure that positive experience is rapidly disseminated and
replicated, while negative experience is objectively assessed and acknowledged
and measures are taken to avoid repeating it (e.g. in other parts of the organ-
ization or by new staff members). Ideas and critiques are collected through
suggestion schemes and at meetings, opinior~and corporate climate surveys are
used, open discussion and feedback are practised, innovation and experimen-
tation are encouraged, and internal records and reports are carefully studied.
Learning from the external environmeli t includes:
- learning from customers (satisfaction. complaints, changing needs and
demands, changing taste, ideas on new and better services, joint work on
product and service improvement);
- learning from competitors and other organizations involved in comparable
activities (e.g. through benchmarking);
- learning about new developments in science and technology;
- learning about market trends and changes;
- learning about economic, social, institutional and other developments.
At a minimum level, a learning organization can be responsive and take
timely action on information learned and aralysed. At an optimum level, it is
anticipative and proactive: it changes and improves products, services and
processes without waiting for such a change to become inevitable as a result of
more dynamic competitors or unhappy custcmers.
Both HRD and strategy consultants can render an invaluable service to
their clients by helping them to understand and implement the learning organ-
ization concept. It is important to see that it is not a definitive and closed model
which a company would have to adopt or reject in its totality. It is a philosophy,
an approach to strategy, customers, people management and learning. It can be
applied at various levels of sophistication. It is therefore fully accessible to
companies that are not sector leaders, to smzller companies and even to organ-
izations in difficulties. It can well prove to be a more effective way of getting
out of difficulties than various restructuring schemes in which individual and
organizational learning are underestimated.
16.7 Labour-management relations

Consultants, in whatever area of management consulting, must always bear
in mind that their recommendations can have implications for the labour-
management relations of the enterprise (or industry) with which they are
concerned. A consultant developing and recommending new remuneration
systems must be aware of possible collectively bargained obligations in the pay
area that cannot be avoided without further negotiations with the trade union or
other workers' representatives involved (e.g. statutory works councils with
powers in this sphere). Similarly, changes in work organization suggested by a
production management consultant may have to be negotiated with the trade
union, because of collective agreements or, as in the case of a number of
countries, according to legislation. In virtually every area of management con-
sulting consultants must themselves, or through recourse to colleagues or clients,
ascertain the labour-management relations implications of various courses of
action that they are considering for recommendation to their clients.
Over and above the imperative need to take account of the relevant impli-
cations for labour-management relations, a good case can be made, in appro-
priate circumstances, for the desirability of utilizing the existing processes and
institutions of labour-management relations, and perhaps even inviting the
development of new processes and institutions, in mapping out strategies for
enterprise change.
This being said, it is clear that there are circumstances in which, and sub-
jects on which, it would be highly inappropriate, given the labour- management
relations system or traditions concerned to consult - much less negotiate -
with trade unions or other workers' representatives. There are still some issues
that are exclusively the prerogative of management and in respect of which, for
various reasons, workers' representatives have no need to know; indeed,
informing them prematurely could be deleterious to the effective functioning of
the enterprise. A thoroughly professional consultant will know, or find out, how
to distinguish between the two situations.
The contexts of labour-management relations consultancies

It is of course presumed that the experienced personnel management1
human resource management/labour-management relations consultant will
already be quite aware of various legal obligations and constraints for the country
or region in which he is principally operating. However, given the globalization
of business and of the consultancy profession, the consultant may well have to
become acquainted with the law and practice of industrial relations when
operating in countries other than his own.
In all cases, regardless of the setting, the cultural context of labour-
management relations must be given its due if the consultancy is to be successful.
Labour-management relations advice that would be highly appropriate in the
Western countries could be questionable in an Asian setting. For example, there
is some doubt whether a North American or European style grievance procedure
could be effective without substantial adaptation in certain Asian countries

where interpersonal confrontation on an individual level is simply not coun-
tenanced. These cultural issues and their labour-management relations impli-
cations may not always be easy for a non-native consultant to appreciate and
weave into the tenor of his or her recommendations, but an effort must be made
to understand them and take them into account.
The remainder of this section examines various points relevant to a labour-
management relations consultancy. However, it may be noted in passing that
while technical advice in this field may be provided by those who are highly
specialized in labour-management relations proper, consultants in personnel and
human resource management often possess or develop expertise, and are called
upon to advise in this area. In any case, as al~eadyalluded to, and in addition to
the caveat regarding cultural issues, it is incumbent on the consultant to have a
well-informed grasp of the legal, political, social and economic circumstances
within which labour-management relations operate in a given country, sector or
organization.
Timing and the threshold question

The consultant may be called in because problems already exist in labour-
management relations, because there are internal or external forces that are likely
to lead to problems, or because advice is needed in the formulation or re-
fashioning of labour-management relations policies. The reform or refashioning
of such policies is particularly pertinent during a period when industries and
organizations are more and more concerned with problems of restructuring.
Whether brought about through exclusive managerial initiative or through
consultation or negotiation with workers' representatives, measures associated
with restructuring, such as retrenchments, flattening out of management, work
organization changes and the like, can have enormous implications for both the
climate and practice of labour-management relations in the organization.
In virtually every case in which a labour-management relations consultant
is called in, a key question will be the Fresence or absence of workers'
representatives, in particular of a trade unicn in or for the organization and,
where a trade union or another form of workers' representation does exist, the
nature and role of that representation. Once it is determined that there must,
should or could be a role for workers' representation in the consultant's project,
the consultant must come to understand ( i : ~the case of a trade union) the
representativeness of that union, the nature of the leadership of the workers'
representation body, and the internal politics and power centres within it. Only
then is it possible to pursue effective and constructive contacts with that body.
We shall return to this point later on.
In many countries, especially in the developed world, collective bargaining
and labour relations with trade unions are coming under pressure from increasing
individualization. Not only are people less likely to join trade unions, but many
organizations are now actively working to develop more personal and less
collective ways of dealing with their employees -varying pay within the group,
individual performance appraisal, personal letters to employees, and even indi-

vidual negotiation of their pay and conditions. This should not be exaggerated:
the evidence from Europe is that employers are likely to be developing
individualization whilst retaining a commitment to good relations with the trade
unions. It should not be overlooked either. Consultants may well be asked to
become involved in individualization projects either implicitly or explicitly as
part of "weakening the union's influence". They should be able to help the client
explore the advantages and disadvantages of both collective bargaining and
individualization. A key criterion is that the organization has a well thought-
through, coherent and consistent approach to these issues: a good consultant will
help the client to develop such an approach.
Principal areas of labour-management relations consulting

The essential questions in labour-management relations with which the
consultant may be called upon to deal could include one or more of the following:
(1) Workers' representation. Advice on dealing with workers' represen-
tatives on a day-to-day basis is often an element of a consultancy. As mentioned,
these may be (a) trade union representatives from within or outside the
organization (including officers or staff of union federations with a unit within
the organization), or (b) workers' representatives provided for in legislation or,
infrequently, through general procedural collective agreements, and who are
elected by all the employees of the organization. The latter generally have no
direct or organic links with a union and/or are not subject to union discipline.
Both types of workers representation may coexist in the same organization (or
branch, if the scope of the consultancy is wider than, for example, a single
enterprise). In such cases the consultant must exercise great care, through both
actions and advice, in determining which - if any - matters are appropriate
for interaction with one or the other type of workers' representation. This is not
always easy, as the relative competences of the two types may not be clearly
delineated and there may even be jurisdictional struggles between the two. It
might also be noted at this point that, adding to the complexity of the question,
workers' representatives are in one way or another becoming increasingly
involved in the labour problems flowing from restructuring of organizations;
and, of course, such restructuring nowadays can be a very conspicuous aspect
of management consulting. Finally, it may be observed that recent years have
seen, in a number of countries (certainly not all), a diminution of trade union
militancy, and consultants may wish to consider this aspect, in respect of the
specific problems with which they are dealing, when framing their advice.
(2) Disputes and grievances. A consultant may be requested to address
the mechanics of handling workers' grievances, including advice on the setting
up of grievance procedures, together with advice regarding other conflict
resolution procedures. In this area the consultant may have to give consideration
to the scope of the procedure proposed (or proposed to be negotiated with
workers' representatives). Should the grievance procedure, for example, be
all-encompassing or be restricted to allegcd treatment inconsistent with an

existing agreement? What of the protection of certain managerial prerogatives
that might be called into question by a given conflict resolution procedure? And
what should be the client's position with regard to the possibility of agreed
arbitration procedures for unresolved grievances or on the occasion of impasses
in collective bargaining? These are but a fe~wexamples of issues that could be
evoked - or that the consultant may wish to evoke - in this area.
(3) Collective bargaining. The significance of this question will depend
to some extent on the level at which bargaining takes place - for the industry
as a whole, for the industry in a particular region or locality, for a group of
enterprises, or at the enterprise level. Where bargaining occurs, formally or
informally, at the level at which the consultancy arises, normally the enterprise
level - and in most cases where there is a form of workers' representation at
the enterprise or workplace some bargaining will take place at that level -then
obviously this aspect of the consultancy becomes more crucial. The consultant
is often called upon to carry out one or more of three functions in this regard:
to develop the skills of the managers concerned with bargaining, to participate
as a member of the employer's bargaining team, and/or to actually act as
management's spokesperson in negotiations.
Given the recognized trend towards a certain decentralization of industrial
relations, and perforce collective bargaining in many countries where the focus
of bargaining has traditionally been at higher levels, this role and function of
consultants will undoubtedly be increasingly emphasized. Newer issues such as
the introduction of new technology and growing labour flexibility (particu-
larly in terms of numbers, remuneration ard functions), if dealt with through
collective bargaining, normally have to be negotiated at the enterprise level. But
even if, for example, collective bargaining I S centred at the industry or branch
level, the consultant may still have to advise management on certain matters as
an input that the individual employer must or should make when his or her
employers' association is formulating its ba -gaining positions and strategy.
(4) Management-worker consultation and cooperation. A consultant
can be asked for advice on machinery and procedures for management-worker
consultation and cooperation on matters of common interest such as productivity
or welfare and recreational facilities (as opposed to issues of an adversarial
nature such as grievances or bargaining demands dealt with through other bodies
and procedures). Newer emphasis on this area is reflected in various individual
and group employee-incentive schemes, as well as in different types of quality
control (QC) group programmes. Indeed, and increasingly, legislation or
higher-level collective agreements call for or encourage the development of
greater consultation and cooperation machinery, and even mechanisms for
workers' participation in managerial decision-making (co-determination) in
certain areas. At the same time care should be exercised by the consultant to
ensure that appropriate distinctions (particdarly where legal strictures might
exist in this area) are made so as not to subvert the collective bargaining process
when developing plans for consultation and cooperation.
(5) Dismissal and redundancy. Dismissal and redundancy principles and

procedures (whether within or outside the context of collective bargaining) are
more and more subject to treatment by consultants. Here again the freedom of
action of management (and indeed of the parties) may be restricted by legislated
or higher-level agreed provisions. In most countries there are restrictions against
abusive or unjustified dismissals and, perhaps less frequently, arbitrary selection
of those to be let go in a redundancy situation. However, within these limitations
there are normally details, procedures and criteria to be worked out and the
consultant may have to make a contribution on this score.
(6) Employers' position in tripartite consultations. The position to be
taken by employers' associations in tripartite (government/employers/trade
unions) or bipartite (either with governments or trade unions) consultations at
the national level can be defined with a consultant's help. Such consultative
mechanisms, sometimes ad hoc but more frequently of a standing nature, exist
in most countries and deal with broad economic and social questions. As alluded
to above in the discussion of an enterprise consultant's role with respect to
industry or branch collective bargaining, so with national-level consultations
individual employers may require guidance in fashioning their input into their
association's position and strategy in such consultations. In fact, consultants
would do well to impress upon their clients the importance of such input into,
and participation in, association policy-making since the decisions ultimately
emanating from national-level consultations often have a direct impact, and
almost always have at least an indirect impact, on the fortunes of the enterprise.
Trade unions as clients

While typically it is enterprise management that engages the consultant, a
fairly recent development has been the provision of labour-management
consultancy services to trade unions and, in particular, to officials who "manage"
trade unions. There may be cases also where the consultant is engaged jointly
by management and the trade union concerned. In any of these cases, the points
made in this section would still warrant the attention of the labour-management
relations consultant.
Importance of the legal framework

Turning to factors to be considered in providing advice, one could mention
in the first place the relevant legal framework of labour-management relations.
This framework is highly individual to particular countries and, at times, to
particular industries. In certain countries, for example those in Central and
Eastern Europe, legislation on matters of concern to us are in a state of flux with
frequent significant amendments and modifications, if not outright repeal and
new enactments. For these countries it is a time of discovery and experimen-
tation. Similarly, many countries in the developing world, particularly Latin
America and Africa, have moved towards political democracy, and this has
entailed radical change in labour-management law and practice.
The legal framework might reflect ru ies on:

trade union recognition and the employer's obligation to treat with a given
union;
workers7 representation at the workplace, and the protection (e.g. sup-
plementary protection against dismissal or retrenchment) and facilities
(e.g. time off, office space, access to members) that may have to be afforded
to trade union and other workers' rep::esentatives;
forms of workers' participation in decision making within the enterprise
(e.g. rules concerning works councils or membership of workers' represen-
tatives on company boards);
the formation and content of individual contracts of employment, and their
relationship to any collective agreements which may be in force;
legal rules (both legislated and resulting from judicial decisions) concer-
ning termination of employment, and so on.
It is not always obvious, but it is always necessary, that consultants take
account of existing legal prescriptions in charting courses of action to be
recommended to clients. Moreover, even company rules on conditions of
employment promulgated by management (employee handbooks and the like)
may have a certain juridical or enforceable quality. Whether they do or not,
consultants will wish to take them into consideration; they may even wish to
suggest changes in such rules. And where particularly complex legal problems
arise, or have to be resolved in the course of the consultancy, it may be necessary
to have recourse to the services of a qualified lawyer specializing in labour law
if the consultant does not have such training.
Provisions of collective agreements

The labour-management relations consultant must also be fully aware of
the relevant provisions of existing collective agreements which apply to the
enterprise concerned (whether such agreements be for the industry, the region
or the enterprise itself). He or she must be aware not only of the provisions of
the agreements but also, in certain cases, of possible interpretations of those
provisions which may have been subject to scrutiny by labour courts, arbitrators
or other decision-making bodies. Even past interpretations of collective agree-
ment provisions made by management (and in respect of which the trade union
party has raised no challenge) would prohably have to be given due credence.
In passing it may be commented that if this examination should result in a
consultant finding that changes in the collective agreement are warranted or
should be sought (and provided that this aspect is not clearly outside the terms
of reference), then his or her advice may make due reference to this.
Custom and usage

Rules resulting from law and regulations, or from collective agreements,
are only two of the significant sets of nor:ns which may have to be considered
by the labour-management relations consultant. In virtually all established

enterprises, organizations and industries there will be labour-management
customs, usage and practices which often require the same respect and attention
that is accorded to legal regulations. At times these customs, usage and practices
are common to a specific region or locality. Examples are ex gratia payments
and bonuses, time off which has been traditionally granted to attend to certain
family, personal or religious matters, and so on. It is essential that the consultant
be fully aware of, and if necessary actively seek to learn of, such customs, usage
and practices that are relevant to the consultancy. This in no way means that
there will not be occasions where certain of them may warrant being dropped
or changed: and the consultant may well be in a position to influence appropriate
changes in established labour-management relations practices; even those that
are ingrained in the organization. Indeed, this may be a crucial aspect of the
consultant's assignment. However the consultant must realize that in embarking
on such course of action, or in making the pertinent recommendations, extreme
care should be taken, and consideration given to the possible - and sometimes
unforeseen - consequences and implications of breaking with traditional
practice.
There might even be legal consequences since, as alluded to above, certain
practices may be interpreted as having the status of acquired and enforceable
rights.
Interaction with workers' representatives

It is also very important that the consultant become familiar with the
position, outlook and concerns of the trade union or other workers'
representatives who will be involved in any course of action that he or she might
recommend, since possible reactions from the workers' side can very well be a
determinant in such recommendations. However, before entering into personal
contacts with such representatives, the consultant should, in agreement with the
client, consider what contacts, and with whom, would be appropriate before and
during the framing of recommendations. Dealings with workers' representatives,
and particularly trade union representatives, can be very delicate, and the
consultant should discuss with management just what areas encompassed by the
consultancy may be touched on in such contacts, as well as the limits of his or
her authority to commit management should the contacts be of a nature where
even tentative commitments may be made or inferred. In passing it may be
reiterated that, among other things, the delicacy of contacts between the
consultant and trade union representatives lies in their implications for intra-
union politics and possible leadership competition. If the consultant, and the
management through the consultant, is perceived to be (even if such is not the
case) taking sides or demonstrating partiality towards one group or another, both
the consultancy itself and labour-management relations in the organization may
be compromised.
This being said, and in recognition of certain dangers as just discussed, the
consultant would nevertheless be well advised to recommend that every oppor-
tunity for constructive consultations between management and workers'

representatives be seized (whether or not there may be legal requirements in this
regard). This is almost always desirable, but is particularly the case when new
labour-management relations policies are being considered or introduced. The
cooperation or acquiescence of trade union or other workers' representatives
resulting from such consultations can often be a crucial factor in the success or
failure of the consultant's efforts.
16.8 New areas and issues

Termination and outplacement
One unfortunate consequence of the competitive situation in industrialized
economies throughout the world has been a huge growth in recent decades in
terminations of employment. Many consultants now provide specialist advice
on this subject, ranging from the policy level to practical support. At the policy
level consultants can help an organization determine what numbers of people
should be retained and how many should go, how to ensure consistency with
relevant laws and collective agreements, and how to announce the resultant
policy. At the practical level consultants arz now often called in to provide what
are known as "outplacement" services -- giving psychological, career and
financial planning assistance to those who will be leaving the company. The
concern for the welfare of the individuals who are made redundant can ease the
process considerably, and a skilful and caring consultant can do a lot to make a
difficult situation more bearable.
International human resource management

One issue in human resource management (HRM) that is attracting
increasing attention - and is a rapidly growing area of consultancy work -
concerns international HRM.5 The growing internationalization of the world, of
business and of HRM has already been noied. This involves increasing numbers
of people living and working outside their home country (expatriates).
Traditionally this has involved governmat representatives (civil and armed
services), religious groups and charities, and a number of major multinational
corporations (MNCs) sending people from the developed world to the
developing countries. This is now changing, as the larger MNCs tend to reduce
the number of international transferees, while smaller companies move into the
area. This process has been facilitated by the growth of international trade blocs
such as the Association of South-East 4sian Nations (ASEAN), the North
American Free Trade Agreement (NAFTA) and the European Union (EU).
Within the EU in particular, there are now Union-wide legislation and policies
aimed at easing the movement of people seeking employment across national
boundaries.
This is a field that has tended to be dominated by consultants from two
areas. Accounting firms and financial consultancies will advise on pay, taxation
and pension issues. Recruitment consultancies have gradually moved into inter-
national assignments as their clients have become more international. There are
now a number of organizations specializing in international recruitment, particu-
larly for the three main groups of internationally mobile employees: senior
management positions, technical specialists and, somewhat paradoxically,
almost entirely unskilled people such as hotel workers, construction industry
labourers and household servants. One criticism that may be levelled here is that,
for the managerial jobs in particular, too much attention is paid to previous
experience and not enough to intercultural adaptability. In other words, it is
assumed that being a successful manager in one country will mean that a
manager will be successful in another country. However, there is now consider-
able research evidence to show that the process of managing varies from country
to country. Expatriate managers are expensive and crucial people in their organ-
ization, under pressure to establish themselves and their families in the new
country and having to adapt to different cultural requirements. Often they fail
to make the transition successfully -at great personal and organizational cost.
There is a growing number of organizations specializing in the full range
of expatriate HRM consultancy: recruitment, training, briefing, transfer, adap-
tation, pay and benefits, evaluation and return. Before addressing the "technical"
issues of recruitment or pay and benefits, the best consultants in this area will
press the client to answer key questions: "Why send expensive expatriates when
there are talented and well educated locals?", "Why do you not use more (or
fewer) expatriates?", "How do you know that the expatriates are adding more
value than they cost?" and "What role will the expatriate undertake at the end
of the assignment?".
Flexibility
Finally, it is arguable that flexibility is re-establishing itself in developed
countries as a key criterion in the management of human resources. Flexible
ways and times of working are traditionally more common in less developed
economies. As economies advance they create "established" patterns of doing
things: job descriptions, normal working hours, legal constraints on employment
contracts, and so on. However, in some of the more developed economies these
have again come to seem restrictive. The increasingly difficult, and often
internationally competitive environment is once again leading the most
sophisticated organizations to stress flexibility of human resource practices to
meet the requirements of the business more exactly.
The growth in flexibility can be seen in various forms. Numericalflexibility
- the ability to employ different numbers - is now widespread. Even the
famous lifetime employment in the major Japanese companies or companies
such as IBM or Daimler Benz has been overtaken by economic pressures and
production requirements, and these companies have started reducing numbers.
Working-time jkxibility - working outside the "usual" morning to evening
hours -is spreading as organizations find that they have to use their equipment
for longer hours to cover their costs, or to be available to customers early in the
Box 16.2 Current issues in Japanese hutman resource management

In Japan, consultants have been enlisted to help managers to deal with the
following human resource management issues which have become of increasing
concern to industry:
e the overallHRMsystem: reprogramminglo fit the diversifying human resource
base;
the performance managementsystem: redesign as a key communicationtool;
the compensation system: reorientation from seniority to ability and
performance.
The creative efforts of consultants are being used in the overall HRM system to
help managers make it flexible enough to arlswer the needs and expectations of
human resources of new, non-traditionaltype:;, especially female workers and part-
time workers. Consultants and managers are working together to broaden the
human resource base for successful operation in the new, highly volatile,
competitive environment.
The performance managementsystem has captured the imagination of managers
and consultants as a tool to establish effective communication with the new
generation of workers. Children of an affluent society, the "new workers" have
arrived with a value system and work style radically different from the older
generation. They are generally not as dedicated to the company and its goals,
but like to stay and live within their own private world and are not responsive
to the traditional informal, group-oriented communication practices of Japanese
companies.
Consultants and managers are trying to build a new bridge for employee
communication by designing communication-intensive, individual-oriented per-
formance management systems. They are reinforcing personal communication
elements in the system such as more frequent (even daily), formalized appraisal,
a greater disclosure of appraisal procedures and criteria, and new counselling and
mentoring roles for supervisors.
The traditional seniority-based compensation system has become progressively
unsustainable with the gradual disappearance of supporting environmental
conditions, notably the high-growth economy and regulated competition. Among
consultants and managers, efforts are being made to shift the base of the system
to some form of ability, starting with potential ability and edging toward demon-
strated ability.
Author: Osamu Ida.
morning or into the evening. A wide bariety of innovative working-hours

arrangements in terms of part-time working, varying shift patterns, mini-
mum/maximum hours and annual hours zontracts are now common in North
America and Europe. Contractualflexibility -appointing people to share jobs,
or accept short-term jobs or a less committed relationship with the organization
(of the kind consultants have!) -is now quite usual. Finally,financialflexibility
- varying pay in accordance with the individual's performance or the
organization's ability to pay -is also growing.
One important result of flexibility for workers is that it opens up new job
possibilities for many people, both women and men, who may not otherwise be
able to go to work. Work that offers flexible hours or that is limited to certain
periods of the year may allow workers to choose jobs that suit their personal
needs and preferences regarding family responsibilities (care of children or
elderly relatives), educational requirements or lifestyle. Parents of school-age
children, for example, could well be available for work on a part-time basis for
a few hours in the middle of each day or in the evening, or for particular parts
Box 16.3 Current issues in European human resource management

A major HRM research programme in Europe, the Price Waterhouse Cranfield
survey, now has over 16,000 responses from employers in 17 European countries.
It provides hard evidence on the roles and function of human resource depart-
ments, recruitment, compensation, training, industrial relations, communication
with employees and flexible working practices.
The evidence from the survey reinforces differences in HRM policies between
different sizes of organization and different sectors of the economy (in particular
between the public and the private sectors). The central finding of the research,
however, is that while there are common trends throughout Europe there are also
significant national differences.
Five key areas of common development can be identified:
Pay. Pay determination is being increasingly decentralized from the nationall
industry collective bargaining level and passed down to individual organ-
izations or even to units within organizations. Furthermore, pay is becoming
an area for increased variability, with individuals having their pay and rewards
likely to increase or decrease according to managerial assessment of their
performance.
Flexibility. There has been widespread growth in "atypical" work (temporary,
casual, fixed-term, part-time, etc.). This extension of different forms of employ-
ment varies by country; and countries are at different levels in their use of new
employment relationships - but growth is the norm in all countries.
Equal opportunities. Policies for providing equal opportunities for women
are widespread throughout Europe, but are much less frequently translated
into action. Despite recent tensions, action against discriminationon grounds
of race or ethnic origin is still rare.
Training. Training is seen as the key issue for HRM in most European
countries. Spending on training and training provision continue to increase
even during periods of lower economic growth. The manner in which training
is assessed, organized and evaluated varies markedly between countries.
Trade unions. Trade unions are entrenched and influential bodies throughout
Europe, although membership figures vary considerably. In most, but not all
countries unions have declining memberships.
Although the evidence shows common trends, there is also considerable variation
across countries, and noticeably in the way these common issues are handled.
The role and influence of human resource departments differ from country to
country. Consultants need to be knowledgeable about the common trends in
issues - but aware of the national variations in human resource departments and
the way they manage these issues.
of the year (e.g. outside school holidays). Thus, flexible working not only
attempts to match the provision of availakle work much more closely to the
employer's work requirements, but it also opens up the labour market to a wider
group of employees and hence improves the employer's ability to select the best
people.
In dealing with issues of work and employment flexibility, the consultant
should not overlook their wider social implications. There may be a need for
improved social services, changes in public transport scheduling, and so on. The
HRD consultant may be well placed to suggest to the client what new services
could facilitate work flexibility, or what new arrangements should be proposed
to local government or transport authorities.
W. F. G l u ~ c k Personnel:
: A diagnostic approach (Plano, Texas, Business Publications,
1982), p. 296.
See, e.g., R. Sheldon: "Fraud in the training 9eldn, in Education and Training (Bradford,
West Yorkshire), June 1985.
This issue is examined by A. Gladstone 2nd M. Ozaki (eds.), in Working together:
Labour-management cooperation in training and in technological and other changes (Geneva,
ILO, 1991).
"ee M. Beck: "Learning organizations: How to create them", inzndustrial and Commercial
Training, Vol. 21, May-June 1989, pp. 21-28; Ashridg;e Management College: Management for the
future (Berkhamsted, Hertfordshire, 1988) and O Bovin: Towards a learning organization
(Geneva, ILO, 1993; unpublished manuscript).
See C. Brewster and S. Tyson (eds.): Inttmational comparisons in human resource
management (London, Pitman, 1992); and C. Brewster and A. Hegewisch (eds.): P o k y and
practice in European human resource managemznt: The evidence and analysis (London,
Routledge, 1994).
CONSULTING IN
INFORMATION TECHNOLOGY
Over the past 25 years, the aspect of management consulting which has
grown and changed the most is that associated with information technology (IT).
Whereas in the mid-sixties IT hardly existed, today it accounts for over 40 per
cent of all consulting revenue even taking a fairly narrow definition of consult-
ancy. Indications are that it will grow bigger still, although this calls into question
the boundaries between management and IT consultancy.
17.1 The changed role of IT

To appreciate why consulting has become so important in this area, it is
first necessary to understand the nature of the developments that have been
taking place in IT and how the role that IT plays in business, and in public bodies,
has changed.
Developments and their significance are always easier to understand
looking backwards rather than forwards. The whole history of computer use is
strewn with wrong predictions and misunderstandings. Seeing the past in
perspective helps us to understand where we really stand today.
When the first commercial computers were introduced in the early 1960s,
they were seen as either replacing tabulating machines or mechanizing routine
clerical jobs. The perceived gain was simple efficiency, mainly in the form of a
reduction in clerical labour. Moreover, most organizations saw it as a one-off
change: moving from manual procedures to electronic processing. In fact, what
was happening was that we were entering a new era: moving from an age in
which systems virtually never changed to an era in which they would always be
changing. Most of the systems which were transferred to computers had not
changed in decades: stores record cards, payroll systems, accounts ledgers and
the like had remained the same throughout working lifetimes.
As time progressed, computer-based systems took over more and more of
the basic administrative processes of the business, eventually giving rise to total
dependence on such systems for the day-to-day running of the enterprise.
Consulting in information technology
However, the gains also changed from considerations of efficiency alone.

Computer systems started to impact on the effectiveness of the whole business
- giving the ability to market better, to control inventories more scientifically
and to take management decisions based on better and more complete infor-
mation. This led to a growing realization that the effectiveness of the systems
used and the ability to introduce new systems quickly could give the enterprise
a genuine competitive edge. The boundaries of computer systems no longer
stayed within the business, but they reached out to embrace customers, suppliers
and trading partners.
While this increasing use of IT was taking place, the technology itself was
moving forward dramatically. It was also widening the frontiers of its
application. The speed and power of computer processing were rising incredibly,
matched only by a corresponding fall in cost and physical size. Computers that
appeared on the desk, in the home and on the lap had the power of the biggest
machines of just a decade earlier. It became clear that computer technology could
be applied not only to the handling of codes and numbers, but also to voice,
graphics and video. Telephone systems, which had been based on physical
copper-wire linkages and simple electro-mechanical exchanges since the turn
of the century, were suddenly recognized as being capable of transformation.
As the cost of technology tumbled and yesterday's "high-tech" became
today's commonplace, IT found dramatic application in the office. Why should
a typist retype letters or paint out mistakes when the computer could store
information and make changes with ease? Three hitherto quite separate areas
of-technology - computing, telecommunications and office systems -
converged.
Such developments moved the boundaries of IT out from the computer
department and placed IT increasingly in the hands of the user. Nowadays, IT
has permeated all our lives: we use it when we pick up the telephone, when we
pay with credit cards and even when we drive our cars. The silicon chip has
become genuinely ubiquitous.
This dramatic process of advance continues. Computer technology
continues to become more powerful and to cost less in relation to performance.
Our ability to store information continues to grow. Digital networks have
increased local and global facilities for communication, both between people
and directly between computer systems. Advances in software have enabled
machines to start dealing with unstructured problems, directly learning from
experience (in terms of past data and results) rather than being given fixed rules
by which to arrive at a solution. From early experiments in fields such as medical
diagnosis, these techniques are now finding widespread commercial application,
from credit assessment to insurance premium rating and targeted product
marketing.
These advances will continue for the rest of our working lives.
Organizations will be required continuously to absorb new technology, new
ideas and new facilities, exploiting them not only to run the enterprise more
effectively and more efficiently, but also to take the business into new realms
and to manage the organization in different ways. The power of IT enables us
not just to replace individual systems within the business, but also to question
the basic processes of the organization: to consider complete "business process
re-engineering", as it has been termed.
17.2 The impact on management thinking

Today's managers have been largely hrought up with computers. They do
not share the sense of unease or the unwillingness to get involved that their
predecessors had. The very term "computer" has, thankfully, lost much of its
mystique and, with it, the exaggerated respect for its attendant specialists.
Nevertheless, the continuous advance in technology has progressively influ-
enced the way in which IT is perceived and used, and this will continue to
happen. There is a temptation to think that we have finally come to terms with
IT and what it means. The reality is that if we look back from 20 years further
on, we will undoubtedly perceive that there was a great deal more to come.
A number of specific developments bave taken place in the last few years
that have influenced management thinking:
Personal computers (PCs) have made most managers far more comfortable
with IT: using the analogy of the car, PCs have taken IT out of being
exclusively chauffeur-driven into the era of the ubiquitous owner-driver.
Paradoxically, they have also lulled many managers into the false
perception that the application and management of IT across an
organization is straightforward: being able to drive a car does not qualify
you to design the road infrastructure
End-user computing more broadly has empowered managers by making
information more readily available and by raising the general level of
information literacy. It has also equipped front-line staff to respond directly
and immediately to customer queries and problems, improving customer
service and contributing to the flattening of management structures.
Spreadsheets and databases have, in their different ways, greatly changed
business planning by allowing more options to be explored and trends to
be better understood.
Desktop publishing has raised the whole quality of office-produced - or
even home-produced - documents.
Electronic point of sale (EPOS) equipment has allowed much finer
monitoring of sales and inventory.
Electronic data interchange (EDI) and EPOS together have facilitated
changed relationships between suppliers, manufacturers, wholesalers,
retailers and customers.
Automated tellers (ATMs) have shown that banking services need (at least
in some circumstances) neither tellers nor branches.
Developments in telecommunications have made international operations
much easier and opened the way for new ways of doing business (such as
telephone-based online banking).
- Visual IT has allowed engineering visualization and has transformed the

design process.
- Electronic mail (E-Mail) has abolished distance as an operational concern
in some organizations.
These developments have had an impact on a wide range of management
disciplines and activities. They are changing both the shape and the operating
style of organizations.
17.3 The requirements for consulting

Given the breadth and scale of the use of IT, it is hardly surprising that it
has generated a whole new sector in the management consultancy profession.
Development has taken place at such a pace that, regardless of what an
organization might be prepared to pay for its own specialist staff, there simply
has not been, nor will there be, enough genuine expertise and experience to go
round. Consultants not only play a supporting role in spreading the use of IT,
but they also play a vital role. It is no exaggeration to say that the world can
neither absorb nor exploit the flow of new information technologies without the
services of consultants.
For the smaller organization, consultants provide expertise that the
organization could not attract or justify on its own payroll. For the larger
organization, consultants offer specialized skills to augment internal capability,
provide additional resources to cover peak requirements and, when necessary,
to implement change, and give an independent second opinion. Nowadays,
virtually every major corporation in the industrialized world makes continual
use of external consultants in the field of IT.
17.4 The range of services provided

The IT-related services that consultants provide cover a wide range of
areas:
reviewing and developing IT strategy;
educating general management in a better understanding of IT, and
educating IT professionals in a better understanding of the business;
providing continuous research into developments in IT and their
implications;
evaluating the ways in which IT systems and facilities can be provided to
the business;
reviewing IT performance;
providing specialist guidance on areas such as data structures, technical
architectures, systems development techniques, telecommunications or
office systems;
recommending or providing a second opinion on the choice of hardware

or software;
reviewing projects, either at the outset or when they seem to be in trouble;
managing projects;
providing systems development resources ranging from supplying indi-
vidual contractors to the complete prclvision of an "outsourced" develop-
ment facility.
Let us look briefly at these areas.
Reviewing and developing IT stralegy

Increasingly, it has become recognized that the day-to-day decisions on
the use of IT need to take place within the framework of an overall strategy.
Without such a framework, new requirenients are dealt with, and corporate
systems built up, on a fragmented basis. The outcome is systems that cannot be
interlinked, fail to make use of common data or shared facilities, and represent
a technological cul-de-sac. Such systems prevent companies from responding
quickly to market changes or to competitors' moves. Witness the slow-
footedness of financial services companies in responding to attacks on their
market by previous trading partners (such as banks moving into insurance),
foreign competitors and new market entrants such as retailers. Within many such
organizations, a major asset in the form of customer information was locked
away in disparate, fragmented systems, much of it duplicated, much of it
inconsistent. Today, even leading international companies in areas such as
consumer products, pharmaceuticals and petrochemicals are hindered in
rationalizing their operations, reducing their cost base and presenting a unified
front to their international clients, by incompatible systems in their various
locations.
It is probably fair to say that few organizations, if they were able to start
from scratch, would put in place the systems they have today. The art is in making
sure this is not true of tomorrow.
A clear IT strategy is needed: a strategy which is understood and endorsed
by senior management and one which fits the overall strategy for the future
development of the business.
Consultants can play an invaluable role in this area: partly because of their
breadth of experience in developing such strategies, and partly because of their
skill in bridging the gap between commercial and technological considerations.
It is probably the area in which organizations make the widest use of consultants,
even to do no more than provide a second opinion. That is often a wise move;
in few other aspects of the business is the penalty for being wrong so high.
Educating management and IT professionals

It is an often repeated truism that there is a gulf in understanding between
general management and the IT professionals. This persists despite more than
25 years of widespread computer use. The reasons are manifold, but the most
important one is that, as already explained, both the nature of the technology
and the uses to which it is being put are continuously changing.
Consultants can play an effective role in improving understanding on both
sides: on the one hand, educating management in how to evaluate, direct and
exploit IT more effectively and, on the other, educating the IT specialists in how
better to understand and communicate with the business.
Conducting research
The pace of change of IT has already been stressed. Every organization is,
therefore, faced with the dilemma of identifying key trends and interpreting their
implications. The problem is not so much a lack as a surfeit of information, very
little of which comes from unbiased sources.
Some consultancies therefore offer research programmes which monitor
developments and evaluate their likely consequences. Organizations usually
subscribe to these programmes on an annual basis.
Evaluating the provision of IT facilities

Today, organizations have a range of options with regard to the
development (or acquisition) and operation of information systems. The division
of role between the user and the IT department is one consideration. Whether
the latter should be treated as an overhead, a cost centre, a profit centre or a
stand-alone business is another. Whether systems should be provided in-house
or "outsourced" is yet another. The decisions are complex and often wrapped in
factional issues. Consultants can provide an unbiased assessment of the options.
Increasingly, IT departments are coming under pressure to demonstrate
that they are offering best value for money. As many IT activities, from systems
development and maintenance, through telecommunications, to computer
operations, are becoming a "commodity", alternative sources of supply start to
open up.
For IT directors, used to a "captive market", the move from a cost-centre
concept to a profit-centre or business concept can be a considerable culture
shock. They have to face issues of becoming competing suppliers to their own
firm, and of offering their services to third parties. They have to learn how to
price, how to sell and how to run a successful commercial operation.
This is an area where consultants can be of great help. For example, a
leading bank in the United Kingdom, having decided to set up each of its
development, operations and telecommunications divisions as discrete busi-
nesses, employed consultants to help each unit establish its competitive position,
determine its service costs and pricing policy, prepare a business plan, establish
the management structure and acquire the skills required to become a genuine
"business".
Reviewing IT performance
General management often finds it more difficult to evaluate the
performance of the IT function than that of any other aspect of the business.
Production, marketing and finance are all better understood. Moreover, they
often lend themselves to quantified comparison. This is less the case with
information technology, especially if it is already highly integrated with other
areas.
It is, therefore, not surprising that consultants are often used to providing
an independent assessment of whether the IT function is delivering value for
money. Such an assessment may be impartial, but it has to be recognized that it
is largely a subjective process. The better consultancies have a structured way
of approaching such reviews and measuring productivity, but the eventual
outcome must rely heavily on the breadth and depth of the experience of the
individuals involved.
For the larger organization, broad-scope reviews in this area have become
less common. This is largely because of much higher levels of experience and
competence found in today's senior IT mmagers, and the confidence that the
business has in them. Consequently, external reviews are more likely to
concentrate on a specific aspect of IT or on policy or structural issues such as
how IT should fit within the organizational framework.
Guidance on specialist issues

No organization can, on its own, stay abreast of all the issues. No one can
employ all the different specialists needed to support every requirement; it would
not be efficient even if there were enough experienced specialists to go round.
Accordingly, great use is made nowadays of external consultants to help assess
positions and evaluate options in different specialist areas. This is particularly
valuable where the decisions involve technical infrastructure, a key element of
an IT strategy.
Consultants will typically be engaged to evaluate the potential application
of specific technology trends, for example document image processing, client
server, application development rightsizing on open systems or mobile data
communications. Should the business case be proven, the client might then
proceed to a pilot project, with the consuhant transferring the necessary skills
in order to enable the client subsequently to carry out full implementation. Early
investment in external expert advice can repay itself many times over in this
field: ill-judged or ill-managed experiments with new technology can not only
delay or prevent achievement of real business benefits, but can create a climate
that is averse to innovation.
External IT consultants help the internal specialists to broaden their
perspective: everyone is a product of past experience and every in-house
technician has personal prejudices.
Reviewing projects
Maybe one ought to expect, after all these years of computer use, that the
average systems development project would run to time and budget, and would
unfailingly deliver the expected results. Regrettably, that is not the case. There
have been many much-publicized examples of projects, some involving massive
expenditure, getting into severe difficulties or even being abandoned. We may
crack this problem one day, but we have not done so yet.
As a consequence, consultants are frequently brought in to review the status
of projects thought to be in trouble. It is a classic and good use of outsiders, but
what a pity that it normally occurs only after it is all too clear that the project is
in real trouble. How much cheaper and more effective it would have been if a
review had been carried out earlier, perhaps at the outset.
There are a number of factors relating to new projects that should trigger
off the seeking of external advice: highly innovative use of new technology; a
system which cuts across departmental boundaries; unproven hardware or
software; an inexperienced project manager; or the sheer scale of the new
development. The last point is particularly important, though often overlooked.
Experience shows that for any organization there is a size of project that
represents the limit beyond which the chances of serious problems, or even total
failure, escalate. An empirical guide is that this limit is 50 per cent greater in
scale than the largest project previously completed wholly successfully.
Managing projects
Strong and experienced IT project managers are hard to find. All too often,
an individual who manages a major project successfully gets promoted and never
manages another. This is very different to, say, engineering or construction,
where project management is seen as a career path in its own right.
Without the necessary experience in both the project manager and the key
members of the team, a new systems development project is in jeopardy from
the outset. Under these circumstances it is natural that many organizations are
contracting out the delivery of such systems to experienced external companies.
Provision of technical resources

Given the scarcity of good IT skills, only temporarily alleviated by recent
economic recession, and the inconsistent level of demand for the different skills
within any organization, it is not surprising that more and more clients are
making use of contract resources. Many organizations are now only retaining
in-house skills to deal with the troughs in demand, turning outside for the peaks.
17.5 The providers of consultancy

The growth in demand and diversity of requirements has given rise to a
wide number of providers of IT-related consulting services. They embrace:
0 strategy consultancies;
0 general management consultancies;
0 software and systems houses;
0 computer manufacturers;
0 individual consultants.
Strategy consultancies
While the international, high-level consulting groups specializing in
strategic advice have in the past tended to avoid involvement in detailed,
specialized areas, IT has posed them with a dilemma. Nowadays, the ability of
a company to reorganize, restructure or adopt a new operating strategy is often
conditioned by what can be done with its information systems. Incompatible
data structures or technologies make it impossible to bring divisions or
companies together quickly or to manage global businesses in a more
coordinated fashion.
New technologies open up possibilities for new products, new services,
new distribution channels and new ways of reaching the market. Accordingly,
issues of strategy can no longer be divorced from considerations concerning the
choice and use of IT.
Most of the strategy consulting firms have therefore either been equipping
themselves with more IT skills or forming alliances with other types of
consultancies. As a consequence, they increasingly have the ability to look at
the strategic aspects of IT, how it is organized, how it is used and how it interacts
with corporate strategy.
General management consultancies

Most general management and multidisciplinary consulting groups have
built substantial IT practices. Sometimes these specialized practices undertake
assignments related purely to IT, while at other times they provide their specialist
input to multidisciplinary projects.
This work stemmed from the earlier commonplace projects, carrying out
feasibility studies, selecting hardware or software, carrying out computer audits
or reviewing projects which had run into trouble. While elements of this type of
work remain, and indeed are still in strong demand from small and medium-sized
companies, many assignments nowadays supplement or reinforce the in-house
skills that most big organizations have. Indeed, the majority of the work is carried
out on behalf of the CIO (chief information officer) or director of IT, rather than
for the general or financial manager.
An increasing number of major projects undertaken by such consultancies
are concerned with the international aspects of information systems or tele-
communications networks. Clients striving to take advantage of global markets

often find that their plans are inhibited by the fragmented systems which exist
within the organization. Moreover, few companies have the mixture of technical
competence and international systems experience to deal with the issues without
outside support -not to mention the advantage of external objectivity necessary
to overcome the territorial defensiveness that has often been built up within
multinational groups.
The problem that all general management consultancies have had to face
is how far to go in providing such services. Does the provision of project
resources, systems analysts and computer programmers impede objectivity? Can
a client feel comfortable with a consultant's recommendations when there is a
perceived vested interest in the outcome?
Different consulting firms have taken different approaches to this dilemma.
Some have simply dithered. Generally speaking, most clients appear to prefer
the advantages of a consultancy that can carry through its recommendations to
one that makes a great virtue of impartiality. The most successful IT consulting
practice, in terms of international growth over the past decade, has gone
unequivocally for the development of an implementation capability and has
progressively moved into "outsourcing" or "facilities management": not simply
giving advice, nor even just implementing change, but actually taking over the
operation of the clients' computer systems on a continuing basis.
This has fitted in with a trend for organizations to outsource services
generally, thereby reducing fixed overheads and enabling them to focus on core
business.
Software companies and systems houses

The trend to extend the boundaries of consulting has brought management
consultants increasingly into competition with the big software companies and
systems houses: serving the same market but having come to it from different
directions. The latter companies have always had problems with the more
genuine "consulting" aspect of their services, partly because of the perceived
lack of objectivity and partly because they have generally failed to attract the
top-flight consultants who have preferred to work for companies where their
own skills were more central to the main activity of the firm.
Nevertheless, the tremendous ability of software companies to implement
projects, particularly when it comes to very large-scale projects, has made them
an important force in the consulting services market. Many, too, have followed
the path of outsourcing and facilities management. They play a key role in
moving businesses forward.
Computer manufacturers
It might at first seem odd, in a book which is concerned with management
consulting, to be talking about the offerings of computer manufacturers.
However, they could well represent a major future source of consultancy
services, particularly if one adopts a broader definition of the term "consulting"

covering all the services mentioned above.
The reason that the computer manufacturers have turned in this direction
is largely one of necessity. As technology has advanced, the cost of the equipment
as a proportion of total systems cost has constantly dropped. Price competition
has become fierce, with low-cost equipment suppliers eroding the traditional
markets of the major computer companies. As a consequence, the latter have
recognized that the future lies in providing "solutions" rather than "boxes".
Such a move, of course, involves a cultural shift. Above all, the supplier
needs to take a broader, more client-oriented view of life. This is clearly causing
some difficulties, but it would be wrong to assume that the computer suppliers
will not be able to make the change: back in the 1960s most of the established
consulting groups could not envisage the accounting/auditing firms ever
becoming a force in management consulting!
Individual consultants
In addition to the major consulting and other organizations mentioned
above, there are many individuals offering their services as independent
consultants in the IT area. Their numbe)- has been swollen by the economic
recession which has made many skilled individuals, including some at very
senior level, redundant.
They provide a valuable source of expertise, both for the big corporation
seeking a second opinion on its activities and for the smaller company wanting
general guidance on its IT applications but without placing itself in the hands of
the provider of the hardware or software. The risk in the latter case comes from
having to put one's trust in the views of a single individual in an area where the
client finds it difficult to assess the quality of the advice. In such a case, the
general rule must be only ever to use an individual whom one either knows well
or who comes highly recommended and has a track record of success; if there
is no such assurance, it is better to rely on the systems supplier and to pin down
the contracted terms for delivery and performance.
17.6 Selecting an IT consultancy

The following guidelines should help in the selection of a consultancy for
an IT-related requirement:
(1) Be very clear about what you want, but not over-prescriptive about how it
should be achieved.
(2) Look for'genuine experience of similar assignments and take up references
from the clients involved.
(3) If you have a relationship with a corisultancy with whom you have worked,
whom you trust and who can clearly do the job in question, why waste time
with competitive quotes? What matters most is how well a consultancy
delivers results, not how well it presents new assignment proposals.
(4) Where you do go for competitive quotes, keep the short-list small, no more
than three or four consultants at most. Otherwise the briefing and
evaluation become too time-consuming, the best may not respond and the
job may simply go to the most desperate!
(5) Be as open as you can about the assignment budget. You want the consult-
ants to pitch their offering to your needs, not try to guess what you might
be prepared to pay nor what price their competitor might be prepared to
quote. The old adage almost invariably holds good: you get what you pay
for.
(6) Make sure you know and have met the individuals who will be working on
the project.
(7) Decide whether independence and objectivity really matter on your parti-
cular project. If they do, make sure you know whether the consultant is
allied to any hardware, software or facilities supplier. In other words, be
clear on whether the consultancy has any commercial interest in the
outcome of its recommendations. Independence may not be the key issue
in a particular case. If you require additional services, can the consultancy
provide them or will you be faced with finding and recruiting another firm
and getting it up to speed? Do you want an adviser that will actively deliver
what he or she recommends?
(8) Check the breadth of skills on offer. If the project goes outside the technical
considerations, can the consulting firm chosen really provide the wider
expertise?
(9) Ask how the consultant intends to transfer the necessary skills and
knowledge to your own staff to avoid consultant "lock-in".
17.7 Making effective use of consultants in

the IT area
The rules for making effective use of consultants in the IT area are not very
different from the rules for making effective use of consultants generally. But
there are a couple of special considerations. First, as far as senior management
is concerned, IT is still wrapped in more mystique than the other main functions
of the business, adding a higher degree of dependency on specialist expertise,
whether internal or external. IT'S rate of evolution makes this almost inevitable,
such is the difficulty of keeping up with developments in technologies and
systems, and their implications. Second, it can now be seen that getting decisions
wrong on IT can have very long-term consequences for the business: the
expression commonly used is "setting the business in electronic concrete".
IT is an area, therefore, where a reliable outside opinion can be invaluable
even if it is a case of simply providing a second opinion for the internal specialist.
The golden rules are:
- to recognize that if external assistance is required, then the earlier it is
employed the less expensive it is likely to prove overall;
- to recognize the different profiles and standpoints of those offering

consulting services. Are they genuinely independent? Does it matter? Is
the ability to implement change mare important under the particular
circumstances than objectivity?
Finally, one has to be aware that no use of IT specialists, whether internal
staff or external consultants, can absolve management from the overall
responsibility of directing and managing the use of IT within the business. One
can pay for support and guidance; one cannot pay to have management
responsibility removed.
CONSULTING IN SMALL-
BUSINESS MANAGEMENT
The use of consultants by small enterprises is now an established trend in

business. As activities relating to the conduct of business become more complex,
the need for outside assistance usually increases. Small-scale enterprise man-
agers who want to remain competitive need to consider using consultants as they
would use other support services such as bankers, lawyers, accountants and trade
associations.
Consultants can play an important role in economic development by
becoming more involved in assisting people to set up small enterprises. For new
entrepreneurs, the start-up phase is the most difficult; consequently, more and
more consultants focus on this important aspect of enterprise development.
Consultants and small-business development centres often arrange training
groups of entrepreneurs who intend to initiate new enterprises.
Existing small enterprises use consultants mainly to solve specific
operational problems. The duration of the consultancy will depend on the
specific problem but most consultancies can be accomplished within a few
months. Longer consultancies may be required if the problem concerns
expanding business operations. Expansion takes time and the consultant may be
involved periodically for up to one or two years.
Within economic policies pursuing structural adjustment, trade liberali-
zation and privatization, the small enterprise sector is now identified and
recognized as the key area to supply job opportunities and to provide goods and
services. As a result, there has been an upsurge in consulting assignments to
meet these new demands. This, in turn, has introduced a new dimension to the
economic and social development field, i.e. the development of resource
personnel to advise governments and non-governmental agencies in promoting
small enterprise development. Essentially, these new forms of consulting service
address the critical areas of policy formulation and implementation: developing
strategies; designing, implementing and evaluating programmes; and managing
development projects.
18.1 Characteristics of small enterprises

Definition of a small enterprise
The definition of a small enterprise tends to vary according to the nature
of its activities, the purpose of the definition, and the level of development where
the enterprise is located. The criteria for describing an enterprise as "small"
might be the number of employees, money value of sales, capital investment,
maximum energy requirements, or various combinations of these and other
factors. In most discussions and writings on the subject by management
consultants, it is conceded that a small enterprise is one in which the
administrative and operational management are in the hands of one or two people
who also make the important decisions in that enterprise. Such an operational
definition has been found to include more than 85 per cent of all small enterprises
no matter how defined.
The consultant should be aware of factors which usually distinguish the
small from the larger enterprise. First, the small enterprise is primarily financed
from personal or family savings with limited recourse to outside finance during
the formative stages. Second, the manager has close personal contact with the
whole workplace; and, third, the enterprise operates mainly in a limited
geographical area. These "smallness7' factors greatly influence the consultative
process.
The small enterprise possesses distinct advantages, including the ability to
fill limited demands in specialized markets; a propensity for labour intensity and
low- to medium-skilled work; and flexibility to adapt rapidly to changing
demands and conditions. Managerially speaking, there is an advantage in having
a personal involvement in dealings which goes beyond price, product and
delivery dates. Owner-managers are usually more highly motivated than salaried
managers - they work longer and harder, and provide greater incentives to
workers by personal example.
Simple organizational structure means more direct and less complicated
lines of communication inside and outside the business. The smallness of the
firm assists in identifying and developing the capabilities of workers more
quickly than happens in larger firms.
The small enterprise can also experinent with or enter new markets without
attracting unwanted attention from large firms. It can cater for extremes in the
market - either the right- or left-hand tails of an average distribution curve -
since mass marketing for the average consumer is usually taken care of by big
business. Similarly, the smaller firm can more quickly exploit changing market
patterns and the "floater" consumer who drifts in the market-place.
Special problems of small enterprises

Problems of small enterprises can be general or specific. Problems of a
general nature involve legal aspects of business, access to credit and raw
materials, and the lack of appropriate technical and managerial assistance.
Consulting in small business management
Management consultants should be aware of problems at the enterprise

level. These may appear more formidable to the manager of a small enterprise
than problems in a large corporation might appear to its chairperson. The
following list demonstrates the range of difficulties which may be encountered:
Whereas large, well-organized enterprises can usually afford both good
line-management and specialist staff, the small enterprise manager is a
relatively isolated individual dealing with policy, administration and
operational problems simultaneously despite personal biases and
limitations.
Small-enterprise managers often operate with inadequate or, at best, with
minimum quantitative data. To save operating costs they are likely to
dispense with information systems, a weakness which becomes glaringly
apparent when the enterprise reaches a growth stage.
Because the small enterprise can usually pay only minimum wages, has
few fringe benefits, and offers low job security and few promotional
opportunities, it is reasonable to expect difficulties in recruiting
high-calibre employees.
Professional investors are seldom attracted to the new small enterprise, and
the manager is severely limited in his or her ability to raise initial capital.
This problem is compounded when, as is very often the case, the enterprise
runs into growth problems, or experiences operating difficulties, and the
manager attempts to raise additional finance in order to cope with
expansion or crisis situations.
Because of this problem of limited reserves, coupled with low capacity to
borrow, the small enterprise is particularly vulnerable to economic
downturn and recession.
Although ability to change and adapt rapidly is a natural strength of a small
enterprise, this quality may be nullified when an opportunity requiring
rapid change suddenly appears. The manager may be too occupied with
ongoing operational problems to be able to think clearly about the future
of the business.
The hand-to-mouth financial existence of the enterprise does not
encourage opportunities for staff training and development, with
consequent loss in realizing the full potential of the human resources within
the enterprise.
High productivity is difficult to achieve since the small enterprise does not
enjoy the low costs of the large firm which can, for example, buy at a
discount, achieve economies of scale, call on its sophisticated marketing
and distribution system, and engage its own research and development and
systems design teams.
The small firm is usually limited to a single or small product or service
range with the result that in times of trouble it cannot diversify activities
as can large-scale enterprises.
The manager is often not able to understand and interpret government

regulations, actions, concessions, and so on, to best advantage.
The small enterprise is a relatively fragile structure with limited resources
to overcome its problems. Even minor problems can be life-threatening to the
enterprise. In one country it was estimated that the failure rate within the first
two years of operation was as high as 50 per cent for new small enterprises.
Reluctance to use consultants

Many small-enterprise managers are reluctant to use outside consultants
for the following reasons:
- They believe that only large enterprises can afford the consulting fees
charged.
- In many instances, consultants will not have practical experience in the
type of business needing assistance.
- Identification of a competent consultant is difficult and time-consuming,
because most managers have little previous contact with consultants.
- Managers are reluctant to provide outsiders with facts and figures relating
to the business.
- Using a consultant may be viewed by the manager as an admission of lack
of competence.
Notwithstanding these doubts and fears, many small-business managers
need to talk to an attentive and helpful listener about their concerns and worries.
John Harvey-Jones describes his experience in the following terms:
I had not fully realized how lonely the life of someone running a small business
can be. Of course every businessman hiis relationships with his customers, his
suppliers, his bank manager, and so on. He also knows a number of his
competitors. But remarkably few people running small businesses have any
friend or confidant on whom they can test their ideas, or with whom they can
talk openly about their business, its opportunities and its threats, and their
feelings about the business. It seems to me that business people badly need a
business equivalent of that excellent organization, The Samaritans. In many
cases just talking about the way a b~sinessis running brings a feeling of
support and a strengthening of conviction, which is badly needed when you
feel alone and threatened by immense external forces.'
To overcome the preconceptions of owner-managers, consultants need to
provide facts and data which will indicate the value of their services, if possible
referring to specific instances of other sm.111 companies where consultants have
been used. Studies have shown that most small-business owners who have used
consultants have obtained the following benefits:
an independent professional viewpoint;
an overall, total company check-up and expert evaluation;
ideas to cope with growth;
manager and staff training which otherwise would not take place;
help in developing a strategic approach.
18.2 The role and profile of the consultant

The consultant dealing with small enterprises handles the whole spectrum
of management and is required to be more of a generalist than a specialist. It can
be taken for granted that consultants require professional training and
considerable experience in management principles as applied to small-enterprise
development. Of prime importance is a knowledge of the interaction of functions
of the small enterprise, since change in one function usually has immediate
repercussions in others. Furthermore, it is useful for the consultant to be at least
familiar with the various entrepreneurial development approaches which
provide a conceptual basis for current small enterprise development practices.
As with any combination of skill and art, mastery of business fundamentals
is essential for a successful career in consulting with small enterprises. When
assisting the manager of a small enterprise, it is important to ensure that all
managerial tasks are completed, even imperfectly, rather than having 75 per cent
of the tasks completed to perfection while the remaining 25 per cent are
neglected. The consultant must keep in mind the "total" picture of the business
to see that functions of administration and operation are harmonized and
integrated. Patience and dogged perseverance are required in encouraging the
manager to complete managerial chores ranging from accounting to staff
training, while preventing him or her from concentrating solely on preferred
technical activities such as the actual production of goods and services.
The consultant's role becomes further complicated in that his or her main
consulting duties lie in developing the manager and others contributing to
managing the enterprise at the same time as being expected to provide feasible
practical solutions to a wide range of specific problems -for example, finance,
sales, production and purchasing. Although the subject-matter is specific, it
generally exceeds the limits of a particular function or technique. The consulting
technique is broad, including assistance with implementation where necessary,
and informal training in many cases.
Routine consulting reports, usually submitted to larger organizations, do
not apply to small enterprises. Written reports should be short, simple, limited
to a minimum and often submitted only at the end of an assignment to explain
what things were done and why, and what is required in the future.
The consultant should also appreciate that clients are not necessarily the
best educated and skilled managers available. Moreover, there are often no
training facilities readily at hand to help remedy obvious deficiencies. Thus,
instead of adopting a professional air and emphasizing his expertise to influence
his clients, the consultant should use a simpler style. Coaxing, praising and
reprimanding are likely to be more effective in obtaining the results desired!
The client-manager of the small enterprise may suffer a severe sense of
failure if forced to use a consultant. The consultant should, therefore, be alert to
the possible need to restore a client's self-esteem in addition to providing

technical assistance.
Unquestionably, lack of data is a major handicap in undertaking a
consulting assignment with a small entelprise. Usually the sole source of
information is the manager, who is often "too busy" to be interviewed. The
consultant must use ingenuity, persistence and tenacity to extract the required
information.
During the last 30 years, many governments, employers' organizations,
trade associations, chambers of commerce and similar bodies have established
special services and facilities for small enterprises, including:
supply of credit (loans and guarantees);
reduced tax rates (to enable accumula.:ion of capital necessary for survival
and growth);
reserved and preferential markets for goods and services (special
government set-asides, offsets and subcontracts);
industrial estates, parks or incubators;
product design and quality control services;
advisory services on export possibilities;
market and feasibility studies;
reduced-cost bulk purchase of raw materials, etc.
Although he or she is probably able to obtain advice directly from
technicians in charge of particular services, a manager or owner of a small
enterprise may find it difficult to decide when and how to use such services. The
management consultant has to advise on the whole range of services, and
recommend priorities and acceptable costs of such services to the manager. This
also includes advice on where to find relevant information. In developing
countries, management consultants are increasingly involved in advising local,
small and medium-sized enterprises on technology transfer, joint ventures with
enterprises from industrialized countries, mbcontracting, or franchising.
Good health, persistence and stamina are the consultant's chief assets.
Small-enterprise managers have little respect for conventional working hours
and, once preliminary fears are overcome, quickly learn to ask for help whenever
and however they see fit. The consultant is very similar to the family doctor in
being always on call - and some clients will, fortunately or unfortunately, take
this for granted. Clients are often astonished to learn that consultants take time
off for meals, and may wish to be with their families on some weekends and
evenings.
Responsibility is also disproportionate. In most conventional consulting
assignments for large organizations, there is some tolerance for error as reports
are checked by supervisors and very important reports are examined by a
manager of the consulting unit. However, when dealing with small enterprises,
mistakes by the consultant can be fatal to the organization requesting assistance.
Since such assistance tends to be direct and immediate, the consultant has limited
time to check ideas and proposals with colleagues. Paraphrasing Reinhold
Niebuhr's famous prayer, the Asian Productivity Organization has set out the
role of the small-enterprise consultant in the form of a "Consultant's Prayer":
God grant me
COURAGE to change what I can,
PATIENCE to accept what can't be changed, and
WISDOM to know the difference.
Timing may be critical. The consultant usually works under extreme

pressure since assistance is often not sought until after a crisis develops and the
manager is personally unable to resolve the problem. By employing a judicious
blend of "resource" and "process" forms of consulting, the consultant is expected
to do whatever is necessary to assist the manager. In the final analysis, it must
be remembered that the consultant's job is to consult and not to manage. In times
when consultancy advice may not be accepted or followed by management, the
consultant should be guided by the saying that "you can lead a horse to water,
but you can't make it drink". Similarly, the consultant should not be held
responsible for the failure of a small firm, nor should the consultant claim
responsibility for its success. The consultant should concentrate on the success
of the assignment.
18.3 Consulting assignments in the life-cycle

of an enterprise
The review in previous chapters of management situations and problems
dealt with by consultants includes a number of concepts and experiences relevant
to consulting in a small enterprise. However, certain situations are specific to
small enterprise consulting.
Small-enterprise consultants need to change as business activity changes.
They must become more aware of information and how to gain access to it. It is
essential for consultants to understand the uses of software packages and
computers in relation to small enterprise operations, especially how to convert
computer printouts into useful information for the small-enterprise manager. An
emerging area of concern for small enterprises appears to lie in the field of
industrial relations in those countries where organized labour is making its
claims heard and felt.
Communication skills are becoming increasingly important and may
eventually overshadow even the technical knowledge and other skills of the
consultant. The essential task is for consultants to use their communication skills
to "pull out" problems and to "plug in" solutions. The consultant must have a
good network of highly skilled technicians who can assist with specific
problems. Once a solution is determined, it is the communication skills of the
consultant that will convince the manager that he or she should implement the
solution.
The small-enterprise owner is faced with a host of problems and the

consultant should be prepared to meet these various needs. The consultant may
be considered a "one-stop shop" where entrepreneurs can receive the necessary
assistance. The following stages serve to illustrate the range of problems faced
by consultants when dealing with an enterprise passing through a typical
life-cycle.
Stage 1: At the very beginning

Biographical evidence suggests that su~:cessful small-enterprise managers,
sometimes referred to as entrepreneurs (a definition which has wider
implications than for small enterprises only), commonly possess distinctive
qualities. They are often the first-born of a family and have had to assume a more
than average amount of responsibility at an early stage in life. In many cases
they are the offspring of self-employed persons, but not necessarily in the same
occupational grouping, trade or service. Such people have had a sound but not
necessarily extended education and, as a rule, more than five years' experience
of working in real-life conditions.
From a personality point of view they are inclined to be optimistic,
moderate risk-takers as opposed to gamblers or non-risk-takers, and have a
feeling that control over their own destiny rather than just making money is a
key motivating factor in their life. Such people are usually married, with
minimum distractions caused by family life -there is usually an understanding
spouse who may not, in fact, care for the kind of life-style which results, but
comprehends and appreciates the demands made on the marriage partner.
A key characteristic is that successl'ul entrepreneurs are mentally and
physically very active. They are usually very well organized and manage time
efficiently. Success may result not so much from quality, but from the quantity
of schemes prepared and developed. In short, the greater the effort, the greater
the chances of success seem to be.
When dealing with a beginner, the consultant should take stock of the
client's background and interests to ascertain whether he or she is dealing with
a probable or a possible entrepreneur, and ~levelopthe assignment accordingly.
The project in question should be closely examined, taking into account the
strengths and weaknesses commonly founci in small enterprises. A check-list of
items to be reviewed should be worked out.
Stage 2: Starting up
Assuming that the client wishes to lalmch a new enterprise, the consultant
should, after reviewing and discussing the proposal, prepare for at least three
possibilities and develop appropriate contingency plans:
(1) What is the best that might happen (the "blue skies7' approach)?
(2) What is likely to happen (the basis for the "business plan")?
(3) What is the worst that can happen (realistically assess the "downside
risk")?
The consultant should talk freely with the client about the first two
possibilities, which are usually "creative7' problems, whereas the third
alternative, which is a "corrective" problem, should be reserved for the
consultant's own counsel because (a) the client is unlikely to listen to or agree
with the "worst possible" alternative, and (b) encouragement rather than
discouragement should help attain the full potential of the proposal. The
consultant must, however, draw up detailed contingency plans for all three
alternatives if for no other reason than to make allowances for "Murphy's Law"
("If anything can possibly go wrong - it will!").
A good small-enterprise manager can usually generate many ideas very
rapidly. The consultant should encourage this and assist the client to obtain and
record relevant quantitative data about these ideas for two reasons: first, to assist
in making a logical choice between alternatives; and second, to use as supporting
evidence should the manager experience uncomfortable afterthoughts about a
scheme once started.
Mistakes will happen, particularly in the early stages - it is part of the
general learning process. The consultant's task is to minimize errors made by
the manager in these stages. It is, however, better to ensure that an ineffective
scheme never takes off than to attempt to salvage an impossible project at a later
date, which gives rise to the consulting maxim: "Giving birth is a lot easier than
resurrection." If necessary, allow the proposal to lapse and encourage the client
to try afresh when more evidence and support are available. If it is decided to
go ahead with the enterprise, full commitment should be encouraged. Effective
decision-making and prompt action are vital; there is little room for compromise
or error in a new enterprise.
From a functional point of view the consultant should encourage clients to
use the services of some specialists from the outset if they can possibly be
afforded because, if the enterprise grows, the specialists will be familiar with its
history, practice and results, and thus able to assist in a meaningful way. The
specialists include:
- a legalfirm (of good repute and the best which can be afforded);
- an accountant (possessing the same qualities as those required in the legal
firm);
- a banker (a person, not an institution, so that rapport and trust are
established at a personal level);
- an insurance agent (similar qualities as required in the banker);
- a marketing representative (this clearly depends on the type of enterprise;
where the enterprise is not intrinsically marketing oriented, it is often sound
practice to make links with experts or agents during the formative stages).
Small-enterprise consultants require a wide range of functional expertise,
with, perhaps most importantly, emphasis on financial matters. The finance field
presents problems both in attracting formation capital and in controlling
expenses and income; small-enterprise management consultants not well versed
in these fields are a danger to clients and cannot claim professional competence
in the true sense of the word.
It is often only by thorough expert financial appraisal that the consultant
is able to undertake the necessary though unpleasant task of recommending
discontinuation of an enterprise rather than encouraging a holding operation
which will eventually lead to insuperable problems for all involved.
This fear of tragedy deserves greater emphasis in the start-up stages of the
enterprise than may seem warranted. Often family and friends' savings are used
to finance the capital requirements of the new enterprise simply because "no one
else will lend the money". This finding alone suggests that the scheme is
probably not particularly sound. If no finance agency considers a proposal
worthwhile (and they take into account an allowance for failure), why should a
consultant recommend that family savings be.jeopardized in a risky undertaking?
There should always be proprietor equity in a venture, but not simply because
no one else is prepared to support it. When preparing the third (worst-of-all)
contingency plan, if project failure is likely to cause undue hardships the
consultant is professionally obliged to dissuade the client from undertaking such
a venture.
During the start-up phase the consultant might reflect on the following
checkout routine which has been based on a considerable number of studies
designed to pinpoint potential problem areas in small enterprises. In order of
importance for diagnosing trouble areas the consultant is likely to find
deficiencies classified as the seven "M7's:
0 managerial (lack of experience);
0 monetary (lack of capital, poor cost control);
0 material (poor location, too much stock);
0 machines (excessive purchase of fixed assets);
0 marketing (inappropriate granting of credit);
0 mental (lack of planning for expansion);
motivation (wrong attitudes to work and responsibility).
Stage 3: Getting bigger

Having weathered stages 1 and 2, the consultant may occasionally be
rewarded with a brand new set of events which emerge as the enterprise matures
and the consulting assignment takes on a progressive look. This is the right time
to examine thoroughly the weaknesses to be overcome, opportunities to develop
further, and alternative resource allocation:; to help the enterprise benefit from
the most favourable opportunities. When assisting the manager to allocate
resources, the consultant may care to refer to the "four to one principle" which
can be set up as a rule of thumb:
- 20 per cent of the customers account -€or80 per cent of the sales;
20 per cent of the stocks result in 80 per cent of movements;
- 20 per cent of staff causes 80 per cent of the problems;

- 20 per cent of salespeople create 80 per cent of the sales, and so on.
The consultant should encourage the manager to "play percentages" and
concentrate on critical areas. During this maturation phase the manager,
submerged in day-to-day operational problems, is usually not able to pay
attention to the long- or medium-term planning essential for continued growth
and survival. Consultants can assist by encouraging the manager to look to the
future. For example, they can prepare current organization charts and job
descriptions and compare these with how they should look five to ten years
hence, showing likely changes. New developments usually require a little
inspiration, considerable incubation, and a great deal of perspiration. Therefore,
the consultant should make sure that the manager plans appropriate resources
and allocates the time required for future growth and development.
A noticeable feature of successful managers is that they are exceptionally
well organized. This practice should be encouraged as part of the management
development process by introducing systems, encouraging managers to read on
management subjects, and insisting on forecasts, budgets and controls. Probably
during this maturation phase an accountant (financial controller) post should be
established.
The consultant will also have to draw on his or her knowledge of com-
parable enterprises to judge the productivity of the client under review.
Knowledge of a range of interfirm comparisons, in the form of inputloutput and
productivity ratios, is an invaluable asset, especially if corrective measures
become necessary. The consultant must know where such information can be
obtained.
Stage 4: Exit from the enterprise

Eventually the manager finds that the enterprise may have grown to a stage
where it can no longer be considered small, and issues pertaining to growth,
finance, corporate structure, delegation and the like will arise. The small
enterprise consultant should then judiciously refer the manager to specialists
capable of assisting in the new situation.
Alternatively, the manager may decide to forego the routine running of an
enterprise and prefer to start something new, revert to becoming an employee,
or retire. At that point, disposal of the enterprise becomes the problem of the
moment.
Assessing the monetary value of an enterprise is usually done in any of
three ways:
(1) liquidation or forced sale value, where the enterprise is virtually put up for
auction and sold to the highest bidder (if any);
(2) book value, where items are assessed at cost less depreciation and sold
piecemeal to selected markets;
(3) market value, where the entity is sold as a going concern and items such
as goodwill are included in the price.
Varying conditions (such as the death of the owner) may determine which
of these assessment methods will be used. Generally speaking, the market value
method provides the best return to the seller.
The consultant is obliged to assist the client to obtain the best possible deal.
Nevertheless, the consultant should keep in mind that the best sales are those
involving a willing seller and a willing buyer. To arrive at this happy situation
the consultant should encourage the seller to "leave something in it" for the new
owner. By doing so the chances of a sale are enhanced, time is often saved and
opportunities for recrimination are reduced. Trying to obtain the greatest
possible amount of money from the potential new owner may well carry the sale
beyond the borders of diminishing return.
Another end-of-the-road situation occurs when the manager is succeeded
by a family member or someone else. With small enterprises, apart from areas
of obvious equality and responsibility such as a partnership of doctors or
lawyers, shared management seldom succeeds. For purposes of direction,
control and responsibility it is usually better to have one identified manager than
to split the authority between, say, two siblings. If it can be arranged, family
succession in an enterprise should follow only after the offspring have been
exposed to working in outside situations, otherwise managerial inbreeding is
likely to occur.
18.4 Areas of special concern

Counselling the start-up entrepreneur
We examined earlier (section 3.7) the relationships between counselling
and consulting in the context of working with larger organizations. The
counsellor works mainly with and for individual clients, rather than for the
organization. The relationship is, and should be, a personal and intense one,
likely to involve areas far beyond the particular management issues leading to
the assignment.
The decision to start a new business can be one of the most important steps
that anyone ever takes, and involves far more than straightforward business and
management issues. It is extremely important that the client alone makes the
final decision. Counselling is about empowering people to take fundamental
decisions of this sort for themselves rather than simply advising them what to
do.
Several studies show that many people launching their own business for
the first time do so because they have been jolted out of their normal career path
by a shock such as redundancy, or by a personal "determining event" such as
bereavement, divorce or a forced move to an unfamiliar country. Such an
experience can marginalize people, and may encourage them to look beyond the
ordinary and expected courses of action to new and unfamiliar fields, such as
starting a new business. People in this position are often unsure and need support
but, because they are marginalized, they may not have access to friends and
family who might normally help on such occasions. The professional counsellor
can thus fill an important gap.
Counselling usually goes beyond business issues. An entrepreneur starting
a new business has necessarily to involve the whole family, since lifestyles and
financial security are almost certainly going to change and the family may also
have to work in the business. Some marriages break up, while others may be
strengthened and enriched by the experience of starting a business. A counsellor
has to ensure that would-be entrepreneurs think through all such implications.
The counsellor neither encourages nor discourages clients but only helps
them to look at the situation from every angle and to make their own decisions.
Some people may be over-confident or even blind themselves to possible
difficulties, while others may lack the confidence to think clearly about the
options facing them. The counsellor must judge whether the client needs a "wet
blanket" of realism, or a "firecracker" of enthusiasm. The client should not be
pushed in any particular direction but should be helped to be in the proper frame
of mind to make the right decision.
Potential entrepreneurs often expect counsellors not only to be sympathetic
listeners but also to provide them with useful contacts, particularly to bankers
and sources of finance, or to potential customers. Successful entrepreneurs are,
above all, good networkers and the counsellor should be happy to play this role.
However, there should be no offer to recommend a particular contact or
collaborator to the client. Names can be provided and introductions made, but
the counsellor should not play the role of a "marriage broker", which could
seriously prejudice his or her effectiveness as a counsellor if the two roles are
confused. This is even more important when the counsellor is not being paid by
the client but by a third party, such as a business support agency or even a bank.
The counsellor must be scrupulously neutral in every respect.
Entrepreneurs often have to produce business plans, either as part of a
course or to submit an application for funding to a bank. While preparing these
plans can be a somewhat barren and automatic exercise, an effective counsellor
can help clients to produce plans which not only satisfy external requirements
but also provide a valuable contribution in deciding whether or not to start at all.
The various components of the business plan can be used as assignments to
structure the counselling process.
Counselling people starting new businesses can be an extremely
demanding task, because the whole future of the client and family may be
involved. It can also be most rewarding. The contribution of the genuinely
effective counsellor may well be forgotten or even denied by the client,
particularly if the business becomes successful, but the counsellor can take
satisfaction in assisting someone through a critical stage of life.
Consulting for family enterprises

The use of consultants by small family enterprises is not common. Even
after initial contact, few formal consulting assignments are ever achieved.
Because of the intimate relationships between family members, they are
extremely reluctant to discuss business conflicts and problems. Personal and

business problems become highly intertwined and in many cases they are
extremely difficult for the consultant to identify, let alone resolve.
Before attempting to solve the business problems, the consultant should
meet separately with each family member in order to understand the family
dynamics as they relate to the operation of the business. The consultant should
attempt to gain the support and trust of each family member before meeting them
as a group to discuss their business problems.
When family ties are strong, family pride can be a major factor in resolving
the conflict. In situations where family ties are weak, it may be better to propose
that some members leave the business (and pursue other career and life
opportunities.
A special feature in counselling the family enterprise touches on the
question of succession. For the reasons mentioned earlier, there are likely to be
emotional as well as managerial and business issues to consider. The consultant
needs to maintain a professional role and bring up the topics of wills, death duties
(if any), taxation and other items which family members may wish to avoid. The
consultant might start by evaluating the enterprise's strengths and weaknesses,
and recommend an orderly succession process including shareholders' and
directors' interests. Once these items are in place, the consultant might introduce
the subject of the profile of a likely successor. It is recommended that fees be
charged on a time basis rather than on the basis of capital participation to quieten
possible anxieties amongst other family mzmbers. Contingency plans should
also be prepared to deal with such action such as the premature death of the
senior member.
Extension services
Private consultants are not widely used by small enterprises in most
developing countries. However, consulting is often provided through
government-sponsored extension services to small enterprises. Extension
service agents take the initiative, visit small enterprises, and provide
entrepreneurs with services and advice on the spot. Such assistance may include
the following activities:
advising on all aspects of management, work organization and product
design, development and adaptation; emphasis may be on price
calculations, bookkeeping and financial planning;
domestic and export marketing, including subcontracting and inventory
control;
materials procurement;
choosing technology and solving technical problems including skill, space,
public utility and equipment requirements, and procurement methods;
advice on potential sources of finance and help in gaining access to finance,
for example by preparing loan requests;
identifying training requirements for workers and owners/managers, and

potential training sources;
explaining government regulations and dealing with related paperwork,
including taxes and legal questions such as incorporation of enterprises,
registration, licensing, grants, etc.; and
quality control and standardization, particularly where subcontracting and
export promotion are important.
Only rarely is it necessary or possible for the extension service to be
involved in all of these functions at the same time. Specific functions will depend
on the nature of the target group, both in terms of its technical qualifications and
the subsector to which the target entrepreneurs belong, namely manufacturing,
construction, tourism, commerce, and so on. There is general agreement,
however, that an integrated approach has to be taken to assess and meet the needs
of small enterprises. Such an approach would combine, for example, training,
technological assistance, credit and, in some cases, physical infrastructure.
The extension service agent may be viewed as a "trouble-shooter" who
identifies problem areas and refers the entrepreneur to specialized assistance
such as chambers of commerce, professional associations, trade and artisan
groups, private consultants, training institutions, or larger enterprises. To be of
benefit to entrepreneurs, the value of the extension service must be judged by
its ability to perceive their needs, to diagnose correctly problems that occur, and
to provide timely and useful advice and support.
18.5 Consulting in policy development

Much has been said and written about the need for an enabling or supportive
policy environment made up of legislation, rules and regulations to encourage
enterprise development. In some cases, management and business consultants
are requested to assist in preparing, implementing and evaluating policies
designed to contribute to the development process. In such a case the client can
be an economic ministry, or an employers' or small business association
intending to put up proposals to government, or preparing itself for negotiations
with government representatives.
One useful basis for developing a national strategy for small enterprise
development is to analyse existing policies and, where appropriate, suggest ways
and means of removing the obstacles and punitive measures affecting
development and growth by introducing a conducive or at least a neutral and
non-discriminatory policy environment.
In broad terms, policies - defined as rules based on sound analysis,
proclaiming commitment to action and ensuring adequate and established
resource allocations - are a product of politics. In turn, politics emanate from
organized representation, and the small enterprise sector is notoriously
renowned for being ill-organized, having only a limited capacity to influence
policies which are usually shaped by large-scale business and well-organized
political groupings. The "level playing-field", which is generally called for when
dealing with the small enterprise sector, is u arranted because most policies are
felt to favour large-scale enterprises which have better access to and more
influence over policy-makers and those who implement them. It can easily be
argued that an ideal policy should treat all enterprises, regardless of size, in the
same manner. Where this is not possible then we should, at least, seek to offer
a fair deal to all concerned, in order to promote genuine competitiveness.
Policies that stimulate business development

It should be self-evident to all concerned that there are readily seen
advantages for entrepreneurs when setting u:? small enterprises. These can take
the form of publicly pronounced incentives szt out as policies which cover areas
determining profitability such as demand for output, prices of outputs and inputs,
taxes and concessions. The following require consideration:
- Macroeconomic policies to stimulate demand are often forgotten in
preparing strategic approaches to aljsist small enterprises, and this
consequently nullifies attempts to provide supply-side assistance.
- Trade policies which promote trade liberalization are likely to enhance the
flexibility of small enterprises to find market niches to their liking by
changing product lines, provided that t:~eycan find the finance to do so.
- Investment and taxation policies are often biased against small enterprises
through such measures as high indirect taxes, fixed levies not related to
profit, and the inability to obtain exemptions, rebates and concessions
which are often available to large-scale enterprises. Such disparity might
be reduced by dropping all exemptions.,or altering tax concessions so that
they apply across the board and are not reserved solely for those who know
how to apply for them.
- The need for equality in price and distribution controls becomes evident
in cases where small enterprises lack access to state-controlled marketing
and transportation channels.
- Structuraladjustmentpolicies generally impose restraints on demand, thus
hitting the lower-income population which supports small enterprises.
Appropriate compensatory measures like food security programmes can
help reverse the downward spiral of dezlining demand and income.
An enabling environment
Entrepreneurs will logically respond more rapidly to profitable oppor-
tunities where society's attitude is positive towards a private business sector, and
where there is pvlitical support for such an environment, than when there is a
negative response to such issues. In economies in transition from a centrally
planned to a market economy system, there 1s a need to convince investors that
these changes will be lasting and that entrepreneurs will be protected by the legal
system. It is thus essential for a conscious and visible effort to be made to provide
a sound attitudinal base to business development.
Political stability in terms of government policies towards private
enterprise and investment is important. Likewise, a stable economy is required,
since high inflation encourages entrepreneurs to focus only on short-run,
quick-return investments in preference to fixed investments and longer-term
profit gains.
Regulations applying to business range from the necessary - such as
protection of health and the environment - to the ridiculous - such as those
that benefit only selected, usually politically acute, enterprises.
In general, it is more effective to correct the underlying problems affecting
regulations than to try and compensate by introducing special exemptions. The
need to simplify procedures for registering and operating businesses should
speak for itself. Administering regulations can be a source of irritation for small
enterprises since even when regulations are reasonable some administrators may
not be. Harassment and corruption by underpaid bureaucrats may do more
permanent damage to small enterprises than natural disasters. Small enterprises
should pay taxes, not bribes.
There is a need for simple entry and exit procedures when running a small
enterprise. Correct information should be easily obtained, and not harboured and
controlled by bureaucrats. The policy issue at stake is to create a positive attitude
and environment to assist rather than control and harass enterprises.
Availability of resources
Raw materials. Import and marketing policies directly affect access to raw
materials by small enterprises. This is particularly noticeable when goods are
distributed through state monopolies. Constraints introduced by import licensing
often mean that small enterprises have to meet inflated prices by buying on the
black market. One solution is to help develop strong small-business associations
capable of bulk-buying for distribution to members.
Labour. Policies which encourage small enterprises can provide the
advantage of absorbing labour at a lower cost than large-scale enterprises.
Generally speaking, policies that subsidize capital do not encourage employ-
ment growth.
Equipment and supplies. Small enterprises need policies that provide
reasonable access to improved technology if they are to be competitive and
improve productivity. Policy measures which can assist include permitting the
import of used equipment and facilitating the setting up of leasing companies to
meet the problems of access to finance and credit. Some countries trying to
develop a capacity to produce domestic equipment resort to protection measures,
but these can foster inefficient and more costly local production. Large-scale
firms may circumvent this by passing on costs to consumers through monopoly
pricing. Small enterprises are unable to do so.
Finance. Small enterprises require a responsive financial system if they

are to survive and grow. It is generally recognized that the smaller the business,
the less likely it is to obtain credit from formal financial institutions. If subsidized
credit policies are in vogue, the chances are that bank profitability will be
affected which, in turn, will reduce the inclination to lend to small enterprises.
Clearly, policy reforms would be in order in such instances.
The formal financial system is usually rAuctant to lend to small enterprises
because of their perceived high risk of failure at start-up. However, there are
programmes which show that small loans can achieve high repayment and low
default rates even with low-income clients. These are often community-based
schemes employing mutual guarantees with low initial loans supplemented by
subsequent loans linked to repayment performance. To introduce policies to
support such approaches there is a need to propose a direct link between credit
and savings schemes, and to provide them with a legal status to permit them to
interact with formal financial institutions.
Infrastructure. Government efforts .:o support the private sector are
generally through providing infrastructure. Public efforts to improve health,
education, transport and access to energy not only promote small enterprises but
also enhance the general competitiveness necessary for a growing and vibrant
economy.
The consultant should assess to what (extent existing policies negatively
affect the small enterprise sector, and then suggest remedial action. In designing
a strategy for small enterprise development, the consultant must consider the
likely result of proposed reforms both in al~soluteterms and relative to their
effects on large-scale enterprises, as well as constraints on the ability of small
enterprises to respond.
The key questions revolve around opportunities for entrepreneurs, the
supply of entrepreneurs, and the entrepreneurs' access to resources. Special
concern must be paid to the interaction and complementarity of these key areas.
The relative importance of these issues can be established by interviewing
individual entrepreneurs and officers of their associations, suppliers of finance
and credit, and agencies and institutions, b o t ~governmental and private, which
assist and deal with the small enterprise sector. Policies should be closely looked
at in terms of their internal content and how they are likely to be implemented.
Introducing policy reforms is not without risk. Any change must directly
affect productivity until those involved learn to understand and benefit from the
change. Time needs to be taken to sensitize, advise and assist entrepreneurs when
new policies are introduced.
Subsidized small business consulting schemes

In some countries the policies for promoting small business development
include subsidized consulting schemes. Variants of such schemes exist in
countries as different as the Czech Republic, Germany, Singapore, the United
Kingdom or the United States. These schemes tend to exhibit certain common
characteristics:
- the consultant's assistance is in certain priority areas such as business
policy and planning, export development, job creation or quality
improvement;
- the small-business client chooses (in some schemes) from a roster of
consultants who have provided extensive information on their
qualifications and experience, and have been approved by the agency
responsible for the scheme;
- the client co-finances the project (say 40-60 per cent of the cost), and the
total cost and/or the fee rate charged is within approved limits;
- the sponsoring agency has the right to review the work performed before
authorizing payment.
Another form of subsidizing advisory, training and other professional
services to small businesses is direct budgetary subsidies provided by
governments and various development agencies to small business development
institutions, such as the extension services mentioned above. These institutions
are thus able to apply reduced fee rates and provide certain services (e.g. a first
half-day for a quick assessment of the business and defining the need for a
consultancy) free of charge.
18.6 Innovations in small business consulting

Subsidized professional services to small-business clients may be helpful
in certain conditions and in less developed countries or regions. However, they
provide no panacea. The small clients' needs for information and advice are
tremendous and continue to grow because of the increasingly complex
institutional setting and difficult business environment of most countries.
Small-firm owners are unable to allocate sufficient time and resources to keep
abreast of developments and take a detached critical look at their business from
time to time. Conversely, many consultants and other advisers exhibit clear
preference for larger business clients who have more money, can afford larger
assignments and higher fees, and offer technically more interesting work
opportunities (and references) to the consultants. Some consultants do not mind
working for small clients, but they fail to appreciate the differences and treat
them in the same way as large-business clients.
This justifies the need for innovative approaches to small-business clients.
While all the principles discussed in the previous sections remain valid,
consultants need to intensify their efforts to devise and apply formulas that will
make their services fully understandable, easily accessible and attractive to large
numbers of smaller clients. In short, small-business consulting must become
more user-friendly and client centred. Let us mention some examples.
One-stop shop and integrated assistance

The so-called "one-stop" shops or counters enable small-business clients
to obtain advice on various aspects of the business during one visit to an advisory
or information service. This can include a wide variety of topics, information
materials, help with filling in forms, preparatory work for credit requests, and
SO on.
In other cases, generalist business consultants can see to it that their clients
receive comprehensive and complete advice from one firm rather than being
directed to a number of different professionals. Thus, a consultancy can include
a number of relatively small and inexpensivl: inputs concerning various aspects
of the business, under the coordination of an adl-roundgeneralist. The client does
not have to make separate searches for different specialists, sign several
contracts, provide the same basic information many times and coordinate the
work done. In turn, the consultant must ensure excellent selection of specialist
inputs and a fair coverage of the issues at hand. It can be a good service to busy
small-business clients if their consultant-generalist monitors various
developments (taxation, export regulations, changes in social charges, new
public markets and similar) likely to affect the business and takes the initiative
to call and inform the client about such new developments, suggesting how his
or her firm could help the client to react to these new opportunities or constraints.
Standard instruments and check-lists

Cheaper and more user-friendly consultancy services can be provided by
combining the use of various standard self-diagnostic, business-planning and
other instruments and check-lists with personalized advice introducing and
supplementing the use of these instruments. If the procedure is simple enough
and clearly described, a number of clients ca.1, following a short briefing or even
written instructions provided with the instruments, prepare the same data and
undertake the same diagnostic or planning exercise. The consultant's personal
intervention can then be limited to reviewing the results with the client and
suggesting appropriate action to take. Standard instruments enable the use of
junior and less costly consultants (and even business students), who would ask
a more senior colleague for advice, or suggest that the client ask for such advice,
only if this is warranted by the client's specific situation and needs.
"Hot-line" service
Either a private consulting firm or a public small-business development or
extension service can establish a "hot-line" telephone service for entrepreneurs
needing urgent information and advice. This can be a paying service on a
subscription or ad hoc basis. It can also be a free (and toll-free) public service
providing "emergency" help and suggesting how and where to ask for further
assistance.
Working with groups of entrepreneurs

In group approaches to providing advice, more clients are served
simultaneously and the cost per client is lower. In addition, the participants can
learn from each other and develop useful contacts for the future. Various
formulas of group approaches have therefore been used by trade and employers'
associations, extension services, small-business development centres and
individual private consultancies, in particular (but not only) in developing
countries.
A group approach is applicable if the clients share some common problems
and interests and if they are prepared to work together, which may require
sharing some business information. If small firms from the same sector get
together, they are likely to be competitors, although they clearly will have many
common interests. If the clients are not from the same sector they still may have
experience to share, e.g. on common business issues or processes and activities
that exist in every business. And, as action learning, benchmarking and other
approaches have demonstrated, a great deal can be learned also from
entrepreneurs and managers working in seemingly completely different sectors.
Benchmarking (see also section 4.6). This technique is based on
comparison of detailed and specific information on selected processes, services,
and so on. This is followed by an analysis of the differences between firms and
a deeper study of approaches that have helped the other participants to achieve
better results. A consultant facilitating such an exercise can help to provide data
for comparison, ask the right questions, make the participants aware of common
issues, stimulate the discussion, help to identify best practice and introduce
improvements.
Action-learning workshops (see also section 4.6 and appendix 8).
Participants in these workshops get together in order to work collectively, and
gain from other participants' experience, in solving problems faced by their
organizations. As a rule, in the first phase the workshop focuses on problem
identification and on designating those problems which are of interest to most
participants and should be examined collectively. The problems selected are then
analysed in greater depth by the whole group or its subgroups. Then the group
comes up with one or more possible solutions. The groups could meet once a
week and continue for some eight to 12 weeks. If the group's knowledge and
experience are not enough, the group defines information and training
requirements that are met by the consultant acting as facilitator or another expert
invited for a special purpose.
Business clinics. This is an arrangement whereby a group of small-scale
enterprise ownerslmanagers meets to get advice and exchange experience on
how to deal with the same or similar problems faced by all of them. It can be a
one-off exercise (e.g. a one-day session) or a set of four to eight meetings similar
to those run in action learning. A business clinic can be combined with interfirm
comparison when the members of the group decide to compare their results and
exchange experience. In other cases, a business clinic can be organized to deal
collectively with problems previously identified by extension officers or other

small-business advisers, or chosen by small-business owners themselves.
Self-help and solidarity groups. In several developing countries, such
groups have been established by small-scale entrepreneurs with the support of
technical assistance agencies, including vclluntary non-governmental organi-
zations. The groups are concerned with training, sharing experience and, in some
cases, obtaining small-scale credit. A great deal of this work has been in the
micro-enterprise sector - a topic to which the next chapter is devoted.
J. Harvey-Jones: Troubleshooter 2 (London, Penguin, 1992), p. 2.

CONSULTING FOR THE
INFORMAL SECTOR
The previous chapter dealt with small business enterprises; but there is yet
another group of businesses, which many people would not call businesses at
all, but which are nevertheless in most countries a far more important source of
employment and incomes, for far more people, than large or small formal
businesses. These are the enterprises belonging to what is sometimes known
loosely as the "informal sector", or "micro-enterprises"; that is, the vast numbers
of very small-scale income-generating activities through which millions of
people attempt to survive, particularly in the developing countries.
Nobody is unaware of these micro-enterprises, although we may not think
of them as potential clients for management consulting. They are crowded along
the pavements and in the slums of big cities, as well as in the official and the
unofficial market-places. They provide a major source of income in rural areas,
where many people own no land at all and for most people who do own land
there is little to be gained by spending more labour hours on the tiny holdings
that they call their own. They are vendors, tailors, snack-food processors,
roadside cycle and car mechanics, blacksmiths, cobblers and almost everything
else. Although they are often a nuisance to those of us who can afford to purchase
what we need from more formal and more sophisticated sources, these
micro-entrepreneurs provide essential goods and services at a place, time and
price which are convenient for other poor people like themselves.
19.1 What is different about micro-enterprises?

The importance of informal sector entrepreneurs as employers and sup-
pliers does not in itself necessarily mean that management consultants can help
them in any way. It is important to recognize that they are a very different client
group - if indeed they can be clients at all - from large or even small formal
businesses, such as were dealt with in Chapter 18.
Heterogeneity of this target group

To provide guidance that is of any practical use, we have to acknowledge
the heterogeneity of micro-enterprises and their needs for assistance. It is useful
to see the difference between two major categories.
First of all, there are the very small home-based and informal enterprises,
typically with one to three employees including the owner, using very basic skills
and technology, with small assets, supplying a limited local market, and often
having a limited life expectancy. In 99 per cent of cases they will never be in a
position to consider using the routine services of private consulting firms, and
paying a full charge for these services. They are businesses, however, and have
to be managed. They can benefit from technical advice as can any other
enterprises. Sound advice can help them to survive, adjust to changes in their
environment, improve quality, product diversity and earnings, and even lay down
foundations for growth.
The text that follows will focus on the specific needs of this category of
the smallest and least sophisticated micro-enterprises (see box 19.1). As pointed
out in the opening chapter of our book (section 1.1), management consulting is
not only a separate professional service that can be purchased from independent
firms on commercial terms, but also a method of providing advice and assistance
aimed at improvements in management and business. This chapter will discuss
mainly this second side of consulting. It will show that the consulting method
can be applied by a wide range of organizations interested in assisting the
informal sector, either separately, or in conjunction with other business
transactions or social services (the term "embodied" consulting services has also
been used). Consultants and other persons keen to render a socially useful and
productive service to these entrepreneurs will have to combine technical
know-how and aptitude with considerable social skills. In many cases they will
have to engage in personal counselling (see sections 3.7 and 18.4) rather than
strictly technical advice.
The second large category of micro-enterprises includes those that have
already reached a higher level of sophistication and size than the previous group.
Typically they would employ up to nine workers, use some motorized equipment
within permanent premises, take part in subcontracting arrangements, and so on.
The owners, especially the younger ones, may probably have acquired basic
education in a local language and some formal technical training. They may still
operate as informal-sector units, with all the advantages and constraints
involved. This second group is in fact in several respects on the limits between
the traditional informal sector and the "modern" small enterprise to which
Chapter 18was devoted. Many of them are about to "graduate" from the informal
sector. Others feel that they should remain in this sector for various reasons.
Consulting services for this category will exhibit some characteristics of
assistance to the informal sector, but most methods and approaches to
small-business consulting described in Chapter 18 will also be applicable.
Depending on the assessment of the particular situational variables you will have
to choose your genuine approach.
Consulting for the informal sector
Box 19.1 A minicase of consulting in the informal sector

Laxmi is one of a large number of women in a village in northern India who earn
their living embroidering the uppers of traditional slippers which are then sewn to
the soles of the shoes, and sold both in the neighbouring community and in Delhi
and elsewhere.
Laxrni buys the ready-cut uppers and the thread from a supplier in the village;
if she has enough cash, she can choose from a number of different suppliers and
then resellthe embroideredpart to one of several local businesseswhich assemble
the complete slippers; if, as is more often the case, she has to buy on credit, she
is restricted to one supplier and she must also sell the embroidered upper back to
him; in this case, her earnings per day are about half the amount she can earn
when she is free to pick her own suppliers and customers.
Laxmi's two younger sisters, and her invalid mother, provide some help in
piercing the holes and other simple tasks; she does not pay them, or herself, any
regular wage. Her brother drives a rickshaw in New Delhi and occasionally brings
money home, and other members of the family sometimes earn a few rupees from
casual work on neighbouring farms, while Laxmi makes up the necessary sums to
feed and clothe the family as and when this is necessary.
A field worker from a local non-government organization which was trying to
assist the leather workers in this community called on Laxmi one day. Laxmi had
heard about this organization, and after some brief introductions she was therefore
quite happy to tell the field worker all about her business. The field worker took
careful notes on a simple pro forma which she had been trained to use by her
employers, and she also looked carefullyroundthe hut where Laxmi and her family
lived, and asked a few questions about what she saw, including a fairly large pile
of dusty but apparently completed embroidered uppers which were half hidden
under a blanket in one corner.
After about one hour's discussion, the field worker felt able to advise Laxmi on
what was clearly her main problem, namely her lack of working capital. She did
not tell Laxmi what she should do, but led herthrough discussion herself to suggest
that she should try to accumulate her own working capital by restricting her own
drawings to a fixed limited amount every month. Laxmi saw that she could raise a
small lump sum by disposing of the stock of finished components which she had
unfortunately embroidered in a slightly outdated pattern; she agreed that it would
not be difficult to find a shoemaker who would be willing to buy them, and that it
would be better to to accept a lower price rather than to keep her money tied up
in this way.
The field worker also told Laxmi about the savings and credit groups which her
organization was helping the local people to establish; this would enable her to
save more regularly, and perhaps eventually to borrow from the accumulatedfund
if the group so desired.
Laxmi was very happy with the discussion; when the field worker returned a
month later she had disposed of the surplus stocks and hadjoined a savings group;
she was not sure whether she could restrict and control her monthly drawings as
they had agreed at their earlier meeting, but she was already making regularweekly
savings of a small sum with the savings group.
Author: Malcolm Harper.
Some specific sectoral characteristics

We have seen that small businesses are usually managed by only one or
two people, who have to deal with all the different functions that are entrusted
to specialists in larger firms. In micro-enterprises there is no separate
management function as such; the owner, who is usually the sole worker as well,
is primarily a cobbler, a tailor or a vendor. She or he (and in most countries it is
more likely to be "she") makes the same sort of decisions about prices, products,
finance, and so on, as any other manager, but management is not conceived as
a separate activity and decisions are made on an ad hoc basis as they become
necessary.
The owners of formal small businesses are often criticized for not sep-
arating their business finances from their personal affairs, and consultants often
have to help them to set up systems to enable them to do this. Because most
micro-enterprises are a means of economic survival for the owners and their
families, it is often impossible and it may be wrong to try to make the separation;
the time and resources devoted to the enterprise, and the earnings from it, have
to be related to the economics of the whole household. It may even be appropriate
for the enterprise to operate only on a seasonal basis, since there are more
profitable opportunities at some times of year. This is clearly very different from
the situation of formal businesses.
Small businesses generally have little written data with which a consultant
can undertake an analysis, but most micro-enterprises in the informal sector have
no written records at all, except perhaps some note of amounts owed to them by
customers who have bought on credit. Women in particular, who dominate the
smallest end of the informal sector, are often illiterate; not only do they have no
records of activities, and commercial and financial transactions, but they lack
the basic knowledge to keep them or use them.
The people who own and work in these micro-enterprises also differ in
other ways from the "entrepreneurs7' who have established more formal
businesses, in that very few of them are likely to have started their enterprises
by choice. Most of them would prefer to have even a very modest job in a formal
enterprise, or perhaps to work on the land; they are "micro-entrepreneurs7' not
by choice, but because there was no alternative. They are often people from the
economic and possibly also the social margins of society, such as unemployed
youth, refugees, migrants, widows or the disabled, for whom jobs in the formal
business sector are not available, and this obviously has important implications
for the ways in which they view the future of their enterprises.
Many of the skills needed for survival in the informal sector are very
different from those required in larger enterprises, and they are certainly not the
type of skills in which most management consultants are themselves experts.
Successful micro-entrepreneurs are above all "street-wise": they have the right
contacts, they know when and where the hand of the law is likely to fall and how
it should be avoided, and they are masters -or mistresses -of improvisation.
Those of us who are used to operating in a more structured and sheltered
environment can probably learn a great deal from these people.
19.2 Management problems of informal sector

entrepreneurs
Sub-optimal use of scarce resources
In spite of the many differences which have been outlined above, the
owners of micro-enterprises do make many of the same mistakes as formal
business managers, and they need similar advice. Shortage of finance is often
their main constraint, and they may have to pay exorbitant rates of interest for
loans, since banks and other formal financial institutions are not usually willing
to lend money to people with no fixed business address, little or no formal
education, and no tangible assets beyond a temporary stall, a push-cart or a few
hand tools. It is therefore vital that they should deploy their funds in the optimal
way, but they often fail to do this, and invest disproportionately in credit, in
stocks or in other assets.
Similarly, raw materials are often an important constraint, yet many
carpenters, tailors and others fail to calculate the profitability of each product.
As a result, they use their scarce materials sub-optimally and produce a product
mix which is less profitable than it could be. It is particularly important for an
outsider to find out exactly why the business owners are behaving in this way,
since there may be socio-cultural reasons which mean that apparently mistaken
policies are in fact correct. Some petty traders, for instance, invest all their
earnings in what appear to be excessive stocks, rather than saving money for
new capital items which they admit they need; their reason, however, may be
that they are all too aware that the members of their extended family will lay
claim to any cash resources for personal expenses such as school fees, hospital
charges or even food and clothing, but it is easier to retain money which is tied
up in stocks.
Poor record-keeping
It is important not to assume that somebody who is not keeping records in
the normally accepted way is not keeping them at all. Even illiterate business
people usually have some system for recording sales on credit, and most people
who work with money have some idea of what figures mean even if they cannot
read or write words. Illiterate people are often able to remember far more
information than those of us who are fortunate enough to have been taught to
read and write, and some illiterate business owners have ingenious systems for
controlling stocks and cash. Formal education is certainly not a necessary
condition for business success at any scale; after all, there are quite a few illiterate
millionaires in Europe and the United States, and even more in countries where
illiteracy is more common.
The owners of informal enterprises can often benefit from keeping and
using better recording systems. However, they have not had many years of formal
education and usually find it very difficult to apply what they are taught in a
classroom training course to the particular situation of their own business: new
recording systems, and any other changes, must be designed to take account of
the particular circumstances of each business and also the ability of the owner.
This means that on-site individual consultancy, although it is more expensive
per client than classroom training, is also more suitable for the owners of
micro-enterprises.
19.3 The special skills of micro-enterprise

consultants
Consultants who are used to working from written records, however in-
adequate, find it difficult to work with illiterate clients, and the lack of any
documents that even resemble formal accounts may compound the social
difficulties which consultants may have in dealing with people who have no
offices and even no fixed premises. The consultant may have to meet the client
in his or her shanty home in a slum, in a noisy temporary workshop or even
squatting on the ground in a public market-place, where discussions are con-
stantly interrupted by customers, the client's children or a crowd of curious
onlookers whose presence severely inhibits the client's willingness to share
personal financial information.
Eliciting information
It is quite possible to elicit usable financial information, even from com-
pletely illiterate business owners. But it is not easy, and the consultant must be
able to avoid any form of accounting jargon and to put together a financial picture
of the enterprise from information which may be obtained in a quite different
sequence from that to which he or she is accustomed. It is usually necessary to
cross-check information such as daily or monthly sales figures by asking for the
same information in different ways. A village baker may have only a very
approximate idea of the total figure of his monthly sales, but he is more likely
to know how many bags of flour he uses each month, and how many loaves of
bread he makes from each bag, or how many loaves he sells each day, and at
what price.
A successful micro-enterprise consultant must be able to elicit, collate and
analyse information on the spot, and then assemble the information into a form
which shows where the money in the business came from and how it is being
used, as well as giving a rough idea of the income and the costs over a period,
which may be a day, a week, a month or a season, depending on the nature of
the business and on the way its owner runs it. This is of course an approximate
balance sheet and profit and loss account. Yet this form of analysis is as useful
for a micro-enterprise as it is for a larger business, and the consultant may find
that the owner's skill in managing his or her very small capital compares
favourably with the management of resources in larger and more generously
funded businesses.
The consultant must also use his other senses. A roadside carpenter may
state that he has no stock of partly finished goods, but a dusty pile of pieces of
chairs under a work-bench will show that this is not the case, or a trader who
says that she never gives credit may be observed to sell a bag of flour to a
customer without any cash changing hands. Micro-business people do not
usually deliberately deceive people who are trying to help them, but mistakes of
this sort occur because of failure to communicate. The consultant must also use
his sense of touch and even his sense of smell; a finger will show up the coating
of dust which reveals redundant inventory, and a smell can show up a fruit
vendor's poor stock rotation methods. Simple cleanliness and good order can
often make all the difference to the sales levels of a micro-enterprise, and the
most immediate advice might be to sweep the floor and tidy up the stocks; these
are humble suggestions, but are often relevant in far larger businesses as well.
Respect for existing business practices

Micro-enterprise consultants have to develop a special sense of respect and
understanding for their clients. When a consultant observes what appears to be
unintelligent business behaviour, he must ask himself what he would do in the
same circumstances, with the same pressures and constraints; he may conclude
that the business owner is actually coping well with very difficult circumstances.
Some market traders, for instance, turn their stock over once or even twice a day,
and vendors such as the people who sell newspapers and other items to car drivers
waiting at traffic lights display remarkable marketing skills in their choice of
potential customers and their decisions when to cut off a potential sale because
the traffic is about to move and there will be no time to collect the money. Sales
representatives who work in a more formal environment can learn a great deal
from this form of marketing "in the raw".
Providing information
The owners of micro-enterprises are often unaware of their rights and
obligations under the law, and this can be particularly important when the
regulatory environment is being rapidly liberalized. Local officials may not
know, or may not want to know, about old rules that have been relaxed or new
rights that have been extended, and consultants can provide a vital window on
the world.
Technology is also changing rapidly, and this can bring new opportunities,
such as new materials to be recycled, new intermediary or maintenance services
to be provided and new markets to be addressed.
Governments, at the local and national level, have traditionally been hostile
to informal sector business, but this too is changing, and new sources of finance,
new training opportunities, new more secure locations and new market
opportunities are being made available. People working in the informal sector
frequently lack the time, the facilities and the skills to obtain information about
favourable changes of this sort, and it is often more difficult to disseminate
information about changes in regulations than it is to make the changes them-

selves. Outside advisers can act as valuable intermediaries in communication of
this sort.
19.4 Outreach to micro-enterprises in the

informal sector
There are, therefore, many ways in which consultants with appropriate
attitudes and skills can be of very significant value to micro-businesses. It is by
no means easy to acquire these attitudes and skills, and the consultant may have
to "unlearn" a great deal of what he or she knows before being able to work
effectively with micro-enterprises. The major problem, however, is the tiny scale
of each individual enterprise and the vast numbers involved. How can a
consultant possibly reach out to more than a minute fraction of the people who
could benefit from his or her services, and how can the costs be brought to a
level which is commensurate with the likely benefits?
Approaches described in the previous chapter (section 18.6) are of interest,
but here are some more ideas.
Picking winners
One approach is to concentrate only on the rather small number of micro-
business people who are real "micro-entrepreneurs", with the apparent potential
to "graduate" soon from the informal level and to develop their businesses into
prosperous formal enterprises. It is far from easy to identify these potential
winners. Furthermore, the transition to formality may not always be in the
interests either of the owner or of the employees, since it involves costs such as
registration fees and taxation which may not be covered by the benefits arising
from improved access to formal resources. Nevertheless, many of the world's
large business corporations started in an informal way, and some of today's
micro-enterprises will be tomorrow's big businesses: management consultancy
may help a few more of them to achieve this.
There are numerous tests for measuring entrepreneurial potential, but their
effectiveness is limited with people of little education; therefore the best way to
select high-potential individuals is to force them to select themselves. Many
agencies offer advisory services free of charge to micro-enterprises, on the
assumption that they cannot afford to pay. They may indeed be unable to cover
the full cost, but the best way of ensuring that clients are serious, and that they
believe that they can benefit from consultancy, is to make a charge which is
significant for them. If they are not willing to make a sacrifice in order to obtain
a service, the error lies not with them but with the marketing or the quality of
the service; this applies as much to management consultancy as to any other
product.
Lower-cost consultants
Another approach to overcoming the problem of the cost of consultancy
in relation to the scale of the individual enterprises is to employ less qualified
and thus less expensive consultants. Although micro-enterprise consultancy is
not easy, it is possible to train people with no specialist qualifications, and no
more than three or four years of secondary education, to provide an effective
and useful micro-enterprise advisory service. They need regular close support
and supervision, and the organization and management of such a service is more
akin to an extension service than to normal management consultancy, but such
services can be cost-effective.
Micro-enterprise consulting can also provide a very useful form of training
for the consultants themselves. People who are learning how to provide
management advice to larger formal businesses can benefit enormously from
being exposed to the informal sector and trying to advise the owners of
micro-enterprises. They will probably benefit far more than their clients. Indeed,
as long as they are closely supervised in order to avoid making errors and giving
wrong advice, management and business administration students from colleges,
universities and business schools can be effective micro-enterprise consultants.
Anyone who is running management courses should seriously consider intro-
ducing such consultancy as a component of the course.
Working through groups

Yet another approach is working with groups, as already discussed in
Chapter 18. Not only can this reduce the costs but, more importantly, many
serious problems faced by people working in the informal sector can only be
solved if they get together. Consultants can help them to see the benefits of
sharing experience and undertaking joint action, and advise their elected leaders
on the effective management of their joint activities. For example, municipal
authorities are often reluctant to allocate space for micro-enterprises, and the
police and other government services may harass micro-business people un-
necessarily in order to extort bribes; an individual can do little to prevent this,
but if business owners come together and present a common front they can often
achieve a great deal. Consultants can help with appropriate contacts and advise
on strategies and techniques.
In other cases, micro-enterprises can benefit enormously from coming
together not only to assert their rights but also to perform functions such as
selling their products, purchasing raw materials or arranging for specialized
processing, which require special skills or are not economical for a single unit
to perform on its own. Micro-entrepreneurs find it difficult to initiate and
organize such common activities, whether or not they are officially registered
as cooperatives, because such activities are so much larger and more complex
than micro-enterprises themselves. Management consultants can provide
valuable technical assistance in this area. They can also help to dissipate pre-
judices concerning cooperative organizations, which in many countries have
gained a bad reputation due to their misuse for political purposes and incom-
petent management.
Consulting for group activities of this sort is difficult. It is often tempting

for the consultant to cease to be an adviser and to become effectively the manager
of an enterprise or a grouping. The owners of the group themselves may allow
or even encourage an outside adviser to do this, because their main interest is in
the operation of their own micro-enterprises. The result may be that the
consultant finds himself in the position of a full-time manager rather than an
adviser, and the group becomes wholly dependent on the continued presence of
their adviser. While this is a danger in any consulting relationship, it is
particularly great in the case of group enterprises, where none of the members
really "owns" the undertaking in a personal way. Such enterprises are like the
proverbial village donkey: everybody feels that it is somebody else's responsi-
bility to take care of it, and as a result nobody does.
Groups of small entrepreneurs can be informal and ad hoc, and may exist
as long as the group members perceive the need to get together to discuss and
resolve a common issue, or to obtain a service that no one could afford
individually. More formal groupings include associations of various types and
degrees of formality, as well as cooperatives.
Management consultants working with groups of entrepreneurs or co-
operatives must be sensitive to the variety of interests involved, in addition to
avoiding the creation of dependence. It is also tempting for an outsider to advise,
persuade or even compel the owners of micro-enterprises to form groups because
it appears to be in their interests. Many group enterprises have a short existence
because they have come together not on the members' own initiative but because
somebody else (whose livelihood did not depend on the group's success) thought
that this would be the right approach.
An effective management consultancy for a cooperative or other group of
micro-enterprises will indirectly help the individual members by improving their
access to credit, their marketing, their raw material supply or whatever other
function the group organization performs on their behalf. This does not in itself
improve the management of the individual micro-enterprises. It is possible,
however, to reach the individual members through their group: training
workshops can be organized for such members as wish to attend, and the group's
managers can require members to maintain a certain standard of quality control
or other improvements as a condition of doing business with them.
This must obviously be done very carefully, since the group's managers
are ultimately responsible to the members who employ them, but group pressure
can be a very effective way of motivating micro-entrepreneurs to do what is in
their own interest. The more successful members of a group are often very
willing to act as informal management consultants to their fellow-members, in
order to improve the standards and thus the earnings of the group as a whole.
An effective management consultant must be able to mobilize this multiplier
effect, by simplifying techniques for making diagnoses and recommendations
and teaching them to the opinion leaders; the messages may seem elementary
to an experienced consultant, but the communication task must be very subtly
managed.
Alternative channels
Full-time management consultancy for individual micro-enterprises is not
usually an economic proposition (see box 19.2, overleaf), but there are other
routes through which they can be reached. Many organizations are in regular
contact with micro-enterprises: manufacturers and distributors of fast-moving
consumer goods such as cigarettes, sweets, contraceptives and razor blades often
depend on informal vendors for a large proportion of their sales, while other
manufacturers sell large quantities of supplies such as welding gas, vehicle spare
parts or food ingredients to micro-enterprises. Such firms will sell more of their
products if their informal outlets are better managed. Sales representatives who
are in contact with micro-enterprises can help both their own employers and
their customers if they are able to provide simple business and management
advice in addition to selling their products.
Some banks too have started to realize that micro-enterprises can be
valuable customers for financial services, both as depositors and borrowers.
These banks may employ field agents to collect savings and loan repayments,
who can also improve their customers7ability to save more and repay more
reliably, by providing basic management and business advice along with
financial services. Municipal inspectors have traditionally harassed micro-
enterprises, but local authorities tend to appreciate more and more that informal-
sector business activities provide both employment and important local services
to the public. It is easier for inspectors to enforce health, safety or location
regulations if they are able to offer management advice while carrying out their
primary responsibilities.
Voluntary organizations working with the poor used primarily to provide
welfare services such as elementary education and basic health care, but many
of them are now starting to help people to increase their incomes through
self-help and entrepreneurship. Community development staff and social
workers are turning into bankers and consultants to micro-enterprises; they too
offer an indirect route through which a specialist consultant can reach the owners
of micro-enterprises.
"Indirect" management and business consulting through organizations
such as the above is clearly very different from direct selling of business advice.
A management consultant may be asked to advise and assist such organizations
in their work with micro-enterprises, and to train their field workers in consulting
and counselling skills. In other cases, it may be appropriate to suggest
involvement of this kind to a larger client company as a way of increasing the
effectiveness of field representatives, or possibly as part of the client's efforts to
contribute to social development and enhance its image in the community. In
these cases, the management consultant will have to assess the weaknesses and
needs of the micro-enterprises with which his or her client is involved, and then
suggest and demonstrate simple techniques for providing on-site management
advice which can easily be taught to non-specialists.
In conclusion, it should be clear from the above that management con-
sulting for micro-enterprises is very different from consulting for larger and even
Box 19.2 Private consulting sewices for micro-enterprises
A Philippine consulting group, established a number of years ago by ten

professionals with various sorts of expertise, has chosen to work for the
micro-enterprisesector in addition to serving formally established and registered
businesses, government agencies and social organizations. Each member of the
group works individually as a consultant on his or her own projects, but they also
work together whenever required by the size and complexity of the assignment.
Thus, direct consulting to micro-enterprisesrepresents only a part of the group's
activities.
The group carries out consulting for enterprises employing three to nine
workers, which in the Philippines are micro-enterprisesaccording to the official
government definition. These enterprises are involved in a wide range of activities,
including leather products (shoe production and repair, bags), wooden furniture,
food processing (e.g. fruit preservation), processing of by-products from animal
hides and skins, metal-working, etc. The micro-entrepreneurs serviced by the
group often include members of the local community and personal friends.
The micro-entrepreneurs are visited by members of the group and also come
to the consultants' offices when they need help. The types of services provided
include: management and technical training; assistance in bookkeeping;
preparation of loan applications for banks; feasibility studies; assistance in
establishing market linkages and in organizing participation in marketing events
(e.g. exhibits, fairs); advice on types of products and quality control; advice on
policies and regulations; and referral to other sources of information and
assistance. These services are provided to micro-entrepreneurs either directly, or
indirectly through subcontracts to government agencies and non-governmental
organizations (NGOs).
Services are provided on a short-term basis or over longer periods of time, but
written contracts between the consultants and the entrepreneurs are seldom used.
Rather, services are based on verbal agreements between people who trust each
other.
The micro-entrepreneurs pay fees for these services either in cash or in kind
(e.g. goods produced by the micro-enterprise).Advance payments are sometimes
made, but more generally the members of the consulting group are paid after the
services have been rendered. In many cases, payments are made on the basis of
results achieved rather than on the actual cost of services.
The fees applied are a function of the services rendered, actual costs incurred
(e.g. travel costs, time devoted to the assignment), and the size of the enterprise.
Fees range from as little as a few hundred pesos (less than US$10) to a few
thousand pesos (US$100 or more). This level of fees represents a fraction of the
revenues of the group, which must seek larger consultancy contracts from
government agencies, NGOs and multi-bilateral donors.
Author: Moise Allal.
smaller businesses in the formal sector, both in the nature of the work itself and
in the channels through which it may be necessary to reach the clients. A
consultant must never fall into the trap of believing that such work is so simple
that it is easy to do or beneath his or her attention, or not worth doing at all. Even
though the management techniques that are needed may be very simple, the tasks
of diagnosis and communication are difficult. The task is even more complex
when the consultant has to attempt to reach micro-entrepreneurs indirectly,
through field agents such as sales representatives or social workers who may
have little or no management knowledge and perhaps misgivings about business
in general.
The task is, however, well worth attempting. The number of people work-
ing in micro-enterprises is vast and their problems are often so serious as to affect
the very survival of themselves and their families. For people as poor as most
micro-enterprise operators, even a modest increase in income can significantly
improve their whole livelihood: there are few areas where management and
business consulting can have such a significant impact on the welfare of so many
people.
CONSULTING FOR THE
PUBLIC SECTOR
In this chapter, we use the term "public sector" in its broadest sense to
include all levels of government: federal, provincial or state, regional and local;
state-owned enterprises; public utilities; and institutions, such as hospitals and
universities, supported by public funds.
The market for management consulting services in the public sector is large
and challenging. In the United Kingdom, public sector consulting amounts to
some 30 per cent of the domestic consulting market. The respective figures are
30-40 per cent for Canada, 40 per cent for the Netherlands and 70 per cent for
Turkey. These figures may surprise many readers. Yet, on account of the current
changes and new challenges, in many countries the demand for public sector
consulting is likely to remain stable or even increase in the future.
Earlier, when management consulting was first introduced to public sector
management, assignments tended to be general in nature. In recent years a
number of factors have changed this pattern of demand. Government pro-
grammes are becoming more complex. There is a need to improve the
productivity of government services in the face of shrinking budgets and the
steadily increasing demand for public services. At the same time, advancements
in information technology are facilitating the re-design and re-engineering of
government programmes and administration. As a result, the nature of manage-
ment consulting services required by this market is changing and becoming more
specialized and more complex.
By and large, public sector purchases of management consulting services
can be broadly classified into the following categories:
- strategy and policy advice;
- assistance in designing, developing and managing programmes/opera-
tions, and/or increasing their efficiency;
- assistance in designing and developing organizational structures and
systems;
- training, development and individual counselling;
- opinion surveys.
The "strategy and policy advice7' type of management consulting work is

generally related to the identification of societal or administrative problems
facing the public sector. These services are generally bought by the top echelon
of public sector managers and politicians, looking to clarify options and to
determine an optimum direction in a highly complex environment. This market
is small, and is generally limited to consultants with publicly recognized
experience in this area.
Far more frequent are requests for management consulting assistance in
designing, developing and managing programmes and operations. These
requests may be made by public managers, in reaction to an evaluation or audit,
or may be triggered by consultant marketing.
The machinery of public sector organizations requires adjustment from
time to time. These adjustments usually focus on organizational structures,
processes, and supporting systems such as finance, procurement and human
resource management. Concerns to increase productivity and use new
information technology to the full have greatly intensified the pressures for
public sector managers to restructure in this way.
Public sector managers often seek assistance in facilitating change
processes in their organizations. Whether the change is to the structure of
organization, and how it does things, or to supporting systems, the professional
management of the change process itself is critical to the success of the
organization. Consulting support in establishing continuous learning, total
quality and performance management processes can provide the framework for
the change process. With the reduction of in-house services, public sector
organizations are increasingly retaining consultants to provide training and
counselling services to their staff. Training will frequently be in the management
and communication skills for new organizational processes, as well as in
standard management and technical areas.
Increasingly, opinion surveys are used to gauge reactions from stake-
holders to proposed government initiatives.
Some management consultants are aware of the special characteristics and
requirements of work for public administration, services and enterprises.
However, many new entrants are either overawed by the significant differences
between public and private sector consultancy, or underestimate these dif-
ferences to their detriment.
In this chapter, we explore the changing nature of the public sector market,
the particular characteristics of the public environment, the more common types
of service provided by consultants and the process of serving this market. We
also briefly reflect on future perspectives.
20.1 Current trends and challenges

The role of government in modern society is pervasive. Not only do
governments provide a vast array of services and regulate the services we
consume, but they also provide the legislative framework for governance.
Consulting for the public sector
Government can achieve its objectives in many ways: produce and deliver a
service itself; make direct payments to individuals and businesses; set up a
government-owned commercial enterprise; provide direct grants or low-interest
financing loan guarantees; offer tax incentives to individuals and businesses; and
regulate the activities of individuals and organizations, both commercial and
non-commercial.
In most countries government provides some or all the following services:
health care; social services (social security and social welfare programmes);
education; national security (police, defence); environmental protection;
communication and postal services; agricultural support; tax collection; inter-
national development; capital expenditures for infrastructure; promotion of
tourism; statistical services; libraries and archives; foreign affairs; immigration,
employment and training services; housing and banking services, and many
more. In addition, government must provide many internal services such as
accounting, payroll, purchasing, personnel administration, training, auditing,
inspection, and so on.
The total outlays of government attain 30-50 per cent of gross domestic
product (GDP) in most Western industrialized countries, while in some devel-
oping countries the public sector can represent an even higher proportion of
GDP. Governments also provide a relatively high percentage of total national
employment.
The provision of consulting services to the public sector must inevitably
respond to the sector's challenges and problems. In turn, these challenges and
problems derive from the national, social and economic context and, in large
measure, the policies of the government of the day. It is important to realize that
governments turn to consultants because the challenges they face are new and
complex, and the right responses are very difficult to find in the absence of
precedents, accumulated experience, and resources for adequate analytical and
conceptual work . In addition, governments are constantly exposed to criti-
cism, which may or may not be justified. Comparisons with the private sector
are frequently made, hence the growing interest in evaluating and using
private sector experience to enhance effectiveness and efficiency in the public
sector.
An exhaustive list of challenges facing the public sector in most countries
would be very long indeed. An illustrative list given in box 20.1 (overleaf) shows
the great variety of economic, social and administrative issues in which
governments may need the help of management and other consultants. Below
we discuss four selected issues that have had quite a considerable impact on the
use of consulting services: rising government deficits, information and com-
munication technologies, the issue of unemployment and growing demo-
cratization of social life.
Rising budget deficits

In most Western economies in recent years, government revenues have
been lower than government expenditures, resulting in budget deficits. This has
Box 20.1 Challenges facing public sector decision-makers

Any of the 41 issuesand trends listed in this box (andtheir various combinations)
may be the reason for turning to a consultant. And the reader can certainly think
of others.
Rising budget deficits; domestic and foreign debt
Exploding costs of health services
Inadequate social services
Problems of housing and the homeless
Growing poverty
Growing unemployment (especially long-term unemployment)
Deteriorating quality of education
Ageing physical infrastructure
Congestedtransport networks
Deteriorating physical environment, pollution
Depletion of natural resources (deforestation, etc.)
Toxic and nuclear waste
Population explosion
Insufficient consumer protection
Criminality (including organized crime)
Growing use of narcotics
Brain drain
Inefficienciesin public services
Red tape
Low pay and lack of motivation
Corruption
Need to reform and/or modernize the civil service
Problems of minorities and migrant workers
Political and economic refugees
Revival of nationalism
Need to decentralize
Need to balance regional development
Development of international legislation
Transfer of decision authority to supranational groupings
Market and price liberalization
Need to attract and protect investors
Privatization
Structural adjustment
Need to improve public enterprise performance
Growing power of multinationalfirms
Demilitarization and conversion of military industries
Rapidly changing information and communication technologies
Need to show results and satisfy voters
Criticism by general public
Criticism by political opposition
Need to match public administrationwith advancing democracy
increased government debt, internal and external, and interest charges for
servicing this debt. This increasing cumulative debt situation has caused concern
among economists, politicians and business leaders.
The efforts to reduce budget deficits can focus on either the expenditure or
the income side. Increasingly, governments in all parts of the world are looking
for services and activities that can be cut without undermining national security
and provoking heavy criticism by political opposition and the general public.
Often governments cut services that are politically vulnerable, which "is similar
to someone cutting off a few fingers and toes instead of going on a diet to lose
weightn.' Instead of merely cutting budgets, governments have to look for ways
of increasing public service productivity and efficiency, which may include
major service restructuring and re-engineering. Increasing government income
by raising taxes and tariffs is difficult owing to undesirable economic and social
effects. Therefore governments have to look for new profitable service areas and
new sources of income.
Information and communication technologies

Information technologies strongly influence both production and service
processes and the organization of work. Distance is becoming irrelevant as far
as information flows are concerned: thus different partners and team members
can work synchronously at different places. Time can be controlled and shifted
to a more convenient point: thus people working at different times can use
store-and-forward and common databases as memories and as a way to shift
time. Finally, all those in an organization or a network can contribute to
organizational memory and to providing information in a form which is available
to everyone.
The combined impact of these advances on government services and
processes is profound: it concerns specific processes, information bases and
flows, linkages among services and organizations, and organizational structures.
The opportunities for practical application of new, faster, more reliable and ever
cheaper information technologies in public services and administration are at
least as significant as in business organizations (see Chapter 17).
The unemployment problem

Whatever its causes, unemployment has become a most serious national
problem in many countries. No government by itself can be held responsible for
the current level of unemployment and all measures needed to alleviate
unemployment. However, governments are the main force that can lead and
coordinate national efforts, both private and public, in combating unemploy-
ment. This calls for a vast array of measures and programmes to assist and retrain
the unemployed, to generate and promote employment, and to increase public
sector productivity in ways that do not aggravate the unemployment problem.
Governments are faced with a dilemma - either managing the increasing

unemployment that is the corollary of competitive productivity, or governing an
uncompetitive economy.
Increasing democratization
Even in traditionally democratic countries there is scope for further demo-
cratization, for example by decentralizing decision-making powers and
responsibilities, and bringing the management of public affairs closer to the
people concerned. In formerly centrally planned and totalitarian countries, the
current trend towards democracy and a market economy results in considerably
more than large-scale restructuring of government services and machinery: the
very nature of government is changing, with all the implications concerning
policies, roles, attitudes, behaviour, competencies and motivations.
20.2 Programme responses

In this public sector context a number of innovative management responses
are emerging. Three of them will be briefly reviewed below: privatization, the
re-engineering of processes, and organizational restructuring.
Privatization
Worldwide, privatization emerged in the 1980s as a radical programme
response aimed at reversing trends that had literally run out of control, such as
the branching out of governments into many new areas previously in the private
domain, and the continuation and proliferation of state-owned enterprises
irrespective of failing efforts to make them more performance-oriented in the
highly politicized public context. The underlying rationale of privatization
efforts has been (1) that the private sector should do what it can do better, and
more effectively, in the interest of the whole nation, and (2) that governments
do not become stronger and more useful by running an endless number of
different services and activities, but by focusing on policies, regulations, controls
and services that only a government can develop and maintain on behalf of the
community.
The transfer of public enterprise assets from governments to private owners
has been the main form of privatization. Indeed, many people view it as
synonymous with privatization. Yet there are other ways and areas of
privatization. It has to be stressed, too, that privatization of ownership in the
legal sense is not enough: it is much more important to create an environment
which is competitive and where the market forces can play their role (see
Chapter 21 for privatization approaches and techniques).
Process re-engineering
In service tasks it is important to ask the question: Why are we performing
a task and what results can be expected of it? A lot of unproductive work is done
when we concentrate on tasks without looking at the entire process of which the
task is a component. A good example is the task of accounts payable, which is
part of the process of procurement of goods. By concentrating on the task of
accounts payable, we have made the task cumbersome and created several
labour-intensive operations (like matching procurement orders to the receipt of
goods in inventory), which must be coordinated to achieve results. Recent
advances in information technology enable organizations to develop new ways
of doing things which are far more efficient and less labour-intensive, and which
reduce the time needed to achieve results. Using information technology to
re-engineer administration and other processes has become an important strategy
to improve the productivity of public sector organization^.^
Organizational restructuring
In the recent past, governments in Canada, Sweden and the United King-
dom, and other countries, have restructured their public sector organizations
with the following objectives, among others:
to clarify the accountability of ministers and departments by giving them
more authority in functional areas;
to separate policy-making from programme delivery activities;
to promote innovations and risk-taking by relaxing some public service
constraints on managers;
to make organizations more efficient by improving human resource
management;
to undertake projects to pilot new work options such as teleworking.
These initiatives have resulted in some major restructuring of public sector
organizations, an example of which is the creation of special operating agencies
for the delivery of certain government programmes.
These agencies are given a stable policy environment, and full responsi-
bility for the delivery of an operational programme. Special operating agencies
are given a clearly defined mission, mandate and budget, and are required to
operate in an efficient manner using many private sector practices. They are
separate from the policy development functions of the parent department but
operate within a clearly defined objective through a "memorandum of
understanding". They are given wide exemptions from the constraints of the
public service in matters of budgets, retaining operational surpluses from year
to year, and in personnel and other policies.
Other structural changes involve decreasing the number of management
levels by eliminating middle management positions, and making adjustments to
budgetary processes by eliminating distinctions between salary and operating
budgets. There are also numerous initiatives to improve people management by

introducing modern management thinking related to quality and customer
service, empowerment, training and learning, working in task force environ-
ments, and so on.
Reinventing government
David Osborne and Ted Gaebler have expressed concisely what many other
scholars and practitioners have believed -government needs to be r e i n ~ e n t e d . ~
There can be no prosperous and democratic society without a strong and effective
government. The issue is not private sector and private management against the
public sector and government, but synergy between both sectors, each one
playing those roles it can play better in the interest of the whole community and
providing those services it can provide more effectively. Criticizing governments
has become fashionable but sterile. What is needed are constructive and
workable proposals - the government ought to be reinvented. Osborne and
Gaebler suggest ten broad principles, or directions, that underscore how public
organizations can structure themselves and move from centralization to
decentralization, from monopolies to competition, from bureaucratic mech-
anisms to market mechanisms, and from funding- inputs - to funding- outcomes or
results (box 20.2).
Box 20.2 Reinventing government
The ten principles:

Catalytic government: Steering rather than rowing
Community-owned government: Empowering rather than serving
Competitive government: Injecting competition into service delivery
Mission-driven government: Transforming rule-driven organizations
Results-orientedgovernment: Funding outcomes, not inputs
Customer-driven government: Meeting the needs of the customer, not the
bureaucracy
Enterprising government: Earning rather than spending
Anticipatory government: Prevention rather than cure
Decentralized government: From hierarchy to participation and teamwork
Market-oriented government: Leveraging change through the market
Source: D. Osborne and T. Gaebler: Reinventing government: How the entrepreneurial spirit is trans-
forming the public sector (New York, Plume, 1993).
20.3 The public sector environment

Most of the consulting work in the public sector is in special fields and
requires specialized knowledge and know-how. At the same time, the work and
the consulting needs of all governmental and public agencies share certain
common characteristics, reflecting their public nature. Some of the charac-
teristics will be reviewed in this section.
Public sector decision-making

Public sector decision-making is the process which produces a response
by a government or government agency to a societal or an administrative issue.
Societal issues are those social or economic problems or opportunities
which require collective action by society, generally through a government
programme or agency. Government programmes - be they services produced
or arranged by the government, regulatory programmes or economic grants to
individuals or businesses - all require careful planning and organization.
Administrative issues are problems or opportunities related to the machin-
ery of government. A government is a large administrative system, organized to
provide different types of service or to deliver regulatory programmes. As with
any large administrative system, it must develop organizational structure,
policies and procedures. It must also operate a multitude of administrative
services. These administrative services may or may not affect the public at large,
but their quality and productivity strongly influence the efficiency and image of
the whole public sector.
Figure 20.1 (overleaf) illustrates the (simplified) process by which govern-
ment responds to societal and administrative issues and adopts a particular
programme. The process is initiated when issues arise in society or in the
machinery of government. Public sector decision-making usually comprises
four major steps, in each of which there can be a demand for management
consulting assistance.
To understand the nature of the issue, data gathering is required (step 1).
The nature of many public issues means that the issue is frequently complex and
data collection is extensive. Data collection may be from secondary sources or
may require the gathering of primary data by survey or other means. It is
particularly important to understand the scope of the issue being examined and
the decision elements that the data collected will have to illuminate. These
factors condition the extent, depth and nature of the data gathering, providing
parameters that are essential to the effectiveness of this activity.
Collected data are then analysed (step 2) to develop different strategies for
a programme. Once again this analysis may be relatively simple or of great
complexity depending on the nature of the issue.
Consultation with stakeholders (step 3) is not unique to public decision-
making, but it is of unusual importance in the government sector. Invariably
societal issues and some administrative issues affect a great many people in
different ways. Clearly identifying and consulting stakeholders, both internal to
government and in society, can be essential to the weighing of alternatives and
the eventual success of a programme. Because of the politicized nature of the
decision-making process, this input may be a prerequisite to the selection of an
alternative.
Figure 20.1 The public sector decision-making process
Once the three preceding steps have been completed, an alternative is

selected (step 4) from which to develop a programme. This selection process is
heavily influenced by the opinions of all stakeholders, not least of which may
be the government of the day, the public at large, special interest groups, and the
body of public servants. While good data collection, analysis and consultation
can greatly facilitate decision-making, decisions themselves are strongly value
based and, unlike most private sector decisions, must respond to many
conflicting interests and criteria.
Once a decision has been made, it must be translated into a carefully
designed programme, implemented and subsequently evaluated. This evaluation
may lead to adjustments to the programme through redesign. A specific initiative
may not involve all the steps of the process as described, but generally a
significant initiative must go through the entire process. As shown in figure 20.1,
the process becomes more political as we advance through the stages of
decision-making.
The role of politics

Key decision-making processes in the public sector are political processes
even if the issues concerned are highly technical. Minor administrative
decisions, seemingly without any political implication and significance, may
also involve political criteria and can become politicized under certain
circumstances. Top and senior administrators may well emphasize their
independence and non-political approach to decisions; but politics are
omnipresent and the power of political parties and their coalitions shapes public
sector decision-making through senior personnel appointments, reorganiza-
tions, budget increases and cuts, changes in legislation, decisions taken by the
council of ministers, and more or less direct personal interventions by
politicians.
Two opposite tendencies can be observed in the decision-making practices
of various governments.
On the one hand, in searching for efficiency and improved performance,
many governments are stressing the relative independence of their agencies
responsible for particular economic services and activities. Such an approach
has been increasingly applied in public utilities and enterprises.
On the other hand, there has been a tendency to politicize the civil service
and increase the number of public sector appointments made on political criteria
first of all (or in addition to technical criteria). Thus, an agency's independence
and responsibility for cost recovery may be enhanced, but top management has
been selected, and will be judged, by criteria established by the leading political
party or coalition.
Social objectives
A key requirement of political decision-making is the balancing of econ-
omic and social objectives in developing and implementing public programmes,
and using consultants in their support. Social objectives may include the
development of specific regions, the promotion of small business firms, job
creation and services for minority groups, equitable distribution of contracts and
purchases, and so on.
Box 20.3 The consultant-client relationship in support

of decision-making
Issue Private sector Public sector

-. - - -- -
1. Identificationof Clear or nearly clear Difficult

client
2. Nature of client Single person or small Many persons or
group groups
3. Client objectives Relatively clear Multidimensional and
boundaries and targets complex; irregular
boundaries
4. Methodology Important, but often Very important,
less so than results especially
consultation and
facilitation
5. Constraints Relatively few, known Many, difficult to define
6. Accountability for Personal, small group Collective, large group
decision
Based on objective Political, value based
commercial criteria
8. Documentation1 Not always important Very important; a
report public document
9. Results Generally measurable Often not measurable
10. Evaluation Informal Formal and complex
11. Implementation Almost immediate Uncertain; depends
on political will,
resource allocation,
etc.
Consulting support
These factors give a different dimension to the consultant-client relation-
ship, some elements of which are summarized in box 20.3.
The complex public sector issues and client-consultant relationships give
rise to fairly complex consulting projects. By way of example, a consultant
intervention in the area of rail safety regulations is described in box 20.4.
Box 20.4 Minicase: Rail safety regulations in Canada

In Canada, there are several railway companies in both the private and public
sectors. These companies are under the regulatory jurisdiction of a government
body. The Canadian Government undertook an examination of its transport safety
programmes. The primary issue was: Are the existing regulations and programmes
adequate to ensure public safety? There was public concern about the level of
safety on the Canadian railway system arising out of a series of derailments.
The consultants had to address many social, economic and administrative
issues. These included:
1. What is an acceptable level of safety? How do you define it and measure it?
2. What are the economic implications of government regulatory programmes?
What are the costs and benefits? Who should pay for these programmes?
3. What should be contained in a National Rail Safety Programme?
4. Are government programmes properly designed, well organized and
adequately staffed?
5. What should be the proper allocation of funds among different regulatory
programmes such as inspection and accident investigation?
6. What is the public perception of the regulatory safety programmes?
The consultant's work involved: a statisticalanalysis of accident data to measure
trends; studying each of the many safety programmes, with evaluation and re-
design where necessary; consulting with the railways on their preventive main-
tenance and other safety programmes; consulting with interest groups (e.g. unions
and special-interest groups) to understand their concerns; conceptualizing meth-
odological approaches to the regulation of the safety practices of commercial
corporations: defining the role of government in managing safety on Canada's
railways; developing a National Rail Safety Programme; designing safety pro-
grammes for the regulatory authority; developing an organizational structure,
staffing levels, classification of employees, budgets for different programmes, etc.
Thirteen different reports were issued by the consultants.All were made public.
The National Rail Safety Programme was reviewed by the railways, interest groups,
the appropriate subcommittee of Parliament and others, and approved by the
Minister of Transport. It was very difficult to define the boundaries of the project,
and issues such as "What is an acceptable level of safety?" were intractable and
difficult to study methodologically. Within the regulatory authority, accountability
was diffused.
In summary, this project demonstrates the typical characteristics of a public
sector consulting project.
Public procurement processes

The selection and procurement of consultants, as indeed of other goods
and services, falls under the area of public procurement, and has to comply with
criteria and rules applied to public procurement at large. A general description
of consultant selection is given in Chapter 7 and Appendix 1. What, then, is
typical of the public sector?
Invariably, the use of formal, precisely defined procedures prevails. There
is likely to be an official document, issued by a government agency, which
describes the procedure and criteria of consultant selection and provides addi-
tional information and guidelines, contract forms and the like.
The reasons for the use of formal procedures in the public sector can be
summarized as follows:
0 to give all eligible candidates the same chance;
0 to increase the probability of identification and choice of the most suitable
consultant;
0 to make selection "transparent" and less prone to criticism, and to reduce
the risks of favouritism, nepotism and corruption;
0 to harmonize the approaches used and transfer good experience among
various government departments and public agencies;
0 to improve the overall quality of consultant selection and appointment in
a complev public sector environment.4
Data banks. Many public sector organizations maintain a data bank in
which consultants can register. These data banks are huge and may have
thousands of consultants and consulting firms on file, registered by skill areas.
In some cases, registration with the relevant data bank is a prerequisite to
receiving requests for proposal or being eligible to supply services.
Competitive bids. Depending on the size of a proposed consulting assign-
ment, competitive bids are requested from consulting firms or individual con-
sultants. Bid documents must generally conform to detailed specifications:
failure to respect these specifications leads to the disqualification of the bidder.
The evaluation procedures of these bids are also generally adjusted to the size
of the proposed assignment: the criteria, and often the results, are generally avail-
able to the bidder.
Budgetary constraints. There may be a strict budgetary constraint limit-
ing the size of the assignment, or predetermining its time schedule.
Managerial discretion. Despite the predominance of formal procedures,
public sector procurement of consulting is not totally inflexible. As a rule, small
assignments may be arranged by direct selection. In certain cases, the
appointment of consultants who have done a satisfactory job may be authorized
for further services related to the previous job. Otherwise, preselection and
short-listing are applied, which ensures that all eligible candidates possess the
necessary qualifications.
Internal consulting groups

In marketing services to the public sector, management consultants must
also be aware of the frequent presence of internal consulting groups within public
sector organizations (see also section 2.5). While the number of these groups
has been decreasing, they exist in many countries. Some of them provide
consulting services to government clients without fee, while others charge fees
(as a rule subsidized) for their services. The range of service provided varies
significantly: some groups provide only limited services such as personnel and
audit, while others provide a very wide range of services.
The procedures for public sector managers purchasing the services of
internal consulting groups are different and generally simpler than those that
apply to private sector purchases. Most internal consulting groups complement
their own resources by hiring consultants on subcontract from the private sector,
and can therefore be valuable clients for private sector consultants. Some internal
consulting groups also manage other consultants on behalf of an agency and
provide information to government on competitive consulting rates. On the rare
occasion that an internal consulting group is on a full revenue dependency regime
(i.e. self-financing), it can provide a yardstick for reasonable per diem rates for
consultant hiring by government.
20.4 Success factors for consulting to the

public sector
The worst error a consultant can make in entering the public sector is to
believe that solid private sector experience provides all the answers. Indeed,
drawing from private sector management know-how is one of the principal
current ways of improving public management. However, experienced observers
of the public sector environment are well aware of the differences in complexity,
driving and impeding forces, time horizons, resource constraints, hierarchical
relations, individual motivations and other factors that make public sector
processes and organizations significantly different from private ones.
Developing a niche
Very few consulting firms are capable of providing the full range of services
the public sector consumes. Consultants therefore need to choose their niche and
position themselves as experts in their area. There are several ways to define a
niche:
- by territorial criteria;
- by level of government (federal, provincial or state, local, government
agencies);
- by sector (health, education);
- by functional specialization (IT, statistics, finance);
- by methodological specialization (issue identification, facilitation of
meetings, change management, surveys); or
- by various combinations of these criteria.
To compete within the chosen niche, consultants should develop a com-
petitive strategy based on a product-based differentiation from other firms. A
clearly communicable focus for the firm is essential to public sector consulting
success.
Understanding the public sector environment

One of the most critical and time-consuming factors in building a suc-
cessful public sector consulting practice is to gain a thorough grasp of the target
public sector environment. This requires a deep understanding of internal and
external issues facing public sector organizations, in other words all those factors
discussed in this chapter. It is the interplay of these issues, coupled with
government policies, that defines the risk and reward framework for public
sector managers and dictates the consulting needs of the day.
Most, if not all, public sector problems are embedded in larger social,
economic, political or administrative issues. It is very important to understand
thoroughly the nature of the problem and its full complexity. The problem
presented is often deceptively simple, and it is sometimes necessary to build
problem definition (with the various stakeholders) into the consulting process.
Inadequate problem definition and an insensitive approach to environmental
issues can lead to an unmanageable assignment, especially in its later stages.
Empathy for the client

It is important to develop a relationship of trust and an understanding of
the client as a person. Many public managers are competent and dedicated people
trapped in systems that do not encourage high performance, make changes
difficult, and require special skills and approaches to get anything improved.
The consultant must not only understand why certain things are possible and
others not, but must sympathize with the client and develop a true partnership
in working on solutions that the client can accept as his own and defend with
his superiors. A negative and unduly critical attitude to public sector managers
is counterproductive and inhibits effective problem solutions.
Marketing efficiently
Most marketing to the public sector (development of leads and identifi-
cation of consulting projects) is through networking and personal contacts. A
good network can only be developed over the course of time and requires
constant effort to maintain. It will ensure direct selection (in a limited number
of cases) or the consultant's preselection and short-listing (more frequently).
Most large assignments in the public sector are awarded on the basis of
competitive bids; the success ratio of firms bidding competitively varies but is
not very high, while preparing these proposals is both expensive and time-
consuming. Consultants are therefore well advised to develop an efficient
process to bid competitively and maximize their chances for repeat business,
which is altogether less expensive to obtain than is new business. It is useful to
develop a proportion of business in sole-source, directly awarded contracts: these
mandates are generally small, but they are relatively inexpensive to obtain and
permit consultants to build up and maintain good client contacts.
Emphasizing consultation: Seeking pragmatic solutions

Many experienced consultants will remark that in the public sector,
"people" and "process" problems prevail over "technical7' problems. It is
important to adopt a process approach which includes full consultation and
communication with all stakeholders. Consultants can be excessively idealistic
or tempted to recommend theoretically the best solutions. While there is
academic satisfaction in finding a "best7' solution, what matters most is finding
solutions that are practical, acceptable and stand a good chance of being
implemented. A recommendation that leads to real change is worth any number
of elegant reports that will languish on the shelf and gather dust.
Full consultation will ensure that conclusions and recommendations do not
surprise stakeholders, although it is in the nature of societal problems that all
stakeholders can seldom be equally satisfied with a recommendation.
Applying the right mix of resources

A public sector problem is generally multidimensional. The consulting
team, therefore, shquld include the right mix of resources. Frequently, three
types of resources are necessary:
"technical" (to provide methodological support);
"process" (to guide consultation and communication); and
"experience" (those who know the sector well, can think like the managers
in it and can substitute for the abysmal corporate memories of most public
sector organizations).
Consulting team leadership can be chosen based on the primary needs of the
project.
Managing assignments
As with all consulting, public sector assignments must be managed for
quality, scheduling and budget. Perhaps the greatest risk with public sector work
lies in under-budgeting, inadequately forecasting the amount of time necessary
for working with stakeholders and for the decision process in general. There are
no short cuts to the process of consultation with stakeholders, and neglecting
this process can have painful consequences. Another characteristic of most
public sector assignments is the need to produce well-edited reports: these
documents are, or can usually be, made public and are therefore worthy of care
and time in their production.
Pricing the services

The pricing of services is important in marketing consulting to public sector
organizations. Requests for proposals generally ask for very detailed infor-
mation on pricing, including the per diem rates of individual consultants on
projects and the allocation of time by individual consultants to tasks. Often

maximum or set per diem rates are established by regulations, and frequently
these are below market rates in the private sector (see Chapter 26).
Building an image
It takes effort to build a successful practice in public sector management
consulting. A good firm develops a team which is capable of providing quality
services on demand and builds a track record of providing excellent customer
service and durable solutions to problems. Through successful assignments a
firm develops a reputation and builds its image in the minds of its clientele. A
firm cannot service clients well unless it allocates at least a small part of its
revenues to research. This research should produce key information on public
sector issues, and the new products and ideas which are essential for the
continuous development of a consulting firm. Research also ensures the
involvement of staff with current issues facing target public sector organizations,
keeping their learning current in the process. Publishing the results of research
can provide an excellent marketing vehicle for the consulting firm, as well as
reinforcing its image. A firm should also aim to communicate its successful
project experience through articles and public speaking engagements.
Box 20.5 "Shoulds" and "should nots" i n consulting t o government
"Shoulds" that work

Show knowledge of the agency's methods, procedures and processes.
Demonstrate genuine interest in the public sector work environment and the
difficulties faced by public servants.
Learn the specialized jargon.
Understand how the agency is measured.
Treat each government employee as an individual, separate from
governmental stereotypes.
Match your own staff qualifications closely to the agency's requirements.
Recognize that decisions often take longer than in business.
Respect the fiscal year constraint.
Identify and meet the client's perception of a good job.
"Should nots" that don't work
1. Refrain from hard-sell approach.
2. Avoid designing projects requiring a great deal of interdepartmental co-
operation.
3. Don't just finish a project but "ease into the completion", suggesting review
steps and follow-up activities.
4. Don't forget to keep the client fully informed and closely involved, even if the
client tries to avoid responsibility.
5. Don't underestimate the role of the written agreement, especially with
deliverables.
Source: W.F! Cordeiro and S.A. Bartik: "Howto consult to government", in Journal of Mnagement
Consulting (Milwaukee, Wisconsin), Fall 1993, pp. 20-24.
20.5 Special areas of consulting

Local government
Many consulting firms confine their marketing activities to higher levels
of government (federal, provincial or state), thereby missing a large-volume
market at the local level. Local government can generally provide consultants
with an opportunity to address problems related to urban planning, criminal
justice, social services, infrastructure planning and development, and local
business development. In the 1990s every level of government is finding
difficulty in funding its programmes, but nowhere is the result more evident to
the private citizen than in the field of municipal government. It is this lower level
of government, beset by a multitude of difficulties, that provides opportunities
for experimentation of new ideas.
Public enterprises and utilities

In the public enterprise sector of the 1990s, most opportunities for con-
sulting are created by the governments' decisions to privatize, as discussed in
section 20.1 and Chapter 21. However, management consultants should not
overlook enterprises and utilities that will stay in the public sector, or whose
privatization has been postponed for strategic, social, political, national security
or any other reasons.
In this area, private-sector experience is more applicable and useful than
anywhere else in the public sector. However, the governments must be prepared
to start managing public enterprises and utilities as real enterprises, not as any
other segments of the government and public services. This may require
considerable restructuring, performance improvement and management devel-
opment programmes, effective business linkages with the private sector, and
performance-related motivation and remuneration. Demonopolization, deregu-
lation and the phasing out of direct subsidies are essential -it has been pointed
out that demonopolization and the creation of a competitive environment have
a greater impact on performance and efficiency than privatization.
The public sector in developing countries

Considerable opportunities exist for management consultants of all nations
to provide services to the public sectors of developing countries. Some of the
specific opportunities in these countries include:
Improving the performance of public enterprises. Public enterprises
were once revered in these countries, but are now often denigrated as
having failed to live up to expectations, to be adequately productive and to
deliver the required economic performance. Some argue that the root cause
of this poor economic performance lies in state ownership. In many cases
this is true and privatization is a viable strategy, although massive
privatization cannot be achieved overnight. There are obvious consulting
opportunities in the privatization process, as already discussed. There is

also strong demand to improve the management of the remaining enter-
prises and utilities which are generally large and centralized, and possess
poorly defined accountabilities, with large overheads and excessive
controls.
Improving the performance of governments. Developing countries
habitually have poorly organized machinery of government. There is a
general lack of decentralization from federal, to state, to local govern-
ments. Planning is centralized and not enough diversity is permitted even
where obviously required. Public services, such as health, education and
criminal justice, are not efficiently delivered. There is a multiplicity of
institutions, but innovation is systematically discouraged and the
institutions are not properly managed. Entrepreneurship and individual
initiative are stifled by strict adherence to obsolete policies and procedures.
Developing the volunteer and not-for-profit sector. This sector is
decaying in the face of religious and regional conflicts, lack of resources
and general neglect. Yet it can play a major role in economic and social
development if its organization and management can be improved.
Building internal consulting groups. Several countries are making
energetic and extensive efforts to improve their public sectors (very large,
important organizations for energy generation, health, education, regional
public transport, etc.) and have selected the route of providing internal
management consulting groups to a growing number of public services.
To supply services successfully to the public sector of developing
countries, management consultants must obviously develop strategies that are
likely to work. Such strategies might include:
- adopting a long-term, and not a short-term, focus. There are no short cuts
to acceptance in developing countries;
- being adaptive, not prescriptive. Only at a high level of generalization are
management techniques universal. They must be carefully adapted to local
cultures and management situations;
- being a coach and trainer - not a referee or judge;
- adopting an action-learning approach to training, coupled with the solving
of specific practical problems faced by the public agencies;
- visibly developing a deep understanding of local culture and a respect for
the people.
While there is an abundance of educated and knowledgeable people in
developing countries, most have had no opportunity to apply their knowledge
to the solution of practical management problems. Organizations have tended
to stifle innovation by discouraging experimentation and change. Training offers
only a partial solution, since knowledge of methods and techniques is not
lacking. Very often, solutions to these problems lie in creating a favourable
atmosphere and commitment to change, and illustrating how different, more
flexible ways of managing can yield dividends: a bona fide consulting role.
Public management in Central and Eastern Europe

On their path to a market economy and political democracy, Central and
Eastern European countries cannot avoid a radical turn-round of their public
administration and service systems. The extent and depth of the changes required
are unprecedented. The issue is not only government restructuring and
reshuffling to cater for new functions and responsibilities, but a totally different
conception of fundamental government functions in the development of modern
society. There is a need for a radical departure from the command economy
philosophy, procedures and work habits, to facilitating and regulating roles and
to the public service concepts proper to a market economy and a democratic
society. Structural and procedural changes will be important. Changes in skills,
attitudes and behaviour will be critical.
The role of both foreign and local consultants in this process can be
tremendous. Foreign consultants can assist in transferring public management
experience of democratic countries using various forms of government. They
can also help to promote collaborative and participatory approaches to problem-
solving and structural changes, and to reform the education and training of public
servants. However, only consultants with excellent knowledge of public
management in their own and other democratic countries should be involved.
Local consultants should help to adjust foreign experience to local traditions, as
well as assisting in identifying attitudes and habits that were inherited from the
totalitarian State and will have to be unlearned. In addition, active involvement
in the transformation of public management provides exceptional learning
opportunities for local management consultants, both external and internal.
20.6 Future perspectives

The current privatization movement and the demands for leaner govern-
ment will free the public sector from activities and services for which the private
sector is better suited, or which can be discontinued without any harm to the
community. Conversely, there will be greater demand and stronger pressure for
services that only governments can perform effectively. The increasingly
complex interface of economic and social life, and the growing number of issues
in which the community is vitally interested, will call for new governmental
functions and services, and for continuous improvements in service quality and
productivity.
Hence, while the public sector has already become a major user of manage-
ment consulting services, it is not unrealistic to predict that it will be a growth
market for consultants in the years to come. Although entry can sometimes be
difficult, and the requirements for consultant competence and service quality are
likely to grow, there is great potential for new business, and for a considerable
amount of repeat business. The quality of work, reliability, level of service to
the client and good relationships with the client will be particularly important.
Clients will seek consultants whose profiles match special process andlor sector
criteria and who can exhibit a record of proven performance in serving the public
sector. Public decision-makers will be keen to obtain "value for money7'as much
as their peers in the private sector are.
The market will continue to be complex and difficult, but challenging and
rewarding. Working for public sector clients should not be regarded as an
occasional opportunity to gain additional income, but as a strategic option to be
reflected in the consulting firm's competency, relations and image building.
D. Osborne: "Reinventing government", in Public Productivity and Management Review

(San Francisco), Vol. XVI, No. 4, Summer 1993, p. 350.
2 See M. Hammer and J. Champy: Re-engineering the corporation (New York, Harper
Business, 1993), and Chs. 4 and 22 in this book.
3 D. Osborne and T. Gaebler: Reinventing government: How the entrepreneurial spirit is
transforming the public sector (New York, Plume, 1993).
M. Kubr: How to select and use consultants: A client's guide, Management Development
Series No. 31 (Geneva, ILO, 1993), pp. 99-100.
CONSULTING IN
PRIVATIZATION
The demand for technical, financial and legal advice on privatization - a

systematic transfer of state-owned companies and assets and state-run activities
to the private sector - constitutes an important consulting market. It started in
the United Kingdom and rapidly spread to more than 50 countries, which now
have active privatization programmes.
In their transition to a market-driven economy, Central and Eastern
European countries use massive privatization as their main strategy. In the
developing world, many governments that formerly paid lip service to the
importance of the private sector have been adopting wholesale privatization.
Among the developed countries in the West, too, countries such as France, Italy
or Sweden are turning to privatization for reasons such as budgetary constraints
and increasing public opposition to heavy government subsidies. The biggest
privatization effort in one country so far has been achieved in Germany, where
in the four years following reunification the Treuhandanstalt (the privatization
agency) sold more than 13,000 state-owned enterprises in eastern Germany to
the private sector.
The purpose of this chapter is to focus on the special problems of consulting
in the area of privatization, such as the market for privatization advice,
management consultants' interaction with other professional services, and their
special tasks in privatization projects.
21 .I The principal clients

The main clients are the governments as owners of companies and property
to be privatized. To achieve privatization, most ministries and other govern-
mental institutions rely to a considerable extent on external expertise. This offers
widespread opportunities for professional advisers to seek and obtain contracts
for servicing governments on accounting and legal affairs, privatization
procedures, enterprise restructuring, sectoral and feasibility studies, man-
agement and staff training, and the creation of an effective market-economy
infrastructure.
The aims of a government, once it has opted for privatization, include:

a increasing the size and dynamism of the private sector;
a attracting and facilitating private-sector investment from both national and
foreign sources;
a generating revenues for the State;
a freeing public resources for urgently required investment in infrastructure
and social programmes;
a reducing the government's administrative burden; and
a achieving a radical transformation from a state-controlled and centrally
planned economy to a market-driven economy (the former communist bloc
countries).
The ministry most interested in privatization is generally the ministry of
finance since it has to provide the funds for supporting the enterprises and will
also manage the distribution of the revenues of the privatization. The relevant
sector or branch ministry might also be interested in divesting itself of a whole
sector or a number of companies. On the other hand, a sector ministry might
sometimes try to hamper the privatization of companies since, after a completed
privatization process, the ministry's importance as a "holding ministry" dimin-
ishes, officials may be made redundant and the ministry might even be abolished.
To avoid this bottleneck, in some countries governments have preferred to
dismantle certain sector ministries before launching privatization programmes.
In a number of countries, the key customers for consulting advice are the
ministry for privatization, the privatization agency or the state property agency,
which are responsible by law for implementing privatization, even though they
are not always the direct owners of the enterprises. This might lead to conflicts
with the sector ministry formally owning and technically supervising the
enterprises if it has other or different priorities and views concerning the
approach to privatization.
In many cases, the consultant is retained by the management of a public
enterprise that is preparing itself for privatization. There can be various situations
and scenarios. The enterprise may seek help in developing a technical, legal and
financial restructuring programme to be presented to the privatization ministry
in a privatization project. Enterprise management may want to tap a consultant's
expertise to be sure that all important alternatives were given due consideration
and the proposed privatization project will not be rejected because of poor
preparation and quality. Furthermore, there may be a need for an independent
expert opinion, to attest that the privatization proposals are correct and fair. The
consultant's task may be to give such an opinion to the agency that will be
responsible for approving the privatization project.
Privatization can in some cases lead to the closure of nonviable companies
previously kept alive by government subsidies and protection. The management
of the company, and in most of these cases also the unions representing the
workers, may want to demonstrate that privatization is misguided. Being aware
of the difficulties, the management of the enterprise will try to avoid or postpone
Consulting in privatization
any move by the government towards privatization. The consultant in these cases
should assist the government in explaining to the public that a closure of a
loss-making firm can free assets for a more productive use and reduce a financial
burden on the economy and the taxpayers.
To convince management and employees that their enterprise has no future
may be more difficult, especially if they are not aware of the real situation on
international markets and have an unrealistically high opinion of their firm's
potential for technical and efficiency improvements. The consultant may have
to undertake this delicate and often painful task even if he or she has been
recruited by the enterprise itself, not by a sector or privatization ministry.
Many consultants are recruited by potential buyers looking for interesting
acquisitions of former public companies or their parts. A consultant in this case
will help the client to maximize the benefits from a takeover through effective
preparation and advice on the purchase from the government.
21.2 Profiles of privatization advisers

Many governments, international institutions and enterprises tend to
choose management consultants as principal advisers for privatization.
However, a lot of work in the area of privatization has been done by accountants,
investment bankers or lawyers (see also section 2.6), although their competence
covers only certain aspects of privatization.
Accounting firms have been very active in developing business in the
privatization field because they can fulfil the first need of governments or
enterprises - a good set of accounts and an independent financial audit of an
enterprise to be privatized. However, the standard accounting schemes and
procedures limit them to thinking in financial and accounting terms. Therefore
the large international accounting firms, including those of the "Big Six" group
and others, handle privatization projects through multidisciplinary teams, drawn
from both their accounting/auditing and their management and business con-
sulting services divisions.
Investment bankers also offer services in privatization and have been
involved in many important privatization projects. They are limited by definition
to giving advice and providing services in the areas of financial engineering,
sources of finance, banking services and short-or long-term lending. If a
company is to be privatized by an initial public offering on a stock exchange or
via a private placement, the assistance of one or more investment bankers may
be essential on account of their experience in capital markets and their capability
to trade the stock of the privatized company on a stock exchange in order to
smooth the fluctuations of the stock price. Conversely, an investment bank may
be short of information and expertise needed for company valuation, and may
lack the necessary industry-sector knowledge and understanding. In particular,
investment banks specializing in mergers and acquisitions tend to concentrate
on the financial transaction side of privatization deals.
A number of law firms have also entered the market as privatization

advisers, but tend to concentrate their work on the regulatory environment,
corporate governance, laws and rules affecting the company or its privatization,
and the legal aspects of various contracts and agreements involved. Since law
firms generally do not employ professionals with a financial and business
management and strategy background, they tend to concentrate on advising
governments on legislation, and the sellers and buyers on legal documentation.
The management consultant has none of the above specialized roles since
he or she takes a comprehensive and multidisciplinary view of the sector and the
company, which covers the whole spectrum of issues involved in a privatization.
This sector-specific approach means assessing the company from an industrial
investor's point of view rather than an accounting or legal perspective.
Management consultants engaging in privatization projects should have a solid
sectoral background and a track record showing that they are able to solve
practical diagnostic, structural and strategic problems of companies.
The industry-sector approach reaches beyond the company's technical
assessment and its survival chances. It also includes a pragmatic valuation of the
enterprise which will - beyond the financial statements and cash flow
analysis -assess other items such as technology, product quality, attractiveness
to investors, technical, business and marketing know-how, the skill level of the
workforce and so on. In addition, positive multiplier effects of a privatization
project on the economy ought to be taken into consideration, i.e. the number of
jobs and investments created directly and indirectly in the country. This
industrial approach is common to the leading management consulting firms most
active in privatization. It permits the assessment of a company's privatization
chances and attractiveness to investors, and the development of an individualized
strategy to be followed in its privatization.
As mentioned earlier (section 2.6), the borders between various pro-
fessional firms tend to be increasingly blurred, and therefore the description
given above may not apply to every single firm. Nevertheless, management
consulting firms with a good background in sector studies, business diagnosis,
corporate strategy and restructuring are well placed to take the lead in advising
clients on important privatization projects. They can help clients to identify and
involve on effective terms specialized advisers able to handle legal, financial,
environmental and other aspects of particular projects.
21.3 Selection of consultants and contracts

In choosing consultants for privatization projects, both government and
enterprise clients tend to apply rigorously the complete selection procedure
described in Chapter 7.l There are several reasons for this:
companies to be privatized are public property;
the clients want to be sure that they cannot be accused of corruption,
nepotism or incompetence;
0 political parties, the parliament, the media and the public at large watch
the privatization process in the country very closely;
0 there is a desire to obtain consulting advice for a fair price;
many assignments are financed by technical assistance from donor
agencies, which insist on a precisely defined selection procedure, and
control its application.
Rosters and registration

In several countries ministries responsible for privatization have estab-
lished their own consultant rosters, based on information provided by interested
consulting firms and individual consultants. The quality of these rosters has
improved recently as both the ministries and the consultants have acquired more
practical experience with privatization projects. It has become possible to start
giving consideration to the consulting firms' privatization experience in general,
and in particular countries and sectors, their ability to staff complex assignments
and implement them rapidly, and their ethical behaviour, especially as regards
loyalty to clients and avoidance of any conflict of interest. Some privatization
agencies have gone beyond simple recording of eligible and interested
candidates and require consultant registration. Candidates who submit pre-
scribed documentation for registration are screened and in some cases
interviewed by a committee, which then decides whether the consultant can be
registered as expert in privatization.
Selection by client
In privatization projects, the consultants have to be aware of the differences
between the various sorts of client described in Chapter 3. The privatization
agency may be the contract client, while the main client's role may be split
between this agency and the management of the enterprise to be privatized. This
relationship may change in the course of the project, depending on the client's
real participation in project work. If a technical assistance agency sponsors the
project, which is often the case in Central and Eastern Europe and in the
developing countries, it would normally act as a sponsoring client and retain the
authority to approve the procedure, the conditions of the contract and possibly
even the consultant who will be selected. The selection procedure may involve
complex and lengthy negotiations among the various interested parties involved.
Administration
In handling projects for governments and international institutions,
consultants are generally required to prepare and maintain documents and
records pertaining to the procurement process and the administration of contracts
following their award. The administration of the financing and/or awarding
institution will monitor the project and reports. If the financing agency finds that
the procurement or administration of a contract has not been carried out by the
consultant in accordance with the agreed contract, it may refuse to finance the
contract or its part.
21.4 The consultant's tasks in a typical

privatization process
Pre-privatization studies
In preparing for privatization, some governments and large public
corporations have commissioned in-depth sectoral studies. The purpose is to
give a true picture of a whole sector (such as textiles, home electronics or steel),
its strengths and weaknesses, position and chances in international competition,
attraction to foreign investors, environmental considerations, investment
requirements and future development prospects after privatization. Such studies
have been found useful in orienting and planning privatization, and providing
governments with basic information that was unavailable, incomplete or
distorted under central planning. These studies require consultants with a broad
industry-sector background, capable of finding and analysing data on
technology and sectoral trends, consumption, international and national markets,
impact on the environment, major customers and suppliers, government policies,
regional economic groupings and similar.
Privatization policies and plans

Some governments, as a rule sponsored by technical assistance projects
and grants, use consultants to assist privatization ministries in designing and
planning the whole privatization process in a country and choosing among
alternative privatization approaches (box 21.1, pages 442-443). This is a case
for high-level policy advice, for which very few management consultancies have
the right background and experience. As a rule, there is a need to establish mixed
teams grouping advisers from various firms and professions, including manage-
ment and business consultants, bankers, accountants, lawyers, economists and
others. Since the privatization ministries suffer from acute shortages of
competent staff and recruiting new staff locally is often difficult owing to low
government salaries and for other reasons, there may be a tendency to use the
privatization advisers (both local and foreign) for normal government work. The
consultant will be well advised to be most cautious in accepting various
operational responsibilities, which may be outside the original contract terms.
However, most consulting assignments in privatization concern individual
privatization projects, involving one or several state enterprises that have been
earmarked for privatization. In a typical assignment, the consultant would
successively undertake the following tasks.
Technical and strategic assessment

After a kick-off meeting with the concerned ministry or state agency (i.e.
the seller), where the engaged consultant and the seller will agree on schedules,
exchange of information and task distribution, the consultant will visit the
company to be privatized, discuss with management the situation, prospects and
problems of the company and make a quick survey of the business premises.
The consultant will then make a detailed inspection of the company and collect,
together with a technology specialist, all necessary data for a technical assess-
ment. These data would cover:
products and services;
licences and technical know-how (marketability, competitive situation);
technical layout and condition of business premises (buildings, machines,
technologies, processes, logistics);
productivity, management and human resources:
- existing organization and management structure;
- qualification, skills, experience and know-how of management and
workforce, including statistical data on the workforce (age structure,
turnover, etc.);
- productivity of the company's various units in the value-adding chain;
- necessary improvements and investments;
- attitudes to privatization and expectations of management and
workforce.
Parallel to the technical assessment, an evaluation of the strategic and
financial situation of the company will take place. It will cover especially issues
such as:
the strengths and weaknesses of the company in its present operating
environment (markets, customer base, competitive situation, market
share);
the threats and opportunities for the future privatized enterprise and the
company's ability to cope with these influences (market forces, com-
petition);
actions which may be required to secure the company's position in the local
and/or international market (establishment of long-term contracts, restruc-
turing necessities, foreign marketing networks, etc.);
the financial performance (cash flow, profitability, current financial
structure, working capital, liquidity, quality of receivables and other assets,
the company's ability to finance itself with its own resources).
Owing to the generally extensive vertical and horizontal integration of
many public-sector companies, especially in Central and Eastern Europe,
companies often have to be split up to become manageable and attractive to
investors. This has the advantage of:
- higher specialization of the smaller units to be privatized;
-
a larger number of investors from different sectors for the various segments
of the split-up company;
- higher purchase prices for the various units compared to the sale of the
company as a whole.
Box 21.1 Taxonomy of privatization strategies

Many different terms are used to describe privatization,much like the blind men
describing an elephant based on each one touching different parts of the animal.
Semantic confusion is evident. Privatization is a broad concept which goes beyond
the selling of state-owned enterprises and other assets held by government to
individual private investors. Government activities or state-owned enterprises can
be privatized by three broad strategies: divestment, delegation or displacement.
The first two are more active processes, while the last is more passive. In current
privatizationpractice these strategies come in various combinations.
I. DIVESTMENT
A. Sale B. Free transfer
1. Private sale 1. To employees
2. Sale of shares to the public 2. To users or customers
3. Sale to management 3. To the public
4. Sale to employees 4. To prior owner (restitution)
5. Sale to users or customers
C. Liquidation
II. DELEGATION Ill. DISPLACEMENT

A. Contract A. Default
B. Franchise B. Withdrawal
- concession C. Deregulation
- lease
C. Grant
D. Voucher
E. Mandate
I. DIVESTMENT
/.A Divestment by sale
1. The enterprise or its part can be sold to one or several buyers (local or
foreign). The sale can be negotiated, or the enterprise or its part can be
auctioned.
2. Shares can be issued and offered to the public.
3. Managers can buy the enterprise or its part.
4. Employees (and pensioners) can buy the enterprise or its part.
5. Local users (organized in a users' cooperative) can buy the enterprise or its
part.
I. B Divestment by free transfer
1. The enterprise can be given away to employees free of charge.
2. The enterprise or public setvice can be given away to users or customers
organized in a cooperative or an association.
3. Free transfer to the public is an important transfer method in Central and
Eastern Europe, where it is usually carried on by issuing free vouchers, or
vouchers sold for a nominal price, far below the expected value of the assets
for which they can be exchanged.
4. Restitution to former owners or their heirs can concern assets that were
nationalized; this may be combined with selling (at an advantageous price)
assets that were added to the enterprise after nationalization.
I.C Divestment by liquidation
The enterprise is closed down and the remaining assets (buildings, equipment,
raw materials, etc.) are sold in one of the ways indicated under LA.
11. DELEGATION
1I.A Delegation by contract
A government activity is restructured by contracting with a private organization,
paid to perform the work. Contracting only a portion of the work can foster
competition.
N.6 Delegation by franchise
Under a franchise (also called a concession), government awards a private
organization the right (which may be exclusive) to sell a service or product to the
public. One form of franchise concerns the use of the public domain (airwaves,
streets, underground space, etc.). The second form is a lease of government-
owned property to a commercial enterprise.
11.C Delegation by grant
A private entity receives government subsidies for performing its task@).
11,D Delegation by voucher
Instead of subsidizing producers of goods and services, the government issues
vouchers to eligible recipients of formerly state-run services (for food, housing,
health, child care, etc.).
11.E Delegation by mandate
A government mandate obliges private organizations to provide certain services
at their expense (e.g. social security).
111. DISPLACEMENT
1II.A Displacement by default
The private sector steps in to offer a better service than the government (e.g.
private education, postal service, local transport).
111.8 Displacement by withdrawal
The government deliberately discontinues a service or shuts down an
enterprise.
Ill. C Displacement by deregulation
A government monopoly or restrictive regulations are abolished, thus opening
the market to private initiatives.
Source: E. S. Savas: Structural adjustment and public service productivity (Geneva, 110, 1992;
mimeographed).
The consultant with his or her industrial know-how will analyse the com-
pany and as a first step suggest a horizontal separation which includes the recom-
mendation of the sale of non-essentials via various asset deals to different
investors. As a second step the company may be separated into core business
units, and after this vertical separation individual parts of the value-adding chain
of a company's units can be privatized separately in different asset deals.
However, this splitting up in most cases will make valuation more complicated
and can be time-consuming.
For any consultant, the most important focus of strategic and technical
assessment must be the viability, future competitive advantage and development
prospects of the company after privatization. Therefore splitting up industrial
concerns into smaller and more easily manageable units must not be regarded
as a panacea. There have been instances of public enterprises that have been split
into several smaller units in a way that has weakened their marketing, research
and business development potential for future years.
Valuation
Valuation plays a basic and vital role in the privatization process. Govern-
ments, their agencies, prospective buyers, future joint venture partners, manage-
ment interested in buying out a company and also previous owners seeking
restitution of business property - all have an interest in assessing the value of
an enterprise to set a market price.
A consultant encounters a broad range of problems in conducting a
valuation (see also section 13.4). In Central and Eastern Europe and in
developing countries the valuation theories and methods must be essentially the
same as those used to value a Western enterprise operating in a normally
structured market economy. However, creativity in their application is often a
requirement.
Assumptions about future domestic and international economic trends (i.e.
interest rates, exchange rates, inflation) and a rapidly changing market, as well
as the legal and financial environment, must be dealt with. Social assets and
recreational facilities owned by companies must be properly accounted for in
the valuation. In some companies historical financial records do not exist or are
limited only to one or two previous years. In order to facilitate the valuation, the
financial statements in most cases must be converted to a Western accounting
standard.
The valuation of land and property tends to be particularly difficult. The
level of market information available is low and rental levels might be volatile,
making valuations at best problematic. Other problems include dealing with
technologically obsolete equipment in the realization that past operations under
government ownership will most probably not resemble future operations. In
certain countries, too, existing valuation laws impose on the consultant a ceiling
on the level of the discount rate that can be used in a discounted cash flow
analysis. The discount factor is important if cash-flow models are used since it
is the main indicator of the country and the sector risk.
For privatization purposes, consultants generally use two different valua-

tion methods to give indications about a company's value:
the valuation of future cash flows (capitalized future earnings); and
substance valuation.
Valuation from the current market price of a company's traded common
stock is not possible owing to government ownership, since the stock has not
been quoted on a stock exchange.
In the first method, the company's value (i.e. the maximum price a
purchaser might be willing to pay) is theoretically the sum of the present value
of the expected future company earnings. A problem that arises in this context
is the necessity to forecast future company earnings for a long period of time
(actually until infinity). While problems already exist in making precise
projections for Western companies operating in a relatively structured and
stabilized economic environment, almost insurmountable problems arise in
making this sort of estimate in former socialist and centrally controlled
economies. In addition, past earnings provide minimal assistance because of the
above-mentioned historical, economic, legal and financial changes which have
taken place in an unstable environment, and those that can be expected for the
future.
The second valuation method, the substance valuation (the difference
between a company's assets and liabilities) might be used to determine a
minimum transaction price, but it does not try to establish a fair value for the
company. The substance valuation must also approximate what an investor or
purchaser of the company would expect to pay for the reconstruction of the
company, as no reliable way to estimate "free market costs" for construction
exists and the depreciation methods for the enterprise might differ from those
in the investor's country.
To ensure that an investor would become and remain interested, the
valuation of the company would have to be tested for fairness and reasonableness
and the consultant may be called both to advise upon the method to be used and
to assist in its application. In most emerging markets the substance value of a
company becomes the most important factor in the valuation process if the
present value of future earnings is negative, cannot be determined or is lower
than the substance value.
Governments have realized that (with certain exceptions) privatization is
not a seller's but a buyer's market, and that overvaluation of a company and its
assets can endanger privatization. Nevertheless, many governments still try to
increase the value of state companies by writing up companies' assets, thus
endangering privatization. In these cases the consultant should correct the
excessively high valuation and advise the seller on a realistic approach.
If the seller's goal were to maximize the "social benefits" created by a
privatization, the government would choose a potential investor on more criteria
than just the purchase price. It would use a combination of the company's
likelihood to be successful in the future, the amount of investments which the
buyer guarantees to make, the number of jobs created and, only finally, the
purchase price offered. This price may indeed appear to be fairly low. In
privatization, it is not always the highest sales price but the continuation of a
company's business on a going-concern basis which is the major interest of the
selling government. Hence, that applicant who has the most appropriate
conception about the future business activities and development prospects of a
company chosen for privatization is the one who will most probably be selected
as purchaser.
Strategy for privatizing a company

After the collection of all data and the valuation of the company, the
consultant will advise the seller on the privatization strategy (see also box 21.1,
above). These strategies may involve:
privatizing the entire company as a whole (share deal) via:
- public offering of shares;
- sale of shares by auction;
- sale of shares by auction limited to preselected bidders;
- sale of shares through direct negotiation or private placement;
- sale of shares by exchange for vouchers (if a country has opted for a
voucher privatization scheme);
0 splitting up the company in an economically balanced way into different
smaller units;
0 various combinations of these approaches.
At this stage, based on the appropriate privatization strategy, the foregoing
assessment and valuation, an information memorandum will be compiled. This
will contain all important data, including financial information as well as
information on the product programme, staff and management, market(s),
customers, locations and equipment, together with the most relevant elements
of a strategy as well as a restructuring plan and requirements, as identified by
the consultant or with his or her help.
In order to move quickly towards privatization, the enterprise's current
management and probably its employees' collective, trade union or works
council, as well as its supervisory board, should be fully involved in developing
and discussing this strategy in order not to block privatization or discourage
potential investors during their visits to the company.
Searching for investors and marketing

Following the agreement with the seller (the concerned ministry) and the
enterprise management, the consultant will start marketing the company to the
widest possible range of potential investors of quality. In this marketing effort
the consultant will approach private investors (domestic or foreign), investment
bankers and funds, and selected enterprises in the sector of the company to be
privatized.
Normally the consultant would first approach as potential buyers those

investors and companies with whom he or she has, over the years, developed
good working relationships. However, no interesting potential buyers should be
left out even if these are organizations with which the consultant has had no
contact in the past.
The company memorandum will serve as the basic marketing tool. The
consultant will also be responsible for follow-up of enquiries, responses and
expressions of interest in the most appropriate manner to ensure the widest
number of potential investors. The seller will be kept fully informed about any
reactions to these marketing efforts.
Negotiations and documentation

The seller will expect any investor to make a written offer for the target
company. Besides the offered price the seller will expect the investor also to
present a detailed plan for the continuation of the company, including activities,
investment, finance and employment, and any likely implications for the
company's suppliers and customers. This plan should be carefully drafted
because it usually forms the basis of the seller's sale decision. In many cases a
consultant might be engaged to assist in the formulation of this business plan,
since in this area the client may be particularly short of experience.
Once the seller has received this written offer, the consultant will assist in
evaluating the offer and negotiating the purchase of the enterprise with the
potential investor. The negotiation of the details of the contract will usually take
place between the investor, his lawyer and his consultant(s), on one side, and the
responsible representative of the seller assisted by the consultant who has helped
to prepare the deal and by a lawyer, on the other side.
The seller's position on some contractual cornerstones can be summarized
as follows:
Warranties. The seller in most cases is reluctant to give any warranties in
relation to the company being sold. The reason is that, especially in Central and
Eastern Europe and in developing countries, the seller does not know any more
about the target business than the investor himself, who has had full access to
all required information and performed his legal and financial due diligence on
the company.
Business plan. The seller will require certain guarantees or assurances of
the amount of investment and the number of employees stated in the purchaser's
business plan. Guarantee clauses might stipulate that the investor has to pay a
substantial penalty to the seller if the agreed objectives are not met. Therefore,
any investor and the consultant who assists him or her are well advised to provide
realistic investment and employment figures in the business plan.
Purchase price and terms of payment. The purchase price and the terms
of payment to finalize the privatization deal are questions which require
knowledge of both the financial market and the tax law environment. While the
seller generally would prefer to be paid at once after the contract has been
notarized, for financial, tax and legal reasons the purchaser might choose to pay
in instalments or at a later stage. In these cases it is expected that the purchaser

provide the seller with a bank guarantee to the amount of the purchase price. In
reviewing the purchaser's options and eventually making a recommendation to
the purchaser (with the assistance of tax advisers), the consultant's help can be
invaluable.
Know-how transfer. In order to make the privatization project a success,
the buyer is in most cases expected to provide missing technical and management
know-how. Therefore the seller must ensure that know-how transfer into the
company is guaranteed by the investor either through ensuring access to new
technology and/or through direct managerial interventions, or through second-
ing management staff to contribute to the further modernization of the enterprise
and to strengthening its economic power. For both the seller and the purchaser,
a consultant can provide valuable assistance by advising on realistic methods of
transferring technical and managerial know-how.
Closing and publicity. If desired by the seller, the consultant will also
assist with the drafting of public announcements or advertisements and the
distribution of information to the media (e.g. through press releases or briefings),
to inform the public in the country concerned and abroad about the privatization
of a specific company.
Final evaluation. Once a privatization project is completed, the consultant,
as the seller's adviser, will provide the latter with a general assessment of the
operation, the issues addressed, the lessons learnt and the results achieved.
21.5 Issues and risks

Privatization affects individual and group interests at various levels. It
influences the future of organizations and will have a strong bearing on the future
of whole nations. Therefore it is highly politically sensitive. In the relatively
unstable and politically difficult context of many reforming economies, it may
be impossible to reach full agreement on the best and only possible privatization
strategy. Consultants need to develop political sensitivity to make sure that their
proposals are politically acceptable and technically beyond any reproach, in
order to survive even if governments change or the responsibilities of various
agencies are redefined.
Currently most funds for consulting assignments in privatization are
provided by international and national technical assistance agencies. Often in
one country there is more than one source of funding, which may lead to
demarcation disputes, professional jealousy between the various funding
sources and overlapping of projects, as supranational and national institutions
tend to pursue their own goals which can easily hamper constructive cooperation.
Any consultant incurs the danger of getting caught up in the battlefield between
the different agencies. The same applies to various ministries and other
institutions in the country where the company is located. Much advice has been
wasted because political backing for particular projects or steps within a
privatization programme has been lacking.
Another problem might be consultant loyalty, especially if it is not the real

client, but a donor or project sponsoring agency, that pays the consultant's fee.
In various cases the consultant works in a predetermined framework or according
to terms of reference set by the donor, whereas the real client might expect
different tasks to be fulfilled and objectives met. Under these circumstances the
consultant has to develop a sensitive way of being loyal to both sides and
compromising between the interests of the donor and the main client. This may
be very difficult. Also, remuneration rates for consultants in privatization are
often lower than in other areas of management consulting. Furthermore, because
of political pressures there may be a tendency not to select consultants on merit
but to distribute the contracts to be awarded among consultants who have
personal access to the contracting authority or sponsoring agency. This can
happen even if a formal selection procedure is used, which in theory should
ensure full objectivity.
A consultant engaged in privatization can also be subject to direct political
pressure from various angles: donors, trade unions, political parties, federal,
state and local government bodies, and other national as well as international
pressure groups all of which -sometimes even through illegal methods -may
try to influence the consultant's advice in their favour. In other cases, the client
may be unable to control the consultant properly and assess his or her work for
lack of information, experience and time. In the long run, only those consultants
will be successful who act and advise independently and in best faith for the
benefit of the client and the company. Once a consultant has given way to
political pressure or even corruption, the market will soon learn about this and
the consultant will be well on the way to being excluded from future projects.
The same applies to confidential information given to the consultant by the
client, the company or another party, as the case may be. Frequently such
information has competitive value and any consultant should be committed not
to disclose it without prior consent of the client, and to treat it confidentially. It
is of course understood that the consulting firm and its employees will become
liable for all direct and indirect damage resulting from any breach of
confidentiality. However, it may be very difficult to define such damage and
prove that confidential information has been leaked intentionally or by
negligence.
Finally, the concept of "consultancy tourism" sticks in the throats of many
sellers, government officials and managers in state enterprises to be privatized.
Often these "tourists" are consulting companies charging relatively lower fees,
but lacking the necessary professional competence. This also means that they
have no back-up when something goes wrong or extra work is needed at a certain
stage of the project, as invariably happens in reforming economies. Companies
and governments have been left with long reports but no means and assistance
for implementing them.
In summary, consulting in privatization is a special market, different from
classical consulting projects contracted by individual business companies or
government departments. In the absence of simple rules and benchmarks to
which a consultant could refer each time a delicate issue occurs, a privatization
Box 21.2 Vhclav Klaus on the Czech privatization experience

Perestroika-style economic thinking suggests that the shift from soft to hard
budget constraints can be achieved, and that economic behaviour can be
modified, by changing formal rules and introducing rational macroeconomic
policies.Those measures, however, represent necessary but insufficientconditions
for the transformation. It is privatization that moves an economy past perestroika
to a real systemic change.
In some industrial and developing countries where privatizationhas taken place
- the best known of which is the Thatcherian privatization of Great Britain in the
late 1970s and early 1980s - privatization represented a partial change in an
already existing, properly defined property rights structure,that is a shift of property
rights between two (or more) well-defined economic agents. This kind of
privatizationhas almost nothing in common with the task we are facing.
Privatization in Central and Eastern Europe means the establishment of a
previously non-existent property rights structure. Privatization in the West may be
viewed as a "reform" process. In the East, however, privatization is the road to the
most fundamental objectives of a systemic transformation. It is the process within
which the non-owner or quasi-owner (the government) transfers non-assetsto their
first (initial) proprietor, and in doing so "creates" the assets. In organizing the
privatization programme of a transforming economy it is always important to
understand the peculiarities of that economy. The special characteristics of
transforming economies in Central and Eastern Europe call for special, non-
standard privatization methods:
Revenues. The government's objective should be to accomplish economic
transformation rather than to maximize the proceeds coming from the sale of
government's assets. To understand that paradox is absolutely crucial.
Speed. Meagre proceeds are usually believed to be the price paid for speedy
privatization. We have found, however, that in the Czech Republic and elsewhere
the correlation between proceeds and time, if any, is the reverse of what has been
hypothesized for standard privatization. In other words, the slower the privatization,
the smaller the proceeds. For one thing, the true value of the privatized enterprise
rapidly decreases due to its unavoidable pre-privatization agony and to the
absence of a real owner during such a process.
We looked for privatizationtechniques that were faster than the standard ones.
Our non-standard voucher privatization scheme proved to be rapid and efficient.
It is based on selling vouchers (quasi-money applicable only in the privatization
process) to every adult citizen at a symbolic price. The vouchers are redeemable
for shares of privatized firms. Voucher privatization turned more than 75 per cent
of Czech adults into shareholders, with shares either in the 1,500 privatized
companies or in the investment privatizationfunds. The voucher scheme has also
facilitated application of standard privatization techniques in the rest of the
economy and, indirectly, speeded their implementation. The overall privatization
programme also includes transfers of state property to municipalities, restitutions
to original owners, transformation of "Soviet-typencooperatives into cooperatives
of real owners, privatizationof small-scale business through public auctions, and
privatization of medium- and large-scale enterprises through direct sales, joint
ventures, tenders, and so on.
Organization.The effectiveness and speed of privatizationdepends greatly on
the organization and administration of the process. It makes sense to concentrate
privatization initiatives at the micro level, not at the government level. Planning,
organizing, restructuring, dividing and demonopolizing functions for the enter-
prises should not be imposed from above (this approach is thus entirely opposite
to what has been done by the Treuhandanstalt in the former GDR).
Foreign involvement. The presence of foreign investors in the Czech Republic
has always been considered beneficial and, therefore, most welcome. We are quite
content with the continuous inflow of foreign capital and do not want to accelerate
it artificially. It is one of our fundamental theses that foreign capital will enter the
country on a massive scale after privatizations have been carried out since the
decisions that will promote the inflow will arise from the private initiative of real
owners rather than the irresponsible decision-making of government bureaucrats
(irresponsible in the sense of afailure of logic). In keeping with this philosophy, we
resisted strong temptations to introduce a special foreign investment law that would
have accorded better treatment to foreign investors than to domestic ones.
Restructuring. Privatization is usually initiated with the goal of bringing
efficiency and prosperity to individual privatized enterprises. It is a common myth,
shared by many, that privatization in a post-communistcountry could, and should,
have the same objective. But what really matters in our case is the effect of
privatization on the economy as a whole. The question is not "Is the enterprise
restructured?" but "Is the economy restructured?"
Individual restructuring must follow privatization. We have no doubt that it will
be the new owner, not the government, who is motivatedto find the ideas, time and
resources for the necessary restructuring. The Czech Government has never
listenedto the advice that state ministries and agencies should attempt to increase
the efficiency of state-owned enterprises before they are privatizated. Furthermore,
we consider it unnecessary to design legislation and techniques and develop
perfect owners. Such an objective is beyond the capacity of post-communist
governments. Besides, the first (initial) owners of privatized firms may not be the
final ones.
In the early weeks and months of 1990 the Czech approach (to privatization)
provoked harsh criticism from all imaginable sources. By now, however, even the
most prominent international financial organizations have realized that government
of a transforming country is the worst imaginable agent to take care of restructuring
tasks. Moreover, it has been recognized that internationally renowned consulting
firms, which are very expensive, lack the necessary country-specific and system-
specific knowledge.
It has been observed - at least in the Czech Republic - that the meaning of
privatization may differ substantially in different socio-political environments. I am
convinced that our approach is correct - the results speak for themselves.
Margaret Thatcher privatized three or four firms a year; we have been privatizing
twice that many each day.
Source: Transition: The Newsletter of Reforming Economies (Washington, DC, The World Bank),
Vol. 5, NO. 1 , pp. 11-12.
consultant's best guide is individual judgement, political sensitivity and

personal and professional ethical standards. Furthermore, consultants should be
fully aware of evolving privatization policies and of the assessment of recent
privatization experience in various countries (see, for example, box 21.2, above).
The purpose of the consultant's involvement and participation in any stage

of the privatization process is not only to guarantee continuity, but also to transfer
know-how to the client. A consultant who approaches any privatization
assignment believing that he or she knows the solutions and wanting to impose
personal views and models in a standardized way will invariably fail. Each case
of privatization is unique and individual, and projects demand a broad
background of consulting experience, ranging from industrial, technical,
strategic and financial expertise, through know-how on mergers and acquisitions
to legal, accounting and valuation knowledge. Intuition, communication and
negotiation skills are also most important. This combination of opportunities
and abilities makes privatization one of the most challenging sectors of
management consulting.
21.6 Post-privatization consulting

In a privatized enterprise, the transfer of ownership rights, and the related
legal and organizational restructuring, are not an end but only the beginning of
its total transformation. The ultimate objective is to develop an independent
business that can survive and prosper in competition, without state subsidies,
based on its own vision of the future, entrepreneurial drive, and fully competent
management. Privatization changes the rules of the game and creates new
opportunities. It provides no guarantee whatsoever that every privatized
enterprise will be successful. On the contrary, many new owners and managers
(who are often the same persons who were in charge before privatization) quickly
discover that unlearning command-economy concepts and practices, and
learning how to think and operate in a market-economy environment, is not an
easy matter. This creates tremendous and unprecedented opportunities for
management consultants in all post-communist societies, as well as in other
countries that have privatized a significant part of their public sector.
Post-privatization consulting could be regarded as any other management
and business consulting to private enterprises and other clients in market
economies. This, however, would be a misunderstanding. There are some
important differences between emerging and developed market economies. For
example:
In many privatization projects, the transfer of property rights is the cul-
mination of the effort and the crucial point of privatization strategy; when
they are finally in charge, many new owners and their managers face a host
of problems and alternatives in choosing where and how to start in order
to modernize the business and make it competitive.
The organizational culture of many privatized enterprises is strongly
influenced by their past experience; old habits die hard, and both managers
and staff find it difficult to start thinking and acting differently.
The management of many privatized enterprises is controlled or strongly
influenced by investment funds established during the privatization pro-
cess; often these funds are short of entrepreneurial and business manage-
ment competence, and do not really know how to exercise ownership rights
and influence enterprises in their portfolios in the best interest of all
stakeholders.
- In post-communist societies, the newly privatized enterprises start operat-
ing within an imperfect and incomplete business infrastructure; ideal
models that have demonstrated their effectiveness in modern market
economies are not immediately applicable and enterprise management has
to cope with gaps and problems in the areas of distribution, credit, bank
services, bank and other guarantees, cash flow, insurance, quality certifi-
cation, foreign-exchange regulations, licensing, taxation and many others.
- An insufficiently developed business infrastructure and culture and the lack
of business ethics provide a fertile ground for fraudulent dealings,
economic crime, unfair competition, misrepresentation and speculative
deals; many managers experience considerable difficulties in making the
right choices and avoiding errors that can have serious consequences for
the enterprise.
Conversely, in emerging market economies many entrepreneurs and man-
agers exhibit a great deal of dynamism and openness. They are keen to innovate
and learn in order to gain a competitive edge and rapidly overcome the teething
pains of their recently privatized enterprises.
Management consultants need to be aware of these and other differences,
and look for solutions that are applicable to recently privatized enterprises. There
will be great demand for consultants who will be able to help in "privatizing7'
managerial values, standards, behaviour, practices, systems and performances,
following the transfer of property rights to the new owners.
See also Ch. 4 in M. Kubr: How to select anduse consu1tants:A client's guide,Management
Development Series, No. 1 3 (Geneva, ILO, 1993).
CONSULTING FOR
PRODUCTIVITY AND
PERFORMANCE
IMPROVEMENT
The role of productivity as a major factor in improving company com-

petitiveness and increasing national welfare is universally recognized. Gen-
erally, productivity is expressed as a ratio of output against input of resources.
It shows how much and how well we produce from the resources used, both
human and physical. In dealing with productivity issues it is necessary to
consider all the major factors which affect productivity either positively or
negatively. These factors include national economic and social policies and
strategies, business cycles and international competition, the natural environ-
ment, the legal, institutional and regulatory setting, demographic and structural
changes, and so on. Yet the principal place where productivity growth is created
is the enterprise, as it is here that the whole range of available resources come
together in order to produce goods and services. The effectiveness of the
combined functioning of these resources in a given macroeconomic, institutional
and natural environment is reflected in productivity.
This chapter begins with a short review of the evolution of productivity
consulting and of its current characteristics. It then focuses on two issues that
form the core of consulting for practical productivity and performance improve-
ment: productivity measurement and analysis; and the planning and organization
of programmes for improving company productivity and performance.
22.1 A short history of productivity consulting

Helping clients to understand and increase productivity has always been
one of the fundamental objectives of management consulting. However,
conceptual approaches to productivity, performance assessment and improve-
ment techniques, and the organization of productivity services have undergone
many changes.
The "scientific management" and "rationalization" movement initiated by
F. W. Taylor in the late nineteenth century, with its concentration on the work-
place and on the simplification and better organization of production tasks, was
in fact the start of productivity consulting. It created numerous work, pro-

ductivity and efficiency improvement techniques of which most have remained
in use until the present time. It also predetermined, for several decades, the image
of productivity improvement consulting, which to many people became
synonymous with improving worker and/or employee productivity by per-
forming fragmented work operations more effectively both in production shops
and in offices.
During the Marshall Plan period (1947-59), American technical assistance
had a strong productivity dimension. American experts came to Europe and
Japan to provide advice on productivity and quality questions in connection with
post-war reconstruction. At the same time, the famous "productivity teams"
(altogether some 25,000 people) travelled to the United States to see and study
productivity practices developed during and after the Second World War. Their
task was to act as advisers back at home in their companies, by transmitting
and disseminating their findings and con~lusions.~
Every recipient nation of Marshall Aid had the obligation to create a
national productivity centre. An important network of productivity agencies was
thus established in Europe and Japan. Until 1960, the European network was
supported and to some extent coordinated by the European Productivity Agency.
In Asia, the establishment of the Japan Productivity Centre was followed after
a few years by the creation of the Asian Productivity Organization in order to
promote and support productivity improvement in other Asian countries.
Gradually, most of these countries have also established their own national
productivity boards and/or centres. In a number of countries in Asia and in other
regions, the ILO provided technical expertise and other assistance to national
productivity bodies, often with financial support of the United Nations Develop-
ment Programme (UNDP).
Because of the broad and integrative nature of the productivity concept,
the national productivity centres tended to develop a wide range of functions
and services, including information, training, advice and consulting on various
aspects of enterprise productivity, efficiency and performance. In the first years
their services were heavily subsidized by governmental and technical assistance
funds in order to make productivity advice accessible and attractive to enter-
prises undergoing reconstruction, and to newly established smaller businesses.
During this period, productivity services of private consulting firms were
developing alongside the various national and international productivity
services. Some consultancies, both large and small, continued to work as
efficiency and cost-cutting experts. Others preferred a more comprehensive
approach, looking at the interface of various management functions and at the
composite productivity effect of a better combination of all productive factors.
Gradually, various new approaches to productivity started appearing on the
market for consulting services and capturing the attention of clients in industry
and other sectors.
A major impetus to productivity consulting came in the 1980s with in-
creasingly tough international competition, market globalization, energy crises
and a generally more difficult business climate. To more and more companies,
Consulting for productivity and performance improvement
vigorous action to achieve substantial improvements in productivity was no

longer an option to choose or not to choose -it became a necessity, a condition
of sheer survival.
In the current period, productivity improvement has without any doubt
become a key element of most management and business consulting work,
although often the term "productivity" is not used and productivity is described
in terms of business efficiency, performance, total quality, competitive edge or
in other ways. Also, productivity improvement concepts and techniques are
presented under different names or are integrated with global business
development concepts. Thus, the productivity dimension looms large in business
process re-engineering, total quality management (TQM), company per-
formance improvement, Kaizen, benchmarking or corporate excellence. This is
fully understandable and quite normal owing to the diversity of business contexts
and objectives, and national and corporate cultures, as well as the approaches
taken by different business corporations and their consultants. However, it is
essential that both the clients and the consultants see the purpose and the nature
of the change behind the various techniques and parameters used. For example,
there is a strong productivity improvement dimension in the approaches and
tools listed in figure 22.1.
Figure 22.1 Responses to the challenge of large-scale change
Business process Theory of constraints Kaizen

re-engineering Systems thinking Hoshin Kanri
Total quality Theory of psychology Benchmarking
management (TQM) Vendor partnerships Experimental design
Strategic planning White-collar productivity 7 tools of quality
Statistical thinking Organizational redesign Learning organization
Measurement Business process Theory of knowledge
Self-managing teams improvement Gainsharing
Total employee
involvement
Taguchi methods
- Statistical process control
Plan, Do, Study, Act
Profound knowledge
Customer-driven focus
Downsizing
Leadership
Just-in-time inventory
management
Source: D.S. Sink: A grand strategy for accelerating the rate of organizational and individual
improvement, paper prepared for the Eighth Productivity Conference, Stockholm, 1993, p. 4.
Turning to Central and Eastern Europe, the current productivity scene is

different from the rest of the world and has been shaped by two significant
factors.
The first factor has been the predominantly bureaucratic approach to pro-
ductivity introduced and used for years by the command economy system.
Productivity improvement was not motivated by the need to be better and more
effective than competitors, but by the obligation to comply with planned
productivity targets. It was more important to improve productivity on paper
than in reality. As a result, the current generation of managers is not sufficiently
productivity minded and lacks many of the skills needed for productivity and
company performance improvement in modern market economies.
The second factor is the current priorities of the fundamental trans-
formation process through which the economies of this region have to pass. The
top priority is creating a real and not a fictitious market economy environment
through massive privatization and restructuring. In the first phase, this restruc-
turing is essentially legal, organizational and financial. Improving the
performance of privatized and restructured companies (including productivity
and quality) comes next, and in most companies this second phase has not yet
been entered. The need has yet to be fully perceived by management, including
those in charge of the already privatized units and investment funds. Full
exposure to tough competition will be the principal condition of this fundamental
attitudinal change (see also Chapter 21).
Thus, Central and Eastern Europe is not yet a major market for productivity
consulting. However, it is likely to become one, and offer most interesting
opportunities to consultants, in the not very distant future.
22.2 Measuring and analysing productivity

and performance
Although the productivity level is of critical importance to enterprise
competitiveness, there are other important parameters that should also be taken
into consideration when assessing company performance. They include
profitability, return on investment, quality, customer needs satisfaction, social
climate, environmental impact, and similar. At the end of the day, all these
performance parameters result in higher or lower productivity. Nevertheless, for
management decision-making, and for focusing consulting work, productivity
should be distinguished from performance, without losing sight of how these
highly synthetic concepts relate to each other.
Productivity measurement and analysis form the foundation of sound
productivity improvement consulting. Even as a separate element, they are
effective tools of diagnosis and decision-making at all economic levels. The
success of productivity measurement and analysis depends largely upon a clear
understanding by all parties concerned (employers, enterprise managers,
workers, trade union organizations and government institutions) of the
relationship between productivity measurement and the effectiveness of the
organization. Productivity measurement and analysis indicate where to look for
opportunities to improve and also show how well efforts at improvement are
progressing.
In enterprises, productivity is measured in order to help analyse effec-
tiveness and efficiency. Its measurement can stimulate operational improve-
ment: the very announcement, installation and operation of a measurement
system can improve labour productivity, sometimes by 5 to 10 per cent, with no
other organizational change or investment.
Productivity indices also help to establish realistic targets and check-points

for diagnostic activities during an organization development process, pointing
to bottlenecks and barriers to performance. Furthermore, there can be no real
inlprovement in industrial relations and proper correspondence between pro-
ductivity, wage levels and gain-sharing policies without a sound measurement
system.
As mentioned, productivity is measured as a ratio of output to input, or
products to resources. Total productivity measures reflect the relationship
between the total output and total input of an enterprise:
Total output
Total productivity =
Labour + Capital + Materials + Energy + Others
By using total productivity measures all the parts are assessed and then
combined. which means that all resources have been taken into account.
Approaches and criteria

There are many approaches to productivity measurement and analysis since
different groups of people (managers, workers, investors, customers, trade
unions) have different goals. Normally the method of measurement is deter-
mined by the purpose of the productivity analysis, which may be:
- comparing an enterprise with sector leaders or competitors;
- determining the relative performance of departments and workers;
- comparing relative benefits of various types of input for collective bar-
gaining and gain-sharing.
For example, if an organization's goal at a particular time is to maximize
the return on invested capital and expand its operations, the company should
measure its cost and profit structures.
Selected examples of useful measurement techniques used by productivity
consultants are presented below.
Kazukiyo Kurosawa's structural approach

In this a p p r ~ a c hproductivity
,~ measurement focuses on the structure of the
enterprise and helps to analyse past activities and plan new activities. It can be
used to set up an information system for monitoring operations. For this reason
it is important that productivity measurement be built according to the decision-
making hierarchy. A very general system could be as shown in figure 22.2
(overleaf).
Applying this equation over time, the consultant can use the system as a
sort of interlinked index system. Value-added productivity also can be used
meaningfully for productivity measurement in combination with various
Figure 22.2 Fundamental framework of productivity measurement

in management
Actual value -
- Standard value X
Planned value Actual value
X
Theoretical value Theoretical value Standard value Planned value
I I I I
I I I I
I I I I
I I I I
Actualltheory Standardltheory Planlstandard Plan/fulfilment

ratio I ratio I ratio ratio
I I
Structural Designer of
planner standard (staff)
-1 I
Responsible
Tactical planner 1
I
person
Front-line supervisor
Source: K. Kurosawa: "Structural approach to the concept and measurement of productivity (2)",
in Studies in Economic Science/Keizai Shushi (Tokyo, Nihon University),Vol. 50, No. 2, 1980, p. 97.
physical parameters as well as other related variables. As can be seen in

figure 22.3, value added at the enterprise can have several forms. The selection
of a suitable one depends upon management objectives. In routine business
activities, value added is usually evaluated at current prices. Value added at
constant prices is estimated more for analytical purposes. The essence of
value-added labour productivity is in the differentiation between industries and
enterprises. A commonly used method to eliminate the price effect on value
added is the double deflation method.
Alan Lawlor's approach

In Alan Lawlor's a p p r ~ a c hproductivity
,~ is regarded as a comprehensive
measure of how organizations satisfy the following five aims: objectives,
efficiency, effectiveness, comparability and progressive trends.
Objectives can be met when the total fund is adequate to meet the demands
of the organization and to measure the degree to which its principal objectives
are achieved. This fund is called total earnings (TE):
TE = Sales - Materials = S - M
Total earnings serve to buy services, pay wages and salaries, and invest in fixed
capital, profit and taxes.
Efficiency tells us how well actually needed outputs (which could be sold)
are generated from available inputs and indicates the use of available capacity.
It reveals the degree of use of resources compared with the total capacity
Finure 22.3 Structure of production value and value-added variants
I Production value (ZPQ)

Mt
I
Material Depreciation Labour Net profit Interest Rent Tax
cost (Cf) (Cs) income (V) (Ma) (Mb) (Mc) (Md) etc.
Gross valu? added (Fg) j
Net value :added (Fn) i
Business 4erformance i o . 1 (F1b) j
Business performance i 0 . 2 (FZa)
Business performance
N0.3 (F3b) j
CPiQi ZSili
Real value added = ----- - -
Ip Is
where CPiQi = gross output for current period in current prices

ESili = industrial cost for current period at current prices
Pi = market prices
Qi = quantity of items sold
Si = price of the "i" item of intermediate input factor
li - quantity consumed of the "initem of intermediate input factor
Ip = price index number of products
Is = price index number of intermediate input
Source: Kurosawa, op. cit., p. 111.
(potential) and tells us where inefficiencies lie (Profit : Input is the profit-
productivity ratio):
-Output
- - Input + Profit = I + -Profit
Input Input Input
Effectiveness compares present achievement with what could be done if

resources were managed more effectively. This concept includes an output target
achieving a new standard of performance (or potential new achievement):
Output - Effectiveness (what could be achieved)

-
Input Resources consumed
Productivity improvement involves a combination of increased effective-
ness and a better use of available resources. It shows four basic ratios:
actual output divided by actual input (the status quo);
0 higher output divided by current actual input;
0 current actual output divided by lower input;
0 maximum output divided by minimum input (the higher level of
effectiveness).
Comparability is a guide to organizational performance, since productivity
ratios alone tell little without some form of comparison. Generally speaking,
productivity measurement means comparisons at three levels:
- comparison of present performance with a historical base performance;
- comparison of performance between units, or relative achievement;
- comparison of actual performance with a target or objectives.
Trends can be assessed by comparing current performance and a historical

base in order to identify whether performance is moving up or down and how
fast.
This approach calls for at least two levels of productivity measurement
within the enterprise: primary and secondary. The primary level deals with total
earning productivity (E) which is:
Total earnings - T
E = -
Conversion cost C
where
Conversion cost ( C ) = Total wages and salaries (W) + Total purchased services
(Ps) + Depreciation (K).
Thus, obtaining a high level of total earnings ensures a healthy organization.
Secondary productivity measurement provides the ratio of used resources
to the total conversion cost of all available resources.
In summarizing his approach, Alan Lawlor provided a hierarchical struc-
ture of productivity indices (figure 22.4).
A quick way to assess productivity

Productivity measures need not be complicated. In order to monitor all
aspects of productivity and the factors influencing it, a Canadian consultant,
Imre Bernolak, suggests combining typical productivity and profitability ratio^.^
In most sectors, between 30 and 35 ratios are sufficient for the combined
productivity/profitability analysis.
Over time, the analysis of information from the base year can be greatly
assisted by showing the relative movements of the relevant ratios in a trend-chart
Figure 22.4 The framework of productivity analysis
Total earnings
productivity
-
T
- Primary level
Profit productivity
-Secondary level
Process work Productive work

productivity
of resources
Working capital Inventory

Working productivity productivity
capital
inventory
Cinv
Organizational Total earnings

potential
-xC
Cd
Note:T= total earnings; C= conversion costs; P= profit; Cd = processing costs;

Ce = productive work costs; M = materials.
Source: Adapted from A. Lawlor: Productivity improvement manual (Aldershot, Hampshire,
Gower, 1985),p. 86.
-
form, first giving the relative movements of the main ratios, and then proceeding
to analyse the components of the main elements and factors.
The integrated analysis of profitability and productivity makes the
application of productivity theory very practical for enterprise managers. While
profitability measures indicate the combined short-term effects of both
productivity and price factors, the long-run success of enterprises is determined
by proper resource utilization, i.e. the productivity factor. In the short term, the
analysis of productivity measures helps to explain the causes of performance
results, and forms the basis of productivity gain-sharing.
Enterprise profitability and productivity analysis starts from the finding
that the most commonly used measure of the performance of an enterprise is
return-on-investment (ROI). Since productivity expresses the physical relation-
ship of output to input, all assets are therefore included in the denominator of
Box 22.1 Example of a ''family of measures"

Customers:
Percentage of repeat customers
Number of complaints from customers
Warranties, claims or returns
Key performance characteristics of the product or service that are global in
nature:
- percentage of deliveries on time (distributor)
- scores on standardized tests (school)
- degree of return to normal physical or mental functioning (hospital)
- time (to complete a service)
Number of awards or compliments
Number of recommendations by customers to others
Market share
Employees:
Education levels
Level of experience or skills
Personal accomplishments
Absenteeism or turnover
The extent to which people take pride in their work
Percentage of employees' time allocated to education and training
Number of suggestions submitted
Number of grievances filed
Business and financial:
a Earnings or profits
a Costs (fixed, variable, controllable, etc.)
a Variance from budget
a Share of market
a Return on investments, return on assets or return on capital
Amount spent on research and development
a Amount of resources allocated to the improvement of quality
Operations:
a Throughput or cycle time for the system
a Percentage yield
a Efficiency
0 Volume of production or sales
Productivity
a Backlog of orders or work
a Levels of inventory
0 Amount of overtime
0 Amount of scrap or rework
0 Number of errors, accidents, injuries or close calls
I Outside environment:
Time allocated to industry groups or advisory groups
Amount of community service
w Amount of discharge of pollutants
0 Number of lay-offs
0 Accidents or injuries related to the product or service
0 Fines or violations from government agencies
0 Media coverage
Source: Adapted from L. Provost and S. Leddik: "Howto take multiple measures to get a complete
picture of organizational performance",in NationalProductivityReview (New York), Autumn 1893,
pp. 477-490.
the ratio. Consequently, the return-on-assets (ROA) ratio is used instead of the
ROI as the top performance ratio of the pyramid, and the main link between
productivity and management.
The ROA ratio is then broken down into the other two commonly used
"primary" ratios, namely, the profit-over-sales, and the sales-over-assets ratios.
If these two ratios are multiplied by each other, they are equal to the top ratio
(profit-over-assets). For practical considerations, the reciprocal of the sales-
over-assets ratio, i.e. assets-over-sales, is used in the profitability/productivity
analysis. In industries where capital assets are relatively insignificant compared
with other inputs, the profit-over-sales ratio becomes the integrating top ratio.
All cost data must be based on real cost figures rather than "standard" costs.
In addition to physical productivity ratios which can be built into the pyramidal
analysis system, each financial ratio can be analysed in terms of its physical
productivity and price components.
Using a "family of measures" of organizational performance

Productivity improvement is the result of the combined efforts of many
different stakeholders with different objectives and perceptions about organ-
izational effectiveness. That means that the results of measurement of different
parameters should be fed back to all participants to stimulate improvement.
A "family of measures" should be used since no part of an organization is
so simple that it can be measured adequately by one indicator. By drawing
together a set of measurements of the organization from the perspective of its
various stakeholders -customers, employees, stockholders, owners, suppliers
and communities - an organization can avoid the shortsightedness that often
results from focusing on a single measure of success. By taking only a single
measure or a few measures concentrated in one dimension, almost any group
-- -
Box 22.2 Problems to watch and principles to observe in productivity

measurement and anatysis
The problems and difficulties in productivity analysis concern both the methods
used and the organization of measurement. The most common problems are:
how to combine different types of input into one acceptable denominator;
how to embrace all resources and business activities;
how to deal with qualitative changes in input or output over time;
how to separate real from fictitious improvements;
how to keep input and output measurements independent of each other;
how to interpret measurement results;
how to indicate accountability and provide clear signals for manager~aldeci-
sions and action;
how to reflect significant structuralchanges over time, which would complicate
measurement and comparisons;
how to avoid the confusion between indirect costs and avoidable costs such
as ill-designed procedures which should not be considered as input;
how to make productivity measurement credible and easily understandable
to everybody concerned in various parts of the organization.
To avoid the above-mentioned problems, observing the following principles can
be helpful:
provide simple and unambiguous signals to improve performance (pro-
ductivity, profit, quality);
break down the change in profit to reflectthe contribution from each resource
used in production (labour, capital, materials, energy);
break down the contribution to change in profit from each resource into
productivity terms and price recovery terms; this will isolate the effect of
different elements of change in product vis-A-vis resource price;
use price recovery terms to evaluate whether a productivity loss or gain for
a given resource is appropriate;
transform the above measures of change in profit into corresponding
measures of change in profitability, in cost per unit of output, and in
performance index numbers (e.g. productivity index numbers);
provide consistent signals for profit improvement regardless of the units in
which the measure is expressed;
use a "family of measures" to reflect both "hard" and "soft" factors and
changes, and to view the organization as a whole.
To choose a specific measurement approach and technique, a number of
variables should be considered:
purpose and stakeholders: what the measure is supposed to do and who will
use it (management, investors, employees, trade union representatives, etc.);
commitment to measurement: the extent to which an organization sees pro-
ductivity measurement as a critical part of its effort to remain competitive;
awarenesslunderstanding of management: the extent of management under-
standing and awareness of productivity measurement systems;
0 centralizationldecentralization: the extent to which measurement control

systems are part of the total organizational culture;
0 output variability: the extent to which the physical characteristics of the output
change over time;
type of technology: ranges in technology where input and output may vary
considerably over time;
process cycle time: length of time for one unit of output to be produced;
controllability: the extent to which management can "manage" or control input
levels;
e resources as a percentage of costs: amount of costs associated with each of
the components of resources as a proportion of total cost (In selecting a
method of productivity measurement, feasibility and costs are major
concerns).
can be successful in the short term by optimizing the selected measure at the
expense of other important measures. The volume of production can be increased
by cutting back on preventive maintenance or tests of new products, and so on.
It is much more difficult to improve performance based on a family of measures
than on any single measure.
Using interfirm comparison and benchmarking

These two techniques are known to the reader from Chapters 4 and 8, and
some other references in the previous chapters. They are essential for assessing
productivity in an organization by referring to other organizations pursuing
similar objectives and activities, and drawing practical conclusions from the
differences identified.
Typical interfirm comparison (IFC) is based on quantitative data sup-
ported by qualitative information that has been collected. The 30 to 40 ratios
thus produced are then compared, either by comparing individual enterprises
with each other, or by comparing an enterprise to a sectoral standard, best
sectoral performance or simply average data. This provides a basic orientation
for productivity assessment, which has to be pursued by going into more detail
and examining factors, causes and relationships behind global ratios.
Benchmarking, a recent, more advanced, variant of IFC, provides infor-
mation needed to focus and support improvements, and develop a competitive
advantage. In productivity analysis, benchmarking helps to identify specific
activities and practices that can and ought to be changed. Owing to its operational
focus and the voluntary collaboration of several companies aiming at pro-
ductivity and performance improvement, benchmarking also provides (which is
not the case in traditional IFC) specific information and suggestions on what to
change, and what conditions to create in order to make particular productivity
improvements sustainable. Thus, benchmarking can be described as a col-
laborative approach whereby several organizations share experience and help
each other in productivity assessment and improvement.
Resistance to productivity measurement

As is the case of any organizational change (see Chapter 4), the introduction
of a productivity measurement system may encounter resistance. The specific
reasons may be the following:
- potential misunderstanding and misuse of measurement: the fear of
workers that managers who are not intimately involved with the work
process will exaggerate or otherwise misinterpret the changes or trends in
measurement data;
- exposure of inadequate performance: since many workers are not sure
where they stand with their boss, a measurement system that would clarify
the situation may be perceived as a threat;
- additional time and reporting demands: a frequently stated fear of
productivity measurement is that it will increase the paperwork and take
time for which management is making no additional provision;
- reduction of autonomy: individual staff members differ in terms of their
desire for autonomy. Introduction of tighter management control as a result
of productivity measurement may be seen as a constraint.
Many of the perceived threats described above are the result of problems
in the organization that consultants need to understand and resolve. Implement-
ing a productivity measurement system is an organizational change and must be
managed as a change process.
22.3 Designing and implementing productivity

and performance improvement programmes
General conditions of success
A sound productivity improvement strategy calls for a systems approach
which recognizes the interrelationships between the elements of the system and
their environment. Such strategy should, as a minimum:
- develop a clear and easily communicated definition of the productivity
improvement concept;
- explain why organizational improvement is important;
- evaluate current operating situations and the reasons for the current status;
- develop models of excellence;
- develop improvement policies and plans.
The objective of productivity improvement should always be expressed in
terms of "organizational7' improvement. The overall objectives should be sup-
plemented by detailed action plans. Below are some examples of questions
which can indicate the state of this planning and draw attention to potential areas
of productivity improvement:
Does the enterprise have written productivity objectives and goals, and a
productivity plan which covers the whole organization?
Are the objectives set for small, identifiable groups so that their per-
formance can be assessed?
Does the plan include the methods by which productivity improvement
objectives can be reached?
Are target dates set for the achievement of objectives?
Are the objectives and actions set against labour costs and other costs?5
Another key aspect of productivity improvement plans covering an entire
company is their integration into the long-term strategy and planning of the
organization as a whole. Managers should fully understand that focused efforts
to improve productivity may lead to a chain of reactions among many of the
operational and output variables. For example, if management intensifies efforts
to control rising costs in one specific area of operations, it may hurt other cost
areas badly.
The productivity improvement programme (PIP) can be successful if the
following conditions are present within an organization:
Top management is wholly committed to the programme.
There is an effective organizational arrangement headed by someone
belonging to top management.
Full awareness and understanding of the programme objectives exist at all
organizational levels.
There should be free-flow communication between different structural
elements of the organization.
Good labour-management relations exist. Recognition of the key role
played by workers is crucial and must be demonstrated through a sound
productivity gain-sharing system.
The programme is linked with measurement processes that are practical
and easily understood.
The productivity improvement techniques (technical, behavioural and
managerial) chosen for the programme are fitted to the situation and needs.
Monitoring, evaluation and feedback processes to identify results and
barriers provide a basis for design improvements.
Finally, among important conditions for success the following are the most
frequently cited: there is pressure for change within the organization and its
external environment; the invention and development of new ideas, methods and
solutions are encouraged; and top management and consultants provide
leadership in programme design and implementation, as well as permission to
experiment with new solutions. There are many reasons to enter into a PIP, such
as red figures on the bottom line, new products and equipment, new technologies
and materials, stronger competition, demand for more production flexibility, the
need for shorter delivery time and better services, and many others. Both
managers and consultants should be sure that there are enough positive factors
to give a reasonable chance of success, that the time is right and that conditions
are generally favourable.
Structuring the process

A systematic eight-step approach to designing performance improvement
planning processes, suggested by Scott Sink, is shown in figure 22.5.
Figure 22.5 The performance improvement planning process

Recycle (annually):
- continual evolution
systems analysis
A
Planning
Key performance
objectives
Tactical objectives Key performance

and/or action items indicators
Action teams: Manage effective
and project planning track and control
Measurement
and evaluation
Source: S. Sink: "TQM:The next frontier or just another bandwagon to jump on", in QPM-Quality and
Productivity Management (Blacksburg, Virginia), Vol. 7 , No. 2, 1989, p. 18.
All productivity programmes operate in organizations, and to run them a

programme manager must be able to suggest processes that can be used to
identify problems, and to work out and implement solutions. The intra-enterprise
productivity processes include, among others, suggestion schemes, quality
circles, task forces, action teams, productivity committees and steering com-
mittees, which should be fully understood and used by the programme manager.
Deciding on a productivity improvement programme6

The decision about entering a PIP should be taken as for any other invest-
ment: the cost of the investment to be compared with benefits and risks should
Figure 22.6 Potential areas for a productivity improvement programme

(3) (4) (5) (6)
Productrv~ty, EDP Organization Organization Overhead
programmes, application, of product of logistics cost-cutting
tional area production objectives, development programmes
of company I I I
Sales and
administration
Design and
develolDmel
Rank~ngof the organizat~onalmeasures:

Rough Detailed Very detailed
Source: K.A. Scholz: Designing a company productivity and quality programme, draft manuscript
(Geneva, ILO, 1994).
be taken into account. The payback period from a PIP should normally be less
than one year.
To prepare the decision for investing in a PIP, the first step must be the
identification and assessment of potential savings. The best way is to look at the
big outputs and the large blocks of cost. Usually large potential areas are directly
related to product costs: the consultant should take the "products7' with highest
output and look into its cost elements such as materials, value added per pro-
duction area, tooling, design cost, overhead cost and distribution cost.
After having identified a good reason for a project and after knowing where
the areas for big potential savings might be, one has to set the framework for the
PIP. Figure 22.6 shows the main typical areas of responsibility of a company
and six different approaches to a PIP. None of the approaches is confined to one
functional area only. Choosing the right approach involves:
(1) Clarifying a reason to start a PIP which would make it easy to commit
people to the programme.
(2) Identifying, in a quick one- to two-day preliminary analysis, where the
potential savings should come from, what is the value or the percentage of
cost of the potential savings and what risks must be taken to obtain the
savings.
(3) Setting the frame for the PIP by covering most of the potential savings
areas, making sure that management makes the necessary decisions, and
by covering those functions which can facilitate or hinder the PIP.
The following three approaches are normally used in the PIP (figure 22.7).
Where a great proportion of all cost cannot be related to direct saleable output,
approach A (value analysis) will apply. This approach mainly requires decisions,
not organizational activities.
Figure 22.7 Three approaches to improving productivity

Cost per period
Indirect cost
Units of output per period

Source: Scholz, op. cit.
Approach B is the industrial engineering approach used for rationalization.

It aims at cutting unit costs (expressed as A) by reducing waste, raw material
consumption and handling per unit, combining work operations and
workstations, controlling work in progress, avoiding delays and time losses, and
SO on.
Approach C often brings the best results. It simply consists in reducing
numbers (number of tasks, number of orders, number of operations, etc.).
For example, can the quality control operation on all pieces of output (100
per cent control) be turned into an exceptional operation (statistical control)?
Can the control operation on all pieces of output be turned into an automated
in-process control? Can writing and mailing of order confirmations be avoided,

if incoming orders are dispatched the same day, or for the next day?
In defining the aims of a PIP, the initial rules are: "Spend less!" and: "Sell
more!" The project team has to know right from the beginning of the programme
whether the productivity improvement aims at "spending less" only, at extra
capacity which can be "s~ld",or a combination of both.
The "Royal Road"

The "Royal Road", used by most productivity improvement programmes,
is outlined in figure 22.8 (overleaf). It consists of three phases:
Phase I -The Pre-Survey, or Preliminary-Survey Phase, to identify aims
and "sell" the programme to management.
Phase I1 -The Survey Phase, to set and commit goals with all responsible
area managers.
Phase I11 - The Implementation Phase, to design and develop the
pro-ductivity improvement tasks in detail, implement the measures for
improvement and control, and evaluate the results from increased
productivity.
To run a successful PIP, it is absolutely vital to involve management in the
decision-making process from the very beginning of the exercise. By incor-
porating "stop/gon decision milestones into the programme after each main step,
management becomes very much involved in decisions on directions, aims,
expected results, necessary changes and investments to be made. In following
this Royal Road there are at least two decision milestones in each PIP phase (see
figures 22.9 and 22.10 on pages 475 and 476).
All reporting given by the productivity improvement project team to
management is focused on decision-making. This aspect makes it easy to
understand which data have to be collected and checked, and in which way
measures for productivity improvement have to be presented as clear, accurate
and convincing information to the decision-maker(s).
A PIP can be implemented successfully if the project team is well motivated
to achieve the results aimed for. In most programmes that have been
implemented, five general approaches have prevailed:
economy of scalelthe experience curve effect;
product structuring as the basis for productivity improvement;
"manufacturing to market" organization;
delivery quality and service organization;
flow-oriented manufacturing process.
At the end of the implementation phase the results should always be
documented by quantitative data reflecting the improvements actually achieved.
Figure 22.8 The "Royal Road" of productivity improvement

r - - - - --
PIP Pre-Survey 1
Phase l
identify the right approach
define the programme aims
design the programme tasks
define the areas to cover
design the project organization
schedule the programme
I
3 t o 10
days
7
PIP Survey
inform all participants

collect data
describe the basic situation
Phase II agree on a reference period 4 to 10
analyse potential goals weeks
design rough concepts
design detailed programmes
set up task forces
schedule implementation
report on anticipated results
Phase Ill
inform all participants
set up programme controls
implement sections, steps
get results
I
4 to 6
report on results obtained months
implement next sections
t
Maintain high productivity
Source: Scholz, op. cit

Figure 22.9 Phases I and II of the "Royal Road"
1
listen carefully to problems
I
Restart 9 identify the approach for a PIP
define the aims
force a decision for the PIP approach

Phase l
A
Stop 9 design the programme
set the frame, define areas to cover
organize the task force

Restart
schedule the programme
force a decision on a PIP (go to Phase II)
A
Stop 9 inform all management touched by the PIP
inform all staff included in the PIP
collect data, define the facts
check all information

Restart
A
ag9
Stop
define a "reference period" to calculate results
agree on data and reference period
analyse potential for productivity improvement Phase I1
define measures for change, following approaches A, B, C
design the concept for productivity improvement
I
ReStan () define the goals
h
ag
Stop
design the programme(s) for implementation
get decision for implementation of the PIP
0 follow the Royal Road for implementation (go to Phase Ill)

Source: Scholz, op. cit.
Figure 22.10 Phase Ill of the "Royal Road"
r-09 decision for the implementation of the PIP
get the decision-makers into the steering committee
Q get experienced. skilled people into the teams
get human resources allocated to the programme
agree on programme organization
A
Stop 9
9
replan activities of long duration into steps
allocate results to be obtained to each step
9 define how to controllreport the results
make individuals responsible for activities (certain time, certain results)
structure the programme to milestones
commit the implementation programme

No
9 fix reporting dates
(f
communicate results at first milestone
check fulfilment of programme
replan the programme
9 activate next steps
communicate results at second milestone
check fulfilment of programme
replan the programme
activate next steps
9 finalize programme
QQ write report on productivity improvements achieved
9 plan follow-up activities
terminate the PIP at a final presentation
Stop
Source: Scholz, op. cit
Productivity-orientedtraining
In many cases productivity improvement requires considerable efforts in
human resources training and development. This can form part of a broader
management consulting intervention in improving organizational performance,
or can be designed and implemented as a special programme in support of
productivity growth (see also section 16.6).
Figure 22.11 provides a general model of the links between company
objectives and/or problems (present or future), the problems experienced by
managers and employees, their specific training needs, and the training and
development approaches that can be combined with the envisaged productivity
improvement measures in a single results-oriented HRD cycle.
Figure 22.1 1 The results-oriented human resource development cycle
ldentification
Identification
of sources HRD needs
of company
of problems assessment
problemslgoals
t and OD
management objectives
4 Motivation and
OD programme
1-1
ITraining objectives
I Training programme I
Training resources:
(trainers, facilities,
materials, funds)
1 Assessment of 1 1
contributions to goals
and problem-solving
e n
programme
1-1 Programme
organization and
implementation
1
Management consuking
The model shows that the first phase includes identification of company
goals and problems, the sources of the problems, and human resource training
and development needs. The results of this first phase provide the necessary
information for the next phase - identification of development and training
objectives. Development objectives provide information for designing organi-
zation development programmes, while training objectives serve as a basis for
designing training programmes. After both programmes have been im-
plemented, the results are assessed and compared with the objective and with
the company's needs. The cycle is closed. Ignoring the human resource
development needs assessment inevitably leads to setting wrong objectives and
designing (or purchasing) programmes that miss the target. From this
development cycle it is easy to see that, if properly implemented, it can contribute
significantly to productivity and overall organizational performance improve-
ment. More specifically, integrating productivity or other business objectives
and strategy, and training and development of human resources, help to improve
organizational effectiveness by:
- making people aware of the need to change;
- assisting the development of new business strategies and solving real
strategic and operational problems;
- unlocking the potential and creativity of individuals;
- converting strategy into action;
- building trust and commitment;
- preparing people for coping with new challenges and problems;
- breaking down departmental barriers.
Using business process re-engineering

Following the approach suggested by Hammer and Champy (see
section 4.6), many consultants have chosen to use business process re-
engineering (BPR) in helping clients to achieve radical improvements in total
company productivity and performance.7
Hammer's classical example of a process begging to be re-engineered is
the simple instance of a customer sending in an order. In most companies, this
will typically pass through six to 15 different departments or units. This means
that customer's needs are not being met promptly because too many people take
part in processing the order, thus increasing the time taken unnecessarily.
Hammer talks of the ratio between value time (VT), when work actually gets
done, to elapsed time (ET), when nothing happens. "If the organization worked
as we'd like it to V T E T would equal 1. If you have V T E T = 0.1 you should
consider yourself lucky." In practice, typical ratios run from 0.03 to 0.05. Not
only does this way of working take time, but it is very costly.
In most companies, overheads are one of the biggest "killers" of
productivity. Overheads are "organizational glue", but with direct labour ranging
from 3 to 15 per cent of total costs there is now more glue than work.
Therefore BPR programmes focus on customer needs and satisfaction to

achieve high financial performance through operational excellence and process
integration. Customer focus sets up an immediate opposition to the functional
fragmentation of work. A recent study identified two critical factors -breadth
and depth of the process. The breadth means that the process to be redesigned
must be broadly defined in terms of cost or customer value in order to improve
performance across the entire business. As for depth, the redesign must penetrate
to the company's core.
At the same time, it should be recognized that not all company re-
engineering has been a great success. There is evidence that about 50-70 per cent
of those who start BPR do not achieve the results they intended. In 11of the 20
cases that have been examined in detail performance improvement was below
5 per cent (whether evaluated in terms of change in earnings before interest and
taxes, or in terms of reduction in total business-unit costs). Redesign projects
often aim at processes that are too narrow and not deep enough. Even with
sufficient depth, efforts may still focus on a narrow process rather than the entire
business. When managers try to assess the impact of BPR, they often measure
the process being redesigned rather than the business unit as a whole. Only those
projects that were sufficiently broad and sufficiently deep produced widespread,
and long-lasting, bottom-line results. To achieve proper breadth, managers and
consultants must first identify the activities that are critical for value creation in
the whole business unit for inclusion in the process being redesigned.
While the re-engineering of single functions can be important to companies
with limited problems, a narrow approach to redesign cannot produce the kind
of radical productivity improvement and other results that many companies are
looking for. Process breadth is important for two reasons. First, if more activities
are included in the process, the improvements are more likely to extend
throughout the entire business unit. Second, if a process includes interrelated
activities, a company may identify incremental opportunities that would not
surface in single-function performance-improvement efforts. Such
oppor-tunities include removing delays and errors when processes pass between
functional areas, eliminating problems caused upstream of an activity, and,
finally, combining steps that span business units or functions.
Many re-engineering efforts fail because of insufficient process breadth.
The Hammer and Champy study mentioned above examined the re-engineering
efforts of a European commercial bank. By redesigning some of its back-office
processes, the bank expected to reduce process costs by as much as 23 per cent.
However, the actual cost reduction, when measured in terms of total business-
unit costs, was only 5 per cent and earnings before interest and taxes improved
by a scant 3 per cent. The bank overlooked many back-office processes in
planning the redesign; in addition, back-office costs in general represented only
40 per cent of the bank's total costs. In summary, the process was too narrowly
defined to have any significant impact on business-unit performance as a whole.
Depth in successful redesign means the complete restructuring of the key
drivers of behaviour through redesign, including such depth levers as roles
and responsibilities, measurement and incentives, organizational structure,
information technology, shared values, and skills. An effective transformation

of these six depth levers requires a clean-plate approach to process redesign.
Only then can companies avoid the classic re-engineering pitfall of fixing the
status quo. If the redesign plans are sufficiently broad, all the old support systems
will become obsolete - from employee skills to IT. Though IT is critical, the
misuse of technology can produce a formidable barrier to the re-engineering
programme. IT is just a component of the business system; therefore it is better
to obliterate both IT and the business system rather than to automate the wrong
business system.
Starting from scratch, companies can plan and build the new infrastructure
required to realize the new design. This new infrastructure should include:
programmes such as comprehensive training and skill-development plans that
require years and not merely weeks for success; performance-measurement
systems that track how well the organization is meeting its targets and how
employees should be rewarded based on those objectives; communication
programmes that help employees understand why and how their behaviour must
change; and IT development plans that capture the benefits of new technology
at a minimal investment.
To implement BPR projects successfully, the commitment of senior
management is of critical importance. The involvement, even of the best
consultants, without top management support and active participation, is not
sufficient. Successful re-engineering initiatives start with tough chief executives.
They should be able to lead organizations through a period of radical changes
by combining a determination in pursuing objectives with the ability to build
consensus. Strong top management commitment could also be demonstrated by
placing the best people on the redesign teams and making significant investment
of their own time and resources. In the most successful projects, the top
executives spent between 20 and 60 per cent of their time on the project. In
contrast, top managers in less successful companies refused to enlist their top
people and, as a result, the team did not command respect and the project failed.
Starting from strategic goals, not from current problems

It is important to see that approaches and programmes that produce major
improvements, or "quantum leaps" in productivity and performance, exhibit one
common characteristic: they do not start by identifying and dissecting current
problems, shortcomings and underutilized resources with the intention of
devising a better method and thus increasing productivity, while having only a
vague idea of what should actually be achieved, and for what purpose. Rather
than that, their starting-point is the client company's vision of the future and its
strong desire to translate this vision into reality: to become a sector leader,
achieve a significant competitive advantage, offer a completely new sort of
product or service, or cut costs not by 5 per cent, but by 30-40 per cent. Put in
other terms, business re-engineering fares best if linked with corporate strategy.
Thanks to this approach, productivity and performance improvement can
be directed to a future purpose, which can be very demanding but not unrealistic.
This purpose serves then as the main common target and driving force for the
consultant and the client. It helps the client organization to develop a long-term
perspective within which to determine and realize short-term goals, and to learn
to work towards its purpose over time. The consulting approach is consistently
p~rposefil.~
In conclusion, it is easy to see the link to consulting in corporate strategy,
which was the topic of the opening chapter (Chapter 12) of this part of the book.
It is the company's strategic vision, translated into specific, clearly defined and
understandable goals, which is the corner-stone of effective productivity and
performance improvement programmes and consulting assignments.
J. M. Silverman: The history of the technical assistance programs of the Marshall Plan
and successor agencies, 1948-1961 (Washington, DC, World Bank, 1992).
K. Kurosawa: "Structural approach to the concept and measurement of productivity (Z)",
in Studies in Economic SciencelKeizai Shushi (Tokyo, Nihon University), Vol. 50, No. 2, 1980,
pp. 96-135.
A. Lawlor: Productivity improvement manual (Aldershot, Hampshire, Gower, 1985).
I. Bernolak: Effective measurement and successful elements of company productivity: The
basis of competitiveness and world prosperity, Paper prepared for the Eighth World Productivity
Congress, Stockholm, 1993, pp. 4-6.
J. Prokopenko: Productivity management: A practical handbook (Geneva, ILO, 1987),
p. 66.
6This section is based on a training module on designing a company productivity
improvement programme, written by Karl Scholz for the ILO (unpublished manuscript).
M. Hammer and J. Champy: Re-engineering the corporation (New York, Harper Business,
1993); see also M. James: "Hammering the BPR message", in Management Consultancy (London),
July 1993, p. 49, and "Re-engineering reviewed", in The Economist (London), 2 July 1994, p. 64.
See also P. Stroh: "Purposeful consulting", in Organizational Dynamics (New York),
Autumn 1987, pp. 49-67.
PART IV
MANAGING A CONSULTING FIRM

FUNDAMENTALS OF
CONSULTING FIRM
MANAGEMENT
The previous parts of this book have shown how management consultants
operate in serving their clients. Part IV, which opens with this chapter, looks at
the consultant's work from a different angle. It shows management consulting
as a professional service that itself requires competent management if it is to
provide a quality service to clients and, at the same time, achieve satisfying
business results.
That management consulting itself needs to be managed may be self-
evident to a large consulting firm employing hundreds of consultants and
engaged in a wide range of assignments. In such a professional firm, finding
work for all consultants, coordinating a number of varied assignments, recruiting
and developing consultants, keeping abreast of the state of the art and achieving
adequate profits all represent a formidable management task. However, a small
consultancy, and even a single practitioner, also needs to manage resources, time
allocation, relations with clients, administrative support, professional develop-
ment and so on.
In practice this basic truth is often ignored. There are consulting firms,
including some fairly large ones, which devote all their talent and energy to
finding new assignments and dealing with their clients' problems. However, they
neglect the management of their own operation. The inevitable consequences of
this attitude are inefficiencies, internal conflicts, and flaws in the services
provided to clients.
Clients are not unaware of this. We often hear, "Healer, heal thyself', or
"Consultant, take your own medicine!". The message cannot be more plain.
While any professional service firm requires management reflecting its nature
and complexity, the case of management consultants is a particularly delicate
one. Management is their daily bread and showing clients how to manage better
is their main activity. If clients are to take such advice seriously, the consultant
must be seen "to practise what he preaches". If this is not the case, clients become
cynical about the consultant's real ability to deal with other people's problems.
This chapter provides a brief overview of key issues faced in managing
consulting firms. Further chapters in Part IV will discuss these issues in detail
and depth.
23.1 The management challenge of the professions

As a relatively young profession, management consulting should be able
to draw some lessons from the management experience accumulated by older
and better-established professions, such as law or accounting. Unfortunately,
management is a new and relatively underdeveloped field in all professions.
Professional firms historically have been managed in one of two ways: badly or
not at all.
Management, as a distinct function and approach to running an organi-
zation, starts being practised systematically and consistently only when it
becomes a recognized necessity. As long as professionals prefer to operate as
individuals, independently or through loose interest groupings, sharing some
physical facilities and administrative support, but each serving one's own
personal clients and ignoring the clients of other colleagues, the management
function looks superfluous, if not undesirable. Therefore the key factor through
which the management of professions came into being was the growing size and
complexity of professional firms, and of the tasks tackled.
The second factor was changes in the market and in competition. With the
gradual disappearance of protective regulations and traditional practices
inhibiting competition, the professional firms started being exposed to market
pressures and opportunities like businesses in any other sector of the economy.
Issues such as marketing, selling, product life cycle, innovation and efficiency
became important, and had to be taken care of.
Conversely, certain factors have constrained the advent of modern manage-
ment in the professions. First is the professionals' ambiguous attitude to
management. On the one hand, they do not object to belonging to a well-
established and financially strong firm. On the other hand, as individuals they
cherish freedom and hate discipline. Many of them do not want to see any
management, and related paperwork, anywhere near to them. This creates
paradoxical if not inextricable situations. In Bruce Henderson's words, "the
basic paradox is the requirement to manage the unmanageable".'
A second constraint has been the shortage of managers of professional
service organizations. The best professionals can be the worst managers. Many
excellent professionals are prepared to devote some time to management, say
supervise a small team, if this does not take up more than a third or a half of
their time. Few are prepared to give up all client work to become full-time
managers of other professionals. Compromises have to be accepted as common
practice, mostly by combining management with direct work for clients, or
rotating managerial roles.
A third constraint has been the underdeveloped body of knowledge on the
management of professions. Understandably, meaningful concepts and theories
could not start developing as long as there was no practical ground, accumulated
experience, or demand. Significant contributions are few, and these date mainly
from the last decade.
In summary, the case for competent and effective management of pro-
fessional service organizations seems to have been made. In addition to the
Fundamentals of consulting firm management
competence and motivation of individual professionals, the management of

professional teams and organizations is increasingly recognized as a key factor
of service quality and business performance. However, many professional firms
have a long way to go to become well-managed organizations.
In identifying the management requirements of consulting activities, we
have found it useful to look at consulting from two different perspectives. Firstly,
consulting is a professional service and some of its management requirements
are determined by this characteristic. Section 23.2 will attempt to review them
and to point out practical implications. Secondly, consulting practised as an
independent service, for a fee, is a business activity and must be viewed and
managed as a business. This will be the theme of section 23.3. The last part of
the chapter will provide a synthesis of the two perspectives.
23.2 Managing a professional service

What sort of product?
It has been pointed out many times that professional services produce
intangible outputs or products. In consulting, the product is the advice given to
the client. Alternatively, if implementation is included, one could say that the
final product is the change that has actually occurred and the improvements that
have been achieved in the client organization thanks to the consultant's
intervention.
Such a product is difficult to define, measure and evaluate. The consultant
can have a certain conception of the product, while the client's view of the
product and its real value can be quite different. In marketing his or her services,
what the consultant is selling is essentially a promise - a promise of help that
will satisfy the client's needs. Clients cannot, to use Theodore Levitt's words,
"see, touch, smell, taste or test" the product before deciding to purchase it.2They
have to look for surrogates in assessing whether the consultant is likely to deliver
what has been promised.
This explains the crucial role of self-assessment, self-discipline and an
ethical approach in marketing and delivering the consulting service. Often the
consultant will be the only person able to judge what services he should be
offering in general, and what he can promise and actually deliver to a particular
client.
There are ways of reducing uncertainty by increasing product tangibility.
The client can obtain a manual describing in detail how the business will be
diagnosed, what data will be examined, comparisons made, ratios produced and
suggestions developed. Or the consultant may be offering a system or a
procedure, which will be delivered as such, in its standard form, or with
adaptations and supplements. The role of fully or partially standardized systems
and procedures has increased in consulting over the last ten to 15 years. Any
larger consultancy has some "more tangible7' products to offer and some small
firms have been completely built around one or two proprietary systems. Yet the
basic issue remains the same. Every client organization is unique and there is
no certainty that even an excellent system will be effective in every client's
environment.
To determine what to standardize and market as a standard product is a
difficult decision. There are consultants who have spoilt their reputation by
selling standard packages to clients who needed an individualized approach. On
the other hand, if a standard system or methodology is applied flexibly and with
imagination, it can help to increase the quality and reduce the costs both to the
consultant and to the client.
Working with the clients

Building and managing a clientele is another key issue in managing
professional consulting. If there is no client, there is no consulting. The
consultant cannot produce for stock, getting ready for prompt delivery once a
client is found. In fact, the client is a direct participant in the production of the
service. As a minimum, he or she has to help the consultant in defining the scope
of the advice, provide needed information, and then take the advice. In process
consulting, it is the client who "produces", while the consultant, as is often
emphasized, acts mainly as a catalyst.
The link between the consultant and the client is a highly individualized
one. On each side of the partnership there is one person, or a small team.
Whatever the size and complexity of the professional service firm, the firm sends
individual professionals or small teams to clients for undertaking specific
assignments. Larger consulting firms can handle more important and more
complex projects, and support individual consultants with the collective
know-how of the whole firm, but even a very large firm operates through a
number of individualized client assignments and cannot think in terms of mass
production, or of selling services to unknown customers through networks of
wholesale and retail shops. Even the largest consultancy operates as a retailer.
Service quality
The intangibility and other above-mentioned characteristics of profes-
sional services determine the consultants' approach to assessing and ensuring
quality. Within the profession, and even within one firm, it is virtually impossible
to refer to independent and fully objective benchmarks whereby quality could
be measured and evaluated. Yet service quality is one of the basic characteristics
inherent in a professional approach. Providing every client with a service of best
possible quality is a professional goal in its own right, not merely a condition of
being able to sell an assignment and to get paid for it.
Because consulting is a service aimed at satisfying specific client needs,
the degree to which these needs, or requirements, have been met is normally
regarded as the main criterion for evaluating service quality. Once more the
consultant-client relationship comes to the forefront: service quality cannot be
measured - and does not even exist -outside this relationship, but only as an
intrinsic part of it.
In consulting, quality management and quality improvement are therefore
built on feedback from clients and focus on increasing client satisfaction above
all. When appropriate, however, quality management has to reach beyond the
criterion of satisfying client requirements. This will be the case in working with
uninformed clients, whose current requirements may be well below the con-
sultant's own conception of high service quality. Also, quality means being up
to date and providing a service of appropriate sophistication. Often the con-
sultant will be better placed than a particular client, or even a whole group of
clients, to judge the desirable degree of novelty and sophistication of certain
services. Being proactive in consulting implies that the consultant thinks even
of those needs and requirements of which a client has not been aware, and helps
the client to realize all his or her possibilities and needs.
The professional workers

Professional consultants, including the beginners in the firm, are used to
dealing directly with clients and spend more time with clients than with
colleagues within their firm. The firm, on the other hand, must know that it can
rely on the competence and integrity of its professional staff as a whole,
including not only the senior partners, but also the younger colleagues.
In some established professions there is a well-defined path to the neces-
sary level of competence and integrity, including university studies, attendance
at a graduate school, and practical training and "indoctrination" over a number
of years in a professional firm. Membership of professional institutions or
special examinations may be required. The result of this process is a reasonably
high degree of standardization of skills, permitting the definition of a range of
jobs that even a relatively junior professional should normally be able to perform
either without or with limited supervision. Even the attitudes of professionals
tend to become fairly standardized; thus it can be predicted how professionals
will normally react and behave in typical situations in which their intervention
is required.
In management consulting the situation is more complex, for several
reasons. It is a young profession, and consultants employed by any firm usually
have different educational and practical backgrounds. It is almost necessary for
them to come from various schools and business environments so that the firm
can handle a variety of assignments and deal with management problems requir-
ing a multidisciplinary approach. Contributing different insights and per-
spectives can be extremely valuable. Furthermore, the behavioural aspects of
handling technical and human problems, and the professional's ability to work
with people and help them to cope with organizational change, are probably
more significant in management consulting than in other professions.
Therefore, in managing the professional staff, consulting firms face special
challenges, such as:
how to build up a homogeneous operating core with people possessing

heterogeneous backgrounds and skills (e.g. finance and accounting,
information science, behavioural science, statistics, economics, law or
industrial engineering);
how to develop a common philosophy of consulting and an esprit de corps
while maintaining the diversity of personalities, attitudes and approaches
needed for various assignments, which can be an important source of
innovation;
how to define the right degree of decentralization of technical decisions
concerning client assignments (e.g. questions which an operating con-
sultant on assignment can decide, and those on which a manager or partner
should give an opinion or make a decision);
how to provide consultants on assignments with technical information and
support in order to make them as effective as possible to their current
clients;
how to make sure that not only the skills, but also the personalities and
work styles of consultants and clients, will be matched in order to establish
a productive consultant-client relationship in every single case;
how to build, maintain and utilize a collective knowledge base of the firm;
how to provide the sort of leadership that appeals to professional workers
with a developed sense of independence.
Professional culture
Despite their high level of knowledge and skill, or perhaps because of it,
consultants are difficult to manage. Many of them have become used to getting
on with the job for the client and deciding what to do without waiting for any
instructions from their superiors. They tend to have their own conception of
management in a professional firm: managers are responsible for creating
favourable conditions for professional work (which includes finding new work
and securing finance), but should not intervene in individual projects and
assignments. Some professionals resent any control or interference in their work
with clients, while others are prepared to accept it on condition that it comes
from people whom they respect.
Some consultants become strong individualists and one is tempted to ask
why they actually stay with the firm. Some stay because they have chosen to
work as technicians and do not want to be bothered with administrative and
marketing problems. Others appreciate the advantages of teamwork and
collaboration with other professional colleagues. There is a third group for whom
work in a professional firm is mainly a learning experience, and who do not feel
that they must stay in consulting until retirement.
The attitudes that will prevail depend very much on the organizational
culture and management style of a particular firm. Indeed, consulting firms tend
to exhibit various organizational cultures. The firm may be nothing more than
"a collection of individualities housed under one roof ', and physically not even
under the same roof, since consultants spend most of their time with clients. The
management of their firm may act as an employment agency, whose main
objective is to find work, keep consultants occupied and provide common
support services to the employees.
In contrast, while respecting individuals, many leading firms emphasize a
common consulting philosophy, the service ethos, service quality, team spirit,
sharing of information and know-how, the seniors' responsibility for guiding the
juniors, participation in management, and pride in belonging to an excellent and
respectable professional firm.
Leadership
Experience of excellent consulting firms, smaller and larger, has demon-
strated the crucial role of leadership. Leadership is needed to build up a
professional organization with a strong culture, whose individual members
adhere to common values and work together as coherent teams in pursuing
common professional and business goals. Leadership is needed to motivate
individuals towards superior performance, service quality and loyalty to the firm.
Without leadership, a professional firm is bound to operate below its potential,
and disintegrate sooner or later.
The problem with leadership in professions is that it is a rare commodity.
It requires a combination of superior professional achievement with the personal
qualities of a leader: a genuine interest in people, organizational talent and an
ability to set an example, maintain morale and provide encouragement.
Professional workers tend to reject leaders whom they do not respect as highly
competent and productive professional colleagues and as persons exhibiting
genuine interest in leading and helping others.
This makes the choice for management positions difficult. If possible,
managers in consulting and other professions should also be natural leaders, and
should be willing to assume both leadership and administrative responsibilities.
23.3 Managing a professional business

Management consulting is a business, and has to be treated as such, in all
cases where an independent service is provided to clients for a fee, and where
the firm has to sell services and finance its existence and growth from its
earnings. This applies to the vast majority of consultants in market economies
and in countries in transition from the command-economy to the market-
economy model. Internal and subsidized consulting services constitute an
exception and all principles of managing professional businesses may not apply
to them. Yet they can greatly benefit from being structured and managed as
"quasi-businesses".
Recognizing that consulting is a business

It is not always easy to call a spade a spade. For many years, professional
firms resented being regarded as "businesses", and even at the present time some
professionals feel uneasy about "selling" their services or discussing fees, which
they regard as unprofessional and beneath their dignity. As one practitioner has
pointed out, a consultant is often "torn between being a professional and a
commercial".
Yet a professional service must find a buyer (client) who is able and
prepared to pay an adequate price for it. There is a more or less developed and
structured market for professional services, and competition among pro-
fessionals is increasingly regarded not only as normal and acceptable, but as
necessary and beneficial to the clients. The marketing of professional services
has undergone spectacular changes over the last two decades, and in many
countries further changes are likely to occur in the years to come.
Like any other business, a professional consulting firm can and should
make a profit. This profit will depend on many variables, some of which are not
under the firm's control (e.g. general demand for professional services), while
others are (e.g. the uniqueness and the quality of the services provided, the
marketing skills, and the efficiency of operations). Profit planning, and deciding
on the use of the profits, is important in every consulting firm that wants to be
in a healthy financial position, compensate its people correctly and have
sufficient resources for further development.
Ownership
Most consulting businesses are owned by the consultants themselves.
Several legal forms of ownership are common in consulting, and these will be
described in Chapter 30. However, not all consultants working with a firm are
necessarily co-owners. Usually there is a group of partners who are co-owners
of the firm, and a group of consultants who work for the firm as salaried
employees without having any share in the ownership.
People-intensive business
A consulting business is highly people-intensive (labour-intensive) and
requires relatively little capital. All a new entrant to the profession needs is a
small amount of working capital to cover living and other expenses before he or
she starts collecting fees on a regular basis. He or she can even borrow this
money, and start working from home without renting expensive office space.
Many sole practitioners have thus been able to become consultants, even if quite
a few of them have had to make personal sacrifices at the beginning of their
consulting career.
The labour-intensive nature of consulting affects all areas of managing
consulting businesses. The professional staff constitutes the main asset, although
it has no value from a strictly accounting point of view and bankers would not
recognize it as a collateral. The cost of staff tends to be high in absolute terms

and may exceed 60-65 per cent of the total cost of services. Staff productivity,
motivation and investment in further staff development are fundamental issues
of the economics of the firm.
To change products, that is to phase out old and introduce new services, is
much easier in consulting than in capital-intensive businesses. Many consulting
firms have been able to exploit this advantage in adapting their service portfolio
to new market opportunities, and in increasing profitability by offering new and
more sophisticated services.
Yet at the present time management consulting is tending to become more
capital-intensive. Consultants have to invest more in information technology and
related staff development. The pace of change in information technologies
quickly makes this investment obsolete, thus forcing the firm into writing off
these expenses within two to three years, and making further investments.
A profit model for consulting firms

The basic issues of consulting firms' economics are reflected in the profit
model, developed by David Maister and applied by the Association of Manage-
ment Consulting Firms (ACME) in its annual surveys of the profession's
economic^.^ The profit model is a variant of the traditional Dupont formula for
industrial companies, breaking down aggregate data into analytical ratios.
"Return on equity7'is replaced by "profit per partner" and the global formula is
as follows:
Profits -
- Profits Fees Consultants
X X
Partners Fees Consultants Partners
(Profitability) (Margin) (Productivity) (Leverage)
The understanding of the formula permits firm management to focus on par-
ticular factors affecting business performance, and to manage the relationships
between these factors.
Leverage
Leverage ("an increased means for accomplishing some purpose", accord-
ing to WebsterS Dictionary) is one of the basic concepts underlying the structure
and operation of professional firms. The general principle is simple: leverage is
achieved by employing a certain number of (less experienced and lower paid)
junior professionals for each (more experienced and more highly paid) senior
professional. In most instances, this senior professional will be the firm's
co-owner (partner), while the juniors will be the firm's salaried employees.
Leverage assumes a rational and efficient division of tasks: the seniors are mainly
responsible for finding and managing work, while the juniors are mainly
responsible for executing client assignments under the seniors' guidance and
supervision.
Box 23.1 Leverage and profitability

The relationship betwen leverage and profitability can be illustrated by many
different examples.
In a consulting unit, one partner may have "leveraged himself" by four operat-
ing consultants. Total earnings are $600,000, i.e. $120,000 per consultant
(including the partner), while their salaries are $450,000, including $130,000
for the partner and $80,000 for each operating consultant (let us ignore the
overheads and other expenses). If the partner manages to use and supervise
one more operating consultant, thus increasing leveragefrom 4:l to 5:1, the
new total will be $720,000. Earnings per consultant are unchanged, but total
profit, hence profit per partner, increases from $150,000 to $190,000, i.e. by
26.6 per cent.
Let us assume that, to be able to guide and supervise the fifth consultant,
the partner will have to alter his time allocation. Instead of doing 40 per cent
billable and 60 per cent non-billable work, he will only be able to produce
30 per cent of billable and 70 per cent of non-billable work. His personal
billing will thus drop from $120,000 to $90,000, i.e. by 25 per cent, and the
total profit will increase only by $10,000 (from $150,000 to $160,000), i.e. by
6.6 per cent. Profit per consultant will decrease from $30,000 to $26,600, i.e.
by 11 per cent, although the total volume of business increased by 15 per
cent.
In another scenario, the unit described in (1) above will find new work that
will be paid better, but will require different staff competence and structure.
From five consultants (one partner, four operating) it will pass to seven by
recruiting one senior (partner) and one operating consultant. The two new
consultants will be able to deliver $280,000, i.e. $140,000 per consultant,
while their salaries will be the same as in (1), i.e. $130,000 for the partner and
$80,000 for the operating consultant. Figures for the restructured unit as a
whole will show a slightly higher profit per consultant ($31,500 instead of
$30,000), but a considerably lower profit per partner ($110,000 instead of
$150,000, i.e. a 26.6 per cent reduction). This has happened, despite higher
fees and profits per consultant, due to the change of leverage from 4 : 1 to
2.5 : 1.
The reader can certainly think of other scenarios and their impact on profits.
In practice, the principle of leverage can be applied in different ways

depending on the nature of the services provided, the clients' needs and
preferences, the career planning in the firm and other factors. However, the
appropriate, or optimum, leverage for a consulting firm depends on the nature
of the services provided. Very demanding, state-of-the-art and highly res-
ponsible work does not permit the use of the same number of juniors per senior
professional as more routine, repetitive, standardized and technically simpler
services.
Leverage has a strong impact on profitability measured by profits per
partner (see box 23.1). Firms with lower fee levels and lower earnings per
consultant, but higher leverage, can earn higher profits per partner than firms
with higher earnings per consultant, but lower leverage.
Productivity
Increasing productivity means earning more fees per consultant employed.
The first way to achieve this is to increase working-time utilization - an
important target in all professional firms, but not an exhaustible one due to
legislation, human limitations, and the simple but important truth that un-
reasonably long working hours result in lower quality and falling efficiency.
The second way is charging higher fees per unit of time worked for clients.
This cannot be an arbitrary decision if there is a market rate and competition.
Higher fees can be achieved by selling new, better and more sophisticated
services thanks to innovation, programme development, training and self-
education, and better utilization of know-how and experience within the firm.
Margin
The profit margin achieved by the consulting firm reflects the productivity
and leverage levels above all. Higher consultant productivity and higher leverage
generate higher margins. However, there are also some additional costs, such as
general administration, purchase of information, and training and development
costs, whose reduction can improve the margin. It is up to the firm's management
to judge what is feasible and beneficial in both the short and the long term. Saving
on training and administrative costs will increase the margin, but may reduce
consultant time utilization (due to poor administration) and fee levels (training
was neglected and the consultant's competence did not increase).
Growth
As explained above, in the consulting business improvements in earnings
per partner and profitability do not always require the firm to grow. There are
even growth patterns which fail to increase profitability, or which reduce it,
although the total profits are higher (box 23.1).
On the other hand, the business may have to grow for other reasons (see
also section 24.4):
- to strengthen its position on the market and capture new markets;
- to develop a more complete service portfolio and employ consulting staff
able to undertake a wider range of complex assignments;
- to provide for new work opportunities, career development and staff
motivation.
Entrepreneurship in consulting
Entrepreneurship lies at the very heart of business. In a consulting firm,
the founder is the first entrepreneur. He or she is the person who has taken a life
chance and linked his or her personal future to the future of the new business.
Although the first investment may have been modest in financial terms, it is
always important in terms of human intellect and energy.
Box 23.2 Hunters and farmers

Approaches to entrepreneurship and management in the consulting business
can be demonstrated by differentiating between "hunter" and "farmer" firms.
Hunter firms attempt to maximize the entrepreneurialism of their members by
creating the maximum possible degree of individual autonomy. They encourage
each individual (and each small group) to respond and adapt to the local market.
Marketing is a matter of individual responsibility. Firm-wide consistency (in
services, in markets and in approach) is sacrificed in order to capture the benefits
of local market opportunities.
To succeed, hunter firms must attract, motivate and reward the best entre-
preneurs. Individuals rise and fall according to the results of their own
entrepreneurial efforts. There is no central strategy -just kill meat! The focus is
short term. Those who kill meat are rewarded.
Entrepreneurialism, flexibility, responsiveness, and fast adaptation to shifting
market needs are powerful business virtues. Any firm that can successfully
maximize these will be a formidable competitor.
Farmer firms (also called "one-firm" firms) are built on a collaborative approach
to professionalpractice and emphasize business systems such as compensation,
hiring, training, organization and choice of service lines. They build their success
by investing heavily in the chosen areas. What counts is not individual performance,
but contribution to aggregate success. There is no way for an individualto do well
unless the organization as a whole succeeeds.
Farmer firms enter new markets (after thorough preparation) "big or not at all".
Their marketing is focused. Farmers approach marketing as an organized, joint
activity done as teams. Entrepreneurship is not a matter of individual drive and
initiative, but a function of the whole firm's management.
Firms that attempt to capture both groups of benefits (individual entre-
preneurship and collaborative strategy) must make significant compromises in
management practice, which usually results in lessened performance.
Source: Excerpts from D. Maister: "Hunters and farmers", Ch. 28 of Managing the professional
service firm (New York, The Free Press, 1993).
A consulting business needs entrepreneurial thinking and behaviour even

when it becomeslarger and turns into apartnership or a company employing a
number of consultants. It must be prevented from turning into a bureaucracy or
a research establishment. It probably needs an entrepreneurial spirit more than
growing businesses in some other sectors. This is due to the rapidly changing
needs of the clients, the changing shape of the profession and growing com-
petition from other professions, and to the fact that consultants encounter new
opportunities virtually every day. However, every consultant must have the will
and the ability to see and take these opportunities.
It is essential to define the entrepreneurial role of consultants, in addition
to their specific technical and managerial roles. Consultants will think and
behave as entrepreneurs if they know that such behaviour is wanted and valued
Fundamentalsof consulting firm management
by the firm. They should know what is regarded as entrepreneurship: Is it getting

new clients? More business from existing clients? Selling more assignments that
will be easy to execute? Looking for innovative work methods? Demonstrating
that the firm is able to come up with new ways of tackling old problems? Taking
the initiative to develop new fields of consulting?
Consultants need to know, too, who in the firm is supposed to think and
act as an entrepreneur. Is this a province of senior partners? Is every member of
the firm, including the new recruits, encouraged to think and act as a relatively
independent entrepreneur?
When consulting is not a business

Not all management consulting units are independent businesses. Internal
consulting units within governments and public or private corporations (section
2.51, and most consulting units in management or productivity centres in
developing countries, cannot be categorized as businesses. Some of these units
provide consulting services free, or for a nominal price, instead of charging the
full market rate. Their budgets may be subsidized by their parent body, or from
another source.
Some of these units may be in competition with other consultants, but their
independence tends to be limited in recruiting, remunerating and terminating
the appointments of staff, fixing consulting fees, expanding or scaling down
activities, changing the service portfolio or choosing new clients.
Not all the principles involved in managing a professional business can be
applied to such a unit. However, certain principles are applicable. The effective-
ness of these units can be enhanced by treating them as "quasi-businesses",
providing them with relative decision-making autonomy, encouraging them to
sell services and making sure that their business results have a bearing on staff
remuneration and motivation, and on the future development of the unit.
Internal consulting units may compete with external consultants for work
to be done within the parent organization but, at the same time, may be authorized
to market and sell their services to other companies.
23.4 The management matrix

Some important conclusions concerning the nature and the scope of the
management of consulting activities can be drawn from this analysis. First, each
of the two sides of consulting reviewed above - consulting as a professional
service and consulting as a business - has its specific management require-
ments and justifies certain management tasks and approaches. Secondly,
management tasks in a consulting organization relate either to individual client
assignments (projects) or to common and general needs of developing and
operating a consulting practice as a whole. These different dimensions are shown
in figure 23.1 (overleaf) in matrix form.
Figure 23.1 The management matrix in a consulting firm
Professional Business
service activity
management management
Managing
individual
assignments
Managing
the firm
A fundamental management task in consulting is balancing, reconciling

and harmonizing different needs and interests, such as:
- professional and commercial;
- individual and collective;
the clients' and the firm's;
- the owners' (partners) and the other members' (employees) of the firm;
- short term and long term.
Balancing professional service and business

activity management
The management of a professional service and of a business activity are
two sides of one coin. They can be described and examined separately as we
have done in this chapter, but in real life they are not separated. Yet in every firm
there may be pressures that could easily destroy the delicate equilibrium.
Individuals or teams sometimes foster services in which they are personally
interested, but for which there is no market, or which are no longer profitable.
Some partners resent leverage because they prefer to do everything by
themselves rather than relying on junior colleagues. The firm may press
consultants to increase profitability by lowering quality. Operating consultants
may be asked to become more productive by saving on data gathering and
analysis. Juniors may be assigned to jobs which are beyond their competence,
and so on.
Balancing assignment and practice management

The main task of management consultants is to work on assignments in
client organizations. Every assignment has a business dimension (cost, price,
efficiency of execution, contribution to the firm's income and profit) in addition

to the specific technical tasks to be carried out for the client.
Assignments constitute basic building-blocks in the management system
of consulting organizations. In theory, the system operates as follows. Once an
assignment has been identified and a contract agreed to, the organization has to
appoint a consultant or establish an assignment team and furnish them with
needed resources. A self-contained management cell is thus created within the
consulting firm. As assignments normally have a limited life-span, assignment
teams cease to exist when the job is completed. Individual team members are
regrouped to make up new assignment teams (and new management cells), while
other resources (e.g. equipment, stationery, finance) have been used up or are
reallocated.
It could be objected that the short life-span of an assignment does not
provide for continuity in organizational relations and makes the whole
management system volatile. Yet the nature of consulting services underlines
the importance of assignments as basic management cells. During the
assignment, the working time and the expertise of the operating consultants
"belong" to the client, and the team leader must be able to mobilize and control
fully the resources and guarantee the delivery of the service. Consultants whose
full-time presence in assignments is not required must be able to share their time
and attention among several assignments. The consulting firm supports, guides
and controls the assignment teams in these efforts. The whole operation of the
firm must be geared to this objective.
Assignment management is a crucial activity in any professional con-
sulting firm. However, even the best assignment management cannot ensure the
functioning and development of the firm as a whole. It can even create conflicts
and imbalances by unduly favouring one assignment to the detriment of others,
or of the global interests of the firm. Assignments can conflict with the firm's
overall strategy. Future development can be jeopardized. Here again a balanced
approach is required, putting the right emphasis on global concerns and needs
of the firm in addition to managing specific client projects.
These global concerns and organizational needs include in particular:
0 the firm's professional and business culture;
0 strategy for achieving high professional standards and service quality;
0 strategy for achieving profitability and growth;
the development of new capabilities and products;
0 market and client base development and promotion;
management, motivation and development of the principal resource -the
professional staff;
0 sound financial management and control.
In summary, the art of managing a consulting practice consists of dealing
with all dimensions of the management matrix in a balanced manner, making
sure that both individual client assignments and the consulting firm as a whole
meet their professional goals and business objectives. What this means to various
management functions will be discussed in detail in the chapters that follow.
1 See H. J. Hagerdorn: "The anatomy of ideas behind a successful consulting firm", in
Journal of Management Consulting (Milwaukee, Wisconsin), Vol. 1, No. 1, 1982, pp. 49-59.
2 T. Levitt: "Marketing intangible products and product intangibles", in Harvard Business
Review (Boston, Massachusetts), May-June 1981, p. 96.
3 This section is based on D. Maister: "Profitability: Health and hygiene", in Managing the
professional service firm (New York, The Free Press, 1993), pp. 31-39; and Association of
Management Consulting Firms: ACME 1993survey of United States key management information
(New York, 1993). See also V. E. Millar: On the management of professional service firms: Ten
myths debunked (Fitzwilliam, New Hampshire, Kennedy Publications, 1991).
THE CONSULTING FIRM'S
STRATEGY
In Chapter 12 strategic management was shown to be one of the principal

areas in which management consultants work with business clients. Thus, many
consultants are familiar with the concept of strategy and the techniques of
strategic planning and management. This chapter looks at the question of how
a strategic approach can also be useful to the management of consulting firms.
24.1 A strategic approach

A strategic approach is justified if there is a need for it, not because it has
become fashionable. In the past, most consultants followed no particular strategy
and tried to react to any opportunity and any expression of interest from a
potential client. This has changed. More and more consultants realize that they
cannot be all things to all clients, and that they stand a better chance of obtaining
business by offering a unique service, or by serving a market segment where
they will outperform other consultants. Successful consulting firms behave
increasingly as strategists even if the term "strategy" is not always used.
Purpose and goals

As in other businesses and organizations, strategy in consulting consists in
choosing a path that leads from one condition (the present) to a different one
(the future). The starting-point is known, or can be identified by assessing the
consultant's present position, resources and capabilities. This is not very difficult
if there is a will to see reality as it is and not through rose-coloured spectacles.
The future is a different matter. The basic questions to answer are: What
do we want to achieve, what is our basic goal and when do we want to achieve
this goal? Such questions cannot be answered by doing analytical work and
merely extrapolating past trends. Extrapolation can be very misleading if the
environment and the markets change with high speed. What is needed is a vision
of the future, which is something different from an assessment and a projection
of demand and opportunities; it is the consultant's conception of what the firm

should look like in the future. This is a reflection not only of ambition and
imagination but also of a realistic assessment of opportunities and of the firm's
strengths and weaknesses.
The two dimensions of consulting discussed in the previous chapter have
to be given consideration in deciding what the consulting firm wants to be in the
future. First, the consulting firm needs to define its purpose and objectives from
a professionalpoint of view by seeking answers to questions such as:
- What sort of professional firm do we want to be?
- What will be our culture, our consulting philosophy and our role in solving
clients' problems, in helping clients to achieve high performance levels,
and in developing their learning and problem-solving capabilities?
- Do we want to become leaders in technical terms, that is consultants who
are always at the forefront of progress in technology and management
methods, and who are the first to offer new information and new services
to their clients?
- Shall we confine ourselves strictly to consulting in management, or widen
the range of our service offerings? What services should we add in order
to be more useful to clients?
- What new services can we afford to add to our portfolio without losing our
identity and entering areas beyond our competence?
The second strategic dimension is that of a business activity. The key
questions to ask are:
a What does our consulting firm want to achieve as a business?
Should our strategy ensure mere survival, moderate growth or rapid
expansion?
What is the position in the market for consulting services that we want to
achieve?
What earnings and profits should be achieved?
What should our firm's financial strength and independence be?
The unity of these two dimensions cannot be overstressed. Focusing only
on commercial goals could kill the firm professionally. Ignoring the business
side of strategy would undermine the firm's financial health and the proposed
professional strategies could be unattainable.
Competitive edge
A strategic approach helps to achieve a competitive edge over other
providers of consulting services. A fundamental question is: What is our
competitive advantage, or why should a client turn to us rather than to other
consultants? The reason could lie in special technical expertise, a unique product
unavailable elsewhere, a wide range of multidisciplinary expertise required for
complex business problems, an intimate knowledge of an industrial sector, speed
The consulting firm's strategy
and reliability of service delivery, low fees, good reputation and contacts among
public sector agencies, or excellent relationships with existing clients.
It is true that every consultant cannot become a guru, and most clients do
not need guru consulting in any case. Clients' needs are at various levels of
sophistication, complexity and novelty, and the consulting market offers a wide
range of different opportunities. However, the number of consultants competing
for all these opportunities keeps growing. And clients themselves compete
increasingly with their own consultants by building up internal technical,
analytical and change management capabilities in areas where until recently they
used to turn to consultants.
Thus, a successful consultant who is happy with his or her current achieve-
ments and current chances of getting good business is probably very close to
losing a competitive advantage. Success can be the consultant's worst enemy.
While you are enjoying your leading position and past successes, another con-
sultant is probably working hard on developing something new and demon-
strating that he or she can perform better than you. Privileged relationships with
existing clients will not save you. Clients themselves are exposed to competition
and cannot afford the luxury of retaining obsolete consultants, even if they have
been getting full satisfaction from them in past assignments.
In consulting, you should be absolutely honest with yourself in examining
whether you have a competitive advantage. You may feel that you are good, even
very good, but are you really better than your competitors? If you conclude that
you possess a distinct competitive advantage today, the next questions should
be: How solid is it and for how long will it last? How can you maintain and
enhance it? If you have no competitive advantage, maybe you can think of
developing one. How? This will, of course, depend on many factors and there
is no blueprint. But there are no limits to imagination and innovation. Not
everybody will succeed, but everybody can try. After all, this is how management
consulting has been developing - not by grand designs involving the whole
profession, but by a myriad of individual efforts by smaller and larger firms to
offer new and better services to clients.
Strategy and operations

There has been a long debate about what the concept of "strategy" means
when applied to the behaviour of business organizations. Is strategic equal to
long term? Is a strategic choice one that has a major impact on the nature and
shape of the business? Can we talk about strategy if choice is limited and there
is only one really feasible path?
In our conception, strategic decisions of consulting firms are those that will
have a significant impact on the shape or profile of the firm in both professional
and business terms. It is plain to see that such decisions cannot be separated from
everyday operations. If a consultant who has never worked for the transport
sector agrees to do a first assignment for a road transport company, this may be
more than a simple operational decision. It will turn out to be a strategic decision
if followed by more work from the same client and if other firms from the
transport sector start coming with requests for advice. An operational decision
may comprise elements of a strategic decision.
At what point can we say that an operational decision has turned into a
strategic one? This is difficult to answer in general terms. However, every
consulting firm must be sensitive to this issue. If not, it may find itself trapped
in an important choice which has been made unconsciously and even
unwillingly, just because no one has been monitoring a shifting sectoral or
functional focus of operating assignments.
If a strategic choice is made by the firm's management, it is essential to
turn it into marketing and operating decisions. New clients, new services,
different work for existing clients, new intervention methods, significant
improvements in quality, changes in the firm's public image - these are all
strategic changes requiring changes in marketing and operations. There is no
strategic change without change in the firm's operations.
Flexibility in the strategic approach

Only experience can show whether strategy has been chosen correctly.
Another consultant, a competitor, may have chosen to offer the same new
service, and has performed better in marketing and service delivery. Both your
and your competitor's choices were correct when they were made, but your
competitor has been more successful in implementing his or her strategy. You
will have to revise your strategy, looking for one that takes the competitor's
achievements into account.
However, the main reasons for flexibility in defining and redefining
strategy are not management errors, or competitors' successes, but changes in
the business environment. Management consulting would lose its meaning if it
did not reflect alterations in technology, markets, finance, legislation, national
and international politics, and any other significant changes that affect clients'
businesses. Consulting strategy has to follow, or preferably anticipate, these
changes. Once the financial markets have been internationalized and even
smaller firms can think of borrowing on the international money market, a
financial consultant's strategy cannot be restricted to the national financial
market.
The need for flexibility and imagination in defining and redefining
consulting strategy cannot be overemphasized. Strategy must never become a
straitjacket inhibiting innovation and entrepreneurship. A consulting firm may
have defined its specialization and intervention methods with great care and
precision, but this should not prevent the professionals on assignments from
being alert to new kinds of problem and opportunity faced by clients. Dynamic
consulting firms have always encouraged their staff to think of assignment
opportunities in new fields and come up with new suggestions on how to deal
with old problems. The relationship between long-term strategic choices and the
need for flexibility and innovation may be delicate and difficult to monitor
(remember the "hunters" and "farmers" in box 23.2, page 496), but no consulting
firm can afford to ignore it.
Furthermore, taking a strategic approach does not mean that the consultant
must have recourse to a heavy, time-consuming, yet probably not very practical
strategic assessment and planning methodology. There is no point in quantifying
what cannot be quantified and making detailed projections if the future is
uncertain. A "light" and flexible approach to strategic planning and management
is not only more effective, but it is the only approach that has a chance of being
internalized and practised systematically in a professional service firm.
24.2 Services and products

Some consultants are reluctant to be explicit and precise in describing the
services that they are able to provide. They are worried that such a description
could be restrictive and that they would not be considered for work that does not
exactly fit the service description. Others feel confident that their analytical and
problem-solving expertise is so strong that they can handle virtually any
problem.
Yet service and product definition is a basic building-block of consulting
strategy. It determines the firm's identity and profile, tells clients what they can
ask for and expect to get, determines the expertise that the firm must build up
and maintain up to date, and has considerable impact on consulting style and
methodology.
In Chapter 2 the services provided by management consultants were classi-
fied under six headings:
- areas and functions of management;
- problems and challenges faced by management;
- systems development and improvement;
- approaches to organizational performance improvement and change;
- sectoral services;
- complementary services (which may be outside the management con-
sulting sector).
Basically, management consultants choose and describe their service
portfolios in line with this broad classification. Obviously, there will be some
overlapping and various combinations of these services. Systems, or problems
and challenges, will be in particular areas, functions and sectors. Change-
management methodology may be combined with a special sectoral or problem
focus, and so on.
Areas and functions of management

This alternative, common in the past and still widely applied at the present
time, defines the consultant's services by functional or technical areas in which
he or she can help clients. Emphasis is placed on broad background knowledge
and past experience in the given area. Examples are finance, marketing,
production management or general management. The definition can be kept

wide, or narrowed down into sub-areas -for example, maintenance, production
scheduling and control, stock control, quality control or supervisory develop-
ment, instead of production management.
While it indicates the area of competence, the definition lacks focus if the
consultant is not highly specialized and the subject area is broad. It does not
specify what quality is peculiar to the consultant, what his strong points are, or
how he differs from other consultants. It says nothing about the consultant's
method of work and about the results he aims to obtain in his interventions. The
consultant's identity is blurred. He has to keep up to date in a wide area of
business management, which may be feasible in a large firm, but virtually
impossible for a sole practitioner or small firm.
Problems and challenges faced by management

This second alternative defines the services offered by referring to typical
business and management problems experienced by clients. Emphasis is put on
help in problem solving and on relevant special expertise. Examples were given
in Chapter 2. The underlying assumption is that the consultant will analyse the
problem and provide a solution, combining specialist and generalist approaches
as appropriate. Thus, a company turnaround consultant is offering to handle
financial, commercial, technological, organizational, legal, personnel and other
aspects of a turnaround.
The rationale behind this way of defining services is obvious: when
businesses and other potential clients, including governments, have to react to
new pressures and challenges, this is likely to be in areas where they are short
of experience and expertise and the demand for consulting will be high. It may
be a short-term demand, too.
Systems development and improvement

In this case the consultant has developed and is offering expertise needed
for analysing, developing and improving management systems. These may be
confined to one area or function (accounting, finance, personnel) or may
integrate several functions. It may be (but not necessarily) a proprietary system,
which is not available from any other consultant. It is, of course, understood that
the consultant provides more than the installation of a standard system. As a rule,
the service will include a preliminary diagnostic study, an adaptation of the
standard system to the client's conditions, and assistance with implementation
and related staff training. Further servicing and perfecting of the system may
also be included, thus establishing a long-term consultant-client relationship.
A consultant who has developed competency in special systems may be
recognized as a good (if not the best) source for providing systems of proven
effectiveness for rationalizing and modernizing certain types of process and
procedure. He or she may find it difficult to get assignments in other problem
areas. Such a consultant should be careful not to acquire the reputation of
The consulting f i ' s strategy
someone who tries to apply the same standard package to any problem presented
by a client.
Alternatively, some consultants provide systems, not as their main product,
but as an accessory tool for dealing with a special aspect of the problem in hand
(e.g. a production control system in a plant restructuring project).
Approaches to organizational problem solving and change

In this instance the consultant defines his or her service as a methodological
approach to identifying problems in client organizations and to helping clients
in planning and implementing changes. Emphasis is not put on the nature of the
problem, and the content and end result of the assignment, but on effective
process methodology, and on the fact that the client will personally be able to
acquire a methodology for diagnosing and solving problems and managing
organizational change processes in the future.
The method becomes the product offered. It may be a method whose
description is specific and convincing enough for the client to understand what
will be happening during an assignment, and to consider whether he or she is
prepared to buy such an approach and use it in collaboration with the consultant.
If the consultant's approach is not structured and cannot be easily described,
then the consultant will be marketing the personality and image of a successful
and trustworthy problem solver or change agent.
In an extreme case, the consulting firm may stress, as William Altier has
done, "we're glad we don't know your businessH.l Clearly, this will be a very
different strategy from one based on an intimate knowledge of a specific sector
or functional area.
Sectoral services
By choosing sectoral specialization, the consultant has a good chance of
being accepted in a given sector as "a member of the family", especially if he
or she has an excellent knowledge of the sector and good relations with key
personalities. Conversely, confining the firm's services to one sector could be
too restrictive and risky, owing to a narrow client base, potential conflict of
interest and confidentiality issues. Placing too much emphasis on a sectoral focus
can lead to inbreeding.
Complementary services
The reader knows from Chapters 1 and 2 that firms in various professions
may branch out of their principal area of competence to start providing additional
services as part of their portfolio, for two main reasons:
to serve clients better by offering a more complete and integrated service
package;
0 to develop business by capturing markets in areas previously covered by

other professional firms, or in grey areas, which are usually border areas
between various professions.
Services such as training and education, business information, data pro-
cessing, market research, project management, executive search, interim
management and many others are offered by more and more firms whose
principal area has been management consulting. In these cases the synergy with
consulting work should be given careful consideration:
- Do the consulting, training, information and other services support and
complement one another?
- Do they constitute an integrated package of services enhancing the value
of assistance provided to clients?
- Is the consulting firm more effective because it is providing other services
in addition to consulting proper?
- Or is it spreading resources thinly over many different services unrelated
to one another?
- Will service quality and the firm's credibility gain or lose?
Your special product

In defining the firm's service portfolio, some consultants have found it
useful to develop, and offer to clients, a special product, different from services
or products available from other consultants. It is easy to see that such a special
product (which may be a training package, a business diagnosis methodology,
an information system or other) can constitute the consultant's distinct com-
petitive advantage if it meets a perceived client need and if the consultant is
successful in marketing the product.
Such a special product, it is stressed, should be different from comparable
products offered by other consultants, and superior to them. The difference must
be real, not fictitious. It is not very professional to try to fool clients by using
fancy brand names in marketing consulting services, especially if these services
offer nothing special or different from those of other consultants.
Product innovation
Like any other product, a professional service has its life cycle; it passes
through periods of design and development, testing, launching on the market,
growth, maturity, saturation and decline. Some services become obsolete and
have to be phased out sooner than others. As far as possible, in planning strategy
the consultant should analyse the life cycle of his or her particular services in
order to avoid their obsolescence and be ready to change existing services or
introduce new services at an appropriate moment.
A practical approach is to classify services in groups, using criteria such
as the contribution of the service to the firm's income, the rate of growth of the
Box 24.1 Could consultants live without fads?

To business journals and other observers of the consulting scene, current
consulting is almost identical to faddishness. Consultants are regarded, and
criticized, as the principalforce behind the creation, use and abuse of management
fads. "Consultants have always had a role in launchingfads, . . . but they have been
working overtime to roll out new fads since the 1970s" (Business Week,
20 Jan. 1986).And seven years later: "Fad surfing - riding the crest of the newest
panacea and then paddling out just in time to ride the crest of the next one - has
been big business over the past 20 years" (Sloan ManagementReview, Summer
1993). And "there is a new-look menu over at The Consultants' Cafe. Good old
soupe of Total Quality Management and Change Management pdteare off. Perhaps
you would care to try some Business Process Re-engineering instead?"
(Management Today, Aug .1993).
A management fad can be one consultant's special product at the beginning,
and turn quickly into a popular and widely demanded technique. But what is a
management fad? Is it a gimmick, an irresponsible promise and a superficial
approach, or can it be a new practical and useful method whose popularity has
grown beyond any expectation? It would appear that the rise and fall of
management fads is due as much to the clients' attitudes to change as to some
consultants' imagination and aggressive marketing. 'Rlot of American executives
these days seem eager to latch on to almost any new concept that promises a
quick fix for their problems" (Business Week, 20 Jan. 1986). Since American
business sets the tone, managers in other countries quickly become inoculated.
If a client is looking for a fad and the consultant agrees to provide one only to
avoid the real problem and please the client, it is right to talk about abuse. This is
unprofessional behaviour. If a fashionable method helps to shake up lethargic
management and stimulate real improvements,the fad probably fulfils a useful role.
Perhaps management and business practitioners need a periodical dose (not an
overdose) of fads to stimulate thinking and change. Perhaps the impact of many
management fads has been more psychological than technical. What is your firm's
strategy in respect of management and consulting fads?
service, expected future demand or the cost involved in developing and mar-
keting it. Various methods of strategic analysis can be used. Analysis will reveal,
for example:
services that do not grow any more, but continue to generate a substantial
part of the total income;
services that grow rapidly, though their relative importance in the firm's
total income has remained small;
services whose volume tends to stagnate in certain markets, but which are
in demand in other markets;
services that could easily be redesigned and adapted for new markets
(client groups, sectors, countries, etc.);
services where marketing and maintenance costs are excessively high;
routine services, which have become fairly standardized and can be staffed
by junior consultants;
services which provide opportunities for developing new competencies

and entering new markets.
Research strategy
There is, then, the question of what research the consulting organization
should do for its own needs, particularly for improving and keeping its services
up to date, and developing new competencies and services. In many consulting
firms, the senior staff is busy negotiating and preparing new assignments, while
the operating staff is busy serving clients. Little is done by way of research and
new product development. That is why some outstanding academics have been
able to compete successfully with professional consultants: basing their advice
on research, they have been able to come up with new products which have
aroused the attention of the business community beyond all expectation.
Every consulting firm has to decide whether or not to carry out research
for product and methodology development, and if not, how to acquire the new
knowledge and expertise without which product innovation is impossible. Some
larger and medium-sized consulting firms have chosen to do their own research,
aimed mainly, but not exclusively, at developing new services. Another major
benefit, which several consulting firms have already derived from research, is
the demonstration of intimate knowledge of the business and management scene
and of the firm's readiness to share knowledge and experience with a wide
management public.
Sole practitioners and small firms are in a different situation; their limited
resources prevent them from engaging in major research projects. Small and
focused projects are within their reach. They can, furthermore, keep informed
about ongoing research in universities and management institutes and make sure
that they participate in workshops reviewing the methods and the results of recent
research. Joint research involving several consulting firms, and research
organized by consultants' associations for the benefit of their members, are
under-used and deserve to be explored.
In deciding to do research, a consulting firm has to face the question of
relationships between research and operations. Research projects and teams
separated from current client work do not seem to be the most effective solution.
Better results have been obtained from research based on work for clients, using
client assignments both as a source of information and for testing and applying
research results. However, adequate organizational, time and financial provision
must be made if research objectives are to be pursued and met in parallel with
operational objectives. Without proper arrangements, it would be unrealistic to
expect that operating consultants would also find time and energy for research.
The firm's core competencies

A useful perspective in choosing products and services is that of the firm's
core competencies. Core competencies are defined by activity areas (thesc can
be subjects, intervention methods, sectors, special skills or others) in which the
The consultiigfirm's strategy
firm has developed excellent knowledge and know-how, employs a sufficient

number of well-trained professionals, keeps abreast of developments and can
without any major difficulty undertake various assignments and serve a wide
range of clients. Rather than marketing a special product, the firm markets
competencies for doing certain things. It would confine its service offerings to
its core competency areas, without trying to branch out into areas where it does
not feel strong enough. If there is a need and demand for work outside the core
competencies (as a rule in complex assignments), rather than improvising or
doing second-rate work the firm would turn to subcontracting, sharing the work
with an alliance partner or another convenient formula. A firm recognized as
highly competent for certain sorts of services would not spoil its reputation by
amateurish work in other areas.
The concept of core competencies must not be static. These competencies
can change with changing experience and as a result of changes in the
professional staff structure. They can be enhanced by staff development, but lost
owing to inertia, lack of dynamism and poor personnel policies.
24.3 The client base

Consulting services and products are always intended for a particular client
base. Defining and developing this base is another key element of strategy
formulation in consulting. This includes considerations on whether to serve:
existing or new clients;
organizations of different size (small, medium, large, very large);
organizations in one or more sectors (e.g. energy, transport, health, bank-
ing, any other sector);
private, public or mixed-ownership organizations;
organizations with management systems at different levels of sophisti-
cation (e.g. firms known to be very advanced in applying new manu-
facturing and management technologies);
firms in a limited geographical area, in a whole country, in other countries
and regions, or multinational firms;
a larger or smaller number of clients.
In consulting as in other professional services, having a solid clientele is
probably even more important ihan having an excellent product to offer. Clients
who know and trust the consulting firm from previous experience, and are
prepared to return to it with new work, are a major asset.
Invariably, the strategists of the consulting profession put great emphasis
on retaining existing clients and on marketing and other strategies aimed at these
clients. This is confirmed by statistical data on repeat business, which in some
firms attains 75-85 per cent of total earnings.
This, however, has to be considered in conjunction with service speciali-
zation and the firm's overall development strategy. Growth and diversification
may be impossible without finding new clients, thus increasing and diversifying
the client base. Conversely, the existing client base cannot be served by
unchanged products. Clients stay with you, and recruit you again, only if they
see that you are developing your product line in accordance with their changing
needs. Otherwise they have no reason to return to the same consultant once again.
There are, too, certain other strategy considerations. It is important to
decide how many clients to serve. This may be crucial to a single practitioner or
a small firm. Getting large contracts from a small number of clients reduces the
amount of time spent on acquisition work and ensures regular income. However,
it may create an excessive dependency on one or a small number of major clients,
and even on individual managers in the client organizations. It may narrow down
the consultant's horizon and limit the chances to learn from new clients.
Further, the level of the clients' sophistication ought to be compared to the
sophistication of the services that the consultant is able to provide. There are
differences between clients (and countries and sectors) in terms of sophistication
of their management systems, and competence of their managerial and specialist
staff. Not every client requires, and can use, the latest innovations in management
sciences and technologies. Not every consultant can claim to operate at the
cutting edge of technology and a realistic assessment of one's own level of
sophistication can be one of the soundest strategic moves.
24.4 Growth and expansion

In many countries and even in international markets, large consulting
organizations and single practitioners operate alongside each other. Various
firms have grown in their own ways and, in many cases, no particular growth
strategy has been pursued. The vision and entrepreneurial spirit of the founder
or managing partner, and good performance in marketing and delivering
services, have been the main factors of growth, allied with a favourable business
climate.
Nevertheless, the size of the firm and the rate of growth ought to be con-
sidered when defining strategy. These questions should be examined in
connection with the range of services offered, the sectoral and geographical
coverage, the assessment of the market, existing and newly developing
competition, the consulting organization's resources, and its ability to sustain
growth while maintaining or improving service quality.
Is there an ideal size of a firm?

Some consulting firms have deliberately opted for a limited size and do
not try to grow beyond it. This is often justified by a combination of human and
managerial factors -the desire to maintain a coherent professional team where
individuals can interact with each other and a simple management structure can
be used. Conversely, size has become a constraint for many smaller firms. They
see consulting opportunities that are fully within their technical potential, but
beyond their reach owing to the importance of the potential client, the size of
the contract and the number of consultants to be assigned to the project.
Yet it is impossible to determine an optimum size of a consultancy as a
theoretical concept. Instead, it is necessary to examine if there is coherence
between the firm's strategic choices and plans, and its current and projected size.
This analysis may reveal that there is no reason to grow, or, conversely, that the
firm must grow if it wants to capture new markets, develop new service lines
and satisfy the ambitions of its staff.
Growth and problems of staffing

Growth involves recruiting and developing new consulting staff. If growth
is fast, it is often difficult to find new consultants, the initial training of new
recruits has to be shortened, and relatively inexperienced consultants have to be
assigned to jobs that may be beyond their competence. In the 1970s quite a few
consulting firms which followed a fast-growth strategy had to struggle with
considerable problems of staffing, training, indoctrination, coherence and
integrity.
A consulting firm that does not grow, or grows too slowly, faces other
problems. Its staff ages, becomes more experienced, and wants to be promoted
to senior positions and obtain corresponding increases in remuneration. The
firm's leverage pattern may become distorted since it will be impossible to
maintain the normal ratio of juniors to partners. The cost of the firm's services
also grows if the higher remuneration cannot be counterbalanced by increased
staff productivity.
What is to be done? The firm may try to change its product-market scope,
focusing on more sophisticated services, requiring more experienced (and
better-paid) staff. In other cases, staff turnover helps. Staff members, who see
no chance of promotion if the firm does not grow, may decide to leave and can
be replaced by new recruits at junior level. In one sense, such problems exist in
any organization. They tend to be more acute, and to have a greater effect on
strategy, in professional service firms, because most of these firms are limited
in size and professionals employed in them are highly competent individuals
who pursue ambitious career goals. We will return to this question in Chapters 32
and 33, when discussing consulting careers and staff development in more detail.
Mergers and acquisitions

Growth and expansion can be achieved through mergers and acquisitions.
In the 1980s and early 1990s, many consulting firms adopted this strategy for
various reasons: to add a new service line to their portfolio (corporate strategy,
information technology, marketing), to acquire access to a consulting market in
another country, to become international, or just to grow and get a larger share
of the market. Some larger international consultancies bought ten or more
smaller firms of varying profiles. The most spectacular mergers were of course
those within the Big Eight group, which reduced the group to the Big Six.
In the professions, growing through mergers and acquisitions is a cour-

ageous and risky strategy, requiring highly sensitive and open-minded manage-
ment. Different corporate and national cultures have to be faced and harmonized,
many structural and human problems resolved, barriers to change overcome, and
clients assured that they will be getting the same and an even better service. It
is not surprising that not all mergers and acquisitions have been unqualified
successes.
Networks and strategic alliances

As consulting projects grow larger and more complex, and clients demand
the highest quality of service, fewer and fewer consultants can rely solely on
their own resources. Developing new services and capabilities with the firm's
own resources takes time, and may not be the right thing to do (e.g. if demand
for certain services is irregular and small).
A merger or an acquisition may prove to be the solution. However, many
firms do not want to lose independence. Perhaps they have not found a suitable
candidate for a merger. Or they prefer to collaborate for some time with a partner
before considering a legal merger in order to ascertain if competency levels,
consulting philosophies and organizational cultures are compatible.
Collaboration among independent professionals is nothing new. However,
since the 1980s networking and strategic alliances have become an important
feature of strategy in many consulting firms2 They come in various forms:
Informal networks. Such a network is usually formed by a group of single
practitioners or smaller firms with similar or complementary profiles and
interests. The network becomes a pool from which consultants choose
collaborating firms or individuals case by case for assignments that are too
large for one small firm, require special technical expertise or extend to
other countries.
Structured networks. Some networks have become more regular and
structured. For example, members are listed in a consultant's information
brochure and there is a moral commitment (not a binding agreement) to
treat them as preferred partners in deciding whom to invite to collaborate
in an assignment.
Direct interfirm agreements. Such arrangements can concern various
service lines, geographic areas or forms of cooperation. For example, a
general management consultancy can have a long-standing arrangement
with several partner firms (or subcontractors) for work in specialized areas
such as market research, organization development, valuation or infor-
mation technology. Such interfirm agreements can be more or less binding
and exclusive.
Ad hoc project consortia. A consortium involving two or more pro-
fessional firms is usually established for a particular project which exceeds
the possibilities of a single firm, or where involvement of several firms is
required for another reason. Technical assistance agencies often require
consultants to bid for projects in a partnership with one or more consulting

firms from the aid-receiving country.
Cross-border alliances are particularly important for the advancement of
consulting in countries where the profession is inexperienced and not well
established. Many young firms in the developing world and in Central and
Eastern Europe have drawn considerable benefits from various cooperation
arrangements with Western consulting firms.
If alliances fail, this is usually due to superficial selection of partners, lack
of respect and trust, incompatible cultures and consu~tingstyles, major dis-
crepancies in competence, unrealistic expectations, poorly defined com-
mitments or the pursuit of conflicting business objectives.
24.5 Going international

Going international is a fundamental strategic choice, with many impli-
cations for the structure, competence and operation of the firm. If the firm wants
to grow, and the local market is saturated, going international may be a necessity.
By and large, consulting firms internationalize operations for the following
main reasons:
- to find new markets for services;
- to respond to demands received from foreign clients;
- to satisfy multinational clients, who expect that their preferred professional
advisers (consultants, lawyers, auditors and others) will provide an
international service, matching the client's multinational profile;
- to tap the resources for the funding of technical cooperation, provided by
a wide range of national and international agencies;
- to satisfy the consultants' intellectual curiosity and quest for challenging
new work opportunities.
To many consultants, becoming international is no longer a strategic
choice. They made this choice ten or 20 years ago, and their current problem is
how to be more effective in managing and developing an international
consultancy.
All consultants who have become international stress the need to under-
stand the institutional, economic and cultural characteristics of every national
market. Yet different internationalization strategies have been pursued, depend-
ing on factors such as the firm's general philosophy, organizational culture,
resources, creativity, and also sheer luck (e.g. in finding a good local partner
firm or an exceptionally talented local manager, or winring an important inter-
national contract).
Internationalization has been pursued by:
undertaking foreign assignments from the firm's h~adquarters;
establishing local practices, but providing all senior and special expertise
from headquarters;
establishing local practices by recruiting and developing local consultants,

and gradually phasing out managerial and special expertise provided from
headquarters;
acquiring local firms and transforming them to fit the parent firm's pro-
fessional and business culture;
acquiring local firms but leaving them almost as they are;
using various networking and alliance building formulas, as described in
section 24.4.
A key issue is striking the balance between centralization and decen-
tralization in developing and managing the professional service side of the firm.
If a centralist approach prevails, the whole firm operates more or less in the same
way, following the same guidelines and using the same type and level of expertise
in different countries. Ensuring uniformity and coherence is a key task of
management at all levels. In contrast, fully or largely decentralized firms operate
as groupings of independent national units, which may be quite different from
each other in terms of technical services and consulting style. Professional
guidance from the headquarters is limited, and management focuses mainly on
common business development policies and issues.
24.6 Profile and image of the firm

The strategic choices discussed in the previous sections concern the
principal characteristics of a consulting firm: its philosophy, services, com-
petencies, client base, markets, resources, growth pattern, geographic coverage,
size and so on.
Taken as a whole, these characteristics determine a firm's unique identity
or profile. As we have seen, many combinations are possible in choosing the
firm's principal characteristics. As a result, there is an almost infinite range of
different profiles among which firms can choose.
Consistency between various choices

Nevertheless, no firm is totally free in choosing its strategies. The choices
must not be inconsistent. Decisions concerning the sort of services that will be
offered, or the sort of clients to be served, require corresponding choices in other
areas, such as staff recruitment and development, or the firm's own research
programme. Furthermore, strategic choices cannot ignore the firm's past
experience and record of achievement. Your future is very much predetermined
by your past. Even if the firm has the determination and the resources for major
reorientation of its service portfolio and profile, it is important to analyse what
can actually be changed and what the cost of this change will be, and how the
clients will react.
Typology of firms' profiles

To help professional firms in understanding their profile and developing
coherent change strategies, several attempts have been made to develop
typologies of professional firms (box 24.2).
Any such typology has both the disadvantages and advantages of simpli-
fication. Seldom would a particular firm's profile be fully identical with one of
the prototypes. Most firms are hybrids, and exhibit many other characteristics.
When it comes to specific client projects, they will also be influenced by per-
sonalities and cultures of individual consultants and clients. Yet such simpli-
fication is conceptually useful and helps both consultants and clients to
understand what is hidden behind the professional firms' names, mission
statements and general service descriptions. It also helps to develop realistic
strategies for the firm's future.
Image of the firm

The firm's image is the way it is perceived by client circles and even by
the general public. The image concerns various aspects of the firm's profile and,
in theory, should be a faithful reflection of this profile. In practice this is often
not the case, owing to factors such as the firm's exceptional achievements, recent
misfortunes and its treatment by the media. Also, even if there is no discrepancy
between the firm's real profile and public image, this image will usually be
Box 24.2 Five prototypes of consulting firms

Danielle Nees and Larry Greiner suggest five prototypes of consulting firms,
based mainly on differences in their professional and organizational culture. They
emphasize that consultants from these different firm prototypes bring a pre-
established style to the client. Their typology includes:
Naturaladventurers (consultants identifiedwith scholarly disciplines, providing
leading-edge knowledge and tackling difficult issues requiring a scientific
approach).
Strategic navigators (consultants applying models and analytical tools to
handling complex issues of the client firms' future strategies).
Managementphysicians (consultants focusing on the anatomy and circulatory
system of client firms by analysing and improving structures, procedures,
culture, leadership and other factors of efficiency and effectiveness, and on
implementingthe proposals).
System architects (consultants dealing with systems projects requiring
technical solutions, often using sets of pre-establishedtools and procedures;
this includes installing the system and training the staff).
Friendly co-pilots (advisersto senior management on business strategies and
policies, and other significant issues).
Source: Adapted from D. 0. Nees and L. E. Greiner: "Seeing behind the look-alike management
consultants", in Organizational Dynamics, Winter 1985.
Managementconsulting
reduced to a few characteristics and will provide a simplified (and possibly

superficial) picture of the firm's real resources and capabilities.
The firm's image plays an important role in developing relationships with
clients and marketing the firm's services. It cannot be ignored in developing
strategy. In professional services, the clients' perception of what you are is as
important as what you really are. You may be the best of consultants, but if the
clients perceive you differently (or if you have no image), they have no reason
to turn to you. Therefore every firm needs to be well aware of its image.
A self-image must not be mistaken for a real image. Professionals easily
develop a self-image that is more flattering than their real image in client circles
and within the profession. This can be a bad starting-point for strategic thinking.
24.7 Strategic management in practice

Strategic management is an approach, a way of thinking. Strategy is pri-
marily synthesis, not analysis. It must not be a cumbersome procedure with a
lot of paperwork and endless meetings. If it turns into bureaucracy, or if it
becomes the guarded province of specialized planning units, line management
and professional workers lose interest in it. Consultants advise clients to prevent
such a degeneration of strategic planning. They must be able to avoid this pitfall
themselves. This, however, does not preclude the use of a structured strategic
assessment and planning methodology, if the consultant is versed in one and has
had good experience with it. There are quite a few on the market.
Self-assessment
A thorough and honest self-assessment is a necessary starting-point
irrespective of the procedure and methodology chosen. It is sometimes called
"strategic audit7' to emphasize the focus and purpose of the exercise. Many
consultants will be able to undertake it by themselves, although it is never easy
to be detached and objective in assessing one's own performance, capabilities
and perspectives. A peer audit may be helpful. In some situations, however, it
will be preferable to turn to an independent adviser versed in the management
of professional service firms. In any event, the audit should be based on facts
and figures, not on illusions.
In self-assessment, the consultant will be addressing the various issues
reviewed in this and other chapters of our book. The check-list in box 24.3 gives
an idea of the questions that need to be answered.
Learning from clients

The reader knows that the relationship between consultants and their clients
lies at the very heart of the consulting profession. When the consulting firm is
assessing and developing its strategy, clients play a special role: learning from
clients is indeed a significant strategic choice. It would be arrogant, and futile,
Box 24.3 Strategic audit of a consulting firm: Check-list of questions

What kind of professional firm are we?
What is our consulting philosophy and ethics?
What is our organizational culture?
What is our image in client circles?
How solid is our client base?
How do we work with clients and how do we learn from them?
What are our core competencies?
How can we assess our service portfolio?
What is our competitive advantage?
What lessons can be drawn from our growth pattern and performance
record?
What strategies have we pursued and with what results?
What is our financial position?
How can we assess the quality and development potential of our human
resources?
What do we know about competitors and what can we learn from them?
What can we learn from other professional service firms?
What is our potential for further growth and improvement?
What is our vision of the future?
What are our strategic options for future years?
What strategic and other errors must be avoided?
to draw conclusions on the firm's capabilities and future perspectives without

asking what the clients need, want and think.
First of all, the firm must know precisely what the clients think about it.
Feedback from clients concerning the services provided may be available from
assignment evaluation, contacts with the managers of client organizations,
industry meetings and conferences, and other sources (see Chapters 11 and 25).
In assessing and developing strategy, all this information must be carefully
reviewed. In addition, clients can be asked specific questions concerning their
expected future needs and requirements. They can make invaluable suggestions
to the consultant.
Looking at your future market

In many situations, looking at the current market and the existing client
base would not be enough. This can be the case of a firm that has exhausted the
possibilities of offering new services to its clients, wants to be less dependent
on a small number of important clients, or feels that its products could well
interest potential clients in other countries or sectors.
The identification and assessment of the potential market starts with a
hypothesis as to what the market might be (bearing in mind the scope and level
of the consultant's resources and capabilities). Fact-finding and market research
would confirm this original hypothesis, suggest another definition of the market,
confirm the original definition on condition that the consultant could improve
his or her image, and so on.
A complete survey would cover:
technico-economic characteristics and development tendencies of the

sector(s) to be served: advanced or obsolete technology, growth prospects
and difficulties ("smokestack" industries), position in respect to other
sectors and national development strategies, inter-sectoral linkages,
international competition;
organizations in the sector: number, size, categories, leaders, monopolies,
ownership pattern, traditions; more detailed information on organizations
that are most likely to be a prospective market (including names and
addresses of firms, and, if possible, names of owners and senior managing
staff);
the management scene: level and sophistication of management, use of
management systems and technologies, prevailing attitudes and traditions,
background and competence of managers;
practices concerning the use of consultants: demand, attitudes, experience
with use, special requirements.
Assessing a potential market obviously involves much more than finding
addresses of firms and some global information on them. It is a thorough research
effort; the consultant must know his or her potential market in considerable depth
and detail. Various sources of information and research methods can be
combined in order to develop a comprehensive picture of the market (business
publications and reports, trade journals, official statistics, stock-market
information, training events and management conferences, individual contacts
and interviews, and so on). Information obtained directly from existing and
potential clients is particularly useful.
The definition of a potential market is a delicate matter for a new consulting
firm, which does not have any clientele and faces the risk of adopting either an
excessively wide or an unduly narrow definition of its market. In the first case,
the firm's marketing effort will be too costly and largely unproductive, embrac-
ing organizations where there is little or no likelihood that they will become
clients. In the second case, good opportunities of finding assignments will be
missed by omitting certain prospective clients.
Some consultants regard all organizations in the field of their specialization
as a potential market, while others use a more restrictive definition and regard
their market as consisting of organizations which have problems and require the
consultant's help. Both approaches have their rationale. An organization that
does not have a problem today may have one tomorrow, or next year, and it will
be good if it is aware of the existence and reputation of your consulting firm!
Some marketing effort may therefore be directed at creating this awareness. At
the same time, every consulting firm needs assignments that will keep it occupied
today, and these will be found in organizations that already experience problems.
This includes not only organizations in difficulties, but also prosperous firms
that are seeking new opportunities for developing and improving their business.
The concept of market segmentation is helpful in analysing the chances of
a consulting firm successfully entering a new market. Segmenting the market
involves subdividing potential clients and their business and management prob-
lems into smaller groups, by one or more criteria - by size, geographical

location, technology used, ownership pattern, financial difficulties experienced
(shortage of working capital, foreign exchange problems), market served (local
market, exporting, re-export), or other issues. Such segmentation is meaningful
if it identifies some common characteristics of the organizations involved,
reflected in their common consulting needs and in the kind of services required.
It will be useful to find a market segment, or niche, which (a) is likely to need
a special service or product that you are able to provide, and (b) is less "occupied"
by other consultants.
Box 24.4 What do we want to know about competitors?
Who are they (names, founders, key executives)?

How large and how well established are they?
For what markets and organizations do they work?
Do they enjoy a solid and stable client base?
What is their technical competence and range of services?
What are their consulting and marketing approaches and methods?
In what areas are they ahead of us?
What professional image do they enjoy?
What are their terms of business?
What can we learn from them and what can we do better?
Are we likely to win or lose if we compete with them?
Knowing your competitors

The market analysis is pursued by assessing existing and potential com-
petitors. As a general rule, it is essential to learn as much as possible about other
consultants' profiles, strategies and achievements, addressing questions such as
those listed in box 24.4.
Learning from competitors is not aping them without imagination. Less
experienced consultants can easily fall into a trap by trying to do exactly what
their established and experienced competitors do, although their resources are
usually inadequate for this.
Whether to compete or not is a delicate but essential strategic choice. Many
consultants have decided not to compete with existing firms by offering the same
service, but to offer a new service or special product that is not currently available
from other consultants. However, most consulting services cannot become
legally protected intellectual property (except certain proprietary systems and
software packages). Sooner or later competitors will come up with the same or
a similar service. What will your strategy be then?
Understanding the business environment and climate

Your assessment of the environment has to reach beyond the market for
your particular services. Various other environmental factors affect opportunities
for management consulting and the approach to take in developing and

marketing new services. Some of them can be found in box 24.5.
The box gives only examples of factors that may be important to your
consulting firm. Whether a particular environmental factor is important or not,
and should be examined in depth, reviewed briefly or ignored, is a matter for the
consultant's judgement. A general management consulting firm contemplating
the expansion of international operations will be interested in different environ-
mental factors from a marketing consultant working with small businesses
serving a limited local market.
Every consultant is keenly interested in the general business climate. If
business is prosperous, the markets for consulting services tend to be expanding
rapidly. This often stimulates consulting firms to an equally fast expansion, even
if they are not always able to provide all new recruits with excellent training and
maintain high professional standards.
On the other hand, economic recession and stagnation of business also
affects consulting, but not necessarily all services in the same way. Services
considered as essential for the clients' survival, and for achieving tangible
improvements in productivity and efficiency, continue to sell well or even better.
Other services tend to suffer. In many instances the recession, and falling
demand, have forced management consultants to phase out training and other
service packages that were fashionable and easy to sell in the period of general
prosperity, but ceased to interest clients when austerity became the name of the
game.
Following the developments in the profession

Although many consultants follow the developments in their profession
virtually on a daily basis, a strategic audit provides an opportunity for a more
Box 24.5 Environmental factors affecting strategy

the political climate;
the current business climate and its expected changes;
international political, economic and trade blocs and agreements;
promotional or restrictive government policies;
the dynamism of the business community;
the availability and sources of finance for new development projects;
local cultural values and traditions;
local business practices and habits;
labour legislation and industrial relations;
legislation governing professionalservices, contracting, liability, and the like;
technology trends likely to affect your clients in the future;
environmental protection issues and policies;
facilities offered to foreign investors.
thorough review of these trends and of their possible implications for future
strategy. Important changes that affect consulting services deserve particular
attention. These can be changes in consulting methods, the conception of ethics,
the approach to marketing and advertising, the ways of combining management,
technological and other types of consulting, the relations between consulting
and training, competition with other professions and similar issues.
Choosing coherent strategies

We have already mentioned that strategic choices affecting various aspects
of the consulting firm are mutually related. There is a significant relationship
between the basic objectives to be pursued, the services to be offered, the market
segment that will be the firm's target, the image to be built up, the marketing
techniques to be used, the staff to be recruited and trained, the research and
product development to be undertaken, and the resources to be allocated to these
activities. The purpose is to develop coherent strategy, not a set of accidental,
inconsistent or even conflicting choices.
Involving staff in strategy formulation

There are valid reasons for organizing strategy formulation as an exercise
involving as many members of the consulting staff as possible. This can be done
through task forces, meetings, special projects, and so on. Participation in
strategic thinking and planning helps to build up an esprit de corps, increase the
firm's cohesion, and counter the centrifugal tendencies that develop only too
easily in professional firms. Both senior and junior staff members thus feel
associated with the strategy that is adopted, understand the reasons for it and
accept it as their own choice. They will feel like "owners" of their firm's strategy.
In discussing common strategy every professional has the opportunity to
compare his or her personal strategy (if any) with that of the organization to
which he or she belongs. In professional services it is not uncommon that these
two strategies conflict. An individual may believe in a different mode of
consulting or just prefers to do different things than the firm intends to do. He
or she may decide to leave if there is no way of reconciling the two approaches.
Making strategy explicit

We have stressed that strategy should provide a framework and guiding
principles for operating decisions made by all units and staff members in a
consulting firm. Therefore they have to know the strategy chosen and understand
the reasons behind it. Staff participation in formulating strategy has contributed
to this understanding. It is useful to tell all staff about the strategy chosen by
management and to keep people informed about any changes in it. Attention
must be paid to strategy in the induction training of new staff. Making staff aware
of strategy is particularly important in larger and decentralized consulting
organizations with many relatively autonomous operating units, which are
exposed to a permanent danger of losing sight of common objectives and

strategic choices. Also, consultant remuneration and motivation must not operate
(as they often do) against strategic choices made by the firm. For example, if the
firm wants to do more work for high-technology firms and phase out routine
company organization work, the firm's marketers and operating consultants
must be well aware of this decision and be motivated towards getting new
assignments that make this reorientation possible.
Some consulting firms have found it useful to have a strategic plan for three
to five years rather than just a list of policies reflecting strategic choices. If such
a plan has to be prepared, the firm is encouraged to make strategic choices
explicit and express them in measurable and controllable terms. The plan is a
tool for achieving coherence between the various choices discussed above,
allocating needed resources and rejecting strategies that are not feasible.
However, it may be unrealistic and unnecessary to set targets for three to five
years if technology changes very rapidly, future business prospects are uncertain
or the firm has not really gathered and analysed meaningful information. Many
consultants prefer to avoid any formalized strategic planning, which they replace
by a short statement of their principal strategic orientations and policies.
Strategy is an internal matter and the consulting firm may treat its strategic
decisions or a statement of strategy as confidential. Yet certain aspects of strategy
can be made publicly known. It may be useful to give clients, current and
prospective, some information on the strategy chosen, thus helping to build up
the consulting firm's image and gain clients' confidence. This is done, as a rule,
through information brochures, annual reports and other publications, or in
dealing with specific clients and submitting proposals to them.
Monitoring strategy implementation

At the beginning of this chapter we stressed that strategy is inseparable
from operations. In theory, operating decisions and actions should be in harmony
with strategy. Often they are not. Strategy is either ignored or for some reason
cannot be applied.
Usually the reason is that strategy has been treated as a staff function
separated from operations. Either the real state and possibilities of operations
were not duly considered, or the operating consultants were kept in the dark
about senior management's strategic thinking. Both cases imply that the firm
has been poorly managed and its strategic planning has probably been an esoteric
exercise.
Monitoring the relationships between strategy and operations is an
essential management function. If deviations from strategy are frequent and
important, this probably indicates that a wrong strategy was chosen, that it has
become outdated or that the firm's management has been unable to translate its
own strategic choices into marketing and operational practices. Alternatively,
operations may have revealed new opportunities and issues important enough
to justify a revision of the firm's strategy. In any event, the firm's senior
management will have to act to bring strategy in line with new realities.
When and how should this be done? A major correction of strategy (e.g.
to amend an error, or seize an excellent unexpected opportunity) should be done
immediately when this becomes necessary, and people in the firm should be told
about it without delay. Other adjustments may be made periodically within the
framework of annual performance and strategy reviews.
W. J. Altier: "We're glad we don't know your business", in Journal of Management

Consulting (Milwaukee, Wisconsin), Vol. 3, No. 3, 1987.
See also H. S. Bott: "Strategic alliances", in Management consulting 1990: The state of
theprofession (Fitzwilliam, New Hampshire, Kennedy Publications, 1990).
MARKETING OF CONSULTING
SERVICES
A consulting firm can exist and prosper if it gets and keeps clients. This is
what marketing is about: define your market, identify clients, find out what they
need, sell the consulting service to them, deliver the service to the clients' full
satisfaction and make sure that once you have good clients you do not lose them.
In management consulting, as in some other professions, there has been a
long debate on the appropriateness of marketing and of its various techniques.
Even today, some consultants feel uneasy about "selling" their services: they
regard it as unprofessional and beneath their dignity. Many consultants are poor
at marketing and, if they have to market, they do so with little enthusiasm and
imagination.
Yet the marketing of consulting is as old as consulting itself. James McKin-
sey, one of the pioneers of management consulting, spent many hours having
meals with prospective clients and other useful business contacts. Over the meal,
he would engage in a technical discussion, aiming to gain the person's con-
fidence and subtly explain how he could be of help. His business sense was
telling him that professionals must be active in marketing their services. He was,
however, cautious not to oversell.'
Since McKinsey 's time, the leaders of the profession have always exhibited
considerable dynamism in marketing their firms' services. They have sys-
tematically sought opportunities to make social contacts with potential clients,
to be recommended by existing clients to new prospects, to carry out quick
management surveys free of charge, or to speak at management conferences.
This, in addition to the firm's reputation, used to be sufficient to attract clients
to the established firms as long as the market for consulting services was small,
and competition was limited.
No wonder that the firms established in the business did not favour the use
of a wider range of marketing techniques, and of advertising in particular. The
same attitude prevailed in consultants' associations. It was not until the late 1970s
that advertising was admitted in the United States as a correct and acceptable
means of marketing professional services in a competitive environment. Stress
was laid on the point that competition in professional services ought to be
encouraged, as it provides the client with the possibility of getting a better service
for a lower price. In other countries, attitudes to the marketing of professional
services have also started changing.
At the present time, it is almost universally recognized that professional
services can and have to be marketed. Publications and courses on the subject
proliferate. Yet many consultants have a long way to go to become fully
proficient and effective in the marketing of their services.
In summary, management consultants, like other professionals, have to
market their services for two main reasons:
- if they do not market in a competitive environment, they will not get the
clients and the market share that they could and should get, and are thus
abdicating their position in their competitors' favour;
- irrespective of competition, marketing is needed to put the right consultant
in touch with the client who needs and is prepared to use him or her; the
client may not know about your firm, lack an understanding of what
consulting is about, or just be timid and shy, so a professional approach to
marketing will surmount these obstacles and establish the required
collaborative relationship.
Chapter 24 has shown that marketing considerations have a prominent
place in the strategy of consulting firms. This discussion will now be pursued
by reviewing the principles and methods of marketing.
25.1 The marketing approach in consulting

In consulting we often think of marketing as a distinct function, a set of
activities, tools or techniques which cost us time and money and which we would
prefer to avoid - if only a sufficient number of unsolicited clients came to us
by themselves. According to this view, marketing is an unavoidable evil, some-
thing that we accept that we have to live with, although we do not like it.
Fortunately, more and more consultants, as indeed other professionals,
regard marketing as an inherent characteristic of the service concept. Marketing
does not precede a professional service; it is a professional service in its own
right, needed to establish and maintain an effective consultant-client relation-
ship. It identifies clients' needs and requirements, reveals the client's mentality,
defines the best way in which a professional can be useful to the client and puts
the whole consulting process in motion. According to this view, service
marketing is an essential condition of a truly professional service. It does not
stop when a sale is made. The consultant continues to market after the contract
has been signed, when the project is being executed and after project completion.
What is to be marketed?
The marketing of consulting is strongly affected by the "intangibility" of
consulting services. As we have seen (Chapter 23), clients will not be able to
fully examine the product they are intending to buy and compare it to products
Marketing of consulting services
available from other consultants. Even if product tangibility is somewhat in-

creased when consultants supply structured systems and methodologies, it can
never attain a degree of tangibility comparable to industrial products, and many
other products in the service sector.
What the consultant is selling is a promise (but no guarantee) of a service
that will meet the client's needs and resolve the problem. Why should a potential
client buy a mere promise? Why should he or she take such a risk?
First, because the client has established, or just feels, that it might be useful
to get the consultant's help.
Second, because the client has no alternative - buying any consulting
service (even from someone whom you know well or whose work you have seen
elsewhere) is always buying a promise. What has worked in another company
may not work with you. A client who is not prepared to take this risk and buy a
promise must refrain from using a consultant.
It is fully understandable that, in buying a promise, competent clients will
wish to reduce risk. They will be looking for surrogates in evaluating what they
are likely to get and deciding to whom to turn. In the marketing of professional
services, surrogates play a prominent role. Many clients buy without having any
direct knowledge of the professional firm, just because of the firm's image in
business circles, or because a business friend or acquaintance has used the firm's
services previously and has been satisfied.
Furthermore, the marketing of consulting services deals with both dimen-
sions of the consulting approach described in section 1.4 - the technical
dimension (the technical know-how needed to solve the client's specific
management or business problems) and the human dimension (the relationship
between the consultant and the client, and the consultant's ability to face human
problems). Thus, the consultant has to convince the client that, from a strictly
technical point of view, he has all the technical knowledge, know-how, access
to information, and so on, needed to deal with the client's technical problems
and produce a solution whose technical quality is indisputable. But this is not
enough. Consulting is a human relationship above all, and the consultant and
the client may be spending long hours in working together. Therefore the client
must be convinced that he is purchasing the services of someone with whom (at
worst) he is prepared to work or (at best) he will enjoy working. This concerns
the consultant's ability to work with the whole "client system" as described in
section 3.3.
Finally, the marketing of consulting services must not ignore the fine
distinction between a consulting firm and an individual professional employed
by that firm. True, in purchasing the services of an excellent professional firm
clients normally expect a certain degree of quality, integrity and even uniformity,
reflecting the firm's collective know-how and organizational culture. Yet
consultants are human beings and absolute uniformity is not only impossible,
but undesirable. Informed clients are aware of the difference between the firm's
image, know-how and standards, and the capabilities, personalities and style of
individual consultants. Accordingly, the consulting firm will have to market both
itself and its individual members and teams.
Box 25.1 MMetingof consulting: Seven fundamental principles
Experience has shown that successful marketing of consulting services is

guided by certain general principles:
1. Regard the clients' needs and requirements as the focal point of all
marketing!
There is no point in selling to potential clients what they don't need, or don't
want to buy. The client may be pleased to hear that you are a brilliant and highly
successfulprofessional, but it is infinitely more importantto convincethe client that
you care for him or her, understand the situation, are prepared to listen patiently
and can help to find and implement a solution beneficial to his or her business.
This is a golden rule. Your marketing efforts must be client centred, not consultant
centred. Your interest in the client must be genuine, and stronger than your self-
interest.
2. Remember that every client is unique!
Your past experience and past achievements are an important asset. They can
become a trap: you may feel that you know pretty well in advance what your new
client will need - haven't you handled the same sort of situation many times
before? Yet even if all other conditions appear identical (they won't be), the people
involvedwill always be different. Acknowledge your new client's uniqueness. Show
the client that you will offer an original solution, not a pale imitation of a model
designed for other conditions.
3. Don't misrepresent yourseifl
The temptation to offer and sell services in which you are not fully competent
can be high. Often a client who trusts you would confide a job to you without
requiring any evidence of your competence. To yield to this temptation is unethical;
the client's interests can be seriously damaged. This is a matter of technical
judgement, too. Competence in marketing involves your ability to realistically
assess your own competence!
4. Don't oversell!
Marketing creates expectations and commitments. Overmarketing may create
more expectations than a consulting firm is able to meet. This may be counter-
productive and even unethical: some clients may need your help urgently; you
promise it, but cannot deliver. Or an excessiveselling effort may force you to recruit
and immediately send to clients inexperiencedconsultants without being able to
train and supervise them.
5. Refrain from denigrating other consultants!
Questions concerning your competitors' approaches and competencies come
up often in discussions with clients. Nothing should prevent you from providing
factual information, if you have it. However, it is unprofessionalto provide distorted
and biased information, and make disparaging comments about competitors in
order to influence your client. A sophisticated client is likely to regard such
comments as an expression of your weakness, not of your strength.
6. Never forget that you are marketing a professional service!
Management consultants have to be entrepreneurial, innovative and at times
even aggressive in marketing. They can learn a great deal from marketing in other
sectors. Yet you are not selling biscuits or washing powder. The professionalnature
of the service, the clients' sensitivity and the local cultural values and norms must
not be lost from sight in deciding what marketing approaches and techniques are
appropriate.
7. Aim at an equally high professional performance in marketing and in
execution!
In their efforts to find new clients some consultants have not maintained the
delivery of assignments at the same quality level in staffing, controlling quality,
respectingdeadlines, and making every effort to satisfy the client. It is useful to view
marketing as a process that does not end with the signing of the contract. The
execution of assignments has a significant marketing dimension. Flawless service
25.2 A client's perspective

In client-centred marketing, the consultant does not come to the client with
the desire to close another sale of a ready-made product. The approach is re-
versed: the assessment and understanding of the client's needs come first. The
consultant is asking questions such as: Can I provide a service that will meet
this particular client's needs? And if I am not the only one who can provide such
a service (which is usually the case), why should a client select me and not one
of my competitors? What criteria will the client use? How can I be more useful
to the client than other consultants? How should I market myself to get selected?
Understanding the purchasing process

As pointed out by David Maister, "the single most important talent in
selling professional services is the ability to understand the purchasing process
(not the sales process) from the client's perspective. The better a professional
can learn to think like a client, the easier it will be to do and say the correct things
to get hired".2 We have already pointed (Chapter 3 and section 7.1) to the role
of psychological and relational factors in the selection of consultants. Since
usually more than one consultant will be fully suitable from a strictly technical
point of view, clients will give preference to consultants:
with whom they are prepared to work and would like to work;
who understand their personal worries, concerns and preferences;
who exhibit a genuine desire to be helpful to their client;
whom they are able and willing to trust.
Thus, it is important to keep in mind that both technical, and behavioural
or psychological, criteria will be applied by clients in selecting consultants. The
consultant's marketing strategy and methods used should therefore be attuned
to this. Yet it is impossible to provide a blueprint for every context.
Overemphasizing good relations (e.g. never contradicting the client during
first meetings even if the client is obviously wrong) may be interpreted by the
prospect as a lack of technical competence, or a tactical trick. The client may

even be testing the consultant by asking awkward questions. The best approach
is to be honest and sincere. It is difficult to play a role which does not suit you
and pretend to be something that you are not. If you do not really care about the
client and are merely seeking a well-remunerated assignment, you will not be
able to hide your attitude for long before your client. Some clients' concerns are
reviewed below.
Reluctance to admit that a consultant is needed. Some managers do not
want to admit to themselves that they need a consultant because this would hurt
their self-esteem. Often the potential client is worried that a consultant's
presence will be regarded by others - by subordinates, peers, superiors,
shareholders, or even by competitors and customers - as an admission of
incompetence and a sign of weakness.
Doubts about the consultant's competence and integrity. It is common
for clients to have doubts about an external person's ability to resolve intricate
problems with which management has struggled without finding any solution.
Some clients feel, too, that a consultant will not really take all the trouble needed
to search out a solution that is likely to work in the long term, and will simply
try to place a standard package. Some organizations feel that consultants are too
inquisitive and collect too much information that could somehow be misused in
the future.
Fear of becoming dependent on a consultant. Sometimes the remark is
heard that it is easy to recruit a consultant, but difficult to get rid of one. Con-
sultants are said to structure and manage assignments in a way that inevitably
prolongs their presence in the client organization and leads to new assignments.
This can create a permanent dependence on external expertise, which could be
a very dangerous thing.
Fear of excessive fees. This fear is quite widespread in smaller businesses.
Owners and managers sometimes ignore how the fee is calculated and justified,
and with what benefits it could be compared. They believe that most consultants
try to overcharge and that using a consultant is a luxury that is beyond their
means.
General feeling of uneasiness and insecurity. Asking a consultant to look
into the organization's "internal cuisine7'can be very disruptive. What will come
out? Established practices and peaceful relations may be disturbed, but will this
really be necessary? Will it be an improvement? Is it worthwhile to run such a
risk? Are we not opening a Pandora's box without being forced to do so?
General criteria of consultant selection, taken from an ILO guide on the
topic, are summarized in box 25.2. As all clients do not use the same criteria, it
will be most useful if the consultant can find out what criteria will be applied to
him or her as a firm or a person, and to the assignment proposals submitted to
the client, as well as to the weight the client will assign to each criterion.
Box 25.2 Criteria of consultant selection
In selecting their consultants, most clients would apply one or more of the
following criteria:
Professional integrity (how the consultant interprets and respects a code
of ethics and conduct)
Technical competence (knowledgeand experience needed for dealing with
the client's technical problem and producing results of desired level and
quality)
This can be refined further by:
(a) differentiating between the competence of the whole firm and the
individual (team) proposed;
(b) stressing knowledge of the client's sector of industry;
(c) in international consulting, stressing intimate knowledge of specific
country conditions (economic, socio-political, cultural);
(d) differentiatingbetween hard and soft skills (the knowledge and expertise
concerning technical procedures, methods and systems, on the one
hand, and the ability to deal with human problems and facilitate
organizational change, on the other hand);
(e) stressing creativity and innovation (which can imply that past experience
will be de-emphasized).
Rapport with the consultant (mutual understanding, trust, the client's
attitude to working with the consultant as a person)
Assignment design (demonstrating the consultant's understanding of the
specific problem and context of a given client organization, and the approach
to take)
Capability to deliver (structure,size, resources, location, flexibility and other
features of the consulting firm, demonstrating the ability to actually deliver
what was promised, even if conditions change)
Ability to mobilize further resources (important in assignments that may
call for expertise of other firms, new business contacts, additional capital,
etc.)
Cost of services (fee level and formula; this may not be a key criterion, but
excessive fee requirements may disqualify the consultant)
Certification of competency andlor quality (formal competency certifi-
cation of individual consultants and quality certification of consulting firms
are taken into consideration by some clients, in support or as a surrogate of
the criteria listed under (1)-(7))
Professional image of the consultant (the principal surrogate, by using this
criterion the client relies on the choices and assessment made and ex-
perience gained previously by other users of consulting services, or on the
consultant's achievements outside consulting, e.g as a manager or author)
Source: M. Kubr: How to select and use consultants: A client's guide, Management Development
Series No. 31 (Geneva, 110, 1993),pp. 77-87.
25.3 Techniques for marketing the consulting firm

A wide range of techniques is available to management consultants for
building up their professional reputation and image, or positioning their practice,
533
in the clients' minds. The main techniques are reviewed in this section. Their
purpose is not to sell individual assignments, but to get potential clients informed
about and interested in the consulting firm and its products, and to create
opportunities for contacts with these clients.
While certain techniques are aimed purely at public relations and image
building (e.g. advertising), the reader will notice that other techniques aim to
arouse the clients' interest by directly providing another useful technical service
(e.g. information, or training).
Working the referrals

Word of mouth is one of the oldest and yet most efficient ways in which a
professional firm becomes known to new clients. Business people and managers
are used to sharing information about professionals such as lawyers, account-
ants, engineers and management consultants. They exchange both favourable
and unfavourable information, so only a firm which has rendered a flawless
service to a client can hope to have another useful referral. A manager looking
for a consultant will often ask business friends for advice before turning to any
other source of information.
It could appear that excellent performance in serving clients is all that is
necessary to get good referrals. Experience shows that it is indeed the main thing,
but not the only one. Some consultants do not leave it to chance that a happy
client will recommend them to colleagues. They discuss their promotional needs
and policies with their clients, asking them:
- to suggest who else in the business community may be interested in similar
services;
- to authorize the use of the clients' names as a reference to prospective
clients;
- possibly to give permission for describing or summarizing a successful
assignment in a technical publication, in promotional material or in a
management seminar;
- to speak about the consultant with other managers and business colleagues,
but also with bankers, lawyers, accountants and other persons who may be
asked for a good consultant's name by their own business contacts.
This requires an excellent mutual understanding between the consultant
and the client. The client must not feel ashamed that he had to pay a consultant
for dealing with a problem that he should have solved by himself. Rather he
should be proud that cooperation with an outstanding professional has helped
him to discover new opportunities and view his problems in a wider perspective.
The consultant must show the client that his concern for the client goes beyond
a single contract - this is best achieved by informing past clients of the latest
research and the state of the art in their sector or problem area, telling them about
new services the consultant can provide, having a business lunch with them from
time to time to discuss new developments in the client's business and in the
consulting profession, and in general maintaining frequent communication. The
client will then enjoy talking about "his" or "her7' preferred consultant and
recommend such a person without hesitation. Happy clients become your best
marketers, and do it free of charge!
Professional publications
Books for managers. Writing books that will be read by managers, or even
become reference works, has become increasingly popular among consultants.
Some recent publications based on experience and research in management
consulting firms have become real bestsellers, and their impact on promoting
new business has been quite strong.
The promotional effect depends on the nature and quality of the publi-
cation. The reader must be impressed by the author's innovative approach to
topical management problems, and conclude that his or her company might also
benefit from such ideas and experiences. Finding the right publisher is equally
important. Publications that just repeat the same old stuff using new words may
bring in a few not very sophisticated clients, but will have little effect in the long
run. Writing a really good book is an extremely difficult and time-consuming
exercise, and those who say that every management consultant should try it are
bad advisers. Yet if you feel that you have enough to say, do not hesitate!
There is a considerable need in many developing countries and in
economies in transition for original management publications reflecting the real
problems and experience of local business practice. This is a real challenge and
opportunity for management consultants.
Articles on management and industry topics. Writing an article presents
certain advantages over publishing a book:
the article can focus on a specific, rather narrow, topic (e.g. an interesting
development in a sector served by the consultant, or an intervention
technique that has helped several clients);
the time required to write an article is short;
the readership base will be much larger if the article is published in a widely
circulated newspaper or journal;
many busy managers do not read books, but do glance through articles on
topics of concern.
To arouse interest in potential clients, articles must address important
topical issues. Articles based on successfully completed assignments, and out-
lining the approach taken, the changes achieved and the benefits to the clients,
are particularly useful.
The choice of the medium is essential. The general public or the academic
community are not the primary target. We can therefore recommend:
- professional, business and trade journals, which are normally read by a
wide management public (e.g. a consultant who wants to be recognized as
an authority in road transport management should be known as an author
to the readers of trade publications on transport in general, and on the road

transport sector in particular);
- business and management pages and supplements of important daily
newspapers and weeklies;
- local newspapers, in particular those read by the local business community;
- publications of trade and employers' associations.
Occasional papers and pamphlets. Both existing and potential clients

appreciate it very much if a management consultant shares with them some
knowledge and experience through technical and information papers, guides,
reports, briefs, pamphlets, check-lists and other materials. These can deal with
a relatively narrow and specialized topic, but must be of direct interest to the
recipient. Therefore, you should choose a topic of concern to managers,
providing suggestions and guidelines tested by experience. You do not have to
divulge all your know-how that constitutes your competitive advantage, but you
must be prepared to say something if the material distributed is not to be viewed
as trivial publicity. Papers informing managers and/or specialists about the state
of the art in their field, or about trends likely to affect the business, are parti-
cularly welcome.
Newsletters. A newsletter is a periodical publication whose purpose is to
keep its readers abreast of developments in their field of activity on a regular
basis. A management consultant can choose between a newsletter devoted
entirely to news from a sector or trade, and one which also gives news from his
or her consulting firm (completed projects, research done, new services started,
publications, senior staff appointments, and so on). If the area to be covered is
well chosen and the newsletter handled professionally, it can become a highly
regarded reference service, used as essential information by many subscribers.
Several special-focus newsletters launched by professional firms have achieved
this standard.
All publications should include a reference to the consulting firm to which
the author belongs, with some information on the firm and its services, and (if
they agree to it) on client organizations from which the published experience
was drawn.
Relations with public information media

Public information media such as the press, television or radio are
constantly looking for the information that their audience expects to receive.
Management consultants possess, or can help to gather, organize and present,
some of this information - for example, on developments in business and
finance, impact of technological developments on factory and office work, new
energy-saving techniques, or the likely impact of trade policies on investment
decisions.
Quite a few consultants have found it most beneficial to keep in touch with
the media and be helpful to them. Editors and other media people have to meet
imperative short deadlines, need quick help, and want to be sure that their contact
is well informed, trustworthy and reliable. They want information in a format
suitable for immediate use. A consultant who understands these requirements
and tries to be flexible can expect to be quoted as a source or technical authority,
or be invited to give an interview. This will have a much greater promotional
effect than costly advertisements in the same public medium.
Being responsive to public media requirements does not mean refraining
from taking any initiative. Once you understand how the media operate, and for
what kind of information they are looking (and how presented), you can yourself
come up with suggestions of topics, or directly offer a piece of news or a story
to your contacts in the media.
News or press releases are intended for wider distribution to the media.
Some consultants have had good experience with them. A news release showing
that you have done something interesting in an area on which media are keen to
report can be most welcome and may be used by several media, or the media
may get in touch with you for further information.
Some media people have a distorted picture of management consultants
and look mainly for sensational information on them (e.g. on assignments that
ended up as complete failures, or on exorbitant fees charged for substandard
work). Caustic articles with this kind of information appear from time to time
in newspapers and business journals in various countries.
It is counter-productive to react aggressively and arrogantly. Even exposing
sheer facts may be difficult because of confidentiality and for other reasons.
Helping media to do their job, and demonstrating a professional approach in
dealing with them, is the best way to change their attitude to management
consultants.
Seminars and workshops

Management seminars, round tables, conferences, workshops, executive
briefings and similar events have become very popular in the management
consulting sector. Usually a consultant invites managers to attend a session on
a topic of real concern to them -for example, how to handle industrial relations
under new legislation, what is happening in international money markets, or how
to apply new computerized information systems. The consulting firm can invite
external specialists as speakers, but it is essential that its own professional staff
should make a presentation to demonstrate that the firm is fully up to date and
has developed interesting practical applications. If possible, work recently
undertaken by the firm should be described, showing benefits derived by the
clients. However, it is essential that participants perceive the seminar as a direct
help to them and not merely as a selling exercise.
It is impossible to suggest one single way of organizing a seminar. You
have to consider whether it is better tactics to offer it as a free service to all
clients, selected clients, potential new clients or a wider public; charge a
relatively high fee or charge only for the meals and printed materials pro-
vided, and similar. A seminar may be arranged by the consulting firm alone, or
in collaboration with a management centre or institute, a local chamber of

commerce, or a trade association. It should be brief, and the time and venue must
be convenient.
If the purpose of a seminar is marketing, the participants should be potential
clients. Ideally, you would use a selective mailing list and invite decision makers
from organizations likely to need assistance, or to be looking for opportunities
in the areas that will be discussed. You will have to assess the probability of
response (which may be 5-20 per cent, depending on factors such as the topic,
the reputation of your firm and the speakers, the quality of the mailing list and
the managers' propensity to attend seminars). It is better if invitations look very
personal.
Those who agree to attend express, by so doing, interest both in the topic
and in your expertise. They may be potential clients. Their names should there-
fore be carefully noted. Some discussion with them will start at the seminar, e.g.
in small groups built into the agenda or by individual contacts. While some of
them may continue to talk further with you after the seminar, or may ask for an
appointment, you will also have a focused list for future contacts (say a telephone
call two or three weeks after the seminar, offering to meet to discuss their specific
problems in greater depth without any immediate commitment). This may open
the door for new assignments.
The reader knows that many consulting firms also run open training
programmes, and that some of them have even established special training
departments or institutes.
This is a direct client service whose prime purpose is skill development,
not marketing. Participants do not have to come from existing or potential client
companies. However, the marketing effect of these programmes is not negligible.
Some participants may decide to apply what they have learned and ask for the
consulting firm's help. Others leave the programme with an awareness of the
firm's areas of know-how and its performance in the field of training. They are
likely to remember this when choosing consultants in the future.
Generally speaking, the graduates of all training programmes should be
regarded as the consultant's former clients. They know your firm and if the
training programme was a useful one, your image in their minds will be
favourable. Demonstrating that you care for them, providing them with useful
information and contacting them selectively may create opportunities for
identifying and discussing new consulting assignments.
Special information services

The promotional effect of special information services can be similar to
that of seminars and newsletters. A consulting firm that becomes a recognized
authority in a special area of information vital to decision makers can use its
information services for promoting consulting work. A periodic information
report can include a description of the firm's consulting services. Individual
enquiries can be used to mention and describe other services. If the information
received is highly valued by the clients, many of them will also be interested in
Marketing of consulting scrvices
other technical services offered by the same firm. Conversely, the value of
superficial, fragmented and haphazard information will be low.
Management and business research

As mentioned in Chapters 1 and 24, the role of research in consulting is
growing. This trend has significant marketing implications. In seminars, articles,
news-sheets and other marketing instruments described in the previous para-
graphs the consulting firm may choose to report on its own research, or on
research done elsewhere but used in the firm's products and services. "We have
researched and identified the critical factors determining the effectiveness of
flexible production systems" is probably a more convincing marketing message
than: "We have long experience with improving production systems". However,
to become really interested, the potential client may prefer to learn more than
that you are research-minded and use research to widen and update consulting
services. You should be willing to share some significant findings of your
research with the business community and other potential clients.
Advertising
The purpose of advertising is to arouse the interest of a large number of
potential clients by telling them that your products or services are particularly
attractive to them. Advertising is making headway in management consulting
and every year we see more of it. Consultants should be aware of its advantages
and its pitfalls.
Those who also consult in marketing and distribution tend to be familiar
with advertising issues and may even be able to design advertisements and
advertising campaigns for their own firm. A new consultant who is not versed
in advertising will be well advised to turn to a professional public relations or
advertising agency before embarking on a major advertising campaign and
spending a lot of money on it. Quite a few mass-advertising methods and media
used for promoting goods and services to the wider public are less suited to the
marketing of professional services.
Press advertisements have to meet two basic criteria. First, they must be
placed in journals and newspapers where potential clients are likely to see them.
It is necessary to find out what managers and business people read. The longer
the press run and the wider the circulation of a journal, the higher the cost of
advertising space will be. A consultant who has been of help to a business or
trade periodical and has developed privileged relations with the editors may be
offered advertising space at a special rate.
Advertisements must meet the criteria of effective design:
providing a small amount of essential information rather than a lot of
fragmented detail;
stressing (possibly in the heading or in another very visible way) the
benefits for which the client is looking rather than promoting the firm's
name and background;
0 clearly suggesting where and how to contact the consultant;

0 appealing to the potential clients' taste and cultural values.
Advertising on radio and television has been little used by management
consultants. Yet it should not be completely overlooked. Some stations have
programmes for the local industrial and business communities on topics such as
creating an enterprise, soliciting credit, saving energy or increasing pro-
ductivity; an advertisement may follow such a programme.
Mailing publicity materials

Mailing publicity materials is a method which probably every consultant
has thought about at some point. Many consultants reject the idea, because they
feel that this so-called "cold contacting" is a waste of time and money. Those
who use it include both some well-established firms and newcomers to the
consulting business.
It is essential to have a good mailing list. Some consultants prefer to draw
up such a list themselves, using information on organizations in the sector they
want to serve (e.g. on smaller firms located in a given district likely to experience
maintenance or cash-flow problems). Or there may be a trade association or a
special firm from which a focused mailing list can be purchased.
Only well-chosen and properly designed materials should be mailed. These
include information brochures and leaflets on the consulting firm, information
sheets and reports on new services, annual activity reports, reprints of articles,
samples of newsletters, and similar. There is no point in flooding managers with
paper; they receive too much publicity material anyhow. The materials sent
should therefore be succinct and brief, and should give the potential client a
piece of meaningful technical information, demonstrating the consultant's
unique approach, knowledge of the business, and work recently undertaken. This
should be supplemented by a short description of the consulting firm and profiles
of its senior staff.
Exhibitions
Exhibitions of professional materials and services, organized in con-
junction with trade fairs, exhibitions of computer, communication, teaching and
office equipment, professional conventions, or management and training
conferences, also provide opportunities for advertising. If a representative of the
consulting firm can be present, some clients may get in touch with him or her
directly at the exhibition.
The manager's professional and social activities

If you are a management consultant it is in your interest to socialize with
managers and be regarded as someone who belongs to management and business
circles. You expect that these activities will "make you visible" to a number of
potential clients, who will prefer to deal with a person known to them from
professional and social contacts rather than with a stranger. You will also get to
know bankers, lawyers and other professionals who may recommend you to their
own clients.
Many consultants are members of management associations and similar
voluntary membership bodies, local, national or international. They readily give
talks at meetings (often for free) and agree to serve on committees or working
parties. They exhibit "relaxed initiative" (interest and availability), but should
not overdo it by being so active that their behaviour becomes annoying and
suspicious. A single practitioner has to consider in how many events he or she
can afford to participate, while a larger consulting firm can be represented by
various staff members in several organizations.
Private social, cultural and sporting activities provide opportunities for
informal contacts which can generate new business. More than one consulting
project has had its origin on a golf course!
Voluntary social work

Organizations involved in social work and community development are
badly in need of members and advisers with administrative and management
know-how. While their technical problems may not be the most sophisticated
ones, helping them is often a most rewarding social experience.
Voluntary social and community service gives a significant social
dimension to the consultant's image. This can even be expressed through formal
recognition or award. It helps to establish contacts with managers and business
people who also engage in these activities - in some countries quite a few of
them do.
Directories
In most countries, various directories of professional services exist and
many of them include sections on management consultants. In addition to the
consultant's name and address, a directory would normally also indicate areas
of competence, using either standard terms and definitions chosen by the
publisher of the directory, or a description provided by the consultant concerned.
It is unlikely that a potential client would select a management consultant
straight from a directory listing. However, a directory may be used for estab-
lishing a short-list of consultants, or for checking and completing information
on them. It is therefore advisable to be listed in directories that are well known
and enjoy a good reputation. This includes membership directories issued by
professional consultants' associations. It is not necessary to be mentioned in
every directory at all costs.
If the "yellow pages" of the area telephone directory include a section on
management consultants, you should make sure that your firm is listed.
Responding to enquiries
The use of any of the marketing techniques discussed above can at some
point lead to an enquiry by a prospective client. In some instances the prospects
are directly invited to make an enquiry (e.g. as a follow-up to a seminar which
they attended). These enquiries can cover a wide range of topics, including
general questions on business and management, sources of information, profile
of the consulting firm, work for other clients, or problems faced by the client
who is making the enquiry.
Any such enquiry can be another effective step in preparing new business,
or can spoil the emerging relationship and turn a potential client away. This risk
is particularly high in large consulting firms, if the person contacted (who may
be a telephone operator, but could equally well be a professional who happened
to be in the office) is unable to put the client in touch with the right colleague,
or to react properly to the enquiry.
It is useful to bear the following rules in mind:
- if you advertise, write articles, speak at conferences, etc., you can expect
enquiries;
- resources should be made available for handling enquiries (people
appointed, time reserved, answering machines installed to record enquiries
in the consultant's absence);
- every enquiry should be handled with utmost courtesy and patience and at
the right level (a well-informed client can be discouraged by a poor answer
from a clerical assistant or an uninformed junior associate; a company
manager will expect a reply from a partner or another senior consultant);
- enquiries that cannot be answered immediately should be handled in the
shortest possible time;
- responding to enquiries involves marketing tactics - that is, considering
how far to go: merely answering a question, showing interest in the client
organization, offering a meeting, or similar;
- in certain cases the consultant will have to decide how much to reveal (it
may well happen that a client could try to turn an enquiry into a free
consultation);
- enquiries should be recorded in clients' files (see box 25.4, page 554), and
suggestions for further follow-up should be made as appropriate.
Location and standing of office facilities

A happy medium needs to be struck between the prestigious image of a
professional service and the economy of its operation. The right address is
usually close to the sources of business. This tends to locate a firm in or near the
financial or commercial quarter of the capital city or a major industrial centre,
which in some countries is the same place. However, a "good address" is likely
to be expensive and the consultant must be able to afford it.
The business-like appearance of the offices, the reception area and the
meeting rooms where visitors are received, is equally important. Successful
consulting firms want to show clients that they use up-to-date office equipment
and elegant but sober and functional furniture, and have efficient internal
administration. Exhibiting excessive luxury may impress certain clients, but will
discourage most of them. Your clients will quickly conclude that you will make
them pay for the beauty and comfort of your office facilities. Owners and
managers of small firms definitely feel uneasy in offices too unlike their own
working environment.
Name and logo

Although many consultants are unaware of it, public relations experts con-
firm that the firm's name and logo have their role in communicating the firm's
image to the public and to potential clients.
If the firm's name is well known and has become a part of its goodwill, it
should not be changed, even if it does not any longer have a real meaning. A
new firm, however, can consider alternative choices.
Names of persons. Naming a firm after the founder, owner or main part-
ners is very popular in professional services. It is useful to know who has the
key role in the firm. If a consultant is successful as an author or conference
speaker, potential clients can easily see his or her association with a professional
practice of the same name. On the other hand, there can be some confusion. It
may be difficult to maintain a clear distinction between professional and private
activity undertaken under the same name.
A quick perusal of lists of important accounting and consulting firms shows
that names of persons (founders or main partners) prevail in their titles. To use
a person's name is not recommended if it sounds awkward in the consultant's
cultural environment, or if it can evoke bizarre associations.
Activity area. To call a firm by its activity area (e.g. International Market-
ing Consultants, Road Transport Management Services) is another possibility.
Such a name should be carefully chosen:
- it may become too restrictive if the consultant enters a new area (e.g. adds
new fields of transport to road transport) - this has, in fact, happened in
many consulting firms;
- it may easily lead to confusion if it is too general and if several firms in the
same business community use similar names (Resource Planning Services,
Resource Management Associates, Strategic Planning Services, and
similar).
Acronym. It is useful to think of the firm's acronym: the original full name
of many professional firms has long been forgotten and the acronym has replaced
it completely.
Logo. The logo of a professional firm does not have the same importance
as in mass advertising of consumer goods, but it can play a useful role in
reminding the clients quickly that a message is coming from a particular firm.
A logo can be used on letter headings, business cards, newsletters, reports,
publicity materials, and printed and visual advertisements.
25.4 Techniques for marketing consulting

assignments
Every consultant prefers clients to come to him or her. Yet many con-
sultants, in particular newcomers to the profession, would never get enough work
by merely waiting for potential clients to come. They have to find clients and
market assignments to them. The main techniques are reviewed in this section.
Cold contacts
Cold contacts are visits, letters or telephone calls whereby a consultant
turns to a potential client and tries to sell a service. A lot has been said and written
about these contacts. The professional community regards them as the least
effective marketing technique and some consultants never use them. Yet they are
still used, and newly established consulting firms may be unable to avoid them.
Cold visits (unannounced) are least suitable. Managers resent being dis-
turbed by unknown persons for unknown reasons. There are cultures, however,
where this is acceptable.
Cold mailing of letters is a slightly better technique. Its purpose is not to
sell an assignment, but to present the consultant to the prospective client and
prepare the ground for a further contact, to follow in two to three weeks.
Cold telephone calls have the sole purpose of obtaining an appointment
with the client. They also serve for answering the immediate questions that the
client may ask before deciding to receive or visit the consultant.
The effectiveness of cold contacts can be increased by observing certain
rules. First, the prospects have to be properly selected. They must be "target
organizations", identified by researching the potential market, and the consultant
must be convinced that he can do something useful for them. He should work
out a list of addresses or, if he decides to buy one from an agent, he should screen
it before using it.
Second, cold contacts require technical preparation. The consultant should
learn as much as possible about the organization to be contacted. The worst thing
that can happen is to exhibit flagrant ignorance of basic facts about the client's
business in the first conversation with him or her. Letters worded in general
terms, or giving a lot of detailed information of no interest to the prospective
client, should be avoided. Instead, individualized letters should be written,
showing the client that the consultant has something specific and relevant to
offer. A telephone call also needs preparation to be effective. Some consultants
have check-lists for preparing and constructing the conversation over the phone.
Third, the consultant should aim at getting in touch with the right person.
In many (but not all) organizations it should be the top executive. A cold letter
should be addressed to him personally. In calling by telephone the consultant

should try to speak with the "target person", aiming to reach him at a time of
day when he is not too occupied. Busy executives do not bother to return calls
unless they have a reason to do so. Therefore, if the consultant does not reach
the target person, he should not leave his name and number, hoping that the call
will be returned. Rather he should call again at a moment suggested by the
secretary.
A normal sequence in cold contacting would be (i) a letter, (ii) a telephone
call following up on the letter and asking for an appointment, and (iii) an
appointment with the client. To reach this third step does not guarantee a new
assignment, but the possibility of getting one has increased.
Contacts based on referrals and leads

If a consultant "puts referrals to work" as discussed in section 25.3, there
is no doubt that most contacts with new clients will take place thanks to referrals
and leads. These occur in various ways:
the prospective client asks for a meeting;
the consultant is introduced to the prospect by a mutual business friend or
acquaintance;
the consultant gets names of potential clients from current clients.
The fact that the consultant has been recommended, or can use referrals
likely to influence the prospective client's attitude, creates a favourable atmo-
sphere for negotiating an assignment. The prospect may know a great deal from
business friends and the discussion can quickly pass from generalities to specific
issues. The consultant should find out how much information the client already
has, to avoid repeating the obvious and forgetting to provide information that
the new client needs.
If the client wants no more than information, the consultant should not
force him into negotiating an assignment immediately. Experience will teach the
consultant how far to go in such situations. For example, he or she may suggest
another contact in which the discussion could be pursued, and prior to which he
or she could look and comment - without charging a fee - at some data on
the prospect's business. Or the consultant can provide some detailed descriptions
of assignments carried out for clients whom the prospect knows and respects.
Such a contact should be followed up by a telephone call after two to four weeks.
If the prospect has lost interest, the consultant should not persist.
In a similar vein, consulting firms which organize management seminars
often make follow-up contacts with participants to find out whether they would
be interested in a consulting assignment. An approach in several stages (as
described above) should be applied in these instances.
Responding to invitations to submit proposals

In certain cases new contacts with potential clients can be made in response
to a published announcement inviting consultants to present a technical proposal
for executing a project. As a rule, the client will be a public agency, or (less
frequently) a private organization that for some reason has chosen to apply a
formal selection procedure.
In such a situation the client has not only identified himself, but probably
has a fairly precise view of what he wants to be done. His own technical services,
or an external consultant, will have undertaken a preliminary investigation and
developed a global description (terms of reference) of the project. This des-
cription would be made available on request.
Frequently the selection procedure is in two steps:
- in the first step (preselection), consultants who are interested are invited to
contact the client and provide a technical memorandum on their firm's
profile and relevant experience; those retained are included in a short-list;
- in the second step (selection), the short-listed consultants submit technical
proposals (tenders, offers), which are then examined and selected as
described in section 7.4.3
Projects thus announced are often large and financially attractive, and
whet the appetite of many consultants. However, before a firm decides to
tender, several factors ought to be considered and relevant information carefully
examined:
the prospect may already have a short-list, or even a specific firm in mind,
when starting the formal selection procedure;
several important consulting firms may be interested in the job and com-
petition will be tough;
one or more firms may already have done considerable preparatory work
and a great deal of marketing;
the preparation of a technical memorandum and of a good technical
proposal is time-consuming and costly (a fairly detailed diagnostic survey,
including several visits to the client organization, may be needed before
drawing up a proposal); this work is done at a loss by those who are not
chosen and sometimes its cost is not reimbursed even to the winning firm;
the selection procedure may be long, the consultant may be asked to submit
additional information, reconsider some of the terms, rewrite proposals and
pay several visits to the client; therefore he or she should not be in pressing
need of securing - the -job and starting it quickly.
If you decide to compete for such a project you should develop a tactical
plan for winning it. For example, you may feel technically fully competent for
the job, but be unknown to the client. The question is: What can be done in a
short time to become known to an important new prospect? Can our former
clients help? Should we organize study visits to our former clients for the
prospective client's key technical staff? What else can be done without divulging
confidential information?
Marketing during the entry phase

The entry phase of a consulting assignment was described in detail in
Chapter 7. The reader should recall that in many instances the client will not
give a final agreement to the assignment before having seen and reviewed a
technical proposal based on preliminary problem diagnosis. The entry phase
cannot be regarded as successfully completed before the contract has been
signed, or confirmed by a verbal agreement. The implication is clear: the
marketing of a new assignment does not end at the first discussion with the
prospect, but continues throughout the entry phase even if some technical work
on a new assignment has already started.
The marketing dimension of the whole entry phase cannot be over-
emphasized. Whether there is competition or not, the consultant should think of
the marketing effect of everything he or she says and does in the first meetings
with the client organization, in the preliminary diagnostic survey, in formulating
and presenting the proposal to the client, in giving price quotations, in for-
mulating the contract and in suggesting how to staff the assignment.
25.5 Marketing to existing clients

There are two groups of existing clients -those for whom we are currently
working (current clients) and those for whom we have worked in the past (former
clients). In all professions, firms pursue the strategy of keeping their clients and
trying to sell further services to them. In management consulting, this strategy
has resulted in an impressive share of repeat business -- 64 per cent by recent
ACME data," a share that in some firms attains 75-80 per cent. Box 25.3
(overleaf) shows that the cost of marketing efforts is not a negligible factor.
Marketing during assignment execution

It has been stressed many times that marketing to existing clients starts
during assignment execution. This includes:
being alert to any sign of the client's unhappiness or apprehension con-
cerning the approach taken, the progress made, the costs incurred, or the
behaviour of the assignment team;
keeping the client fully informed about the progress of the assignment and
examining all potential problems and difficulties with the client as early as
possible;
keeping eyes open for further client needs and opportunities (beyond the
scope of the current assignment) and mentioning these to the client in an
appropriate way;
fully demonstrating to the client that you care for him or her and will spare
no efforts to provide a sewice that is most valuable according to the client's,
not the consultant's, criteria;
yet resisting any temptation to extend the assignment beyond necessary

limits in order to increase your current earnings.
Box 25.3 Hard data on the cost of marketing efforts

In a medium-sized German consulting firm the average size of an assignment
is about US$100,000. The records show that getting an assignment from a new
client requires some seven to eight days of marketing effort (including a study of
client conditions, making contacts, drafting proposals, negotiating, etc.). On aver-
age, the firm manages to win one of three such prospective new contracts. Hence,
some 21-24 days have to be spent for generating US$100,000 of new work, and
one new client. In contrast, to get US$100,000 of business from an existing client
requires about three to five days of focused marketing effort.
The initial marketing effort needed to obtain a new client is costly. In most
instances, the first assignment will be done at a loss. This can be justified (i) if you
get a good client, (ii) if you are good enough at obtaining repeat business by
marketing to existing clients, or (iii) if you need a new client because you are
diversifying services to new sectors, countries, etc.
Winning new clients while losing existing clients is a luxury that few professional
firms can afford.
Author: Karl Scholz.
Cross-selling is a popular though controversial concept in current pro-

fessional practice. We speak about cross-selling if established contacts and
activities in one service area (audit, financial consulting) are used to sell other
services (strategy consulting, engineering, legal advice) to the same client
organization. As a rule, two or more units within a consulting firm or group will
thus become involved.
The relationship between auditing and management consulting is often
mentioned as the best example of cross-selling. Some audits point directly to
deficiencies or underutilized resources, and a consulting service is then offered
to remedy these. Or the approach may be more subtle. If there is a good
relationship with the client in audit or another area, this can be used for
establishing contacts in another sector of the firm's services, hoping that the
existing relationship will ease the negotiation of assignments in a new sector. In
some cases it is the client who takes the initiative to avoid a painful and time-
consuming search for a new supplier of professional services.
Arguments in support of cross-selling include:
- maximizing the value of current client relationships;
- the possibility to reduce costs both to the client and the consultant since
the two organizations already know each other;
- achieving synergy through better coordination of different services pro-
vided to one client.
Cross-selling has also been vigorously criticized from various perspectives:

it constrains the client's choice, especially if, because of excellent relation-
ships in one area, the client feels obliged to recruit from the same firm the
different services proposed;
hence the client may end up by using services of a lower quality (and
possibly more expensive) than if an independent selection had been made;
in some professional firms the various service sectors collaborate poorly
and are not really motivated to do a good marketing job for another sector
of the firm; if they cross-sell when working with current clients, they do
so reluctantly, and only because they have been instructed by their top
management.5
Marketing to former clients

A "former" client in our conception is not a lost client, but one for whom
the consultant has done some work in the past. Satisfied former clients often
return to their professional advisers:
- if they have high respect for their technical competence and their con-
tinuous efforts to be up to date;
- because they enjoyed working with a particular person and/or firm;
- because a selection process can be avoided or simplified and the work
carried out promptly.
The obvious assumption is that the client has some work in the former
consultant's areas of competence. Some clients do come back by themselves,
without any effort on the part of the consultant. More of them come back if the
consultant does not ignore them in his or her marketing efforts. There are no
special techniques for marketing to former clients and the consultant may well
be able to choose among those reviewed in the previous two sections (25.3 and
25.4). On the one hand, it may be unnecessary to repeatedly send basic and
general information, since the firm is already known to the client. On the other
hand, it is useful to send new information and ideas, demonstrating that the
consulting firm is constantly developing and improving its client services, and
confirming continued interest in former clients' business.
Occasional personal contacts appear to be a good form of marketing,
provided that they (i) are well prepared, (ii) show to the client that the consultant
follows the client's business and is aware of the client's changing needs, and
(iii) are made at a proper level of managerial responsibility on both the client
and the consultant sides.
The last condition does not mean that junior professionals should not be
doing follow-up work with former clients. It may even be very effective to
involve new people in the relationship, thus showing new faces and new
competences to the client. However, junior consultants should probably talk to
different people, and about different questions, than the firm's partners or
principals would do.
25.6 Managing the marketing process

It is probably not an exaggeration to say that, in an increasingly competitive
environment, effective marketing has become one of the key success factors in
professional firms. Therefore it is not enough to state a few principles of
marketing, hoping that all staff members will apply them. The marketing process
has to be managed by the firm's top management. It must not be managed as a
separate function, but as a process and an approach that is fully integrated with
everything the firm does - staff development and promotion, partner and staff
compensation, the organization and supervision of operations, quality improve-
ment efforts, and so on. Marketing strategy is the central point of the firm's
corporate strategy.
Marketing audit
An established consulting firm keen to improve its marketing should start
by reviewing and assessing its current marketing practices. A marketing audit is
a useful diagnostic approach for this purpose. It can be a totally self-diagnostic
exercise if the firm feels capable of examining various aspects of its own
marketing, including public relations, the effect of advertising, and so on. If not,
specialists in the marketing of professional services or in public relations can be
asked to assist. They may be useful, for example, for interviewing clients and
collecting information from other external sources in order to provide unbiased
information.
Generally speaking, the audit would:
examine the past and current marketing practices (organization, infor-
mation base, strategy, techniques, activities, budgets and costs) and assess
their contribution to the development of the firm;
find out how marketing is understood and practised within the firm by
various units and consultant groups;
compare the findings with the marketing approach of direct competitors
and other consultants;
consider what changes in marketing will be desirable in order to meet new
requirements and exploit new opportunities of the market;
suggest how to make marketing more effective.
The benefits of a marketing - audit reach beyond marketing as such. It can
identify new potential areas of business, suggest new sorts of client services,
reveal gaps in the firm's technical competence and staff training, and make many
other practical suggestions. It can, in fact, serve as a first step to examining
overall strategy and applying strategic management systematically.
Marketing of consulting sewices
Marketing programme
A marketing programme (or plan) defines the consultant's marketing
objectives and strategy and determines what measures to take in putting the
strategy into effect. A written marketing programme makes clear what is to be
done over a definite period of time, what resources are required and what
contribution to the total marketing effort is expected from individuals or units
within the firm.
Objectives of marketing
Objectives of marketing should clearly express what is to be achieved by
marketing efforts over a definite period of time in both quantitative and quali-
tative terms:
quantitative objectives may indicate the market share to be attained and
the volume of new business to be generated from existing and from new
clients;
qualitative objectives concern, for example, the desired positioning of the
consulting firm in the clients' minds, or the need to find more challenging
work.
The objectives are to be achieved some time in the future - say in one,
three or five years. This underlines the need to place all analytical and strategic
considerations in a time perspective. For example, most of the techniques of
indirect marketing used to build up a professional image take time to make any
impact and have to be treated as an investment in future business.
It is not enough to define marketing objectives at the firm's level.
Consulting and other professional firms often stress that every firm member
should try to get new business, without, however, explaining what this
requirement means in the case of each individual, and how he or she should go
about it. Junior consultants in particular feel perplexed, since they have received
no training in marketing and have no time to think of marketing activities in
which their senior colleagues excel.
Mix of marketing techniques

The mix of marketing techniques has to be consistent with the firm's
existing and desired professional profile and image and market penetration, on
the one hand, and its personnel and financial resources, on the other hand. The
optimum mix is influenced by so many factors in every consulting firm that it
is impossible to give other than general guidelines. Experience tends to show
that:
- it is usually preferable to combine several direct and indirect marketing
techniques (reinforcing each other if possible);
- techniques in which you would feel uncomfortable and those for which
you lack resources should not be used (if you don't perform well in front
of an audience, don't try marketing through seminars, etc.);
- although regarded as least effective, cold contacts (personal, by mail or by

telephone) are used by every second consulting firm (more often by smaller
and young firms than by larger and well-established firms);
- newcomers to the consulting business cannot afford to wait until the market
comes to them and have to use techniques that put them rapidly in direct
contact with potential clients.
Suggesting that you should use those techniques that give the best results
(in terms of new business compared to efforts spent) in your particular case
sounds like a platitude. Yet this is the main criterion to apply, not what your
competitors or the "stars" of the profession do.
Volume of marketing efforts

Reliable data on the volume of resources spent on marketing by various
consulting firms are not available. As we know, the area of marketing is relatively
new in professional services, and marketing practices are changing rapidly. Also,
a great deal of indirect marketing can simultaneously be an income-generating
activity (e.g. management seminars and information services for which the
clients pay). Many single practitioners have to devote 20-30 per cent of their
time to marketing. Some firms indicate that they spend between 5 and 25 per
cent of their income on marketing. This figure is strongly influenced by the
choice of marketing techniques - for example, an advertising campaign in
major business journals will be a costly undertaking.
Planning the forward workload

The very nature of their services requires that consulting firms maintain a
sufficient backlog of orders for several weeks or months ahead. For any
consultant there is an optimum figure that provides a reasonable safety margin
and still allows new jobs to start without undue delay. Some consulting firms
consider a three-month backlog of work as ideal, while six weeks are regarded
as a minimum. A backlog exceeding three months implies that the order book
is lengthening and some clients will be kept waiting longer for the consultant to
commence an assignment. Many consultants do not attain the six-week backlog
and are happy if they have work for three to four weeks ahead. This, however,
is a small safety margin.
To maintain a satisfactory safety margin, the volume of new assignments
in fee-earning days (weeks or months) negotiated in every period of time (week
or month) should be equal to the average volume of consulting work performed
by the firm in this period, plus a provision for required volume increase. This,
of course, is theory, but it provides guidance for the firm's management. If the
firm is selling at a rate below this figure, its forward load is decreasing or
stagnating and there may be danger ahead.
In practice, the marketing of assignments and the planning of work have
to be less global. Ideally, the structure of the forward load should correspond as
closely as possible to the relative numbers of consulting staff of different

technical profiles. Clearly, it is easier to plan forward workloads for consultants
who are relatively versatile and can undertake a wider range of different
assignments.
Pacing the marketing effort

A steady monitoring of the forward workload helps to pace the firm's
marketing effort in order to avoid both under-and overselling. There must always
be, in the pipeline, a number of initial meetings with prospective clients,
follow-up visits to former clients, management surveys for preparing proposals
to clients, assignment proposals in preparation or other marketing events. If these
marketing events are not generating a normal number of new assignments, it
may be necessary to allocate more of the staff's time to marketing, or to examine
the effectiveness of the marketing approach used. Some firms use the ratio:
accepted proposals/submitted proposals. If the ratio drops, say from 1 : 3 to
1 : 5, this is a signal for examining the firm's tendering policy and work quality
in drafting and submitting proposals, and negotiating them with clients.
A sole practitioner must also watch his forward workload carefully.
Although he would normally allocate some 20-30 per cent of his working time
to marketing, he may be tied up full time by a longer assignment, thus risking
not doing enough to prepare for future work. This must be avoided. If the
consultant prefers to give all his working time to a current client, he must put in
more hours, and try to meet new prospects and do some marketing outside
regular business hours.
The intensity of promotional activity should be heavily influenced by the
duration of current assignments and the size and length of future assignments.
If the average length is dropping, more time will be needed to find and negotiate
the same total volume of business for the firm. For example, a firm that normally
undertakes 50 assignments a year to occupy its 25 consultants finds out that it
has to sell 60 assignments, i.e. 20 per cent more, to maintain the same volume
of work. Its records show that it normally has to make 5 initial visits to
prospective clients and 1.3 management surveys to get one contract. Can it do
300 initial visits and 78 surveys instead of 250 visits and 65 surveys? A few
pointers begin to emerge from this elementary arithmetic: either the average
assignment should be longer, or more consultants should be employed for
marketing, or fewer operating consultants engaged.
The marketing information system

Focused and effective marketing requires a considerable amount of infor-
mation. This information may be so complex and diversified that it is difficult
to use unless it is systematically organized. It is useful to view and treat it as a
system intended to provide both global and detailed information on existing and
potential markets, and on the consulting firm's marketing activities and
capabilities.
Box 25.4 lnformatlon on clients
This information is kept in client files (card index, computer files, or similar),
which are normally established on all clients - past, current and prospective -
and contain:
the client's name and address; names of key owners, managers and contact
persons;
0 basic business information on the client (or an indication of files where this
information is stored);
summary information on past and current assignments, including the
consultant's assessment of these assignments (and a referenceto assignment
files, reports and other documents containing detailed information);
0 information on all past contacts with the client (what contact was made, by
whom, with whom, and with what result);
information on other consultants who have worked, or tried to work, with the
client;
suggestions and information needed for future contacts (e.g. who else in the
client organization might be interested).
This approach involves:

- defining the kind of information to be collected, stored and analysed;
- determining in what way and how frequently this information will be
updated;
assigning responsibility for collecting, updating and analysing marketing
information;
- choosing a convenient system and equipment for storing, processing and
retrieving information.
Information on markets for services describes the main trends and signifi-
cant developments of these markets. Focus should be on developments that
create a new demand for consulting services, or change the nature of this
demand. Information on competition is included. This information should
interest the management of individual consulting sectors and of the whole firm.
The content of marketing information on individual clients is described in
box 25.4.
Information on specific new business opportunities should be generated by
systematic screening of information on markets and clients. Client files should
be screened periodically for the planning of follow-up visits and new contacts
with prospective clients. If the consulting firm is keen to do more work for
government departments and the public sector, its information system must
detect every invitation to submit proposals for consulting services published in
official journals and other periodicals.
As part of their staff competency inventories, some consulting firms also
record information on marketing capabilities of staff members (including special
Marketing of consutting services
characteristics such as languages, club membership, good and bad experience

with certain types of client, and similar).
See W. Wolf: Management and consulting: An introduction to James McKinsey (Ithaca,

New York, New York State School of Industrial and Labor Relations, Cornell University, 1978).
D. Maister: Managing the professional service firm (New York, The Free Press, 1993),
p. 111.
"or a detailed discussion of the procedure see M. Kubr: How to select and use consultants:
A client's guide, Management Development Series No. 31 (Geneva, ILO, 1993), Ch. 4.
Association of Management Consulting Firms (ACME): ACME 1993 survey of United
States key management information (New York, 1993), p. 15.
See also the comments made in V. E. Millar: On the management ofprofessional service
firms: Ten myths debunked (Fitzwilliam, New Hampshire, Kennedy Publications, 1991), pp. 5-14.
COSTS AND FEES
Running a consulting firm assumes healthy financial relations with the

clients: both the clients and the consultant must be convinced that the cost and
the price of the service and other financial terms of the contract are correct and
fair. This chapter examines the main problems concerning costs and fees in
selling consulting services and operating the financial side of a consulting
practice.
26.1 Income-generating activities

A precise definition of services for which clients can be charged is essential
to the costing and pricing of consulting services. If only chargeable services
generate income, any other service and activity of the consulting firm will have
to be financed out of this income.
Chargeable services
Generally speaking, a chargeable service is one performed directly for a
particular client on request. It does not have to be carried out at the client's
premises: the consultant can travel and negotiate on behalf of the client, search
for information in a documentation centre, or work in his or her own office on
a business plan. It should be clearly established, however, that these activities
are part of a given assignment, and their results will be made available only to
the client who commissioned them and who will be charged for them. This is
quite understandable. Clients do not want to be charged for work not done
directly for them.
Certain activities may or may not be treated as chargeable. Travel time is
an example. Most consultants charge a full rate for the time spent travelling to
and from the client's location and any other travel time required by the
assignment. Some consultants charge at a reduced rate, while others do not
charge anything (e.g. if they work for local clients and travel time is negligible).
Supervision, technical guidance and assignment control may also be

charged for in various ways. Here again, some consultants prefer to give their
clients precise information on the amount of supervision and similar work
required by the assignment and charge a corresponding fee for it. Others
consider this to be an unnecessary complication of accounting procedures, for
example if a senior consultant supervises several assignments during the same
period of time and the cost of his or her time would have to be apportioned to
these assignments.
In summary, the prevailing practice is to charge clients directly for all
services provided under a specific client contract, with the exception of services
for which it is impossible or impractical to charge directly.
Services that are not directly chargeable

General management and administration of a consulting firm, and mar-
keting and promotional activities, as well as research, product development and
staff training, are activities that are not directly related to a particular client
assignment. The same applies to annual leave, time lost through sickness and
various other time losses, including those due to a shortage of clients or to poor
management of the firm.
The cost of the time spent on activities that are not directly chargeable will
be spread over all clients through overhead charges. The cost of the time lost
will also be spread over all clients, or it may be necessary to treat it as a loss
reducing the consultant's income.
Free client services

Strictly speaking, in a self-supporting professional practice there is no
place for "free" client services: the consultant can work for free only if, for some
reason, he has decided to do the work in his leisure time, if he accepts a reduction
in his income, or if the service is subsidized by a governmental or other source.
A service that is given free to one client will normally be paid for by other clients.
Someone will be charged for every free lunch offered to a potential client!
As regards the cost of preliminary diagnostic surveys, it was mentioned in
Chapter 7 that short surveys required for preparing an assignment proposal are
done free of charge by some consultants and billed only if the proposal is
accepted and the assignment executed. Other free services may include man-
agement seminars or information services, not charged for because they are used
for marketing to existing or potential clients.
Fee-earning days
Services to clients are costed and in many cases also charged on the basis
of consultant-days (or hours or weeks). It is essential to plan and attain the
required number, which may be determined as shown in table 26.1 (assuming a
five-day working week).
Costs and fees
Table 26.1 Chargeable time
Item Weeks Days
Total time
- annual leave
-public holidays
-reserved against sickness
Time available
- reserved for training and meetings
- reserved for marketing and research
Chargeable time
The 190 chargeable days per consultant represent the expectation of a

consulting firm for the planned period. This is a 73 per cent utilization of the
total time, as determined by the ratio:
Chargeable time - -
190
= 0.73
Total time 260
We have chosen a hypothetical example. It is not a standard figure; every
consulting unit has to establish its own time budget based on local conditions,
and the firm's experience and strategy.
An alternative way of calculating this ratio is to compare chargeable time
to days available:
Chargeable time - - 190
- = 0.85
Days available 225
Consulting firms often use this second variant of the ratio and apply
differential rates to various categories of consultants. A typical time utilization
rate is 80-90 per cent for operating staff, 60-80 per cent for senior staff
(supervisors, team leaders) and 15-50 per cent for higher management staff
(partners, senior partners, officers). Operating consultants can achieve high
utilization rates thanks to the marketing, planning and coordination done by their
senior colleagues. Data from various countries indicate that single practitioners
who take care of their own marketing and administration achieve utilization rates
of 55-65 per cent. As we already know, many of them have to spend as much as
20-25 per cent of their time on marketing.
26.2 Costing chargeable services

Fee per unit of time
The time unit used by most consultants in calculating fees is one working
day, but some consultants use weekly or hourly rates. The basic consideration
is simple: every fee-earning day has to earn a corresponding portion of the total
budgeted income. This, of course, is an average figure. The actual fee will be
influenced by some other factors, as will be shown in section 26.3.
Let us use the hypothetical example of a consulting unit described in
section 30.2 and assume that the time budget of the 20 operating consultants in
that unit is 190 days each (table 26.1) and that the six senior consultants should
achieve 130 chargeable days each. To keep things simple, the unit's director and
the two trainees attached to the unit will not do any directly chargeable work.
Let us assume, too, that the unit's income should attain $3,898,000, which
corresponds to the operating budget (total income) shown in table 29.1 (Chap-
ter 29). The average daily fee rate will then be:
Total income - $3,898,000
= $851
Fee -earning days (20 x 190)+ (6 x 130)
Fees for various categories of consultant

Charging the same per diem rate for all consultants irrespective of their
experience and seniority would be a wrong policy. Many clients would insist on
having only senior consultants assigned to their projects if they could get them
for the same price. In contrast, some tasks requiring less experienced consultants
would be too costly. Most consulting firms therefore apply differential fee rates
for various categories of consultant. In our hypothetical case the per diem rate
for an operating consultant may be set at $800 and a senior consultant's fee at
$1,100. This will permit the unit to achieve the same total income, assuming that
the projected time utilization is attained by both categories.
The difference in fee rates charged for various categories of consultant can
be quite important. For example, in 1992 the average standard hourly rates
applied by consulting firms in United States were US$65 for research associates,
US$93 for entry-level consultants, US$121 for operating (management) con-
sultants, US$150 for senior consultants, US$l8O for junior partners and US$225
for senior partners.'
Feelsalary ratio
Another ratio used by consulting organizations (the so-called "factor" or
"multiple") compares the salaries paid to the fee-earning consultants with the
total fees earned as follows:
Total fees earned = Factor
Salaries
The normal value of this ratio in consulting firms is between 2.3 and 3.5,
but ratios higher than 3.5 are not uncommon in larger firms. Tables 29.1 and
29.2 (Chapter 29) show an expense structure of a hypothetical consulting firm
and provide data from which the "multiple" can be calculated.
Costs and fees
A single practitioner can often achieve a lower ratio by operating with

lower overhead expenses. For example, if he or she spends 27 per cent of the
225 "days available" (i.e. 60 days) on marketing, administration and other
non-chargeable activities, total annual income may be $150,000 (salary $85,000,
social charges $20,000, various overhead expenses $30,000 and profit $15,000),
to be earned in 165 chargeable days. The per diem fee is $910, while the
"multiple" is 1.77 (i.e. 150 : 85).
26.3 Marketing-policy considerations

The actual fees are not the result of a simple arithmetical operation
apportioning the total income to be earned to the projected fee-earning days.
Some other factors must be taken into consideration.
Consulting fees are simultaneously an instrument of general, financial and
marketing management policy. Consultants have to keep in mind not only how
much the service sold costs them and what income they must earn but, at the
same time, what fee is appropriate on a particular market and how much the
clients will be able and willing to pay for the service provided.
Normal fee level

A "normal" fee level may be well established and generally known, and
may even be recommended by a professional association (e.g. as minimum and
maximum fees). Fees higher than the suggested maximum would then be
acceptable only for certain special services, or might have to be justified in detail.
In some countries legislation protecting free competition forbids the setting of
any compulsory or recommended fee levels by professional associations or other
bodies. However, statistical data may be available.
Fees charged by competitors

As in other areas, the consultant should find out how competitors calculate
fees, what pricing policy they follow and what the clients think about their fees.
It is equally useful to learn about the fees charged by other colleagues in the
profession, who are not competitors.
Fees for different market segments

Different segments of the market served may require different fees.
Typically, lower fees may be charged to small enterprises and non-profit-making
social organizations than to important multinational or national business
corporations. Some consultants follow this policy, while others consider it
inappropriate.
Promotional fees
A promotional fee (say lower by 10-15 per cent than a normal fee) is
sometimes used in launching a new type of service in order to stimulate the
clients' interest. It is understood that it will be increased to a normal level at the
end of the promotion period. This is acceptable if the clients are aware of it. It
is unprofessional to get clients interested in a new service and then, to their great
surprise, increase the fee.
Subsidized fees
Governmental consulting services may be able, or even obliged, to charge
lower fees to certain or all clients. This is possible thanks to government
financing, whose purpose is to promote consulting and make it available to
clients who would be discouraged by high fees. In some countries even private
consultants may be able to work for lower fees thanks to government subsidies
under special schemes for assisting small enterprises, encouraging businesses
to move to new geographical areas, helping underprivileged social groups to
start new businesses, and similar. Alternatively, the consultant would charge a
normal fee but the client may have the possibility to apply for reimbursement or
a subsidy (see section 18.5).
Fees determined by clients

Government agencies or other clients may have established maximum fee
levels and are unable to go beyond these in recruiting a consultant. Some
consultants accept these imposed fee levels in working for clients from whom
they are getting, or hoping to get, a fair amount of business.
Congruency of fees with the consultant's image

The level of fees charged and the fee-setting technique used are an element
of the consultant's professional image. Thus, a consultant who is positioned as
a high-level adviser to top managers on corporate strategy issues would
consistently charge higher fees than a colleague involved in routine re-
organizations of office operations.
26.4 Principal fee-setting methods

Management consultants use several methods of fee setting. This reflects
the differences between the jobs they do and the various views on appropriate
ways of remunerating professional services. We must remember again that both
the form and the level of remuneration are part of the consultant-client
relationship and contract. They have to be acceptable to both parties and be
consistent with local business practices.
Costs and fees
Fee per unit of time

The traditional and probably still preferred method is to charge a fee for
the time spent working for a client. The unit of time used is one working day
(eight hours) in most cases, but it can be one hour, one week, or one month (in
long assignments).
As mentioned in the previous section, differential fee rates are normally
used for various levels or ranks of consulting staff. The ratio between the fee
charged for a senior expert and one charged for an operating consultant can be
as high as 3 : 1.Research assistants and junior (entry-level) consultants are likely
to be charged for at a lower rate than operating consultants (at some 30-50 per
cent of their rate).
Easy and clear fee calculation and billing are major advantages of this
technique. The clients are billed after agreed periods of time (e.g. monthly) for
the time actually worked by the consulting team in the previous month. Many
consultants consider this to be the only possible and correct method of charging
for professional work.
Yet fees per unit of time raise objections. The client is billed for the time
used and not for the work accomplished. He might even be billed for time totally
wasted. He therefore has to trust the consultant's professional integrity and
competence. Or he has to control the progress of the assignment in considerable
detail to convince himself that he will pay not only for the time used, but also
for the product as agreed in the contract.
Some clients object that this sort of fee encourages the consultant to take
more time than necessary and to try to prolong every assignment. This does occur
occasionally. However, it can be avoided by examining the consultant's proposal
thoroughly, defining the maximum duration of the assignment in the contract,
participating actively in the assignment together with the consultant, and
monitoring the progress actually made and results achieved.
Flat (lump-sum) fee

In this instance the consultant is paid for completing a precisely defined
project or job. The advantages to the client are obvious. He or she knows how
much the whole job will cost, and can also have an idea of the amount of time
to be spent on the project, hence the daily rates used in costing the assignment.
Finally, the client may be able to withhold payment, or the last instalment of it,
if the job is not completed according to the contract.
The consultant must be able to agree to these conditions. In particular, he
or she must be sure that the project cannot cost more. He or she cannot accept
this form of fee if the completion of the job depends more on the client's than
on the consultant's staff. Thus, a flat fee may be charged for a market survey, a
feasibility study, a new plant design or a training course, but not for a re-
organization the completion of which depends much more on the client than on
the consultant.
It does happen occasionally that a consultant who first agreed to do a job

for a fixed price needs more time to complete it and prefers to do it for free rather
than to ask for an additional payment not foreseen in the contract. The reason
may be that the consultant did not plan and manage the job properly. Or the
assignment has taken more time for unforeseen reasons; it is vital to complete
it, but the client's financial position permits no overrunning of costs. This could
mean that on such an assignment the consultant will make no profit, or may even
fail to recover costs.
The job can also require less time than has been quoted. This can easily
occur if the assignment is not precisely defined and the consultant has made a
generous time allowance to avoid taking too much risk. Occasionally a smart
consultant may submit an excessively high quotation knowing that an
uninformed or very busy client will have little insight into the project. In such
cases the client will pay too much.
These and other drawbacks of a simple flat-fee arrangement have led to
the development of several alternatives:
in preparing the contract, the client and the consultant examine, in con-
siderable detail, the consulting time and other resources required, and the
risks involved;
to protect the client, a lump sum is set as an upper limit that must not be
exceeded: within this limit, if the consultant needs less time, the actual fee
is paid on a time basis;
to protect the consultant, a contingency provision is included in the contract
(to be used if unforeseen conditions or events occur);
competitive bidding is applied and the consultants asked to justify their
fees in detail; the client could then analyse several bids and review them
with the consultants before choosing one of them and approving the fee.
In current consulting practice, flat fees and their variations are becoming
increasingly popular. hey are the preferred formula in public sector and
international technical assistance contracts, where often the direct client or the
agency sponsoring the project want to have a guarantee that the allocated sum
of money will not be exceeded. In addition, the client may be ill-equipped for
handling details and monitoring the consultant's work on a daily basis. Con-
sultants, in turn, like these contracts because of the increased flexibility and
freedom in organizing their work.
Fees contingent on results

Fees contingent on results, the so-called "contingency fees", have one or
both of the following characteristics: (1)the fee is paid only when specific results
are achieved; and (2) the size of the fee depends on the size of the results (savings,
profit) achieved.
In theory, this could be the ideal way of remunerating and motivating
consultants: the consultant is not paid for spending time at the client's offices,
or for writing reports, but for achieving bottom-line results. Initiative and
Costs and fees
creativity are encouraged. The client pays only if the results are real and
measurable, and if there is a healthy proportion between the payment made and
the results obtained.
In practice, however, a host of problems arise:
the consultant may be tempted to focus on easy short-term improvements,
producing immediate savings, and neglect measures likely to produce
benefits in the long run (such as preventive maintenance, staff develop-
ment, or R & D); excellent short-term results may even be the cause of
future losses;
it is often very difficult to identify and measure real results achieved thanks
to the consultant's intervention;
the client's and the consultant's assessment of the results may be very
different, and therefore friction and conflict are difficult to avoid;
sometimes the projected results are not achieved through the fault of the
client and the consultant cannot do anything about it;
it is not easy to decide when to pay the consultant if the results can only
be measured long after the end of the assignment;
if the client company is in difficulties, the projected results may never be
attained and the consultant will get no fee whatsoever.
Contingency
- . fees have been one of the most controversial issues in the
practice of management consulting. For many years they were banned by the
consultants' codes of ethics. This ban has been lifted in most countries and
contingency fees are no longer regarded as unethical. This, however, does not
remove the technical objections to their use.
In current practice, quite a few management consultants (as well as
chartered accountants) continue to reject contingency fees. Some consultants
use this method of payment if they feel that they can take the risk involved, that
the client will get a substantial economic benefit which will be measurable, and
that contingency payment is the most correct expression of the consultant's
contribution to the improvement of the client's business.
According to FEACO's guidelines (see also Appendix 3), "remuneration
cannot be linked to costs reduction or profit increases". FEACO permits con-
tingency fees -
where this is accepted practice, such as staff selection, mergers and acqui-
sitions and search for licenses. In circumstances where a contingent fee basis
might operate in a manner which could prejudice the independence of the
consultant undertaking the assignment or might prove difficult to calculate in
practice or might prejudice the long-term relationship with the client, it must
not be used.2
It is interesting to note that the use of contingency fees is more common
in the United States, where it has increased over the last few years, than in other
countries. Over 60 per cent of American consultants generally do contingency
work at least some of the time. This is often explained by the more entre-
preneurial attitudes of American consultants.
Equity participation
In searching for new and flexible fee arrangements convenient to certain
sorts of client, some consultants have started accepting equity in payment for
their services. For example, the formula has been used in working for very
promising high-technology firms requiring substantial consulting assistance, but
unable to pay the full cost of this assistance on account of a severe cash shortage.
This is a sort of contingency payment since the value of equity will reflect
the results actually achieved by the client firm. The consultant is taking con-
siderable risk and is strongly motivated to help achieve the projected results. He
or she may offer to work with the client throughout the critical period, putting
great emphasis on actual implementation.
Percentage fee
A percentage fee is a kind of contingency fee, tied to the value of a business
transaction, such as a merger, an acquisition, a property deal, a joint venture, a
bond issue, or similar. Traditionally, real-estate agents and investment bankers
have been charging percentage or success fees for their services in these trans-
actions. Percentage fees are common in architecture and civil engineering, where
the consulting engineer's remuneration is often calculated as a percentage of the
total project cost plus reimbursable direct cost.
A management or business consultant acting as an intermediary and a
facilitator and helping a client to negotiate a merger or an acquisition may work
for a percentage fee. Whichever side of the table the client sits, he is interested
in negotiating an arrangement which is most favourable to him and acceptable
to the other party.3
A typical example of a percentage fee is the Lehman formula, or the
5-4-3-2-1 formula, which continues to be the standard method of structuring the
intermediary's (broker's or finder's) fee in mergers and acquisitions, although
various modifications of the basic formula are in use. The classic Lehman
formula is based on the acquisition price and uses a descending percentage scale
as follows:
5 per cent of $1 to $1,000,000
4 per cent of $1,000,001 to $2,000,000
3 per cent of $2,000,001 to $3,000,000
2 per cent of $3,000,001 to $4,000,000
1 per cent of $4,000,001 and up.
Thus, the consultant's success fee for the sale of a $5 million company
would be (0.05+0.04+0.03+0.02+0.01)$1 million = $150,000. An alternative
of the formula is 5 per cent of the first 2 million, 4 per cent of the next 2 million,
and so on. Another variant in use is 5 per cent of the first 5 million, 2.5 per cent
of the next 10 million and 0.75 per cent of any amount in excess of 15 million.
A fixed percentage fee (say 1 to 3 per cent) is also practised, as well as various
bonus formulas. Such a bonus would be paid in addition to the normal fee if the
selling price obtained in the transaction exceeded a certain limit. The bonus can
Costs and fees
be calculated as a percentage of the whole transaction or of the part of the price

in excess of the agreed amount, which is preferable.
Some consultants prefer different fee formulas to be sure to earn something
even if the deal fails. For example, a retainer or per diem fee is paid in any case,
but if the deal is concluded, a percentage fee is applied and the fee already
calculated and paid on a per diem basis is deducted from the amount which is
due to the consultant.
It is easy to see that the fees earned by consultants, as indeed by other
intermediaries, helping to identify, prepare and negotiate important business
deals can be high. However, there is a risk of failure and a lot of time will be
also spent on deals that never materialize. Most importantly, bringing the deal
to a successful closing and obtaining a good price is a skill for which even a
seasoned business person is prepared to pay a high price.
Retainer (ongoing) fee

In retainer arrangements (see section 1.4), the consultant's fee is calculated
on the basis of the number of days of work in a period (say four days per month)
and the consultant's normal daily fee. A retainer ensures a steady income to the
consultant and saves marketing time. It is, therefore, usual to apply a reduced
daily rate. The retainer fee is to be charged and paid even if the client (at his or
her discretion) makes use of the consultant for less time than foreseen by the
contract.
This can be a delicate issue. The client may feel that the consultant should
have taken the initiative and suggest what needs to be done. This is exactly what
experienced consultants do - in working under a retainer, they closely follow
the client's business and do not hesitate to come up with their own suggestions
on how they could be more useful to the client.
26.5 Fair play in fee-setting and billing

It is easy to see that none of the techniques discussed can guarantee absolute
precision and objectivity of remuneration for the work performed and results
produced. There will always be an element of uncertainty, and of subjective
judgement, which may or may not be correct and fair. Despite progress in
measurement techniques, fee-setting and billing for professional consulting
work continues to be a matter of honesty and trust, in addition to being a matter
of measurement and control. Consultants and their associations are well aware
of these two sides of billing. Their concerns are expressed in the codes of
conduct, which tend to pay considerable attention to billing techniques regarded
as ethical, as well as to practices that are not recommended or are directly banned
by the profession.
Communicating fees to clients

Clients need to be properly informed about fees and about methods used
to calculate fees. They should have no reason to suspect that they are being
charged an exorbitant fee and that the consultant wants to conceal an
unjustifiable profit. Clients do not expect consultants to provide a high-quality
service for a low price. Many clients are wary of cheap consultants. Nevertheless,
consulting is costly, and clients have the right to know why it is so and what they
will be paying for.
Up to a certain point, it is a matter of tactics and tact to decide when and
how to communicate the fee to the client. Some clients ask a direct question in
their first meeting with the consultant (see section 7.1). They should get an
equally direct answer. Others make remarks which express their fears, or show
ignorance about consulting fees and their justification. At a convenient moment
the consultant should tell the client what the normal fee rate is and in what way
he or she would charge for the work performed. If the client asks for more
information, the consultant should explain the structure of the fee.
Such general information should be given at a relatively early stage in
negotiating the assignment, to avoid disenchantment at a later date. Information
on fees given in the written proposal to the client should not come as an
unpleasant surprise. In particular, if the client believes that the consultant's
standard fees are too high, this should become clear before a preliminary
diagnostic survey and work on a detailed proposal is started. On the other hand,
it may be better tactics to demonstrate professional competence, genuine interest
and a good understanding of the client's business before starting to talk about
fees.
Irrespective of the tactics chosen, there is a general rule: the client must be
informed about the fees, or the basis of fees to be charged, before the work starts.
Overcharging
A universal rule concerns the adequacy of the fee to the work actually done.
As regards the time taken, the consultant may be the only person who knows
how much time was really needed and spent to complete an assignment.
Charging for time not worked, or spent inefficiently owing to flaws within the
consulting team or firm, is unprofessional, even if this is done for a wealthy
client who does not have to worry about every cent. Charging an excessive fee
for a simple job is equally unprofessional. As regards flat fees, we already know
that their purpose is not to blur information and make sure that the client will
pay more than if a per diem fee were used.
Double billing
Double billing must be avoided. A professional who will work for two or
three clients during the same trip would not charge the full travel time and cost
to each client separately. A consultant who, in calculating the standard fee rates,
Costs and fees
has already made a provision for various administrative and communication

charges of the firm, would not charge for these expenses a second time in billing
individual clients.
These are straightforward issues. More delicate questions arise in con-
nection with research, fact finding, development and systems design work that
can serve as a basis of two or more assignments, and reduce the cost of these
assignments. Is it fair to charge data collection or research work performed for
one client (and fully paid by that client) once more to another client at a full
rate? If not, why should the second client benefit from work financed by the first
client? Why should the consultant miss the opportunity to make a special profit
if no one knows about this? These and similar questions require judgement based
both on business policy and ethical considerations.
Price of exceptional expertise

In contrast to the situations described above, there are cases where any fee
level can be justified and regarded as fair if the client is aware of it and has
accepted it. This is the case of an expert who is able to help with a difficult
strategic decision of far-reaching importance to the client's business, or to
prevent a disaster. Usually such assignments will be short, and even an
exceptionally high per diem or lump-sum fee will be only a fraction of the client's
possible losses or gains.
26.6 Towards value billing

The previous sections illustrate that in a professional service it is difficult,
and at times impossible, to establish a clear, understandable and undisputable
relationship between the cost of a service and the results actually achieved. An
ethical approach to assessing and recording time and costs, and establishing
"fair" or "reasonable" fees, is essential - but it is not enough. In mature and
demand-driven markets -and the consulting market in most countries tends to
be one of them -clients want to pay for the value received, not for costs incurred
to deliver a service. They are prepared to pay more than the costs if the value is
high. Conversely, and more importantly, they resent paying a high price for a
service of low value, irrespective of the real cost of that service.
It is essential to understand the difference between cost and value. Value
is not a mere reflection of costs. It is, first and above all, the client's perception
of what has been added to the business thanks to the consultant's intervention.
This perception can be very subjective. To one client, a retainer may have a high
value since he can call and rely on the consultant whenever he feels that he needs
him or her. To another client, such easy availability has no value and she would
not be prepared to pay for it.
Competition tends to ensure that a relationship between value and costs is
maintained, and re-established when necessary. In a free and open market,
professionals could not afford for long to sell a service of low value for a high
price, claiming that this is justified by their costs. If the consultant believes that
the price must be high because the cost is high, and the client fails to see a
reasonable relationship between the value added to the business and the price
paid, something is utterly wrong with the relationship.
These are the reasons behind the current efforts to apply what is now
commonly called value billing, or value-added billing. In value billing, the price
paid by the client should be in reasonable proportion to the value added by the
consultant. This approach does not preclude the use of any form of fee setting
and billing. A per diem fee may be perfectly correct and the daily rate may even
be tripled if the issue at stake is important and the value to the client will be high.
Yet in more and more cases other techniques of fee setting are regarded as more
appropriate forms of value billing.
The time when a consultant could say, "I am a professional and this is my
price" is gone. Increasingly, management and business consultants have to think
of the value of the service rendered and of the degree of client satisfaction,
aiming to judge them from the client's perspective, and discuss them frankly
with the client. This will help to reduce misunderstandings and conflicts over
the relationship between value and price.4
A consultant's attitude to value billing was best expressed by Gerald Wein-
berg in his Sixth Law of Pricing: "If they don't like your work, don't take their
m ~ n e y "This
. ~ view is shared by other leading professionals. Christopher Hart's
firm gives the client the following guarantee: "If the client is not completely
satisfied with the services provided by the TQM Group, the TQM Group will,
at the client's option, either waive professional fees, or accept a portion of those
fees that reflects the client's level of sati~faction".~ In supporting this approach,
David Maister points out that "the professional firm market-place is cluttered
with claims to excellence and assertions of quality, few of which are credible to
the buyer. . . The reality of today's market-place is that if your client is
unsatisfied, you're probably going to have to adjust the fee a n y ~ a y " . ~
26.7 Costing and pricing an assignment

Calculating time
The first step in costing an assignment is the calculation of the time needed
to carry out the job. This calculation is based on an assignment plan (sections 7.3
and 27.1) and on estimates of time required for each work operation. Reliable
time estimates can be made only if the assignment plan is precise and detailed
enough. For example, we know that in planning the diagnostic phase of the
assignment the consultant can choose among several alternative data-gathering
techniques. The time requirements of various techniques can be very different.
Considerable experience is required for correctly assessing time for all
operations and phases of a consulting assignment. Such an assessment is
normally made by senior members of the consulting firm, responsible for
planning and supervising assignments. Some consultants have their own tables
Costs and fees
of indicative time data to which they can refer in assignment planning (e.g.
number of interviews per working day). Such data must be applied with due
regard to the specific conditions of every client and assignment.
There are cases where precise time assessment is difficult, if not im-
possible. Two kinds of situation are quite common.
First, either the individual who assesses time may be inexperienced in
consulting, or the job to be carried out may be new even to an experienced
practitioner. In such a case the consultant should try to obtain information on
the time required in comparable situations, say from other consultants. Or,
instead of making a commitment to completing the job in a fixed number of
days, he or she should only give a time estimate and suggest a more flexible
arrangement to the client.
The second case concerns assignments in which the initial phases can be
planned with precision, while the subsequent phases can be estimated only
roughly. Typically, the consultant may be able to make an accurate time
assessment for the diagnostic phase, a rough assessment for action planning, and
no more than a preliminary guess for the implementation phase. This is quite
understandable owing to the number of factors likely to affect implementation.
In these instances, it may be preferable to use a phased approach to assessing
time and costing the assignment. Only orientation data would be given for the
phases where duration and volume of work required are unclear at the beginning
of the assignment. Clients who understand the nature of consulting will be
receptive to such an arrangement.
Costing the consulting time

As mentioned in section 26.1, the tendency is to be as precise as possible
in measuring the labour costs of an assignment. The cost of the time of operating
consultants would therefore be treated as a direct labour cost in any case. The
cost of supervisory and control work, as well as various technical and adminis-
trative support operations, can be treated as either direct or indirect costs and
the consulting firm will have to decide which is more appropriate.
If different categories of consultant are assigned to the project, it is
customary to calculate and indicate the time and price for each category
separately, so that the client knows how much he is to pay for the junior,
intermediate, senior and very senior (top) levels of direct services to the firm.
As we know, the fee differentials can be significant and the cost of an assignment
could rocket if a large part of the job is done by the most expensive tier of the
consulting staff.
The total time required by an assignment, and the cost of this time, should
be established even if a fee-setting method other than per-unit-of-time rate is
applied. In such a case, the consultant will use it as internal management
information in deciding for what sort and size of fee he or she would be able to
work.
Other expenses
Expenses other than direct labour costs may be either included in the fee
(as overhead expenses) or charged directly to the client. It is important to make
this clear to the client, who should know precisely what kinds of expenses will
have to be reimbursed.
Typical "billable" or "reimbursable" expenses are travel and board and
lodging expenses of consultants on assignments, special services arranged by
the consultant (e.g. testing, computing, printing, purchase of special equipment,
drawings), long-distance communication and document delivery. In addition to
listing these items it may be necessary to indicate the values, as for example, the
expenses that the consultant expects to incur in travelling to and from the client's
premises, and how much the client is to pay for the consultant's board and
lodging, or for local transport during the assignment.
In international consulting these "billable" expenses may be quite high,
reaching 25-30 per cent of the fees. There may even be a provision for family
travel and accommodation if the consultant is to work on a long assignment
abroad. Expenses defined as "billable" are not a part of the consultant's fees, but
a separate additional item in the total assignment budget and in bills submitted
to the client.
Most consultants will ask the client to reimburse these expenses without
paying any additional overhead or mark-up, but some consultants would add a
10-20 per cent mark up to cover their administrative costs.
Comparing costs and benefits

Irrespective of the fee-setting method used, the client is likely to compare
the price proposed by the consultant with the value gained by the client's
business. The consultant, in pricing the assignment, should make his or her own
calculation of this ratio, even if the client has not explicitly asked for it and has
not even thought of it.
If the value to be generated cannot justify the price in the client's eyes, the
assignment design may need to be completely revised. Or the client should be
encouraged to think of a different approach, for example, purchasing standard
record-keeping and cost-control software rather than asking the consultant to
design a customized system.
Discounts and contingencies

Under normal circumstances, if the cost of the assignment has been
calculated correctly there is no reason for granting any discount on a consulting
fee, and the consultant cannot actually afford to do so. Nevertheless, in certain
situations a reduced fee may be justified and can be offered.
For example, a client can claim a "quantity discount" if the volume of work
contracted notably exceeds the average size of assignments. Either the
assignment can keep the consultant occupied for a fairly long time, or the
Costs and fees
assignment team will be larger than usual. The consultant may save on marketing
time, administrative support expenses, and even on technical backstopping and
supervision. A discount can also be arranged if a consulting firm already has an
assignment with a client, and is offered an additional one by the same client for
the same period of time.
On the other hand, in costing assignments it would be difficult to ignore
changes in the cost of living and price levels. A provision for necessary cost
increases can be made in various ways, depending on the client's and the
consultant's convenience. For example, the contract can include an "escalation
clause", whereby the fees will be adjusted upwards in accordance with the
officially recognized inflation rate. Or a contingency provision (say 5-10 per
cent of the total cost) is made, to be used by common agreement of the consultant
and the client for justified and inevitable cost increases, and for expenses that
could not be foreseen before starting the job.
Schedule of payments
Both the client and the consultant are concerned not only about the amount
of the fee to be paid, but also about the payment schedule. Many clients are
interested in delaying payments. Consultants, in contrast, want to be paid as soon
as possible after having completed the job or a part of it, and if they can get an
advance payment before starting the job, they are certainly not opposed to it.
The most common arrangement is one whereby the consultant bills the
client periodically (as a rule monthly or weekly) for work carried out in the
previous period. The last bill is payable within an agreed number of days after
the completion of the assignment. Payments are to be made within an agreed
period of time - as a rule, 30 days after billing.
There are, then, various possible arrangements:
In some situations (e.g. international consulting), consultants prefer to
receive an advance payment after the signature of the contract, but before
starting the work; if the client agrees to this, he actually confirms his
commitment to the assignment and his confidence in the consultant.
If other than per-unit-of-time fees are applied, there may still be some
payment of advances before the project is completed, or the consultant may
propose waiting for the payment until the job is finished and the projected
results achieved. For example, the payment schedule may be: 30 per cent
on signature, two payments of 20 per cent each during the assignment, and
30 per cent one month after the client has received the final report and bill.
Occasionally a schedule of payments may be so important to the client that
it is necessary to redesign the assignment in order to adjust the pace of the
work to the client's financial position. For example, the client may prefer
to stretch the assignment over a longer period of time. Or the consultant
may be able to accept a payment schedule that differs from the actual work
schedule of the assignment, but makes the processing of payments easier
for the client.
In fixing their fees, consultants should find out if the payment schedule
matters to the client, and whether any particular constraints are to be observed.
However, in the consulting business, it is not usual to encourage early and prompt
payment by offering cash discounts to clients.
Negotiating the fee

Under what circumstances can a consultant agree to negotiate the fee with
a client who wants to get the job done for a lower price? It is virtually impossible
to think of universal rules. In the social and business cultures of some countries,
professional fees are never challenged. In other countries everything is regarded
as negotiable, and the local culture may require the consultant and the client to
pass through a negotiation ritual before concluding a contract. It may even be
customary to agree on a slightly lower price than originally demanded. The
consultant should be aware of this and, if necessary, build in a "negotiation
provision" in the first price quotation. Thus, the price agreed on after the
negotiation will be the correct one, and regarded as such by both parties.
Irrespective of local habits, there may be technical reasons for negotiating
consulting fees. The client may need more detailed information to become
convinced that the fee is correctly set. A true professional is always prepared to
give this information. Furthermore, in challenging the fee the client may actually
be raising questions about the design of the assignment. As mentioned in
section 7.5, the client may want to negotiate the consultant's proposal for various
reasons. He may be thinking of a less costly approach. Often the client may be
able to have some tasks performed by his own personnel instead of using
consultants or their technical and administrative support services. The timetable
may also have to be reconsidered for financial reasons if the client wishes to use
a different schedule of payments from that proposed by the consultant.
When agreeing to negotiate the fee, the consultant should try to be well
informed on the conditions under which the negotiation will take place. Will it
be a formality, a ritual required by local culture? Does the client have alternative
proposals (at different prices) from other consultants? Is the client happy with
the design of the assignment and the competence of the staff proposed, but not
with the price? Is the price proposed prohibitive to the client, or does he or she
merely want to save money by pressing the consultant? Thus, the consultant
should prepare for the negotiation, trying to anticipate questions and suggestions
likely to be made by the client.
26.8 Billing clients and collecting fees

Professional firms bill clients and collect fees like other businesses. They
may, however, face additional problems with certain clients if these do not feel
sure that they are paying the right price and that the consultant has really
delivered what was promised. This confirms how important it is to be clear and
Costs and fees
consistent when negotiating the assignment and informing the client about the
fee rate and the billing practice.
Bills should be issued as soon as records of work performed and expenses
incurred are available. This underlines the importance of reliable and smoothly
operating administration.
lnformation to be provided in a bill

Bills should be as detailed as necessary to avoid any misunderstanding or
unnecessary query from clients. Clients must know exactly what is being charged
for and why. They should be able to refer to the contract (or the attached terms
of business) in case of any doubt. They should find no unexpected charge in a
bill, e.g. no separate charge for a service or supplies that they thought would be
provided within the agreed fee. Information normally provided in a bill is
indicated in box 26.1.
Box 26.1 lnformation provided in a bill
Bill number
Period covered
Services provided (listing, dates, volume of work by each consultant)
Fee rates and total charges
Expenses billed separately from fees
When payment is due
How to make payment (currency, method of payment, account number)
Whom to contact for queries
Date of expedition of the bill
Name, address, telephone and fax numbers of the consultant
Signature and courtesy formula
Addressing and delivering the bill

Problems arise if the consultant does not know to which department and
person to address the bill. This can easily happen in large businesses and in
government services. The consultant should therefore find out what actually
happens to the bill when it is delivered, and make sure that the right people
receive copies of the bill. To deliver the bill personally may sometimes be
advisable. However, there is no reason why the consultant should harass finan-
cial or other services in organizations that are known to pay their bills correctly.
Collection period
What is a normal collection period in professional services? In most
countries consultants would ask for payment to be made within 30 days, and
hope to receive the money not later than in 45 days. There may be local
differences, and in international consulting payments may take several months.
Payments received late result in additional charges to the consultant. Rare
are the consultants who can afford to extend interest-free credit to their clients!
A late-paying client should first be reminded with courtesy -it may be enough
to send another copy of the bill with a remark that perhaps the original was lost.
If the consultant believes there is a problem, it may be wise to contact the client
personally and find out the cause of non-payment. This can be done during a
supervisor's visit if the assignment is still operational. A tactful reminder may
be all that is necessary.
If a client still does not pay, the consulting team may be withdrawn. The
client should then be told clearly what measures the consultant intends to take
to collect the fees.
Uncollectable accounts
Whether to take a non-paying client to court or not is a delicate decision.
The procedure risks being both lengthy and costly, and the result is uncertain.
In many cases it is wiser to stay out of court and try to find a compromise
settlement. In the consulting contract there may be a provision for a settlement
through arbitration of disputes that cannot be settled amicably.
Some fees are uncollectable in any country. Consulting firms in sophisti-
cated business environments report that they normally write off no more than
0.1-1.0 per cent of uncollectable fees. There are countries where this figure can
be much higher. If bad debts cannot be collected, in many countries they can at
least be deducted for tax purposes.
There are also countries where business clients consider it normal and
ethical practice not to pay the last 5-10 per cent of the total fee for a project. If
you intend to operate in such a country you must know about this!
pp
' ACME: ACME 1993 survey of United States key management information (New York,
1993), p. 39.
? See FEACO's Information document (Brussels, 1994), p. 12.
See W. M. McKoy and J. D. Roethle: "Consultants' fees for mergers and acquisitions", in
Journal of Management Consulting (Milwaukee, Wisconsin), Vol. 5, No. 4,1989, pp. 16-21.
4Experience of other professions facing similar problems is certainly of interest to
management consultants. See, e.g., R. C. Reed (ed.): Win-win billing strategies: Alternatives that
satisfi your clients and you (Chicago, Illinois, American Bar Association, 1992).
%. M. Weinberg: The secrets of consulting (New York, Dorset House, 1985), p. 188.
6 See C. Hart: Extraordinary guarantees (New York, AMACOM, 1993).
D. Maister: "The new value billing", in American Lawyer (New York), May 1994.
ASSIGNMENT MANAGEMENT
Assignment management is important because a consulting firm performs

work for clients through individual operating assignments. Whatever choices
are made and principles adopted as regards the firm's strategy, quality assurance,
staff development or product innovation, any such decision will need to be
translated into operational arrangements and intervention methods used in
individual client assignments. If not, grand designs will not leave the managing
partners' offices and work with clients will continue as before. Also, individual
clients will judge the consulting firm not only by the content and relevance of
the service provided, but also by the organization and management of this
service. Clumsy and hectic assignment management is likely to be interpreted
by clients as a sign of the consultant's organizational incompetence and inef-
ficiency. It will turn away clients.
This chapter focuses on managerial and administrative aspects of assign-
ment execution. Therefore it supplements Chapters 7 to 11 describing the main
stages of the consulting process. To avoid repetition, a number of references to
these chapters will be made in the text that follows.
27.1 Structuring and scheduling an assignment

Defining an assignment and its management
requirements1
The scope of an assignment (other terms used: engagement, project, case,
etc.) is usually defined in the proposal to the client and in the contract
(sections 7.4 to 7.6). The definition includes the start and the end of the
assignment, the objectives, the proposed approach, the work programme, the
consultants involved, the resources required, the degree and form of the client's
involvement, the supervisory responsibility and the price to be paid. Checking
the completeness and clarity of assignment definitions is an important
precondition of effective assignment management. Even questions such as
where the data will be processed and reports produced, or who will take care of
the consultant's transport during the assignment, should be clarified. More

important, however, are technical and human issues related to the client's
problem and the approach to be taken by the consultants.
Based on this information, the consulting firm will choose how to manage
each assignment. Questions on which decisions will be needed include:
the use of a standard or special management procedure;
the need to appoint a full-time team leader;
the type and level of experience of senior consultants (partners) charged
with supervision and backstopping;
the desirability and frequency of detailed controls;
the need to inform and/or involve the client firm's top management;
the opportunity to try out or test new approaches and techniques, and the
desirability of doing so;
the importance of the assignment to future business development;
the lessons that the firm may be able to draw for this assignment.
In making these choices, the consulting firm will be guided both by its
established practices and by an assessment of the profile of the new assignment.
Although there are similarities between assignments, no two assignments are
exactly the same because the human context and other conditions will always
be unique. If the firm has developed a typology of assignments and defined
characteristic management requirements of each type, this typology needs to be
used cautiously.
Assignment team leaders and supervisors

The key role in managing operating assignments is played by team leaders
or project managers. As a rule, a consulting firm would have a group of senior
colleagues whose experience and achievement qualify them for this critical
position. The function often includes the negotiation and preparation of new
assignments - the senior consultant who negotiates the assignment, does the
preliminary survey of the client organization, and coordinates the drafting of the
proposal submitted to the client, is then charged with managing assignment
execution. Interdisciplinary general management assignments would be man-
aged by team leaders who are all-round generalists, while functional assign-
ments are normally managed by senior specialists in marketing, finance,
production or another area.
In managing the assignment, the team leader must enjoy full authority and
responsibility for operating staff time-allocation, work scheduling and organi-
zation, the method of work, and the nature of the advice given to the client. He
or she is the line manager and must be regarded as such by both the consulting
firm's higher management and the members of the team. This is a very important
principle since the team often consists of consultants of different backgrounds
and profiles. In addition, if specialist consultants have to contribute to several
assignments during the same period of time, there is not only a scheduling and
Assignment management
coordination problem, but also a problem deriving from the technical approach,
intellectual involvement and commitment to one or another job.
If an assignment is small and involves only one or two operating con-
sultants, a senior consultant is usually appointed as supervisor of several assign-
ments. These supervisory responsibilities include:
- periodic visits to operating consultants on client assignments;
- control and assessment of assignment progress;
- technical guidance and support for operating consultants;
- review of important reports and proposals to be submitted to the client;
- liaison with clients on matters of assignment progress and mutual
commitments.
It is always necessary to define clearly the working relations with the client,
i.e. what matters should be discussed and agreed on with the operating
consultants, or with the supervisors who come to control the assignment. For
example, if the assignment does not progress because the client does not spend
enough time with the operating consultant, the supervisor should raise the matter
with the client. When conclusions drawn from diagnosis, or action proposals,
are submitted to the client, the supervisor may come to meetings and support
the operating consultant with his authority.
Assignment staffing and scheduling

Ideally, a consulting firm would like to see all its consultants moving
directly from completed assignments to new ones, without losing a single
working day. The starting dates and the schedules of assignments are negotiated
with clients in order to make this possible. An ethical approach is required,
however: if the client is in a difficult situation and needs help quickly, you should
never try to convince him that he can wait in order to make your work-scheduling
task easier!
Before establishing detailed work plans for each assignment, the con-
sulting firm needs to make sure that the consultants selected for the assignment
will be available at the necessary times and for the periods required. This may
be yet another piece in the jigsaw puzzle, to be seen in the context of the total
picture of operations.
First, the technical profile of the team is matched to the technical profile
of the assignment. It is obvious that the choice of professional staff will vary
according to the size of the consulting firm. Some larger consultancies have
developed computerized inventories of staff competences (skills). Smaller firms
either have to work in more limited fields, or employ highly versatile and
adaptable people. In extreme cases, the problems of a sole practitioner, or a
partnership of two or three consultants, are plain to see.
Second, there is the personality factor. The correct matching of client's and
consultant's personalities can make the difference between good, middling and
poor assignments. Guidance on the client's characteristics, in terms of likes and
dislikes, habits, interests and general way of life, should have been provided (as
confidential information) by the consultant who negotiated the contract
(section 7.5). The consulting firm knows the personalities of its own staff.
The client and the consultant do not necessarily have to have everything in
common. There are even advantages sometimes in complementing a client of
one type by a consultant of another when a modifying influence appears
desirable, but the consulting firm should avoid pairing two obvious in-
compatibles. Up to a point, it can be expected that every consultant will adapt
to normal and unavoidable differences, and matching people is only a matter of
avoiding clashes at the more extreme limits of human behaviour.
Third, it is equally important that the team leader and the team members
get on well with each other. Consultants do not always see eye to eye in matters
of individual preference any more than do other people.
Human relations and the atmosphere within an assignment team will affect
work quality and efficiency as much as the technical competence of the operating
consultants and the team leader. Therefore, professionally managed consulting
firms tend to be open-minded and flexible in staffing assignments even if this
can lead to inequalities in the workload of individual consultants. Team leaders
are asked whom they prefer to have on their teams, or even encouraged to make
their own proposals concerning the team composition. The operating con-
sultants' preference for particular team leaders is not ignored either.
Even if all personal preferences and choices cannot be fully respected for
obvious reasons, it is important to know about them, and draw appropriate
conclusions for coaching, training and career planning. Quite often the originally
proposed team structure may need to be modified. Usually this is due to a
time-lag of uncertain length between the submission of the proposal, its
acceptance by the client, and the actual start of the assignment.
Various circumstances may affect the scheduling of the actual start and
execution of the assignment. If waiting time cannot be avoided, it is necessary
to decide who will wait. The consultant may have to choose between two or
more clients, deciding which one will be served first (assuming that other clients
can wait and will agree to do so). Or a major assignment is scheduled to start in,
say, two months, but the designated team leader is available now. Would the
client agree to advance the start of the assignment? Should the team leader be
assigned to another job? Should he or she be kept waiting? When is this justified
and when not? What will the client do if he or she has to wait?
It frequently happens that a current assignment should have finished, but
requires more time than originally scheduled, so that there is a risk of delaying
a job promised to another client. As it is inconvenient to interrupt a nearly
finished job, the consulting firm would probably try to negotiate a compromise
with one or both clients, for example, start the new assignment gradually, as
individual team members become available. These and similar situations require
careful consideration and tactful negotiation with the clients concerned. Clients
are not unaware of these problems, and will usually be open to a discussion of
mutually convenient arrangements.
Lastly, assignment and individual work scheduling should follow a golden

rule: never leave any consultant unoccupied! If time-lags between assignments
cannot be avoided, the consultant should have other activities waiting for
attention. The consulting firm should have a backlog of jobs for this situation
(training, self-development, research, visiting former clients, etc.), and should
encourage individual consultants to make their own suggestions for productive
use of the time that cannot be spent with clients.
Overall assignment plan

The overall assignment plan (section 7.4) covers the whole period of the
assignment. It presents the operating team's main activities against a timetable
(in weeks or days). It specifies the starting and final points of these activities,
the volume of work (consultant/weeks or consultant/days) in every period in the
timetable, and points of time for submission of reports (interim and final) and
for progress control of the assignment.
Estimates of time in the overall plan can be made:
- top down, when the consultant knows that he or she has a certain number
of weeks and work-weeks available and tries to allocate them to a certain
number of different activities;
- bottom up, when the consultant estimates the time needed for each
particular activity and compares the total time thus obtained with the
established deadlines and total estimates of work-weeks needed for the
assignment.
Experience with the time taken for similar activities on previous assign-
ments is useful in any case.
The length of assignments affects planning. A short assignment must
obviously be planned in greater detail in order to complete it on time. A long
assignment invites the temptation to neglect planning since there is no immediate
time-pressure. If allowed to take this line, the consultants may suddenly become
aware that half the time has been used, and only one-quarter of the programme
accomplished. Long assignments may also tend to lose sight of ultimate
objectives, particularly as the operating team becomes more accepted and part
of the scene. A clear plan and its regular control avoid this.
A well-calculated overall assignment plan allows for some contingencies
and should have to be altered only when major events disturb the normal progress
of the assignment. The plan can be presented as a bar chart, a table giving
numerical values, a network diagram (for long and complex assignments) or a
combination of these.
It is useful to enter the client inputs and activities in the assignment plan
in a way which permits a separate control of client and consultant inputs.
If the consultancy provides quality assurance under I S 0 9001 (see
sections 28.2-28.3), a quality plan may be a separate section of the assignment
plan, or may be appended to this plan.
The plan is available for assignment monitoring and control both to the
consulting organization and to the client.
27.2 Preparing for an assignment

Liaison officer
It is usual for the client to appoint one or more staff members to provide
close and continuous liaison with the consultants. The term "counterpart" is
sometimes used. These people are of great assistance to operating consultants
and save their time, especially during the early investigational stages. Theirs may
be full-time work. In some assignments, consultants train the liaison officers to
maintain and develop the work after the end of the assignment.
Recruitment and training of client staff

The preliminary diagnostic survey may have shown that there is a shortage
of competent people in the client company, with no prospect of finding suitable
candidates internally. The client may personally recruit and select additional
staff, or may use the consulting unit's service. Either method will take some
time. Client staff, possibly including the liaison officer, may need preliminary
training in certain techniques. The consulting firm may assist in finding the most
suitable courses for them to attend.
Special training of operating consultants

An assignment may require certain skills in which the only available con-
sultant is short of experience. He may receive intensive coaching in the
consulting organization, or gain direct experience by joining another assignment
where the team is already practising the same methods.
Office accommodation
A consulting team should not have to hunt for offices when it starts an
assignment. Consultants need not have the best offices, but they will not be
highly regarded by the client's staff if they have only a small table in a corner
of a general area. Without suitable office space consultants cannot avoid wasting
some of their expensive time. Also, operating consultants on assignments need
privacy for interviews, discussions and meetings, keeping and studying
documents, and writing. As a rule, meeting-rooms are not suitable for use as
consultants' offices.
Consultant briefing
One person likely to know little about the assignment before the briefing
is the operating consultant, who has probably been very busy winding up his or
Box 27.1 Check-list of points for briefing
A. Hand over
1. Report on preliminary problem diagnosis and proposal to the client
2. Internal confidential notes on the client
3. Working papers borrowed from the client
4. Published or other printed matter
B. Convey and discuss

Terms of reference and contract
Source of introduction to the client
Client's experience of consultants
Client organization's structure, personalities, general style of management,
apparent centres of power and influence
Client's needs and desires, real and imagined
Probable attitudes of staff
Expected results; on what are they based
Assignment strategy and plan (including quality requirements)
Client's experience in the techniques the consultants intend to use
Key facts of the client's operation
Production processes, trade jargon and terms particular to the business and
the locality
Contacts made with trade unions and other bodies
Previous work in the sector (for the same client, competitors, etc.)
Scheduled reporting and progress controls
C. Inform on
1. Commitments to the client in respect of various services of the consulting
firm (training, recruitment, design, computing, etc.)
2. Arrangements for invoicing and payment of fees
3. Arrangements for starting date, time and place
4. Arrangements for office accommodation, staff liaison, secretarial and other
support
5. Accommodation, travel arrangements and meeting-place of consultants
before going to client organization
her last assignment and is in no position to give thought to a new one. If the
supervisor has been involved with the entry-phase activity, that is one person
who will know a great deal. Otherwise, the colleague who negotiated the
assignment will brief them both. At the briefing meeting, the team takes over
the accumulated documentation from the preliminary survey. All matters
pertaining to the start of the assignment are then discussed. A check-list of points
for the briefing (box 27.1) would guard against significant omissions.
Briefing must never be hectic and confined to administrative arrangements.
Partners and other seniors must use this opportunity to discuss with the operating
team what approach may be most appropriate and what techniques should be
used in the given assignment. In many firms, time and clients'money are wasted
by superficial and impatient briefings provided to operating consultants by their
seniors who negotiated the assignment.
Client briefing
Many of the points which should be raised in a final check with the client
are also covered in the list in box 27.1. The remaining precautions to be taken
may depend on how much time has passed since the assignment was agreed to
and what the pre-assignment activities were. Checks should be made to ensure:
that the client's views and needs are still in accordance with the definition
of the assignment and the terms of the contract as mentioned above;
that the client has adequately explained the nature and purpose of the
assignment to all managers and other employees who will be in any way
affected.
Introducing the consultants

The conduct of the first days of an operating assignment is of vital import-
ance. The client has already met senior members of the consulting firm, but may
be meeting the operating team for the first time. The members of the team new
to the client are introduced to the managers and other employees as appropriate.
These introductions should be comprehensive and should include all staff who
might resent being missed out. At the end, the consultants should ask tactfully
if there are any others they should see. During introductions the consultants will
sense whether the client's briefing of his staff was complete and understood. The
team should be careful to remember names.
Introductions may be combined with a tour of the plant or offices (which
may be limited to the area covered by the consultancy). This gives a two-way
opportunity - for the consultants to begin their orientation and for the
employees to get their first sight of the team. The tour could end with another
tactful question: "Is there anywhere we have not been?"
During introductions the team members should talk enough to show and
arouse interest, but avoid any remarks that would suggest prejudgement or
over-confidence. This is the start of an exercise in patient listening.
Starting work
After introductions the team should make time to talk on their own and
discuss impressions. They should re-check the overall assignment plan. If there
is not already a short-term plan, they should draw one up to cover the next week
or two. The date of their supervisor's next visit is arranged and a copy of his or
her own programme in the meantime is left with the operating team.
With the departure of the seniors, the operating consultant is alone for the
first time in the new surroundings. This can be a ticklish time, and if there is any
stage fright this is when it occurs. It is essential for the operating consultant to
do something immediately and establish contacts with the client's people.
Making a start is more important than what precisely is done first. The longer
the delay, the harder it becomes. Experience shows the consultant what initial
steps would be appropriate in this new environment.
27.3 Managing assignment execution

Consulting requires considerable decentralization of operational decision-
making and control. Once an assignment has started, it functions as a relatively
independent project, where most matters are decided on the spot by the operating
consultant or the team leader in consensus with the client. This section provides
a number of thoughts and practical suggestions concerning the short-term
control of assignments. The reader should consider what is applicable in the
particular setting (e.g. the frequency of control visits to consultants on assign-
ments will be influenced by distance and the cost of travel).
Operating consultants' self-discipline and self-control

The self-discipline and self-management of the operating consultants is a
vital factor in assignment control. They are the full-time members of the team,
and often the consulting firm's sole representatives for 90 per cent of the time
of the assignment.
The consultants are constantly exposed in a situation where they are greatly
outnumbered. They have to set an example for hard and high-quality work and
intellectual integrity. It is primarily a matter of their own judgement to decide
how the code of conduct and the unwritten rules of the profession should be
applied in the conditions of the client organization, and from this viewpoint every
organization has its own behavioural patterns, habits, traditions and defects.
Should questions arise, the senior consultant supervising the assignment has to
help the operating team with advice and guidance.
Assignment diary. At the end of the first day of the assignment, the operat-
ing consultant starts the assignment diary. This is an essential record of activity
throughout the assignment. It is written up each evening with a summary of the
day's significant events (or non-events) and of progress made. It is a necessary
reference for the supervisor. Every paper or note written by the operating team
should be recorded in the diary, and dated: sometimes the date proves to be its
main value.
Time-keeping. The general rule is that the consultant on an assignment
adjusts to the working hours of the client organization. But the assignment
programme is usually a heavy one and the consultant may need to work long
hours to complete it on time. There may be both practical and tactical advantages
in starting a little ahead of the rest of the staff in the morning and leaving a little
later in the evening -so long as the consultant does not appear to make a virtue
of it.
The consultant's home may be far from the client's premises and he or she
may occasionally need to travel on a working day. If this is foreseen, it should
be discussed with the client before the start of the assignment. An agreement
should be reached on how the working hours and days will be counted, and
whether the consultant will be authorized to take time off for travelling home if
he or she has worked overtime.
When the assignment concerns departments working two or three shifts,

the operating consultant must spend enough time on each one to find out all that
is needed. The consultant's reception on a night shift is often illuminating
- workers and supervisors may receive him or her warmly and appreciate that
somebody is interested in their problems.
Sensitivity, anticipation and reaction. The operating consultant has to be
sensitive to all the points that the supervisor would normally check. This
sensitivity is allied to self-control. The consultant will encounter frustrations and
must endure them with patience and good humour. Anger will only arouse
opposition and the consultant may end up being baited. At times people may put
forward ill-considered views, or provide incorrect information. In screening and
rejecting these the consultant must use tact and show tolerance, taking care to
give reasoned explanations. There may be attempts to use him in internal politics,
or involve him in intrigues. If he has his eyes and ears open, he may be
sufficiently ahead of these games to sidestep them, and be respected the more
for it. Genuine appeals must always be met with ready help: goodwill and
cooperation do not come unless they are deserved.
Favours (perks) offered by clients. Sometimes clients arrange for their
staff to be able to purchase goods in local shops at a discount, or they may allow
the purchase of the company's products at cost rather than at market price. The
consultant is not a member of the client's staff, and should not expect to
participate. If he is invited to join the scheme, he should consider the privilege
with care and discretion.
The same rules apply to gifts from the client. There is perhaps no danger
in accepting a parting gift, made as a personal gesture at the end of a satisfactory
assignment, but at any other time discretion is necessary in deciding whether
and how to accept gifts.
Control by supervising consultant and client

The supervisor visits the assignment as frequently as its circumstances
warrant. Visits are made more frequently when the operating consultant is new,
or when the assignment is going through a difficult period. Dates of visits should
be known in advance to all parties so that appointments and other preparations
may be made.
The supervisor spends time with the operating consultant and client
together and separately, to find out how each regards the other and the progress
of the assignment. The supervisor also considers progress in relation to the wider
policies and interests of both the client company and the consulting firm.
With the operating consultants, the supervisor may check some or all of
the following points:
that frequent and satisfactory contacts are being maintained with client
personnel;
that assignment progress is up to date and under control;
that the assignment diary is in good order;

that the operating consultants are not under stress from any form of
harassment by the client;
that in their anxiety to reach an early balance between financial benefits
and fees, the members of the operating team are not tempted to go for a
quick return from some potentially dangerous scheme;
that the opportunities for reporting to the client on real progress are being
used;
that the operating consultants' morale is high, and their enthusiasm un-
flagging.
The supervisor is always ready to act as a sounding-board for an operating
consultant's ideas and as an audience for rehearsal of presentations. He or she
discusses the operating consultant's performance frankly and constructively
with him or her, giving approval for work well done and guidance where
improvement is necessary.
With the client, the supervisor checks:
- whether he or she is satisfied with the overall progress of the assignment,
the contribution made by the operating team, and the relations that have
developed between the consultants and the client's staff members;
- whether he or she has met all agreed obligations and inputs in the
assignment.
To make control efficient, the client organization, on its side, must have its
own procedure for examining the progress of operating assignments. The
scheduled interim reports submitted by consultants should be studied, views of
staff members collaborating with consultants collected, and the consultants'
working methods and behaviour observed. Any problem should be raised with
the supervisor.
There are periods, particularly in the early stages of an assignment, when
the work shows no tangible results. The supervisor may notice signs of fretting,
impatience, lessening interest, or simply "cold feet". The symptoms to be
watched out for could be:
people "too busy" to spend time with the consultants;
defensive or reserved attitudes and a reluctance to talk;
remarks like "Your man is taking up a lot of our time", "When are we going
to see some results?", or "You people are costing us a lot of money".
The supervisor has to take these signs for what they are worth. They are
not to be ignored, nor are they grounds for panic. They have to be countered by
whatever overt or covert means are appropriate. It could be that in fact the client
is not being sufficiently involved and does not know enough about what is going
on.
From the sessions with the operating consultants, the supervisor might find
that the assignment is in fact getting behind. If so, short-term measures may be
agreed.
Short-term adjustments in the work plan

Sometimes, tactics of expediency in face of unpredictable occurrences
might require the imposition of a short-term plan on the overall plan of the
assignment, in order to break an impasse or show the way round a knotty
problem.
A short-term work schedule may be used to plan a temporary increase in
the number of operating consultants beyond the originally planned figures.
However, the option of injecting more consultants to complete the work in a
shorter calendar time is not always available. The addition of extra consultants
does not reduce the time proportionally - as a rule, four consultants require
more than one-quarter of the time that one would need. There are various reasons
for this, one being the necessity to coordinate and sequence activities. Also, the
capacity of the client to increase the pace is limited since the consultancy is an
addition to his or her normal load. Additional consultants may even hinder rather
than help in such a situation.
One way of gaining time is to allocate junior or trainee consultants when
an assignment suits the particular stage of their personal development. They can
take over parts of the plan and save time at little or no extra cost to the client. In
other cases, it may be the client who can increase his or her personal involvement
and thus speed up the assignment.
Supervisor's report
The supervisor keeps notes and gives reports to the management of the
consulting firm in much the same way as the operating consultants keep the
assignment diary. He or she may have five or more current assignments and
cannot rely on the recollection of one control visit after making several others.
These reports are for internal use only and can be handwritten or typed on the
supervisor's PC.
Liaison with the operating consultants

Whether the location of the assignment raises difficulties of communica-
tion depends on the type and size of the consulting firm and the geographical
spread of its operations. Many operating consultants may be working a long way
from their headquarters for extended periods.
Though the consulting firm may have a newsletter, and may hold regional
staff meetings and perhaps an annual conference for everyone, an operating
consultant may feel out on a limb for much of the time. The main line of
communication between him or her and the organization is through the
supervisor.
The supervisor's visits are, therefore, important occasions for discussion
of the consulting firm's news and achievements, and of interesting developments
on other assignments, and for some informal talk on what is going on. The
operating consultant is made to feel that he still belongs to an organization. The
worst feeling a consultant could harbour is that so long as he is bringing in the

fees nobody cares much about him. Supervisors thus have a responsibility to
both their firm and their operating colleagues to keep the whole as close-knit as
possible. Without it, operating consultants on a long assignment may begin to
identify too much with their clients and lose their vital independence and
objectivity.
Health and morale of operating consultants

A consultant's morale is unlikely to be high if he or she is not in good
health. Consultants on assignments tend to go on working when client staff
would go on sick leave. Furthermore, a hotel is not usually the most sympathetic
place for someone who is ill. The supervisor watches the operating consultants7
health carefully; delaying a visit to a doctor could mean a serious illness.
A drop in morale can occur without a loss of physical health. Isolation from
one's family, frustrations of the assignment, or uninspiring surroundings all
contribute. One of the tell-tale signs is that a consultant begins to hate the sight
of the place he or she has to work in.
Learning by the consultants and the firm

Assignment management is the best opportunity for encouraging and
assisting learning in the consulting firm. Normally the team leaders and
supervisors are more experienced in the areas covered by operating assignments.
While their more junior colleagues may have a better educational background,
especially as regards recent economic, business management, information
technology and other developments, they may be unaware of the gaps in their
practical experience and broader understanding of client issues.
Experience has shown that learning must be a managed process. Team
leaders and supervisors must know that they are responsible for the coaching
and professional development of the junior colleagues in their teams. Time needs
to be provided - a quick and superficial visit by a partner, during which an
operating consultant does not dare to ask any questions, is of little help. Meetings
should have a technical content, not just checking if a deadline will be met and
a report properly presented. Individual discussions with operating consultants
could be extremely useful and encouraging for them, and could be used to touch
gently on issues for which collective discussions are less suited.
The senior consultant and the whole firm also learn from operating
assignments. Most innovations in consulting are the result of creative thinking,
experiments and collaboration with clients during operating assignments. Team
leaders and supervisors are responsible for identifying innovations, helping
operating consultants to carry them through, providing additional technical
inputs to perfect the approach to be taken, and making sure that the whole firm
is promptly informed and can learn from every single innovative project.
This, however, must be an organized process enjoying the strong
support of higher management, not a mere declaration of noble intentions. The
short-term pressure of client demands and billing targets is strong and there will
always be a temptation to postpone ad infinitum activities (which are seemingly
unproductive) to build up the firm's collective know-how.
Assignment progress control by higher management

Periodical (e.g. monthly) progress reviews of all assignments should be
made by higher management in the consulting firm - by top management in
small organizations, and by divisional or regional management or by a senior
partner in large organizations. They are based on reports submitted by
supervisors and/or team leaders, information received from clients (complaints,
changes implemented, additional requests), and the senior managers' own
intelligence gathered through personal contacts with the clients and the
consulting staff.
Assignments which are on schedule and present no technical problems do
not require detailed discussion, except for those which are approaching
completion, and higher management should become involved in these by
studying the report, planning a visit to the client for presenting the conclusions,
and preparing for the transfer of the assignment team to another project.
Problematic assignments should be reviewed in more detail, in particular if the
supervisor concerned is not in a position to redress the situation by measures
that are within his or her competence, and needs help from superiors.
Whenever necessary, assignment progress reviews by higher management
should also discuss technical problems involved in assignments. This may be
the case with assignments which are particularly difficult, where new consultants
or new supervisors are employed, or where new and unfamiliar methodologies
are applied. It is very important for the operating teams and the supervisors to
know that someone higher up is interested, not only in smooth delivery and
regular income, but also in the operating consultants' efforts to apply new
approaches and improve the quality of the service.
All technical problems cannot (and should not) be referred to top manage-
ment for advice or decision. Many consulting firms therefore use procedures
whereby higher management would be consulted, or requested to approve the
report to the client, on any assignment that exceeds a certain size (e.g. cost over
$200,000),proposes an unusual solution (e.g. merging companies from different
sectors), has major political and social implications (e.g. could provoke a strike),
or would substantially deviate from routine practice in some other way.
Quality management, a key dimension of any assignment management and
control in consulting, is discussed in Chapter 28.
27.4 Controlling costs and budgets

Both the client and the consultant are concerned about the financial side
of assignment execution. The client is certainly pleased to see that the job is
making progress, but since he or she is also paying the consultant's bills, it is
normal to compare the progress achieved with the money that has been spent.
The consulting firm has a similar concern. If the contract stipulated a
lump-sum payment, both the operating consultants and the supervisor involved
must watch very carefully whether the progress made is really commensurate
with the time and other resources spent. It does happen that through a lack of
focus and discipline too much time is spent on fact finding and diagnosis, and
the consultants are then completing the assignment under extreme pressure, or
cannot finish it within the agreed time-limit and budget.
However, even if a per diem fee rate is applied and no fixed budget was
agreed upon, the consultant's responsibility to the client requires a strict control
of cumulative costs and their comparison to the progress really made in the
assignment. If this relationship is ignored and the client is expected to pay the
fees without complaint, this can lead to a major conflict. The assignment may
be phased out in an unpleasant atmosphere, or the consultant could spoil all the
chances of getting other work from this client.
The consulting firm controls assignment budgets for one more reason. It
wants to know which assignments are profitable and which are not, in order to
take corrective measures in respect of its service portfolio, assignment design,
work organization, staff structure and personnel management, including partner
and consultant compensation. Therefore many consulting firms budget and
control the complete cost and the profit made for every assignment (see also
section 29.2).
27.5 Assignment records and reports

In a decentralized organizational setting, where a number of assignments
are executed simultaneously and many operating decisions are taken far from
the headquarters, an accurate and reliable system of records and reports is
indispensable for effective assignment management, for charging clients
properly, and for paying consultants their salaries and reimbursing their
expenses. There are many information technology applications for professional
service firms that have made this relatively easy even to smaller companies (see
Chapter 31).
Notification of assignment
At the beginning of every assignment the supervisor or the team leader
prepares an assignment notification, which is intended to inform many sections
within the consulting organization. It initiates or supplements a client file for the
commercial aspects of the firm's work with that client. The form records
information as indicated in figure 27.1, overleaf. When, during the course of an
assignment, additional operating consultants, specialists or trainees become
involved, a supplementary notification is made.
Figure 27.1 Notificationof assignment

NOTIFICATION OF ASSIGNMENT Assignment No.
Client Industry
Address Phone
Assigner (main contact)
Invoices to
Preliminary survey Operating Follow up

Paid survey Training C] Other (specify below)
Free rate Special invoicing

instructions
I
Expenses rechargeable
to client
Operating function
Operating consultant(s)
Survey consultant or supervisor
Other (trainees, etc.)
Starting date Planned duration Finishing date
Briefing and Other comments

special conditions
Date Issued by Signature

Consultants' time records

Time records, or time sheets, are the source of data for invoicing clients
and for much of the control information needed by firm management. If
recording is manual, one standard form suffices for operating and senior
consultants. It is returned to the office either weekly or monthly depending on
the requirements for invoicing and control, and supplies the following
information:
consultant's name;
dates of period covered;
client names (for up to, say, five assignments, surveys or visits);
fee rates for paid work;
number of fee-earning days per client;
number of non-fee-earning days per consultant divided into:
- attending public and professional events
- giving training
- leave
- preliminary survey
- promotional activity
- receiving training
- sickness
- supervision
- unassigned
- unpaid operating.
Operating consultants normally enter the name of their current client, the
fee-earning days to be charged and the non-chargeable days. Other consultants
(supervisors, marketers, survey consultants, etc.) enter the names of all clients
dealt with personally during the period, the days spent on non-chargeable work,
the days of chargeable work, fee rates, and the use made of all non-fee-earning
time.
The same data can be generated and processed using a computerized
time-sheeting scheme. Consultants can use their PCs, but it is important that they
record the data on a daily basis to avoid omissions and misallocations of time.
Consultants' expenses
The firm may have a standard scale of expense allowances, and rules for
their application which cover an assumed normal set of conditions. This is
surprisingly difficult to draw up and administer: the "every situation is different"
character of operating assignments often extends to the consultants' actual
expenses. As a rule, consulting organizations are prepared to consider any case
of higher than standard expenses at the consultant's request.
The main sources of expenses are:

rn accommodation and meals while away from home;
rn travelling;
rn communication (faxes, telephone calls, etc.);
rn use of special services (computing, printing, translation, information);
rn entertainment of client and other business contacts.
Whether other out-of-pocket expenses are reimbursed by the client will
depend on the terms of the contract. The expenses claim form caters for any
items that are to be recharged to the client.
Receipts for various expenses

Orderly administration and bookkeeping require clear rules as regards
receipts for various expenses incurred both by individual consultants and by the
consulting firm.
The consultants must know that certain categories of expenses will be
reimbursed to them only if they submit a receipt. The firm should keep receipts
for all expenses that will be charged to clients for reimbursement. If an expense
item is important, it may be good practice to provide the client with a copy of
the receipt and add an explanation.
Finally, certain receipts may be required when claiming deductions for tax
purposes, or should be kept available for the eventuality of tax inspection.
If an expense item cannot be documented by a receipt, it may be useful or
even necessary to establish an internal check or another document to prove that
the expense was really incurred and authorized, and to make sure that it will be
properly recorded in the books.
Reports to the client

The reports given to the client at various points of the consulting process
were discussed in Chapters 7 to 11, and general principles of effective report
writing are set out in Appendix 10.
Assignment reference report

This report, called "assignment summary" by some consultants, and pre-
pared at the end of operating assignments, is a very useful piece of information,
which makes it unnecessary to read detailed client reports for single facts on
past assignments. In addition, it gives comments on possibilities of further work
with the client. The report provides information and comments on the points
listed in box 27.2.
Box 27.2 Assignment reference report -A check-list

Client company name and address
Assigner's name and title
Nature and size of client organization
Operating function of the assignment
Names of members of the consulting team
Dates of start and finish
Brief summary of objectives and results
References to all reports and documents that give details of the assignment
Feedback from the client on assignment quality and results (reply to a
questionnaire and any other feedback)
Rating of the quality of the assignment by the consulting firm
- above standard
- standard
- below standard
Rating of the value of the assignment for future reference
- A: excellent
- B: average
- C: not to be used
Whether the client has agreed that the consulting firm may use him or her as
a reference to prospective clients (if the rating was A or B)
Suggested future assignment opportunities that should be pursued with the
same client, and what should be kept in mind in negotiating new business
with him or her
27.6 Closing an assignment

It is useful to establish and announce clearly that the assignment has been
terminated. This will avoid confusion in longer and complex assignments in-
volving several members of the consulting firm, a number of people in the client
company, and a wide range of different activities.
The main considerations involved in closing an assignment were discussed
in Chapter 11and there is no need to repeat them. In particular, the reader should
refer to the discussions of assignment evaluation and of final reporting. But there
are some further points to remember:
In the days close to the completion date, the client should not get the
impression that the consulting firm is losing interest because the business
is winding up and the payment will be forthcoming in any case. This may
happen if a new, interesting client is already lined up and the consultant is
obviously keen to start working for him or her as soon as possible.
It is important not to leave any unfinished agenda, such as documentation
that was promised but not produced, training that was started but not
completed, or a new system that was supposed to be flawless but breaks
down every second day. All commitments should be met by the date of
termination, including seemingly unimportant ones (for example, the
consultant should return all documents and equipment borrowed from the
client, hand over all papers as agreed, and return the pass issued by the
client organization).
Billing will follow the established practice (section 26.8) and the specific
conditions stipulated in the contract. When receiving the final bill, the
client should not find an unexpected surprise or feel that there is any
unfinished business. The client should have no reason to feel that the
consultant is more concerned about being paid than about leaving a perfect
job behind.
Before leaving, the consultant may already be able to obtain some feedback
on the client's satisfaction. He or she should inform the client about the post-
assignment evaluation practised by the firm (e.g. through questionnaires or
personal interviews) and ask the client tactfully if he or she would be prepared
to recommend the consultant to business friends.
A successful completion of a consulting project may be a good opportunity
for drinks, a dinner party or another social event, which can be hosted either by
the consultant or by the client.
1 Little has been written and published on these questions. The reader may be interested in
the Consulting Services Practice Aid 93-5 published in 1993by the American Institute of Certified
Public Accountants (AICPA) under the title Developing a consulting services control and
managementprogram. This publication provides a number of useful forms for assignment schedul-
ing and work records.
QUALITY MANAGEMENT
AND ASSURANCE
The concept and importance of service quality in management consulting

were explained in Chapter 23 and many references to quality can be found in
other chapters of our book. Nevertheless, the importance and the current issues
of quality management warrant a separate chapter focused on quality. The
purpose is to help readers in forming a comprehensive view of quality man-
agement and of current approaches to quality improvement in management
consulting.
Quality and effectiveness have been concerns in manufacturing industry
for a long time and management consultants have contributed significantly to
the raising of standards. The debate on quality, value for money and meeting
user needs has now moved very much into the service and public sectors,
including the professions.
Most management consultants claim to embody the concept of quality in
their objectives, placing considerable emphasis on the quality of people, on
impressive experience, and on offering clients a highly responsive professional
service. Yet the image of consultants among clients is patchy; while some clients
respect the consultants' service as necessary and valuable, others regard them,
at worst, as charlatans, or, at best, as smart alecs to be avoided.
In recent years, quality issues have been more widely debated, and
management consultants have begun to address the quality management of their
own firms. "Physician heal thyself' is not inappropriate given that management
consultants have led in devising and implementing quality management systems
in their clients' organizations. There are a number of reasons to explain this
change. When the primary emphasis was on growth during the boom years of
the 1980s, high utilization and the recruitment of many people new to man-
agement consulting resulted in inadequate attention to training and process
disciplines. In a much tighter market-place, consulting practices often need to
differentiate themselves more on quality of service than on skills and experience.
Pressure on margins is also driving consultants to manage themselves more
efficiently and to look more closely at service delivery.
28.1 What is quality management?

We have stressed that professional service quality is, above all, a charac-
teristic of organizational culture, an approach to everything a professional does
with and for the client. Aiming at quality is aiming at the best possible
satisfaction of clients' needs and requirements. If this concept of quality is
adopted, responsibility for quality is vested in every professional worker. Indeed,
quality is an inherent characteristic of all work that claims to be truly pro-
fessional. In many instances, there will be no other person able to judge whether
the service actually provided is of high quality or needs improvement. In this
sense, quality management is essentially self-assessment, self-control and self-
improvement.
However, the client has a contract with the consulting firm, not with its
individual employee. The firm wants to be sure, and assure its clients, that there
will be no notable differences in the quality of service that can be expected from
any of its members. Uncertainty and inconsistency as regards expected quality
can be very damaging. Hence quality management is also a system of written
and unwritten standards, policies, guidelines, controls, records, safeguards,
incentives, sanctions and other measures whereby quality is assessed,
maintained and improved. Quality management may involve formal declarations
of policies and principles. More important will be the myriad of small steps and
interventions, most of them informal, in areas such as recruitment, staff
development, coaching, promotion, dealing with individual clients and listening
to them, ensuring thorough problem analysis, helping poor performers to turn
out work of better quality, reacting to clients' complaints, and so on.
Indeed, quality management should be omnipresent. Whatever a pro-
fessional firm does (or omits to do) has a quality dimension and direct or indirect
impact on the quality of services provided to clients, as well as on client
satisfaction.
Furthermore, quality management must address both the strictly technical
side of consulting (the knowledge base, the practical know-how, the choice of
correct data and procedures, the analysis of all relevant facts, the assessment of
important alternatives, etc.), and the human and behavioural side of the
consultant-client relationship (caring for the clients, listening to their concerns,
dispelling their worries, respecting their priorities, being helpful beyond the
scope of the contract, etc.). David Maister has pointed out that while most
consultants meet the quality criteria as regards the first aspect (technical quality),
satisfaction levels are low, and complaints numerous, when clients are asked
about the way they were dealt with by their consultants.'
Increasingly, clients who have themselves invested heavily in quality are
expecting their service suppliers to think the same way. An example is that some
of the leading commercial banks in the United Kingdom are asking consultants
to provide details of their overall policy regarding commitment to quality, to
indicate independent management responsibility for ensuring that quality is
promoted and implemented, and to describe quality assurance procedures for
project design, service quality and support. A growing number of public and
Quality management and assurance
private sector clients are requesting information on progress towards IS0 9001
certification (see section 28.3, below) and on the extent to which a quality
management system is in place. Some larger client organizations, particularly
in the public sector, who are major purchasers of consulting services, have begun
to seek reassurance through imposing quality standards. For example, the
Ministry of Defence in the United Kingdom requires management consultants
to hold IS0 9001 certification of quality or equivalent as a precondition of
tendering.
Primary stakeholders' needs

Thus, quality is above all a question of meeting clients7needs and require-
ments. This implies that the main focus of quality management must be on client
services and satisfaction. After all, in the long run the success of the consulting
firm's owners and the consultants themselves is dependent on client satisfaction.
Quality management also has an essential role in helping the firm to meet
ambitious targets for utilization, profitability and consultant satisfaction, thus
addressing the needs of all stakeholders (box 28.1). This concept is important:
a quality management programme that does not address the needs of all
stake-holders is unlikely to be successful.
Box 28.1 Primary stakeholders' needs
Clients
services and solutions that meet their requirements and expectations
longer-term relationships
value for money
contractual reassurance
Owners of the consulting firm

client satisfaction
higher utilization
prompt payment
repeat business
adequate profits
image of the firm
Consultants
job satisfaction
client satisfaction
rewards
career prospects
Cost of quality
Quality requires an effort and has two distinct cost dimensions.
First, there is a "positive" cost of quality. This includes the costs of achiev-
ing and maintaining high quality - costs of recruitment, staff training and
development, professional guidance, control of work, reliable record keeping,
information and documentation files, knowledge and experience transfer among
the members of the firm, contacts with client managers during and after
assignments, and so on.
These costs are not normally computed and analysed from the viewpoint
of quality. They are the costs of operating an excellent professional firm. We
could call them hidden costs of quality. Yet a firm that cares for quality may
spend more in these areas than another firm. Comparison is difficult. One firm
may spend more on formal staff training, while another firm allocates more
partner time to coaching young associates. Which approach represents a better
investment in staff competence and quality? It is impossible to say without
knowing much more about both firms. . .
Second, there is a "negative" cost of quality. This is the sum of activities
and costs which are expended and fail to meet customer requirements. Rewritten
reports, needlessly lost proposals, disputes with clients over fees and failure to
capture repeat business are examples of the costs of quality which impact on
profitability, and both client and consultant satisfaction.
The purpose of quality management is to control both the positive and the
negative costs of quality: to optimize (not to maximize) the positive costs, and
to minimize the negative costs.
Raising the profile of quality

It should be self-evident that a business which pays serious attention to
improving quality can significantly improve its viability and performance. In
practice, quality management and management consultants are not always easy
bedfellows for a number of reasons:
the recent history of many management consultancies is of high client
demand and good rewards for owners and staff without any special effort
to raise quality;
consultants do not value "process" highly and are often reluctant to co-
operate in introducing what may be seen as unnecessary bureaucracy;
more is demanded of management, an already scarce resource, which may
resist more calls on its time;
initial costs can be substantial, particularly in the investment of non-
chargeable time;
quality improvement is a slow, gradual process, both in terms of application
and results.
For sole practitioners who believe they are doing their best anyway, the
motivation and time to address quality may be difficult to find. The benefits are
that it can be done relatively simply and the rewards will flow to them as owners
and practitioners. The large practice has all the problems of buying in the services
of consultants who may work with a variety of skills in many sectors, and
tackling difficult cultural change. On the other hand, resources can be applied
usually with limited detriment to current business. Yet serious attention to
improving quality is often unlikely to be forthcoming unless client pressures
drive it. If the opportunity is then grasped, it can drive improvements in
efficiency and profitability and the benefits can be tangible.
Responsibility for quality

In a people business, it is essential that every practitioner and support
team member is clear about personal responsibility for quality. Quality service
delivery is dependent on the individual. The four basic principles in assigning
responsibility for quality are:
(1) Responsibilities must be clear and clearly stated - so everybody knows
who is responsible for what.
(2) Top management must be visibly involved - giving credibility and clout
to the importance of quality.
(3) Continuitylsuccession needs to be assured - thus dealing with the
inevitable problems emanating from absences on assignments, changes in
assignment staffing during project execution, etc.
(4) Quality assurance must be applied consistently - to all work at all times.
The main responsibilities for quality within a consulting firm are set out
in box 28.2 (overleaf). In a large consulting firm, the key responsibilities for
quality may be delegated to a central quality management team formed from the
quality directors of practice areas or business units. This provides a yehicle for
ensuring consistency across the practice, testing new initiatives and promoting
quality awareness. Every individual director or partner needs to be aware of his
or her responsibility for quality. In particular, the monitoring and nurturing of
long-term client relationships is a major quality task for each individual director
or partner. Regular assessment of client satisfaction through meetings and
interviews is a valuable input to sustaining the delivery of quality work.
The associations of management consulting firms have an important and
influential role in providing guidance on quality issue for their members and in
giving clients a message that management consultants are concerned about and
are taking the lead on quality management. In the United Kingdom, the Man-
agement Consultancies Association has published guidelines and practice notes
for members seeking I S 0 9001 certification, and guidance on how to achieve
client satisfaction. It also provides a forum for the discussion and exchange of
ideas on quality issues which have considerable relevance to the image of
management consultants in the market-place.
Box 28.2 Responsibility for quality
Role Key responsibilitiesfor quality
Set quality policy and objectives

Allocate responsibilities
Review activities
Establish priorities
Provide role models
Demonstrate commitment
Project team leaders Ensure that quality assurance is built
into all stages of an assignment
Allocate project responsibilities
Publish assignment plan and
deliverables
Produce and communicate quality
plan covering quality assurance
procedures, technical standards and
quality criteria
Coach and support operating
consultants
lndlvidual consultants Understand quality policy
Follow best practice
Document adequately
Consult appropriately
Internal auditors Conduct systematic third party reviews
Provide balanced feedback
Highlight areas for improvement
28.2 Key elements of a quality assurance

programme
The definition of quality - meeting client requirements - suggests the
best starting-point for any quality programme. Feedback and data from clients
can provide focus and leverage to debating quality issues and introducing
measures to improve performance. It is important to work to a dynamic model
of quality assurance which drives a programme of continuous quality improve-
ment, Many quality improvement initiatives have failed because they did not
address real issues in a practical, sensible way so that they were an integral part
of day-to-day working and relationships. Some key do's and don'ts based on
experience are set out in box 28.3.
The key elements of a quality assurance (QA) programme can be con-
sidered under the following headings:
(1) Assignment management

- assignment management procedures
- quality plans
- client satisfaction surveys
(2) People management
- personnel policies and procedures
- training and development
- coaching on the job
(3) QA programme management
- quality policy
- quality organization
- focus of the programme
Box 28.3 Introducing a quality assurance programme
Do Start from client requirements

Take a long-term view
Focus on a few real quality issues
Obtain consultant buy-in
Empower staff to participate fully
Simplify processes
Feed back the benefits
Don't Create bureaucracy
Be over-prescriptive
Adopt a minimalist approach
(it destroys credibility)
Re-invent the wheel
Expect results too soon
Assignment management procedures

Client feedback is a useful lead into reviewing the necessity for, and struc-
ture of, assignment management procedures (see also Chapter 27), if only to
ensure that the focus remains firmly on those matters which have the greatest
influence on quality in the consultant-client relationship. It also provides a
framework which consultants can more readily understand and accept.
Management consultancy is not like a factory-built standard product which
can be quality tested at the end of the line. QA, together with client involvement,
needs to be built into every stage of the assignment process. Remedial action at
the end of an assignment may be costly and too late, and may do little to repair
an already damaged client relationship. Box 28.4 (overleaf) sets out a suggested
list of main assignment activities which need to be managed and monitored to
assure quality work.
Box 28.4 Assuring quality during asslgnments
Assignment stage Objectives Activities
At the outset To ensure that the right Defining terms of

job is being undertaken reference. Managing
client expectations.
Agreeing the
assignment plan.
Agreeing quality
measures
During the work To ensure that the job is Progress reports.
being done correctly Variation control.
Documenting client
contacts. Guiding and
supervising operating
consultants
At the end To ensure that the job Formal review and
has been done acceptance. Internal
properly and the client review. Consuttant
is satisfied appraisals
After the end To ensure that the Client feedback
client is still satisfied through questionnaires
and to review the work and interviews. Update
in the context of an client records.
ongoing relationship. Independent surveys.
To review consultants' Feedback to consultant
performance appraisals and rewards
Many consultants would claim, if challenged, that they carry out all or most
of the activities listed in box 28.4. In practice, this usually involves a substantial
degree of post-event rationalization and over-reliance on memory rather than
documentation. The client may appear to be satisfied but a better, and more pro-
fitable, job might have been done with a more rigorous approach to quality
management.
It is better for the approach to assignment management procedures to be
that of the zero option rather than the comprehensive compendium which ends
up as a many-volumed manual. Once published, such manuals rarely see the
light of day again until consultants move offices. The mobility, responsiveness
and flexibility required of consultants are not compatible with highly docu-
mented and prescribed procedures. Useful rules are:
- make full use of check-lists and "best practice" guidelines which are
advisory;
- define and document mandatory (minimum) work systems and procedures;
- once communicated, monitor adherence to these procedures;
- encourage consultants to comment on procedures and to suggest im-
provements.
There are a couple of management tools, one used at the beginning and the
other at the end of an assignment, which can give excellent leverage in
establishing a QA programme. These are the quality plan and the client satis-
faction survey.
The quality plan. The concept of the quality plan is open to criticism that
it is bureaucratic and that it should be no different from the assignment plan,
which should adequately cover quality matters. In practice the concept is
valuable in helping practitioners to focus on quality assurance, particularly in
large and complex assignments.
The quality plan is an extension of the assignment or project plan (see
section 27.1) and can be treated as its part. Its contents will vary according to
the nature and complexity of the assignment and the size of the assignment team.
The following headings provide a skeleton framework:
(1) What are we trying to achieve: (a) assignment definition; and (b) assign-
ment plan and deliverables?
(2) How are we going to ensure that we do a quality job: (a) organization
and responsibilities; (b) quality assurance procedures; and (c) technical
standards?
(3) How do we measure our success: quality criteria (time, cost, rework, etc.)?
The successful implementation of the quality plan lies in its scope and
communication to all members of the team, including client and support staff.
Particular emphasis should be given to:
initial team briefing covering assignment plan, client expectations and QA
procedures;
progress monitoring and reporting to client;
communications and documentation of client contacts and feedback;
control of change implemented;
document control;
acceptance of final report by client.
In planning for QA, consideration may be given to allocating special
responsibility for quality monitoring to an individual member of the team, or to
appointing an independent quality auditor from outside the project team, who
will carry out a peer review of the work.
An example of a quality plan is that prepared for a large international
management information systems project. It starts with the premises that quality
must be built in from the beginning of an assignment, and that the competing
interests which might compromise quality are best reconciled if they are planned
and managed from the outset. The relevant quality criteria are then described
both for the client, (e.g. recommendations should clearly identify costs and
benefits) and for the project team (e.g. no rework, clear language in
presentations, meet cost targets). The next sections of the plan outline the QA
principles, procedures and standards and methodologies, for example, the role
of the programme manager and the content and frequency of reporting.
The client satisfaction survey. The measurement of client satisfaction

through a survey is an essential component of a quality programme in every
consulting firm. The survey must be handled with sensitivity and confidentiality
to protect clients as well as partnersldirectors and staff. To be equitable and
acceptable, it needs to apply to all parts of a practice, and to be subject to
independent management and interpretation. It is not acceptable, for example,
for an individual partner to select the clients or assignments which are polled. It
is also essential to obtain the views of the project team in analysing the client's
feedback.
Postal questionnaires are relatively cost-effective if a large number of
clients and projects are to be covered, and if clients are not always readily
accessible. Points to note are:
- the timing of sending out the questionnaire needs careful consideration;
- questionnaires should normally be returned to an "independent" director
of quality to provide safeguards for both clients and consultants;
- the number and complexity of questions should be limited.
Questionnaires should cover an overall scaled assessment and specific
questions on areas of satisfaction, dissatisfaction and improvement. Open-ended
questions often provide powerful feedback to project teams; on the other hand,
ratings are essential to providing comparative evaluations and identifying trends.
The extent to which the client should be prompted in the questionnaire needs
careful research and piloting to suit an individual firm's requirements.
Personal interviews with clients have the advantage that areas of concern
can be thoroughly probed, and an opportunity is offered for strengthening the
consultant-client relationship. The questions asked can be more thorough and
extensive. However, the size of the firm and of the clientele may make extensive
use of personal interviews prohibitively expensive. Also, some clients may feel
safer in expressing their views in an "anonymous" postal questionnaire.
If client interviews are feasible, it is important that they are based on a
standard questionnaire, so that comparisons can be made. It is also preferable
that they should be conducted by a director or a partner independent of the project
team.
Finally it is important to bear in mind that:
some clients will not cooperate, but the majority will welcome their
opinions being sought;
the value of client satisfaction surveys lies in their results being fed back
to all members of project teams.
Independent market surveys. Client satisfaction surveys do not provide
an assessment against competitors or benchmarking on how a firm is doing in
comparison with other consultants. Many firms contribute to omnibus surveys
of consultancy purchasers, and use their own professional associations and
networks of firms to obtain data on how they are doing competitively.
People management
Good personnel policies and procedures are essential to quality man-
agement and to ensuring that continuous quality improvement is achieved. Apart
from the application of high standards, appraisal and training provide the
vehicles for taking corrective action and addressing client satisfaction. Key
"people" elements will be discussed in detail in Chapters 32 and 33. Let us stress
at this point that quality can be enhanced by:
the consistent application of high standards in recruiting new staff and in
selecting subcontractors;
induction and core skills training which equip consultants with the
necessary competences;
coaching and supervision on the job;
assignment appraisals which feed into an individual's longer-term devel-
opment, remuneration and promotion;
using skills and experience databases which enable the pulling together of
properly structured and highly competent teams for client assignments;
feeding back client satisfaction survey results into consultant appraisals
and training;
defining and publishing the firm's code of ethics and encouraging volun-
tary membership in professional associations and institutes.
Within consulting firms, consideration may need to be given to "accredit-
ing" consultants with specialist skills who have completed the required
training and demonstrated competency. This protects both the firm and the
clients by ensuring that certain specialist work, with perhaps associated high
risks (e.g. financial modelling), is undertaken only by accredited experts on the
topic.
QA programme management
The director or partner responsible for quality will need to agree and
provide a framework which ensures that the quality programme has direction
and support, and is applied consistently throughout the firm. The starting-point
is the drafting and publication of a quality policy statement. This should include:
- aims of the policy, linked to client satisfaction;
- whether there is an intention to work in conformance with an externally
audited quality standard (IS0 9001);
- areas in which standards will be applied (technical, client relations, cost
and time quality, etc.);
- the name of the person or persons with overall responsibility.
The policy statement should be authorized by senior management, and
communicated to all staff and subcontractors. It should be subject to regular
review.
The quality programme needs to be supported by an appropriate quality

organization (section 28.1, above) and requires a clear focus. The steps to achiev-
ing this are:
0 review all activities - preferably using client feedback;
0 establish priorities for quality improvement;
0 determine approaches to achieving improvement (procedures, best prac-
tice, training, etc.);
0 ensure that training, appraisals and performance measures support the
agreed priorities.
Small consulting firms and sole practitioners

The principles of this approach to quality management can be applied
equally well to small practices and sole practitioners as to larger firms.
Independent review becomes more difficult for a small practice, and a sole
practitioner will need to rely on self-generated review procedures. A ques-
tionnaire with a series of written observations against each question is a more
powerful procedure than a check-list with uniform ticks. Customer review and
sign-off of reports is a particularly valuable discipline to the smaller firm.
28.3 Quality certification

IS0 9001 quality assurance standards
In recent years there has been considerable debate among management
consultants about the relevance of externally audited quality standards to their
firms. Movement towards seeking certification has been at the pace dictated by
the market-place, including in some cases direct pressure from public sector
clients, who see certification as a necessary reassurance of attention to quality.
As a result, many larger consulting firms have started preparing for, and gaining,
certification for, at least, particular sectors of their business. The origins of this
movement lie in several countries of the European Union, the United Kingdom
and the Netherlands in particular.
The quality standard (IS0 9001 1987/EN 29001 1987/BS 5750 Part 1
1987) requires the applying organization to have a quality policy and a docu-
mented quality system and supporting procedure, and to provide evidence that
the procedures are being used, conformance is being monitored and reviews are
regular.
A quality audit must be undertaken by an independent certification body
(such as BSI Quality Assurance, Bureau Veritas, Det Norsk Veritas). These
bodies are not management consulting firms, but their function is to audit
businesses and organizations in many sectors. They are accredited by
government bodies, e.g. by the National Accreditation Council for Certification
Bodies (NACCB) in the United Kingdom.
In theory, the quality management system (QMS) should require no more

than a well-run business, which takes quality seriously, should be doing already.
In practice, the disciplines of a rigorously applied QMS can necessitate
substantial shifts in organizational culture and work habits.
General principles
Seeking certification should not be an end in itself; there is plenty of
anecdotal evidence to support this view. A superficial approach is likely to result
in rejection by the consultants involved and non-conformance being readily
exposed by the external auditor. It is important that the QMS reflects the needs
of actual practice and, therefore, deals with real quality issues. It is also essential
to involve the staff in its preparation, so that it is not seen as a bureaucratic
imposition.
The assignment model (e.g. leadlenquiry, proposal preparation, assign-
ment plan, monitoring and controlling, and completing/closing) is well suited
to the application of I S 0 9001 standards. It has been shown to be applicable to
all sizes of consultancy practice.
Clearly, I S 0 9001 certification is not sufficient in itself as a guarantee of
meeting client requirements. It provides independent certification that a quality
management system is in place and that the practice is conforming with its
requirements. But there is much more to do. Quality certification by itself is not
a measure of client satisfaction, although the QMS should require that there are
procedures for obtaining client feedback, and that these are in operation.
Cost of certification
Obtaining certification can be quite costly for both small and large
consulting firms. A large firm may need to allocate the full-time resource of a
consultant for six to nine months in each main business unit to obtain
certification. The input from a small practice might be in the order of seven to
15 days over a six- to nine-month period. Time and expense can be much reduced
by starting with a basic system and customizing it to requirements. For example,
for a small British firm in 1993, the cost of assessment and registration was
between •’1,000 and •’2,000, with ongoing assessments in the range •’500 to
•’ 1,000. A large consultancy would have been faced with considerably higher
costs, depending on the size and complexity of the organization. Thus, certi-
fication is not a step to be taken lightly and the costs and benefits need to be
reviewed carefully. If clients insist, it is important that the QMS is used to derive
benefits for the practice in improving efficiency.
Quality manual
The key documentation, and the largest cost, is the preparation of the
quality manual covering the QMS. This needs to be supported by procedures
and standards manuals. The QMS comprises all the elements that enable the
Box 28.5 Outline of a quality manual
Main headings Subheadings
Quallty policy Standards

Approval and review
Client satisfaction procedures
Quallty organization Management responsibility
Individual responsibility
Internal audit
Quality management system Definitions
Coverage
Undertaking assignments Problem identification
Preparation of quality/project plan
Agreement with client
Contract review
Performance delivery
Completion and follow-up
Management and administratlon Staff development
of the firm Fee calculations
External contacts
Purchases
Administration of the quality Controlled documents
system Quality records
Internal audit
Corrective actions
Consulting methodologies
Client satisfaction
Use of the quality system
consultancy to meet its stated quality policy. Examples can be obtained from
consultants who have developed a manual for their own practice and are prepared
to customize it for an appropriate fee, and from the Institute of Management
Consultants in London.
Writing the quality manual is a balancing act between ensuring that it is
comprehensive in its coverage and keeping it brief. Over-engineering is a
common problem. While the QMS must meet the requirements of the standard,
the more procedures there are, the greater the demands for conformance on
individuals and the higher the risk of excessive bureaucracy. A suggested list of
headings in a quality manual is set out in box 28.5.
Selecting a certification body

Fees charged by certification bodies are negotiable. As there are the on-
going costs of surveillance it is worth paying particular attention to the value
you will derive from the guidance of these bodies and checking out that their
auditors are going to understand your business. Remember that many certi-
fication bodies are new to the auditing service and professional businesses.
Questions to be asked of certification bodies include:
0 Have you been, or are you expecting to be, accredited to assess manage-
ment consulting firms?
0 Who recognizes your certification?
0 Do you have a customer care programme?
0 What are your fees?
0 Can we see the curriculum vitae of your quality auditors?
0 Can you provide relevant references?
The quality auditor will check the documented quality system against I S 0
9001 and the applicable guidelines. He or she is likely to carry out an internal
auditing and management review, and also needs to agree on the scope of the
certificate, i.e. which parts of the practice (activity areas) are to be included.
Three or four months' records based on the documented quality system are
necessary before the conformance audit can be undertaken.
Using advisers/consultants
The time spent in preparing a quality manual and implementing a QMS
can be considerable, and external assistance can provide expertise and valuable
resources. It is often helpful to have an external consultant examine the system
before finalizing it for assessment. Points to note are:
- before employing a quality consultancy, check its track record and take up
references;
- ensure that its consultants work with your staff, so ownership is in house;
- make sure that they do not overspecify your requirements.
Scope of certification
The QMS must apply to all activities associated with service delivery. In
management consulting this includes the services of any subcontractors and of
support staff directly involved in service delivery. Within larger and
multi-functional firms, it may be sensible to pilot I S 0 9001 in a selected area of
service, in order to test its impact and to reduce risks initially. This, however,
brings its own problems, in that consultants from other parts of the firm may be
transferred to assignments which have to be managed to I S 0 9001 standards.
Problems encountered in seeking certification

It is still relatively early days to assess the real value of quality certification
to management consulting firms (as indeed to other firms providing management
and business services). However, there is a growing view that once the initial
difficulties are overcome, there is considerable benefit in better working and
higher client satisfaction.
Some of the problems which have emerged are:
resistance by partners and staff resulting in implementation being a painful
process;
over-complication and excessive bureaucracy;
failure to adhere to documentation requirements;
failure to provide feedback and use information properly, e.g. on lost
tenders;
slowness of certification bodies to receive accreditation enabling them to
certify management consultants.
Some small firms and sole practitioners have expressed strong views that
I S 0 9001 quality standards are excessively bureaucratic, and an unnecessary
burden. While their voice is being heard, it is unlikely that change in certification
practices will come in the short term.
Box 28.6 Eight steps to QA certification

Basic familiarization (study the IS0 9001 standard, relevant guidance and
authoritative books on quality)
[Optional] Make contact with an adviser (if there is no internal expertise
consider the assistance of an external adviser/consultant skilled in im-
plementing quality management systems)
Decide the firm's quality policy (this is a statement of the role of quality in
meeting the firm's objectives and of the firm's intention to maintain a quality
management system)
Devise a quality management system (QMS) (document with a quality
manual, preferably relatively short, supported with other reference manuals;
remember that it covers all aspects of service delivery)
Make contact with a certificationfirm (you may need to contact more than
one to obtain a competitive quote and to test out the chemistry; obtain their
view of your system)
Implement the system
Internally audit the system (this confirms that the system is being used)
Undergo an external assessment (the selected certification firm carries out
an independent audit of the OMS and its implementation and conformance)
28.4 Sustaining quality

In conclusion, client pressure and growing competition have moved quality
higher up the management consultants' own agenda. Increasingly, service
quality constitutes the consultants' competitive advantage. For long-term
development and growth, both large and small consultancies will need to be
proactive in working with clients on quality issues. As with any such devel-
opment, clarification of objectives, standards, roles and responsibilities is an
essential first step. IS0 9001 contributes by providing standards which are
externally certificated. Both clients and consulting practitioners need to share
the aim of achieving continuous improvement in service delivery, and to be
proactive in sustaining this.
A formalistic approach to quality must be avoided. There is a real risk that
some firms will be happy to have and be able to exhibit an elaborate procedure,
the "bureaucracy of quality", and that some clients will be unduly impressed by
the formal side of quality management. No control and certification procedure
can become a substitute for the quality of people in a professional firm, for their
genuine concern for the clients and for their sense of professional responsibility.
The decisions concerning quality management and assurance, and the
measures taken to enhance quality, depend on the firm's attitude to quality and
its determination to achieve high standards. As W. Edwards Deming said of total
quality management, "You do not have to do this: survival is not compulsory".
See Ch. 8, "A service quality programme", in D. H. Maister: Managing the professional
service firm (New York, The Free Press, 1993).
OPERATIONAL AND FINANCIAL
CONTROL 29
This chapter deals with key aspects of operational short-term manage-
ment and control, emphasizing those methods and indicators that help the
consulting firm to monitor operations and prevent events that could reduce
efficiency or lead to crises which would be difficult to control. We assume that
the reader is familiar with the basics of financial and budgetary control, and
therefore the discussion focuses on specific problems of consultants and con-
sulting organizations.
29.1 Operating work plan and budget

Operational management and control uses two basic management tools:
an operating work plan and an operating financial budget. Both documents are
normally prepared annually, for the next planning and budgetary year, in a
monthly or quarterly breakdown. This breakdown accounts for seasonal and
other variations within the 12-month period, such as a reduced workload during
the holiday period, and other events, including major payments to be made or
received at a foreseeable point in time.
Operating work plan

The operating work plan should reflect the firm's strategic choices and
indicate how strategy will be implemented in the forthcoming year. It therefore
determines:
- the volume of consulting and other services to be sold and delivered to
clients;
- changes in the service portfolio (phasing out a service, introducing a new
product, starting work in a new sector, new foreign operations);
staff recruitment and training required;
- staff retirement and departures;
- the volume and orientation of promotional and marketing activities;
- the backlog of new assignments to be maintained;

- other measures needed to implement the work programme and to prepare
for the future (research and development, organizational restructuring,
investment, etc.);
- the ways in which consultants would be used effectively during the time
not spent in working for clients.
Extrapolation of past trends is a useful technique for preparing an operating
work plan. However, mechanistic extrapolation cannot be recommended. An
analysis of business trends, and of the consulting firm's current opportunities
and difficulties, helps to determine professional and business targets that are
neither mere extrapolations nor unrealistic dreams.
Operating budget
The basic management tool for controlling the financial side of the firm's
operation is the operating budget. In preparing the budget the firm has to include
Box 29.1 Methods of achieving efficiency and higher profits

Area of intervention Achieved by
Efficient operations Using staff according to competence

Organizing and executing assignments
efficiently
I lncreasing staff utilization and efficiency
I Saving on overhead items
I Fee levels
Billing and collecting fees promptly
Charging more for existing services
Charging for services provided free
hitherto
Marketing efforts Selling and delivering more work
(increasing volume)
Selling more profitable work
Cross-selling
I Marketing more efficiently
Staff size and structure Recruiting more consultants
lncreasing leverage
I Service portfolio
Cutting or replacing unproductive staff
Cutting unprofitable services
Developing new and more profitable
services
Operational and financial control
all expenses it expects to incur during the budget period, and fix the projected
income at a level required for recovering expenses and ensuring an adequate
profit. If budget preparation reveals that the budget cannot be balanced, it is
necessary to review the work plan and the planned expenditure to keep them
within realistic financial limits, and re-examine the costing, pricing and other
assumptions underlying the two sides of the budget.
The budgetary planning may show that the consulting firm's costs will be
too high, and therefore the fees risk being excessive, or profits too low. In this
case, management can look at various methods of achieving efficiency and
higher profits, listed in box 29.1. Which method to adopt will depend on the
market, the opportunity to recruit new consultants and find enough work for
them, the firm's ability to increase efficiency in implementing assignments, and
so on. The method chosen should be consistent with the firm's strategic choices.
If growth in operations and income is planned, analysis should reveal how
expenses will increase. The consulting firm will certainly keep the difference
between fixed and variable expenses in mind, and subject each expense line to
a more detailed scrutiny before deciding whether and how it should be allowed
to grow.
A hypothetical example of an annual operating budget is shown in
table 29.1. It corresponds to the (also hypothetical) consulting unit, employing
Table 29.1 Operating budget of a consulting firm
Budget item
-
Professional salaries
Social charges and benefits on professional salaries
Administrative and support staff salaries
Social charges and benefits on administrative salaries
Marketing and promotion expenses (other than salaries)
Rentals and utilities
Equipment, furniture, materials, stationery
Communications (mail, fax, telephone)
Taxes (other than income taxes)
Library, subscriptions, membership fees
Staff training and development
Other expenses (travel, entertainment, etc.)
Overhead expenses (3 to 12)
Total expenses (1 to 12)
Gross profit (before tax)
Total income (14 + 15)
Expenses billed to clients
Gross billing (16 + 17)
Note: Item 1 ("Professional salaries") includes the following: director (1x US$100,000) 100,000; senior consultants
(6 x US$75,000) 450,000; operating consultants (20 x US$55,000) 1,100,000; trainee consultants (2 x US$30,000)
60,000; total 1,710,000.
29 consultants, shown in figure 30.2 (page 636). The salary rates and other
figures in the budget are therefore not intended as standards for remuneration
policy, or for assessing the expense structure and efficiency of any particular
firm.
Structure of expenses
Nevertheless, the expense and income structure shown is within the broad
limits of normal practice in a number of management consulting firms. These
limits tend to be as shown in table 29.2.
Table 29.2 Typical structure of expenses and income
Item %
Professional staff salaries

(including social charges) 35-60
Other expenses 40-60
Gross profit (before tax)
Total income
Billable expenses
Gross billing to client
Management consulting services are highly labour-intensive and profes-

sional staff salaries are therefore by far the most important single expense item
in any firm. Their share in the total expense structure depends on factors such
as the professional income level in a particular country and firm, and the size of
the consulting firm. Single practitioners and other small firms are usually able
to operate with lower overhead costs, reducing or completely eliminating certain
items of expenditure without which a larger firm cannot operate. A single
practitioner may even be able to operate without any secretarial and support
staff, and without renting expensive office space.
Other expenses (grouped under lines 3-12 in table 29.1) include a wide
range of different items linked with operating a consulting unit of a given profile,
scope and level of activity. As a rule, this group includes costs that cannot be
directly related to a particular client assignment; or, if they could be, it would
not be practical and efficient to do so. For example, reproduction expenses can
be treated as an overhead item or a direct cost item to be charged to a particular
client. Routine reproduction work (e.g. reproducing consulting reports in a
standard number of copies) is normally treated as an overhead cost.
Reproduction of voluminous special reports, or large numbers of additional
copies ordered by the client, should be charged to the client as "billable
expenses". A similar choice has to be made in the case of telephone charges and
for other costs.
Expenses billed to clients (billable expenses) are often not regarded by con-
sultants as part of their business income even if these expenses pass through their
accounts. Therefore, billable expenses are shown separately (line 17) in the
operating budget.
Profit
Profit (before tax) is the difference between the total fees earned and total
costs and expenses incurred over the budget period. It provides for:
a profit-share or bonus to the owners, partners or other employees of the
consulting firm;
establishing security reserves;
increasing the working capital;
financing capital expenses;
paying a profit (income) tax.
As shown in table 29.2, in most cases the profit margin would be between
10 and 25 per cent of the total income. The actual figure will depend upon such
factors as the possibility of charging fees that provide for an adequate profit, the
ability to reduce and control expenses, and the firm's need to generate resources
for further expansion of its services or for other purposes mentioned above.
29.2 Performance monitoring

The monitoring of operational and financial performance is an essential,
yet often underestimated, management function in consulting firms. The purpose
is not to produce statistics for their own sake, but systematically to collect and
evaluate key information likely to reveal negative trends (from which will spring
the need for action to redress the situation) or positive trends (which may need
to be reinforced so that any opportunities disclosed are not missed).
Performance monitoring aims at immediate improvements first of all, but
its strategic implications should not be overlooked. It helps to reveal changes
and trends that will affect the consulting firm in the long run, such as major shifts
in demand for certain kinds of service, or the increasing cost of selling services
to certain markets. Adjustments to the firm's strategy can thus be based on hard
data instead of mere guesses and estimates.
Using comparisons
It is impossible to assess performance without making comparisons:
superior or substandard performance can be identified and assessed only by
referring to some other performance. Consultants use comparisons extensively
when working with clients, and therefore they should not hesitate to apply them
to their own operation.
Comparing results achieved with planned or projected targets can be
revealing provided that the targets were based on thorough analysis and realistic
goal setting, and not just on guesswork. The main documents to which this
comparison refers in performance monitoring are the annual work plan and
operating budget.
Comparing current and past performance helps to discover and analyse
trends in performance, as well as changes in factors affecting it.
Comparing performance with other consultants can be most instructive.
This can be done in various ways:
- Consultants who are business friends can exchange and compare data
informally, as colleagues who want to learn from each other.
- There can be a formal interfirm comparison scheme, which can be run by
a consultants' association or another agency. Under such a scheme, key
data are collected, tabulated and distributed to participating consulting
units on a regular basis, without revealing the identity of these units.
- Performance achieved by a specific consulting firm can be compared with
data regarded as sectoral standards. Such sectoral standards would reflect
"good practice", i.e. experience of consulting firms whose management is
considered competent and performance adequate. Here again, such
standards can be developed by an association for the benefit of its members.
This book refers to a number of ratios collected from consulting firms and
their associations. These operating ratios can be regarded as a form of
standard.
In making comparisons, it is essential to determine the causes of superior
or substandard performance: it can result from excellent or poor management
of operations and assignment execution, but also from an unforeseen change in
the business environment over which the consulting firm has little control.
Both data from other firms and any sector standards or averages have to be
used cautiously. The situation and possibilities of your firm may be very different
and so may be your objectives. While it is extremely useful to know how others
perform, no superficial and hasty conclusions should be drawn from the data
without comparing resources, conditions and the strategies pursued.
Key monthly controls

Operational controls have to be established and examined on a relatively
short-term basis to permit action before it is too late. In practice, this will be on
a monthly basis in most cases. This explains why the operating work plan and
budget described above are prepared with a monthly breakdown of most data.
Any deviation from the consulting unit's standards, or any undesirable trend,
should be detected by management. Management will have to consider whether
prompt corrective action is desirable and feasible, or whether changes in
short-term indicators are signals of longer-term shifts in the market, the
profession or the firm itself. The list of controls given in box 29.2 can be of help
in establishing a list that suits a particular consulting firm.
Box 29.2 Monthly controls -A check-list

Forward workload (backlog)
Most important; ideally it should be around three months and should not drop
below one-and-a-half months; if it is too high, clients are kept waiting for too
long.
Number of client visits (meetings, surveys) to number of assignments
negotiated
Indicative of the effectiveness of promotional work. An alternative ratio is
volume of new business negotiated per client visit (meeting, survey), or
number of marketing days requiredto get an assignment or to obtain a certain
volume of new business (say $100,000). This is more precise if assignments
vary greatly in extent.
Actual and budgeted utilization of total time
Can be computed for all consulting staff or by categories, e.g. for operating
consultants, supervisors, partners and officers; shows not only whether the
firm has enough to do, but also whether work is properly scheduled and
organized for smooth delivery.
Cumulative actual fee-earning days against planned fee-earning days
Similar use as previous ratio.
Actual and budgeted fee rate
Can be computed for all consulting staff or by categories of consultant; helps
to assess whether the firm is in a position to apply optimum fees and
gives guidance in using the staff in accordance with its technical and income-
generating ability.
Fees earned against fees budgeted (monthly and cumulative)
Synthetic indicator of actual programme delivery rate in financial terms.
Fees earned against expenses (monthly and cumulative)
Syn thetic indicator of short-term performance in financial terms; can provide
early warning of excessive expenses and cash shortages.
Expenses incurred against expenses budgeted (in total and by expense
budget lines; monthly and cumulative)
Permits detailed control by expense lines, providing suggestions for specific
expense-cutting measures and for adjustments of budgets owing to price and
other changes outside the consultant's control.
Monthly billing against monthly fees earned
Shows whether the firm is properly organized to process work records and
bill the clients as soon as records become available.
Number of months of outstanding fees
Shows whether fees are collected within normal time limits (four to six weeks);
an alternative ratio is outstandingfees as percentage of total (annual) income.
Annual controls
All ratios do not lend themselves to short-term monitoring and action, so
not all need to be presented every month. A dropping backlog of work or falling
income require immediate management attention, and therefore the data are
needed monthly. The basic staff structure cannot be changed by short-term
measures, and an analysis of relevant information once or twice a year may be
enough.
An annual performance review, or audit, would examine the data collected
on a monthly basis, plus certain additional data, such as:
0 growth rate of business;
0 gross and/or net profits compared to total income;
0 profit per partner and per consultant employed;
0 volume of work sold per consultant engaged in the marketing services;
ratios indicating the structure of consulting staff (various categories);
0 number of consulting staff compared to number of administrative and
support staff;
expense and cost structure (relative magnitude of various expense lines);
0 non-collectable fees (bad debts) as part of total income.
It is often useful to analyse various other financial ratios which can be
calculated from the annual financial statements. However, before choosing to
do this it is necessary to consider whether they are as meaningful in consulting
as in manufacturing industry and other sectors (owing to factors such as the small
volume and role of fixed assets, etc.). In addition, trends may be analysed by
computing and comparing data over five to seven years.
Here again, analysis should reveal causes and suggest focus for future
action. Increased income can be the result of better performance, but also of
price adjustments due to inflation, while real performance in non-financial terms
has not changed or has deteriorated.
Organizational level of performance monitoring

The management of the consulting firm will be interested in knowing and
analysing all key controls, both monthly and annual. As a rule, operating and
financial performance ratios are reviewed at regular management meetings. If
it is decided to take corrective action, the precise target to be achieved and the
responsibility for action to be taken should be defined.
It is good practice to keep not only partners and senior members of the firm
but also other consultants informed about the performance achieved by the firm,
pointing out what should be improved, and in what way individual consultants
can help and will be encouraged to make such improvements.
Selected performance ratios can be calculated and analysed by units (teams,
departments, service groups, practice areas, etc.) within the firm. This oppor-
tunity should not be missed. It can show which units are the main contributors
to the total results achieved, and which "problem" units have become, or may
become, a financial burden. This can stimulate the management and staff of these
units to be more active and entrepreneurial.
It is often useful to know performance data for each consultant employed.
A typical example is the ratio of volume of work sold per consultant engaged in
marketing the services. Rather than calculating and examining average data per
consultant, some consulting firms record and analyse the marketing performance
of each individual. The same can be done in assessing programme delivery by
comparing the budgeted and the real income and profitability for individual
consultants. If an individual's profitability is low, the reasons can be, for
example:
- the fee charged is too low in comparison to the salary paid and other costs;
- chargeable time utilization is low owing to small demand for the services
of the individual concerned, or for other reasons reflecting weaknesses in
service marketing, scheduling and organization.
Performance by individual assignments

In a similar vein, profitability and some other performance indicators can
be calculated and analysed by assignments (projects, products). For example,
one consulting firm found that the profitability of its consulting assignments was
minimal. However, most assignments generated demand for tailor-made in-plant
training programmes, and also brought participants to open training seminars
scheduled on a regular basis. Since these two groups of products were highly
profitable, the overall result was judged as being satisfactory and the relatively
low profitability of consulting assignments fully acceptable.
Information on assignment performance provides insights into questions
such as the adequacy of fee formulas and fee levels for various types of assign-
ment, assignment staffing, the use of experienced (and more expensive) con-
sultants for the backstopping and supervision of operating assignments, the
quality of assignment scheduling and administration, various expenditure (and
cost) items that are not reimbursable, and so on.
The key condition is correct recording and measurement of the time spent
by various categories of consultant on particular assignments. For example, it
may be established that junior consultants use more time than budgeted because
of poor briefing and guidance by the seniors, or that more seniors' time is used
than warranted by the difficulty of the task. Furthermore, the cost of time (hour,
day) of each category should be calculated (which includes a decision on whether
to include and how to allocate the overhead cost).l
Using the profit model for performance monitoring

A general profit model for professional firms was described in section 23.3.
The model can be used for a firm's periodic annual performance reviews, for
example as recommended by the Association of Management Consulting Firms
(ACME) in its annual surveys of key management information. The model

provides both for a synthetic view of profitability (profit per partner) and for
more analytical information on key factors that have affected the profit per
partner ratio. The expanded model is reproduced in figure 29.1 and key
performance indicators provided in ACME surveys are shown in box 29.3
(overleaf).
29.3 Bookkeeping and accounting

Like any business, a consulting organization needs bookkeeping and
accounting to control the financial side of the operation and produce information
required by law. Some comments on accounting problems faced by consultants
will be made in this section, which, however, is not meant as a complete review
of accounting in professional firms. Such information is available from special-
ized p~blications.~
Choosing your system

The purpose is to have an accounting system that is fully adapted to the
nature of consulting operations and will be used as a management tool. Such a
system should be as simple as possible. A single practitioner who serves a few
clients and has a limited range of expenditure can use a very simple system
indeed. The complexity of the system will increase with the growth of the firm
and the complexity of its operations, but even a larger consulting firm should
try to keep its accounting simple.
A consultant who is versed in accounting can decide personally what
system to use. There are, too, proprietary bookkeeping systems and computer
programmes (see Chapter 31) for smaller businesses and professional service
firms available on the market; the consultant may be able to purchase such a
system, including all forms and books, from a supplier of office equipment,
software and stationery. In some countries, the associations of professional firms
have issued accounting guidelines and recommendations for the member firms.
Finally, the consultant can ask an accountant to design a tailor-made system.
Often this will be the best solution, provided that the accountant does not
conceive an unduly complicated system which creates an unnecessary workload.
The essential criteria to be considered include the following:
What is the structure of the firm's income (volume, number of clients,
frequency of payments, collection problems, different kinds of income)?
What is the structure of the firm's expenses (different expense items,
critical expense items, frequency of expenses)?
What are the firm's material and financial resources (buildings, equipment,
stocks of materials and spare parts, financial reserves, cash)?
How is the firm's operation financed?
Box 29.3 ACME surveys of key management information
Every year, ACME collects data from over 100 consulting firms of various sizes
and technical profiles, on a strictly confidential basis. Using the profit model for
professional firms, ACME issues its annual surveys, giving key indicators for the
previous year and seven-year trends in overall performance. Indicators are pro-
vided for the total population of reporting firms, and in breakdown by firm groups:
by volume of annual fees (below US$1 million, US$l-4 million, US$4-25
million, and over US$25 million);
by size of consulting staff (less than 15, 15-50, 50-150, over 150);
by consulting speciality (9 specialities);
by number of domestic offices (1, 2-5, over 5).
The following key performance measures are given in the survey report:
Profits (before taxes or bonuses) to consulting fees
Profits (before taxes or bonuses) per consultant
Profits (before taxes or bonuses) per partner
Profits plus partner salaries, bonuses and other cash compensations per
partner
Consulting fees per consultant (personnel productivity)
Hours billed as percentage of total hours
Days outstanding in receivables
Liquidrty (current assets: current liabilities)
Leverage (consulting staff per partner)
Consultants per support staff person
Senior partners as percentage of total consulting staff
Percentage of female employees per category of consultant
Average number of billable hours per week (per category of consultants)
Average standard billing rates (per category of consultant)
Distribution of non-billable time
Employee turnover
Percentage of employees hired from outside the firm (per category of con-
sultant)
Employee compensation (per category of consultant)
Employee bonuses as percentage of base salary (per category of consultant)
Company stock ownership (per category of consultant)
Business development costs (as percentage of total consulting revenues)
Billing procedures
Percentage structure of the firm's income statement
The statistics included in the study provide "yardsticks" against which indi-
vidual consulting firm performance can be measured.
Source: ACME: ACME 1993 survey of United States key management information (New York. 1993).
0 What are the existing and potential problems as regards cash flow and
liquidity?
What information is critical for sound financial management and how
frequently should it be provided?
What records and reports are mandatory?
A smallish consulting firm may be satisfied with a simple single-entry
system, using a cash book, though most consulting firms prefer a double-entry
system. Every consultant, irrespective of the legal form of the business and the
accounting system chosen, should separate his or her business accounts from
private household accounts. This basic rule of financial management is generally
recommended by management consultants to their small-business clients, and
consultants will be well advised to follow the same principle in their own
businesses.
Another possible choice may be between cash-basis accounting (only cash
transactions are recorded) and accrual-basis accounting (accounts receivable and
accounts payable are recorded). In the United States, for example, professional
firms prefer cash-basis accounting since under this system only income for
which cash has actually been collected is taxed.
What accounts to keep

In some countries there will be a suggested or even compulsory chart of
accounts (called "accounting plan" in some French-speaking countries) with
which both public and private business companies have to comply. In many
cases, however, the consultant will be free to choose his or her own chart of
accounts. In particular, he or she will be able to decide how detailed the chart
should be.
The purpose has always to be kept in mind. Accounts from which statutory
financial reports are produced will be needed. Accounts required for controlling
important expenses (e.g. wages of administrative and support staff) should be
kept separately in most cases. On the other hand, unimportant expense items do
not require separate accounts, and a number of these items can usually be blocked
in one account.
It is advisable to aim at coherence between budgeting and accounting to
facilitate both the preparation and the control of budgets. If the firm decides to
structure its operating budget as shown in table 29.1, its accounts for income
and expenses should be structured accordingly. The accounting can be more
detailed. For example, income may be recorded in several client accounts before
being posted to the general ledger. However, inconsistencies should be avoided.
Thus, if "marketing and promotion expenses other than salaries" are budgeted
separately from any salaries, they should be shown in the same way in the
respective accounts. Needless to say, to avoid errors and confusion, it is
necessary to be precise in defining what is to be recorded in what account. For
example, will all telephone charges (except those chargeable to clients) be
consistently charged to the communications account, or should some of them be
treated as marketing and promotion expenses if they concern marketing? Many

such decisions will have to be made.
Financial statements
In most countries, consulting firms established as corporations (com-
panies) have to produce financial statements which include:
- the balance sheet;
- the income statement (profit and loss account);
the sources and uses of funds statement (funds flow statement);
- the statement of earned surplus;
- the auditor's certificate and notes on the financial statements.
Even if this is not required by law, any consulting firm, including the sole
practitioner, should prepare financial reports at least once a year, for self-
assessment and to keep control of the financial health of the firm. This can be
quite a simple, though extremely useful and instructive, exercise.
The meaning and use of these statements are amply described in accounting
and financial management literature.
1 See also D. Maister: "Measuring engagement profitability", in American Lawyer (New
York), JulyiAug. 1994.

2 See, e.g., M. R. Altman and R. I. Weil: Managing your accounting and consultingpractice
(Albany, New York, Matthew Bender, 1978); or M. C. Thornsett: Fundamentals of bookkeeping
and accounting for the successful consultant (Washington, DC, Bermont Books, 1980).
STRUCTURING CONSULTING
FIRMS
Because there is a wide variety of consulting firms, these firms use many
different structural arrangements. Structure must never become a strait-jacket.
Our review of structural arrangements, including the legal forms of business,
will therefore refer to some typical arrangements, but without aiming to provide
a blueprint for all situations. Every consulting firm is unique and its struc-
ture reflects many factors, including the nature and volume of activities,
personalities, the strategy chosen, traditions, and the legal and institutional
environment.
30.1 Legal forms of business

In most countries consultants can choose among several legal forms of
business organization. This choice is not always completely free. Local
legislation may include special regulations for organizing and operating
professional services, and/or for firms with foreign ownership. Therefore an
international consulting firm may have to use different legal forms in various
countries. Unless the consultant is sufficiently knowledgeable in legal matters,
he or she should seek a lawyer's advice. An accountant's or a tax adviser's
viewpoint is equally important because the forms of business organization differ
as regards registration, taxation, record keeping, reporting and liability.
Sole proprietorship
A sole proprietor (sole owner) is a person who owns and operates the whole
business. This form may involve either the single practitioner, or the owner plus
a variable number of associates. While normally and legally there may be no
limit to the number of staff, it is usual that the "sole owner" employs only a few
associates, and perhaps only for the duration of specific assignments. The firm's
net income is taxed as the owner's personal income; the owner's liability for all
debts incurred by the firm is unlimited.
Sole proprietorship is a simple form, suitable for those who are starting in
consulting but have some previous management experience, or who prefer to
remain completely independent in their consulting career. In addition to working
on assignments, the sole practitioner has to take care of marketing future
assignments. The risk is quite high in the case of sickness. Even if the single
practitioner has health insurance, a prolonged illness may affect business
contacts very adversely. The firm normally ceases to exist with the death or
retirement of the owner (although his or her estate remains liable for outstanding
debts).
Partnership
Partnership is a common form of business in management consulting and
in other professional service sectors. It entails a contract between two or more
persons who agree to set up a firm in which they combine their skills and
resources, and share profits, losses and 1iabilities.l Under most legal systems,
the partnership does not have to be on an equal basis - a consultant may enter
a partnership with a junior colleague on a 60-40 or another basis; or one or more
of the partners may wish to devote less time than the others to the partnership
business and hence will accept a smaller share of both profits and losses.
The advantages of partnership include the division of labour to optimize
the use of the partners' skills, the possibility of undertaking more important and
complex assignments, the possibility of continuing the business in the absence
of one of the partners, and a better utilization of resources such as office space,
equipment or secretarial support.
The disadvantages include the unlimited liability of each partner for errors
and obligations of all other partners arising from the business, the need to reach
an agreement on every important decision, and the difficulties involved in
harmonizing personal preferences and styles of the partners. In some legal
systems it is possible to establish a limited partnership, which includes one or
more general partners (with unlimited liability), and one or more limited
partners, whose third-party liability is limited to a specific amount (which can
be zero).
It is generally recommended that a clear and unambiguous partnership
agreement should be drawn up, even if local legislation does not explicitly
require one. Much more important, however, is the composition of the group:
individuals who cannot work together, have different conceptions of pro-
fessional service and ethics, and do not trust each other for any reason should
avoid becoming partners.
Partnerships are usually not limited by law as to size, but in practice are
often confined to a comparatively small number of people. If a unit expands
beyond this number, though it may still retain something of the spirit and the
title of partnership, it might be advisable to consider transforming the business
into a corporation.
Structuring consulting firms
Corporation
Many consulting firms are established as corporations (limited liability
companies). The corporation has two fundamental characteristics: (1) it is a legal
entity that exists separately from the owners (i.e. does not cease to exist after an
owner's death or withdrawal from business); and (2) the owners have no personal
liability for the obligations and debts of the corporation (the shareholders are
protected from liability incurred by the company, except in certain cases when
it is established that the corporate form was abused in order to avoid personal
liability).
- ,
The major advantages of incorporation include:

considerable flexibility in doing and developing business;
the possibility of easy changes in the number of co-owners (shareholders):
there can be one sole owner, and therefore even a sole practitioner can
incorporate a business;
the possibility for individuals to be simultaneously owners and employees
of the corporation;
the possibility of retaining earnings for reinvestment in the firm;
separate taxation of personal income (salary, bonuses and dividends) and
the corporation's profits, and the possibility of deducting certain employee
benefits and certain types of corporate expenses from taxable income (the
level of taxation is often a major factor in deciding whether to incorporate
or not).
On the other hand, a firm using the corporate form must comply with a
number of requirements stipulated in the company or other law of particular
countries. These include:
compulsory registration (incorporation) prior to starting business;
0 a statement of corporate purposes (objects of the company), the definition
of which may be very significant as in some countries the corporation is
not authorized to do business outside the scope of this statement;
0 accounting and other records to be kept, with periodic reporting;
0 public auditing of company reports and (in certain countries) the publi-
cation of these reports;
0 the organization and definition of responsibilities of top management
(shareholders' meeting, board of directors).
Moreover, corporate directors can be personally liable both civilly and
criminally for certain corporate acts of malfeasance or misfeasance.
Management consultants in various countries have adopted special
arrangements in using the corporate form. With few exceptions, they do not "go
public", i.e. the shares are not available on the stock market, but ownership is
reserved to a group of senior consultants (officers, principals, partners, etc.).
Promotion to this level in the hierarchy may include not only an entitlement, but
an obligation to purchase a certain number of shares and thus invest in the firm.
The maximum number of shares which can be owned by one member of the firm
is often limited (in many firms the limit is between 1and 5 per cent of the shares)
and the owner must resell these shares to the company (thus recovering the
money put in) when retiring or leaving for any other reason.
In some consulting firms there is one (or more) majority owner who
actually controls the firm. Usually he or she would be the sole founder, or one
of the partners who established the firm, who at some point decided to transform
the firm into a corporation and widen the ownership base. In a small number of
cases, consulting firms are owned by other business corporations (by banks,
accounting firms, engineering firms, or others), or by employers' associations.
As regards the use of profits (after tax), some consulting firms use the
whole profit for developing the business and creating reserves, while others
distribute a part of the profit to the shareholders of the firm, or to all employees
(see section 32.4).
Many consulting and other professional firms have maintained the part-
nership form even when they have become larger, or have continued to be
managed and to behave as partnerships after having been restructured as cor-
porations. Currently this traditional approach is being challenged. If there are
hundreds of partners and consultants, the ideas on which the partnership formula
has been based (undivided responsibility, direct participation and seeking full
consensus in key decisions, etc.) are increasingly difficult to apply. Further
difficulties are being encountered in raising capital needed for expansion and
service modernization, and in facing liability issues (see section 6.5). While
these issues have probably been more pressing in the accounting and legal
professions, many larger management consultancies have also started looking
for alternatives to the classical partnership f ~ r r n u l a . ~
Other forms
As we know, not all management consulting units are independent
businesses. Some units are established and operate as divisions in private
corporations that have wider corporate purposes and offer other types of service
(accounting, auditing, engineering consultancy, etc.) in addition to management
consulting. In such a case, the legal entity may not be the consulting unit itself
in its own right, but the organization to which the unit belongs.
There are also consulting units established as, or within, associations,
foundations, public agencies and other non-profit-making organizations. How-
ever, the corporate form tends increasingly to be used for these units in order to
enhance their independence, motivation, responsibility and liability. For
example, a management institute can often be organized as a corporation, or a
public agency can create (and own) a professional service company that sells
services to clients in both the public and private sectors.
30.2 Structuring the operating core

Consultants spend most of their time working for clients on specific
assignments. Normally they do most of their work at clients' premises and once
an assignment is completed, they move physically to another client. In the
management system of a consulting firm, individual assignments are treated as
basic management cells with precisely defined terms of reference, resources and
responsibilities. However, assignments are only temporary management cells
and structuring by assignments would not provide for stability and continuity of
internal organization. Most consulting firms therefore structure their operating
core - the professional staff - in more or less permanent "home" units. Con-
sultants are attached to these units according to some common characteristics
in their background and/or areas of intervention.
Functional (subject) units

Functional or technical subject units are common. They used to be
organized by the basic functions of management, such as general management,
finance, marketing, production and personnel. More recently, their focus has
started shifting to technical problem areas, such as strategy and policy, organ-
ization development or quality management. A consulting assignment may be
fully within the function or problem area covered by the unit (e.g. in marketing),
and the unit can therefore staff and supervise the assignment from its own
resources. In other cases, the unit would "borrow" staff from other units for the
duration of the assignment. This is particularly common in complex assignments
dealing with various aspects of a business; these assignments tend to be mainly
within the province of units dealing with general aspects of business strategy
and policy.
Sectoral units
Sectoral units (e.g. for construction, banking, insurance, road transport,
health) are often established if this is justified by the volume of business done
in a sector and by the need to have teams that are recognized as sectoral experts.
It is impossible to suggest a minimum size for such a unit. Even a smallish unit
with all-round experts in a sector may play a useful role in developing and
managing assignments, which can also make use of specialists from other units.
If a certain sector generates a sizeable amount of work, a sectoral unit may
become more or less self-contained and employ a wider range of specialists on
a permanent basis in addition to its sector generalists.
Geographical units
Geographical (territorial) units are often established when a consulting
firm decides to decentralize in order to get closer to the clients and increase
efficiency (e.g. by reducing transport and communication expenses). They exist

in two basic forms:
- offices whose main purpose is marketing and liaison with clients in a
delimited geographical area; these units tend to be small, staffed by a few
all-round generalists, and equipped by certain services for supporting
operating assignments; assignments can thus be staffed both by consultants
from the unit and from headquarters;
- fully staffed local (area) branches that can take care of most assignments
using their own personnel; these units are effective if the volume and
structure of business done in the area concerned is relatively stable, or is
regularly expanding; a major advantage, appreciated by the consultants, is
that they do not have to be absent from their homes for long periods of
time.
Geographically decentralized units are most common in larger consulting
firms. A smaller firm must weigh the advantages of getting close to the clientele
against the cost of the operation and the firm's ability to keep technical and
administrative control over geographically distant units. There are, in addition,
various combinations. For example, a decentralized geographical unit may
specialize in the sector or sectors featuring most prominently in the area covered
by the unit.
Some examples
Figure 30.1 shows a general pattern of organizational structure used by a
number of larger consulting companies in various c o ~ n t r i e s .In ~ contrast,
figure 30.2 (overleaf) shows the structure of the professional core of a consulting
unit employing 29 consultants. It is a hypothetical example used to explain typi-
cal organizational considerations. A unit of this size can make up a whole con-
sulting company, or constitute a division in a larger company or a management
services department in an industrial concern.
The unit employs six senior consultants, of whom four work as team leaders
and supervisors of operating assignments, and two concentrate on marketing and
on management surveys. The 20 operating consultants will, as a rule, be
specialists in various management functions. Among the supervisors in the unit,
three may also specialize in managing assignments in functional areas, while
the fourth supervisor may be an all-round general management expert, able to
manage assignments covering several functional areas. The 20 operating con-
sultants can work in assignment teams or individually on separate smaller
assignments. Thus, the supervisors will either work as team leaders on larger
assignments, or supervise several operating consultants working individually for
different clients.
A consulting firm may never expand beyond 27 to 30 people, as the owner
or manager may wish to keep personal control of all the operations and relations
with clients. In this case, the manager may have a small office and staff to support
the operating core.
Figure 30.1 Typical organization of consulting companies
1
I
Board of directors
Managing director
Management
committee
Geographical
units 1 Functional
units 1 services and
administration
Foreign
operations
Regional
off ices
t Production and
engineering
Marketing
Finance
Banking
Government
Chemical
processing
t Management
development
centre
Executive
search
service
Information
and library
.Personnel
Finance and
accounting
Construction
Computer General
centre administration
If expansion takes place, and a unit employs more than 30 consultants, it

may split into two sub-units. One senior consultant may become the manager of
the second unit, which is built up to full size. During this expansion more seniors
will be required, and in time central support services may be set up. The
additional seniors are needed to coordinate and administer these separate units,
or to set up specialist units and support services.
The general criteria concerning the firm's leverage (section 23.3) will be
kept in mind. Significant factors determining expansion are market demand, and
the availability of operating consultants with sufficient experience and knowl-
edge to be appointed as supervisors or team leaders. At least three to five years
of experience, encompassing both a range of assignments with companies and
a variety of techniques, are required. To replace the operating consultants as they
Figure 30.2 Professional core of a consulting unit
I Numbers
I Unit director 1
Senior consultants for Supervisors and

management surveys team leaders
6
Operating
consultants
20
2
New consultants
in training
2
rise to higher levels or leave, new consultants must be ready trained. For this
reason a stable organization includes two to three trainee consultants in every
group of 25 to 30, as shown in figure 30.2.
Another factor governing expansion is the ratio of specialist to generalist
consultants. Where an assignment calls for several disciplines, the supervising
consultant may accept overall responsibility but call on a specialist to oversee
special techniques as required. To meet the full range of client demands, the
consulting firm may have to call on some highly specialized consultants, e.g. in
productivity measurement, logistics, operations research or franchising. It is of
course difficult to find a constant demand for these types of service within a
smaller unit.
Matrix management
It results from the foregoing discussion that many consulting organizations
in fact practise some sort of matrix management. Both operating consultants,
and their more senior colleagues who work as team leaders or supervisors, have
their "home" units -functional, sectoral or geographical. However, all assign-
ments do not remain totally within the province of these home units.
The organizational culture of a consulting firm must provide for con-
siderable flexibility to facilitate the rapid establishment of an effective col-
laborative relationship and a team spirit in starting new assignments. Any mem-
ber of an assignment team must accept his or her role in the team, and the
coordinating role of the team leader, as soon as the team is constituted and starts
tackling the job. If this were not the case, the start would be slow and costly, to
the detriment of the client.
However, the role of the "home7' unit extends beyond the function of a pool
of specialists from which operating consultants can be drawn. The head of a
marketing consulting unit is also interested in what is actually happening in the
assignments to which he or she has detached marketing consultants, even if these
consultants work under the immediate supervision of a team leader from another
unit.
The head of the unit is responsible for technical guidance and control of
operating consultants in the special field of marketing, and carries out this
responsibility in various ways: by organizing technical meetings of marketing
consultants, briefing consultants before assignments, reviewing consulting
reports, discussing progress of the work with the team leaders, visiting the
marketing consultants on assignments, and so on. Such guidance and control
have to be exercised in agreement with the team leaders and supervisors, and in
a way that does not undermine the operating consultants' authority in the clients'
eyes.
Flat structure
In addition to matrix management, most consulting firms prefer to use a
relatively flat organizational structure. The number of rungs on the management
ladder between an operating consultant and the firm's top manager is usually
between none and three, depending on the firm's size, complexity and service
diversification (see also Chapter 32). Such a structure encourages collaboration
and interaction with peers in the operating core rather than referring matters
upwards through the chain of command.
30.3 Organizing for marketing

Effective organization of the marketing function is extremely important
for reasons already discussed in detail in Chapters 23 to 25. Virtually every
member of the consulting staff may have some role to play in marketing, and
consultants on assignments can do a lot of good marketing if they keep their eyes
open and think of future business for their firm. Yet some formal organizational
arrangements for the marketing function are also necessary.
Marketing manager
Whatever the size and complexity of the consulting firm, its management
team will pay considerable attention to marketing. Decisions on marketing
strategy will normally be discussed and taken by senior management. If possible,
one member of the senior management team should be appointed marketing

manager. This can be a full-time or part-time function.
The marketing manager is responsible for preparing and submitting key
market analyses, strategies, programmes and budgets. He or she is concerned
with the marketing function in its totality. Certain marketing activities will be
his or her direct responsibility, e.g. training policy for marketing, advertising,
press relations, mailing lists, and editing and distributing publicity information.
He or she may have a small technical and administrative team for these functions.
Other marketing functions and activities are not the direct responsibility of the
marketing manager, but he or she has to monitor, evaluate and stimulate them
in collaboration with other managers.
Roles in indirect marketing

Roles in indirect marketing (aimed at building up the professional image
of the firm and creating opportunities for contacts with new clients) are normally
shared throughout the consulting firm and assigned to those units or individuals
who can use their skills to best effect. The purpose is to optimize the use of
individual capabilities: not everyone can write a book or article that will promote
the firm. The roles have to be precisely defined, e.g. it should be determined who
will be active in what management or trade association, or who will be delegated
to attend a management congress.
Roles in direct marketing

Direct marketing of specific assignments is normally the function of part-
ners or managers, who would spend 30-100 per cent of their time in contacts
with individual clients, building up new relationships, trying to sell an assign-
ment, negotiating a preliminary diagnostic survey, or following up previous
work.
In some consulting firms these senior professionals are full-time marketers.
They may not be the firm's top technicians, but their social, diagnostic and selling
skills make them an invaluable asset. They are the firm's "rainmakers". However,
many consulting firms prefer switching the roles, e.g. by making the successful
marketers also responsible for the management and supervision of assignment
execution.
Direct marketing requires excellent coordination and follow-up by senior
management and/or by the managers of sectors and geographical areas within
the consulting firm. Uncoordinated contacting of the same client by different
units of one consulting firm can damage the firm's image. Conversely, there are
many opportunities to achieve synergy within consulting firms by active sharing
of information on potential clients and assignments, and by keeping the interests
and the possibilities of the whole firm in mind when working with particular
clients.
30.4 Organizing other client services

Organizational arrangements for training, research, information, docu-
mentation, computing, product testing, quality control and other services to
clients can be permanent or ad hoc. Permanent arrangements usually take the
form of special divisions or centres within the consulting firms. These are
justified if the volume of the service is sufficiently important and stabilized, or
growing regularly. To establish a new unit for a special service may be a strategic
decision if the firm intends to promote that service and wants to demonstrate to
the clients that adequate resources have been allocated and a competent person
made responsible for the new service. Two examples are given below, but there
can be various other services as discussed in Chapters 2 and 24.
Training units
Training units are very common in consulting firms. There is a wide variety
of them, ranging from smallish training sections to management development
institutes. These units tend to enjoy relative autonomy within the firm and some
of their programmes may be open to external participants. Training units may
market their programmes quite independently of the consulting services mar-
keted by other divisions in the firm. Training units also contribute to particular
consulting assignments by providing trainers, diagnosing clients' training needs
and policies, or mounting tailor-made courses in support of consulting projects.
Many of them organize internal courses and seminars for the consulting firm's
staff. The teachersltrainers are usually drawn from experienced consultants,
many of whom return to consulting after a period spent with the unit.
Information and documentation services

Information and documentation services to clients are less common than
training units. Yet some consultants have been successful in expanding their
internal information units into client services. The nature of the service,
including the handling of information inputs, files, processing, outputs and
dissemination in a systematic matter, justifies the establishment of a separate
unit structured and managed as a professional information service.
30.5 Organizing for international operations

Organizational arrangements for international operations reflect the
strategy pursued by the firm (section 24.5). They also take account of factors
such as the frequency, relative importance and predicted future trend of these
operations, the institutional and legal setting in countries where work is to be
done, the possibility of repatriating earnings, language requirements, and local
practice concerning business and professional services.
Consultant missions
If work abroad is irregular and its volume small, consulting firms usually
prefer to send their staff on missions from headquarters. This is how foreign
operations start in most consulting firms. It can be a costly arrangement, not
only because of the price of long-distance travel and living and other expenses
of operating consultants, but also because of costs incurred by negotiating,
preparing and supervising assignments in foreign countries.
Offices in other countries

Having gained some experience with consulting across national bound-
aries, a consulting firm may feel that it is more effective to have a permanent
presence where the market for the services is. The establishment of a foreign
(country or regional) office is often the solution. As with decentralization within
the home country, this office may start as a small one, staffed mainly for
marketing, liaison with local businesses and government, and as a support for
operating teams coming from headquarters to work on specific projects.
Foreign subsidiaries
Fully staffed foreign subsidiaries have been founded by many large con-
sulting firms that regularly undertake a substantial amount of foreign business.
Such a subsidiary may be quite independent of the parent company in operational
matters, but provision is always made for policy guidance and quality control.
There is a growing tendency to staff foreign subsidiaries with local professionals,
even in consulting companies which originally preferred to staff them by
consultants detached from headquarters.
Association with local consultants

Some countries require foreign consultants to work in association with a
local consulting firm. But even if there is no such regulation, consulting firms
operating abroad often find it useful, for a number of reasons, to negotiate and
execute assignments and to organize their foreign operations in association with
local consulting firms. This association can have various forms, such as a shared
ownership of a foreign company (on a fifty-fifty or another basis), or an arrange-
ment whereby the precise scope of collaboration is defined separately for every
assignment. In addition, there have been cases of abuse, e.g. if the association
is established with the sole intention of bypassing legislation in order to get
contracts and the local consultant is a "man of straw".
30.6 Administrative support services

Many single practitioners and other smallish consulting units are proud of
having minimal administrative expenses because they are able to handle many
jobs personally, with the help of a spouse, a part-time assistant or a bookkeeper.
However, as the consulting firm grows, its administrative and support services
reach a volume that justifies permanent staff and solid organization. Reliability,
versatility and initiative are the key qualities required in addition to technical
proficiency and discretion. Consultants busy with client matters, and often
absent from their own offices for long periods, must be absolutely sure that they
can trust their administrative assistants and other collaborators as regards
messages, travel arrangements, contacts by clients, report processing and trans-
mission, search for information and many other services that cannot, or should
not, be directly handled by the professionals.
Office staff
Because the majority of the professional staff - the operating con-
sultants - are able to make some use of their clients' administrative services,
and more and more consultants use their own personal computers when working
with clients, consulting firms usually need only a small office staff at their
headquarters. The smaller the staff, the more it is necessary for its members to
be able and willing to help in any part of the daily work.
In a small unit the following staff may be employed:
administrative assistant (who may also act as the manager's secretary and/
or office manager);
accounts clerk/cashier (who would keep time and other records, invoice
clients, pay salaries and expenses, purchase office supplies, etc.);
receptionist/telephonist/typist (who would help in typing correspondence
and reports);
one or two more secretaries/typists if necessary.
It is logical that larger units will require more office staff. At some point
the establishment of an administrative service unit, headed by a senior
administrative assistant or office manager, will be justified.
Organizing bookkeeping and accounting

In organizing bookkeeping and accounting the consultant is faced with
several alternatives. Many single practitioners do their own accounting, not only
to save on administrative expenses but in order to be constantly in control of
their financial position and of the efficiency of their operation. Even a consultant
whose main field of intervention is production or personnel may find it useful
to do his or her own accounting.
In small consulting firms, routine bookkeeping may be done by an accounts
clerk or administrative assistant as mentioned above, while financial and tax
reports would be prepared by one of the professionals, or by an external account-

ant employed on a part-time basis. Some consultants have all bookkeeping and
accounting (including tax returns) done by an external accountant, but this may
be a costly arrangement.
As the firm grows, a point is reached at which it is necessary to employ a
qualified accountant on a full-time basis.
30.7 Library and documentation

A dynamic and reliable information and documentation service is needed
for two principal reasons:
information on new developments in management and business relevant to
the work of the consulting firm has to be collected and channelled to the
consultants (who often work far from their headquarters, in localities where
new books, professional reviews or other information sources are not easily
available, and on projects which keep them too busy to search for new
information);
- information on the methods and procedures used and the results obtained
in previous assignments must be available for any new assignment.
Information services are costly, but consultants must keep up to date. Some
excellent work for clients can often be traced to an idea picked up from an article
or book not necessarily directly related to the particular subject.
Information service
The information service has responsibility for collecting, extracting,
storing and retrieving managerial and technical information contained in
important publications and other sources. It must be able to act on request
(information on topics designated by the consultants in connection with
particular assignments) and to systematically collect and provide information in
selected areas of interest to the firm and individual professionals. A proactive
service is required, able to take the initiative in identifying information and
suggesting useful sources to the consultants. A highly selective approach is
equally important. A consulting firm cannot afford to collect vast amounts of
information for vaguely defined purposes.
Any management consulting firm should have at least a reference library
of:
standard handbooks and dictionaries;
essential business legislation;
0 a selection of the best books on management in general and on management
functions and new concepts;
references on special techniques;
0 basic books on management consulting;
literature on change management, communication and training concepts

and methodologies.
Furthermore, consulting firms need to subscribe to leading management
and business periodicals, selected newsletters and in some cases also to an
abstracting service. While some periodicals may be for general circulation
within the firm, an information service may select and photocopy articles and
abstracts that are of direct interest to particular consultants. The firm may also
subscribe to those newspapers that regularly cover business or industrial issues,
or use an agency specializing in screening and copying published matter for its
subscribers.
Whoever runs a periodicals or clippings service may also collect com-
panies' annual reports, brochures, advertising and descriptive matter, govern-
ment economic reports and statistics, and so on. In addition, or as an alternative,
the information officer should know how to search major computerized
databases providing business and management information.
The organization and use of the information service require inputs from
both ends of the information flow. The information section should take the
initiative in looking for new sources and suggesting what might interest whom,
while the consultants should present specific demands clearly indicating the
nature and scope of the information required for their priority tasks and keep the
information service fully informed of new and changing demands of the firm.
If consultants do not collaborate with their librarians and information officers,
they cannot expect to get relevant and prompt information when they need it.
Internal manuals and training materials

In established consulting firms a great deal of accumulated experience and
know-how is embodied in manuals, guides, check-lists and other materials
concerning various aspects of the firm's practices and procedures. Some of these
materials were first produced for a client, but may be of more general interest.
Any such materials must be properly recorded and kept in the information centre
to be easily accessible both to operating consultants and to new recruits. The
same applies to the firm's own training materials, which can also interest
operating consultants who are engaged in training the clients' personnel or
looking for self-development materials.
Reports library
The third essential part of an information service is the reports library.
Survey reports, survey notes, proposals to clients, contracts, and interim, final
and follow-up reports have to be classified, indexed and filed. They grow into
an invaluable reference library, a real treasury for the whole firm. Although
complete solutions cannot usually be transferred unchanged from one situation
to another, the methods used and results achieved provide examples, give
inspiration and can sometimes be partially used in different settings. Reports are
also needed for training new consultants, and for the development of internal
guides and manuals.
The reports library must have an efficient means of information retrieval,
and for this an indexing system has to be established and maintained. Reports
may be indexed by client, consultant, sector, country, operating function, subject
within a function or technique applied. Thus, an enquiry as to what work has
previously been done in, say, production planning in food canning with the use
of information technology (IT) could result in either the extraction of a report,
or the reply that no assignment of this nature has been undertaken, or that there
has been one assignment, but without any IT application.
A long-term view is needed when deciding on an indexing and filing
system. It is easier to start with something that will be suitable in 20 years' time
than to change reports going back 20 years from one system to another.
Clients' reports are confidential papers and the library must be run on lines
of strict security. Copies lent to consultants must not be taken into other clients'
premises, nor left open in public places.
30.8 Office facilities

Headquarters accommodation
In all circumstances, headquarters accommodation should be designed
round the fact that consulting is predominantly a field operation and not a
head-office activity. While a "good address" enhances the firm's image and has
other advantages, such as the proximity of many clients, the total office space
required can be relatively small.
The accommodation needed for the internal administrative and support
services is self-evident. The reports library may start in a small way with a few
lockable filing cabinets, but in time may need a room of its own. At the beginning
it may share this room with the reference library of books and other docu-
mentation files, but with the growth of the unit more space will be needed.
As for consulting staff, the partners and other senior staff members
involved in supervision and practice development need office space at head-
quarters. Operating consultants and associates need at least a desk each (though
not individual offices). In addition, it is useful to have a meeting-room, space
for training workshops, and some small rooms for receiving clients and other
visitors.
The number of consultants sitting at their desks instead of working with
clients is generally considered to be a signal which requires examination.
Sole practitioner's office

A sole practitioner may be able to operate from home without renting any
office space. However, this is not always desirable from the client-relations
viewpoint. In some countries, an office in a business area may be essential. To
avoid excessive office accommodation and administrative costs, sole consultants

and other professionals often choose to share an office, and a secretary or
assistant, with other independently operating colleagues.
Office equipment
Good-quality office and communication equipment is a major asset in a
consulting organization. Word-processing equipment and personal computers
are now within easy reach of all consultants (see Chapter 31). The hardware and
software chosen should be flexible and versatile enough to serve several
purposes including record-keeping, filing, bookkeeping, billing, electronic mail,
facsimile communication, word processing, preparing proposals for clients,
editing and printing reports, and so on. Some document reproduction equipment
(or easy access to such equipment) is needed in any consulting firm;
high-capacity photocopying and printing equipment will probably be justified
only in firms where large numbers of documents are reproduced on a regular
basis.
30.9 General management organization

and coordination
Collective bodies
The pattern of the consulting organization's top management depends very
much upon its legal statute. In firms constituted as corporations (limited com-
panies) there will be a board of directors. In a small firm the directors would
generally be the general manager (managing director) and the senior consultants
(partners). In a large firm there may also be external board members who, being
non-executive, may play a useful role in the sense that they may preserve the
same detachment in guiding the firm as the consultants have in advising their
clients. They also tend to be chosen because of their range of business interests
and contacts. In partnerships, decisions on key policy matters may be reserved
for periodical meetings of all partners.
Consulting units that are not independent firms may have. a governing body
comprising a cross-section of managers from private and public enterprises,
representatives of chambers of commerce and employers' associations, senior
government officials and possibly other members in addition to one or more
senior managers from the unit.
Chief executive officer and management committees

The key position in the management hierarchy is that of the chief executive
officer (CEO), who may be called (in various countries and organizations)
principal, general manager, president, managing director, managing partner,
director-general, or simply manager or director. In a partnership, the CEO would
be elected by a partners' meeting for a fixed period.
The CEO may use a management committee in the usual way for involving
other managers or designated senior partners in dealing with issues requiring
collective discussion or decision. Other committees may be established for
dealing with issues such as strategy, quality, business promotion and market-
ing, IT, or staff compensation. They may be permanent or ad hoc. As in other
businesses and public organizations, there may be a tendency to create a
committee each time an issue cannot be immediately resolved or needs to be
examined in a collective. A proliferation and overlapping of committees (and
meetings of the same people under different committee denominations) are not
signs of effective management.
The individual at the top will most probably be a career consultant (a senior
partner) with considerable experience and managerial talent. On reaching the
top, he or she may experience problems similar to those faced by managers of
research and other professional services - he or she must stop thinking and
operating as a technician and concentrate on managing (see also Chapter 23).
Some consulting organizations have recruited top managers from outside, from
among individuals who have been excellent business managers, but not
necessarily practising consultants. There is no universal rule -the candidate's
competence and personality will determine whether he or she will be able to
cope with the challenge of the job, provide strategic leadership and strengthen
the firm by subtle but persistent coordination.
1 See, e.g., D. B. Norris: "To be or not to be - a partner", in Journal of Management

Consulting (Milwaukee, Wisconsin), Vol. 7, No. 3, Spring 1993, pp. 46-51.
2 For a recent discussion of the problem see, e.g., "Partners in pain", in The Economist,
9 July 1994, pp. 63-64; and V. E. Millar: On the management of professional service firms: Ten
myths debunked (Fitzwilliam, New Hampshire, Kennedy Publications, 1991), pp. 39-44.
Adapted from an organizational chart developed by a FEACO research project.
INFORMATION TECHNOLOGY
IN CONSULTING FIRMS
Information technology (IT) has moved from being a back office function
to a position where it can be exploited by consultants to enable a wider, more
effective service to be provided to their clients. The techniques now available
permit more effective communication within consulting firms and allow firms
to obtain greater value from the information at their disposal. The key to the
delivery of these benefits is recognition of the changed role of computing in
professional service firms.
31 .I Current trends
Information technology has changed in scope
In the 1970s and early 1980s the hardware, software and staffing costs
associated with the provision of a computing service were such that their
utilization was only considered cost-effective in the larger of the professional
firms. Typically, professional firms keep very tight control on their internal costs
and, given the high level of initial investment required to install computer
systems, investment was only made where the volume of work could justify the
expenditure required, which was then a major item. As a result, the focus for
computing expenditure was on administrative procedures and staff savings.
The situation has now changed dramatically (see also Chapter 17). The
basic costs of hardware and software have decreased, while power has increased.
A powerful personal computer (PC) that can be purchased for under US$1,500
is at least equivalent in capacity to a mainframe computer in the 1970s. Cost of
power has therefore ceased to be a barrier. Additionally, the smaller hardware
units do not require the space and specialized environment that are the hallmarks
of mainframe systems.
System architectures have changed from central mainframes supporting
dumb terminals to networked personal computers being used to access and
manipulate data held on central shared files. This approach, often described as
a "client server7', is becoming the preferred method of provision for systems,
and the majority of new software developments are now aimed at exploiting this
infrastructure. PC software, such as spreadsheets and word processors, are now
regarded as the normal method of operation. Consultants and other professionals
use such techniques as part of the standard means of fulfilling their professional
role, and therefore accept and appreciate the potential for IT to assist in both the
"back office" and "front office".
The availability of networked systems provides the opportunity for infor-
mation (data, text, image and even voice) held electronically to be shared among
users. The ability to group and process such information in a varied number of
ways, without incurring an additional clerical overhead, improves its value to
the organization. It is often said that IT has now reached a level of sophistication
at which it can begin to address the information (as opposed to data) needs of
the knowledge workers.
This wider exploitation of IT is being harnessed at a time when the need
for service differentiation is becoming key to the successful competition for
business, as the buyers of consultancy services have become highly sophisticated
and selective.
Consulting services have evolved

The last decade has seen major changes in the scope of services offered by
individual consulting firms. The market-place is no longer divided into discrete
sectors, and the ability to cross-sell services between multiple disciplines within
a firm is an important means whereby companies are aiming to maximize rev-
enue while containing selling costs. Swift access to comprehensive information,
and the ability to exchange information electronically, have become key features
of consulting and other professional firms' competitive advantage.
The information on which consultancies draw is expanding rapidly. Esti-
mates show that the information used in business is expected to double in the
next six years. Consultants have to be fully informed, and therefore require swift,
accurate and comprehensive access to such information (for example new legis-
lation, international trade and demographic statistics, and technical literature).
Speed of service has become a major differentiator between organizations.
A recent survey conducted by the Boston Consulting Group showed that,
worldwide, organizations that recognized speed of service as a factor of business
differentiation were growing, on average, 50 per cent faster than those which
did not. IT is a central component in the delivery of the improved and streamlined
services. The need to recognize the importance of speed of service applies
equally to consulting firms and to their client base.
Finally, more and more emphasis is being placed on the adherence to
quality standards. Firms are having to institute total quality management or
quality assurance programmes (see Chapter 28) as a means of guaranteeing the
currently expected level of service to their clients.
Information technology in consulting firms
Figure 31.1 Functionality is dependent on power and structure
Structure
Work flow
Groupware
Word
Word Word processing
processing processing Spreadsheets
Spreadsheets Spreadsheets Client billing
Client billing Accounts
Accounts Time recording
Client billing Client billing Time recording CADICAM
Accounts Accounts CAD/CAM Client database
Time recording Time recording Client database Shared filing
Personnel Personnel Shared filing External mail
Power
Potential use of IT
As a result of these changes in both the availability of systems and the
demands on the systems provided, the use of IT is now an intrinsic part of the
operation of the majority of consultancies. Computing can be viewed as being
exploited in three separate ways:
- to support business administration;
- to support professional service productivity and quality;
- to improve market exploitation.
Below we discuss these three areas in more depth, and describe the types
of system adopted within each area of operation. Finally, having considered the
scope of computing, and the benefits to be derived, we highlight the issues that
must be addressed if the full benefits that derive from investment in new
technology are to be realized. The relationships between IT structures and the
range and sophistication of functions being delivered to the users are illustrated
in figure 31.1.
31.2 Support to business administration

It was in this arena that IT was first used within consulting firms. In
common with all early commercial use of IT, the focus of the systems was the
streamlining of administrative processes. The main generic areas in which
consulting firms introduced systems were time recording and accounting,
including client billing. Where specific sector-focused consultancies offered
professional services that required access to computer processing (for example
portfolio management and valuation, and engineering designs), support systems
were developed to meet these needs. Initially systems were bespoke, written to
meet the individual needs of each organization. The market has now matured,
and "off the shelf' central system, PC and network-based packages can be
purchased to handle these requirements. The packages vary in complexity, and
cater for all levels of need, from those of a small organization through to major
firms operating across multiple sites and providing services in a range of
different disciplines. The functions described below are supported by all main
package vendors.
Time recording
Computerized time-recording systems vary greatly in their sophistication
and scope. The basic functions supported are:
0 recording time against job numbers;
a maintaining records of work in progress;
0 calculating costs (internal charges) and fee income against a job.
Additionally, systems are now often enhanced to fulfil many of the func-
tions associated with project (assignment) management:
- application of direct expenses to a job;
- maintenance of resource estimates against individual jobs;
- forward load by job and by individual consultant;
- reporting of exceptions showing job overruns;
- cash-flow forecasting, based on the expected work plan and the client
payment profile (monthly, end of phase, etc.);
- consultant availability.
Systems provide managers with a comprehensive mechanism by which to
obtain the data for measuring business performance, as described in the previous
chapters. The means by which the time data are collected are themselves
changing, as individual consultants have access to networked PCs. Originally,
I time sheets were collected centrally and entered into time-recording systems by
data-entry clerks. More and more the prevailing practice is for individual con-
sultants to accept responsibility for input of their own time sheets into the system,
using PCs as the data collection mechanism, and thereby removing the need for
central data preparation. Systems are now being marketed that enable time data
Informationtechnology in consulting firms
to be downloaded to the recording system from hand-held devices, such as the

Psion Organizer, thereby reducing still further the effort required for data
capture.
Accounting
A wide range of packages is available to support both client billing and
company accounting systems. As with the time recording systems, these vary in
sophistication. At the top end of the market the packages available will interface
both one with another and also with an associated time-recording system.
Modern packages are, in the main, built using industry standard databases,
for example, Oracle and Ingres for major systems, with products such as Foxpro,
Clipper and Access being exploited for PC-based solutions. The advantage of
the approach is that the database structure enables the need for ad hoc inform-
ation to be addressed. This would enable users to address such questions as
"What percentage of our customers is in the petrochemical industry and what
has been the average job value and profit on sales to this market over the last
two years?"
All major types of billing can be handled by database systems, including
stage payments and retainers. Company accounting systems can cater for the
accounting requirements of partnerships and both public and private companies.
The management information available not only includes the standard
accounting returns, but will enable the profitability of a specific client to be
measured in total. This will allow the management to view the profit on an
individual job, as well as to allocate sales and market costs to the client, in order
to obtain a fuller picture of the interaction with that client. Attributes can be
assigned to individual clients, for example industry sector plus size of company,
enabling more detailed analysis of the profile of the clients, both existing and
potential.
Customer service provision

Where consulting firms offered services to clients which required intensive
use of data and statistics, for example chartered surveyors offering consultancy
advice on valuation and portfolio management, these systems were initially
tailor-made for each consultancy. These requirements are now supported by
software packages. The availability of relatively cheap software to support the
complex mechanistic aspects of such requirements has enabled smaller firms to
offer services where previously they could not compete owing to the level of the
skills and resources required to handle the work manually and the prohibitive
cost of bespoke software.
31.3 Support to professional service productivity

and quality
It is in this second area that the exploitation of IT has changed dramatically
over the last five years:
access to a PC is now regarded as a standard provision for any professional
worker, in the same way that all employees expect to have access to the
telephone;
the advent of the portable PC now enables consultants to gain access to
computing power regardless of location;
the availability of corporate networks allows information to be exchanged
and more cooperative methods of working to be developed;
the scope of systems that can be hosted on a PC has improved dramatically
with the constantly increasing power of the PC.
Below we describe the key areas in which, by exploiting new technology,
major benefits can be delivered within consulting firms.
Word processing
The opportunities afforded by word (text) processing were recognized
early by consulting firms. Firms invested in word-processing systems to meet
the needs of the central typing resource. Documents were handwritten and word
processed by either the central typing pool or secretarial support. Corrections
were marked on draft copies by the consultant and returned for correction. While
such techniques reduced the time necessary for final document preparation and
improved the quality of the final document, they relied heavily on the consultant
being available to change the drafts.
The advent of the PC now enables a more flexible approach to be adopted
and, more and more, word processing is being used cooperatively. Work sub-
mitted on paper to the typing resource is word processed and the files generated
are mailed electronically to the consultants, who then make minor modifications
directly using their PC.
Most consultants now use PCs to generate drafts of their reports. This is
of increasing importance where consultants work away from their base and must
report their findings swiftly and to a high standard of presentation.
This approach relies on compatibility between the software in use on the
consultant's PC and that in use within the central word-processing function. This
is not always the case: the PC systems may not be compatible with the central
shared systems. While conversion between word-processing products is pro-
vided, the conversions are not always without problems and do not always
support the full range of features available. Many consultancies are now having
to re-appraise their approach to word processing to ensure that synergy and
cooperation can be effected between professional and support staff.
Electronic mail
The advent of electronic mail (E-mail) as a supported, standard mechanism
for communication and data exchange enables new ways of working to emerge.
Consultants no longer have to be working in proximity to each other for working
documents to be passed easily between them.
Firms can now exploit E-mail to help in the assembly and review of pro-
posals and reports, thus reducing the time necessary to move text, spreadsheets,
graphics and so on between staff. This, again, assists in helping to improve speed
of service.
E-mail between organizations is now seen as a standard method of com-
munication, and for many organizations it is becoming the preferred method.
The oil company Esso has published a leaflet stating that they wish, wherever
possible, to use E-mail as the means of communication both to and from their
business partners. Some buyers of consultancy services only issue invitations to
submit proposals to interested companies using E-mail, and the availability of
E-mail for communication between buyer and supplier is, for some buyers, now
one of the criteria in bid evaluation.
E-mail has been used to increase both the speed of delivery and the pro-
fitability of jobs. Law firms use E-mail to obtain expert opinions on inter-
national legal issues directly from lawyers in the country involved. This has been
especially effective between Europe and Japan, where the time zone differences
and language problems are such that telephone communications become prob-
lematic. Where consultancies themselves operate in the field of IT, systems
designed in Europe and the United States are being built in various parts of Asia,
using the locally available workforce. All communications are conducted using
E-mail.
Image processing
The cost of image systems has now dropped to such a level that consultants
are considering the use of image processing within their own organizations. The
main area of application is in the maintenance of client files. The external
client-generated paper documents are scanned into the firm's client filing system
and indexed together with the electronic documents that have either been
generated internally or provided via E-mail or another file-transfer mechanism.
Access to the equivalent of the full "paper file" can then be made available
electronically.
The advantages of such systems lie in:
- the added security they provide, as files are never missing;
- the fact that multiple access to a single file can be obtained, thereby
allowing several members of the firm to work simultaneously on the same
files;
- requirements of records management can be invoked automatically.
These facilities assist greatly where firms wish to gain quality accreditation
such as I S 0 9001 or its national equivalent. The consultancy can show that all
documentation is maintained and filed in a manner that is secure and easily

accessible.
Additional benefits are gained where image processing is augmented by
intelligent character recognition (ICR). Using this technique, images of typed
(and even some handwritten) documents are converted into word-processing
format. Once the document is in this format it can be interrogated in the same
manner as internally generated documents. This facility is now widely used
by legal firms in the "discovery" processes and also in the field of forensic
accounting.
Workflow software
While not as yet extensively used within consultancy firms, workflow
software has the potential to assist in many of the administrative areas of the
consulting business. Workflow software is typically used in conjunction with
word processing, E-mail and image processing. The technique enables the
automation of the administrative procedures that have to be undertaken in the
support area. Examples of areas in which workflow is already being exploited
by both public and private sector organizations, and in which benefits could be
delivered to consultancies, include:
0 personnel (job application management);
0 contracts (checking of contract details and contract set-up);
0 report production and approval;
0 expenditure approval.
The technology relies on the presence of an effective office infrastructure,
as it typically combines features such as word processing and forms processing,
and exploits E-mail to transfer items between users. Its introduction is therefore
closely linked to the provision of PC terminals and effective networking.
Voice mail
Where consultants are often away from their offices, voice mail can provide
a valuable means by which to maintain contact and also to ensure that
information can be disseminated quickly and effectively. Currently few voice-
mail systems are integrated with PC-based IT. This, however, is changing
rapidly. The systems operate as a sophisticated "answer phone", enabling
(1) messages to be left, (2) replies to messages to be sent, and (3) messages to
be broadcast or sent to predetermined distribution lists.
Because the systems are available over the telephone network, they can be
easily accessed without recourse to sophisticated technology. Consultants can
log onto the systems in the same manner from a client's site, a hotel or their own
home.
External information sources

Consultants need to be able to conduct their research speedily and
effectively. Services are now available from third-party information providers
that enable research to be conducted without the need for the corporate librarian
to carry out all research internally, or for the consultant personally to visit a
library or an information centre. The scope of the systems is wide-ranging and
growing. Among the topics on which information can now be provided by access
to an on-line information service are, for example:
- European legislation;
- IT developments;
- company performance;
- international trade figures;
- any mention in the press of specific topics (using key word and ICR
techniques).
Professional support products

In addition to the standard office products described above, systems are
now being developed to address the needs of specialist consultancies.
Geographic information systems (GIS) are being exploited by environ-
mental and market-research consultancies. The systems enable data to be linked
to specific geographic locations and analysed as required. For example, by using
a GIS to link demographic information with road network information con-
sultants are able to advise on locations for facilities as diverse as retail outlets
and hospitals. The systems and their associated data are comparatively expensive
to obtain and maintain, their value being totally dependent on the range of
geographic-based information associated with the system. The services there-
fore tend to be provided by specialist organizations from whom consultants buy
both the required information and necessary analysis.
Sophisticated computer-assisted design (CAD) packages, that run on PCs,
are also available. Where consultancies work in the engineering, design or
logistics arena, such techniques are heavily utilized and are now regarded
as the standard method of operation. The final product is delivered to the client
electronically.
Market research companies are also using hand-held PCs, and bar-coding
and ICR techniques to enable data to be gathered from the general public swiftly,
accurately and without incurring the overheads associated with the transfer of
information from paper questionnaires to computer-based analysis systems.
As mentioned above, when image systems were discussed, the use of ICR
enables the images to be translated in word-processing format. The text can then
be interrogated using pee text retrieval (FTR), which enables searches to be
performed on the text file(s) looking for a specified set of characters anywhere
in the files. This facility has been used by consultants in many different ways:
within accounting firms and financial consultancies the technique is used

to access data relating to bankruptcies where fraud is suspected, thanks to
the ability to search for any mention of specific items (names, values) or a
combination of such items;
0 ICR techniques are also used where consultancies are assisting in stock
market flotations; the capability of the software to detect "near matches"
can be used to identify multiple and fraudulent applications;
when applied to internal documentation (reports, proposals, records of
sales meetings) of the firm, ICR can be used to ensure that a full picture of
all dealings with an individual client or industry is identified.
The range of products and techniques, described above, has moved IT from
being solely a mechanism supporting administrative functions into an arena
where its exploitation enables the work content of professional members of the
firm to alter dramatically.
In organizations where office systems are now fully exploited, tangible
benefits are being delivered as the professional to support staff ratios are altered.
Introduction of advanced office systems, in conjunction with a revised method
of working, can enable the ratio of professional staff to support staff to be
improved by up to 50 per cent, dependent on the effectiveness of the initial
structure and working methods. Improvement in this ratio can have a major and
immediate effect on the profitability of a consulting firm.
31.4 information for marketing of services

In the previous sections we considered how IT techniques, such as ICR and
FTR, are being brought to bear to improve the operation of internal processes
and procedures in consulting firms. In this section we consider use of these
facilities for improving the marketing and selling abilities of consultants.
Once the systems described above are in place, a valuable information
infrastructure has been provided. The administrative accounting and billing
systems provide information about current clients and the sales effort in hand.
At the same time, office systems used to support the professional consultants
enable information to be captured effectively and disseminated throughout the
firm.
To these techniques can now be added information access products which
are already being exploited by large consultancies. By combining databases with
such products, easy access and dissemination of both structured and unstructured
information can be provided, thereby encouraging the sharing of information.
Users can be given access to details of all work undertaken, proposals submitted
and marketing meetings held with a specific client. As a result, meetings with
the client can be conducted with full awareness of all the issues surrounding the
potential sale.
By combining information relating to clients within a specific market
sector, trends can be identified in terms of key products, buying patterns and
similar. This can be exploited to focus the marketing effort on the key areas of
client needs. Furthermore, information relating to any issues arising on a job can
be swiftly shared, the experience of other consultants brought to bear and the
problem potentially solved before it becomes a major issue.
Once the technical infrastructures are in place, and consultants understand
the potential benefits that can accrue from sharing and exploiting information,
the use of such systems within the consulting arena will escalate.
Also, more and more work has to be won through a competitive tendering
process. The clients' expectations, relating to the quality of proposals and pre-
sentations, are constantly increasing. Consultants must exploit technology to
deliver effective sales and marketing materials:
Advanced word processing and desktop publishing, combining text with
graphics, are used to improve proposals and reports.
Drawing packages are used for slide presentations and reports.
PC-based systems are replacing 35mm slides as the medium for pre-
sentations.
Final results of a diagnostic or other type of consulting study may involve
interactive video. For example, in layout planning, and in architectural and
environmental consultancies, "active" models of new structures can be
generated in order to assess their impact.
An additional marketing tool now available is the vast and growing use of
the Internet World Wide Web (WWW). Companies can use the Internet services
both to improve their own awareness of the market-place into which they are
selling and also to provide information relating to the services they themselves
provide. It is now possible to link WWW and Lotus services, providing, for the
first time, the potential for the full exploitation of both internal and external
information.
31.5 Realizing benefits

Computing is now capable of fulfilling a pivotal role in consulting firms
and being a major driving force in the reduction of overheads, the improvement
of lead conversion and the generation of extension business. If this role is to be
realized to its full potential, and the benefits maximized, the management and
development of computing must be addressed at the firm level. IT offers value,
regardless of the size of the consultancy. The emphasis, however, changes. This
section reviews effectiveness and management issues faced by larger firms.
Section 31.6 will then focus on the areas in which small consulting firms and
sole practitioners can gain value from IT.
Recognizing computing as a corporate asset

To date, in many professional service firms, the expenditure on computing
has been fragmented across the separate areas of responsibility. The key benefits
that can now be derived from IT stem from the ability to access and exchange
information across disciplines and practice areas within the firm. However,
unless central direction is given, major investment can be made with few benefits
being realized, as issues arise relating to compatibility, connectivity and data
integrity, interpretation, ownership and management. Corporate management
mechanisms need to be in place to ensure that central directives can be
implemented in order for the investment in hardware and software to deliver its
full potential.
The extent to which IT is exploited will depend heavily on the size and
nature of the consultancy firm. In figure 31.1 (page 649) we illustrate the types
of application that we would expect to see being exploited across firms of
differing size.
Providing corporate management

The management and administration of IT must be addressed as a corporate
requirement:
a mechanism must be put in place whereby the resources available are
focused on the areas of greatest need, rather than automatically satisfying,
one by one, those users who take the greatest personal interest in IT;
the responsibility for the allocation of funding must be assigned, and a
mechanism put in place that ensures that the rationale and justification for
projects are clear, unambiguous and agreed within the organization;
a clear I T strategy must be formulated in order to ensure that the organ-
ization implements systems in a coordinated manner, enabling incremental
growth and the optimization of benefits;
the firm's training policies and programmes must provide the required
skills and stimulate all consultants' interest in using IT.
In order to achieve these goals, larger consulting firms are adopting a
steering group or committee approach to the management of IT. An IT steering
group is set up from within the senior management of the organization. It is
chaired at board or management committee level and represents the key user
groups together with the administrative and financial functions.
The steering group is responsible for:
- agreeing overall IT staffing and budgets;
- agreeing work priorities and overall schedules;
- acting as the project board for the developments undertaken (or to delegate
project responsibility to a lower level, dependent on project size).
- ensuring that the interests of IT are represented at board level.
The head of the firm's IT unit (department) should report to this steering
group. For all projects undertaken a project manager is appointed and is res-
ponsible for reporting progress to the project board. The project manager does
not necessarily have to be drawn from the IT department. Depending on the
nature of the project, the manager may be a senior user, a member of the IT staff
or even an external consultant. All project managers report to the project board
and the head of IT should also be involved in this reporting mechanism.
Providing support
Once computer systems become an essential part of the day-to-day work-
ing methods of the consultants, they must be supported, maintained and en-
hanced as the need arises. The need for in-house technical expertise has to be
recognized. While systems were purchased as discrete packages and minimal
exchange of information took place, little in-house expertise was required.
However, the disciplines and knowledge necessary to provide integrated access
to all administrative, office and advanced groupware systems of a firm are not
known to the majority of consultants. Technical support must be available if the
systems are to be usable by all staff, regardless of their location and individual
levels of IT literacy.
A word of warning must be issued here. In many firms professional
consultants have, for many years, had to act as their own IT "gurus", deflecting
effort from their mainstream consulting activities. Such skills are often jealously
guarded. Opposition may be encountered among professional staff who see little
value in conforming to corporate standards and wish to continue operating in
virtual isolation, using systems chosen on the basis of personal preferences.
This problem can be addressed in three ways:
by showing the benefits to the individual consultant of the adoption of a
corporate approach;
by ensuring that adoption of the central standards offers some personal
advantage to the consultant, for example, automatic securing of personal
data, or technical advice and backstopping hitherto unavailable;
by providing individualized training, flexibly meeting each consultant's
particular needs and preferred ways of learning.
Ensuring confidentiality
In addition to these internal issues, an external issue must be dealt with.
Computing techniques can, in theory, make information easily available across
an organization. The need for data confidentiality must therefore be addressed.
Consulting firms must be able to show that their systems can maintain con-
fidentiality of information. This is essential if, for example, financial advice is
being given to more than one client company. Consultants must be able to
identify potential conflicts of interest and avoid them by ensuring the security,
privacy and integrity of the information provided by their clients.
Where implemented with vision and used as a major corporate resource,
computing now has the ability to be a critical factor of differentiation, enabling
consulting firms to offer a focused, cost-effective and fully-informed service to
an ever-widening client base.
31.6 Information technology in small

consulting firms
Small consultancies do not need complex IT systems, but they do need
sufficient IT to allow them to present themselves and operate as professionally
as their larger competitors. Today, with the advent of low-cost computing, this
is easily possible. Below we give some indications of what was available in 1995.
As computer technology is constantly changing, the reader should obtain as
much information as possible before making any decision.
Today no small consultancy can survive without information technology,
but it does not need to spend a fortune. The equipment and software described
here are available for some US$3,000-6,000 (1995-96 prices).
Basic hardware and software needs

Basic hardware. Initial priority should be given to a desktop computer
which provides the desired power and graphics quality; later on a portable
computer is likely to prove useful. A consultant doing a lot of text processing
and other computer work outside his or her office may decide to start with a
portable computer or to acquire both.
An independent dealer should be able to advise on the size and capacity of
various machines, their operating systems, their advantages, and so on. Current
hardware includes a central processing unit (CPU -a minimum capacity is 486
DX 50 if Intel is chosen), dynamic memory (a minimum of 8-16 megabytes is
becoming necessary), a graphic display screen, a keyboard, a mouse and
permanent disk storage space (hundreds of megabytes). The market currently
offers three types of hardware - Intel-based PCs from many suppliers, the
Apple Macintosh, and various computers based on the Unix operating system
(which are less frequent and take some 10 per cent of the total market).
Operating systems. All computers run an operating system. The choice
today for PCs is MS-DOS with MS-Windows (most common), OS/2, or one of
the Unix operating systems such as SCO or Solaris. The Macintosh runs Sys-
tem 7; other computers run the version of Unix that corresponds to the hardware,
e.g. OSF/1 for DEC machines.
Graphical user interfaces. The current standard is a graphical user inter-
face with a mouse. It provides a user-friendly environment which is intuitive and
more productive for the user than the previous character-based interfaces. One
should remember that software packages from different suppliers will run on the
machine, so these should be compatible with the chosen operating system and
graphical user interface. An independent specialist should be approached to
advise on the pros and cons of different machines, operating systems, graphical
user interfaces, and so on, to suit the specific needs of the consultant. Getting
advice from another management consultant may be useful, but there is a risk
of bias due to personal habits and preferences, and incomplete information.
Printing. A laser printer which permits the production of quality docu-

ments is a "must", and one should not skimp on the investment.
Scanner. A scanner is not essential, but could be useful for "reading"
documents direct into the computer. The early ones were not very reliable, but
they are getting better all the time. If you decide to buy one, our advice would
be to pay the extra and get a flat-bed scanner. The hand-held units are quite
cheap, but less effective.
CD-ROM. A CD-ROM reader, double speed or better, is a very worthwhile
addition to the equipment. Many extensive databases are already available
cheaply on CD-ROM, and the range of uses of the CD-ROM technology is
expanding very rapidly.
Compatibility issues and the consultant's choice

The choice of the computer workstation and the operating system will limit
the choice of future software packages and additional hardware. Probably 100
consultants use PCs for every ten that use a Macintosh and one that uses a Unix
computer; however, there may be exceptions in certain consulting domains. For
example, one would expect to see Macintosh being used in the publications field
and Unix systems being used in the petrochemical industry.
The consultant must select the packages that he or she wishes to use. The
basic needs for small consulting firms are for word processing, a spreadsheet
for data management, and graphics, primarily for overhead projector trans-
parencies. A program for desktop publishing will be appreciated by those who
want to produce their own brochures and take camera-ready copy to their
printers. These programmes should be compatible, as you will wish to transfer
data between them. It is also worth considering the IT standards used by your
main clients, who may wish to use the materials generated by your firm, and
vice versa.
With this equipment the small consultant can easily compete with larger
firms in making effective use of IT technology and producing highly pro-
fessional documentation without an enormous investment in time and money.
Administrative computing
The equipment already purchased and the spreadsheet package can be used
for basic budgeting, bookkeeping and cash flow management. For the manage-
ment of customer records the consultant will additionally need to purchase a
database programme (something simple will do). This enables the consultant to
keep client records and provides easy access to them.
For the larger consultancy it may be useful to purchase a small accounting
package, but for the smaller business this can be more trouble than it is worth.
Billing can be done using the word processing and spreadsheet or database
packages for records. Cash flow can be managed using the spreadsheet. This,
we find, provides sufficient controls.
Marketing
Finding clients on a continuing basis is especially difficult for small firms,
whose resources are normally fully stretched in coping with current work, and
the failure to properly manage new business generation inevitably leads to
"gaps7' in the work plan. Here the computer can be essential. For example, using
the database programme the consultant develops a database of, say, 100 potential
clients. He or she then uses a well-briefed and well-trained telesales person
whose job is to speak to these potential clients every month and prospect for
work. The database is continually updated, with new prospects being added and
the poorer prospects being removed.
Communication
If one wishes to communicate with external telecommunication networks,
the computer must have the required power and a modem. The modem and its
software allow the computer to connect to public and private electronic services
via the public telephone lines. Some modems can send and receive faxes.
For most small consultancies it is not practical to operate their own
network, but many service providers such as Internet or CompuServe offer
worldwide E-mail facilities "on line", and direct access to financial and other
databases at affordable prices. Such systems are worth investigating as they
provide cheap and rapid means of data access and data transfer over any distance.
PART V
DEVELOPING MANAGEMENT
CONSULTANTS AND THE CONSULTING
PROFESSION
CAREERS AND
COMPENSATION
IN CONSULTING
In the previous parts of this book, management consulting has been shown
to be a special profession with its own objectives, methods, rules and organi-
zation. To individuals who join this profession, consulting is a career in which
they may spend the main part of their working lives.
32.1 Personal characteristics of consultants

To become a career management consultant is to make a major life deci-
sion. Both individuals considering the career and consulting organizations
should therefore think very carefully about the characteristics which make
someone a suitable candidate.
Management consultants have discussed these characteristics many times
and useful advice can be found in several pub1ications.l As in any profession
which has attempted to prepare a profile of an ideal candidate, there is no perfect
model against which every entrant can be measured, but there are certain
common characteristics affecting the consultant's success and personal job
satisfaction. These common characteristics differentiate the consulting pro-
fession from other occupations that also require a high level of technical knowl-
edge and skill, but have other objectives and use different methods of action (e.g.
research, teaching, or management jobs with direct decision-making authority
and responsibility). In management consulting, particular importance is attached
to analytical and problem-solving abilities, as well as to special competence in
the behavioural area, in communicating and working with people, and in helping
others to understand the need for change and how to implement it.
What kind of person is able to perform the multiple roles required of a
management consultant appropriately? It seems that the qualities a consultant
needs fall into two broad categories: a number of distinctly intellectual abilities,
and a number of distinctly personal attributes.
Dilemma analysis ability

Intellectually, the consultant needs the ability to make a "dilemma analy-
sis", because an organization which uses a consultant is probably faced with a
situation that appears insoluble. If the difficulty could easily be solved by the
operating manager, a consultant would not be needed. The consultant must
recognize that a dilemma, whether real or not, exists in the minds of those within
the organization. The consultant's role is to discover the nature of the dilemma
and to determine the real cause of it, rather than what is thought to be the cause.
To accomplish this, the consultant must have a special type of diagnostic
skill, and should approach a study of the organization's dilemma by means of
an existential pragmatism that takes into account the total client setting and all
situational variables. It is only through skilful examination of the organization's
fabric that the structural relationships between the various subsystems that
comprise the total organization can be seen, together with the interdependent
nature of its individuals, groups, substructures and environmental setting.
In order to make this kind of dilemma analysis, insight or perception and
intuition are necessary.. Insight or perception is vital because any dilemma
requiring outside assistance will be part of a complex situation. The ability to
penetrate this complexity and isolate the key situational variables is the toughest
task. Unless the important factors can be sifted from the maze of detail, and
cause separated from symptoms, accurate diagnosis is impossible.
Sense of organizational climate

Intuition or "sensing" must be coupled with perception in order to assess
the nature of power and politics in the organization. Experience with bureau-
cratic and managerial structures, both public and private, tends to indicate that
these do not function optimally. Underlying and intermingled with the functional
operations the organization performs are the crucial dynamics of internal power
and politics. Invariably, people are vying with other people for organizational
influence, or for some internal political reason. Very often the consultant has
been asked to help, not just to provide needed assistance, but also as an
instrument of a strategy designed to secure an objective related to this influence.
Unless the consultant can intuitively sense the organizational climate, he
or she runs the risk of being only a pawn in a game of organizational politics.
The consultant who has the ability to recognize and understand the dynamics of
the internal power and political relationships can use them masterfully in pursuit
of whatever change objectives client and consultant conclude are appropriate.
Apart from these diagnostic abilities, the consultant needs implementation
skills. Obviously, he or she must have some basic knowledge of the behavioural
sciences, and the theories and methods of his or her own discipline. But more
than these, the consultant needs imagination and experimental flexibility.
Dilemma-resolving is essentially a creative enterprise. No real-life situation is
going to fit perfectly into the mould suggested by standard techniques or
textbook methods. Diversity and unique circumstances will almost always exist.
Careers and compensation in consulting
The consultant must have sufficient imagination to innovate adaptations and

tailor concepts to meet real demands.
Furthermore, the consultant must be able to visualize the impact or ultimate
outcome of the actions proposed or implemented. But, as happens so often, this
is as much a process of experimental trial and error as it is one of a priori
solutions. The courage to experiment and the flexibility to try as many ap-
proaches as needed to solve the problem are important ingredients in the prac-
titioner's make-up.
Integrity is essential
The other important qualities required of the consultant are what we call
personal attributes. Above all, he must be a professional in attitude and
behaviour. To be successful, he must be as sincerely interested in helping the
client organization as any good doctor is interested in helping a patient. The
consultant must not conceive of himself as, or portray the image of, a huckster
of patent medicines. After all, the consulting role in management and business
is no different from that role in any other profession. If the concern of a
consultant is primarily to make an impression or build an empire, and only
secondarily to help the client organization, the organization's leaders will soon
recognize that the individual is a phoney and deal with him accordingly. People
in management are generally astute individuals. They can identify objectivity,
honesty and, above all, integrity (see also Chapter 6).
When entering a client system, a strong tolerance for ambiguity is import-
ant. The consultant's first acquaintance with an organizational problem tends to
be marked by a degree of bewilderment. It takes time to figure out the true
situation, and during this period the consultant is going to experience a certain
amount of confusion. One must expect this to occur and not be worried by it.
Coupled to this type of tolerance must be the qualities of patience and the
ability to sustain a high level of frustration. Curing a client's ills is likely to be
a long and trying experience. Substantive changes, full cooperation and complete
success are unlikely in the short run. Inevitably, attempts to change people's
relationships and behavioural patterns are going to be met with resistance,
resentment and obstructionism from those who are, or who think they may be,
adversely affected. It is important for the consultant to have that kind of maturity
and sense of reality which recognizes that many of his or her actions and hopes
for change are going to be frustrated. Such maturity is necessary to avoid
experiencing the symptoms of defeat and withdrawal that commonly accompany
the frustration of a person's sincere efforts to help others.
Sense of timing and interpersonal skills

Finally, the consulting practitioner should have a good sense of timing, a
stable personality and well-developed interpersonal skills. Timing can be
crucial. The best conceived and articulated plans for change can be destroyed if
introduced at the wrong time. Timing is linked to an understanding of power and
of the political realities existing in the change situation, and to the kind of
patience that overrides the enthusiasm surrounding a newly conceived idea or
training intervention that one is longing to try out immediately.
Obviously, consulting involves dealing with people rather than with
machines or mathematical solutions. The consultant must have good inter-
personal skills and must be able to communicate and deal with people in an
atmosphere of tact, trust, politeness, friendliness, change and stability. This is
important because the impact of the consulting practitioner's personality must
be minimized to keep it from becoming another variable in the existential setting
and so making a contribution to the existing complexity of the situation. Beyond
this, success will depend on the persuasiveness and tact the consultant uses in
confronting the interpersonal relationships on which the helping situation is
based.
How to interpret these requirements

Box 32.1 attempts to summarize the key intellectual abilities and personal
qualities of a management consultant in telegraphic form. It could be objected,
and rightly, that only a very mature and exceptionally capable and versatile
person can possess all the qualities mentioned. In recruiting a new consultant it
is therefore necessary to consider what qualities the person must possess on
recruitment, and what qualities he or she will be able to acquire, or improve,
through training and experience.
32.2 Recruitment and selection

The foundations of successful careers in consulting are laid down at the
moment of recruitment: only those candidates who meet certain criteria will
have good chances of becoming fully competent consultants and advancing
up the career ladder to their own and the consulting firm's satisfaction. Hence
the extraordinary importance of a careful search and a thorough appraisal of
candidates.
Recruitment criteria
Although consulting firms apply different requirements in recruiting new
consultants, the comparison of their practices allows for some general con-
clusions concerning personal characteristics, education, practical experience
and age.
Personal qualities were discussed in the previous section and there is no
need to return to them.
Education is carefully examined in every case. University (first degree)
level or a higher degree (a master's degree or doctorate) is required at the present
time for nearly all management consulting positions. The relevance of the field
of study to the particular field of consulting is considered, and in some cases
Box 32.1 Qualities of a consultant

Intellectual ability
ability to learn quickly and easily
ability to observe, gather, select and evaluate facts
good judgement
inductive and deductive reasoning
ability to synthesize and generalize
creative imagination; original thinking
Ability to understand people and work with them
respect for other people; tolerance
ability to anticipate and evaluate human reactions
easy human contacts
ability to gain trust and respect
cwrtesy and good manners
Ability to communicate, persuade and motivate
ability to listen
facility in oral and written communication
ability to teach and train people
ability to persuade and motivate
intellectual and emotional maturity
e stability of behaviour and action
independence in drawing unbiased conclusions
ability to withstand pressures, and live with frustrations and
uncertainties
ability to act with poise and in a calm and objective manner
0 self-control in all situations
flexibility and adaptability to changed conditions
Personal drive and initiative
e right degree of self-confidence
healthy ambition
entrepreneurial spirit
courage, initiative and perseverance in action
Ethics and integrity
genuine desire to help others
extreme honesty
ability to recognize the limitation of one's competence
ability to admit mistakes and learn from failure
Physical and mentaf health
ability to sustain the specific working and living conditions of
management consultants
candidates must have a specific educational background - for example, a

doctorate in psychology, or a degree in computer science. The consulting firm
is equally interested in the performance of the candidates during their university
studies, in particular in project assignments during which the students have
practised fact-finding, communication and other consulting skills.
Practical experience (a minimum of five to ten years) used to be required
by all consulting firms, but this has changed in recent years. Some important
firms have started recruiting up to 30 to 50 per cent of new consultants directly
from university or business school, particularly in special fields where it is
difficult to recruit people with required technical knowledge and experience
from business firms. The idea is that talented and dynamic individuals will
quickly acquire the necessary practical experience by working in teams with
more senior consultants. Executives in business and consulting firms tend to
agree that recruiting young consultants without experience is not ideal, but they
see no alternative.
The age at which candidates are recruited reflects the required education
and experience. The lower age limit is usually between 25 and 30 years. In many
cases there is also an upper age limit. It may be difficult for a senior manager or
specialist, who has reached an interesting position in terms of employment, to
switch over to consulting unless he or she is directly offered a senior position
with a consulting organization. This would happen only in special cases - for
example, if senior people have to be recruited from outside to start new lines of
consulting and head new divisions.
However, as a general rule, most consulting firms try to avoid recruiting
new staff at senior (partner) level. Consulting emphasizes certain work methods
and behavioural patterns, and some people would find it difficult to learn and
internalize these after a certain age and at a higher level of seniority. Also, it is
not easy to adapt to a firm's culture and style. The upper limit for recruitment
therefore tends to be between 36 and 40 years. Of course, if an individual decides
to open a private consulting practice, he or she can do it at any career point.
There are retired business executives and government officials who start
consulting at the age of 55-60. Some redundant managers have chosen to turn
to consulting, at various stages of their careers, rather than to start looking for
another management job in a saturated labour market.
Recruitment sources
There are two main sources: business enterprises and universities. But any
other source is acceptable, provided it gives the candidate the required kinds of
experience and skill. Many consulting firms advertise job opportunities in
business journals and management periodicals, thus opening their doors to any
candidates who meet the criteria.
A good source might be found in the client organizations, although under
normal circumstances a consultant must not use this source owing to conflict of
interest (see Chapter 6). But there are exceptions. A client may willingly auth-
orize a consultant to offer a job to an employee whose personal qualities would

be better utilized in consulting than in the present job.
When recruiting directly from universities and business school^,^ con-
sulting firms aim at getting the best students. They may interview 20 or more
candidates for one job position. In some countries, consulting careers with lead-
ing firms enjoy such a reputation that it is not difficult to get the best graduates
interested.
Interviewing and testing

Candidates for consultants' posts are asked to fill in the usual application
forms (personnel questionnaires), supply detailed curricula vitae, and provide
other evidence of professional work (articles, papers, a doctoral thesis, etc.).
References given by the candidate and other references identified by the
consulting firm are carefully checked for every candidate who looks interesting
(by correspondence, personal visits or telephone calls).
Applicants are subjected to multiple interviews: by the personnel officer,
a manager of the consulting firm, a supervising consultant to whom the candidate
might be attached after recruitment, and one or two other consultants. Both
structured and unstructured interviews are used; emphasis is on obtaining as
complete a picture as possible of the technical knowledge and experience of the
candidate and of personal characteristics which are essential to consulting.
In some consulting firms (more frequently in the United States than in
Europe) tests are used as aids in selecting new consultants. These include both
cognitive tests (designed mainly to measure knowledge) and psychological tests
(related to personality, attitudes, interests and motivation). If personality and
attitude tests are used, the evaluation of results should be made by a professional
psychologist.
Tests can convey useful information about the candidate, but their import-
ance in the choice of consultants should not be overrated. They sometimes
provide distorted information because of the ambiance in which the test is
administered, or because some tests that are widely used become well known
and hence less effective. In general, mature candidates do not like these tests.
Medical examination
A medical examination will be required, as is usual in the case of long-term
employment. This will take account of the life-style of consultants, which in
most cases is more demanding on the individual's physical and mental fitness,
resistance and endurance than many other jobs with a comparable technical
content.
Selection
As any new entrant to the profession is to be seen as a potential career
consultant who may stay with the firm for many years, the selection of those
who will be offered employment requires very careful evaluation of the appli-
cants, based on all information provided by each applicant, reference checking,
multiple interviews and, possibly, tests. Managers of consulting firms should
avoid making authoritative decisions on selection without consulting a number
of experienced colleagues: every case of recruitment warrants a collective
assessment.
32.3 Career development

The great diversity of career structures in consulting firms reflects their
different history, size, technical areas covered, consulting modes used, and even
personal preferences of the key decision-makers. But certain common patterns
tend to emerge from this di~ersity.~
In larger firms, the consultants progress through four or five principal
grades, or ranks, during their career. Smaller firms use only two or three grades.
In pursuing flatter and leaner structures, some larger firms have also reduced the
number of rungs in their consultants' career ladders.
Career progression implies that the consultant will take on more res-
ponsibility, which can be:
0 supervisory (team leadership, project management, supervision of assign-
ments);
promotional (management surveys, marketing, negotiation and selling of
new assignments);
managerial (managing organizational units in the firm; functions in general
and top management);
0 technical (directly performing assignments that require particularly
experienced and knowledgeable consultants, training of new consultants,
development of methods and practice guides);
0 various combinations of these four alternatives.
A summary description of a typical career structure is given in box 32.2.
Factors affecting careers

In a typical consulting career there is a significant relationship between
progression in rank and role. A higher rank means a more difficult role, and more
responsibility.
This relationship is not the same in all firms. Certain firms prefer a more
conservative approach, whereby precisely defined functions are assigned to each
rank in the consulting hierarchy. Thus, only a consultant of a higher grade would
be used in negotiating with a potential client. In contrast, many firms are
increasingly flexible in deciding what a consultant can and should do irrespective
of rank. For example, a consulting project can be managed by an individual in
any of the four principal grades (starting at the operating consultants level),
Box 32.2 Career levels in a consulting firm

First level: junior consultant (trainee, research associate, analyst, entry-level
consultant)
This level exists only in some firms. These firms recruit new consultants as
trainees (for 6-12 months), whose main task is to master the essential consulting
skills as quickly as possible.
Second level: operating consultant (resident consultant, associate, associate
consultant, management consultant, consultant)
The operating consultant is the front-line professional who does most of the
consulting work at client organizations. Every operating consultant has a special
field of competence, as a rule in one management function or in special techniques.
Normally the consultant would undertake a number of operating assignments in
varying situations, individually and as a team member, for a period of three to five
years before being considered for promotion to the next level.
Third level: supervising consultant (team leader, project manager, senior
associate, senior consultant, manager)
The main responsibilities of consultants promoted to this level include team
leadership (e.g. in assignments requiring expertise in general management and
involving several functional areas) and supervision of operating consultants (e.g.
a marketing supervisor may be in charge of four to six different assignments in
marketing). A consultant at this level also continues to execute assignments
directly if these require a more experienced person. Further responsibilities may
include training, management surveys, the marketing of new assignments and
maintaining contacts with clients.
Fourth level: junior partner or equivalent (principal, manager, survey con-
sultant)
Consultants at this level carry out a number of marketing and management
functions. Typically they spend most of their time in promotional work (visiting
clients, doing management surveys, planning and negotiating new assignments).
Some may be personally in charge of important client assignments, while others
head organizational units within the firm, or coordinate and control a number of
client projects.
Fifth level: senior partner or equivalent (officer, director, partner, managing
partner, vice-president, president)
Senior and top managementresponsibilitiesprevail at this superior level. These
include strategy and policy direction, and senior management positions in the firm.
Consultants at this level are also concerned with practice development, do
promotional work with important clients, and may be personally in charge of
complex and major assignments. In most firms they are the owners, but there are
firms where the junior partners of principals (the fourth level) also belong to the
group that owns the firm.
depending on the scope of the project and the capabilities of the individual. These
firms encourage young operating consultants to assume responsibility for more
difficult jobs and for managing assignments, and thus to expand their capa-
bilities, as soon as possible after joining the firm. Even consultants whose
experience is relatively short are expected to demonstrate project managers'
abilities and to be in a position to present the results of their work both to their
supervisors and to the clients.
Career advancement is based on achievement above all. As seniority is dif-
ficult to ignore, individuals who cannot demonstrate high achievement are
encouraged to move on. If they stayed, they would see their younger colleagues
advance more rapidly, which inevitably creates jealousies and leads to frustra-
tion. It is often emphasized that every young consultant should be regarded and
treated as a potential partner, and that career development to partner level should
not take longer than 6-12 years.
Fast career progression has a positive motivational effect on the consultants
and creates a dynamic and competitive working environment. However, a firm
that adopts fast career progression as a policy must be prepared to cope with
certain problems:
- if the firm's growth is fast enough, the number of senior positions grows
as well and promotions can be fast also, but if growth slows down or stops
promotions become difficult;
- some firms have therefore introduced special promotion schemes for
technically competent and experienced individuals for whom supervising
and managerial jobs are not available, or who are not interested in these
jobs;
- an alternative is reorienting the firm to more complex assignments and thus
increasing the demand for senior consultants - this enables the firm to
change the overall ratio of operating to senior consultants (for example,
instead of employing two seniors for every five operating consultants, the
new mix of projects would permit the firm to employ three seniors and
change the ratio from 5 : 2 to 5 : 3); this, however, is a sensitive issue of
the firm's economics and strategy, as the reader knows from Chapters 23
and 24.
Staff reviews
There are two reasons why systematic staff reviews (performance assess-
ment) are probably more important in consulting and other professional firms
than in other sorts of organization:
the career patterns described above as prevailing in consulting require
consultants to develop rapidly and be able to assume a widening range of
responsibilities -it is difficult to find work for consultants whose growth
potential is limited and who will not be able to keep pace with their more
dynamic and ambitious colleagues;
the operational environment in which a consultant works (individual role
in an assignment, team leader, immediate colleagues, client staff) changes
frequently, and an operating consultant may be a member of three or more
different teams within one year; performance evaluation must therefore be
organized for collecting and assessing all information needed for the
consultants' careers and professional development in this constantly

changing work environment.
Thorough evaluation of a new consultant is therefore started during his or
her initial training. First, several reports are prepared (see Chapter 33).
The second element in systematic staff evaluation is formal performance
reviews at the end of each assignment. These reports are prepared by the team
leader or supervisor, discussed with the consultant, and filed in his or her per-
sonnel record.
The third element is periodic performance appraisals, which take place in
most consulting organizations once a year. As a rule, they are more frequent in
the first two to three years of the consultant's career. They are based on reports
from all assignments and evaluate performance and competence in areas such
as:
0 the technical subjects covered;
0 consulting methodology and style;
0 teamwork;
0 team leadership, supervision, coordination;
0 marketing and client relations;
0 training and self-development;
special personal characteristics, manners, interests and talents.
Every periodic performance appraisal must aim to tell, openly and clearly,
both the consulting firm and the individual where to focus improvement efforts.
If an individual consultant ought to start looking for a career outside consulting,
a performance appraisal should reveal this and make an unambiguous recom-
mendation! It is unfair not to tell young consultants that their career prospects
are limited, thus creating unrealistic expectations and merely delaying a painful
decision.
Staff turnover
Not all consultants will stay with one firm until retirement. Staff turnover
figures are quite high in consulting: an annual turnover of 10-15 per cent is
considered as normal, a 5-10 per cent turnover as low. The reasons for con-
sultants' departure include:
- different views on how to do consulting;
- different views on advancement in careers;
- entrepreneurship (quite a few consultants employed in consulting firms
decide to start their own consulting practices);
- personal preference for other careers (business management, government
administration, university teaching, politics, etc.);
- insufficient promotion prospects;
- personality clashes.
Large consulting firms tend to have a higher staff turnover than small firms.
Many young professionals join these firms in order to gain diversified experience
in a relatively short time, without intending to stay in consulting. This is less
common in smaller firms. In addition, small firms try to be more adaptable to
the needs and aspirations of individual staff members even if this means
reorienting and restructuring the firm.
In a larger firm, most consultants who want to leave do so at the operating
consultant's level, before being promoted to the partner level. Voluntary depart-
ures at the partner (junior or senior) level are more the exception than the rule.
However, forced and negotiated departures of partners (before retirement age)
have recently become more frequent. In searching for leaner structures and
competitiveness in a more difficult business climate, quite a few consulting firms
have come to the conclusion that they cannot afford to sustain large numbers of
highly paid partners without undermining the firm's financial health and staff
morale.
A sole practitioner's career path

What, then, is a typical career path of a consultant who has decided to work
as a sole practitioner?
Most individuals who start their own consulting business do it, for reasons
already known to the reader, after some 8-15 years of practical experience in
functional or general management, or after having worked for several years for
a consulting firm. Those who go directly into independent consulting without
any previous experience usually set up in special fields where technical
knowledge acquired at university is in great demand and businesses are prepared
to use technical experts without practical experience.
A sole practitioner has no one who could promote him or her to a more
senior position. What normally happens is that, as he or she becomes more
experienced and ambitious, a sole practitioner is able to undertake more complex
and difficult jobs, and also to charge higher fees. Nevertheless, many sole
practitioners get into situations where important career choices have to be faced.
They could progress technically and take on more responsible assignments, but
this may require giving up personal independence and agreeing to work in a
team. One consultant will decide to expand the firm and start employing other
consultants. Another will join a larger consulting firm if a senior position is
offered. A third will establish a network and cooperate with other sole
practitioners. A fourth will reject all these alternatives and look for assignments
requiring high-level special expertise and a great deal of experience, but small
enough to be undertaken by an individual. The consulting business offers enough
opportunities to satisfy a wide range of different career aspirations.
32.4 Compensation policies and practices

Compensation policies and practices of management consulting firms are
based on similar principles to those in other firms in the professional service
sector. Compensation reflects factors such as:
0 the technical complexity and special requirements of consulting work;
the quality of individual talent;
the situation in the market for consulting services and professional staff;
0 the financial performance of the firm;
a the actual contribution of the individual consultant to the development and
financial performance of the firm.
Financial compensation is not regarded as the only way to motivate
consultants. Long-term motivation is emphasized by demonstrating to the new
recruits that in due course they will be promoted to the partner level and start
earning considerably more. The nature and the job content of consulting, as well
as exceptional learning opportunities and business contacts provided by con-
sulting assignments, are also strong motivational factors.
Entry-level and operating consultant compensation

At entry level, consulting firms compete among themselves and with other
employers for the best talents. As a result, salaries offered to new recruits tend
to be relatively higher than those offered by business firms in industry and
commerce. In the total remuneration package, the share of the base salary
exceeds 90 per cent and may attain the full 100 per cent. Hence, the role of
bonuses and profit sharing is relatively small, although some firms stress that
consultants at all levels should be eligible for some bonus.
The bonus paid to junior and operating consultants may be discretionary
and may depend only on the profitability of the firm as a whole. Alternatively,
the consultants may be getting a bonus which is in some proportion to the fees
they (or the team of which they are members) earn from their own clients, and
to new business that they are able to generate for the firm.
If individual fee earning and new business generation are strongly reflected
in the bonus paid, the message is clear -this is what the firm expects from you.
As a result, the young consultant will become less interested in helping other
colleagues, engaging in teamwork and spending time at activities for which no
bonus is likely to be paid.
Experience has shown that even a small and discretionary bonus is valuable
for any level of consultant. However, it should not be paid automatically, without
reviewing the consultant's work performance. It should not send wrong signals
on what the firm values most in the junior and operating consultant's behaviour
and performance.
Box 32.3 Minicase: Consultants' careers and compensation at INTRA

INTRA is a medium-sized German consulting firm (about 50 consultants) active
mainly in general and operations management. It has opted for a flat structure
(teamwork rather than hierarchy), democratic decision-making (key decisions are
made by the partners' assembly meeting four times a year) and individual con-
sultant self-control and self-motivation (every consultant is treated as a profit
centre). The firm's philosophy stresses professionalism, service quality, enjoyable
work and entrepreneurship. New staff members are recruited at junior level
(university plus two to three years of experience in business or teaching) and the
firm wants them to become fully productive in the third year. A new recruit knows
that he will be elected partner in five years if his performance meets the firm's
standards. After the second year with the firm this is already confirmed, or the
young consultant is encouraged to look for another career, and the firm helps to
find an interesting one.
Consultant compensation is based on the principle of relatively low fixed salaries
and a high share of profit calculated for each individual. An individual's income
(from client billing or priced internal services) is divided as follows:
- 50 per cent to the individual;
- 25 per cent to the marketing and supervising consultant(s);
- 25 per cent to the firm (contribution to common expenses).
An individual's annual income and cost structure may be as follows (in DM):
Income Costs
50 per cent Salary

of fees 150 000
Reimbursed travel Social
expenses 15 000 contributions 10 000
Travel costs 16 000
Car depreciation 8 000
PC depreciation 2 000
Total 165 000 Total 126 000
The positive balance of 39,000 is the consultant's profit share. However, as new
consultants enter a well-established setting, they start operating with a "debt" of
100,000 to the firm. This must be repaid before the consultant can really start
collecting the profit share. Normally this is done in two to three years and the
consultant starts getting his or her share of profit in the third or fourth year. However,
this "dividend" is actually paid only if the whole firm is profitable. Also, the total sum
of the positive balance of individual consultants computed as described above is
compared to the total gross profit of the company, and only a proportion corres-
ponding to what the company has actually earned over expenses is distributed to
consultants. Thus, the company as a whole cannot really make a loss. The same
system applies to every member of professional staff and to all activities. Manage-
ment jobs are assigned a value in days, e.g. 80 days per year for the managing
partner. Consultants can earn days for internal projects selected by the firm's man-
agement, for which they are paid fees covering their real costs.
Author: Karl Scholz.

Partner compensation
Partner compensation is a most complex and delicate issue of management
in professions; firms. The partners are in a dual position - they own the firm,
therefore they are entitled to a part of the profit, and they carry out specific
managerial, marketing or consulting jobs, for which they are paid a salary. The
prevailing formula used in partner remuneration practices tends to be base salary
plus profit share or bonus. For example, between 1986 and 1992 senior partners
in American consulting firms received bonuses amounting on average to some
21-32 per cent of their base salaries. The corresponding data for junior partners
were 14-23 per cent. In larger firms, the total senior partner remuneration is
about two to three times higher than that of an operating or senior c ~ n s u l t a n t . ~
Partners and other professionals in equivalent positions manage the firm
and play key roles in promoting the business. Their roles and performance ought
to be correctly reflected both in the compensation formulas used and in the actual
level of compensation. If partner compensation criteria disregard, or are in
conflict with, the firm's goals and policies, even the best strategic plan will be
nothing more than a piece of paper.
In small consulting firms with a few partners, simple income or profit
division formulas are quite common. If there are three partners in a firm, each
of them may be allocated one-third of the profits. The formula causes no
difficulties if within this small team there is a clear division of responsibilities
and an understanding of who does what for the development of the firm.
Probably the three partners will be able to speak frequently and openly about
these questions and change the focus by mutual agreement (eg. spend more time
on coaching a new associate or start looking for a new line of business). It may
be unnecessary and even contrary to the firm's well-established practices to
formally reflect such agreements in changed partner compensation.
The matter gets more complex with the growth of the firm's business and
the number of partners and consultants employed. There will be a need for a
compensation plan for partners, reflecting and supporting the firm's strategic
goals and priorities. As a rule, the plan will use a combination of a few criteria
(say three to five) which may be quantitative and measurable (e.g. the partner's
personal billings) or qualitative and judgemental (e.g. the partner's contribution
to junior staff coaching and training, or to building up the firm's image in
professional and client circles). Each criterion will be assigned a weighting.
Consistency between the criteria declared and actually applied will be essential
(see box 32.4, overleaf).
The practical impact of each criterion needs to be carefully considered.
Furthermore, periodical performance evaluation ought to be applied even to
partners in senior management positions, using a formula that stresses col-
lective assessment and is acceptable to senior professionals. For example, a
partner can be asked to prepare a self-assessment of performance using the main
criteria chosen by the firm. This is then reviewed in a compensation or
management committee and discussed with the partner in a committee meeting
or individually.
Box 32.4 Criteria for partners' compensation

Seniority
Widely used. Still an exclusive criterion in some distinguished professional
firms. Encourages partners to get used to a stable income level irrespective
of current personal effort and achievement.
Profitability of firm
Widely used. Encourages partners to focus on helping each other, promoting
teamwork and improving the whole firm's results.
Profitability of activity supervised or managed
Widely used. Puts a high premium on actual results of the partner's projects
(assignments) or of a unit for which the partner is directly responsible.
Personal billing
Widely used. Stimulates interest and initiative in doing individual billable
work. Also remunerates for a high personal billing rate (fee rate) reflecting
individual competence and image (which can be a separate criterion).
Personal selling
Encourages finding new clients and projects, or obtaining new work from
existing clients. Possible refinement: differentiating between new work of
routine (repetitive) nature, and projects providing for acquiring new com-
petencies, entering new sectors or similar.
Client satisfaction
Encourages partners to care for clients, assure high quality and manage
assignments to their clients' full satisfaction.
Training and development of consultants
Stresses transfer of experience and know-how, and the partner's role in
coaching and developing younger consultants.
Contributfon to the profession
Remunerates voluntary association and other work serving the profession.
Contribution to the success of others
Rewards collaborationand help to other units through sharing of information,
providing advice, giving leads, helping to negotiate new assignments, etc.
Contrlbution to technical developments in the firm
Rewards research, new method development, writing of practice guides and
other work enhancing the firm's knowledge base and competence.
Building up the firm's image
Encourageswriting of articles and books, reporting at conferences, member-
ship of government and mixed committees, etc.
Self-development
Stimulates the learning of new technical, managerial, communication and
other skills to enhancethe partner's competence and contributionto the firm.
General management
Remunerates for general management positions within the firm's structure.
Applying a fair compensation policy

In conclusion, it is useful to stress that a compensation policy impacts
strongly on the climate in the consulting firm. Consultants at all levels should
know what the policy is and how it is justified. They should have no reason to
suspect that the firm's management uses a double meter in applying the policy
to different firm members and different levels of the consulting hierarchy. The
purpose of compensation policy is to motivate the whole staff, not to promote
privileges and create tensions between groups and categories of consultants.
1 The first significant attempt to define these characteristics was made by the Association of
Management Consulting Firms (ACME) in the United States. See P. W. Shay: The common body
of knowledge for management consultants (New York, ACME, 1974). In 1989 ACME published a
revised edition of this first guide under the title Professionalprofile of management consultants:
A body of expertise, skills and attributes. See also Ch. 10 in G. Lippitt and R. Lippitt: The
consultingprocess in action (San Diego, California, University Associates, 2nd ed., 1986).
To facilitate contacts between consulting firms and students, the Harvard Business School
has established a Management Consulting Club. The School and the Club publish a periodical
career guide. See, e.g.,-~anagementco&ulting 1991-92 (Boston, ~assachusetts,HBS Press,
1990).
There is little published information which permits a comparison of the career patterns in
various consulting firms. Information from several North American firms can be found in the
consulting career guide of the Haward Business School, op. cit.
See ACME: ACME 1993 survey of United States key management information (New York,
1993), pp. 47-50; and idem: ACME I993 survey of European key management information (New
York, 1993), pp. 19-20.
TRAINING AND DEVELOPMENT
OF CONSULTANTS
The reader knows from the previous chapter that all entrants to the
consulting profession should have an excellent educational background and that
a great many will also have several years of practical experience. Yet consulting
has its own special training and development requirements that are additional to
whatever a new consultant may have learned at university, at business school,
and in former jobs.
There are four main reasons for this. First, consulting on how to do a job
is different from actually doing that job. A new consultant must develop a full
understanding of this difference and acquire the technical and behavioural skills
that are specific to consulting.
Second, the breadth and depth of technical knowledge required for advising
clients usually exceed what a new consultant has learned during his studies and
previous employment. A new consultant with five to ten years of business
experience may have worked in two to four jobs and experienced a relatively
small number of business and management contexts. This does not provide the
consultant with enough experience for giving the best possible advice to the
client. In addition, a new consultant may have to update and upgrade the
technical knowledge acquired during university or business school studies.
Third, most new recruits will join the firm without any prior education in
consulting per se. University and business school courses in management con-
sulting are rare. Those which exist are elective and attended by small numbers
of students.
Fourth, the new entrant is joining a consulting firm which, it can be
assumed, has chosen a particular consulting philosophy and strategy. This will
concern issues such as the objectives of consulting, the methods and techniques
used, the ways in which clients should participate, and ethical considerations.
There is a need to "indoctrinate" the new recruits to make sure that they will
learn the consulting firm's professional approach, and identify themselves with
its philosophy and culture.
However, the consultant's education can never end with the completion of
initial training. "Least of all can consultants afford to take the attitude that the
old ways of doing things are good enough. Probably no group is more severely
challenged by the information explosion than management consultants. Learn-
ing must be a lifelong job for consultants", wrote Michael Shays in 1983, when
he was President of the Institute of Management Consultants in the United
States1
How does a consultant learn? What is the most effective way of developing
a competent consultant? University education can provide the future consultant
with a solid fund of knowledge and some analytical tools. Excellent education
is necessary. However, like managers, consultants learn from experience above
all. This includes the consultant's own direct experience, on assignments in
which the task is to deal with problems and situations that provide meaningful
learning opportunities. In doing so the consultant also learns from the clients'
experiences. Furthermore, the consultant learns from other consultants -his or
her colleagues in a team, the team leader and other superiors, consultants who
worked for the same client previously, and other members of the profession.
Learning on the job, by practising consulting, is therefore the main and
generally recognized method of learning. This is how most consultants acquired
their proficiency in the past, and even at the present time some consultants
advocate that on-the-job learning is the only way of becoming competent in
consultancy. However, learning on the job alone is not enough and should be
supplemented (but not replaced!) by other learning opportunities, including
formal training in courses and workshops. This is the approach that we have
adopted in this chapter. Such an approach tends to be increasingly supported by
leading firms and professional associations of consultants.
33.1 What should consultants learn?

A remarkable diversity of personalities, clients, subjects handled, inter-
vention methods and consulting firms' philosophies is a prominent feature of
the consulting profession. Because of this diversity, there are probably as many
different paths to individual proficiency as there are consultants. As in other
professions, some individuals will learn faster than their peers and achieve higher
proficiency, owing to a happy concourse of a number of circumstances: talent,
drive, educational background, complexity and novelty of assignments exe-
cuted, and leadership and support provided by the consulting firm.
Training and development policies of consulting firms, and of the pro-
fession at large, tend to respect this diversity, offering an adequate range of
choices that permit the harmonization of learning with individual needs and
possibilities.
At the same time, the profession has aimed to achieve a necessary minimum
of uniformity and standardization, reflecting the common and prevailing needs
of consultants at various stages of a typical professional career. Leading
consulting firms and professional associations have devoted a lot of energy to
these questions. As the profession is a young and rapidly evolving one, and
distilling common needs and principles from constantly changing diversity is
not easy, the task is far from being completed. Nevertheless, some useful guid-
ance and support materials, outlining the consultants7professional profiles and
common knowledge base, are a ~ a i l a b l e . ~
Elements of consultant competency

Generally speaking, a consultant's competency can be described in terms
of personality traits and aptitudes, attitudes, knowledge and skills. These
elements of competence are interlinked and influence each other.3
Personality traits and aptitudes were mentioned in the previous chapter in
discussing recruitment criteria. Traits determine how a person will react "to any
general set of events which allow the trait to be e~pressed".~ Thus, traits define
a typical thought pattern and resultant behaviour characteristic of a person in a
variety of situations. Examples of personality traits are: propensity to take
initiative, ambition, flexibility, patience, self-confidence, shyness, and the like.
Examples of aptitudes are manual dexterity or linguistic ability.
Attitudes are a person's feelings for or against certain issues, and therefore
they reflect values that a person holds. They concern matters of human pre-
ference and result from choices between competing interests. Examples of
attitudes or values are preference for oral before written communication,
tolerance of other people's religious beliefs and cultural values, or preference
for having people of certain nationalities or technical backgrounds as direct
collaborators.
Knowledge is retained information concerning facts, concepts, relation-
ships and processes. It is useful to distinguish between general and specialized
knowledge. In consulting, general knowledge concerns economic, social,
political and cultural processes, institutions and environments that constitute a
general background for consulting interventions in specific organizations or
systems. There are then two sorts of specialized knowledge. The first area
concerns the object of consulting, i.e. the consultant's special sector and/or
technical area of intervention. Examples of sectors are manufacturing, banking
or insurance, while examples of technical areas are marketing, production
organization, job evaluation or corporate strategy. The second area of knowledge
concerns consulting per se - its principles, processes, organization, methods
and techniques.
Skills are the abilities to do things: to apply knowledge, aptitudes and
attitudes effectively in work situations. Skills too can be broken down into
several groups. Some of the consultant's skills will be generic, e.g. social and
cultural skills. Other skills will be common to consultants and their clients
(managers and entrepreneurs) using consultants. The difference will be in the
required breadth and depth of mastery of certain skills. Probably the consultant
will be more skilful in interviewing and providing advice than a typical manager,
but may lag behind managers in the skills of organizing, coordinating, mobiliz-
ing people or speedy decision-making. There are, then, the skills that are parti-
cular to consultants, advisers and other helpers whose job has been described as
"getting things done when you are not in ~ h a r g e " These
.~ professionals have to
be competent in assessing problems and opportunities of organizations for which

they are not responsible and where they have not worked, developing and pre-
senting proposals, providing feedback and reports to decision-makers and their
collaborators, and so on.
The difference between the content and the level of competency is signi-
ficant. Thus, various elements of managing consultancy projects (assignments)
are listed among key consultant skills and components of their body of
knowledge. However, there will be a difference in required level of this com-
petence between an entry-level consultant and a partner supervising several
major
.
projects.
. .
This difference will have to be duly reflected in training
programmes for various levels of consultants.
Box 33.1 Areas of consultant knowledge and skills

Orientation to management consulting
a Nature and objectives of consulting; consultants and clients; consulting
and change
a Basic consulting styles and approaches
a Types of consulting services and organizations
Consulting and other professions
a Management consulting as a career
a Organization of the profession
a Professional ethics and conduct
Historicaldevelopment, present positionand future perspectives of consulting
Overview of the consulting process
a Framework and stages of a consulting assignment (project)
a Entry
a Diagnosis
a Action planning
a Implementation
a Termination
Analytical and problem-solving skills
a Systematic approach to problem solving in management and
business
a Methods for diagnosing organizations and their performance
a Data collection and recording
a Data and problem analysis
a Techniques for developing action proposals
a Creative thinking
Evaluating and selecting alternatives
a Measuring and evaluating project results
Behavioural, communication and change management skills

Human and behavioural aspects of the consulting process and the consultant-
client relationship
The client's psychology
Behavioural roles of the consultant and the client
Techniques for diagnosing attitudes, human relations, behaviour and manage-
ment styles
Techniques for generating and assisting change in people and in organi-
zations
Managing conflict
Communication and persuasiontechniques
Teamwork and the conduct of meetings
Using training in consulting; assessing client training needs; designing
training programmes
Management and staff training concepts and techniques
Courtesy and etiquette in consultant-client relations
Effective report writing and presentation
Marketing and managing assignments
rn Principles of marketing in professionalservices
rn Marketing approaches and techniques
rn Consultant selection criteria and procedures
rn Proposals to clients (planning, preparation, presentation)
rn Consulting contracts and their negotiation
rn Fee setting
Structuring, planning and staffing an assignment (project)
rn Managing and controlling an assignment (project)
rn Reporting to the client and to the consulting firm
Managing and developing a consulting firm
rn Considerations in establishing and structuring a consulting firm; legal forms
rn Economics and strategy of a consulting firm
rn Governance, organizational culture and management style in professional
firms
rn Recruiting, developing and remunerating consultants
rn Financial management
rn Operational management and control; performance monitoring
rn Quality assurance and management
rn Professional responsibility and liability
rn Informationtechnology in professionalfirms
rn Internal administration and office management
A body of consultant knowledge and skills

In Chapter 6 we referred to a "body of knowledge" -a listing of the areas
of competence of a mature and experienced management consultant. As a rule,
such a document will indicate common threshold competences, not those
required for doing a particular job and achieving superior performance. In com-
piling their body of knowledge, several national institutes of management
consultants and the International Council of Management Consulting Institutes
(ICMCI) pursued certification as the main criterion in deciding what to include:
the body describes competences to be mastered by consultants wishing to be
certified (accredited) by one of the national institutes.
It is useful to refer to a complete text of a body of knowledge in designing
a training programme for consultants. However, it is important not to forget that
these documents are not intended to lay down the scientific foundations of
consulting as a field of learning. The reader may well conclude that, in his or
her particular context, other topics should be covered in training, or the topics
listed should be grouped and presented in a different way.
Irrespective of differences in terminology and layout, the principal areas
covered in a common body of consultant knowledge will normally be close to
those outlined in box 33.1, above. The multidisciplinary nature of the science
and the art of consulting is obvious, as the topics listed draw from sociology,
psychology, statistics, economics, management and organization theory, and
other disciplines. Some topics are confined to the description of good or best
experience without aiming at scientific analysis and theoretical justification.
Substantive area of management and business expertise

In current consulting, training and development in the substantive areas of
the consultant's expertise are becoming ever more important. There are several
reasons for this. New recruits may have an excellent technical background but
a rather narrow perspective and limited knowledge of the business, management
and social environment. While progressing in their careers and accepting more
complex assignments, many consultants need to master new areas and widen
their knowledge base in addition to their original background and main area of
competence.
Another reason is the extremely high speed with which management
concepts and techniques emerge, gain importance and popularity, and become
obsolete -to be replaced by other concepts and techniques in many cases. This
race for originality and novelty forces consultants to be always fully up to date
and well informed. While it is not easy to recognize the difference between
essential state-of-the-art developments and passing fads, a management con-
sultant cannot really afford to answer a client enquiring about a new technique:
"Never heard of it", or "You can ignore it, it's not important to you".
Furthermore, information and telecommunications technology is omni-
present and rapidly changing in all sectors and functions of management. Train-
ing and retraining in IT and its management applications has therefore become
a normal part of any consultant development programme.
Consultants who specialize sectorally need to keep abreast of sectoral
developments, including sector-specific technologies, principal products, lead-
ing producers and distributors, competition, restructuring of firms, economic
trends and prospects, employment and social issues, environmental considera-
tions and the like.
Consultant development matrix

The consultant development matrix in figure 33.1 (overleaf) gives a rough
idea of how training needs change in the course of a typical consulting career.
To simplify, three stages in the career are shown (initial, advanced, managerial).
Between these stages, there is a shift in emphasis from basic, operational and
methodology issues, dominating initial training, through assignment (project)
marketing and management, to firm (practice) management and development.
The table also shows that owing to the rapidly changing state of the art in
consulting, every area requires some updating at all levels of the hierarchy.
Impact of the firm's strategic choices

Finally, remember that in Chapter 24 we stressed the close relationship
between the consulting firm's basic strategic choices, and the training and
development of its professional staff. Although some common basics have to be
given to all consultants, normally firms do not develop their staff to make them
more competent in general terms, but to fit the firm's particular profile and to
understand and implement its strategy. Strategies can be very different, and so
will be training policies and programmes. For example, firms engaged mainly
in the development and installation of management systems will provide a great
deal of formal and structured staff training in the design and application of these
systems. Firms practising action learning and process consulting as their
principal intervention technologies will put more emphasis on behavioural,
communication and human resource development approaches and techniques.
33.2 Training of new consultants

Objectives of training
The overall objective of an initial training programme for new consultants
is:
To ensure that the consultant has the ability and confidence to carry
out assignments in his or her field of management.
As consulting is not easy, initial training must explain and demonstrate

this, but at the same time provide enough guidance for new entrants to start their
first assignment confident of their ability and enthusiastic in their determination.
Figure 33.1 Consultant development matrix
Areas covered
1.3 Related areas
The overall objective quoted above can be broken down into four sub-
objectives, as follows:
1. To ensure that the consultant can investigate an existing situa-

tion and design improvements.
This requires the ability to gather information and analyse it critically, to

identify all aspects of the problem, and then to design practical improvements
using imagination and creative ability.
2. To ensure that the consultant can develop a collaborative rela-

tionship with the client, gain acceptance of the proposed changes,
and implement change satisfactorily. I
The ability to make contacts with people easily, an understanding of factors

stimulating or inhibiting change, a sound knowledge of the techniques of com-
munication and persuasion, and good interaction with people during implemen-
tation, are vital parts of a consultant's armoury. They are stressed and practised
during initial training.
3 . TO ensure proficiency in the consultantk field or discipline. 1

This includes knowledge of the technical aspects of the field, some of
which consultants may not have encountered in their previous career, and the
ability to apply them to a client's problems. At the same time, consultants must
be able to see the problems of their particular functional field in the broader
context of an overall management strategy, and relate them to other functional
areas and to the environment in which an enterprise operates.
4. To satisfy the management of the consulting firm that the con-

sultant is capable of working independently and under pressure to
the required standard.
It would be unrealistic to require new consultants to be able to tackle any

difficult assignment immediately after training. Nevertheless, by the end of the
initial training period they must have demonstrated their ability to handle a field
assignment. At the same time, a systematic evaluation of the trainees' perform-
ance should give the firm enough information about the strengths and weak-
nesses of new colleagues for the team leader to be able to help them by proper
guidance and coaching during the first assignments.
Patterns of initial training

The design of an initial training programme depends on many variables,
including the specific needs of individual trainees and the resources and policies
of the consulting firm. The practices of consulting firms vary. There is a broad
range of initial training programmes, from precisely planned and structured
programmes to totally informal training of undetermined duration. It is not the
purpose of this chapter to prescribe one particular pattern for all conditions.
There are, however, certain principles which should be reflected in any pro-
gramme for new consultants, and also certain patterns which have given good
results in varying situations.
Individualization. New entrants have different backgrounds in terms of
knowledge and experience, and different personal characteristics. There should
be no uniform initial training programme, although some elements of initial
training will be given to every new consultant. We will show below how the
training programme can be individualized without becoming too difficult and
expensive for the consulting firm to organize.
Practicality. Some aspects and methods of consulting can be explained
and simulated during a course, but most of the training has to take the form of
practice in carrying out the various steps of a consulting assignment and in
interacting with clients, under the guidance of a senior consultant. The pro-
gramme must include both the observation of experienced consultants in action
and a direct execution of practical consulting tasks.
Stretching the trainees. The programme should demonstrate that consult-
ing is demanding in time, effort and brainpower, so that trainees are under no
illusion about the responsibilities and performance standards they have accepted
in their newly chosen profession.
Length of programme. Although it could be argued that new consultants
will need several years of experience to become fully competent and able to
operate with a minimum of guidance and supervision, it would be impractical,
and psychologically unsound, to maintain new consultants in the category of
trainees for too long. Assuming normal conditions of recruitment, the period of
initial training would not exceed 6 to 12 months.
Coaching. The new consultants' learning will be strongly influenced by
the nature of the work assigned to them and by the behaviour of their supervisors
and other senior colleagues. Therefore professional firms in consulting and other
fields make their partners and other seniors personally responsible for the
development of their younger and less experienced associates. Most of this
development is done informally, at work, by discussing technical, behavioural
and other relevant issues.
Basic components of the training programme

An ideal programme of initial training will have three basic components:
- training courses for new consultants;
- practical field training at client organizations;
- individual study.
A training coursefor new consultants will cover those aspects of consulting
which have to be given to all trainees, and can be dealt with in a classroom
situation, using a variety of training methods as discussed in section 33.3, below.
As a rule, this will be a full-time residential course and its total duration may be
between 2 and 12 weeks. Large consulting firms can afford longer courses, and
hold them at their own headquarters or training centres. Small firms may have
to send their new members to an external course for management consultants,
complementing such a course by short workshops dealing with their specific
policies, work concepts and issues.
Field (on-the-job)training is intended to develop a range of practical skills,
demonstrate consulting in action, and mould the trainees' attitudes towards their
new profession on the basis of personal first-hand experience. It should provide
opportunities and time for improving characteristics such as good judgement,
analytical and problem-solving ability, interpersonal relations, and ability to
communicate and persuade. The training programme will also aim at improving
other qualities such as self-confidence, integrity and independence. In planning
this part of the training the consulting firm enjoys great flexibility, provided that
it has enough clients willing to receive newly recruited consultants, and ex-
perienced consultants who have the time, ability and motivation to train and
coach new colleagues.
Whether the trainee's time spent at a client organization should be charged
to the client is a delicate matter which should be frankly discussed with clients,
without imposing arrangements that clients would accept reluctantly. In examin-
ing the curricula vitae of consultants proposed for an assignments, the client will
easily identify new recruits with no or little consulting experience. He will wish
to be informed not only about these new consultants' capabilities and usefulness,
but also about financial arrangements. While it is justifiable to ask clients to pay
some fee if a trainee's work produces tangible results, it is neither reasonable
nor fair to expect individual clients to bear directly the cost of training new
consultants. This should be a general overhead in the consulting firm's costs. A
compromise solution may be found by charging a reduced fee, or a fee paid for
a part of the trainee's time. The same applies to the trainer's time -if the trainer
is an operating consultant, time spent on guiding and coaching trainees should
not be charged to the client.
Assignments for which the client will be charged a flat fee may provide a
more favourable training ground than if the fees are time based. The client who
knows that the fee will remain the same irrespective of the number of consultants
used and time spent will feel more comfortable about the use of inexperienced
consultants in a project team.
Individual study is another component which provides for flexibility of
training. A new consultant can fill some knowledge gaps by reading professional
books and articles, final assignment reports, operating manuals and other doc-
umentation.
In an ideal situation these three components of the initial training may be
combined and scheduled as follows:
first (introductory) part of the course for new consultants (say between two
and six weeks);
field training (length as necessary and feasible);
second part of formal training (say one to six weeks), including one or
more specialized seminars andlor workshops on operating methods, and
familiarization with technical services, people and documentation at the
consulting firm's headquarters;
field training continues as appropriate;
no specific period is reserved for individual study - this will be done in
parallel with the course and with field training (the consultant may have to
make allowance for many overtime hours).
A consulting firm may, however, find it impossible to follow this schedule
for various practical reasons: the number of trainees may not warrant an in-house
course, or the firm can only afford a short introductory workshop for new
entrants. The training task may thus become more difficult for everybody con-
cerned and a new entrant will have to pick up much more through individual
study and by observing other colleagues at work.
The trainer's role

During recruitment and selection, new consultants meet senior people in
the organization only for a short time. Thus the trainer is the first member of the
organization whom new consultants get to know well. He sets an example of
how a consultant behaves, and how he achieves results largely without the auth-
ority to impose his ideas. The trainer therefore plays an important part in
developing the characteristics that differentiate consultants from managers,
executives, accountants, auditors or researchers. Apart from instilling knowl-
edge, the trainer sets the tone for new consultants in their work with clients, and
helps them to identify with the consulting firm's philosophy and culture.
The head-office trainer is a senior person with wide experience of
consulting and training. He or she has overall responsibility for the training of
new consultants, including the programming of field training. He or she is in
charge of the central training course for new consultants and will personally give
a number of sessions in the course.
In a training course for consultant induction, each trainee is viewed as an
individual who will spend much of his or her time as the sole operating consultant
on an assignment. Behaviour within the group and ability to join in the common
cause are also noted. So are the trainee's reactions to the problems and ideas
discussed during the course. The trainer does not take a teacher-and-pupil
attitude and the atmosphere in the course room is not that of a schoolroom. This
point may seem obvious, but a trainer also has to learn to do the job for the first
time and may start by being something of a pedant. A trainee should find the
trainer a good friend and counsellor on whom he or she can rely at any time for
guidance and help.
Field trainers are operating consultants or team leaders working with
clients. They are already practising in the field in which the new consultant will
operate, and arrange for him or her to gradually take over a part of the
assignment. They too must have training and coaching capabilities, be
sympathetic to the needs of the new consultant, and be able to impart enthusiasm
for working with a client. The field trainer develops a very special relationship
with the new consultant. As the two of them will be spending some evenings
together, a bond of friendship is usually born, and this may persist for many
years after training is completed.
Evaluation of training
New consultants' progress in training is carefully watched by those in
contact with them and a series of reports is issued. The purpose is to ascertain
whether the training is achieving its objectives, propose corrective measures
(extension of the training programme, inclusion of new subjects for individual
study and the like), and gather information on the strengths and weaknesses of
new members of the firm (this is invaluable to those who will supervise their
first assignments). Needless to say, evaluation also helps to improve the training
policies and practices of the consulting firm.
Many consulting firms use a system of confidential reports in which the
trainers (both at head office and in the field) give their personal appraisal of the
trainee.
At least two reports are required: one at the end of the induction training
course and one at the end of field training. Additional reports may be required
if the initial training is broken down into several assignments involving different
team leaders, or if the length of field training warrants interim progress reports.
The reports (see an example of a report form in figure 33.2, overleaf)
evaluate the new consultant under a number of headings. The assessments are
usually on a numerical scale with supporting comments and examples. The scale
can use a range of numbers or letters, a common system being a five- or three-
point scale, as follows:
2. Very good B. Satisfactory with reservations

3. Standard C. Unsatisfactory
4. Poor
5. Unsatisfactory
The standard against which the new consultant is measured is the standard
expected by the firm of operating consultants on their first assignment. The
question to be answered is: "On present showing, will he or she be ready to
operate at the end of the training?" Consistency of interpretation of the standard
by the central trainer, field trainers and supervisors derives from their common
experience and their knowledge of current operating requirements.
The trainers review with the trainees how they are progressing, informally
during work and training sessions, and in formal discussions which are held
when an evaluation report is prepared. New consultants must be told of their
strengths, weaknesses, and any other aspects of their work.
Figure 33.2 Training report form

TRAINING REPORT Report number Date
(confidential)
Trainee Trainer
Supervisor Client
Type of report Interim report Head office training

Final report Field training
Reporting Starting date Finishing date Duration in weeks
period
Description of work performed
Evaluation A - satisfactory
(mark X in the appropriate column;
comments are required if marked
other than satisfactory) I B-
satisfactory with reservations
C - unsatisfactory
Comments
I. Personal attributes I
Intellectual capacity
Professional conduct
Physical appearance and bearing
Initiative and energy
Person-to-personcommunication
Social behaviour
II. Technical qualities (general)
Diagnostic skills
Preparing suggestions
Techniques of introducing change
Verbal reporting
Written reports
Ill. Specific functional or
sectoral skills
- 33.2 (cont.)
Figure
Evaluation A B C Comments
IV. General observations
Attendance and punctuality

Course contribution (as individual) I I I I
Course contribution (to group work)
Contribution to field work
Meeting set deadlines
Speed and accuracy
Overall assessment by the trainer
Supervisor's comments
Recommendationsconcerning first assignments and future training
Other comments or decisions

In addition to these discussions, senior members of the consulting organi-

zation meet with new consultants during training. Apart from giving all the
participants an opportunity to talk about the work and progress, these meetings
ensure that new consultants become fully integrated members of the firm. They
show that management is interested in the new consultants, aware of their
progress, and making plans for their assignment after completion of training.
The importance of open criticism and frankness need hardly be stressed.
Both the future effectiveness and life of the consulting organization, and the
long-term career prospects of new consultants, depend on the excellent pro-
fessional work of each individual. Any doubts about a new consultant's ability
are not hidden, but are discussed with him or her and with the supervisors. If the
doubts cannot be resolved by the end of the training programme, a decision is
required on whether the new consultant stays or terminates employment. On
balance, termination of employment at this early moment may be the better
choice, both for the new consultant and for the organization. However, an early
termination can be an exception if the initial selection of candidates is carried
out in a competent manner.
At the end of the initial training programme it is useful to draw conclusions
on the further training needs of the new consultant and on the best ways of
meeting them (by giving preference to certain types of assignments at the
beginning, by further individual study, by attaching the consultant to team
leaders chosen for their particular qualities, etc.).
The design and execution of the training programme also require evalua-
tion. Trainees may be asked to comment on the course in the usual way. These
can be general or specific comments on the content of individual exercises and
the performance of each trainer. Care is necessary to preserve confidence
- trainees may be reluctant to openly criticize their current or potential future
superiors. However, the feedback to individual trainers can spur them to improve
their sessions.
Comments and criticism may be obtained from senior consultants res-
ponsible for the early assignments. They may find the new consultants lacking
in specific skills; these deficiencies may be due to omissions, or poor coverage
of certain subjects, either in the initial head-office training course or during the
field training. New consultants should also be asked, both during and after field
training, whether they found the practical preparation for the first assignments
adequate.
33.3 Training methods

Training course methods
The training of new consultants uses a variety of training methods, with
emphasis on participative methods, and on those where the trainee can adjust
the pace of learning to individual capabilities.
Box 33.2 Training In process consultlng

Internal development programmes need to draw on knowledge in such fields
as industrial sociology, political science, organizational behaviour, psychology,
social psychology and interpersonalcommunication. But such programmes need
to emphasize skill more than knowledge, through discussion and role-playing
sessions in which the skills are acquired through practice, reflection, and experi-
mentation. The discussion should not be about what you should know, nor even
about what you should do, but about what you are doing, here and now, and about
what you have done and will be doing, in specific interactions with members of a
client organization. In other words, process-skill development sessions should
primarily consist of open discussion among colleagues of specific client case
situations, supplemented by role plays of actual and desired consultant-clientinter-
actions. The sessions should be led by someone expert at facilitating this kind of
experiential learning, who can bring to bear, when relevant, simple but powerful
behavioural conceptsto assist in understandingpast events and to stimulate useful
experimentation with new approaches.
The three most relevant skills to develop for an effective consulting process are,
in my opinion: diagnosing behaviour, listening, and behaving authentically.
Diagnostic ski/ is developed by examining and discussing what is taking place
within client organizations. These discussions develop hypotheses that can be
tested in subseauent client contacts. In such discussions and ex~erimentswith
different approaches, consultants may discover, perhaps to their discomfort, that
effective diagnosis of behaviour is often in part an intuitive and not just a logical
process.
Listening of a very special kind is an essential consulting process skill. Good
consultants learn how to listen with understanding to what is meant as well as to
what is said, to feelings as well as to facts, to what is hard to admit and not just
easy to say. There is no way to develop this skill except by practising it, with the
benefit of feedback from a friendly audience which has heard the same words and
observed the same non-verbal signals. It is easy to tell consultants how they ought
to listen and have them agree that this is desirable. But to help them to learn that
they do not listen as well as they think, and then to produce a worthwhile improve-
ment in this ability, in practice, requires aseries of carefullydesigned and effectively
conducted workshop sessions. It does not happen all at once.
Behaving authentically needs to be seen as an equally necessary skill. Con-
sultants needto be able to be themselves,to behaveaccording to their own values,
and sometimes to confront clientswith unwelcomefacts and opinions. Again, small
group discussions and role plays of actual experiences provide the best setting in
which to develop the skill of understandingoneself as well as others, and of usefully
and constructively expressing one's own point of view even when the other person
may not want to hear it.
Author: Arthur Turner.
Subjects which involve mainly the imparting of knowledge may require

some lecturing, but this should be supplemented by discussions, practical
exercises, case-studies and other techniques. In many cases, lecturing can be
replaced by the reading of texts (e.g. on the origin and history of consulting, on
types and specialization of consulting firms), or by using audio-visual learning

packages (e.g. videotapes). Subjects involving skill improvement require tech-
niques that permit practice. This can be done to some extent in a training course
by using properly chosen learning situations and exercises. Experience with
methods suitable to training in process consulting skills is summarized in
box 33.2 (page 699).
Case-studies can introduce the new consultant to various consulting situa-
tions and provide good material for discussion; the consulting firm may be in a
position to prepare its own case studies, or histories, from previous assignments.
Practical exercises can lead the new consultant through common con-
sulting practices, such as:
effective speaking and persuasion;
interviewing;
analysing company accounts and preparing ratios;
discussion leading and control;
written communication;
methods charting and work measurement;
designing systems and procedures.
Role-playing provides an excellent way of introducing consulting practice
into learning situations. It takes place in a controlled situation, i.e. in a classroom,
where mistakes are used to enhance learning and have no disastrous con-
sequences. For example, as a large part of a consultant's work on assignment
consists of presenting proposals to clients and their staff, it is useful to organize
role-playing exercises in:
- interviewing staff to obtain facts about an assignment problem and find out
about their expectations;
- dealing with awkward situations or complaints from staff about proposed
changes;
- persuading members of the client's staff to accept a new method of
operation;
- explaining to the client conclusions drawn from his financial reports;
- presenting an assignment report to the client;
- dealing with embarrassing questions from the client or members of his
staff.
Role-playing exercises need to be realistic, and test the participants under
conditions as near as possible to those found in everyday life. Feedback after
the exercise is essential. This suggests four requirements:
a trainee playing the part of a consultant;
other trainees playing client or other roles;
at least two trainees acting as observers, with a brief to watch for certain
features of the players' behaviour;
the preparation of thorough briefs for all participants.
Time is allowed for briefing the role-players and observers, and for the
absorption of the material including the preparation of any figures. After the
role-playing, observers comment and a general discussion leads to the identi-
fication of lessons to be learned. Aids such as tape recorders or closed-circuit
television may be used.
Field-training methods
In field training, the consultant learns mainly by doing practical diagnostic,
problem-solving and project work in direct collaboration and interaction with
other consultants and the client. As this is carried out in a real-life situation,
which may be very sensitive to errors and fauxpas, at the beginning the trainee
will be guided and controlled by the trainer in more detail than might be
necessary in another situation. It may not, however, be easy to find situations in
which new consultants could practise not only a few, but a wide range of the
techniques that should eventually make up their consulting kit.
Here again, feedback on what the consultant did and how he or she did it
is an essential dimension of training. The team leader or supervisor acting as
field trainer must provide this feedback, creating an atmosphere in which any
aspect of work and behaviour can be openly discussed without embarrassing the
new colleague. The whole assignment team may participate in such discussions.
Role-playing can be used to rehearse activities before the "live" show later.
In this form of role-playing, the new consultant and the trainer rehearse in the
office or at home in the evening, and are able to anticipate and correct snags.
In certain cases a whole real, not fictitious, consulting project can be
designed and used primarily as a training experience. This has been done in
several courses for consultants, as well as in various types of course for managers
and students of management. Such a simulation exercise can be very close to an
actual situation. Yet the differences should not be lost from sight: if the client
has agreed to a consulting project, but does not pay a normal fee for it, this may
affect the participation and attitudes of the client staff when working with the
trainee consultant.
33.4 Further training and development

of consultants
We know that in management consulting lifelong education is a must. This
idea is not new. Many consultancy firms have gained and maintained their
excellent reputation precisely because of their continual efforts to upgrade staff
competence.
Principal directions of consultants' development

Most staff development activities in consulting firms fall under one or more
of the following four areas.
Upgrading functional proficiency. Keeping abreast of developments and

becoming more knowledgeable and competent in his or her own field together
form the basis of an operating consultant's further development. Many training
and development activities in consulting firms are geared to this objective.
Mastering new fields. A consultant may learn new subjects complemen-
tary to his or her main field in order to broaden the ability to undertake assign-
ments touching on several management functions, perhaps with a view to
becoming an all-round consultant, able to lead teams of mixed functional
specialists, to act as adviser on general management problems, and to undertake
diagnostic surveys of business companies and other organizations. Another
reason for learning new subjects may be the consulting organization's intention
to become active in new technical fields. Many consulting firms prefer to transfer
their more dynamic consultants, familiar with the organization's philosophy and
practices, to these new activities rather than staff them with new recruits.
Upgrading behavioural and process-consulting skills. Experience has
amply demonstrated that initial training of a new consultant is just a first step in
developing the know-how needed to perceive, diagnose, understand and in-
fluence human behaviour in organizations. Further training of all consultants
(without any exception) therefore deals with the "how" of management con-
sulting as it relates to people, including effective client-consultant relations, the
consultant's role in organizational change, and the process-consulting skills
required for various situations.
Preparing for career development. This includes personal development
needed for the positions of team leaders, supervisors, division heads, partners
and other senior positions concerned with client relations, management and
business expansion. Career advancement carries with it the need to use a broader
approach and develop technical competence in several fields.
Organization and methods of further development

Certain features of consulting practice make further training and develop-
ment difficult to organize. Typically, consultants working with one firm in the
same discipline are geographically dispersed on individual assignments. To
arrange a technical discussion among specialists may require a special organi-
zational effort. Furthermore, the highly individualized character of many con-
sulting assignments encourages consultants to become individualists, and this
creates a constant problem in sharing work experiences with other colleagues.
Nevertheless, the profession also has many features which facilitate the
consultant's development. A consultant's energy and time are much less ab-
sorbed by routine matters and established procedures than those of a manager
involved in the same technical field. The consultant can approach every new
assignment as a challenging exercise where innovation is both possible and
desirable, and can thus refine his method almost continually. He is never short
of opportunities for the practical application of ideas and suggestions found in
the literature or other sources. Furthermore, a consultant learns a great deal from
any client organization, but to reinforce learning he must compare, evaluate,
generalize, conceptualize and try to apply a new, more effective approach to
successive assignments. He has to avoid the pitfall of forgetting that every client
organization and every assignment are unique, and mechanically applying past
solutions to new situations.
Clearly, most of the learning from experience, including the consultants'
own and their colleagues' experience, as well as the clients' experience, takes
place on the job: it is learning by doing and by observing how others do. It should,
however, be enhanced by other learning opportunities and approaches.
Professional guidance by senior consultants. Partners, supervising con-
sultants and team leaders, among others, are generally responsible for the
development of more junior consultants who report to them. They provide
guidance when assigning work, examining work progress and discussing
solutions to be proposed to clients. Such discussions can easily be broadened to
inform the operating consultants of experience from other assignments, or
techniques used by colleagues. A major feature of coaching by senior consultants
is that it should help operating consultants to develop their personal qualities
and communication skills. Informal discussions should be arranged within the
assignment teams on experience gained from joint work, and used for staff
development on a regular basis.
Workshops and conferences. Short workshops and conferences for pro-
fessional staff are organized in many consulting firms. There may be an annual
conference which deals with technical and methodological topics useful to all
consultants, as well as policy and administrative matters. Workshops and
seminars may be organized in functional divisions, on a regional basis, or in
other ways. There are also various external seminars on management and
consulting topics from which consultants might benefit. Such services are
available from consultants' associations, management institutes, and in some
countries also from private consultants who concentrate on training other
consultants.
Information to consulting staff. While dissemination of information by
itself does not guarantee training and development (e.g. information may be
ignored or misunderstood), it is a basic input for learning in the consulting
organization. A properly organized system of information and documentation
should supply operating consultants with facts and ideas which they should
know. Additional information may be forthcoming as a result of a consultant's
membership of a professional association. This can be a consultants' institute or
a specialized association in fields such as applied psychology, training, manage-
ment development, marketing or other.
Reading. Consultants have to acquire the habit of reading the main
business and professional periodicals, technical papers, important new publi-
cations and internal consulting reports relevant to their field.
Research and development assignments. Special project assignments,

such as developing a new line of consulting, or preparing an operating manual,
are excellent learning opportunities for senior staff members.
Training others. One of the best methods of self-development is training
other people. Consultants have many opportunities to do this: for the client's
personnel during assignments, at the consulting firm's training centre, as
supervisors of younger consultants during operating assignments, as part-time
teachers at management institutes and schools, or as speakers at professional
conferences.
Training for supervisory and managerial functions. Promotion to the
role of supervisor usually takes place after several years in an operating role.
Some experience of the role is gained by seeing seniors in action, and by guiding
new consultant trainees. Training on promotion is usually quite short and is
provided by experienced seniors who are good trainers. Training is given partly
in formal sessions at head office and partly with experienced seniors in action.
Head-office training and briefing require about three weeks, while coaching by
an experienced senior may extend over some months. During this time the
promoted consultant works largely alone, with only occasional guidance and
advice from a more experienced colleague.
Planning and budgeting

The diversity of individual consultants' career paths and training needs, as
well as the desire to be flexible in meeting current clients' requirements, make
it difficult to plan staff development and to observe what has been planned. Yet
some planning is useful.
Some consulting firms use indicative standards showing the amount of
formal training which, on average, a staff member would undergo in one calendar
year: for example, between 40 and 60 hours of formal training. A corresponding
budget can then be worked out, bearing in mind whether the training will be
arranged internally or externally. As a rule, the cost of training per staff member
will be higher in comparison to the cost of training per manager or staff member
in many other sectors.
Individual planning is even more important. It is useful to establish training
objectives which reflect career objectives and against which the consultant can
measure his or her progress. In particular, such training objectives should be
defined for the first years of operating, based on the evaluation made at the end
of the initial training programme, and the subsequent periodical performance
reviews. While some flexibility in deciding on participation in specific training
events will always be required, training must not constantly be put off in order
to cope with the current workload.
Motivation for consultant development

In consulting, more than in many other occupations, the individual bears
the main responsibility for his or her own development. The consultant's
professional development is self-development above all, and the results achieved
will depend mainly on a person's ambition, initiative, determination, per-
severance and intellectual capabilities. This is self-evident to the sole prac-
titioner, who knows very well that he or she takes full responsibility for his or
her own future. However, a member of a consulting firm working on jobs
assigned to him or her by management can also show a great deal of initiative
and interest in achieving his or her career goals and training objectives, and can
find a great many opportunities for improving competence.
Most consultants understand that to stop learning is equal to becoming very
vulnerable, less interesting to clients and an easy target for competitors. In-
variably, personal development and learning get high marks in rating consulting
firms' priority concerns. To many consultants as people, learning is a vital need,
a natural part of their lifestyle. There are, however, forces and constraints that
can hamper consultant development quite seriously.
A consultant's natural desire to learn tends to wane if he or she sees that
the firm is more interested in, and remunerates its staff better for, achieving
short-term objectives such as high personal billing and bringing in new clients.
In a similar vein, if the firm is keen to get more of any business, the consultant
will be discouraged from looking for assignments that provide good oppor-
tunities for learning something new, but are more difficult to negotiate and/or
execute.
If promotion and pay clearly favour other criteria (e.g. seniority or higher
management's personal preferences), this policy may have a negative effect on
self-development. To see senior partners who for years occupy the same
positions and collect the same pay cheques without any self-development and
performance-improvement effort is demotivating not only to younger con-
sultants, but also to other partners.
A poor choice of trainers can be equally damaging. This has happened in
those consulting firms where the trainers' jobs were given to those seniors who
were not so good at dealing with clients or managing operations.
Most importantly, all professional firms without any exception stress that
training and coaching the staff members assigned to them is a crucial res-
ponsibility of all professionals, including those in the highest management
functions in the firm. In practice, however, many senior professionals devote all
their time and know-how to firm management, business promotion and dealing
personally with important clients. This tends to be encouraged by the com-
pensation system, which may ignore, or allocate a small weight to, the senior
consultants' contribution to the development of other staff members. If this has
been the prevailing practice for years, it has probably turned into a cultural value.
Senior professionals who remember well that they "had to make it" without any
help from their superiors often think that the next generation ought to be treated
in the same way.
In summary, to be successful in consultant development, a consulting firm

has to achieve coherence between policy statements, strategic objectives,
resource allocation, current assignment management, organization of training
and staff motivation at all levels, starting with the newly recruited trainee and
ending with the firm's managing partner. Consultants must know what the policy
is and must be encouraged to comply with this policy throughout their career.
33.5 Options available to sole practitioners

To survive and progress in his or her field, a sole consulting practitioner
needs to continuously improve competence. However, a sole practitioner lacks
the knowledge base, training resources and interaction with colleagues available
in larger consultancies. Conversely, he or she enjoys more freedom and
flexibility in choosing clients, moving to new fields of intervention and deciding
about his or her own future.
There are forces that discourage sole practitioners from spending time and
money on self-development. Paradoxically, success and high earnings from
current business are the most dangerous enemies. A consultant who is in great
demand will be tempted to think that he or she is the best expert and that there
is no reason to worry about future earnings.
Other consultants complain that they lack time for self-development, are
too tired after a heavy working week, cannot concentrate on studying in hotel
rooms, or must use every free moment to look for new business. These reasons
may sound quite realistic and understandable. Yet they cannot justify the lack of
self-development in any profession.
If you are a sole practitioner, the following principal options are available
to you.
Self-assessment
From time to time, or periodically and regularly if you find it easier (but
at least once a year), you can take a short pause, sit back and think about your
career path:
- Are you getting closer to your goals?
- Are clients fully satisfied with your work?
- Are you satisfied with what you have been doing for your clients?
- What have you learned and applied since the last self-assessment?
- Do you feel tired, burned out and out of date?
- Have you once more continued to do the same without any perspective?
When assessing motivation for learning and self-development, it is essen-
tial to be honest with oneself. Ambitious professional goals and a strong will to
learn go hand in hand:
Are you motivated enough to work hard for your professional future?
Do you want to be one of the best experts in your field or are you merely
looking for survival in the business?
Networking
In the absence of large-firm professional environment and resources, a
single practitioner can draw a lot of benefit from networking with other
professionals who have similar concerns.
Informal contacts with other consultants and managers are the simplest
form of networking. Association work comes next. Associations are a useful
source of contacts, information and learning opportunities. An active participant
in association work can suggest and help to start new association activities and
recommend priority topics as themes for meetings, committees and workshops.
Business alliances with other independent professionals can be helpful not
only for finding new work and delivering projects that exceed the possibilities
of one consultant, but also for learning from others.
There is no networking without reciprocity: while you want to learn from
others, they are keen to learn from you! They will give if you give.
Looking for technically challenging assignments

Learning is encouraged and becomes a necessity if the consultant keeps
looking for assignments that are not a mere repetition of work done many times
before. This, of course, is more easily said than done if new business is scarce.
Yet it is an objective that can be pursued as a matter of deliberate personal choice.
Formal training opportunities

Short seminars and workshops are a useful form where sole practitioners
can update and widen their knowledge of management and business topics or
consulting approaches. Careful selection is required in order to avoid losing time
and money in training events that, because of their purpose and quality, are not
suited for consultants.
Preparing for certification

In several countries, professional institutes practise voluntary certification
of management consultants (see section 6.4). Preparing oneself for certification
may be a good opportunity for studying new literature on consulting and reading
about topics not usually handled in everyday work.
E. M. Shays: "Learning must be a life-long job for consultants", in Journal ofManagement

Consulting (Milwaukee, Wisconsin), Vol. 1, No. 2, 1983.
In designing training programmes for consultants, it is useful to refer to materials produced
by consultants' associations and institutes. In 1989, the Association of Management Consulting
Firms (ACME) in the United States published Professionalprofile of management consultants: A

body of expertise, skills and attributes, and Management consulting: A model course. This model
course is intended for university programmes in consulting, but it provides useful guidance for
other consultant training courses. In 1992, the International Council of Management Consulting
Institutes compiled its Uniform body of knowledge for management consultants, supplemented by
a paper giving definitions of topics in the body of knowledge. More recently (1993), the Institute
of Management Consultants in the United Kingdom produced The practice of management
consultancy: Training modules for consultants, intended for four levels in the consultant hierarchy
(analyst - consultant - engagement manager - practice manager). The suggested duration of
formal training needed to cover all topics in the modules is 60 days.
3 See R. E. Bovatzis: The competent manager: A model . for effective
.. performance
- . (New York,
Wiley, 1982), and M: ~ u b andr J. ~ r i k o ~ e n kDiagnosing
o: management training and d.&elopment
needs: Concepts and techniques, Management Development Series No. 27 (Geneva, ILO, 1989).
Boyatzis, op. cit., pp. 28-29.
5 See G. M. Bellman: Getting things done when you are not in charge (San Francisco,
California, Berrett-Koehler, 1992).
PREPARING FOR THE FUTURE
This is the final and concluding chapter of our guide. It is neither an attempt
to summarize the preceding 33 chapters, nor an exercise in futurology. We have
preferred to take a short look at the future prospects and challenges of consulting
by focusing on developments and trends that are already with us, or are likely
to emerge in the near future.
Two perspectives are of particular interest to those concerned about the
future of management and business consulting: the future developments and
opportunities concerning the environment and the markets for consulting
services, and changes in the profession itself.
34.1 The changing demand

The future of consulting as a sector of professional services is assured
thanks to the ever-changing nature of demand. The world of business, and its
technological, social and economic environment, are changing rapidly. Business
and government clients will face more and more challenges. To many potential
clients, turning to a consultant will be more than a pragmatic decision on how
to optimize the use of resources: it will be a necessity owing to the novelty and
complexity of the issues at hand, and owing to clients' desire to avail themselves
of the best expertise before taking important decisions.
At the present time, a relatively small part of all consulting work deals with
state-of-the-art issues of business and management practice. This part is likely
to increase, thus creating new service opportunities for consultants. Clients will
be increasingly sophisticated and able to handle, with their own resources, many
issues for which they used to turn to external consultants in the past. They will
prefer to work closely with consultants on issues that are new, difficult and risky,
and require a great amount of information, speed of analysis and action, an
interdisciplinary and intersectoral perspective, an innovative approach, under-
standing of social and environmental implications, and availability of special
expertise.
Box 34.1 Significant trends that will shape consulting

"The future of management consulting is tied not only to the future of business
but to global forces and trends on a much broader scale . . . and with a mandatory
interweaving of two primary thrusts:
- Technology: the 'hard' areas of computers, information, automation, cam-
munications, biotechnology, etc.
- Humanities: the 'soft' areas of informal management, self-determination,
changing personal values, motivation."
James H. Kennedy
"Four issues will shaDe the consultina industrv. Firms that can come to arbs
with them are likely to be among the largest and most successful: (1) technoibgy;
(2) global reach; (3) human capital; and (4) relationship management."
Ed Pringle
"Five objectives will be central to consulting's success in the 1990s: (1) building
tighter, more effective links between strategy and the implementing functions;
(2) creating workinglworkable global networks of effective practitioners; (3) driving
value-based principles into operating practices; (4) managing change and cultural
values; and (5) refocusing corporate organizations around core service activities."
Tom Doorley
"Which will be the strongest-growing service lines? There is little doubt that
amongst them will be: (1) human resources, including management training;
(2) information technology; (3) logistics; (4) sales and marketing; (5) environ-
mental consulting; and (6) strategy consulting.*
Ken Dawson
"To succeed internationally we as consultants will have to think internationally.
This means staying on top of developments - economic, financial, political and
social - that will affect our clients' enterprises around the globe. We need to be
proactive, advising and leading clients on trends worldwide that will affect their
businesses."
Jim Kielley
"Services in the general management area will have to be more tightly linked to
areas of specialized knowledge and experience. Beyond this, it is going to become
essential that consultants focus on emerging issues, particularly those caused by
public and private sector interaction. And this means they must learn new roles:
combining objective and professionalmanagementanalysis with greater sensitivity
to the social environment."
Tom Cody
Business Week has predicted that "in the next 10 to 15 years the leading
management consulting firms could well see their influence and power increase
exponentially. That's because the top consulting groups, almost all of them
American, probably control the deepest reserve of knowledge on how to manage
globally and build worldwide networks of information t e c h n ~ l o g ~ " . ~
710
Preparing for the future
In box 34.1, six observers of consulting give their views on significant

trends likely to shape the profession in the years to come. In these and all other
predictions concerning future demand there is a clear message. Although the
body of knowledge underlying the consulting profession has not been fully and
precisely defined and may remain largely undefined for a few more years, the
demand will be for consultants exhibiting high-level specialist knowledge and
able to demonstrate that they always keep abreast of developments in practice
and theory.
To say that the time of the consultant-generalist is over would be an exag-
geration, and it would contradict our statements about the need to understand
and handle interdisciplinary and intersectoral issues. However, to be merely a
generalist will not be enough. The general management approach will have to
be based on, and coupled with, excellent knowledge and expertise in one or more
special fields. Conversely, narrow specialists will be difficult to use as con-
sultants in management. Those specialists will be in great esteem and demand
who are modest and wise enough not to think that they are God's gift to the
human race, but to acknowledge that, used in isolation, their special knowledge
is of little use in dealing with the increasingly complex problems of business
and human organizations.
34.2 The changing geographical perspective

Towards a global economy
The current trend towards internationalization and globalization of the
world economy has already triggered off some significant developments in the
consulting sector. In future years, consulting practices will be more and more
international and global, and this trend will be reflected in developments such
providing consulting services to clients in other countries;

developing multinational consulting practices;
strengthening collaboration and forming alliances with consultants in sev-
eral countries;
recruiting consultants of various nationalities and cultural backgrounds,
and requiring the mastery of several languages;
using international consulting teams;
applying a multi-country perspective in dealing with business issues;
handling problems of international and intercultural management;
adjusting business and management approaches to various country con-
texts;
transferring business and management experience among countries, com-
munities and cultures.
In internationalizing their services, management consultants need govern-

ment support, mainly by lowering and removing barriers to free trade in services,
including free movement of information, money and people. Box 34.2 gives an
overview of current trends and efforts in this area. It should, however, be stressed
that no government and no international agreement has the power to remove
deeply rooted and often self-imposed barriers that are due to language, culture,
religion, local habits, social or ethnic prejudices, and fear of the unknown.
Management consultants keen to think and operate as internationalists must
learn themselves how to cope with these barrieis.
Box 34.2 Removing barriers to trade in services

To grow as an international service sector, consultants need freedom to operate
in foreign markets. Therefore they will greatly benefit from the resultsof the Uruguay
Round of the GATT (General Agreement on Tariffs and Trade) negotiations,
concluded by the 108 participating countries on 15 December 1993. The so-called
GATS (General Agreement on Trade in Services) foresees further liberalization of
international trade in services and urges governments to identify and reduce
barriers related to market access and national treatment.
For market access we are referring to issues such as maximum foreign
ownership restrictions, restrictions on establishing a local representation or
restrictions on choosing a legal form of business.
With respect to national treatment we are essentially talking about measures
or practices which restrict competitive opportunities for foreign service
companies. These cover the limited use of a company's title or logo,
discriminatory restrictions on the mobility and employment of foreign
personnel, an exclusion of foreign companies from government contracts, an
obligation to involve local consultants in projects,foreign exchange restrictions
or scope of practice restrictions applied to foreign consultants.
In assessing the real impact of GATS on consulting or other professional ser-
vices, the key will be found in the country schedule and the particular government's
willingness to bring local legislation and practice gradually into conformity with the
general principles of GATS. As of 15 December 1993, the effective close of the
Uruguay Round, 103 countries had submitted schedules of specific commitments
across the whole range of tradeable services, including in many cases manage-
ment consulting services. Subsequent negotiating rounds between member
countries will aim to eliminate or further reduce restrictions on trade in services.
Source: Information provided by Mario A. Kakabadse, World Trade Organization.
The North American market

Since the advent of consulting, the North American market has established
and maintained its leadership position. In 1992-93 its share of the world market
attained over 40 per cent, i.e. more than the share of the region in the world
economy. North American managers and administrators are used to working
with consultants and would turn to them in many instances where their counter-
Preparing for the tuture
parts in other regions would try to cope with the problems at hand with their
organizations' own technical resources. No wonder that most innovations in
consulting concepts and methods have their origin in North America.
This market will maintain its leadership position in both quantitative and
qualitative terms, and will contribute significantly to developments in the pro-
fession worldwide. It will, however, become less predominant. American con-
sultants will be increasingly looking for international work opportunities. They
will have to make a great effort to improve their understanding of other countries'
economies and cultures. Foreign consultants will be increasingly present, and
probably quite successful, in the North American market.
Management consulting in Europe

Western Europe on the one hand, and Central and Eastern Europe on the
other hand, are two distinctly different markets, although the first steps to their
rapprochement have been made.
In Western Europe, the consulting market can be estimated at some 27-
30 per cent of the world market. Its fast development in the last 20 years has
been fuelled by the dynamism of European economies and by regional economic
integration efforts. The gestation and the establishment of the European Union
(EU) have become factors of tremendous importance to the development of
consulting. Many barriers to trade in services that still persist in other countries
have been removed, or are about to be removed, within the EU. The integration
process, including significant changes in the competitive environment, has
created many demands for the assistance of consultants.
However, despite progress in regional integration the European consulting
market continues to be fragmented because of persisting differences in business
practices, languages, taste and local preferences. Most business people in France
prefer to communicate and collaborate with a French consultant, not an Irish or
a Danish one, and so on. Yet European integration is an irreversible process and
consultants will increasingly be able to regard the whole Union, with its current
and prospective members, as their market. Sensitivity to national values and
local cultures will remain important, perhaps more important than many of the
architects of Europe have foreseen.
In Central and Eastern European countries, the demand for information
and professional advice on management and business exploded in conjunction
with the return to a market economy, advancing privatization, and total restruc-
turing and modernization of the economies inherited from the command-
economy era. Since the beginning of the 1990s this has been the principal growth
market for management consultants, their new frontier. Yet by current inter-
national standards this market is still small because of limited resources, modest
experience with the use of consultants and an acute shortage of experienced local
consulting professionals.
The emerging local consulting profession has been very dynamic in several
countries of the region. It has attracted many individuals from research institutes,
universities, governments and state-owned enterprises. These people are able to
learn quickly, especially if they speak foreign languages and can interact with
foreign consultants and business firms. Some of them tend to overestimate their
real competence and underestimate the value of experience.
Western European and American consulting firms have been active in the
region, with mixed results. Some consultants have rightly taken a long-term
perspective, appreciating the imperfections of the current market and under-
standing that patience, service quality and adaptation to local conditions will be
key factors of future successes. Others have looked for easy earnings without
bothering to find out about the local clients' real needs, preferences, biases and
sophistication.
When foreign consultants started operating in Central and Eastern Europe
they were received as missionaries of free and modem business. It did not take
long for quite a few of them to spoil their image and be seen as smart money
makers. Therefore consultants who are seriously interested in the technically
challenging and potentially very large Central and Eastern European market
should adopt a highly professional approach, drawing lessons from mistakes
made by many colleagues at the outset.
In Central and Eastern Europe, management consulting is rapidly turning
into post-privatization consulting. Many new owners start realizing that pri-
vatization is a historical achievement and opens a new era of creative entre-
preneurship, but provides no guarantee whatsoever that every enterprise will be
well managed, dynamic and profitable. Consultants can seize this opportunity
to offer their expertise and know-how.
Finally, economic integration with the Western European economy is a
major programme objective of the region's business and political leaders. In
preparing for it, management consultants can play a key role, and obtain many
interesting contracts.
Management consulting in Japan

In Japan, business and government agencies tend to use external advisers
to a lesser degree than their North American and Western European colleagues.
This explains the relatively smaller size of the current market and the local
profession in comparison with other developed countries.
As regards the future, Eiji Mizutani has suggested that in Japan consulting
will grow for the following reasons:
clients are faced with fundamental changes in the business environment;
more companies are coming to accept the value of outside advice;
companies are beginning to reduce staff and are thus left with smaller
internal resources;
a growing number of new and smaller companies are entering the market-
place;
consultants will be called upon to build experience and skills in strategic
management;
consulting has come to be recognized as a good career for top talent out of
the universities and among mid-level executives;
clients will expect consultants to help them with a "scrap and build"
2
methodology to overhaul operations.
To foreign consultants, gaining access to the Japanese market will continue
to be difficult on account of traditions, cultural differences, communication
problems and other visible or hidden barriers.
The developing world

In the developing countries, services provided by both international and
local management consultants have been regarded as one of the inputs in
development - a way of injecting needed managerial and business know-how
in order to accelerate economic and social development. The bulk of consulting
services used to be provided as a part of various development projects and
programmes, and funded by international or national technical assistance
agencies. Technical assistance brought many foreign consultants to developing
countries and also provided a vehicle for the training of local consultants.
In the 1990s, the developing countries can no longer be thought of as
homogeneous consulting markets. In technical and business terms, the con-
sulting needs and opportunities in the rapidly industrializing countries are
already very similar to those in the economically developed world. In contrast,
the consulting markets and the profession in the less developed countries have
lagged behind, and are still struggling with the basic difficulties caused by
economic stagnation, low growth rates, resource shortages and a deteriorating
environment.
This, however, does not imply that management consultants should write
off the developing countries' markets. There is scope for expanding and
strengthening the local consulting profession using both technical assistance and
private business opportunities. The use of foreign consultants will continue to
be relatively expensive and should be increasingly confined to technically
difficult development projects and to assisting local consultants. The bulk of the
economies, including small and medium-sized enterprises and the social sectors,
constitute a promising market for consultants who have grown up in local
conditions, internalized the local cultures and become fully committed to their
countries' development.
34.3 Increasing professionalism in management

consulting
In thinking about the consulting profession's future, it would be short-
sighted to see only the changing markets and new business opportunities. It is
equally important to aim at improvements in the professional side of the service.
Since the Second World War, and especially since the 1960s, the growth
of consulting has been spectacular, to approach US$30 billion of annual rev-
enues worldwide in the 1990s. However, this figure is indicative of business
growth, not professional development. Although there have been ups and downs,
as a business sector consulting has performed brilliantly. Services such as new
management know-how, systems, information technology, human resource
development or organizational change have been selling extremely well not only
because there has been real demand for them, but also because consulting firms
of various sizes and profiles have been successful in marketing their services
and actually delivering the goods.
Because of these undisputable commercial successes some observers of
the consulting scene presume that there cannot really be any serious problem
with professional standards and quality. Clients choose freely and if they pay
the price, the consulting firm has passed the market test. Its service has been
certified by the market as wanted, relevant, useful and of satisfying quality. Why,
then, should someone outside the market-place worry about quality standards,
ethics, education, the organization of the profession and similar issues? Haven't
the successful consulting firms taken care of these issues by themselves?
There are four major reasons why the professional side of consulting will
require increased attention in the future.
The first reason is the need to protect the clients. We know well that
consulting services are intangible, complex and difficult to assess. In
professional services in general, the market test can never play the same role as
in the case of mass consumption goods. Yet even goods such as detergents or
ice-cream have to undergo tests and meet strict norms defining minimum quality
and environmental protection criteria before being granted access to the
market-place. In buying complex business and other technical services, clients
will increasingly need and request at least basic assurance of competence,
honesty, reliability, ability to complete the job, quality and fair pricing. The
market by itself does not provide such an assurance. The issue is not how to
protect large multinational clients who have already developed sufficient internal
competences for selecting and using professional advisers; the issue is how to
protect the myriad of smaller and medium-sized clients who need a consultant
from time to time and can be easily put off by one unfortunate experience.
The second reason is the need to protect the management consultants
themselves. Their image has been tarnished by firms and individuals who have
been shameless in selling services and making promises beyond their capa-
bilities. Many clients have paid for services of dubious value. A consultant who
feels and behaves as a professional does not want to be held responsible for
unprofessional behaviour of others. Yet this is what has been happening: in
clients7circles and among the general public there has been a tendency to throw
all consultants into the same bag, and regard all of them as people who want to
make easy money and cannot be trusted.
The third reason is the need to restore the unity and the balance between
the professional and the business side of consulting. Without this unity,
consulting risks losing its rationale and identity. In a sense, management and
business consulting has become a victim of its own success. The impressive
growth of consulting in the last three decades has not been without a price. Rapid
expansion, deregulation, tough competition between consulting firms and with
firms in other professions, the proliferation of new consultancies due to easy
entry, the merger-mania and the shortening of initial training and indoctrination
have affected professional standards. To many consultancies, business objectives
have become more important than professional objectives. To get more business
has become more important than to deliver a perfect service. These changes in
consulting have been very similar to those in other, relatively better-established
and better-organized professions. Mark Stevens wrote that for generations
accountants considered themselves "as professionals who happened to be in
business", while in the 1980s this view was reversed and since then they see
themselves as "businessmen who happen to be professionals".3 The same could
well have been written about consultants.
The fourth reason is the management consultants' interaction with other
professions, including trends such as growing competition for clients or the
clients' interest in obtaining harmonized services from advisers belonging to
different professions. To survive and maintain their identity in cooperating and
competing with other professional service sectors, management consultants
must excel in quality, integrity, a comprehensive and dynamic view of the
business, and a deep understanding of clients' human concerns.
In Chapter 6 we said that it is probably not too important to decide whether
management consulting can at this very moment be regarded as a fully developed
and regular profession. What is important are trends, and efforts to enhance
positive trends. In the management consulting sector, initiative to detect and
enhance positive trends (and indeed arrest negative trends) can be pursued at
three levels: an individual firm's level, the profession level and the user (client)
level.
The role and responsibility of a consulting firm and its management can
hardly be overstressed. The tone has been set by several industry leaders, who
have been able to define and consistently apply their own high standards of
professional conduct and performance. A large professional firm with a distinct
organizational culture and an excellent reputation may find it easy to promote
its own standards. Yet nothing but a temptation to gain easy business prevents a
small firm, and a sole practitioner, from thinking and acting in the same way.
The absence of generally accepted sectoral standards and the modest impact of
some professional associations are not an excuse for low standards in any firm.
Turning to the profession level, there is no doubt that consulting can and
needs to become better organized in most countries, and internationally. Con-
sultants' voluntary associations should become more visible and aim to increase
their impact. Probably there is no need for "one big voice", with a mandate to
regulate the whole profession, to use a term that has become popular in the
United States. There are differences among consulting firms as regards their
technical profiles, conception of professional service, and expectations from
their membership in voluntary professional organizations. There is no need to
force all firms and individuals to be members of the same professional body. Yet
there are common issues and common interests of the profession as a whole. For
this reason, the organizations of the profession must find an acceptable formula
for communicating with each other and working together in order to represent,
defend and educate the profession as a whole. An alternative is government
intervention: if the profession proves incapable of self-regulation, governments
may decide to step in and start determining what consultants must not do and
what behavioural rules they must observe.
The client circles can also make a significant contribution to the pro-
fessionalization of consulting. In most countries, the market for consulting
services has already turned into a buyer's market. Clients can learn how to
separate the wheat from the chaff or, as the German consulting association BDU
likes to put it, how to identify and ostracize "black sheep". Individual clients can
help by stressing professional standards, insisting on high-quality service and
rejecting consultants of dubious profiles and reputation. Employers' and industry
associations can help by cooperating with consultants' associations and by
teaching their own members how to become more competent and more
demanding in choosing and using professional services.
1 See BusinessWeek, 18 Nov. 1994.

2Eiji Mizutani in an address to the World Conference on the Future of Management
Consultancy, Rome, May 1993.
3 M. Stevens: The Big Six: The selling out of America S top accounting firms (New York,
Simon and Schuster, 1991), p. 22.
APPENDICES
APPENDIX 1
THE CLIENT'S TEN COMMANDMENTS
If you are a user of management consulting services, or a potential user, you

may wish to glance through this appendix. The Ten Commandments summarize, in
telegraphic form, the critical points (not a sequence of steps) of which you need to
be aware. Consulting produces good results if consultants are competent in serving
clients and clients in using consultants.
1. Learn about consulting and consultants!

2. Define your problem!
3. Define your purpose!
4. Choose your consultant!
5. Develop a joint programme!
6. Cooperate actively with your consultant!
7. Involve the consultant in implementation!
8. Monitor progress!
9. Evaluate the results and the consultant!
10. Beware of dependence on consultants!
-- --
Now, let us look at the meaning of each Commandment.
1. Learn about consulting and consultants!

Management consulting is a young but dynamic and rapidly developing
profession. You can be sure that you will find a consultant for any business or
management problem that comes to your mind. But who are these consultants? How
do they work? Are they really as good as one often hears? You want to get replies to
these questions. Don't wait until the last moment before recruiting a consultant! Find
out about consulting and consultants, and try to become a well-informed client who
knows the management and business consulting scene!
This book is also intended for clients. It describes how consultants operate (es-
pecially Parts I and 11, and selected chapters in Part Ill), market services (Chap-
ter 25), charge for services (Chapter 26), manage assignments (Chapter 27),
and assure quality (Chapter 28). Of course, you may like to see other publi-
cations on consulting (Appendix 11).
There are some special publications on the selection and use of consultants.
The ILO has published a companion volume to this book under the title How
to select and use consultants: A client's guide.
Reading a book is not enough. Speak with business friends, screen man-
agement and business periodicals, attend meetings of management and/or
consultants' associations, ask for information from these associations, be alert
to news on consulting.
Criticizing consultants is very fashionable. Make sure that you are informed
about such criticism, but don't judge the real value of consulting on the basis
of a few caustic articles.
It is essential to know who is who. Try to collect information on consultants
(firms and individuals) who may interest you: what is their speciality and
approach, for whom have they worked, what is their reputation, are their fees
within your reach?
Define your problem!

The purpose of consulting is to help clients in solving their management and
business problems. If you have no problem, you do not need a consultant. Therefore
you should be convinced that your organization does have a problem which warrants
a consulting assignment.
Define your problem as precisely as possible. What is or could go wrong? What
do you want to improve? Why do you need a consultant - are you sure that
you and your own people cannot solve the problem?
Look for new opportunities. Rather than correcting your past shortcomings
and errors, a consultant may help you to develop new business, tackle new
markets, mobilize new resources and increase your competitive edge.
If the idea of using a consultant comes from members of your staff who seek
your approval, ask them to be explicit and precise in defining the problem and
the reasons. Do not accept any superficial and vague justification!
Keep the definition of your problem open: the consultant will in any case make
his or her own diagnosis, and may show that your original definition was
biased, narrow or incomplete. The final definition of the problem must be
supported by both the client and the consultant.
Define your purpose!

The task of the consultancy will be to solve your problem, but you should look
at your problem from a wider perspective. What will be the purpose of resolving the
problem? What do you want to achieve? What will your organization gain?
722
Appendices
Your purposes should be formulated as specific objectives of the consultancy:

action (operational) objectives, and learning objectives.
Remember that consultants can intervene in various ways. Consider what you
want from the consultant in planning and implementing changes in your
organization. Information that you lack? Expert advice on your decisions? A
new information system? An improved organizational climate? Increased
production and sales? Higher profitability? Each of these choices will require
a different intervention method and a different volume of consulting services.
Your action objectives will reflect your choice.
Your learning objectives are equally if not more important. It has been said
many times that effective consulting helps clients to learn from their own and
the consultant's experience. Define what you want to learn and how you would
like to learn during the assignment. This will be your learning objective.
Write your objectives down, trying to be as precise as possible. Be flexible and
be prepared to redefine these objectives after having spoken with your
consultant or received his or her proposals, and even after having started the
work. Your consultant may help to redefine your objectives in your own
interest.
4. Choose your consultant!

To choose the right consultant is essential, but it is not an easy matter. It requires
information, an effective selection procedure, skill in assessing consultants - and
patience. Some risk is always involved - but a proper approach to selection will
minimize this risk. There are horses for courses, and your aim is to get the right
consultant for your organization and the kind of problem you have. You will have
to understand and trust each other and enjoy working together. Remember: it is you
who is choosing the consultant, not the consultant who is choosing you!
Take the choice of a consultant very seriously. Never recruit "someone who
just happens to be around" and is easily available, or who has just sent you a
flattering letter or an elegant publicity brochure, unless you are sure that he or
she is the ideal choice.
Use short-lists of consultants, carefully screen candidates to be put on the
short-list, get information on their capabilities, clients and past assignments,
check leads and references given to you by business and social friends, your
own colleagues, consultants' and management associations and any other
source.
Try to apply a rigorous (though not rigid and bureaucratic) selection procedure
including rating and evaluation of consultants' proposals and qualifications.
Make the choice as objective as possible and minimize the risk of errors.
Improve the procedure on the basis of experience.
0 Never give a major assignment to an unknown consultant. If possible, test new

consultants on smaller and shorter jobs. Don't pay an unknown consultant an
advance for future work.
8 Be sure that you choose not only a consulting firm, but also individual
consultants employed by this firm (who may be different people from those
who came to propose the assignment to you). The consultants have to match
personalities in your organization as well as your technical problem.
If your consultant is sponsored by a technical assistance project or fund, make
sure that you have a final say in selection. The consultant will work for you,
not for the sponsor. A free consulting service may turn out to cost you a lot if
you are not in charge!
5. Develop a joint programme!

The consultant whom you have chosen may be the best one, but he or she is
not your employee, and his or her presence and intervention will create an unusual
situation in your organization. Careful planning and preparation of the assignment
is a necessity.
Review the proposals received in detail with the consultant, ask questions,
suggest improvements in the approach and the work plan.
Clarify the consultant's role and your own, the style of consulting to be used
and responsibilities for all phases of the assignment. Who will do what? How
will you and your people cooperate with the consultant? Are you sure that the
consultant will not do work that your people can do (this can reduce cost and
speed up execution)?
Reach an agreement on the programme of work to be implemented, the
time-table and deadlines to be observed, measurable and controllable results
to be attained, reports to be submitted to you and control sessions to be held
at critical points of the assignment.
Settle the financial side clearly and unambiguously: the fee formula and level,
the reimbursable expenses, the conditions, form and frequency of payments.
Sign a contract with the consultant in a form that is customary in your business
environment. Use a written contract. Confine the use of verbal agreements to
smaller jobs and to consultants whom you know well and trust totally.
Cooperate actively with your consultant!

The modem concept of management consulting emphasizes the client's active
participation at all stages of the assignment. Both the consultant's and the client's
best brains are needed to make the assignment a success. But your
involvement does not occur automatically - a real effort is required, especially
Appendices
since a consulting assignment is an additional job to the normal work which goes
on in your organization.
Tell your people about the consultant's presence; introduce the consultant to
everyone who should meet him or her.
Make the right people available at the right time. You will gain nothing by
assigning second-rate staff to work with a highly competent adviser.
Provide readily all information related to the assignment and needed by the
consultant (confidential information not required for the assignment does not
have to be shared).
Look for ways in which the design of the assignment can be improved, your
participation increased and the consultant's efficiency enhanced - he or she
works for you and the ultimate benefit will be yours.
However, cooperating in the assignment does not mean irritating the
consultant, holding his hand, always looking over his shoulder, delaying
decisions on his proposals and not letting him proceed with the job. If this is
your attitude, don't use consultants.
Involve the consultant in implementation!

A universal problem faced by consultants and clients alike is that too many
assignments end short of implementation. The report looks all right -but can it be
implemented? Can the new scheme work? Are we able to make it work? Will our
purpose be achieved? Certain consultants are only too happy to leave the client
without implementing the proposals. However, the true professionals do care about
implementation and are sorry if they cannot participate in it and learn from it.
Make it your principle that your consultant will be involved in implementation.
0 Choose a degree and form of the consultant's involvement that suit your organi-
zation. Several alternatives will be available in most cases.
0 If cost is what worries you, choose a light involvement: you implement, but
the consultant helps to debug the new scheme and is available if problems arise.
In any event, avoid implementation by the consultant without the active partici-
pation of your staff.
8. Monitor progress!
There are many reasons why the real course of a consulting assignment may
deviate from the path originally agreed. Because it is your assignment, and you are
keen to get results, it is in your interest to monitor progress very closely and take
corrective measures before it is too late.
0 Your monitoring will reveal whether the consultant:
- understands your organization;
- is taking the right technical direction;
- is behaving as a real professional (with integrity, tact, commitment,

efficiency);
- is providing inputs of the right quality and quantity;
- is not facing unexpected obstacles;
- has no frictions and conflicts with your staff,
- is likely to accomplish the agreed objectives.
Monitor your own performance:
- are you respecting your commitments?
- can you keep pace with the consultant?
- are your people helping the consultant, ignoring him or her, or making
difficulties?
Pay special attention to the collaborative spirit in which the assignment should
be taking place!
Don't underestimate the financial aspects of delivery:
- is the consultant billing you regularly?
- are the bills clear and correct?
- are you paying without delay?
- will the assignment remain within agreed financial limits?
Conclusions from monitoring ought to be reviewed with the consultant and
joint decisions taken on needed adjustments.
9. Evaluate the results and the consultant!

Many assignments end in a bizarre way. The consultant leaves the organi-
zation, a report is submitted and accepted, bills are paid and everyone seems to be
happy. Yet the client cannot really say whether or not the assignment was worth
while, and whether the benefits obtained justified the costs. No lessons are drawn
for future assignments, and for the possibility of using the same consultant again.
It is in your interest to evaluate every assignment on the basis of facts and
figures, not of superficial impressions and hearsay ("the consultant was a very
nice guy, everyone liked him around here").
Evaluate the results obtained. What has changed? Will the changes be lasting?
How much will they cost us? What problems remain unsolved?
Evaluate the consultant. Has he delivered as promised? What could we learn
from him? Was working with her an exciting experience? Would we use her
again?
Write your evaluation down. The consultant may contact you again and other
people in your organization will want to know how or she he performed when
working with you. Such information must be available to your colleagues and
successors!
Appendices
Evaluate your own approach. Have you done well in this assignment? Have
you become more skilful in working with consultants? Are you making
effective use of them? Where do you need to improve?
10. Beware of dependence on consultants!

You and your staff may have appreciated and enjoyed the presence of a
professional consultant in your organization. Yet the purpose of consulting reaches
beyond making professional expertise available to your organization for dealing with
current problems. Every assignment should increase your abilities and your
independence in dealing with future problems. Dependence on consultants would
be a symptom of a very unhealthy state of affairs!
Don't delegate to consultants any decisions that are your responsibility and
that you have to take.
Don't get used to always having a consultant around to whom you hand over
every complicated matter.
Don't turn to consultants with the same task again: you and your staff should
have learned how to tackle such a task.
Develop internal consulting capabilities for dealing with issues for which an
external expert is not necessary or which require an intimate inside knowledge
of your organization.
Don't put all your eggs in one basket - diversify your sources of external
expertise! But stay in touch with consultants whose performance was
excellent.
The Ten Commandments did not teach you how to use consultants, but stressed
critical points in choosing consultants and in working with them. If you want to learn
more about consulting, read about it and speak with people who have used
consultants. And try it out - first on a smaller assignment, but one dealing with a
real, not a fictitious, problem.
When you and your organization become real experts in working with
consultants, you may find it useful to define your own policy for using management
consultants and other professional services. The Ten Commandments provide some
guidance on this, but you will certainly be able to establish apolicy that reflects your
unique needs and experience.
APPENDIX 2
ASSOCIATIONS OF
MANAGEMENT CONSULTANTS
IN SELECTED COUNTRIES
1. National associations of consultants

Australia Brazil
Institute of Management Consultants in AssociaqLo Brasileira de Consultores de
Australia (IMCA) Organizaqlo (ABCO)
PO Box 105 Rua da Lapa 180, COB
Burnside 20021 Rio de Janeiro
South Australia 5066
Instituto Brasileiro dos Consultores de
OrganizaqLo (IBCO)
Av. Paulista 326
Austria 7" andar - cj. 77
Fachverband Unternehmensberatung und CEP 01310 SLo Paulo
Datenverarbeitung (FDU)
Wiedner Hauptstrasse 63
1045 Wien
Bulgaria
Vereinigung Oesterreichischer Betriebs- Bulgarian Association of Management
und Organisationsberater (VOB) Consultants (BAMC)
Strauchgasse 3 c/o Atlas Consult
1010 Wien PO Box 708
1000 Sofia
Bangladesh
Bangladesh Association of Management Canada
Consultants Canadian Association of Management
98 Malibagh (DIT Road) Consultants (CAMC)
Dhaka 1219 Suite 805
121 Bloor Street East
Toronto, Ontario M4W 3M5
Belgium Institute of Certified Management
Association belge des conseils en Consultants of Canada
organisation et gestion (ASCOBEL) Suite 805
1-5 avenue de la Joyeuse EntrCe 121 Bloor Street East
1040 Bruxelles Toronto. Ontario M4W 3M5
China France
China Enterprise Management Chambre syndicale des sociCtCs de
Association (CEMA) conseils (SYNTEC)
San Li He 3 rue U o n Bonnat
Beijing 75016 Paris
Consulting Association of Shanghai (CAS) Office professionel de qualification des
81 Wu Xin Road conseils en management
Shanghai 3 rue U o n Bonnat
75016 Paris
Croatia
Croatian Management Consulting
Association (CROCA) Germany
Krsnjavoga 1 Bundesverband Deutscher
41000 Zagreb Unternehmensberater EV (BDU)
Friedrich-Wilhelm-Strasse 2
53113 Bonn
Cyprus
Cyprus Management Consultants
Association
9 Androcleous Street Greece
1st floor, Office 104 Hellenic Association of Management
Nicosia Consulting Firms (SESSMA)
25 Filellinon Street
105 57 Athens
Czech Republic
Asociace pro poradenstvi v podnikini
(MP) Hong Kong
[Association for Consulting to Business]
Veletrzni 21 The Hong Kong Management Association
17000 Praha 7 Management House, 3rd floor
Canal Road
Hong Kong
Denmark
Den Danske Sammenslutning af
Konsulenter Virksomhedsledelse Hungary
(DSKV)
C/OSchobel & MarholtIAIM Vezetesi Tanacsadok Magyarorszagi
Dyregardsvej 2 Szovetsege (VTMS)
2740 Skovlunde [Association of Management Consultants
in Hungary]
Foreningen af Managementkonsulenter szt. Istvin ~ r f 11
.
(FMK) 1055 Budapest
Kristianagade 7
2100 Kobenhavn OE
Iceland
Finland Felag Islenskra Rekstrarradgjafa (FIRR)
Liikkeenjohdon Konsultit (LJK) C/OIcelandic Management Association
Pohjantie 12A PO Box 760
02100 Espoo 10 Reykjavik
Appendices
India Chusho Kigyo Shindan Kyokai [Smaller

Institute of Management Consultants of Enterprise Consultants Association]
India Ginza Section of MITI, 6-15-1 Ginza
Centre One, 1lth floor, Unit 2, World Chuo-ku
Trade Centre Tokyo 104
Cuffe Parade
Bombay 400 005 Latvia
Association of Latvian Business
Consultants
Indonesia Taunlela 24
Ikatan Nasional Konsultan Indonesia Riga, LV 1050
J1. Bendungan Hilir Raya No. 29
Jakarta 10210
Lithuania
Lithuanian Association of Business
Ireland Consultants
Labdarin 5
Association of Management Consulting 2001 Vilnius
Organisations (AMCO)
Confederation House
Kildare Street Malaysia
Dublin 2
Institute of Management Consultants
10th floor, MU1 Plaza Letter Box No. 63
Jalan P. Ramlee
Italy Kuala Lumpur 50250
Associazione fra Societi e Studi di
Consulenza di Direzione ed
Organizzazione Aziendale (ASSCO) Mexico
Via San Paolo 10 Asociacion Mexicana de Empresas de
20121 Milano Consultoria (AMEC)
calz. Legaria 252
Associazione Professionale dei Consulenti MCxico City 17, DF
di Direzione ed Organizzazione
Aziendale (APCO)
Corso Venezia 49 Netherlands
20121 Milano
Orde Van Organisatiekundigen
en-Adviseurs
Koningslaan 34
Japan 1075 AD Amsterdam
ZEN-NOH-REN (All Japan Federation of Raad Van Organisatie Adviesbureau
Management Organizations)
c/o Japan Productivity Center (RON
Van Stolkweg 34
3-1-1 Shibuya PO Box 84200
Shibuya-ku 2500 AE The Hague
Tokyo 150
Association of Management Consultants
in Japan New Zealand
Shuwashibakoen Sanchome Building Institute of Management Consultants New
3-1-38 Shiba Park Zealand Incorporated
Minato-ku PO Box 2347
Tokyo 105 Auckland 1
Nigeria Romania
Institute of Management Consultants Associata Consultantilor in Management
14 Kagoro Close Din Romania (AMCOR)
PO Box 9194 10 L. PZtrZ2canu
Kaduna 74671 Bucarest
Nigerian Association of Management
Consultants Russia
C/OCentre for Management Development
PO Box 7648, Ikorodu Road Association of Consultants in Economics
Lagos and Management
c/o VNESHCONSULT
Podsosenskii pereulok 20112
Moscow 103062
Norway
Norsk Forening av Radgivere i
Bedriftsledelse (NFRB)
Singapore
C/OHartmark-Iras
PO Box 50 Institute of Management Consultants
1324 Lysaker c/o 9 Penang Road # 13-20 Park Mall
Singapore 0923
Pakistan
Slovakia
National Association of Consultants of
Pakistan (NACOP) Slovenski asociicia pre poradenstvo v
PO Box 8901 riadeniu
103-B SMCH Society [Slovak Association for Management
Karachi Consulting]
Prokopova 15
851 01 Bratislava
Philippines
Institute of Management Consultants of
the Philippines Slovenia
15th Floor, Jakai Building Association of Management Consultants
Ayala Avenue of Slovenia (AMCOS)
Makati, Metro Manila Slovenska 58
61000 Ljubljana
Poland
Stowarzyszenie Doradcov Gospodarczych South Africa
w Polsce (SDG) Institute of Management Consultants of
[Association of Economic Consultants in Southern Africa
Poland] PO BOX784-305
Gorskiego 1, Apt. 3 Sandton 2146
00 033 Warsaw
Spain
Portugal Asociaci6n Espaiiola de Empresas de
Associaqio Portuguesa de Projectistas e Ingenieria y Consultoria
Consultores (APPC) (TECNIBERIA)
Avenida Antonio Augusto Aguiar 126-7' Velisquez 94, Aptdo. 14863
1000 Lisboa 28006 Madrid
Appendices
Sweden United States

Swedish Association of Management Academy of Management
Consultants (SAMC) Managerial Consultation Division
PO Box 7470 C/OJoe Weiss
10392 Stockholm Management Department, Bentley College
Waltham, MA 02254
Switzerland American Institute of Certified Public

Accountants (AICPA)
Association suisse des conseils en Management Consulting Services Division
organisation et gestion (ASCO) Harborside Financial Center
Miihlebachstrasse 28 201 Plaza Three
8008 Ziirich Jersey City, NJ, 07311-3881
Association of Internal Management
lhrkey Consultants (AIMC)
Management Consultancies Association of PO Box 304
Turkey (MCAT) East Bloomfield, NY 14443
Kocabas Ishani n 111 K.2 Association of Management Consulting
Mecidiyekoy Firms (ACME) (Division of CCO)
Istanbul 521 Fifth Avenue
New York, NY 10175-3598
United Kingdom Council of Consulting Organisations, Inc.
Institute of Management Consultants (CCO)
5th Floor, 32/33 Hatton Garden 521 Fifth Avenue
London EClN 8DL New York, NY 10175-3598
Management Consultancies Association Institute of Management Consultants
(MCA) (IMC) (Division of CCO)
11 West Halkin Street 521 Fifth Avenue
London SWlX 8JL New York, NY 10175-3598
2. International associations (consulting and related

professions)
Africa European Foundation for Management
Federation of African Consultants Development (EFMD)
(FEACFECA) 40 rue Washington
PO Box 1387 1050 Bruxelles
01 Abidjan FCdtration des experts comptables
europCens (FEE)
83 rue de la Loi
Europe 1040 Bruxelles
European Federation of Engineering
Consultancy Associations (EFCA)
79 avenue de Cortenbergh Latin America
1040 Bruxelles
Federaci6n Latinoamericana de
European Federation of Management Asociaciones de Consultores (FELAC)
Consulting Associations (FEACO) Suipacha 552, Piso 4 O , Of.1
1-5 avenue de la Joyeuse Entree 1008 Buenos Aires
1040 Bruxelles Argentina
Interregional International Federation of Consulting

International Council of Management Engineers (FIDIC)
Consulting Institutes (ICMCI) PO Box 86
32/33 Hatton Garden 1000 Lausanne 12 Chailly
London EClN 8DL Switzerland
United Kingdom
International Federation of Accountants
540 Madison Avenue
New York, NY 10022
United States
APPENDIX 3
PROFESSIONAL CODES (EXAMPLES)
Code of Professional Conduct of the European

Federation of Management Consulting Associations
(FEACO)
Code of professional conduct

1. A consultancy shall at all times maintain the highest ethical standard in the
professional work undertaken, and in matters relating to a client's affairs act solely
in the interests of the client (1).
Where a consultancy is a subsidiary of a parent body which is not in the public
practice of management consultancy, all advice will be untied and independent of
any influence of that parent body (2).
2. It shall be regarded as unprofessional conduct for a consultancy:
To disclose or permit to be disclosed confidential information concerning the
client's business and staff (3) (4) (5).
To accept work for which it is not qualified (6).
To enter into any arrangement which would detract from the objectivity and
impartiality of the advice given to the client (7).
Not to agree with the client in advance on the terms of remuneration and the
basis of calculation thereof (8).
To do anything likely to lower the status of Management Consultancy as a pro-
fession (9).
Guidelines for national associations on the interpretation

of the code of professional conduct
(1) A consultant who delivers advice must be able to do so with complete freedom
and be protected by a clause de conscience from the management of the con-
sultancy firm.
Whenever a consulting company is legally or financially under control of a

non-consulting body, there should be a written undertaking to guarantee that
no pressure will be exerted which may prejudice the opinion or the advice of
the consultancy.
Information received by a consultant from employees within the client
organization shall be respected.
Information received from a client source will never be used by the con-
sultancy for any purpose outside the scope of the agreed assignment (for
example: recruitment of people from the staff of the client).
This includes the acceptance without the prior agreement of all parties of an
assignment which gives rise to a conflict of competitive interest with an
existing or recent client in an area, such as a strategy study or marketing study,
where the knowledge gained at one client would be of current commercial
value to the new client.
A client must be informed and his acceptance sought by a formal agreement
where the assistance of specialists not linked directly with the consultancy is
required on an assignment.
It would be considered a breach of this rule for a consultancy:
(a) To accept or permit any member of staff to accept from a third party any
trade commission, discount or consideration of any kind in connection
with the supply of goods or services to the client.
(b) To recommend to a client goods or services in which the consultancy or
the consultant has direct or indirect interest without disclosing this
interest to the client.
(c) To enter into any relationship with members of the staff of the client
which could alter the impartiality of the consultant's attitude and advice.
(d) To pay a commission or any form of remuneration to a third party not on
his staff for the introduction of a client except in exceptional circum-
stances where it is obvious that the objectivity and impartiality of the
consultant will be preserved. In this case the commission should be
disclosed to the client who will not object as the impartiality is preserved.
Generally the remuneration shall be calculated on a fixed fee or time-based
fee rate agreed in advance. However, an arrangement between a consultancy
and a client or a prospective client whereby the consultancy gives prior
agreement to make the fee contingent on certain results is permitted where this
is accepted practice, such as staff selection, mergers and acquisitions and
search for licenses. In circumstances where a contingent fee basis might
operate in a manner which could prejudice the independence of the consultants
undertaking the assignment or might prove difficult to calculate in practice or
might prejudice the long-term relationship with the client, it must not be used.
It would be considered a breach of this ~ l fore a consultancy:
(a) To issue promotional material including advertising which is likely to
mislead or give the public a false impression of the consultancies' capa-
Appendices
bilities, or could be construed as claiming advantages for one member

of a national association over its other members or contains remarks or
implications which could be interpreted as being derogatory of any other
member of the national association.
(b) To accept an assignment, the scope of which is so limited that the con-
sultant is aware that the client will receive either ineffective advice, or
advice so incomplete as to require him to seek further advice, without
being aware at the onset of the assignment that this will be the case.
Code of Professional Conduct of the Institute

- - - - -
of Management Consultants (United Kingdom

and Ireland)
Introduction
The objective of the Institute of Management Consultants is the advancement
of the profession of management consultancy through the establishment and main-
tenance of the highest standards of performance and conduct by its members, and
by the promotion of the knowledge and skills required for that purpose.
Professional standards
A management consultant is an independent and qualified person who pro-
vides a professional service to business, public and other undertakings, by:
identifying and investigating problems concerned with strategy, policy,
markets, organization, procedures and methods;
formulating recommendations for appropriate action by factual investigation
and analysis with due regard for broader management and business impli-
cations;
discussing and agreeing with the client the most appropriate course of action;
providing assistance where required by the client to implement his recom-
mendations.
In rendering such services to all levels of management, consultants carry a
heavy burden of responsibility and an obligation to maintain the highest standards
of integrity and competence.
Recognizing this responsibility, the Institute embodies within its Code of
Professional Conduct those duties and obligations required of all members which
will ensure the highest standards of performance, and thereby enhance the reputation
and public recognition of the profession, of the Institute and of its members.
Members of the Institute have basic responsibilities as management con-
sultants to:
exercise independence of thought and action;
hold affairs of their clients in strict confidence;
deal with management problems in perspective and give well-balanced advice;

strive continuously to improve their professional skills and to maintain a high
quality of advice;
advance the professional standards of management consulting;
uphold the honour and dignity of the profession;
maintain high standards of personal conduct.
To honour these obligations all members agree, in writing, to comply with the
Institute's Code of Professional Conduct. This distinguishes management con-
sultants who are members of the Institute.
Format of the Code

The Institute's Code of Professional Conduct is structured on three basic
principles dealing with:
(i) high standards of service to the client
(ii) independence, objectivity and integrity
(iii) responsibility to the profession.
These principles are underpinned by detailed rules, which are specific injunc-
tions, and practical notes, which either lay down conditions under which certain
activities are permitted or indicate good practice and how best to observe the relevant
Principle or Rule.
The Council of the Institute may, from time to time, issue further Principles,
Rules or Notes which will be promulgated in the Institute's publications before being
incorporated into a revised edition of the Code. Members are expected to abide by
all such new provisions from the date of their publication.
The Principles, Rules and Notes of the Code apply not only to the member
personally but also to acts carried out through a partner, co-director, employee or
other agent acting on behalf of, or under the control of, the member.
Definitions used in the Code

Member: A Fellow, Member, Associate Member or Affiliate of the Institute.
Client: The person, firm or organization with whom the member makes an
agreement or contract for the provision of services.
His: Shall apply to members of both sexes.
Declaration: A written statement referring to and disclosing the facts relevant to
the situations covered by particular Rules of the Code.
Independent: In a position always to express freely one's own opinion without any
control or influence from others outside the (consulting) organi-
zation, and without the need to consider the impact of such opinion
on one's own interests.
Institute: The Institute of Management Consultants.
Appendices
Disciplinary action
A member is liable to disciplinary action if his conduct is found, by the
Disciplinary Committee of the Institute, to be in contravention of the Code, or to
bring discredit to the profession or to the Institute.
In accordance with the By-laws, a member may be required to make a declara-
tion in answer to enquiries from the Institute concerning his professional conduct.
A member failing to make such a declaration may be found in breach of the Principle
to which the Rule or Note relates.
Principle 1: High standards of service to the client

A member shall carry out the duties which he has undertaken diligently,
conscientiously and with due regard to his client's interest.
Rules
1.1 A member will only accept an engagement for which he is suitably
qualified.
1.2 Before accepting an assignment a member shall clearly define the terms
and conditions of the assignment including the scope, nature and period of the
service to be provided, the allocation of responsibilities, and the basis for re-
muneration (see Notes 1.2.1 and 1.2.2).
1.3 A member will regard his client's requirements and interests as paramount
at all times.
1.4 A member shall only subcontract work with the prior agreement of the
client (see Note 1.4.1).
1.5 A member will hold as strictly confidential all information concerning the
affairs of clients unless the client has released such information for public use, or
has given specific permission for its disclosure.
1.6 A member will refrain from inviting any employee of a client advised by
the member to consider alternative employment (an advertisement in the press is not
considered to be an invitation to any particular person).
1.7 A member will develop recommendations specifically for the solution of
each client's problems; such solutions shall be realistic and practicable and clearly
understandable by the client.
1.8 To ensure efficient performance of each assignment, a member will
exercise good management through careful planning, frequent progress reviews and
effective controls.
Notes
1.2.1 Before undertaking or continuing with any work, a member should
ensure that his resources are adequate and properly directed to carry it out.
1.2.2 The terms of an assignment should always be evidenced in writing.
1.4.1 When subcontractors are employed, the principal consultant will take
responsibility for the quality of the work produced and for compliance with the
requirements of the Code. Members are referred to the Institute's guidelines on
subcontracting agreements.
Principle 2: Independence, objectivity, integrity

A member shall avoid any action or situation inconsistent with his pro-
fessional obligations or which in any way might be seen to impair his integrity.
Rules
2.1 A member will maintain a fully independent position with the client at all
times, making certain that advice and recommendations are based upon thorough
impartial consideration of all pertinent facts and circumstances and on opinions
developed from reliable relevant experience.
2.2 A member will declare at the earliest opportunity any special relation-
ships, circumstances or business interests which might influence or impair his
judgement or objectivity on a particular assignment (see Notes 2.2.1, 2.2.2
and 2.2.3).
2.3 A member shall not serve a client under terms or conditions which might
impair his independence, objectivity or integrity; he will reserve the right to
withdraw if conditions beyond his control develop to interfere with the successful
conduct of the assignment. He will not practise during a period when his judgement
is or might be impaired through any cause.
2.4 A member shall not take discounts, commissions or gifts as an inducement
to show favour to any person or body.
2.5 A member will advise the client of any significant reservations he may
have about the client's expectation of benefits from an engagement. He will not
accept an engagement in which he cannot serve the client effectively.
2.6 A member will not indicate any short-term benefits at the expense of the
long-term welfare of the client, without advising the client of the implications.
2.7 A member will discuss and agree with the client any significant changes
in the objectives, scope, approach, anticipated benefits or other aspects of the
engagement which might arise during the course of carrying it out.
2.8 A member who, in circumstances not specifically covered in these Rules,
finds that his professional or personal interest conflict so as to risk a breach of the
Principle shall, as the circumstances may require, either withdraw from the situation,
or remove the source of conflict, or declare it and obtain in writing the agreement
of the parties concerned to the continuance of his assignment (see Note 2.8.1).
Appendices
Notes
2.2.1 Rule 2.2 requires the prior disclosure of all relevant personal, financial
or other business interests which could not be inferred from the description of the
services offered. In particular this relates to:
- any directorship or controlling interest in any business in competition, with
the client;
- any financial interest in goods or services recommended or supplied to the
client;
- any personal relationship with any individual in the client's employ;
- any personal investment in the client organization or in its parent or any
subsidiary companies.
2.2.2 A member shall not use any confidential information about a client's
affairs, elicited during the course of his assignment, for his own personal benefit or
for the benefit of others outside the client organization. There shall be no insider
dealing or trading as legally defined or understood.
2.2.3 If any such business or financial interest arises during the course of an
assignment, Rule 2.8 shall apply.
2.8.1 It should be noted that the Institute of Management Consultants may,
depending on the circumstances, be one of the "parties concerned". For example, if
a member is under pressure to act in a way which would bring him into
non-compliance with the Code of Professional Conduct, in addition to any other
declaration which it might be appropriate to make, he should declare the facts to the
Institute.
Principle 3: Responsibility to the profession

A member shall at all times conduct himself in a manner which will enhance
the standing and public regard of the profession.
Rules
3.1 A member recognizes that he has a responsibility to the profession as well
as to himself and his clients, to ensure that his knowledge and skills are kept up to
date, and will take appropriate action to this end.
3.2 A member will not knowingly, without permission, use copyright
material, or a client's proprietary data, or materials or techniques that others have
developed but have not released for public use.
3.3 A member shall have proper regard for the professional obligations
and qualifications of those from whom he receives or to whom he gives authority,
responsibility or employment, or with whom he is professionally associated (see
Notes 3.3.1 and 3.3.2).
3.4 A member shall only initiate or accept a joint assignment with a member
of another professional body if he is satisfied (and can satisfy the client and if
required the Institute) that such an assignment would be conducted to the standards
represented by this Code of Professional Conduct.
3.5 A member referring a client to another management consultant will not

misrepresent the qualifications of the other management consultant, nor will he make
any commitments for the other management consultant.
3.6 A member will not accept an assignment for a client knowing that another
management consultant is serving the client in a similar capacity unless he is assured,
and can satisfy himself, that any potential conflict between the two assignments is
recognized by, and has the consent of, the client (see Note 3.6.1).
3.7 When asked by a client to review the work of another professional, a
member will exercise the objectivity, integrity and sensitivity required in all
technical and advisory conclusions communicated to the client.
3.8 A member will negotiate agreements and charges for professional services
only in a manner approved as ethical and professional by the Institute (see
Note 3.8.1).
3.9 A member shall not attempt to obtain work by giving financial
inducements to clients or client staff (see Note 3.9.1).
3.10 A member, in publicizing his work or making representations to a client,
shall ensure that the information given:
- is factual and relevant;
- is neither misleading nor unfair to others;
- is not otherwise discreditable to the profession (see Note 3.10.1).
3.11 A member shall be a fit and proper person to carry on the profession of
management consultancy (see Note 3.11.1).
3.12 A member shall not wilfully give the Institute false, inaccurate,
misleading or incomplete information.
Notes
3.3.1 Under Rule 3.3, a member will provide all possible opportunities for
management consultants he employs to exercise their professional skills as widely
as possible within the interests of the client, and will, as opportunities arise, assist
them to accept progressively greater responsibility in accordance with their ability
and experience.
3.3.2 In a similar way a member will encourage the management consultants
he employs to maintain and advance their competence by participating in continuing
professional development.
3.6.1 Legal and "fair trading" obligations should take precedence in both
public and private sector work.
3.8.1 Members are referred to the Institute's "Guidelines on Charging for
Management Consulting Services".
3.9.1 Payment for legitimate marketing activity may be made, and national
laws and customs should be respected.
3.10.1 Accepted methods of making his experience and/or availability known
include:
Appendices
- publication of his work (with the consent of the client);

- direct approaches to potential clients;
- entries in any relevant directory;
- advertisement (in printed publication, or on radio or television);
- public speaking engagements.
Members are referred to the Institute's Guidelines on the Promotion of Management
Consulting Services.
3.11.1 A member shall at all times be of good reputation and character. Parti-
cular matters for concern might include:
- conviction of a criminal offence or committal under bankruptcy proceedings;
- censure or disciplining by a court or regulatory authority;
- unethical or improper behaviour towards employees or the general public.
APPENDIX 4
OUTLINE OF A MANAGEMENT SURVEY
This appendix provides an overview of the main subject areas covered by a

diagnostic or management survey of a company. The check-lists suggest the subjects
to cover, not a sequence of steps. This sequence will have to be decided with regard
to the nature of the client organization, the kind of information that is already
available, and the main functional area in which the assignment will be carried out.
In functional areas the consultant undertaking a general management survey
will look only for facts that are needed to understand the nature of the client organi-
zation, appraise the level of performance, discover underused resources and define
possible improvements. The consultant will refrain from detailed analysis, with the
exception perhaps of the area on which the assignment is to concentrate. Where
possible and meaningful, the consultant will use comparisons (with other organi-
zations, industry standards, foreign countries, etc.).
The paragraphs below are restricted to a summary view of each area. Further
suggestions can be found in Chapters 12-22dealing with consulting in various areas
of management. Figure A1 on the following page shows the ten subject areas
covered. A different structuring of the survey is possible, however. For example, in
an organization involved in an extensive investment programme this would be
treated as a separate subject area.
Many consulting firms have developed their own internal guides to diagnosing
organizations, which they regard as their proprietary know-how.
Subject area 1: General characteristics of the

client organization
Under this heading the consultant will examine key information on the nature,
purpose, role and major characteristics of the client organization. The check-list
indicates the scope of the subject. The consultant will be particularly interested in
factors and events which have shaped the history of the client organization and may
be the origin of various deeply rooted organizational traditions, business practices
and behavioural patterns.
Figure A1 Subject areas of a comprehensive management survey
0 General characteristics of the client organization
Environmental factors
0 Objectives and strategies - overall
-.
-1nance 1 Marketing 1 Production
(operations)
/ 1
Research and Human
development resources
Objectives, policies, plans
Structure, activities
Performance
Management systems and practices
Performance - overall
Appendices
Check-list 1: General characteristics

Subject Specification
Activity Type (sector), purpose

Main functions, products, services
National or multinational profile
Complexity and sophistication of products and processes
History When and how established
Growth pattern
Key events (acquisitions, mergers, technological breakthroughs,
impact of wars or recessions)
Key personalities in history of firm
Importance Volume of activity
Volume and structure of resources
Position and market share in country, sector, region, local
community, internationally
Main competitors
Ownership Pattern (private, public, cooperative)
Legal form (partnership, limited company, state enterprise
or agency)
Influences Main owners
Centres of control, role of board of directors
Social and political influences and pressure groups
Membership of employers' and sector organizations
Location Where located
Number and size of units
Distances, communications
Subject area 2: Environmental factors

The client organization has to be seen in the context of its socio-economic
environment, with which it interacts in many ways. The check-list given below is
very broad. In reality, it will be exceptional for the consultant to review all aspects;
in most cases only selected environmental considerations will apply. The subjects
included in the check-list will be studied from the viewpoint of the needs and
opportunities of the client organization and not in a general, all-embracing way.
Some of the environmental factors will be variables that the client
organization cannot influence. There are, however, assignments that may include
proposals for changes in the environment - for example, consumer taste and
demand for the client organization's products may be influenced by customer educa-
tion and advertising.
Check-list 2: Environmentalfactors
Economic Broad economic setting

Development level and trends
Country's economic wealth
Structure and state of market
State of given industry in the country
Financial system, availability of money
Natural Raw materials
resources Fuel and energy
Water
Land
Climate
Human Labour market
resources Education
Technical and business skills
Training facilities
Structure of society (classes, ethnic groups, minorities, income
distribution, purchasing power)
Consumer taste
Social, cultural and religious traditions
Social organizations (including workers' and employers'
organizations), role, influence
Government Profile, source of power, stability
Economic policy, including regional development
Business, investment and export promotion policy
Planning, regulation and control of economy
Taxation
Government services and facilities
Local government (functions in economic development)
Political Political system and life, stability
Impact of politics on management
Legal Labour law
Company or commercial law, etc.
Business Accounting, audit
service Management consulting
infrastructure Legal advice
Insurance
Banking services
Physical Immediate physical environment
Transport and communication facilities
Telecommunications
Utilities and technical services
Housing facilities
Pollution: environmental protection
Technological National and sectoral research base
capabilities Research and development policies
Technological universities
Appendices
Subject area 3: Objectives and strategies (overall)

The study of the client's business objectives, strategies, policies and plans is
a core element in management surveys; it provides orientation to a more detailed
analysis of various functions and activity areas, and a basis for appraising perform-
ance. The consultant examines both the methodology used (the system whereby
objectives, strategies and policies are established and plans worked out) and the
particular targets and other objectives established and pursued by management.
Special attention is paid to conflicting objectives, strategies and policies, and to
blank areas in which the client operates without objectives and plans.
Check-list 3: Objectives and strategies (overall)
Approach and Methods of defining purpose and objectives

methodology System of strategic, operational and contingency planning
Areas managed without objectives and plans
Purpose and objectives Assessment of purpose (mission) and specific
organizational objectives as defined by management
Strategic choices Assessment of major choices (overall and by areas of business)
Investment Policies and plans, main proiects
Subject area 4: Finance

This is a key area of any management survey because the financial strength
and results of business organizations reflect the potential and results of almost all
other areas and functions.
The financial appraisal, as the survey in this area is frequently called, con-
centrates on analysis of the client's financial reports for the preceding three to five
years as a means of assessing strengths and weaknesses, measuring past perform-
ance, examining the use of funds available, and establishing upward or downward
trends. The findings of the financial appraisal are used to orient further investigation
and remedial activities in other functions and areas of management.
What sort of thing should a consultant look for in studying a set of financial
reports? First, there is the overall picture presented by the current year's figures. Is
the company making enough profit? How strong is it in financial terms? Is it taking
or giving too much credit? Are the stocks too high? Is the cash flow satisfactory?
Secondly, there is the picture that emerges from studying trends over a period of
years. Is the company becoming more profitable? Is it expanding too fast? Is
productivity rising or falling? Is liquidity improving or deteriorating?
In both these pictures it is necessary to distinguish between two conflicting
aspects of the company's operations - profitability and solvency. A business can
be highly profitable yet financially weak. Another may be financially strong but not
making enough profit. The method used to interpret financial statements is to
calculate certain ratios. Cash figures alone are almost meaningless; an increase in
profit from $10,000 to $15,000 may be good or bad, depending on the amount of
extra resources used in generating the extra profit. Many different ratios can be
developed from a set of financial reports, but some of them are of little value or are
simply variations of each other. Guidelines on the application and interpretation of
ratios are provided in many publications on accounting and financial management.
A correct interpretation of the static picture presented by one year's figures
requires considerable skill and care. For instance, if the fixed assets of land and
buildings are undervalued in current market terms, a false impression may be given
in the profit ratios. The comparison of one business with another should not be
undertaken without the utmost care and unless the consultant is thoroughly familiar
with both businesses. Different methods may be used to evaluate assets and calculate
depreciation, policies on whether to capitalize expenditure or write it off against
income may be different, the treatment of research and development costs may vary,
changing price levels may invalidate attempts to compare and so on.
The main value of analysing ratios lies in studying the trend within one
company over a period of years. Since this approach means comparing like with
like, there is little risk of misinterpretation of the main trends.
Check-list 4: Finance
Financial Strategy and policy

management Position in corporate structure
Records and reports - timeliness, reliability, quality
Relationships with banks and financial agencies
Balance sheet and Comparative analysis
income (profit Key ratios
and loss) account Financial performance, health and stability
Sources and Sources and cost of funds
application Movement and uses of funds
of funds Cash flow
Financial reserves
Financial planning Systems and techniques used
and forecasting Assessment of projections made
Auditors' reports Existence, quality
Comments made by auditors
Subject area 5: Marketing

In organizations that sell their products or services the marketing function pro-
vides an essential link with the environment and strongly influences other functions.
The consultant tries to get a picture of the available market and of the product-market
strategy followed by the client. He or she will examine the effectiveness of marketing
strategy and activity, and their impact on production, research and development,
purchasing and other functions. Various components of the marketing function, such
Appendices
as the organization of sales, advertising, the location and turnover of stocks, ware-
housing, transport, etc., will be briefly reviewed if appropriate.
Check-list 5: Marketing
- -
Marketing Concept, strategy applied

management Staffing (numbers, competence)
Position in corporate structure
Markets (local Size, trends
and export) Own share
Competitors (number, importance, strategy)
~ a r k e research
t
Backlog of orders
Customers (clients) Size and structure of customer base
Principal customers
Pricing Strategy and policy
Comparison with competitors
Sales Distribution channels
Organization and techniques
Sales force (size, competence, motivation)
Reliability of delivery
Stocks (volume, location, turnover)
Selling expenses (volume, trend)
Customer services After-sales services
Technical services (information, training, systems design,
consulting, etc.)
Learning from customers
Advertising Importance, cost
Techniques, agents
Impact
Subject area 6: Production (operations)

It is difficult to describe briefly the activities and problems that may interest
the consultant in the very large and diversified area of production and/or operations.
More than in other areas, the consultant's problem will be how to recognize essential
information in the vast amount of data that production offers.
In essence, the consultant will concentrate on two issues:
a general examination of the organization of production and the layout of pro-
duction departments, main material and product flows, relations between
marketing and production, purchasing and production, and research and
development and production;
an examination of key indicators of effectiveness of production activities
(capacity utilization, lead time of main products, volume and distribution of
work in progress, equipment breakdown and stoppages, utilization of working
time or production workers, waste, quality of production, various losses in the
production area).
In non-productive organizations (services, social organizations, government

departments) the consultant will review, in an analogous way, the services or other
operations that constitute the organization's main "products".
The consultant will aim to view production and other processes in their totality,
paying particular attention to smooth process operation, and to waste and other losses
caused by organizational boundaries and poor coordination.
Check-list 6: Production (operations)
Production Concept
(operations) Production strategy
-~ applied
- -
management Staffing (numbers, competence)

Production units Number, location
Specialization
Linkages
Production Volume
capacity Utilization
Bottlenecks
Free and spare capacity
Technology Type
Level, sophistication
Land and Owned or rented
buildings Location, access
Age, condition, suitability
Cost of operation
Plant and Types, quantities
machinery Age, condition, breakdowns
Technical sophistication (automation, precision, speed, etc.)
Suitability
Maintenance (system, level)
Special equipment
Production Material and product flows @recess diagrams)
organization Work in progress (volume, location, control)
Logistics and materials handling
New forms of organization
Control and Planning, scheduling, coordination, records
support Operational control (system, level)
functions Industrial engineering (work study, value analysis, etc.)
Staff capabilities (engineers, technicians)
Quality System applied
management Level attained
New trends
Purchasing Organization
Procedures, practices
Appendices
Check-list 6 (cont.)
Main suppliers, reliability
Subcontractors
Production Categories
workers Skills, experience
Remuneration, motivation
Supervisory staff
Safety and health Accidents
Preventive measures
Efficiency of Cost of main products
production Labour productivity
system Flexibility
Losses (stoppages, waste of material and energy, pilferage, etc.)
Impact on Corporate policy
environment Current problems and needed improvements
Subject area 7: Research and development

The first question on research and development (R & D) will concern its role
in the development and strategy of the client organization. If the organization is
research oriented and operates in a technically advanced industry (such as elec-
tronics, telecommunications or petrochemicals), the management of its research
function may have a considerably greater impact on overall results than does
production management. The consultant will examine relations in the total cycle of
research - development - manufacturing - marketing, paying particular atten-
tion to R & D expenditure and its utilization, to the relationship of R & D manage-
ment to general management of the firm, to the pace and problems of the transfer of
R & D results to production, to the competence of key professional staff and to the
main achievements of the R & D department.
Even in organizations having little or no internal research and development,
some relationship to external research and development may exist, e.g. licences will
be purchased, or new production technologies bought in the form of equipment.
The organization of investment (capital building) activities linked to the appli-
cation of R & D results may require particular attention in organizations involved
in extensive expansion or reconstruction.
Check-list 7: Research and development
R & D management Strategy and policy definition

Plan, implementation
Structure

Personalities
R & D staff Numbers
Qualifications, experience
Achievements
Motivation
Innovation potential Product design, backlog of new designs
Laboratories
Prototype workshops
Testing equipment, pilot plant
Information and library
Collaboration Type of arrangements
with other Partners
organizations Licence agreements (and similar)
Use of R & D Results, application
Pace of innovation
Impact on business
Special competitive advantage
Subject area 8: Human resources

The critical issue in the human resource area is the impact of personnel policy
(i.e. criteria applied to selection, recruitment, staff development, promotion and
remuneration) on the performance and development prospects of the client
organization. Although this may be difficult during a short survey, the consultant
tries to get a true picture of how and by whom personnel decisions are made and
how this affects the morale and motivation of people. Career planning and
development, personnel performance appraisal and the role of staff training and
development will then be briefly examined. In the field of remuneration and
motivation, both financial instruments (wage policy, profit sharing) and other
motivational factors (challenging work opportunities, employment security, social
services) will be reviewed and their impact on the performance of the organization
assessed.
The consultant should in any case become acquainted with the basic principles
of labour-management relations practices in the client organization.
Check-list 8: Human resources
Human resource Concept and policies

management Human resource planning
Staffing of personnel department
Appendices
Staff structure Age, sex

Competence, skills (by categories)
Minorities, foreign workers
Employment conditions (permanent, temporary, seasonal)
Turnover
Absenteeism
Recruitment and Recruitment practices
selection Selection practices
Training and Career prospects
development Expenditure on staff development
organization
Approaches and methods
Job rotation, etc.
Staff appraisal
Remuneration and Wage and salary systems
motivation Wage levels and differentials
Payment by results
Profit-sharing and similar schemes
Social benefits
Non-financial incentives
Labour-management Nature, practices
relations Impact on management and performance
Subject area 9: Management system and practices

Step by step, the consultant will be extending and deepening his knowledge
and understanding of the client organization's management. He will try to determine
the relationship between the problems he has discovered and the ways in which
decisions on important matters are taken and implemented. Special attention will be
paid to the profiles and management styles of key personalities, and to various
questions usually embraced by the term "organizational culture".
Check-list 9: Management systems and practices
- - - - -
Managers Key personalities (professional and personal profiles,

attitudes to change, motivation)
Organizational Form of structure, history
structure Departments, divisions (specialization, role, relative importance)
Relations between line and staff
Centralization vs. decentralization
Existence, quality and use of charts and manuals
Decision making Practice applied to main sorts of decision
- --
Coordination Methods, areas

Coordination of key functions
Communication Networks and channels (formal and informal)
Methods
Internal information, Systems used, impact
planning and Management information system
control system Activity and performance plans
Budgetary and cost control
Reporting; reports and records analysis
Modem techniques Policy, effectiveness
Preferred techniques
Computer/information technology applications
Computer literacy of management and staff
Communication technology, etc.
Organizational Values and traditions
culture Habits and rituals
Prevailing management style
Employee participation
Networking Linkages and interdependencies with other organizations
Use of external Policy, importance
expert services Experience with management consultants and other advisers
Subject area 10: Performance (overall)

The examination of the client's (i) resources, (ii) objectives, strategies, policies
and plans, and (iii) main activities and comparative results in particular functional
areas, enables the consultant to make some judgement o n the overall performance
of the client organization, assess whether this performance has been satisfactory,
think of probable future trends and opportunities, and point out possible and needed
improvements.
Check-list 10: Performance (overall)
Subiect Specification
Performance Growth, productivity, profitability, cash-flow, return on investment,

indicators market value of shares, employment generation and stability, and
other key indicators
Principal strengths and weaknesses
Competitive Special resources, achievements and capabilities
advantage Comparison with key competitors
Position in sector Position attained (leadership, etc.) and image achieved with
customers and general public
Trends Past, current, expected changes
Factors and forces likely to affect future performance (positive and
negative influences)
Implementing Policies
change Abilities, approaches used
Results achieved
Performance Practices and their impact (frequency, criteria, depth of analysis,
assessment conclusions drawn)
Performance Restructuring, re-engineering, benchmarking or other initiatives
improvement Approaches and methods used
Results achieved
Image In customers' circles and general public, among youth, etc.
APPENDIX 5
TERMS OF A CONSULTING CONTRACT
This appendix supplements section 7.6 on consulting contracts. These con-

tracts come in many different forms and degrees of detail. It is useful to be aware of
differences in national legislation and practice concerning contracting in general,
and contracts for the provision of professional services in particular. In international
contracts, the client and the consultant have to agree on the applicable law, which is
usually the law of the client organization's home country. In exceptional and justified
cases the consultant and the client may agree to apply the law of the consultant's
country.
The consultant may be requested to accept the client's standard form and con-
ditions of contract. Normally this is the case if the assignment is part of a programme
financed by a technical assistance agency or a development bank, and if the work is
for public sector clients.
In other cases, the consultant will be able to use his or her own form of contract,
or develop a contract in agreement with the client. To support their members, some
consultants' associations have prepared standard contract clauses, or guidelines for
contract terms and conditions, reflecting the profession's experience.
In any event, it is strongly recommended to consult a lawyer on the contract
form to be used and on unusual contract clauses suggested either by the client or the
consultant.
The comments that follow are structured in accordance with the check-list in
box 7.5 on page 164 ("What to cover in contracting").
1. Contracting parties
It should be made clear not only who signs the contract (and its cancellation,
amendments, etc.), but also who will make operational decisions on work progress,
changes in the work plan and staffing, and results. In reality, there are several
categories of "client" in most organizations, as pointed out in section 3.3. Technical
assistance contracts are often signed by the funding agency, but the real client is the
organization receiving assistance. What will be its roles and rights in preparing and
implementing the contract?
2. Scope of the assignment

This section describes the work to be performed, the objectives to be achieved,
the timetable and the volume of work. Although it is the core section of the contract,
its importance is often underestimated. Many consultants feel that their objective
should be to sign the contract even if the scope of work has not been fully clarified
and could be viewed differently by the consultant or the client. Their credo is: Why
bother with detailed work descriptions and plans if we know well that eventually
the client will want something else? While flexibility is the consultant's major virtue,
a lack of precision in outlining what should be done and achieved has made the life
of many consultants and clients difficult.
3. Work products and reports

This section describes the so called "deliverables", i.e. specific documents and
reports that the consultant will be transmitting to the client during and at the end of
the assignment. Here, too, a great deal of misunderstanding can be avoided by trying
to be as specific as possible in describing what the client will receive. What is "a
report"? What do we mean by "complete documentation on a training programme
for sales managers"?
Unnecessary written reports should not be requested. They take up both the
consultant's and the client's time without changing anything in the course of the
assignment. Conversely, the need for frequent and short progress review meetings
is not fully appreciated in many contracts.
4. Consultant and client inputs

Consultant inputs in the assignment are those that have to be provided within
the given contract framework. This includes names (and curricula vitae) of operating
consultants, names of partners and other seniors responsible for managing and back-
stopping the assignment, management systems and other proprietary know-how to
be provided, and other inputs. It should be clearly stated which inputs will be pro-
vided within the agreed fee and which will only be available against additional
payment. Any such additional inputs will require the client's prior approval.
Furthermore, there should be no ambiguity as regards changes in the agreed
inputs -when and under what conditions would the consulting firm be authorized
to assign different staff, and when and how would the client be able to ask the
consultant to replace the staff assigned to the project. If the client has selected not
only a consulting firm, but also particular persons within this firm, the client's view
should also prevail in any such changes.
Client inputs, such as time spent on the assignment by managerial and technical
personnel, or administrative support, are often taken for granted and vaguely defined.
In implementing assignments, many consultants do not really insist on timely and
full provision of inputs promised by clients. This practice increases the duration and
costs of many assignments and causes a great deal of disenchantment. The client is
Appendices
not available and the consultant proceeds alone with the work. . . only to find out
that the client is not happy with the results and will not accept them.
5. Feesandexpenses
Chapter 26 provides enough comments on desirable and undesirable fee-
setting and billing practices. In drafting a contract, the fee formula applied, the
estimated or agreed total fee, the conditions whereby fees may be adjusted, and any
expenses that will be charged separately, should be clearly set out.
6. Billing and payment procedure

This procedure is also amply described in Chapter 26. The contract should set
out the conditions to be met in requesting advance, interim and final payments, such
as the reports that have to be submitted and accepted, the time records to be provided,
or the way for presenting bills.
7. Professional responsibilities
As a rule, the consultant will refer to the consulting association's or his firm's
code of ethics and professional conduct (and attach such a code to the contract text).
If necessary, the contract may also include special clauses on questions such as the
conflict of interest to be avoided or activities from which the consultant agrees to
refrain.
8. Copyright
Increasingly, consultants use methodologies and training materials covered by
copyright. The contract will set the conditions under which these materials are
available to the client (limited use within the client firm, no reproduction, fee to be
paid for use, and similar).
Copyright concerning the materials produced as part of the assignment is
handled in various ways and is a matter of negotiation. Some clients insist that any
copyright for work produced for their money belongs to them. Other clients want to
be able to use the materials at their own discretion within the limits of their
organizations, but agree that copyright should stay with the consultant (especially
if the material is not a joint product of the consultant's and the client's work).
9. Liability
As pointed out in section 6.5, legal liability is a relatively new phenomenon
in consulting contracts and in many contract texts there is no reference to any
liability. Yet liability questions should be given due consideration and the consultant
may wish, or be obliged to, take out a liability insurance. This is especially the case
if the advice to be provided will have a major impact on the client's business
decisions, or if the consultant is designing and delivering systems whose functioning

will strongly influence the client's operations (typically in information technology
consulting).
10. Use of subcontractors

The use of subcontractors by the consulting firm may be authorized in some
contracts and the client may choose to set the conditions for such use.
11. Termination or revision

First, the contract will describe the steps to be taken upon the completion of
the assignment, including the settlement of all commitments by both parties and the
submission and acceptance of all reports and documentation.
Second, the contract may stipulate that the client can terminate the contract at
any point without giving a reason. There may, however, be a mandatory notice (say,
one week in a simple management advisory assignment, but 30-60 days in a major
engineering consultancy), and/or the client may have to pay the consultant an
indemnity (e.g. fees for one month of work or 20 per cent of the remaining fees). If
the client wishes to terminate the contract owing to poor performance of the
consultant, a precise procedure should be followed (giving the reasons in writing,
asking for a reply and immediate action, etc.) and the notice may be shorter.
Third, the consultant must also have a possibility to withdraw from the contract
under certain circumstances, e.g. if the client is not paying or has suspended
operations for a defined period of time. The contract would stipulate the procedure
to be observed by the consultant. If the client has been declared bankrupt, the
consultant can normally terminate the contract without notice.
Turning to revisions, the contract may determine the dates and conditions for
periodic revisions to reflect changed circumstances and client needs, and the
procedure for unplanned revisions suggested by either party.
12. Arbitration
As a rule, consulting contracts use arbitration for settling disputes that cannot
be handled amicably. The contracting parties agree on the rules of arbitration and
the body to which the case would be referred.
13. Signatures and dates

It should be made clear which client's and consultant's representatives are duly
authorized to sign contracts and their amendments, bills and any other formal
correspondence, and legally binding commitments concerning the approval and the
execution of the contract.
* * *
Appendices
Further information is available in:

M. Kubr: How to select and use consultants: A client's guide, Management
Development Series, No. 31 (Geneva, ILO, 1993);
World Bank: Sample form of contract for consultants'services (Washington,
DC, 1989); and Consultants'services: Lump sum remuneration (Washington,
DC, June 1995);
European Union: General conditions for CEC public service contracts
applicable in the PHARE programme (Brussels, n.d.);
International Federation of Consulting Engineers (FIDIC): The White Book
Guide, with other notes and documents for consultancy agreements (Lausanne,
1991).
APPENDIX 6
CASE HISTORY OF CONSULTING

TO A GROWING SMALL BUSINESS
(Island Paradise Sportswear)
This case-study has been written to illustrate the role of consultants in the
growth and development of a small business. It is based on real company data,
although some details, including the name of the company, have been changed.
The company's background

Island Paradise Sportswear is a small business located in Brisbane, Australia.
It is a manufacturer of women's fashion swimwear, sportswear and leisure wear. It
has been in business for 20 years and in that time sales have grown steadily.
The company was started by Peter and Kate Marshall. They met while crewing
a charter yacht in the Caribbean. They married and started a business in Barbados
designing and manufacturing swimwear for wealthy tourists. The factory was an old
house perched on the water's edge amongst the coconut trees. Upon returning to
Australia the following year they decided to apply the same ideas that had worked
in the West Indies to Australia. There seemed to be an opportunity in the expanding
leisure industry while maintaining the lifestyle they preferred.
Business was initially based in a small suburban apartment near the beach. A
few people would come into the flat to work each day and extra production would
be done by outworkers (machinists working at home). From the beginning Kate was
responsible for swimwear design and exerted a strong force in the business. Peter
had several years of accounting training and experience behind him, and looked after
the general accounts and business affairs of the fledgling operation.
After the first few months John McMahon bought a minority shareholding in
the business and became responsible for sales. With the additional partner, a review
of the formal structure of the business was necessary. The Marshalls sought advice
from a consulting accountant who advised a change from a partnership to a company
structure both for tax reasons and to gain the limited liability status afforded by a
company.
In common with many new small businesses the accountant, Henry Jones, was
their principal external adviser for many years. He had helped the fledgling business
with tax returns in its initial two years, but had little involvement apart from that.
The change in structure was the opportunity to gain a more intimate knowledge of
the business. He had several meetings with Peter and inspected the operations before
finalizing the new structure.
Peter thought he could turn his hand to any sort of business. They had financed
the start-up of the business with some savings and a small overdraft facility at the
bank. The bank had required only a rudimentary business plan and a cash-flow
budget, together with some security for the overdraft, so no formal planning or
market research was undertaken in the early years of the company.
However, a lack of knowledge of the garment industry in Australia, together
with severe undercapitalization and a lack of clear planning, caused many early
problems and the business could have folded on numerous occasions. It survived
only because of Peter's determination not to fail and not to work for anyone else,
and Kate's ambitious nature.
The easy lifestyle of the past soon disappeared and running the business
became a seven-day-a-week job. After several seasons, sales to a number of local
stores and boutiques had become established to the point that significant production
expansion was warranted. An established garment manufacturing concern was
purchased, enabling the company to move away from the previous home-based
operations and the manufacturing and business activities to be centralized and
consolidated. Once again the chief business adviser at this point was Henry Jones,
the company's external accountant, as a substantial refinancing was required. He
helped to prepare the business plan for the new financing. A production consultant
was hired for a short assignment to help with the initial factory rearrangement. He
prepared a new production strategy and then worked directly in the production room
for a few weeks while the new systems were established.
With the move to bigger premises the product range was expanded beyond
swimwear to include evening wear, denims, tennis clothes, uniforms and school
wear. The sales effort to other areas of the country was also extended.
However, after four years of operation in the new premises the company was
barely breaking even and was slowly drifting into financial danger. Although the
new products were moderately successful nationally and generated a large turnover,
overall the erratic and uncontrolled diversification was not a success. The company
had no experience and no strategic advantage in the new lines and the principal
product, swimwear, was suffering as a result. Peter had begun to spend less time in
the company, leaving John McMahon in charge of day-to-day operations. John had
considerable sales ability, but was a poor manager. There was no planning or even
sales targeting, which made production planning very difficult.
The first management consultancy

In an annual review of the operations the accountant pointed out the poor
performance of the company and suggested that a management consulting associate
of his, Jim Scott, analyse its strategy and operations. Initially the budget for the
consultant was small, insufficient for a full commission, so Jim suggested some
decision-making processes in which he could be involved in key strategy sessions,
Appendices
providing the analytical framework, with the company being responsible for much
of the data-gathering and background research.
Jim first spent several weeks in the company, getting to know its operations
and the people involved. He was particularly interested to compare the different
versions of the operations of the company from its key personnel. Peter and Kate
were very clear about their positions. Peter had made a conscious decision to reduce
his day-to-day involvement in the company and pursue other interests. They both
could see John's limitations as a manager, but appreciated his sales ability and his
promises of better days just around the corner. However, they could not really
understand why the company was still only marginally profitable while the sales
volume was increasing. John was suspicious of Jim's motives and defensive when
interviewed by him. Only with considerable coaxing would he show Jim some key
sales data and company information.
Jim was careful to intewiew the other managers and employees individually,
as informally as possible. At every opportunity he emphasized his independent
advisory role and that he was not there to sack people. He had gained Peter's per-
mission to use company staff to help gather together data about the company and its
operations. He used this data and the results of his interviews to form an initial picture
of the company prior to leading the strategy development sessions. These took place
over several weekends at a place away from the factory. The three partners were
involved in the strategy sessions, together with the company's marketing manager,
production supervisor and finance controller.
At the first session Jim introduced the general strategic approach and facilitated
the discussion, but observed the others as much as possible. It was only towards the
end of the session that he gave his own opinions. The initial process identified the
lack of a clear focus as a core problem, causing or accompanying:
poor market position in markets for all of their products;
poor coordination between sales targets and production programming;
confusing and often inconsistent management decisions;
lack of capital for expansion;
productivity that was lower than the industry standard.
After the second session an analysis of the profitability of different product
lines revealed that swimwear was the only profitable line, and the decision was made
to immediately concentrate on it as the core product again. This was a bold decision,
since it involved an immediate halving of turnover and some production and design
disruptions. Both the management consultant and the consulting accountant were
involved in establishing management and accounting control systems during this
period.
John McMahon was unhappy with the decision to re-focus the product lines
and left the company. After discussions with Jim, Peter resolved to return to full-time
involvement in the company and wound down his external activities.
Detailed change strategy after the refocus decision concentrated on the
financial structure of the company to cope with future growth, and the management
and organizational structure.
After a period of four months the company had:

developed its first mission statement and business plan;
established more explicit and clear lines of authority and decision-making,
with Peter Marshall resuming full-time management of the company as
managing director;
instituted more formal sales management and sales targeting procedures, in-
volving some basic in-house market research and data collection on broad
target markets and alternative distribution outlets, and linking these with
detailed production planning and financial budgets;
resolved to find further investors to give the company the capital structure it
needed to sustain any growth.
Henry Jones, the consulting accountant, had some prominent sportspeople as
clients who were seeking investments in which they could play some semi-active
role. Two of them invested in the company and became board members. The
management consultant also accepted a board position at this time, bringing the total
size of the board to five.
Further developments
The re-focusing exercise was generally successful. The profitability of the
operations improved, and marketing and strategic advantages were realized. Island
Paradise found a marketing advantage over larger competitors by being able to
present themselves as swimwear specialists, in contrast to many competing
manufacturers, for whom swimwear was one line amongst many. The company was
able to sell to the big retail chains in this way.
By the early 1980s, several years after the refocusing exercise, the company
had established itself as a specialist swimwear manufacturer, supplying 6-7 per cent
of the Australian market for women's swimwear. The industry was a fragmented
one, with a large number of small and medium-sized companies and a low market
share for the top firms. Island Paradise produced approximately 120,000 units per
annum, making it much smaller than the larger of its close competitors, which were
up to three times bigger in terms of turnover.
Sales were throughout Australia, with a slight concentration on the local
market in Queensland, which had a strong beach culture and growing tourist
industry, and on the major population centre in Sydney. Up to 10 per cent of the
company's output was exported internationally, mostly via agents in New Zealand,
Hawaii and Singapore. The export history of the company had been patchy, with the
local market generally taking precedence.
Although the company was located outside the major market centres, it had
been able to turn its relatively small size and relative isolation somewhat to its
advantage. It was competing successfully against larger companies by keeping a low
profile, thus not prompting a price war, and targeting specialized markets, namely
the higher-end fashion market for younger purchasers, using special materials, while
still offering some product lines to the cheaper discount and teenage markets.
Appendices
At this time the company had a positive net worth of approximately

Aus$150,000 and annual profits of approximately Aus$120,000. Its manufacturing
operations in the city were at full capacity and it was necessary to subcontract the
production of some standard items to other factories. A small amount of production
(about 5 per cent) was subcontracted to a Malaysian manufacturer. Only basic items
were subcontracted for manufacture by others, because of the problems of quality
control when using specialized designs or materials.
Reacting to a changed business climate

In the mid-1980s a series of changes in the operating environment of the
company prompted a thorough investigation of its strategy. Jim Scott, the man-
agement consultant, had now been involved with the company for some time and
led a strategic review of the company, with the objective of setting its course for the
rest of the decade.
The approach used for this review was similar to the first refocusing exercise,
although this time Jim's firm undertook much of the detailed background and
analytical work. His firm had grown somewhat in the intervening period and now
had the staff available to do this type of work, while the Island Paradise staff were
now too busy to devote sufficient time to it.
The main changes identified were those in the market for swimsuits, in the
competitive position of the industry and, most importantly, in the import tariff and
quota framework then supporting the industry.
A market research company was engaged to supplement the company's
knowledge of the market with detail about purchaser characteristics. The demand
for women's swimwear had shown a rapid increase until the early 1970s and then
had steadied, growing at a modest annual rate since. The market could be con-
veniently segmented according to price and outlet, user characteristics and materials
used.
At the top end of the market was expensive signature merchandise, carrying a
designer label, accounting for approximately 2.5 per cent of the market and mostly
sold in boutiques and the speciality areas of department stores. Mainstream
swimwear accounted for approximately 85 per cent of the market and was sold in
department stores, speciality chains and boutiques. Discount chain merchandise
accounted for the remainder of the market and was sold through discount stores.
There had been the beginnings of a major shake-up in the Australian retail industry
at this time, with retailing power becoming concentrated into a small number of
large and diversified retailing chains. Island Paradise did not have a signature label
and generally produced for the upper end of the mainstream market. Less than 10 per
cent of its production was sold to discount chains.
There were three main user groups. For the young fashion group (14-25 years
old) key factors were price and style, with brand not considered important. The
sportswear group (18-35 years old) is fashion oriented but more conservative,
valuing brand, material and quality. The fashion group (over 25 years old) valued
brand and fit and would buy more expensive garments. There was no growth in the
younger market segments, and the older market segments were becoming pro-
portionately larger as the population age distribution profile shifted. Island Paradise
had products covering all three main user segments.
Materials used in the upper end of the markets were more specialized and
required particular skills. Island Paradise used these materials exclusively and had
well-developed production expertise in them.
While the growth in the swimwear market had been flat, there had been rapid
growth in the market for aerobics and exercise clothing. This market had many of
the characteristics of the swimwear market, using similar materials and with similar
fit and styling requirements. Island Paradise had no spare production capacity to
produce any garments for this market.
In 1983a new government was elected in Australia, with clearly stated policies
of structural and economic reform. The textile industry generally had been heavily
protected by a tariff and quota system. The incoming government flagged its
intention to substantially reduce protection levels in a series of staged reductions.
The role of offshore production and the long-term direction for the company
thus became central points in the strategy review. The impending tariff reduction
would also open the local market to imported garments from low labour cost
countries.
Jim Scott's report was initially presented to Peter and Kate Marshall as the
senior management of the company. Any changes would have to have their full
support. A subsequent presentation was made to the board. Recommendations were
discussed with them and a decision to proceed obtained.
The company's strengths and weaknesses

The strategic review identified the following resources and strengths for the
company:
profitable operations with some ability to borrow further funds from
shareholders;
an established manufacturing facility;
an experienced senior management team, proven design expertise, and an
established and productive workforce capable of specialized manufacture;
established purchasing and distribution systems for the local market; and
a well-developed expertise in producing a high-quality product.
The review also identified the following weaknesses and vulnerabilities:
a highly seasonal cash flow, with consequent additional finance costs;
a highly geared company with limited further borrowing capacity on its own
account;
the current factory operating at full capacity with no room for expansion;
total reliance on one person (Kate Marshall) for all design work;
Appendices
no succession plan for any key staff who may leave (the production manager
was past normal retiring age) and a management team too small to afford a
manager in training or designer in training; and
no established export distribution system and few international contacts apart
from current agents and distributors.
The distinctive competences of the company were identified as being in design
and styling, including the ability to successfully make and market a garment that
many purchasers have trouble in getting to fit well or feel they look good in. All
research indicated that styling and fit were considered to be very important by
purchasers. One area of specialization that put the company ahead of others was the
ability to produce good-quality garments in fabrics that were difficult to sew.
Alternative strategies
A series of alternative strategies were identified by the review. The criterion
for evaluating them was the objective to maintain steady growth in company
operations and earnings, but to limit the size and structure so that it could be
controlled by the existing owners and core management.
The main alternative strategies identified were:
A. No product diversification (concentrate on swimwear)

A1 . Geographical focus
This alternative would involve focusing on areas where high-volume sales
could be expected. The company would concentrate on selling only to the major
population centres in Australia with a strong beach culture. The objective would be
to reduce marketing costs for a fixed sales volume.
The principal advantage of this strategy was that sales volume would be
tailored to suit existing production capacity. Because selling and distribution costs
are substantial for the company (10-12 per cent of revenue), reductions in this area
would make a significant contribution to profits. The present management size and
financial structure would not need to be changed.
However, the strategy would increase market risk. By excluding certain
markets on a geographical basis, the total targeted market size would decrease,
making the company more vulnerable to changes in any one segment. Also, with
this no-growth, cost-cutting strategy, there would be the danger of a reduction in
management efficiency, and a complacency which would become increasingly
difficult to turn around.
A2. Market segmentation

This alternative would involve reducing the range of products produced to
concentrate on the most profitable lines, but continuing the geographical expansion,
selling to areas not yet serviced by the company. The effect of this would be to
generally move the product range of the company up market to more expensive lines.
It is essentially a moderate-growth, revenue-maximizing strategy.
The advantages of this strategy would be to reduce competition with major
market suppliers which operate at the lower-priced end of the market. It would
reduce the market risk on any one geographical market and allow production growth
to be controlled at a medium rate. The strategy would also capitalize on the reputation
and expertise of the company for producing garments of good styling, fit and quality.
The disadvantages are that it would increase marketing, travelling and dis-
tribution costs. Production increases would have to be managed carefully from the
Brisbane office, or the company would have to move to larger premises to maintain
the quality of the finished product. However, the production increases required
would be neither large, nor immediate, since much of the top-end market growth
would occur as lower market segments would cease to be serviced by the company.
The existing management and marketing infrastructure would be sufficient for this
strategy, and it would be attractive for the long-term stability of the company.
A3. Product-range enlargement and geographical

expansion
This is essentially a high-growth strategy, with the objective of covering all
principal market segments for swimsuits in all principal geographical areas. It would
involve an increased sales force, an immediate increase in production capacity, or
increasing use of imported products, and increased production efficiency to lower
unit production costs.
This strategy would give the company a good base for later expansion into
general fashion. It would help to reduce the company's dependence on particular
people, since it will be able to afford to hire more design and management expertise.
However, for this strategy to be successful, the company would need to marshal
the financial, managerial and production resources to be able to meet head-on
competition from much larger firms. Island Paradise would find it more difficult to
maintain and capitalize on its reputation and image in the more diversified markets.
A4. Export
Either of the latter two alternatives above could incorporate a substantial
component of sales outside Australia. This would most probably involve much more
offshore production, either in countries in which the swimsuits were marketed or,
more likely, in countries with lower production costs.
The initial steps for this would involve the immediate hiring of two new
managers: a production controller to ensure product quality and an international
marketing manager. The review established that the marginal cost of hiring these
two new people equated to additional sales of 30,000 items as a break-even quantity.
This would boost company expertise in critical areas, spread the market risk
further and help to solve the domestic production shortfall of the company. However,
Appendices
the costs were reasonably substantial and some financial risk was seen with this
strategy.
B. Some product diversification (out of swimwear)

B1. Non-seasonal garments
The production, marketing and cash flow of swimwear are highly seasonal,
and the review investigated the feasibility of reducing the adverse effects of this on
the company. There were some advantages found in product diversification where
use was made of the special expertise and reputation of the company. One such
product was exercise clothing using lycra fabric.
The review found no competitive advantage for the company in general
fashion, a field in which there is enormous competition, with certain segments being
dominated by very large firms with which Island Paradise would find it hard to
compete. Returns would consequently be very low and the risks to the company very
high.
B2. Non-garment products

The marketing of some non-garment products fitting in with the Island Para-
dise image was possible through existing distribution channels. The most likely
products would be those associated with swimwear, for example, sunglasses and sun
cream. These would present an opportunity to promote the beach image of the
company and use existing market outlets.
Undertaken on a small scale, and in products closely allied to the company's
existing lines, this could represent a useful range of complementary products.
Recommended strategy
The review concluded that Island Paradise was in the business of manu-
facturing and marketing fashion products that are difficult for consumers to get to
fit well and to look good, or "high consumer anxiety" products. A company that has
the ability to perform this function well can charge a premium for its products and
Island Paradise is such a company.
The implications of this for the objectives and strategies of the company were
clear. The review found that its main emphasis should be on swimsuits and not on
general fashion, where the company had no particular expertise. There should be no
major product diversification out of swimsuits (B), unless the product has similar
requirements for styling and fit. Similarly, there was seen to be no advantage in
covering the whole swimwear market (A3). The company did not have the ability
to compete on price terms alone, which it would have to do at the lower end of the
market. It could not easily marshal the funds or justify the expenditure to gain an
overall market position. Neither would it be able to meet the additional production
requirements without substantial new investment in production capacity, and this
new production would be for products with a low contribution margin. Island
Paradise clearly belonged in particular market segments where the premium for the
distinctive attributes of its product was highest.
Therefore a product segmentation strategy (A2) was adopted. It was also
decided that the risk involved in extending the export operations of the company
(A4) was justified and that international markets would be pursued with more
purpose than had previously been the case.
Having chosen the strategy, the review identified detailed financial, organi-
zational and staff requirements that would be required to implement it. The technical
expertise in garment production had been clearly identified as essential to the overall
success of the company. This aspect could sustain local production as competitive
even in the face of new competition from lower labour cost countries. Many of the
key workers had been engaged on a subcontract or casual basis. It was thought that
this did not tie them into the company sufficiently, and the entire workforce was
placed in salaried positions and a bonus scheme introduced based on a measure of
product quality.
The overall findings of the strategic review were presented to the workforce
in several meetings led by Peter. Feedback was sought, at the meetings and
informally in small-group discussions, on its conclusions and the most effective
ways to achieve the objectives. The objectives and main strategies of the company
were then formalized in a short document, which was made available to the staff.
A strategy implementation group including Peter, Jim, two of the senior
managers and three workforce representatives was established to coordinate any
changes.
One suggestion from the meetings to gain productivity was the introduction
of computerized cutting machines. A small subgroup including the production man-
ager and some cutters and pattern graders was formed to investigate the best way to
introduce this new technology.
The expansion required additional development and working capital. A
medium-term fund-raising strategy was devised by the consultant and the account-
ant. It involved a combination of a reduction in dividends to boost retained earnings,
shareholder loans and new shareholder capital raised over an 18-month period, to
fund first the export expansion and then a shift to new premises. The new premises
effectively increased production capacity by half and allowed room for later ex-
pansion.
The new strategy adopted by Island Paradise was successful. It allowed the
company to build on its strengths in production and design, to establish itself firmly
in the high and middle fashion sectors of the swimsuit market locally and expand
into export markets to generate steady growth for the company. While the expanded
production facility in Brisbane retained the manufacture of specialized and high-
value lines, the subcontract production with the Malaysian manufacturer of some
standard product lines, including the new aerobics clothing range, was expanded
and made more regular.
Appendices
A stable consultant-client relationship

The early relationship with the company formed by the consultant endured.
He is instrumental in leading an annual review of the strategy of the company and
suggests further work or analysis, sometimes using other specialized consultants
where needed. The company now directly employs 60 people in Australia, and a
similar number indirectly in other countries through its subcontracting operations.
Its sales and profits have grown steadily, with an annual turnover of Aus$4-5 million.
It remains an established firm in the industry.
APPENDIX 7
CASE HISTORY OF PROCESS

CONSULTING
(Apex Manufacturing Company)
In his book Process con~ultation,~

Edgar Schein provides a case history of the
Apex Manufacturing Company to explain the progressive steps and procedures of
an assignment using the process-consulting approach.
1. Initial contact with the client and defining relationships

The contact client from the Apex Manufacturing Company was a divisional
manager one level below the president. The company is a large manufacturing
concern, organized into several divisions. The contact client indicated that there were
communication problems in the top management group resulting from a recent
reorganization. Because the company expected to grow rapidly in the next several
years, they felt they should work on this kind of problem now.
He spoke openly about his concern that the president needed help in handling
certain key people, shared his worries that the president and his key subordinates
were not in good communication, and indicated that recent company history
suggested the need for some stabilizing force in the organization. I asked him
whether the president knew he had come to me and what the president's feelings
were about bringing in a consultant. The contact client indicated that the president
as well as other key executives were all in favour of bringing someone in to work
with them. All saw the need for some outside help.
Eventually, after many months of working with the president and his six key
subordinates, I arrived at a point where all of them saw me as a potentially useful
communication link. They asked me quite sincerely to report to each one the feelings
or reactions of others whenever I learned anything I felt should be passed on. At the
same time they were quite open with me about each other, knowing that I might well
pass on any opinions or reactions they voiced to me. They did not want me to treat
everything as confidential because they trusted me and each other enough.
This case was of great interest because of my own feeling that my having to
serve as carrier of this type of information was not an ideal role for me, and reflected
an insufficient ability on their part to tell each other things directly. Hence I took
two courses of action. First, I tried as much as possible to train each man to tell
others in the group directly what he thought about an issue. At the same time. I
intervened directly in their process by passing on information and opinions if I felt
this would aid the working situation.
A simple yet critical event will illustrate what I mean. Two members, Pete and
Joe, did not always communicate freely with each other, partly because they felt
some rivalry. Pete had completed a study and written a report which was to be
discussed by the whole group. Three days before the report was due, I visited the
company and stopped in at Pete's office to discuss the report with him and ask how
things were going. He said they were fine, but frankly he was puzzled about why
Joe hadn't come to him to look at some of the back-up data pertaining to Joe's
function. Pete felt this was just another bit of evidence that Joe did not really respect
Pete very much.
An hour or so later I was working with Joe, and raised the issue of the report.
Joe and his staff were very busy preparing for the meeting but nothing was said about
looking at the back-up data. When I asked why they had not done anything about
the data, Joe said that he was sure it was private and would not be released by Pete.
Joe wanted badly to see it, but felt sure that Pete had deliberately not offered it. I
decided there was no harm in intervening at this point by reporting to Joe how Pete
was feeling. Joe expressed considerable surprise; and later in the day, he went to
Pete, who gave him a warm welcome and turned over to him three volumes of the
data which Joe had been wanting to see and which Pete had wanted very much to
share with him. I had to judge carefully whether I would hurt either Pete or Joe by
revealing Pete's feelings. In this case I decided the potential gains outweighed the
risks.
Getting back to setting the proper expectations on the part of the company, I
have to make it very plain that I will not function as an expert resource on human-
relations problems, but that I will try to help the group solve those problems by
providing alternatives and by helping them to think through the consequences of
various alternatives. I also need to stress my expectation that I will gather data
primarily by observing people in action, not by interviewing and other survey
methods (though these methods would be used whenever appropriate). Finally, I
have to point out that I will not be very active, but will comment on what is happening
or give feedback on observations only as I feel it will be helpful to the group.
The fact that I will be relatively inactive is often a problem for the group
because of their expectation that once they have hired a consultant they are entitled
to sit back and just listen to him tell them things. To have the consultant then spend
hours sitting in the group and saying very little not only violates this expectation but
also creates some anxiety about what he is observing. The more I can reassure the
group early in the game that I am not gathering personal data of a potentially
damaging nature, the smoother the subsequent observations will go.
In summary, part of the early exploration with the contact client and any
associates whom he involves is intended to establish the formal and psychological
contract which will govern the consultation. I feel there should be no formal contract
beyond an agreement on a per diem fee and a potential number of days to be devoted
to working with the client system. Each party should be free to terminate or change
Appendices
the level of involvement at any time. At the psychological contract level, it is import-
ant to get out into the open as many misconceptions as possible, and to try to be as
clear as possible about my own style of work, aims, methods, and so on.
2. Method of work
The method of work chosen should be as congruent as possible with the values
underlying process consultation. Thus, observation, informal interviewing, and
group discussions would be congruent with:
(1) the idea that the consultant does not already have pat answers or standard
"expert" solutions; and
(2) the idea that the consultant should be maximally available for questioning and
two-way communication.
If the consultant uses methods like questionnaires or surveys, he himself
remains an unknown quantity to the respondent. As long as he remains unknown,
the respondent cannot really trust him, and hence cannot really answer questions
completely honestly. The method of work chosen, therefore, should make the
consultant maximally visible and maximally available for interaction.
Often I choose to start a consultation project with some interviewing, but the
purpose of the interview is not so much to gather data as to establish a relationship
with each of the people who will later be observed. The interview is designed to
reveal myself as much as it is designed to learn something about the other person.
I will consider the use of questionnaires only after I am well enough known by the
organization to be reasonably sure that people would trust me enough to give direct
and frank answers to questions.
In the Apex Company, the exploratory meeting led to the decision to attend
one of the regular meetings of the executive committee. At this time I was to meet
the president and the other key executives to discuss further what could and should
be done. At this meeting, I found a lively interest in the idea of having an outsider
help the group and the organization to become more effective. I also found that the
group was willing to enter an open-ended relationship. I explained as much as I
could my philosophy of process consultation and suggested that a good way of
getting further acquainted would be to set up a series of individual interviews with
each member of the group. At the same time, I suggested that I sit in on the weekly
half-day meetings of the executive committee. The interviews would then occur after
several of these meetings.
At the initial meeting of the group, I was able to observe a number of key
events. For example, the president, Alex, was very informal but very powerful. I got
the impression initially (and confirmed it subsequently) that the relationship of all
the group members to the president would be the key issue, with relationships to
each other being relatively less important. I also got the impression that Alex was a
very confident individual who would tolerate my presence only as long as he saw
some value in it; he would have little difficulty in confronting me and terminating
the relationship if my presence ceased to have value.
It was also impressive, and turned out to be indicative of a managerial style,

that Alex did not feel the need to see me alone. He was satisfied from the outset to
deal with me inside the group. Near the end of the initial meeting, I requested a
private talk with him to satisfy myself that we understood the psychological contract
we were entering into. He was surprisingly uncomfortable in this one-to-one
relationship, had little that he wished to impart to me, and did not show much interest
in my view of the relationship. I wanted the private conversation in order to test his
reaction to taking some personal feedback on his own behaviour as the consultation
progressed. He said he would welcome this and indicated little or no concern over
it. As I was to learn later, this reflected a very strong sense of his own power and
identity. He felt he knew himself very well and was not a bit threatened by feedback.
Part of the initial mandate was to help the group to relate to the president. In
the interviews which I conducted with group members, I concentrated quite heavily
on what kind of things went well in the relationship; what kind of things went poorly;
how relationship problems with the president were related to job performance; in
what way the group members would like to see the relationship change, and so on.
I did not have a formal interview schedule, but rather, held an informal discussion
with each member around issues of the sort I have just mentioned.
Intervention by the consultant

In the Apex Company, I found that the treasurer consistently made the operat-
ing managers uncomfortable by presenting financial information in an uninten-
tionally threatening way. He wanted to be helpful, and he felt everyone needed the
information he had to offer, but it often had the appearance of an indictment of one
of the other managers; his costs were too high, his inventory control had slipped, he
was too high over budget, etc. Furthermore, this information was often revealed for
the first time in the meeting, so that the operating manager concerned had no
forewarning and no opportunity to find out why things had gone out of line. The
result was often a fruitless argument about the validity of the figures, a great deal of
defensiveness on the part of the operating manager, and irritation on the part of the
president because the managers could not deal more effectively with the treasurer.
As I observed this process occurring repeatedly over several weeks, I decided
that merely drawing attention to the pattern would not really solve the problem
because everyone appeared to be operating with constructive intent. What the group
needed was an alternative way to think about the use of financial control information.
I therefore wrote a memo on control systems (see section 5) and circulated it to the
group.
When this came up for discussion at a later meeting 1 was in a better position
to make my observations about the group, since a clear alternative had been pre-
sented. My feeling was that I could not have successfully presented this theory orally
because of the amount of heat the issue always generated, and because the group
members were highly active individuals who would have wanted to discuss each
point separately, making it difficult to get the whole message across.
Appendices
In working with the Apex group I found the written "theory memo" a con-
venient and effective means of communication. With other groups I have found
different patterns to be workable. For example, if the group gets away for a half-day
of work on group process, I may insert a half-hour in the middle (or at the end) of
the session to present whatever theory elements I consider to be relevant. The topics
are usually not selected until I observe the particular "hang-ups7' which exist in the
group. I therefore have to be prepared to give, on short notice, an input on any of a
variety of issues.
A final method of theory input is to make reprints of relevant articles available
to the group at selected times. Often I know of some good piece of theory which
pertains to what the group is working on. If I suggest that such an article should be
circulated, I also try to persuade the group to commit some of its agenda time to a
discussion of the article.
The key criterion for the choice of theory input is that the theory must be
relevant to what the group already senses is a problem. There is little to be gained
by giving "important" theory if the group has no data of its own to link to the theory.
On the other hand, once the group has confronted an issue in its own process, I am
always amazed at how ready the members are to look at and learn from general
theory.
Agenda-setting interventions may strike the reader as a rather low-key,
low-potency kind of intervention. Yet it is surprising to me how often working groups
arrive at an impasse on simple agenda-setting issues. In a way, their inability to select
the right agenda for their meetings, and their inability to discuss the agenda in a
constructive way, is symbolic of other difficulties which are harder to pinpoint. If
the group can begin to work on its agenda, the door is often opened to other process
discussions. Let me provide some examples of how this approach works.
In the Apex Company I sat in for several months on the weekly executive-
committee meeting, which included the president and his key subordinates. I quickly
became aware that the group was very loose in its manner of operation: people spoke
when they felt like it, issues were explored fully, conflict was fairly openly
confronted, and members felt free to contribute. This kind of climate seemed
constructive, but it created a major difficulty for the group. No matter how few items
were put on the agenda, the group was never able to finish its work. The list of
backlog items grew longer and the frustration of group members intensified in
proportion to this backlog. The group responded by trying to work harder. They
scheduled more meetings and attempted to get more done at each meeting, but with
little success. Remarks about the ineffectiveness of groups, too many meetings, and
so on, became more and more frequent.
My diagnosis was that the group was overloaded. Their agenda was too large,
they tried to process too many items at any given meeting, and the agenda was a
mixture of operational and policy issues without recognition by the group that such
items required different allocations of time. I suggested to the group that they seemed
overloaded and should discuss how to develop their agenda for their meetings. The
suggestion was adopted after a half-hour or so of sharing feelings. It was then
decided, with my help, to sort the agenda items into several categories, and to devote
some meetings entirely to operational issues while others would be exclusively

policy meetings. The operations meetings would be run more tightly in order to
process these items efficiently. The policy questions would be dealt with in depth.
Once the group had made this separation and realized that it could function
differently at different meetings, it then decided to meet once a month for an entire
day. During this day they would take up one or two large questions and explore them
in depth. The group accepted my suggestion to hold such discussions away from the
office in a pleasant, less hectic environment.
By rearranging the agenda, the group succeeded in rearranging its whole
pattern of operations. This rearrangement also resulted in a redefinition of my role.
The president decided that I should phase out my attendance at the operational
meetings, but should plan to take a more active role in the monthly one-day meetings.
He would set time aside for presentation of any theory I might wish to make, and
for process analysis of the meetings. He had previously been reluctant to take time
for process work in the earlier meeting pattern, but now welcomed it.
The full-day meetings changed the climate of the group dramatically. For one
thing, it was easier to establish close informal relationships with other members
during breaks and meals. Because there was enough time, people felt they could
really work through their conflicts instead of having to leave them hanging. It was
my impression that as acquaintance level rose, so did the level of trust in the group.
Members began to feel free to share more personal reactions with each other. This
sense of freedom made everyone more relaxed and readier to let down personal
barriers and report accurate information. There was less need for defensive distortion
or withholding.
After about one year the group decided quite spontaneously to try some direct
confrontive feedback. We were at one of the typical monthly all-day meetings. The
president announced that he thought each group member should tell the others what
he felt to be the strengths and weaknesses of the several individuals. He asked me
to help in designing a format for this discussion. I first asked the group members
whether they did in fact want to attempt this type of confrontation. The response
was sincerely positive, so we decided to go ahead.
The format I suggested was based upon my prior observation of group
members. I had noticed that whenever anyone commented on anyone else, there was
a strong tendency to answer back and to lock in on the first comment made. Hence,
further feedback tended to be cut off. To deal with this problem I suggested that the
group discuss one person at a time, and that a ground rule be established that the
person being described was not to comment or respond until all the members had
had a chance to give all of their feedback. This way he would be forced to continue
to listen. The ground rule was accepted, and I was given the role of monitoring the
group to ensure that the process operated as the group intended it to.
For the next several hours the group then went into a very detailed and
searching analysis of each member's managerial and interpersonal style, including
that of the president. I encouraged members to discuss both the positives and the
negatives they saw in the person. I also played a key role in forcing people to make
their comments specific and concrete. I demanded examples, insisted on clari-
Appendices
fication, and generally asked the kind of question which I thought might be on the
listener's mind as he tried to understand the feedback. I also added my own feedback
on points I had observed in that member's behaviour. At first it was not easy for the
group either to give or receive feedback, but as the day wore on, the group learned
to be more effective.
The total exercise of confrontation was considered highly successful, both at
the time and some months later. It deepened relationships, exposed some chronic
problems which now could be worked on, and gave each member much food for
thought in terms of his own self-development. It should be noted that the group chose
to do this spontaneously after many months of meetings organized around work
topics. I am not sure they could have handled the feedback task effectively had they
been urged to try sooner, even though I could see the need for this type of meeting
some time before the initiative came from the group.
In this case, my intervention tended to help the group move from chaotic
meetings toward a differentiated, organized pattern. In the end, the group spent more
time in meetings than before, but they minded it less because the meetings were
more productive. The group also learned how to manage its own agenda and how to
guide its own processes.
Feedback systems to groups and individuals

After getting to know the top-management group through several group meet-
ings, I suggested that it might be useful to interview and give feedback to the next
level below the vice-president. There was some concern on the part of the senior
group that there might be a morale problem at this level. Initially I was asked merely
to do an interview survey and report back to the top group. I declined this approach
for reasons already mentioned: gathering data to report to a higher group would
violate process-consulting assumptions because it would not involve the sources of
the data in analysing their own process. I suggested instead that I conduct the inter-
views with the ground rule that all my conclusions would first be reported back to
the interviewee group, and that I would tell top management only those items which
the group felt should be r e p ~ r t e dThe
. ~ group would first have to sort the items and
decide which things they could handle by themselves and which should be reported
up the line of authority because they were under higher management control. The
real value of the feedback should accrue to the group which initially provided the
data; they should become involved in examining the issues they had brought up, and
consider what they themselves might do about them.
The above-mentioned procedure was agreed upon by the top management.
One vice-president sent a memorandum to all members who would be involved in
the interview programme, informing them of the procedure, his commitment to it,
and his hope that they would participate. I then followed up with individual
appointments with each person concerned. At this initial appointment I recounted
the origin of the idea, assured the interviewee that his individual responses would
be entirely confidential, told him that I would summarize the data by department,
and told him that he would see the group report and discuss it before any feedback
went to his boss or higher management.
In the interview I asked each person to describe his job, tell what he found to
be the major pluses and minuses in the job, describe what relationships he had to
other groups, and how he felt about a series of specific job factors such as challenge,
autonomy, supervision, facilities, salary and benefits, and so on. I later summarized
the interviews in a report in which I tried to highlight what I saw to be common
problem areas.
All the respondents were then invited to a group meeting at which I passed out
the summaries, and explained that the purpose of the meeting was to examine the
data, deleting or elaborating where necessary, and to determine which problem areas
might be worked on by the group itself. We then went over the summary item by
item, permitting as much discussion as any given item warranted.
The group meeting had its greatest utility in exposing the interviewees, in a
systematic way, to interpersonal and group issues. For many of them, what they had
thought to be private gripes turned out to be organizational problems which they
could do something about. The attitude "let top management solve all our problems"
tended to be replaced with a viewpoint which differentiated between intra-group
problems, inter-group problems, and those which were higher management's res-
ponsibility. The interviewees not only gained more insight into organizational
psychology, but also responded positively to being involved in the process of data
gathering itself. It symbolized to them top management's interest in them and
concern for solving organizational problems. Reactions such as these are typical of
other groups with whom I have tried the same approach.
Following the group meeting, the revised summary was then given to top
management, in some cases individually, in others, in a group. My own preference
is to give it first individually, to provide for maximum opportunity to explain all the
points, and then to follow up with a group discussion of the implications of the data
revealed in the interviews. Where the direct supervisor of the group is involved, I
have often supplemented the group report with an individual report, which extracts
all the comments made by interviewees concerning the strengths and weaknesses of
the supervisor's style of management. These focused feedback items have usually
proved of great value to the manager, but they should bc provided only if the manager
initially asked for this type of feedback.
In giving either individual or group feedback from the interview summary, my
role is to ensure understanding of the data and to stimulate acceptance of it, so that
remedial action of some sort can be effectively undertaken. Once thc expectation
has been built that top management will do something, there is great risk of lowering
morale if the report is merely read, without being acted upon in some manner.
Incidentally, it is the process consultant's job to ensure that top management makes
this commitment initially and that high-level officials understand that when the
interviews are completed there will be some demands for action. If management
merely wants information (without willingness to do something about the infor-
mation), the process consultant should not do the interviews in the first place. The
Appendices
danger is too great that management will not like what it hears and will suppress the
whole effort; such a course will only lead to a deterioration of morale.
The results of interviews (or questionnaires) do not necessarily have to go
beyond the group which is interested in them. One of the simplest and most helpful
things a group can do to enhance its own functioning is to have the consultant
interview the members individually and report back to the group as a whole a
summary of its own members' feelings. It is a way of hauling crucial data out into
the open without the risk of personal exposure of any individual if he feels the data
collected about him are damaging or that the analysis of such data will result in
conclusions that are overcritical of his performance.
The giving of individual feedback can be illustrated from several cases. In the
Apex Company I met with each of the vice-presidents whose groups had been
interviewed and gave them a list of comments which had been made about their
respective managerial styles. I knew each man well and felt that he would be able
to accept the kind of comments which were made. In each case we scheduled at least
a one-hour session, so we could talk in detail about any items which were unclear
and/or threatening.
These discussions usually become counselling sessions to help the individual
overcome some of the negative effects which were implied in the feedback data.
Since I knew that I would be having sessions such as these, I urged each interviewee
to talk at length about the style of his boss and what he did or did not like about it.
In cases where the boss was an effective manager, I found a tendency for subordinates
to make only a few vague generalizations which I knew would be useless as helpful
feedback. By probing for specific incidents or descriptions, it was possible to
identify just what the boss did which subordinates liked or did not like.
Making suggestions
The consultant must make it quite clear that he does not propose any particular
solution as the best one. However frustrating it might be to the client, the process
consultant must work to create a situation where the client's ability to generate his
own solutions is enhanced. The consultant wants to increase problem-solving ability,
not to solve any particular problem.
In my experience there has been only one class of exceptions to the above
"rule". If the client wants to set up some meetings specifically for the purpose of
working on organizational or interpersonal problems, or wants to design a data-
gathering method, then the consultant indeed does have some relevant expertise
which he should bring to bear. From his own experience he knows better than the
client the pros and cons of interviews or questionnaires: he knows better what
questions to ask, how to organize the data, and how to organize feedback meetings;
he knows better the right sequence of events leading up to a good discussion of
interpersonal process in a committee. In such matters, therefore, I am quite direct
and positive in suggesting procedures, who should be involved in them, who should
be told what, and how the whole project should be handled.
For example, I recall that in the Apex Company the president decided at one
of their all-day meetings to try to give feedback to all the members. He asked me to
suggest a procedure for doing this. In this instance I was not at all reluctant to suggest,
with as much force and logic as I could command, a particular procedure which I
thought would work well. Similarly, when it was proposed to interview all the mem-
bers of a department, I suggested exactly how this procedure should be set up; I
explained that all the members had to be briefed by the department manager, that a
group feedback meeting would have to be held, and so on. I have not been at all
hesitant in refusing to design a questionnaire study if I thought it was inappropriate,
or to schedule a meeting on interpersonal process if I thought the group was not
ready.
In conclusion, the process consultant should not withhold his expertise on mat-
ters of the learning process itself; but he should be very careful not to confuse being
an expert on how to help an organization to learn with being an expert on the actual
management problems which the organization is trying to solve. The same logic
applies to the evaluation of individuals; I will under no circumstances evaluate an
individual's ability to manage or solve work-related problems; but I will evaluate an
individual's readiness to participate in an interview survey of his group or a feedback
meeting. If I feel that his presence might undermine some other goals which the
organization is trying to accomplish, I will seek a solution which will bypass this
individual. These are often difficult judgements to make, but the process consultant
cannot evade them if he defines the overall health of the organization as his basic
target. However, he must always attempt to be fair both to the individual and the
organization. If no course of action can be found without hurting either, then the
whole project should probably be postponed.
3. Evaluation of results
Considerable value change and skill growth occurred over the course of the
first year. During this time I spent a great deal of time in two major activities:
(1) sitting in on various meetings of the top-management group; and (2) conducting
interview and feedback surveys of various key groups, as managers decided they
wanted such interviews done. In addition, there were periods of individual coun-
selling, usually resulting from data revealed in the interviews.
I have already given examples of the kind of specific activities which occurred
in the group meetings, interviews and feedback sessions. It was clear that with
increasing experience, the group was learning to tune in on its own internal processes
(skill), was beginning to pay more attention to these and to give over more meeting
time to analysis of interpersonal feelings and events (value change), and was able
to manage its own agenda and do its diagnosis without my presence (skill). The
group first discovered this from having to conduct some of its all-day meetings in
my absence. Where such meetings used to be devoted entirely to work content, the
group found that even in my absence they could discuss interpersonal process with
profit. The members themselves described this change as one of "climate". The
group felt more open and effective; members felt they could trust each other more;
Appendices
information was flowing more freely; less time was being wasted on oblique com-
munications or political infighting.
During the second year, my involvement was considerably reduced, though I
worked on some specific projects. The company had set up a committee to develop
a management development programme. I was asked to sit in with this committee
and help in the development of a programme. After a number of meetings, it became
clear to me that the kind of programme the group needed was one in which the
content was not too heavily predetermined. The problems of different managers were
sufficiently different to require that a formula should be found for discussing the
whole range of problems. One of the reflections of the value change which had taken
place in the managers was their recognition that they should be prime participants
in any programme which they might invent. If a programme was not exciting or
beneficial enough to warrant the committee's time, it could hardly be imposed on
the rest of the organization.
We developed a model which involved a series of small-group meetings at each
of which the group would set its own agenda. After every third meeting or so, a larger
management group would be convened for a lecture and discussion period on some
highly relevant topic. Once the first group (the committee plus others at the
vice-president level) had completed six to eight meetings, each member of the
original group would become the chairman for a group at the next lower level of the
organization. These ten or so next-level groups would then meet for six to eight
sessions around agenda items developed by themselves. In the meantime the lecture
series would continue. After each series of meetings at a given organizational level,
the model would be reassessed and either changed or continued at the next lower
level with the previous members again becoming group chairmen.
My role in this whole enterprise was, first, to help the group to invent the idea;
second, to meet with the original group as a facilitator of the group's efforts to
become productive; third, to serve as a resource on topics to be covered and lecturers
to be used in the lecture series; and, fourth, to appear as an occasional lecturer in the
lecture series or as a source of input at a small group meeting. As this procedure
took form, my involvement was gradually reduced, though I still met with the
original committee to review the overall concept.
In recent months I have met occasionally with individual members of the
original group and with the group as a whole. My function during these meetings is
to be a sounding-board, to contribute points of view which might not be represented
among the members, and to help the group to assess its own level of functioning. I
have been able to provide the group with some perspective on its own growth as a
group because I could more easily see changes in values and skills. It has also been
possible for the group to enlist my help with specific interpersonal problems. A
measure of the growth of the group has been its ability to decide when and how to
use my help, and to make those decisions validly from my point of view in terms of
where I felt I could constructively help.
4. Disengagement: Reducing involvement with the

client system
The process of disengagement has, in most of my experiences, been charac-
terized by the following features where:
(1) reduced involvement is a mutually agreed upon decision rather than a unilateral
decision by consultant or client;
(2) involvement does not generally drop to zero but may continue at a very low
level;
(3) the door is always open from my point of view for further work with the client
if the client desires it.
In most of my consulting relationships there has come a time when either I felt
that nothing more could be accomplished and/or some members of the client system
felt the need to continue on their own. To facilitate a reduction of involvement, I
usually check at intervals of several months to see whether the client feels that the
pattern should remain as is or should be altered. In some cases where I have felt that
a sufficient amount has been accomplished, I have found that the client did not feel
the same way and wanted the relationship to continue on a day-a-week basis. In
other cases, I have been confronted by the client, as with the Apex Company, with
the statement that my continued attendance in the operational group meetings was
no longer desirable from his point of view. As the president put it, I was beginning
to sound too much like a regular member to be of much use. I concurred in the
decision and reduced my involvement to periodic all-day meetings of the group,
though the initiative for inviting me remained entirely with the group. Had I not
concurred, we would have negotiated until a mutually satisfactory arrangement had
been agreed upon. I have sometimes been in the situation of arguing that I should
remain fully involved even when the client has wanted to reduce involvement, and
in many cases I have been able to obtain the client's concurrence.
The negotiation which surrounds a reduction of involvement is in fact a good
opportunity for the consultant to diagnose the state of the client system. The kind
of arguments which are brought up in support of continuing (or terminating) provide
a solid basis for determining how much value and skill change has occurred. The
reader may feel that since the client is paying for services, he certainly has the right
to make unilateral decisions about whether or not to continue these services. My
point would be that if the consultation process has even partially achieved its goals,
there should arise sufficient trust between consultant and client to enable both to
make the decision on rational grounds. Here again, it is important that the consultant
should not be economically dependent upon any one client, or his own diagnostic
ability may become biased by his need to continue to earn fees.
5. Memo on control systems

In this study with the Apex Company the following memo was prepared, dis-
tributed and later discussed in a meeting:
Appendices
Some ideas why internal auditing is seen as non-

helpful or as a source of tension
Auditors often feel primary loyalty to the auditing group rather than the com-
pany as a whole; they tend, at times, to feel themselves outside of the organi-
zation. Managers, on the other hand, feel primary loyalty to the organization.
Auditors are typically rewarded for finding things wrong, less so for helping
people get their work done. Managers, on the other hand, are rewarded for
getting the job done, whether things were wrong or not.
Auditors tend to be (a) perfectionists, and (b) focused on particular problems
in depth. Managers, on the other hand, tend to be (a) "satisfiers" rather than
maximizers (they tend to look for workable rather than perfect or ideal
solutions), and (b) generalists, focusing on getting many imperfect things to
work together towards getting a job done, rather than perfecting any one part
of the job.
The auditor's job tempts him to evaluate the line operation and to propose
solutions. The manager, on the other hand, wants descriptive (non-evaluative)
feedback and to design his own solutions.
Some possible dysfunctional consequences of tension

between line organization and auditing function
Members of the line organization tend to pay attention to doing well, primarily
in those areas which the auditor measures, whether those are important to the
organizational mission or not.
Members of the line organization try hard to hide problems and imperfections.
Management tends to use information about subordinates in an unintentionally
punishing way by immediate inquiries which give subordinates the feeling of
having the boss on their back, even while they are already correcting the
problem.
Members of the line organization are tempted to falsify and distort information
to avoid punishment for being "found out", and to avoid having their boss
"swoop down" on them.
Detailed information gathered by the auditing function tends to be passed too
far up the line both in the auditing function and the line organization, making
information available to people who are too far removed from the problem to
know how to evaluate the information.
Some tentative principles for the handling of auditing

Line involvement. The more the line organization is involved actively in deci-
sions concerning (a) which areas of performance are to be audited, and (b) how
the information is to be gathered and to whom it is to be given, the more helpful
and effective the auditing function will be.
Horizontal rather than vertical reporting. The more the auditing information
is made available, first to the man with the problem (horizontal reporting), then
to his immediate boss only if the problem is not corrected, and then only to
higher levels in either the line or the auditing group if the problem is still not
corrected, the more likely it is that auditing will be effective (because line
organizations will be less motivated to hide or falsify information and less
likely to feel punished).
Reward for helping rather than policing. The more the managers in the
auditing group reward their subordinates for being helpful (based on whether
they are being perceived as helpful by the line) rather than being eflcient in
finding problem areas, the more effective the auditing function will be.
(Auditing people tend to be undertrained in how to use audit information in a
helpful way; an appropriate reward system should be bolstered by training in
how to give help.)
Useful feedback. The more the auditing intbrmation is relevant to important
operational problems, timely in being fed back as soon after problem discovery
as possible, and descriptive rather than evaluative, the more useful it will be
to the line organization.
' E. H. Schein: Process consultalion: Its role in or,ganization development (Reading,

Massachusetts, Addison-Wesley, 1969). Reprinted with the kind permission of the author and the
publisher. See also idem: Process consulration. Vol. 11: Le.rsorzs for managers and consultanrs
(Reading, Massachusetts, Addison-Wesley. 1987).
This procedure was brought to Edgar Sche~n'sattention by R. Beckhard. See also R. Bcck-
hard: Orgcrnizc~riondevelopment: Str(iregies ~ n dmodels (Read~ng,Massachusetrs. Addison-
Wesley, 1969).
APPENDIX 8
CASE HISTORY OF SENIOR

MANAGEMENT
TEAM DEVELOPMENT
This case history shows how a management consultant helped the senior
management team of a European subsidiary of a large multinational company to
spend more time on strategic management, improve its performance as a
management team and achieve better business results. The method used was based
on the action-learning approach in which the consultant helps the managers or
experts in the team to use their own knowledge and skills to resolve the problems
faced by the organization.
The client organization

The client was the sales division of the corporation. The division had res-
ponsibility for sales in the United Kingdom and Ireland, and was based near London.
The division employed 80 people and was led by a general manager with eight
managers reporting directly to him.
In the six months prior to the consultant's assignment the management team
of this division had found themselves repeatedly in an unpleasant situation. On
several occasions,they were asked by the corporation's European headquarters to
make savings and reduce expenditure, a course of action which they believed to be
harmful to their business. They were, however, not able to resist the pressure because
they were unable to objectively demonstrate what they believed to be true, namely
that although the current results were not satisfactory, there was about to be a market
upturn. Reducing crucial sales effort in the way suggested by the European head-
quarters would, they believed, weaken the sales division at a time when it was just
about to take a number of significant orders. They decided that they did not want to
be put in a similar situation again and that the way to avoid this in future was to be
able to "prove" their case.
Need for a consultancy

The personnel manager suggested to the general manager that they invite a
management consultant who was already known to them to come and discuss the
issue. In the discussions that followed, the consultant helped to identify three priority
problems that the team needed to address.
First, there was an ongoing problem within the sales group concerning the role
of the salesperson vis-A-vis product/applications engineering specialists at various
stages of the sales cycle. This had become more apparent as the whole sales process
had become more "technical".
Second, there was a lack of good information about customers. In addition,
most of the information that was available was only in the memories of individual
salespeople.
Third, there were communication and relationship problems within the man-
agement team, which was reflected down through the organization.
The consultant proposed a three-stage approach to the problem, starting with
a two-and-a-half day residential workshop designed to:
reach agreement on key operational and strategic drivers and performance
indicators and put in place systems to manage these;
identify the problems that needed to be resolved and agree actions to be taken;
improve teamwork through assessing the interpersonal relationships within
the team and agreeing how these could be made more collaborative and
constructive.
For the second stage, the consultant proposed a six-month action-learning pro-
gramme in which the management team would work as a problem-solving team and
the consultant would act as their adviser and facilitator. The development forum
would be the team's monthly meetings.
Finally, stage three would be a one-day review to assess what has been achieved
and agree the way ahead.
The consultant was contracted on the basis of a lump-sum fee for preparatory
work and a daily rate to be paid for the time actually worked during the assignment.
Stage 1 - The management workshop

Nine members of the management team attended the introductory workshop
in June 1991. The workshop opened with a presentation by the general manager,
setting out the issues and goals for the programme. The group then went an to review
and agree their goals for the business over the next two years and beyond. This was
followed by an exercise in which the team worked in two subgroups to define (a) the
roles of the senior managers in the division, and (b) the specific actions that would
need to be taken in order to ensure the success of the business. The views of the two
groups were then brought together and approved in a plenary session.
In the next step the workshop separated the tasks that are operational (con-
cerned with the day-to-day operations and profitability of the business) and strategic
(those things concerned with the future health of the business). The division's
organizational structure and reporting relationships were then discussed in order to
agree on the most suitable structure for achieving the business goals. No changes in
the structure or the reporting relationships were considered necessary at this time
Appendices
and all senior managers were "confirmed" in their roles. (It should be noted that this
is not always the case; therefore prior to the workshop the consultant should warn
the general manager that changes in the organization's structure may be proposed
during the workshops so that he or she can plan a response). Operational res-
ponsibilities and strategic coordination roles were then allocated.
The team then went on to examine their interpersonal relationships. This was
done using a number of psychological profiles to provide personal feedback and a
view of the cultural style of the organization as seen by senior management. This
activity was particularly valuable as it created the opportunity for open discussion
within the team on their views of each other. For example, the general manager was
seen by most collaborators as "analytical". A typical comment was: "You would
rather work with your notebook to solve a problem than talk to us". Another team
member was seen by colleagues as "long on promises but short on delivery", and so
on. This frank but constructive discussion enabled the team to understand their
perception of themselves and the existing organizational culture. This they defined
as "judicious competing", a style which was not conducive to the sort of participative
management style they wished to adopt, and in fact was the cause of many of their
problems.
In particular, the discussions on the existing culture of the organization helped
the team to understand:
why it was spending most of its time on operational rather than strategic issues;
why the division had no forum for discussing strategic issues since the agendas
for all current meetings were oriented towards operations; and
why, although the division actually had management tools such as a business
plan, a manpower plan and a performance review system, the currently
prevailing reactive management style precluded the team from using these
tools effectively to manage the business. These tools were seen as something
for the headquarters rather than for themselves.
The debate allowed the team to understand that their reactive management
style was the main reason why they had not been in a position to argue their case
with head office over the proposed cost reductions. They were managing the current
task (the present), not the strategy for growth and development (the future).
The next step was to agree the measurement criteria for assessing res-
ponsibility for operational and strategic decisions. This was done working in small
groups on the understanding that the final measurement criteria would have to be
agreed by each senior manager with the colleagues directly reporting to him or her
back in the workplace before being submitted for approval to the team.
The last part of the workshop was concerned with identifying the key problems
that the group felt needed to be resolved if they were to achieve their business and
personal goals. The following issues were identified:
(1) A lack of clear differentiation between the roles of various product sales man-
agers. This role confusion resulted in poaching, protectionism, defensiveness,
poor communication, reactive pressures, etc.
(2) A strong focus on short-term issues implied that the group was very narrowly
driven towards the current sales figures and immediate corporate requirements.
The group needed to use the business plans that it was currently producing for
headquarters to manage its business if it wished to control its own destiny.
(3) There was considerable scope for improving the way in which the group man-
aged its people. There were quite a few good "people management" tools
available in the organization and the team actually used many of them, includ-
ing annual performance appraisal, team briefing, etc. The problem was that
these things were done because the corporation wanted the division to do so,
not because the division's managers believed in their usefulness. Hence there
was a need to formulate and practise an improved people management policy
in order to focus and motivate people to achieving the division's goals.
After some debate it was decided that the group would work as three teams to
analyse these issues, and terms of reference were agreed. The actual projects were
as follows:
Project 1 - Defining the staff managers' role;
Project 2 - Planning for our business future;
Project 3 - Developing a coherent people management philosophy.
The final step was to agree the management procedures that would be used to
achieve the desired goals. The team chose to continue to make use of their regular
weekly meetings to handle the operational issues, and to turn one of these meetings
every month into a strategic meeting. It was also agreed that the consultant would
be invited to act as facilitator at the strategic meetings for the first six months.
Stage 2 - Regular monthly meetings and

implementation of proposals
At the first strategic meeting, which was held one month after the workshop,
the team produced an agenda listing the issues to be covered and their proper timing,
i.e. budgeting in July, organization and management review in November, per-
formance appraisal in December, etc. In addition to these items, the agenda also
provided for reporting on the three projects plus any other important issues. The
team decided to rotate the chairmanship, thus ensuring everyone's involvement and
interest.
The early meetings concentrated mainly on the findings of the project teams.
The findings of the groups led to a number of significant changes over the following
six months:
The monthly sales meeting structure was changed. Previously there had been
two separate meetings. These were brought together and a new "open forum"
section introduced through which specialists could be invited to address the
sales teams.
A more effective form of team-based performance management was intro-
duced, organized through the functional team meetings.
The effectiveness of the weekly staff management meetings improved signifi-
cantly once the strategic issues had been removed to a separate forum.
Appendices
Communication within the management team improved as a result of role clari-

fication and improved performance indicators. This also led to greater staff
empowerment at the operating level.
The business planning project, which consisted of a detailed profiling of
existing and potential customers and the use of this information in a customer
management programme, led to a very significant increase in awareness of
customer potential and sales efficiency; this enabled a much more effective
use of resources in customer targeting.
Stage 3 - Review and results assessment

The meetings continued on a monthly basis until July 1992 at which time the
stage 3 review was held. This had been postponed to enable the management team
to reach certain agreed milestones, including the findings of the annual attitude
survey. The team identified the following results which they believed they had
achieved as a result of the programme:
Morale at all levels in the organization is greatly improved. The annual attitude
survey showed a 70 per cent plus satisfaction level across all categories, 50 per
cent higher than a year ago.
Overall profitability has improved. The company had its best year ever in 1992.
The management team is working much more effectively together.
The strategic processes are under control. The group now has its own business
plans and is using them to drive their business decisions. The general manager
believes that this has enabled them to focus their sales effort, and that this has
been the principal factor of their current commercial success.
The improved communication procedures have significantly improved staff
motivation and morale.
The total customer satisfaction teams have been focused so that they are now
making a significant contribution to the efficiency of the operation. Two teams
reached the European final for most significant productiservice improvement
in 1991-92.
The division now has a much more open and two-way relationship with its
European bosses, and is seen by them as the most "go-ahead" sales operation
in Europe.
In practice the team became much more effective at managing the business.
All members improved their personal management skills mainly through applying
the corporate people management procedures more effectively. The strategic forum
with its rotating leadership has helped team members to work together better. Two
years after the completion of the consultancy the division was operating very
successfully. Its former general manager was promoted and is currently heading up
a much larger division of the corporation based in the United States. A new general
manager is finding his feet.
Conclusion
The consultant's role in the process was to help the team members to help
themselves. He adopted a facilitator's role, encouraging the team members to discuss
openly each other's performance, agree and monitor accountabilities, face up to
business challenges and interpersonal issues, and so on. The consultant also provided
a certain amount of technical advice in terms of guidance on sources of information,
and the like. This case study is an example of a consultancy intervention using the
action-learning approach. It was successful because the team wanted to change. All
the consultant did was to help them to focus the change and stay on the right track.
The team members did the rest. Many assignments are not as successful as this one,
basically because the management teams involved do not really want to change.
Nevertheless, action learning is not a panacea. It is only applicable in situations
where those involved possess the necessary technical knowledge, but need to be
empowered to use it.
APPENDIX 9
PERSON-TO-PERSON
COMMUNICATION IN CONSULTING
This appendix is intended to provide an overview of some of the essentials

required in consulting practice, emphasizing that the person-to-person form of
communication should be viewed not simply as an art and a skill, but as a downright
necessity. Mastery of person-to-person communication adds to the stature of the
consultant and sets him or her on the path to becoming a senior and highly respected
practitioner.
1. General issues and problems

Person-to-person communication is vitally important for two reasons: first,
because it is the means of linking the consultant and the client; and, second, because
of its role in bridging the concepts and practices of change between the management
and the staff within the client organization.
A review of management consulting practices suggests that on assignments
approximately 30 per cent of the time is spent on problem analysis and related
matters on an individual basis, whereas 70 per cent is spent in communicating with
others. Thus, for the consultant and the client, communication represents a large
slice of the available time and effort.
Listening is considered to be the single most important component (accounting
for 45 per cent of the total communication time). Next in importance comes speaking
(30 per cent), reading (16 per cent), and writing (9 per cent).' A quick glance at these
figures reveals that three-quarters of management's time involves person-to-person
communication - listening and speaking. Considering that the consultant has to
provide functional expertise coupled with its application, it is inevitable that con-
siderable emphasis should be placed on training in this form of communication. In
training programmes for consultants up to 20 per cent of the total time is devoted to
this task.
Finally, it stands to reason that ease of communication facilitates comprehen-
sion and acceptance of new ideas which is, after all, the main purpose of the consult-
ing assignment.
Communication is the vehicle for transmitting knowledge and introducing

attitude change. Person-to-person communication is its most effective form and
essential for counselling work. It is the basis for the preparation of written reports,
which usually do no more than confirm agreements previously reached.
Communication is also the source of power for three accelerators creating the
greatest impact on the management scene today, i.e. changes in technology, changes
in management concepts and methods, and the interaction of different cultures.
Person-to-person communication is the final link in the chain required to bring them
into effect. Additionally, such communication is a vital part of the synergy phenom-
enon, which explains why the collaborative efforts of members of a team are often
more effective than the individual efforts of those same people.
Edgar Schein has summarized the factors affecting an individual's ability to
"build, maintain, improve and, if need be, repair face-to-face relationships", in the
following nine points:
self-insight and a sense of one's own identity;
cross-cultural sensitivity - the ability to decipher other people's values;
cultural/moral humility -the ability to see one's own values as not necessarily
better or worse than another's values;
a proactive problem-solving orientation - the conviction that interpersonal
and cross-cultural problems can be solved;
personal flexibility - the ability to adopt different responses and approaches
as needed by situational contingencies;
negotiation skills -the ability to explore differences creatively, to locate some
common ground and to solve the problem;
interpersonal and cross-cultural tact - the ability to solve problems with
people without insulting them, demeaning them, or destroying their "face";
repair strategies and skills - the ability to resurrect, to revitalize, and to
rebuild damaged or broken face-to-face relationships;
patience.'
The consultant should be aware that person-to-person communication pos-
sesses direct advantages and disadvantages compared with other forms of
communication. Major advantages include immediacy and association. Immediacy
offers opportunities to raise questions and provide answers on relevant issues as
needs arise. Association permits a clearer understanding of spoken words by
associating them with accompanying gestures, intonation and emphasis, and so
provides appropriate interpretation. Such interpretation is necessary because the 500
most frequently used words of the English language possess more than 14,000
different meanings (an average of more than 28 per word), which leaves a good deal
of room for possible misunderstanding. Similar problems have to be faced in any
language.
One major drawback to this form of communication is that permanent records
are not usually maintained, and residual interpretation may not be a faithful repro-
Appendices
duction of original messages owing to problems created by distortion, omission,

addition, and so on. To reduce errors of this nature, the following considerations
should be kept in mind:
brevity (keep the message to a minimum);
relevance (don't confuse the audience);
draw conclusions (don't rely on inferences being properly made);
consider audience level (communicate to express, not impress);
use own natural style to best advantage (you cannot pretend to be what you
are not, but you should, at least, perform to the best of your ability).
Critical elements in the communication process are represented in figure A2
(overleaf). References to the model shown can be found in most literature on this
subject. Critical areas, from a consultant's point of view, occur throughout the system
and are noted in the figure. They are discussed in the next section.
2. Using communication techniques in consulting

In consulting, person-to-person communication deals with either the reception
or the presentation of information. During the life-cycle of an assignment composed
of a beginning, a middle and an end, the emphasis for the consultant usually switches
from reception to presentation of information. In the initial stages the consultant is
mostly fully absorbed obtaining relevant information, and the presentations at this
time are usually confined to explaining his or her presence in the organization and
the purpose of the assignment.
Reception techniques at the beginning stage

Reception techniques applied at the beginning stage involve listening and
observing, which have to do with receptivity and assimilation. They might be
thought of as "passive" exercises; but this would be entirely wrong, since full
concentration is called for, and expected, during this crucial stage. Most people can
absorb four times more information than can be delivered verbally; thus there is the
ever-present danger of distraction.
Measures to facilitate information gathering include:
soliciting permission to write down important facts (especially figures);
using the pregnant pause, i.e. when the speaker stops talking, don't hurry to
speak yourself, but look as if you are expecting further information -when
it comes it may be most revealing;
encourage elaboration of points by asking "Anything else?", or "Yes, go on,
please! ";
ask for examples to illustrate generalities that are offered;
Channel - RECEPTION OF INFORMATION
Receiver - Decoder * Destination
p Distractions
Interruptions
Interference system n Touch g smell
Taste and
Comoetition between u
&&age and
other stimuli
Perceptual
* problems - Selective
filtering
+ Preconceived
ideas Understanding
Source * Encoder -
TRANSMISSION OF INFORMATION
Transmitter - Channel
0
lnterference
Distractions
Competition between
Words, Speech, message and
gestures t posture * other stimuli
Appendices
try not to be involved in speculation, or answering questions in the fact-finding

stage; advise that you will certainly give your opinion at a later stage but that
you would first prefer to hear all other impressions;
if necessary answer a question with a question, e.g. to a question put to you,
reply with, "Why do you ask that?", or "Behind all good questions usually lies
an answer -I would like to know your answer to your own question". Because
so much time is involved in listening and observing, and the consultant may
be impatient to proceed as rapidly as possible, it is quite possible that bad habits
will develop. Some elementary precautions that might be taken to prevent this
are indicated in table A1 .
Table A1 . Precautions to facilitate the listening process
Bad habits Possible remedies
Becoming distracted Try to analyse individual statements and evaluate them

(award theoretical marks, e.g. 7 out of 10)
Taking too many notes Select key points and write digest-style telegram notes
Making snap decisions Record pertinent data
Draw your conclusions after the meeting or interview
Lack of concentration Try to anticipate the next idea, sentence or phrase
Selective listening Look for new or hidden meanings
Interrupting the speaker Wait until there is a natural break in the delivery
Case-building during the middle stage

In the middle stage of the communication process a large percentage of time
becomes allocated to building a case for the proposed changes and preparing the
necessary supporting documents and material. There can be insufficient time
allowed for preparation, but only rarely can too much time be allocated; material
which is not used can always be discarded.
Preparation involves the development of a structure for the presentation of
conclusions and proposals, whether it be for formal or informal presentation. There
is no guarantee that your presentation will be heard in its entirety, so prepare
summaries for delivery at its commencement, during its course, and on its conclusion
so that early-leavers and latecomers (who may be important persons) can be provided
with some idea of the total scope of your case.
An outline of your presentation may be in note form, on cards, and so on, but
should be available. If time and conditions permit, it is advisable to use audiovisual
aids. Rehearsal will improve performance, and opportunities should be taken,
whenever possible, to practise before a critical audience.
Delivering the presentation: The end stage

The end stage of the process usually revolves around presentations by the
consultant. Critical elements to be kept in mind at this stage are:
introduce the presentation with a summary outline of what is to follow;
at the conclusion of discrete sections of your delivery, reference to the outline
might usefully be repeated, e.g. "Let's see where we are, up to this stage";
if you are delivering a tightly knit presentation, advise that questions will be
handled only after the presentation has been completed or at set times during
your delivery; in many cases you will probably have answered likely queries
during the course of your presentation, and continuity of delivery and timing
will not suffer;
unless specifically warranted, do not commence with an apology: there is
always a chance that it might not be accepted; confidence and a positive
approach are priority personal qualities required to induce change;
most people have an "image" of what they expect to see in a consultant in much
the same way as they view doctors, lawyers, engineers and other professionals;
by and large, neat but "neutral" clothing styles and a highly organized
presentation are expected, and anything else may detract from the presentation;
when handling questions, answer them one at a time; if objections are raised,
deal with them as recommended in section 4.4;
always make due acknowledgements to persons who have assisted you in your
work - it may be necessary to make this a "thank you" to the whole
organization;
if delivering from a written, fully prepared text, try to read each sentence to
yourself, pause, look at your audience and say it aloud; pause, glance at the
next sentence again silently and then repeat it aloud to your audience while
looking at them; with practice, a flowing style can be developed which will
convert a script-reading session into an imposing delivery;
if the consultant is convinced that his or her proposal will supply the changes
necessary to assist the organization, he or she must have the strength and the
will to fight for the case; this does not mean that the consultant should seek to
humiliate any opposition if there is room for compromise; however, he or she
should resist it by every possible means.
Consultants bring a wealth of education and experience in communication with
them to the A young consultant shouldhave his or her particular style
observed and analysed by experienced colleagues, and subsequently try to capitalize
on acknowledged strengths and take appropriate steps to remedy weaknesses.
Selected literature on person-to-person communication in consulting is listed
in Appendix 11.
1 H. and Z. Roodman: Management by communication (Toronto, Methuen Publications
1973), p. 146.
2 Reproduced with acknowledgement from E. H. Schein: "Improving face-to-face relation-
ships", in Sloan Management Review (Cambridge, Massachusetts), Winter 1981, pp. 43-52.
APPENDIX 10
CONSULTANT REPORT WRITING
The reports written by consultants for their clients are mentioned in various
chapters of the book according to the occasions and purposes that call for them. This
appendix will review the essential factors in the writing and production of all reports
used in consulting.
1. Reports in perspective
In consulting work, written communication complements oral communica-
tion, but in some cases the written report will become the main or the unique
communication channel. In addition to summarizing and conveying information and
stimulating the client to act, reports to clients have other important functions. They
contribute by their quality and presentation to the impact the consultant makes
during the assignment. They also affect the consultant's general reputation. When
the personal contacts between consultant and client are limited (for example, if the
client obtains written proposals from several consultants and will select one on the
basis of these proposals), persuasion may be a vital feature of a report.
An excellent consulting report meets three basic criteria:
First, it is reader-friendly. Its structure, style, terminology, arguments used and
any other features are selected with regard to the client's background, needs
and preferences. The basic question is: "What sort of report will render the
best service to the client and will be easily read and understood by the client?"
and not: "What sort of report do we like to produce in our firm?" Obviously,
in many cases the client will have no particular preference and will leave the
choice to the consultant. Yet the question must be asked, and discussing it
directly with the client may be very helpful.
Second, a report should be easy for the consultant to write. Ease of writing
leads to ease of reading. In addition, it saves time and money for the client,
who is going to pay for the time spent by the consultant on report writing, and
use his or her own time studying the report. In an extreme case, a poorly drafted
report may put off the client and achieve the contrary of what was intended.
Third, and most importantly, the aim of every report is to convey a particular
message. This message (or purpose) needs to be clarified before drafting the
report. This course of action will help to structure the report, choose a
convenient style, and organize facts and information in support of the message
to the client.
As a check, you should ask yourself about the necessity and purpose of any
report you intend to produce:
- Why is the report necessary?
- What is its message?
- What will it achieve?
- Is there a better way of achieving this purpose?
- Is now the time for it?
- Who is likely to read it and make use of it?
It is not a bad thing to try drafting an introduction, starting with "The purpose
of this report is . . ." If there is any difficulty in finishing the sentence, there is some
doubt about the need for the report. The length of time since the last report does not
matter, as long as the assignment has progressed satisfactorily in the meantime and
the client knows it. The questions mentioned above should be asked even if the report
appears to be mandatory because its submission has been agreed in the consulting
contract. The situation may have changed, the timing may be wrong, there may no
longer be any need for a particular sort of report, and so on.
As a matter of principle, consulting reports do not repeat information obtained
from the client or well known to him or her, and general information on the back-
ground situation, with the exception of information which directly justifies conclu-
sions or documents the work performed. The essence of information is news. Thus,
the information content of reports should consist of:
facts discovered for the first time by the consultant;
- newly discovered significance of known facts;
- newly found connections between known effects and hitherto unknown
causes;
- solutions to the client's problems, and their justification;
- facts showing to the client that he or she needs to take action, and any other
facts commanding the client's attention.
2. Structuring the report

The contents need to be arranged in the best sequence for the nature and
purpose of the report and for the desired reaction to it. This may be difficult. The
author may be tempted to describe the whole assignment and the whole analytical
and thinking process of the consulting team, but the client is looking for results and
proposals that will be tangible improvements to the business. Although the author
Appendices
may hope the reader will start at the beginning and read through to the end, there is
no guarantee of this. This is one of the hazards of written communication. Persuasion
requires careful build-up through a reasoned sequence -which the reader may not
choose to follow.
A solution to this may be in a well-presented summary at the beginning of the
report, which is confincd to the principal message of the report and key supporting
information. Many busy executives will read the summary for overall guidance to
the structure and the main conclusions of the report even if they do not read all
chapters. Based on the executive summary, they may choose to look at certain parts
of the report more carefully.
A table of contents is essential (except in very short reports); i t is regrettable
that many reports do not have one. The best place for the table of contents is at the
very beginning of the report, i.e. preceding an introduction, a preface, a summary,
or any other sections. In some countries (e.g. France) it has been customary to give
a table of contents at the very end.
The whole report should be carefully planned. It will contain certain main ideas
and topics, some of which will have subdivisions. It may help to write headings and
sketch the subject-matter on separate sheets or cards. The sheets may then be sorted
into the best order for deciding the outline and for drafting.
Marshalling the body of a report into a logical structure is aided by having a
formal system of numbers and/or letters for main headings, subheadings and so on.
The wording after each number may be printed in a different style. A decimal system
may be used, as in the example on the left, or numbers and letters, as in the example
on the right:
1. Muin heuding 1. Main lzeuclitzg

1.1. Subheading 1. Subheading
I. 1.1. Sub-subheading A Sub-\ubheading
(i) li\ted item
- -
(ii) li\ted item
-
The advantage of such a scheme is that it makes the writer think about priorities
and determine which topics are genuine subdivisions of others. I t promotes the
orderly organization of the structure and points the way to economy of layout and
avoidance of repetition.
For example, a report covering three subject areas, Buying, Stores and Pro-
duction, deals with three statements about them: Findings, Conclusions and Rccom-
mendations. Which of the three layouts overleaf may be the best?
For any particular report one of these may prove easiest, but if "Findings" tell
the client nothing new, there is no point in belabouring them. "Conclusions" usually
lead straight into "Recommendations". It could even hc 111~1tthc whole report needs
to be written as for section 4 in the third column ovcrleaf. ~ h crecommendations
themselves being written so as to make the findings and conclir\ions quite clear. A
consulting report is not a research paper, but carries a messngc that should stimulate
and orient action.
1. Findings 1. Buying 1. Buying

1.1 Buying 1.1 Findings 1.1 Findings
1.2 Stores 1.2 Conclusions 1.2 Conclusions
1.3 Production 1.3 Recommendations
2. Conclusions 2. Stores 2. Stores
3. Recommendations 3. Production 3. Production
4. Recommendations
4.1 Buying
4.2 Stores
4.3 Production
Everything depends on priorities, weights, balance and purposes; a scheme of

marshalling helps to sort them out.
Appendices are useful for taking out of the body of a report detailed des-
criptions, listings, tables, charts, diagrams, etc., that would break up the continuity
of reading and would be difficult to fit in. The body of the report is essentially for
reading and quick examination of summary data. Appendices can include items
which, though they make a contribution, require a more lengthy examination. It docs
not help to make a case if the reader is suddenly confronted with several pages of
closely tabulated figures. Small tables or diagrams, however, are not disturbing.
They break the text monotony, convey selected or summarized information, and
should be maintained in the main text.
If a rcport included, for example, the complete specification of an office
system, this would almost certainly be in an appendix. Such an appendix may later
become part of a general manual of procedures for the client, while the report may
remain confidential.
Acknowledgements have to be made, especially in final assignment reports.
This will require tact. If names are mentioned there must be no omissions: every
genuine helper likes to see his or her name on the list. At the same time, to include
someone who has been more of a hindrance than a help - and knows it - may
cause mixed feelings all round. If the list would be too long, it is better to leave it
out and settle for general thanks and the remark that "it would be an impossible task
to mention everyone who . . .".
Appendices
3. Drafting the report

Executives are flooded with reports, and hate long and badly written ones. It
is useful, thererore, to observe certain principles, which have been summarized in
box A l .
Box A1 Principles of clear writing

1. Keep the report as short as possible.
2. Consider your reader, his or her outlook and experience.
3. Write to express, not to impress.
4. Write naturally: style that flows smoothly and does not draw
attention to itself is the most effective.
5. Try to keep sentences short; vary their length but let the average be
around 20 words.
6. Avoid clumsy sentences and carefully blend short and long words.
7. Use familiar words, avoiding rare or far-fetched ones.
8. Avoid jargon unless it is sure to be familiar to the reader and you
know what it means.
9. Avoid unnecessary words that give an impression of padding
10. Use terms the reader can picture: call a crane a crane, not "a lifting
facility".
11. Put action into your verbs; use the force of the active voice; use the
passive voice to vary the style.
12. Keep every item of a report relevant to the purpose.
13. Ensure that the contents include all the points necessary to the
purpose.
14. Keep a proper balance, giving space and emphasis to each item
according to its importance.
15. Keep a serious "tone" as befits a serious purpose; do not tempt the
reader to read between the lines; if you do you are at the mercy of
his or her imagination.
16. Be careful in the use of numbers: figures tend to draw attention to
themselves; decide when absolute values have more significance
than percentages and ratios, and vice versa; when quoting figures
from other sources, be exact; when estimating, consider the order
of accuracy and round off.
17. If you quote from other sources give precise and complete
references.
Source: Some of the principles are adapted from R. Gunning: The technique of clear writing (New
York, McGraw-Hill, 1952).
When the author has the time, the first complete draft should be put aside for
a day or two, after which anything wrong is more easily seen and revised. When it
looks right to the author, someone else should read it. An operating consultant's draft
will normally be read by the project manager or supervisor, who usually has a knack
of finding things that a less experienced consultant never suspected. There are,
however, some dangers at this point: any report can always be improved, and the
temptation to work on it until it is "perfect" may be hard to resist. As with most
things, there is a point of diminishing returns.
When drafting the report, the consultant may find out that the report outline
originally chosen is not the best one. There is no point in sticking to an inconvenient
outline. However, if the client agreed to that outline beforehand, he or she should
also be asked to agree to a modified outline to avoid a possible misunderstanding.
If the report is a collective piece of work and the co-authors are known to have
different personal styles, final editing should be foreseen. Consistency and
homo-geneity (of style, layout, terminology, length of sections, etc.) are key
characteristics of excellent reports.
4. Typing and printing the report

The report must look professional in every respect. Its cover and binding
should give an excellent impression without looking luxurious. Inside, the layout of
the text should allow a generous margin for binding and notes made by the reader,
be impeccably printed on a laser printer or similar, and free from extraneous marks
or alterations. Any graphs, charts and diagrams must be well drawn and in every
respect up to the standard of the typescript.
The consulting firm may have its own standard format that not only dis-
tinguishes its reports but caters for filing and control in its reports library. Within
the covers, the body of the report may also have a standard layout for division and
subdivision of the contents, which can be used if it is not in conflict with the purpose
and spirit of a particular report.
The final draft prepared for reproduction should leave the secretaryltypist in
no doubt as to precisely what is required. The author should take the trouble to lay
out the text as it should appear in the final version. The author is also completely
responsible for ensuring that no mistakes remain.
The production of reports is greatly improved by judicious use of word
processing (see Chapter 31). Most consultants prepare their reports, or their inputs
in collective reports, on their personal computers, often directly at clients' premises.
All contributors must strictly adhere to a common format. Corrections and amend-
ments can then be made easily by the report author or editor.
A client may wish to receive the report on a diskette or through E-mail in
addition to, or instead of, getting printed copies. Systems compatibility should be
kept in mind because flawless conversions of documents are rare.
Selected literature on report writing is listed in Appendix 11.
APPENDIX 11
SELECTED BIBLIOGRAPHY
FOR MANAGEMENT CONSULTANTS
Part I. Management consulting in perspective

Albert, K. J.: How to be your own management consultant (New York, McGraw-Hill,
1978); 256 pp.
American Institute of Certified Public Accountants (AICPA): Consulting services
manual (Jersey City, New Jersey, 1993).
Argyris, Ch.: Intervention theory and method:A behavioural science view (Reading,
Massachusetts, Addison-Wesley, 1970); 374 pp.
: On organizational learning (Oxford, Blackwell, 1992); 452 pp.
Asian Productivity Organization (APO): Consulting skills in Asian context: A report
of an APO symposium on consulting skills (Tokyo, 1992); 188 pp.
Barcus, S. W.; Wilkinson, J. W.: Handbook of management consulting services
(New York, McGraw-Hill, 1986); 440 pp.
Bell, Ch. R.; Nadler, L. (eds.): The client-consultant handbook (Houston, Texas,
Gulf Publishing Co., 1979); 278 pp.
Bellman, G. M.: Getting things done when you are not in charge (San Francisco,
California, Berrett-Koehler, 1992); 278 pp.
: The consultant's calling: Bringing who you are to what you do (San
Francisco, California, Jossey-Bass, 1990); 238 pp.
Bentley, T. J. (ed.): The management services handbook (London, Holt, Rinehart
and Winston, 1984); 527 pp.
Bermont, H.: How to become a successful consultant in your ownfield (Washington,
DC, Bermont Books, 1978); 157 pp.
: Psychological strategies for success in consulting (Washington, DC, The
Consultants Library, 1983); 68 pp.
Block, P.: Flawless consulting: A guide to gettingyour expertise used (Austin, Texas,
Learning Concepts, 1981); 21 5 pp.
Cockman, P.; Evans, B.; Reynolds, P.: Client-centred consulting: A practical guide
for internal advisers and trainers (London, McGraw-Hill, 1992); 203 pp.
Cody, T. G.: Management consulting: A game without chips (Fitzwilliam, New
Hampshire, Consultants News, 1986);180 pp.
Cohen, W. A.: How to make it big as a consultant (New York, Amacom, 1985);
304 pp.
Cypert, S. A.: Following the money: The inside story of accounting's first mega-
merger (New York, Amacom, 1991); 279 pp.
Fuchs, J. H.: Making the most of management consulting services (New York,
Amacom, 1975); 214 pp.
: Management consultants in action (New York, Hawthorn Books, 1975);
216 pp.
Gallessich, J.: The profession and practice of consultation (San Francisco,
California, Jossey-Bass, 1982); 490 pp.
Garratt, S.: How to be a consultant (Aldershot, Gower, 1991); 160 pp.
Golembiewski, T. (ed.): The handbook of organizational consultation (New York,
Marcel Dekker, 1992).
Goodman, P. S.: Change in organizations (San Francisco, California, Jossey-Bass,
1982); 446 pp.
Goodstein, L. D.: Consulting with human service systems (Reading, Massachusetts,
Addison-Wesley, 1978); 172 pp.
Greiner, L. E.; Metzger, R. 0.:Consulting to management (Englewood Cliffs, New
Jersey, Prentice-Hall, 1983); 368 pp.
Guttmann, H. P.: The international consultant (New York, Wiley, revised ed., 1987);
185 pp.
Hersey, P.; Blanchard, K. H.: Management of organizational behaviour: Utilizing
human resources (Englewood Cliffs, New Jersey, Prentice-Hall, 1982);
345 pp.
Holtz, H.: How to succeed as an independent consultant (New York, Wiley, 1983);
395 pp.
Hunt, A.: The management consultant (New York, Ronald Press, 1977); 159 pp.
Johnson, B. L.: Private consulting: How to turn experience into employment dollars
(Englewood Cliffs, New Jersey, Prentice-Hall, 1982); 147 pp.
Kadushin, A.: Consultation in social work (New York, Columbia University Press,
1977); 236 pp.
Kelley, R. E.: Consulting: The complete guide to a profitable career (New York,
Charles Scribner's Sons, revised ed., 1986); 282 pp.
Kishel, G. F.; Kishel, P. G.: Cashing in on the consulting boom (New York, Wiley,
1985); 180 pp.
Klein, H. J.: Other people's business: A primer on management consultants (New
York, Mason-Charter, 1977); 202 pp.
Kubr, M.: How to select and use consultants: A client's guide, Management
Development Series No. 31 (Geneva, ILO, 1993); 205 pp.
Leavitt, H. J.: Managerial psychology (Chicago, Illinois, University of Chicago
Press, 1978); 386 pp.
Lippitt, G. L.; Lippitt, R.: The consultingprocess in action (San Diego, California,
University Associates, 2nd ed., 1986); 213 pp.
Margerison, Ch. J.: Managerial consulting skills: A practical guide (Aldershot,
Hampshire, Gower, 1988); 200 pp.
Appendices
Markham, C.: Practical consulting (London, Chartered Accountants' Hall, 1987);

217 pp.
: The top consultant: Developing your skills for greater effectiveness
(London, Kogan Page, 1993); 231 pp.
Management consulting 1990: The state of the profession (Fitzwilliam, New
Hampshire, Kennedy Publications, 1990); 127 pp.
Metzger, R. 0 . : Profitable consulting: Guiding America's managers into the next
century (Reading, Massachusetts, Addison-Wesley, 1988); 191 pp.
Moore, G. L.: The politics of management consulting (New York, Praeger, 1984);
176 pp.
Nadler, G.; Hibino, S.: Breakthrough Thinking: The seven principles of creative
problem solving (Rocklin, California, Prima Publishing, 1994); 416 pp.
Rassam, C.; Oates, D.: Management consultancy: The inside story (London,
Mercury, 1991); 214 pp.
Schein, E. H.: Organizationalpsychology (Englewood Cliffs, New Jersey, Prentice-
Hall, 1980); 274 pp.
: Process consultation: Its role in organization development (Reading,
: Process consultation: Lessons for managers and consultants, Vol. I1
(Reading, Massachusetts, Addison-Wesley, 1987); 288 pp.
Sinha, D. P. (ed.): Consultants and consulting styles (New Delhi, Visions Books,
1979); 248 pp.
Smith, B.: The country consultant (Fitzwilliam, New Hampshire, Consultants News,
1982); 300 pp.
Steele, F.: Consulting for organizational change (Amherst, Massachusetts,
University of Massachusetts Press, 1975); 202 pp.
: The role of the internal consultant (Boston, Massachusetts, CBI Publishing
Co., 1982); 158 pp.
Stevens, M.: The Big Eight (New York, Macmillan, 1981); 270 pp.
: The Big Six: The selling out of America's top accounting firms (New York,
Simon & Schuster, 1991); 271 pp.
Stryker, S.: Guide to successful consulting (with forms, letters and check-lists)
Tisdall, P.: Agents of change: The development and practice of management
consulting (London, Heinemann, 1983); 163 pp.
United Nations: Management consulting: A survey of the industry and its largest
firms (New York, 1993); 93 pp.
Van Doren, G. H.; Nadler, S. D: Management advisory services manual (Boston,
Massachusetts, Warren, Gorham & Lamont, 1987).
Viney, N.: Bluffyour way in consultancy (London, Ravette Books, 1986); 62 pp.
Weinberg, G. M.: The secrets of consulting (Ncw York, Dorset, 1986); 228 pp.
Weiss, A.: Million dollar consulting: The professional's guide to growing a practice
(New York, McGraw-Hill, 1992); 274 pp.
Wolf, W. B.: Management and consulting: An introduction to James 0. McKinsey
(Ithaca, New York, Cornell University Press, 1978); 112 pp.
Chapter 4. Consulting and change

Beckhart, R.; Harris, R. T.: Organizational transitions: Managing complex change
Blake, R.; Mouton, J. S.: Solving costly organizational conflicts (San Francisco,
California, Jossey-Bass, 1984); 327 pp.
Camp, R.: Benchmarking: The search for industry best practices that lead to
superior performance (White Plains, New York, Quality Resources, 1989).
Carnal, C.: Managing change (London, Rout ledge, 1991); 101 pp. - -
Grundy, T.: Implementing strategic change: A practical guide for business (London,
Kogan Page, 1993); 250 pp.
Hammer, M.; Champy, J.: Reengineering the corporation: A manifesto for business
revolution (New York, HarperBusiness, 1993); 223 pp.
Huczynski, A. A.; Buchanan, D. A.: Organizational behaviour:An introductory text
(London, Prentice-Hall, 1991); 615 pp.
Imai, M.: Kaizen: The k91 to Japan's competitive success (New York, Random
House, 1986).
Kanter, R. M.; Stein, B. A.; Jick, T. D.: The challenge of organizational change:
How people experience and manage it (New York, The Free Press, 1992).
Lippitt, G. L.: Organization renewal: A holistic approach to organization
development (Englewood Cliffs, New Jersey, Prentice-Hall, 1982); 418 pp.
McNair, C. J.; Leibfried, K. H. J.: Benchmarking: A tool for continuous
improvement (New York, Harper Collins, 1992); 344 pp.
Senge, P. M.: The fifth discipline: The art andpractice of the learning organization
(New York, Doubleday Currency, 1990).
Stewart, V.: Change: The challenge for management (Maidenhead, Berkshire,
McGraw-Hill, 1983); 166 pp.
Zairi, M.: Competitive benchmarking: An executive guide (Letchworth, Hertford-
shire, Technical Communications, 1992); 62 pp.
Chapter 5. Consulting and culture

Bate, P.: Strategies for cultural change (Oxford, Butterworth-Heinemann, 1994);
300 pp.
Deal, T. E.; Kennedy, A. A.: Corporate cultures: The rites and rituals of corporate
life (Reading, Massachusetts, Addison-Wesley, 1982); 232 pp.
Economist Intelligence unit (EIU): Managing cultural differences for competitive
advantage (London, 1993); 133 pp.
Hampden-Turner, C.: Corporate culture (London, Economist Books, 1990); 240 pp.
Harris, P. R.; Moran, R. T.: Managing cultural differences (Houston, Texas, Gulf
Publishing Co., 1979); 418 pp.
Hofstede, G.: Cultures and organizations: Software of the mind (New York,
Lippitt, G. L.; Hoopes D. S. (eds.): Helping across cultures (Washington, DC,
International Consultants Foundation, 1978); 76 pp.
Appendices
Mizutani, E.: Strategic cross-cultural management: Its human resource aspect

(Tokyo, International Leadership Development Institute, 1994); 142 pp.
Moran, R. T.; Harris, P. R.: Managing cultural synergy (Houston, Texas, Gulf
Schein, E. H.: Organizational culture and leadership (San Francisco, California,
Jossey-Bass, 2nd ed., 1992); 423 pp.
Part II. The consulting process

Bancroft, G.; O'Sullivan, G.: Quantitative methods for accounting and business
studies (London, McGraw-Hill, 1993); 380 pp.
Barish, N. N.; Kaplan, S.: Economic analysis for engineering and managerial
decision making (New York, McGraw-Hill, 1978); 791 pp.
Bennett, R.: Management research: Guide for institutions and professionals
(Geneva, ILO, 1983); 245 pp.
Bentley, T. J. (ed.): The management services handbook (London, Holt, Rinehart
Block, P.: Flawless consulting: A guide to getting your expertise used (Austin, Texas,
Learning Concepts, 1981); 215 pp.
Bowlin, 0. D., et al.: Guide to financial analysis (New York, McGraw-Hill, 1980);
335 pp.
Buffa, E. S.; Dyer, J. S.: Essentials of management science; Operations research
(New York, Wiley, 1978); 528 pp.
Clark, J. J.; Clark, M. T.: A statistics primer for managers (New York, The Free
Press, 1983); 258 pp.
Clover, V. T.; Balsey, H. L.: Business research methods (Columbus, Ohio, Grid
Consultants News: 25 "best" proposals by management consulting firms
(Fitzwilliam, New Hampshire, 1984); 510 pp.
Dunham, R. B.; Smith, F. J.: Organizational surveys: An internal assessment of
organizational health (Glenview, Illinois, Scott, Foresman and Co., 1979);
179 pp.
EIU: Global benchmarking for competitive edge (London, 1993); 117 pp.
Emory, C. W.: Business research methods (Homewoood, Illinois, Irwin, 1976);
483 pp.
FCdCration Internationale des Ingtnieurs-Conseils (FIDIC): The White Book guide
(with other notes on documents for consultancy agreements) (Lausanne,
1991); 115 pp.
Francis, D.: Effective problem solving: A structured approach (London, Routledge,
1991); I28 pp.
Greenberg, L.: A practical guide to productivity measurement (Washington, DC,
Bureau of National Affairs, 1973); 77 pp.
Greiner, L. E.; Metzger, R. 0 . : Consulting to management (Englewood Cliffs, New
Harnett, D. L.: Statistical methods (Reading, Massachusetts, Addison-Wesley,
1982); 730 pp.
Harrison, I. W.: Capital investment appraisal (London, McGraw-Hill, 1973); 90 pp.

Holtz, H.: Government contracts: Proposalmanship and winning strategies (New
York, Plenum Press, 1979); 288 pp.
International Labour Office (ILO): How to read a balance sheet (Geneva, 2nd
(revised) ed., 1985); 213 pp.
Kanawaty, G. (ed.): Introduction to work study (Geneva, ILO, 4th (revised) ed.,
1992); 523 pp.
Kepner, C. H.; Tregoe, B. B.: The new rational manager (Princeton, New Jersey,
Kepner-Tregoe, 1981); 224 pp.
Kervin, J. B: Methods for business research (New York, Harper, 1992); 750 pp.
Kubr, M.; Prokopenko, J.: Diagnosing management training and development
needs: Concepts and techniques, Management Development Series, No. 27
(Geneva, ILO, 1989); 304 pp.
Lopez, F. M.: Personnel interviewing: Theory and practice (New York, McGraw-
Hill, 1971); 356 pp.
Margerison, Ch.: Managerial problem solving (Bradford, West Yorkshire, MCB
Publications, 1982); 166 pp.
Maynard, H. B.: Industrial engineering handbook (New York, McGraw-Hill, 1971);
1,980 pp.
McNair, C. J.; Leibfried, K. H. J.: Benchmarking: A tool for continuous
improvement (New York, Harper, 1992); 344 pp.
Nadler, G.; Hibino, S.: Breakthrough Thinking: The seven principles of creative
problem solving (Rocklin, California, Prima Publishing, 2nd (revised) ed.,
1994); 416 pp.
-- 7 ; Farrell, J.: Creative solution finding (Rocklin, California, Prima
Publishing, 1995); 498 pp.
Nierenberg, G. I.: The art of negotiating (New York, Pocket Books, 1984); 254 pp.
Oxenfeldt, A. R.: Cost-benefit analysis for executive decision making: The danger
ofplain common sense (New York, Arnacom, 1979); 432 pp.
Payne, T. A.: Quantitative techniques for management: A practical approach
(Heme1 Hempstead, Prentice-Hall, 1981); 452 pp.
Platt, C. J.: Survey ofcompany reports:An analysis of currentpractices inpresenting
information (Farnborough, Hampshire, Wieton Publications, 1978); 125 pp.
Rawlinson, J. G.: Creative thinking and brainstorming (Farnborough, Hampshire,
Gower, 1981); 128 pp.
Reeves, T. K.; Harper, D.: Surveys at work: A practitioner's guide (Maidenhead,
Berkshire, McGraw-Hill, 1982); 259 pp.
Shenson, H. L.: How to strategically negotiate the consulting contract (Washington,
DC, Bermont Books, 1980); 107 pp.
Silverman, J. M., et al.: Action-planning workshops for development management
(Washington, DC, World Bank, 1986); 74 pp.
Warren, R.: How to understand and use company accounts (London, Business
Books, 1983); 221 pp.
Weisbord, M. R.: Organizational diagnosis (Reading, Massachusetts, Addison-
Wesley, 1978); 180 pp.
Appendices
Westwick, C. A.: How to use management ratios (Aldershot, Hampshire, Gower,

1973); 284 pp.
White, D. J.: Decision methodology (London, Wiley, 1975); 274 pp.
Part Ill. Consulting in various areas of management

Chapter 12. Consulting in general and strategic
management
American Management Association (AMA): Managing a dynamic organization
(New York, 1993); 93 pp.
Ansoff, H. I.: Strategic management (London, Macmillan, 1979); 236 pp.
Bacon, J.: Corporate boards and corporate governance (New York, The Conference
Board, 1993); 37 pp.
Baden-Fuller, D.; Stopford, J. M.: Rejuvenating the mature business (London and
New York, Routledge, 1992); 232 pp.
Bennis, W.: Why leaders can't lead: The unconscious conspiracy continues (San
Burke, R.: Project management: Planning and control (Chichester, Sussex, Wiley,
2nd ed., 1993); 390 pp.
Campbell, A., et al.: A sense of mission (London, Hutchinson, 1990); 288 pp.
Chakravarthy, B.; Lorange, P.: Managing the strategy process: A framework for a
multibusiness firm (Englewood Cliffs, New Jersey, Prentice Hall, 1991);
432 pp.
Deal, T. E.; Kennedy, A. A.: Corporate cultures: The rites and rituals of corporate
life (Reading, Massachusetts, Addison-Wesley, 1982); 232 pp.
Drucker, P.: Innovation and entrepreneurship: Practice and principles (New York,
Harper and Row, 1985); 277 pp.
: Management (New York, Harper and Row, 1973); 840 pp.
Drucker, P. F.: Managing for the future (Oxford, Butterworth-Heinemann, 1992);
278 pp.
: The practice of management (London, Pan Books, 1970); 480 pp.
Economist Intelligence Unit (EIU): Best practices: Management (London, 1993);
105 pp.
: Do you need a mission statement? (London, 1990); 147 pp.
: The successful corporation of the year 2000 (London, 1994).
Gilder, G.: The spirit of enterprise (New York, Simon and Schuster, 1984); 272 pp.
Goldstein, A. S.: Corporate comeback: Managing turnarounds and troubled
companies (New York, Wiley, 1988); 230 pp.
Goodman, S. T.: How to manage a turnaround (New York, The Free Press, 1984);
279 pp.
Hamel, G.; Prahalad, C. K.: Competing for the future (Boston, Massachusetts,
Harvard Business School Press, 1994); 327 pp.
Hammer, M.; Champy, J.: Reengineering the corporation: A manifesto for business
revolution (New York, HarperBusiness, 1993); 223 pp.
Handy, Ch.: The empty raincoat: Making sense of the future (London, Hutchinson,
1994); 280 pp.
: Gods of management: The changing work of organizations (London,
Souvenir Press, 1986); 240 pp.
: Understanding organizations (London, Penguin Books, 3rd ed., 1985);
487 pp.
Harrison, F. L.: Advanced project management: A structured approach (New York,
Wiley, 1992); 315 pp.
Harvey-Jones, J.: Making it happen: Reflections on leadership (London, Collins,
1988); 266 pp.
Horton, T. R.: The CEO paradox: The privilege and accountability of leadership
(New York, Amacom Books, 1992); 192 pp.
Irons, K.: Managing service companies: Strategies for success (Wokingham,
Berkshire, Addison-Wesley, 1994); 258 pp.
Johannson, H. J., et al.: Business process reengineering: Breakpoint strategies for
market dominance (Chichester, Sussex, Wiley, 1994).
Kanter, R. M.: The change masters (New York, Simon & Schuster, 1983).
: When giants learn to dance (New York, Simon & Schuster, 1989).
Katzenbach, R.; Smith, D. K.: The wisdom of teams: Creating the high-performance
organization (New York, Harper Business, 1994); 336 pp.
Keen, P. G. W.; Knapp, E. M.: Every manager's guide to business processes: A
glossary of key terms and concepts for today's business leader (Boston,
Massachusetts, Harvard Business School Press, 1995); 240 pp.
Khandwalla, P. N.: Innovative corporate turnarounds (London, Sage, 1992);
279 pp.
Kotter, J. P.: The general managers (New York, The Free Press, 1982); 221 pp.
Kurogane, K. (ed.): Cross-functional management: Principles and practical
applications (Tokyo, APO, 1993); 253 pp.
Lank, A. G.; Neubauer, F.; Parikh, J.: Intuition: The new frontier of management
(Oxford, Blackwell, 1994); 265 pp.
Lawler, E. E.: High involvement management: Participative strategies for improving
organizational performance (San Francisco, California, Jossey-Bass, 1986).
Leavitt, H. J.: Corporatepathfinders (Chicago, Illinois, Irwin, 1986).
Lorange, P., et a].: Implementing strategic processes: Change, learning and
cooperation (Oxford, Blackwell, 1993).
: Planning and control: Issues in the strategy process (Oxford, Blackwell,
1993); 246 pp.
McNair, C. J.; bibfried, K. H. J.: Benchmarking: A tool for continuous
improvement (New York, Harper Collins, 1992); 344 pp.
Mintzberg, H.: Power in and around organizations (Englewood Cliffs, New Jersey,
Prentice-Hall, 1983); 700 pp.
: Structures in fives: Designing effective organizations (Englewood Cliffs,
New Jersey, Prentice-Hall, 1983); 312 pp.
: The rise and fall ofstrategic management (New York, The Free Press, 1993);
288 pp.
Appendices
North, K.: Environmental business management: An introduction, Management

Development Series, No. 30 (Geneva, ILO, 1992); 194 pp.
Ohmae, K.: The mind of the strategist (New York, McGraw-Hill, 1982).
O'Toole, J.: Vanguard management (New York, Doubleday, 1985); 432 pp.
Peters, T.: Thriving on chaos: Handbook for a management revolution (London,
MacMillan, 1988); 561 pp.
: Liberation management: Necessary disorganization for the nanosecond
nineties (New York, Knopf, 1992); 834 pp.
;Austin, N.: A passion for excellence: The leudership difference (New York,
Random House, 1985); 437 pp.
; Waterman, R. H.: In search of excellence (New York, Warner Books, 1982);
360 pp.
Pinchot, G.: Intrapreneuring: Whyyou don't have to leave the corporation to become
an entrepreneur (New York, Harper and Row, 1985); 368 pp.
Porter, M. E.: Competitive advantage: Creating and sustaining superior
performance (New York, The Free Press, 1985); 557 pp.
: The competitive advantage of nations (New York, The Free Press, 1990).
: Competitive strategy: Techniquesfor analysing industries and competitors
Rock, M. L. (ed.): The mergers and acquzsitions handbook (New York, McGraw-
Hill, 1987); 518 pp.
Sinatra, A., et al.: The management of corporate acquisitions: International
perspectives (London, Macmillan, 1994); 526 pp.
Solomon, R. C.: Ethics and excellence: Cooperation and integrity in business (New
York, Oxford University Press, 1992); 305 pp.
Steiner, G. A.; Miner, J. B.: Managementpolicy and strategy (New York, Macmillan,
1982); 357 pp.
Steiner, G. A.: The new CEO (New York, Macmillan, 1983); 133 pp.
Sui-Lun, W.: Strategic information systems in Japan: Creating competitive
advantages (Tokyo, APO, 1993); 86 pp.
Watson, G. H.: Strategic benchmarking: How to rate your company S performance
against the world's best (New York, Wiley, 1993); 270 pp.
Yamanouchi, T.: A new study of technology management (Tokyo, APO, 1995);
308 pp.
Zairi, M.: Competitive benchmarking: An executive guide (Letchworth, Hertford-
shire, Technical Communications, 1992); 62 pp.
Chapter 13. Consulting in financial management

Andersen, T. J.: Euromarket instruments: A guide to the world's largest debt market
(New York, New York Institute of Finance, 1990); 308 pp.
Ansell, J.; Wharton, F. (eds.): Risk: Analysis msessment and management
(Chichester, Sussex, Wiley, 1992); 230 pp.
Auerbach, R. D.: Money, banking and financial markets (New York, Macmillan,
1985); 650 pp.
Bean, D. G.: Financial strategy in the acquisition decision (Farnborough,

Bierman, H.; Smidt, S.: The capital budgeting decision (London, Macmillan, 1975);
482 pp.
Bradley, J. W.; Korn, D. H.: Acquisition and corporate development (Lexington,
Massachusetts, Lexington Books, 1981); 252 pp.
Clark, J. J., et al.: Capital budgeting: Planning and control of capital expenditures
Cobham, D.: Markets and dealers: The economics of the London financial markets
(London, Longman, 1993); 183 pp.
Eckl, S., et al.: Financial engineering (Oxford, Basil Blackwell, 1990); 243 pp.
Edwards, A. D. P.: The exporter's and importer's handbook on foreign currency
(London, Macmillan, 1990); 126 pp.
Ensor, R.; Muller, P.: The essentials of treasury management (London, Euromoney
Franks, J.; Broyles, J.: Modern managerialfinance (New York, Wiley, 1979); 376 pp.
Glautier, M. W. E.; Underdown, B.: Accounting theory and practice (London,
Pitman, 1976); 741 pp.
Grass, M. (ed.): Control of working capital (Farnborough, Hampshire, Gower,
1972); 151 pp.
Gray, J.; Johnston, K. S.: Accounting and management action (New York, McGraw-
Hill, 1973); 574 pp.
Grundy, T.: Corporate strategy andfinancial decisions (London, Kogan Page, 1992).
Heywood, J.: Foreign exchange and the corporate treasurer (London, A. and
C. Black, 1978); 163 pp.
Holmes, G.; Sugden, A.: Interpreting company reports and accounts (London,
Woodhead Faulkner, 4th (revised) ed., 1992); 232 pp.
Horngren, C. T.: Cost accounting: A managerial emphasis (Englewood Cliffs, New
Hovers, J.: Expansion through acquisition (London, Business Books, 1973); 178 pp.
Hull, J.: Options, futures and other derivative securities (Englewood Cliffs, New
Jersey, Prentice Hall, 1993); 492 pp.
Johnson, H. T.; Kaplan, R. S.: Relevance lost: The rise and fall of management
accounting (Boston, Massachusetts, Harvard Business School Press, 1987).
Johnson, H. T.: Relevance regained: From top-down control to bottom-up
empowerment (New York, The Free Press, 1992); 228 pp.
Kettell, B.: The finance of international business (London, Graham and Trotman,
1979); 275 pp.
Levy, H.; Sarnat, M.: Capital investment andfinancialdecisions (New York, Prentice
Hall, 4th ed., 1990); 711 pp.
Manson, B.: The practitioner's guide to interest rate risk management (London,
Graham & Trotman, 1992).
McCarthy, G. D.; Healey, R. E.: Valuing a company: Practices andprocedures (New
York, Ronald Press, 1971); 521 pp.
Appendices
Mehta, D. R.: Working capital management (Englewood Cliffs, New Jersey,

Merrett, A. J.; Sykes, A.: The finance and analysis of capital projects (London,
Longman, 1973); 573 pp.
Nobes, C.: International classification of financial reporting (London, Routledge,
2nd ed., 1992); 153 pp.
Pocock, M. A.; Taylor, A. H.: Handbook of financial planning and control
(Farnborough, Hampshire, Gower, 1981); 423 pp.
Redhead, K.; Hughes, S.: Financial riskmanagement (London, Gower Press, 1988).
Rodriguez, R. M.; Carter, E. E.: International financial management (Englewood,
Cliffs, New Jersey, Prentice-Hall, 1979); 686 pp.
Shapiro, A. C.: Multinationalfinancial management (Boston, Massachusetts, Allyn
and Bacon, 4th ed., 1992); 729 pp.
Smith, G. V.: Corporate valuation: A business and professional guide (New York,
Wiley, 1988); 224 pp.
Tennent, M.: Practical liquidity management (Farnborough, Hampshire, Gower,
1976); 201 pp.
Van Horn, J.: Financial management and policy (Englewood Cliffs, New Jersey,
Walker, T.: A guide for using the foreign exchange market (New York, Wiley, 1981);
372 pp.
Weston, J. F.; Brigham, E. F.: Managerialfinance (Hinsdale, Illinois, Dryden Press,
1978); 1030 pp.
Chapter 14. Consulting in marketing and distribution

management
Best, A.: When consumers complain (New York, Columbia University Press, 1981);
232 pp.
Blattberg, R. C., et al.: The marketing information revolution (Boston, Mass-
achusetts, Harvard Business School Press, 1994); 368 pp.
Cespedes, F. V.: Concurrent marketing: Integrating product, sales, and service
(Boston, Massachusetts, Harvard Business School Press, 1995); 336 pp.
Churchill, G. A.: Marketing research: Methodological foundations (Chicago, The
Dryden Press, 4th ed., 1987); 900 pp.
Clancy, K. J.; Shulman, R. S.: Marketing myths that are killing business (New York,
McGraw-Hill, 1993).
Elliot, K.; Christopher, M.: Research methods in marketing (London, Holt, Rinehart
Enis, B. M.; Cox, K. K.: Marketing classics: A selection of influential articles
(Boston, Massachusetts, Allyn and Bacon, 1981); 533 pp.
Gattorna, J.: Handbook of physical distribution management (Aldershot,
Green, P. E.; Tull, D. S.: Research for marketing decisions (Englewood Cliffs, New
Gronroos, C.: Strategic management and marketing in the service sector (Helsinki,
Swedish School of Economics and Business Administration, 1982).
Halliburton, Ch.; Hunerberg, R.: European marketing: Readings and cases
(Wokingham, Berkshire, Addison-Wesley, 1993); 490 pp.
Kotler, P.: Marketing essentials (Englewood Cliffs, New Jersey, Prentice-Hall,
1984); 556 pp.
:Marketing management: Analysis, planning and control (Englewood Cliffs,
New Jersey, Prentice-Hall, 1984).
: Principles of marketing (Englewood Cliffs, New Jersey, Prentice-Hall,
1983); 640 pp.
Levitt, T.: The marketing imagination (New York, The Free Press, 1983); 203 pp.
McCarthy, E. J.: Basic marketing: A managerial approach (Homewood, Illinois,
Irwin, 1981); 762 pp.
Nash, E. L.: The direct marketing handbook (New York, McGraw-Hill, 1984);
946 pp.
Ogilvy, D.: Ogilvy on advertising (New York, Crown, 1983); 224 pp.
Robeson, J. F.; House, R. G.: The distribution handbook (New York, The Free Press,
1985); 970 pp.
Sammon, W. L., et al.: Business competitor intelligence: Methods for collecting,
organizing and using information (New York, Wiley, 1984); 357 pp.
Seibert, J. C.: Concepts of marketing management (New York, Harper and Row,
1973); 570 pp.
Shapiro, B. P.; Sviokla, J. J: Seeking customers (Boston, Massachusetts, Harvard
Business School Press, 1993); 340 pp.
Staudt, T.; Taylor, D. A.:A managerial introduction to marketing (Englewood Cliffs,
New Jersey, Prentice-Hall, 1970); 576 pp.
Toyne, B.; Walters, P. G. P.: Global marketing management: A strategicperspective
(Needham, Massachusetts, Allyn and Bacon, 1989); 747 pp.
Willemin, J. H.: The handbook of professional service management (Lund,
Studentliteratur, 1984); 275 pp.
Chapter 15. Consulting in production management

Adam, E. E.; Ebert, R. J.: Production and operations management: Concepts,
models and behavior (Englewood Cliffs, New Jersey, Prentice Hall, 5th ed.,
1992); 729 pp.
Aguayo, R.: Dr. Deming: The man who taught the Japanese about quality (London,
Mercury, 1990); 284 pp.
APO: Top management forum: Industrial organizations in the 1990s
-Management of linkages (Tokyo, 1994); 146 pp.
Apple, J. M.: Plant layout and materials handling (London, Wiley, 3rd. ed., 1977).
Banks, J.: Principles of quality control (London, Wiley, 1989).
Berry, W. L., et al.: Manufacturing planning and control systems ((Homewood,
Illinois, Irwin, 3rd ed., 1992); 844 pp.
Appendices
Biegel, J. E.: Production control, a quantitative approach (Englewood Cliffs, New

Biemans, F. P. M.: Manufacturing planning and control: A reference model
(Amsterdam, Elsevier, 1990).
Birchdale, D.: Job design: A planning and implementation guide for managers
(Epping, Essex, Gower, 1975); 141 pp.
Buffa, E. S.: Meeting the competitive challenge: Manufacturing strategies for US
companies (Homewood, Illinois, Irwin, 1984); 190 pp.
Buffa, E. S.; Sarin, R. K.: Modern production-operations management (New York,
Wiley, 1987); 816 pp.
Brown, J. K. (ed.): Manufacturing: New concepts and new technology to meet new
competition (New York, The Conference Board, 1984); 47 pp.
Butera, F.; Thurman, J. E, (eds.): Automation and work design (Amsterdam,
North-Holland, 1984); 758 pp.
Clarly, K.; Fujimoto, T.: Product developmentperformance (Boston, Massachusetts,
Haward Business School Press, 1991).
Collard, R.: Total quality (London, Institute of Personnel Management, 2nd ed.,
1993).
Crosby, P.: Quality is pee (New York, New American Library, 1980); 270 pp.
Davenport, T. H.: Process innovation: Reengineering work through information
technology (Boston, Massachusetts, Harvard Business School Press, 1993);
337 pp.
Economist Intelligence Unit (EIU): Best practices: Environment (London, 1993);
157 pp.
Edosomwan, J. (ed.): People and product management in manufacturing
(Amsterdam, Elsevier, 1990); 334 pp.
Feigenbaum, A. V.: Total quality control (New York, McGraw-Hill, 1983).
Greene, J.: Production and inventory control handbook (New York, McGraw-Hill,
1970); 800 pp.
Hutchinson, D.: Quality circles handbook (New York, Nichols, 1985); 272 pp.
Ishikawa, K.: Guide to quality control (Tokyo, APO, 1986); 225 pp.
Juran, J. M.: Juran on leadership for quality (New York, The Free Press (Macmillan),
1989); 376 pp.
Juran, J. M., et al.: Quality control handbook (New York, McGraw-Hill, 3rd ed.,
1974); ca. 1600 pp.
Kanawaty, G. (ed.): Introduction to work study (Geneva, ILO, 4th (revised) ed.,
1992); 524 pp.
: Managing and developing new forms of work organization, Management
Development Series, No. 16 (Geneva, ILO, 2nd (revised) ed., 1981); 206 pp.
Larson, S.: Inventory systems and control handbook (Englewood Cliffs, New Jersey,
Lawlor, A.: Productivity improvement manual (Aldershot, Hampshire, Gower,
1985); 306 pp.
Luck, D. J.: Product policy and strategy (Englewood Cliffs, New Jersey,
Maskell B. H.: Performance measurement for world class manufacturing: A model

for American companies (Cambridge, Massachusetts, Productivity Press,
1991); 408 pp.
Mayer, R. R.: Production and operations management (New York, McGraw-Hill,
1975); 660 pp.
Maynard, H.: Handbook of modern manufacturing management (New York,
McGraw-Hill, 1971); 1,100 pp.
: Industrial engineering handbook (New York, McGraw-Hill, 1971);
1980 pp.
Mizuno, S.: Company-wide total quality control (Tokyo, APO, 1988).
; Akao Y. (eds.): QFD: The customer-driven approach to quality planning
and deployment (Tokyo, APO, 1994); 363 pp.
Munro-Faure, L.; Munro-Faure, M.: Implementing total quality management
(London, Financial TimesIPitman, 1992); 304 pp.
Muther, R.: Practical plant layout (New York, McGraw-Hill, 1955); 370 pp.
North, K.: Environmental business management: An introduction, Management
Ohno, T.: Toyota production system: Beyond large-scale production (Cambridge,
Massachusetts, Productivity Press, 1988); 142 pp.
Osada, T.: The 5 S's: Five keys to a total quality environment (Tokyo, APO, 1991);
159 pp.
Pisano, G. P.; Hayes, R. H.: Manufacturing renaissance (Boston, Massachusetts,
Haward Business School Press, 1995); 384 pp.
Riggs, J. L.: Production systems: Planning, analysis and control (New York, Wiley,
1979); 604 pp.
Robson, M.: Quality circles: A practical guide (Aldershot, Hampshire, Gower,
1982); 204 pp.
Salvendy, G.: Handbook of human factors (New York, Wiley, 1984).
Schonberger, R. J.: World class manufacturing, the lessons of simplicity applied
(New York, The Free Press, 1986); 256 pp.
Senju, S. (ed.): TQC and TPM (Tokyo, APO, 1992); 158 pp.
; Nakamura, Z.: Economic engineering for executives: A common-sense
approach to business decisions (Tokyo, APO, 1990); 159 pp.
Shen, G. C.: Productivity measurement and analysis (Tokyo, APO, 1985); 59 pp.
Sink, D. S.: Productivity management: Measurement and evaluation, control and
improvement (New York, Wiley, 1985); 518 pp.
Skinner, W.: Manufacturing: Theformidable competitive weapon (New York, Wiley,
1985); 330 pp.
Spenley, P.: World class performance through total quality (London, Chapman &
Hall, 1992); 171 pp.
Susman, G. I. (ed.): Integrating design and manufacturing for competitive
advantage (New York, Oxford University Press, 1992); 325 pp.
Tersine, R. J.: Materials management and inventory systems (New York, Elsevier
North-Holland, 1976); 425 pp.
Appendices
Thomas, A. B.: Stock control in manufacturing industries (Farnborough,

Thurman, J. E., et al.: On business and work: Towards new frontiers (Geneva, ILO,
1992).
Underwood, L.: Intelligent manufacturing (Wokingham, Berkshire, Addison-
Wesley, 1994); 220 pp.
Vollmann, T. E., et al.: Manufacturing, planning and control systems (Homewood,
Illinois, Dow Jones-Irwin, 3rd ed., 1992).
Vollmann, T. E., et al.: The new performance challenge: Measuring operations for
world class competition (Homewood, Illinois, Dow Jones-Irwin, 1990).
Walters, R. W., et al.: Job enrichment for results: Strategies for successful
implementation (Reading, Massachusetts, Addison-Wesley, 1975); 307 pp.
Warner, M., et al.: New technology and manufacturing management, strategic
choices for flexibleproduction systems (New York, Wiley, 1990).
Wheelwright, S. G.;Clark, K. B.: Revolutionizingproduct development (New York,
The Free Press, 1992).
;Clark, I.; Hayes, R. A.: Dynamic manufacturing(New York, The Free Press,
1988).
Womack, J., et al.: The machine that changed the world (New York, Rawson
Associates, 1990).
Chapter 16. Consulting in human resource

management
American Society for Training and Development (ASTD): Trainer's guide to
management development (Baltimore, Maryland, 1990).
AP0:Asian dynamism through human resourcedevelopment (Tokyo, 1993); 554 pp.
Anderson, A. H.: Successful training practice: A manager's guide to personnel
development, Human Resource Management in Action series (Cambridge,
Massachusetts, Blackwell, 1993).
Argyris, Ch.: On organizational learning (Oxford, Blackwell, 1992); 452 pp.
: A handbook of personnel management practice (London, Kogan Page,
4th ed., 1991); 976 pp.
Armstrong, M.; Murlis, H.: Reward management: A handbook of salary
administration (London, Kogan Page, 1988); 563 pp.
Arthur, D.: Recruiting, interviewing, selecting and orienting new employees (New
York, American Management Association, 2nd ed., 1991); 333 pp.
Black, J. S., et al.: Global assignments: Successfully expatriating and repatriating
international managers (San Francisco, California, Jossey-Bass, 1992).
Boydell, T.: Management self-devefopment: A guide for managers, organizations
and institutions, Management Development Series, No. 21 (Geneva, ILO,
1985); 267 pp.
Brewster, C.: The management of expatriates (London, Kogan Page, 1991).
Brewster, Ch.; Tyson, S. (eds.): International comparisons in human resource
management (London, Pitman, 1991); 268 pp.
; Hegewisch, A. (eds.): The European human resource management guide

(London, Academic Press, 1992).
- , - ; (eds.): Policy and practice in European human resource
management: The evidence and analysis (London, Routledge, 1994).
Business International: Managing manpower in Europe (Geneva, 1982); 192 pp.
Byrne, J. A.: The headhunters: A provocative look at the corporate search business
Courtis, J.: Cost effective recruitment (London, Institute of Personnel Management,
1976); 92 pp.
Craig, R. L. (ed.): Training and development handbook: A guide to human resource
development (Berkshire, Massachusetts, McGraw-Hill, 3rd ed., 1987).
Decenzo, D. A.; Robbins, S. P.: Personnellhuman resource management
(Englewood Cliffs, New Jersey, Prentice-Hall, 3rd. ed., 1988).
Dowling, P.; Schuler, R. S.: International dimensions of human resource
management (Boston, Massachusetts, Kent, 1990).
Edwards, S., et al.: Manpower planning; Strategy and techniques in an organiza-
tional context (Chichester, Sussex, Wiley, 1983); 208 pp.
Eichel, E.; Bender, H. E.: Performance appraisal: A study of current techniques
(New York, American Management Association, 1984); 64 pp.
EIU: Managingpeople in Europe: The HR challenge of leaner companies (London,
1994).
: The talent-intensive organization: Optimising your company's human
resource strategies (London, 1993); 190 pp.
Fombrun, C. J., et al.: Strategic human resource management (New York, Wiley,
1984); 499 pp.
Gladstone, A.: (ed.): Labour relations in a changing environment (Berlin, De
Gruyter, 1992).
: The manager's guide to international labour standards, Management
Glueck, W. F.: Personnel: A diagnostic approach (Plano, Texas, Business
Publications, 1982).
Gorlin, H.; Schein, L.: Innovations in managing human resources (New York, The
Conference Board, 1984); 38 pp.
Hall, L.; Torrington, D.: Personnel Management: A new approach (New York,
Hamner, W. C.; Schmidt, F. L. (eds.): Contemporary problems in personnel
(Chicago, St. Clair Press, 1977); 5 10 pp.
Hansen, C. P.; Conrad, K. A.: Handbook of psychological assessment in business
(New York, Quorum Books, 1991); 352 pp.
Henderson, R. I.: Compensation management: Rewarding performance
Herriot, P. (ed.): Assessment and selection in organizations: Methods and practice
for recruitment and appraisal (New York, Wiley, 1990).
Hill, N. C.: Counselling at the workplace (New York, McGraw-Hill, 1981); 282 pp.
Appendices
Hyman, R.; Ferner, A. (eds.): New frontiers in European industrial relations

(Oxford, Blackwell, 1994); 410 pp.
ILO: Job evaluation (Geneva, 1986); 203 pp.
: Payment by results (Geneva, 1984); 164 pp.
Inohara, H.: Human resource development in Japanese companies (Tokyo, APO,
1990); 293 pp.
Institute of Management: Management development to the millenium: The Cannon
and Taylor workingparty reports ( London, 1994); 102 pp.
Joanes-Parker, J.; Perry, R. H. (eds.): The executive search collaboration: A guide
for human resources professionals and their search firms (Quorum Books,
1990).
Kennedy's pocket guide to working with executive recruiters (Fitzwilliam, New
King, P.: Performance planning and appraisal: A how-to-book for managers (New
York, McGraw-Hill, 1989); 170 pp.
(Geneva, ILO, 1989); 304 pp.
Loughran, C. S.: Negotiating a labor contract: A management handbook (Washing-
ton, DC, Bureau of National Affairs, 2nd ed., 1992); 473 pp.
McBeath, C.; Rands, D.: Salary administration (London, Business Books, 1976);
320 pp.
McKinnon, R.: Headhunters (London, Scope Books, 1987); 172 pp.
Mizutani, E.: Strategic cross-cultural management: Its human resource aspect
(Tokyo, International Leadership Development Institute, 1994); 142 pp.
Nadler, L.: Corporate human resources development: A management tool (New
York, Van Nostrand Reinhold, 1980); 199 pp.
; Nader, Z.: The handbook of human resource development (New York,
2nd ed., Wiley, 1990); 950 pp.
Odiorne, G. S.: Strategic management of human resources: A portfolio approach
(San Francisco, California, Jossey-Bass, 1984); 356 pp.
Perry, R. H.: How to answer a headhunter's call: A complete guide to executive
search (New York, Amacom, 1984); 249 pp.
Pfeffer, J.: Competitive advantage through people: Unleashing the power of the
workforce (Boston, Massachusetts, Harvard Business School Press, 1994);
304 pp.
Pigors, P.; Myers, C. A.: Personnel administration: A point of view and a method
(London, McGraw-Hill, 1981); 588 pp.
Plumbley, P. R.: Recruitment and selection (London, Institute of Personnel
Management, 1985); 176 pp.
Senge, P. M.: The fifth discipline: The art andpractice of the learning organization
(New York, Doubleday, 1990).
Schein, E. H.: Career dynamics: Matching individual and organizational needs
Schmitt, N.; Borman, W. C., and Associates (eds.): Personnel selection in

organizations (San Francisco, California, Jossey-Bass, 1993); 553 pp.
Schuler, R. S.; Hube, V. L.: Personnel and human resource management (St. Paul,
Minnesota, West Publishing, 5th ed., 1993).
Sparrow, P.; Hiltrop, J.-M.: European human resource management in transition
(London, Prentice-Hall, 1994); 695 pp.
Stewart, V.; Stewart, A.: Practical performance appraisal (Farnborough, Hamp-
shire, Gower, 1978); 192 pp.
Storey, J. (ed.): New perspectives on human resource management (London,
Routledge, 1989); 208 pp.
Taylor, A. R.: How to select and use an executive search firm (New York, McGraw-
Hill, 1984); 173 pp.
Thomason, G.: A textbookofpersonnel management (London, Institute of Personnel
Management, 1981); 619 pp.
Toplis, J., et al.: Psychological testing: A manager's guide (London, Institute of
Personnel Management, 2nd ed., 1991); 169 pp.
Towers, B. (ed.): Handbook of human resource management (Oxford, Blackwell,
1992); 400 pp.
Tracey, W. R. (ed.): Human resources management and development handbook
(New York, Amacom, 1985); 1550 pp.
Truell, G. F.: Coaching and counselling: Key skills for managers (Buffalo, New
York, PAT Publications, 1981); 77 pp.
Truelove, S. (ed.): Handbook of training and development (Oxford, Blackwell,
1992); 312 pp.
Wexley, K. N.; Hinrichs, J.: Developing human resources (Washington, DC, BNA
Books, 1991); 273 pp.
Willis, L.; Daisley, J.: Developing women through training: A practical handbook
(Maidenhead, McGraw-Hill, 1991); 200 pp.
Zemke, R.; Kramlinger, T.: Figuring things out: A trainer's guide to needs and task
analysis (Reading, Massachusetts, Addison-Wesley, 1982); 348 pp.
Chapter 17. Consulting in information technology

Daniels, C. N.: Information technology: The management challenge (Wokingham,
Berkshire, Addison-Wesley, 1994); 190 pp.
Diebold, J.: Managing information (New York, Amacom, 1985); 144 pp.
Ein-Dor, P.; Jones, C. R.: Information systems management: Analytical tools and
techniques (Amsterdam, North-Holland, 1985); 230 pp.
EIU: The management challenge of information technology (London, 1991); 110 pp.
Greene, Ch. B.: Benchmarking the information technologyfunction (New York, The
Conference Board, 1993); 23 pp.
Hirschheim, R.; Lacity, M. C.: Information systems outsourcing: Myths, metaphors
and realities (New York, Wiley, 1993); 269 pp.
Lucas, H. C.: Information systems: Concepts for management (New York, McGraw-
Hill, 1982); 515 pp.
Appendices
Institute of Certified Management Consultants of Canada (ICMC): Management

practices in information technology (Toronto, Ontario, 1993).
Keen, P. G. W.: Shaping the future: Business design through information technology
(Boston, Massachusetts, Haward Business School Press, 1991); 288 pp.
: Every manager's guide to information technology: A glossary of key terms
and concepts for today S business leader (Boston, Massachusetts, Harvard
Business School Press, 2nd ed., 1995); 304 pp.
McGee, J. V., et al.: Managing informution strategically (New York, Wiley, 1993);
240 pp.
Simon, A. R.: How to be a successful computer consultant (New York, 2nd ed.,
Walton, R. E.: Up and running: Integrating information technology and the
organization (Boston, Massachusetts, Harvard Business School Press, 1991);
231 pp.
Wiig, K.: Expert systems: A manager's guide, Management Development Series,
No. 28 (Geneva, ILO, 1990); 182 pp.
Williams; M.: Annual review of information science and technology (Medford,
Learned Information, 1993); 495 pp.
Chapter 18. Consulting in small enterprise

management
American Institute of Certified Public Accountants (AICPA): Assisting afinancially
troubled business (New York, 1992); 46 pp.
:Assisting closely held businesses to plan for succession (New York, 1992):
31 PP.
APO: Productivity through consultancy in small industrial enterprises (Tokyo,
1974); 500 pp.
Baumback, C. M.: Basic small business management (Englewood Cliffs, New
Bork, D.: Family business, risky business: How to make it work(NewYork, Amacom,
1986); 180 pp.
Choo, J. A. L.: Modernizing small-scale industries and businesses (Tokyo, APO,
1992); 83 pp.
Clark, S. A.: Beating the odds: 10 smart steps to small business success (New York,
Amacom Books, 1992); 283 pp.
Coleman, B.: The small business survival guide (London, Norton, 1984); 350 pp.
Daily Telegraph: How to set up and run your own business (London, 1984); 207 pp.
Dickson, D. E. N. (ed.): Improve your business: Handbook (129 pp.) and Workbook
(83 pp.) (Geneva, ILO, 4th impression, 1994).
Harper, M.: Small business in the third world: Guidelines for practical assistance
(Chichester, Sussex, Wiley, 1984); 21 1 pp.
Jones, S.; Cohen, M. B. (eds.): The emerging business: Managing for growth (New
York, Wiley, 1983); 425 pp.
Kline, J. B., et al.: Managing the small business (Homewood, Illinois, Irwin, 1982);
466 pp.
Kuriloff, A. H., et al.: Starting and managing the small business (London, McGraw-
Hill, 1993); 720 pp.
Neck, P.; Nelson, R. (eds.): Small enterprisedevelopment: Policies andprogrammes,
Management Development Series, No. 14 (Geneva, ILO, 2nd (revised) ed.,
1987); 282 pp.
Peace Corps: Guidelines for management consulting programmes for small-scale
enterprise (Washington, DC, 1981); 212 pp.
Reeb, W. L.; Winters S. L.: Small business consulting (New York, American Institute
of Certified Public Accountants (AICPA), 1991).
Rosenblatt, P. C., et al.: The family in business (San Francisco, California,
Jossey-Bass, 1985); 321 pp.
Schurnacher, E. F. S.: Small is beautiful: A study of economics as ifpeople mattered
(London, Abacus, 1973); 250 pp.
Shook, C.; Shook, R. L.: Franchising: The business strategy that changed the world
Steinhoff, D.; Burgess, J. F.: Small business management fundamentals (London,
McGraw-Hill, 6th ed., 1993); 570 pp.
Stillman, R. J.: Small business management: How to start and stay in business
(Boston, Massachusetts, Little, Brown, 1983); 275 pp.
Woodcock, C. (ed.): The Guardian guide to running a small business (London,
Kogan Page, 1984); 248 pp.
Chapter 19. Consulting for micro-enterprises

Bogaert, MVdBsj: Training village entrepreneurs, guidelines for development
workers (Delhi, Skills for Progress, 1986); 136 pp.
Buzzard, S.; Edgcomb, E.: Monitoring and evaluating small business projects: A
step-by-step guide (New York, SEEP, 1987); 262 pp.
Chambers, R.: Challenging the professions: Frontiers for rural development
(London, IT Publications, 1993); 80 pp.
De Soto, H.: The other path (New York, Harper and Row, 1989).
Devereux, S.; Pares, H.: Credit and savings for deve1opment:A manual for thepoor
(Oxford, Oxfam, 1987); 90 pp.
Edgcomb, E.; Cawley, J.: An institutional guide for enterprise development
organizations (New York, PACT Publications, 1993); 312 pp.
Gajanayake, S.; Gajanayake, J.: Community empowerment:Aparticipatory training
manual on community project development (New York, PACT Publications,
1993); 160 pp.
Harper, M.: Consultancy for small business (London, IT Publications, 1976);
254 pp.
: Entrepreneurship for the poor (London, IT Publications, 1984); 135 pp.
Kraus-Harper, U.; Harper, M.: Getting down to business, a training manual for
businesswomen (London, IT Publications, 1991); 160 pp.
Levitsky, J. (ed.): Microenterprises in developing countries (London, IT Publi-
cations, 1989); 274 pp.
Appendices
May, N.: No short cuts: A starter resourcefor women's group fieldworkers (London,
Change, 1992); 60 pp.
Millard, E.: Financial management of a small handicraft business (London, IT
Publications/Oxfam, 1987); 38 pp.
: Export marketing for a small handicraft business (London, IT Publi-
cations/Oxfam, 1992); 140 pp.
OEF International: Marketing strategies, training activities for third world women
entrepreneurs (Washington, DC, 1986); 96 pp.
Rolfe, C., et al.: Refugee enterprise, it can be done (London, IT Publications, 1989);
150 pp.
Small-scale enterprise, Policy document No. 3 (The Hague, Ministry of Foreign
Affairs, 1992); 106 pp.
- -
Technonet Asia: Achievement motivation training: Trainer's guide and handbook of

exercises (Singapore, 1984); 315 pp.
Theis, J.; Grady, H. M.: Participatory rapid appraisal for community development
workers (Delhi, Skills for Progress, 1986); 136 pp.
Chapter 20. Consulting for the public sector

Abramson, R.; Halset, W.: Planning for improved enterprise performance: A guide
for managers and consultants, Management Development Series, NO. 15
(Geneva, ILO, 1979); 178 pp.
Ahmed, Z. U. (ed.): Financial profitability and losses in public enterprises
(Ljubljana, International Centre for Public Enterprises in Developing
Countries, 1982); 167 pp.
APO: Improving productivity in civil service: A symposium report (Tokyo, 1993);
139 pp.
Borcherding, T. E. (ed.): Budgets and bureaucrats: The source ofgovernment growth
(Durham, North Carolina, 1977).
Drucker, P. F.: Managing the non-profit organization: Principles andpractices (New
York, Harper, 1992).
: Post-capitalist society (New York, Harper, 1993).
Gowan, V. Q.: Consulting to government (Cambridge, Massachusetts, Infoscan,
1979); 368 pp.
Hodgetts, J. E.: The Canadianpublic service (Toronto, University of Toronto Press,
1973).
International Association of Schools and Institutes of Administration (IASIA):
Excellence in public management: Facing the challenge, Report of the 1993
IASIA Annual Conference (Brussels, 1994)
Kolderic, T. (ed.): An equitable and competitivepublic sector (Minneapolis, Hubert
H. Humphery Institute of Public Affairs, University of Minnesota, 1984).
Lane, J. E.: The public sector: Concepts, models and approaches (London, Sage
Organization for Economic Cooperation and Development (OECD): Public
management developments: Survey 1993 (Paris, 1993); 191 pp.
Osborne, D.; Gaebler, T.: Reinventing government: How the entrepreneurial spirit
is transforming the public sector (Reading, Massachusetts, Addison-Wesley,
1992); 405 pp.
Salamon, L. M. (ed.): Beyond privatization: The tools of government action
(Washington, DC, Urban Institute Press, 1989).
Savas, E. S.: Structural adjustment and public service productivity (Geneva, ILO,
1993; MAN DEVl63, mimeo.)
The Government's use of external consultants (London, HMSO, 1994); 188 pp.
Wilson, J. Q.: Bureaucracy (New York, Basic Books, 1989).
Chapter 21. Consulting in privatization

Asian Development Bank (ADB): Privatization: Policies, methods andprocedures
(Manila, 1985); 380 pp.
Central and Eastern European Privatization Network (CEEPN): Preparing
enterprises for privatization: Business valuation (Ljubljana, 1992); 156 pp.
Ce~ka,R., et al.: Small privatization in Central and Eastern Europe (Ljubljana,
Central and Eastern European Privatization Network, 1993); 52 pp.
Copeland, T., et al.: Valuation: Measuring and managing the value of companies
(New York, Wiley, 2nd ed., 1991).
Eckert, J. K. (ed.): Property appraisal and assessment administration (Chicago,
International Association of Assessing Officers, 199Uj.
Ellerman, D. P. (ed.): Management and employee buy-outs as a technique of
privatization (Ljubljana, Central and Eastern European Privatization Netwo~k,
1993); 21 1 pp.
European Bank for Reconstruction and Development (EBRD): Management and
employee buy-outs in central and eastern Europe -an introduction (London,
1993); 99 pp.
Feldman, R. A.; Mehra, R.: Auctions: Theory and possible applications to
economies in transition (Washington, DC, International Monetary Fund, 1993,
mimeo.); 26 pp.
Gray, C. V.: Evolving legal frameworks for private sector development in Central
and Eastern Europe (Washington, DC, The World Bank, 1993).
Kikeri, S., et al.: Privatization: The lessons of experience (Washington, DC, The
World Bank, 1992); 86 pp.
Lord, R. (ed.): Privatization yearbook 1993 (London, Whitaker, 1993).
Prokopenko, J. (ed.): Management for privatization: Lessons from industry and
public service, Management Development Series No. 32 (Geneva, ILO, 1995);
300 pp.
Savas, E. A.: Privatizing the public sector: The key to better government (Chatham,
New Jersey, Chatham House Publishers, 1987).
Smith, G. V.: Corporate valuation: A business and professional guide (New York,
Wiley, 1988); 224 pp.
State Committee of the Russian Federation for the Management of State: The
privatization manual (Moscow, 1993); 2 vols.
Appendices
Treuhandanstalt: Privatization: Together into the social market economy (Cologne,

Deutscher Instituts-Verlag, 1992); 301 pp.
United Nations: Methods and practices of privatization (New York, 1993); 21 0 pp.
Chapter 22. Consulting in productivity and

performance improvement
N O : Improving productivity in civil service: A symposium report (Tokyo, 1993);
139 pp.
EIU: Making quality work: Lessons from Europe's leading companies (London,
1992); 269 pp.
: Global benchmarking for competitive edge (London, 1993); 117 pp.
McNair, C. J.; Leibfried, K. H. J.: Benchmarking: A tool for continuous improve-
ment (New York, Harper, 1992); 344 pp.
Munro-Faure, L.; Munro-Faure, M.: Implementing total quality management
(London, Financial TimesIPitman, 1992); 304 pp.
Osada, T.: The 5 S's: Five keys to a total qualily environment (Tokyo, APO, 1991);
211 pp.
Prokopenko, J.: Productivity management: A practical handbook (Geneva, ILO,
1987); 287 pp.
Ross, J. E.: Managingproductivity (Reston, Virginia, Reston Publishing Co., 1977);
190 pp.
Senju, S., et al.: Profitability analysis: Japanese approach (Tokyo, APO, 1989);
215 pp.
(ed.): TQC and TPM (Tokyo, N O , 1992); 158 pp.
Part IV. Managing a consulting firm

Greenbaum, T. L.: The consultant's manual: A complete guide to building a
successful consultingpractice (New York, Wiley, 1990); 228 pp.
Greiner, L. E.; Metzger, R. 0 . : Consulting to management (Englewood Cliffs, New
Hicks, T. G.; Mueller, J. F.: Standard handbook of consulting engineeringpractice
(New York, McGraw-Hill, 1986).
Kubr, M. (ed.): Managing a management development institution, Management
Lambert, T.: High income consulting: How to build and market your professional
practice (London, Nicholas Brealy Publishing); 316 pp.
Lant, J. L.: The consultant's kit: Establishingand operatingyour successful business
(Cambridge, Massachusetts, JLA Publications, 1981); 203 pp.
Maister, D. H.: Managing the professional service firm (New York, The Free Press,
1993); 376 pp.
Hampshire, Kennedy Publications, 1990); 127 pp.- -
Metzger, R. 0 . : Developing a consulting practice (New York, Sage Publications,

1993); 138 pp.
Chapter 23. Fundamentals of consulting firm

management
1993); 376 pp.
Millar, V. E.: On the management ofprofessional service firms: Ten myths debunked
(Fitzwilliam, New Hampshire, Kennedy Publications, 1991); 50 pp.
Chapter 24. The consulting firm's strategy

Holtz, H.: The consultant's guide to hidden profits: The 101 most overlooked
strategiesfor increased earnings and growth (New York, Wiley, 1992); 230 pp.
1993); 376 pp.
Shenson, H. L.: Shenson on consulting: Success strategies from the consultant's
consultant (New York, Wiley, 1990); 200 pp.
Webb, S. G. : Marketing and strategic planning for professional service firms (New
York, Amacom, 1982); 304 pp.
Chapter 25. Marketing of management consulting

Braun, I.: Building a successful professional practice with advertising (New York,
Arnacom, 1981); 289 pp.
Carlson, R. K.: Personal selling strategies for consultants and professionals: The
perfect sales equation (New York, Wiley, 1993); 209 pp.
Connor, R. A.; Davidson, J. P.: Marketingyour consulting andprofessional services
Consultants News: Public relations for management consultants: A practical
compendium (Fitzwilliam, New Hampshire, 1980); 83 pp.
: The news release idea book for management consultants (Fitzwilliam, New
Hampshire, 1981); 296 pp.
: 25 "best" proposals by management consulting firms (Fitzwilliam, New
Hampshire, 1984); 510 pp.
Davidson 111, R. L.: Contracting your services (New York, Wiley, 1990); 256 pp.
Forsyth, P.: Marketingprofessional services: A handbook (London, Pitman, 1992);
270 pp.
Hameroff, E. J.; Nichols, S. S.: How to guarantee professional success: 715 tested,
proven techniques for promoting your practice (Washington, DC, The
Consultant's Library, 1982); 183 pp.
Karlson, D.: Marketing your consulting or professional services (Los Altos,
California, Crisp Publications, 1988); 107 pp.
Kennedy, J. H. (ed.): Public relations for management consultants (Fitzwilliam,
New Hampshire, Consultants News, 1981); 83 pp.
Appendices
: How management consulting firms are using advertising today

(Fitzwilliam, New Hampshire, Kennedy Publications, 1994).
Kotler, P.; Bloom, P. N.: Marketing professional services (Englewood Cliffs, New
Maister, D. H.: Managing the professional servicefirm (New York, The Free Press,
1993); 376 pp.
McCaffrey, M.: Personal marketing strategies (Englewood Cliffs, New Jersey,
Schrello, D.: The complete marketing handbook for consultants, 2 vols. (Long
Beach, California, Schrello Direct Marketing, 1994); 590 pp.
Wheatley, E. W.: Marketing professional services (Englewood Cliffs, New Jersey,
Wilson, A.: Practice development for professional firms (London, McGraw-Hill,
1984); 232 pp.
Chapter 26. Costs and fees

Consultants News: Fees and expense policies/statements of 24 management
consultingfirms (Fitzwilliam, New Hampshire, 1984); 55 pp.
Reed, R. C.: Win-win billing strategies: Alternatives that satisfy your clients and
you (Chicago, Illinois, American Bar Association, 1992); 244 pp.
Shenson, H. L.: The contract and fee-setting guide for consultants andprofessionals
Chapter 27. Assignment management

American Institute of Certified Public Accountants (AICPA): Developing a
consulting services control and management program (Jersey City, New
Jersey, 1993).
Barcus, S. W.; Wilkinson, J. W. (eds.): Handbook of management consulting
services (New York, McGraw-Hill, 1986); 439 pp.
Van Doren, G. H.; Nadler, S. D.: Management advisory services manual (Boston,
Massachusetts, Warren Gorham and Lamont, 1987).
Chapter 28. Quality management and assurance

European Committee for Standardization (ECS): Quality Systems BS5750: Part 1:
1987, IS09001 -1987, EN29001 -1987 (Brussels, 1987); 10 pp.
Collard, R.: Total quality (London, Institute of Personnel Management, 2nd ed.,
1993).
Feigenbaum, A. V.: Total quality control (New York, McGraw-Hill, 1983).
Flood, R. L.: Beyond TQM (Chichester, Sussex, Wiley, 1993); 303 pp.
Fox, M. J.: Quality assurance management (London, Chapman and Hall, 1993);
377 pp.
Hart, C.: Extraordinary guarantees: A new way to build quality throughout your
company and ensure satisfaction for your customers (New York, Arnacom,
1993).
Institute of Management Consultants (IMC): Quality assurance briefing notes 1-6
(London, 1992-93); each 4 pp.
: Model quality manual for XYZ consultancy (London, 1993); 34 pp.
Juran, J. M.: Juran on leadershipfor quality (New York, The Free Press (Macmillan),
1989); 376 pp.
1993); 376 pp.
Management Consultancies Association (MCA): Quality assurance IS09001
1987lEN29001 1987lBS5750 Part 1 1987 Guidelines for management
consultancy (London, 1990); 9 pp.
: Quality assurance practice notes for management consultance (London,
1990); 60 pp.
Mastenbroek, W. F. G.: Managing for quality in the service sector (Oxford,
Blackwell, 1991).
Munro-Faure, L., et al.: Implementing total quality management (London, Financial
TimeslPitman Publishing, 1992); 304 pp.
: Achieving quality standards -A step-by-step guide to BS5750/IS09000
(London, Institute of ManagementIPitman Publishing, 1993); 210 pp.
Spenley, P.: World class performance through total quality (London, Chapman and
Hall, 1992); 171 pp.
Tunks, R.: Fast track to quality (New York, McGraw-Hill, 1992); 292 pp.
Chapter 29. Operational and financial control

AICPA: Consulting services manual (Jersey City, New Jersey, 1993).
Altman, M. A.; Weil, R. I.: Managing your accounting and consulting practice
(New York, Matthew Bender, 1978).
Association of Management Consulting Firms (ACME): 1993 Survey of European
key management information (New York, 1993); 53 pp.
: Survey of United States key management information (New York, 1993);
138 pp.
ILO: How to read a balance sheet (Geneva, 2nd (revised) ed., 1985); 213 pp.
1993); 376 pp.
Thomsett, M. C.: Fundamentals of bookkeeping and accounting for the successful
consultant (Washington, DC, Bermont Books, 1980); 134 pp.
Chapter 30. Structuring consulting firms

AICPA: Consulting services manual (Jersey City, New Jersey, 1993).
Bakewell, K. G. B.: How to organize information (Aldershot, Hampshire, Gower,
1984); 225 pp.
Appendices
Daniells, L. M.: Business information sources (Berkeley, California, University of

California Press, 1985); 673 pp.
Pyeatt, N.: The consultant's legal guide (Washington, DC, Bermont Books, 1980);
145 pp.
Reed, S. G.: Small libraries: A handbook for successful management (Jefferson,
North Carolina, McFarland, 1991); 142 pp.
Saint Clair, G.; Williamson, J.: Managing the new one-person library (London,
Bowker Saur, 2nd ed., 1992); 170 pp.
Vernon, K. D. C.: Information services in management and business (London,
Butterworth, 2nd ed., 1984); 346 pp.
(ed.): Library and information services of management development
institutions: A practical guide, Management Development Series, No. 24
(Geneva, ILO, 1986).
Chapter 31. Information technology in

consulting firms
Barcus, S. W.; Wilkinson, J. W. (eds.): Handbook of management consulting
services (New York, McGraw-Hill, 1986); 439 pp.
Holtz, H.: The consultant's edge: Using the computer as a marketing tool (New
York, Wiley, 1985); 364 pp.
Simon, A. R.: How to be a successful computer consultant (New York, McGraw-Hill,
2nd ed., 1990); 259 pp.
Part V. Developing management consultants

and the consulting profession
Chapter 32. Careers and compensation in consulting
ACME: Professional profile of management consultants: A body of expertise, skills,
and attributes (New York, 1989); 40 pp.
IMC: A body of knowledge for the accreditation of management consultants (New
York, 1979); 75 pp.
1993); 376 pp.
Margerison, Ch. J.: Managerial consulting skills: A practical guide (Aldershot,
Speicher, K.; Stamp, S.: Management consulting 1996 (Boston, Massachusetts,
Harvard Business School Press, 1995); 178 pp.
Chapter 33. Training and development of consultants

AICPA: University education for management consulting (New York, 1978); 144 pp.
Andolsen, A. A. (ed.): Management consulting: A model course (New York, ACME,
1988); 95 pp.
APO: Consulting skills in Asian context: A report of an APO symposium on

consulting skills (Tokyo, 1992); 188 pp.
Bellman, G. M.: The consultant's calling: Bringing who you are to what you do (San
Boydell, T.: Management self-development: A guide for managers, organizations
and institutions, Management Development Series, No. 21 (Geneva, ILO,
1985); 267 pp.
Katz, A. S.: Professional personnel policies development guidebook (Reading,
King, P.: Performance planning and appraisals: A how-to book for managers (New
York, McGraw-Hill, 1984); 160 pp.
(Geneva, ILO, 1989); 304 pp.
Markham, C.: The top consultant: Developing your skills for greater effectiveness
Nadler, L. (ed.): The handbook of human resource development (New York, Wiley,
1984); 845 pp.
Phillips, K.; Shaw, P.: A consultancy approach for trainers (Aldershot, Hampshire,
Gower, 1989); 166 pp.
Tracey, W. R. (ed.): Human resource management and development handbook (New
York, Arnacom, 1985); 1550 pp.
Truell, G. F.: Coaching and counselling: Key skills for managers (Buffalo, New
York, PAT Publications, 1981); 77 pp.
Chapter 34. Preparing for the future

APO: Consulting skills in Asian context (Tokyo, 1991); 188 pp.
General Agreement on Tariffs and Trade (GATT): GATS: The general agreement on
trade in services and related instruments (Geneva, 1994); 55 pp.
World Bank: The consulting profession in developing countries, World Bank
Discussion Paper (Washington, DC, 1992); 85 pp.
Appendices
Appendix 1 (on choosing and using consultants)
ACME: How to select and use management consultants (New York, 1987); 33 pp.
Bennett, R.: Choosing and using management consultants (London, Kogan Page,
1990); 301 pp.
Cannon, J. T.: No miracles for hire: How to get real valuefrom your consultant (New
York, American Management Association, 1990); 287 pp.
Easton, T. A.; Conant, R. W.: Using consultants: A consumer's guide for managers
(Chicago, Illinois, Probus Publishing, 1985); 200 pp.
Appendices
EIU: Choosing and using a management consultant (London, 1993); 322 pp.
: Executive search in Europe: Choosing and using a headhunter (London,
1993); 290 pp.
Fuchs, J. H.: Making the most of management consulting services (New York,
Amacom, 1975); 214 pp.
Golightly, H. 0.: Consultants: Selecting, using and evaluating business consultants
(Danbury, Connecticut, Watts, Franklin, 1985); 256 pp.
Holtz, H.: Utilising consultants successfully: A guide for management in business,
government, the arts andprofessions (Westport, Connecticut, Quorum Books,
1985); 221 pp.
: Choosing and using a consultant: A manager's guide to consulting services
Kubr, M.: How to select and use consultants: A client's guide, Management
McGonagle, J. J. Jr.: Managing the consultant: A corporate guide (Radnor,
Pennsylvania, Chilton, 1981); 210 pp.
Shenson, H. L.: How to select and manage consultants: A guide to getting what you
pay for (Lexington, Massachusetts, Lexington Books, 1990); 241 pp.
Taylor, A. R.: How to select and use an executive search firm (New York,
Transport and General Workers Union: Management consultants: Friends or
enemies? (London, 1983); 30 pp.
Ucko, T. J.: Selecting and working with consultants: A guide for clients (Los Altos,
California, 1990; 76 pp.
Appendices 9 and 10 (on communication

and report writing)
Alexander Hamilton Institute: Executive's guide to effective writing (New York,
1980); 109 pp.
Axtell, R. E.: Do's and taboos ofpublic speaking: How to get those butterfliesflying
in formation (New York, Wiley, 1992); 200 pp.
(ed.): Do's and taboos around the wor1d:A guide to international behaviour
(New York, Wiley, 2nd ed., 1990); 200 pp.
Calero, H.; Oskam, B.: Negotiate for what you want: Talking your way to success
in business, community affairs and personal encounters (Wellingborough,
Northamptonshire, Thorsons Publishers, 1988); 333 pp.
Casse, P.: The one-hour negotiator (Oxford, Butterworth-Heinemann, 1992);
117 pp.
Gowers, E.: The complete plain words (London, HMSO, 3rd (revised) ed., 1986);
288 pp.
Gunning, R.: The technique of clear writing (New York, McGraw-Hill, 1968).
Holcombe, M. W.; Stein, J. K.: Presentations for decision makers (New York, Van
Nostrand Reinhold, 2nd ed., 1990); 222 pp.
Honey, P.: Face to face: A practical guide to interactive skills (London, Institute of
Personnel Management, 1976); 150 pp.
Kennedy, G.: Everything is negotiable (London, Business Books, revised ed., 1989);
284 pp.
Munter, M.: Guide to managerial communication (Englewood Cliffs, New Jersey,
Nierenberg, G. I.: The art of negotiating (New York, Pocket Books, 1984); 254 pp.
..
Leech, T.: How to prepare, stage, and deliver winning presentations (New York,
Amacom, 1985); 417 pp.
Poe, R. W.: The McGraw-Hill guide to effective business reports (New York,
Schneider, A. E., et a].: Organizational communications (New York, McGraw-Hill,
1975); 367 pp.
Simpkin, R.; Jones, R.: Business and the language barrier (London, Business
Books, 1976); 291 pp.
Strunk, W.: The elements of style (New York, Macmillan, 1959); 70 pp.
Sussams, J. E.: How to write effective reports (Aldershot, Hampshire, Gower, 1983);
109 pp.
Swets, P. W.: The art of talking so that people will listen (Englewood Cliffs, New
Jersey, Prentice-Hall, 1983).
Yager, J.: Business protocol: How to survive and succeed in business (New York,
Wiley, 1991); 246 pp.
Zinsser, W.: On writing well: An informal guide to writing non-fiction (New York,
Harper and Row, 1980); 187 pp.
Periodicals
Consult (London, Institute of Management Consultants).
Consultants News (Fitzwilliam, New Hampshire, Kennedy Publications).
Consultation (New York, Human Sciences Press).
Consulting (Suresnes, France, M. M. Editions).
Journal of Management Consulting (Milwaukee, Wisconsin, Journal of
Management Consulting, Inc.).
Management Consultancy (London, V N U Business Publications).
Management Consultant International (Dublin, Lafferty Publications).
Management Consultants News (Chorleywood, Hertfordshire, Prime Marketing
Publications).
Directories
Consultants and Consulting Organizations Directory 1990, 2 vols. (Detroit,
Michigan, Gale Research, 10th ed., 1989).
Directory of Executive Recruiters 1992 (Fitzwilliam, New Hampshire, Kennedy
Directory of Key Executive Search Firms in Europe (Geneva, Consultex, 1992);
43 PP.
Directory of Management Consultants (Fitzwilliam, New Hampshire, Kennedy
Appendices
Directory of Management Consultants in the UK 1991 (London, Task Force Pro

Libra, 1991); 497 pp.
Directory of Outplacement Firms 1995-96 (Fitzwilliam, New Hampshire, Kennedy
Publications, 1994).
EIU: Executive search in Europe: Choosing and using a headhunter (London, 1993);
290 pp.
European Consultants Directory (Detroit, Michigan, Gale Research Co., 1992).
European Directory of Management Consultants 1995 (London, A.P. Information
Services, 1995).
FEACO directory (Brussels, European Federation of Management Consulting
Associations, 1991).
Le guide professionnel des sociktks de conseil (Suresnes, France, M.M. Editions,
7th ed., 1996).
Bibliographies
ACME 1988 annotated bibliography of selected resource materials (New York,
Association of Management Consulting Firms, 1988); 84 pp.
Regional and country surveys

(all by ALPHA Publications, Beaconsfield,
Buckinghamshire, UK)
Management consultancy services in Japan (1989).
Management consultancy services in the USA (1990).
Management consultancy services in Western Europe (1994).
INDEX
Accounting firms 30,45,273,437 Association of consultants

management advisory services 30,37 listing 729-734
Accounting, in consulting 625,627-628, 651 roles 126-129
Acquisitions 264, 280-282 Association of Management Consulting Firms
(ACME) 128,493,623-625
Action learning 96-97, 397 key management information survey 626
case history 791-796
Association of South-East Asian Nations
Action planning, in consulting 23-24, (ASEAN) 358
205-220
Attitude surveys 186-188
Action research 48
Attribute listing 211
Advertising, in consulting 539-540
Auditing
Africa 355 relationship to consulting 37,45
French-speaking 107 role in marketing of consulting 548
Alliances Australia 329
see Networking
Austria 133
Andersen Consulting 31
Automated teller 366
Anglo-Saxon countries 127, 274
Arbitration 762 Backlog of orders, in consulting 552
Articles, written by consultants 535 Backsliding 234
Asia 27-28, 31, 113, 351-352,456, 653 Bad debts
Asian Productivity Organization 456 see Uncollectable accounts
Assignment 25 Bank of International Settlement 290
closing of 595-596 Benchmarking 97, 98-99, 397,467
controlling costs and budgets 590-591 Benefits to client
costing 570-573 description in proposals 157
evaluation of 244 emphasis in marketing 528-531
management of 498-500,577-596, evaluation of 241-242
603-606
marketing of 544-547 Bibliography for consultants 809-839
plan of 156-159 Big Eight accounting firms 30,513
preparatory measures 582-584 Big Six accounting firms 30,37, 513
progress control 585-590 Billing clients 574-576
records and reports 591-595
strategy of 156-159 Board of directors 645
structuring and scheduling 577-582 Bookkeeping 275
supervisors 578 in consulting 625, 627-628
team leaders 578 Books, written by consultants 535
Brainstorming 210 Coaching, as change technique 95

Breakthrough Thinking 20, 170,212, 213 Code of conduct (ethics) 129
Business clinics 397-398 examplcs 735-743
Business process re-engineering Cold contacts 544-545
see Re-engineering Collaboration with other consultants 514-516
Collecting fees 574-576
Canada 132, 133,306,413,419, 425 collection period 576
Career, in consulting 672-676 uncollectable accounts 576
grades (ranks) 672-673 Collective bargaining, consulting in 354
sole practitioner's 676
Commercial enterprises, consulting in 304-305
Casc, in consulting
Commissions, paid in consulting 124-125
see Assignment
Communication, in consulting
Case history 765-775, 777-790, 791-796
person-to-person 797-802
Causal analysis 194, 195 written (reports) 803-808
Central and Eastern Europe 30, 72, 355, Comparison 151, 197, 467,619-620
433,435,439,441,447,450, 457,458,
Compensation
515, 713-714
in client organizations 342-344
Certification, of consultants 130-132, of consultants 677-678, 681
608-6 12, 707 of partners 679-680
Change, and consulting 13, 16,33, 71-102, Competition, in consulting 30,44-45, 495-497,
114-115, 457 521,717
agents of 13,83
Competitive advantage (edge)
environmental 72
of client 259-260
implementation of 13, 71-102
of consultant 502-503
imposed 79-80
in people 73-77 Competitive bids 426
management of 13, 16, 82-88 Computer manufacturers 373-374
nature of 71-78 Computers
negotiated 80 see Information technology
objections to 75-78, 87
organizational 16, 33, 73, 507 Confidentiality 14, 124, 337-338
participative 79-82 Conflict
planned 78 management of 88-89
resistance to 75-78, 468 of interest 121-123
structural arrangements 90-102 Confrontation 89, 94-95
support for 85-88 Consultancy
techniques 90-102 see Consulting
unplanned 78
Consultant
Chargeable services 557-558 behavioural roles 56-64
Choosing consultants 374-375, 438-439, chartered accountant 437
533, 721-727 competency 532-533, 685-689
Client engineering 45-46
base, in consulting 511-512 external 41-42
categories of 57 generalist 34-36
client system 55-56, 64-67 in information technology 372-374
consultant-client relationship 18, 51-69, internal 8, 39-42, 426-427
488,529,724 legal 45, 438
expectations and roles 51-54, 145, sectoral 34
158-159 sole practitioner
guidelines for using consultants 374-375, see Sole (single) practitioner
721-727 specialist 34-36
information on 554 ways of using 13-17, 721-727
interests of 121-122 Consulting
psychology of 145, 531-533 and training 12-13, 17, 46-47
training of 17, 226-227 as business activity 7,491-497,502, 716
Index
as method XVIll Cross-selling 548-549

as professional activity XVIII, 4, Culture
486-491,502, 715-718 and change 84, 1 14-116
as temporary service 7 and consulting 103-116
current and future trends 27-49,709-718 Asian 107, 113
definitions 3, 8 corporate 108-110, 268-271
general characteristics 3-26 Dutch 107
general purposes 8-13, 170-171 European 113
history 27-32 French 107
modcs 56-64 Japanese 108, 11 1
range of services 32-36 levels of 105-111
regional perspectives 71 1-715 national 105-106
Consulting firms nature of 103-105
management of 485-662 North American 107, 111, 113
mergers and acquisitions 30, 513-514 organizational 108-110
organization of 629-646 professional 107-108, 490
types of 36-39, 517 Czechoslovakia 29
Consulting methodology Czech Republic 394, 45 1
detailed description 51-102, 141-249
for assisting change 71-102
fundamentals of 18-25 Daimler Benz 359
roles of consultant and client 51-55 Data
Consulting process 21-25 analysis of 190-199
detailed description of phases 141-249 causal analysis of 194
classification of 192-193
Consulting services comparison of 197-198
intangibility of 487, 528-529 content of 177
non-traditional suppliers of 39, 372-374, gathering techniques 180-190
409-41 1 organization of 179-180
overview 8-17, 32-34 plan for collecting 176-177
quality of 488-489, 597-613 retrieval of I81
range of 27-49 sources of 180-190
strategic choices by synthesis of 199
consultants 501-511
Data banks 426
Contacts, initial with client 142-147
Databases 366
Contract, in consulting 25, 163-166
letter of agreement 164-165 Decision making 220, 266-267
psychological 166 in public sector 421-423
signatures 762 Dcnmark 291
standard 163, 759 Desktop publishing 366
terms of 164, 759-763
verbal agreement 163-164 Developing countrie\ 329, 447
written 165 consulting trends 715
public sector consulting 431-432
Control procedures 234-235
Dcvelopment, of consultants 683-708
Copyright 761 further training 701-704
Corporate strategy, consulting in 253-265 initial training 689-698
Corporation, in consulting 631-632 methods 691-704, 706-707
subjects covered 684-689
Costing of assignment 570-573
training courses 692-694, 703
Counselling
Diagnosis, in consulting 15,23, 167-203
as change technique 95
conceptual framework 167.170
as consulting tool 17,67-69, 95
diagnostic studies 256
entrepreneurs 388-389
feedback on 200-202
Cou?sellor 17, 67-69 preliminary 147-155
Creative thinking 209-214 Directories, of consultants 541
Critical path method 324 Discounted cash flow (DCF) analysis 283
Documentation, in consulting firm 553-555, Extension services 390-391

639,642,652-657
Fact-finding 176-190
Electronic data interchange 366
Facts
Electronic mail (E-mail) 367, 653 see Data
Electronic point of sale 366 Fads, in management 33,509
End-user computing 366 Family enterprises 388, 389-390
Engagement, in consulting FEACO
see Assignment see European Federation of Management
Enquiries, responding to 542 Consulting Associations
Entrepreneur 388-389, 397-398 Fee for assignment 570-574
in informal sector 399-411 calculation of 570-572
Entrepreneurship contingencies 572-573
in client organization 272 discounts 572-573
in consulting 495-497 negotiation of 574
intrapreneurship 272 schedule of payments 573-574
Entry, in consulting 22-23, 141-166 subsidized 394,562
Environmental factors 72, 391-393,522-523 Fee setting 557-576, 761
check-list 747-748 contingency fee 564-565
fair 532, 567
Ethics feelsalary ratio 560-561
in consulting 6, 120-132 flat (lump-sum) fee 563
in marketing of consulting 528-531 methods of 562-567
Eurobond market 294 percentage fee 566-567
Eurocurrency market 294 per unit of time 563
Europe 31, 113,287,329,343,351,353, retainer fee 567
360,361,456,653 value billing 569-570
consulting trends 713-714 Fee-earning days 558-559
see also Central and Eastern Europe; Feedback
Western Europe as change technique 95,783-785
European Federation of Management in implementing new methods 233
Consulting Associations (FEACO) 128 to client during diagnosis 170,200-202
code of conduct 129,565,735-737 Financial appraisal 275-277, 749-750
European Productivity Agency 456 ratio analysis 276-277, 749-750
European Union 358, 608 Financial management, consulting in 273-294
Evaluation accounting systems 275-276, 284-287
of alternatives 216-217 acquisitions 280-282
of assignment results 240-245,606, 726 budgetary control 284-287
of benefits to client 241-242 capital investment analysis 283-284
of consultants' training 695-698 capital structure 278-280
of consulting process 243-244 cross-border operations 289-294
of consulting staff 726 debt funds 279-280
of proposals by client 162 financial markets 278-280, 289-294
foreign-exchange exposure 289-292
Excellence, organizational 10, 254-256 hedging 291-293
Exchange Rate Mechanism (ERM) 280, inflation, operations under 287-288
290,291 liquidity 277
Executive search 340-341 mergers 280-282
Exhibitions, for advertising 540 working capital 277-278
Expenses Financial statement, of consulting
billable (reimbursable) 572 firm 628
of consultants 593-594 Flexible manufacturing systems 312
Experiments 93 Follow-up of assignment 246
Expert opinion 15 Force-field analysis 196
Index
Foreign exchange exposure 289-293 planning of 223-225

Foreign subsidiary, in consulting 515-516 tactical guidelines for 227-233
Forward workload, in consulting 552-553 Independence, of consultants 6-7
France 29, 107, 133,435 Indonesia 107
Franchising 303 Industrial relations
see Labour-management relations
Free client services 558
Information
for preliminary diagnosis 152-153
General Agreement on Tariffs and Trade
gathering of, in consulting 176-190
(GATT) 305,712
on clients 162, 553-555
General Agreement on Trade in Services relationship to consulting 14
(GATS) 712 special client service 14, 538
General management, consulting in 28-29, Informal sector, consulting for 399-411
253-272
Information technology (IT),
Germany 29,293,294,395,435 consulting in 46,363-376
Great Britain in consulting firms 644,645, 647-662
see United Kingdom Innovation
Groups in client organization 271-272
for problem identification 154 innovators 83-84
in informal sector 407-408 Institute, of consultants
in small business consulting 397-398 see Association of consultants
Institute of Management Consultants (United
Hanson Group 282
Kingdom) 40,130-131,610
Hawthorne experiment 28 code of conduct 129,737-743
Head-hunting 340 Insurance, of consultant 135
"Hot-line service" 396 Interest
Human resource development, conflict of 122-123
consulting in 345-350, 477 of client 121-122
career development 347 Internal consultants 39-42
organization development 348
Internal rate of return (IRR) 283
performance appraisal 348
training and development 346-347 international Council of Management
Consulting Institutes (ICMCI) 128, 688
Human resource management.
certification model 131
consulting in 333-362
audit of 337-338 International Labour Office (ILO) XVIII,
changing nature of 333-336 456
check-list 754-755 Internet World Wide Web 657
job evaluation 344 Intervention techniques
labour-management relations 351-358 for assisting change 90-102
motivation 342
Interviewing 184-187, 337
planning 339
policies and practices 336-339 confidentiality of 337
recruitment and selection 340-341 "Intrapreneurship" 272
remuneration 343-344 Invitations to submit proposals 546
IS0 9000, I S 0 9001 328,599,601,607,
IBM 359 608-613, 653
Image Italy 435
of client firm 299
of consultant 430, 517-518, 538 Japan 95, 108, 256,287, 279,290,329,359,
processing 653-654 456, 653
Impartiality 123-124 consulting trends 714-715
Implementation, in consulting 24, 221-236 human resource management 360
consultant's role 222-223, 725 production methods 314-315
monitoring of 225, 233-236 Japan Productivity Centre 456
Job analysis and classification 344-345 Management-by-objectives 305

Job descriptions 339 Management consultant
Just-in-time 305, 314, 323 see Consultant
Management information systems 267-268,
Kaizen 313,457 363-376
Kanban 314
Management institutions
Knowhow transfer 448 consulting services of 38
Knowledge Management of consulting firms 485-662
common body of 121,684-689 assignment management 577-596
of consultant 117, 121, 685 costs and fees 557-576
Kurosawa, Kazukiyo fundamentals 485-500
productivity measurement information technology 647-662
approach 459-460 marketing of services 527-555
operational and financial control 615-628
Labour-management relations, organizational structure 629-646
consulting in 351-358 quality management 597-613
Lateral thinking 211 strategy 501-525
top management 486-487, 491, 645-646
Latin America 287, 355
Lawlor, Alan Management survey (problem
productivity measurement diagnosis) 147-155
approach 460-462 outline of 147-151, 745-757
Leadership Market for consulting services
in client organization 82, 270-271 current 3 1
in consulting organization 491 future 519-523, 709-715
information on 553-555
Leads 545
segmentation of 511-512, 520-521
Lean production 31 1-312
Marketing, consulting in 295-307
Learning advertising 302
from clients 518-519, 589 check-list 750-751
in consulting 12-13 distribution channels 302-303
Learning organization (company) 97, international 305-306
349-350 operations 301-304
Legal forms of business 629-632 packaging 304
corporation 631-632 physical distribution 306
partnership 630 public relations 307
sole proprietorship 629-630 retailing 299-300
Legal liability, of consultant 132-137, 761 sales management 301-302
strategy 296-300
Lehman formula 566
Letter of agreement 164-165 Marketing, of consulting 527-555
approach to 528-533
Leverage 493-494 audit of 550
Liability 761-762 direct 544-549
Library 642 indirect 533-544
Licensing, of consultants 132 organizing for 637-638
planning of 552-553
Local government 431 principles of 527-533
Logo 543-544 strategy 501-525
London interbank offered rate (LIBOR) 294 techniques of 533-549
to existing clients 547-549
Maastricht Treaty 306 to former clients 549
to public sector 428
Maister, David
profit model 493 Marshall Plan 456
Malaysia 95 Materials management 322
Management advisory services (MAS) 37 McKinsey, James 29,527
Index
McKinsey organization 255 Packaging 304

Meetings Participation of client XVIII, 51-69, 79-82,
as change technique 92-93 152, 724-725
for assignment c-ontrol 202, 244 Partner 630, 672 ff.
for data gathering 186 compensation of 679-680
for presenting proposals 161, 218, 802
initial, with client 143-146 Partnership 630
Mergers 264, 280-282 Pcrformance improvement
see Productivity improvement
Micro-enterprises
see Informal sector Pcrformance monitoring 610-625
ratios 620-626
Mode, of consulting 56-64
see ulso Style of consulting Personal characteristics, of
consultant 665-668, 669
Multinational corporations
(enterprises) 358-359 Personal computer 366
Personncl managcmcnt
Name, of consultant 543 see Human resource management
Net present value (NPV) 283 PERT 324
Netherlands, The 413, 608 "PEST' analysis 261
Networking 514, 707 Philippines, The 410
Newsletters, of consultants 536 Pilot projects 93
Non-traditional suppliers of Positioning, of consulting firm 502, 533
consulting 39, 372-374, 409-411 Practice management
North America 113, 287, 329, 35 1, 360 see Management of consulting firms
consulting trends 712-713, 714 Predetermined time standards 326
see also Canada; United States
Preliminary problem diagnosis 147-155
North American Free Trade Agreement
(NAFTA) 306,358 Privatization
consulting in 418,435-453
Notification of assignment 591-592
post-privatization consulting 452-453,
714
Objectives, business check-list 749 strategies 440-444, 446
Observing 152 Problem
Office facilities characteristics of ,lo-12, 171-173
of consulting organization 644 identification 52-53, 147-155
of sole practitioner 644-645 in-depth diagnosis of 170-176
Operating budget 616-618 ownership 55, 172
Operating work plan 615-616 preliminary diagnosis of 147-155
solving 9-12, 19-21, 97, 507
Organizational development 19, 58, 94-95,
348 Process consulting 57-64, 257,313,488
case history of 59, 777-790
Organization for Economic Co-operation and
training in 699-700
Development (OECD) 279
countries 288 Production management, consulting
in 309-331
Organization, of consulting firm 629-646
check-list 751-753
for international operations 639.640
energy savings 327-328
for marketing 637-638
functional units 633 group work 329
geographical units 633-634 inventory (stock) control 322-323
layout 320-322
library and documentation 642-644
office and administration 641 maintenance 326-327
materials handling 323
operating core 633-637
sectoral units 633 methods study 325-326
performance standards 310-31 1, 320,
Original equipment manufacturer 311-312 321,325-326
planning and scheduling 324-325
PA (United Kingdom) 29 product 316-3 19
production choices 31 1-319 Ratio analysis 276-277

quality 328 Recruitment of consultants 668-672
work flow 320-322
Re-engineering, 97, 100-101, 266, 313-314,
Productivity improvement, 419,478-480
check-list 756-757
consulting for 33,455-481 Referrals 534, 545
history 455-458 Repeat business 547
measurement and analysis 458-468 Reports, in consulting
programmes (PIP) 468-481 diagnostic (proposal) 159-163
Profession 43, 117-119 final 22, 24, 247-249, 760
management of 486-487 internal 249
on assignment progress 202,217-219,594,
Professional 760
approach 65, 120-126 writing of 803-808
association 126-129
code 129, 735-743 Research
culture 107,490-491 organizing for 639
development, of consultants 121, 129, relationship to consulting 4,5, 47-48
683-708 strategy 510, 539
ethics 6, 117-137, 715-718 Research and development
image (reputation) of consultant 430, check-list 753-754
517-518,537 Resource consultant 57-64
integrity 65, 532-533, 667 Responsibility, of consultant 132-137
staff in consulting 489-490
standards 118, 120-126, 129,136-137, Retainer 25, 246
489-491,717 fee 567
generalist 25
Professionalism, in consulting 117-137, specialist 25
715-718
"Royal Road" (productivity
Profit, improvement) 473-476
in consulting 7,491-495
model 493-494, 623-625
5 Ss 314
Project, in consulting Scientific management 27-28,455-456
see Assignment
Selecting consultants
Proposal to client 159-163 see Choosing consultants
evaluation of 162
Self-diagnosis
negotiation of 162
by client 154
presentation of 161, 217-220
by consulting firm 518
Public enterprises, consulting in 431-432 Self-help groups 398
Public sector, consulting in 413-434 Sensitivity analysis 283-284
Purpose, of consulting 8-13, 170-171, "Seven-S" framework 255
480-481
Singapore 394
focus purpose 19-21, 170-171
of assignment 170 Six Thinking Hats 212
Sixth Law of Pricing 570
Qualities, of consultant Size of consulting organization 31,512-513
see Personal characteristics Small business, consulting in 377-398
Quality, of consulting 136-137,488-489, case history 765-775
597-613 extension services 390-391
assurance 597-613 family enterprises 389-390
certification 533, 608-612 life-cycle 383-388
circles 314 sector policy 391-395
control 354 special problems 378-381
management 597-613 start-up 388-389
manual 609-610 Social benefits 344
Questionnaires 184 Social development, consulting in 115-116
Index
Software companies 373 Terminology, consulting XIX-XX

Sole (single) practitioner 37-38 Terms of reference 155-156
career development 676 Time recording 650-651
cost of services 561
information technology needs 660-661 Time records, in consulting 593
in information technology 374 Top management, in consulting 486,491,
involvement in implementation 223 645-646
marketing effort 553 Total productive maintenance 327
office facilities 644-645
Total quality management 255,310,314,
quality management 608
327,328,457
training and self-development 706-707
Training
Sole proprietorship 629-630
as change technique 96
Spreadsheets 366 as marketing tool 537-538
Staff turnover, in consulting 675-676 client's staff 17, 226-227, 582
Standard instruments 396 of consultants
Strategy, consulting in see Development of consultants
see Corporate strategy organizing for 639
relationship to consulting 17,46-47
Strategy of consulting firm 501-525
audit 519 Transfer, of management practices 113-114
competitive edge 502-503 Turkey 413
growth 495, 512-513 Turnaround 264-266
internationalization 513-516
management process 518-525
product innovation 508-510 Uncollectable accounts 576
services and products 505-511 United Kingdom 29,31,40, 132, 135,
Structural adjustment policies 392 279-280, 282,290,292,369,394,413,
419,435,599,608
Structures and systems
consulting in 15-16, 266-268,284-287, United Nations Development Programme
363-376,506-507 (UNDP) 456
decision-making systems 266-267 United States 29, 31, 132, 134, 135,256,
management information 265, 269, 282, 289,290, 294,300, 303,
systems 267-268 306, 340,394,456,527,560,565, 627,
organization structure 268 653,679
Style Using consultants
of consulting 51-69 clients' concerns 51-52, 144-146, 380,
of management 103-116, 268-271 531-532
Subcontractors, use of 762 clients' ten commandments 721-727
Sweden 329,419,435 dependence on 726-727
guidelines for clients 374-376, 721-727
Switzerland 290, 292, 294 in information technology 367-376
Synectics 210 reasons for 8-13
Synthesis 199 ways of 13-17
Systems USSR, former 287
see Structures and systems
Systems houses 373 Valuation 45, 280-281, 387,444-446
Value
Task forces 92 billing 569-570
Taylor, F. W. 27,455 to client 125, 569
Team building 94 Verbal agreement 163-164
Team leader, in consulting Visual IT 366
Telecommunications 366 Voice mail 654
Temporary groups 92 Volvo 329
Termination, of assignment
762 Western Europe 287, 290
Withdrawal of consultant 238-239 diagnostic 154

signals 239 for managers 537-538
Word (text) processing 652, 808 World Bank 128
Workflow software 654
ZEN-NOH-REN (Japan) 128
Workshops
action-learning 397

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96B09_93_engl

Edited by MILAN KUBR

INTERNATIONAL LABOUR OFFICE GENEVA

[LO Cataloguing in Publication Data

Authors and acknowledgements . ........................... xv

Part I Management consul ti^ in perspective

Chapter 1 Nature and purpose of management consulting . . . . . . . . . . . .

Chapter 2 Range and scope of consulting services . . . . . . . . . . . . . . . .

4.3 Gaining support for change . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5 Consulting and culture .........................

Chapter 6 Professionalism and ethics in consulting ................

Wlt I1 'Ihe consulting process

Chapter 8 Diagnosis .................................

Part Ill Consulting in various m a s of management

Chapter 12 Consulting in general and strategic management . . . . . . . . . . .

Chapter 13 Consulting in financial management ..................

Chapter 14 Consulting in marketing and distribution management . . . . . . .

Chapter 15 Consulting in production management . . . . . . . . . . . . . . . . .

Chapter 16 Consulting in human resource management . .............

16.6 Human resource development . . . . . . . . . . . . . . . . . . . . . . .

Wlt IV Managing a comulting firm

Chapter 23 Fundamentals of consulting firm management . . . . . . . . . . . .

Chapter 24 The consulting firm's strategy ..............

Chapter 26 Costs and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 27 Assignment management . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 28 Quality management and assurance . . . . . . . . . . . . . . . . . .

28.3 Quality certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608

Chapter 29 Operational and financial control . . . . . . . . . . . . . . . . . . . . 615

Chapter 30 Structuring consulting firms . . . . . . . . . . . . . . . .

Chapter 31 Information technology in consulting firms . . . . . . . . . . . . . . . 647

Wrt V Developing management consultanls and the consulting profession

Chapter 32 Careers and compensation in consulting . . . . . . . . . . . . . . . . 665

Chapter 33 Raining and development of consultants ................ 683

Chapter 34 Preparing for the future . . . . . . . . . . . . . . . . . . . . . . . . . 709

Appendix 1 The client's Ten Commandments . . . . . . . . . . . . . . . . . . .

Generic consulting purposes ...........................

22.9 Phases I and I1 of the "Royal Road" .......................

26.1 Chargeable time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559

On giving and receiving advice . . . . . . . . . . . . . . . . . . . . . . . . . .

Cultural values and norms in organizations ...................

Problems to watch and principles to observe in productivity measurement

This book is the result of a collective effort and reflects collective

Management consulting has long been recognized as a useful professional

The concept of consulting

Purpose of the book

functions in the field of management on either a full-time or a part-time

Plan of the book

The appendices provide information supplementing the main text, as well

1.I Definition: What is consulting?

method of providing practical advice anti help. There is no doubt that

Box 1.1 On giving and receiving advice

"Many receive advice: few profit by it." Publius Syrus

"Men give away nothing so liberally as their advice." La Rochefoucauld

"Never give advice in a crowd." Arabian Proverb

"Good counsellors lack no clients." Shakespeare

"Free advice is often overpriced." Unknown

Selected by James H. Kennedy.

Thus, consulting can be essentially experience based, or research based, or

Another key characteristic of a professional approach is professional ethics

Political independence means that neither the client organization's