Summary of course Flashcards
What can be said to define a management consultant?
Explain what it means that MC is an “intangible reality”
“… management consulting is an uncertain
and evolving process conducted by a foreign
intruder who muddles through by performing
various problem-solving activities, while
trying to meet the needs of the client”
Explain “Consequentialist” and “Categorical” moral reasonings
MORAL REASONING BASED ON THE CONSEQUENCES OF AN ACT
Moral Reasoning may be Consequentialist, when locates morality in the consequences of an act, the state of the world that will result from the thing you do.
Following this logic, there are methods like:
- Trade off Analysis
- Cost-Benefit Analysis
Utilitarianism: the most influential example of consequential moral reasoning.The right and just thing to do is to maximize utility, where utility is the balance of pleasure over pain.
MORAL REASONING BASED ON CATEGORICAL PRINCIPLES
Moral Reasoning may be Categorical, when locates morality in certain rights and duties.
Categorical moral reasoning locates morality in certain absolute moral requirements, in certain categorical duties and rights regardless of the consequences.
Kant: morality can be summed up in one ultimate commandment of reason, or imperative, from which all duties and obligations derive.
What are the characteristics of the MC profession?
It can be characterized by:
- Knowledge intensity
- Low Capital intensity
- Professionalized workforce
Additionally:
• Opaque quality = asymmetry of information between consultants and clients. Clients have no tools to assess the quality of the service delivered.
• Agility = human capital is the main (if not the only one) asset. Trust and HR skills are crucial for service quality delivery. This also explains why consulting is the toughest industry to get
into. Their selection procedures are very sophisticated, to guarantee high quality input.
- Client chose not only on price, but on factors like: reputation, flexibility, previous relationships (70% of sales of come from existing clients)
- Outsourcing: client ask consultants to RUN things on their behalf
What are the skills and attitudes of a MC?
• Analytical
– Listening
– Data oriented
• Creativity
– Bridging knowledge from different industries
• Problem Solving
– Speed
• Customer management
– Service orientation
- Management & project management
- Team Management
- Sales and client management
What is demand really buying?
What charactarizes the service that MC provide?
Demand
-
TIME
- (past/experience, future/forecast, anticipation, deadlines, compliance)
-
SPACE
- (be here/there, been here/there, not been here…)
-
OTHER CUSTOMERS
- (references, standard, exclusivity)
-
COMMUNICATION/SYMBOLIC
- (internal, external, lateral, vertical, brand-based rubberstamping, message-in-the-bottle)
Characteristics
- Experience good
- Information good
- Based on asymmetries
- Subject to agency costs and conflict of interests
What can be said to be MC’s raison d’être?
Management consultants:
1) provide competences that are not available in the firm;
2) have varied experience in the world outside the client’s firm;
3) have time to study problems;
4) are professionals;
5) are independent,
6) have the ability to create action based on their recommendations.
Explain the professional service pratice spectrum
What are the different pricing models a MC firm can employ?
What are the drivers of profitability in a professional service firm?
What are some ways to improve profitability in professional service firms?
- Raise rates, provided that raising rates does not result in loss of work.
- Work harder on production, provided that work is available and more work does not come at the expense of lowered rates.
- Work harder on client development, building strong client relationships that will generate high-quality work.
- Reduce professional staffing, if not enough high-quality work can be generated and delivered.
What conlusions and can be made regarding profitability in professional service firms?
- Profitability is driven by leverage, margins and productivity. Increasing productivity has the strongest effect on increasing profitability.
- These levers are interrelated. Margin and leverage are negatively related; leverage and productivity are weakly related; productivity and margin are strongly and positively related.
- Because producitivy and margin are positively related, simply cutting margins is unlikely to improve productivity or profitability.
- Investing in growth detracts from current profitability.
- Proftability differs siginificantly across locations.
- PSFs encounter the Bremuda Triangle effect in relating scale to profitability. Small and large firms are more profitable, midsized firms less so.
- Firms with scale economies tend to have non-equity partners, the reverse is true for non-scale equity firms.
- Because of 6) and 7) firms differ in their economics and optimal organizational structures.
What are the characteristics of a one-firm firm? How does it work and what are the potential weaknesses?
Definition
Is a PSF (Professional Service Firm) that operates in a consistent and identical way in all the markets, with all clients, across geographies, with the whole professional pool and the professional applicants around the world.
Characteristics
- Loyalty
- Members of an institution
- Teamwork and conformity
- Long hours and hard work
- Sense of mission
- Client mission
The above can be considered as “the” professional values that embrace the best one-firm firms
How it works
- Recruiting
- Training
- Internal labor market (skill specificity, on the jobtraining, customary laws)
- Avoiding mergers
- Controlled growth
- Selective business pursuits
- Outplacement
- Compensation
- Research and development
- Communication
- No status symbols
- Governance
Potential weaknesses
- Self congratulatory complacency
- Insufficiently entrepreneurial spirit
What two markets to MC firms compete in? How are the structured?
Two markets
-
Market for professional services (= clients that have problems and need consultants advisory)
- Project types: brains, grey hair, procedures
- Client’s needs
-
Market for professional resources (= young would – be consultants that aspire of becoming consultants and want to be employed in a reputable consulting firm)
- Promotion policy: up or out policy
- Turnover rate
- Accommodating growth
Stucture
Consultants have to strike a balance between the firm’s org. structure and their economic structure
-
Org structure
- Professional pyramid
- Project Team based structure
- Utilization rate: percentage of the total contractual time of consultants dedicated in the delivery of advisory services to clients
-
Economic structure
- Billing multiple: billing rate per hour / total
compensation per hour - Target growth
- Billing multiple: billing rate per hour / total
Explain the nature of scale and scope in PSFs
Professional service firms (PSFs) often seek scale and scope for competitive advantage. PSFs might be advantaged or disadvantaged by their scale and scope, depending on the underlying economics of service provision. Further, scale and scope do not reduce competition in professional services per se.
Scalability
The more scalable a service activity is, the larger the optimal size of the PSF.
Some professional services are not scalable or might even suffer from scale diseconomies. One of the widely held beliefs in equity research is that the cost of providing high-quality research follows a U-shaped curve with the size of the research department.
Services that require possession of significant tacit or client-specific knowledge can suffer from diseconomies of scale because the cost of transferring the tacit knowledge from one provider to another is so prohibitive that increasing the amount of service comes at increasing incremental cost.
Examples:
In technology consulting, the first step in business process engineering/enterprise resource planning (ERP) in a large, multilocation firm — understanding the firm’s processes at the first
location—is very labor intensive. Subsequent rollouts of the ERP solution to other locations is relatively easier. ERP, therefore, is a scalable service.
Strategic advice in consulting and investment banking is often considered a nonscalable service.
Scope
The scope of a PSF is driven by the complementarity among activities. Complementarity, also called economy of scope, implies that the cost of doing two activities together is less than the cost of doing them separately.
Scope economy might exist because provision of one service increases the demand for the other service or because clients demand a “one-stop” shop.
Offering multiple services increases the complexity of operations. Consulting firms that offer both strategic advice and systems integration might be more or less efficient than focused consulting firms that offer one or the other of these services depending on whether scope economies or diseconomies between the two services are more prominent.
What are some ways to prevent, solve or reduce conflicts of interest?
See picture for cases
Preventative measures
- Write a Conflict of Interest Policy in line with applicable regulation.
- Regularly train and educate team members on the Policy.
- Implement technologies that help team members declare potential conflicts of interest.
Solutions
Potential conflicts-of-interest problems of financial institutions may be reduced or eliminated by
-
Market-based solutions
- Clients penalize firms engaged in conflicts of interest. Each financial institution establishes own rules (corporate governance) to reduce/eliminate conflicts of interest
-
Government regulations
- Government tells what financial institutions cannot do and penalizes firms if they engage in conflicts of interest
Reductive measures
Conflicts of interest can be reduced by
-
Transparency/disclosure
- Because the problem arises from asymmetric information, it can reduce by making sure accurate information available.
-
Supervisory oversight
- Regulating agencies examine conducts and ensure transparency.
-
Separation of functions
- Because the conflicts of interest arise from serving multiple clients, separating services internally or eternally can eliminate multiple interests.
-
Socialization of information production
- Because an incentive to exploit conflicts of interest arises from fees paid by clients to produce information, the government may either produce information or fund financial institutions to produce information.
In what settings is professionalism the appropraite relationship form?
How can the process look like to develop an effective communication?
