Definition: Small Business Consulting

Management consulting (which comprises strategy consulting and operations consulting) refers to both the practice of helping companies to improve performance through analysis of existing business problems and development of future plans, as well as to the industry composed of firms that specialize in this sort of consulting. Management consulting may involve the identification and cross-fertilization of best practices, analytical techniques, change management and coaching skills, technology implementations, strategy development, or operational improvement. Oftentimes management consultants also rely on their outsider's perspective to provide unbiased recommendations. Management consultants generally bring formal frameworks or methodologies to identify problems or suggest more effective or efficient ways of performing business tasks.
Management Consulting is becoming more prevalent in non-business related fields as well. As the need for professional and specialized advice grows, other industries such as government, quasi-government and not-for-profit agencies are turning to the same managerial principles that have helped the private sector for years.

While management consulting refers to providing business consulting services, it can be hard to definitely distinguish between management consulting and other consulting practices such as Information technology consulting and human resource consulting because these fields directly support business operations and often overlap the field of management consulting.

History
Management consulting grew with the rise of management as a unique field of study. The first management consulting firm was Arthur D. Little, founded in 1886 by the MIT professor of the same name. Though Arthur D. Little later became a general management consultancy, it originally specialized in technical research. Booz Allen Hamilton was founded by Edwin G. Booz, a graduate of the Kellogg School of Management at Northwestern University, in 1914 as a management consultancy and the first to serve both industry and government clients. The first pure management and strategy consulting company was McKinsey & Company. McKinsey was founded in Chicago during 1926 by James O. McKinsey, a professor at the University of Chicago Graduate School of Business, but the modern McKinsey was shaped by Marvin Bower, who believed that management consultancies should adhere to the same high professional standards as lawyers and doctors. McKinsey is credited with being the first to hire newly minted MBAs from top schools to staff its projects vs. hiring older industry personnel. Andrew T. Kearney, an original McKinsey partner, broke off and started A.T. Kearney in 1937 . During Britain's war effort, Personnel Administration (PA) was founded in 1943 by three Englishmen: Ernest E. Butten, Tom H. Kirkham and Dr. David Seymour.

After World War II, a number of new management consulting firms formed, most notably Boston Consulting Group, founded in 1963, which brought a rigorous analytical approach to the study of management and strategy. Work done at Booz Allen, McKinsey, BCG, and the Harvard Business School during the 1960s and 70s developed the tools and approaches that would define the new field of strategic management, setting the groundwork for many consulting firms to follow. Another major player of more recent fame is Bain & Company, whose focus on shareholder wealth (including its successful private equity business) set it apart from its older brethren. Also significant was the development of consulting arms by both accounting firms (such as Accenture of the now defunct Arthur Andersen) and global IT services companies (such as IBM Global Services, which acquired PwC Consulting). Though not as focused on strategy or the executive agenda, these consulting businesses were well-funded and often arrived on client sites in force.

One of the reasons why management consulting grew first in the USA is because of deep cultural factors: it was accepted here, (contrary to say, Europe), that management and boards alike might not be competent in all circumstances; therefore, buying external competency was seen as a normal way to solve a business problem. This is referred to as a "contractual" relation to management. By contrast, in Europe, management is connected with emotional and cultural dimensions, where the manager is bound to be competent at all times. This is referred to as the "pater familias" pattern. Therefore seeking (and paying for) external advice was seen as inappropriate. Conversely it must also be said that in those days (and still today) the average level of education of the executives was significantly lower in the USA than in Europe, where managers were "Grandes Ecoles" graduates (France) or "Doktor" (Germany). The combination of these two factors made it difficult for consulting to emerge in Europe. It was only after World War II, in the wake of the development of the international trade led by the USA, that management consulting emerged in Europe.

The current trend in the market is a clear segmentation of management consulting firms. McKinsey, Bain, and BCG retain their strong strategy focus, while many other generalist management consultancies such as Accenture and Capgemini are broadening their offering increasing into high volume, lower margin work such as system integration. Accenture has recently enhanced its offerings through its service lines with a new Management Consulting & Integrated Market Growth Platform.

Current state of the industry
Management consulting has grown quickly, with growth rates of the industry exceeding 20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and linked to overall economic conditions. The consulting industry shrank during the 2001-2003 period, but had been experiencing slowly increasing growth since. In 2004, revenues were up 3% over the previous year, yielding a market size of just under $125 billion.
Currently, there are four main types of consulting firms. First, there are large, diversified organizations, such as Accenture, BearingPoint, Capgemini, Deloitte and IBM Global Services that offer a range of services, including information technology consulting, in addition to a strategy consulting practice. Second, are the medium-sized information technology consultancies, such as Hitachi Consulting, that blend boutique style with some of the same services and technologies bigger players offer their clients. Third, are the large management and strategic consulting specialists that offer only strategy consulting but are not specialized in any specific industry, such as Arthur D. Little, A.T. Kearney, Bain & Company, Boston Consulting Group, and McKinsey & Company. Finally, there are boutique firms, often quite small, which have focused areas of consulting expertise in specific industries or technologies. For instance, Roland Berger is well-known in Europe for its skills in downsizing and cost-killing, while Monitor Group is focused on the pharma industry and assistance to developing countries' governments. Most of the boutiques were founded by famous business theorists.

A fifth type of global consulting firm is emerging. Sourcing consultancy deals with both insourcing and outsourcing and is a fast growing sector. The largest of these firms are equaterra and TPI.

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