Everything You Need To Know About The Management Consulting Industry: Answering Common FAQ's.
*This article originally Appeared on LinkedIn Pulse and can be viewed in it’s original form here.
The business of consulting has many forms. If you ask someone what they do and they reply “I’m a consultant,” they might as well tell you they do work for a living. When people ask me what I do and I tell them I’m a Management Consultant, sometimes I’ll just get a blank stare. This situation forces me to basically give my elevator pitch if I have any hopes of establishing a connection with someone. I can't blame people though, a “consultant” is such a vague and nondescript job title because there are just so many types of consultants - Fashion Consultants, Design Consultants, Political Consultants, Healthcare Consultants, Leadership Consultants, and everything in between. For some reason, it seems like everyone identifies as a consultant in some way or another nowadays. Salespeople have even been branded as “consultants,” because they are, in effect, consulting you to buy their products. However, for the sake of this article, we will focus specifically on the practice of Business Consulting, otherwise known as Management Consulting, which is widely misunderstood despite its popularity in the B2B space. Thus, the purpose of this article is to answer the frequently asked questions about the Management Consulting industry.
What is Management Consulting?
Management Consulting is the practice of advising a business’ management on how to overcome the company’s strategy, financial, technology, operations, and organizational issues. In short, management consultants make a business out of solving other business’ problems. Consultants operate in many forms, as well. On a smaller scale, they can be either independent consultants or belong to a collaborative of independent consultants. On a larger scale, they can be an employee of “MBB” Firms (McKinsey, Bain, BCG) or the “Big 4 (Deloitte, PwC, EY, KPMG) among hundreds of thousands of other consultants in offices around the world.
How long has Management Consulting been a profession? Is it legitimate?
Management Consulting is not a new profession and in fact, it has actually been around since the late 19th century. The first management consultancy was founded by Frederick Winslow Taylor in 1893, who pioneered the concept of industrial efficiency on a factory floor of a steel manufacturer. Even though consulting has been around for centuries, management consultants are not always viewed in a positive light and some doubt their legitimacy. A common stereotype about consultants is that a consultant is “someone who charges you an exorbitant amount of money to take your watch away to tell you what time it is.” All bias aside, this is hardly true. Most consultants actually have a vested interest in helping their clients and provide a substantial amount of value in their services.
How big is the Management Consulting Industry and do consultants really add value?
If businesses didn’t see the value in hiring management consultants, the industry would have died off a long time ago. But this is not the case. In fact, many companies are still in business thanks to the work of management consultants. At present, the demand for Management Consulting services is booming. In 2018, Ibis World noted that Management Consulting in the United States alone was a $241 billion dollar industry, with over 700,000 consulting businesses in operation, employing over 1.6 million people. Furthermore, CNBC released an article showing that Management Consultants, also called Management Analysts, are among the top 10 fastest growing jobs for self-employed workers. So, the truth is, there is value being offered by management consultants, or businesses wouldn’t hire them.
What are the types of Management Consultants?
Management Consultants can be hired for a multitude of reasons but as I mentioned earlier, they are primarily hired to help a person/company solve a certain problem or achieve a specific goal. Taking it a step further, consultants are sought for either their expertise, specialized skill set, general labor, or a combination thereof in these capacities.
In industry-speak, consultants usually employ either an expert or a facilitative approach. A consultant utilizing an expert approach leverages the consultant’s industry expertise, plain and simple. On the other hand, some consulting firms employ a facilitative approach, whereby they are industry agnostic and focus on a specific service offering, such as strategy, operations, technology, project management, marketing, human resources, administration, IT, sustainability, and hosts of others. The value proposition for consultant’s employing a facilitative approach, is their utilization of highly specialized skills to bring fresh, innovative ideas to any industry. Of course, some consulting firms employ both a combined expert and facilitative approach, which brings both experience and innovation to a client. For example, a consulting firm may be focused on process improvement for the healthcare industry, and another may focus on marketing for the food and beverage industry. Each firm is unique and will generally spell out their industry expertise or functional area clearly on their website. Larger firms have wider industry expertise and more diverse functional area services, while smaller firms tend to be more niche focused.
How much does consulting cost?
There is no simple answer to this question. Consulting firms range in size and have a wide range of overhead costs they need to cover in order to be profitable. Ceteris paribus, hiring an independent consultant operating out of his/her home is going to be significantly less expensive than hiring an MBB firm with massive offices in major cities around the world, employing an army of MBA’s commanding at least $120k base salaries. Even with all other things being equal, that’s still not an apples to apples comparison. You likely wouldn’t hire an independent consultant to single-handedly manage a cross-border, post-M&A integration project between two Fortune 100 companies, and you probably wouldn’t hire an MBB or Big 4 firm to oversee a data migration to a “freemium” cloud-based software for a local small business. The former project would likely cost millions of millions of dollars, and the latter could cost anywhere from thousands of dollars to tens of thousands of dollars. Of course, that’s a major generalization, and sometimes independent consultants work with much larger clients on pure advisory roles and vice versa, but that all depends on the nature of the project and the consultant’s services to be provided.
How do consultants make money?
There are four ways consultants make money. They either charge by the hour, they charge a retainer, they charge a fixed price, or they charged based on the value of their work. Each pricing model has its own pro’s and con’s, depending on the nature of the project.
Hourly billing is great for short-term projects where there is a set time frame, outcome, or deliverable, and there isn’t a whole lot of risk of change or uncontrollable variables. For example, if a client needs a consultant to conduct new market-entry research and build a deck summarizing your recommendation, then an hourly model would suffice. However, when projects get complicated, risky, or have a longer-term outlook, an hourly rate is less attractive to a business owner because it tends to blow up budgets when consultants need to work overtime to address unforeseen circumstances or meet deadlines. Also, in hourly billing, consultants are not incentivized to produce work in a timely manner, because they earn less money that way.
Retainers are a good option when there’s a set line of work without any specific deliverables, and a client requires ongoing support or advisory over medium to longer terms. For example, a client that has an ongoing project and wants to check in and get a consultant’s advice or ask for work periodically with a set amount of hours per month, such as with a project management engagement, then a retainer is the better option. A retainer billing model may not always be a good option for short-term projects with preset deliverables, though it can be done.
Fixed price engagements can be attractive for both parties, but mainly in the sense that the client’s project costs are capped, and travel sometimes is included in that cost. Fixed cost engagements are beneficial for a wide variety of projects, however, the risk is if a consultant under-prices a fixed cost project and it runs into delays or obstacles. There have been instances where consultants have either tried to renegotiate or cancel contracts altogether in these situations. This is especially true if consultants start losing substantial amounts of money on a project, there is no incentive to keep working if they’re losing money, regardless of what they’ve delivered to that point.
Lastly, values-based pricing is an increasingly popular option, whereby consultants bill a fixed-price based on the perceived value or ROI to the client. There is a lot to explain on this model here with limited space, but in summary, it is often more attractive to clients because they get the results and intended ROI without going a penny over budget, and consultants can generally charge a premium for this guarantee. Regardless of the length of the project, its complexity, or it’s risk level, value-based pricing is, generally speaking, a win-win for both clients and consultants alike.
Why hire a consultant?
A basic summary is that people hire consultants to do the work they can’t, don’t or won’t do. Sometimes companies hire management consultants to complete tasks that their current staff doesn’t have the time to do outside of their regular job responsibilities, such as project management, implementation management, or staff augmentation. This is the work companies “can’t” do.
Businesses may also hire consultants to do specialized work that is outside the experience of their current employees, or work they “don’t” do. For example, consultants may do more specialized work such as strategy, financial analysis, technology, market research, process improvement, engineering, or other highly technical tasks.
Lastly, consultants may be hired to do highly sensitive work or make tough decisions, such as organizational restructuring that may entail conducting mass layoffs. This is the work that companies “won’t” do themselves. No executive wants to have his/her name linked to negative headlines because they were forced to make a difficult decision that would make them look bad. Consultants are often hired to prevent these situations, but if a difficult decision has to be made, any criticism can be placed on the consultants, rather than the executive. In summary, people hire consultants for a variety of reasons, but mostly because they fulfill a client’s need in one of these three ways.
What makes management consultants so specialized?
Many consultants who utilize an expert approach may spend years or decades in their respective industry gaining experience, and later become consultants in that particular industry. This makes consultants specialized in their industry expertise, which is incredibly valuable to clients looking to learn about what others in their industry are doing or have done. Another way of putting it would be that a consultant with an expert approach can help you avoid mistakes that others in the industry have made.
For the consultants who employ a facilitative approach, they typically go through highly specialized training in their respective field. That specialization will usually amount to some combination of work experience, professional certification, or postgraduate study. The best consultants using a facilitative approach will usually hold an MBA or even a DBA, with at least 5 years of experience specializing in a field like strategy, operations, finance, marketing, HR, or technology. They will also hold some form of professional certification like PMP, Six Sigma, or other credential. If a consultant you are considering hiring has these qualifications, they most likely have a basic competency to help you with your general consulting needs.
A word of caution must be mentioned here, there is no set guidelines or registration to become a management consultant. Unfortunately, any person can claim themselves to be an expert in any field, and then create a business card and website identifying themselves as a consultant. So, if you eventually decide to hire a consultant, make sure to do your due diligence. Check and confirm their professional and educational background, look at their portfolio or past work, conduct background checks, research references, and don’t assume that all management consultants or their firms are created equal. Similarly, don't’ assume a big name consulting firm is going to magically solve all your problems. I have personally worked with clients that had shelled out a lot of money to hire the biggest firms, and didn’t have much to show for it other than being thousands of dollars out of pocket with their original problem still persisting. So do your homework, and shop around.
Should I go with a large firm or small firm for my consulting needs?
Short answer: it depends on the scope of the project, your timeline, and your budget. Large consulting firms, like MBB or Big 4 usually hire their thousands of employees from top programs from top schools around the world, and their training is second to none. They have decades, sometimes a century of experience, armies of incredibly intelligent employees, outstanding technological capabilities, and have offices around the world, so nowhere is out of reach. As a result of these firm’s capabilities, there is likely no project that is too large or too difficult for them to handle. The downside is that you will have to pay a lot for these services. Consulting firms are a business too and have to keep the lights on, and in addition to the accumulated prestige attached to their names, they charge clients accordingly. Hence, major multinational firms usually employ consulting firms of this scale because they’re capable of handling much larger, headline-worthy projects.
Smaller consulting companies such as boutique firms with hundreds or a few thousand employees or less, usually hire from great schools as well or even recruit their talent from MBB/Big 4 firms. Boutique consultancies have some form of training, but they aren’t as old as the larger players, don’t have as many employees or technological capabilities, and are more limited in geography. What they lack in these areas though, they make up elsewhere. For example, because they are smaller, they usually focus on niche practices in certain industries and they do it exceedingly better than larger firms which have much more diversified service offerings. Despite smaller firms being much more capable in their given niche, they are usually less expensive than larger firms due to less overhead and they are eager to win the deal from bigger players, so they’ll generally come in at a lower overall cost. Similar small to medium-sized businesses usually hire boutique consulting firms if the project is on a much larger scale but they don’t want to incur the cost of hiring larger firms.
Single man independent consultants, collaboratives, or family-owned Management Consulting firms can vary widely in their capabilities. They are usually run by consultants that previously worked at MBB, Big 4, or boutique firms, who struck out on their own and hired a team, growing from there. Depending on how large their team actually is, family firms are usually able to handle moderately sized projects due to their past experience, and like boutique firms, are generally even more specialized than boutique firms in their practice and industry. As such, like boutiques, they are generally are a little more frugal with their spending and overhead, and these cost savings are usually passed on to their clients. Furthermore, they are usually much more cost effective because they’re hungry for work. Though most “mom and pop” businesses lack the capital to hire management consultants, businesses with at least 5-10 million in revenue do, and this is often the target market for independent consultants, collaboratives, or family-owned consulting firms.
Why do Consultants need to travel so much?
There’s no secret about it, consultants expect any travel to and from a client site to be fully compensated or reimbursed by the client. When factoring in airfare (some require business or first class), hotels, meals, transportation, and incidentals, travel costs can easily add up to $3,000-$5,000 per person, per week, for domestic travel. Of course, you’ll have to add another couple thousand for international travel, and when travel continues on a weekly basis for months, it is not difficult to see how a budget can be obliterated incredibly fast.
The good news is, with the growing acceptance of working remotely, many consultants are doing just that, saving clients thousands of dollars on travel that doesn’t need to be spent. The truth is, as attractive as all-expenses-paid travel sounds, for the consultant it gets to be a nuisance, when considering flight delays, living out of a suitcase and lost productivity time in transit. It would be safe to say most consultants would rather work in the comfort of their own home or office, being more productive, and saving the client money for use on future projects.
So when sourcing a management consultant, insist that travel is kept to a minimum except for initial phases of a project and upon project delivery. If they consent to a minimized travel arrangement, just make sure you’re able to keep them accountable for their work, responsiveness, hours (if billed hourly) and results. Request weekly check-ins or status updates if they don’t offer them, to make sure you’re getting the value your paying for.
How does MPCG differ from other consulting firms?
Surprisingly, a lot of our prospective clients ask this question, so I thought I’d answer and throw in a shameless plug for some self-promotion while I’m at it. So, who is Monarch Point Consulting Group (MPCG) and what makes us different? MPCG is a consulting firm that serves small to medium-sized businesses, however, members of our team have worked on all sizes of projects over the course of our careers, from launching startups to working at the larger Management Consulting firms on headline-worthy projects for multinational clients. In terms of our consulting style, we employ a hybrid expert/facilitative approach, utilizing our expertise where relevant and our specialized proprietary problem-solving methodologies to bring innovative solutions to any sort of problem businesses face. We pride ourselves in our dynamic ability to serve our clients in a manner unique to their specific needs. That means we are not only flexible with project arrangements, but usually, work remotely, and travel only when necessary, in order to keep costs low for our clients. Lastly, because we aim to provide results in the shortest time frame possible, we can utilize any pricing model to suit our client preference. We mostly utilize a retainer or value-based pricing to keep all engagements focused on results and not on racking up billable hours. These are just a few of the factors that set MPCG apart, and there are many more we would be happy to discuss in person.