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The Development of the Management Consultancy Business: A Co-evolution Perspective

Matthias KIPPING* and Ian KIRKPATRICK**

Paper for the 4 th Critical Management Studies Conference, Cambridge 4-6 July, 2005

SUB THEME 18 Professions and Knowledge Based Occupations

* Universitat Pompeu Fabra, Department of Economics and Business, Ramon Trias Fargas, 25-27, 08005 Barcelona, Spain. Tel: +34 93 542-2874; e- mail: matthias.kipping@upf.edu ** Leeds University Business School, University of Leeds, Leeds LS2 9JT, United Kingdom. Tel: + 44 113 233-2611; e- mail: ik@lubs.leeds.ac.uk

The Development of the Management Consultancy Business: A Coevolution Perspective

Introduction

The last decades of the twentieth century witnessed rapid, some would say explosive, growth of the management consulting industry. Until the economic slowdown started in 2000, the worldwide market for consulting products increased between 10 and 15 per cent per year, considerably more than global gross domestic product (Kennedy Research; Armbrster and Kipping 2003). In 2003 the total revenue of the top ten consulting firms stood at over $51 billion (Consulting News). Growth in this business coincides with the creation of some mega- firms with several ten thousands of consultants in a sector traditionally, and still, dominated by small and medium-sized consultancies. It also coincides with rising numbers employed in the industry (see Graph 1 on the number of employees in the top 30 firms worldwide between 1983 and 2003) and in the range of products and services offered. But perhaps most significant of all is the unprecedented level of visibility and influence now enjoyed by consultants, especially large global consulting firms. Public and private organisations now routinely employ consultants for a range of tasks (SaintMartin 2000; Macdonald). Consultants, one might say have successfully embedded themselves in the interstices of organizations (Ruef 2002).

In recent years there has been considerable debate about how we should account for this dramatic change. The functionalist literature (as well as much of the business press) has identified changes in the world economy often summarized under the globalisation label as the major explanatory variable (e.g. Rose and Hinings 1999). From this perspective the growth in management advice is regarded as a direct and unproblematic consequence of changing corporate demands and the need to enhance competitive performance. Against this is a more influential critical literature that draws attention to the discursive strategies of the consultants themselves (cf. Fincham 1999, Fincham and Clark 2002). Exploiting the control needs of managers, consultants, it is argued, have been able to create a constant demand for their services, by repeatedly launching new management ideas or fashions. Building on the earlier

work of Abrahamson (1991, 1996) and Sturdy (1997), Kieser (2002) has probably gone furthest in this direction. He argues that by exploiting the fears and uncertainties of, consultants have created a kind of addiction, turning managers into marionettes on the strings of their fashions (Kieser 2002: 176; cf. also Ernst and Kieser 2002). Kieser and many others see this as part of a wider phenomenon, often labelled the management fashion industry, which also includes individual management gurus, the popular management press and the business schools (e.g. Abrahamson 1991; Micklethwait and Wooldridge 1996; Suddaby and Greenwood 2001).

In this paper our goal is to identify some limitations of this critical literature and suggest an alternative. A key problem, we argue is that the fashion based view of consulting development actually fails to explain longer-term historical trends in the growth of the sector. If, as this approach suggests, consultants (and others) constantly launch new fashions, which replace the previous ones, all they tend to do is ensure their survival and the stability of demand. This however conflicts with historical research, which reveals not only tremendous growth since the beginning of the twentieth century (and thus in the overall size of the fashion market), but also more fundamental shifts in the focus of consulting work itself (Kipping 2002). A further concern stems from the heavy emphasis in this literature on the strategic agency of consultants and their organisations in promoting change. As is widely noted this leads to managers being portrayed as gullible victims of the fashion setters, who have no functional reasons for hiring consultants other than their own fear of control loss. More generally, there is a tendency to either ignore or push into the far distance the defining context of broad structural and historical conditions that shape the practice of consultants (Fincham 1999). The dominant image is of knowledge entrepreneurs who possess almost boundless freedom to discursively shape organisational realities, client demands and, indeed, client identity itself.

The remainder of this paper contains four main parts. Following an examination of the fashion-based approaches, part two will explore some criticisms of it in more detail. Here we will highlight, in particular, the legacy of neo- institutional theory. This approach, although useful, overstates the importance of legitimacy and makes it more difficult to account for the growth and the change the consultancy industry has experienced in the longer term. Part three of the paper will then consider ways in

which existing accounts of the historical development of management consulting might be strengthened by drawing on insights from and critical realism and applications of it such as co-evolution theory (Reed, 2001; Lewin et al., 1999). This literature we argue, offers a more robust theoretical platform for understanding the growth and the changes of the consulting sector, one that emphasises both the importance of structural conditions and the entrepreneurial role of consultants. In the final section we seek to illustrate this drawing on a range of historical sources. We suggest that consultants exploited opportunities provided by structural changes in managerial capitalism (cf. Chandler 1977, 1990; Whittington and Mayer 2000; Fligstein 1990, Barley and Kunda 1992) and the availability of new control technologies. While this allows for some human agency (consistent with the view that consultants play an entrepreneurial role in generating client dependency), it also recognizes how this process was enacted within and shaped by a particular historical context.

Fashion theory and the success of consultants

As suggested earlier an increasingly dominant theme in the critical literature on management consultants is on the symbolic nature of consultant strategies and consultancy as a powerful system of persuasion (Fincham, 1999: 335). The emphasis is on the strategies of consultants seeking to demonstrate their worth and effectively shaping demand for their services. Central to this are wider notions of management fashion and their cyclical development over time. In common with other agents such as gurus business schools and mass media organisations consultants are seen as key players in the commodification of management ideas and their dissemination as fashions (Abrahamson 1996). In the process they redefine the collective beliefs of managers about which techniques are most effective and progressive. Hence the power of consultants stems from their ability to generate demand for their own services by creating management fashions, by stirring up managers fear and greed and by making managers dependent on them (Kieser 2002: 182).

Three types of explanation are commonly given for why clients might succumb to these influences (Clark and Salaman 1998). First are characteristics of management

work that heighten managers receptivity to the ideas of consultants. Many accounts emphasise deep-rooted psychological needs of managers and in particular the way consulting interventions he lp satisfy albeit only temporarily a desire for order, security and control (Huczynski 1993; Sturdy 1997). Abrahamson (1996) adds to this, focusing on how new fashions may satiate managers need for status and help to overcome a sense of boredom and frus tration. Finally are more concrete reasons for the willingness of managers to bring in consultants. Kieser (2002) notes how a desire for control is also linked to the struggle for careers (cf. also Jackall 1988) and to the pressure on managers to demonstrate performance to external stakeholders by mimicking so called best practices of competitors within the same field (the bandwagon effect).

A second kind explanation focuses on the packaging of management fashions and the performances of consultants themselves. According to Kieser (2002: 174) the most successful fashions are those that create the perception of enhanced control and promise quantum leaps in performance. This in turn is linked to the skill of fashion setters, for example, in designing new products that are perceived as relevant, familiar and simple to understand. Others have focused on the use of rhetoric and how consultants trade on their expertise and reputational capital (Clark 1993). Finally is an influential trend in this literature that focuses on the way management gurus and consultants manage impressions through their use of language, demeanour and glossy documents. Clark (1995: 18) for example describes a range of communication techniques whereby consultants construct a reality which persuades clients that they have purchased a high quality service.

Thirdly, commentators have focused on the importance of the socio-economic and cultural context within which management theories emerge and become widely adopted (Clark and Salaman 1998: 144). Abrahamson (1996: 255) for example argues that the selection of fashions and their success is conditional on particular social norms of rationality and progress and also by mangers collective aesthetic tastes (cf. also Greatbatch and Clark 2002). Others note how those ideas that prevail tend to be those that best capture the zeitgeist or spirit of the times. (Grint, 1994; quoted in Clark and Salaman 1998: 144). Finally, links are drawn in some accounts to the broader political, technical and economic context in determining the success of

fashion. Here, as we shall see below, attempts have been made to like the ebb and flow of new fashions to economic cycles and perceived gaps in performance (Barley and Kunda 1992; Abrahamson and Fairchild 1999).

Many of these strands have been brought together in the more recent work of Rovik (2002) who identifies what he calls the secrets of the winners. Based on an empirical study of three successful ideas, Management by objectives, Total quality management, and Development dialogue (the latter being a Scandinavian adaptation of American performance appraisal systems), he outlines a number of factors that contribute to this success (ibid.: 142-143). Included on this list are characteristics on the way consultants package ideas and their approach towards presenting them. From a theoretical perspective, Rovik (2002: 143-144) rejects what he calls a possible rationalistic- instrumental explanation, i.e. the suggestion that the winning ideas are simply the best management tools. He also questions the metaphysical- inspired belief that organizations are more or less helpless captives of the Zeitgeist , and consequently, that a recipe that gains wide acceptance is an idea whose time has come. Instead Ro vik advocates what he calls a sociological- institutional paradigm. On the one hand, he highlights the social construction through the process of definition and presentation. On the other hand he presents a modified view of neoinstitutional theory. The latter suggests that organizations can gain legitimacy adopting ideas from the institutional environment, which does include management consultants. According to Rovik, it is also necessary that the recipes themselves have been legitimized in terms of norms and values that are widely accepted among the worlds organizations.

The thrust of this literature is therefore to stress how management consultants and other fashion entrepreneurs can, under certain conditions shape demand for their services. This literature also suggests that over time clients become increasingly dependent on consultants generating (from the perspective of the latter) a virtuous circle in which demand begets more demand. Kieser (2002: 176) for example talks about the planned obsolescence of consulting products and how consulting always plants the seed for new, deeper-reaching uncertainties. Of course none of this means that consultants are always successful. It is often acknowledged that managers may resist change and are far from being gullible or mindless consumers (Sturdy 1997;

Fincham 1999). As we shall see the market for management fashion is itself unstable and subject to frequent and cyclical changes. But while these limits on the power of consultants are recognised the dominant theme of this literature is emphasise their primary entrepreneurial role in driving change through the mobilisation and legitimation of fashion.

Some limitations of the fashion approach

This account of change what we might loosely describe as fashion theory has some obvious merits. Unlike the earlier, more practitioners based literature the focus is not entirely prescriptive. Nor is it assumed that consulting interventions are always functional and that they will result in positive organisational learning. Instead, as we have seen, this literature is more critical in drawing our attention to the role of power and self- interest in shaping practice. The risks as well as benefits of consulting interventions are highlighted. And yet, while this theory and research has greatly advanced our understanding, it suffers from a number of limitations. In what follows we outline two main kinds of problem. First is the question of how far this approach is helpful in explaining longer-term historical trends in the consulting industry. Second are some more deeply rooted theoretical problems arising from the influence of institutional theory and the relative neglect of defining context in accounts of change.

Accounting for long term trends To illustrate the first problem it is useful to look briefly at the historical research conducted on the development of management consulting since the early twentieth century (e.g. McKenna 1995, 1997, Ferguson 2001, Kipping 1996, 1997, 1999, 2002). This research draws our attention to three main characteristics of change.

Firstly, this research points to what, by any calculation, is the staggering rate of growth of this sector over a relatively short time period. Firms, like McKinsey or Booz-Allen & Hamilton that counted one or two dozens of consultants in the 1930s (McKenna 1995), grew to several hundred by the early 1960s, with a significant number located outside the US (Kipping 1999). Today the same firms employ several thousand consultants. The industry leaders IBM, Accenture and Capgemini now have

several tens of thousand employees. The available estimates for the past decades show how overall employment among the largest thirty firms in the industry grew from about 20,000 in the early 1980s to 430,00 at the beginning of the 21 st century (see Graph 1). In terms of global revenues, growth has also been staggering. Table 1 indicates an increase in global revenues of the top ten worldwide management consultancies from $160 million to $51.5 billion between 1973 and 2003. This amounts to a more than 300 fold increase over the thirty- year period in nominal terms. Even when inflation is taken into account, the compound annual growth rate is XX, far beyond the growth of the world economy during the same time period.

TABLE 1 ABOUT HERE

This growth not only concerns the largest firms; there also seems to have been an overall increase in the number of service providers in an industry still dominated by individual practitioners and small and medium sized consulting firms (Keeble and Schwalbach 1995; Crucini 2004). Moreover, it can only be partially explained by globalisation, even if countries like Germany and Japan only experienced a significant development from the 1970s and 1990s onwards, respectively (Kipping 2002b). The dominant consulting firms were already operating at a global scale during the interwar period (Kipping 1999). Hence, one must look for other explanations for this rapid growth. A key factor, for example, seems to be the proliferation of different kinds of management consulting services including HR, operations management, strategy and IT. Consultants to a certain extent managed to colonize the field of management knowledge (Suddaby and Greenwood 2001).

However, and this the second important finding from the historical research, during the 20th century the development of this sector has not been linear. Rather it has gone through a number of distinct, albeit overlapping waves characterised by qualitatively different kinds of management consultancy, focusing on different types of services (Kipping 2002; cf. McKenna 1995, Ferguson 2001). According to Kipping (2002), the dominant consultancies in the first wave provided services related to the scientific organization of individual work and the productive process in factories and offices. By contrast the most successful consultancies in the second wave concentrated on advice to top management in terms of corporate strategy and structure. Finally, those

in the still emerging third wave focus on the use of informatio n and communication technologies to control far- flung and extensively networked client organizations. The main characteristics of each of these waves are summarized in Table 2 [NOTE: Kippings analysis explicitly excludes HR consultancies, since these were never a major concern for top management and never dominated the consultancy industry in terms of reputation and visibility, even if some of them reached considerable size, as shown in Table 1.]

TABLE 2 ABOUT HERE

The important point here is that these waves are not the result of short-lived management fashions. Instead, they represent a considerable difference in the focus of the consultancy services even if these also evolved within each of the waves (see below). Thus, consulting in the first wave was oriented towards shop floor and production management; second wave consultancies focused on the corporate level, providing advice on organizational issues, planning and marketing even if they sometimes also got involved in implementing them at lower levels of the organization; third wave consulting consists mainly in implementing IT-based management and control systems with the adaptation of organizational practices and the corresponding training. For a number of reasons, related mainly to their reputation and their own structure (Kipping 2002a), the dominant firm in one wave found it difficult to retain their leadership position in the subsequent wave. Due to the overall growth, their decline was initially relative and therefore difficult to perceive even for industry insiders.

Thirdly, each of the waves identified above was not only characterised by different populations of firms, but also by radically distinct approaches to organising consulting work (Kipping and Kirkpatrick 2004). The first wave was made up primarily of smaller engineering based firms that were highly decentralised in their organisation. The second wave was dominated by larger one firm consultancies typified by the model of McKinsey and its emphasis on partnership and strong corporate culture. The current and still emerging wave is dominated by much larger global firms with fairly formalized management structures and tools. Hence, one sees a marked shift in the composition of this sector and the population of firms within it over time. As

noted above, these populations were and are overlapping. There has been no straightforward and immediate shift in populations. This fact is also to some extent illustrated in Table 1 above. Among the top ten consultancies in 1973, those of the second wave clearly dominate, but one can still see the tail end of the first wave (May and Maynard). The data for 1993 and 2003, clearly show the rise of the third wave with the IT firms only appearing in the final year. This leaves the second wave in 2003 in a similar position to the first wave in 1973 with only McKinsey remaining among the top ten.

Some limits of fashion theory in explaining change Returning to the matter in hand, our contention is that none of these longer-term trends can be adequately explained by the fashion based approach. Firstly and most obviously is the problem of how one should account for the rapid growth in the size and scope of the management advice industry. As we saw the focus of the management fashion literature is on how fashions come and go, following a kind of bell shaped pattern. Implied by this is that fashion niches or fields exist in a state of equilibrium. While there is a cyclical turnover of new ideas and products (each of which dominates the market for a short time) the overall level of fashion that can be consumed remains more or less the same. As Abrahamson and Fairchild (1999: 713) put it: each fashion niche has a finite carrying capacity in terms of the number of fashions it can sustain, because knowledge consumers can only attend to a limited number simultaneously. It is also assumed that knowledge entrepreneurs (read consultants) will fill these niches to near maximal capacity because of high financial returns. Hence, this model assumes that fashion markets have a finite capacity both in terms of the numbers of fashions and providers who can be accommodated. This however seems to run counter to the historical evidence relating to the consulting industry. As we saw, there has been a dramatic increase in the size of this market measured in consultancy revenues and employment, in the number of providers and in the overall demand for management fashion.

A second problem concerns how we account for broader, more qualitative, shifts in the nature of consulting interventions over time. The fashion model as we saw draws our attention to constant flux and change in management ideas and fads, some of which get recycled over time. This in turn has been explained in some accounts by

changing cultural preferences and short-term economic cycles. But harder to understand from this perspective are more fundamental breaks in the industry and longer-term shifts in the emphasis and focus of consultants such as those described earlier (also see Table 2). How, for example, do we account for the shift away from production-centred, engineering-based services, focused primarily on the control of labour, to an emphasis on corporate strategy in the 1960s? More recently, why have we seen such a dramatic move across the industry towards the development of IT related, or whole systems consulting products? The emphasis in the fashion based approach on explaining historical change as a sequence of shorter term cycles characterised by ebbs and flows of new management ideas makes it harder to account for these more deep rooted, structural shifts in the nature and dynamics of the consulting sector.

Finally, and closely related to the above, is the question of how one explains shifts in the population of consulting firms over time. The fashion literature says very little about this. Usually implied is a model of natural selection in which consulting firms and other organisations (such as business schools) or individuals such as gurus compete with each other in a fashion arena (Kieser, 2002; Rovik, 2002) even if their competition also leads to a faster commodification of new management ideas and a need to start the whole cycle again. Those firms (or populations) that survive are by implication those most successful in articulating and disseminating new fashion. Hence knowledge entrepreneurs thrive or falter on their ability to convince the management audience why it is imperative that they should pursue certain organizational goals and why their particular technique offers the best means to achieve these goals (Clark and Greatbatch 2002: 129). But once again, while helpful this kind of account is also limited. One problem is that it offers no explanation for why entire populations of firms such as the engineering consultants that dominated the industry until the 1960s failed to enter new markets and respond to new fashions. Moreover, if there is a process of natural selection and, as we noted earlier, fashion markets have a finite carrying capacity, then why is it that many older firms managed to survive in the industry long after new fashions and products had become dominant?

Theoretical Assumptions

The fashion-based approach therefore runs into some difficulty when it comes to accounting for longer-term trends in the management consulting business. Partly this is because not much attention has been paid to these kinds of questions. However one might also argue that these limitations arise from certain underlying theoretical assumptions. Here we think it important to draw attention both to the influence of mainstream institutional theory and to more general understandings of the structure and agency.

The legacy of institutional theory The influence of institutional theory has already been noted, especially with regard to the work of Abraha mson (1996), Kieser (2002) and Rovik (2002). These authors make effective use of concepts such as isomorphism to explain how dominant management ideas get disseminated within fields (or niches). However, at the same time, what they also take on board are some inherent difficulties of this approach, most notably with regard to change. This is not to say that change is ignored. There is considerable emphasis is on theorising change as a process of de- institionalisation (Oliver 1992) in which established ideas (read fashions) loose their potency over time. But what is much harder to explain from this perspective are other types of changes underway in actors that may result in more profound transformations in fields, in particular those involving the emergence of new populations or changes in field boundaries (Dacin et al. 2002: 50). An assumption, often implicit, is that organisational fields are relatively stable in their overall structure and membership over time. As such the focus is primarily on accounting for changes such as the ebb and flow of new fashions that occur within the basic parameters of a field, rather than more fundamental breaks in the underlying rules of the game. While there has been some attention given to the possibility of field re-composition (Reay and Hinings, 2005), the mechanisms that bring about such epochal change are, as yet, poorly understood.

A further problem is the tendency to overstate the importance of legitimation in accounts of why managers buy consulting products. Within institutional theory, although there is some recognition that both technical as well as institutional pressures are likely to shape management practice (Powell, 1991, Oliver, 1992), most attention is focused on the latter. This is also true of the fashion-based literature. Here

as we saw the emphasis is on how managers use consulting products as a way of increasing legitimacy, regardless of their impact on actual performance (Kieser, 2002; Rovik, 2002). Now the problem here is not that legitimation is unimportant or even that it is not a primary driver of fashion consumption. Rather the risk is that by emphasising only this, we deny any space at all for efficiency considerations and how these may also influence management decisions. As Wilkinson (1996: 435) suggests:

Contrary to institutional logic, business organisations are tools. They are designed to serve a purpose, and while institutional acceptability is likely to have some influence (consciously as well as unconsciously) on structure, it is unlikely that considerations of legitimacy will be overwhelming in the face of competitive pressures which may threaten not just institutionally defined success but the organisations very survival.

The risk of drawing so heavily on institutional theory is therefore that one is left arguing that the rapid increase in demand for consulting products is exclusively the result of client uncertainties and desire to demonstrate legitimacy.

Assumptions about structure and agency More fundamental difficulties arise from the theorisation of structure and agency in much of the fashion-based literature. Earlier we noted that a key strength of this approach is the focus on the entrepreneurial role of consultants in shaping demand and bringing about change. Structural conditions are also recognised as important. This is especially in the work of Abrahamson (1996: 255; also see Abrahamson 1997) who links the rise and fall of new fashions to organizational performance gaps opened up by real technical and economic environmental changes. However the dominant tendency is to downplay this kind of explanation. External structures are often pushed into the far distance and seen as very loose or general constraints on action. Hence, Kieser (2002: 180) will only concede that there is something like a general management discourse that influences the receptivity of managers to new concepts, which come onto the market. Because of this primacy is given to the agency of fashion setters in shaping demand and driving change. Thus, Rovik (2002: 143) attributes the success of management ideas to the process of definition and presentation. Indeed, in some accounts (notably those that have taken a more

discursive turn) the very ontological status of structure itself is questioned. Kieser (2002: 180) for example, asserts that, there is no reality that can be perceived and communicated outside language, pointing to how even business problems are socially constructed. Clark and Salaman (1998: 157) go even further when they argue that guru activitynot only constitutes organisational realities, it constitutes managers themselves.

This tendency to downplay the role of the defining context, we argue, is problematic for two main reasons. First, it may lead us to assume that management consultants (and other fashion setters) have almost unlimited autonomy to shape reality. The implication is that with the right techniques of persuasion and packaging almost any management idea can be sold at any time, regardless of economic and technological conditions. (As seen above, Rovik 2002: 143 explicitly excludes any role of the Zeitgeist !). Also implied is that clients themselves are extremely gullible. From this perspective consultants have the power to convince clients of virtually anything, including nonexistent performance gaps andfantasy solutions narrowing these imaginary gaps (Abrahamson and Fairchild, 1999: 734).

Secondly, without a full appreciation of the defining context, one is less able to explain longer-term change. Focusing only on consulting strategy means that other factors that stand partially outside this domain, which may affect the supply side or give shape to client demands, tend to get lost or excluded from view. Thus, McKenna (1995: 54-55) has linked the growth of management consulting in the mid-1930s to the Glass-Stegall Act of 1933, which separated investment from commercial banking, and SEC regulations. Banks no longer could offer consultancy-type services to their clients or outside investors creating a vacuum, which was filled by existing service providers such as Booz-Allen & Hamilton and James O. McKinsey and Company. Similarly, it has been argued that the recent boom in the management advice industry has much to do with corporate restructuring and the wider shift towards capital extensive firms (Ackroyd 2002; Ackroyd and Lawrenson 1996). This in turn has led to a marked increase in outsourcing activity, generating new opportunities for providers of business services (including consultants). But this kind of analysis, although useful, is largely absent from the fashion-based literature. Instead the tendency is to seek to explain change primarily as a result of consultant strategies and

discursive practices. Exogenous conditions are either pushed into the far background or, worse still, denied any existence at all.

An alternative view: Critical realism and co-evolution

These limitations of fashion-based accounts are, we suggest, sufficiently serious to call for alternative ways in which one might theorise change In what follows we outline in general terms what such an alternative might look like, drawing on two bodies of literature. First is critical realism, a tradition of social theorising that in recent years has become increasingly influential in organizational analysis (Reed, 2001; Vincent 2005; Greener 2005). Second, and more specifically related to the question of change is a mainly US literature on the co-evolution of organisational forms (Lewin et al. 1999; Lewin and Volberda 1999). Our intention here is to first map out the key elements of these two approaches and then look at how they might be applied to a historical analysis of the consulting industry and its development over time.

Critical realism has been described as a third possibility for organisational analysis, distinct from both positivism and post modernism (Ackroyd and Fleetwood 2000: 5). At its core are a particular set of ontological assumptions, which state that that social entities, or structures, (such as markets or gender relations) are real and exist independently of our investigations, or even knowledge, of them. Hence unlike in much postmodernist thinking, critical realists do not assert that the social world is entirely socially constructed and socially determined. Reality cannot be reduced to accounts of reality (ibid.: 11). Nor is it assumed, as in much research with a positivist (or in history, empiricist) slant that overarching structures exist only if they can be directly observed and somehow quantified. Instead the focus is on how social events are shaped by deep structures with causal properties that endure regardless of our cognisance of them.

This emphasis on the constitutive role of structure should not be taken as a form of determinism. Central to critical realism is the idea that while structures have causal powers (or emergent properties) these powers may not always be exercised. Much

will depend on the particular historical context and on other countervailing forces that mediate their influence (Sayer 1992). Added to this is the key role assigned to of human agency in this approach. According to Archer (1995: 90) social interaction is structurally conditioned but not structurally determined. The focus is not on how structures force people to act in particular ways (one must reject the analogy of social hydraulics) but how the causal powers of structure are enacted and realised through the mediation of agents (ibid.: 195). Hence, what critical realism offers is a dynamic account of how structures both constitute agency and are also reproduced and (sometimes) transformed by it (Reed 2001: 215).

This understanding of the structure agency relationship is quite different from the one implicit in the fashion-based literature described above. The emphasis is not on untrammelled and unassisted creativity in which projects are designed in isolation from the socio-cultural context (Archer 1995: 200). Rather, social agents are seen as having capacities to innovate and bring about change, but only within the constraints and opportunities afforded by the structural conditions they inherit. Critical realists also differentiate between different kinds of agency. Some groups, with superior resources, will be much better placed to take effective action and bring about either the perpetuation of existing relationships or to induce change. In this connection, Archer (1995: 258-60) distinguishes between what she identifies as corporate and primary agents. Corporate agents are organised groups (such as consultants and other professions) capable of articulating their interests and able to engage in concerted action to either maintain the status quo or re- model structures. On the other hand Primary agents are so-called such because they are not strategically involved and have the capacity only to reproduce the conditions in which they exist.

A final and, given our interests in this paper, crucial set of insights to draw from this approach are with regard to how one understands change. In stark contrast to the functionalist assumptions that underpin much contemporary institutional theory (where the stress on system integration) critical realism asserts that flux and change is the normal state of human affairs. In any social system - even those that may experience periods of relative stability tensions arise as a result of competing interests and structural demands. Change also occurs as a consequence of the interaction, over time, between structure and agency. According to Reed (2001: 216):

realist explanation is necessarily [] historical to the extent that it must attempt to account for the complex interplay between structure and agency as it works its way through reproducing and/or transforming the institutional arrangements that temporarily precede them and the dialectical interaction between them.

Archer (1995) usefully describes this process as a morphogenetic cycle, involving three (analytically) distinct phases of: structural conditioning, social interaction and structural elaboration. The former relates to the context that predates action (or social interaction) and establishes constraints and opportunities for it. According to Archer (1995: 201) emergent structures represent objective limitations upon the situations and settings which agents can encounter shaping what resources are available to them, their cultural beliefs and even perceptions of vested interest. However, as we noted earlier, these structural conditions do not determine social interaction in a straightforward way. Over time social interaction leads to the elaboration of structures, either reproducing them (effectively maintaining the status quo) or, more likely, modifying them in, largely unintended, ways. Hence, what is emphasised above all in this approach is the importance of history and the dynamic nature of social systems.

These ideas are not of course new and, arguably, have already influenced (if only indirectly) a great deal of organisation theory (Ackroyd and Fleetwood 2000). One example of this in the US, in the growing body of work focus ing on the co-evolution of organisational forms (Lewin et al. 1999; Lewin and Volberda 1999). This approach arose from a desire to reintegrate accounts of organisational change that emphasise either selection (namely population ecology theory) or management adaptation (strategic choice theory). The result is an attempt to account for the development of organisational forms (or indeed of entire sectors) as a process of co-evolution in which both environmental conditions and organisational adaptations are important (Lewin and Volberda 1999). As in critical realism, the focus is on looking at the interaction between different levels of analysis (organisations, markets and national systems) and on investigating change over longer time periods. Considerable emphasis is also given to path dependency and historical legacy in shaping the

development of organisational forms and sectors. Djelic and Ainamo (1999), for instance, look at how pressures for globalisation in the world fashion industry (no relation to the above) led to different kinds of responses in terms of organisational change in Italy, France and the US. In each case structural pressures for more flexible patterns of organising were mediated by organisations located within national business institut ions and culture bound, management traditions. Hence, coevolution theory represents one way in which ideas, very similar to those articulated by critical realists, might be applied in organisational analysis. The result is a more satisfactory way of understanding historical change, one that focuses both on the role of both corporate agency and founding conditions that shape and present opportunities for that agency.

In the following section of the paper we use the development of the management consultancy industry to illustrate how these ideas would help to explain the rise of consultants and the changes within the industry in a long-term perspective.

Applying our approach to the development of consulting

We believe that the ideas introduced above are useful for helping to explain major transformations in the consulting business as a function both of (a) structural conditions, which opened opportunities for existing or new consultants to grow and (b) the entrepreneurial activities of consultants themselves. The latter helped new ideas to spread and, sometimes modified these ideas and, possibly, even the structural context as a whole. In this section we will use some examples from the three waves identified above to illustrate these mechanisms. For the structural changes that drive the shifts in the management consulting business, we draw on existing studies of the development of managerial capitalism (Chandler 1962, 1977, 1990; Whittington and Mayer 2000; Fligstein 1990; Barley and Kunda 1992; for the dominant ideologies see also Guilln 1994). While these accounts differ widely in their underlying assumptions about the drivers of change, they show remarkable similarity in terms of periodisation and the major characteristics of each period (see Appendix). We will combine these with the literature on the history of management consulting to see how consultants (some better than others) took advantage of new opportunities and, at the

same time, helped spread new ideas more widely and how they eventually become victims of their own success, once structural conditions changed again.

The first wave of consulting development (scientific management) is clearly linked to the emergence of the large-scale mass-producing manufacturing enterprise towards the end of the 19th century (Chandler 1977) and the rise of engineers to positions of responsibility (Fligstein 1990; Shenhav 1999). All this generated pressure for more systematic organization of the production process and for new forms of control over the large number of workers involved. This in turn created the opportunity for a new type of consulting engineer, the so-called industrial engineer or efficiency expert. There were a number of entrepreneurs exploiting these opportunities with new ideas. Best know today is certainly Frederick Taylor even if as a consultant he was not particularly successful. Others include Henry L. Gantt and his famous chart (popularised in particular by Wallace Clark) and Lillian Gilbreth, famous for motion studies. More successful as businessmen were Harrington Emerson, whose firm already had several offices within the United States by the turn of the century, and Charles E. Bedaux. A relative latecomer he founded his firm only in 1916 Bedaux managed to create the most important scientific management consultancy worldwide by the 1930s, employing several hundred consultants (compared to McKinseys 11 employees in 1936).

What were the reasons behind his success? First, according to all accounts, he was a tremendous salesman. Probably more importantly, he had a great capacity for creating publicity, for example by organizing semi-adventurous trips through the Rocky Mountains (Champagne Safari) and the Sahara desert. (Incidentally, the negative publicity due to his Nazi connections played an important part in his down fall in the 1940s). He also was excellent at building networks with important business people in each of the countries where he operated; many of them sat on the board of his local office (cf. Brownlow; Kipping 1999). He apparently managed to simplify the often complex scientific management systems sold by his competitors. His system standardized every task carried out in a factory (or an office) to 60B per hour, with bonuses paid to workers achieving higher B values. This was not only highly intuitive (an hour has 60 minutes), but also allowed managers to compare performances tasks across a wide variety of tasks, allowing the system to be used in many organizations,

even those which were not strictly speaking mass producing. According to HBS accounting Professor Thomas H. Sanders (1926: 19), this elasticity of the Bedaux system, its serviceability for general management purposes, as well as for technical cost-accounting purposes, rather than its effectiveness as an incentive wage system was the reasons for its widespread application. Numerous articles in the journal of the National Association of Cost Accountants (NACA) in the United States show indeed how many companies used the system not only to reduce unit labour costs, but also for cost accounting purposes.

Salesmanship was also behind the temporary success of another well-known first wave consulting firm, George S. May. He literally bombarded potential clients with letters extolling the virtues of hiring his consultancy, which experienced rapid growth from the 1930s onwards, first in the United States and then abroad, making him one of the largest service providers worldwide by the 1960 (cf. Table 1). But his promises often went beyond what his consultants could deliver, which lead to complaints from clients and even a number of law suits creating bad publicity not only for himself but also for consulting as a whole (e.g. Tisdall 1982). Another consultant, H.B. Maynard took a different route to success, one that took more account of worker resistance against being measured. His so-called Methods- Time-Management (MTM) system established optimal working time and procedures under laboratory conditions before applying it to the shop floor. This approach allowed Maynard and the Methods Engineering Council (MEC) to be particularly successful in countries with strong labour influence, e.g. in Scandinavia, making him the largest American service provider in Europe well into the 1970s (Kipping 1999; cf. Table 1).

Once involved with clients, all these consultants would first try to install their systems in the whole organization, which sometimes could take years, depending on the number of factories and the number of workshops in each of them, and then update it, whenever manufacturing technology or process had changed. The success of Bedaux and the other firms prompted both spin-offs and imitation again, spreading their ideas more widely. Most scientific management consultancies started in the United States, but expanded quickly to Europe and, often with the help of their multinational clients, also into the colonies or former colonies, for example in the case of the Big Four British consultancies. But their fate changed when structural conditions

changed, leading top managers to focus less on operational matters. Since their modus operandi in terms of their particular competences and their reputation were wedded to optimising operational management, these consultancies gradually lost influence from the 1960s onwards and most of them eventually disappeared. The opportunities created by the new structural conditions were exploited by other consultancies from the 1930s onwards.

Much of the literature on the evolution of capitalism sees the next major changes in the inter-war period, but differs about the nature of these changes. Some others highlight the rise of human relations ideologies, particularly from the 1930s (Barley and Kunda 1992; Guilln 1994). Others point at organisational changes in the large firms, namely the separation of strategic decision- making in a central office and operational execution and control in product- or regionally-based divisions (Chandler 1962; Whittington and Mayer 2000). This so-called multi-divisional or M- form was invented by a few large, diversified American companies, namely DuPont and GM, in the inter-war period. It expanded more widely both in the United States and abroad after the Second World War, before eventually degenerating into conglomerates, marked by unrelated diversification. Fligstein (1990) links these changes with the rise of marketing and sales-oriented managers in the interwar period and finance-oriented managers from the 1950s onwards. One could also relate it to the growing importance of the MBA degree after 1945 (cf. Engwall and Zamagni 1998), promoting and implementing the idea of general management (cf. Locke 1996).

In the consulting industry, these changes find their reflection, on the one hand, in the formation of the first human resources consultancies, like Hay, in the 1930s. On the other hand, and more importantly, they also saw the gradual rise of a new generation of management consultancies, providing advice to top management on strategic issues. Again, entrepreneurial skills played an important role in determining which firms were well placed to take advantage of these opportunities. One of the early innovators was Chicago accounting professor James O. McKinsey, who saw budgeting as a new form of controlling the growing and diversifying enterprises (Wolf 1978). He wrote a highly influential book on this topic in 1922 and established his own consultancy in 1926. In the early 1930s he developed a standardized tool, the so-called general survey to allow his consultants to make an initial assessment of

any company. As mentioned above, he also took advantage of the vacuum created by the new banking regulation in the 1930s, offering his services to those who had previously sought advice from their merchant banker. He even successfully asked banks to provide him with introduction to their clients (McKenna 1995). Nevertheless McKinsey remained somewhat stuck in the dominant tradition of consulting, linked to existing professions like engineering and accounting. He also could not take his consultancy further, since he left it in 1935 to join one of its clients and two years later died of pneumonia.

The role to move management consulting beyond the realm of the existing professions, to create its own professional identity (albeit modelled on the legal profession), and to tie it firmly to top management decision-making fell to Marvin Bower. Bower, who held both a law degree and an MBA from Harvard had joined McKinsey in 1933. After McKinseys death, Bower and the other partners in the New York office severed ties with the other offices and with the accounting and engineering traditions, gradually building up what is still by many considered to be the archetype of professional management or rather strategy consulting (cf. Bhide 1995, Edersheim 2004, Kipping and Kirkpatrick 2004). The cornerstone of this model is the so-called one- firm policy: The whole partner group decides overall strategies and policies, thus setting a fairly tight framework for the managers of each office; new consultants become members of the firm, not of a particular office; and profits are shared among all offices and partners. In the 1950s, the consultancy changed its recruitment policy, taking advantage from the success of the MBA degree. Rather than experienced executives, it hired recent MBA graduates who were charged out to client firms at high rates based on the reputation of the consultancy as a whole rather than their individual experience. They were also easier to mould into McKinseys specific culture. Moreover, under Bower, McKinsey not only offered analytical tools, like McKinseys general survey, but complete solutions. It actually became instrumental in transferring the M- form to Europe, decentralising many large European companies and equipping them with the planning and budgeting tools to run a more decentralized operation (cf. Channon 1973; Dyas and Thannheiser 1976; Whittington and Mayer 2000). The reliance on one major fashion proved counterproductive in the long run. In the 1970s, when most companies had decentralised their operations, the phone stopped ringing (McKenna 2000).

McKinsey had to look for new ideas and tools to offer to their clients, also because its success had generated a large number of competitors, often offering new innovative approaches, such as the Boston Consulting Group and its portfolio matrix (Bartlett 2000). One could argue that it is around that time when the whole cycles of management fashions started, in particular with the best-selling book In Search of Excellence, written by the McKinsey consultants Tom Peters and Robert Waterman.

As mentioned, McKinsey was not the only consulting firm benefiting from the structural changes. Other firms, such as Arthur D. Little, a chemical research company founded in 1893 (Kahn 1986),.also expanded their activities from the 1930s onwards. While focussing mainly on contract research this firm had always offered some advice. This activity expanded in particular after the Second World War, when the consultancy became heavily involved in using operational research as a tool for planning and control. One of its former consultants, Bruce Henderson left in 1963 to set up the Boston Consulting Group (BCG), which became very successful based on the use of other decision- making tools such as the portfolio matrix and the experience curve (the latter apparently originally developed during the Second World War). In 1973, a former BCG consultant, William Bain, set up his own firm, mainly based on the idea to help managers learn by shadowing them during a limited time.

All of these consultancies and their tools no longer focussed on controlling the output of (shop floor or office) workers. Instead, they helped top managers retain control over their expanding enterprises and the growing hierarchies of middle managers. Consultants clearly helped to spread this new management model worldwide. They also contributed to its downfall, by pushing the idea that management was a general skill that could be applied to any kind of activity, thereby fomenting the formation of conglomerates. And they also participated in the eventual demise of conglomerates and managerial hierarchies by selling tools such as Overhead Value Analysis (McKinsey) and Time-Based Competition (BCG) that helped reduce unproductive management and administrative staff. However, it was different consulting firms that benefited from the change in structural conditions, which came about from the 1980s, following the success of the leaner Japanese competitors and the assertion of shareholder rights against managerial prerogative s.

To respond to these new structural conditions, companies became leaner, removing many layers of management, and smaller, concentrating on their core competencies and outsourcing the rest. To operate successfully, these companies needed tools to connect and control both their internal departments and their external networks. Since these were IT based tools, those who could take advantage of the new conditions were the large accounting and audit firms, who were among the earlier users of large IT systems, as well as the hardware and software providers. While all of them had traditionally offered some form of advice to their clients, they became major players in the industry during the 1990s, also attracted by the higher margins in consulting. Rather than designing the new systems, which was done by companies like SAP or Oracle, they helped clients adapt their organizations to the system requirements, train their staff etc.

It is more difficult to identify the major entrepreneurs among this new generation of management consultants. One could mention Serge Kampf of Capgemini and Lou Gerstner of IBM. Kampf left the French computer firm Bull in 1967 to set up the software, data processing and consulting firm Sogeti, which grew through a long series of acquisitions to become the worlds fourth largest consulting firm at the beginning of the 21st century (Gaston-Breton, 1999). Gerstner, a former McKinsey consultant, was instrumental in changing IBM from a production to a service company a development completed by his success with the acquisition of the consulting arm of PriceWaterhouseCoopers in 2002 and the sale of the PC division to Lenovo of China in 2004. In general, what actually characterises these firms and distinguishes them from those of the second generation is their systematic way of generating and management knowledge. They do no longer rely on skilled professionals, but on elaborate systems to capture, store and disseminate knowledge, which allows them to hire young, inexperienced undergraduates and train them inhouse for the application of a standardised, but also highly specific set of blueprints (cf. Kipping and Kirkpatrick 2004).

Given their worldwide presence (which predates their massive entry into the consultancy business), these firms have been able to spread the new control technologies (such as ERP) very fast around the globe. Since much of the structural

changes underlying the success of this third generation of consultancies are still ongoing, it is too early to tell whether they will also fall victim to future changes.

The following table 3 summarizes the main results from this brief narrative, based largely on the existing historical research. What it represents is an attempt to develop a general illustration of how one might analyse cha nge drawing on notions of critical realism and co-evolution. The first three rows therefore relate to the structural conditions that pre-date and contextualize the development of consultants. Here we emphasise the nature of corporate firms and their organisation, the education and orientations of clients and the availability of different kinds of control technology. Following this the next three rows consider how consultants, as corporate agents, were able to take advantage of these structural conditions, developing new tools and methods of salesmanship to increase their influence. Finally we stress how, as a consequence of this entrepreneurial activity, consultants played some role in modifying their environment and generating client dependency.

TABLE 3 ABOUT HERE

Conclusion

Fashion theory, as we have called it in this paper, has made a very important contribution to our understanding of the most recent growth of the management consulting industry. It has highlighted the role of agency in developing and selling new or repackaged ideas to unsuspecting managers, leading to a succession of management fashions or fads. These have been observed empirically in the bellshaped curves depicting the growing and then declining popularity of these ideas. Many authors in this literature suggest at least implicitly that these ideas have little intrinsic value and only help consultants to maintain their own business. In this scenario, managers benefit little if at all, possibly using the ideas to introduce change, and certainly assuaging their own fears of control loss (callously exploited by the consultants).

This depiction of managers as gullible victims of consultants and other fashion setters has been much criticised in the literature (Sturdy, 1997; Fincham, 1999). However, there has been little attempt to provide an alternative explanation for both the growth and the changes in the management consulting industry during the last century. Nor have some underlying theoretical assumptions in this approach been questioned, most notably those arising from institutional theory. In this paper our aim has been to address these deficiencies. In doing so we have also tried to suggest an alternative way of investigating historical change, We have tried to provide such an alternative, arguing that critical realism can help explain both by introducing a more balanced view between structure and agency. Based on this theoretical foundation, we have drawn on the historical literature to show how consultants benefited from changes in the structure of capitalism and, in the process of spreading management ideas about management, also helped to modify them (albeit at the margins). This process, we suggest, was not linear (as might be implied in the fashion-based literature) but rathe r involved periodic restructurings of the field of consulting itself. In each phase of development successful consulting firms where to some extent victims of their own success (locked into path dependent ways of working) and were unable to change when structural conditions shifted again.

The narrative presented in this paper is of course limited in certain respects. Space considerations mean that we have been able to talk only briefly about the structural conditions that pre- figured the growth of consulting. Our narrative also focused only on the most visible and most entrepreneurial consulting firms. What remains to be investigated is how these changes affected the population of the firms in the consulting industry as a whole. But these limitations aside what we have hopefully been able to demonstrate in this paper is the usefulness of a different kind of approach to researching change. What this involves is a need to recognise the dynamic interplay between the corporate agency of consultants in developing fashion and manufacturing demand and the broader structural context in which this activity takes place.

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Table 1: Top ten global consultancies ranked by revenue (in million US dollar)
1973 1 McKinsey & Company Booz-Allen & Hamilton Arthur D Little Alexander Proudfoot 16 3 1983 1,29 5 1993 10,57 6 2003 51,63 8 14,90 0 8,909

45 Arthur Andersen 18 Booz-Allen & Hamilton 18 McKinsey & Company 18 Arthur D Little

218 Andersen Consultin g 210 McKinsey & Company 145 Coopers & Lybrand 141 Ernst & Young

2,720 IBM

1,200 Accenture

1,126 Deloitte Touche Tohmatsu 981 Cap Gemini Ernst & Young 908 CSC

6,075

5,394

Science Manageme nt George S. May H.B. Maynard A.T. Kearney Hay Associates Cresap McCormick & Paget

14 Towers Perrin Forster & Crosby 12 William M. Mercer 12 Peat Marwick Mitchell 11 Ernst & Whinney 8 Coopers & Lybrand 7 American Manageme nt Systems

120 Mercer Consultin g Group 120 KPMG Peat Marwick 112 Deloitte & Touche 85 Price Waterhou se 79 Towers Perrin 65 BoozAllen Hamilton

3,170

829 Hewlett Packard 825 McKinsey & Company 736 BearingPoi nt 641 Mercer 610 LogicaCM G

3,100

3,000

2,368

9 1 0

2,364 2,358

Source: Consultants News

Table 2. Three Waves of Consultancy Development in the 20th Century Consultancy Focus (Service Type) Scientific Management Strategy & Structure Information & Communication Client Firm Type (Locus of Action) Production Unit Corporation (M-form) Network Organization Overall Duration Period of Dominance 1900s-80s 1930s-50s 1930s-?? 1960s-80s 1950s-?? 1990s-?? Prominent Consultancies Emerson, Bedaux, Big 4, Maynard BAH, McKinsey, ATK, ADL, BCG IBM, Accenture, Capgemini, DTT

Source: Kipping 2002

Table 3: Consultancy Development between Structure and Agency Wave Scientific Management Period Structural Changes Firm focus Dominant Actors Control Technologies Manufacturing Engineers Stop watch Sales/Marketing Managers (MBAs) Punch-cards / Mainframe computers Agency Tools Time and motion studies, paymentby-results Salesmanship Personal, heroic General survey; budget planning, OVA Professional Systematic; Competence Entrepreneurs Bedaux, May, Maynard Modification of structures Control of workers by managers; Americanization McKinsey, Bower, Henderson, Bain Control of managers by plans, budgets; Americanization Control over all stakeholders, including clients; Japanization (?) Kampf, Gerstner ERP, e-business, CRM Finance Shareholders/CIO PCs / Networks / Intranet 1890s-1960s Strategy & Structure 1920s-2000s ICT-based Networks 1960s-