INTRODUCTION TO STRATEGY CONSULTING

Chicago GSB
EXP 11 Barcelona, 20 October 2004

Marc Kitten mkitten@candesic.com

This material was used during an oral presentation; it is not a complete record of the discussion. It is based solely on publicly available information

Whatever you do, wherever you go, they will be there

FOREWORD: WHY DO YOU NEED TO UNDERSTAND MANAGEMENT CONSULTING?

1. You may become a consultant

20% to 30% of MBA graduates join Management consulting firms Most Fortune 500 corporations hire external consultants

2. You are likely to hire or work with an external consultant

3. You will have ex consultants as colleagues (consultants skills are transferable)

Most consultants get management positions in the industry after a few years

You cannot escape consultants!

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SUMMARY

Management consulting firms offer a few thousands jobs every year. Those jobs are among the most competitive, especially with top strategy firms

Whatever the role and the type of project, working as a consultant requires following a set of principles aligned with an organisation aimed at optimising efficiency and effectiveness

If you want to become a management consultant, preparation will be key

HISTORICAL BACKGROUND During the later part of the 19th century, engineering, accounting and law firms started offering independent corporate counsel to fast-growing and increasingly complex industrial organisations in the US. Arthur D. Little was the first external consultant to bring operational effectiveness to its manufacturing clients It was not until the 1930s and the Great Depression that management consulting firms grew beyond a few founding partners, with the notable examples of McKinsey and A.T. Kearney A few years later, Marvin Bower was to transform McKinsey and the industry when he started developing the firm after the model of the law firms into the first strategy consultancy, dedicated to solve the problems of the CEOs The 70s saw the real explosion of the industry with the rapid growth of new competitors: BCG as a Booz Allen spin-off, Bain as a BCG spin-off, etc Big audit firms like Andersen started to capture part of the strategy market through their consulting arms, to retreat a few years ago The latest development is the rapid emergence and growth of networks of independent consultants like Candesic, more closely aligned to the model of law partnerships
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Even at strategy firms, pure strategy projects represent only one component of the activity

TYPES OF PROJECTS AT A MANAGEMENT CONSULTING FIRM

Corporate vs. B.U. Market analysis /Due diligence New product M&A Alliances

CEO AGENDA

Organisational design & governance Performance management Leadership Sales force and channel management

Strategy

Organisation

Marketing, CRM, branding, pricing Financial engineering Risk management Technology Communication

Other

Operations

Revenue growth or cost reduction Purchasing & supply management Change management and Process improvement Logistics, supply chain Manufacturing Business process redesign Business process outsourcing
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Management consulting is a broad concept: the bulk of it is in IT-related activities

TOP 15 MANAGEMENT CONSULTING FIRMS WORLDWIDE BY SIZE

Strategy consultants

Turnover, $b (Estimates 2002-2004)

Accenture CSC IBM Business Consulting Cap Gemini Ernst & Young McKinsey & Company Deloitte Consulting BearingPoint (ex KPMG) Booz Allen & Hamilton Hewitt A.T. Kearney (EDS) Altran Boston Consulting Group Bain Mercer + Oliver Whyman Roland Berger Monitor

Employees (Estimates 2002-2004)

10

12

14

10000 20000 30000 40000 50000 60000 70000

Source: Business Week, Vault , Consulting city

THE MARKET FOR STRATEGIC CONSULTANCY IS CHANGING

Clients becoming much smarter consumers

Increased competition from I-Banks, Big-5, niche consultancies, research houses

Strategy Consultancy

Value of Top Level strategyonly projects hard to justify

Dynamic market and economy

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CURRENT TRENDS IN MANAGEMENT CONSULTING UK EXAMPLE Average income per consultant,

180,045 168,987 156,608

180,951

190,000 175,000

111,493

36,009 19,063 4,084 1960 1970 1980 1990 1995 2000 2001 2002 2003E 2004E

Source: UK Management Consultancies Association

SURVEY RESULTS - RECENT TRENDS IN MANAGEMENT CONSULTING

Balance of opinions

Sectors expected to grow / decline in 2003

1000

Business lines expected to grow / decline in 2003

1000 900

800

800 700

600

600 500

400

400 300

200

200 100

tor ies ec tilit S -200 c U li y& ub P erg En

il eta R

ial nc a Fin

s ce rvi Se

ing tur fac nu Ma

T TM

th ce gy ow man trate r e S e G rfor tso red prov e nu st Ou m P ve Co sI an Re es m oc Hu Pr in urc g ti o uc n n me

IT

M CR

Source: The Annual Consultancy Forum, London 2003, Polling ~ 1,500 management consultants

CURRENT DIFFICULTIES

Relatively high-priced, inflexible model Drop in revenues Generalisaton of discounts or free services Reduction of average engagement length Reductions of headcounts More difficult to justify high price Less differentiation as clients develop internal knowledge and expertise Lack of tech expertise Competition from research houses

Work of strategic or highly specialised nature tends to involve smaller teams with high billing rates per consultant DIFFERENT BUSINESS MODELS - I

Yearly revenue per consultant, $ 000s

550

Boutiques

Strategy McKinsey

OC&C Marakon Parthenon LEK Mars Diamond Cluster Independents Candesic

Monitor

BCG Bain

300

Roland Berger Mercer Booz Allen Operations Accenture CGEY IBM Consulting Bearing Point EDS CSC Hewitt 100,000 Gartner Deloitte

150 100 1,000

Consultants Headcount (log scale)

Source: Top Consultant; Vault; Press search; Candesic analysis

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From market intelligence to implementation of recommendations, management research and consulting firms offer a broad range of positions DIFFERENT BUSINESS MODELS - II

PRELIMINARY

Subscription

Corporate Executive Board

Revenue model

Per diem/document

Gartner*

Forrester* Accenture McKinsey

Generic

Customised Research and advice

* Focus on technology Source: Interviews, Press search

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In the field of strategy consulting, the McKinsey model has inspired numerous other applications of its core values to other business models

DIFFERENT BUSINESS MODELS - III The Next Practice

Develop unique solutions with the client teams, acting as strategic and operational coaches rather than as classic consultants

Involve client Candesic

Deliver top practical and actionable advice using proven talent from top-tier firms and a broad network of industry experts, analysts, and research capabilities

Corporate Executive Board Generic

Increase the effectiveness of executives and their enterprises by discovering and teaching to this membership the best new thinking and strategies from across industry and around the world

McKinsey Flexibility & cost

Offer the best valuedriven advice to the world economic leaders

Specialisation BBDO Consulting

Significantly increase our clients brand and customer equity, and hence, increase our clients value in the marketplace
Source: companies websites, interviews

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Management consulting appears as the most attractive industry for business students RANKING OF PREFERRED INDUSTRIES AMONG US MBA STUDENTS
% of respondents, 5 preferred industries

Management Consulting Consumer Goods Investment Banking Healthcare/Pharma Venture Capital Entertainment/Media Commercial Banking/Financial Services Investment Managing Engineering/Manufacturing Internet/e-Commerce Computer Software Biotechnologies Telecommunications Energy IT Consulting 4 8 12 16

38% of the students in Harvard Business Schools class of 2002 went into consulting

20

24

28

32

Source: Universum 2002 survey of 2,807 MBA students at 40 US business schools

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Management consulting appears as the most attractive industry for business students

RANKING OF TOP 5 EMPLOYERS AMONG MBA STUDENTS

% of respondents European MBAs, 2004
McKinsey & Company Boston Consulting Group Bain & Company Coca Cola Goldman Sachs Apple Citigroup BMW Microsoft Booz Allen & Hamilton
4 8 12 16 20

Management consultants

US MBAs, 2004
McKinsey & Company Citigroup Goldman Sachs IBM* Johnson & Johnson BMW Boston Consulting Group Coca Cola General Electric Booz Allen Hamilton
4 8 12 16 20

* Includes PWC consulting now part of IBM Consulting Services Source: Universum 2004 survey of 1,300 MBA students at 18 European business schools, 2004 survey of over 4,000 MBA students at 46 US business schools

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Management consulting firms with a strong focus on strategy are perceived as more prestigious by consultants TOP 20 MANAGEMENT CONSULTING FIRMS WORLDWIDE BY PRESTIGE
Rating on a scale of 1 to 10 based on prestige
Strategy consultants

McKinsey & Company Boston Consulting Group Bain & Company Booz Allen Hamilton Monitor Group Mercer Management Consulting Gartner A.T. Kearney Mercer Oliver Wyman Roland Berger - Strategy Consultants Deloitte Consulting Accenture Mercer Human Resource Consulting Marakon Associates Parthenon Group, The IBM BCS L.E.K. Consulting Cap Gemini Ernst & Young Towers Perrin BearingPoint
3 4 5 6 7

Many top consulting boutiques missing for lack of scale or international presence

Source: Vault Top 50 survey 2004. Methodology: 1,100 consultants asked to rate the consulting firms on a scale of 1 to 10 based on prestige (excluding their own firm)

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If you have any interest for general management, a management consulting experience makes sense CONSULTANTS SKILLS ARE TRANSFERABLE

Analytical and problem-solving skills Leadership General Management Project management skills

Communication skills

* Note that management consultants do not necessarily make great managers!

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The value-proposal is very attractive

REASONS FOR BECOMING A MANAGEMENT CONSULTANT

Career opportunities (network, clients, firm reputation) Working methodology and learning opportunities Intellectual challenge / fast pragmatic problem solving People Money Lifestyle Delay career decisions

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 but you need to balance your expectations REASONS FOR NOT BECOMING A MANAGEMENT CONSULTANT

Career choice that doesnt require consulting experience Limited scope for fundamental research / pace of problem solving Lifestyle Money People

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WHICH TYPE OF FIRM?

Advantages Operational firms Strong and coordinated training Gentle integration into large project teams Blue-chip client base Potential for internal transfers Strong alumni networks Potential for fast and international careers Exposure to top management issues Generalist early career Often enjoyable work atmosphere Easy access to partners Early responsibilities Opportunity for early specialisations Autonomy Direct exposure to client management No/less profit sharing

Disadvantages Frustrating rules and procedures Lack of business overview Rigid promotion tracks Limited or no top management exposure Up or out policy High workload, no room for private life Tough in downturns

Strategy firms

Boutique firms

Risk from exposition to specific sector Small alumni network Limited transition opportunities

Independents

Immediate personal accountability Key-man risk, less brand Less Blue-chip clients or more B.U. level Limited institutional training

Source: Top-Consultant.com

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CONSULTANTS BELONG TO TWO DIFFERENT WORLDS

Traditional consulting firms Cons Workload Partners Up or out Rigidity Pros People Brand Scale Training

Independent consultants Pros Autonomy Cons Training

Profit sharing Accountability Exposure Alumni

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There will always be traditional firms and there will always be consultants who want their freedom

EMERGENCE OF A NEW MODEL OF CONSULTING

Traditional consulting firms Cons Pros People Brand Scale Training

Independent consultants Pros Autonomy Profit sharing Exposure Cons

Taking the best of both worlds

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MOST IMPORTANT CRITERIA FOR NEXT CONSULTING JOB Weighted scores, 2002

Quality of work and clients Salary Career progression Work-life balance Training and personal development Brand name and reputation Benefits Job security Partnership potential

Source: Top-Consultant.com, survey of ~1500 management consultants

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SUMMARY

Management consulting firms offer a few thousands jobs every year. Those jobs are among the most competitive, especially with top strategy firms

Whatever the role and the type of project, working as a consultant requires following a set of principles aligned with an organisation aimed at optimising efficiency and effectiveness

If you want to become a management consultant, preparation will be key

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The CEO relies on various sources of strategic advice, which offer different perspectives

WHO ADVISES THE EXECUTIVE MANAGEMENT?

Board of Directors

Internal consulting department

External consultants

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Strategy consultants are the most efficient resource in unique situations THE WHY DO COMPANIES NEED STRATEGY CONSULTANTS MATRIX
Value Added

Portfolio of Corporate Activities

Strategy Consultants M&A Restructuring Legal (Patent Filing, Litigation) IT Support Core Activity (in-House Capabilities) Treasury Risk Management HR Management

Outsourced Activity Administrative Processing (T&E, Payroll) Basic Accounting (Accounts Payable) Frequency Unique, One-off, Unpredictable Activities
Source: High Strategy ltd

Variable but Predictable and Relatively Regular Activities

Routine, Stable Activities 25

SIX MAIN ROLES OF A CONSULTANT

Educates, benchmarks, recognises need for change

Provides authoritative external advice, supports management

Coach
Provides best-of-class technical expertise

Advocate

Expert

Acts as catalyst for change, facilitates internal communication

Facilitator

Researcher
Gathers market data

Counselor

Helps solve problems

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Management consulting is based on a set of principles aimed at optimising efficiency and effectiveness THREE PRINCIPLES OF (GOOD) CONSULTING
Impact driven pragmatic problem solving Hypothesis driven Facts driven Structuring and Pyramid principle (MECE) Prioritisation and 80/20 (Pareto principle) Leverage knowledge

Care, not cure ! (Henry Mintzberg)

Excellence

Non-hierarchical communication environment Feedback and obligation to dissent Pyramid principle Constantly forward-moving

Values Integrity Objectivity Commitment Curiosity

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Consultants need to show integrity ETHICAL ISSUES IN MANAGEMENT CONSULTING

Unpleasant results With the client Forced recommendation Chinese walls Cost cutting Data accuracy Do the Wall Street Journal test

Inefficient team members Within the team Lifestyle Feedback and development Intellectual property Mistakes Hierarchy

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Following virtuous principles should ensure avoiding some typical mistakes

SIX TYPICAL FLAWS IN A BAD CONSULTING ENGAGEMENT

Project defined in terms of consultants, not clients deliverables Project scope ignores client readiness Grandiose solutions Strict separation of work between consultants and client team members Labor-intensive use instead of leveraged use of consultants Client imposes a solution based on an opinion

Source: Candesic analysis

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There are typically four different team roles which require a different set of consulting skills

ROLES AND RESPONSIBILITIES WITHIN THE TEAM

Entry level Years in role Role Description Acquires and manages senior client Contracts and bills Supervises teams Manages project and delivery of solution Liaises with partners Often conducts presentation Manages work streams and client team members Coaches analysts Liaises with research and production Initial focus on interviewing and modelling Takes part in problem solving Often takes responsibility for logistics

Partner* or VP

3-5

Manager

2-4 MBA PhD Master Bachelor 2-3

Consultant

Analyst

* Often two-tiered partnerships with senio partners (directors) and junior partners (principals)

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The Manager is the key person to run the project

A TYPICAL TEAM STRUCTURE IN STRATEGY/ORGANISATION

Client Team Member

Senior Partner

Consultant

Manager

Analyst

Junior Partner

Consultant

Client Team Member

Part time

Full time
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Consultants go through various activities that can be averaged across the year

TYPICAL BREAKDOWN OF A WORKING DAY Hours

3

24

Project specific
2 1 1 2 2 1 1 1 1 2

Travelling

Data Interviewing Modelling gathering

Client meeting

Individual problem solving/ drawing charts

Team problem solving

Presenting

Training

Socialising Sleeping

Other

Total

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THE CONSULTING PROJECT MANAGING Team Client Self

Problem

Intuition

Solution

Implementation

Data ANALYSING Framing Designing Gathering Interpreting PRESENTING Structure Buy-in

Source: The McKinsey Mind, E. Rasiel

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WHAT THEY ARE LOOKING FOR IN THE CASE INTERVIEW MANAGING How good is your logic ? Team Client Self Would it be pleasant to work with you in the team ? How would clients perceive you ? Solution Implementation

Problem

Intuition

Data ANALYSING Framing Designing Gathering Interpreting PRESENTING Structure Buy-in How good are you at communicating your logic ?

Source: The McKinsey Mind, E. Rasiel; Vault

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USUAL STEPS IN A STRATEGY ENGAGEMENT

Direction setting Mission Vision Aspirations

Situation analysis Industry profitability External forces Competitive position and sources of competitive advantage Uncertainties

Strategic options to address uncertainties Assets for and drivers of value creation

Portfolio management Portfolio of strategic opportunities

Planning and execution Execution requirements Alignment of organisation Execution plan

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ANOTHER PROJECT EXAMPLE: SALES FORCE EFFECTIVENESS

Problem identification

Data gathering and Analysis (market and internal) 2-4 weeks

Problem solving

Communication

5-10 weeks Phase 2 Segment clients, monitor and benchmark sales performance

2-4 weeks Phase 3 Evaluate performance and take corrective actions Implementation 4-6 months

Interviews with top management

Phase 1 Size of the opportunity

Beware of incorrect problem definition or scope

End product: implementation plan for the new organisation

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SUMMARY

Management consulting firms offer a few thousands jobs every year. Those jobs are among the most competitive, especially with top strategy firms

Whatever the role and the type of project, working as a consultant requires following a set of principles aligned with an organisation aimed at optimising efficiency and effectiveness

If you want to become a management consultant, preparation will be key

37

The recruitment process is typically based on two rounds of interviews to screen the CV, and discuss a business case and specific questions TYPICAL RECRUITMENT PROCESS AT STRATEGY CONSULTING FIRMS

First round

Possibly a short numeracy or logic test 2 or 3 interviews with consultants (typically senior consultants and Managers) Most interviews will include a business case discussion for 20-30 minutes Possibly Group Exercise: discussion of a business problem by several candidates to test empathy, leadership and teamwork

Second and possibly third round

2 interviews with Partners, sometimes with Managers Again, most interviews will include a business case discussion for 20-30 minutes Partners sometimes prefer to test candidates with questions embedded in casual discussion: apply same rules as in formal case discussion Generally communicated within a week or two When positive, often accompanied by offer to meet informally with consultants Rejection should not be taken personnally. Always ask for feedback and record it. Reapplication generally possible after 1 or 2 years provided candidate can show improvement

Final decision

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The type of case is often determined by the focus of the consulting firm and the individual experience of the interviewer TYPES OF CASES

Examples Business strategy cases

Main skills required

Should company X enter/exit a new/old market? How should company X react to a new entrant? Should company X launch product Y in region Z? Should company X choose an alliance in country Y? Should company X add capacity? Why did profits of company X decrease? Should company X change suppliers? Should company X allocate real costs? How many windows are there in Chicago? How many screws in a French hypermarket? What is the size of the surfboard market in Austria? Should Germany consider reopening the Neuer Markt? Why are manhole covers round? Describe 10 things you can do with a rabbit

Big picture perspective Ability to structure and prioritise Broad functional skills Creativity Understanding of processes Ability to structure Broad functional skills Comfort with details, analysis Comfort with ambiguity Ability to structure Facility with numbers Poise Ability to think out of the box Creativity Ability to prioritise Logic

Business operations cases

Guesstimates

Brainteasers

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TOOLS CONSULTANTS USE TO SOLVE PROBLEM

Operational frameworks, maybe

Main strategic frameworks

Basic Concepts (Economics)

Basic Concepts (Finance)

Basic Concepts (Accounting)

Basic Concepts (Marketing)

A robust problem-solving methodology

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Problem solving can be made easier. We would go into the detail of this process in the next course on business case studies FIVE EASY STEPS TO EFFECTIVE PROBLEM SOLVING

Step 5 Step 4 Step 3 Step 2 Step 1 ?

Disaggregate the issues State the problem Eliminate all non-key issues Conduct critical analyses, go back and forth between data and hypotheses Synthesize findings and build argument

Problem identification

Analysis

Problem solving

Communication

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WRITING A STORYLINE*

Use situation, complication, resolution format

Situation

State the conditions at point of problem

Complication

Flesh out barriers to improving situation

Resolution

Lay out possible solution path

* While a well-structured pyramid thought process is necessary for telling a compelling story, the thought process and the storyline are not the same thing: the pyramid is not sufficient for a good presentation

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The use of the pyramid to structure the storyline ensures that the audience gets the answer and has context in which to understand details

Overall Structure: The Pyramid Principle

THE PYRAMID STRUCTURE

Basic premises

Main Message

= The Answer

1. Audience is much more interested in what the answer is than in how you got it 2. Audience can absorb ideas and draw desired conclusions more easily within context of big picture Rest of pyramid supports main message

BEING PREPARED

Our landings have failed The troops, the Air and the Navy did all that Bravery and devotion to duty could do. If any blame or fault attaches to the attempt, it is mine alone.

Note by Eisenhower, 6 June 1944

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Good luck

MMKitten@ChicagoGSB.edu

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Appendix

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Getting into top management consulting firms requires thorough preparation, individually and with others

BIBLIOGRAPHY

To better understand the work of a consultant The McKinsey Way, by Ethan M. Rasiel (1999), ISBN 0-07-053448-9 The Harvard Business School Guide to Careers in Management Consulting (2001) Dangerous Company: Management Consultants and the Businesses They Save and Ruin, by James O'Shea (1998) Consulting Demons, by Lewis Pinault & Stephen M. Pollan (2000), ISBN 0-471-49619-7 Managing The Professional Service Firm, by David H. Maister (1997) The Trusted Advisor, by David H. Maister, Charles H. Green, Robert M. Galford

To prepare for the case studies: Wetfeet Ace Your Case!: Consulting Interviews (2003, 3 volumes) Vault Guide to the Case Interview (2003, 2 volumes) Case in Point, Marc Cosentino Minto Pyramid Principle: Logic in Writing, Thinking, and Problem Solving, by B. Minto, ISBN 0-273-61710-9

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Spending, preferences and perceptions of management consulting clients in the U.S. Strategic consulting looks set to make a comeback on both sides of the Atlantic, according to the latest research. In the US, a new report* shows there is an increased appetite amongst corporate executives for strategic advice. Surveying consulting clients, Kennedy Information found that 87% envisage engaging strategic advisors during the next 2 years - suggesting the hay days may soon be back for the likes of McKinsey, BCG and BAH. This ties in with data suggesting a US economic recovery is underway and that a refocusing on growth strategies is likely to occur amongst big corporate clients. In the UK a similar story is emerging, with the latest economic data suggesting the UK economy is growing more resiliently than previously thought - and a continued upturn expected over the next 12 months. The renewed interest in recruiting experienced strategy consultants is the most obvious indicator that Partners expect stronger strategy consulting growth to materialise in 2004. Several of the leading strategy firms are actively recruiting once again, though mostly through discreet channels. Perhaps the most telling indicator for the sector will become clear during the next 6 weeks, when the strategy consultancies begin their drives to entice and recruit the top talent amongst university finalists. These last 2 years, the presence of many firms at Milkround recruiting events has been a purely token gesture to maintain brand awareness on campus. If October sees a renewed gusto in their attempts to woo the brightest of the bright then we will feel confident that better times are here to stay. Watch this space for a campus update in the next weeks...
Source: Kennedy Information 30 Sept 2003 48

Consultant News 12 Oct 2004 - For MBAs the long wait is over - MBA recruiting is back Two groups suffered more than any other during the consultancy downturn of 2001-2003. First up were experienced consultants whose sector-knowledge and skillsets were suddenly no longer in demand, as public sector experience became far more valuable than private sector expertise. Even harder hit than experienced consultants, though, were the thousands of professionals that embarked on an MBA course with high aspirations of entering or re-entering consulting upon graduation. Come graduation day, most found they had hit a brick wall as consulting firms put an almost total freeze on MBA recruiting for the duration of the downturn. Even those high-flyers whose MBAs had been sponsored by a consulting firm often found themselves made redundant - despite the sizeable investment that had been made by the firm in their professional development. Many went to work as freelance consultants, awaiting their opportunity to return to a permanent career and fast-track career path when the market recovered. 18 months on and the situation has thankfully been transformed. The sustained upturn in consulting order books and market confidence has caused consultancies to re-evaluate their MBA recruitment needs and in many cases kick-start quite sizeable recruitment drives. "We are seeing firms increasingly interested - and active - in hiring both MBA students and recent MBA graduates to fill a skills gap that has developed from 2-3 years of below-average MBA recruitment. Talking to many of the top consultancies it is clear there are a raft of new opportunities opening up in the consulting sector. For all the negative talk a couple of years ago, an MBA does not appear to have lost its currency or any of its allure with the top consulting firms."
Source: www.consultant-news.com 49

LETS PRACTICE A CASE INTERVIEW

Case 1: Describe the biggest challenges Glenn Sykes* faces. How would you handle them?

Case 2: A big Spanish wine producer is thinking about producing a blue wine. What would you do to help them make the decision?

Case 3: A developing country is considering setting up an organisation against slums. How would you advise them?

* If we have more time, we can replace the name with Ted Snyders

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