Meet the MasterMinds: Fiona Czerniawska on What's Next
for Consulting
 Fiona
Czerniawska is a recognized authority on the consulting
industry. She has written six books, including Value
Based Consulting,
Management Consultancy in the 21st Century,
and Management
Consultancy: What next? She is founder and managing
director of Arkimeda, a research and consulting company.
Czerniawska is also the Director of the Think Tank for the
Management Consultancies Association (MCA), where she is
responsible for research on trends in consulting. She is
the Consulting Editor for MCA's journal, Spectra,
and the Editor of the MCA Book Series.
She is a Program Director for the Centre of
Management Development at the London Business School, and
also teaches at Kingston Business School in London and Haarlem
School of Advanced Management Studies in Holland.
In this interview, MCNews talks with Czerniawska
about consulting, present and future.
MCNews: You have said that, in the future,
the consulting industry could begin to look more like the
film industry, with different firms and individuals collaborating
on a specific project, and then going their separate ways.
What are the implications of such a trend for the large
and small consulting firms?
Czerniawska: I think this trend is
the result of client pressure. Clients want greater specialization
and a clearer view of what consultants do. It's also
a result of changes to the intellectual value chain that
is consulting: consultants continually have to reinvent
where they add value and what kind of knowledge they create.
In terms of implications, I think we have
probably come to the end of the era of consolidation. It
seems ironic to say that when we have just seen, for example,
PwC Consulting being bought by IBM.
But I do think consolidation has come to kind of an evolutionary
cul-de-sac.
This primarily has to do with the client's
view of the value they get from the collective consulting
firm. Clients have concerns that the consulting firm as
an entity is much more motivated to sell consulting services
than to act in the client's best interest. In an environment
of shrinking markets and greater competition, these concerns
move up even higher on the agenda.
I think the film industry model is going to
happen as a result of that client pressure. For the big
firms, it will mean soft branding their services. You can
already see that with Accenture, for example, which has
talked about Accenture outsourcing and Accenture technology.
That's the first step to soft branding. It's the first step
towards breaking up an organization to focus on those particular
areas in much more depth, rather than trying to support
an umbrella brand that clients regard as increasingly untenable.
In theory, in the next few years, consulting
could be driven more by collaboration than competition.
That is, more cross working between different consulting
firms, which hopefully will result in a better product for
the client.
MCNews: By umbrella brand do you mean the
consulting firm as a one-stop shop?
Czerniawska: Right. And, I think for
the smaller consultancies, the future actually looks pretty
rosy because clients like specialist skills; they like being
able to understand exactly who consultants are and what
they do.
MCNews: What does this industry transformation
mean for consulting firms?
Czerniawska: What I hope it means is
that consultants will focus more on clients, and clients
will be more comfortable and assured of that focus. I think
the more sales oriented consulting firms become, the less
comfortable clients are with the nature of the services
they are buying. This applies equally to large and small
firms.
I am just doing report on the implications of the Enron
debacle for the consulting industry, and have talked to
lots of clients around the world about what Enron has done
to change their views. I have not found radical change,
but a sharper delineation of underlying concerns. One of
those concerns is about the sales focus. Clients worry
that consultants are trying to sell them things they really
don't need. That was at the heart of the problems at
Enron: people became greedy; they wanted to sell too many
services.
MCNews: What are the implications of some
of the larger firms taking on roles such as outsourcing,
technology and operations?
Czerniawska: I think the consulting
market is polarizing between two camps--the traditional
advisory, independent firms and management services companies.
That's got some very interesting implications because, first
of all, is management services really defined by the professionalism
and trust that we thought of as being inherent in the consulting
industry? The management services side actually has much
more to do with definable objectives, contracts and that
kind of thing. I can't see how these companies can now talk
about trust being important to them when they have moved
to a model that is, in a sense, beyond trust.
MCNews: Is that because they literally
have wares to sell?
Czerniawska: Exactly. So, it's not
the same problem that the traditional consulting firms have
had in terms of selling intangible services and the need
to build relationships.
MCNews: What types of services do you think
will be important in the future?
Czerniawska: I think one is about change
management, organizational change. I did a survey on the
European consulting industry a few months ago, which suggested
that change management is a very big market that is inadequately
addressed, and that clients are very concerned about
consultants leaving them with projects the organization
can't integrate or assimilate.
Clients are looking for more than just completed
consulting engagements; they are looking for help with organization-wide
change. There are people working on change but for the most
part, they are niche consultants, independent consultants,
coaches or mentors. It's small scale and fragmented.
In my view, there is absolutely nothing happening
in terms of facilitating change across the total client
organization. What do consultants do to reinvent an organization?
Take the problem off the client's hands, which is about
management services.
There is a gap in the market there, an opportunity.
MCNews: Do you think management services
firms would have trouble integrating into their firms the
types of consultants who could facilitate organization-wide
change?
Czerniawska: Absolutely. I remember
talking to a client about this and he said, you know, the
problem is not so much to do with the consultants. It has
to do with projects. You give a project a life of its own,
objectives and a sense of identity. It's immensely hard
to reintegrate that into the organization once it's completed.
It's a bit like a lump of sugar in a sugar pot that's gotten
damp. You can chip away with your teaspoon, but the lump
of sugar never becomes the free flowing sugar it was originally.
There are always hard bits that don't quite flow within
the organization.
MCNews: With regard to branding and marketing,
it's difficult to tell consulting firms apart. Any thoughts
on how a firm can differentiate itself in the market these
days?
Czerniawska: That's a sixty-five billion
dollar question! To be fair to firms that have tried, it's
an industry in which differentiation is very difficult because
of its inherent homogeneity.
With something like soap powder, you can experiment
with the chemical input or change the formula, but it's
still soap. If you change the formula of consulting too
much, it becomes something else, like management services.
If you make consultants different and innovative enough
to be exciting, maybe they don't look like consultants anymore.
So, it's hard, and I appreciate that firms
have a problem finding a balance between being different
while not being so different that clients won't accept their
expertise. That being said, consulting firms have got to
come to grips with this because clients do find it hard
to distinguish one firm from another. And, that creates
a reputation commons problem.
In medieval times, there were areas of land
for common grazing. Because it was commonly owned land,
nobody had the responsibility for making sure it was not
overgrazed. As a result, everybody took advantage of it,
put their animals there and they ate all of the grass.
The reputation commons problem for consulting
is that there is a reputation for the industry in total,
and the survival of all firms depends on it. Is consulting
a good or bad thing in the public's mind? No firm has a
mandate to protect that reputation because it's a collective
resource.
We have learned from Andersen's part in Enron
that, when one firm is severely damaged, it affects everybody.
I think one way consulting firms can protect themselves
from being damaged by future scandals is through differentiation.
If one consulting firm ends up being engulfed in a scandal,
the same brush will tarnish the whole industry. So it's
imperative for firms to differentiate themselves because
that is the only means by which they can put a barrier between
their brand and the wider industry brand.
MCNews: How can a firm do that?
Czerniawska: I think it comes down
to a couple of things. One has to do with the value of consulting
input. It seems extraordinary that nobody really knows
the value of consultancy. Certainly in the Anglo-American
economies, where companies spend huge amounts of money on
consulting, there is a paradox: companies are simultaneously
profligate and cynical. Consulting is seen as a necessary
evil: the only kind of respect it engenders is grudging.
But there isn't enough information about what
consultants do, and not enough open, honest evaluation of
projects that worked really well and ones that didn't. That
is driven partly by consulting firms who want to win work,
but also by clients who don't want their decisions open
to scrutiny. Clients want an easy life: if a consultant
offers a panacea, however unrealistic, there's a temptation
to say, fine, we will buy that.
So, I think the firms that differentiate
themselves will be the ones that find a way of articulating
and perhaps even quantifying the value that people talk
so much about. Quite a few clients have told me that
what they would really like for the consulting industry
is some kind of rating system to help them make more informed
decisions, to allow them to compare different consultants
in a meaningful way.
MCNews: Wouldn't the consultant start to
look like a consumer good?
Czerniawska: Yes, like dolphin-friendly
tuna! You get labeling that says exactly what you are getting.
Seriously though, that raises all kinds of questions, like
how would you police such a system? I am not suggesting
that it would be an easy route, but I do think it would
set firms apart. Bain
& Company has tried to do it by tallying their clients'
performance against the Dow Jones, and showing that there
has been, say, a thirty percent improvement. Of course,
it's very difficult to work out whether the improvement
is because of Bain's input or because they chose their clients
well. But, it's a start, and a firm that is trying to address
the issue might actually win more brownie points with their
clients.
MCNews: The Consultant's Scorecard
by Jack Phillips is about measuring the return on investment
for consulting projects. Is that what you have in mind?
Czerniawska: I think that's the right
direction to go. It would be good if a big consulting firm
took the initiative and actually worked on a way to measure
return on consulting investment. Get some academics involved,
or whatever it takes to make sure it's rigorous and not
just done in the interests of self-promotion. Then it could
be used to force the industry to raise the bar on its own
disclosure.
You would need something like Standard &
Poor's for an objective evaluation. Otherwise, it's just
a selling point. I am sure there is an opportunity for a
firm to measure the impact of consulting, and to address
questions like, what value does the corporate entity of
a consulting firm add? Why bother coming together in an
organization?
I think the rationale for some of those things
get seriously questioned when you look at what the internet
could do in terms of facilitating access between clients
and consultants. The firm is really just an intermediary,
a way for clients to find the right person for the right
job. There is probably an opening for a professional intermediary
between clients and consultants, sort of an independent
contractor to connect people together correctly. That would
be kind of like a Yahoo, a worldwide network of consultants.
MCNews: Moving to the subject of pricing,
what are the pricing trends in the consulting market? Do
you see value-based pricing taking hold at all?
Czerniawska: Nope. Value-based pricing
has been talked up, but there are a whole lot of complications
with it. And, both clients and consultants realize that
when they start to get into it.
There is enormous pressure on price. It's
like ten years ago with the audit industry, when we watched
audit fees being halved every time an offer went out to
tender. I suspect something similar is going on with the
consulting industry at the moment. There is certainly a
lot of discounting being done, and maybe it's even going
to cannibalize some of the margin long term. It will be
very difficult to claw that back once the boom times return.
MCNews: Because it's so hard to raise rates?
Czerniawska: Yes. What's interesting
is that I have been just looking at a survey done here in
the UK about pricing, and it suggests that consulting
firms are far more worried about price than clients are.
We always thought it was the other way around. But the research
suggests that, for clients, price is just kind of there
and, as long as it's in the ballpark that is okay.
Clients are much more interested in getting
the most value for the price. The client might say we
have $100,000, what can you do for that? So, perhaps there
is a bit of paranoia in the consulting industry at the moment
that everything is about price, and we've got to keep cutting
and discounting as the only way to win work. It would be
more attractive from the client's point of view to focus
on value. I am not talking about value pricing, but about
the work done for the amount of money the client is spending.
MCNews: So, if a client says, we don't
have the amount you are asking, should the consultant talk
about reducing potential value, rather than cutting the
price but keeping the same scope?
Czerniawska: Absolutely. There are
two parts to the equation, value and price. Why don't they
focus on how to increase value for the same price? That
would protect their margin. It's interesting that people
aren't trying to do that.
MCNews: You have mentioned that a lot of
consulting firms haven't yet recognized the extent of the
change facing them in the market. Are there any firms that
do get it?
Czerniawska: I think the firm structure
is part of the problem here. That structure gets in the
way of the changes that need to be made to adjust to changing
market conditions. The firm has to justify its existence.
It goes back to the earlier points about sales, and also
about the value chain. So, I think the firms themselves
are preventing change. The firms that do get it are those
that are reinventing the corporate entity, reinventing the
nature of what a firm is.
MCNews: And maybe fragmenting along different
service lines?
Czerniawska: Fragmenting, but also
pushing the pendulum back towards the individual consultant
rather than the collective firm. For ten or fifteen years,
that pendulum has swung heavily in favor of the firm and
the firm structure. I spoke with someone recently who pointed
out that consulting firms have become too centralized. People
think they've got to drive the organization in one direction,
and that makes them less responsive to market changes.
The firms I see doing innovative things and
trying to respond to the market are those that have found
a balance between what they need to do collectively and
what they need to do for individual consultants. That kind
of balance between the whole and the sum of the parts allows
them to be almost self-organizing so they can reduce the
amount of management structure, reduce the bureaucracy.
This allows consultants to decide for themselves what to
do, but still provides the supporting tools.
MCNews: What about the firm that is migrating
toward the management services concept? Don't they need
to have standardization for delivery, consistency and quality,
a balance somewhere between central control and distributed
control?
Czerniawska: To be fair, there is probably
no one balance or formula that will suit every firm. But
I guess it's about awareness of the trade-offs that you
make. There is something almost inconsistent between having
a very robust, let's say, strategy and operations consultancy
sitting side by side with a large-scale management services
firm. They have different operating models and different
management needs.
I don't mean to be saying to consulting firms,
you should do this and you should do that. There is no single
solution for everybody, but we need more informed solutions
then we currently have. It would be good to raise the level
of debate about this, and that's what I am trying to do.
MCNews: If you could give just one piece
of advice to a leader of a consulting firm, what would it
be?
Czerniawska: I'd say look for ways of proving
the value that you add. I mean really proving it, not just
talking about it. Invest in studies or bench marking
exercises to really demonstrate that having consultants
in the economy is a good thing. Make the case that it raises
the economy's overall productivity to have these bright
people employed in consulting firms rather than in industry.
MCNews: Thanks for your time.
To find out more about Fiona Czerniawska,
her books, articles, research and services, visit www.arkimeda.com
and www.mca.org.uk.
See our other interview with Fiona Czerniawska,
in which she discusses trends
in consulting and the state of the consulting industry.
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