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    Basics of Management Consulting

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    Tarun Ajwani
    The document discusses the structure and economics of consulting firms. It explains that consulting firms must compete in both the output market for their services and the input market for hiring professionals. Their structure and leverage model, defined as the mix of junior, manager, and partner-level employees, must balance the demands of these two markets. The leverage model is primarily determined by the skill requirements of projects but also impacts profitability, utilization of employees, and the value and cost delivered to clients. The document categorizes four types of consulting assignments based on the degree of standardization and client interaction involved.

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    Basics of Management Consulting

    Uploaded by

    Tarun Ajwani
    226 views9 pages
    The document discusses the structure and economics of consulting firms. It explains that consulting firms must compete in both the output market for their services and the input market for hiring professionals. Their structure and leverage model, defined as the mix of junior, manager, and partner-level employees, must balance the demands of these two markets. The leverage model is primarily determined by the skill requirements of projects but also impacts profitability, utilization of employees, and the value and cost delivered to clients. The document categorizes four types of consulting assignments based on the degree of standardization and client interaction involved.

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    The document discusses the structure and economics of consulting firms. It explains that consulting firms must compete in both the output market for their services and the input market for hiring professionals. Their structure and leverage model, defined as the mix of junior, manager, and partner-level employees, must balance the demands of these two markets. The leverage model is primarily determined by the skill requirements of projects but also impacts profitability, utilization of employees, and the value and cost delivered to clients. The document categorizes four types of consulting assignments based on the degree of standardization and client interaction involved.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    226 views9 pages

    Basics of Management Consulting

    Uploaded by

    Tarun Ajwani
    The document discusses the structure and economics of consulting firms. It explains that consulting firms must compete in both the output market for their services and the input market for hiring professionals. Their structure and leverage model, defined as the mix of junior, manager, and partner-level employees, must balance the demands of these two markets. The leverage model is primarily determined by the skill requirements of projects but also impacts profitability, utilization of employees, and the value and cost delivered to clients. The document categorizes four types of consulting assignments based on the degree of standardization and client interaction involved.

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    The Consulting Firm

    The Economics and Drivers of Consulting Firms

    Group 5

    The Consulting Firm - Introduction Structure Consulting Firm Consulting Firm - Challenge

    1
    Degree of Customization

    Extent of face to face interaction

    Output Market for services

    Input Market for Personnel

    Structure of the consulting firm defines, its competition, organizational goals, value to the client, and leverage The consulting firm must compete actively in two markets simultaneously: the output market for its services, and the input market for its productive resources, the professional workforce. It is the need to balance the often conflicting demands and constraints imposed by these two markets that creates the special challenge of structuring and managing the consulting firm.

    The Consulting Firm - Leverage

    Partners Managers Juniors

    The relative mix of Juniors, Managers and Partners is usually described as its leverage structure, and is primarily determined by the (aggregate) skill requirements of its work

    Finders Minders Grinders

    Finders (usually the most senior level) are responsible for bringing in the business, scoping and designing the projects, and engaging in the high-level client relations necessary during the work. The main responsibility of minders is to manage the projects and the team of people working on it. Grinders (the lowest level) perform the analytical tasks. Naturally, this is an idealized structure and, depending on the firm, all may participate in analysis and/or junior people may be delegated tasks associated in the ideal model with higher levels.
    3

    The Consulting Firm The Importance of Leverage Billing Rates


    Partner (Highest) Manager

    Assignments that require more juniors, and fewer seniors, the higherpriced people will end up performing lower-value tasks underutilizing senior personnel.

    OR
    Junior

    Assignments that have skill requirements of a higher percentage of seniors and a lesser percentage of juniors will end up comprising quality Cost effective mix of Junior, Manager and Partner is vital

    Cost to Client = No. of billable Hours * Rate per consultant

    The market for a firms service can determine the fees it can command for a particular project Due to the Juniors having a lower billable rate to the client, the consulting firm can substitute the Seniors time with the Juniors time, reducing the total cost to the client, encouraging more business in the market place Having an optimum mix is essential, because if not the consulting firm can see reduced profitability for it self or will comprise on the quality of value delivered to the client

    The Consulting Firm The Market Place


    Involvement: Partner / Manager - Medium Juniors High Types: IT Implementation Projects Involvement: Partner / Manager - Low Juniors - High Types: IT Firms & High end Strategy firms Standardized Process; High Degree of client contact (I) Customized Process; High degree of client contact (II) Involvement: Partner / Manager V. High Juniors V. Low Types: Think Tanks and unique problems Involvement: Partner / Manager Very High Juniors Low Types: Think Tanks and unique problems

    Types of Assignments Standardized Process; Low Degree of client contact (III) Customized Process; Low degree of client contact (IV)

    In I, it differs from III only on the view point that the consultant guides the client through the process and just does not perform independent studies and present recommendations In II, The client just does not want the remedy to the problem, but wants to be intimately involved in the problem solving In III, it does not mean the product deliverable is simple or cannot be customized. It means that the process to be followed in producing the result is well specified . The method of conducting assignments do not vary from job to job In IV, The client is searching for a practitioner who is at the leading edge of his or her discipline, and who can bring innovative thinking to bear on a unique assignment.
    5

    The Consulting Firm The Economics of the Market Place


    High growth market
    Standardized Process; High Degree of client contact (I) Customized Process; High degree of client contact (II)

    (I)needs to have well-established procedures, methodologies and tools. The client is less inclined to shop on price and more likely to pay a premium for an advisor they can work well with and trust. (II)has the most unleveraged business of all. Since most of the work is face-to-face counseling at the highest level of the client organization, little use can be made of junior staff (III) is in a fee-sensitive business where the key to economic success lies in getting the work done with a minimum of high-priced senior professional time and extensive use of either low-cost (junior) time or time-saving tools such as methodologies, systems, templates and procedures. Work done through (III) is in a low-fee, high-leverage business. (IV)is paid for innovation, creativity and frontier technical skills. IV makes money if (and only if) it is truly recognized by the market as being a leading-edge practitioner that justifies premium fees.

    Types of Assignments Standardized Process; Low Degree of client contact (III) Customized Process; Low degree of client contact (IV)

    There is a market for all these 4 kind of consultants and they all represent different ways of bringing value to the client. Virtually everything, from marketing to hiring, managerial styles to economics, key skills to career paths and performance appraisal criteria, varies significantly depending upon which service the firm is trying to provide.

    The Consulting Firm There are differences between them !!

    Ernst & Young


    Productise Reuse economics People-to-documents Reward for contribution to document database

    Example
    Competitive strategy Economic model Knowledge Mgmt strategy HRM

    McKinsey & Company


    Bespoke Expert economics Person-to-person Reward for knowledge creation and sharing

    The Consulting Firm Where are the fees / Leverage


    Example
    Designation Std. Utilization Specific Project Utilization

    Partner Manager Junior Std. Utilization = Billable Hours / Total Hours

    75% 75% 90%

    50% 100% 100%

    If there are 4 Partners each requiring 75% std utilization, it would need to have 6 projects with a 50% utilization. If each project requires 1 manager, it would mean 8 managers so that std utilization is achieved If each project requires 3 Juniors, 6 projects would mean 20 Juniors to achieve 90% utilization rate The leverage is determined as 4 Partners 8 Managers 20 Juniors

    Thank You !!!

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