May 31, 1999 - Watson Wyatt Worldwide. USA. 170.0. 20.9. N/A. 0. 1. 21. IBM Consulting Group. USA. 161.0. 35.3. 1000. 1. 4. 22. DMR Consulting Group.
The Consultancy Field in Western Europe Matthias Kipping and Thomas Armbrüster The University of Reading
Outline of Contents 1
INTRODUCTION ................................................................................................................................. 1
2 THE CONSULTANCY FIELD IN THEORETICAL AND EMPIRICAL PERSPECTIVES: BORDERS, DIMENSIONS, AND DATA CONSTRAINTS ......................................................................... 3 2.1 2.2 3
CONSULTING IN WESTERN EUROPE: AN OVERVIEW ALONG MARKET DIMENSIONS . 16 3.1 3.2 3.3 3.4 3.5 3.6
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MANAGEMENT CONSULTING: INDUSTRY, PROFESSION OR FIELD?............................................................ 3 DATA CONSTRAINTS AND CHOICE OF DIMENSIONS ................................................................................ 11
MARKET SIZES AND CONSULTING INTENSITY ....................................................................................... 16 CONCENTRATION ............................................................................................................................... 19 AMERICANISATION ............................................................................................................................ 22 TYPES OF SERVICE.............................................................................................................................. 28 TYPES OF CLIENTS.............................................................................................................................. 32 CLUSTERING CONSULTANCY MARKETS IN WESTERN EUROPE - A FIRST ATTEMPT ................................... 36
THE CONSULTING MARKETS IN INDIVIDUAL EUROPEAN COUNTRIES ........................... 40 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10
NORWAY (BY HALLGEIR GAMMELSAETER).......................................................................................... 41 SWEDEN (BY STAFFAN FURUSTEN AND JONAS BÄCKLUND)................................................................... 49 DENMARK (BY FLEMMING POULFELT)................................................................................................. 63 UNITED KINGDOM (BY THOMAS ARMBRÜSTER AND MATTHIAS KIPPING) ............................................. 72 THE NETHERLANDS (BY JOS BENDERS AND PAUL MOERS) ................................................................... 81 GERMANY (BY THOMAS ARMBRUESTER AND MATTHIAS KIPPING) ....................................................... 98 FRANCE (BY LUDOVIC CAILLUET AND MATTHIAS KIPPING)................................................................ 108 ITALY (BY CRISTINA CRUCINI).......................................................................................................... 132 SPAIN (BY CELESTE AMORIM) .......................................................................................................... 142 PORTUGAL (BY CELESTE AMORIM)............................................................................................... 154
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IMPLICATIONS............................................................................................................................... 163
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REFERENCES .................................................................................................................................. 166
1 Introduction The underlying hypotheses of the CEMP project are that European management practice is (a) becoming increasingly similar and (b) increasingly following American models of management. It is presumed that US management models are disseminated by a number of “carriers” in Europe (education, publications, consultancies and multinationals), and imitated by European organisations in the private and public sector. “Mimetic” behaviour in the sense of neoinstitutional organizational theory (Meyer and Rowan 1977; DiMaggio and Powell 1983; Powell and DiMaggio 1991) is assumed to be the main process, which may lead to isomorphic management practices and behaviour. However, it is likely that this process affects each European country to a different extent and at different times and speeds. The major reason for these differences is the country- and culture-specific contexts in which management practices evolve, which are largely shaped by the cultural and institutional framework of each country as results of different historical legacies (cf. Hofstede 1980; Whitley 1992; Whitley and Kristensen 1997). At the same time, however, the availability and development of the different carriers, and the kind of knowledge they disseminate, are also likely to have a considerable effect on management practices and behaviour. In order to test these hypotheses, the CEMP research is carried out in three steps. In the first step, it examines the extent to which the identified carriers have become increasingly similar and US-dominated across Europe. Thereafter it analyses the actual knowledge, or management technologies, created and/or disseminated by these carriers on the basis of a few selected in-depth case studies. In the final step it examines the extent to which companies have adopted and/or adapted these management technologies (cf. Engwall et al. 1997). Within this context, the purpose of this report is to examine the development and current situation of consultancies as carriers of management knowledge. As will be explained in more detail in the following chapter, this is a rather problematic undertaking. This is first because there is no widely accepted definition of “management consulting,” and there are no obvious ways to clearly delineate this market in terms of activities or service providers. Secondly, largely as a consequence of the first point, there are no reliable statistics covering management consulting in Europe or, for that matter, elsewhere in the world. Instead, there is a relatively limited and rather dispersed range of data sources that are sometimes complementary, but
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more often then incompatible and occasionally even contradictory. Based on a systematic examination and analysis of the material available, the following report will nevertheless make an attempt to assess the extent to which management consulting has become increasingly similar in different European countries over the last decade. Moreover, this report aims to assess whether or not this process, if actually confirmed, is likely to intensify in the future. The report consists of three parts. The following part (Chapter 2) provides the basis for the subsequent analysis. Based on a critical examination of the existing literature, it examines various ways in which management consulting activities can be defined and interpreted. The chapter then suggests a number of dimensions, along which this field can be structured, and justifies each of them in some detail. It finally provides a critical overview of the available data sources on which the empirical analysis is based. The second part (Chapter 3) then examines in-depth the consultancy field in different European countries along the dimensions chosen, using the criteria and information sources outlined in Chapter 2. Its main goal is to group the European countries along each dimension, and, on this basis, to propose an overall assessment regarding the hypothesised similarity of consultancy markets in Western Europe. The third and most extensive part of the report (Chapter 4) consists of ten sub-chapters, each covering the evolution, current structure and likely future development of the consultancy field in western European countries. These sub-chapters try to provide detailed, country-based explanations for the differences and similarities observed in the preceding chapter.
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2 The Consultancy Field in Theoretical and Empirical Perspectives: Borders, Dimensions, and Data Constraints As noted above, in large parts of the literature on management consulting there is no clear and widely accepted definition of what the term “management consulting” comprises (Kipping and Armbrüster 1998). For example, many authors use the terms “management consulting” and “consulting” interchangeably. Others distinguish between specialist and general consultancy, with the latter referring to advice in general management issues (Elfgen and Klaile 1987; Kipping 1999). Quite often, namely in the specialist or general business press, consulting is defined indirectly by the service providers included in “league tables”. In order to answer our basic research question, however, we need to delineate as precisely as possible what is meant by “management consulting”. Rather than adding another definition, we propose to critically examine the existing literature in order to identify the most appropriate way of characterising the nature of management consultancy activities and the service providers that are to be included in the analysis. Based on this outline, we provide a more detailed framework for the subsequent analysis of management consulting in the different Western European countries, and examine the information sources used in this analysis.
2.1
Management consulting: Industry, profession or field?
In terms of the underlying understanding and definition of management consultancy activities, the existing literature can be subdivided into three approaches: those treating consulting more or less like any other service sector, those highlighting its professional nature, and those trying to see it as a structured “field” of activity. We will critically examine each of these approaches after another, and point out their advantages and shortcomings.
2.1.1 Consulting as an “advice” industry Most of the existing, mainly functionalist,1 literature implicitly or –very occasionally– explicitly treats management consulting as a kind of industry or service sector with
1
For a distinction of types of literature on management consulting see Kipping and Armbrüster (1998).
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consultancies as producers or service providers. The underlying assumption, which is hardly ever spelt out, probably because it appears without doubt, is that consulting is basically a commercial activity. Micklethwaite and Wooldridge (1996), for example, see it as a part of the “management theory industry” which, in addition, comprises gurus, business school professors and other authors of management books. All of them are driven by an economic logic to “sell” as much as possible. Regarding management consulting, the comprehensive work published by the International Labour Organisation (Kubr 1996) goes further in distinguishing between different types of service providers, mainly on the basis of size and organisational (in)dependence:2 • • • • • • • •
Large multifunctional consulting firms Management advisory services of major accounting firms Small and medium-sized consulting firms Special technical service organisations Consulting divisions in management institutions Sole practitioners The “consulting professors” Non-traditional suppliers of consulting services (such as suppliers of computer and communication equipment, software houses, commercial or investment banks, insurance companies)
There are a number of problems with these distinctions. First of all, they do not include those institutions that provide advice on a non-commercial basis. This is especially the case of government-owned or -sponsored organisations which have played and continue to play an important role in many European countries, even though many of them have become specialised (mainly focusing on small and medium-sized companies, or, occasionally, privatised companies, see below). Secondly, even if one looks only at the commercially driven service providers, is very difficult, if not impossible, to account for the exact amount of consulting service provided. For example, when it comes to the advice provided by accountants or investment banks, it is almost impossible to say when accounting or banking ends and when consulting begins. These activities are certainly not invoiced separately by these organisations. Thirdly, as the denomination of the last group of service providers indicates, the boundaries of those producing consultancy advice are actually changing constantly. Many would now include IT and software groups among consultancies without using the label “nontraditional”. Companies such as IBM Consulting or Electronic Data System (EDS) have been able to join consultancy associations in many countries and they are also increasingly included
2
In addition, Kubr (1996) refers to internal consultants and their increasingly important role.
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in the relevant league tables. Historically, the same happened earlier with accountancies. They have provided consultancy-type services for a long time, but most of them have only established separate “management advisory” departments after the Second World War. They only became recognised as part of the consulting industry during the 1960s and as important players from the 1980s onwards (Daniels et al. 1989). Their success has largely been due to the rapid expansion of information technology related services over the past two decades. In this respect, the accountancies commanded a clear “first mover” advantage over the established consultancies, because they had become involved in this area early on as part of the increasing role of Electronic Data Processing in accounting procedures. Arthur Andersen, for example, only set up a separate consulting division in 1989, which then employed 13,000 (Goshal 1993). Over the last ten years, Andersen Consulting experienced extremely high growth and, with close to 50,000 consultants world-wide, is today seen as the largest consulting firm in the world. Its former parent Arthur Andersen now also figures among the top ten consultancies in the United States and also increasingly appears in European league tables (cf. Chapter 4 below). However, the case of the IT groups and the large accountancies illustrates another problem of definition with respect to service providers. It is quite apparent that a large share of their services are actually made up by what is known as “facilities management”, i.e. they provide routine operations, mainly in large-scale data-processing, which have been outsourced to them by other organisations. It is doubtful whether this can be labelled “management consulting”. In order to avoid this problem, others chose to approach the consulting industry by identifying the actual product sold or the service provided by management consultancies. For example, the market research company Alpha (Alpha Publications 1996: 5-9, 48) suggests a detailed classification of services, distinguishing between: • • • • • •
strategy information technology operations human resources finance and administration marketing and sales
In addition, Alpha refers to businesses process reengineering as the nexus of information technology and operations, and to change management as the nexus between operations and human resources.
By and large, this structure also provided the basis for a large-scale,
questionnaire-based European study conducted by the German association of management
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consultancies, Bundesverband deutscher Unternehmensberatungen, on behalf of FEACO (BDU 1991a: passim), and to the classifications in the leading periodical in the sector, Management Consultant International. But this approach encounters a number of limitations, many of which are similar to those outlined above. First of all, it renders it difficult to include those firms whose advice does not easily fall into one or several of these categories. This is for example the case of the so-called management “gurus” whose consultancy activities are of a much more general nature (Huczynski 1993). Even for the more “traditional” service providers, it is very difficult, almost impossible to pigeonhole a consulting service as IT consulting, operations consulting, reengineering, or change management. On the one hand, different kinds of services overlap in a consulting project, and a separation and distinction would be artificial and largely pointless. On the other hand, as noted above, much of the work of certain consultancies such as EDS or Andersen is actually little more than outsourcing. However, because these activities are seen as less “noble”, these service providers are usually quite confidential about the exact share of their work which falls into this category. As a consequence, they are usually included with their whole revenues in all the industry league tables. Moreover, like their providers, consultancy services are subject to constant change. The succession of different management ideas has recently attracted considerable attention in the relevant literature and has been compared by many authors to fashion cycles (e.g. Barley and Kunda 1992; Abrahamson 1996). Even disregarding the question whether the actual content of these fashions really differs or not, these changes make a clear delineation of the consultancy industry very difficult. In addition, and more importantly, it must be asked whether the major role of consultants is actually the provision of certain types of expertise or advice, however delineated, and the dissemination of management knowledge or fashions, whatever their content. As a large number of authors have pointed out, consultancies fulfil many functions, most of which have little to do with the content of their services. These include for example the legitimisation of decisions already taken and/or the reduction of uncertainty in a constantly changing environment (e.g. Kieser 1998). Overall, approaches that see consulting as an industry, whether mainly based on the identification of producers or of products, are therefore highly problematic. At the same time, they should not be discarded entirely, because (a) they constitute the basis for much of the data
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material available (cf. Chapter 2.2 below), and (b) they are also widely used by consultants and clients to describe and categorise the activities (see 2.1.3 and 2.2 below).
2.1.2 Management Consulting as a profession Rather than concentrating on consultants as commercially motivated producers or providers of different types of services, other authors have focused on the possible “professional” nature of consultancy activities. The extent to which management consulting can be interpreted as a “profession” obviously depends first and foremost on the definition of professions and professionalism used.
Among the wide range of different approaches
(Macdonald 1995), those looking at the different “traits” of professions, on the one hand, and those focusing on the connection between knowledge and power appear most prominent. Authors taking a functionalist inspired view usually conclude that management consulting fulfils some, but not all of the necessary “requirements” to qualify as a profession (e.g. Kyrö 1995). Professional associations were founded in the United States in 1929 (Association of Management Consulting Engineers = ACME) and in Europe during the late 1940s and 1950s, culminating in the formation of the European Federation of Management Consultancy Associations FEACO (Fédération européenne des associations de conseil en organisation) in 1960. But despite significant efforts, they failed to obtain the official protection of the term “management consultant”, similar to those enjoyed by lawyers, medical doctors or accountants. There are no legally defined entry barriers and attempts by these associations to impose a minimum qualification and/or vetting through the membership in institutes with individual membership have largely failed. As Chris McKenna (1999) has recently shown, the leading US consultancies, such as McKinsey, Booz-Allen & Hamilton or AT Kearney, also rejected efforts to introduce uniform labelling and professional status, because (a) they preferred using their own, widely recognised name for differentiation purposes, namely as a signal of value, and (b) they were concerned about the fact that any kind of standard qualification would have made individual consultants more mobile, thus exacerbating existing problems with the retention of their expert labour. It should be noted, however, that there are a number of elements that suggest that management consulting might be more a profession than its superficial “traits” or characteristics might suggest. First of all, membership in professional associations has been
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and continuous to be important for the myriad of small consultancies, which continue to be ignored by most authors writing about management consulting, but make up a significant share of the consultancy market in many European countries (see below). In this respect, the associations play an important part in quality control, especially for rather inexperienced clients.
Moreover, they also help to improve service quality by providing or organising
additional training for consultants (Crucini 1999). Secondly, during much of the post-1945 period, the Master in Business Administration (MBA) degree from prestigious business schools such as Harvard, Chicago, Wharton, INSEAD and LBS was a de facto entry requirement for most of the aforementioned US-based consultancies. This link has weakened considerably over the last decade, with the establishment of “corporate universities” by the large accountancies and the increasing need for specialisation even in the case of general management consultancies. Today, consultancies themselves can be increasingly conceived of as management schools (Kipping and Amorim 1999). Other authors (summarised in Macdonald 1995) have examined the relations between the producers and consumers of professional services, and have highlighted the power of the producers to control and benefit from this relationship. It appears that consultants indeed make a considerable effort to control the relationship. But in contrast to professions like medicine or accounting, consultants actually benefit from the absence of a clearly defined and codified body of knowledge and the consequent inability of their clients to assess the quality of their service, which is derived in a process referred to as “co-production” by many authors (e.g. Mitchell 1994; Sauviat 1994). This basically means that its outcome is only defined in the interaction between consultants and their clients at the time of intervention. In their efforts to control the relationship, consultants can therefore rely for example on “impression management” to increase the client satisfaction level (Clark 1995) or create and increase uncertainty within the client organisation in order to stimulate demand for their services (Kieser 1998).3 Thus, whatever approach one takes to analyse professions and professionalism, consultancies and consultants exhibit clear differences to doctors, lawyers, accountants etc. What appears most important is their lack of autonomy in comparison with the aforementioned
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In both respects, consultants appear similar to priests who can provide little guarantees about the actual outcome of their service, but who nevertheless can provide considerable satisfaction to their “clients” and have a tendency to stimulate demand for their services by highlighting the negative consequences of the failure to use them. The comparison of McKinsey with the Jesuits, used mainly to highlight the tightly knit internal structure and culture of the firm, could also be seen in this sense.
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groups, which is partially a result of the specificity of their activity, and partially of the interest of the leading firms. As a consequence, consultants rely on an informal rather than formal recognition, for example in terms of brand image or in the form of specific degrees. At the same time, however, they appear able to control the relationship with their clients to a considerable extent, using a variety of means adapted to the specificity of their service. Overall therefore, it seems most important to chose an approach to the analysis of management consulting which includes more than consultancies and consultants themselves in the analysis.
2.1.3 Consulting as an organisational field An interesting and relatively unique approach towards management consulting has been adopted by Henry and Sauviat (1991) and Henry (1992) in their analysis of the French consultancy market. They construct it as a “space” with two dimensions, one looking at the commercial vs. intellectual orientation of service providers, the other at the strategic vs. technical nature of their services. The positioning of service providers within this space is to a large extent derived from an analysis of the educational background of consultants and their self-representation in extensive face-to-face interviews. The result shows a clear concentration of consultancies of US-origin in the commercial and strategy quadrant. Their consultants have usually an MBA degree or graduated from one of the leading institutions among the élitist French “Grandes Écoles”. French consultancies tend to offer a wider range of services, but seem to cluster towards the intellectual (human resources) and technical (IT and organisation) end. Their degrees are from lesser Grandes Écoles or from the universities. Their approach has some shortcomings. First of all, the results seem to be driven to a large extent by the specific characteristics of the French consultancy “space”. The important role of the educational background and the existence of an “intellectual” dimension appear to be driven by the preoccupation of the French business system with the formation and training of its élite (Bourdieu 1989; Sorge 1993). Nevertheless, the idea to see consultancy as a space, structured along several dimensions, is very promising, especially for a comparative analysis. In addition, Henry (and Sauviat) look exclusively at the production or supply side of consulting.
However, as seen above, clients play an important role in influencing the
orientation and, at least partially, the outcome of the consultancy intervention. It therefore seems appropriate and necessary to include the demand side more explicitly into the analysis of the consultancy field, not only by looking at the different types of services demanded, but also,
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if possible, by examining for example the activities of client firms, their ownership and their size. On this basis, consultancy could be seen as a kind of an “organisational field”, as defined by DiMaggio and Powell (1983 [1991]: 64-65): “By organizational field we mean those organizations that, in the aggregate, constitute a recognized area of institutional life: key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products. The virtue of this unit of analysis is that it directs our attention not simply to competing firms […] or to networks of organizations that actually interact […], but to the totality of relevant actors.” Probably to a larger extent than most other organisational fields, the consultancy field has no clearly defined and easily identifiable boundaries. Following the discussion above, one could even say that the constant change in terms of products (“fashions”) and producers is one of the specific characteristics of the consultancy field, due to the nature of its service (intangibility, co-production etc.). Efforts by trade associations to create entry barriers and have them “ratified” by governments have so far proved largely futile. This would have helped delineate the field. But, as seen above, turning consultancy into a profession was not in the interests of the major service providers. The consultancy associations are nevertheless important actors in the field, by providing statistical information (see below), training, and a forum of exchange for consultants as well as “credibility” to smaller consultancies. In this respect they certainly make a contribution to the public perception of the field and its possible boundaries. At the same time, the relationship between the different actors in the consultancy field is probably closer and more intense than in many other fields. For example, when it comes to the origin of the knowledge disseminated by consultancies, there is a close interaction between business schools/universities and consultancies (cf. Kipping et al. 1999). It is not always clear where the knowledge originates and to what extent the different actors participate in its diffusion. A case, where the boundaries between professor, “gurus” and consultant are very blurred, is Harvard Business School professor Michael Porter who has written many successful management books, usually charges high fees for his presentations to executives and also set up a consultancy (Monitor) in the 1980s. To give a European example, Eric Rhenman, a professor at the Stockholm School of Economics established the consultancy SIAR in the 1960s and for a long time moved between academia and consulting (Engwall et al. 1993).
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The co-production between consultancies and clients during the actual delivery of the service also means that clients have –at least potentially– an important influence on the outcome of the interaction. Governments also play a role, albeit quite an ambiguous one, because they are heavy consultancy users themselves in many countries, encourage companies to use outside advice, and in many countries have also established institutions which provide consultancy services (OECD 1995; cf. Chapter 4 below). The absence of clear boundaries, however, renders it difficult to collect data on the consultancy field, which in turn imposes severe constraints on any effort to structure the field, and even more so if the goal is to compare consultancy fields in different European countries.
2.2
Data constraints and choice of dimensions
In order to describe the consulting market in individual countries more in a fact-oriented than a narrative way, it seemed us necessary to outline the individual markets along various dimensions of quantitative data. The goal is to sort European countries in terms of consultingrelated figures and thus to obtain a visual picture of the countries in a space defined by various dimensions. However, such an endeavour is limited by the availability of appropriate data.
2.2.1 Extent and reliability of information sources Largely due to the above difficulties regarding the delineation and constantly changing boundaries of the consultancy field, there are no, or only extremely limited, national statistics covering consultancy activities. Most of them concern more easily identifiable services, such as engineering or tax advice or information technology, which are at best on the fringes of “management consulting” as outlined above. The same is therefore true for the European level. Information on market sizes and trends, major service providers, etc., are provided by professional associations, non-profit organisations such as the United Nations Conference on Trade and Development, and independent, commercial market research companies such as Alpha Publications or Lafferty (the publisher of Management Consultant International). Their predominant goal is to achieve market transparency, which means that their main target groups are companies that are potential clients of consultancy services or consultancies interested in knowing their competitive position. This also explains their almost exclusive focus on the major consultancies and their “obsession” with league tables.
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These data are reproduced in a range of other publications, namely the general business press (e.g. Financial Times or The Economist) which now carry regular surveys on management consultancy. It should be noted, however, that the accuracy of this data is somewhat questionable.
Some of the consultancies covered do not divulge detailed
information about their revenues, number of consultants, etc. These are therefore estimated. In addition, it is not always clear what percentage of their revenues are actually derived from “management consulting” and which from other services such as facilities management, namely in the case of the “Big Five” accountancies or IT companies. In the absence of other sources identifying the top consultancies in many different European countries, these are only basis for a comparative, European-wide analysis. The associations of the management consultancy industry provide more comprehensive data on each national market and some comparative data on European countries. Their interest is not only to inform about the field, but also to foster consulting activities. In all major European countries there is an association of management consultants, in some countries such as Italy and Germany there are even more than one.
The largest associations are the
Management Consultancies Association (MCA) in the United Kingdom and the Bundesverband Deutscher Unternehmensberater e.V. (BDU) in Germany. Since it is not compulsory to be a member of such a national association in order to offer consultancy services, and also because these associations sometimes have strict conditions of membership4, only a part of the management consultancies are organised in these associations. The major national associations of 23 European countries are members of the European Federation of Management Consulting Associations (FEACO). However, since membership in the national associations is not comprehensive,5 the FEACO members capture only about one third of the total European revenue in management consulting, according to their own estimates. Therefore, the data provided are based on member data and extrapolations, so that they are to be handled with great care. A comprehensive analysis of all European countries based on the same method is still missing. Alpha Publications (1996: 215) suggests that such an analysis can only be carried out
4
The German association, for example, expects four years professional experience as an independent firm and references by clients. 5 Small consultancies and sole practitioners, who contribute significantly to the total revenue of consulting activities, as well as the larger American consultancies, are only rarely members of the national associations in Europe. Therefore, the market data provided by the professional associations are based on extrapolations of data of their member companies, so that these data have to be treated with considerable caution.
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by international or governmental organisations, since a standardised coverage of services and firms is to be developed first. They put it this way: “…the material published does not really bring together what might be called a comprehensive analysis of the market together with detailed information which can be cross-checked. There is a need, in particular, for a document which: − profiles the principal consultancies, featuring in particular a breakdown of activities and the magnitudes involved. − analyses the dynamics of the market-place, not just now, but as it will unfold in the future; it is not enough to be anecdotal; the market needs to be dimensioned and the main ingredients of change exposed” (Alpha Publications 1996: 215). In order to take these difficulties of service classification and source unreliability into account, we have collected all possible information on the consulting fields in Western Europe and, wherever possible, have juxtaposed the results from different sources. In addition, we provide all information on the basis of the data and, by that, attempt to enable the reader to make his/her own judgement on the reliability.
2.2.2 Selecting appropriate dimensions The aim of our comparative analysis is to see the extent to which the consultancy fields of different European countries have become increasingly similar.
However, the limited
availability of data imposes constraints on this analysis. Firstly, for comparisons, we could only use data from the sources that covered many of the European countries. Quite often, these figures diverge from the situation in a given country, derived from a more careful indepth analysis (cf. Chapter 4 below). Nevertheless, even when using somewhat incomplete data, the overall European comparison enables us to provide a broad brushed overview and, most importantly, to roughly cluster the different European countries along a number of dimensions. Secondly, the available information does not cover all the actors and dimensions in the field, which –in an ideal world– should be included in the analysis. For example, data concerning the different types of clients are not available for a sufficient number of countries, in order to analyse and compare them in a systematic, quantitative way. While we are fully aware of the fact that the developments in the consultancy field are driven by consultants, clients, consultancy associations and (to a lesser extent) governments (cf. 2.1.3. above), only the information on the supply side is sufficiently detailed to make a classification and explicit ranking of European countries possible. We have also looked at the
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different variables on the demand side, but the information there is much more limited and the result therefore more of an “impressionistic” nature. Overall, by giving an overview of the supply and demand for consultancy services in Western Europe we therefore focus on a limited part of the consultancy field. In other words, we describe the “consultancy market”. In order to do this in a structured and systematic way, we have grouped the available information into different dimensions, which will serve as the basis for allocating countries into separate clusters in terms of similarity and difference. The most apparent dimension is the development of the consultancy market in the individual countries.
This is not only important in order to evaluate the importance of
consultancy activities compared to the national economy as a whole. It also provides an indication about the importance of consultants as a carrier of management knowledge in comparison to other carriers (Engwall et al. 1997). At least to a certain extent, these carriers must be seen as alternative creators and transmitters of management practices (Kipping 1997). A less developed consultancy market might therefore not only indicate that consultancy activities as such have not reached a very high level, but could also tell us something about the possible availability of other channels for the dissemination of management knowledge. These might be more developed or preferred by organisations due to cultural, institutional and historical reasons. Another apparent dimension is the market concentration. Most of the focus of the general and specialist press, the commercial research firms, as well as the academic literature on management consulting, have focused almost exclusively on the large international service providers.
However, a comparative survey carried out for the European Federation of
Management Consultancy Associations FEACO by the German association BDU at the beginning of the 1990s revealed that the industry is still characterised by a large number of individual consultants and small consulting firms (BDU 1991; cf. Keeble and Schwalbach 1995). The average size of service providers in Western Europe was little more than seven persons, ranging from fourteen in the UK to around three in France, Finland and Ireland. In recent years, however, medium-sized and small national consulting firms have increasingly been acquired by large international consultancies. It is therefore important to find out to what extent European countries are now dominated by a few large service providers, or whether medium-sized and small consultancies continue to play an important role. While related to the development of the consultancy market overall, we can also assume this to be linked to the industrial structure in a given country, namely the role and importance of SMEs. Another,
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often neglected form of concentration concerns the geographic location of consultancies and their activities. In this respect and, more importantly, within the context of the CEMP project, it is also crucial to understand the extent to which these large international consulting firms are predominantly of American origin. American consultancies have acquired an important an highly visible position in Western Europe since the 1960s (Kipping 1999). The question is, therefore, whether the recent mergers and a possible trend towards concentration led to an ever-increasing domination of European consultancy markets by US-based service providers. Moreover, it is relevant to study the extent to which larger European consultancies have been able to resist or develop possible alternatives.
These questions regarding a possible
Americanisation have to be dealt with very cautiously. Ownership of consultancies itself is clearly not a sufficient criteria to assess the US influence on European management practice. A variety of other factors and mitigating circumstances have to be taken into account. It provides nevertheless a first approximation of the extent to which consultancies as carriers of management practices might actually be a predominantly American form of knowledge transfer. Following the earlier discussion about the variety and constantly changing nature of products disseminated by consultancies, it is also important to check the extent to which different types of services are in demand in different countries. These differences might have a variety of origins, ranging from the development of the consultancy market itself, to the pressure on companies to concentrate on their core capabilities (thus a huge potential for outsourcing), or to introduce quality management or Enterprise Resource Planning (ERP) systems. In the same context, it is also important to know the types of clients in terms of their size and main activities, because they are likely to exercise a considerable influence on the kind of services demanded, on the one hand, and the overall development of the market, on the other. In the following chapter, we will try to operationalise these dimensions and use them to provide a very rough overview of the European consultancy market and its structure, by comparing and clustering the different countries. The individual descriptions of ten European countries in Chapter 4, provide a more detailed analysis and explanation for some of the differences observed.
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3 Consulting in Western Europe: an Overview along Market Dimensions In the following chapter, we will try to operationalise the dimensions identified above and try to provide a structured overview of the consultancy markets in Western Europe. Given the constraints imposed by the data sources, the result should be seen not in absolute, but in relative terms, i.e. situating one country in comparison to the others.
3.1
Market sizes and consulting intensity
The European consulting market is about half the size of the North American and double the size of the Asian/Pacific (cf. United Nations 1993: 12). Although the Asian/Pacific market has smaller growth rates, many consulting firms claim to have ridden out the recent economic crisis (Management Consultant International, July 1998: 10).
The European Federation of
Management Consulting Associations, FEACO, provides information on the European market for 1995, 1996 and 1997. In addition, the market research company Alpha (for 1995/96; Alpha Publications 1996: 4) and the German association of management consultants (for 1989/90; BDU 1991a: 3-4) offer overviews of European market data for 1995 and 1991, respectively. In many respects, however, these results, given in the following table, differ significantly, not only from the above estimate of overall consulting revenues for Europe as a whole, but also in terms of the country proportions.
16
Table 3.1.Fel! Okänt växelargument.: European market by country, comparison of different sources FEACO 1998 (survey of 1997)
Alpha Publications 1996 (survey of 1995)
BDU 1991 (survey of 1990)
19 bn ECU
11 bn US$ (ca. 12 bn ECU)
15.7 bn ECU
Market share (%) 43.9
Market share (%) 24.9
Market share (%) 27.3
United Kingdom
21.2
23.4
24.4
France
8.4
13.2
8.3
Spain
5.4
4.7
5.0
Netherlands
5.0
5.9
1.7
Italy
3.0
7.1
3.8
Rest of Europe
13.1
20.8
29.5
Estimated total market in Europe
Germany
The differences of the results are due to the different methods by which the data have been gathered. The FEACO survey was undertaken by the private market research company PMP Research and covered the member associations of the FEACO, so that this survey is based on extrapolations of data of member consultancies of the national associations belonging to the FEACO. Alpha Publications approached the consultancies directly, but focused only on the top twenty consultancies in each country. Therefore, their data base is significantly different from FEACO’s, for the members of the FEACO associations are different from the top twenty consultancies in each country (as mentioned above, in most cases the top consultancies of American origin are not members of the national associations). The BDU survey was carried out with questionnaires in co-operation with FEACO, but the survey focused on strategic and operational consulting; IT-consulting and human resource consulting has only fragmentarily been covered. Therefore, the different results are not surprising. In spite of their different results, the above data agree that Germany and the United Kingdom are by far the largest consulting markets in Europe. The absolute figures, however, must be viewed against the background of these countries’ gross national product (GNP). The total consulting revenues of a given country relative to its GNP, we will refer to as consulting intensity. Market volume per GNP is a figure easy to interpret: it measures the share of the
17
consulting sector in the national economy. A low figure means that the consulting sector plays only a very little role in the economy, a larger figure indicates a greater importance. Another interesting measure in this respect is the annual fee income per consultant. It indicates the clients’ readiness to pay higher or lower fees. In relation to the GNP per capita, this measure takes the national productivity, or national wealth, into account.
It indicates whether
consultants can charge high or low fees in relation to the national wealth and hence the valuation of consultants in the economy. The higher the figure, the higher the fee consultants can charge on average and the more the work of consultants appears to be “valued”.6 Table 3.1.2: Market volume and consulting intensity in European countries in 1996
GNP per Number of Country* GNP (1996)** Inhabitants** capita** consultants*** Germany $ 2,364,799,440,000 81,912,000 $ 28,870 50000 United Kingdom $ 1,152,127,200,000 58,782,000 $ 19,600 31274 Nordic Countries $ 666,557,040,000 23,611,000 $ 28,230 14500 Netherlands $ 402,510,980,000 15,517,000 $ 25,940 missing Spain $ 563,381,000,000 39,260,000 $ 14,350 14444 France $ 1,533,511,250,000 58,375,000 $ 26,270 14000 Switzerland $ 313,731,900,000 7,074,000 $ 44,350 2500 Italy $ 1,140,714,400,000 57,380,000 $ 19,880 3750 All figures refer to 1996, based on Fischer Weltalmanach 1999 and FEACO 1997. * Included are the FEACO member countries. ** According to Fischer Weltalmanach 1999 *** Estimated by FEACO 1997, p. 2
Market Volume
Consulting Intensity Index 1
Absolute Consulting Volume
Relative Consulting Volume
$ $ $ $ $ $ $ $
Annual fee income*** 9,125,229,091 4,406,203,846 1,885,804,000 1,034,324,880 1,133,846,666 1,745,696,000 342,904,571 632,814,800
Annual fee income per consultant $ 182,505 $ 140,890 $ 130,055 missing $ 78,499 $ 124,693 $ 137,162 $ 168,751
Annual fee income per GNP (x1000) 3.86 3.82 2.83 2.57 2.01 1.14 1.09 0.55
Annual fee income per consultant / GNP per capita 6.32 7.19 4.61 missing 5.47 4.75 3.09 8.49
It shows that Germany and the United Kingdom do not only have the largest absolute consulting volume, but also the highest consulting intensity. They can hence be labelled the most developed consulting markets in Europe. This is supported by the annual fee income per consultant in relation to the GNP per capita. In both Germany and the UK consulting services are highly valued and consultancies can charge a high fee in relation to the national wealth. Germany and the UK, therefore, exhibit exceptional positions among Western European countries and establish the first cluster of countries, which we will refer to as high-consultingintensity countries.
6
It should be noted that this probably also reflects the different types of services demanded, with “strategic” advice commanding higher fees, and the different types of clients, with larger companies being able to pay higher fees than smaller ones (cf. 3.4 and 3.5). Given the absence of other criteria to estimate the “value” of a consultancy, the level of fee often acts as a signal. In economic terms, consultancy is therefore far from being a perfect market.
18
In comparison to Germany and the UK, the Nordic countries (Denmark, Finland, Norway, and Sweden), the Netherlands, and Spain exhibit lower figures. Not only is the absolute consulting volume significantly smaller, but also their annual fee income is considerably lower in relation to their GNPs. In addition, the work of consultants is apparently lower esteemed than in Germany and the UK: in relation to their economic wealth, expressed in the GNP per capita, consultants charge lower fees than in high-consulting-intensity countries. Therefore, the Nordic countries, the Netherlands, and Spain can be labeled mediumconsulting-intensity countries. France, Switzerland and Italy form the last cluster of countries in terms of consulting intensity. Even in comparison to the medium-consulting-intensity countries, the annual fee income is low in relation to their GNPs. In this case, however, the esteem of consulting services (annual fee income per consultant in relation to GNP per capita) do not correspond to this view. Italy, for example, displays a much higher figure than the other countries. This however, must be interpreted against the background that FEACO estimated the number of consultants to be very low in Italy (see the table above). This does not necessarily reflect the reality in Italy, but rather the fact that the consultancy field in this country is very dispersed. Much more than in other countries, Italy is characterised by a high number of sole practitioners and very small consulting firms that are often not organised in the FEACO member association. This can be assumed to bias the FEACO estimate. In summary, therefore, France, Switzerland and Italy tend to form a cluster of low-consulting-intensity countries. But care must be taken for this interpretation, since the consulting structures of these countries are such that the FEACO estimates might be misleading.
3.2
Concentration
Another way of distinguishing national consulting markets is the market concentration. In this regard it is to ascertain to what extent a national consulting market is characterised by the domination of few large consultancies, or by a dispersion of many small and medium-sized consultancies. Thus, appropriate indices for this are the market shares of the top 10 and top 20 consultancies. An appropriate index for that is the market share of the top consultancies. We calculated two indices: the aggregated revenue of the top 10, and top 20, firms in each country in relation to the total national consulting volume.
19
Moreover, market concentration can be expressed as the number of consultants (consulting persons) in top firms, in relation to the total number of consultants. Again we calculated two indices: the number of consulting persons working at top 10, and top 20, firms in relation to the total number of consultants. The following table shows the results. Table 3.2.1: Different measures of market concetration Market Concentration Index 1
Market Concentration Index 2
Market Share of top 10 consultancies
Market Share of top 20 consultancies
Market Concentration Index 3
Number of consultants top 10, by total number of Revenue top 10 by Revenue top 20 by Country* market volume market volume consultants United Kingdom 0.58 0.84 0.34 Netherlands 0.57 0.71 missing Switzerland 0.51 0.72 0.28 France 0.40 0.53 0.27 Nordic Countries 0.35 0.39 0.27 Germany 0.15 0.19 0.11 Italy missing missing missing Spain missing missing 0.40 All figures refer to 1996, based on Fischer Weltalmanach 1999 and FEACO 1997. * Included are the FEACO member countries.
Market Concentration Index 4
Number of consultants top 20, by total number of consultants 0.45 missing 0.39 0.35 0.30 0.14 missing 0.43
It shows that the market in the United Kingdom, the Netherlands and Switzerland is very concentrated, since the top 10 consultancies capture more than 50 per cent of the total market volume and the top 20 about 75 per cent. In France and the Nordic countries the market is less concentrated, and the German market is very dispersed. By and large, therefore, three clusters of countries can be identified. The United Kingdom and the Netherlands are countries with a high market concentration. It is also possible that Spain belongs into this cluster. Although quantitative data are not sufficiently available, qualitative information (see the chapter on Spain, below), suggest that the Spanish market is strongly influenced by the large strategic consultancies and the consulting arms of the Big Five accounting firms. The available quantitative data on the concentration of consultants in the top 10 or top 20 firms in Spain (see the table above) confirm this impression. In summary, there are reasons to assume that the United Kingdom, the Netherlands, and Spain form a cluster of countries with a high market concentration.
20
France and the Nordic countries have a significantly lower market concentration. Consistently on all four indices, the top 10 and top 20 firms have smaller market shares in terms of revenue, and they concentrate fewer consultants in relation to the total number of consultants on the market. These countries, therefore, can be referred to as medium-marketconcentration countries. Switzerland has a hybrid position between large and medium market concentration. Germany displays a very low market concentration. Both in terms of the revenue share of top consultancies and in terms of the number of consultants concentrated in top firms, Germany's figures are much smaller than in the other European countries.
More than
elsewhere, therefore, the German market is strongly influenced by medium-sized and small consultancies. Although the recent wave of mergers and acquisitions on the consulting market has revised this picture to an extent, it is still evident that medium-sized consultancies play a much more important role. Italy is a similar case in terms of market concentration. Although quantitative figures were not available, qualitative evidence (see Chapter 4.8 below) shows that small consultancies and sole practitioners strongly influence the consulting field in this country. Therefore, there are reasons to assume that Germany and Italy form a cluster of countries with a low market concentration. Market concentration can also be expressed in terms of the geographical distribution of consulting activities in the individual countries. Since the industrial structures of the European countries differ significantly in terms of geographical concentration, likewise the consulting activities will be more or less concentrated. The United Kingdom is an extreme case of a highly concentrated country in this regard. According to DREE (1994), 66 per cent of the consultants live in the East or Southeast of England, 50 per cent in London alone. Sweden is also highly concentrated, with almost all consultancies having their headquarters in Stockholm and eriving about 60 per cent of revenues from the capital region. It can be assumed that the market in France, too, is strongly concentrated in Paris, whereas the market in Germany is more equally distributed across the country. For more information see the reports on the countries in Chapter 4.
21
3.3
Americanisation
From the viewpoint of the CEMP project, one of the most important dimensions of the consultancy field in Western Europe is the market penetration of American consulting firms. For a variety of reasons, however, the extent to which the field is dominated by consultancies of US origin is difficult to measure. Nevertheless, we will make both a quantitative and a qualitative attempt to assess the extent to which American firms have secured predominant positions in the individual European countries. A first approximation is their presence among the largest consultancies in Western Europe ranked in terms of total revenues. For reasons of comparability, we will base this analysis exclusively on the data provided by Management Consultant International.
22
Table 3.3.1: The top 30 consulting firms in Europe, 1997 Country of origin
1997 revenues (US$/m)
Growth rate 1996-97 (%)
Number of Number of consultants countries in which firm is among top 10*
Number of countries in which firm is among top 20*
1. Andersen Consulting
USA
2,220.0
22.4
15,466
8
8
2. Sema Group
F/UK
1584.1
27.3
N/A
3
3
3. PriceWaterhouseCoopers
USA/UK
1135.0
30.0
7208
7
8
4. CSC Computer Sciences
USA
940.0
30.0
6500
5
5
5. McKinsey & Co.
USA
828.0
20.0
N/A
6
7
6. KPMG
USA/UK/NL
714.0
18.2
4362
7
7
7. Gemini Consulting
F/USA
648.0
N/A
1250
3
8
8. Ernst & Young
USA/UK
635.4
46.0
3852
8
8
9. Deloitte & Touche (DTT)
USA/UK
457.0
22.0
N/A
4
7
10. A.T. Kearney
USA
389.4
25.0
1000
4
5
11. CMG
UK
372.4
20.0
N/A
0
0
12. Boston Consulting Group
USA
336.8
9.0
N/A
4
7
13. PA Consulting Group
UK
330.0
35.7
1320
2
3
14. Mercer Consulting Group
USA
318.8
20.4
N/A
1
4
15. Roland Berger & Partner
D
270.0
10.0
617
1
1
16. Arthur D. Little
USA
269.5
13.3
826
2
5
17. Sedgwick Noble Lowndes
UK
237.6
10.0
N/A
0
0
18. AMS
USA
206.0
-13.8
980
2
3
19. Bain & Co.
USA
183.0
20.0
500
1
6
20. Watson Wyatt Worldwide
USA
170.0
20.9
N/A
0
1
21. IBM Consulting Group
USA
161.0
35.3
1000
1
4
22. DMR Consulting Group
USA/Japan
140.0
66.7
N/A
0
0
23. CEGOS Group
F
129.1
8.1
450
0
2
24. Towers Perrin
USA
112.0
-5.7
94
0
1
25. Mummert & Partner
D
107.8
29.4
572
0
2
26. Booz Allen & Hamilton
USA
106.7
10.0
400
0
3
27. Plaut International
D/Austria
91.0
33.8
457
0
1
28. Twijnstra Gudde Group
NL
80.0
23.1
450
1
1
29. Kienbaum und Partner
D
73.3
12.6
206
0
1
30. Horwarth International
International Network
58.0
34.9
240
0
1
Source: Management Consultant International, August 1998. A considerable number of figures have been estimated by Management Consultant International * Number of countries in which the consulting firm belongs to the top 10 or top 20 (revenue). Eight countries were considered (United Kingdom, Germany, France, Italy, Spain, The Netherlands, Switzerland; and the Nordic countries aggregated). The maximal number are firm can achieve is therefore eight.
23
It is apparent that US-based firms hold the largest market share in Western Europe. Among the top 30 service providers, 19 are of American origin (either totally or partially). More important than the number of companies, however, is the share of US-based firms in terms of revenue. In this respect they account for 75 per cent of the aggregated revenue of the top 30 firms. What is probably most important is the fact that a large number of these American consultancies are present in many, some of them in all, of the Western European countries analysed in this report.
By contrast, very few of the national consultancies are actually
European, let alone global, players. Most of them have a presence in a number of European countries, but hardly make it into the top 20, let alone into the top 10 outside their country of origin. The largest German consultancy, Roland Berger, can be taken as an example: the German market still accounts for about 80 per cent of its revenues. It is therefore largely the size of the national market that determines their position in the European league table presented above.
One can thus conclude that, somewhat paradoxically, consultancies of
American origins appear to be the only European players in Western Europe. However, a European-wide view only provides limited insights, because the market share of US consultancies might differ considerably between individual European countries. In order to describe the European consulting market and the differences between individual countries, it appears therefore useful to compare not only the different market sizes and market concentration in the individual countries, but also the degree of Americanisation. Such an analysis, based on the same set of data used for the previous calculations, yields the following result.
24
Table Fel! Okänt växelargument..3.2: Share of US consultancies among top 10 and 20 firms in European countries
Americanization Index 1
Americanization Index 2
Revenue share of US Revenue share of US consultancies among top 10 consultancies among top 20
Revenue US consultancies Revenue US consultancies among top 10, by total among top 20, by total Country* revenue top 10 revenue top 20 France 0.95 0.83 United Kingdom 0.86 0.78 Switzerland 0.86 0.73 Nordic Countries 0.83 0.83 Italy 0.81 0.75 Germany 0.80 0.75 Netherlands 0.77 0.73 Spain 0.73 0.34 All figures refer to 1996, based on Fischer Weltalmanach 1999 and FEACO 1997. * Included are the FEACO member countries.
This index shows that, with the possible exception of Spain (where they only account for 34 per cent of the top 20), consultancies of American origin have made considerable inroads into all of the Western European markets. The individual country chapters, which are based on different and more refined and reliable data, more or less confirm this result.
With the
exception of a few national consultancies, most of the largest service providers in all the Western European countries are US-based. Over the last decade there has also been a trend towards concentration in many Western European consultancy markets. Large international, i.e. usually American consultancies have been acquiring smaller, national ones (e.g. for the German case Kipping and Scheybani 1994). This supplements the empirical picture of a strong American influence. Our overall index regarding the US share among the top 20 suggests some differences, with France (surprisingly) and the Nordic countries (less surprisingly), leading the pack. The others are too close to each other in order to draw further distinctions. However, the overall American penetration in the Western European consultancy field should not be overestimated. If we combine the market concentration (market share of the top
25
20 firms in toto) with the market share of US-based firms (among the top twenty), we can see that only in two countries, the UK and the Netherlands, American consultancies have a market share of more than 50 per cent. (Provided that there are no US consultancies among those ranked 21 or below, which might not be entirely correct. However, both their number and their size is certainly small and will therefore have little influence on the result presented in the following table). Table 3.3.3: Total market share of US-based consulting firms in individual countries Americanization: Market Share of US-based consultancies among top 20
Market Concentration: Market Share of top 20 consultancies
Market share of US consultancies as per cent of the total market
Nordic Countries
83
39
32
United Kingdom
78
84
66
The Netherlands
73
71
52
Germany
75
19
14
France
83
53
44
Italy
75
n/a
n/a
Spain
34
n/a
n/a
in per cent
This calculation shows that, according to these measures of Americanisation, the United Kingdom has the strongest US influence (high Americsanisation level).
The American
influence are also relatively strong in the Netherlands, France and, to a lesser extent the Nordic countries (medium Americanisation level). In Germany, by contrast, domestic consultancies play a greater part. Although for Italy and Spain no quantitative data can be provided, it can be assumed that the American influence in both countries is relatively low (low Americanisation level). However, care is in order for taking these figures as the ultimate measures of Americanisation. First, we must take a closer look at the extent to which the major service providers can actually be characterised as American. Probably the most important caveat concerns the “Big Five” accountancy and consultancy conglomerates.7
Usually, they are
portrayed as global firms, directed from a head office in the United States and with an
7
It might actually be more appropriate to refer to them as the “Big Six”, despite the recent merger of Price Waterhouse and Coopers &Lybrand. Andersen Consulting and Arthur Andersen, its former parent, are in divorce proceedings. As a matter of fact, both are already competing head on in the US consultancy market and increasingly in Europe.
26
American CEO. However, probably only Andersen deserves such a label. Among the “Big Five”, it is the only truly American firm.
Founded in the United States in 1913, it
internationalised rather slowly during the inter-war period based on agreements with national practices in other countries. But in the 1950s, Andersen severed all existing ties and began to build its own network of offices. Today, it therefore probably comes closest to a hierarchically organised service sector multinational with overseas subsidiaries (Arthur Andersen 1963; Spacek 1989; Daniels et al. 1989). By contrast, all of the other firms have their origin in the UK during the 19th century. Benefiting from the leading role of British companies in FDI before 1914, they followed their domestic clients abroad and very early on developed a network of overseas offices and correspondents. The main geographic focus of this international expansion was the Empire, but the British accountancies also established a presence in the United States which served as a basis for further expansion in the Americas. Because of the specificity of local demand and of the US labor market, these offices soon underwent a process of Americanisation and became gradually independent. The process was only reversed after the Second World War when a series of mergers created the large Anglo-American accountancy (and consultancy) firms. Almost all of them subsequently continued to expand abroad by adopting existing service providers into their international network. This means, however, that most of them are still operated as loose federations of largely national practices, working under a single brand umbrella. Compared to Andersen, KPMG exemplifies the other extreme. It originated in 1986 from the combination of Peat Marwick, and Klynveld Main Goerdeler, a federation of more or less independent national practices established in 1979.
To what extent these allegedly “global” firms therefore share and
disseminate the same knowledge, has to be studied in each case very carefully. This depends mainly on the level of centralized activities, which include for example extensive training at the same institution or at least similar curricula and training material. In addition, as noted in Chapter 2.1.1 above, a large share of the revenue of the “Big Five” is derived from outsourcing rather than what would be called “management consulting”. This obviously varies from country to country, but is likely to constitute a significant portion of their revenues in most instances. The same is also true for companies like Sema Group, IBM Consulting or CSC, which focus almost exclusively on IT consulting. In addition, the detailed analysis for the individual European countries also show that in many cases state-owned or
27
associative consultancies play an important role, like in the case of ALMI in Sweden which occupied 4th place in 1997. None of these are recognised in the “league tables” which have formed the basis for our comparative analysis. All these factors therefore reduce the overall share of US service providers in the European management consulting market considerably compared to the percentages mentioned above. While no exact numbers can be given, the “Americanisation” of the consultancy field in Western Europe seems to much less dominated by service providers of US origins than a preliminary, superficial analysis would suggest. In addition, it should also be noted that the employees of the large American consultancies in Europe are not Americans, but natives of the respective countries who, for the vast majority, underwent their education in domestic institutions. At the same time, however, they undergo their socialisation and further training in these US consultancies (Henry 1997). This might have quite a powerful effect on their knowledge base. In addition, this kind of “Americanisation” is not limited to those working in the large consulting firms. Many smaller consultancies are founded by previous employees of large American consultancies (spin-offs), so that a small size does not indicate that “local” rather than American management knowledge is disseminated. It remains to be investigated to what extent even the smaller, local consultancies adopt the management knowledge and techniques of US origin. Only the in-depth case studies of individual American and national consultancies, undertaken in the next stage of the CEMP project, will enable us to provide further insight into these questions.
3.4
Types of service
Looking at the European consulting market by the type of service, we again have to face the problem that the information obtained from different sources is not easily comparable. Alpha Publications (1996: 6) provides the following overview for the European market as a whole.
28
Table 3.4.1: Estimates of market shares of different types of services in 1995 Type of Service
Proportion of revenue in Europe (%)
Information technology
43.8
Strategy
14.4
Human Resources
14.3
Operations
13.3
Finance & Administration
5.4
Marketing & Sales
3.8
Others
5.0
Source: Alpha Publications 1996, p. 6 Moreover, Alpha Publications list Business Process Reengineering as the nexus of operations and information technology covering 9.3 per cent of the revenue, and change management as the nexus of operations and human resources covering 9.0 per cent of the total European revenue. The FEACO study of the European consultancy markets in 1997 classifies the key service areas differently and comes to the following results.
Table 3.4.2: Fee split of all FEACO members according to types of service in 1997 Type of Service
Proportion of revenue (%)
Corporate strategy and organisation development
26.8
Human resources (+ executive search and interim management)
14.1
Financial and administrative systems
11.5
Information technology, systems development and integration
11.2
Production and service management (including technology, logistics, R&D, quality control)
10.2
Information technology consultancy
9.5
Marketing and corporate communication
6.7
Project management
6.6
Economic and environmental studies
3.4
Source: FEACO 1998 (for the year 1997)
It is striking that these results, namely regarding corporate strategy and IT, differ significantly. One of the reasons might be the already mentioned fact that many consulting services cannot
29
be unequivocally classified. Consulting projects regarding “organisational development”, for example, may be concerned with strategy, information technology, and human resources. In addition, it is easy and tempting to use the term “strategic” consulting for marketing, IT, or operations consulting, because the label “strategic” gives the service a welcome touch of elitism or “nobility”. The different modes of classification, therefore, can be assumed to account for some of the differences. Another reason might be the difference in terms of the consultancies on which these two tables are based. Alpha has focused its research predominantly on the larger consultancies, which might explain why the share of IT is so high, because these include both the “Big Five” accountancies where a large share of services is still IT-based and more or less “pure” IT consultancies such as Sema Group. But variations in terms of the share of the different services also occur from one country to the next, as the following table shows. To compile this table we have used FEACO data, but have only included the most important of the above ategories and have also combined the two which concerned IT-related services. Table 3.4.3: Fee split of FEACO members by service area in 1997 in per cent
Strategy & organisation
IT
Human Financial/ad Production resources min systems management
Other
Nordic countries*
29.7
18.4
24.0
6.7
7.5
13.4
Germany
29.0
20.0
8.0
12.0
17.0
14.0
UK
18.0
38.0
5.9
12.1
12.4
13.6
Netherlands
33.0
21.5
22.0
5.5
6.6
11.4
France
n/a
n/a
n/a
n/a
n/a
n/a
Italy
20.0
20.1
16.0
9.1
25.0
9.8
Spain
8.4
59.0
10.5
8.0
8.0
6.1
Switzerland
35.0
23.0
9.0
9.0
9.0
15.0
FEACO Average
26.8
20.7
14.1
11.5
10.2
16.7
Source: FEACO 1998 (for the year 1997) *data only available for Denmark and Finland only, unweighted average
The above table is difficult to interpret, because the underlying data are biased in a number of ways. First of all, as mentioned several times before, it is difficult to categorise consultancy services, because they often overlap. In addition, the criteria applied in each country to
30
“pigeonhole” a given type of service might differ quite considerably.
Most importantly,
however, the data covers only FEACO member firms and is therefore a reflection of the differences in membership, but not necessarily of differences in the consultancy market overall. This is most apparent in the case of Spain where the FEACO member association regroups mainly IT service firms. To a lesser extent, the same is true for the British Management Consultancies Association (MCA).
In the MCA the consulting arms of the “Big Five”
accountancies, who often focus on IT, play an important and the association has also recently begun to admit IT consultancy service providers such as IBM consulting. Having said all of this, we can nevertheless make a few general remarks based on this table. First of all, it appears quite obvious that European consultancy markets differ quite considerably in terms of the predominant types of services. The role of strategy & organisation is one good measuring stick. In a number of countries, its market share is relatively high, accounting for more then a third of the total market in the case of Switzerland. Among the EU countries with an above average strategy-focus are the Netherlands, the Nordic countries and Germany. Given that (a) the “traditional” strategy consultants such as McKinsey or BCG are not members of the consultancies associations and that they (b) occupy a predominant position in these countries (and especially in Germany), we can even assume the share of projects focusing on strategy and/or organisation to be even higher than the FEACO data suggest. B contrast, the role of strategy consulting is somewhat lower than the European average in Italy and the UK, and much lower in Spain. No FEACO data is available for France, but the detailed country description in Chapter 4.7 suggests that the French consultancy market might also have a medium, possibly even high strategy focus. Interestingly, there seems to be an inverse relationship between strategy focus on the one hand, and a focus on IT, or more in general “systems” related services, on the other. This can be exemplified by a comparison between the situation in the United Kingdom, where IT-related services are the dominant market driver, and Germany, which is still somewhat of a “desert” in terms of information technology. This is also reflected in the dominant service providers. While in the UK those consulting firms dominate the market, which have systematically focused on information technology, the German market is still dominated by the “traditional” strategy consultancies.
31
The reasons for these “systematic” differences are not immediately obvious.8 They might be related to the predominant industrial structure in these countries. Where there are largescale, highly bureaucratic organisations, like in Germany, the demand for outside advice will focus on strategy and organisation. By contrast, in a country like the UK, dominated by service industries other types of consultancy are required. When it comes for example to the co-ordination of branch networks or the establishment and running of customer call centres, information technology is likely to play an important role. Another factor might be the propensity of companies and/or public administrations to outsource certain activities, much higher in the UK than in most other parts of Europe. Once again, these are likely to involve large scale data processing. Overall, we therefore have clear differences in terms of the services provided by consultancies in the different European countries. But their actual causes and their likely future evolution remain rather unclear, mainly due to the absence of reliable and comprehensive data.
3.5
Types of clients The consulting markets in individual countries can also be distinguished in terms of the
types of clients. The available data in this respect is even sketchier than for the predominant types of services. In order to arrive at some kind of categorisation and clustering, it appears necessary to separate two aspects with respect to consultancy clients: their type of activity and their size. This means that we can look at (1) the extent to which consultants cover all important sectors in a given country, i.e. industry, services and also the public sector, and (2) the extent to which they reach a large number of client companies, even those of medium to small size. Concerning the sectoral coverage, the available FEACO data gives us some indications of the prevailing differences among Western European countries. The details for individual sectors have been regrouped into larger categories.
8
Some of the other “anomalies” can be explained much easier. For example the high level of human resources consulting the Netherlands is most probably a reflection of (a) the historical development of the consultancy market which saw an important input from social and human scientists and (b) the importance of labour legislation which promotes certain types of consultancy services (see Chapter 4.5 below).
32
Table 3.4.4: Fee split of FEACO members by industry sector in 1997 in per cent
Resources
Manufacturing
Retail
Financial services
Other services
Public sector
Nordic countries*
3.3
35.3
10.2
12.8
26.3
12.4
Germany
11.5
26.5
9.0
23.0
18.0
12.0
UK
19.6
20.4
3.2
30.0
12.5
14.2
Netherlands
11.0
16.0
3.0
21.0
23.0
26.0
France
n/a
n/a
n/a
n/a
n/a
n/a
Italy
5.4
71.0
2.1
5.3
4.3
11.9
Spain
11.7
35.1
1.8
33.0
11.0
7.5
Source: FEACO 1998 (for the year 1997) *data available for Denmark and Finland only, unweighted average Resources: Agriculture, energy & water supplies, mining, metal and chemicals Industry: Manufacturing, food & beverages, clothing & textiles, construction Services: Transport and communication, health, professional services Public sector: EU Commission, national and regional governments, state-owned industries
The table has to be taken with the same caution as the one above regarding the different service types. It is subject to the same biases, namely regarding FEACO membership. In addition, they are also an at least partial reflection of the industrial structure in a given country. In Germany, for example, the manufacturing industry is the largest client group, which mirrors the production-oriented economy. By contrast, in the United Kingdom the manufacturing sector plays a more role. Here, banking and insurance account for almost one third of the total consulting demand, which is much higher than any other client group and reflects the financeoriented economy in Britain. More importantly however, the demand for consultancy services from specific client sectors is influenced to a large extent by outside factors. It can therefore change quite considerably from one year to the next. For example the high percentages for financial services (with the exception of Italy) are simply a reflection of the fact that the banking (and insurance) sector is undergoing a restructuring in many European countries at the moment, following a wave of mergers and acquisitions, the recent alignment of branch networks, and the establishments of direct banking systems.
(Italy appears to lag behind somewhat in this
respect, even though the figures for 1998 and 1999 are likely to be much higher, following a number of banking mergers.
33
Thus, only a long-term average, say for the last ten years or so, can provide a more accurate picture of the demand for consulting from different sectors of economic activity. For example, in 1997 the demand from the public sector in the United Kingdom was not much higher than in most other Western European countries. However, over the last 15 to 20 years or so, the public sector in the UK has been one of the largest group of clients; only a few years ago (1994), demand was even stronger from the public sector than from the financial services sector (banks, insurance, business services & leasing) – a unique constellation among European countries. Local and national governments in the UK have always been relatively heavy consultancy users. And from the 1980s onwards, the large scale privatisation programme has fuelled consultancy demand to a considerable extent. Unfortunately, the same kind of detailed information is not available for other sectors and other countries. Nevertheless, taking the latest data and the limited additional information from the individual country chapters into account, one could assume that the coverage of all sectors of client activities by consultancies has traditionally been high in the United Kingdom and the Netherlands, and probably also, albeit to a slightly lesser extent in the Nordic countries. Germany probably occupies a medium position, because consultancies are active in all sectors, but in some sectors, they have only become involved to a larger degree in recent years. This has been especially the case of the public administration (ministries etc.). The same can probably be said about France and, possibly, Spain. Only in Italy coverage appears very low, with consultancies so far almost exclusively limiting their activities to the manufacturing sector. Its appears, however, that telecommunications has become an important sector in recent years – in line with developments in other countries. This is another case where development has largely been driven by changes in the European –regulatory and competitive– environment. The second important element regarding the clients of consultancies is their size. However, data on the size classes of clients to which consultancies have extended their reach is available only in very few cases.
A clustering along this dimension is therefore highly
problematic. Some observations can nevertheless be made. It is quite likely that there is some correlation with the concentration of the market. A relatively dispersed market, such as in Germany, means that there are many small-to-medium size consultancies. This seems to be a kind of conditio sine qua non, because SMEs cannot afford the rates charged by the large international consultancies. This condition is certainly fulfilled in the German and Italian cases. To overcome the “financial” barrier, many countries have undertaken measures to boost advisory service, namely by subsidising the use of consultancies (OECD 1995). These have
34
been long-standing and quite successful in Germany (e.g. Strambach 1995). The British and French governments have made similar efforts – albeit apparently with a less successful outcome. This also reflects the industrial structure in these countries, where there are less medium-sized companies than in Germany, thus limiting the market available to consultancies. In addition to the financial considerations, there are also trust barriers to overcome, because for the SMEs it will in many cases be their first contact with consultancies. Germany once again has been a kind of pioneer in this respect, with the semi-public association RKW acting as an “intermediary” since the 1950s. It also administers many of the available subsidies (Kipping 1997). In the Nordic countries and in the Netherlands, there are publicly-owned consultancies focusing on small and medium-sized firms. At least in Denmark and Sweden they are among the twenty largest service providers.
This shows that the reach of
consultancies is likely to be relatively high. The only unknown is Spain, where we expect the reach of consultancies to be somewhat lower, but where the regional element is rather important in the consultancy market, once again suggesting that consultancies also work with some SMEs. Another interesting variable regarding the characteristics of the consultancy clients might be ownership, i.e. namely the extent to which family firms use more or less outside consultants than publicly quoted companies. From what we know about the role of consultancies, namely with respect to the legitimisation of decisions (cf. Kieser 1998), it would appear that those companies responding to outsiders (namely shareholders) are more likely to use consultancies. But unless they can rely entirely on self-financing, family firms also need outside capital, which is raised through banks. In many cases these banks will prescribe the use of an outsider, before awarding funds. To give but one example, jointly with Roland Berger, the largest service provider of German origin, Deutsche Bank has established a consultancy which focuses exclusively on the family dominated Mittelstand (Deutsche Gesellschaft für Mittelstandsberatung = DGM).9 Overall, this qualitative examination of the different client types also reveals considerable differences across Europe. One could say that we can find on the one hand of the scale the UK where consultancies cover all sectors of activity, but do not reach companies of all client sizes, compared to Italy on the opposite end where consulting is largely focused on manufacturing, but also concerns many small and medium-sized firms.
The Nordic countries and the
35
Netherlands occupy a medium position, because consultancies are covering all sectors and also work for smaller companies.
3.6
Clustering consultancy markets in Western Europe - a first attempt
For each of the dimensions identified above, we have examined in more or less depth the similarities and differences across the European consultancy markets, trying to cluster them individually. Putting these results together yields the following overview. Table 3.6.1: Dimensions of the consultancy fields in Western Europe Demand side characteristics
Supply side characteristics Level of development
Size of consultancies
Origin of consultancies
Service type
Client type: Size
Coverage
Reach
“Varibale” used
Intensity
Nordic countries
Medium
Medium
Medium/Low
High
Medium/High
High
United Kingdom
High
High
High
Medium
High
Medium
The Netherlands
Medium
High
Medium
High
High
Medium/High
High
Low
Low/Medium
High
Medium
Very High
France
Medium/Low
Medium
Medium
Medium/High
Medium/Low
Medium
Italy
Low/Medium
Low
Low
Medium
Low
High/Medium
Spain
Medium
Medium/High
Low/Medium
Low
Medium/Low
Medium/Low
Germany
Concentration Americanisation Strategy Focus
Client type: Activity
Given the lack of reliable, comprehensive and easily comparable data, these overall results have to be approached with considerable caution. A number of observations can nevertheless be made. The first and very important one concerns the diversity of the European consultancy markets. This impression, derived from the overall comparison is confirmed by the detailed descriptions for ten individual Western European countries in Chapter 4 below. All of them have experienced a rather different historical evolution and their current structure and characteristics are also far from being identical. These detailed descriptions also reveal at least one very clear similarity. In all of the markets studied, the consultancy arms of the “Big Five” accountancies have come to occupy predominant positions over the last ten years. As a general rule, confirmed by a few minor 9
Some might suggest that this was the bank’s main interest in acquiring 75 per cent of the share capital of
36
exceptions, all five of them are now placed among the top ten service providers in each of these countries. This is a clear contrast with the early 1990s, when some of them did not even make it into the top 20. During this period, they have usually displaced the larger national consultancies, which used to be among the larger players at the beginning of the decade and have now been either relegated or bought up – quite often by actually by these “Big Five”. During the same period, the American consultancies which entered the Western European consultancy markets earlier, namely during the 1960s and 1970s, have usually managed to maintain their position among the leading service providers – probably on the whole better in countries such as Germany where they had acquired a significant market share early on. Thus, there has clearly been an Americanisation, or may be rather a “BigFiveisation” of the European consultancy markets. However, as mentioned above, many differences remain, especially when one looks beyond the top ten or twenty consultancies in each of these countries. One of the major drivers of these differences appears actually the dispersion of the market, namely the presence of a large sector of small and medium-sized consultancies, which also drives a number of other “variables”, namely the extent to which consultancies have reached companies of a smaller sizes. Another important driver is the industrial structure which influences for example both the focus of consultancy services and the activities covered by consultancies in a given country. Taking a combined look at all variables, there appears to be a kind of North – South divide in the Western European consultancy markets. On the one hand we have the UK, the Netherlands and to a somewhat lesser extent the Nordic countries, which all have a well developed and relatively concentrated consultancy supply, where service providers of US origin play an important role. On the demand side, they are somewhat more diverse, because there is a higher strategy-focus and a higher reach in the Netherlands and the Nordic countries compared to the UK. In the South of Europe, i.e. in France, Italy and Spain, supply is generally less developed and concentrated and less dominated by American consultancies. Once again, the demand side similarities are less pronounced. Within this group, Spain seems in general the more developed, especially when compared to its economy overall. In France and Italy, consultancies have certainly not reached the role which the country’s level of economic development would lead one to expect.
In this Western European clustering,
Germany is the odd one out. While highly developed, it is also a highly dispersed market with limited American influence. On the one hand, consultancies have reached small and mediumRoland Berger in 1987. It sold its stake in the consultancy again in 1998, however, keeping DGM.
37
sized enterprises since the 1950s, but governments have only recently begun to use their services. When it comes to suggesting –highly preliminary– reasons for these clusters, the demand side seems more obvious and straightforward. It would appear that the industrial structure (in terms of the size of companies and their activities) account for a large share of the differences on this half of the above table. The supply side differences are less easy to explain and should certainly be look at in each case individually (cf. Chapter 4 below). The North – South divide nevertheless might suggest some very deep “cultural” and historical factors (cf. Hofstede 1980). Thus the distinction would be between the protestant or, to go even further back in time, Germanic part of Europe, where consultancies are much more developed, and the catholic or Roman part where they seem to have made less inroads. The “odd” position of Germany would also find its explanation in this respect, since it is a mixture of the two “cultures”. An explanation closer to economic reality, might be the fact that those countries where consultancies seem to play an important role as carriers of management knowledge are all trading nations – trading not in the sense of exports, but in the sense of “merchants”. Since consultancies are in a way trading knowledge, this form of transfer might find a more receptive environment in countries with such a background. As a matter of fact, after 1945 these countries have also been open for other “American forms” of knowledge transfer (cf. Kipping and Armbrüster 1998), namely the (graduate) business school (cf. Engwall and Zamagni 1998). For much of the post-war period, the relationship between MBA programmes and management consultancies has indeed been complementary (Kipping and Amorim 1999). The somewhat more developed consultancy supply in Spain might also find at least a partial explanation in this respect, because it one of the pioneers in developing US-type business schools already during the late 1950s.10 All of the above suggestions are obviously highly speculative. None of them on its own, and maybe none at all, are sufficient to explain the clusters among the Western European consultancy fields identified and outlined above. What remains, however, incontestable, is the diversity among consultancy markets. It has been reduced at the top end of the market with the penetration of the “Big Five”, mainly to the detriment of the large to medium-size national consultancies.
10
Taken as a whole, and looking at a number of demand and supply side
The development in Italy was even earlier, but there these institutions did not last.
38
variables, the Western European consultancy fields continue to exhibit a significant degree of diversity.
39
4 The Consulting Markets in Individual European Countries The following chapters give more or less detailed overviews of the consultancy markets in ten different European countries. They are presented in geographical order from the North to the South of Europe. We have asked the authors, if possible, to give a brief apercu of the history of management consulting in the respective country, analyse the current market structure and charactersitics and make some remarks about possible future trends.
Differences in the
treatment are largely driven by the availabilty of relevant and reliable data.
40
4.1
Norway (by Hallgeir Gammelsaeter)
4.1.1 The Norwegian consulting market: Changes over the last decade In 1988 the Norwegian magazine Ledelse completed a survey on consulting in Norway. The top 20 list reproduced in Table 4.1.1 derives from this study. Since ownership was not included in their list, the entry under this label is produced by the authors based on other knowledge and material. Although the ownership of a few of the consultancies are uncertain, the list clearly indicates that 10 years ago the Norwegian market was dominated by domestic and to some extent Swedish actors. Seven of the 10 biggest consultancies were Norwegian companies, two were Swedish and one was British. It should be noted that the magazine stipulated that McKinsey, which did not want to take part in the study, at the time had a turnover amounting to approximately 12 million EUR. This would have placed it on top of the list. Still, the absence of the foreign, and particularly the big American consultancies, is striking.
41
Table 4.1.1: Top 20 consultancies in Norway 1988. Revenue in mill. EUR (nominal) Consultancy
Appr. revenue 1987
Consultants
Ownership
1. IKO-gruppen
11
78
Norway
2. Habberstad
11
116
Norway
3. Harmark-Iras
8
73
Norway
4. Mercuri-gruppen
8
60
Sweden
5. Resulting Kompetansesenter
5
32
Norway
6. VINN
4
33
Norway
7. PA-International Consulting
2
16
UK
8. Semco
2
17
Norway
9. Bedriftsrådgivning
2
13
Norway
10. Mercuri Urval
2
18
Sweden
11. Asplan Analyse
2
23
Norway
12. Barlindhaug
2
15
Norway
13. UPK-Utviklingspartner
1,5
11
?
14. AFF
1,5
15
Norway
15. Nissen-Lie Consulting
1,5
10
Norway
16. Indevo
1,5
19
Sweden
17. Pasco Ledelse
1,5
14
?
18. Enator
1
17
Norway
19. OSO Consult
1
20
?
20. Bedriftsutvikling
-
-
Norway
Source: Ledelse No.9, 1988 The revenue of the companies listed in Table 4.1.2, when compared to Table 4.1.1, clearly shows that the consulting market in Norway has increased enormously over the last decade. It is thoughtprovoking that in its presentation of the survey in 1988, Ledelse called its article “Bonanza for advisers”, describing the 1980s as a bonanza. IKO, which topped in 1988, would hardly be on the top 10 list in 1998, even when adjusting for inflation. In 1988, Ledelse stipulated the total market revenue to be approximately 98 million EUR, including the smaller companies. This is less than Anderson Consulting realised on its own in 1998. So the 1980s was nothing more than a presage of what should come. Caution should be taken concerning comparability, since the definitions of consultancy can be slightly different in the two tables.11
11
Ledelse excluded consultancies that basically provided IT- and technical advice.
42
Table 4.1.2: Top 20 in Norway by 1998. Revenue in mill. EUR Consultancy
Revenue 1998
Growth % Employees Consultant1 Ownership 1997-98 1998 998
1. Andersen Consulting.
105
40
950
-
USA
2. Arthur Andersen
38
34
-
-
USA
3. PricewaterhouseCoopers
29
40
253
240
USA/UK
4. McKinsey
27**
-
132**
-
USA
5. PA Consulting Group
21*
13*
155
130
UK
6. Deloitte Consulting*
19
40
-
114
USA/UK
7. Ernst & Young*
18
42
154
142
USA/UK
8. Gemini Consulting
18
-16
50
38
France/USA
9. Dovre International
15
215
135
120
Norway
10. KPMG
15
48
120
-
USA/UK/NL
11. AT Kearney
13**
6**
45
26
USA
12. Stradec
6
21
27
25
Norway
13. Guide#
-
-
50
43
Sweden
14. Hartmark Consulting
5
18
37
30
Norway
15. Arkwright
5
0
22
19
Norway
16. Mercuri International
4
-18
37
30
Sweden
17. Mercuri Urval
4
-
60
45
Sweden
18. Prudentia
4
15
27
27
Norway
19. Carta##
3
133
20
17
Sweden
20. Agenda
3
9
23
20
Norway
Source: Data collected by Fokus Publishing12 Notes: “Pure” IT-consultancies are excluded from the list * Deviating financial year – figures include first period in 1999. ** Stipulated by Fokus på konsulentbransjen # Established 1998 ## Recently acquired by Booz Allen & Hamilton
Table 4.1.2 shows that it is the foreign consultancies that have harvested from – and stimulated - the growing market. By 1998 there is no domestic company but one on the top 10 list. On the top 20 there is only 6. Thus, the pattern in 1988 is turned upside down. From being a market dominated by Norwegian and Scandinavian actors, it has become a market dominated by American actors.
12
Fokus is a small independent company specialising in collecting data and publishing news on the consulting business. The company publishes a magazine and a yearbook on consulting. The collection of data is made annually by survey and/or telephone. Since the large consultancies in particular avoid publishing performance data, data is collected and sometimes estimated by Fokus on the basis of “unofficial” information the consultancies leak by telephone.
43
The Norwegian consultancy market is still growing fast. The average growth from 1997 to 1998 was 37 per cent.
In particular, it is the “Big Five” (Andersen Consulting,
Pricewaterhouse Coopers, Deloitte Consulting, KPMG, Ernst & Young) which are growing. All of these increased their turnover by more than 40 per cent in 1998 (cf. table 4.1.2). The highest increase, however, was experienced by the Norwegian consultancy Dovre International and by the Swedish Carta. Table 4.1.2 also shows that by 1998 Andersen Consulting was the market leader in Norway, just like it was internationally. Its turnover amounted to 105 miilion EUR, which constituted a 40 per cent increase over the last year. Over the last four years Andersen’s average growth rate per annum has been approx. 35 per cent. The number of employees reached 950 in 1998. Arthur Andersen is second in the Norwegian league table with a turnover of 38 million EUR in 1998. It is followed by and PricewaterhouseCoopers and McKinsey. British PA Consulting still leads on Ernst & Young and another American consultancy; Deloitte Consulting. Then comes the French-owned consultancy, Gemini. The first Norwegian consultancy on the list is Dovre International, ranked 9th. Dovre is specialising in project management and engineering and is working particularly in the oil and gas industry. It should be noted that it is not a typical management consultant. The second Norwegian is Stradec in 12th place just ahead of Swedish Guide and the third ranked Norwegian, Hartmark Consulting. Among the 20 largest in 1998 there are 8 (totally or partially-owned) American consultancies –all among the 11 largest–, 6 Norwegian, 4 Swedish, 1 British and 1 French consultancy. Thus, the upper part of the list is American dominated, the lower part is Scandinavian dominated. Several of the American consultancies have climbed on the list the last years. Among these are PricewaterhouseCoopers, following the merger of Price Waterhouse with Coopers & Lybrand in 1998. Ernst and Young advanced from 11th to 7th place following a growth of 42 per cent in turnover. Deloitte Consulting advanced from 10th to sixth place after an increase in turnover by 40 per cent between June 1998 and June 1999. Deloitte’s growth derives also from the acquisition of Agder Bedriftsrådgivning, a smaller Norwegian consulting firm employing 14 employees in 1998. It is also noteworthy that Arthur D. Little established itself in Norway in 1998. Although not among the top 20 in 1998 (ranked 28th), it will most likely be in 1999. Its objective is to reach a level of 20-30 consultants within a couple of years, basically by recruiting MBAs from Norway and abroad. Another American actor that will
44
probably enter the top 20 is Booz Allen & Hamilton. It recently acquired 19th placed Swedish Carta, which earlier in 1998 bough up Indevo. Carta employed 140 consultants and had a total revenue of over 30 million EUR in the Nordic countries in 1998. Unlike the American consultancies, PA Consulting Group and Gemini Consulting experienced a lower growth rate in 1998, Gemini actually had a 16 per cent decrease in turnover. According to PA, the company does not want to grow uncontrolled, so its 12 per cent increase is seen as welcome. The Swedish consultancy Guide is new on the scene. It was established when many of the top managers at ISI, an IT-consulting firm, walked out in 1998. A smaller consultancy, daVinci, is also the result of a spin-off from ISI. daVinci expects a turnover around 3,5 million EUR in 1999, equal to the 18th largest on the list in 1998. Also the old and formerly large Norwegian companies Hartmark Consulting and Habberstad lost managers and senior consultants in 1998. The explanation for the exodus in these companies is that senior consultants, particularly the elder, want to work less and keep larger amounts of the surplus for themselves. But spin-offs like these is not a new phenomenon. Ledelse also reported spinoffs from consultancies like IKO, Habberstad and Enator in the 1980s.
4.1.2 The establishments of foreign consultancies in Norway Table 4.1.3 shows the year when the consultancies were established on the Norwegian market, for the foreign consultancies defined as the year they set up a Norwegian branch. Of the large companies, Swedish Mercuri Urval and British PA was quite early, 1977 and 1978 respectively. Arthur Andersen set up a branch already in 1956, but this was the accounting business. The consulting business has been built up from 1996 onwards. A similar pattern concerns Price Waterhouse, establishing its accounting business in 1964. As showed in table 4.1.3, in the last half of the1980s there was a wave of establishments. Deloitte arrived in 1986, Coopers & Lybrand in 1987, Swedish Mercuri International in 1988, and Anderson Consulting and AT Kearney in 1989. This wave washed into the 1990s as KPMG Management Consulting arrived in 1990, Gemini in 1991, Swedish Carta in 1993, McKinsey in 1995 and Ernst &Young Management Consulting in 1996. Some of these companies, like McKinsey which entered the Norwegian market in the 1980s, 13 were operating on the market long before they established Norwegian branches. Another was the Boston
45
Consulting Group which established an Scandinavian business from Stockholm in 1989, operating also on the Norwegian market until it set up a Norwegian office in 1996. Both these consultancies were active on the Norwegian market from the 1980s, although the statistics of the Norwegian market do not catch this. Obviously, some of the international companies have defined Scandinavia or the Nordic countries rather than the nations itself as their market. This sometimes makes it difficult to get a good picture of the national markets. Large international companies that had not entered the Norwegian, nor other Scandinavian markets, by 1999 was the American Mercer Consulting Group and the European companies Bossard and Roland Berger. Table 4.1.3: Profiles of the top 20 consultancies in Norway in 1998 Consultancy
Established Business profile in Norway
1. Andersen C.
1989
Strategy, OD, CM, IT
2. Arthur Anderson
1956
Accounting, Councelling
3. Pricewaterhouse Coopers
Private clients %
Public clients %
Abroad %
Price 1964 Strategy, CP Coopers 1987
4. McKinsey
1995
Strategy, CP
5. Ernst & Young*
1996
BPR, strategy, CP
6. PA Consulting Group
1978
Strategy, CP
7. Gemini Consulting
1991
-
8. Deloitte Consulting*
1986
Strategy, CP
9. Dovre International
1989
-
10. KPMG
1990
IT, Strategy, CP
11. AT Kearney
1989
12. Stradec
90
7
3
Strategy, CP
100
0
0
1997
-
80
20
0
13. Guide#
1998
IT, Strategy, CP
14. Hartmark Consulting
1994
Strategy, CP
15. Arkwright
1996
Strategy
16. Mercuri International
1988
OD (courses)
17. Mercuri Urval
1977
Analysis
88
10
2
18. Prudentia
1996
Strategy, HR
85
10
5
19. Carta##
1993
Strategy, CF, 20
80
0
60
communication 20. Agenda
1994
Strategy, OD, HR, EA
Source: Fokus Publishing Notes: “Pure” IT-consultancies are excluded from the list
Abbreviations: CF= Corporate finance, CM= Change management, CP= Change processes, EA= (Socio)Economic analysis, HR= Human Resources, OD= Organisational development 13
McKinsey is registered as a branch of a foreign company, and is not obliged to keep accounts in Norway.
46
Table 4.1.3 also shows the business and market profile of the companies. Strategy and change processes or change management dominate. The list should be read with caution, however, since the labels are not very precise. As the table shows, particularly the large companies do not give precise information on their market profile. It can be assumed that most of the assignments of the large international consultancies concern large-scale change projects involving a combination of strategy, IT-counselling and implementation. The distribution between private and public clients is difficult to calculate given the amount of missing data. In the survey by Ledelse in 1988, the distribution was 75 per cent private – 25 per cent public. Most companies serve the private market in particular, while there are some that are more directed towards public organisations, like Agenda (cf. Table 4.1.3).
4.1.3 The fate of Norwegian and Scandinavian consultancies In the 1980s, before the wave of foreign establishments, there were several Norwegian consultancies dominating the domestic market.
One of these was the first Norwegian
Consultancy, Hartmark–Iras with origins dating back to 1928 (Ledelse 1988). It was acquired by PA Consulting in 1989. This was the first acquisition of a large Norwegian consultancy. The present Hartmark Consulting was established in 1994 by a large group of consultants that left PA. Another large domestic company, IKO (established 1945) was acquired by the FrenchAmerican Gemini Consulting in 1991. After growing in Norway, Gemini later entered the Swedish market. AT Kearney used the same strategy. It bought another large and old Norwegian consultancy, Habberstad Konsulentene (established 1940) in 1992, including its two offices in Sweden. Also AT Kearney experienced spin-offs, however, and in 1995 some consultants leaving the company were allowed to use the name Habberstad when starting anew. Several of the Scandinavian consultancies has tried to expand internationally, but so far none has succeeded. IKO was first, but failed to establish in the UK, for instance. The Swedish Indevo Management Consultants succeeded in expanding to the European market in the 1980s, but ran into financial problems when a recession hit the Swedish economy. It tried to merge with Bain & Co, but was bought up by Alexander Proudfoot. After bad results, Indevo was finally bankrupt. Swedish Carta succeeded with a strategy similar to that of
47
Indevo. Since it has recently been bought up by Booz Allen & Hamilton, there is no longer any large Scandinavian consultancy on the Scandinavian market.
48
4.2
Sweden (by Staffan Furusten and Jonas Bäcklund)
4.2.1 Historical Development Sweden has a long history of international trade and Swedish organisations have long been open-minded about how their counterparts in other cultures are organised. It is therefore not surprising that Principles of Scientific Management, written in 1911 by the American engineer Frederick Taylor, was translated into Swedish as early as 1913. The translation was supported by an association for the manufacturing industry and the preface was written by a Reader in Industrial Organisation at the Royal Institute of Technology (RIT) (Carlson 1980). He was a practical man, an engineer like Taylor, had distinguished experiences from the industry and maintained his contact with the industry during his assignment at RIT. The same was true of his successor who also had the first chair in industrial organisation. The concept of management consulting was not invented, but the engineers at RIT, to some extent, acted as external advisors to a number of organisations. Similar arrangements were to be found at the Stockholm School of Economics (SSE), where Oskar Sillon, the first Swedish professor in Business Administration at SSE ran his own accountancy firm alongside his assignment at the School. It has, for instance, been noted that the need for organisational consulting in Sweden around the turn of the century was met in part by the Industrial Office where he worked part-time as a consultant, in parallel with his professorship (Engwall et al. 1993). Private and public clients turned to the Office for advice on bookkeeping, organization, auditing, and valuation principles.
This form of double
engagement continued and developed along with the development of management as an academic discipline. However, it was not until the 1940s that consulting in management issues started to become established as an industry in itself. This is evident from the establishment in 1948 of a Swedish association for organisational consultants (Svenska organisationskonsulters forening). One of the first management consultancies was Ekonomisk Fšretagsledning, which was established in 1943 but acquired by the British firm PA Consulting Group in the 1960s. It is still present in Sweden but today it concentrates solely on human resource services, after some negative experiences in the late 1980s and early 1990s. In the 1950s, many Swedish firms adopted the MTM system.
This made the international productivity and rationalisation
49
consultancy, Maynard MEC, established in 1956, a great success and it soon became the largest consultancy in Sweden (Bohlin 1993). They stayed among the top consultancies until the late 1980s.
Another important actor was the PA (Personal Administrative) Council,
established in 1952 by the Swedish Association for Employers. Its purpose was to support research in human resource management and administration, and also practise management consulting. It later changed its name to FA Council and adopted a more research-oriented profile. It remained in operation until the early 1990s. Another important firm established at that time was Bohlin & Stršmberg, established in 1960. It is still in operation today and is to be found among the top twenty consultancies. They specialised in services imported from the US (e.g. network planning) in which products such as CPM (Critical Path Method) and PERT (Program Evaluation and Review Technique) were used (ibid). In 1966 another “classic” management consultancy in Sweden, SIAR (Scandinavian Institute for Administrative Research) was established (Engwall et al. 1993; Furusten 1996 and 1999).
Their main service was organisation for long-range planning, but later they also
provided services in divisionalisation. SIAR was extraordinary since a rather large group of Swedish management professors was more or less raised there. It has also been a source of many spin-offs on the consulting market.
In the late 1960s, the field was still rather
undeveloped, and as declared by a Swedish consultant who had a degree from SSE, it was quite easy for students from SSE to get consulting assignments since the level of competence in management techniques was rather low in Swedish organisations.
New firms were
established, and the one which was to become the giant in the field in the 1980s, Indevo, was founded in 1971. It is interesting to note that its founding father was also the founder of Bohlin & Stršmberg, Holger Bohlin. With this new arrangement, he ran Indevo alongside his new position as professor in industrial organisation at the Chalmers Institute of Technology in Gothenburg. In the mid 1970s, SIAR – and probably also other Swedish consultancies – experienced increasing competition from American consulting firms, such as McKinsey & Co and the Boston Consulting Group (BCG). One example in this regard is that in the late 1970s the Swedish government hired BCG for an examination of future possibilities for Swedish industry. In its report, BCG suggested that Sweden abandon its crown jewels, namely the basic Swedish industries such as forestry, mining, and steel plants or, to use BCG’s own terminology, the Swedish “cash cows”. It took about a decade before BCG made a new effort to enter the Swedish market.
In the meantime, however, McKinsey & Co was the first American
50
consultancy to establish an office in Stockholm in 1980, and it was soon to become one of the largest and most successful consultancies in the field. In the mid 1980s, the British consultancy PA Consulting Group, which until then had acted under the name of Ekonomisk Fšretagsledning which it had acquired in the 1960s, started to make moves to increase its market shares. At this time, many other international consultancies, mainly large American firms, saw great potential in the Swedish management consulting market.
4.2.2 Developments from 1985 to 1997 and Current Structure If the Swedes held pride of place as late as 1987, there is no doubt that American consultancies had taken over as the dominant group of actors ten years later. This is clearly shown in the table covering the development of the top 20 in the field (Table 4.2.1). The large American firms have strengthened their position in this category both in absolute and relative terms (from ten per cent in 1987 to sixty-five per cent in 1997). In terms of relative turnover, the Americans firms have gone from representing twenty-five per cent of the top twenty firms’ turnover in 1987 to over eighty percent in 1997.
51
Table 4.2.1: The Top 20 Management Consulting Firms in Sweden in 1988 and 1997 1988
Origin Revenues (MSEK)
No. of 1997 Consultants
Origin Revenues (m $)
No. of Consultants
1
Indevo
SWE
344
254
McKinsey & Co
US
490
127
2
Invent
SWE
52
54
Andersen Consulting
US
480
370
3
PA Consulting group
UK
133
139
Boston Consulting Group
US
210
58
4
McKinsey
US
130
50
ALMI
SWE
175
5
Siar
SWE
99
89
CARTA CA
SWE
174
6
Habberstad
NOR
98
94
Arthur D Little
US
170
39
7
Cicero
SWE
81
77
Ernst & Young
US/U K
168
115
8
Maynard
US/NL
47
53
KPMG Consultants
US
145
147
9
Sinova
SWE
33
32
Coopers & Lybrand
US/U K
140
130
10 Bohlin & Strömberg
SWE
31
28
Gemini
F/US
135
50
11 Cepro
SWE
29
25
Price & Waterhouse
US
77
61
12 Sevenco
SWE
28
21
Askus
SWE
70
50
13 Nordic Mgmt SWE
24
13
A.T Kearney
US
63
20
14 Consultus
SWE
24
18
SLG
US
63
70
15 Lagerqvist & Partners
SWE
24
10
IBM Consultants
US
56
16 Semco
SWE
18
18
Bain & Co
US
56
22
17 Ingemar Claesson
SWE
12
14
Bohlin & Strömberg
SWE
56
54
18 SMG
SWE
10
7
Cepro
SWE
56
27
19 Trim
SWE
9
6
Deloitte & Touche
US
35
37
20 SRC
SWE
8
4
Sinova
SWE
28
23
3.200
1.800
Total 1.200 1.000 Source: Konsultguiden 1989 and 1998
Total
52
In the 1987 top list, only one American consultancy was ranked amongst the largest firms, namely McKinsey & Co (established in Sweden in 1980). It is also interesting to note that one British firm, PA Consulting Group (originally established in the UK in 1943), one joint American and Dutch firm, Maynard MEC (established in 1956), and one Norwegian firm, Habberstad (established in 1940), were the only non-Swedish firms on the list. In 1997, however, the scene was quite different; thirteen of the top twenty largest management consultancies in Sweden were of American or semi-American origin, seven were Swedish and no other nationalities were represented. A critical point in time for this structural change of the Swedish management consultancy field seems to have occurred around 1990. In the late 1980s, many international consulting firms had Sweden under observation. Among them was the German consultancy Roland Berger, which also set up an office in Stockholm in 1989. However, it did not reach the position it expected and the office was closed only a few years later in 1992. The early 1990s were tough years for the Swedish economy and many consultancies that had sewn their suits based upon the experiences from the successful 1980s found themselves in financial difficulty. One of these was PA Consulting Group, which went bankrupt in 1992. Another was Maynard MEC which declared bankruptcy in 1994. LEK, a large British consultancy that had long been interested in the Swedish market, attempted to enter the market in 1991 by acquiring Nordic Management. However, in 1993 they also went bankrupt. A similar fate was in store for Indevo, the most successful Swedish consulting firm of the 1980s. Its ambition had been to become the European alternative to McKinsey and BCG, but it gave up its plan to make it on its own. A deal was almost settled with Bain & Co, but the latter had financial problems at that time and could not fulfil its part of the deal.
Another American firm, Alexander
Proudfoot, saw a chance to enter the attractive Swedish market and acquired Indevo in 1991. However, this was to be a short marriage and its Swedish office was declared bankrupt two years later.
Meanwhile, in 1992, A.T. Kearney acquired the Norwegian long-timer
Habberstad. The development just described shows that from about 1990 no other actors besides Americans and Swedes operated in the field. After the fall of Indevo, McKinsey became the leader but received company from other American firms.
These included the Boston
Consulting Group, which established an office in Stockholm in 1989 (5th place in 1990);
53
Andersen Consulting (in 3rd place; the parent company was established in 1989); A.T. Kearney (14th), and semi-American firms represented by the management consulting fractions of the large accountancy firms such as Coopers & Lybrand/?hrlings (established in 1986; 9th place), KPMG (7th place; established in 1990), and Ernst & Young (6th place; its parent was established in 1981). Three years later, in 1993, the American consultancy Arthur D. Little opened a Swedish office (7th place) and was accompanied in 1996 by Bain & Co (19th), Deloitte & Touche (21st) and Burston Martsaller (16th) of the same origin. The latter has, however, changed profile and moved in the list. In the 1998 version of the guide, it is ranked amongst the top ten consultancies in public relations and communication. The following year (1997), more semi-American firms such as Price Waterhouse (11th), Gemini Consulting (10th), and the American IBM Consultants (15th), were all to be found on the top twenty list. Gemini’s establishment is worthy of comment.
In 1996 it acquired a rather small
Swedish firm, SvennerstŒhl & Partners, which had some ten employees at that time. The following year Gemini acquired one of the largest Swedish firms, SIAR, which in 1991 had merged with the French consultancy Bossard. One of the reasons behind the SIAR-Bossard merger was to build the largest management consultancy in Europe of non-American origin. The new firm kept the former SIAR position around fifth place until 1994. However, it subsequently began losing ground and had slipped to 10th place in 1996. That was when Gemini made their acquisition (a family affair, since Bossard and Gemini were already related). The merger and acquisition trend has continued, the latest being the acquisition by the American giant Booz Allen & Hamilton of Carta, one of the largest Swedish firms, in 1999. Given this tendency towards concentration on the market of American giants, it is interesting to note that only two Swedish firms have been on the list every year (Sinova and Bohlin & Stršmberg). Also, they both slipped from being among the top ten to around 20th place in 1997. development.
Cepro, one of the largest Swedish companies in 1987 showed a similar However, not all Swedish firms have experienced this rather negative
development. The Service Management Group (SMG), a spin-off of SIAR, ranked 18th on the 1987 list, showed a contrasting development compared to all other Swedish firms. By 1996, it had climbed to 12th place. (No information for 1997 was given). The case of SMG shows that management consulting in Sweden has not become an exclusively American show. Furthermore, not only American firms merge with each other or acquire Swedish firms. In 1998, for instance, two large Swedish companies, Askus (ranked 12th) and Kristein-Walerud (ranked 27th) merged. Because Carta no longer is Swedish, this new constellation is believed
54
to be the largest private Swedish consultancy in the up-coming version of the 1998 list. Another interesting feature is that Sinova (ranked 20th), in the spring of 1999, merged with the Danish consultancy Kjaer & Kjaerulf, and that since 1998, they have been the owners of Sinova A/S in Norway. They have plans to move into Finland in the near future. Finally, the consultancy in fourth place on the 1998 list, ALMI, is worthy of comment. ALMI is a state-owned consultancy which until a few years ago was organised as regional development foundations with regional offices throughout the country. Every county had its own unit and the aim was to support political programmes for innovation and entrepreneurship. Applicants were given support to start new firms and put new business ideas into practice. The local office provided financial support, consultation and training. Today, these activities have been reorganised and commercialised although they are still directed at small growing firms. The development just described mainly concerns the top twenty firms and does not offer a complete picture of the Swedish management consultancy field.
However, to gain an
understanding of the size of the market and its development in the 1990s, the estimates made by Konsultguiden are the only available figures. In 1988, they estimated the total turnover for the top twenty firms at about 1 200 billion Swedish kronor (about 180 million US dollars). The number of consultants employed in these firms was reported to be about 1,000. In 1992 they estimated that in total the market comprised some 1,500 to 2,000 consultants of which 1,200 were employed in the fifty largest firms and about 1,100 in the top twenty firms. The total turnover of the market was estimated at about two billion Swedish kronor (about 300 million US dollars); the top twenty had an aggregated turnover of about 1.3 billion Swedish kronor (about 190 million US dollars). This is to be compared with the scenario in 1996 when the sixty largest consultancies employed about 1,900 consultants had a total revenue of 3.2 billion Swedish kronor (about 450 million US dollars). The top twenty consultancies then had about 1,500 consultants and a total turnover of approximately 2,400 billion Swedish kronor (about 250 million US dollars). If we extrapolate according to 1991 figures regarding the total number of consultants, the number of management consultants in Sweden totalled about 2,500. In 1997, finally, the total revenue for the top sixty consultancies amounted to approximately four billion Swedish kronor (about 560 million US dollars) and they employed some 2,000 consultants. Concerning the top twenty firms, the aggregated revenue amounted to 3.2 billion Swedish kronor (about 450 million US dollars) and they had about 1,800
55
consultants.
When comparing these figures, it looks as though the market increased
dramatically between 1996 and 1997. It is quite probable that the market has grown and that most of the activities today are more concentrated in a few larger actors of American or semiAmerican origin than it was some ten years ago.
4.2.3 Different Categories of Management Consultancies and their Services The concentration in the field was also analysed in terms of services. The table below shows that the dominant service in Sweden is Strategy/Organisation and Business Development, representing about 44 per cent in 1997 and 30 percent in 1991. The major difference between these years is the relatively large share of financial control services in 1991, and a total lack of Organisation Development (OD) services compared with the situation in 1997. This can be explained to some extent by the difficult economic climate in the early 1990s when the demand for support in cost reduction was high. The situation in the late 1990s is quite different and organisations today may demand OD services to a larger extent due to challenges of organising to meet the increasing globalisation of the world economy.
Table 4.2.2: Types of Services Offered by Management Consultancies in 1991 and 1997 1991
Share (%) 1997
Share (%)
Strategy and Business Development
30
Strategy and Business Development
30
Financial control and Cost reduction
16
Organisational Development
14
Logistics & Production
10
Auxiliary
14
ADB and administration
8
Logistics & Procurement
9
Managers for hire
9
Human Resource
9
Auxiliary
27
IT-Strategy
9
Financial Consulting
8
Audit/financial control
7%
Source: Konsultguiden (1998 and 1993)
To further analyse the current market concentration, we divided the field in 1997 into six categories of service providers: (1) The “classical” American management consultancies such as McKinsey, the Boston Consulting Group, Arthur D. Little, and Bain & Co. We call them
56
classical because of their long presence in the field. The second category (2) is made up of the so-called American and semi-American “Big Five” consultants, i.e. the management consultancy arms of the big auditing firms such as PriceWaterhouseCoopers, Andersen Consulting, Ernst & Young, Deloitte & Touche and KPMG. The third category (3) consists of the large Swedish consultancies with an annual turnover exceeding 50 million Swedish kronor in 1998. The fourth category (4) comprises the medium-sized firms with an annual turnover between 20 and 50 million Swedish kronor. The fifth category (5) is made up of the small firms with a turnover between 10 and 20 million Swedish kronor. The final category (6) comprises the smallest Swedish firms, and is made up of the 32 firms that answered the Konsultguiden survey but were not listed amongst the top sixty since their revenue did not exceed ten million Swedish kronor. These six categories were then used to analyse who sells what to whom.
Table 4.2.3: Different Categories of Consultancies and their Services in 1998 in per cent
“Classic” US
”Bigfive”
Large Mid-sized Small Swedes Swedes Swedes
Smallest Swedes
Strategy- & Business Development
63
11
30
24
33
28
Organisational Development
2
13
25
15
15
20
Financial consulting
0
13
8
7
3
7
H&R and Competence Development
0
5
30
19
8
10
Financial Control
0
22
0
3
5
6
IT-strategy
3
17
0
10
4
8
Procurement & Logistics
17
9
0
1
15
1
Auxiliary
15
10
7
21
17
19
Source: Konsultguiden 1998
Table 4.2.3 shows that the classical US firms appear to focus mainly on Strategy & Business Development services.
Overall, the emphasis on Strategy and Business/Organisation
Development is very clear regardless of the type of firm, the one exception being the Big Five firms. They have a much more even distribution between different services. The category of large Swedish firms greatly resembles the classical category with one exception, Human Resources consulting. The other categories (Swedish medium-sized, small, and smallest firms)
57
all appear to have a similar focus with regard to services performed. One exception, however, is small firms who tend to focus on Procurement & Logistics. The next question is to whom do they offer these services. We first compare our categories of consultancies, according to Konsultguiden, with regard to revenue per private, public, and international clients. The Big Five firms have the largest market share with some 30 per cent of the market (measured as relative turnover) followed by the classical US firms with 28 per cent. These two categories have a total of 58 per cent of the revenue represented by the population. However, our two categories of American firms differ markedly with respect to the share of their turnover that can be derived from the public sector. Whereas the classical companies are not far behind their Swedish competitors, the Big Five only receive one per cent of their revenue from the public sector. This might be explained by the rather late entrance of the Big Five into the field and by the fact that consulting in public organisations requires considerable knowledge of field since the organisation of states can differ significantly between nations. The Big Five firms also differ from the classical US firms in terms of turnover from foreign clients.
A possible explanation for this is that they offer more
standardised services that can more easily be handed over to another office within the firm in the nation where the clients have their business. To obtain a more detailed picture, we conducted a mini-survey among the top sixty management consultancies in the 1998 edition of Konsultguiden.14 One striking feature was that the public sector emerges as the single largest buyer of management consultancy services (21%) followed by IT/telecom (16%) and the financial sector (Bank & Insurance) together with the manufacturing industry (14%). Concerning the public sector, governmental agencies appear to be the largest public buyer followed by state-owned companies, regional/local governments, companies owned by municipalities, and health care.
14
The questions asked were: Which industries and sectors do your clients belong to? What size are they? At what geographical site are they located? About 64 per cent of the population answered the survey and all our categories of consultancies were represented.
58
Table 4.2.4: Categories of Consultancies and Types of Clients Classical Americans
Big Five
Large Swedes
Mid- sized Swedes
Small Swedes
Manufacturing
20
23%
9%
9%
17%
Process
9
5%
8%
2%
5%
Health/medicine
6
9%
7%
5%
6%
Finance (Bank/Insurance)
15
20%
19%
13%
4%
IT/Telecom
13
21%
12%
16%
15%
Foods/retail
3
0%
9%
5%
9%
Energy
0
0%
0%
0%
1%
Professional Services
0
0%
0%
7%
6%
Media
0
0%
0%
0%
0%
Auxiliary
9
15%
2%
10%
5%
Private sector TOT
75
93%
66%
68%
67%
State owned companies
3
1%
3%
6%
4%
Governmental agencies
12
0%
12%
7%
4%
Local & Regional government
0
0%
3%
3%
4%
Healthcare
0
0%
2%
1%
4%
Companies owned by municipalities
0
0%
1%
2%
3%
Public sector TOT
15
1%
21%
19%
19%
Clients abroad
10
6%
13%
13%
14%
in per cent
Source: Own survey
As shown in the table, both categories of American firms generally have a larger proportion of their clients in the private sector than their Swedish peers. This difference is especially marked with regard to the Big Five that earn more than 90 per cent of their revenue in the private sector. All three categories of Swedish firms have a similar distribution with respect to private and public sector clients. The large Swedish firms, however, earn a larger proportion of their revenue in governmental agencies while the revenue of the small Swedish firms is more evenly derived from all categories of clients. The table also suggests that some business areas appear equally important to all categories, for example: health/medicine, energy, media and state-
59
owned companies. Finance (bank & insurance) is not an area for the small consultancies while this category, for the other Swedish firms, constitutes the largest group of buyers, together with manufacturing and IT/Telecom. With regard to IT/Telecom, it is the Big Five firms that diverge. All other categories show similar values (around 15%) while the Big Five group earns more than 20 per cent of its revenue in this particular sector. Other patterns worth noting are that the American firms and the small Swedish firms receive approximately the same share (around 20%) of their revenue from manufacturing while the share for large and medium-sized Swedish management consultancies is only half of that (around 10%). Food/retail is not favoured by the Americans while the Swedish management consultancies – especially the large and small – earn around ten per cent of their revenue from this segment. Concerning governmental agencies, the trend shows that the classical US firms and the large Swedish consultancies are the most involved (around 12%). In what geographic arena are these meetings between buyers and providers of consulting services concentrated? In our population, all but one of the consultancies were to be found in the three major city regions in Sweden (49 in Stockholm, 6 in Gothenburg and 3 in Malmö). The concentration in the Stockholm area is of particular significance with regard to the largest firms. Of the top 30, all but one have their head office in Stockholm. Not surprisingly, the client side shows the same patterns. About sixty per cent of the total revenue can be traced to clients that are located in the Stockholm region. The second largest region is Malmö where about ten percent of the revenue is earned, followed by Gothenburg representing about six percent. Consequently, about 77 per cent of the total revenue for the top sixty firms stems from buyers in these three regions. This also means that 23 per cent of the market is outside these regions. Primarily, they seem to be concentrated in the south, the west coast and central regions. The classical American firms (73%) and the medium-sized Swedish firms (72%) earn the largest share of their revenue in the Stockholm region. In the same manner, the Big Five and the large Swedish firms (66%) seem to accompany each other. The smaller Swedish firms (53% in Stockholm) differ in that about one third of their business is outside the major cities (33%). Thus, the region outside the major cities appears to be more important for smaller national consultancies. With regard to the size of clients, it appears that mainly larger clients constitute the target group for all top sixty consultancies in Sweden. Consequently, small organisations are
60
not interesting clients for management consultancies in Sweden. This might explain why, with its focus on this category of clients, there is room for the state-owned consultancy ALMI. The different categories show similar patterns with one exception: the classical American firms that claim to solely provide services aimed at larger organisations. On average six per cent of the revenue comes from small organisations with less than 50 employees, while 21 per cent comes from medium-sized clients with between 50 and 500 employees. The largest clients (over 500 employees) thus represent some 73 per cent of the revenue for the population of our survey.
4.2.7 Future Trends In interviews with different categories of consultancies and representatives of different forms of co-ordinating constellations (professional organisations, networks, alliances and the like), one scenario for the future development of the Swedish management consultancy field emerges. In the near future, it can be expected to develop into three major categories of consultancies. Firstly, more entries are likely to be made by large international consultancies, primarily American, through acquisitions of middle-sized and large Swedish firms. Secondly, we have probably only seen the beginning of the trend towards mergers between large and middle-sized Swedish firms. Perhaps the merger trend between consultancies in the Nordic countries initiated by Sinova will continue. Swedish firms will become larger.
Consequently, there are signs that the large
Thirdly, while there is likely to be a core of large
consultancies offering general management consulting, it is also possible that medium-sized and small consultancies will have to either create more or less formalised networks or provide specialised services. Another possible trend is that the conceptualisation and the packaging of services into commodified products will become more important. This could mean that the methods used by consultancies might become more important since it is one way of packaging the services into recognisable components. There are probably also internal organisational reasons for large firms to use standardised methods since increased organisational size creates a need for standard operating procedures to enable the firm to show the same face to a larger number of clients (Werr 1999). This scenario will probably be very challenging for many Swedish firms that have long provided process consultation. Many of them have struggled hard to avoid using particular methods since their mode of working is to allow the situation and the problems in each situation determine the design of each individual assignment. Swedish consultants who
61
work in the process mode often refer to the large American firms as methods consultants, while they see themselves and their work as representing the best way to consult. This development brings with it the tendency towards the professionalisation of buyers of management consulting services. The buyers are becoming more experienced and have a better idea of what they want.
This makes it tougher for actors who offer their silent
competence in general management and processes. The late 1990s have been good years for many categories of consultancies. For the time being, no signs of a decline in the market can be seen. Instead, as a result of the increased globalisation of trade and cultures, and movements in society towards more flexibility, the demand for external experts, such as management consultants, will probably increase albeit in line with the trends mentioned above.
62
4.3
Denmark (by Flemming Poulfelt)
4.3.1 History Management consulting in Denmark started out after World War II. After a period with small management consulting firms centered around their charismatic founders, the market for management consulting services mostly budgeting, time-motion studies and marketing took off in the 1960s. The pioneer in Denmark was T. Bak-Jensen who started his consulting firm in the 1950s. During the 1960s the firm grew in size and scope and T.B. Jensen became the largest player in Denmark. During the oil crisis in the beginning of the 1970s T. Bak Jensen was sold to Booz Allen & Hamilton. However, the acquisition was not very successful and after a short period of time T. Bak Jensen was bought back by the Danish partners. The firm did expand its scope and scale during the 1970s and 1980s. In the beginning of the 1990s, when the merger and acquisition wave swept through the consulting industry, the Bak Consult Group was acquired by PA Consulting Group. Another firm which was among the consulting entrepreneurs was Lisberg Marketing which was started by Jørgen Lisberg in 1959. This firm still exists and is among the largest Danish based consultancies. It is now operating under the name Lisberg Management and has offices both in Copenhagen and Jutland and in Sweden (Helsingborg and Malmö). A third player to be mentioned in the Danish consulting market is PLS Consult which was established in 1968.
PLS was launched as a subsidiary of a consulting engineering firm Rambøl &
Hanneman. Today PLS Consult is among the largest national-based Danish consultancies with offices in Århus and Copenhagen. In addition, an abundance of minor firms have started and many died through the last 50 years. However, it is notable that only very few firms have been in business for more than 20 years. As a matter of fact it is estimated that 75 per cent of the players in the market have been existing for less than 15 years. Also the rate of turnover among the firms is high. Among the international players, McKinsey & Co. has been located in Copenhagen since 1972. At that time the Copenhagen office did serve as a foot hold for McKinsey operation in Scandinavia servicing both Norway, Sweden and Finland from the Danish hub. McKinsey established offices in all the other Nordic countries.
Later,
Today many of the big
international players have offices in Copenhagen (Andersen Consulting, A.D. Little, BCG,
63
A.T.Kearney, Mercer, Gemini Consulting). In addition, all the big accountancies have offices in Denmark (PWC, KPMG, Ernst & Young, Deloitte Consulting, Arthur Andersen) as well as a number of the international executive search firms (Egon Zehnder International, Heidricks & Struggles, Marlar International).
4.3.2 Structure The management consulting industry in Denmark has experienced high growth rates primarily driven by growing internationalization, the development of new technologies, outsourcing and rationalization and privatization in the public sector. In the period 1988 to 1990 the growth rate was around 14 per cent, in the period 1992 to 1994 the rate was around 10 per cent, while the rate has been in the area of 20 per cent for the last couple of years with respect to the Danish consulting market.
The growth of the industry has also attracted
management consultants with highly varied professional backgrounds, thus making the boundaries of this industry increasingly difficult to define. Estimating the size of a market first depends on whether one applies a supply- or a demand approach. Traditionally, a supply approach has been applied when estimating the size of the Danish management consulting market. In 1994, the Association of Management Consulting in Denmark using a supply approach arrived at an estimate of annual revenues of USD 270 million. In 1994, approximately 300 management consulting firms were identified within the Danish market. (In order to be included in the industry, identified firms were required to earn the majority of their revenues through management consulting activities) (FMK 1994). A later survey conducted in 1998, took a broader view on the providers of management consulting. In this survey, no minimum revenue limitations were applied, except for the minimum USD 40,000 in annual revenues earned through services offered. Under these conditions, 460 providers of management consulting were identified. Of these, 230 firms defined themselves as management consultants and reported detailed data, 141 firms defined themselves as management consultants but did not report detailed data and an estimate of 89 management consulting firms did not respond at all to the questionnaire. The estimated size of the Danish market for management consulting on the basis of the 1998 figures is approximately USD 630 million – more than twice the figure from 1994. The apparent growth from 1994 to
64
1998 reflects not only an actual growth in the market but also the fact that the scope of the providers of management consulting services has been broadened. As illustrated in Table 4.3.1, the large international management consulting firms such as McKinsey & Co., Andersen Consulting, PriceWaterhouseCoopers, and PA Consulting Group account for less than one-third of the Danish market for management consulting. Close to 40 per cent of the market is accounted for by large or medium-sized domestic Danish consulting firms; close to 20 per cent is accounted for by new actors on the market, such as firms with their origins in engineering; and 12 per cent is captured by management consulting firms with four employees or less.
Table 4.3.1: The Estimated USD 630 million Revenues of management consulting services in Denmark divided among type of provider in 1998 in per cent of total revenue INTERNATIONAL/GLOBAL BASED FIRMS
By type of firm
By sub category
30.9
Large international firms
7.3
Large accounting-based firms
19.6
Smaller, foreign owned firms
4.0
LARGE OR MID-SIZED NATIONAL FIRMS
56.3
Large Danish firms
21.3
Medium sized Danish firms
16.2
Engineering-based firms
4.5
Semi-public organizations, institutions etc.
14.3
SMALL LOCAL FIRMS
12.7
Small local firms
12.0
Other
0.7
TOTAL
100
100 %
Source: Own survey As the market for management consulting services grows, it might become more complex and less transparent because of the increase in scale and scope. One driving force behind the increase in complexity is the complexity in demand. Both leading management consultants and major buyers of consulting services emphasise the fact that most technical assignments can no longer be seen as separate from organisational assignments that cannot be seen separated from management development assignments, human resource development assignments etc. Clients
65
may define a certain assignment as technical or managerial or human resource oriented but most often the assignments are much more interrelated and therefore require a multidisciplinary problem solving approach. Adding to the increased complexity of demand, the profile of many consulting firms has become more and more heterogeneous. Also, many formerly specialised firms today have a broader profile whereas the tendency towards narrowing down the scope is seen less frequently. For several years, the big accounting firms such as PriceWaterhouse, Coopers & Lybrand (now PriceWaterhouseCoopers), Ernst & Young, KPMG, and Deloitte & Touche have all provided management consulting services, both from a separate consulting division (e.g. KPMG Management Consultants), as well as from the accounting division in general and from separate units within the accounting arm of their business (e.g Arthur Andersen Business Consulting). At the same time, the service offerings typically have been expanded. Today, IT firms, engineering firms, PR firms as well as a range of semi-public institutions (e.g. Teknologisk Institut, TIC) and private associations (e.g. Dansk Management Forum) offer a range of management consulting services to the market. Finally, complexity and lack of transparency are reinforced by a lack of differentiation, at least on the generic level, between the different providers of management consulting services. Table 4.3.2 below identifies the number of firms claiming a capacity to deliver services in different categories of management consulting services in the Danish market. Firms have had the opportunity to indicate as many categories as necessary in order to identify their complete port-folio of management consulting services. The sample includes all sizes of firms. Table 2: Number of firms offering generic management consulting services . Distributed according to firm size. Average Strategy Organisational development Management development Project management Production and logistics Marketing and PR Information technology Economic/Environmental analysis Administrative systems Other
66% 71% 75% 50% 36% 25% 27% 21%
0-4 empl. 63% 69% 73% 37% 28% 26% 12% 8%
5-29 empl. 65% 78% 81% 45% 30% 32% 20% 16%
>30 empl. 70% 67% 70% 67% 50% 17% 60% 40%
27% 16%
18% 22%
15% 24%
47% 17%
Source: Fax-Survey '98, Oxford Research A/S.
66
What might confuse the less informed client is that the firms in this field seemingly offer the same range of services. 75 per cent of all companies in the management consulting industry offer management consulting with respect to management development. 71 per cent offer consulting in organisational development, 66 per cent in strategy, 50 per cent in project management etc. Although it was to be expected that many larger firms have a broad-based profile, because of the full service philosophy, it was noteworthy to see that many of the small firms also offer a fairly broad range of services. From the client point of view it might be difficult to get a hold on the industry which appears complex and not transparent. This is further reflected in the finding that 57 per cent of the users of management consulting in the Danish management consulting market claim that it is difficult to find the right consultant to tackle a specific assignment. What also should be emphasized is the fact that a major part (more than 2/3) of the Danish management consulting firms are offering the services management development, organizational development and strategy. This is illustrated in table 3. As can be seen from this, Danish management consulting firms in general have a rather broad profile.
Table 3: Business areas, i.e. share of management consulting firms offering a given service 74%
Management development
72%
Organisational development 65%
Strategy Project management
43% 32%
Production and logistics 27%
Marketing and PR 21%
Administrative systems
20%
Information Technology 15%
Eco./Environmental analyses
22%
Other 0%
10%
20%
30%
40%
50%
60%
70%
67
80%
4.3.3 Top Consultancies The top management consulting firms (in size and revenues,) in Denmark are: Table 4.3.2: The leading consultancies in Denmark in 1998 (not ranked)
PWC (PriceWaterhouseCoopers) Andersen Consulting PLS Consult A/S PA Consulting Group Ernst & Young KPMG Deloitte Consulting Mercuri Urval F.J.Gruppen A/S Teknologisk Institut TIC Denmark Lisberg Management A/S Fisher & Lorenz A/S PROMENTOR A/S McKinsey & Co Kjaer & Kjerulf A/S Dansk Management Forum Andersen Management International A/S Mercuri International A/S A.T Kearney Ankerhus
Revenues 1998 (million USD)
Number of consultants
Country of Origin
54
301 265 180 160 130 101 100 89 80 85 80 60 53 50 50 42 38 35
US/UK/DK US DK UK/DK US/DK US/NL US/UK/DK S DK DK DK DK DK DK US DK DK DK
34 30 24
S US/DK DK
17 31.4 22.4 13.5 14 21 16 10 8.6 8.6 5.8 8.5
7.1 7.2 4.8 3.1
Source: Information collected by the author based on a questionnaire to consultancies For more specific informations on some of the firms please see the appendix
4.3.4 Type of consulting A survey of the buyers of management consulting in 1998 (based on 1000 telephone interviews) showed that 45 per cent of the enterprises in Danish industry had used management consultants within the last two years. In particular, large companies having more than 250 employees tended to use management consultants: 72 per cent of the companies had employed management consultants within the last two years.
Only one third of small companies with
fewer than 50 employees had been using consultants during the same period.
68
An important result of the survey was that 9 out of 10 companies having used consultants within the last two years had been satisfied or partly satisfied with their last consulting assignment.
Furthermore, more than 25 per cent of the current management
consulting clients expected to expand their use of management consultants in the future and more than half of the clients expected their use to remain at the same level. Only 12 per cent of the users expected to decrease their use of consulting services in the future. As such, the analysis indicates that the future seems to be prosperous for the consulting industry. Concerning what type of management consulting services the clients are buying this is shown in the following table:
Table 4.3.3: Type of consulting services bought (the last three services)
Table 4: Distribution of the type of consulting services clients are buying (the last three services): 52%
Organisational development
51%
Management development
47%
Personnel development Training
41%
Recruitment
41% 40%
Strategy & Bus. Development IT
27%
Performance improvement
27% 25%
Quality 20%
Marketing & PR 14%
Project management 9%
Societal & environmental analysis
6%
Other 0%
10%
20%
30%
40%
50%
60%
As can be seen from the table the most frequent bought management consulting services lie within the HRM area, business strategy, IT and operation management.
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4.3.5 Appendix The Danish Management Consulting Industry 1999 - Business Profile of the top firms (in alphabetical order)
• • • • • • • • • • • • • • • • • • • • •
Business Profile A.T Kearney Strategy, IT, Operation Management, HRM, and Project Management related to IT Andersen Consulting IT, Strategy, HRM, Operation Management Andersen Management International A/S Strategy, HRM, IT, Marketing, Project Management Ankerhus HRM, Strategy, Operation Management Dansk Management Forum HRM, Executive Search Deloitte Consulting IT, Change Management, BPR, Strategy Economic Analysis,Environmental Management Ernst & Young IT, Strategy, HRM, Operation Management, Executive Search F.J.Gruppen A/S HRM, Strategy, Executive Search Fisher & Lorenz A/S IT and Strategy, Operation Management, HRM, Kjaer & Kjerulf A/S HRM, Executive Search KPMG IT, HRM, Operation Management, BPR Lisberg Management A/S Strategy, HRM, Executive Search Management, Management McKinsey & Co Strategy, Change Management, Operation Mercuri International A/S Sales Management, Marketing, HRM, Strategy Mercuri Urval Executive Search, HRM PA Consulting Group IT, Strategy, HRM, BPR, Marketing, Executive PLS Consult A/S IT, Operation Management,, HRM, Strategy, PROMENTOR A/S HRM, TQM, Operation Management, PWC (PriceWaterhouseCoopers) IT, BPR, Change Management, HRM Search Teknologisk Institut IT, HRM, Operation Management, BPR, Project TIC Denmark Advisory services for SMEs
4.3.6 References The Economist (1997). Trimming the fat - a survey of management consultancy. 22 March. Erhvervsfremmestyrelsen (1999). Managementkonsulenter – kortlægning af en branche i vækst. EFS. København. Erhvervsministeriet (1997). Ledelse, organisation og kompetence. UEFA. København.
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Financial Times (1997). Special article on consulting. August. FMK (1991). Profil af konsulentbranchen anno 1990. København. FMK (1994). Managementkonsulentbranchen i Danmark - som konsulenterne og brugerne ser den. København.
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4.4
United Kingdom (by Thomas Armbrüster and Matthias Kipping)
4.4.1 Historical Evolution In comparison to other European countries, the United Kingdom has been an earlydeveloped consulting market. The US consultancy of the French immigrant Charles Bedaux established its first European office in London in 1926; and it is estimated that by 1937 225 British firms has implemented the Taylorism-based Bedaux system of work simplification and standardization (Kipping 1996: 114). Not least due to the bad reputation of the Bedaux system among workers and supervisors, consultancies tried to distance themselves from the Bedaux name (ibid.). In 1937, the British branch of Bedaux became largely independent and changed its trading name to Associated Industrial Consultants (AIC). Already at the end of the Second World War, and hence before the now dominating American consultancies entered the market, the UK was a mature consulting market. Human resources approaches, developed before the Second World War and fostered by the favorable climate of a Labour government, received a considerable boost in the early post-war years (Guillen 1994: 227 ff.). As Kipping (1996: 115) points out, the high development of the British consulting market is confirmed by the fact that the European Productivity Agency organized a trip of consultants from 10 other European countries to London. The purpose was to study work methods and the range of services of British consultancies. For long after the end of the Second World War, the UK market was characterized by the dominance of four firms, all of which were directly or indirectly related to the British Bedaux consultancy: AIC, Production Engineering (founded 1934), Urwick Orr (1934), and Personnel Administration (1943) (Tisdall 1982). In 1956, a time when they accounted for about three quarters of the British consulting market, these four firms founded the Management Consultancies Association (ibid.), which has remained the trade association of the consulting industry' ever since. All of these firms have played an important role on the British consulting market until the 1980s, when most of them merged or were absorbed. In 1984, the accountancy Price Waterhouse merged with Urwick Orr which subsequently disappeared as a trading name. The same happened to AIC, by then trading as Inbucon, after it was acquired by P-E in 1987. In 1991, P-E in its turn was taken over by a computer services firm which stripped it of all IT activities and then sold it to the Manchester-based human resources
72
consultancy Lorien (Abbott 1996).
Only PA Consulting Group (successor to Personnel
Administration) still belongs to the top 10 consultancies in Britain today (see below). The dominance of the “Big Four” British consultancies, however, only remained until the 1960s, when large US consultancies such as Booz-Allen & Hamilton, Arthur D. Little, and McKinsey &Co., opened offices in London (Kipping 1999a). At the beginning, their major clients were European subsidiaries of US multinational corporations, yet already in the late 1960s, 32 of the largest 100 British companies had called in consultants, and 22 of these 32 hired McKinsey (Channon 1973). In 1968, the Bank of England caused uproar in that it hired McKinsey instead of a domestic consultancy for a study of their organization and work methods. This decision was even brought before Parliament (Tisdall 1982). Ever since the 1960, and hence similar to the other European countries, US consultancies have played the most important role on the British consulting market. On the one hand, this can be traced back to the large number of subsidiaries of US multinational corporations in the UK (Dunning 1958). But it must certainly be acknowledged that for UK companies American consultancies might have brought innovative solutions. While McKinsey is still the dominant provider of strategic advice, in terms of annual revenue it could not keep the dominant role which it had in the late 1960s and 1970s. Consultancies that focus more on IT-related services such as Andersen Consulting and IBM Management Consultancy have taken over the dominant positions in terms of revenue. The 1980s, moreover, were characterized by the penetration of the former big-six accounting firms in the consulting market. Most of them had originated in the UK in the 19th century (see above) and had played an increasingly important role in the UK economy after the Second World War (Matthews et al. 1998). They had already been offering management related services much earlier (e.g. Jones 1995), but only expanded massively into consulting during the 1980s. The reasons behind this were probably the stagnation of their “traditional” audit services as well as their expertise in IT, which had become increasingly used for accounting purposes. Their expansion was fostered by their financial strength at the time they entered the market, and by the resolute offer of IT-related services with and without connection to strategy-related matters.
73
4.4.2 Current market structure and characteristics With a total fee income of about 4.5 billion US dollars in 1996 (FEACO 1997: 2), the United Kingdom is behind Germany the second biggest consulting market in Europe in absolute terms. It is about 2.5 times as big as the French, four times as large as the Spanish, and seven times as big as the Italian. Therefore, in comparison to those European countries with a comparable Gross National Product (France and Italy, for the exact figures see Chapter 2), the consulting intensity in the UK is much higher. While Germany’s total fee income is about twice as high, in relation to the GNP the UK market is about the same relative size as the German. As discussed above, the UK has been an early developer in terms of consulting activities. The fact that the profession has been established considerably earlier than in other European countries, which in turn may be caused by the early settlement of US multinationals in the UK, certainly contributes to the high consulting intensity in this country.
The presence of
multinational corporations in London and the South-East of England, still among their preferred locations in Europe, is certainly one of the main drivers of the British consulting intensity. London still has a unique role as a financial center in Europe. In no other part of Europe more transactions per year are made than in London. This high “business intensity” may also induce a high consulting intensity. However, some other factors which influence the consulting intensity in Britain cannot be left out of consideration. The economic difficulties Britain has had after the Second World War, which led many authors to write about the “decline” of the British economy, may play a significant role (cf. Kipping 1999b). The British industry reacted to the economic crises with price-oriented mass production inducing low-qualified personnel. The modernization policy has never been skill-oriented, which still characterizes the British economy. In a comparison to Germany, Lane (1992) argues that in the UK employee competencies are underdeveloped, the availability of highly skilled, flexibly deployable human resources is low, technically qualified managers are missing, and the homogeneity of competencies and orientations within firms is low. These factors certainly suggest that management consultants need to be called in very often. The decline of the Rover plant, which has caused large investments in management consulting for the holding company BMW, is only the latest example of the connection between British difficulties and consulting intensity.
74
On the other hand, the UK is an early developer with respect to information technology. It can be regarded as the first bridgehead in Europe for the dissemination of IT innovations. The high appreciation and early awareness about information technology being a competitive advantage has certainly fostered the demand for consulting services, which is in the UK unlike any other European country characterized by IT work., In this respect it is important to note that outsourcing of IT services and IT facilities management plays a considerably larger role in the UK than in other European countries. According to a survey of DREE (1994: 70), 32 per cent of the European outsourcing/facilities management market is in the UK, while France has only a portion of 26 per cent and Germany only 11 per cent. The Americanization of the UK consulting market belongs to the highest in Europe. Although domestic consultancies dominated until the early 1960s, at the latest from the 1970s onwards US-based consultancies initially took over the largest shares of the market. However, from the 1980s onwards, UK-based accountancies made significant inroads into the consulting market and today occupy the leading positions.15 They are challenged increasingly by IT-based companies such as the American firms Andersen Consulting and Electronic Data Systems (EDS) which acquired the strategy consultancy A.T. Kearney in 1997, Sema Group, which is of British and French origin, the French-owned Cap Gemini or ICL which is owned by the Japanese Fujitsu. Concerning “traditional” management consulting, however, there are only two UK consultancies among the top 20 firms, namely PA and Lorien.
15
For the purpose of the Americanisation index calculated in Capter 2.3 the “Big Five” accountancies were considered as at least partially, if not largely American, because they have become increasingly integrated at a global level. The UK based firms are now combined again with their US counterparts, which originally were established by the British accountancies around the turn of the century, but became independent shortly afterwards.
75
Table 4.4.1: Top 25 consultancies in Britain in 1997 (ranked by revenue)
1. PriceWaterhouse Coopers 2. Andersen Consulting 3. Sema Group 4. EDS/ATKearney 5. Ernst & Young 6. Computer Sciences Corporation (CSC)
Country of origin
Revenue in 1997 (million £)
Revenue in 1996 (million £)
Growth rate (%) 1996-7
Number of Consultants 1998
Revenue per Consultant 1998 (£)
UK/USA
470.0
332.0
42.0
2,456
191,368
USA
444.7
341.5
30.0
4,095
108,596
UK/France
393.6
291.1
35.2
N/A
N/A
USA
330.0
244.5
35.0
250
448,370
USA/UK
215.5
155.7
38.4
736
292,799
USA
169.0
105.6
60.0
1,350
125,185
7. KPMG Management Consulting UK/NL/USA
153.0
106.0
44.3
1,255
121,912
8. Mercer Consulting Group
USA
152.6
138.7
10.0
N/A
N/A
9. PA Consulting Group
UK
142.0
108.0
31.0
930
152,688
10. Deloitte & Touche (DTT)
USA
129.9
112.5
15.5
660
196,818
France/USA
120.1
91.0
32.0
270
N/A
USA
112.8
101.6
11.0
N/A
N/A
13. Cap Gemini
France
133.4
101.1
32.0
N/A
N/A
14. BDO Stoy Hayward Consulting
NL/UK
106.4
100.3
6.1
N/A
N/A
15. Watson Wyatt Worldwide
USA
83.8
76.9
9.1
N/A
N/A
16. Aon Consulting
USA
80.0
N/A
N/A
220
363,636
17. ICL Group
UK
74.4
67.0
11.0
N/A
N/A
18. Lorien
UK
68.0
52.9
29.0
N/A
N/A
19. Arthur Andersen
USA
57.0
37.0
54.0
424
134,434
20. Towers Perrin
USA
54.0
48.2
12.0
515
104,854
21. OSI Group
UK
44.5
29.4
51.4
209
212,919
22. Arthur D. Little
USA
41.0
27.1
51.3
363
112,948
23. Bain & Co.
USA
34.6
28.8
20.0
N/A
N/A
24. Boston Consulting Group
USA
33.8
31.0
9.0
N/A
N/A
25. Booz-Allen & Hamilton
USA
33.7
29.3
15.0
N/A
N/A
11. Gemini Consulting 12. McKinsey & Co.
For the interpretation of the above ranking of consultancies, however, it must again be pointed out that their revenues are often based on completely different types of services. In many cases the figures do not indicate to what extent the revenue is based on auditing, accounting, outsourcing (for example of IT services), software development, or “real”, “traditional” management consulting. A good example is to compare Andersen Consulting and McKinsey. While in the latter firm only small parts of the revenue are based on pure IT-consulting, the former firm’s revenue is almost completely dependent on IT-related services and IT outsourcing.
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Regarding the market concentration, the UK is strongly characterized by large consultancies. There are much fewer small firms and sole practitioners than in other European countries. According to our calculations (see Chapter 2), the top 20 consulting firms cover more than 80 per cent of the market (in terms of revenue) and employ about 45 per cent of the consultants. Only in Switzerland and the Netherlands the large firms are almost as dominating as in the UK. It is reasonable to assume that the early development of the market paved the way for large firms and made it more difficult for smaller firms to cover market niches. Yet it is also to be taken into account that acquisitions and takeovers are much easier in the UK than in other European countries. For large consultancies, therefore, it is easier to growth through acquisitions than organically. More than in other European countries, firms strong in IT-related work dominate the UK market. Consultancies with a focus on strategy, change management, or human resources, grow at slower pace than firms with a dominant IT-orientation. Although it must be taken into account that growth figures of IT consultancies are misleading if they include IT work outsourced by their clients (which is not necessarily to be considered management consulting), the market is structured according to the imperatives of IT-related work. Consultancies with dominant positions in other countries, such as McKinsey, the Boston Consulting Group, Bain & Co., etc., have lost their influence on the British market, because demand for strategic consulting is lower than for IT services. The recent anxiety about the “year 2000 problem” has certainly reinforced this trend, which is reflected in the following figures on the revenue distribution of MCA member firms.
Table 4.4.2: Revenue of MCA member firms by type of service, 1993-1998 (in £ million) 1993
1994
1995
1996
1997
1998
IT Systems Development
215
213
208
186
247
407
IT Consultancy
113
258
263
280
254
341
Corporate Strategy & Organization Development
58
98
138
229
238
284
Financial and Administrative Systems
97
81
115
128
160
188
Production and Services Management
90
84
82
107
163
152
Project Management
67
44
50
49
97
119
Human Resources
64
40
61
65
78
60
Marketing & Corporate Communication
14
14
28
39
42
37
Economic & Environmental Studies
29
20
23
18
40
31
TOTAL
747
852
968
1,101
1,319
1,619
77
Facilities Management
66
79
116
359
495
624
Sources: MCA President's Statement and Annual Report 1998 and 1995. Figures cover MCA member firms, which generate more than 50 of the revenues of the total consulting market in the UK
The distribution of revenues shows that IT-related services generate more revenue than corporate strategy and organizational development – a fact unique in Europe.
Leaving
facilities management out of consideration (since it is doubtful whether it can be considered management consulting), in 1998 IT-related services made up 56.2 per cent of the annual revenue of MCA member firms, and corporate strategy and organizational development only 17.5 per cent – a significantly different picture from, for example, the German consulting market. In terms of industrial sectors of clients, the following picture arises.
Table 4.4.3: Revenue of MCA member firms by sector, 1994-1998 (in £ million) 1994
1995
1996
1997
1998
Agriculture, forestry, fishing
1
0.2
0.1
3
7
Energy and water supply industries - excluding nationalized industries
60
62.1
74
173
342
Extraction of minerals and ores other than fuels: manufacture of metals, mineral products and chemicals
99
118.8
103
135
161
Metal goods, engineering and vehicle industries
76
67.2
119
142
171
Other manufacturing industries
143
157.3
183
113
68
Construction
7
10.5
17
20
11
Distribution, hotels & catering, retail
40
66.9
118
93
102
Transport & Communication
88
125.0
155
161
362
Banking, financial, insurance, business services & leasing
243
314.8
359
484
670
0
7.2
9
9
10
253
210.0
196
267
189
1,010
1,140
1,337
1,600
2,093
Private sector non-profit making bodies Public Sector (including nationalized industries) TOTAL
Sources: MCA President's Statement and Annual Report 1998, 1997, and 1995. Figures cover MCA member firms, which generate more than 50% of the total consulting market.
Utilities, transport & communication, and banking & insurance have recently had the strongest growth rates and meanwhile make up for two thirds of the revenue of MCA member consultancies. While revenues in financial services were connected with post-merger integration and the launch of the Euro in 1999, the strong revenue increase in transport and communication has been induced by the telecommunication sector, where a vast technological development accounts for perpetually increasing consulting demand. In terms of the regional
78
distribution of consulting services, it is evident that the London area and the SouthEast account for the large majority of services. A recent analysis (Wood 1995: 26) shows that in the large majority of large companies in London, the Southeast, East Anglia, and the Southwest, it is common practice to use consultanices, whereas in the rest of England this is to a lesser extent the case.
4.4.3 Latest developments and future trends A number of consulting firms, particularly those focusing on IT-related services, has recently grown by 30 per cent and more.
Because of the fast technical development,
particularly in the telecommunications sector, and due the ongoing wave of mergers and acquisitions in a number of industrial sectors, it can be expected that the consulting industry continues to grow significantly stronger than the GNP. Preparations for the year 2000 and ongoing work on the introduction of the Euro will still foster the growth of IT consulting, but this work will expire within the next two years. Other services will assume this role, and Internet services and e-commerce can be expected to play a particularly important part. The MCA think tank predicts that those economies will become economic leaders that understand and fully exploit the global information economy with its electronic transactions first (MCA 1998: 5). IT consulting, therefore, is to face a major change within the next few years. As opposed to IT-related services, some areas of management consulting such as human resources, marketing, and economic & environmental studies are more or less stagnating. It is interesting to notice that particularly services on the “soft” side are affected by stagnation, while the “harder” services as IT-related services and corporate restructuring continue to grow much stronger than the GNP.
According to the Management Consultancies Association
(MCA), total revenues of MCA members dropped by 0.9 per cent in the first quarter of 1999 (MCI, May 1999: 5). Although the MCA attributes this to seasonal factors (large contracts were completed before year-end, falling off in sales before Christmas), there are some signs that forecasts of even more rapid growth of the consulting industry are overoptimistic (ibid.). Similar to the situation in other European countries, mid-tier consulting firms have the greatest difficulties. In comparison to large consultancies, they have no international presence and no facilities for competitive knowledge management.
Large and multinational
corporations, therefore, tend to employ the big firms. In addition, mid-tier consultancies are stronger affected by the general recruitment bottleneck of the consulting sector. Because of
79
higher salaries and more challenging tasks, qualified staff tends to join large consultancies. Only small consultancies that have specialist knowledge, focus on market niches, and do not compete with large firms, will sustain their market position. In view of these developments, it is unlikely that the wave of mergers and acquisitions in the consulting sector has already terminated. It can be expected that the years 1999 and 2000 will be strongly characterized by new interactions of this kind, which is likely to induce a further market split between large, international consultancies on the one hand, and small niche-operators with much lower fees per diem on the other. With regard to technological and organizational change, a strong trend towards ecommerce and Internet business/services can be identified. Andersen Consulting, for example, plans to relate every client contract automatically to e-commerce (MCI, May 1999: 8). The focus on e-commerce is likely to have a strong impact on entire industrial sectors, because large, established corporations are threatened by small competitors that launch their business in the Internet from the beginning. Particularly on the book market, this change is already noticeable for consumers. In view of these developments, the consulting firm Renaissance has recently decided to strategically restructure itself according to the imperatives of e-commerce. This form is a particularly interesting case, because its original focus was on strategic advice, until it merged with the IT services firm The Registry and now fundamentally refocuses on ITservices and e-commerce (MCI, May 1999: 10).
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4.5
The Netherlands (by Jos Benders and Paul Moers)
4.5.1 Historical developments In their history of management consulting in the Netherlands in the period 1920-1960, Hellema and Marsman (1997) distinguish between three main streams out of which management consulting developed: accountants, engineers, and social scientists. A fourth relevant sector, which evolved after the period covered by Hellema and Marsman, is information technology.
4.5.1.1
Accounting
The founding of the accounting firm Bureel voor Boekhouding Confidentia in 1883 can be seen as the start of Dutch accounting. The accounting profession was in its infancy, and many more or less qualified persons entered the market.
In 1895 the first professional
accounting association Nederlandsch Instituut van Accountants (NIVA) was founded, which set up professional standards. As of 1899 J. Volmer (1865-1935) acted as a member of a NIVA committee which was to gain the profession its legal stature. In 1901, he was cofounder of Volmer & Co., together with Th. Limperg and J. Bianchi. Limperg and Volmer both played leading roles in the establishment of accounting and "bedrijfseconomie" (literally translated as "business economics" and roughly equivalent to the German Betriebswirtschaft, which heavily influenced continental European developments in the field) as academic disciplines. In 1908, Volmer got a (part-time) chair in "bedrijfsleer" at the Delft Polytechnic, and Limperg became professor in Amsterdam in 1922. Volmer & Co. was dissolved as early as 1903, but Limperg and Bianchi joined forces with J. Nijst in Nijst, Bianchi en Limperg. After many other developments Th. & L. Limperg was founded in 1916, which was to become a prominent player in the interbellum. In 1970 it was to merge with Moret (see section 4.5.2). In 1925, Vereenigde Accountantskantoren (VAK) was founded, which started an alliance with Arthur Young and became member of the network Arthur Young International when this was established in 1964. In 1969, VAK merged with with Dijker, Bianchi & Vink and in 1971 with Doornbos, de Brey, Spits & Co. In 1971, Arthur Young opened its first fully-owned office in the Netherlands. A year later, what was then Dijker and Doornbos left the Arthur Young network and in 1973 they were co-
81
founders of the international alliance Binder Dijker Otto Group or BDO Group. Dijker and Doornbos left the BDO in 1987. This gave the Dutch accounting firm Camps Obers the opportunity to join BDO a year later; somewhat confusingly, it now operates as BDO Camps Obers in which the "D" stands for Dijker. In 1988-89 the Dijker Groep joined Van Dien & Co ("born" in 1893) to establish Dijker Van Dien. In 1989-90 this merged into Coopers & Lybrand (established April 1990), which further merged with PriceWaterhouse to form PriceWaterhouseCoopers. In 1958, a separate consulting branch had been established, out of which Van der Torn & Budingh was born (1974). The Raadgevend Kantoor voor Organisatie en Efficiency was founded by three former employees of the American firm Burroughs, which sold office equipment. Of the founders, R.W. Starreveld (1907-1995) was to put his mark on the development of the academic discipline of "bestuurlijke informatievoorziening" (information planning for administrative purposes). Consulting on organizational issues was an important part of the firm's activities from the outset. It still exists as Van de Bunt & Co. In 1943, S.C. Bakkenist set up an "economic department" within the accounting firm Preyer en De Haan. The separate unit created in 1956 became independent in 1966, and developed into Bakkenist Management Consultants. The oldest roots of Deloitte's Dutch activities go back to 1902 when J.W. de Tombe started working as an accountant in Leiden. In 1988, the Tombe/Melse Groep merged with the Nederlandse Accountants Maatschap NAM into TRN Groep (TR = Touche Ross); the affiliation with Touche Ross International dates from 1957. The NAM itself was a merger of the accounting firms Loyens en Volkmaars and A.C.M. Hancken in 1955, and had started cooperating with the consulting firm Volder & Co in 1966. One of the four main parts of the TRN Groep was TRN Management Consultants, which was integrated into Deloitte and Touche Management Consultants in the merger of 1989.
4.5.1.2
Engineers
The Delft Polytechnic (founded as Koninklijke Akademie in 1842, and transformed into Polytechnische School in 1863) was for a long time the only Dutch institute for technical higher education. Engineers came to play a leading role in the industrial development, and it was in Delft that Volmer became professor. The founders of the first management consulting agency had both studied mechanical engineering at Delft. In 1920, Ernst Hijmans (1890-1987) and Vincent van Gogh (1890-1978), and nephew to) founded Organisatie Advies Bureau. Hijmans was also co-founder of a French firm BICRA (see Chapter 4.7.1 below), and worked
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in various countries. Van Gogh was active in CIOS. Although both Hijmans and Van Gogh played important roles in several public and professional associations, published widely and are still regarded as important pioneers, their firm stayed small and was dissolved in 1933. Both Hijmans and Van Gogh founded their own firms in that year, but neither survived longer than two decades. J.M. Louwerse (1887-1953), another Delft graduate, started in 1922 as an independent consultant, joined Hijmans and Van Gogh in 1923, and founded his own Adviesbureau voor Bedrijfsorganisatie in 1925. In 1930, B.W. Berenschot (1895-1964) joined Louwerse as head engineer, and it was renamed Bureau Louwerse/ Berenschot. Berenschot left in 1938 to found his own Raadgevend Bureau Berenschot (RBB), and several persons followed him to RBB. In 1942,
M.G.
Ydo
(1913-1981)
left
Louwerse
to
establish
Adviesbureau
voor
Bedrijfsorganisatie Ir. M.G. Ydo, as did C. Hijner (died 1943) and F. Hegener (1909-1955) who founded Raadgevend Efficiency Bureau (REB). Louwerse's firm and employees was ultimately taken over by RBB, which had already 110 staff members in 1950. Berenschot himself became a parttime professor in Delft a year later.
Part of Berenschot’s success was based on the originally American programme
“Training-within-Industry (TWI), which as of 1947 became known in the Netherlands as Bedrijfskadertraining (BKT). Berenschot is still a main player in the Dutch market. In 1964, Twijnstra left Berenschot to found Twijnstra Gudde. Ydo's firm initially flourished, and had 40 consultants in 1956 and 57 in 1964. However, it went bankrupt in 1993. The title of Ydo's Ph.D dissertation Plezier in het werk (Pleasure in work" defended in Delft, 1947) signals his social and human interest. He was involved with the Nederlandsch Instituut voor Praeventieve Geneeskunde NIPG (see below). After Hijner's death in an epidemic of 1943, Hegener became director of REB. In 1944, another Delft graduate, P. Bosboom (1911-1992) came in Hijner's place. For a long time, the firm was commonly known as “Bureau Hijner”. The firm had about 100 employees in 1954, when Hegener died in a car crash. As of 1959 several of its leading associates became shareholders in N.V. Raadgevend Efficiency Bureau Bosboom en Hegener. Bosboom & Hegener became the official name in 1968. In 1984 a merger took place with Klijnveld, Kraayenhof & Co (originally established in 1917); Klijnveld had joined forces with Frese c.s. (established before World War I) in 1972, and was an early mover in internationalization. In 1979, Klijnveld, Main and Goedeler was established in a merger of American, Dutch and German partners. In a further merger (1984 or 1986) with Peat Marwick KPMG was founded
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(Klijnveld is the "K" of KPMG. In the process Bosboom en Hegener was turned into KPMG Management Consultants. In 1960 three persons had left REB to found Krekel, van der Woerd, Wouterse. In 1997, this was taken over by Coopers & Lybrand (C&L) which merged with PriceWaterhouse (PW) in 1998. (PW is said to have established its first office in the Netherlands in 1923). C&L was market leader in the Netherlands before the merger, while PW's consulting business was small.
4.5.1.3
Social scientists
Hellema and Marsman (1997: 291) observe that "foreign" historical studies of management consulting have focused on accountants and engineers, while neglecting the consulting in areas subsumed under "personnel management". These often have their roots in applied psychology and sociology. In the absence of data on social science related consulting in other countries, it is not possible to state whether or not these consultancies are more prominent in the Netherlands than elsewhere. The same holds for their market success and longevity: there are no comparative data on the birth and failure rates of firms originating in the different streams. Psychology and sociology were established as academic disciplines around the turn of the century.
Psychological techniques to assist people in choosing professions and to select
personnel were the basis for several institutes. In 1928, the Nederlandsche Stichting voor Psychotechniek was founded. Until well in the 1950s this was important in developing testing and training programs for Dutch companies. It still exists as Adviesbureau Psychotechniek Utrecht BV (1998 turnover 27.1 million Dutch Guilders). The Nederlandsch Instituut voor Praeventieve Geneeskunde (NIPG) was formally established in 1930. The NIPG had a broad understanding of "preventative health care", which included hygiene at work. After the war J. Koekebakker and H. Hutte were leading the department "Mental health". Through intensive contacts with the London-based Tavistock Institute and two research centres at the University of Michigan, "sociocracy", which aimed for developing "sound relationships at work", and sociotechnical theory were introduced to the Netherlands.
In 1947, NIPG was involved in founding Nederlands Instituut voor
Personeelsleiding (NIPL), which became the leading institute in developing and giving Bedrijfskader-trainingen. As of 1949 NIPG started publishing M&O, a journal that is still
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widely read among consultants with social and human interests. In the 1960s, NIPG became part of TNO (the Dutch equivalent of the German Fraunhofer institute). In 1997 TNO-NIPG merged with the Nederlands Instituut voor Arbeidsomstandigheden (NIA) into NIA-TNO, called TNO Arbeid as of January 1999. The NIA was formed in 1987 as a merger of the foundation Coördinatie en Communicatie met betrekking tot gegevens inzake Ziekteverzuim CCOZ and the Veiligheidsinstituut (“safety institute”) of which the roots go back to the Veiligheidsmuseum founded in 1891. TNO Arbeid is now the major research and consulting institute in the areas of absenteeism programmes, working environment and organization design. GITP or Gemeenschappelijk Instituut voor Toegepaste Psychologie was founded in 1947 at the initiative of the Roman-Catholic cardinal De Jong.
Scholars from the catholic
universities at Nijmegen and Tilburg, among whom J.E. de Quay at the time professor in Tilburg (De Quay had joined Louwerse as "psychotechnicus" in 1927, soon after his graduation in psychology, later worked at Berenschot, and was to become prime minister). GITP focused on personnel selection and training, including BKT. It is still a major player in the Dutch market, among others in providing training courses to works' councils. Finally, in 1945 B.W. Berenschot was involved in a group founding the Twentsch Instituut voor Bedrijfspsychologie (TIB) as part of RBB. When joining Louwerse in 1930, Berenschot had come in contact with De Quay's psychotechnical work. TIB took over RBB's testing work, and later developed training courses. TIB stopped its activities in 1971; most were incorporated in Berenschot. D. Horringa left TIB in 1953 to start his Adviesbureau voor Bedrijfsorganisatie, which as Horringa & De Koning was taken over by the Boston Consulting Group in November 1993. Human relations- and personnel-oriented consultancy services received a boost in recent years as a result of legislation. In 1994, a new act on working conditions became effective. Part of this entailed that organisations became responsible for their levels of absenteeism and Arbo-beleid (policy on working conditions, a.o. meant to prevent absenteeism).
As a
consequence, the number of consultancies specializing in this area increased considerably. Many of these were former Bedrijfsgezondheidsdiensten (“Organizational health services”), which were transformed into independent organizations. Many of these small players merged. ArboNed has become the dominant market player, and had some 1,000 employees in the
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Autumn of 1998. All fo the firms in this area had a total of 8,033 employees at the end of 1996 (7,243 in 1995; 6,296 in 1994).
4.5.1.4
Information technology
After IBM decided to decouple the prices of hardware and software at June 23, 1969, a separate market in IT-consulting started to grow (Post 1995: 20). The historical developments in the IT-market are not very transparent. Here, we only sketch the histories of some major market players. The idea is not to aim for completeness, but instead to show that if these companies are seen as management consultancies, they complete dominate the consulting market (also see section 4.5.2). The activities of Cap Gemini illustrate this point well. The origin of its Dutch subsidiary can be traced to the founding of Volmac in 1966. Volmac grew rapidly, opened its first foreign branch in Germany in 1971, and went public in 1988 (Amsterdam Stock Exchange). In 1992, a merger took place with the Benelux activities of Cap Gemini Sogeti. In 1969, this firm had founded its Dutch branche and in 1975, it took over Pandata. Cap Gemini is listed at the Dutch stock exchange. The French mother Cap Gemini SA holds 57 percent of the stocks; on June 16, 1999, it issued a public offer to take over the outstandig shares. Gemini Consulting is a full subsidiary of Cap Gemini SA, and curretnly employs 50 consultants in the Netherlands. Apart from that, Cap Gemini has an extensive consulting branch. The 1998 annual report states that its 1998 consulting revenues were 325 million Dutch Guilders. This probably includes selling, implementing and customizing software, and therefor goes beyond consulting proper (see further 4.5.2).
BSO merged with Philips’
software division in 1990 into the joint venture BSO/Origin. In 1994, a further merger took place with another Philips’ division. Philips holds the vast majority of the shares. CMG (established 1964 in the UK) started its Dutch branch in 1969.
It grew rapidly in the
Netherlands, and is listed on the Amsterdam stock exchange. In 1982 it was the first IT-firm in the Netherlands to set up a section "Management consulting" (Karsten and van Veen 1998: 101). CMG Public Management, division Management Consultancy, has 81 consultants. Getronics is a large player in software. Founded in 1887 as an electronics firm, it became part of SHV under the name Geveke (1968), later Geveke Electronics (1972). There was a buy-out in 1983, and the stock market listing was realized in 1985. Getronics was the new name as of 1988. Its take-overs include the American firm Wang Global (May 1999), allegedly making Getronics the fifth largest IT-firm in Europe. Baan dates from 1978, and
86
started exporting beyond the Benelux countries in 1988. Selling its ERP-package Triton to Boeing was a milestone in a rapid expansion throughout the 1990s. Its ERP-package is now called Baan. The company is listed on the Amsterdam stock exchange since 1995. IBM Consulting currently employs 95 consultants, but refuses to provide sales revenues.
4.5.1.5
American consultancies
The first American-owned company in the Netherlands was the Dutch branch of Bedaux, which was opened in 1929. Although the firm stayed small and only conducted time and motion studies, its director A. Strachoff worked at major companies such as Van Heek, Philips and Unilever. Within Philips he worked with J.D. Wackwitz, who in 1945 became the first head of Philips' internal consulting agency Technische Efficieny en Organisatie. This was made independent in the beginning of the 1990s and later incorporated into KPMG as KPMG Lighthouse. By that time, Bedaux was history: its operations had stopped in the beginning of the 1960s. Its offspring Bureau Univers (founded shortly after 1945) had been taken over by REB in 1964. The reason why Bedaux might have played only a minor role in the Netherlands compared to other European countries, was the way in which the Dutch “imported” scientific management. Time and motion studies received considerable attention as early as the 1910s, but not through American consultancies. In general, the Dutch went abroad to learn about scientific management and other foreign ideas. Professor Volmer proved to be an enthusiastic Taylor adept, albeit taking into account the critiques Taylor's work received. In 1916, a first study trip to the US was held. Applications remained limited, though. In 1918, Hijmans noted that the Taylor system was see by many as “an overseas wonder product”, described either in terms of salvation or in terms of doom.
Hijmans and Van Gogh looked for Scientific
Management's practical application. In April 1923, an "Efficiency Congress" was held which resulted in the founding of Nederlandsch Instituut voor Efficiency NIVE – which still exists. Through publications, study groups and trips, and courses, scientific management and “rationalization” ideas were spread, and membership grew fast (1928: 68; 1934: 581; 1955: 2500). The NIVE succeeded is bringing together experts in different fields. NIVE organized the fifth CIOS congress in 1932; professor Limperg was chairman, van Gogh general secretary, Berenschot rapporteur général. The first consultants called themselves “efficiency engineers”, which symbolizes the important of scientific management and rationalisering for the birth of Dutch management
87
consulting.
Time-and-motion studies (arbeidsstudies) were popular before and after the
Second World War. Apart from American methods, the gamut of methods included those of the German REFA (see Chapter 4.6.1) and those developed by the various consultancies. In the 1950s their use was tightly coupled to wage systems. In the post-war reconstruction period, the Dutch government had adopted a “controlled wage policy” which held among other things, that companies were only allowed to increase wages if a "tariff system" was used. As the government's wage policy came under pressure when labor market conditions started tightening in the 1950s, the consulting business in this area prospered until the controlled wage policy was relaxed (1959) and finally abandoned (1963). By that time, however, under the influence of people like Ydo and Hutte but also through NIVE activities, wages were more and more seen as part of personnel management. The same held for personnel selection; the specialized selection firms (see above) started to broaden their scope as well. As explained above, from 1947 until about 1957 Bedrijfskadertraining was another influential programme of American origin. Ydo published an influential book on Taylor in 1956. The interest in Taylorism remained large throughout the 1950s. Apart from Bedaux, US consulting firms entered the Dutch market relatively late: AT Kearney (1962), McKinsey (1964), Hay (1973), Booz, Allen & Hamilton (1982), Arthur D. Little (1986), Monitor (1989), Boston Consulting Group (1993) and AMS (1994). With the exception of BCG which took over Horringa en De Koning, American consulting firms entered the Dutch market by establishing their own offices. Some of these firms served the Benelux market from an office in Brussels; an example is Bain & Co. which operated on the Dutch market, but only recently opened an office in the Netherlands. The picture looks different for the Big Five firms, which combine accounting, fiscal advice and consulting. These are all present in the Netherlands, but as described under “accountants”, they entered the Dutch market via alliances (often in the 1950s and 1960s) and later mergers and take-overs. These firms generate most of their revenues in areas other than consulting. The late entrance of US firms and the strategy of entering via take-overs has to do with the early development of the Dutch market. As shwon in detail above, many Dutch firms were active before US consultancies started their international expansion. In addition, the fact that the Dutch market is small compared to the ones in many other European countries may also have played a role.
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4.5.2 Current market structure and characteristics There are two main problems in making estimates about the consulting market. In the first place, consulting is not defined nor demarcated as a clear profession, and secondly and relatedly, the available statistics and other data rely on different bases. The first issue is dealt with by not including those firms for which consulting is not a core business. That holds for the Arbodiensten and pension advisers (such as Mercer and Hewitt), and more importantly, also for IT-related consulting. The firms mentioned above as well as CSC and AMS are thus not seen as consultants. The “consulting” businesses of the latter are often even dominated by activities that are normally not considered management consulting, despite the fact that CMG, for example, calls it programmers consultants. The choice here is to exclude IT-firms, also because including them would give a totally different picture of the market. The choice is not unproblematic as many of the large consulting firms also generate a considerable and growing proportion of their sales from IT-business. As far as the second issue is concerned, where appropriate the bases for different statistics are discussed in some detail.
4.5.2.1
Market size
The Centraal Bureau voor de Statistiek (CBS) distinguishes between "Organization consulting" (branche code 7414.1) and “Consulting for automation" (branche code 7210.2); "automation" can be understood as IT.
Organization-consulting agencies ("organisatie-
adviesbureaus") include interim-management and project-management but exclude consulting in areas "that do not directly concern organizational matters" such as for example quality control, sales promotion, logistics and setting up new firms. They also exclude PR and market research, and Arbodiensten (see above). The CBS data concern firms, which are categorized on the basis of their main activity. CBS concentrates on legal entities, and the largest de facto activity determines in which category a firm is placed. This means that a firm like KPMG is listed as an accounting firm rather than as a consultancy. Consequently, the data below are probably conservative. Bearing these remarks in mind, as of yet provisional data for the end of 1997 show 13,900 firms employing 29,970 persons in total. (It should be noted that these are not all consultants).
At the end of 1996, the number of firms in "computer services,
information technology" (branche code 72) was 10,445 compared to 16,560 in "economic research, consulting and PR" (branche code 7414).
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Reported net sales for management consulting (7414.1) were 4255,6 million Dutch Guilders, resulting in reported average net sales per full-time equivalent staff of 155,400 Guilders. CBS statistics from another department which has a more strict definition are listed in the table below. Table 4.5.1: Number of consulting firms according to employees, 1993-1997 Number of Employees Without
1-5
5-10
10-20
20-50
50-100
100 plus
Total
1993
3445
1480
125
55
35
10
5
5150
1994
4825
1710
165
70
40
10
5
6830
1995
5230
1960
200
90
40
15
10
7535
1996
6125
2305
235
105
35
15
5
8830
1997
6455
2655
295
175
60
10
5
9660
Source:
Centraal Bureau voor de Statistiek (CBS).
The data for 1998 are not yet available, and those of 1997 are still provisional.16 The category "Without employees" refers to consultancies without employees at the payroll. This refers either to a so-called "lege BV" ("leeg" = empty; "lege BV" means a legal organization without actual real business activity that exists for fiscal reasons), or so-called "een-pitters": independent one-person consultancies. Een-pitters may be economically fully dependent on their consulting business, or it can be a side business, for instance for some business academics. Keeping the qualifications made above in mind, the CBS-data on the smaller consultancies probably well represent the structure of the sector, i.e. a large and still growing number of selfemployed consultants and of smaller consultancies. The data for the larger size categories (20 or more persons) are at odds with the data below. This probably has to do with the sampling techniques of the CBS, which are unreliable for small populations. The steady concentration process among the larger companies goes along with considerable numbers of market entrants. During 1993-1997 the number of firms without employees remains some less that 70 percent of the total number of firms (see table above). The small consultancies tend to work for SMEs, whereas the larger companies receive a relatively large share of their revenues from multinationals.
16
They were kindly supplied to us by the CBS on 31 May 1999 upon our request.
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Note that the total of 9,660 firms listed in the table above differs substantially from the 13,900 just mentioned. The last data are more reliable to get the best view of the sector, whereas those in the table are preferable when making comparisons to other branches. Both try to sort out registered yet non-active firms by making an estimate of the percentage. Data from the Chambers of Commerce are gathered on the basis of establishments rather than firms. They mention a gross (i.e. including double registrations) number of 27,500 management consultancies next to 10,416 automation consultancies. Indicators from the various sources are consistent in pointing out continued growth of the number of small consultancies has persisted in the favorable economic situation. The CBSdata show this, as do data from the Chambers of Commerce: the number of new establishments was 2,380 in 1997 and 1,820 in 1998, making management consulting the fastest growing economic sector in both years (at least by this measure). To put this in a historical perspective: in 1971 the estimated numbers of (external) consultants was 800 in some 200 firms. The 1973 oil crisis hindered the growth. Nevertheless, the estimate for 1980 was 1,450 consultants (Karsten and van Veen 1998).
Main factors to explain this growth are the prosperous
economic development, IT-related activities, and the idea of "back to the core business". Internal consulting is often no longer considered to be part of the core business. For example, Philips has made its internal consulting departments independent. An early example of this trend is Akzo's decision to make its consultants independent as Rijnconsult (1978). In terms of sales distribution, the latest available data from ROA (see below) concern 1994. Its 28 members generated total revenues of 559 million Guilders, distributed as follows: • • • • • • • •
Strategy and organization development: Human resources: Information technology and systems: Distribution etc.: Financial policy and administration: Project management: Marketing and corporate communications: Economic and environmental studies:
21 per cent; 18 per cent; 18 per cent; 14 per cent; 13 per cent; 9 per cent; 4 per cent; 3 per cent.
One frequently comes across the statement that the Netherlands still ranks high on the list of “consultant density” closely behind or even before the USA. It proofs hard to substantiate this statement with data that allow reliable comparisons (cf. chapter 2 and section 4.4.2).
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4.5.2.2
Professional associations and public institutions
There are three professional associations. The Raad van Organisatie-Adviseurs ROA (founded 1970) has 23 member firms employing some 3,500 consultants as of May 1999, predominantly the large and medium-sized firms. The Orde van Organisatiekundigen en Adviseurs Ooa (founded 1940) and the Vereniging van Zelfstandige Organisatie-Adviseurs ZOA, founded in 1994 for the independent consultants, are the other two. Ooa reports that 1170 consultants are associated with, of whom about three quarters external and some 20 percent internal.
The equivalent ZOA data are 120 firms with 180 consultants.
The
Arbodiensten have their own branche organization BOA (poetically called "Branche Organisatie Arbodiensten"), which has 13 members. With respect to public and associative institutions Syntens appears important. Syntens started its operations in 1998, and resulted in a merger between the InnovatieCentra and IMK Voorlichting. Both specialize in technological and organisational knowledge transfer to SMEs, and in setting up new ventures. Syntens has 15 regional offices, and employs about 500 persons of whom 400 are “adviseurs”. Yet a spokesperson considers only 10 of them as “real” consultants. Revenue data were not given, yet would have been problematic when included in a comparison, since SMEs can get part of the advice for free. Employers’ associations often offer a wide range of services to their members. Most of these specialize on specific sectors and are small.
An exception is the Algemene Werkgeversvereniging.
The agricultural
associations LTB and NCB have large accounting departments, and offer advice on general management to farmers.
4.5.2.3
Spatial distribution
The Netherlands are a small country, so that from centrally located Utrecht practically the entire country can be reached in a two-hour drive or train trip. The larger consultancies will nevertheless have regional offices throughout the country, certainly those consultancies which combine consulting with accounting. Headquarters tend to be located in the Randstad, the economic heart of the country which is roughly demarcated by the lines Amsterdam-The Hague-Rotterdam-Utrecht. It includes (parts of) the provinces of North and South Holland, and Utrecht. Most headquarters are in Amsterdam or its suburbs, with Utrecht in second place.
All specialist consultancies of American origin are located here as well. GITP,
Rijnconsult, K+V and IME Consult are located in the Arnhem-Nijmegen area at the German border.
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The following data on the number of consultancies in different provinces stem from a study conducted in 1988 (de Jong and Tordoir, 1989) among 349 consultancies: North Holland 101, South Holland 71, Utrecht 62, North Brabant 46, Gelderland 37. The other provinces had 11 or less firms within their borders. This spatial distribution has likely only changed marginally. Links of the consultancies to regional industries and banks appear minimal, partly because of the spatial issue. There is no documentation on links to financial institutions available. Unlike Germany (Staute 1995: 38ff), such links appear non-existent. Possibly, there are some links of smaller consultancies in the Eindhoven area where Philips was headquarted (and DAF Trucks still is). Another exception might lie in some TNO institutes. TNO is the Dutch equivalent to the German Fraunhofer Institut. Like Fraunhofer, it consists of many research institutes located throughout the country. Most of these are primarily technological, but with total revenues of some 35 million Guilders in 1998 TNO-Arbeid (located in Hoofddorp) has a stake in the market for labor-related consulting, especially Arbo.
4.5.2.4
Top consultants
Establishing lists of top consultants is not a straight-forward task. Some of the data are estimates as some firms are secretive about their consulting revenues and the number of consultants. Ideally, one would like to separate management consulting proper from activities such as IT-services, interim management and recruiting, but the available data hardly allow to do so. For 1990, the problem is aggravated as these data are hard to track down. The limitations of the data as discussed above still hold. The data presented below are primarily based on an overview by the main financial newspaper, and appear reliable for top-7. Branches of foreign companies were not required to deposit their data. Hay, Boer en Croon and AT Kearney may have to be included instead of TRN.
Note that they exclude IT-related
consulting.
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Table 4.5.2: The top 10 consultancies in 1990 (according to revenue) Revenue (mill. Hfl)
Consulting Staff
1. KPMG Klynveld Management Consultants
72
315
2. Twijnstra Gudde
67
318
3. Coopers & Lybrand Dijker Van Dien (con)
63
4. Berenschot
57
294
5. Moret Ernst and Young
53
320
6. GITP
30
205
7. Bakkenist Management Consultants
28
137
8. Rijnconsult
19
56
9. McKinsey (1)
14
45
10. TRN Management Consultants
10
1. The 45 consultants are based on an estimate by the firm in May 1999. The turnover is our own estimate based of 300,000 Guilders per consultant.
This table shows that ten years ago the consultancy market in the Netherlands was almost exclusively dominated by consultancies of Dutch origin. As the following table shows, the situation has changed to a certain extent by 1998. The table is derived from an overview of large Dutch accounting/fiscal advice/consulting firms published in the management magazine FEM (Hers, 1998). FEM had to make estimates for the 1997 revenues of Twijnstra Gudde (120; 120; 123), McKinsey (75; 63; not included), Boer en Croon (57; n.a.; 19) and the Boston Consulting Group (36; 28; 25.6).17 In line with the choices outlined above, the following firms listed by Hatter (1999) are not included in the ranking: AMS, CSC, DCE, Gemini Consulting, Mercer, and Hewitt. McKinsey and GITP have been added.
17
Burke (1998) and Hatter (1999) follow the FEM estimates.
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Table 4.5.3: The largest consulting firms in the Netherlands in 1998 Revenue (mill. Hfl)
Number of consultants
Start of operations (2)
National origin (2)
Focus of activities
1. PriceWaterhouseCoopers (1,6)
285
851
1893 (1990)
NL/USA
BPR, IT
2. KPMG
255
750
1917 (1990)
NL/USA
3. Moret, Ernst and Young
206
868
1883 (1979)
NL/USA
BPR, IT
4. Andersen Consulting
175
615
1989
USA
ERP\IT
5. Deloitte & Touche (3)
160
560
1902 (1957) (4)
NL/USA
Public
6. Berenschot
130
375
1938
NL
IT
7. Twijnstra Gudde
126
345
1964
NL
91 (5)
130
1964
USA
Strategy
9. GITP
77
170
1947
NL
HRM
10. Boer en Croon
75
200
1973
NL
Strategy
11. A.T. Kearney
71 (6)
n/a
1962
USA
12. A.D. Little
49 (6)
58 (6)
1986
USA
13. Boston Consulting Group
46 (5)
65
1953 (1993)
NL/USA
14. K+V
43
169
1985
NL
15. Rijnconsult
40
110
1978
NL
16. Bakkenist MC (7)
35
120
1966
NL
IT
17. Hay
32
70
1973
USA
HRM
8. McKinsey
Strategy
Notes: 1. Hatter (1999) mentions ƒ 285 million. This is fairly close to an average revenue per consultant of ƒ 325,000 multiplied by 851 consultants (i.e. ƒ 277 million); the average has been mentioned as the average for four large ROA-members including PwC. 2. The long history of mergers and take-overs complicates establishing the "start of operations". For instance, in 1883 Barend Moret was one of out five founders of the first Dutch accounting firm Bureel voor Boekhouding Confidentia. During the First World War two of his sons decided to go their own ways, leading to the establishment of Moret & Starke and Moret & De Jong. In 1953 Moret started with management consultants. In 1964 both Morets and Jonkers & De Jong merged; in 1965 there was a further merger which created Limperg, Dijker, Nijst & Co. Moret & Limperg was formed in 1970. In 1979, the European federation Arthur Young, Moret, Schitag, Atag came into existence, and Arthur Young's national branches joint the consultancies originating in the different countries. This was approved by Moret & Limperg in 1980. After this, the Dutch office was part of the international developments, including the merger with Ernst & Young (which had Dechesne van de Boom as its Dutch representative). A noticeable point is that in the Netherlands, management consulting was only established as a separate branche in 1989. For KPMG a similar tale can be told (see above). The year in which the Dutch firm was taken over by or became associated to a larger foreign company is given in parentheses. The take-overs and mergers also complicate the point of national origin. In these cases, both "NL" and the national origin, respectively dominating country, of the party taking over are mentioned. 3. Deloitte and Touche also operates Deloitte Consulting as a separate entity. The latter firm currently has some 75 consultants. 4.
1957 concerns the international alliance (see above).
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5. Based on a conservative estimate of ƒ 700,000 turnover per consultant. 50 percent more may not be unrealistic. 6. Taken over from (Hatter, 1999). 7. The Bakkenist Groep (which includes an IT-firm and executive search) realized a total turnover of ƒ 51 million with 260 staff (as included in Hatter, 1999).
Although the data for both years have their limitations, one can nevertheless see that all major players in 1990 are still main players in 1998. As in the previous decades there have been many take-overs, mergers and alliances. Practically all major players are now part of an international organization or associated with a network. But, even if we do not consider the “Big Five”, Dutch consultancies continue to play an important role in the Netherlands. IT probably accounts for most of the autonomous growth. The market has certainly drawn many new entrants, some which have succeeded in growing fast. Nevertheless, there have been a number of changes in recent years. A major event in 1998 was the take-over of VB by Deloitte. VB specializes on accounting for the public sector, and dominates the market for municipalities. Eight other companies were also taken over (Hatter, 1999). Deloitte's turnover in consulting increased from 82 million Guilders in 1997 to 160 million in 1998.
4.5.3 Latest Developments and Future Trends Future changes will probably involve the continuity of past changes. Less cryptically, the wave of international alliances, take-overs and mergers is likely to continue. It remains unsure, however, whether this will lead to an increasing concentration of market power. The top firms will certainly seek to grow further, but at the same time the number of consulting suppliers is likely to grow. Although much depends on the economic growth rates and the failure rates may be high, the recent trend of a considerable number of start-ups is likely to continue. The market for Arbo-diensten will probably see further concentration. In terms of products, IT-related consulting will likely remain the major growth area. Products may shift, however: the Y2K-problem and the introduction of the Euro will no longer feature, whereas ERP systems are increasingly sold to SMEs and Internet applications are also seen as a growth market. Some form of Business Process Reengineering is often combined with implementing an ERP package. Consultancies such as Andersen Consulting, Ernst & Young and KPMG generate a considerable share of their revenues out of these activities. Generally programming activities to customise the ERP software take up the bulk of the work, and management consulting is only a relatively modest part of ERP projects. The extent to which the consulting firms moved into the IT-market appears to be larger than the extent to
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which IT providers move into consultancy. Many IT providers choose to remain specialists, and may generate sufficient sales not to bother about entering the market for management consulting. For consulting firms and IT firms alike, labor market scarcities will likely increase. Firms’ responses vary from pressures on staff to work overtime on the one hand and attempts to improve its labor market position by allowing part-time work on the other. Outside the realm of IT, financial participation in the form of employee stocks and options will probably become a growth market, although much will depend on future fiscal legislation. Mounting labor market pressures, increasing stock prices, and the desire to sustain the policy of moderate wage increases combine to make such plans popular.
The term
Business Process Reengineering has lost much of its appeal, but similar projects are now carried out under other names.
The incidence of self-directed workteams has grown
throughout the 1990s, and will probably remain a major market for the years to come. Despite low press attention for ISO in recent years, the system has become institutionalized and the market for ISO certification is likely to remain of importance.
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4.6
Germany (by Thomas Armbruester and Matthias Kipping)
4.6.1 Historical evolution Not only in comparison to the USA but also to the UK, Germany was a late starter in management consulting. While Taylorism dominated production processes until long after the Second World War, the characteristic time and motion studies were predominantly carried out in-house without the use of external consultants (Alpha 1996: 73). A German variant of work studies was developed and disseminated since the mid-1920s by REFA (Reichsausschuß für Arbeitszeitermittlung), an association established by originally by employers in the metalworking industry, but sson covering most other sectors. REFA provided training for large numbers of work study engineers (more than 40,000 already by the end of the Second World War) and organised meetings for the exchange of experiences and for a discussion of the latest developmensts in the field (Kipping 1997 and 1999b). It is seems that this channel for the diffusion functioned very efficiently and therefore left little room for the emergence of private consultancies (ibid.). It was part of a whole range of institutions providing a framework for the improvement of productive efficiency. Their coordination was assured by the Rationalisation Board RKW from 1921 onwards (originially founded as Reichskuratorium für Wirtschaftlichkeit; after the Second World War the name changed to Rationalisierungskuratorium der Wirtschaft).
The RKW enjoyed government
blessing, and some public financial support. In the post-WWII period, it also included trade union representatives and helped promote a co-operative relationship between management and labour (Pohl 1996). The RKW also played an important role in developing the consultancy market from the 1950s, by offering free one-day “company diagnostics” to SMEs, putting the company in touch with a private consultant to carry out more in-depth work. Quite often this intervention would be partially financed by government subsidies, administered by the RKW. However, until the 1960s, most German consultants worked as sole practitioners or with little staff.
When
founded in 1954, the German Union of Management Consultants BDU (Bund deutscher Unternehmensberater) was an exclusive “club” of few individual consultants rather than a federation of an emerging service sector. It only changed its name to German federation of
98
management consultants (Bundesverband deutscher Unternehmensberater) and its role during the 1970s (Kipping 1996: 120). There were a few exceptions. For example Gerhard Kienbaum founded his consultancy shortly after the Second World War, had reasonable success and expanded his business during the post-war reconstruction, opening several offices and employing about 100 consultants by the late 1960s. The market as a whole, however, took only of from the mid- to late 1960s, when American consultancies that already had large businesses in the USA entered the German market.
McKinsey opened the first office in Düsseldorf in 1964 and others such as
A.T.Kearney, Arthur D. Little, and the Boston Consulting Group, entered the German market roughly in the same period. This development was probably driven by the more competitive climate following the opening of the Common Market during the 1960s and the expansion of US multinationals, which prompted German companies to look for new solutions to improve their competitiveness. The arrival of the US consultancies also prompted a more sustained development of domestic service providers. In the late 1960s, many of today's large German consultancies such as Roland Berger and Mummert & Partner founded their businesses (Kipping 1996: 120). The main tasks of these early consulting services were to shake up crusted bureaucracies and to introduce a multidivisional corporate structure. Yet, German firms remained suspicious about the use of consultants, regarded the employment of a consultant as a proof of failure, and complained about consultants being too theoretical and too little concerned about implementation issues (ibid.). In the second half of the 1970s the consulting market began expanding rapidly and, with the exception of a slight decrease of market growth in the early 1990s, has not stopped ever since, making it the largest in Western Europe, in absolute and relative terms today. The reasons for the beginning of the rapid growth in this period may be the extension of codetermination laws in the 1970s and the connected need for legitimacy in the decision-making process of corporate restructuring and rationalisation (ibid.). Another reason may be that information technology had started to become a major issue in production processes and administration. The 1980s were particularly characterized by three developments: a continuously strong market growth; the strong market penetration of US consultancies; and the foundation and market penetration of consulting branches of the large accounting corporations. The first
99
issue, the strong market growth, boosted the German market to the top of Europe. The most significant development of the foundation of consulting branches by accounting firms was the spin-off of Andersen Consulting from Arthur Andersen in 1989, which had a particularly strong impact on the German market. Andersen Consulting has meanwhile a dominating market position in IT consulting and is in Germany the second largest service provider only behind McKinsey & Co. The large consultancies of German origin had their share in the rapid market growth and expanded like their American competitors with growth rates of 10 to 20 per cent. Due to a wave of mergers and acquisitions in the late 1990s, the growth figures of the large consultancies often exceed 30 per cent, yet this does not necessarily reflect the total market (for the latest developments, see Chapter 4.6.3).
4.6.2 Current market structure and characteristics The dominant feature of the German consulting market is that it is by far the largest in Europe, in both absolute and relative terms. The BDU bases its market size estimations on the data of the consultancies of their member associations and estimates the German market size to be more than 9 billion US dollars for 1997 and 10.33 billion US dollars for 1998. If their calculations are accurate, then the German market is more than twice the size of the British and more than five times bigger than the French. In relation to the Gross National Product, the German market is still slightly larger than the British and three times larger than the French. This extraordinarily high consulting intensity in Germany is particularly interesting against the background of Germany being a late developer. In the 1990s, the German market grew from 4.85 billion US dollars in 1990 to 9 billion US dollars in 1997 and has hence almost doubled within these eight years. One reason for this development is certainly the German re-unification and the strong and lasting demand for consulting services in the economically less developed eastern part of the country.
The major issues in the former East Germany were the restructuring and
privatisation of former East German state-owned firms (Priewe 1993). In many cases the client was the Treuhandanstalt, the public agency responsible for the privatisation and sale of East German firms) rather than the East German firm itself, so that consulting firms were paid by Treuhandanstalt's budget and hence by the German tax-payer.
In this respect it is
interesting to note that in the initial phase of the East German market, consulting firms of German origin operated more successful than their US-based counterparts. Particularly the
100
largest German consultancy, Roland Berger & Partners, profited strongly from the German reunification and yielded another 10 per cent to the anyhow increasing revenue. But other consultancies such as Deutsche Mittelstandsberatung, Kienbaum and Knight Wendling, as well as the consulting arms of the large accountancies also gained strongly from the new market (MCI, January/February 1992: 6). Yet from the mid-1990s onwards and hence after the goldrush in East Germany, the new Länder have become almost a desert for the consulting business; only the public sector has remained a constant market (MCI, March 1997: 15). Another reason for the high consulting intensity in Germany is the fact that many bluechip corporations are still hierarchical and bureaucratic. The combination of the increasing will to reform and the difficulty of doing so (also hampered by inflexible regulations such as labour laws, taxes, etc.) fosters the demand for consulting services (MCI, March 1997: 11). In addition, the deregulation of the telecommunication and mail service markets probably played their part; and so did the banking industry with an ongoing wave of mergers and rationalisation as well as the introduction of electronic banking and 24 hour services.
Moreover, in
comparison to the USA and the UK there is a continuously delayed introduction of information technology in Germany. Anecdotal evidence suggests that many management consultants consider Germany an information-technologically underdeveloped country. For decades the economy had relied on heavy industry and often been a late developer in modern technologies and innovative industries. As a consequence, Germany has still a high backlog demand in ITrelated matters. Other factors that account for the high consulting intensity are more a matter of speculation, since empirical data cannot be provided. Yet their influence may be significant and must at least be mentioned. A cultural factor that might play a part is the considerable belief in experts in Germany. Dahrendorf (1968: 149-163), for example, discusses the high belief in expert knowledge and the disapproval of common sense in Germany. Speculative knowledge and empathetic, hermeneutic understanding is frowned upon and rejected in favour of “hard facts” and “certain knowledge”, which may foster the demand for consulting services. Moreover, the significant amount of uncertainty avoidance in Germany as documented by Hofstede (1980) could be reason for the high consulting intensity. Since the reduction of uncertainty and the legitimisation of solutions can be assumed to play an important part in the growth of the consulting market (Kieser 1998), the considerable uncertainty avoidance in Germany may account for consulting intensity to be higher than in other countries.
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Like in other western European countries, the German consulting market is strongly influenced by American management consultancies. Among the top 10 consultancies only one is of German origin, the rest are (al least partially) US-based. Among the top 20 consultancies, five are German (see the table below). In terms of the revenue share among the top 10 and top 20, US consultancies hold about 80 per cent or 75 per cent, respectively (see Chapter 2). This Americanization among top consultancies is only lower than in France, but higher than in all other European countries. Table 4.6.1: The top 25 consultancies in Germany in 1998 Country of origin
1. McKinsey & Co.
Revenue in Revenue in Revenue in 1998 (million 1997 (million 1996 (million DM) DM) DM)
Growth rate (%) 1997-8
Growth rate (%) 1996-7
Number of consultants 1998
Revenue per consultant 1998
USA
N/A
500
N/A
N/A
N/A
N/A
N/A
USA/D
725
539
92
34.5
N/A
2380
304,622
USA
637.6
488.3
356
30.6
37.2
1705
373,959
USA/UK/D
400
248.0
193
61.3
28.5
910
439,560
Germany
400
N/A
247.6
N/A
N/A
400
1,000,000
6. PriceWaterhouseCoopers U'beratung
USA/UK/D
352
N/A
N/A
N/A
N/A
1300
270,769
7. Ernst & Young Consulting
USA/UK/D
320
269
N/A
18.9
N/A
990
323,232
F/USA
320
271.2
201
18.0
N/A
472
677,966
9. Boston Consulting Group
USA
310
N/A
N/A
N/A
N/A
425
729,412
10. AT Kearney
USA
270
200
N/A
35.0
N/A
280
964,286
11. Mummert & Partner
Germany
240
176
125
36.4
34.4
694
345,821
12. Schumann Unternehmensberatung
Germany
173.1
127.6
115
35.7
11.0
600
288,500
USA/UK/D
146.6
98.5
71.4
48.8
38.0
N/A
N/A
Germany
140
110
97.6
27.3
12.7
220
636,364
15. Arthur D. Little
USA
131
102
112.1
28.4
N/A
174
752,873
16. Booz Allen & Hamilton
USA
130
101.6
97
28.0
N/A
170
764,706
Germany
121
90
65
34.4
38.5
300
403,333
18. Bain & Company
USA
120
100
84
20.0
19.0
120
1000,000
19. Mercer Consulting Group
USA
106
66
N/A
60.6
N/A
138
768,116
20. IBM Unternehmensberatung
USA
97
60.9
41.7
59.3
46.0
198
489,899
21. Diebold
USA
72.8
53.4
39
36.3
36.9
149
488,591
Germany
59
41
35
43.9
17.1
65
907,692
23. Arthur Andersen Managementberatung
USA
56.2
45
36
24.9
25.0
N/A
N/A
24. American Management Systems
USA
52.7
44
43.5
19.8
1.1
338
155,917
Germany
32.1
23.4
17.6
37.2
33.0
65
493,846
2. CSC Ploenzke 3. Andersen Consulting 4. KPMG Unternehmensberatung 5. Roland Berger & Partner
8. Gemini Consulting
13. Deloitte & Touche / DTT 14. Kienbaum Consultants International
17. Plaut International
22. Baumgartner & Partner
25. Simon Kucher & Partner
Source: Management Consultant International, April 1999 and April 1998. Most figures are based on statements of the firms to MCI, a number of figures are MCI estimates.
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For the interpretation of the above revenue figures and the ranking of consultancies, however, care is in order. The revenues of CSC Ploenzke and Andersen Consulting, for example, include systems integration and outsourcing – classical management consulting only accounts for about 30 per cent of their revenues (MCI, April 1996: 11). As a consequence, the high Americanisation index reported in Chapter 2 does not necessarily indicate that German clients are particularly fond of American management methods and practices. It has to be taken into account that the outsourcing of tasks can hardly be viewed as an introduction of American management methods.
Moreover, management consultants in Germany are
Germans and, the vast majority of them were educated in the German education system.18 And the German academic education is still significantly different from the American concept of general management training in graduate business schools (Kipping 1998). Another factor has to be taken into account, when assessing the American influcne on the consultancy market, namely its dispersion. In terms of the largest market shares among the big twenty consultancies, McKinsey, CSC Ploenzke and Andersen Consulting hold about 12 per cent each.
Yet in terms of the total market, the shares of these consultancies are
considerably lower, because the German market is highly dispersed and fragmented. According to our own analysis, shown in the overview of the European market (see Chapter 3.2 above), the share of the top 10 consultancies in the total German market is only 15 per cent, the share of the top 20 consultancies only 19 per cent. Similarly, the BDU (1998: 1) estimates the market share of the top 25 consultancies to be 27 per cent in 1997. In comparison to other western European countries, in which the shares of the top 10 consultancies are often greater than 50 per cent and those of the top 20 often greater than 70 per cent, the market concentration in Germany is extraordinarily low. In terms of the number of consultants, too, the German market is considerably more dispersed than in other European countries. The percentage of those consultants working in the top 10 or top 20 firms is lower than 15, while in other European countries this percentage is way above 20 per cent (see Table 3.2.1 above). The BDU estimates the total number of consultants to be 50,000 in 1997 and thus much larger than in other countries (absolute and relative to the size of the consulting market). And, again according to BDU estimates (BDU 1998: 5), sole practitioners cover 40 per cent of the consulting market. Therefore, much more than in other European countries the
18
Even in the case of McKinsey, only about one third of its consultants in Germany hold an American MBA; according to an interview with a German Director of the consultancy on 12 July 1993.
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German consulting market is characterized by a number of small and medium-sized consultancies, which in turn are more of German rather than American origin.
4.6.3 Types of consulting services and clients in Germany As mentioned above, the demand for IT-related services is high in Germany, yet it still ranks behind strategic and organizational advice. In comparison to the total European market, where IT-consulting ranks with 21.6 per cent before strategy and organization (19.4%), ITconsulting plays a slightly less important role. Yet given the above-mentioned backlog demand for IT-related services, this can be expected to change. The following table gives the shares of the consulting domains according to BDU for the year 1997.
Table 4.6.2: Share of different consulting services in Germany in 1997 Type of consulting
Market share (%)
Strategy and Organization
29
Information Technology
19
Finance, Accounting, Controlling
13
Logistics
10
Technical Advice
7
Project Management
6
Marketing
5
Other (Human Resources, Quality Management, Outplacement, Environmental Management)
11
Source: BDU 1998: 6
In the interpretation of the above table it is important to note that major consulting fields are concerned with more than one of the above pigeon holes. Business process engineering and total quality management, for example, are concerned with strategy and organization, but also with information technology, logistics, and human resource management. Shareholder value analysis is concerned with strategy, but also with finance and accounting.
Hence the
boundaries between the above consulting domains are often blurred and an assignment to the above terms is often arbitrary. Probably the most extreme example is post-merger-integration, where all of the above consulting fields are affected. In terms of industrial sectors, the clients are distributed as follows.
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Table 4.6.3: Clients by sector of activity in Germany in 1997 Industrial Sector
Proportion (%)
Manufacturing
29
Banking and Insurance
23
Health and social services
12
Wholesale, retail trade, trade
9
Public sector, social security
9
Traffic, Telecommunication
7
Others (Energy and public utilities, construction, etc.)
11
Source: BDU 1998: 7
In 1997, Banking and Insurance plays almost the most important role, while in 1996 these sectors only displayed 9.3% of the services. According to BDU (1998: 2), restructuring in the banking sector after the recent mergers and acquisitions, the recent alignment of branch networks, and the establishments of direct banking systems account this for. Not surprisingly, large and multinational corporations with revenues over 750 million DM are the most important clients of consulting services (59%), while companies between 100 and 750 million DM (25%) and up to 100 million DM (16%) are less important. In terms of the regional structure of the market, North-Rhine Westphalia is the largest market, followed by Bavaria, Baden-Wuerttemberg and Hesse (BDU 1998: 6-8).
An older survey of the German
association of management consultancies (BDU 1991a) shows that the regions differ significantly with respect to the types of services carried out. Naturally, in production-oriented countries such as Baden-Wuerttemberg, Bavaria and North-Rhine Westphalia, productionoriented consulting, and strategy and operations, are the dominant types of service (in BadenWuerttemberg also IT, in Bavaria and North-Rhine Westphalia also Marketing). By contrast, in the regions Berlin, Hamburg and Schleswig-Holstein, Hesse, and Bremen and Niedersachsen, HR consulting and project management plays a significantly larger role.
4.6.4 Latest developments and future trends In the course of the continuing rapid growth of the consulting market since the late 1970s, the 1990s can be viewed as a phase of restructuring of the German consulting market. The worldwide wave of mergers and acquisitions among consultancies has also penetrated the German market, where small and medium-sized consultancies are increasingly acquired by
105
large ones (Kipping and Scheybani 1994). After the acquisition of Gruber, Titze & Partner by Gemini, and Ploenzke by CSC in the mid-1990s, a new wave of acquisitions has arisen in 1997 and 1998.
Schitag, Ernst &Young acquired BIW (a provider of SAP-related services),
Deloitte acquired a number of small consultancies including the McKinsey spin-off Dicke & Associates in December 1998 (which increased Deloitte’s annual consulting revenue in Germany by almost 50 per cent). Mercer Consulting Group acquired Dr Seebauer & Partner, which induced a growth rate of over 60 per cent. The main driver for this wave of mergers and acquisitions appears to be the split of the German consulting market between high-charging “élite” firms on the one hand and the great mass on the other (MCI, March 1997: 15). In 1996, a large industrial corporation in Germany gave a rare insight into consulting fees of the large providers. It turned out that rates for senior consultants exceeded DM 10,000 per day. This documents; which also accounts for the wave of mergers and acquisitions (ibid.). Small and medium-sized firms, on the other hand, often have already difficulty in yielding fees per diem of DM 2,000. While multinational corporations are turning to consulting firms with a wide international network, small consultancies benefit from specialized expertise or product knowledge. Medium-sized firms are too big to act like a small firm, but too small to compete with the large international consultancies (MCI, April 1998: 8), so that they have a particular interest in merging, which matches the demand of large consultancies for growth. Recruiting a sufficient number of qualified people has turned out to be the main bottleneck of the growth of large consulting firms. In terms of services, re-engineering and strategic consulting have lost no importance since the early 1990s, while post-merger integration and customer relation management have stayed in demand since the mid-1990s. Moreover, technological innovations such as electronic commerce and Internet technologies now belong to the main drivers.
Particularly CSC
Ploenzke, American Management Systems and IBM Unternehmensberatung have benefited from this development (MCI, April 1999). The main client industries are telecommunication (due to the deregulation and new formation of the market) and the banking sector (due to major changes in terms of e-business, mergers, and corporate restructuring). In the foreseeable future, the trend toward mergers and acquisition will continue, since the market split between high-charging, international consultancies and medium-sized consultancies with a difficult market position is not going to change.
A continuing
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concentration and oligopolisation can hence be expected. Even mergers or joint ventures between larger consultancies in Germany are likely.
Due to the continuing growth, the
recruitment difficulty will be faced by exploring new recruitment pools (such as social scientists) and headhunting among the large consultancies, which has long remained a taboo in this sector.
While large consultancies can be expected to grow by two-digit rates, the
consulting market in general, according to BDU (1998: 13), is expected to grow only by 8 per cent.
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4.7
France (by Ludovic Cailluet and Matthias Kipping)*
4.7.1 Historical Development Management consultancy activities in France developed earlier than in most other European countries, mainly driven by engineers (Kipping 1997).
However, most of the
subsequent developments in the French consultancy market occurred under foreign influences, with ideas and service providers of American origin playing an especially important role. The foreign consultancies proved most successful in cases where they used the services of members of the French educational elite, i.e. the graduates of the so-called Grandes Ecoles, to gain access to potential clients. In addition, most of them also hired French nationals as consultants who, in a number of cases, became independent and established their own consulting firm. At the beginning of the 20th century, both the existing French and foreign consultants benefited from the interest of French engineers and managers in scientific management. Leading representatives of the engineering profession, such as Henry Le Chatelier or Charles de Fréminville, helped make Taylor’s ideas known in France. Owners and managers also showed some interest in the new methods, but appeared, on the whole, less enthusiastic (Fridenson 1987). The main beneficiaries of the French interest in scientific management appear to have been consultancies of American origin. Harrington Emerson, a competitor of Taylor in the United States, was the first to open an office in Paris in 1914 (Moutet 1975). It was headed by the Italian engineer Morinni who had earlier studied Emerson’s organisation methods in the United States and now introduced them in a number of French metal-working and automobile factories. Shortly after the First World War, C. Bertrand Thompson, a Taylor disciple and professor at the Harvard Business School, established a consultancy in France. Little is known about the activities and clients of Thompson in France.
His consultancy seems to have
disappeared during the 1930s. One of his consultants, however, Paul Planus, established his own consultancy in 1929/30 and went on to become one of the leading French service providers in the subsequent decade with a professional staff of 35 shortly before WWII (Moutet 1997: 33). Planus was clearly influenced by American management methods. Not
*
Ludovic Cailluet would like to thank the editors of Consulting (Gilles Forestier and Caroline Dupuy) for their support in collecting some of the most recent data.
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only had he worked with Thompson for about 10 years, he also went to the United States in 1932 or 1933 to study a number of companies there, including Ford, General Electric and Macy’s (Meuleau 1992: 868 and 871). Another influential American consultant in France was Wallace Clark who opened an office in Paris in 1926, but was also present in a number of other European countries. His approach to production planning and scheduling was based on the graphic analysis of the production process developed by Henry L. Gantt (Moutet 1997). Apparently, his first client in France was the subsidiary of Eastman Kodak, but he subsequently also worked for Pechiney (see below). His Paris office was headed by an American, the MIT graduate K. B. White, which might have somewhat limited his access to French clients. It was indeed not Clark, but two other consultancies of foreign origin who benefited most from the expansion of the French consultancy market during the 1930s, when many companies showed a renewed interest in rationalisation. Both of them succeeded in establishing close contacts with the French elite. One of them was Ernst Hijmans, the leading Dutch Taylorist, who had founded a consultancy called RBO (Hellema and Marsman 1997). Hijmans’ attempts to establish a foothold in France during the late 1920s remained largely unsuccessful. Success only came when he associated himself with Jean Coutrot to form the Bureau des ingénieurs-conseil en rationalisation or BICRA in 1930/31 (Dard 1993: 45-9, Moutet 1997: 214-18). They had first met at the 4th International Scientific Management Congress in Paris in 1929. Coutrot had been a student at the leading engineering school Ecole Polytechnique, but apparently never graduated, because he was drafted into the army during the First World War. Very active in the scientific management movement, he had good connections with French companies, especially in the public sector. These were to form the backbone of BICRA’s clientele in the subsequent decade. Coutrot himself showed very little interest in the actual activities of the consultancy, which centred on planning, i.e. the systematic organisation of production processes.
He probably saw consulting as one additional way to disseminate his ideas.
Nevertheless, when Coutrot died in 1941, the BICRA disappeared. But during the 1930s in France, like in most of the industrialised world, the most important service provider was the consultancy established by Charles Bedaux in the United States in 1916/18. Born in a Paris suburb in 1886, Bedaux never completed his secondary school education and emigrated to the United States in 1906 (Christy 1984). Looking for a get-rich-quick scheme, he was finally successful with his own method of scientific
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management, designed to measure and increase or –like most trade unions claimed– "speed up" human effort. It standardised all tasks according to a single unit of measurement, the so-called "B". Standard pay was based on 60B per hour and workers earned a bonus for achieving more. From its first office in the American Mid-West, the Bedaux consultancy expanded rapidly across the United States and around the globe (Kipping 1999a). While somewhat of a late starter compared to the Bedaux offices in other countries, the Société française Bedaux progressed quite rapidly in the 1930s, especially during the second half of the decade. By 1939, it apparently employed a staff of about 80 consultants and had installed the Bedaux System in a total of 350 plants (Laloux 1950: 10-1). While French subsidiaries of US clients, notably the Goodrich factory in Colombes near Paris, were among the first to install his system in France, much of Bedaux’s subsequent success was due to his good contacts with the French elite. They came, on the one hand, through his brother Gaston who had graduated from the Ecole des Ponts et Chaussées and, on the other, from the first head of the French office, Luis B. Duez, a graduate of the civil engineering school Conservatoire National des Arts et Métiers or CNAM. From the 1930s, Bedaux also spent much of his time in France where he had acquired the Chateau de Candé in the Loire valley.19 The expansion of consultancy activities in France, which had commenced during the 1930s, continued more or less unabated in the subsequent decades, when a "second generation" of service providers emerged, namely André Vidal in 1942, Pierre Michel in 1946, and Yves Bossard in 1956 (Henry 1994). But the surviving earlier consultancies also thrived, for example Paul Planus who employed almost 80 consultants by the end of the 1950s. The vast majority of these service providers were firmly anchored in the Taylorist tradition which is also reflected in the name of their professional association established at the end of the 1940s, Association française des conseils en organisation scientifique or AFCOS. While continuity prevailed in the immediate post-WWII period, there were also a number of changes and new trends, once again largely influenced by American ideas. First of all, operations research was well received by many French engineers and economists, who had a strong grounding in mathematics (Locke 1989).
Some of them
established consultancies, which later on became successful service providers in information technology, including the Compagnie générale d'organisation, founded in 1951 and renamed Compagnie générale d'informatique or GCI in the late 1960s, and the Société des
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mathématiques appliquées or SMA, established in 1957, which under the name Sema Group is still today among the largest IT consultancies in France and in Europe. Among the reasons for its current success are probably the contacts of its Director, Jacques Lesourne who was the best graduate from the Ecole Polytechnique in his year. Secondly, American human resource approaches and psychological techniques also found their way into France, mainly through the Cegos (Henry 1994, Boltanski 1987). The Cegos goes back to the Commission générale de l'organisation scientifique du travail or CGOST, established in 1926 by the French employers’ organisation and a number of leading industrialists to promote scientific management.
It was renamed Commission générale
d'organisation scientifique or CEGOS in 1936. For a long time, the Polytechnique graduate Jean Milhaud animated the activities of the Cegos (Weexsteen 1994). He saw it as a forum for the exchange of experiences between practitioners, organised in a number of groups devoted to specific topics, such as the determination of production costs, logistics or stock management. After the Second World War, the Cegos gradually developed into a consultancy, offering training programmes and advice for a fee. Finally, the immediate post-WWII period also witnessed an increased interest in market research. All of these trends came to fruition during the 1960s, when French companies faced increasing competition, from both European firms and US multinationals, as a result of the creation of the Common Market following the Treaty of Rome in 1957. At the same time, they had been expanding and diversifying their own activities since the end of the Second World War (Jones 1996: 46-52; Fridenson 1997). As a consequence, French firms looked for solutions which promised to address their growing organisational complexity and make them more market-oriented and competitive. This, in turn, led to profound changes in the nature of the French consultancy market (Henry 1994: 54-7). Some of the older consultancies, like Bossard who merged with Pierre Michel in 1962, adapted their services and benefited from the increasing demand for outside advice. Those who continued to focus on the shopfloor and scientific management declined and finally disappeared. For example Paul Planus was acquired by Vidal during the 1960s, which in its turn vanished in 1980. The major beneficiaries of these developments were the American consultancies which had been expanding to Europe from the late 1950s (McCreary 1964; McKenna 1997; Kipping 1999a). Like many of their European counterparts, French companies, probably saw them as 19
It became the site for a number of extravagant social events, including the wedding of the former Edward
111
the best placed to offer up-to-date advice on how to compete with the US multinationals. Booz Allen & Hamilton opened an office in Paris in 1960, McKinsey in 1964 and Arthur D. Little in 1967, followed in the subsequent decade by a number of others, including the Boston Consulting Group (BCG). All of them focused on corporate-level consulting, working almost exclusively for chief executives on problems concerning organisational structure and strategy (McKenna 1995). In France, these consultancies succeeded in establishing corporate strategy as the "noble" segment of the market (Henry 1992). McKinsey was particularly successful in France during the late 1960s and early 1970s. Probably based on its reputation for the introduction of decentralised organisational structures (the so-called M-form), it managed to obtain a number of high-profile assignments with large and well-known French companies such as Pechiney, Lafarge, Rhône-Poulenc, Crédit Lyonnais or Total. However, this success appears less impressive, when compared to Germany where the consultancy grew very rapidly from the 1960s and soon became the predominant service provider, both in terms of turnover and (public) perception. By contrast, the position of McKinsey in France was much more volatile. In the early 1980s, the Paris office seemed doomed. Many of the consultants were re-deployed to Düsseldorf and Milan, the remaining few told "It’s over". But five years later, McKinsey France started to grow again and by the mid-1990s was number five in the market according to turnover, employing almost 100 consultants (Ramanantsoa 1994: 30). A second wave of American service providers entered the French consultancy market during the 1980s. They were linked with the large Anglo-American accountancies, today – after a series of mergers– known as the "Big Five". Most of them had established offices in France, like in other European countries, since the 1950s, either independently or in association with existing, domestic accountancies. From the 1980s they expanded massively into consulting activities, namely via information technology. Like in many other countries, these huge accounting and consulting conglomerates also made significant inroads into the French market. But some of the earlier French consultancies managed to maintain a strong position. This was especially the case of Bossard and the French IT consultancies. Some of them have also internationalised quite successfully over the last decade. In 1989, Bossard merged with the Scandinavian consultancy SIAR which was founded in 1966 by academics from the
VIII with Wallis Simpson.
112
Stockholm School of Economics, but subsequently moved away from its origins and focused on strategy consulting (Engwall et al. 1993). In the mid-1990s, the combined consultancy was ranked 17th in Europe. The most rapid internationalisation of any French consultancy was without doubt realised by Gemini Consulting.
It was established in 1990/91 when the
computer and software services firm Cap Gemini Sogeti acquired the French consultancy Gamma International and the two US-based consultancies United Research and Mac Group, and combined them with its own consulting activities. In the following year, Gemini also took over one of the largest German consultancies, Gruber, Titze & Partner and, in 1998, BossardSIAR. While the ownership of Gemini Consulting is predominantly French, its corporate culture and its image appear largely American, symbolised by the location of the headquarters in Morristown, New Jersey. As the above historical overview has shown, during most of the 20th century the French consultancy market has been influenced to a large extent by service providers and managerial know-how of American origin. Those consultancies which managed to gain access to the domestic elite, notably through contacts with one of their leading representatives, appear especially successful. The direct and indirect US influence clearly mirrors the "fascination" of French engineers and managers with American management methods (Boltanski 1981; Kuisel 1993).
4.7.2 Consulting as a part of the French economy in the 1990s 4.7.2.1
Introductory remarks
Pretending to look at the “consulting profession” in France is misunderstanding a very complex reality. Except for a very few giant networks, the so-called “Big Five” there is no consulting firm that can offer a complete or comprehensive consulting service from accounting to audit, information technology (IT), human resources (HR) and strategy. Moreover, many firms though specialised in an area of consulting (strategy, organisation, HR, IT etc.) tend to diversify their offer integrating various activities alongside their original area of expertise. The sector is characterised by its diversity despite the concentration symbolised by the major league tables of the 20 or so largest firms. The available information is relatively scarce, its quality often rather poor in quantitative terms. There are papers published in the specialised and general press but these are usually based on secondary material provided by professional associations or commercial publishers.
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The only French specialist journal is Consulting – a monthly publication which also edits a yearly directory of consultants with some insights about the major trends affecting consultants in France. Management Consultant International also quite regularly publishes articles about the French market. Contrary to its reputation in Europe, the French statistical system is not very helpful when trying to understand the consulting sector. The French, like most public statistics tend to be designed for industrial activity, i.e. focusing on physical assets, investments, etc., and according to an economist model. Like elsewhere, the problem is one of definition (see above Chapter 2.1). We will consider in our survey about France two large groups of consultants: (1) the accounting and audit firms and (2) the general consulting firms. Traditionally, the latter group is divided between “organisation” and “strategy” consulting. Public statistics distinguish slightly different clusters according to the original professional affiliation of the company. There is no proper long-run statistical series regarding the sector as defined in the CEMP survey. In fact, the classification has changed over the period 1990-1999 from the so-called NAP to the new NAF system. It is therefore difficult to make comparisons over the whole decade. In addition, the sub-classifications are usually too large, consolidating all professional services (such as legal consulting) in the early 1990s figures. The national statistical agency (INSEE, Institut National de la Statistique et des Etudes Economiques) and the Ministry of Industry’s own statistical service (SESSI, Service des Statistiques Industrielles) produce data on the sector. Their annual surveys use sub-sectorial sections of the NAF (Nomenclature des activités françaises). Consultants are considered under three NAF codes: •
74.1G Conseil pour les affaires et la gestion (management and business administration, HR and PR consulting)
•
74.1C Activités comptables (Accounting activities)
•
72.1Z Conseil en systèmes informatiques, (IT systems consulting)
These three groups represents a possible system to analyse the consulting service sector in France. However, one has to bear in mind that the three activities often overlap, given the fact that many consulting firms offer an integrated consulting package. Moreover, the validity of the numbers themselves is questionable. Cedes and Algoe in their 1992 survey on small-sized
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consultancies realised that 42 per cent of the firms, included by INSEE under the corresponding code did not exist any more or were not reachable for enquiry (Hugot 1997).
4.7.2.2
Size and productivity of the consulting actors
According to the SIREN database of French firms managed by the French statistical office (INSEE) management consulting firms are mostly small units in temrs of employment. Table 4.7.1: Number of firms and size measured by persons employed in 1996 NAF Code/Activity
Total units**
Number of full time employees* 0 or NN*
1-9
10-49
>50
74.1G - Management consulting
51168
31623
18233
1156
156
74.1C - Accounting services
23792
7654
13040
2978
120
72.1Z - IT systems consulting
12010
6838
4333
636
203
Total
86970
46115
35606
4770
479
As a percentage of the total
100%
53%
41%
5.5%
0.5%
Source: INSEE-SIRENE *NN=numbers of employees unknown (marginal according to INSEE) **i.e : headquarters+branches
A very large part of the business is ran by individual consultants with more than 65 per cent of the companies having no employees at all in the management consulting sector. The average size firm employs 2.9 in management consulting, 7,3 in accounting, which reflects the domination of the “Big Five” among the latter. These figures highlight a very important character of the sector: consulting is often a one man/woman show. In terms of the productivity, measured as turnover per employee, the verdict has to be more contrasted.
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Table 4.7.2: Top 10 productivity performance of audit/accounting 1997 Company
Turnover per employee in FF
1. Befec Price Waterhouse
879,000
2. Arthur Andersen
876,000
3. E&Y audit
790,000
4. Coopers Lybrand Audit
743,000
5. Calan Ramolino
723,000
6. FCC audit et conseil
718,000
7. Groupe Alpha
703,000
8. Syndex
677,000
9. Concorde Européenne audit
673,000
10. Salustro Reydel
671,000
Source: Isaac 1998
It is interesting to note that some of the “Big Five” like Deloitte,Touche & Tomatsu (n° 14) or KPMG (n° 20) were in 1997 lagging behind smaller French competitors in terms of productivity. In management consulting the importance of the fees of the most prestigious firms explains their very high level of productivity per head. Average salary is also higher than in the accounting profession. The average revenue per consultant was FF 1.16 million in 1997. However, the leading management consulting firms such as BCG or McKinsey are boasting more impressive figures with “productivity” above the FF 2 million mark.
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Table 4.7.3: Top 10 productivity performance in management consulting in 1998 Company
Turnover per consultant in FF million
1. McKinsey
2.9
2. Boston Consulting Group
2.4
3. A.T. Kearney
2.3
4. Roland Berger & Partners
2
5. Alma-PRG
2.1
6. Mercer Consulting Group
1.9
7. Bain & Cy.
1.8
8. Bull Consulting
1.8
9. Arthur D. Little
1.4
10. Expertel Consulting
1.1
Source: Consulting, June 1999
This table confirms the predominance of the strategy consultants, the “noble” segment of the market (Henry 1992). They seem to have the ability to extract high fees from their clients, based on the notion that they provide high value. Some of the most important productivity gains have been made by consulting companies merged with or acquired by larger firms. The merger has usually been followed by restructuration measures leading to a better performance (Isaac 1998).
4.7.2.3
Spatial repartition of consulting activities
The spatial distribution of consulting activities is unsurprising given the French tradition of centralisation. All but a few ministries and central administrations are located in Paris; and so are the majority of the élite public service, business and engineering graduate schools. The largest consulting firms, especially those operating in strategy consulting have obvious incentives in establishing their main office in Paris, preferably in a prestigious district. Despite the cost of real estate, a Parisian base is compulsory to maintain high level connections with government officials, finance and business leaders. The proximity to élite academic institutions facilitates the recruitment process in a sector in which the competition is fierce to attract the best talent. Most of the headquarters of major firms are located in the larger Paris area (i.e. : 8 geographical administrative units called départements) in the Île-de-France administrative
117
region. It includes for instance La Défense, the Paris business district located in the Hauts de Seine (Dept. 92) and not Paris itself (Dept. 75). The tradition of centralisation does not imply that the consulting business is absent from the regions. Paris happens to be a very convenient hub, since high speed train (TGV) networks are all connected to the capital. For example, it takes only two hours by TGV to Lyon, the second largest town of the country and an important business centre, with trains running to and from Paris every hour.
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Figure 4.7.1: France, administrative regions
The firms based in the Paris region (Île de France) account for 53.4 per cent of the total number of firms involved in management consulting according to SIREN the database of INSEE. Provincial France lags far behind with the largest share of consulting firms based in Lyon (4%), Marseille (3.2%) and Lille (2.4%). The largest consulting firms may however have offices in large provincial towns: Lyon and Marseille, more rarely Nice, Nantes and Lille. The picture is not exactly the same for accounting services. Once again, the Parisian domination is obvious with a third of the employment and 40 per cent of the turnover (Isaac 1998).
However, the provincial presence is more important.
According to the relevant
professional body (Ordre des experts comptables), the Rhône-Alpes region and its capital Lyon come second to Paris, followed closely by Provence, Alpes, Côte d'Azur (Marseille), each accounting for about 10 per cent of the practices in accountancy (and related consulting). The Aquitaine region (Bordeaux), the Pays de Loire (Nantes) and the traditional industrial region of Nord-Pas de Calais (Lille) accounts for ±4,5 per cent of French chartered accountants. In
119
1996, INSEE calculated that 83 per cent of the accounting/audit firms were employing less than 10 people (Cases 1999a).
4.7.3 The role of regulation and the state 4.7.3.1
Professional regulation and representation
Consulting being an intellectual construction as mentioned earlier, there is no unique institution neither regulating nor representing these activities. The most important difference separates the management and IT consulting sector from the accounting/audit firms. Surprisingly enough in the French context, the consulting is not regulated by the law. “Despite France’s reputed passion for Red Tape, management consultants have remained free to set their own professional standards and carry ou their own quality controls.” (Brown 1997). This is quite different from the accounting profession. Indeed, in France the staterecognised quality label is very important to establish the reputation of a profession. The lack of external recognition gives a disadvantage to management consultants compared to chartered accountants on the SMEs market. The representation of management consultants is as diverse as the sector itself. The most active trade association is Syntec (Groupement des syndicats Syntec d'études et de conseil), claiming to represent between 40 and 60 per cent of the existing firms (figures vary by sub-sectors: management, IT, recruitment, HR, etc.) and half of the sector’s turnover. The organisation does not accept medium-sized or very small firms and its members are organised in four divisions: management, marketing & opinion surveys, recruitment and public relations consulting. An important role of Syntec is to defend the interest of the consultancies in salary negotiations of the sector with trade unions. In the 1990s Syntec has tried to improve the image and standards of management consultancy. Together with the association of consulting engineers and with the support of the Ministry of Industry it created a training and qualification body: the Office professionel de qualification des conseils en management (OPQCM).
By 1997, more than 900 French
consulting firms had obtained the OPQCM quality certification. Another group created in 1958 should be mentioned, which represents in-house consultants from large enterprises: the Association française d'organisateurs permanents dans les entreprises (AFOPE).
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By contrast, accounting/audit activity is regulated by the state and, as a consequence, is more tightly organised than others.
French commercial law distinguishes three activities
related to accounting services: •
Commissariat aux comptes: the Commissaire aux comptes certifies the validity and fairness of accounts. Chosen by a company to certify its books, he is supposedly independent from the expert-comptable in charge of keeping it. In that regard, the profession has been shocked by recent scandals (Crédit Lyonnais, Crédit Foncier). As a result, following the lead of the big accounting practices such as KPMG, Arthur Andersen and Calan Ramolino, many firms hope to reassure their clients by obtaining an ISO9000 quality certification.
•
Expertise-comptable: the expert-comptable holds a national diploma in recognition of his/her capacity to keep the books, revise and consolidate the accounts of companies. It is a liberal profession protected from competition by tight regulations. The compulsory seven years curriculum (including an internship) to access to the degree is the main defensive asset of the profession. Many expert-comptables are also commissaires aux comptes for companies.
•
Audit: unknown in the French accounting tradition until the Second World war, auditing is an imported concept. The auditors control the internal accounting procedures of firms. They are widely used by publicly held companies needing a high level of quality regarding the financial information to shareholders.
There are different bodies in charge of the regulation and the interest of the accounting profession in France. The Compagnie nationale des commissaires aux comptes and the Ordre des experts comptables et comptables agréés are chartered companies or “corporations” (in the middle-age sense) in charge of ethics and discipline questions. They are organised at national and regional levels. They actually act as interest groups for the two activities and participate in the regulation and the normalisation efforts in close co-operation with government offices. The Institut français des expert-comptables (IFEC) is a union whose aim is to highlight the ability of accountants to diversify into general management consulting. Finally, under the supervision of the Finance Ministry, the national accounting council CNC (Conseil national de la comptabilité) and the committee of accounting regulation CRC (Comité de réglementation comptable) are supposed to defend the French doctrine in the international debates and institutions dealing with accounting standardisation.
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4.7.3.2
The role of state in promoting consultancy use
Since 1984, the French government has developed various programmes to help small and medium-sized enterprises (SMEs) to use consulting services.
The price is usually not
considered a major factor of choice for consulting services as far as large firms are concerned. However, fees are often considered too costly by smaller structures. There are several systems of support from public bodies to encourage entreprises to use consulting services (Consulting 1998a). Most funds are earmarked for support to SMEs. The programmes are supervised by various agencies of the Ministry of Industry and the Ministry for Employment (Ministère du travail, de l'emploi et de la formation professionnelle). They are managed at regional or local levels. The main programmes are: • Fonds Régional d'aide au conseil (FRAC) for independent SMEs employing less than 500 people. The funds cover up to 80 per cent of the cost for short consulting missions or 50 per cent of longer missions within a FF 200,000 limit. • Aide au conseil aux entreprises (ACE) directed at all firms only for HR consulting missions. 20 to 50 per cent of the total cost are covered, limited to FF 400,000. • Aide aux services de l'innovation offered to all firms except large groups and their subsidiaries. The programme could cover up to 50 per cent of the cost for innovationfocused missions or surveys by consultants. • Fonds régional d'aide au transfert de technologie (FRATT) for independent SMEs employing less than 500 people. The FRATT covers 50 per cent of the cost of technical studies in the case of innovative processes.
The consultants widely recognise that since the early 1980s the role of state has been central in the developement of their activities with respect to small and medium-sized enterprises.
4.7.4 The Supply of consultancy services The diversity of the consulting sector makes it difficult to draw an exact portrait. However, there are trends common to most activities. The growth of consulting services in the period, the change in the nature of the demand, the restructuring of multinational enterprises in consulting services has led to a transformation of the sector in France.
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Table 4.7.4: Some M&A activities in consultancy/accountancy in France in the 1990s Companies
M&A targets
Domain
Algoe
Innovation Consultant IBD Ten Conseil
Change management
Calan Ramolino
Orige OCM
Management Organisation, IT
CSC
Ouromoff KPMG Peat Marwick
Strategy/Organisation Strategy/Organisation/IT
Deloitte
Braxton WA Conseil Calan Ramolino
Strategy Reporting systems
EDS Management Consulting
A.T. Kearney Eurosept
Strategy/Organisation IT management consulting
Eurogroup
Eurostrategy (UK)
Strategy
Ernst & Young
Eurexpert Coref ID Partners Reportstream ACP Conseil Altis Assseha
Software 'Problematic' companies consulting IT Reporting & consolidation systems Payment systems Transversal processes organisation SAP/Hospital management
Gemini Consulting
Gamma International Mac Group (USA) United Research (USA) Eurostart
IT Process organisation
KPMG Peat Marwick
FBO
Financial expertise
Mazars
Guérard Viala
Audit
Mazars&Guérard
Quadrant Eurogroup Consultant
Management Management
Strategy.
Mercer Management ConsultingMID
Strategy
PriceWaterhouse
Business & Decision Betec
Strategy/Organisation Strategy
PRG
Alma
Organisation
Stratorg
Martichoux
Agriculture and food sector specialist
Solving International
Anthos Sailing Software
Sources: Martinet 1997, Consulting, MCI
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4.7.4.1
A typology of consulting services in France
The so-called “Big six” and since 1997/98 “Big Five” are the world’s largest audit and consulting firms: Arthur Andersen, KPMG, Ernst & Young, PriceWaterhouseCoopers, Deloitte Touche Tomahatsu&Calan Ramolino. The firms have usually adopted the form of independent networks, the stock belonging to partners. They offer a large competence base integrating in particular IT solutions with organisation consulting. Due to the international nature of their network and practices, they have a built-in competitive advantage regarding internationalisation. As French large firms and more and more SMEs are very active in pursuing an internationalisation of their activities, the “Big Five” bring potentially a very efficient response to their demand. These accountancy multinationals have all opened French subsidiaries at least since the 1980s. This is no surprise, since France is considered as a relatively under-developed market in Europe with potential for growth (Consulting 1999). Their problem in France like most everywhere else has been to diversify into consulting, an activity with higher growth perspective than auditing.20 Usually, these large firms have developed their activities in France by acquiring smaller domestic consulting firms or practices of foreign origin already operating in the country. Table 4.7.5: Top 10 multi-competence consulting networks in France in 1998 Fee split in per cent
Accounting services and consulting
Audit services and consulting
Organisation and management consulting
1. KPMG Fiduciaire de France
38
23
10
2. Coopers & Lybrand
21
43
21
3. Fiducial
55
1
13
4. Deloitte & Calan Ramolino
19
47
17
5. Ernst & Young France
19
47
17
6. Arthur Andersen
8
62
9
7. Befec Price Waterhouse
-
63
18
8. Mazars & Guerard
21
60
14
9. Salustro Reydel
19
61
18
10. Groupe Constantin
40
57
-
Sources: La Profession comptable 1998; Isaac 1998
20
This diversification process has not always been smooth, and sometimes led to bitter recriminations and infighting, namely in the case of Andersen Consulting and Arthur Andersen (Fay 1999).
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Note: Acccording to Management Consultant International, in 1997 the activities of Price Waterhouse Conseil were almost evenly spread between IT (30%), HR (10%), Strategy (25%), Marketing (10%), Financial (15%) and Change management (10%).
Other service providers have also a rather diversified portfolio of activities. Allis, SV&GM, Eurogroup, Cleversys, Orgaconseil, Ernst & Young Conseil receive a larger share of their revenues (35 to 40%) from IT consulting. The weakness of the Big Five is in strategy consulting which is why they try to buy competence in this domain. Price Waterhouse for example, despite its long-established presence in France (since 1917) as an auditor, has only diversified into consulting in the late 1980s. And in 1995, it acquired BETEC Conseil to develop this line of business in France. More recently, the Big Five are threatened in France and elsewhere by IT specialists trying to integrate the management consulting dimension with their activity of systems reselling and implementation. This is the case of IBM Services, CSC or EDS. Another important group of actors are the major strategy consulting firms. With a few exceptions, such as A.T. Kearney (EDS) and Braxton (Deloitte) these firms are independent and belong to their partners. There are maybe 30 significant players on the French market in this profitable and prestigious category. The “old” American firms A.D. Little, Bain, BCG, McKinsey dominate this category. They are followed by French firms more focused on niche markets or specific industrial sectors, e.g. Mars & Co or Stratorg. Non-American foreign firms are rarer, however, Roland Berger from Germany and JMA Consultant International from Japan have entered the French market in the 1990s. The activities of the smaller consulting firms are often focused on specific industries and niche markets. Extremly narrow segments could create very good opportunities for small firms. For example, DeVenir is a specialist of consulting for consulting firms. Several others have developed competence in French speaking help desks (Consulting, April 1999), or frontoffice marketing tools. Medium-sized French consulting practices tend to organise themselves in networks at a regional level for accountants and at a European level for management consultants. Orgaconseil and Algoé have chosen this solution (De Clapiers 1998). The former has formed the EI (European Independents) network with German, Italian and Spanish partners. However, while these networks are supposed to help with the internationalisation of predominantly national consultancies, they are still yielding only a marginal part of their turnover (less than 10%).
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There are also consultants employed by large firms inside specialised departments. Very large firms like the national electricity monopoly Electricité de France (EDF) has created EDFSPT. This division employs about 100 people and is in charge of training and consulting missions throughout the group.
4.7.4.2
The largest consultancies in France
The following tables show that the composition of the French consultancy market changed quite considerably during the 1990s.
At the beginning of the decade, service
providers of the French origin still played an important role, occupying the two leading positions and accounting for more than half of the largest 20 or so consultancies in France in term of revenues. Table 4.7.6: The largest consultancies in France in 1992 (ranked by revenue) Origin
Turnover (in FF million)
1. Cegos
France
452,4
2. Bossard
France
434,8
USA/UK/NL
182,9
4. Coopers & Lybrand Consultants
USA/UK
163,2
5. Gemini consulting
France/US
139,7
6. Ernst & Young Conseil*
USA/UK
135,3
France
135
8. Deloitte & Touche Conseil
USA/UK
132,1
9. Boston Consulting Group
USA
125
???
109,6
France
94,7
USA
86,6
France
80,5
USA
76,3
USA/UK
71,9
???
70,9
17. Eurogroup
France
69,5
18. ORESYS-LYSIS
France
56,7
19. S2com consulting
France
40
20. Eurysis Consultant
France
28,6
3. KPMG Peat Marwick*
7. Telesis
10. Normax ORS 11. INSEP 12. A.T. Kearney 13. SV&GM** 14. Hay Management Consultants France 15. Price Waterhouse Management Consultants* 16. MV3
Source: Isaac 1998 Note: * 1993, ** 1994
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As the following table shows, by the end of the 1990s, this picture had changed quite dramatically. Now the clear majority of service providers was of US origin (at least partially). Table 4.7.7: The top 30 firms operating in France in 1999 (ranked by revenues) National Date of Turnover France as Consultants Domain Origin Entry (FF % of in France million) global turnover 1. Andersen Consulting USA 1989 2,200 3.7 2,000 Multiple 2. CSC Computer Science USA 1,050 5.2 1,100 Multiple 3. Gemini Consulting F/USA 1998* 984 600 Multiple 4. PriceWaterhouseCoopers USA/UK 1998** 649 2.9 600 Multiple 5. Ernst & Young Conseil USA/UK 1986 576 2 577 Multiple 6. McKinsey & Co USA 1964 470 2.8 160 S,M,O 7. Deloitte Consulting USA/UK 1983 393 400 Multiple 8. Boston Consulting Group USA 1972 384 7.5 160 S, M, O, HR 9. A.T. Kearney USA 375 162 S,M,O 10. Unilog Consulting ??? 334 297 M, O, IT, HR 11. Booz Allen & Hamilton USA 330 2.7 130 S, M, O 12. Sema Group F/UK 196? 325 25 300 M, O, SI 13. SV & GM France 1986 260 100 250 M, O, IT, HR 14. BPI ??? 230 92 280 M, O, HR 15. Altedia ??? 206 100 180 M, O, HR 16. Arthur Andersen USA 205 3.1 200 Multiple 17. Steria ??? 180 200 M, O, IT 18. Mercer Consulting Group USA 180 92 S, M, O, HR 19. Eurogroup France 165 162 Multiple 20. Algoe France 157 97.5 140 S, M, O 21. Cegos France 1955 150 ? Multiple 22. Bain & Company USA 1973 148 80 S 23. Groupe Alma-PRG France 1986 148 12.9 67 M, O 24. Orgaconseil France 1973 142 160 Multiple 25. Bull Consulting France 126 36.2 70 IT 26. Publicis Consultants France 120 110 S 27. Roland Berger & Partner Germany 1990 120 5.4 60 S, M, O 28. Expertel Consulting ??? 117 102 M, O, IT 29. Arthur D. Little USA 1968 115 2.7 80 S 30. Garon-Bonvalot France 115 110 HR Source: Consulting, Professional Directory 1999 Notes: Consulting considers the activities of management consulting to be organisation, IT (excluding software devlopment and marketing), HR (excluding recruitment and in-house training). *1956 for Bossard and 1988 for Gemini **1970 for Coopers, 1992 for PW
While consultancies of French origin continue to make up about half of the largest 30 service providers in France, they have almost been completely relegated from the top 10, with the
127
exception of Gemini Consulting which is French-owned, but largely run from United States. (Its headquarters are in Morristown, New Jersey). Thus consultancies of US origin have become very predominant. The following graph shows to what extent they have been driving the development and the growth in the French consultancy market in the last 2-3 years, and especially in the last year. Figure 4.7.1: Revenue growth of the top 10 in France, 1992-1998 (1992 =100) 300
272
250 183.1
200 156.3 150 100
108.3
110.2
1992
1993
1994
127
100 50 0 1995
1996
1997
1998
Source: Isaac 1998
4.7.5 Changes in the demand for consultancy services The large scale demand for consulting in France has really emerged in the 1980s. Except for the very negative period of the Gulf war and its immediate aftermath, the 1990s appears as a period of growth for these activities. Many firms began to outsource several non-core activities and, as a consequence, used more and more external experts to solve problems. In terms of the clients, it is estimated that the public sector accounts for a third of consultancy revenues (Isaac 1998). This is probably a reflection of its importance in the French economy and business culture and a consequence of the decentralisation efforts since the late 1980s. Assignments of consultants in ministerial departments and state controlled companies have indeed become more and more common during the last decade. This is particularly true for HR and change management. Booz Allen, Hamilton, Bernard Brunhes Consultants and Orgaconseil, for example, earned between 7 and 12 per cent of their fees from government sector assignements in 1997 (Adams 1997). The public service sector and more
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importantly the regional and local authorities who gained financial autonomy in the 1980s are considered to be promising market niches in the future (Consulting 1999). Nevertheless, the private sector was and remains the major market segment for consulting firms. The financial and telecommunications sectors have been major clients for consulting in the 1990s, representing between 15 and 60 per cent of fee income for the largest consulting firms (Adams 1997). These sectors have been deregulated since the late 1980s and were faced with major changes in their competitive environment and their internal structures and processes. They have hired consultants mainly in the areas of technology, strategy, HR and corporate culture. Manufacturing remains an important market too for consulting with the globalisation of its markets. Impacting on most large firms, the integration of IT systems is a very important part of consulting activities. There has been a technological jump since the mid 1990s with the implementation of Enterprise Resource Planning (ERP) software packages such as SAP, Peoplesoft, Baan or Oracle. Front office systems have also pulled the market for consulting in the same way (De Clapiers1998). Traditionally, consulting missions were divided into two classes: organisation and strategy. The evolution of the activity in the 1990s has erased this division. Consultants are diversifying their portfolio and fields of intervention, most of the major firms trying to offer fully integrated interventions. Some of the “star” products of the 1980s are still sold in the 1990s: project management, management by objectives, de-layering of organisations, network organisations have kept their appeal for some clients (Consulting 1999). The main products offered by management consulting firms in the 1990s have, however, been innovative ones (Simonet 1997). They are focused on the integration of IT, the concept of value, awareness to the market environment of the firm. An (incomplete) list might include the following: • Benchmarking, an innovation introduced in France by Bain & Co, using sophisticated quantitative methods; Andersen Consulting and McKinsey have offered similar products based on the concept of economic intelligence. • Datawarehouse is a segment occupied by several smaller practices holding a very specific competence (e.g. Pinault, Leloup & Soubarramayer, BJC Consultants, Parker et Williborg). Bigger players like Bossard and Andersen Consulting are also present. • Shareholder value is a relatively recent segment in France with a strong position for Mercer Management Consulting.
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• Logistics is a fast growing segment following the supply-chain management wave pushed by retailing groups. The specialists here are PA Consulting and Stratorg. Some software and IT operators diversify into this segment, capitalising on their technical knowledge. • Outsourcing and co-sourcing are considered major segments for the next decade. Andersen Consulting considers that the segment will account for up to 40 per cent of its turnover in 2000, compared with 15 per cent in 1997. Outsourced services involve IT, bank back office, administrative and accounting processes and logistics. EDS offers client complete solutions to manage group information systems. • Change management has been a very common product, with its leaders Bossard and Gemini Consulting merging in 1997. • Time Based Management and other production methods to cut lead times and delays have been offered by several consultancy among whom the Boston Consulting Group emerges as a leader. • Quality and customer relation management • Business Process Rengineering was not only a management fad. Orgaconseil has worked on the concept of platforms with the integration of production and sales processes in large firms.
4.7.6 Recent trends According to Gilles Forestier, the Editor of Consulting, 1998 was the best year of the decade in terms of revenues for management consulting firms operating in France. This growth is explainable by very favourable circumstances, but is also based on “star” products. Over the last two or three years, consulting services have indeed been booming in France. The Euro has generated long and very profitable assignments for consultants of various specialities. So too has the continuing Year 2000 issue. A more specific French niche is the reduction of the legal working week time to 35 hours. This reform will be enforced from 2000 onwards in most French companies. It has been a growing source of contracts for small and medium-sized consulting firms. Regarding large firms, the exceptional number of mergers and acquisitions in the last months has also constituted a remarkable market for consultancies specialising in M&A and strategy.
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The same is true for products such as Customer Relations Management (CRM), the development of electronic commerce, supply-chain management and the latest trend: knowledge and competence management (Lewis 1999, Sarvary 1999). Performance analysis is a major products for the largest consulting companies. Called “performance measurement” (E&Y), “vital signals” (Arthur Andersen), '”corporate kompass” (KPMG PM) or “value-based management” (Deloitte), these methodologies all have in common to track performance evaluation and hidden costs and values. The problematic is more and more focused on growth however and less on cost-cutting. The supply-chain management consulting that integrates broad competencies especially in IT is also very popular. Its leading apostles are grouped in the Supply Chain Council promoting the SCOR (supply chain operations reference) model originally developed by the two consulting firms PRTM and AMR (Consulting 1999). Knwoledge management is a sequel of re-engineering.
The consultants engaged in this
discipline want to make re-engineered procesess now produce value by capitalising on the knowledge of personnel. IBM Consulting Group is one of the leaders in what might be just another management fad. France is influenced by the wave of concentration that affects the knowledge industry worldwide. Consulting multinationals are rivaling to take shares of this promising market. They have been encouraged by deregulation, restructurations in the financial industries and the privatisation of major enterprises. Large French firms are also keen to conform to new international standards in financial information and, as a consequence, look for the service of the “Big Five”. The French market for consulting is not yet mature, with growing demand of IT-based knowledge services (internet, intranet, e-commerce). It is, however, divided between a small group of very large and internationalised firms and a constellation of consulting SMEs. The latter try to organise in networksto survive (Cases 1997). They might be successful because of the very proactive role of the French regions in promoting consulting services and the indirect role of the state in enforcing the 35 hours working week reform.
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4.8
Italy (by Cristina Crucini)
4.8.1 History Compared to other European management consultancy markets, for example to Britain and France, Italy can be presented as a latecomer. In fact, even if Orga Srl, the first Italian consultancy formed in 1925, was second only to the Belgian Buck Consultants created in 1917 (United Nations 1993: 5), the first sustained development of the market took place only from the late 1950s. In the early stages, management consultancy in Italy developed around two main areas: scientific management and business administration, respectively supplied by Bedaux, which opened its Italian branch in 1927, and by Orga. Despite this early start, and despite the fact that in 1931 there were already 21 Italian plants with the Bedaux system (in the same period the UK had 30, France 16 and Germany 5) (Kipping, 1999a: 10), the consultancy market in Italy did not show any significant sign of growth until the 1950s. A measure of its “backwardness” is that fact that by the middle of 1954 there were only three consulting companies working in Italy.
At this early stage, the market was still focused around
production areas and technical aspects rather than around other consulting practices. From the mid-1950s onwards, the situation started to change quite quickly. In fact, following the significant economic growth in Italy during these years, the market experienced a first wave of expansion that continued till the early 1960s. Among the Italian consultancies created in this period we have to mention PGA (Pietro Gennaro & Associati), set up in 1955, because it was the first to introduce strategy advice in Italy. In the same years the first foreign consultancies, most of them American, entered the market: Booz Allen & Hamilton in 1956, Arthur Andersen & Co in 1957, A. T. Kearney, Arthur D. Little, Meat Carney and Cegos in 1959 (Faliva and Pennarola, 1992; Alpha Publications, 1996). Besides working for European subsidiaries of US multinationals, these foreign consultancies also had quite a few large Italian clients, including ENI (the National Hydrocarbon Agency), the retailer La Rinascente and the tyre producer Pirelli. Following the expansion of service providers, the first consultancy association ASSCO (Associazione di Società e Studi di Consulenza Organizzativa) was founded in 1960.21
21
After ASSCO, a second association was set up in 1968 (APCO, representing individual consultants) and a third one in 1982 (AICOD, a ramification of the Italian Industry Confederation). In 1996 ASSCO and AICOD merged to form ASSOCONSULT.
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After a period of recession in the first years of the 1960s, the Italian consulting market experienced a second phase of growth from 1965 to 1973. A new wave of both national and foreign consultancies started their activity in the Italian market. Among them were the Boston Consulting Group (BCG) in 196522 and McKinsey in 1970. From the end of the 1960s the high fragmentation of the consulting market became increasingly evident. It resulted from repeated spin-off phenomena, that is to say a “migration” of consultants leaving large groups to set up others (Lo Bianco 1988, Faliva and Pennarola 1992, Martini 1997). Italy, compared to other European countries, seems to be the one with the highest number of spin-offs in the history of its consulting market. Just to give an idea of this phenomenon, it should be sufficient to say that McKinsey in Italy had two big spin-offs. The first one in 1989, when fifteen consultants led by Gian Filippo Cuneo left the company and soon after merged with Bain creating Bain-Cuneo, and the second in 1993, when other fifteen ex-McKinsey consultants founded Value Partners (Alpha Publications, 1996). From the second half of the 1970s the demand for consulting services started to grow and differentiate significantly, in terms of types of services (the focus was on strategy and organisation, training and human resources) and in terms of clients, because of the demand expressed for the first time by the public administration and by small and medium-sized enterprises. The main consequence was a further expansion of the consulting market (in terms of the number of operators rather than of revenues), especially of small, national consultancies, which have contributed to the dispersed nature of the consulting supply. ASSCO estimates that more than 60 per cent of the Italian consulting firms existing in 1990 were created after 1980 and that their number doubled in the period 1985-87 (ASSCO 1990: 6). The growth of the market continued throughout the 1980s and 1990s, even if with quite remarkable oscillations: from an average of growth rate of 16 per cent per annum from 1986 to 1990 to only 2 per cent per annum until 1995 (Alpha Publication, 1996). From 1997, the market has started showing significant signs of recovery.
22
It has to be clarified that in 1965, BCG started its Italian activities under the name of BGA (a company resulting from a joint venture with the Italian PGA) and only operated under its own name from 1969, after the two companies had ended their co-operation.
133
4.8.2 Market structure and characteristics 4.8.2.1
Market size and consulting intensity
According to Feaco estimates for 1997, the Italian consulting market was the sixth largest in Europe with a total fee income of 580 million ECU (Feaco 1997: 2). It derives that, when compared to other European countries with similar GNP (like France and the UK) but with much larger consulting markets, the consulting intensity in Italy is much lower. Another measure of the low consulting intensity in Italy is represented by the fact that Italy accounted for only 3.2 per cent of the total European consultancy fees in 1996, despite the fact that the economy accounted for 14 per cent
of Europe’s total GDP (Management Consultants
International, 1998: 12). The fact that the Italian market for management consulting (as previously mentioned) has been a late developer, together with the large size of the small and medium-sized business sector (whose demand for consulting services started only during the 1970s) have certainly played a role in limiting the development of the consulting market. In fact, even if the familybased business culture has proven economically successful with its model of “flexible specialisation” (Piore and Sabel 1984), it had a big impact on management styles too. Italian entrepreneurs have characteristically shown a very low propensity to delegate their decisional power to outsiders (AICOD 1982) and to pay the costs for consulting interventions. This, according to many consultants, explains why there is a wide gap between what Italian SMEs are willing to pay for consultancy services compared to companies of equivalent size in other European countries (MCI, 1998: 13). On the other hand, the large public sector in Italy has never been a significant user of consulting services (until very recently). It has been estimated that in 1983 it accounted only for 3 per cent of the total income of the Italian consultancies, while in other European countries it generated 35 to 40 per cent (Varvello 1983: 49). The situation had slightly improved at the beginning of the 1990s, when the income generated by the public administration rose to 11 per cent (Alpha Publications 1992: 159) and to 12.9 per cent in 1995 (Alpha Publications 1996: 138).
In spite of this growth and the effects of European
integration, there is still very little to suggest that there will be significant changes affecting this situation (MCI, 1998:11). Last but not least, both deregulation and the privation processes of public sectors, which in other European countries had fostered the demand for consulting
134
services, started quite late in Italy (only from the end of the 1980s) and proceeded very slowly (The Economist 1997). If there is something in the structure of the consulting supply that could be related to the low consulting intensity in Italy, it could be its high fragmentation. In fact, the previously discussed intensity of spin-offs in Italy seems to have prevented the formation of large, national consultancies (Lo Bianco, 1988) and to have rather contributed to the dispersed nature of the consulting supply. Most of these small independent firms did not have resources to expand, and unless they were able to develop specific expertise in niche markets, they could not survive after consulting has increasingly become a capital-intensive industry (Butera, 1998). The ones who succeeded are very much confined to profitable but marginal roles in the national market. Another reason behind the low intensity of management consulting in Italy is the low presence of multinational enterprises in Italy, compared to other countries in Europe like the UK, France or Germany. This factor has to be taken into account when considering the role MNEs have often played in the development of consulting, as “bridges” between foreign consultancies and overseas markets, as well as helping national consultancies expand internationally (Kipping 1999).
4.8.2.2
Americanisation and market concentration
Similarly to what has happened in other European countries, American consultancies have been holding top positions in the Italian consultancy market ever since their entry. In spite of this, compared to what happened for example in Germany or the UK where only one consultancy of national origin is ranked among the top ten consultancies (see Chapters 4.4. and 4.6 above), Italian management consultancies appear more numerous. There were, in fact, five Italian companies among the top-ten consultancies in 1991 (Alpha Publication, 1992), four in 1995 and four in 1997 (MCI, 1997 and 1998). Enlarging the picture to the top twenty-five consultancies in Italy, yields the followingresult:
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Table 4.8.1: The 26 largest consultancies in Italy, 1996-1997 (by revenue) Country of Revenue in Revenue in Growth rate Number of Revenue per Origin 1996 1997 1996-1997 consultants consultant (L/Billion) (L/Billion) (%) in 1997 1997 (mill. LIT 1. Andersen Consulting
USA
268.5
356.5
32.8
1,619
220.2
2. McKinsey & Co
USA
N/A
N/A
N/A
130
577*
USA/UK/NL
60.0
79.5
32.5
344
231.1
4. Consiel
Italy
54.9
70.2
27.9
230
305.2
5. Ernst & Young
USA
34.1
67.7
98.5
266
254.5
6. IBM Italy
USA
N/A
53.0
40.0
110
481.8
USA/Italy
N/A
46.0
N/A
130
353.8
8. Elea
Italy
48.4
43.6
-9.9
150
290.7
9. Praxi Group
Italy
40.0
42.8
7.0
220
194.5
10.. Gruppo Soges
Italy
36.6
38.7
5.7
114
339.5
11. A.T. Kearney
USA
17.0
37.0
117.6
85
435.3
12. Deloitte & Touche/DTT
USA/UK
33.6
36.8
9.5
123
299.2
13. Coopers & Lybrand
USA/UK
27.0
34.0
25.9
140
242.9
14. Arthur Andersen
USA
21.0
31.5
50.0
140
225.0
15. Value Partners
Italy
25.0
31.0
24.0
70
442.9
16. Tesi
Italy
28.0
28.1
0.4
90
312.2
17. Booz Allen & Hamilton
USA
N/A
28.0
N/A
55
509.1
France
20.0
22.0
10.0
60
366.7
France/USA
N/A
20.0
N/A
60
333.3
20. Boston Consulting Group
USA
18.5
20.0
8.1
N/A
N/A
21. Orga
Italy
17.0
19.7
15.9
74
266.2
22. Price Waterhouse
USA
14.8
19.0
28.4
67
283.6
23. Gea
Italy
12.0
14.1
17.5
35
402.9
24. Arthur D Little
USA
9.2
13.2
43.5
21
628.6
25. Gramma
Italy
10.0
10.1
1.0
23
439.1
26. Hay
USA
10.0
10.0
0.0
35
285.5
3. KPMG Consulting
7. Bain, Cuneo e Associati
18. Solving International 19. Gemini Consulting
Source: MCI, May 1998. Notes: Most figures are based on statements of the firms to MCI, while others are MCI estimates. * in 1995
Any interpretation of the above figures should take into account the difficulty in defining the “boundaries” of consulting, as many company actually offer services beyond traditional consulting. For example, many Italian companies have high revenues from training services, which are included within consulting as well as corporate finance, environmental consulting, etc. Moreover, revenues generated by outsourcing are growing rapidly too (MCI, 1998).
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From the mid-1990s onwards, the Italian consulting market was affected by the international trends of concentration. Large consultancies have started growing larger and larger, also through waves of mergers & acquisitions. In spite of the good positioning of Italian consultancies, the picture changes sensibly when considering market shares. In this case, foreign consultancies clearly have a major role: Figure 4.8.1: Top Consultancy Players in Italy
80.0%
74.4% 67.8%
70.0%
1991
62.8% 57.4%
Market Share
60.0% 51.7%
53.4%
50.0% 40.0%
40.0%
1992
34.4% 30.6%
30.0% 17.9%
20.0%
18.5% 14.0%
1995
10.0% 0.0% Top 20
Top 10
Top 5 Straniere
Top 5 Italiane
Source: ASSCO estimates The concentration, in terms of market shares appears quite evident; in 1995, the first twenty consultancies in Italy covered, according to estimates of industry experts, 74 per cent of the market (ASSCO 1995). But, on the other hand small and medium consultancies are still growing in number. In the majority of cases, these consultancy “studio” consist of one to five consultants, but the one-man shows appear very frequent too. Their number is very difficult to define, because they often do not belong to any professional association and the same is true about their revenues, estimated to be LIT 539 billion (out of a total of 1324 billion) for 1995 (Alpha Publications 1996: 131). Regarding the geographical distribution of management consultancies in Italy, it appears that the North and the Centre are quite well developed, i.e. the consultancy presence is concentrated there. The same cannot be said about the South of Italy, where the consultancy presence is certain but mostly non-quantifiable. Milan has historically been the capital of the consulting sector in Italy, followed by Rome, Bologna and Turin. Recent data derived from FITA (Federazione Italiana Terziario Avanzato) indicate that, in 1997-98, consultancy firms in
137
Italy appear distributed as follows: 56 per cent in the North, 25 per cent in the Centre and 19 per cent in the South. Even if these figures appear quite exact, again it has to be repeated that for many regions there are not enough information for a real analysis, because a lot of consultants and small consultancies do not figure in national statistics.
4.8.2.3
Demand structure and consulting types
Starting from 1995 there has been a change in the demand for consulting services in Italy. In the first years of the 1990s the predominant practices were Business Process Reengineering (BPR) and operations (like just in time, logistics, quality, etc.).
Since then,
according to the opinion of most Italian actors in the market, there has been a shift of the consultancy demand towards more strategic and growth-oriented approaches. Italian clients started to be less interested in cost reduction and to focus rather on innovation and growth, especially to face globalisation and internationalisation (MCI, 1996; Rossi 1997). Comparing FEACO data for 1996 and 1997 the most relevant changes were in human resources (declining from 30 per cent in 1996 to 16 per cent in 1997), strategy & organisation (growing from 16 per cent to 20 per cent), and production & services management (growing from 10 per cent to 25 per cent). The general picture for 1997, concerning fees generated by FEACO members in the key service areas were: Table 4.8.2: Fee split by types of service in Italy in 1997 Service Area
Share of fees (%)
Corporate Strategy & Organisation Development
20.0
Financial & Administrative Systems
9.1
Human Resources (including executive search & interim management)
16.0
Production & Services Management (incl. technology, logistics, R&D, quality)
25.0
Marketing & Corporate Communication
6.2
IT Consultancy
4.7
IT-Systems development/integration
15.4
Project Management
1.7
Economic & Environmental Studies
1.9
Source: FEACO 1997: 10
Any interpretation of the above figure has to consider that many services area overlap with one another, as in the case of Business Process Re-engineering that includes strategy and organisation, IT, human resources, etc., or human resources, which includes training, head
138
hunting, change management etc. In terms of industry sectors, fees generated by clients can be split as follows: Table 4.8.2: Fee split by client activities in Italy in 1997 Industry sector
Share of fees (%)
Agriculture, forestry and fishing
0.28
Energy and water supplies industry
1.75
Mining/metals/minerals/chemicals
3.36
Manufacturing
56.00
Foods and beverages
9.60
Clothing/textiles/leather goods
5.27
Construction
0.17
Wholesale and retail trade
2.14
Transport and communication
1.64
Banking and insurance
5.25
Professional services
2.43
Health
0.22
European Commission
1.65
National Government
10.20
Nationalised industries
0.04
Regional government
0.00
Source: FEACO 1997: 10
From the middle 1990s onwards, the industry sectors playing a major role in the demand for consulting services have been all those interested by deregulation, privatisation and internationalisation. In fact, telecommunications, banking and financial services, consumer goods, transport, energy etc., have recently shown the highest growth rates. Among the public sectors, healthcare is the one showing the best prospects. The demand expressed by smallmedium-sized clients appears more dynamic, showing greater acceptance of consulting services. Among them temporary management, that is to say the “rental” for a limited period of time of an external and experienced manager, is particularly in demand (ASSCO 1995; MCI, 1997 and 1998).
4.8.3 Latest developments and future trends After the difficult start at the beginning of the 1990s, the Italian consultancy market has slowly recovered and from 1997 it has started to regain ground, especially after the joining of
139
EMU in the first round, which had a good influence on the financial markets and business sector. Besides, globalisation trends, changing corporate culture, fast developing financial markets, as well as preparations for the Euro are expected to keep the demand for consulting services high. A large number of consultancies reported significant increases for 1997 and 1998, both in temrs of revenues and the number of new consultants employed. Andersen Consulting’s revenues rose by 33 per cent in 1997 and they hired five hundred new consultants (MCI, 1998: 11). Ernst & Young had a growth rate of 200 per cent in the last three years (both for revenues and new consultants employed), Coopers & Lybrand had a growth of 125 per cent during 1997/98, while The Boston consulting Group has had a yearly growth of 20-25 per cent since 1990 (from interviews held by the author in January 1999). The 1990s have also been characterised by mergers & acquisitions. with many small companies have been absorbed by larger groups, both foreign and Italian. In 1995, Ernst & Young bought FinAudit (specialised in treasury management). In 1996, Telos merged with Deloitte & Touche, Ernst & Young acquired IT consultancy Perseo, A.T. Kearney acquired M&S Financial Services. In 1997, KPMG acquired consultancy Gruppo Speed, while Coopers & Lybrand and Price Waterhouse merged in 1998 (MCI, 1997, 1998).
Despite these
aggregation trends, the fragmentation of the consulting market is still a strong component in Italy. There are very recent examples of this, like the separation of IRSO from RSO (both founded by Federico Butera): from 1997 RSO is a separate group, while IRSO co-operates with Butera & Partners, set up in 1997 again by Butera. Always in 1997, Elea left Olivetti and entered a joint venture with Linceo Healthcare. Even if most of the Italian consulting firms only operate in the domestic market (the national market accounted for the 94.9 per cent of their total business until the mid-1990s), recently some companies have enlarged their operations in foreign markets, especially in emerging markets like South America or Eastern Europe. Galgano has an office in Spain, Value Partners has one office in Sao Paulo, one in Buenos Aires, one in Prague and one in Houston since 1995. Consiel too has moved to South America as well as setting up alliances with consultancies in Germany and France, while Gea has opened an office in Boston in 1998 (MCI, 1997 and interviews held in January 1999). Family and small firms are increasingly using management consultants and, unlike the public administration, they appear more profitable. According to Franco Guazzoni, partner of Ernst & Young, large consultancies (including the Big Five) have started to understand the
140
importance of the small-medium companies’ market and are therefore planning specific and optimised services for this growing sector, especially in relation with the Euro-connected policies (Management Consulting News, no. 1, January 1998). Besides, large consulting companies, like Ernst & Young, are starting to set up local alliances with smaller consultancies, in order to extend their influence to other segments of the market. It is possible to assume that the consulting market in Italy will continue to grow, but at the same time, as the globalisation process continues, it will become more difficult to survive without an international network and expertise outside Italy. With the joining of the single currency both industrial and financial sectors have bright prospects for development (MCI, 1998).
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4.9
Spain (by Celeste Amorim)
4.9.1 Historical evolution Four major phases can be identified in the evolution of the Spanish consultancy market. In the first stage, from the end of the Civil War in 1939 until the early 1950s, the Spanish economy underwent a long period of stagnation. In the second period, between the 1950s and 1974, with the economic liberalisation and the re-admittance into the western world Spain achieved the highest rates of growth of all OECD countries. The third period, which can be defined as a transition phase, started in 1974 and lasted until the mid-1980s, when Spain entered the EC. In this period there was an increasing awareness of Spain’s backwardness regarding technological development (Molero and Buesa 1995; Buesa and Molero 1998). In the last stage of the process for EC membership a new period started and since then the economic cycle, the restructuring of companies, due to increasing competition, deregulation and privatisation, brought important changes for the Spanish business system. The evolution of the consultancy business must be understood within this context as these changes had an important impact on the role of consultants and evolution of the consultancy market. There is more data and information on consultancies activities in Spain than in Portugal (see Chapter 4.10 below). However, there are problems in analysing consultancy activities until 1970s. Like in Portugal, statistics categorisation for such activities were created only in 1974. However, the AEC statistics and reports on members’ activities help on the analysis of the trends in the Spanish consultancy market. Many of the earlier consultancies in Spain had grown out of the associations of individual engineers or other academics and the governmental national institutes that were set up during the 1940s. Others were the earlier international consultancies, most of which were French and American firms (Egurbide 1976; Molero 1979). As a result, foreigners have dominated the Spanish consultancy business almost from the outset. In the 1970s the larger consulting firms were either international consultancies, e.g.TEA-Cegos, Bedaux and Mercer, or firms and consortiums involving foreign equity (Amorim, 1999). The scientific management movement played an important role during the initial stages of consultancies expansion. In order to favour the spread of scientific management, the state holding company Instituto National de Industria (INI) and the National Institute for Work
142
Organisation (INOT) were created in the 1940s. At the same time, shortages in terms of supplies, technology and capital propelled the introduction of modern mass-production techniques in a variety of industrial sectors (Boisot 1993; Guillén 1994; Carreras 1997). Moreover, the new period starting on the 1950s, created conditions for an accelerated economic growth and with it an increasing demand for consulting activities. The undeveloped domestic supply prompted Spanish companies and public administration to use foreign consulting firms in specialised fields (Egurbide 1976; Molero 1979; Boisot 1993).
The
continuous increase in demand was hastened by the indicative development plans of the 1960s and propelled the establishment of an increasing number of consulting and engineering firms. Some consultancies resulted from associations between individual professionals and professors. Others were the earlier foreign consultancies with international activities. Probably the first consultancy to benefit fully from this development was Bedaux.23 It opened a Spanish office in 1940, which was restructured in 1953.
Bedaux appeared on the list of the largest
consultancies in Spain until the 1970s (Amorim, 1999). The interest on human relations attracted other foreign consultancies. TEA-Cegos, a venture between the Spanish firm TEA and the French group Cegos, was created in Spain in 1952, and became the most active consultancy at the level of organisation, training and selection. During the 1970s TEA-Cegos was one of the leading MC firms (see Table 4.9.2). Other international firms were established.
These firms had moved out from shopfloor
organisation and focused on corporate organisation, strategy and even IT. However, apart from Sofemasa (Sema Group), it seems that they were not very active and they do not appear among the largest consultancy suppliers in the mid-1970s (Egubirde 1976; Molero 1979). In the 1970s the Spanish consultancy market was characterised by the significant capacity of the larger economic consortia to set the structure of the consulting industry. These groups had been either acquiring or merging with small consulting firms or creating independent consulting units from their previous consulting departments. For example Auxiesa and Inctesa, two of the largest firms in consulting engineering, were owned by INI and Dragados y Construcción respectively.
In the 1960s and 1970s the market was rather
concentrated and dominated by a few large consortia involving the larger banks and companies, INI and foreign companies.
However, interviewees revealed that the large
23
Bedaux, which was founded by the French immigrant Charles Bedaux in the United States in 1916, achieved considerable success from the mid-1920s and continued to expand during the first half of the 1930s. But its success in Europe did not last for long (Kipping 1999a). Spain appears to be an exceptional case.
143
international accountancies that had set up offices in late 1950s and early 1960s also carried out some consultancy-type work (Amorim 1999). Apparently there was much attraction to scientific management, but mainly by few industrial firms, mostly very large, highly bureaucratised and frequently foreign-owned (Guillén 1994; Carreras 1997). Moreover, little attempts of structural reorganisation were detected. There was an absence of support for structural ideas (e.g. line and staff organisation, divisionalisation) from the management theorists, the state and labour unions.
Leading
international consulting companies, such as McKinsey (established in Spain in 1977) and A.D. Little, were either absent or not very influential. Empirical studies have found that in 1977 the majority of the consulting and engineering activities were clustered around five major sectors, almost all engineering related (Buesa and Molero 1989). Against this background, an important restructuring process was initiated within the Spanish consultancy market in the early 1980s. While the demand for engineering related consulting declined, it has increased that for consulting in organisation, market and economicviability studies (ASEINCO 1983). The expansion of consultancy business activities continued more or less unabated in subsequent decades, when a second generation of service providers emerged.
Unlike in many other European countries, German and French consultancies
penetrated the Spanish market quite early. For instance, Spain was one of the two countries where Bossard, a long established French consultancy, had affiliates before 1989,24 and Roland Berger, founded in 1967 and today the largest German consultancy provider, opened an office in Spain in 1985.
4.9.2 Current market structure and characteristics 4.9.2.1
Supply side structure
The market volume of management consultancy services in Spain declined slightly from 1991 to 1993, after an increase from 1989 to 1991. Graph 4.9.1 shows that from 1993 onwards Spain has experienced a strong growth in the demand for consulting reaching 163 billion Pesetas (ESP) in 1997. In terms of total fee income, Spain is already the forth market for consultancy within Europe, after Germany, the UK and France (FEACO 1997). The main beneficiaries of the demand growth for consulting appear to have been consultancies of American origin. In 1996, 6 out of the 10 largest consulting firms in Spain
144
were American (see the following table). International consultancies dominate the Spanish market and have increased their market share in recent years. Table 4.9.1: The 20 Leading Consulting Firms in Spain in 1996/97 (ranked by revenue) Year Country Revenue (mill ESP) % Growth Number of establ. of origin 96-97 consultants 1996
1997
1. Andersen Consulting
1989
USA
32,576
40,322
13.2
3,219
2. Price Waterhouse
1956
USA/UK
9,980
7,920
26.9
n/a
3. Grupo CP
1966
Spain
8,500
11,300
19.7
100
4. Sema Group
1970
France
7,709
12,774
38.2
713
5. Idom Ingenieria /consultoria
1957
Spain
4,576
6,047
8.0
104
6. Gemini Consulting
1971
F/USA
3,790
4,169
16.5
75
7. Coopers and Lybrand
1963
USA/UK
3,199
3,199
7.9
195
8. Ernst & Young
1989
USA/UK
2,489
2,489
77.7
n/a
9. McKinsey
1977
USA
2,260
9,000*
13.0
180
10. Boston Consulting Group
1988.
USA
1,642
n/a.
n/a.
30
11. American Management Systems
1995
USA
778
1,385
78
70
12. TEA- Cegos
1952
F/SP
1,259
1,333
5.8
70
13. Bain & Company Spain
1994
USA
n/a
1,326
n/a
30
14. Metra Seis
1964
France
1,200
1,302
8.5
30
15. Arthur D. Little
1978
USA
630
1,000
58.7
19
16. Hay Management Consultants
1972
USA
700
890
27.1
50
17. Development Systems
1981
USA
680
800
17.6
45
18. Europa Management Consulting
1990
Spain**
646
800
23.8
47
19. Sistecal
1988
Spain
636
700
10
10
20. IOR Consulting
1959
n/a
498
564
13.4
31
Source: Management Consultant International, various issues * Portugal and Spain in 1997 (AE, 1998, 9). * Meta has bought 5% of the equity
In accordance with the interviews in Spain the success of foreign firms in Spain appears to rely on their first mover advantage, on their reputation and knowledge as well as on “the connectors” (Kipping 1999) they have used to gain access to potential clients.
Many
presidents and consultants of leading consultancies are former top managers of large
24
The other country was Italy (Kipping and Sauviat 1996).
145
companies, with good contacts within the Spanish business system.25
Moreover, public
institutions and multinationals appear to have preferred the services of multinational consultancy firms (Gidron 1997). However domestic firms (e.g. IDOM established in 1957 or CP Group established in 1966) seem to have undergone significant restructuring, aligning themselves to big international companies such as Andersen Consulting (Gidron 1997; Robredo 1998). Apart from these large firms, there are also very active smaller and medium-sized firms whose success rests either on regional orientation or on specialisation and agreements with other specialist firms when a range of expertise is necessary. For instance, Europa MC works with different partners, including McKinsey and Arthur Andersen (Brown 1997). Some of these firms were established recently by former consultants of larger firms26 or by former business managers27 and politicians. Our interviews suggest that consulting firms appear to be changing their approach. Among larger consultancies in particular, there is a strong drive to develop “long-term relationship consulting”, to promote long-term relations by focusing on a smaller number of clients, while trying to provide all the consulting business which a client may need.28 On the one hand, consulting firms have been merging with firms from other areas of specialisation, while on the other hand, they have been establishing alliances and contractual agreements with firms supplying complementary or substitute services (e.g. business media). Furthermore, as revealed by more than 50 per cent of the Spanish consultancies, the Spanish market is very peculiar in what concerns the leadership of Andersen Consulting. Thus, in 1996 Spain was already the third largest market for Andersen Consulting in terms of turnover, after United States and Britain (Lozano 1996). The interviewees revealed that the reasons behind this leadership appear to be related with the assertive strategy of Andersen Consulting, with its first mover advantage as well as with the reputation of its Spanish partners within the Spanish system.
25
For instance, Léon Benelbás, former general manager of Tabacalera, is director of Price Waterhouse and Vicent Bort, former top executive in ATT, is the current president of Arthur D. Little. 26 As Mr E. Mendicutti mentioned, this was the case mainly during 1990-1993. 27 Aristóbulo de Juan, former General Inspector of Spanish Central Bank, and José Ignácio Lopez, former top manager in General Motors and Volkswagen are some examples of such exchanges (Franco: 1997). 28 Interview with E. Mendicutti.
146
4.9.2.2
The regionalisation of consulting activities in Spain
Like in the case of Portugal (see 4.10.2 below), the Spanish market seems to be regionally concentrated. The national association does not provide data concerning regional distribution of consulting activities.
Therefore we will draw on a large database of the
engineering and consulting firms (MINER 1995), which provides official data worth of credibility. Figure 4.9.1 (based on Appendix 1) clearly highlights the strong concentration of consulting firms in the five major areas; Madrid, Cataluña, Pais Vasco, Comunidad Valenciana and Andalucia together account for nearly 80 per cent of the number of firms. Figure 4.9.1: Regional distribution of consultancies in Spain (% of all of firms)
7.44
1.18 3.89 1.02
0.68
2.54
14.04
2.71 50.76
0.51
0.85 0.34
6.43
0.34 5.93
1.18
Source: Authors’ own elaboration on table in Appendix.
Furthermore, they account for 96 per cent of the employment in the sector.29
The high
concentration in Madrid might be related to the concentration of multinational offices and large companies (especially service companies, e.g. financial services, telecommunications and utilities) in this region.
However, there is higher regional dispersion than in Portugal,
concerning the number of offices that each consultancy has in the country. This has been suggested as one of the particularities of the Spanish market. Indeed most of the interviewees 29
The consultancies’ output is not available in BDC 1995 (MINER 1995).
147
in Spain referred to the fact that “regionalism” is a barrier for their development and penetration in certain regions. As it was explained, in certain regions “physical local presence” is a condition sine qua non to succeed. Table 4.9.2: Consultancy employment by region, 1995 Number of employees
Total
Regional mean
% of the total
Comunidad de Madrid
32,845
109.5
76.2
Pais Vasco
3,445
78.3
8.0
Cataluña
3,133
37.7
7.3
Comunidad Valenciana
942
24.8
2.2
Andalucia
799
22.8
1.9
Galicia
769
33.4
1.8
Castilla y Léon
280
18.7
0.6
Principado de Asturias
260
37.1
0.6
Aragón
196
12.3
0.5
Comunidad Foral de Navarra
121
30.3
0.3
Cantabria
104
17.3
0.2
Canarias
89
12.7
0.2
Islas Baleares
52
10.4
0.1
Extremadura
41
13.7
0.1
Region de Murcia
20
10.0
0.0
Castilla-la-Mancha
17
8.5
0.0
La Roja
12
12.0
0.0
43,125
73.0
100
Total
Source: Author’s own calculation, based on BDC1 (MINER 1995)
As far as business areas are concerned, development and implementation of information systems and market research were the areas that grew most (see Graph 4.9.1). However, IT has been a fast-growing business as well and systems development and implementation is by far the major contributor to the total turnover (42.5% in 1997) and the weight of IT related consulting is in fact the highest within the group of FEACO members.
148
Table 4.9.4: Consulting fees split by areas of business in per cent
1989
1990
1991
1992
1993
1994
1995
1996
1997
General Management
22.4
23.4
23.9
20.8
19.8
18.5
17.8
17.8
17.1
Management Training
11.2
11.7
9.7
9.4
8.9
8.4
8.2
8.2
8.0
Strategy
7.1
7.2
4.4
3.5
3.0
2.9
3.1
3.0
3.0
IT
8.2
9.0
9.7
10.6
11.0
10.3
9.9
10.0
10.6
Development Systems
38.8
36.9
38.9
43.4
45.5
44.1
41.5
41.5
42.9
Market Studies
12.2
11.7
13.3
12.3
11.9
15.9
19.6
19.4
18.4
Total
100
100
100
100
100
100
100
100
100
Source: Author’s own calculations based on MCI
Graph 4.9.1: Evolution of the management consultancy market in Spain, 1989-1997
180000 160000 140000
Millions ESP
120000 100000 80000 60000 40000 20000 0 1989
1990
1991
1992
1993
1994
1995
1996
1997
General Management
Management Training
Selection and Recruitment
Information Technology
Development Systems
Market Studies
Total
Source: Amorim 1999
Behind the general trends, there are firm specific developments worth to consider. Indeed, while at the surface consultancies seem to be doing the same, deeper analysis reveals a
149
different reality (see Table 4.9.5).
Thus, by specialising in different niches, different
consultancies gained their space into the Spanish market. Table 4.9.5: The fees of the largest Spanish consultancies by areas of business in 199? In per cent
IT
Grupo CP
84
Sema Group
80
Idom Ingenieria / Consultoria
HR ExS
Str
Ops Mkt Fin
2
2
7
3
15 1
20
16 10
Coopers and Lybrand
30
15
6
Ernst & Young
58
25
17
Boston Consulting Group TEA- Cegos
-
Pm BPR Cm Other
9
2 5
6
23
20
5
6
3
25
5
3
5
4
4
100 2
12
Hay Management Consultants
52
Development Systems
16
7
30
IOR Consulting
4
1
3
37 6
Europa Management Consulting 50 Sistecal
4
46
55 11
18
4
20
5
10
30
11
12
5
6 15
50 10
20
10
8
7
7
Source: MCI: Full Stream Ahead IT: Information technology; HR: Human resources; ExS: Executive search; Str: Strategy and organisation; Ops: Operations management; Mkt: Marketing; Fin: Financial; Pm: Project management; BPR: Business process re-engineering; Cm: Change management.
The boom in consultancy demand is also related to some factors specific for the Spanish market. Within the group of clients, financial services are the largest users of management consulting in Spain. In 1997, they accounted for 35 per cent of the total consulting fees (see Table 4.9.6). While private sector demand for consulting is booming, public sector demand declined as a proportion of the total, dropping from 24 per cent in 1993 to 12.8 per cent in 1997 (AEC 1997; Brown 1998).
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Table 4.9.6: Consultancy fees split by sector in Spain, 1996-1997 in per cent
1996
1997
Agriculture and Fishing
0
0
Utilities
11
10
Mining, Metal and Chemicals
0
3
Manufacturing
25
25
Food Industry
n/a
8
Textile
n/a
2
Building
2
3
Distribution
3
2
Transport and Communication
12
11
Financial Services
40
35
Business Services
5
1
Source: Author’s own calculation, based on AEC yearly reports (1990-1997)
The increase in the demand from multinational corporations, as a result of the massive increase of FDI inflows (Gidron 1997), is one of reasons for these changes. However, domestic SMEs also increasingly demand consulting services.
It appears that a new breed of business
executives aspires and is looking for methods of establishing Spanish business in European markets (Bruton 1994; Kevin 1994). At the same time business executives might have realised the need and the advantages of using external experts.30 Table 4.9.7: Clients of management consultancies by size (based on annual turnover) Sales in mill. ESP
% of firms in 1996
% of firms in 1997
< 5,000
8
18
5,000 – 50,000
28
37
> 50,000
50
36
14
10
Non-profit organisation and public administration Source: AEC, 1996,1997
Spanish demand for consulting services has grown steadily, but the overall market remains underdeveloped compared to other European countries. Consulting business accounts for only 0.25 per cent of GDP (AEC 1997) while in other European countries (e.g. Germany, France and in the UK) it is nearly 1 per cent of GDP (FEACO 1997). More than 90 per cent of the interviewees affirmed that the low level of consultancy usage is related to the late and slow 30
Interview with E. Mendicutti.
151
industrial development process as well as managers’ behaviour. Spanish managers seem to be reluctant to resort to professional advice and are sceptical about external intervention (Boisot 1993; Guillén 1994). With the proliferation of small and medium-sized firms – known as PYMES – there was also a boom in terms of public and semi-public bodies aiming at the promotion of R&D, the strengthening of greater communication at the European level and the simplification of often bureaucratic management structures (Bruton 1994). From the interviews it can be assumed that these organisations may not be in direct competition with the large consulting firms,31 but they are important competitors for those whose clients are mostly PYMES.32 The evolution of the Spanish consultancy market after 1946 was largely determined by the existence of semi-public institutions such as INOT or NCIP, which played an important role in the promotion of scientific management, and by the penetration of large international consultancies. All these events went in parallel with the development of business schools and managers’ educational background. However, the evolution and role of consultants has been essentially demand-driven, which has been largely determined by changes in the economic situation and business system. Among others, government intervention, competition, firms’ organisational structure and even national innovation policies all played an important role.
31
Interview with E. Mendicutti. This fact was referred to us during the interview with the Director of Portugal’ leading firm in the glass industry. The company asked the “Sociedad para el Desarrollo Industrial de Extremadura” for help in setting up their operations in Spain. 32
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Appendix 4.9.1: The regional distribution of consultancies in Spain in 1997 Number of firms
Percent
Cumulative Percent
Comunidad de Madrid
300
50.76
50.76
Cataluña
83
14.04
64.81
Pais Vasco
44
7.45
72.25
Comunidad Valenciana
38
6.43
78.68
Andalucia
35
5.92
84.60
Galicia
23
3.89
88.49
Aragón
16
2.71
91.20
Castilla y Léon
15
2.54
93.74
Canarias
7
1.18
94.92
Principado de Asturias
7
1.18
96.11
Cantabria
6
1.02
97.12
Islas Baleares
5
0.85
97.97
Comunidad Foral de Navarra
4
0.68
98.65
Extremadura
3
0.51
99.15
Castilla-la-Mancha
2
0.34
99.49
Region de Murcia
2
0.34
99.83
La Rioja
1
0.17
100.00
591
100
Total
Source: Authors’ own elaboration, based on DB200 (INE 1998)
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4.10 Portugal (by Celeste Amorim)
4.10.1 Historical evolution The origins of management consultancy activities in Portugal are related to scientific management and the improvement of shopfloor efficiency.
However, the growth of
consultancy services occurred much later than elsewhere in Europe, mainly due to the backwardness of the Portuguese economy in terms of the level of development and industrial structure (Amorim, 1999). Over recent decades, and namely since its accession to membership of the European Union in 1986, Portugal has caught up considerably with the rest of Western Europe. The degree of consultancy use is still lower than in the United Kingdom or Germany, but appears to have become similar to other Southern European countries (FEACO 1997; DN 1998). Engineering related management consultancy services in Portugal were first offered in the 1940s. They were carried out by consulting centres founded by university professors, and by the consulting department of large economic groups which were servicing group and nongroup companies (Sismet 1993). But demand for consultancy services only picked up during the 1960s. In response to government-sponsored efforts to promote economic growth and the modernisation of plants, a few large diversified companies as well as a number of mediumsized firms showed an interest in scientific management, industrial engineering, corporate organisation and planning as well as human resources practices (Ferreira 1991; Inácio and Weir 1993; Correia et al. 1994; Silva 1997). Since the domestic supply of consultancy services was very limited, if not to say non-existent, these Portuguese companies attracted a small number of foreign service providers, most of them from France. Among them were Paul Planus and Corte, both specialising in the improvement of efficiency and work processes on the shopfloor. Cegos, another French consultancy, established a partnership with the Lisbon Chamber of Commerce (Associação Comercial de Lisboa) called Cegoc which offered mainly training and human resource related activities.33
McKinsey also made its first appearance on the
Portuguese market, carrying out a reorganisation of the conglomerate Cooperativa Uniao Fabril (CUF) in 1969, but did not establish a permanent presence.
154
Political, economic and social changes occurring after the revolution of 1974, which brought an end to the Salazar dictatorship, deeply affected the course of events in the Portuguese consultancy market.
On the one hand, the domestic consultancies lost their
privileged access to the market of the colonies. On the other hand and more importantly, they were not able to satisfy the needs of the large, newly nationalised firms. And neither could they supply services which addressed the consequences of economic recovery, the import of technology and labour conflicts, i.e. consultancy focusing on industrial relations and work performance as well as industrial organisation (Cunha and Marques 1995). Once again, this created opportunities for international consulting firms to enter the market and overcome the lack of domestic supply. The most prominent entrant during this period was probably the American consultancy Hay, which specialises in human resource services. A definite and prolonged upswing of consultancy activities in Portugal occurred only from the mid-1980s onwards, when the country joined the European Communities, now the European Union. Since then, Portugal has experienced a high-level economic growth and its industrial structure also changed significantly. Most of the large state-owned enterprises, including some of the major utilities, have since been privatised. Many large companies grew considerably and diversified their activities (Cunha and Marques 1995).
Consequently,
Portuguese firms were forced to look for managerial solutions to cope with the growing and more competitive markets as well as with their increasing organisational complexity. This has in turn led to a growing demand for management consultancy services (Inácio and Weir 1993; Silva 1997a).
4.10.2 Current market structure and characteristics 4.10.2.1 Supply side conditions
The supply side conditions changed considerably during the 1980s. On the one hand, during the 1980s and 1990s a large number of domestic consulting institutions were established. On the other hand, there were also drastic changes in the supply from foreign service providers. The consultancy departments of the large Anglo-American accountancies, such as Arthur Andersen, expanded massively. They had been present in Portugal since the 1950s (e.g. Price Waterhouse and Arthur Andersen open their Portuguese offices in 1951 and 33
For the origins of Paul Planus and Cegos see Henry 1994. She does not mentioned Corte which was, however, identified by many interviewees as an important player in the Portuguese consultancy market during the early stages of development.
155
1969 respectively) but until the 1980s only occasionally offered consultancy services. They subsequently became major players, especially in the information technology area. Another wave of major international service providers entered the market and opened offices in Lisbon, namely McKinsey and Roland Berger (1989), the Boston Consulting Group (1995), A.T. Kearney (1997). Unlike Planus etc. in the earlier period, all of them offered consulting at the corporate level, including organisation and strategy or human resource management. An interesting feature of the market entry of foreign consultancies is the caution with which they proceeded in general. This might be due to the size of the market which probably did not justify a fully fledged presence in the initial stages of development. The (perceived) cultural differences with other European countries, might have also been a reason. Thus, in the 1960s, the French consultancy Cegos chose to set up a partnership with Associação Comercial de Lisboa (see above), instead of entering the market on its own. It took McKinsey another twenty years after its initial work with CUF, before finally opening an office in Lisbon in 1989. In the meantime, it supplied the market on an ad hoc basis form the London or Madrid offices. The same is true for the Boston Consulting Group (BCG) which only established a permanent presence in Portugal in 1995. It appears therefore that many foreign consultancies were only willing to commit themselves to the Portuguese market, once a constant income stream could be secured. This was confirmed by BCG President John Clarkeson, who stated in an interview with a Portuguese journal that his consultancy did “not want to grow explosively. We are slower than the market” (Exame, 1994: 26). Overall, the market developed considerably during the 1990s. Information collected during the interviews and the ranking of the twenty leading consulting firms (see Table 4.10.1) suggest that international consulting firms took over major market share and dominate the management consultancy market today. The latest estimates indicate that five among the ten largest management consultancies are of foreign origin, accounting for more than 50 per cent of revenues in the leading group.34 The management advisory service departments of the big accounting firms have been the largest players in the consultancy market, although their power should not be overestimated. Recent studies (e.g. DN 1998) have pointed out that some Portuguese IT firms and other consultancies also profited from the growth in the demand. In 1997 not only the largest consultancy in Portugal was Portuguese (specialising in IT) but three
34
However the ranking of the 50 largest consulting firms (DN 1998) must be analysed with caution as it only ranked those firms answering a questionnaire and it is suspected that many of the larger consulting firms did not respond.
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of the ten largest also were Portuguese. Moreover, the 20 per cent growth in 1996-1997 is partly based on the rapid growth of some Portuguese firms (DN 1998). Table 4.10.1: The 20 Leading Consulting Firms in Portugal in 1997 Year establ.
Country of origin
Revenue (mill PTE) 1996
1997
Number of employees 1996
1997
1. Edinfor*
1992
Portugal
9,849 10,311
350
378
2. Andersen Consulting
1990
USA
4,725 4,500
n/a
n/a
3. Arthur Andersen
1969
USA
3,421 4,200
317
373
?
n/a
2,940 3,965
85
118
5. Price Waterhouse
1951
USA/UK
3,200 3,500
280
320
6. Partex
1928
Portugal
2,373 3,500
161
150
7. Grupo Reditus
1996
Portugal
1,407 2,606
70
98
8. Cap Gemini
1992
F/USA
2,544
n/a
239
9. CPC-Isf
?
n/a
1,870 2,207
160
200
10. Deloitte & Touche
?
USA/UK
1,478 1,727
169
160
11. EDS
1982
USA
1,582 1,700
73
81
12. CASE
1992
Portugal
1,614
40
57
1992/4
Portugal
1,504 1,264
n/a
n/a
14. Prisma
1992
Portugal
837
1,140
30
78
15. Grupo Development Systems
1982
Spain
550
1,000
37
60
16. Time-sharing***
***
Portugal
756
941
62
66
17. Quatro-Sistemas de Inform.
1988
Portugal
799
831
72
81
18. Cegoc-TEA
1968
F/Spain
730
791
47
51
19. Origin Portuguesa
1995
NL
397
715
40
51
20. Valor humano
1989
Portugal
580
660
16
20
4. E.S. Data Informática
13. Eurociber**
n/a
833
Source: DN: 1998, pp 22-23, and Interviews with management consultancies * Edinfor resulted from a spin-off from EDP, the Portuguese electricity company ** Eurociber Portugal was founded by two majority shareholders which were Banesto Holdings (Spain) and BPA (Portugal). From 1995 control of the company passed to the large domestic financial group – Grupo Champalimau; information supplied by the company. *** Part of the Portuguese Telecom group
Moreover Portugal has witnessed the evolution/emergence of a large number of domestic small and medium-sized consulting firms (SMCs) which gained an important role especially in the market of SMEs. Many of these SMCs (e.g. Tecninvest, IBER, Fórun Atlántico) were spin-
157
offs either from engineering groups or from other large companies, while others were founded by individual consultants, former academics, managers and politicians. Most of these SMCs remained competitive due to their flexible structure. With few permanent professionals, they rely on a large network or database of potential individual consultants which are subcontracted to work in different projects according to their functional and industry expertise (Amorim 1999). On the other hand, the analysis of the “200 largest consultancies / projectists in 1996” supplied by INE (1998), helps to investigate questions related to firms’ size. Table 4.10.2 highlights that the sales value of 66 per cent of the firms was less than 50 million PTE. Table 4.10.2: The Distribution of consultancies according to revenues in 1996 Sales (mill. PTE)
N. of Companies
% of firms in each class
5,000 – 10,000
1
0.5
2,500 – 5,000
1
0.5
500 – 1,000
1
0.5
250 – 500
10
5.0
150 – 250
12
6.0
125 – 150
3
1.5
100 – 125
11
5.5
75 – 100
10
5.0
50 – 75
18
9.0
25 – 50
42
21.0
1 – 25
91
45.5
Total
200
100
Source: Author’s own calculations, based on DBC200 (INE 1998)
Recent estimates suggest that the consulting market grew by about 20 per cent from 1996 to 1997 and that overall IT-related consulting is the service growing fastest (DN 1998). In 1997 IT-related services accounted for 35 per cent of total consultancy turnover. However, the dualism international vs. small and medium-sized consultancies seems to occur also in what concerns the services being supplied.
Large firms dominate the market for IT services,
strategy and corporate finance. McKinsey is one of the largest as far as strategy consulting is concerned, perhaps because it was the first firm to enter the Portuguese corporate market and it did not have significant competitors for years. The German firm Roland Berger and the Franco-American firm Gemini Consulting are two other leaders within the business strategy segment (Correia 1993).
158
Together with these large international groups, there are some Portuguese consulting firms.
But only a few of them are focused on strategy consulting.
One of the largest
Portuguese consulting companies is Iberconsult which was created in 1989 and by 1992 was already fourth in the market for strategy consulting. Its revenue grew from 300 in 1992 to 467 in 1997 (Correia 1993; DN 1998). By contrast, information from different sources (e.g. Sismet1993), including the interviews, suggest that EU membership furthered the development of SMCs. On the one hand, a large majority focused on giving advice on European issues (e.g. investment projects, applications for EU funding). On the other hand, the availability of EU funding stimulated companies to introduce new practices, and consultancies are helping domestic clients in the process. Information gathered through the interviews revealed that SMCs have been particular active at the level of implementation of quality systems (for companies aiming primarily at the ISO certification label) and training, for which a large share of EU structural funds have allocated. SMCs also get involved in IT. However, while larger consulting firms can afford to develop customised products in alliance with larger software houses (e.g. IBM, SAP, Oracle and JBAS) most of the SMCs operating in IT implement Software Packages such as SAP or BAAN. Especially after the accession of Portugal to the European Union in 1986, development and business support organisations played an important role for the development of the consultancy market.
The Institute for Support of Small and Medium Manufacturing
Enterprises (IAPMEI) is a case in point. Others are the Portuguese Association for Quality and the Portuguese Institute for Quality. These organisations have been important players both as suppliers of basic consultancy-type work and in suggesting the use of “certified” consultancies or consultants.35
They also compete directly with the consulting firms,
particularly in application for funds and in economic-viability studies. As a result, there has been an increase in consultancy work with small and medium-sized enterprises (SMEs), even in traditional and less technically advanced sectors (Silva 1997).
4.10.2.2 Regionalisation of consultancy activities
While the consultancy business has developed considerably in Portugal, there is some evidence that it has not developed homogeneously all over the country. The analysis of the
159
database of the 200 largest consulting firms in 1995 (INE 1998) clearly highlights the uneven regional distribution at three major levels: the headquarters of the consulting firms, the corresponding number of employees and sales. Figure 4.10.1 highlights the clear concentration of consultancy activities in Lisbon. This district alone hosts more than 60 per cent out of the 200 largest consultancies. Figure 4.10.1: Regional distribution of the largest 200 consultancies in Portugal (%)
0.5 1.5 0.5 8 4 0.5 1 18.5
66
Source: Based on Table 4.10.3 below Lisbon’s locational advantages are probably related to the concentration of multinational offices, the location of the national government and parliament, general high accessibility and good infrarestructure. The large number of consultancies in Funchal (Madeira Island) is somewhat surprising.
Several hypothesis can be advanced, and they will be further
investigated in the future. On of them is the link between these consultancies and the local government. (Funchal hosts the government for the Madeira Autonomous Region). On the other hand, it should be further analysed where the activities of these consultancies actually take place. There is a possibility that due to fiscal advantages, several consultancies have located therir administrative head-office in Funchal, while most of the value-added activities are occuring somewhere else. 35
Some of the interviewees referred that their consultancies had been selected by APQ or IAPMEI as “official”
160
The concentration of consulting activities is also confirmed by an analysis of the regional contribution to the total output (i.e. sales) and total employement of the 200 largest consultancies. The estimated total output of the 200 largest consultancies is 12,275 000 million PTE . Table 4.10.3: Regional distribution of the largest 200 consultancies in 1997 (in percent of) % of total revenues
% of total employment
% of headquarters
Lisboa
61.61
65.6
60.5
Funchal
26.37
6.7
18.5
Porto
4.89
8.7
8.5
Braga
2.14
2.2
1.5
Santarem
1.83
2.5
1.0
Aveiro
0.81
4.3
4.0
Leiria
0.61
1.1
1.0
Ponta Delgada
0.51
0.5
0.5
Setubal
0.41
2.2
2.0
Evora
0.31
0.5
0.5
Coimbra
0.20
1.1
1.0
Faro
0.10
0.5
0.5
Guarda
0.10
2.7
0.5
Vila Real
0.10
1.3
0.5
Source: Author’s own calculations based on DB200 (INE 1998)
Based on consultants’ statements and consulting firms' client portfolio, clients come from all sectors. However, finance and telecommunications seem to have been by far the major users of management consulting in value. Since the late 1980s both of these sectors have undergone a massive reorganisation mainly due to privatisation and capital liberalisation (Cunha and Marques 1995). In addition, in heavy industry, public firms in the process of privatisation (e.g. as Portucel, Cimpor, Soporcel) have been large users of management consulting. In the private sector, the larger groups that had started diversifying in 1986/1987 with the boom in the financial market were forced to rationalise and reorganise their businesses.
In some
companies this goal was met with the help from management consultants.36
consultants for small and medium enterprises in particular topics, e.g. quality, human resources. 36 António Bernardo, President of Roland Berger Portugal (Expansão: 1994).
161
Thus, in a historical and comparative perspective, the Portuguese consultancy market seems to have developed considerably later than most of Western Europe. It expanded in two waves, first during the 1960s and then again, more consistently, from the mid-1980s in conjunction with the country’s membership in the European Union. There are signs of change but there is still a relatively low usage of consultants and business services in general, with management consultancy accounting for only 0.4 per cent of GDP while the European average is nearly 0.8 per cent (DN 1998; AEC). The relatively low level of economic development and the slow emergence of large scale enterprises appear to be the most important explanatory variables for the belated development.
162
5 Implications What implications do the results of our overview of the consultancy fields in Western Europe have ? Given all the imperfections in the data, one more time it is necessary to recommend a high level of caution, when trying to draw some wider ranging conclusions for this report for future research and policy makers. In terms of our research within the CEMP project as a whole and the consultancy part of the project in particular, the preceding analysis has clearly confirmed the original research design regarding the focus on “content” of the knowledge diffused in the next step. This report has highlighted two major issues in this respect: On the one hand, we need to pay considerable attention to the “Big Five” which have brought considerable changes to the consultancy fields in Western Europe over the last decade. We now need to understand what the consequences of their penetration are for the dissemination of similar types of knowledge across Europe as a whole. As already suggested, maybe they are actually less “American” or “Anglo-Saxon” than one suspect at first sight. With the exception of Andersen, all of them still have a partnership based on national partner firms. To address these and related questions, we need to conduct a few in-depth case studies, using a variety of methodology, including document-based research, face-to-face interviews and, if possible, participant observation. The small and medium-sized consultancies need to be another focus of our future research within the consultancy part of the CEMP project. As mentioned above, they are only partially covered by current research and difficult to access in terms of data. They might even be more important than the limited available information suggests. Anecdotal evidence points at a considerable increase in the number of small, specialised service providers in certain countries and at the fact that these increasingly operate as networks rather than sole practitioners. This phenomenon needs to be examined in more detail. And so does the important question what kind of knowledge these small consultancies disseminate. One would normally see them as national players, but this conception might need to be verified. Because depending on the training and the trajectories of their founders, they might actually constitute a very effective form of “hidden” Americanisation.
163
From the point of view of the overall project, this report has highlighted the need to examine the relationship between the different carriers in some more detail.
Here and
elsewhere, it has been suggested for example, that management consultancies and graduate business schools complement each other in terms of knowledge diffusion. This warrants some additional attention.
At the same time, we have seen that consultancies seem to have
developed a less important role in certain countries than certain “objective” criteria such as the economic development or industrial structure would lead to expect. In these countries, there must therefore be other forms of knowledge transfer, maybe of a less obvious and “institutionalised” kind than those considered in the CEMP project. Such an investigation goes obviously beyond the scope of our current research, but should probably be part of a subsequent project. Such a project should also consider the challenges and opportunities offered to knowledge diffusion and acquisition by new technologies. Possible policy implications from this report have to approached with even more care, given the preliminary nature of the finding. Two issues could be considered. On the one hand, we are witnessing the withering of the large “national” consultancies in most Western European, a process which is still ongoing. AS mentioned, the only European players in the European consultancy market are of (Anglo-)American origin. Without necessarily advocating an active industrial policy with respect to consultancies, one might at least consider whether a closer co-operation and even outright mergers between the remaining European players should not be encouraged. However, the example of Gemini Consulting suggests caution about the ultimate success of such a policy. The consultancy has been able to mount a relatively strong challenge to the predominant large service providers, by buying up some of the largest national consultancies in Western Europe since the late 1980s, including Gruber Titze and Partner in Germany, Bossard in France and Siar in Sweden. But while French-owned, Gemini is largely run from the United States and dominated by American nationals at the top level.37 For this and other many reasons, the creation of a European consultancy champion might be fraught with insurmountable difficulties and problems. Another, more promising area for policy initiatives might be to promote the formation of small consultancies, also in order to maintain or increase the diversity within the consultancy fields in Western Europe.
As
mentioned above, in many Western European countries, there are currently programmes to subsidise the use of consulting services by small and medium-sized consultancies. But perhaps 37
Incidentally, this seems to confirm our hypothesis regarding management consulting as an American form of knowledge transfer.
164
more could be done to encourage the formation of new consultancies, given that these appear to play an important role in the knowledge transfer to a regional and local level. A programme for consultancy start-ups, similar to those for companies in new technologies (e.g. biotech), could be considered. Such a programme is also beneficial for employment, due to human capital intensive nature of consultancy services.
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