MANAGEMENT CONSULTING

MANAGEMENT CONSULTING The Central and Eastern European Perspective

edited by

Marek Ćwiklicki, Marek Jabłoński

Cracow 2011

Electronic copy available at: http://ssrn.com/abstract=1952803

Editors: Marek Ćwiklicki, Marek Jabłoński Reviewers: Alain Alcouffe, Dieter Hertweck, Elena Horska, Zsuzsanna Szabo, Marek Szarucki, Katarzyna Tarnawska

© Copyright by Department of Organization and Management Methods Cracow University of Economics, Cracow 2011

ISBN 978-83-62511-06-8

Publishing House: Cracow University of Economics Foundation ul. Rakowicka 27 31-510 Kraków

Electronic copy available at: http://ssrn.com/abstract=1952803

Table of Contents

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Marcin Komańda

CHALLENGES IN THE IMPLEMENTATION OF MANAGEMENT CONTROL ON UNITS OF THE SPHERE OF PUBLIC FINANCE IN POLAND ............................................................................................................... 112 1. Introduction ...................................................................................................................... 112 2. The nature and form of management control .................................................................... 113 3. The objectives of units and risk analysis .......................................................................... 120 4. Conclusions ...................................................................................................................... 123 References ............................................................................................................................ 124 Marek Ćwiklicki

CRISIS – A NUTRIENT FOR ORGANIZATIONAL CONSULTING .......... 126 1. Introduction ...................................................................................................................... 126 2. The nature of crisis ........................................................................................................... 127 3. The birth of consulting – search for experts ..................................................................... 128 4. Using Consultancy in Crisis. Case studies ........................................................................ 129 5. Consulting Growth since the Great Depression ................................................................ 131 6. Conclusions ...................................................................................................................... 131 References ............................................................................................................................ 132 Andrzej Wasiak

KNOWLEDGE BROKERING – CONSULTING INNOVATIVE MANUFACTURING ENTERPRISES ............................................................... 134 1. Introduction ...................................................................................................................... 134 2. The Conditions ................................................................................................................. 135 3. Knowledge And Innovation.............................................................................................. 135 4. The Processes Of Knowledge Transfer............................................................................. 137 5. The Broker Knowledge Tasks .......................................................................................... 139 6. Sources And Ways Of Knowledge Procuring................................................................... 140 7. Knowledge Broker’s Enterprise ....................................................................................... 142 8. Conclusions ...................................................................................................................... 143 References ............................................................................................................................ 143 Joanna Żukowska

PRODUCT CATEGORY MANAGEMENT ISSUES ....................................... 145 1. Introduction ...................................................................................................................... 145 2. Category management origins .......................................................................................... 145 3. Overview of category management terms ........................................................................ 146 4. Merchandising and its principles ...................................................................................... 146 5. Category Management Process......................................................................................... 148 6. Advantages related to category management implementation .......................................... 154 7. Risks for the supplier and the retailer ............................................................................... 156 8. Conclusions ...................................................................................................................... 156 References ............................................................................................................................ 157

Marek Ćwiklicki*

CRISIS – A NUTRIENT FOR ORGANIZATIONAL CONSULTING Summary The common assumption as regards using consultants in the time of crisis is that companies reduce costs and first they resign from services provided by experts. However in this particular fragile situation as the crisis is, managers need not only accurate suggestions of what to do. The second stimulus for hiring consultants is provision of a quick, ‘short-cut’ solution in order to response as soon as possible to a rapid change which has taken place.Therefore crisis can be treated as a nutrient for consultants.

1. Introduction The common assumption as regards using consultants in the time of crisis is that companies reduce costs and first they resign from services provided by experts. This is partially supported by the results of the analysis of the consulting sector’s income compared to the gross global product between 1970 and 2005 (Krzyżanowska and Tkaczyk, 2010, p. 1421). But this is only one side of the coin. They require support and they search for tips assuring that they are right in their thinking. However in this particular fragile situation as the crisis is, managers need not only accurate suggestions of what to do. The second stimulus for hiring consultants is provision of a quick, ‘shortcut’ solution in order to response as soon as possible to a rapid change which has taken place. The structure of the chapter was set upon these premises. First, the nature of the organizational crisis is described. Next reasons for hiring consultants in crisis are discussed and illustrated by two examples. As a result of the presented analysis, the main conclusion is explained, that crisis – usually unwanted phenomena – is a nutrient for organizational consulting. In the paper the following definitions of consulting and management consulting were used following U. Hagenmeyer (2007, pp. 109-110): “Consulting is (…) a form of situation-specific assistance provided by an independent expert that enables the person seeking advice to act in an ‘overcomplex’ situation in which they did not feel competent to act in isolation.”

*

Ph.D., Cracow University of Economics Department of Organization and Management Methods, Poland.

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“Management consulting is (…) a form of situation-specific assistance provided by an independent, external and professional intervention-expert who enables the management of a client’s organization to take action in an overcomplex management situation”.

2. The nature of crisis The term crisis was created from the Greek word krisis, which means a decision. Its contemporary meaning - ‘turning point’ - accurately implicates that it is not possible to predict consequences of the momentum. In spite of the genesis of the crisis: abrupt or cumulative (Hwang and Lichtenthal, 1999), there is a need to consider whether to take an action, decide what to do or just to refrain. In such a situation we are not sure whether our knowledge and capabilities are sufficient to run in a desired direction. D. Pollard and S. Hotho (2006, p. 722) chose the following description of crisis elaborated by Pearson and Clair referring to an organisation: “A low probability, high impact event that threatens the viability of the organisation and is characterised by ambiguity of cause, effect and means of resolution, as well as by a belief that decisions must be made quickly” (Pearson and Clair, 1998, p. 60).

This definition combines the main features of organisational crisis and helps to understand why managers decide to call for external help. Ch.M. Pearson, J.A. Clair, S.K. Misra and I.I. Mitroff (1997, p. 51) state in a similar manner: “An event that compromises the health and safety of employees, customers, or the community, or that threatens to destroy public trust in the organization, thus beleaguering the company's longstanding reputation, can truly be called a crisis”.

The consequences of the crisis for organization are manifold. Based on the literature review, J. Lee, S.M. Jares and R.L. Heath (1999, p. 244) mention: “physical, financial, or psychological harm to employees, investors, customers, and community members, as well as shatter employees' basic assumptions and beliefs about themselves and their organizations; threaten social legitimacy of the organization; devastate technological systems; deplete organizational financial resources, reputations, and credibility; invite unwanted close observation by the media; or lead to lengthy litigation”.

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Of course there are exceptions. R. Schaffer (1995, p. 45) claims that “in must-do crisis situations, organizations can spontaneously expand outputs significantly” and he provides the following examples: − In one of petro-chemical refineries a sudden wildcat strike was organized. The managers previously complaining about being understaffed then were forced to keep running the refinery with the help of a limited number of workers. After a couple of days the effects were astonishing: they succeeded. − In a carpet mill a part of the roof has collapsed because of huge snowfall. Two production lines were destroyed. Using only a part of its machinery the factory managed to keep the same level of productivity as before the catastrophe. Therefore, it can be concluded that crisis is not only the source of troubles but also an opportunity to learn (Rerup, 2009).

3. The birth of consulting – search for experts The first consulting company was Arthur D. Little (Gross and Poor, 2008, p. 59). Actually, its original name was “Griffin and Little” (it was changed to Arthur D. Little Inc. in 1909) and the business was set up in 1886 (Eagar, 2006). Its main activity was to “prepare and execute all kinds of chemical analyses with accuracy and dispatch”, with readiness for “either in their own laboratory, or upon the spot, investigations for the improvement of processes and the perfection of products” (ibid.). As we can see, the reason for creating the firm was to offer specialised services aiming at research and innovations for papermaking business. In this particular case it can be assumed that ADL’s clients were looking for new ways of production, not necessary driven by the crisis situation described above. In that time ADL showed that experts were needed and companies did not possess sufficient means to conduct research on their own. Based on the available literature, it is not possible to state without any doubt that first companies hired external consultants because of crisis situations. Relying on the categorization of management consultants described in literature, M.C. Nippa and K. Petzold (2002) indicate three issues relating to decisions influencing hiring experts: − limited management capacity for information gathering and analysis, and therefore using consultants as persons who can cope with the situation; − experience and expertise of consultants who are familiar with the newest trends; − facilitation of the implementation or convincing others to controversial or unpleasant decisions. Taking into consideration the impact of crisis, it is possible to link it to the common perception of management consultancies as “knowledgeintensive firms (…) that provide external knowledge to clients who may be,


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at least temporarily, struggling to keep up with current trends and achieve business success” (Reihlen, Smets, and Veit, 2010, p. 318). They run innovative activities described as an institutional entrepreneurship (ibid.). But in spite of theoretical assumption the reality is mixed (e.g. Richter and Niewiem, 2009). There are flaws of management consulting (Schaffer, 1997). In 2001 the German “Manager Magazin” sent questionnaires to 200 boards of directors of the biggest national companies asking about their satisfaction with consulting services (Hirn and Student, 2001). The results revealed some weaknesses of consultants and dissatisfaction, which raises question if external experts are worth employing. For example, the end of Swissair’s business in 2001 took place in spite of the fact of continuous use of consultants. A similar study was conducted in Poland in 1997. The results showed that managers were hiring consultants for emergency situations, which resembles calling a doctor in critical health problems (Karbarczyk, 1998). Existing management consultancy can therefore be treated as “an extraordinary and indeed truly unique phenomenon”, as P. Drucker stated (cit. in Canback, 1999). In business history there exist cases where in spite of crisis companies did not decide to hire consultants and did overcome difficult times by themselves. Such examples are: du Pont Company in 19171911 and General Motors in 1920 (ibidem). Neverthless S. Canback (1999, p. 6) pointed out that “the do-it-yourself approach has decreased due to its inefficiency”.

4. Using Consultancy in Crisis. Case studies 4.1. SRI at Henkel To connect consulting and organizational crisis it is necessary to look at specific case studies. Such an example was given by S. Hilger (2000). The author presented cooperation between The Stanford Research Institute and Henkel in the 1960s and 1970s. The most interesting thing is a description of Henkel’s attitude towards external consultants that changed from “observant and in parts reserved” to more open. The two main reasons for this were: − European expansion of the company in the 1960s, revealing the complexity of the economics environment as compared to the German market, − declining market share caused by American competitors forcing the company to be acquainted with modern management methods and to question its own ways. But the direct stimulus to hire consultants came from the inner troubles of establishing on its own long range planning activities the purpose of which was to “recognize the market of tomorrow and its determining factors”.

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From the presented brief description of the company’s situation it is possible to indicate common points with crisis. The difficulties with setting up a strategic program that should improve situation put more time pressure on its implementation. Is seems that decisions taken were not fully appropriate; managers felt that something was missing but they could not figure out what it was. This example supports the proposition concerning hiring consultants in crisis. The SRI story at Henkel ends in the 1970s. Global economic downturn influenced the financial results of the German company. Gradually the cooperation with SRI was diminishing and finally vanished at the end of the 1970s. In spite of this Henkel used other consultancies such as McKinsey (responsible for running cost saving program) and Boston Consulting Group (for protecting competitive advantages) over the next twenty years. 4.2. Beadux at Lukens Steel Another good example of hiring consultants due to crisis is given by M. Kipping (2000). The author in the in-depth analysis exposes not only the ways of using experts but also presents circumstances of such decisions in Lukens Steel Company. Thanks to the access to the company archives M. Kipping reconstructs details of the contract. The reason for hiring Bedaux Consultancy was the fact that Robert W. Wolcott, the President of the company, did not have knowledge about steel production. As a result of the Great Depression, the company experienced lower sales level. The Board decided to dissolve the contract with Emerson Engineers claiming that their own employees could do similar work. As it was mentioned in the introduction, such decisions are most common in crisis. However, at the same time, in order to cut the costs, Bedaux Consultancy was summoned for help. M. Kipping states that there is no clear evidence about the exact reasons why the company hired Bedaux. In the archives there are remarks that it was a belief of Wolcott that the new wage system could improve efficiency. He drew this conclusion based on the observation of competitors such as American Rolling Mill and therefore he tried to be as competitive as the main players in the industry. The Bedaux System was introduced in one department for a trial in the middle of 1930. The effect was satisfactory and became visible at the end of 1931 when total net savings exceeded the expenses. As M. Kipping underlines, there was a hidden agenda. After analysis of the relations between Wolcott and his uncle Charles Luken the author concludes that “the external experts became important intermediaries in internal company debates and conflicts, hired by the different managerial groups to provide more weight to their own position”. What can be important for the “crisis as a nutrient for organizational consulting” thesis is the fact that companies with small internal potential for changes require external consultants. In this case not only Bedaux and Emer-


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son consultants were providing support but also other ones (“between 1920 and 1960, there was probably not a single year without consultants working in the company” (Kipping, 2000)).

5. Consulting Growth since the Great Depression The assumption that crisis gives a stimulus for consultancy business is also expressed by Ch.D. McKenna (1995, p. 54). He indicates that rapid growth of this business occurred in the 1930s. The examples he provides is the increase in the number of employees at Booz from 1 to 11 in the years 1926-1936 and at McKinsey’s – 25 consultants by 1936. In 1930 there were ca. 100 consultancies in the USA and after ten years the numbers grew to 400. Notwithstanding McKenna notices that crisis was not the only cause. He perceives the development of consultancy business as a reaction towards new government regulation, mainly the Glass-Steagall Act established in 1933. According to the new law, commercial bankers were forbidden to conduct consultancy studies. A.C. Gross and J. Poor (2008, p. 59) confirm that “true management consultancy made its appearance only in the twentieth century”. Also G. Perchtold and J. Sutton (2010) agree that “this created a demand for external research firms and a third party conduit for pooling and sharing of industry information”. In that way the institutionalization of the consultancy branch started to crystallize. This phenomenon did not appear outside the USA. McKenna states that thanks to American consultants a professional consultancy was introduced in Europe in the 1960s. Such conclusions appear in several papers, also in the countries behind the Iron Wall (e.g. the history of management consulting in Estonia (Leiman, Ainamo, and Tienari, 2005)). However the development of consulting in Central and Eastern Europe occurred in the 1990s. (Gross, Poor, and Roberson, 2004). Moreover M. Kipping (1999) indicates that the internationalization of American management consultancies took place earlier, during the 1920s-1940s.

6. Conclusions Maybe the most important problem for consultancy branch is establishing a way for measuring the effect of consultants in the client’s company to prove that it is worth hiring them in spite of the company’s crisis. Ch. Wright and J. Kitay (2002) called it “impression management” - a subjective matter because “assessing the outcomes of consultant involvement in organizational change is a complex and highly political process” (p. 273). Also T. Armbrüster (2004, p. 1247) admits that “In service sectors such as management consulting, it is very difficult to measure the impact or success of a service even after it has been delivered”.

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At the end of the paper we can find a curiosity. E. Simmons (2002) describes management consultancy process according to M. Kubr using analogy of the story of Beowulf. In this elaboration Beowulf who was hired to kill a beast terrorizing a kingdom is an equivalent of a modern consultant. The author explains that “Consultants are often called in because, as in Beowulf, an organization is facing problems that threaten to destroy it” (Simmons, 2002). This situation taken from the poem figuratively resembles CIOs activities in severe crisis.

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