Business Consulting
Between 2001 and 2004 there was a wide disparity in the fortunes of consulting firms "" some grew and others shrank by as much as 50%
. To understand these variances, it is helpful to look at the role management ideas play in determining the size and shape of the consulting market. New management ideas unquestionably boost demand.
The major waves of growth in consulting have coincided with surges of interest: in total quality management in the 1980s, in business process re-engineering and then enterprise resource planning in the early 1990s, in e-business and the internet in the late 1990s. Consulting firms have been the medium by which many of these ideas have been spread and have earned substantial fees on the back of them. When a consulting firm says that it has outperformed the industry because of the brilliance of its management or its unique corporate culture, it is telling only a small part of the story.
Consulting firms succeed because they have a service which is disproportionately popular in the markets where they operate: they are in the right place at the right time. The turnover of Index, a consulting firm (later acquired by csc Computer Sciences), grew from $30m in 1989 to $200m in 1997 on the back of business process re-engineering. ibm"s consulting practice was worth only around $350m in 1994, but the e-business boom took it to over $10 billion by 2001.
Management fads and fashions have become a growth area for academic research, but it is still difficult to pin down what triggers the take-up of a particular idea. After all, many ideas never make it off the Harvard Business Review starting blocks. Equally, how do you measure the extent to which an idea adds value? Clearly, ideas make money for consulting firms, but do they do so for clients?
A 1992 study of the Boston Consulting Group Matrix, which became one of the most widely used management tools of the 1980s, by two professors, J. Scott Armstrong at the Wharton School and Roderick Brodie at the University of Auckland in New Zealand, concluded that the bcg matrix, rather than aiding profit maximisation, actually interfered with it. "We suspect", they say, "that decision-makers use the bcg matrix because it legitimises an intuition that many people have about business decisions " that you should "stick to your winners"."
Reliable data and objective analysis are thin on the ground, so why do companies continue to adopt unproven ideas? Why do managers believe what consultants tell them? This is what John Micklethwait and Adrian Wooldridge, authors of The Witch Doctors: What the Management Gurus are Saying, Why it Matters and How to Make Sense of It, have to say: "Anxious managers grasp at management literature as a panacea for all their worries. Many firms turn to management theory only when they are desperate.
Their minds clouded by panic, they start out with exaggerated expectations, put the theory into practice for a few months, start to despair when it fails to produce results, and then turn to a new theory. Two years and 20 theories later, the business may well be bankrupt." It is an argument "reformed" consultants have been happy to confirm. Even where it is possible to correlate performance with the adoption of a particular fad, it is nigh on impossible to prove there is a causal link.
That one company performs better than another will be because of a host of factors "" its products and services, patterns of demand, location, management, even luck "" and a new management tool can only be a part of this. But interesting research has been carried out. Eric Abrahamson, a professor at New York University, has spent 15 years researching "fads and bandwagons" and is one of the few academics to draw some conclusions about the impact of management ideas.
There is, he argues, a wide disparity in the value obtained: early adopters do best, laggards do worst. Two factors appear to account for the difference: Early adopters invest more time in assessing whether a particular idea makes sense for them. In the early stage of the idea"s evolution, it will not be clear how it will work in practice. Pioneering companies have to think harder about the appropriateness of the idea, but laggards may be more tempted to jump on the bandwagon without giving due consideration to the return on investment. 2 "" Early adopters have to customise the idea to suit their own needs. There is no pre-existing manual or methodology for implementing it, so they inevitably write one which suits their own needs. By contrast, laggards are more likely to think there is a standard methodology they should apply; they become focused on the means and lose sight of the end.Abrahamson"s research is borne out by consultants themselves.
At Bain & Company, Darrell Rigby has been researching management theories for more than a decade. He believes the secret to making good use of such tools and techniques does not lie in discovering the one unifying theory but in applying the right techniques at the right time in the right way. "Management tools have an important role," he says. "Things go wrong when a guru describes something as a cure-all. Managers should think in terms of a tool chest full of techniques they can apply in different situations.
They should not be attracted by big ideas but build up a portfolio of different ones, each appropriate to a different situation." Managers also underestimate how hard it is to apply management tools. Reading an article in the Harvard Business Review is the easy part; the problem is how to make the theory stick. "You can"t transplant tools any more easily than you can transplant an organ from one body to another.
The system (the body) that surrounds the tool determines whether the tool (the organ) will work or not. In some cases, managers trigger corporate antibodies which attack the new idea. They shouldn"t just be looking at the ideas other companies are using but questioning whether the conditions that make an idea valuable in one organisation apply to their own."
But managers cannot, he thinks, throw management theory out altogether, however tempted they may be to do so from time to time. "The tools people find helpful vary in line with the changing economic climate. In 2001""02 there was a significant rise in the level of interest in cost-reduction techniques, but now that organisations think they have explored all the avenues that lead to greater efficiency, tools that focus on top-line growth "" such as innovation "" are picking up speed again.
They cannot afford to throw them out and do things by hand." David Collins, author of Management Fads and Buzzwords and a lecturer at the University of Essex in the UK, argues that managers could not give up looking for panaceas even if they wanted to. Work, he believes, is fundamentally about co-operation, but management is about control: "There is a tension at the heart of management.
Managers are not the passive victims of fads. They actively seek them out because they are always hunting for new means of establishing control. The irony is that the harder they try to impose control, the more difficult it becomes, and so they never get to a point where they can stop."
by: FinancialGenius
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