Strategic capabilities which lead to management consulting success in Australia

Vanya Kumar Research Assistant, Department of Management, Monash University, Melbourne, Australia Alan Simon Associate Professor, Department of Management, Monash University, Melbourne, Australia Nell Kimberley Lecturer, Department of Management, Monash University, Melbourne, Australia

Keywords

Management consultants, Consultancy, Success, Australia

Introduction
Over the last decade, the worldwide management consulting industry has been growing, and continues to grow, at twice the rate of the world economy (Micklethwait and Wooldridge, 1997). This is a rate which even exceeds the growth rate of some technology sectors (Dennis, 1997). It generates revenues, worldwide, in the tens of billions of dollars and has become, more than any academic institution, the source of the business world's leaders, executives and top managers (Hasek, 1997; Micklethwait and Wooldridge, 1997). Top firms, which are usually multinational, can employ anything upwards of 20,000 consultants worldwide (Hasek, 1997). It is further estimated that almost 30 percent of all MBA graduates enter the consulting profession (Hasek, 1997). Such strong growth and expansion of the management consulting industry can be ascribed to the changes taking place in the business environment around us and the resulting uncertainty. This impressive vista of the management consulting industry belies the fact that almost 90 percent of all consulting firms fail in their first five years (Hasek, 1997). On further investigation, it becomes apparent that there is a paucity of available empirical data discussing various aspects of the consulting profession and which capabilities constitute success within it (Morton, 1996). While this paucity is partly owed to the fact that as a knowledge-based profession, consultants are very reluctant to give any information that may lead to disclosure of key critical success factors (Simon, 1997), it is also due to the lack
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Abstract

Reports the findings of a study which aimed to identify the strategic capabilities which lead to management consulting success. The study also aimed to find out what management consultants consider to be performance indicators of consulting success and whether these were related to the strategic capabilities. The research design for this study was a modified generative strategy. Several data collection methods, namely, interviews, content analysis and questionnaire surveys, were used to generate both quantitative and qualitative data. Twenty-one strategic capabilities were identified. These were subsumed under the broad categories of (1) functions and (2) skills and values. The three most critical functions identified, in descending order, were quality of service, setting objectives and solving problems. The three most crucial skills/values were integrity and honesty, client-consultant communication and credibility. Ten performance indicators were identified. Of these, the three most critical, as identified by the respondents, were, customer satisfaction, profitability and repeat business.

of empirical research undertaken in this area. This lack of research is compounded by a dearth of available consulting-specific reporting sources. It is for these reasons that this research was undertaken.

Definitions
Management consultant/consultancy
While there are numerous types of consultants in almost all fields, the consultants this paper focuses on are those people known as management consultants (Shenson and Nicholas, 1997). Henceforth any reference to a consultant implies a management consultant, unless otherwise stated. Wilkinson (1995, pp. 1-4) defines the task of management consultancy as:
. . .an independent and objective advisory service provided by qualified persons to clients in order to help them identify and analyze management problems or opportunities. Management consultants also recommend solutions or suggested actions with respect to these issues and help, when requested, in their implementation. In essence, management consultants help to effect constructive change in...organizations through the sound application of substantive and process skills.

Garrat (1991, p. 1), in her definition, elaborates that a management consultant is:
. . .an independent and qualified person who provides a professional service to business, public and other undertakings by: . identifying and investigating problems concerned with strategy, policy, markets, organization, procedures and methods; . formulating recommendations for appropriate action by factual investigations and analysis with due regard for broader management and business implications;

Management Decision 38/1 [2000] 2435 # MCB University Press [ISSN 0025-1747]

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discussing and agreeing with the most appropriate course of action; providing assistance where required by the client to implement his recommendations.

actual performance and desired performance of an organisation. As stated by Hubbard et al. (1996, p. 23), the ``environment represents all those aspects that affect the strategy of an organisation which are outside the organisation''. The environment is divided into two broad categories, the remote environment which is constituted by such things as economic, political, social, legal, demographic and technological forces; and the industry environment which may be analysed using Porter's five forces model (Hubbard et al., 1996). Porter's five forces model[1] (McCarthy et al., 1994) shows the variables affecting a consulting firm in its competitive or industry environment (Porter, 1979). The first force is the threat of new entrants. While Lewin (1995) argues that there are virtually no barriers to entry, there is a growing trend within the consulting industry for consultants to be highly educated and certified by an umbrella body (Washburn, 1996). Additionally, there is an increase in the threat of substitutes, as accounting firms, law firms and other professional bodies are providing management consulting services as part of their mainstream service (Washburn, 1996). These organisations consider consulting to be a new ``hunting ground'' to expand and develop new, and old, product lines (Futurist, 1998, p. 43). The bargaining power of suppliers is relatively low as consulting is a pure service industry and any goods used are incidental to the service itself and easily available (Thomas, 1978). However, as the consulting industry becomes more complex, a future may be envisioned where such disparate elements as advertising and rented buildings, which are essential for businesses to operate, may become more important and hence the bargaining power of suppliers may be increased (Porter, 1979). The bargaining power of buyers of consulting services is increasing (McCarthy et al., 1994; Porter, 1979), hence, the need for this study. Buyers are increasingly demanding more from consultancy suppliers and are becoming more wary of management fads and opportunists who seek to exploit their organisations through mediocre consulting services (Dreilinger, 1994; Washburn, 1996). Jockeying between industry competitors is also increasing (Abbott, 1997; Sharma, 1997). Hence, there is a need for consultants to develop unique and original methods to gain a competitive advantage over other industry participants (McCarthy et al., 1994; Porter, 1979).

Environment

While there is a wide difference in the type of activities undertaken by a consultant in a small firm versus a consultant in a large firm, and while there may be some differences in the consulting programs depending on type and size of firms for which they are intended (Porth and Saltis, 1997), in the research which provided the basis for this paper, it was attempted to look at what individual consultants think, generally, makes for a successful consulting firm regardless of the type and size of the firm in which they work.

Success

The traditional measures for success (or performance) are usually financial. However, with the increasing number of businesses involved in the service sector, Kaplan and Norton (1992) suggest that it has become necessary to have measures that are both financial and operational. Since management consulting is a service, both financial and operational indicators of success are necessary (Clark, 1995; Lovelock, 1996). For this research, these are: . profitability; . ascendancy; . growth; . market share; . job satisfaction; and . customer satisfaction. (Abbott, 1997; Buzzell et al., 1975; Chew, 1988; Judge et al., 1995; Kaplan and Norton, 1992; Kuhlken, 1995; Simon, 1995; Speechly, 1997).

Theory
It was decided to focus this study on discovering which strategic capabilities of certain management consulting firms make them successful and/or give certain consultants a competitive advantage over others (Montgomery and Porter, 1991). Hence, the theoretical framework of reference decided on emanated from writers on strategy (Hubbard et al., 1996; Porter, 1979). The model that was used is known as the environment-strategy-capability gap model (Hubbard et al., 1996). This model suggests that by understanding the market environment and capabilities of organisations, it is possible to formulate strategies for, and thereby fill gaps in, the

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When looking at the industry environment it also becomes necessary to discern the level of turbulence that the industry experiences. This is because the level of industry turbulence can influence the type of strategic capabilities that lead to success within that industry (Ansoff, 1988; 1990; Hubbard et al., 1996). Ansoff (1990, p. 10) defines environmental turbulence as, ``a measure of the changeability [complexity and novelty] and predictability [rapidity of change and visibility] of the firm's environment''. If seen from the point of view of the matching turbulence-aggressiveness-responsiveness scale, the level of turbulence for the management consulting industry is fairly high (Ansoff, 1990; Hubbard et al., 1996). This means that the management consulting industry is an open system which is creative, aggressive, complex, rapidly changing, constantly evolving, requires flexibility and can either create or be driven by its environment (Ansoff, 1990; Hubbard et al., 1996).

al., 1996; Javidan, 1998; Hamel and Prahalad, 1994; Kanter, 1990). Therefore, to say that a core competency = (strategic capability)A + (strategic capability)B + . . . + (strategic capability)n, is not true. Core competencies have been defined as:

. . . a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world-class standard . . . [p]atents, brands, products, and technologies do not qualify; neither do broad management capabilities such as strategic planning, flexibility, and teamwork; nor do high-level corporate themes like quality, productivity, and customer satisfaction (Coyne et al., 1997, p. 43).

Strategy

Ansoff (1984, p. 31) defines strategy as a ``set of decision-making rules for guidance of organizational behavior''. Strategy is essentially an intangible and abstract concept, the determination of which, gives no direct and concrete result in an organisation's performance (Ansoff, 1984). Investigation of suitable strategies for consultants is beyond the scope of this investigation. It should be noted, nonetheless, that strategy is usually based on the factors that are identified as affecting the remote and industry environments and the identified strategic capabilities (Hubbard et al., 1996).

Strategic capability

``A capability is a skill . . . that an organisation possesses that enables it to perform activities'' (Hubbard et al., 1996, p. 126). Most organisations possess a number of basic capabilities. These basic capabilities are those that enable the organisations to run as businesses. Strategic capabilities, above and beyond basic capabilities, have three distinctive characteristics, and these are: 1 they are of value to the customer; 2 they are better than that of the majority of other competitors; and 3 they are difficult to imitate or replicate (Hubbard et al., 1996). It is a unique, difficult to emulate combination of strategic capabilities that may be called core competencies (Hubbard et

The relationship of capabilities, strategic capabilities and core competencies may be seen in Figure 1. There are three routes to developing core competencies: the first is through evolution which is where competencies are developed as an organisation continues its daily functions and this is a gradual process. Incubation is where an organisation specially appoints a taskforce or division to focus exclusively on core competency development; and third, acquisition, the purchase of an organisation with a desired core competency, is the final way (Coyne et al., 1997). Core competencies are not easily developed nor are they always a pre-requisite for success (Stalk et al., 1992). It has been found that by identifying strategic capabilities, or clusters of strategic capabilities, by aligning these to the environment and incorporating them into a strategy, an organisation can outperform its competitors (Hubbard et al., 1996; Stalk et al., 1992). This approach to discovering and developing sustainable competitive advantage is known as ``competing on capabilities'' (Ghemawat, 1986; Stalk et al., 1992, p. 57).

New model

The preceding analysis then shows that the remote environment, industry environment (including turbulence), the strategy and strategic capabilities of a given organisation, if properly analysed and applied, can lead to improvements in performance (success) and a long-term sustainable competitive advantage. While none of these elements are mutually exclusive, for the purposes of this paper, the research attempted to discover which strategic capabilities lead to a sustainable competitive advantage in the consulting industry (see Figure 2).

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Literature summary
Strategic capabilities identified as affecting consulting success
The factors in Table I were identified, from the literature, as strategic capabilities which affect consulting success as three or more authors listed (Hirons et al., 1995) or discussed them.

Factors identified as consulting success indicators

Figure 1 The capabilities hierarchy

Measures are needed to determine organisational performance (success). Measurement of performance ``is a key source of information for control'' (LangfieldSmith et al., 1995, p. 10). The factors in Table II were identified as indicators or measures of success. However, once nonstandardised, scheduled interviews and content analysis were completed in the exploratory phase of the research, other factors were expected to emerge and some of those listed in Table II fall away.

Method
A generative research design was used (Simon et al., 1995) for this study. In its ideal form, it is a three-phase process. In phase one, the crucial themes/concepts are generated from the population; in phase two, those themes are elaborated upon; finally, in phase three, the project is formalised (Simon et al., 1995). Problems of causality cannot be solved by any single method of data collection (Denzin, 1989), therefore, several methods must be used. This is known as between-method triangulation (Denzin, 1989). The generative design not only provides for this, but demands that multiple methods of data collection be used. Another type of triangulation is within-method triangulation, where ``different types of the same method can be used'' (Simon et al., 1995, p. 17). An example of this is interviews conducted both face-to-face and over the telephone. Within-method triangulation enhances the efficacy of a technique. While the ideal generative research design is a very thorough and complete method of investigating a problem, it demands resources that are beyond the capability of a single researcher, hence for the purpose of this investigation the design was modified (Simon et al., 1995; Sohal et al., 1996) (see Figure 3). The literature review identified nine strategic capabilities and six performance indicators leading to management consulting success. However, because the themes in a generative research design are derived from the population itself (Simon et al., 1995), it was expected that phase one of the design would change (add/enhance/diminish/ replace) the strategic capabilities and performance indicators identified in the literature review.

Figure 2 Interaction of environment, strategy and strategic capabilities leading to sustainable competitive advantage

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Table I Strategic capabilities identified as affecting consulting success Factor Solve problem (s) Discipline Reason chosen Seven authors listed Six authors listed Authors who mentioned factor Beer et al., 1990; Block, 1981; Cohen, 1991; Karlson, 1988; Moravec, 1996; Schaffer, 1997; Shenson and Nicholas, 1997 Beer et al., 1990; Bourget, 1996; Geirland and Maniker-Leiter, 1996; Jansen and De Jong, 1996; Moravec, 1996; Shenson and Nicholas, 1997 Bourget, 1996; Cohen, 1991; Jansen and De Jong, 1996; Karlson, 1988; Moravec, 1996 Block, 1981; Bourget, 1996; Geirland and Maniker-Leiter, 1996; Jansen and De Jong, 1996; Weiss, 1996 Beer et al., 1990; Block, 1981; Cohen, 1991; Karlson, 1988 Block, 1981; Geirland and Maniker-Leiter, 1996; Moravec, 1996; Shenson and Nicholas, 1997 Beer et al., 1990; Cohen, 1991; Jansen and De Jong, 1996 Borrow, 1997; Gilbert, 1994; Karlson, 1988 Cohen, 1991; Karlson, 1988; Shenson and Nicholas, 1997

Project management Five authors listed Setting clear Five authors listed objectives Define problem(s) Four authors listed Integrity and honesty Four authors listed Communication Innovation/R&D Marketing Three authors listed Three authors listed Three authors listed

Table II Factors identified as consulting success indicators Factor Profitability Growth Ascendancy Customer satisfaction Job satisfaction Market share Reason chosen Five authors listed Three authors listed Two authors listed Two authors listed Key subjective factor leading to overall career success A key measure relating to profitability Authors who mentioned factor Buzzell et al., 1975; Chew, 1988; Kaplan and Norton, 1992; Kuhlken, 1995; Simon, 1995 Abbott, 1997; Kuhlken, 1995; Speechly, 1997 Judge et al., 1995; Kaplan and Norton, 1992 Capon et al., 1995; Kaplan and Norton, 1992 Judge et al., 1995 Buzzell et al., 1975

Phase one of the research

The nine strategic capabilities and six performance indicators were then incorporated into a non-standardised, interview schedule. In phase one of the research design, 23 such interviews were conducted among a judgmental sample of

practicing management consultants. Along with the interviews, a content analysis of the brochures of 19 consulting firms was performed. From these two qualitative techniques, there emerged a number of additional strategic capabilities and performance indicators.

Figure 3 Modified generative research design

Phase two of the research

In phase two, the new set of strategic capabilities and performance indicators now obtained from the literature review and the qualitative research, enabled the construction of a questionnaire. This questionnaire was sent to 1,128 consultants Australia-wide. The aims of phase two were to corroborate the findings of phase one and the literature review, and to determine which strategic capabilities and performance indicators were pertinent to management consulting firms. While it was not possible to survey the entire population of management consultants in Australia, the entire subpopulation of the consultants (1,128 in total) who were members of the Institute of Management Consultants[2] (IMC) were sent a questionnaire (Judd et al., 1991). This was the ideal sample frame as all

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consultants are either certified management consultants (CMC[3]) or members (MIMC[4]). Both in Australia and overseas the importance of being a CMC or belonging to a professional consulting organisation is increasing as this represents professional acceptance and qualification (Mudd, 1996; Shays, 1995). To become a member of the IMC, a rigorous testing procedure is undertaken, where both clients and peers assess the performance of the consultant applying for membership (Mudd, 1996). This ensures that all consultants who are members are theoretically, at least, competent (Mudd, 1996).

Quantitative findings
From the 1,128 questionnaires sent to the members of the IMC, 391 responses (35 per cent) were received. Of the respondents, 340 (87 per cent) were male and 51 (13 per cent) were female. The mean age of respondents was 49 years, however the minimum was 24 years and the maximum was 72 years. This is congruent with trends in the industry, where the average age of consultant is rising to around 50 years, as consulting companies are seeking to hire older consultants for their breadth of experience, knowledge and to act as mentors to younger consultants (Jay, 1993b). The average number of years as a consultant was 14, with a minimum of one and a maximum of 43 years. Most (72 per cent) of the consultants in the sample worked in organisations with five or less consultants. According to Bryant (1998) the majority of firms are small operations. Most of the respondents who returned questionnaires were in senior and top management positions and the majority of responses received were from the capital cities. From the responses, it was observed that 254 (65 per cent) of respondents had multiple specialties.

Qualitative findings
The review of the literature, interviews and content analysis, eventually, led to the identification of 21 strategic capabilities and ten performance indicators which were tested in the questionnaire (see Table III). A number of the interviewees suggested that these strategic capabilities and indicators of performance are interlinked, and this idea was explored further in the quantitative analysis. Other researchers, investigating successful consulting from the client's point of view, have uncovered strategic capabilities which are similar to those identified here (Dowling, 1993; Jay, 1993a). Dowling (1993), in his survey of clients purchasing consulting services, identified the following strategic capabilities, among others; reputation, age of firm (longevity), size of firm, and experience. Jay (1993a) identified networking, innovation, client satisfaction and growth as strategic capabilities and indicators critical to survival. As can be seen, there is some overlap of these and those identified in this investigation.

Strategic capabilities

The 21 strategic capabilities were divided into two categories and were tested in the questionnaire for their degree of importance in attaining management consulting success. A four category likert scale was used: categories were ``utmost importance'', ``of some importance'', ``of limited importance'' and ``totally unimportant''. The respondents were also asked to rate in order, the three most important functions and, skills and values. On the basis of these ratings, weighted scores (based on three levels of importance) were calculated for these strategic capabilities and they were ranked (see Table V and Table VII).

Table III Strategic capabilities and consulting success indicators identified Functions Solving problems Setting clear objectives Defining problems Innovation/R&D Marketing/advertising Selling Unique/differentiated product Technical knowledge Broad skill base Quality of service Strategic capabilities and consulting success indicators Skills and values Success indicators Integrity and honesty Discipline of consultant Project management skills Client-consultant communication Charisma Reputation Credibility Flexibility Networking/building relationships Ability to deal with ambiguity Identifying trends in consulting Revenue Profitability Growth Customer satisfaction Personal/job satisfaction Number of clients/size of client base Repeat business Referrals Longevity of consulting practice Meeting the budget [ 29 ]

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Of the functions, consultants felt that the top three for achieving consulting success were quality of service provided, setting clear objectives when commencing an assignment and solving problems (see Table V). Respondents were asked to make any additional comments at the end of each section of the questionnaire and therein, a number of consultants indicated that many of these functions were interrelated. Other comments included were: that to succeed in a consulting endeavour, it is necessary for client participation and involvement; understanding of client's agenda and engendering trust/respect. Of those surveyed, 349 respondents (90 per cent) stated that quality was of utmost importance (see Table IV). It also emerged as the highest ranked function, its score far outstripping the other functions' scores (see Table V). The importance of quality in service provision has become a much discussed issue in management literature (Beaumont and Sohal, 1997; Grant et al., 1994). It can be seen from the responses that it is critical to consulting services as well. Setting clear objectives, ranked second (see Table V), was considered of utmost importance by over 75 per cent of respondents (see Table IV). This function was identified as critical both in the literature review and the interviews. Setting clear objectives does not entail outlining every input and action to be taken, it merely means the managing of client expectations (Weiss, 1996). Weiss (1996) has likened the setting of objectives to setting up a stage for a performance. That solving of problems was ranked third is no surprise, as consultants are hired for this purpose. Solutions should be long-term, realistic and easily implementable by the client (Block, 1981; Bourget, 1996; Schaffer, 1997). Selling, which is differentiated from marketing in that it is getting a client to actually sign a contract for provision of consulting services

Table V Functions in rank order Rank Score (Points) Function 1 2 3 4 5 6 7 8 9 10 582 415 357 280 209 108 104 80 78 63 Quality of service Setting clear objectives Solving problems Selling Defining problems Unique/differentiated product Technical knowledge Innovation/R&D Broad skill base Marketing/advertising

(Harding, 1995), was considered by 205 respondents (54 per cent) as critical (see Table IV). The adequate performance of this function is not only important for success, but also survival. Of the skills and values, the top three were, integrity and honesty, client-consultant communication and credibility (see Table VII). Additional skills and values mentioned by respondents in the open-ended question at the end of this section in the questionnaire included ability to deal with conflicts and maintain objectivity, leadership and drive to succeed. Integrity and honesty were considered by 350 (90 per cent) of respondents to be of utmost importance and by none to be totally unimportant (see Table VI). It was also ranked as the highest skill/value (see Table VII). Everywhere that issues of ethics arise, consultants believe that the highest standards are critical for success (Kahn, 1993; Selcoe, 1993). Greenbaum (1990) expands on the notion of the importance of ethics to consultants by adding that clients should also be ethical. If they are not, Greenbaum (1990) advises tactful exiting of such relationships. The argument here is that one is judged by the company one keeps (Greenbaum, 1990). Client-consultant communication identified

Table IV Strategic capabilities (functions) responses, scores and ranks Utmost importance No. % 273 292 262 91 64 205 112 141 108 349 71 76 68 24 17 54 29 37 28 90 Of some importance No. % 104 89 110 203 150 115 191 208 184 33 27 23 29 53 39 30 50 54 48 9 Of limited importance No. % 7 6 13 83 148 53 71 34 86 4 2 2 3 22 38 14 19 9 22 1 Totally unimportant No. % 1 0 1 6 24 9 8 3 6 0 0.3 0 0.3 2 6 2 2 1 2 0

Function Solving problems Setting Clear Objectives Defining problems Innovation/R&D Marketing/advertising Selling Unique/differentiated product Technical knowledge Broad skill base Quality of service [ 30 ]

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Table VI Strategic capabilities (skills and values) responses, scores and ranks Utmost importance No. % 350 230 174 363 34 233 307 128 168 160 42 90 59 45 93 9 60 79 33 43 41 11 Of some importance No. % 38 153 193 26 183 139 77 226 182 185 195 10 39 50 7 48 36 20 58 47 48 51 Of limited importance No. % 2 5 19 1 140 16 4 32 34 42 129 1 1 5 0.3 37 4 1 8 9 11 33 Totally unimportant No. % 0 0 0 0 27 1 1 1 5 2 20 0 0 0 0 7 0.3 0.3 0.3 1 1 5

Skill/value Integrity and honesty Discipline of consultant Project management skills Client-consultant communication Charisma Reputation Credibility Technical knowledge Networking/build relationships Ability to deal with ambiguity Identifying trends in consulting

in the literature, interviews and the content analysis, was considered to be of utmost importance by almost 93 per cent of respondents and was ranked second in the skills/values (see Table VI and Table VII). This includes communication at all stages of the assignment (Drozdow and Gilmore, 1997; Murdoch, 1997). Often, even if the assignment is completed but the communication is

Table VII Skills and values in rank order Rank 1 2 3 4 5 6 7 8 9 10 11 Score (Points) 616 596 271 199 152 148 115 92 91 15 12 Skills and values Integrity and honesty Client-consultant communication Credibility Reputation Discipline of consultant Networking/build relationships Project management skills Ability to deal with ambiguity Technical knowledge Charisma Identifying trends in consulting

insufficient or ineffective the client will not consider the result successful (Weiss, 1996). Credibility, as indicated by consultants' comments, is associated with trustworthiness. The idea of creating trust between clients and consultants has been the focus of much literature: trust comes in four kinds/levels; simple, basic, blind and authentic (Fernando and Solomon, 1998). It was mentioned by 79 per cent of respondents as being of utmost importance and was ranked third of the skills/values (see Table VI and Table VII). Reputation, which was ranked fourth (see Table VII), was associated with knowledge, experience, expertise and how the consulting firm is perceived in the larger community. Discipline of consultants, arising as a strategic capability in the literature and interviews, was noted by almost 60 per cent of consultants to be of utmost importance, which is a percentage comparable to that of reputation despite the fact that it is ranked fifth among the skills/ values.

Table VIII Consulting success indicators responses, scores and ranks Utmost importance No. % 134 247 69 371 253 28 277 256 91 92 35 63 18 95 65 7 71 66 23 24 Of some importance No. % 217 135 183 19 118 184 103 118 158 175 56 35 48 5 30 48 26 30 41 46 Of limited importance No. % 31 8 118 0 14 150 10 16 108 104 8 2 31 0 4 40 3 4 28 27 Totally unimportant No. % 3 0 13 0 3 18 0 0 32 12 1 0 3 0 1 5 0 0 8 3 [ 31 ]

Performance indicators Revenue Profitability Growth Customer satisfaction Personal/job satisfaction Number of clients/size client base Repeat business Referrals Longevity of consulting practice Meeting the budget

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Consulting success indicators

Respondents felt that there were ten indicators of consulting success (see Table VIII). They felt that the top three performance indicators were customer satisfaction, profitability and repeat business (see Table IX). Additional performance measures mentioned in the open-ended question by respondents included profession rewards/peer recognition, time billed, impact on client productivity/profitability, fee rate and average revenue per consultant. From the results, it may be seen that the measures for success (performance indicators) are both financial and nonfinancial. This is congruent with the literature which suggests that service sector businesses need more than financial measures to attain success (Heskett, 1994; Kaplan and Norton, 1992). The 371 respondents (95 per cent) considered that customer satisfaction was of the utmost importance (see Table VIII), hence its prime ranking among the consulting success indicators (see Table IX). Research indicates that customer satisfaction leads to increased loyalty, profitability and growth, which are all essential for sustainable competitive advantage ((Heskett, 1994, see Figure 5, Chapter 2). Profitability, ranked second and which was identified both in the literature review and the interviews, is a traditional financial measure of success. A number of the

additional financial measures mentioned in the open-ended question could be subsumed under profitability. Repeat business, indicated by 71 per cent of respondents as of utmost importance, was the third ranked indicator. Research reveals that it is more effective and efficient to retain customers than to acquire new ones (Heskett, 1994; Jones and Sasser, 1995). Reichheld and Sasser (1990, p. 105) state ``[c]ompanies can boost profits by almost 100 per cent by retaining just 5 per cent more of their customers''.

Tests of bivariate relationships between each strategic capability and performance indicator

Table IX Consulting success indicators in rank order Rank 1 2 3 4 5 6 7 8 alphabetical order 8 rank same 10 Rank (Points) 873 388 277 272 217 121 55 29 29 17 Peformance indicator Customer satisfaction Profitability Repeat business Personal/job satisfaction Referrals Revenue Growth Meeting the budget Longevity of consulting practice Number of clients/size of client base

In this study the general hypothesis tested was that there is a relationship between strategic capabilities and indicators of consulting success. The relationships were tested using chi-square tests of independence (see Figure 4). Every single strategic capability was tested against every performance indicator. Of the 210 tests, 74 yielded a significant result (p < 0.05). Table X is the matrix of significant relationships confirmed in the bivariate testing. Every box which contains a tick () indicates that a significant relationship (p < 0.05) existed. What emerged from this testing was that most strategic capabilities were significantly related to one or more financial and/or nonfinancial measures. As discussed in the previous section, this is similar to what has been reported in the literature and much of the anecdotal evidence. Not one of the strategic capabilities failed to be significantly related to at least one of the performance indicators.

Conclusion
This paper indicates that successful consulting firms should employ experienced, knowledgeable and multiskilled consultants. Ideally these firms have to operationalise and implement all 20[6] strategic capabilities (ten functions and ten skills/values) identified. These relate to one or more of the ten performance indicators of management consulting success. However, the three most critical functions that need to be implemented are: 1 quality of service; 2 setting clear objectives; and 3 solving problems. The three most critical skills/values that need to be implemented are: 1 integrity and honesty; 2 client-consultant communication; and 3 credibility.

Figure 4 Bivariate relationship testing[5]

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Last, the three most crucial performance indicators of consulting success are: 1 customer satisfaction; 2 profitability; and 3 repeat business.

20 (not 21) strategic aapbailities and ten performance indicators were examined. 6 See Note 5

References

Notes

1 Porter's five forces model is used here solely as a framework to analyse the industry environment. The low-cost and differentiation strategies which are usually associated with this model have been deemed to be outside the scope of this analysis (Hendry, 1990). However, it is to be noted, that these strategies either individually or in a combined way are used within the consulting industry (Goldner, 1997; International Journal of Bank Marketing, Vol. 13 No. 6, 1995; Wiersema, 1997). 2 Membership as of August, 1998. 3 CMC = Certified Management Consultant. 4 MIMC = Member of Institute of Management Consultants. 5 The strategic capability ``technical knowledge'' was inadvertantly included under both functions and skills and values in the questionnaire. Therefore, in the end, the results for the tests of relationships between

Abbott, P. (1997), ``Top firms see steady rise in income UK survey'', Consulting News, December, pp. 8-10. Ansoff, H.I. (1984), Implanting Strategic Management, Prentice-Hall International, Englewood Cliffs, NJ. Ansoff, H.I. (1988), ``Strategic management'', The Practising Manager, Vol. 8 No. 2, April, pp. 1-11. Ansoff, H.I. (1990), ``General management in turbulent environments'', Practising Manager, Vol. 11 No. 1, Summer, pp. 6-27. Beaumont, N. and Sohal, A. (1997), ``Quality management in Australian service industries'', Working paper, Monash University Caulfield Campus, Melbourne. Beer, M., Eisenstat, R.A. and Spector, B. (1990), ``Why change programs don't produce change'', Harvard Business Review, November-December, pp. 158-66. Block, P. (1981), Flawless Consulting: A Guide To Getting Your Expertise Used, Jossey Bass, San Francisco, CA.

Table X Significant relationships () between strategic capabilities and performance indicators revealed through bivariate relationship testing Performance indicators Number of Longevity Meeting Personal clients/size the of of client Repeat job Customer base business Referrals practice budget satisfaction satisfaction                 

Strategic capability Solving problems Setting clear objectives Defining problems Innovation/R&D Marketing/advertising Selling Unique/differentiated product Technical knowledge Broad skill base Quality of service Integrity and honesty Discipline of consultant Project management skills Client-consultant communication Charisma Reputation Credibility Networking Ability to deal with ambiguity Identifying trends in consulting

Revenue

Profitability

Growth   

 

 

           

 

 

         

  

  

   

   

 

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Application questions
1 Why do organisations like consultants so much? What are the key benefits they deliver? 2 Are the authors' findings likely to generalise outside of their Australian setting? What factors if any might suggest they would not?

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