Management consulting development from historical perspective Vadym Aftandilyants, KNUTD Summary Management consulting industry is analyzed from

historical perspective in this article. Although the industry is relatively young it has come through a number of important changes during its history. Management consulting evolved from industrial engineering consultants to sophisticated multinational corporations with diversified portfolios of services. Occasionally consulting companies step up with a new ideas that drive as their own business as business of their clients. Ukrainian market is still young and continue to develop. As it is prone to changes on the world markets, national companies have potential for growth. Introduction Main goal of this article is analysis of management consulting history, for better understanding of modern consulting market, its essential features and affects on development of management science. Using historical perspective we may see how different events in business history shaped the industry and brought it were it is now. As management consulting industry faced a number of economic downturns and turmoils through the history, in post-crisis era it will be useful to learn from previous lessons. In this article we did not aim at representation of large sets of numerical data concerned any particular event or period of history. Rather we present general framework for further analysis and key figures to illustrate hallmarks of the industry. More quantitative data may be found in original and more solid researches presented in the references at the end of the article. Swift development of Ukrainian economy during last decade resulted in interest of foreign investors and multinational companies in Ukrainian market. On the other hand Ukrainian business became more sophisticated and integrated into the global economy. As economy of Ukraine became more open it became prone to foreign markets volatility. Dependence of management consulting industry on client`s market conditions and overall state of economy makes it vulnerable and requires provision of

new ideas for their client`s businesses to be above industrial average even in harsh economic conditions. That is why young Ukrainian consulting industry may learn even more from the past evidence and strengthen its positions in global competitive marketplace. Development of management consulting industry Before starting to analyze development of management consulting industry, we need to define it. As we consider, consultancy is a professional assistance in solving client`s (firm or organization) operational and development problems, provided by appropriate experts in form of recommendation and solutions worked out jointly with the client. We also consider consulting services, as economic services provided by business to business and public sector. We put economic and policy consulting beyond borders of this research as these types of consultancy were usually provided by the servants of sovereigns or in other words, internal and not external consultants. Therefore, analysis of state`s internal consultants evolution lays within the area of history and demands independent research. Hence, boundaries of this research will be limited to relatively recent times. Emergence of management consulting may be referred to the end of the XIX beginning of the XX centuries. (Kubr, 1986; McKenna, 1995; Kipping, 2005). At this time in the United States of America and Western Europe, the second wave of industrial revolution has begun. It was related to emergence of scientific approaches to management of work process, development of new payments models, depended on results of work and a lot of other management concepts. Authors and followers of this new approaches, such as Frederic Taylor, Harrington Emerson, Charles E. Bedaux and others organized firms and actively implemented their developments on the enterprises in a number of industries (Nelson, 1992). Circa the same time, at the late eighties of nineteenth century number of accountancy, engineering and law firms decided to diversify their services and began to provide audit and management consulting services (Gross & Poor, 2008). Among those firms were such well known today companies as William Deloitte, Ernst & Ernst, Arthur D. Little, McKinsey, Booz Allen & Hamilton and other. Historically, the first

management consulting firm was founded by Arthur D. Little in 1986 in Boston. It started as administrative consulting and testing company in chemical industry and soon spread its competencies to other industries (Panetti, 2007). New economic activity became quite successful and popular across the industries. Future industrial leaders such as Du Pont, General electric, BF Goodrich and others soon became clients of the management consulting companies. Newly formed consulting business continued to expend, hiring new personnel and opening new offices across the USA and Europe (Kipping, 1999; Curnow & Reuvid, 2005; Nelson, 1992; McKeena, 2006). Next stage in development of management consulting is linked to aftermath of the Great Depression and passing of the Glass-Steagall Banking Act in 1933 (United States, 1933). According to this act banking sector was split into commercial (deposit-taking) and investment banks. In addition any non-banking activities of commercial banks, including management consulting of their clients were prohibited. Simultaneously with passage of Glass-Steagall Act, Securities Exchange Committee (SEC) was formed. This commission established number of rules for companies about disclosure of financial information. According to these rules, organization who prepares this documents has to be external to the company and authorized by the SEC. Furthermore Banking Act of 1933 has not restricted investment banks from consulting services, but it established requirements for underwriters about due diligence and reorganization of the companies. As the result, on the one hand a great niche for auditing companies was created, on the other, commercial banks were forced to hire external management consultants to figure out the situation with organization of bankrupt companies and investment banks needed external consultants for assessment perspective of new public companies. (McKenna, 1995). Due to increase in demand for consulting services, number of consulting companies in the USA quadrupled from 100 in 1930 to 400 in 1940 (ACME, 1964). During WWII all consulting services around the World were focused on production process and all activities in Europe have been halted. When War ended in 1945

World economy started to work again and soon was booming. Main features that shaped consulting industry of post-war economy were overall economic growth, development of cooperative consumer society, consolidation and diversification of business, intensification of international competition etc. Trends of this period forced consulting companies to review their approaches to consultancy from corporate strategy and value chain management to internal and external relations of organizations (Kipping, 2005). Also in 1963 a new major player in the management consulting market appeared. It was Boston Consulting Group (BCG), which specialized in corporate strategy using number of innovative approaches like BCG matrix, Experience curve and much more. Former consultants of BCG, in turn created in 1967 Roland Berger company (today, largest management consulting company in Germany) and Bain & Co. in 1973. This companies became and remain leaders of the industry for a long time (Vault, 2011). Main factor that influenced world economy and management consulting in 1970s was oil crisis of 1973-1978. Goals of the business during this period were mainly financial efficiency, production productivity and workforce motivation. Thereafter consulting companies that specialize in accounting and finance significantly improved their positions on the market. (Sandler, 1998). World trade liberalization, expansion of Japanese and European goods on World markets and development of information technologies in 1980s once again forced management consulting companies to step in with a new ideas. During 1980s consulting strengthen positions in global corporate and marketing strategy, and enriched their portfolios with Total Quality Management (TQM) and Enterprise Resource Planning concepts (Sandler, 1998; Brondoni, 2007). 1990s, first of all were shaped by development of IT technology and Internet. It is not surprising that big IT companies decided to enter attractive management consulting market. Thus, IT giants like IBM and Cap Gemini acquired consulting business from oldest consulting companies PricewaterhouseCoopers (PwC) and Ernst & Young (Gross & Poor, 2008).

From 2000, business began to lose confidence in management consulting. Not the least of the factors was the case of Enron in 2001, when one of the oldest consulting firms Arthur Anderson overstated profit of Enron in their report and that was discovered during SEC investigation. On the other hand leader of the consulting industry McKinsey company alway represented Enron as a model for corporate innovations. As a result of the Enron scandal, US Congress passed Sarbanes Oxley Act, which prohibited non-audit services by auditors providing audits at that particular time (United States, 2002). As it is shown in Kennedy Information (2003) and FEACO (Por, Milovecz & Kirly, 2010) reports, growth of the management consulting industry depends on the overall state of economy and generally follows its growth patterns. But its growth is also linked to the creation of new management ideas and concepts. As we mentioned above with every period of time consulting industry presented new approaches to business, which helped their client-companies overcome consequences of economic crises. With presentation of this new methods and concepts a great interest in management consulting occurs and when this concepts become obsolete we may witness decrease of the consulting market. Thus it is important for further analysis to look close at management consulting business cycle. Management consulting in Ukraine. Market for management consulting of Ukraine was formed only in the end of the XXth century after dissolution of the Soviet Union, but its short history was quit dynamic. We may distinguish three main stages in development of Ukrainian management consulting: 1. 1991 - 2000. Before 1991 any market was absent as such. Role of management consulting according to the doctrine of Soviet planed economy, was played by research institutions of USSR Academy of Sciences. After collapse of Soviet Union, Ukraine began reformation of the economy. As former Soviet property became an object of privatization, demand for auditing and management consulting services swiftly increased. As a result big foreign consulting companies, such as PwC, KPMG, Ernst & Young, Deloitte and others entered new developing market.

2. 2001 - 2007. Development of consulting market during this period was affected by overall growth of Ukrainian and World economy (State Statistics Service of Ukraine, 2011), increasing interest of foreign investors in ukrainian assets (UNCTAD, 2006), IPOs of ukrainian companies on foreign trade platforms (Semenov, 2007; Tarasova, 2010) and interest of multinational companies in Ukrainian market. Also in 2007 World leading management consulting companies BCG and Bain opened offices in Kyiv. 3. Starting from 2007. This stage of market development is affected by World financial crisis of 2007. As the crisis stroke all industries management consulting was not an exception. Ukrainian management consulting market size decreased from 500 in 2007 to 340 million US dollars in 2009 and its growth rate felt from +30% in 2007 to - 19,7 % in 2009 (Astarta-Tanit, 2010). Conclusions Management consulting is relatively young industry, but insights of management consultants pushed leading companies to growth rates above industry`s average and made them global leaders. With every new stage of its history, management consulting presented new responses to the existing problems of global business. Though management consultants need to be a kind of front runners for their clients business, sometimes they do not have appropriate resources, power or even motivation to prevent future economic crises. We may learn this from past economic and financial crises and scandals. Growth of management consulting industry is linked to the creation of new approaches to business. Thus consulting companies should not forget about this. Concerning consulting industry of the Ukraine, we may say that it is still young and continue to develop. As this market mainly depends on big national and international clients, there is growth potential in SME segment. As Ukrainian economy was stroke by World financial crisis of 2007 and its consulting market has shrunk with profit margins diminished, there is chance for some national companies to grow and compete with multinational rivals.

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