Introduction to Management Consulting

Management Consulting and Investment Banking

As we discuss subsequently, this has a direct bearing on how the business world works in terms of which firm or
investment bank is often hired to consult by the business leaders. Indeed, both management consultancies and
investment banks consult with the industry to ensure that firms derive value from their operations and the difference
between their pitches is often to do with the terms of reference wherein management consultancies encompass a
broader swathe and realm of operations whereas investment bankers often focus on the financials as well as the
strategies to be put in place to raise capital and ensuring that the firms are competitive on this front.

What Management Consultants Do

Management consultants are hired to suggest and recommend strategies and ways and means of improving
the profitability of firms. This can encompass operations, finance, marketing, strategy, planning, human resources,
and the very nature and purpose of the firm. For instance, it is not uncommon for management consultants to
recommend a complete overhaul of the firms operations by restricting the organization and either moving it away from
its present focus or refocusing on the present strategies. Indeed, the term core competencies arose as a result of
painstaking research and detailed consulting wherein the authors of this term suggested that firms must first identify
their core competencies and then refocus their strategies and organization structure around such competencies. Apart
from this, the terms such as repositioning, rebranding, restructuring, and rebalancing are all concepts used by
management consultants to recommend alternative strategies to the firms. Perhaps the most famous product of
management consulting has been the BCGs growth matrix in addition to the Ansoff Matrix both of whom identify and
categorize the position of the firm in the present scheme of things and suggest ways and means to improve
profitability.

Do Management Consultants always get it Right?

Of course, this does not mean that management consultants are always right when they consult with industry. For
instance, in the aftermath of the global financial crisis of 2008, management consultants along with investment
bankers drew much flak because either they failed to see the crisis coming or because they were too much like the
Ostrich with its head in the sand to alert the firms about the crisis. Even before the crisis, management consultants
were being exhorted to be more circumspect and not be carried away by fads, manias, and irrational exuberance as
can be seen in their wrong approach to the dotcom boom and the subsequent bust wherein they and their
recommendations to many firms were found to be wrong with hindsight. Indeed, if there is a valid criticism against
management consultants, it is that they use a lot of jargon and market their suggestions and recommendations in a
glib and polished manner some of which when the sheen wears off are found to be wanting.

An On Balance Assessment of Management Consulting

Having said that, one must not dismiss management consultants that easily. For instance, one of the reasons why
many CEOs (Chief Executive Officers) hire them in the first place is because they bring in an outsiders
perspective as well as can approach the problems being faced by the firms in an objective and fresh manner.
Apart from this, management consultants also bring to the table their expertise and experience wherein they are in a
position to recommend alternative strategies because of their deep engagement as well as wealth of information and
knowledge of business which enables them to spot trends and anticipate changes in advance. Therefore, what we are
saying is that management consulting must be evaluated in a balanced manner taking the positive along with the
negative.

Conclusion: Knowledge is Power

The discussion so far has provided a birds eye view of what management consulting is all about. For those of you
aspiring to be a management consultant, our advice is that you should develop a perspective on not only how the
business and the corporate world works but also a perspective on life itself so that your insights backed with research
into the firms that hire you as well as hard work and due diligence into the minutiae would come in handy. Most
importantly, knowledge is power as far as management consulting is concerned and therefore, you must keep abreast
of the changing trends in business and society in addition to approaching each piece of analysis as well as reading
material with the attitude of how it would help you succeed in making it to the management consulting firms.

Actualizing Dreams of a Consulting Career

What do Consultants Do ?
To start with, management consultants are professionals who advise the corporates on restructuring, reorganization,
rejuvenation, and revitalization of their companies. A simple question as to why cannot the organizations do this
themselves by their own employees yields the answer that consultants bring to the table their deep expertise, wide
experience, their familiarity with similar companies and industries, and above all, a perspective about how companies
should be managed that is invaluable and indeed, worth the money that is paid to them. Mind you, the reason why
consultants get paid astronomical sums in salaries and benefits is that their clients likewise do so for their services.

In addition, consultants are often called in when companies are going through a rough patch and their
leadership wants an unbiased and objective analysis of the situation along with recommendations to improve
their situation. In many cases, the internal resources often have vested interests in pushing for a particular strategy
which means that more often than not, there is a need for a third party to evaluate what is wrong with the company.
Moreover, many employees who contribute to the feedback that consultants receive as part of their consultations and
deliberations within the organizations find it easier to talk to someone from outside of the organization rather than
open up to their peers in the organization. Therefore, this is one of the reasons why organizations prefer consultants to
advise them when things are going wrong.

Having said that, it must be noted that consultants do not merely perform the role of objective observers. Because
they are trained in the best business schools on management theory and practice, they have knowledge of the
corporate world that other professionals do not have since the latter work in niches whereas the former straddle a
wide spectrum of activities. Apart from this, consultants mature with age when they consult with a wide variety of
organizations across industries and sectors and this experience provides them with the insights that they can use
when consulting.

Consultants and Investment Bankers

A key point to note about the consulting profession is that they are in direct completion with the investment bankers
since both these professionals are essentially aiming for the mind space of the senior leadership in the organizations.
Having said that, it must be noted that whereas investment bankers are concerned about financial aspects,
consultants encompass a broad swath as they deal with operational, strategic, and organizational aspects. In short,
investment bankers suggest the external components and the internal restructuring in financial terms whereas
consultants take a broader view in addition to a deeper analysis. However, it must be noted that in recent years,
consultants have specialized and branched out in niches according to the sector, the industry, area of management,
span of control, and other aspects. This progression from being generalists to specialists within specialists has been
mainly due to the increasingly complex internal and external environments in which organizations operate.

The Big Five Firms and How Professionals can Develop Consulting Skills
Finally, consultants such as those from the Big Five Firms, McKinsey, Booze Allen, Boston Consulting Group,
Anderson Consulting, Price Waterhouse, and to some extent Deloitte are the pick of the lot among the entire
consulting industry. It is no wonder that these firms form the Day Zero and the Day One in the placements seasons in
business schools. Before concluding this article, we would like to remind you that while there has been much criticism
about consulting and consultants as well as much praise and adulation that they receive, the bottom line for any
management graduate or professional is to develop a perspective on how the business world and in general, the world
works and evolve as professionals who practice values, follow the industry trends, spot and anticipate future changes,
and more importantly evolve as visionaries ought to make a difference to their clients as well as themselves.

Consultant-Client Relations
What the Code of Conduct Says
Consultants are expected to maintain professional and ethical standards when dealing with their clients. This can take
the form of maintaining arms length relationships, not intervening in the internal affairs and politics of the clients
organizations, keeping confidential information away from interested parties looking for insider knowledge, and
reporting any violations in the conduct (financial, operational, and behavioral) by the clients organization to the
regulators. This is the code of conduct that is usually prescribed for consulting firms whenever they take on work from
client organizations.

Realities of Consultant-Client Relations

However, this is rarely followed in practice as evidenced by the large numbers of corporate scandals that have
emerged in the last decade or so where the consultant was found to be aiding and even abetting the malfeasance
conducted by the client. For instance, the Enron scandal manifested itself because the consulting firm was in cahoots
with the client in cooking the books. Indeed, in this case, it was found that the consulting firms partners went beyond
collaboration and were indeed one of the culprits.

Some Examples from the Corporate World

Similarly, the Satyam scandal in India was also found to be a case where the consultants (or some of them) knew
about the goings-on in the company and were in breach of the code of conduct and even legal aspects since they did
not report the matter to the regulators. However, the saving grace in this case was that when the malfeasance became
too big and too hot to handle, it was the new consulting firm that had been roped in for another purpose that blew the
whistle on the scam.

Consultants have to Walk a Thin Line between Professional and Personal

Obligations
These examples indicate that the consultants have to walk a thin line between fulfilling professional obligations and
reporting unethical behavior. Since the client is the one who pays them, it is often the case that the consultants are
reluctant to report malfeasance to the regulators. Further, considering the extremely competitive nature of the market
wherein there are several consulting firms competing for the same client, money talks and hence, consultants are
often found to go along with the client. There are no easy answers when one considers all the aspects and it would be
indeed a brave and conscientious consultant who would be the whistleblower.

Some Solutions Which Were Proposed

Having said that, there are some solutions that have emerged in recent years about the course of action to be taken
by the consulting firms. For instance, after the Enron scandal, the SEC (Securities and Exchange Commission) and
other regulators ensured that new rules separating consulting and investment banking so that the same consulting
firm which was also advising the client in financial matters would now be two different firms. While this was intended to
reduce the conflict of interest since it was thought that when consultants and investment bankers represent two firms
they would automatically be in a position to wink at malfeasance, it is debatable as to how far this law succeeded
given the Global Economic Crisis of 2008 wherein several case of malfeasance came to light.

Conflict of Interest is at the Heart of the Problem

Of course, as some experts have mentioned, the real issue here is of conflict of interest. How far would a consultant
go in reporting unethical behavior to the regulators which is expected from him or her when such case involve the very
clients who are giving them business. Further, the fact that many consultants often are embroiled in the internal
politics of the client wherein they take sides in corporate and boardroom battles. This indicates the tricky nature of the
problem of consultant client relations wherein the temptation to use confidential and insider information to ones
advantage is motivated by greed and power.

Conclusion
Finally, above everything the maintenance of normative consultant client relations depends on the institutional
structures, the incentives for good behavior as well as the incentives for moral hazard, the role of the regulators and
how strictly they enforce the law, and the individuals themselves considering that they are the ones who are either
benefiting or losing out when the scandal breaks. It is also about human nature since it is hard to resist the
temptations of money and power and at the same time be true to the professional obligations and the observance of
the code of conduct.

How Consultants can Handle Conflict of

Interest in a Professional Manner
What is Conflict of Interest?
Working professionals in any organization have to contend with the organizational policies on Conflict of Interest. The
term Conflict of Interest refers to the divided loyalties of the individual where he or she is violating the policy whenever
he or she undertakes a parallel activity that is detrimental to their main employer. In simple terms, if an employee or an
individual is earning money from a parallel activity such as writing and consulting to external entities and is also
employed by an organization to which such activities cause monetary and nonmonetary losses, then it is taken that
the employee is violating the terms of employment.

Further, if an elected representative indulges in accommodating favors to people who are under investigation for
misconduct or holds an office of profit, then he or she is termed to have a conflict of interest. Indeed, conflict of interest
arises whenever the individual earns monetary and nonmonetary gains from an activity that causes monetary and
nonmonetary losses to his or her chief employer.

Organizational Rules and Regulatory Crackdown

This is the reason many organizations have clearly laid down policies on conflict of interest specifying the types of
parallel activities that the employees can and cannot indulge in. For instance, consultants who are executing an
assignment for a client cannot take money from the client or ask or accommodate favors since the primary job of the
consultant is with the firm that has engaged him or her. In this case, consultants are duty bound to inform their
employers whenever their clients ask favors from them or request them to indulge in a parallel activity that is in conflict
with the main activity. It needs to be mentioned that even gifts given by the client sometimes attract the provisions of
conflict of interest and this is the reason why many organizations mandate disclosure of all gifts taken from the clients
as well as prohibit gift taking without necessary permissions from the consultants superiors.

Insider Information
Further, consultants also face conflict of interest when they are privy to insider information such as the news
about upcoming mergers and acquisitions which can be used for monetary gains such as trading on stocks
of the companies that they have insider information about. In this instance, such conflicts of interest are viewed
very seriously by the regulators who in recent years have not even hesitated in sending such violators when the
individuals who have violated insider trading laws are found guilty. In addition, consultants might be asked by their
clients to fudge the financial statements or to approve fudged financial statements as well as to provide grossly
overvalued figures about the companys financial position. In all these cases, the consultants have to be wary of the
true intentions of the clients in addition to being careful about not breaking the law.

How Consultants can Handle Conflicts of Interest

While it is human nature to succumb to temptation, the consultants must keep in mind that they are accountable to not
only their organizations and the shareholders of the clients but also have a duty and responsibility towards the wider
society. In other words, while the temptation to take gifts and other monetary and nonmonetary inducements is indeed
high, ethics and ethical norms dictate that they behave according to the highest standards of corporate behavior.

In addition, as mentioned earlier, regulators in recent years have been cracking down hard on the violators and hence,
consultants must be cognizant of the illegal nature of activities that entail conflict of interest. Moreover, many
organizations in the aftermath of the 2008 financial crisis have tightened rules and regulations so that even minor
violations are being dealt with harshly.

The Softest Pillow is a Clear Conscience

Finally, any profession has the potential for earning money through dubious means. In cases where professionals
encounter conflict of interest, it is advisable to report the matter to their managers or to the compliance team
anonymously if they feel that their managers are encouraging them to violate rules. In addition, consultants must turn
whistleblowers if their concerns are not being addressed in cases where there is systemic abuse and misuse and
violation of rules. It is also the case that ones conscience must dictate how one must act in these circumstances even
if ones job is on the line. After all, one can get hired elsewhere but the damage to the reputation as well as the fact
that the lingering notions of wrong doing would haunt them. As the founder of Infosys, NR Narayana Murthy once
remarked, The softest pillow is a clear conscience