case study 1, answer urgently needed

The Consulting Industry How do the five forces affect the consulting indusiny? What are some of its challenges beyond the five forces? Mike W. Peng. University of Texas at Dallas Many strategy students are interested in consulting - hired ex-conrultants. The Big Three alone have a small specifically, strategy consulting. Therefore, a deep army of 50.000 "alumni," and many now work for former understanding of the five forces affecting the consulting client firms. It is no surprise that many consulting alumni, industry is a must. Before proceeding, it is useful to dispel mow corporate executives, are spearheading the efforts to the notion about "pure" (or "classical") strategy consulting. reduce the scope of their firms' engagements with consulwhich hardly exists any more. Even at the Big. Three tants and migratemore of such outsourced work in-house: firms-McKinsey, Bain, and Boston Consulting Group Traditional engagement often uses a billable hour model, (BCG) - revenue from such traditional strategy consulting, whose costs may be difficult to control. Bringing more which used to be their meat and potatoes, decreased from work in-house, headed by former consultants who possess 20% of total revenue in 2013 to 10% in 2019 . Therefore, some expertise in the work consultants perform, can allow for the purposes of this case, "consulting" refers to broader firms to better control costs. Even when these firms do management consulting. Sellers and Buyers Lier consulting experience often have enough knowledge to Universities broadly or business schools specifically can be to relying on the largest name-brand firms that may not viewed as sellers to consulting firms (also known as consul-_necessarily have the most appropriate expertise but will tancies). Because consulting firms generally pay well and certainly charge the highest fees. Overall, clients increasoffer a glamorous career, they often attract top applicants. ingly levernge their bargaining power by either bringing In 2018, 800,000 applicants went after 8,000 jobs at the in- some work in-house or demanding a more transparent dustry leader McKinsey. Of course, individual epplicants understanding of ROI for consulting engagements. can be viewed as sellers of their services. Given the eagerness to compete for jobs in consulting firms, the bargaining Rivalry power of universities, business schools, and applicants as Rivalry for high-end clients primarily takes place among sellers is not a significant cause of concern for the industry. the Big Three. Their primary value proposition is (1) the On the other hand, buyers (hereafter "clients" - using knowledge and insights packed in their advice to clients, the consulting industry language) enjoy significant and (2) the prestige and legitimacy they bring to clients, bargaining power. From the beginning of the consulting which may have to make some challenging, high-stakes industry, elients have always wondered about their return strategic decisions. It was the Big. Three-primarily on investment (ROI). The opacity of consalting work and Mckinsey, which was founded in 1926-that helped the typical refusal to be held accountable for the effective- diffuse the idea that management was a profession rather ness of implementation after recommendations are made than a mere trade. They thrive on brainpower more than by consultants have made ROI difficult to assess. Just like specialist industry knowledge or mere common sense. consulting firms evolve, clients also evolve and many have Leading consultants who have awesome brainpower can muthor. O Melie W. Feng Reprinted with perniswion. the convitieng firms, bokking for exmploymest eluewbere. make boards and top management teams (TMTs) feel it out for $120 million and turned it into Monitor more comfortable to proceed with high-stakes decisions. Deloitte in 2013. PwC acquired PRTM in 2011 and Booz \& Knowing their power to bring legitimacy, consulting firms Coenpany in 2013-now Strategy\&. EY followed the trend work closely with boards and TMTs in order to gain a better. by acquiring Parthenon Group in 2014 and the European understanding of their preferences and constraints prior to businesses of OC\&C in 2016 and 2017-now all under the delivering the "appropriate" recommendations. A well-known "secret" of consulting firms is to get In response, the Big Three have significantly expanded nonroutine, cutting-edge engagements that can teach their technology consulting, focusing on lower-margin but them a great deal-all paid for by the first clients on such longer-term engagements. For example, starting in 2007 , problems-and then to market and reuse such learning McKinsey offered McKinsey Solutions, a technologyin future engagements across multiple clients. Another based analytics software that can be embedded at ellents, "secret" to make money is their business model of leverage providing ongoing engagements outside the traditional by deploying a small army of (relatively) lowly paid junior one-off, project-based model. Overall, "pure" (or "classical") consultants. The higher the ratio of junior consaltants strategy consulting has become, in the words of the to senior consultants, the more lucrative an engagement Economist, a "side dish," accounting for about 10% of the becomes. At McKinsey, most senior consultants who are Big Three's revenue in 2019. partners can fetch $1.5 million ayear. Therefore, the pressure to generate revenue is intense. Clients that believe they are New Entrants getting "gray hair" consulting may not know that most (and Unlike law and medicine, consulting is an unregulated sometimes all) of the underlying work is performed by profession. Any individual or company can enter at will. "brains" consulting done by junior consultants, Recent examples include BTG, CEB, Eden McCallum, In addition to mainstream solution-shop consulting Gerson Lehman Group, and IDEO. These firms provide firms (such as the Big Three famed for "undefined" online marketplaces that cater to the increasing number problems), there are specialized value-added process of freelance consultants. service providers, which address problems of defined scope In addition, the steady rise of data analytics is a certainty. with standard processes. The Big Four accounting firms Sophisticated data technology has already automated ave(Deloitte, EY, KPMG, and PwC) and leading information rage costing and pricing analysis. The speed and quantifitechnology (IT) firms (such as Gartner, IBM, Infosys, SAP, able output of such technology can reduce the importance and Tata Consulting Service) belong to this category. There of brands such as the Big Three in (traditional) strategy are also a number of boutique shops in specialized areas. consulting and the Big. Four in (traditional) accounting. For Examples include (1) executive search (headhunting) example, enterprise analytics player Beyond Core can autoand leadership coaching consultants (such as Spencer matically crunch a vast amount of data, capture statistically Stuart, Heidrick \& Struggles, Russel Reynolds Associates, significant patterns, and present such insights in an animatEgon Zehnder, and Korn Kerry-known as "SHREK" ed briefing. Such big-data-based capabilities can eat junior firms), (2) executive compensation consultants (such consultants" lunch. In 2016, Beyond Core was acquired by a5 Frederic W. Cook, Pearl Meyer, and Mercer), and (3) Salesforce for $110 million. corporate-governance proxy advisors (such as Institutional Overall, (traditional) strategy consulting firms such as Shareholder Services [ISS]). the Big Three have been good at bundling-putting a lot Hard lines separating different segments within the of different consulting services into a single, high-priced consulting industry do not exist. Starting in 2010, the Big package. The new entrants with deep and specialized. Four accounting firms entered the core strategy consult- capabilities-in combination with clients' rising interest ing market, and elbowed Monitor Group-a relatively in containing consulting engagement costs and their "young" strategy consulting firm that was co-founded enhanced ability to evaluate the true value of each service by Harvard strategy guru Michael Porter in 1983 - into (discussed earlier)-are eating away some of the lower-end, Chapter 11 bankruptcy in 2012. Deloitte then bought more routinized work, resulting in significant disruption to the industry. Some of the basic work under the cloak of "high-end" consulting can be routinized, commoditized, of the industry-bused virw, the resocrce-bused view would and even automated. Substitutes obviously highlight the necessity for consulting firmis to develop new capubtities (foch as Mckinsey Solutions). Left tinexplored thus fir, but itrategicatly important, is sultants from leading consulting firms. For clients, a simple the institution-based virw, which focuses on the impact substitute is: do not engage consultants. In executivesearsh, of formal and informal institutions. Part of the value that candidate for a top job such as CEO or boang an internal technical excellence but alio on integrity and legitimacy any bonuses) on one of the SHRFK ensation (including example is Moaitor Groupis engagement with Miammat pay skyrockets, such executive search fees firms, As CEO Gaddafis Libyan government in 20052007 to not only $1 million. Another substitute is a dedicated, in-house strategy book to be publiahed in Gaddafis natre, waich would glogroup maintained by some large multinationals. Samsung, and Monitor Group later stated that the project had been for example, is famous for nurturing a Global Strategy a "serious mistake on our part." This fiasco contributed to Group, consisting of non-Korean MBA graduates who have Monitor Groupis collapse in 2012. In another example, in previonsty worked for world-class firms such as Apple, 2012, a former managing partner of MeKinsey Was conGoldman Sachs, and Intel. Samsung deploys Global Stra- victed of insider trading. In 2016, Mckinsey was engulfed tegy team members on internal consalting projects for its in a scandal in South Africa affer it worked with a politicalvarious units around the world. Many individuals are given Iy disgraced family that allegedlly "captured" the atafe and an opportunity to take on a leadership role in a high-level engaged in significant cocruption. fts new managing partconsulting project much earlier than a typical consulting ner, in position since 2018, had to repeatedly apologize for career provides (see Integrative Case 22: Samsung's Global such misdeeds. From as informal inatitutions standpoint. Strategy Group). such scandals, which darnage the integrity, teputation, and A third substitute is freelance consultants, who have di- legitimacy of consulting firms, did not help win clients. verse skills and experiences but do not have to shoulder the However, a defining characteristic of conrulting overhead costs for "gray hair" seniors and expensive down- firms is agility. While some individual firms hrre failed town office space. For example, in 2003, in a project assess- or disappeared, some have successally transformed ing UK competitiveness, the British government engaged themselves throughout their history, For an industry dating Monitor Group, which delivered a report first authored by back to 1866 - when Arthor D. Little (which is still active Michael Porter.' In 2013, after Monitor Group went bank-. in 28 countries) was founded-being agile about the new rupt, in a new project assessing UK competitiveness, the threats and opportunities is purt of its DNA. As of this British government discovered your author, whose more writing (April 30, 2020) when the world is engulfed in the reasonable consulting fee saved a bundle of money for UK coronavirus crisis, how to manage in lockdown conditions, taxpayers. 4 how to deal with pandermics, and how to manage "black Challenges swan" (low probabtity) riviss going forward are rapidly becorning a new area of practice in the consulting industry In surmmary, of the five forces affecting the consulting utrong. This analysis helps us understand why this industry 23, 64, (5) Economic, 2200, Taur me to a leadect Fehruary at 53 -60: facing some disruptive strategic threats. concrining Llyw, Merth 24 : Case Discussion Questions qualifications and practical experiences in order to 1. Of the five forces affecting the consulting industry, compete successfully in that segment? which one is the most significant? 2. Which segment of the broad consulting industry will 4. As a consultant to the consulting industry, please advise how consulting firms can best prepare provide the best likelihood of success for a potential themselves for competition in the postcoronavirus new entrant? environment. 3. Based on Question 2, how would you prepare yourself to have the right combination of educational Case Discussion Questions qualifications and practical experiences in order to 1. Of the five forces affecting the consulting industry, compete successfully in that segment? which one is the most significant? 4. As a consultant to the consulting industry, please 2. Which segment of the broad consulting industry will advise how consulting firms can best prepare provide the best likelihood of success for a potential themselves for competition in the postcoronavirus new entrant? environment. 3. Based on Question 2, how would you prepare yourself to have the right combination of educational