Management Consulting Firms & Information Systems

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Management Consulting Firms, The Industry Of Information Systems And The Advent Of New Technology
Background of Management Consulting

The economy is rapidly changing. Whereas it was once focused on production, the economy is quickly becoming knowledge-based; this change of focus has drawn the management consulting firm to the forefront as the core competency of a management consulting firm is, quite simply, knowledge, both formal and tacit (Anand, Gardner and Morris 2007). The belief that such knowledge can be held tacitly is evidenced by the fact that anyone with perceived expertise, be it experience-based, knowledge-based or creativity-based, can potentially operate as a management consultant if so desired as no formal qualification/license exists nor is the field itself regulated (Gluckler 1999). Inasmuch as this lack of regulation increases the likelihood of an incidence of malpractice, it also creates an environment where barriers to entry are low and the application of knowledge is at the forefront. Thus, while knowledge is a competency of many industries, it is the distinct province of the management consulting firm in that such firms essentially capitalise on the ability to apply this knowledge towards the development of innovative approaches/solutions (Anand, Gardner and Morris 2007).

Management consulting firms are at the forefront of “business intelligence”, or BI, a new term coined to identify the “methods that organizations use to develop useful information, or intelligence, that can help organizations survive and thrive in the global economy” and “information that will allow organizations to predict the behaviour of their competitors, suppliers, customers, technologies, acquisitions, markets, products and services, and the general business environment with a degree of certainty” (Jourdan, Rainer and Marshall 2008). This view is supported by many others (Gluckler 1999); for example, Blunsdon (2002) introduces her conference paper by paraphrasing Alvesson: “consulting involves the ability and experience in adapting to new situations”, operating essentially as, “fashion setters”. This type of “fashion setter” has been part of the economy at least since the industrial revolution, when management consultants with a variety of backgrounds – engineering, accounting, law – began marketing themselves as “efficiency experts” (Gluckler 1999).

Background of New Technology

The development of new technology creates a surge of new theories regarding business intelligence best practices (Jourdan, Rainer and Marshall 2008), which produces an opportunity for a management consulting firm to capitalise on the prevailing trend. To quote the Organisation of Economic Cooperation and Development (OECD), “the Internet and related advances in information and communication technology (ICT) are transforming economic activity, much at the steam engine, railways and electricity did in the past” (King and Lyytinen 2006). ICT is developing at an exponential rate, and while its impact can be seen on the economy at large, the impact of ICT is even more clearly demonstrated in the ways by which the new technology has enabled more sophisticated “information systems”, or IS.

“Information Systems” is an opaque term applied to a system of information management; IS, as it is defined in the vernacular, typically refers to a strategic information system that, if utilised effectively, manifests itself as a tool that builds productivity in a way that maximizes profit margins (Freitas, Luciano and Testa 2004). The use of IS to harness competitive advantage is a movement that has been prevaricated by consultants, largely due to the fact that the role of the consultant is to maximize sustainable profitability through the creation, tailoring, application of ideas and concepts towards that end (Apostolou and Mentzas 1999) Apostolou and Mentzas performed a study of management consulting firms in 1999 which found that the ability of a consultant to market an idea, and for that idea to be efficiently and effectively implemented, relies on the development of a “knowledge friendly culture”, replete with “clarity of purpose and vision”, that is committed to the application of knowledge management.

One could argue that Apostolou and Mentzas’s findings were not revolutionary; it is common knowledge that ideas of any sort will not gain ground unless the audience is receptive nor can an idea be implemented if it is not clearly defined and the goals of the application of the concept clearly set. Further, Apostolou and Mentzas argued that “information technology infrastructure is less critical, as intranets emerge as a standard medium… an out-of-the-box functionality.” Others would disagree; in April 2009, Kirwan and Conboy (2009) found that new technology presents significant opportunities for a business when used effectively, opportunities that can frequently be overlooked because of “lack of understanding” the potential of new technology “to overcome existing performance gaps or exploit new opportunities.

While new technology in and of itself is not a solution, methods by which to overcome existing performance gaps or to capitalise on new opportunities do not necessarily have to be technology-based and the term “technology” may not necessarily connote a complicated endeavour, it should be noted that, in practice, newer technology is the enabler of this strategic IS (King and Lyytenin 2006). In their 2004 study “Research topics in in the field Management Information Systems: a comparative study France/Brazil”, researchers Freitas, Luciano and Testa (2004), through analysis of 390 articles found that researchers in IS vary in their methods, and deductively in their perceptions thereof, in a way that is consistent with the variance in IS needs presented by their respective country. While Freitas, Luciano and Testa’s research method was somewhat imprecise in that article distribution was not even between countries and the variables used were not defined explicitly, their research does indicate that IS needs are very different by geographic location and this difference signifies the variant role of IS.

What are the Issues?

Whereas IS originally developed out of antiquated data processing systems and originally held a strictly technological view, a more spherical definition of the discipline is rapidly becoming a necessity (King and Lyytinen 2006). The discipline has grown to accommodate a notion of “a more integrated technology, management, organizational and social focus.” Accordingly, the following definition of IS was proposed by the UK Academy for Information Systems:

“The study of information systems and their development is a multidisciplinary subject and addresses the range of strategic, managerial and operational activities involved in the gathering, processing, storing, distributing and use of information, and its associated technologies, in society and organizations.”

While some would argue that this definition does not pay proper attention to the more creative and innovative aspects of the discipline of IS, the definition is inclusive to other fields that may have competencies that overlap those of IS; it precisely this characteristic that makes the field of IS distinctive. In fact, IS will draw from other disciplines as necessary in order to gleam insight into the situation at hand, sometimes using psychology or sociology to draw a theory as to the way the system being analysed is integrated (Bronfenbrenner, 1989) and other times pulling from theories of economics, such as game theory (Gintis 2005).

As the focus and application of IS broadens, so too does the role, or potential role, of the management consulting firm. Gluckler (1999) found in a study of 1600 EU businesses that industry specific experience was just as significant as price in the selection of consultants, both factors accounting individually for 42 percent of the reasons attributable to the hiring of management consultant firm. Avison and Elliot (see King and Lyytinen 2006) outline several major issues facing IS as an industry, issues that management consulting firms need to be mindful of in order to remain effective, and thusly competitive. Perhaps the most obvious of these issues to a consultant is to maximize the return on IS investment for the client. This is accomplished by an agile system that has the capability, and structure, to perform quickly and accurately, as well as adaptively. The system, however advanced, must serve to reduce complexity and it must be understandable. Deductively then, it stands to reason that one must have, and be able to keep professionals who are able to implement and maintain the IS. This simplistic fact draws several other issues- How does one measure the value of IS? How can performance be quantified? It is not enough to evaluate the effectiveness of a solution versus having never implemented the solution as the client company operates in an environment where some form of solution was required. Without having implemented the alternative, how can performance and the value created thereby be valued?

Further issues become more apparent- how can IS be maximized to create competitive advantage? How does the competitive edge impact business as it affects the originator, such as complementary products, cost reductions invoking aggressive pricing, or the ability to expand ones network? This, in turn, draws to mind the need for a system that is able to defensively protect information and other assets and to do so in such a way that meets or exceeds the current standards of IS governance.

Are there any viable options that you, as a manager, can consider for your organisation?
As a manager of a management consulting firm, I think thatissues such as these require special attention. Porter (1998) wrote, “now that companies can source capital, goods, information and technology from around the world, often with the click of a mouse, much of the conventional wisdom about how companies… compete needs to be overhauled. In theory, more open global markets and faster transportation and communication should diminish the role of location in competition.” In spite of this theoretical implication the development of sourcing brings, “clusters”, defined as “geographic concentrations of interconnected companies and institutions in a particular field”, and the role of geography indicated thereby, have not become less important in strategy development (Porter 1998) Rather, the importance of clusters can be seen in location choice, the engagement of local business, the “upgrading of clusters”, and in the collective works gained by operating as a cluster. As a manager, I can maximize the strength of the cluster geographically or virtually, keeping in mind the collaborative nature of the cluster, a concept somewhat akin to “having the right address”.

Technological knowledge is also prone to the effect of the cluster, as can be seen in the case of “knowledge spill-overs”, a term used to describe a situation whereby “external knowledge can augment internal resources” (Patrucco 2008). The availability of knowledge spill-overs is determined by the relationships between knowledge producers/implementers in place, the cost of acquiring said knowledge and investment required to produce such knowledge. The positive effect of localisation on a technology-based knowledge-acquisition system is based on the reduced cost of internal production and increased access to external resources. My firm is more likely to benefit from knowledge spill-overs if I can secure synergetic relationships with complementary companies (Manyika, Roberts and Sprague 2007).

As I work towards developing these types of relationships, such as through investment therein, my firm will not only be able to reap the benefit of unique resources as they relate to competitive advantage, but be able to raise industry standards (Adner and Zemsky 2006). I can maximize Rothaermel and Hill’s (2005) finding that the advent of new technology and the competitive advantage gained is dependent on the assets required to implement it. Rothaermel and Hill (2005) “found that incumbent industry performance declined if the new technology could be commercialized through generic assets, but that incumbent industry performance improved if the new technology could be commercialized through specialized assets.” As a manger, I can use this finding in that the new technology that I can help foster should be that which works in conjunction with specialised assets my firm already has and is highly proficient in. The new technology would then require a distinct learning curve and my firm would be in a position to capitalise on this proficiency, possibly as a first-mover.

I can also maximise the benefit of the new technology relative to the development and installation of information systems by developing inherent automated capabilities thereof (Manyika, Roberts and Sprague 2007). By removing the repetitive tasks often required of an information system, my firm can largely avoid the risk of human error and bias in the recording of information and to reduce time spent on the IS itself, two factors which contribute to a significant reduction in costs associated with IS. Also, a greater volume of information can be recorded efficiently, information which may identify performance gaps and/or opportunities that may have been missed otherwise due to a lack of available resources to track the determinant information.

As evidenced by the work of Cragg (2006), technology plays a strategic role in leading companies, particularly in those that customise technology to suit its particular needs and in those that seek new applications for existing technology. For many organisations, the application of technology is directed toward IS. An effective information system, aside from its ability to organise information, also provides focus on the findings that are most relevant; this usage prevents management from focusing unnecessarily on marginal attributes (Adeoti-Adekeye 1997). While, as a manager, I am in a position to facilitate this process, the increased availability of new technology increases the risk of substitute products/services and the rivalry amongst competitors; this abundance of suppliers, coupled with relatively low barriers to entry, increases the bargaining power of buyers (Porter 2001). These factors can however be mitigated through my firm’s ability to create value unique to that of its competitors and to do so by methods and processes variant to those of the competition.

What are the Lessons Learnt here?

From Gluckler’s study (1999), I learned that the primary reason (66 percent of the 1600 companies studied) that companies hire management consultants is “lack of experience in certain problem areas”, followed closely by “impartiality of external viewpoint” (49 percent), “to learn from other firms” (48 percent), and “need for new ideas” (46 percent). I believe the management consulting firm is able to accomplish these actions through the creation and application of information systems. According to Sull (2005), success is dependent upon “five categories of commitments” that “comprise the success formula:
• Strategic frames: What we see when we look at the world, including definition of industry, relevant competitors and how to create value.
• Processes: How we do things around here entailing both informal and formal routines.
• Resources: Tangible and intangible assets that we control which help us compete, such as brand, technology, real estate, expertise, etc.
• Relationships: Established links with external stakeholders including investors, technology partners or distributors
• Values: Beliefs that inspire, unify and identify us.”

Sull’s “success formula” seems like common sense, however I think it clearly exemplifies the role of the management consulting firm and draws to light aspects that may not have been evidenced at first sight.

It is common knowledge that, in order for any company to be profitable, it has to be in a position to be so, meaning that it has to have the resources, or access to such resources, be they finance-related, personnel-based, knowledge-based, relationship-based, etc., and the ability to apply those resources strategically toward the vision of the company. Should a company not possess adequate levels of the aforementioned resources, I learned that outsourcing is a viable option. Outsourcing in this way can be used to bring new products/services to the market faster, to access a perceived opportunity cheaper and quicker, to penetrate new markets and/or develop existing ones, to develop and test the viability of new products/services, or simply to enforce business strategies. Willcocks and Lavity (2006) “defined outsourcing as the handing over of assets, resources, activities and/or people to third party management to achieve agreed performance outcomes.” The outsourcing market, as they defined it, has been growing steadily from 1989, when outsourcing was valued as a $3 billion market, to the estimated $330 billion market it has grown to. While outsourcing may not be the best choice for every business, nor will it suit every need, “outsourcing” as defined in Willcocks and Lacity’s research, which encompassed traditional outsourcing, as well as management consultants, “net-sourcing” meaning virtual and fee-for-service providers, has the potential to fit many needs and situations. I learnt that it is important to “treat back offices as a portfolio of capabilities”, meaning that management should select several actions that a “source” supplier can perform far less expensively and use less time doing so; a common example is payroll. Willcocks and Lavity’s findings show that companies that use this type of “selective-sourcing” are 77 percent effective. I learned that by expanding the definition of “outsourcing” one is able to expose a plethora of applications that I had not found apparent; as a management consulting firm, “outsourcing” in this broad definition has many applications, both in-house and as potential niche markets.

In the case of “outsourcing” as applied to the operations of the management consulting firm, I have found that there are several non-core functions that could be outsourced profitably. While most management consultants have a strong ability to innovate, apply change and interpret ideas in a way that customises them to the business being dealt with, most management consultants will not be highly proficient and/or will not have the extra resource of time to spend on non-core operations such as payroll, accounts receivable, application of marketing concepts, etc. I have learnt that outsourcing these back office tasks can be a tremendous time and money-saver even for a firm such as a management consultancy, with low overhead and few daily transactions.

I also learnt that outsourcing can also be utilised by a management consulting firm as a precursor to expansion. In order for a management consulting firm to be able to address the needs of its clients as expeditiously as possible, it is a necessity that the firm not be working at peak levels on a daily basis; otherwise, it would be difficult to respond to an emergency situation one client is having without risking missing a deadline of another client. However, sometimes opportunities present themselves that, strategically, should not be passed by. I have learnt that the management consulting firm would have a viable option to outsource a component of the opportunity project. It appears that such an option could be found in the outsourcing of the research involved, administrative or clerical tasks such as audience-specific report preparation or proofreading, technical aspects such as system configuration or automation, etc., an option I had not considered previously.

As the broader definition of “outsourcing” relates to niche markets, it reveals many opportunities for my management consulting firm to pursue. The first niche that came to mind personally was the ability of the management consulting firm to capitalise on the “down-time” that is inevitable between clients by selling consulting service specialities, meaning accepting work that requires a limited amount of time involved, such as advising a business as to what features it should have on its website and the navigation thereof. Also, this type of shorter project is typically less expensive to the client customer, which would open a niche to smaller businesses which typically have limited resources.

Another niche concept that occurred to me was that a management consulting firm can take advantage of is the way industry structure has been affected by outsourcing. This could be done by diversifying the services offered or expanding the geographic radius of its client base. Gluckler’s study (1999) taught me that management consulting firms tend to grow in one of two ways: Diversification, the offering of a variety of services, and Globalisation, expanding the geographic scope of the services provided. The relative growth strategy assumed is generally dependent upon the structure by which the management consulting firm operates; it may function “regionally”, or within a certain geographic location; “functionally”, or by a speciality; or “sectorally”, meaning the offering of a variety of services within a particular sector. I realise that management consulting firms can obtain stronger and more profitable growth by structuring its growth strategy in one of these ways, rather than try to be all things to all people and risk overextension of firm resources. I think that many management consulting firms have this tendency and that focusing on the strengths of the firm is the more profitable strategy. I have learnt that successful capitalisation on management consulting strengths will translate better when a focused effort is undertaken rather than a strictly opportunistic style. I have learnt it is better to have my management consulting firm be perceived as an expert in certain issue rather than a “one size fits all” solution.

My Conclusions

The relationship between the enterprise of management consulting and the industry of information systems represents a significant correlation. IS is described by Avison and Elliott “as a field of study developed in response to the increasing necessity of organizations to improve their capabilities to process and to manage data” (see King and Lyytinen 2006). As described by Blunsdon (2002), “The management consulting industry exists because of the presence of persistent organisational and management problems which creates an atmosphere of uncertainty and exerts pressure on managers to be seen to be acting both rationally and innovatively.” Long-standing, successful companies can have a tendency to fall subject to “active inertia”, the tendency to respond aggressively to new variant markets in the same manner that had previously been successful, is a primary reason “why good companies go bad” (Sull 2005). I have found that in order to circumvent this tendency, a manager of a management consulting firm needs to be adaptive to market conditions and ensure that the management consulting firm itself serves to provide an objective perspective and innovative solutions, particularly solutions that require the application of firm core proficiencies in order to be successful.

Research findings, particularly those of Gluckler (1999), arguably draw attention to the need to clearly define what the role of IS is for a company and to determine how much of the process of IS creation and integration should be outsourced. I have found that even the “outsourced” can use outsourcing, so long as core competencies are not outsourced. As a manager of a management consulting firm, I will look to outsourcing non-core actions, particularly back-office tasks to other firms that can do such work at less cost. Further, I will analyse other, non-primary functions for the potential of outsourcing them so that my firm can focus solely on its core services, possibly diversifying to related core-type actions that we may not have had the resources for before. Likewise, inasmuch as management consulting firms have the ability to contribute value throughout the production cycle, expected outcomes need to be tangibly defined at each level and throughout each phase of the management consulting contract. Doing so creates better relationships with clients and can help identify areas of opportunity.

Whereas the economy is increasingly knowledge-based, the management consulting firm is drawn to the forefront as its core competency is, quite simply, knowledge, both formal and tacit. The development of new technology creates an opportunity for management consulting firms to capitalise on prevailing trends through the creation and application of strategic information systems. As a manager, I will look for ways for my firm to maximise this opportunity. I will also keep in mind that, as the focus and application of IS broadens, so too does the role, or potential role, of the management consulting firm, including the capability to supply “net-sourcing” and fee-for-service while avoiding the type of piecemeal outsourcing that frequently yields piecemeal results.

The relationship between the enterprise of management consulting and the industry of information systems is significant. To circumvent the piecemeal type of consulting, I will look to gearing client solutions to function more spherically and to customising those solutions precisely; this approach should yield a greater impact. By applying new technologies, such as automation, to accomplish this goal, I will minimise the use of resources required to do so. The future of management consulting firms is likely to have many developments as technology increases. Information systems, a crucial component of management consulting will develop exponentially with these newer technologies. Resultantly, my role as a manager will require me to be very innovative and focused on maximising firm opportunities as quickly as possible and to position myself and my firm in such a way as to have the synergetic relationships that will afford these opportunities.

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