Professional Documents
Culture Documents
Acknowledgements
First, I would like to thank Danish Management Association (DMR) for motivating and
inspiring this master thesis towards a direction, which corresponds to my own personal and
professional interests, namely strategy and consulting. Especially Tom Vile Jensen, special
consultant at DMR, deserves great thanks for his contribution and help, both economic and
information wise. This has been an enormous support throughout the whole process, and I
sincerely hope that this master thesis will contribute to the important work that takes place at
DMR. Furthermore, great appreciation goes to all the consulting firm managers who have
taken time out of their busy schedule to participate in this project. I know it has been difficult
to find the time, but I was always met with great hospitality and sincere interest. Without their
openness and helpful attitude towards my interview questions, I would not have been able to
conduct my research. Finally, I would like to dedicate thanks to Professor Marcus Becker,
University of Southern Denmark, for providing valuable feedback and guidance in my work.
Ultimately, I give great thanks to everyone who has contributed to my master
thesis, as well as provided me with support and assistance through out the process.
Danish summary
Mange konsulentvirksomheder har kunnet leve fornuftigt de senere r p grund af den
generelle gode konomiske udvikling, ogs selvom de ikke har haft en strategi og er get
hovedkulds efter vkstmulighederne i markedet. Sprgsmlet er, hvor udbredt denne tendens
har vret blandt virksomhederne, og dermed hvor svagt/strkt konsulentvirksomhederne og
deres organisationer str rustet i de kommende r, hvor markedet ikke vokser s strkt, og
hvor kundernes krav stiger markant. Dette speciale omhandler strategi og vkst i management
konsulentbranchen samt, hvorledes dette bedst kan hndteres i forhold til de vkstfaktorer og
-barrierer, som branchen p nuvrende tidspunkt og i fremtiden str overfor. Den danske
management
konsulentbranche
er
prget
af
enkelte
store
og
hastigt
voksende
de
ansattes
egenskaber
til
at
sttte
disse
vkstmuligheder.
Store
Table of contents
CHAPTER 1
INTRODUCTION ................................................................................................................................................. 1
1.1 MOTIVATION ................................................................................................................................................. 1
1.2 CHALLENGES IN PRACTICE ............................................................................................................................ 2
1.3 PROBLEM STATEMENT ................................................................................................................................... 3
1.4 FOCUS AND STRUCTURE................................................................................................................................. 4
CHAPTER 2
THE DANISH MANAGEMENT CONSULTING INDUSTRY ........................................................................ 6
2.1 STRUCTURE ................................................................................................................................................... 6
2.2 GROWTH IN THE INDUSTRY .......................................................................................................................... 11
2.3 CHALLENGES FOR THE INDUSTRY ................................................................................................................ 14
2.4 THE FUTURE ................................................................................................................................................ 17
2.5 SUMMARY OF INDUSTRY ANALYSIS ............................................................................................................. 17
CHAPTER 3
THEORIES OF FIRM GROWTH .................................................................................................................... 19
3.1 THE CONCEPT OF GROWTH ........................................................................................................................... 19
3.1.1 The tension between growth and size ........................................................................................................... 20
3.1.2 The dynamics of growth................................................................................................................................ 21
3.1.3 The sustainability of growth ......................................................................................................................... 22
3.2 THEORETICAL CONTRIBUTIONS.................................................................................................................... 23
3.2.1 Inside-out perspective ................................................................................................................................... 24
3.2.2 Outside-in perspective .................................................................................................................................. 30
3.2.3 Tying the ends in the organization design .................................................................................................... 33
3.2.4 Summary of theoretical contributions .......................................................................................................... 34
3.3 SME THEORY .............................................................................................................................................. 34
3.3.1 SME growth .................................................................................................................................................. 34
3.3.2 The entrepreneur .......................................................................................................................................... 35
3.3.3 Strategy and culture in SMEs ....................................................................................................................... 36
3.4 CREATING AN INTEGRATED APPROACH ........................................................................................................ 37
3.5 SUMMARY OF THEORY ................................................................................................................................. 39
CHAPTER 4
DESIGN AND IMPLEMENTATION ............................................................................................................... 41
4.1 METHODOLOGY AND SETTINGS ................................................................................................................... 42
4.2 OPERATIONALIZATION................................................................................................................................. 44
4.3 DATA ANALYSIS .......................................................................................................................................... 44
CHAPTER 5
EMPIRICAL FINDINGS ................................................................................................................................... 46
5.1 THE PURPOSE OF GROWTH ........................................................................................................................... 46
5.2 DEVELOPMENT THROUGH GROWTH ............................................................................................................. 48
5.2.1 Stage one consulting firms ............................................................................................................................ 48
5.2.2 Stage two consulting firms............................................................................................................................ 54
5.2.3 Stage three consulting firms ......................................................................................................................... 59
5.2.4 Concluding remarks on growth development ............................................................................................... 64
5.3 GROWTH PROCESSES ................................................................................................................................... 65
5.3.1 Culture .......................................................................................................................................................... 65
CHAPTER 6
DISCUSSION....................................................................................................................................................... 75
6.1 CHANGE IN THE SIZE AND DIVISION OF VALUE ............................................................................................. 75
6.2 DEVELOPMENTAL LEADERSHIP .................................................................................................................... 77
6.2.1 Developmental perspective in consulting firms ............................................................................................ 77
6.3 GROWTH STRATEGIES .................................................................................................................................. 78
6.3.1 Strategic growth vs. opportunity driven growth ........................................................................................... 80
6.3.2 Organic growth vs. inorganic growth .......................................................................................................... 81
6.4 BEST PRACTICE OR NEXT PRACTICE ............................................................................................................. 82
6.5 THE TENSION BETWEEN GROWTH AND SIZE ................................................................................................. 84
6.5.1 Advantages of growth ................................................................................................................................... 85
6.5.2 Disadvantages of growth .............................................................................................................................. 86
6.5.3 An optimal size ............................................................................................................................................. 87
6.6 FITTING THE ORGANIZATION DESIGN TO GROWTH ....................................................................................... 88
6.6.1 Governance and ownership .......................................................................................................................... 88
6.6.2 Organizational levers ................................................................................................................................... 90
6.7 SUMMARY OF DISCUSSION ........................................................................................................................... 91
CHAPTER 7
TOWARDS AN APPROPRIATE GROWTH STRATEGY ........................................................................... 92
7.1 WHAT IS AN APPROPRIATE GROWTH STRATEGY? ......................................................................................... 92
7.2 CORE ISSUES ................................................................................................................................................ 93
7.3 CREATING FIT .............................................................................................................................................. 96
7.3.1 The importance of organizational levers ...................................................................................................... 97
7.4 CONCLUSION ............................................................................................................................................... 97
CHAPTER 8
LIMITATIONS AND SCOPE............................................................................................................................ 98
8.1 THEORETICAL LIMITATIONS ......................................................................................................................... 98
8.2 PRACTICAL LIMITATIONS ............................................................................................................................. 99
8.3 SCOPE ........................................................................................................................................................ 100
CHAPTER 9
CONCLUSION .................................................................................................................................................. 102
Chapter 1
Introduction
This master thesis seeks to investigate how Danish management consulting firms currently
build and sustain competitive advantage, and how this can be translated into growth,
development, and strategy for the individual firm. The hope is that the findings of this master
thesis will contribute to the understanding of the different growth factors and barriers that are
at play in the Danish management consulting industry, and that it can benefit managers of
consulting firms in a practicable manner.
1.1 Motivation
The state of the Danish management consultant industry is good. Firms experience very
strong growth, which even exceeds the growth of some technological sectors (Danish
Statistics). However, there is a less positive side to this as well. The biggest consulting firms
make the majority of the profit in the industry. In general, many small management consulting
firms have a difficult time overcoming growth barriers, and research show that 90 percent of
all consulting firms fail in their first 5 years (Hasek, 1997). Based on conversations with the
Danish Management Association (DMR) it quickly becomes evident that there is a tension
between small and large consulting firms.
Profit end revenue is consolidated around a few large consulting firms. 80 % of the revenue
goes to 20 % of the firms so it is to a large degree the major players who bear the brunt and
reap the benefits.
Tom Vile Jensen, special consultant in DMR
Most small management consulting firms stay small their entire life or evidently
perish. This raises the question about whether there exists a best practice in the management
consulting industry, and whether the large management consulting firms seem to stimulate a
best practice for growth and success. Moreover, this is especially relevant now where the
Danish economy shows signs of a recession following a period since 2004 where the Danish
consulting industry experienced increasing growth. Economic growth creates work for
consulting firms and has made it possible for many new consulting firms to start up with the
prospect of making a profit. However, experience shows that when times get tough it is often
consulting services that are among the first to be cut away by clients. The management
consulting industry faces a period where clients will be more reluctant and critical in their use
1
of consultants and competition will be intensified. This creates new challenges for the Danish
consulting industry.
This master thesis is initiated in cooperation with the Danish Management
Association (Dansk Management Rd)1 which is a branch association for Danish management
consulting firms and represents more than 175 consulting firms. DMRs mission is to;
develop and maintain professionalism and ethics within the Danish consulting industry,
develop and improve conditions for consulting firms in Denmark, and develop Denmark as a
knowledge-based society. Through several pleasant discussions with DMR director Susanne
Andersen2 the topic of the master thesis was determined. The cooperation with DMR is of
great significance as DMR offers expert information on the Danish management consulting
industry on a continuing and systemized basis. Where this master thesis differentiates itself
from information already present in DMR is that it offers a bottom-up approach. Hereby, is
meant that as where DMR offers knowledge from an industry perspective, this master thesis
draws its conclusions from a firm perspective where growth, strategy and development are
investigated in a number of Danish management consulting firms.
1
2
For further information about DMR consult the organizations webpage at www.DMR.nu.
In may 2008 Bjarne Lundager Jensen, has been appointed director of DMR.
lack of existing frameworks and knowledge regarding a best practice in the industry, this
creates an empirical and explorative challenge. Based on theory the challenge is to create a
model that can be used on a general firm level, but also allows for insight on the individual
firm level. Furthermore, as I have chosen to approach the problem via an entire industry with
an expected internal heterogeneity there is a challenge in balancing generalization and detail.
Finally, a challenge lies in opening up the black box of strategy in consulting
firms. It is an industry where the players do not like to share too much about their strategy and
competitive advantages, and where most industry information and knowledge is collected
from a top-down perspective. Thus, a challenge lies in achieving an inside perspective from
the management consultants themselves and their take on how to devise and execute strategy.
industry. Second, a category of research questions will focus on firm growth, and how this is
related to size and other firm factors. Finally, a category of research questions will explore
how empirical findings can be tied together to formulate a growth strategy, as well as a
general understanding of how the industry can enable growth and overcome growth barriers.
These research questions will not be explicitly answered, but serve as a guideline throughout
the research.
Firm culture?
b.
Entrepreneurship?
c.
Strategy?
d.
e.
f.
Organization design?
The term Danish stand-alone narrows the focus down to those firms, which
have been founded in Denmark and operate as pure management consulting firms. This focus
leaves out large international firms such as Mckinsey & Company and The Boston Consulting
Group, and consulting firms where consulting is a secondary service tied up to a primary
function such as Rambl Management or Deloitte. The argument for this is that the mentioned
types of consulting firms have a completely different economic and organizational structure
or stem from primarily an American market, which offers very different conditions than the
Danish market.
The structure of this master is very much shaped by the adoption of a holistic
approach, which means that the entire management consulting industry is considered. Neither
a purely theoretical approach nor an analysis of a single consulting firm will provide the level
of general answers needed. Therefore, this master thesis concerns the Danish management
consultant industry as a whole. The level of analysis will be both on firm level as well as on
industry level. That is, I consider the topic from a top-down perspective (the industry analysis)
and a bottom-up perspective (the empirical part of this master thesis) through three steps.
First, I adopt an exploratory research approach in order to clarify the problem.
This is done through an industry analysis that rests on secondary data and an exploratory
expert interview. The purpose is also to explore new dimensions of the topic. Second, in order
to come to a full understanding of the complex notion of growth, and how this is related to the
Danish management consulting industry, I find that it is important not to lock in, a priori, on a
specific theoretical framework. This runs the risk of omitting important elements because of
the use of a specific paradigm. Instead, I choose to open up this complex problem by
accepting that there is no single right answer, and that investigating the problem cannot be
done by simply pulling together available evidence. I hope, by going from the known to the
unknown, to be able to add something new to the field by adopting inductive reasoning,
which is essentially a method of discovery. This is done through the development of an
integrated approach to the theory of firm growth. Third, comparative research is conducted in
a number of Danish management consulting firm that each display different levels of growth,
size and success. Through this assessment of growth factors and barriers, I hope to be able to
identify significant factors, which enable or inhibit growth and relate these findings to the
stages of development of consulting firms. Finally, all three elements is gathered and
discussed in order to end up with a number of practicable implications. For the sake of
simplicity, the overall structure of this master thesis is illustrated in appendix A.
Chapter 2
The Danish Management Consulting Industry
The point of departure of this master thesis is a description of the structure of the industry,
growth, challenges, and future perspectives. The purpose is to create a foundation for
understanding the industry from a top down perspective in the context of this master thesis.
As already mentioned, the management consulting industry is a diverse industry
with many different players. Thus, measures such as industry size, turnover, and demand are
always estimates. The results presented in this chapter rests upon three sources; an industry
analysis 3 and a tendency analysis 4 conducted by DMR and supported by the most recent
numbers, and an expert interview with Tom Vile Jensen, special consultant in DMR (see
appendix P). The two surveys are conducted on a yearly basis and builds on qualitative
questions among DMR members. Thereby, they represent the newest source of information.
In my search for information of the management industry, other surveys and articles have
popped up, but they have the disadvantage that they do not rest on the newest information. As
the industry is developing fast, it is important that conclusions be made from recent
information. However, where results from other surveys have been interesting these issues
have been discussed in the expert interview, in order to either confirm or disconfirm their
robustness and relevance.
2.1 Structure
The strong growth that has taken place in the consulting industry has attracted management
consultants with very different backgrounds. In addition, the consultant industry, as a whole,
is a relatively young and diverse industry. Many different types of consultant services take
place every day and range from coaching and teambuilding to more integrated and big
projects that help firms with strategy, organization, operations, etc. Firms range from oneperson spare-time firms over highly professional firms who employ several consultants to
global firms who have more than 20.000 employees on their pay check. At a first glance, the
industry appears very diverse and broad, but a little investigation can shred a little light upon
the industry.
History The Danish management consulting industry had its beginning in the 60s and 70s,
but was more seriously founded in the late 80s where some of the first real consulting firms
were created. Traditionally, the role of the consultant was based on technology and rationality,
but to a higher degree, the role developed into what it is to day where the focus is on
evolution and revolution in the way an assignment is considered (Poulfelt, 1998). Where the
focus originally was on the professional content, this changed into a focus on the relationship
between the consulting firm, the organization and the concrete assignment. A more process
oriented and organic consultant role was developed where the task of the consultant was to
help line management to define and understand the problem at hand. Thereby, consulting
changed into management consulting and today management consulting services cover many
areas. Obviously, an industry so diverse will attract many different players.
Players The amount of active management consulting firms in the industry is steadily rising.
It is estimated that there is an increase of about 10 % firms every year. In 2006, it was
established that the amount of active firms was 7.550, see appendix B. This indicates an
industry where players enter the market and still expect profit to be made. At this point in
time, the market does not seem to be saturated. It is possible to classify the Danish
management consulting industry into five strategic groups. These are:
Big international consulting companies: This group represents firms such as Mckinsey &
Company, The Boston Consulting Group, IBM Business Consulting, and Accenture
among others. Typically, these firms employ around 100 to 300 consultants in their
regional office. Strategically they are run from US offices and are supported by
international organizations with several thousands employees. To a large degree, they
provide standardized solutions based on tools and frameworks, as well as they have very
well defined career paths for their consultants.
Large concerns with build in consulting departments: This group of consulting firms is
either departments or subsidiary companies of large international concerns. Consulting
services are tied in with another primary function such as accounting, engineering, or
architecture.
Examples
are;
Deloitte,
Rambl
Management,
Cowi,
and
PricewaterhouseCoopers where consulting services are build into a large business that
allows them to draw on synergies internally in the concern.
Stand-alone Danish management consulting firms: This group represents the largest
number of consulting firms and is to be understood as firms, which has consulting as their
only business. Furthermore, they have been founded in Denmark and have achieved their
growth on the Danish market. This group can be further divided into small (1-15
7
Micro firms and sole practitioners: Here we find the array of micro firms that provide
some kind of consulting service either on a full time basis or as a side occupation to their
regular job. Often, the consulting services they provide have a character of being either
social events or teambuilding without a larger degree of theory, knowledge, or tools
behind. The kinds of services and the regularity with which they are provided does not
allow these firms to be characterized as true management consulting firms. Contrary, this
group also represents sole practitioners. This is typically the consulting professor or the
consulting guru who has been in the game for many years and posses a huge amount of
theoretical knowledge, which he provides/sells to senior management of large
corporations. No doubt useful, but they do not constitute the essence of a firm.
On the demand side, the largest customer group is made up of the manufacturing industry and
the public sector, which combined make up for little more than 50 % of industry revenue. The
second largest group is the financial sector, which constitutes almost 10 % of the sector.
Finally, there are many different customer segments which make up for 40 % of industry
revenue, with revenue shares of 1 5 %, see appendix C.
Types of services: It is possible to divide consulting services into different areas such as
strategic consulting, HR consulting, change management, project management, operations
management, IT consulting and outsourcing, etc. However, this does not provide much
information for several reasons. First, some consulting firms provide advice that does not
easily fall into one of these areas, for example consulting activities that are of a much more
general character. Second, even for the more traditional service providers, it is difficult to
pinpoint an assignment as pure IT consulting because, due to a process orientation, it often
entails more. Third, a lot of consulting work is often, in its essence, only outsourcing. That is,
firms hire in bodywork for certain projects which they do not have the capacity to lift
themselves. Finally, services change all the time and new consulting areas arrive in the
industry such as LEAN or coaching.
Instead, what is interesting is to consider the parameters with which consulting
firms can differentiate their services. The three most significant parameters are; mass, high8
Revenue distribution The inequality in the industry becomes clear when considering how
revenue is distributed among firm size. As appendix E shows, firms with revenue of 51+
million Danish kr. made 76 % of the total revenue made in the industry in 2006. This means
that despite the fact that the industry is characterized by a large amount of small players and
only a few big, revenue is concentrated among the big players. 12 % of the industrys players
make up for 76 % percent of the total industry revenue while 66 % of the players make up
only 6 %.
Degree of competition and concentration The industry has a concentration ratio of
approximately 880 HHI5 points (DMR industry analysis 2006/7, p. 18). This supports what
was earlier stated about the industry. It is characterized by a large amount of firms on the one
hand and a large amount of customers on the other hand. Competition is based on providing
the best service, quality, and results to customers.
The consulting industry is a relatively knowledge and workforce intensive
industry. It is characterized by a very low need to make investments, and thereby there are
very low entry and exit barriers. So fare, there exist a number of different consulting and
project management certificates but these are only used and accepted by consultants and
customers to a very low degree. In general, the industry is not driven by authorizations,
specific educations, or certificates.
This has a significant impact on the way that the individual consulting firm
seeks to do business and define its strategy. That is, most consulting firms pursue a
diversification strategy in order to clarify the difference between them and other firms. In
addition, competition is to a great degree determined through the customer network that the
individual consulting firm operates within. The name of the firm, its references, and the
reputation of the individual consultant employed are important elements in the creation of a
large and wide clientele. Once this is established the firm has a strong competitive position
compared with other firms who do not have the same amount of clients. Thereby, experience,
10
Danish GNP. If the expected growth in 2008 is achieved it will mean that the industrys
exceeds 1 % of GNP.
Because of the strong growth since 2004, consulting firms have experienced
almost no problems with finding customers and billing hours. Actually, they have been so
busy that other problems have occurred. Finding new and qualified consultants, thinking
ahead and making sure that internal competences are developed, are some of the issues that
might be at stake. However, the central question for management consulting firms is whether
the future will bring global growth or the turbulence, which marks the financial markets, will
continue. The American market is still experiencing a crisis and there is a chance that the
Asian tiger economy will lose some of its pace, but these questions are difficult to answer
even for the economic wise men. Therefore, the assumption in this context is that there will be
some level of slowing down in the state of the market, and this will affect the Danish
management consulting industry in some way.
Based on an indication of a general market slow down it is possible to suggest
different scenarios on how this will influence the management consulting industry in the
future (Poulfelt, 2006). One scenario suggests that consulting firms will experience the same
level of workload as up until now. A decline in the economy will mean that organizations are
forced to become more efficient and effective in order to stay competitive. Some employees
will have to be laid off and there will be a need to conduct organizational reorganizations. As
change agent, consulting firms have largely become a steady partner in both private and
public markets and therefore an economic decline will not mean less work for consulting
firms but instead work where the focus is more on organizational efficiency and global
competitiveness. For example, IT and operations will still play a significant role in connection
with this. Another scenario is that there is less growth compared with current growth levels.
The reason for this is, as earlier suggested, that consulting services are the first place where
firms chose to save money. However, the general perception is that the consulting industry
will not experience as tough times as in the period 2000 to 2004 when it was in a practical
free fall. Based on this discussion it is possible to identify future growth factors and barriers.
Growth factors:
Reformations in the public sector: The restructuring of the public sector are expected to provide the
consulting industry with a lot of work the next couple of years. Many firms specialize in this area and
some even build their entire consulting business around the public segment. In general, there seems to
be a greater accepts for public administrations to set aside money for consulting services.
Raised quality demands in the public and private sector: The public sector is under a still increasing
pressure to administrate the money of taxpayers in the best possible way. Therefore, many of those
12
consulting services that were initially developed to the private sector have found its way into the public
sector. For example, an award for best consulting service was awarded to Valcon for implementing lean
principles in the administration of Copenhagen municipality. Private organizations also need to be
better functioning today in relation to offering a good, effective, and carrier advancing work place.
Managing human resources will continue to be in focus, and the mean is better-managed and well-run
organizations. Consulting firms can play an important role in stimulating management and
organizational development.
Capacity problems in private companies: The general lack of labour in many private companies means
that there is a greater need to coordinate and optimize production and business practices. This raises the
demand for consulting services in areas such as operations and IT. Often firms also accept that their
employees are tied up with work, and therefore hire consultants to be in charge of temporary projects.
Strong international competition: Currently, with the high degree of global competition, Danish firms
need to be as effective and efficient as possible concerning product development, new market
penetrations, and internal business procedures in order to stay competitive.
The fast development of the information technology area: The fast developing IT support services that
take place in many business areas demand that firms stay up to date in this area and never relax.
Therefore, the demand for IT systems such as ERP and CRM systems will still be high, especially the
implementation of these.
Growth barriers:
A general economic cool down: The ministry of finance expects growth in GNP to drop from 2,2 % in
2007 to 1,6 in 2008 (DMR industry analysis, p. 19).
Significant decline in investments in the private sector: In 2006 the growth of investments was at a
staggering 15 %, but it is expected that there will be a significant decline in investments to a level of
around 2 % in 2008 (DMR industry analysis, p. 19).
Lack of a qualified and educated work force: The consulting industry is experiencing a very difficult
time find enough qualified employees to keep up the current expansion and have to turn down orders
and thereby money. The lack of qualified work is also seen in a demand of higher wages among
consultants and an increased use of headhunting.
Higher degree of competences in firms: Many private firms have during the period of high growth hired
academics who traditionally would not be employed in that sector. A good example is the engagement
of a communication or HR employee which can take away some of the need of consulting services
because the competences are already within the company. In general, this development means that
many firms have in them the sufficient competences to do large analytic tasks, and the demand for
consultants will move more in the direction of facilitating and implementation. In some service areas,
for example strategy, this can lead to a smaller demand or change in the service profile.
If you compare the Danish management consulting industry with its European
counterparts, it is among the leading. With the second highest growth rate, only topped by
Great Britain, and a GNP share that are higher than any European country it is safe to say that
13
Denmark, also on an international level, is among the more well functioning industries in the
European management consulting industry (DMR industry analysis, p. 21).
some firms prioritize capacity and quantity in their projects more than quality. It is very
important that consulting firms follow their projects all the way through, and not just deliver
some report on the desk of the management at the firm they advise. Likewise, internal
competence development and strategic planning run the risk of not getting enough attention as
daily operation and customer projects are prioritized on a here-and-now basis.
In general, the above-discussed busyness and its effects might mean that several
firms are in need of a bit of strategic soul-searching, and here a slow down in the growth
might actually be an advantage. Those consulting firms who survive and prosper in the next
couple of years will be those who have not fallen through when it comes to securing future
ethics, quality, and professionalism. For an industry where ethics, quality, and
professionalism is decisive in order to maintain customer respects and thereby to obtain
growth this is a very significant challenge.
Demand side/Customer driven The industry is to a large extent buyer driven, and its
direction is shaped of what customers demand. Often, diversification happens because a
customer demands additional services outside the scope of the consulting firm. To maintain
the customer relation, the consulting firm contracts external experts who have the specific
knowledge to do the job and eventually hire them into the firm.
In the Danish management consulting industry the main part of services is in the
area advising/consultancy. It constitutes 63 % of all consulting services. Outsourcing and
development/implementing are only respectively 2 % and 6 %. Finally, other services such as
recruitment, markets analysis and education make up 29 %. Appendix H shows the
distribution of services. A further insight shows an interesting development of the services in
the category advising/consulting. Appendix H also shows that the area organization and
operations management has increased in revenue while strategy consulting has gone down
almost 3 %. In general, this development indicates a movement from services of a more
analytic character to services where implementation is also a part of the task, which customers
demand. Consulting firms can therefore no longer rely on general consultant services and
standardized products. Instead, customers demand specific competences and results that can
be seen on the bottom line. That is, projects and assignments are to a considerable degree
characterized by process orientation as opposed task orientation. This means that consultants
must act in completely different terms, which broaden the demand of skills present in the
consulting firm. To much higher degree empathy, understanding of the customers situation
and follow-up services are important elements of the competitiveness of consulting firms.
Furthermore, customers have become very experienced in buying and using consultants.
15
16
firm as the development of the consulting firm very much happens trough learning-by-doing.
This raises an important question for the remainder of this master thesis. What constitutes the
primary growth factors and barriers across firm size? Thereby, the industry analysis indicates
that there is some significant differences across size but does not allow for a deeper insight.
If existing consulting firms want to stay competitive and sustain their growth
rates, satisfy customers and dodge a possible recession there are some areas, which demand
attention on the individual firm level. There is a need to consider the strategic management of
consulting firms in a new perspective. Focus on consulting capabilities alone must not put in
the shade professional management and business. Innovation must be incorporated in a
systematic manner in the firm in order to maintain competitiveness. Human resources should
be considered as a core issue, concerning both recruitment and retention to secure that the best
possible resources enter and stay in the firm. Finally, for the largest consulting firms, as the
home market is consolidating there is a need for, and future growth possibilities in,
establishing a global presence either through internationalization or alliances.
18
Chapter 3
Theories of firm growth
The literature offers several different theories for systemizing the analysis of firm growth.
Looked upon in isolation these theories each uncover interesting ideas and phenomena, but in
the end, findings are of a partial character. This is a logical consequence because of the choice
of theoretical perspectives and the use of specific theoretical and explanatory models.
However, this leaves a need for a more holistic understanding of the characteristics of high
growth firms, as well as growth barriers in low growth firms. Therefore, there is a need to
integrate theoretical perspectives in order to understand the full story of the theory of the
growth of the firm. The purpose of this chapter is to review the growth literature with a focus
on the sources of growth and the limitations to growth. Hence, the first step is to investigate
the concept of growth and the effects of growth in a dynamic perspective. Second, theoretical
contributions to growth theory are assessed with regard to their explanatory value when
considering external and internal growth factors and barriers. Third, SME theory is considered
in an attempt to define growth even closer, as Danish management consulting firms belong to
this segment. Finally, an integrated approach on how to evaluate growth factors and barriers
and consequently, growth strategy, is developed which builds on the findings of the first three
steps. This integrated approach will in turn shape the way in which the empirical work is done.
of growth. Hereby, a certain degree of selection in the industry is assumed. Hence, it is not
possible for a firm to grow if it does not excel in some areas of its business.
small firms, which are often person-owned or run as a partnership, there is a considerable
amount of risk to be aware of and in effect they will pay a risk premium, for example a higher
interest rate, in order of acquiring the necessary funds. Small firms will not have the sufficient
cash flow to engage in large investments, which again provide a barrier to growth. Instead,
they rely on opportunity driven growth and do many first-time projects, which they cannot
repeat and leverage successfully to the future projects. Furthermore, these first-time projects
strain the firms profitability and incur large costs as the firm is learning by doing. The
attractive force of opportunity driven growth is obvious, as it allows the firm make some
profit and engage in new businesses. The downside to this is that growth becomes random,
less profitable, and driven by occurring opportunities, rather than a careful market analysis
and a strategic response and positioning to those opportunities. The idea is that strategic
growth will allow a firm to focus its image and position it as an expert in well-defined areas.
Thereby, future business will be consistent with firm specific competences and resources and
build credibility and expertise in strategic areas. The goal is to repeat and improve past
successes and thereby increase efficiency and profit margins.
The above discussion give rise to the idea that there is some kind of glass
ceiling which small and medium firms have to burst through in order to achieve growth. This
breakthrough is where opportunity driven growth is changed into strategic growth, and this
raises the question of how firms achieve this, and especially, how small and medium sized
firms manage it. The next logical step is therefore to consider the dynamics of growth.
The choice of life cycle model falls on Greiners organizational life cycle (1972).
On first hand, this might seem as an odd choice as the originating research is more than thirty
years old and as it focuses on industrial firms. However, this framework has undergone a
development of its own, and has been adapted to professional service firms and their distinct
growth stages (Malernee and Greiner, 2005). The model is presented in appendix J. In this
model, firms pass through situations of evolution and revolution. Growth stages correspond to
a series of internal crises related to managerial and organizational issues of coordination and
control. In each stage of its life cycle, an organization is dominated by a specific focus,
exploring, focusing, diversifying and institutionalizing. Each stage is ended by a crisis that
threatens organizational survival, and brings about a revolutionary change through which the
firm passes to its next life cycle stage. In addition, each stage is dominated by a different
strategic approach to the market and a specific set of managerial practices. These allow the
firm to evolve through the stage, but this stage-specific strategy and practice are rendered
useless in the next stage. Between each stage is the crisis, which predicts a revolutionary and
necessary change for the firm in order to adapt to the market, future growth and survival. That
is, in the resolution of one crisis are the seeds for the next crisis.
An important thing to keep in mind is that the organizational life cycle model is
based on a study of American professional service firms. Hence, market conditions are very
different from the Danish market. Other general critical issues of life cycle models are; they
fail to capture the details, they assume continuity and they do not take into account external
factors (OGorman, 2001).
to maintain steady double-digit growth in difficult times. These are base retention, market
share gain, market positioning, related and unrelated diversification (Tracy, 2004). These
superior competitive strategies must create and develop resources and capabilities that can be
used to sustain the growth process within the firm. Because management hold different path
dependent assumptions of how to conduct strategy, and because of causal ambiguity within
the relationship between resources and success, some firms will continue to succeed while
others fail.
Usually growth is an unquestioned positive and has become synonymous with
bigness. Growth as an expansion or increase in magnitude is deeply entrenched in the way we
think. Even though, increases in size, profitability and scope are often connected with growth,
they are not what drive it. In the long run, expansion is not viable goal in itself. Because of
organizational inertia, both structural and cultural, failure happens when market conditions
shift. According to John Kay, a leading Oxford economist: It is rare for the market power
and scale economies associated with market dominance not ultimately to fall victim to the
hubris, the insulation from the market, and the sheer bureaucratic inefficiency that goes with
such size, (Bryan and Kay, 1999, p.106). In relation, firms often find it difficult to sustain
high and fast growth rates. Three important factors, which relate to issues already discussed in
this chapter, can be the end of sustained growth if not managed properly (Tomasko, 2005). A
fast growing firm, which expands in size, can create inhospitable surroundings. That is, a
growing firm will become the objective of more competition from other large firms and
customers might be reluctant to do business because of the sheer size. To sustain a high
growth demands that the resource intake is equally high. At some point, the supply side will
come under so much pressure that the only choice is to make do with low quality resources.
Hence, resource constraints are another factor to consider. Furthermore, when firms grow they
will experience organizational limits. Management, culture, and employees are lost in the
pursuit of efficiency as complexity and hierarchy increase. These factors are very much at
stake when one considers the Danish management consulting industry where large
international competitors are present, labour is scarce, and competition is based on internal
knowledge and customer relationships.
on the view they adopt, that is how for example the firm, its environment, and its markets
work. Roughly, it is possible to label them outside-in theories and inside-out theories
(Alexander, 1992).
Outside-in theories are concerned about firm growth as a consequence of
external circumstances, primarily assessed in a product market perspective. This category of
theories rests upon several main assumptions. First, the environment of the firm allows itself
to be easily and straightforwardly analyzed. Second, firms can easily adapt to its environment.
Third, theories are externally oriented and operate within a static universe. On the other hand,
inside-out theories see the firms environment as changeable and very difficult to analyze.
There is a great focus upon the problems, which occur in firms because of friction. That is,
firms are considered highly dependent of their firm history, resources, and existing routines.
Growth is considered a consequence of circumstances and settings in the internal situation of
the firm and factor markets. This group of theories is thereby internally oriented and contains
in it a focus on organizational development. In appendix K, the most significant differences
between the outside-in orientation and the inside-out orientation are outlined.
and firm size is considered a consequence of growth. This contradicts with the neoclassical
perspective, which is discussed later, because there is no optimal size. This is the main factor
to why Penroses theory has, to some degree, been marginalized in economic discourse
(Montgomery, 1994). For Danish consulting firms this dynamic perspective of firm growth
seems strong because it focuses on the role of firms internally generated resources, which in
the case of growth are much more elemental than economies of scale6.
However, her ideas of firms as idiosyncratic configurations of resources have
been very influential in the strategic management literature. This is another key concept in the
theory of the growth of the firm, and these resources act out a significant role in gaining a
sustained competitive advantage if they can be characterized as rare, valuable, inimitable and
non-substitutable (Dierickx and Cool, 1998).
Evolutionary approach The evolutionary approach sees the firm as a processor of
knowledge resources that provide the firm with the flexibility and speed necessary to respond
successfully to changes in the external environment (Nelson and Winter, 1982). Routines and
learning are central to the process of gaining new knowledge, and these capabilities must be
coordinated and developed within the firm. This implies that firms are likely to grow
idiosyncratically as they use and evolve their knowledge base. That is, capabilities are
constantly being modified over time, which in turn means that each firms growth is likely to
be path dependent. Hence, previous experience and the repertoire of routines constrain future
direction, and opportunities for diversified growth must be complimentary to current activities
in order to maintain complementarities and coherence.
Furthermore, the central premise of the evolutionary approach (Nelson and
Winter, 1982) states that competition shapes both market and organizational structures, and
thereby forces those firms out whose organizational form does not create flexible capabilities
to match the changing environment. In the consulting industry, we see many firms entering
and leaving all the time, which might indicate that these firms do not manage to adapt their
organization to the shifts that takes place in the industry. This creates an idea of the principle
of growth of the fitter but empirical results do not provide much evidence. Instead, it is
suggested that selection works only by elimination of the weaker, where growth is not related
to viability but instead to the discretion of managers (Coad, 2006).
In general, the inside-out perspective has come to be the most dominating and cited perspective in recent
strategy and management theory. Also authors such as Porter moves towards this perspective (Porter, 1991;
DeMan, 1994)
25
The resource based view (RBV) RBV argues that firms with superior systems and structures
are profitable because they have lower costs or offer a higher quality or product performance.
The focus of this approach is directed at the rents accruing to scarce firm specific resources
instead of the economic profits from market positioning and entry deterring strategic
investments. Resources can be defined as assets, capabilities, organizational processes,
information, knowledge etc. that are controlled by the firm (Barney, 1991). They are
characterized as either tangible or intangible assets, for example; technology, access to raw
materials, production equipment, location, or human resources, accumulated knowledge,
experience, and relations which are tied semi-permanently to the firm (Wernerfelt, 1984).
The main point of importance is that resources are heterogeneous and not
homogeneous. Heterogeneity among firms allows some of them to hold a competitive
advantage. The firm is considered a unique bundle of idiosyncratic resources and capabilities
where the task of the manager is to optimize the deployment of these and develop a resource
base for the future (Grant, 1996). As well as the RBV argues that resources can give way for a
competitive advantage it also argues how it can be sustained via some kind of protective and
isolating mechanism which prevails the diffusion of the resources into the rest of the industry
(Peteraf, 1993; Foss and Knudsen 2003). Various researchers have defined the characteristics
of resources that can lead to a sustained competitive advantage (Barney, 1991; Peteraf, 1993;
Dierickx and Cool, 1989). These characteristics are heterogeneity, imperfect mobility,
valuable, rareness, imperfect imitable, ex ante and ex post limits to competition, and nonsubstitutable.
According to the RBV, the firm can only handle external factors based on an
internal exploration competence. The external environment of the firm is not considered as an
objective and easily measurable factor. Instead, resources have to be organized so they enable
the firm to identify and understand the opportunities that arise from it. Firms thereby follow
different growth opportunities according to their specific resource and competence
endowments, and how these fit their history, traditions, and goals (Hougaard and Duus, 1996).
Hereby, we also recognize the limitations of the RBV. First, when competitive
advantages or growth factors are rooted in situation specific resources and capabilities.
Therefore, the analysis of growth risks becoming very situation specific as well. It will
become difficult to create as set of specific recommendations, which goes beyond general
recommendations that a firm must develop competences, and capabilities that are difficult to
copy (Tecce, Pisano and Shuen, 1990). Second, because the perspective considers the external
environment as very volatile and something that you cannot predict, there is a risk of
overlooking the role of the external environment. Firm strengths and weaknesses become the
26
only focus point and threats and opportunities in the external environment are not considered
in enough extent.
The Competence approach This approach sees the firm as an organization for facilitating
learning. That is, the approach analyzes what a firm does well and sees the firm as an
organization capable of generating a knowledge stock, which can capture value. Sources of
competitive advantage, and thereby economic rents are derived from firm specific
competences sometimes rooted in physical assets but most often in the large number of
different activities performed by the firm. Therefore, this approach views the firm as a locus
of creation (Winter, 1982), creation not only as the physical process of transformation but also
much more intangible elements such as R&D, design, innovation, discovery of future
customer demands, etc. As in the RBV, competitive advantage lies upstream of product
markets and springs from resources that are idiosyncratic and hard to imitate. The crucial idea
is therefore that a firm must be able to allocate its resources so it can capture the opportunities
and value inherent in its competences.
Much focus of this approach has been on routines and processes as embodying
the skills of the firm (Nelson and Winter, 1982). The argument is that only within the firm,
can heterogeneous knowledge routines and processes be developed, coordinated, and
exploited, and therefore a firm can create more value than the market. The focus here is on the
heterogeneous knowledge resources that firms hold and how they use it. The process of
learning by doing means that the firm always adds to its stock of knowledge by a combination
of fixed routines and processes and by exploiting excess knowledge resources. This
relationship between knowledge resources, processes, and routines is subtle and it can be hard
to identify its causalities, even by the firm itself. Thereby competitive advantages rest on a
high degree of tacit knowledge, which is an immobile resource, and a strategic asset of the
firm. However, the process of learning and accumulating knowledge resources is very timeconsuming (Rickard, 2006). This implies a size limit on the firm as management resources
devoted to discovering value added activities are constrained. The notion of core competences
(Parhalad and Hamel, 1990) thereby becomes strategic building blocks for the firm, as
collective learning and resources should be allocated so they support these. A core
competence can be identified by asking three questions; does it provide access to a variety of
markets, does it improve customer benefit, and is it difficult to imitate? When a firm can
answer yes to these questions, it has a foundation for achieving a competitive advantage.
Where the recommendations of the core competence approach are highly
vulnerable is in a rapidly changing environment. If a firm chooses to build its strategy around
27
a few core competences, it can end up in big trouble if the demand for these disappears. So,
even though, the approach sees the firm as an organization that must continually develop its
resource base there is a need to add more a more dynamic perspective to this approach.
The dynamic capability approach The ability of management to rapidly and effectively
redeploy and coordinate existing core competences into new forms of competitive advantage
has been termed dynamic capabilities (Tecce, Pisano and Shuen, 1997). In general, the
approach refers to the firms capacity to renew and adapt competences to changes in the
external environment and considers the managerial ability to align organizational resources. It
focuses on the creation and capturing of value, but the underlying resources to do so are the
capabilities inherent in the firm. It is dynamic in the sense that a firm can build upon its
existing capabilities through innovation and then add new capabilities.
Furthermore, this theory takes on an evolutionary approach as discussed earlier
(Nelson and Winter, 1982). This approach implies that it is firm capabilities, which form the
strategic path. Thereby, there are three key factors to dynamic capabilities: Processes, position
and paths. Competitive advantage lies in the managerial and organizational processes
(routines, current practice, and learning), shaped by its asset position (the firms current
specific endowments of technology, intellectual property, complementary assets, customer
base, and external relations) and the paths available (the strategic alternatives available to the
firm and its path dependencies) (Tecce, Pisano and Shuen, 1997). Dynamic capabilities are
supported by routines inherent in the firm where capabilities can be seen as higher-level
routines that help implement and improve lower level routines. Routines can be defined as an
abstract way of doing things, seeing routines as a link to organisational memory based on past
learning. Thereby, the firm can avoid organizational inertia. Routines are building blocks of
capabilities and contributes dynamically by; variation (new combinations of routines may lead
to new capabilities), selection (different combinations of routines may foster new capabilities)
and adaptation (adaptations of new routines may function as a feedback loop according to
changes in the environment) (Nelson and Winter, 1982). Capabilities can be subject to
imitation which is replication performed by rivals, however, capabilities are idiosyncratic to
the firm and thus very difficult to imitate (like stated in the RBV, Dierickx and Cool, 1989).
They can also be subject to replication by the firm itself. Replication involves transferring or
redeploying competences from one concrete economic setting to another (Tecce, Pisano and
Shuen, 1997). By constantly being able to adapt to changes in the environment and by
exploiting its routines a firm can achieve sustained competitive advantages through its
capabilities.
28
maximization of the firm. That is, according to managerial theory, managers maximize
growth under the constraint of earning a satisfactory profit. The key take-away from this
theory is that managers sometimes act irrationally in relation to the overall benefit of the firm.
One basic prediction from this is that growth rates of manager-controlled firms
will be higher than those of owner-controlled firms. Furthermore, if SMEs are considered
some evidence show that management-controlled firms have stronger preferences for growth
than those firms, which are owner-controlled (Hay and Kamshad, 1994)
consulting industry. Furthermore, the concept of an optimal size lacks empirical support and
is suggested to have little use in the understanding of why firms grow (Coad, 2006).
Porters framework Competitive advantage and growth happen through already existing
entry and mobility barriers or through superior strategic choices, which increase these barriers.
To gain a thorough understanding of these forces, Porters framework, which is rooted in the
SCP postulate, supplies a tool for systemizing the analysis of the forces that influence
strategic behaviour and competitive advantage in the industry (Porter, 1980). The framework
views the essence of competitive strategy formulation as relating the firm to its business
environment. A Firm can achieve growth and competitive advantages by positioning itself
where it most optimally defends itself or take advantage of industry forces. These forces are
internal rivalry, bargaining power of customers, bargaining power of suppliers, threat of
substitutes, and entry- and mobility barriers. The framework deals with industry structure and
Porters five forces can thereby be used to identify growth barriers and opportunities primarily
on an industry level.
The degree of rivalry between incumbents can be investigated by competitor
identification. If there is a high degree of rivalry in the industry this will most likely mean that
competition is based on either price, quantity, or market share, which will affect the overall
profit, generated in the industry. The more rivalry and competition, the more likely it is that a
firm will not be able to earn profits above the industry average. Therefore, it is important to
identify the number of incumbents and the degree of market differentiation. The degree of
rivalry will also affect the cooperation that takes place in the industry. That is, the more fierce
competition, the more one will expect that firms will protect their resources and knowledge
instead of engaging in cooperation with the risk of opportunism.
Bargaining power of buyers describes the degree to which buyers can affect the
price that products in the industry are sold at. If the amount of buyers is small or they are
heavily concentrated, this can increase the power they hold to reduce the ability of the firms in
the industry to earn economic rents. If, on the other hand, demand is high and buyers are
many, this gives firms in the industry an advantage to affect the price of their products, and
thereby earn economic rents. Finally, information plays a significant role. The more buyers
are informed about production costs and competing products, the greater their ability to
reduce the rent-earning capacity of suppliers will be.
Bargaining power of suppliers follows the same story as the one above. If the
number of suppliers is large then firms in the industry can easily choose which one to use and
create competition between them, thereby earning economic rents. Contrary, if suppliers
31
provide niche goods or services then their prices are likely to be held above marginal costs,
which lower the overall value appropriation for firms in the industry. In addition, if firms in
the industry are perceived to be earning economic rents, then this might motivate suppliers to
engage in down stream integration and thereby cause increased competition.
An important influence on the demand for the products or services provided by
firms in the industry is substitute products. These products or services are substitutes in the
sense that they constitute a threat from other industries that are likely to undermine the
existing demand. Substitute products and services reduce the monopoly power of firms within
the industry.
Entry- and mobility barriers are defined as factors, which prevent either a
potential newcomer or an incumbent who wants to make a strategic group move in earning
economic rents post entry. Barriers may be structural, institutional, or strategic or a
combination of all three. Structural barriers exist when incumbent firms have a cost advantage.
Examples of structural barriers include economies of scale, sunk costs, patents, and
advertising. Institutional barriers exist when there are certain institutional factors that favour
some industries or firms compared with others. Finally, strategic barriers arise when
incumbent firms engage in entry-deterring strategies in order to keep potential new entrants
out.
However, there are some shortcomings of the Porter framework. When
considering the product life cycle hypothesis (Rickard, 2006) this becomes evident. Products
or services run through a number of stages; introduction, growth, maturity, and decline, which
will effect the conduct of incumbents directed towards entry barriers and production cost
reduction and ultimately the degree of rivalry in the industry. Porters framework does add
dynamics to the SCP postulate, but is not a complete explanation of the dynamic nature of
rivalry. Another shortcoming is the fact that is misses the contribution of the individual firm.
Analysis takes place on industry or product market level and does not explain individual firm
growth, but rather the development of the industry or market because of factors outside the
firm.
The strategic conflict approach gives a more comprehensive insight in the
dynamic nature of rivalry (Shapiro, 1989). The argument is that incumbent firms will soon
realize that they are mutually interdependent (Brickly et. al., 2001) and therefore play a more
interactive game. Strategic interactions with other firms, customers, and markets allow a firm
to capture any value created. Strategic behaviour that firms may engage in range from tacit
collusion to strategic manipulation of rivals information about market conditions. In the end,
game theory offers a more dynamic tool to analyze strategic moves over time compared with
32
porters framework. However, the focus of game theory is not firm growth but on how to
appropriate value. Therefore, this approach is best used as a supplement to others theories
when it comes to explaining firm growth. Furthermore, the approach stresses strategic
behaviours such as commitment and reputation, instead for example flexibility and innovation.
As already mentioned, theories from the outside in perspective do have some
shortcomings which allow them to only partially explain firm growth. The major reason for
this is that the perspective is rooted in neo-classical economic theory where the focus is on
static, homogeneous, and mobile resources, equilibrium, perfect information, and other more
or less unrealistic assumptions. Clearly, when one considers the management consulting
industry, it is obvious that these assumptions will not be maintained because of all the firm
specific competences and resources that are at play. Hereby, the above-mentioned theories
can only partly explain growth and the contribution from the inside out perspective becomes
highly important.
33
for SMEs to be able to respond to market changes, and, especially for medium firms, to have
organizational flexibility (Smallbone et al. 1993; Kuhn, 1982). The industry structure
explanation argues that the external environment that firms operate in affects growth (Porter,
1980; Aldrich and Fiol, 1994). One perspective, population ecology, takes this argument to
the extreme by stating that growth is a function of environmental selection (Hannan and
Freeman, 1989). Thereby, growth can be seen as the evolution from one organizational form
to another as the environment changes, or growth can be restricted to one type of
organizational form which forces it out when this form is deselected (OGorman, 2001).
35
the initial years of the firms history and experience. Since culture, history and past
experience have so strong normative characteristics, the future path of the firm will be
dependent upon these factors.
37
Feasible set
of strategies
Factor markets
Generators
Culture
Organization
design
Competitive
Competitive
advantage
FIRM
GROWTH
Entrepreneurship
Feasible set of
resources and
competences
Product markets
Moderators or accelerators
Source: Own making
By culture, is meant the current performance of the firm, the markets it currently
serves and its history and experience. These elements are all path dependent and will
influence the future opportunities of the firm. The firm culture, which among others describes
the firms ability to gain market insight and to identify growth opportunities, is an important
element. Inherent, is also the routines which the firm has developed and which in part will
shape its possibility to exploit current resources and competences and explore new
opportunities. Entrepreneurship describes the capabilities and attitude of management. Here
the focus is very much on the creators of the firm and their qualifications in terms of abstract
capital (experience, purpose of life, etc.) and specific capital (which competences do the
entrepreneur(s) bring into the firm). The entrepreneur of the firm also plays a big role in the
degree of diversification, which the firm engages in. Whether the entrepreneur develops his
firm in broad or tight terms around his competences will shape the firms future path. These
two elements, culture and entrepreneurship, are considered interdependent. A feasible set of
resources and competences shapes the firms organization design and will in turn be shaped by
it. A set of tangible resources, human and physical, must be managed and developed to
achieve firm specific synergies ranging from intellectual property over core competences to
routines capable of rapid reaction to change. For the firm to exploit the potential value of
these internally generated resources and competences, it calls for both entrepreneurial skills
and strategies. The firms resources and competences therefore define its set of feasible
strategies. These will be reflected by its history and experience and the entrepreneurial flair of
its managers. The set of strategies will describe how the firm chooses to operate on
38
operational and strategic levels and this will affect the organization design as well as the
organization design will affect strategy, as it creates a limit on available strategies. The
influence from the external environment is captured in factor and product markets. Factor
markets identify the sources, which create growth opportunities for the firm. Herein lies
growth opportunities by the establishment of specific and scarce resources that are difficult to
obtain for competitors and through the possibility for cooperation with firms, which create
relational rents. These factors create a foundation for firm growth and can be viewed as
generators. Product markets identify industrial factors such as market structure, entry barriers,
and substituting products but also customer relations and insight are important factors, as this
information allows management to adapt to these circumstances. The degree of rivalry will be
shaped by the set of strategies the firm adopts, and thereby the possibility that competition
will either eat up profits or create profits through cooperation. Growth will either be
moderated or accelerated by these factors. These six elements come together in the
organization design to affect a synthesis of the two perspectives by clarifying that the role of
the organization design is to align the firms resources with its strategy and external
environment, in order to achieve a competitive advantage. Organization design imparts
heterogeneity on the consulting firms, and thereby become a mean to achieve competitive
advantage. Hence, the focus is on how consulting firms align and create coherence in the firm.
Furthermore, it is assumed that a competitive advantage is necessary in order to achieve
growth. That is, the market in question is not characterized by unlimited demand and a certain
selection pressure exists. I argue that this is the case in the consulting industry. Hopefully, the
model proves to show that only considering growth from one perspective will miss out on
other equally relevant issues, and that the two perspectives are not opposites but
complementary and interrelated.
the benefit of diversification, for example adding a new partner with different competences to
the consulting firm, is to expand the stock of knowledge resources in the firm. For the firm to
be able to sustain growth it has to have an entrepreneurial managerial ability to identify
growth opportunities and deploy resources necessary to realize them. However, a resource or
competence has to be tried in the market in order to realize its value. Recommendations
from the inside-out perspective can lead to an underestimation of the value of market
positioning and adaptation. The inside-out perspective therefore brings into consideration the
product market as an accelerator or moderator of growth.
Now the tools to conduct an empirical investigation are in place. The model for
assessing growth can give a clear indication of the issues that are at stake in the SME sector
and especially in the management consulting industry.
40
Chapter 4
Design and implementation
In this chapter the methodological settings and approach with regard to the interview guide,
the interview process, and the treatment of the qualitative data is discussed and vindicated.
When the goal is to identify an appropriate growth strategy across different firm
sizes, it is important that it is supported both by theory and empirically. This means that there
is a continuous need for theory development throughout the investigation. Therefore, it is not
appropriate to conduct a population survey where questionnaires are sent to a large amount of
consulting firms, as it will not capture the processes that are at play ex ante and does not allow
for further theory development. On the other hand, a single case study of a consulting firm
does not allow for the wanted degree of generalization. Roughly, empirical investigations can
be placed on a continuum as below:
Continuum of empirical investigations methods
Single case study
Population study
Detailed understanding, no
generalization
statistical significance, no
knowledge of factor interaction
Therefore, the choice of method in this master thesis falls on the multiple case
study. This allows for a combination of the advantages from the single case study and the
population study. The purpose is to generalize from the theory base developed in the previous
chapter by holding this against a number of empirical results in order to be able to develop
further theory. This approach is a combination of explanation building and pattern matching
(Yin 1998). That is, an analysis of the causal explanations and a continuing comparison of
these with the existing and discussed theory. The idea here is to conduct an analytic
generalization in relation to theory development rather that a statistical generalization in
relation to hypothesis testing. The focus of the chosen discovery-oriented methodology is to
further develop theory, as a consequence of the limited amount of theory on the management
consulting industry. A crucial part in theory development and building is the evaluation of
emergent concepts and existing theories, which consequently supports the preceding theory
base and integrated approach of chapter 3. The case study approach is recommended by
several different researchers as being especially appropriate in studies of new areas or areas
41
with inadequate existing theory, as the results commonly are novel, testable and empirically
valid (Eisenhardt, 1989; Despande, 1983).
http://www.dmr.nu/home.asp?ContentID=205
42
that are generally interested in developing the management consulting industry. If the point of
departure had not been DMR, members it would have been difficult to identify relevant
subjects for interviews. The firms interviewed cover a broad range of consulting areas from
strategy/organization, operations, and communications to more IT heavy services. To obtain
the appropriated number of interviews only twelve consultant firms were contacted and those
who declined did so reluctantly because of busyness. It was demanded that interviewees hold
a leading position in the consulting firm and have insight and influence on strategy. All the
interviewees are either CEOs or partners in their respective firms. Consequently, all
interviewees have been promised full anonymity.
Owing to the problem statement of this master thesis, which deals with the
tension between size and growth it was important to consider management consulting firms of
various sizes. As already mentioned, Danish consulting firms belong to the SME segment but
it is not directly applicable to divide consulting firms into the small and medium category, as
it does not capture the diversity well enough8. Therefore, an adapted size distribution covering
Danish stand-alone management consulting firms was used in accordance with the industry
analysis:
Overview of respondents
Small consulting firms
2-15 employees
16-50 employees
3 firms interviewed
3 firms interviewed
3 firms interviewed
The current definitions by EU is that a firm belongs to the category small if it employees less then 50 people
and medium if it employees between 50 and 250 (http://europa.eu/scadplus/leg/da/lvb/n26026.htm).
43
4.2 Operationalization
The purpose of the empirical analysis is to give a description of and to create a
foundation for understanding growth factors and barriers in the Danish management
consulting industry with a special emphasis on their current market situation and
organizational conditions. As already mentioned, the theory base and the integrated approach
presented and discussed in chapter 3 serves as the basis for which the questionnaire has been
developed. In general, it deals with nine different topics and relating questions, all designed to
provide information about the discussed theory base. Appendix N gives an overview of the
operationalization that has been done with this in mind and the interview guide is enclosed in
appendix O.
There are several different measures, which can be applied in order to identify
growth firms. In general, the following are suggested in the literature; size, assets, net capital,
revenue, and growth in the number of employees (Hougaard and Duus, 1996). Each measure
has its own advantages and disadvantages however, because of the complexity of the
concerned industry and the high degree of competition it is very difficult to obtain exact
numbers relating to revenue and profit, etc. Therefore, to identify the degree of growth that
the individual consulting firms have experienced, number of employees has been the prime
indicator along with the perception of growth and further information supplied by the
interviewee. The argument is that in this context growth in the numbers of employees is a
viable measure as it is a consequence of growth or growth expectations in other measures.
a reading of the data material was done in which growth processes in general was considered.
Here, it was assumed that the large firms represent the more successful consulting firms
whereas the small firms represent less successful consulting firms. This could be done
because the chosen firms have all been founded close to 2000. Hence, the data analysis is not
exact science but instead a qualitative interpretation, which is supposed to identify and create
patterns and processes. The empirical analysis will therefore comprehend and decode the
answers of the interviewees in relation to the theoretical framework. A hermeneutic approach
allows for a deeper interpretation and a chance to go beyond the direct answers of the
interviewees to identify patterns and meanings that have not been explicated. Inevitable, this
will bring the risk of scientific bias and consequently, treatment of the data in a highly
objective manner is crucial (Kvale, 1997).
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Chapter 5
Empirical findings
This chapter presents the empirical findings based on the analysis of the nine qualitative indepth interviews9.
All interviews are attached on CD-ROM for further listening. Whenever a quote is used, it can be referred back
to the interview by the capital letter and time designation through appendix M.
46
on the organization design of the firm. If this supports internal development and growth, then
the difference between growth opportunities and actual production possibilities will be small
and enable the firm to choose between a variety of different growth possibilities. The
successful consulting firms, which were interviewed, had an ability to explore new growth
possibilities and at the same time maintain an organizational ability to coherently develop and
deploy new resources.
Innovation and change have to be a build-in part of our thinking and our way to organize the
firm. We need one or two ground-breaking projects every year.
CEO of a medium sized strategy and management development consulting firm (F/35:20)
This does not imply that there is a size optimum or a size limit to the consulting
firm. Obviously, this is very much dependent of the areas in which the individual consulting
firm operates. Thereby, growth is seen as a dynamic process and conditioned by an internal
focus on development and growing from the inside. Growth is necessary and must become an
in-build process in the organization design. Even if a consulting firm is content with its
current situation and position in the market, growth is necessary because the environment is
complex and changing. Customers demand more from their consultants and trade-specific
knowledge develop all the time. Consequently, growth in the consulting industry cannot be
perceived as a mean to achieve a static optimum but must be considered a dynamic process
that creates the foundation for further development.
47
48
The consulting firms in this stage seem to experience a kind of glass ceiling in
the pursuit of growth. That is, despite their wish to grow, there are elements in their
organizational structure and management practice, which prevents them in doing so.
Growth processes The approach to growth in this stage is characterized by a random search
and identification of market driven opportunities. The range of services provided is broad and
target a broad market. At this point, it is generally unclear which services will be most
profitable and which clients should be focused on.
I have to say, it has not been a target-oriented or planned development. It has been very
impulsive. Now there is an area of interest, we need to get involved.
CEO of a small organization management consulting firm (A/52:40)
The types of assignments, which are taken on, are to a large degree very
different and often put the firm under pressure, in both a competence and economical sense.
However, it is also in these new assignments that the small firm finds opportunities to grow
and develop its competences and capabilities. So, even though the firm will most likely
exceed its capabilities this is a necessary development in order to achieve means of growth.
It might be that we take on an assignment that are so exiting and can give us some experience
and because we might be able to earn money on it in the future. We have done this quite often
but also have to acknowledge that there are many assignments we only do once. So there is a lot
of development but we do not earn any money on this.
CEO of a small management and event consulting firm (C/34:00)
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in this segment agree with the fact that they constitute the most important resource in their
firm at the current stage.
Drive and enterprise is very much centred on me and the thoughts and ideas about where I
want to go, no doubt about that. Ideas and strategic development lie with me or else we will not
be able to develop our self.
CEO of a small management and event consulting firm (C/32:40)
The business foundation is created around the customer network, which the
founder has established in previous positions. Through this network of relations, the
consulting firm can get orders from customers that are crucial in the start-up phase.
I asked my old customers (from a previous consulting job) what I need to do better in order for
them to buy my services. So, I definitely used old customers. With them there are some strong
ties, they typically constitute your network.
CEO of a small organization management consulting firm (A/52:40)
This interdependence between the consulting firm and its customers is decisive,
as the firm both creates its economical foundation and develops it capabilities in relation with
their customers. Consulting firms which have one or two big customers from the beginning
will find it much easier to grow as this network creates an economical security for the firm
and allows it to leverage on existing capabilities and routines.
We need one or two big customers. We need this kind of stability so we do not need to invent
new customers again and again We use a lot of time attuning expectations through meetings
etc. and this demand a lot of time the first time but not the second time.
CEO of a small management and event consulting firm (C/14:50)
Typically, the small consulting firms service small and medium sized customers.
They have an advantage in this segment because of a number of factors. The price of their
services are below that of the larger and more established consulting firms which opens up for
a market of SMEs who do not set aside a large amount for consulting services. The fact that
they are small also allow them easier access to the SME segment because they have a firm
profile which smaller firms better can relate to.
We can help small and medium sized firms, especially owner managed firms, who are a little
nervous when there comes a Mckinzie consultant where the theoretical ballast and the support
base are top tuned. It can often seem intimidating, both investment wise but also strategically
wise Where we can make a difference as a small firm is that we help with strategy but also
with carrying it out in real life
CEO of a small organization management consulting firm (A/20:21)
freedom regarding how employees can tackle different assignments. Contrary to larger
consulting firms, there are often no standardized tools or frameworks which must be used
when handling customer assignments. This improves the flexibility of the small consulting
firm and allows it to better adapt and specialize to the needs of SME clients. This relaxed
culture often attracts experienced consultants who have previously worked in large and more
tightly controlled consulting firms, and now has a wish to continue their trade under less
formalized and strict conditions. Herein, lies the advantage for small consulting firms in
attracting new employees.
The culture must create the framework within which people are not tied on hands and feet with
regard to thinking and work methods There is not one right way to be a consultant, there are
several ways.
CEO of a small management and event consulting firm (C/14:50)
Having discussed the growth factors which are specific for small management
consulting firms and which they leverage in order to achieve growth it is, however, important
for understanding the whole story, to consider the duality of these factors. At the same time
these factors become processes of growth, they also become barriers to growth as the analysis
in the next part shows.
Growth barriers The manager of the small consulting firm is balancing his role as manager
with his role as consultant. The services and assignments, which the consulting firm take on,
are centred on his competences. Therefore, he often becomes an indispensable person when
dealing with clients.
You are both the strategist and the owner but you are also the operational consultant who must
go out there and perform I need to prioritize time to be the administrative director When I
contact my customers they say; you are the one we buy. I can bring along young consultants
to do spreadsheets and stuff but I have to be there all the time.
CEO of a small organization management consulting firm (A/03:20)
Even though, the founder has a vast experience and knowledge from previous
jobs it is difficult for him to both maintain this knowledge, obtain new knowledge and
disseminate this to employees in a structured way. The transfer and acquisition of current and
new knowledge, which obviously is crucial in the consulting industry, is given a lower
priority.
A barrier can be that we do not have enough focus on new knowledge. It is my responsibility
and I do not always have enough time to look into it.
CEO of a small management and event consulting firm (C/01:02:30)
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The new growth base for our firm does not come from us seniors but from the young
consultants. Furthermore they are also the reason why we can attract more young consultants in
the futureWe need to create a food chain.
Senior partner in a small strategy and operations consulting firm (B/28:50)
Because the small consulting firm typically services small and medium sized
customers, they will often be dependable of one or two larger customers within this segment.
This relationship creates an economical base and security for the small consulting firm. A
large customer is achieved either through personal relations or through retention of a customer
who has increased his consulting use to become a large buyer. However, this makes the small
consulting firm vulnerable. If growth happens through a personal relationship with specific
persons within the customer organization, the consulting firm is very fragile to restructuring
which might take place in the customer organization.
Relations to customers are decisive. As an example, we just lost our biggest customer the other
day because the person who I have been working with left the firm. After six months of dialog
with the two new persons, who were my contact persons in the organization, they finally decided
on another consultant.
CEO of a small management and event consulting firm (C/25:42)
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Stage one crisis The manager is both the factor that allows the firm to grow in the first place,
but is also the barrier, which prevents further growth. Some managers realize this and some
do not.
We have had and still do have a managerial problem. There are some senior partners who do
not give room for the young consultants. This has been our Achilles heel and is our biggest
problem.
Senior partner in a small strategy and operations consulting firm (B/26:40)
I know that if I want the firm to grow then I cannot stay in the position where I am now.
CEO of a small organization management consulting firm (A/04:10)
The crisis, which must be overcome, is rooted in the founders ability to let go
of responsibility and power, and let other people have an influence in the development of the
consulting firm. Only through this letting go can the small consulting firm be able to grow
beyond the small size. As long as the founder will not give room for others in the decisionmaking process, future opportunities is limited to his competences. Either finding a
complementary senior partner or the promotion of an employee to the rank of senior partner
can be necessary steps for further growth.
Opportunity driven growth further enhances the crisis, as the consulting firm
cannot focus on any specific areas and plan strategically. The firm must overcome the glass
ceiling of founder control and establish a grip in a specific niche in which in can leverage it
current competences. This is certainly a difficult task but a very necessary one, because the
foundation for the firm is created here. If this crisis is not overcome, it is most unlikely that
the firm will grow beyond the small size category. Hence, overcoming the crisis lies in
finding and adapting the right structure and design for the firm in which a professionalization
and specialization can take place.
employees this also raises the demand of a well functioning structure that can account for
more trivial things such as maternity leave and fixed working hours. Issues, which were not
relevant in stage one consulting firms because of the entrepreneurial culture.
Decision making is still residing with the founding partners who seek to achieve
consensus before acting. Occasionally they consult with younger partners and employees on
some major decisions, but this is more in the interest of sparring, more than actual
participation in decision-making. The founding partners retain sole responsibility for devising
strategy, hiring, evaluating and compensating staff. Compensation schemes are more formal
planned than in stage one consulting firms, and account both for those employees who wish to
put in a lot of work and those who work more moderately. Profit is still allocated among
partners at the end of the year, and a part of this is reinvested into the firm.
Grow is driven by a wish to create a viable, strong and independent consulting
firm which is not shaken or threaten by consultants who change job, large customers who hire
other consultant houses, or customers who demand large assignments. Furthermore, there is
also a wish to make the firm independent of the owner so that the firm is not directly
dependent of one to three key persons to secure its future.
A central challenge is the move from being a small entrepreneurial firm where we three
partners are a part of everything, to becoming a real-firm firm with middle managers,
delegation of responsibilities and business areas which run without the founders being a part of
everything.
CEO of a medium sized communication consulting firm. (E/02:53)
Growth processes The growth that has taken place in stage two firms can be characterized as
organic growth. Organic growth represents true growth for the core company and at this
relatively early point in their lives, stage two consulting firms are still too small and internally
focused to grow through acquisitions or mergers. The rate of organic growth indicates how
well management have been able to leverage internal resources and competences to obtain
growth. This type of growth is essential in order to have a strong and well-founded resource
and competence base to build future growth on.
We have reached the size we have now by organic growth and by gathering key persons in the
firm. The prerequisite for us to grow is the way we organize the firm more sharply towards some
key business areas and where some employees, on a higher level, takes on responsibility for
developing these. This is the process we are currently dealing with
CEO of a medium sized strategy and management development consulting firm (F/06:00)
Hereby, the foundation for future growth can be created on core competences
and developing them into strategic business areas. The key to achieve growth in this stage is
to align the consulting firm so that structure, strategy, and employees come together around
these areas. It becomes necessary for the firm to restructure around a number of strategic
55
business units. The interviewed stage two firms all had three core business areas, which
constituted the focal point of their strategy. Employees are clearly delegated so that they focus
their knowledge in one key area instead of drifting around between different types of projects.
This sharp focus on key business areas creates focus, and allows the firm to build a better
structure for developing routines and sharing knowledge.
There starts to be a bigger meaning with what we are doing. We cooperate more and more,
there is a pattern in the type of assignments we solve, and this lead to the fact that we needed to
become sharper and therefore, we created three clearly defined business areas You will see a
clearer company profile forming in the future.
CEO of a medium sized strategy and management development consulting firm (F/16:50)
Furthermore, stage two firms have managed to grow via balanced growth.
Contrary to stage one consulting firms, there is not a direct dependence of one or two major
customers concerning economic security. Instead, these firms have managed to create a broad
customer basis by maintaining a focus on those sector markets in which they are strong and
then leveraging competences to new sector markets.
The above growth tendencies create a clear view of consulting firms, which are
very much conscious of devising and following a specific strategy. Growth is, to a much
higher degree, driven by focus considerations as opposed to opportunity driven growth. In
general, growth happens layer by layer, and it is continuously adapted towards and supporting
a clear strategy formulation. Hereby, there are from time to time assignments that stage two
consulting firms turn down because either it does not fit with the core competences of the firm,
or it will not contribute with new competences, which are relevant in relation to firm strategy.
Finally, delivering a poor solution might jeopardize firm reputation.
Stage two firms are driven by identification of strategic openings, market
considerations, and positioning. That is, the founders of these firms have not started the firm
with an idea of doing general consulting work but instead with an idea the somewhere in the
consulting market there was a strategic position open; a specific area which the firm could
specialize in and which, in effect, would shape the strategy and direction of the firm. This
choice of position and business focus translates into the rest of the firm, and affects the
organization design of the firm so that there is a fit between strategy, structure, and market
position.
We have a position in the market which means that we are somewhat different from our
competitors We primarily consider this an advantage because we, compared to the classic PR
firms, are experienced to be different. We can be in competition with COWI,
PriceWaterhouseCoopers, freelance journalists, IT firms and many different firms because we
are placed in between different professions. Our customers and we see this as an advantage.
This is combined with a couple of areas where we are market leaders Finally, we have chosen
a price concept and business model that is a little different We charge a price, which is
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somewhere between freelance agents and the established consulting firms This has the
advantage that we can provide our services cheaper and in a longer duration of time.
CEO of a medium sized communication consulting firm. (E/02:53)
When the consulting firm has decided which core business to pursue it
furthermore becomes possible to plan and organize sales on a more coherent level, as opposed
to the shot gun sale approach adopted by stage one firms. Thereby marketing efforts,
pricing and markets can be controlled and targeted much more directly. The firm can create a
much sharper image and establish cross sales of its services.
The fact, that stage two consulting firms position themselves deliberately in the
market means that they can relatively easily find and hire new employees, which is a
necessary condition for maintaining annual growth rates at about 20 percent. The interviewed
stage two firms did not find it particular difficult to employ the necessary amount of people
because they attract people from various educational backgrounds and not just one specific
type of people. Systems for monitoring and evaluating performance are slowly being
implemented. These systems supply management with information on activities and how
ideas and knowledge diffuse through the firm. Furthermore, these systems helps management
creating an overview of knowledge and development needs and keeps track on the firms stock
of human, physical, and intangible resources. Obviously, a carefully developed compensation
system also supports the recruitment process and plays a major role in attracting the right
employees.
Growth barriers A condition for a firm to be able to follow and carry out a defined strategic
business plan is a focus on the role of management. Obviously, as the consulting industry is a
people business, and because much development happens as project learning and on-the-job
training where senior partners is in charge of a project and act as role models for younger
consultants, managers play an important role in the field as consultants.
More weight on the CEO role is a condition for taking the next step and this is where we are
now Our ambitions with growth are conditioned by that fact that we, who do have formal
management tasks, deal with this to a larger extent: Strategic recruitment, employee
development and continuous development.
CEO of a medium sized strategy and management development consulting firm (F/03:30)
However, managers focus a lot of their time on selling and producing. This
means that they do not spend sufficient time on the professional management of the firm.
There is a great focus on the consulting trade among managers and not so much on the
managerial aspects of running a firm. The consequence is a lacking focus on strategic aspects
and development of mid-managers level, which in the future can be put in charge of business
57
areas. This is very much in contrast to the increasing need of coordination and control, which
stage two firms experience. Hence, a growth barrier lies in the do-sell cycle which
management easily becomes trapped in.
On one side we have a professional and planned progress we try to follow so we are not blind
or fumble our way forward. However, on the other side, then we are still a firm where
management is in the field and producing. This means that the resources to deal with these
things [strategic decisions and challenges] sometimes lag behind.
CEO of a medium sized communication consulting firm. (E/04:20)
Even though, stage two firms have grown substantially since the start-up phase
there is still a lack of critical mass, both in the organization as a whole and more pronounced
in the business core areas. This means that there is always a managerial deficit. Competences
are stretched and continually under pressure, so exploring new opportunities becomes an
activity, which is seldom undertaken. In continuation, growth by diversification becomes very
difficult as all resources are engaged in current activities. There is a lack on a formalized
system or processes to explore new growth opportunities and in turn, these often pass by
unnoticed.
We had our core business and then we tried something different. This went completely wrong.
There was no synergy and we could not get our competences to work together. We have to grow
competence wise layer by layer as long as we have the size that we have. We simply lack volume
and economy to enter completely new areas.
CEO of a medium sized communication consulting firm. (E/18:06)
As stage two consulting firms experience growth they inevitable grow in size.
This entails stress on the organizational structure that is felt at all levels. Management
experience the increase in size by the fact that they have less control over what happens.
Suddenly, they are not in daily contact with every consultant and lose touch with operational
matters. Therefore, as size increases there is a need to formalize coordination across business
areas and assure the information travels through the firm. Employees, on the other hand,
experience this size increase as well. Where many consultants have chosen not to work in
large consulting firms because of a more rigid structure, a change is happening towards this.
Employees have much less leeway in their activities and their job descriptions are specified to
a much higher degree. Often, they are attached to a specific business area in which they must
develop their knowledge and routines. In general, it means that the firm becomes more
formalized and complex and looses some of its charm. In this respect, there is a growth barrier
in the duality between maintaining a flexible and entrepreneurial firm, while at the same time
struggling with the need of developing a professional and viable firm.
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Stage two crisis The foundation of the next crisis is created by the process, which the
consulting firm has gone through in stage two. Through a continuous focus and specialization,
the firm has become very dependent on a few core business areas in which it offers superior
value. However, this also means that the firm becomes unable to respond to changes in
customer requests or new growth opportunities. The firm simply does not have the necessary
range of in-house services or consultant capabilities for expansion. The crisis is two-fold as it
concerns the development of new services but also establishing a capable staff. Because the
managers have been caught in a do-sell cycle some aspects have been neglected. Mid level
managers, the development of new capabilities and knowledge and service diversification.
Therefore, the crisis that must be overcome is in developing the firm into a real firm while
exploring new opportunities for diversification.
the industry average, can stage three consulting firms continue to develop and attract new
employees. Experiencing high growth then goes from being an organizational goal, to being a
necessary component for large consulting firms in order to stay competitive relative to the
other large and international consulting firms who operate on the Danish market.
There is no doubt about the fact that the general growth in Denmark will drop. We are used to
growth rates of up to 35 % and this can not continue. However, it is a clear goal for us to have a
significant growth and a growth higher than the rest of the market. And it is not supposed to be a
growth rate of 7 %, no; growth has to so high that it creates opportunities for people. In this
type of firms, if we do not grow, then employees will leave If new opportunities are not
continuously created then the most talented, who aspire for the next level, cannot move on.
CEO of a large strategy and operations consulting firm (H/08:20)
Growth processes The successful stage three consulting firm is characterized by having a
strong and cohesive organizational culture through which it enables and motivates its work
force. That is, these firms manage to build a significant organizational capability through
culture, which acts out a significant role in reaching the objectives of the organization.
Therefore, it is highly critical for these firms to direct management efforts towards this area.
Managers openly emphasize and talk about firm culture and its beliefs. Important here is that
the culture of the firm must continuously be articulated, not only in talks and speeches but
also in direct actions. Through initiatives, employees are given a high degree of responsibility
over important elements of the organization design. Once responsibility and agreement about
these elements are reached, employees become vocal advocates of the firms culture and
beliefs.
Two years ago we introduced process owners. A process owner is someone who have the
responsibility of developing and running a certain process in the firm; quality management,
recruitment, culture, education and training etc. Large or important management posts. Some
consultants choose to wear that hat and undertake a managerial responsibility.
CEO of a large strategy and operations consulting firm (H/27:40)
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In reality this has been the basic model; not thinking in professional areas but thinking in
persons and creating the settings in which the individual can get energy and support and
become motivated to work on what one is enthusiastic about For example the SAP area which
is actually a very peripheral area in our firm has been carried by a contact to a few, like all
other in the firm, truly dedicated persons.
Partner of a large strategy and operations consulting firm (I/04:20)
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Because of the lack of shared firm culture and approach, some employees might
find that the firm is loosing some of the informality and charm they initially appreciated. If
incentive schemes are not designed in a manner, which accounts for both those employees
who want to work hard and those who also want a fun job, some employees will not accept
the increase in organizational complexity. Furthermore, those mid-level consultants who have
held managing positions will expect to be rewarded either by promotion to partner or through
a higher salary and development. If the firm does not manage to sufficiently motivate its
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employees, they will begin to leave for other consulting firms that are smaller and allows for
more individuality or better career prospects.
Internally it is a constant challenge to maintain an attractive place of work; to keep it fun and
at a high standard. But this is a derivative of growth and being as large as we are.
Partner of a large strategy and operations consulting firm (I/04:20)
An important element in the future growth of the stage three consulting firm is
internationalization. Through a broadening of the geographical scope, the firm can overcome
the natural barrier, which the relative small Danish market constitutes. However, this is not an
easy task, as there are no guidelines or best practice for internationalizing a consulting firm.
So, in this context, stage three consulting firms actually behave as stage one consulting firms
but on the global market. That is, the largest and most successful consulting firms in Denmark
are slowly trying to establish themselves in other countries through a trial and error approach
which very much resembles the opportunity driven growth characteristic of the initial phases.
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Therefore, as long as the stage three firm has to struggle with finding the right growth recipe
for the international market, this can constitute a significant growth barrier.
How we in actual fact handle this challenge, I am not sure we fully realize yet. We try some
things and we launch a lot of ships but in reality we do not know how to deal with this so far.
CEO of a large strategy and operations consulting firm (H/07:00)
Stage three crises The crisis, which must be overcome by stage three consulting firms, is in
creating a one-firm firm. Attempts to diversify the firm and to bring in new units that have
not been fully absorbed in the firm have created a firm in need for a common culture and
approach to the consulting trade. However, this is complicated by the firms attempts to
internationalize, which furthermore runs the risk of fragmenting the firm. Hence, the objective
for the stage three consulting firm is to re-unify the firm and identify a sensible way to
broaden geographical scope without creating more units that are disjointed. The notion of the
one-firm firm must be translated down through the hierarchy so that all employees,
especially mid-level managers, act towards this goal. If this does not happen then the firm
runs the risk of organizational inertia and eventually of breaking-up.
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5.3.1 Culture
Consulting firms are, like all other organizations, social communities and they develop a firm
specific organizational culture and behaviour. The culture in a consulting firm is, however,
some what different from traditional firms. There is only a limited amount of formal rules
concerning problem solving, and often consultants spend a lot of time in the field without
close supervision. Without a clear and present hierarchy, there is always the risk that
employees act in ways, which are contrary to firm strategy.
However, the more successful consulting firms are characterized by having a
strong culture, which serves to reinforce the alignment of strategy, and internal practices with
the way employees act. From day one, new employees are lead trough an introduction
program that teaches them the values of the firms culture.
The whole issue around culture is important. No unnecessary bureaucracy It has to be fun we want to be mean something for each other, create energy and be informal This we are
often credited for by employees who arrive from other consulting houses.
Partner of a large strategy and operations consulting firm (I/04:20)
Culture refers to the set of beliefs employees hold about how they are expected
to behave and what values they are to share with fellow consultants. In these successful
consulting firms, there is a strong culture, which means that beliefs and values are shared and
accepted across the entire organization. Even though, it is difficult to specify the beliefs of
each interviewed firm as they obviously vary some common themes are present across
successful firms. The importance of the consulting trade, work has to be fun but solutions
always of a high quality, and the firm is a unified community are three important beliefs that
carry across the successful firms.
The managers of a successful consulting firm actively reinforce firm culture and
beliefs in their daily work. Through formal and informal talks, participation in large projects,
and mentoring they shape it by their behaviour and decisions. Hence, managing culture
becomes an important growth process both in the alignment of the firm, but even more in
periods of change where effective cultural management can create the foundation for moving
in a new direction.
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5.3.2 Entrepreneurship
Entrepreneurship has been a characteristic across all the interviewed firms. However, there
were significant differences between the more successful consulting firms and the less
successful consulting firms in two areas.
First, among some of the interviewed firms entrepreneurship resided only with
the founder who especially in the start-up phase was capable of carrying out different ideas
and develop the firm into a small business. However, as the consulting firm has increased in
size the founder has become overburdened as he maintains sole control over decision making.
Thereby, instead of challenging existing routines and practices the founder has emphasized
what currently works in the firm. Consequently, the firm becomes entrenched in status quo
and the founder changes from being an entrepreneur to simply a manager, and is more
concerned about survival as opposed to growth. In the more successful firms,
entrepreneurship did not reside only within the management team but in the entire
organization. That is, all levels of employees have entrepreneurial characteristics, and when
new staff is hired, entrepreneurship is one of those traits that are screened for. Hereby, it is
secured that an entrepreneurial capability is broadly present and supported in the firm.
First of all, a consultant has to be well founded in the consulting trade but it is also a
prerequisite that all consultants, especially those who advance in the firm, wish for things to
develop around them. The project just solved and the reference just gained, where can these
bring the firm in the future?.
CEO of a medium sized strategy and management development consulting firm (F/22:00)
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5.3.3 Strategy
The most successful consulting firms separate themselves by the fact that they have a clear
and well-defined strategy, but even more so in their strategic execution. There is an actual and
detailed design of the firms strategy, which entails positioning, market focus, service focus,
financial objectives and characteristics of employees. Thereby, these firms are capable of
forming a strategic plan that typically covers the next three years, but more important, they
make it happen. Management decides the specific way in which their consulting firm is to
compete against other equally strong consulting firms in the market. The strategy, which is
devised, is not oblivious to competitors and market. Instead, these elements are aligned
through a series of clear and focused goals. The less successful consulting firms were
characterized by having only a vague idea of how to run their firm. Furthermore, they are
more motivated by that of being in the consulting industry, as opposed to the actual
professional management of a consulting firm.
Through communication of a clear and focused strategy, the more successful
firms create a strong strategic identity, which in turn is reflected in the behaviour of all
employees throughout the firm. Hence, it becomes a guideline, which works in relation to
firm culture, and leads to a broader and deeper understanding of why the firm are offering
some services and not others, and in turn, which growth opportunities fit with firm strategy.
Furthermore, customers who can better understand what the core competencies of the
consulting firm are also recognize a strong strategic identity. Taken together the more
successful consulting firms are better at positioning and focusing their resources and
competences and thereby avoiding strategic drift.
I believe that you have to set clear and focused goals. You have to follow a strategy and make a
conscious decision, which all employees agree on Where do we want to be in three years?
Everybody must shake hands and agree on the direction. That spirit must reside in the firm It
you have the right position and the branding then I do not think that you, as a consultant firm,
will be affected that much by economic fluctuations.
CEO of a medium strategy and IT management consulting firm (D/32:10)
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The industry has in general become much more professional. There are many really skilled
consulting firms and on some fundamental level, we all have the same capabilities. When I were
in Rambl in the 80s we got by on the fact that we were better educated than our competitors,
we could make reports and analysis that made the angels sing However, today several firms
can do this so here we cannot differentiate ourselves. Where we instead need to differentiate is
through a different twist or approach to the market.
CEO of a medium sized strategy and management development consulting firm (F/36:40)
Routines and processes are systemized and embody the skills of the organization.
Knowledge resources and processes become heterogeneous within the firm as it develops,
coordinates, and exploits those general resources which management choose to pull into the
firm in the shape of employees. The learning-by-doing process means that the firm is always
adding to its existing stock knowledge. Capabilities, which are created in a systemized
manner, are so through subtle relationships that depend on the way information and
knowledge is shared and exchanged throughout the firm. Over time, the firm will accumulate
an excess stock of knowledge resources which the reasonable manager will seek to realize
into new and related profitable outlets. Hereby, the consulting firm is able to create
capabilities which rivals will find difficult to duplicate, as they resides on specific resources
and knowledge that are tacit and as such, only valuable in the firm.
This accumulation of heterogeneous resources is reinforced by strategic
recruitment. Largely, it becomes difficult for consulting firms to stand out based on
professionalism. Instead, it is important to hire the right people at the right time. That is, it is
not necessarily another typical consultant who is well founded in strategy or operations
69
management who will benefit the firm most. The crucial issue is to employ people with skills
that can leverage what the firm already exceeds at, and then through a synergy effect, explore
new opportunities and ensure that dynamic capabilities are developed.
Where we can differentiate ourselves is that we in some areas have a certain twist to the
market. We try to take in different competences For example, we have a rhetoric employed,
and the meaning is not that she is supposed to be as the rest of us in six months. No, it is to
maintain what she can actually do and that we can use this in our management development
program.
CEO of a medium sized strategy and management development consulting firm (F/28:35)
moderate or accelerate firm growth, but that real growth development has to come from
within the firm. Hence, the industry is characterized by only paying little attention to market
structure, competitors, and positioning issues. This can have the affect that external changes
are overlooked, which inhibits growth.
Among the more successful firms, there is an agreement upon the fact that an
economic cool down will mean a further consolidation of the market. Those firms that are
perceived to be in danger are the less established consulting firms. This reason for this is that
customers cannot afford to choose consulting firms who do not deliver the best quality.
Thereby, there is a perception of survival of the best in the industry.
The interviewed managers do not perceive the general competition to be tough
and competition is often limited to the strategic group, which the individual consulting firm
operates in. Often the interviewed firms are in competition with the same 5-6 firms, among
which competition, however, is very hard. Hence, many consulting firms exist without a
broad knowledge of incumbents and their development, especially the less successful.
It is an industry where you do not know much about the competition. I really do not know what
the others are capable of We do not deal with competitors strategically because of two
reasons; a lack of insight in to what is important and a lack of resources.
CEO of a small management and event consulting firm (C/01:08:05)
That is, competitor analysis is not applied to a great extent. This also means that
consulting firms compete on quality and references but not price or quantity. However, as
already touched upon, the more successful consulting firms are those who have managed to
position themselves strategically, and thereby leverage their superior quality even further.
Competition wise, the more successful consulting firms have managed to position themselves
just below the range of the large international consulting houses such as Mckinsey and BCG.
This allows them to demand a premium price without rents being eaten by competition.
Customers have increased their bargaining power and consulting firms
experience this through less loyalty, more price bargaining, and incomprehensible buying
patterns. This places more focus on the consulting firms ability to leverage existing customer
relationships and use these to support the strategy of the firm. Especially, the less successful
and small consulting firms are suffering under this change in power as they are much more
dependent on one or two large customers.
In line with the lack of labour, which have been a core issue in the past years,
consulting firms experience that employees demand more. This is in terms of a higher pay,
better development, and carrier opportunities, while they at the same time demand a balanced
work life. This underscores how difficult it is for consulting firms to find the right people and
fit these to the firm strategy. Because Danish consulting firms primarily employ experienced
71
consultants there are no formal training programs as in the large international consulting firms.
This means that it takes longer time to educate new employees in the specific routines and
ways of the firm, and therefore it is crucial that they are retained for a longer duration of time.
As customers become more professional in their consultant handling they also
gain more insight in the consulting trade. Consulting firms increasingly experience that they
are opted out because large customers develop their own in-house consulting units.
Furthermore, there is a pressure from those consulting firms, typically the large international
ones, which deliver standardized services based on tools or frameworks.
As the industry is still characterized as very non-transparent, despite efforts
from both incumbents and organizations such as DMR, entry barriers remain small. This
means that established consulting firms can suddenly be in competition with a small oneperson firm. Hence, customer references only create entry barriers to a certain extent. As long
as there are no general support for certification in the industry and only a fraction of the entire
amount of consulting firms are members of DMR, it will be relative easy to get established on
the market. However, once established and recognized it becomes difficult to change the
image of the consulting firm and choose a different path. This implies a high degree of path
dependence concerning those choices that are made in the initial phases.
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The employee structure can range from many permanent employees and only
few freelance consultants to very few permanent employees and a large network of associated
and freelance workers. The advantage, as stated by those firms who make great use of
freelance consultants, is a cost advantage as they only have a staff to pay when they are
actually working on projects. However, this also raises the need contracts to ensure that both
parts are not subject to moral hazard or opportunistic behaviour. Hence, this constellation
demands an organizational structure where systems for coordinating, monitoring and
evaluating performance are in place. The more successful firms employ freelance workers
with the perspective of employing these at a later time.
Incentive systems to reward individual performance range form a high level of
bonuses, performance pay and provision to fixed pay. The more successful firms have
managed to create an incentive system, which incorporates the best of both ends of this
continuum. In order to attract and retain the best people these systems accounts for those who
wants to work hard and long hours, and for those who want to balance their work life with
their private life.
The development of routines and thereby ways in which new knowledge is
generated and defused is to a great extent dependent of the consulting firms strategy. The key
choice is between standardized solutions and project based solutions. The first, assure the firm
73
has consistency in its problem solving, where the latter allows for a larger range of tasks to be
handled. It is not clear which end of the continuum the more successful firms are in however,
it is clear that these firms have made conscious choices about this and incorporated this
approach in their overall design.
The more successful consulting firms have formal introduction programmes and
training/development systems, which serve to generate both new knowledge, but also to shape
resource and knowledge flows. Consultants are expected to devote a specified amount of days
on individual development, as well as participation in research and publications is appreciated
and awarded. Contrary, development in the less successful firms happens on a very informal
basis, and primarily, through on-the-job training and different emerging opportunities.
All the interviewed consulting firms employ senior consultant with a vast
experience and educational background. Using this strategy, consulting firms strive to be
identified with thought leadership and high quality in their solutions. Only a few of the largest
consulting firms employ students or people who have recently finished their education. This
means that they can delegate less demanding work to lesser-paid employees. However, the
chosen competence level must fit the rest of the organization design, such as whether or not a
firm provides standardized or tailor-made solutions. The less successful firms have not made
this distinction.
The main finding behind the organization design of consulting firms is that it
reveals several opportunities to differentiate from competitors. The crux seems to be to select
a direction for the firm, aligning strategy, and then create organizational coherence through
the design. The less successful consulting firms were clearly those where the organization
design was not aligned with a growth strategy for the firm.
Chapter 6
Discussion
Based on the empirical findings a number of crucial issues appeared regarding growth in the
consulting industry. This chapter discusses these issues in turn and how this is related to
growth theory (sources and limitations) and the formulation of an appropriate growth strategy
for consulting firms.
consulting firms must pay closer attention to HR management in order to secure new talents
and retain those already in the firm. This can be done through several different HR practices.
Recruitment must still focus on obtaining the best candidates but not of the same
kind (economic majors, MBAs, etc.). Instead, employees should be found from a much larger
and heterogeneous pool of candidates, which have not traditionally been considered. Hereby,
the consulting firm can expand its horizon and hopefully also its capabilities and be able to
offer something new and unique to the customer.
Training and development is another important HR related matter. In tough
times, senior partners might tend to focus on selling, more than on developing the younger
staff. This is especially the case if management is made up of senior partners and not a
professional CEO. In the long run, this will result in lower value added services and lower
quality. On-the-job training is the best form of development and internal mentoring from the
most experienced consultants facilitates this.
Incentives schemes and motivation have traditionally been constituted by the
prospect of partnership. However, in the future this will not be as motivating as earlier
because of the greater risk a partner bears. Therefore, consulting firms must develop other
means to motivate employees. More balanced incentive scheme, which do not rely only on
financial incentives but also on non-financial incentives should be developed. Providing a
well-balanced work-life and opportunities for training and development are decisive. In
conclusion, there is a need to examine and evaluate the organization design of the consulting
firm, and if this is in accordance with the changing power balance between consulting firms
and their customers.
The discussed change, which I argue is underway in the Danish Consulting
market, is not unique to the global consulting industry. On the US market, large players such
as Arthur D Little and niche players such as Razorfish and Oliwer Wyman have failed to react
and entered bankruptcy or take-overs. Other major players such as Accenture have given up
their partner structures and more are expected to follow suit (Niewiem and Richter, 2004).
Finally, there is another important spin off from this discussion. If conditions get
tougher, differences in strategy will show more openly and the direct effect will show on the
bottom-line. There is an immediate need for Danish consulting firms to start contemplating
their management practice and strategy and then align this with the firm in order to find new
ways to create and appropriate value. This will at the centre of the rest of this discussion.
76
77
approaches to customer handling and the consulting trade in general. In the end, the firm will
either be broken up into subsidiaries or manage to establish itself as a one-firm firm.
Some small consulting firms express a wish to stay small in order to be free
from the bureaucratic fuzz of a large organization. However, the above discussion still applies
to these firms. That is, to maintain a viable firm they must still find ways to grow other than
in size or geography. This implies that the small consulting firm should form alliances with
other small consulting firms in order to draw on different practice areas and have the critical
mass of consultants to engage in large-scale projects. The problem, however, is still the same,
the need for trust, openness, and allowing other people to have a say in decision-making is
decisive, and the manager must open up in order to enable growth. This discussion suggest
that the managing partner(s) of consulting firms hold within them the key to achieve growths
and that the key is in the ability of letting go. Firm growth, especially in a knowledge and
people intensive industry as the consulting industry, requires that senior partners accept a loss
of power and control.
78
award in different categories. Indeed, letting customers become the primary source of
advertisement via word of mouth is the best possible branding strategy for a consulting firms.
Furthermore, consulting firms must leverage the economic advantage they have vis--vis
other consulting firms, because customers incur costs of using new consultants as they will
have to brief these about its issues, its personnel and where to collect information. In this
strategy is also the prospect of turning customers in to one-stop shopping customers and
engage in long and continuing projects. However, consulting firms must realize that there is a
fine line between an advantageous cooperation and simply exploiting customers. Therefore,
new customer openings and relationships must proactively be sought. No consulting firm can
afford to rest on its professionalism and wait for customers to knock on the door. Hereby,
customer relationships become a scarce resource for consulting firms and a way to sustain a
competitive advantage (Barney, 1991). This relationship is characterized as intangible and
difficult for competitors to imitate.
The other side of base retention is gaining market share. But how can this best
be accomplished when, as discussed, incumbents have a natural advantage? This strategy is an
obvious extension of adding more customers to your portfolio, but it is difficult to realize. On
the one hand, consulting firms can close the knowledge gap in order to reduce incumbents
advantage or simply wait for customers to change their consulting provider, but this might
take years and does not prompt growth. Instead, consulting firms should pursue a value
adding strategy in which they differentiate themselves from competitors. Many clam to do
exactly that, but if you take a broad look at the web pages of Danish consulting firms, they
appear very much the same! For the most part, they hire the same kind of people, deliver the
same services, and have the same cost structures. The key is therefore to be able to
differentiate significantly from competitors through recruitment, value innovation, and cost
structures, as these are intertwined. All elements play an equally important role in the firm.
This will create a unique bundle of idiosyncratic resources and capabilities that competitors
cannot easily copy because of the intangible relationship (Barney, 1991).
Clear market positioning was one of those elements, which distinct high
performing consultant firms, and this should definitely be a core issue for management.
Because consulting firms have their daily walk among the decision makers and CEOs of
Danish companies, they are in a unique position to develop powerful insight about new
growth opportunities and changes that are under way in the market. For example, some of the
current top performers in the Danish consulting industry were able to identify and implement
LEAN services ahead of competitors and became operational powerhouses. Other consulting
firms have used their interaction with customers to identify opportunities of unrelated
79
diversification, and then positioned themselves in new markets based on the advantage of
clear market insights. Hence, accumulated knowledge, experience and relations will allow for
a strategic advantage (Wernerfelt, 1984). However, this means that lower level consultants,
those who are primarily in the field with customers, must be able to share, not only
professional experience about projects but, equally important, how a certain projects can
benefit strategic decision making.
Even though, it has just been mentioned that consulting firms are in a propitious
position to identify opportunities for diversification, it does not seem to as come as easy as
that. Most of the interviewed firms have burnt their fingers in this attempt. Diversification can
take place when the consulting firm gradually expands its resources and then frees these to
focus on generating profits in new activities (Penrose, 1959). A unique sub-set of growth
opportunities is developed ranging from growth opportunities with current operations, growth
opportunities for related diversified activities, and growth opportunities for unrelated
diversified activities (Rickard, 2006). However, the more diversified the growth path, the
more organizational disturbance is accompanied with the changes that must be made to
existing routines and systems. Diversified growth should build on core competence leverage
(Prahalad and Hamel, 1990). The more the consulting firm relies on diversified growth, the
more important is the role of the organization design in supporting, controlling and motivating
the growth process. Therefore, diversified growth should only be in the mindset of managers
when they identify a clear growth opportunity in a market, and should not be mean simply to
expand the firm.
The discussed elements of growth strategy are only realizable if management
devote time and effort to this. If not, then market opportunities will be missed and the
consulting firm risk lagging behind competitors who have managed to think ahead
strategically. Hence, management is a constraining element on firm growth (Penrose, 1959).
competitive advantage (Dierickx and Cool, 1989). A strategic focus, on the other hand, allows
consulting firms to attract business that are consistent with their overall business plan.
Projects must be chosen so they balance the exploitation of existing routines and the
exploration of new opportunities through learning-by-doing (March, 1991).
The interviewed firms express an increasing internal demand for control and
coordination and a continuous managerial deficit. A dynamic vision of firms holds that an
internal momentum generated by learning-by-doing (Penrose, 1959), leads firm growth. New
managerial resources take time and effort to integrate, but once in place, these new
managerial talents will develop themselves and the next level of employees. Hereby, the
accumulated stock of resources is increased and can be directed towards new growth
opportunities. However, growth is limited by the amount of available managerial attention.
The most progressive and successful consulting firms have managed to separate ownership
and management by choosing an administrating partner who acts and thinks strategically on a
two- to three-year horizon, and developed mid-level managers capable of strategic thinking.
However, this separation means that partners must commit to this and allow the
administrating partner the power necessary to manage the firm, without direct interference
from other partners. Only a few firms have followed this all the way through, established a
board and a CEO, and thereby abandoned the partnership structure. This focus on strategic
management and the separation of ownership and management follows much of the recent
research on managing professional service firms (Lowendahl et al., 2001; Valcon, 2005;
Morris and Pinnington, 1998).
partner circle can create future growth problems. A partnership structure focuses attention on
the consulting trade as opposed to the professional management of a firm. That is, partners
attach more utility to the consulting trade and regard management as trivial and less
prestigious. Furthermore, if a partner is promoted the rank of senior partner then this can lead
to a problem if he is not suited for the task because they are difficult to remove again.
Consequently, a broad partner circle can enhance the problems of overcoming the glass
ceiling because it risks creating a decision-making process that is slow, risk adverse and
fragile to partners leaving.
Organic growth is preferable when synergies exist between the firms existing
activities and its target. Furthermore, if time pressure is not too great, such as in the case of
the consulting industry, the consulting firm can steadily build a sound internal competence
base, which will become a base for sustained competitive advantage. This argument follows
economies of growth and the competence approach.
by healing the sickest patients, winning the toughest court cases or designing the most
aesthetically pleasing buildings (Sheenan, 2004. p 56).
According to Porter (1980), firms can achieve above average profitability by
shaping their business model towards low cost or differentiation. However, as suggested low
cost is not really an option for consulting firms because of two things; first, customers might
confuse low cost with low quality, and second, it is very difficult to implement a low cost
strategy due to the cost structure of consulting firms. Premium salaries are typically the
largest expense, and there is only little room to reduce these considering the lack of labour
currently experienced in the Danish consulting industry. In addition, consulting firms lack real
possibilities for scale economies. Instead, the key trade-off is the width of their problem
domain, which defines consulting services areas, and the customers to be targeted (Lowendahl
et al., 2001). That is, consulting firms can choose to specialize by focusing on a narrow range
of services, or they can choose to generalize by focusing on broad range of services.
Furthermore, consulting firms can choose a specific level of knowledge re-use in their
positioning choices (Lowendahl et al., 2001; Hansen et al., 1999). That is, a consulting firm
can choose between tailor made solutions, which are unique every time, or
template/framework/tool solutions that are in general recycled solutions. Together, these
trade-offs give a two-by-two matrix that suggest four business models; general stores,
speciality shops, idea labs and boutiques (Sheenan, 2004), see appendix S. Obviously, cost
structure, revenue, and risk varies across these four business models. General stores earn
lower fees but have lower expenses. Speciality shops also typically charge lower fees but have
a great potential of exploiting efficiency. Idea labs earn higher fees but also have high
expenses due to unclear problem definition. Boutiques earn high fees but also face efficiency
issues. In appendix S, numbers in parenthesis represent a suggested distribution of the
interviewed consulting firms. Therefore, even though they appear quite similar they have
made conscious choices of the business model in which they compete.
This logic can be further elaborated by thinking of consulting firms as problem
solvers, as opposed to industrial firms who transform input to output in the way they create
value. This adds a different set of primary activities contrary to Porters (1980) traditional
primary and support activities. The primary activities range from problem finding, problem
solving, choice of solution, implementation, and follow-up and control (Stabell and Fjeldstad,
1998). However, not all consulting firms are involved in every primary activity, some
specialize in problem finding or implementation, and others perform every activity. By
intentionally directing attention towards certain different business models and activities,
consulting firm managers are provided powerful insight into new growth opportunities. One
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of the interviewed firms discovered a new niche this way. Having delivered R&D problem
finding and problem solving activities to SMEs, they found that there was a general lack of
implementation power because SMEs often do not have the work force or the time to carry
out the suggested R&D initiatives. Therefore, the consulting firm set up a business service in
which it conducts R&D for customers, having highly skilled engineers doing the actual R&D
work for customers. Even though, the above suggested business models and activities clearly
simplify the content of the consulting trade, there is especially one significant point to be
emphasized: There is room for differentiation in an industry where incumbents seem very
much alike.
Consequently, a clear recommendation in the answer of best practice vs. next
practice in the consulting industry can be made. First, according to the chosen business type
and activity focus it is very difficult, if not impossible, to suggest a best practice which
covers everything. For consulting firms to all follow the same practice, contradicts the above
discussion. Second, best practice fundamentally contradicts with the resource based view,
which holds that sustained competitive advantages stems from practices that are impossible to
imitate. Consulting firms should instead ensure that innovation is more predominant than
imitation.
overconfident, unsatisfied with his earlier job, or simply do not like to be managed will
probably not survive for long. Those consulting firms who enter the industry on the right
premises will have to grow in size in order to reach a level where they can sustain viability
and future growth.
In this process, organizations mimic biological organisms more than machines
(Tomasko, 2005). Consulting firms that grow in size run the risk of bulking up. Too many
complex structures will invariably lead the firm to focus inward instead of outward. Managers
and employees loose sight of their customers and competitors and miss growth opportunities
and growth eventually slows down. The point of this discussion is therefore, to consider the
organizational advantages and disadvantages that accompany the growth process and whether
these indicate an optimal size for consulting firms.
services because of an increased demand and lower marketing costs are incurred because
customers actively seek the services of the firm. Finally, reputation may create competitive
barriers, in that customers will only select among the most reputable consulting firms
(Greenwood and Empson, 2003)
A large and diversified firm is more capable of spreading risk among its
activities, and for some consulting firms where management equal ownership this is an
advantage. Furthermore, one reason why small consulting firms choose to grow by
diversification, even though it stretches their competences and resources, is to create a sense
of security. Hence, growth can be considered a basis for economic security (Whetten, 1987).
86
managerial system, which role is to monitor and coordinate a more routinely method of
production (Witt, 2000).
capabilities of employees. However, among the large consulting firms in the survey, critical
mass was suggested to be around 20 people in a business area.
There is no emperical evidence which suggest an industrial threshold size
concerning how large a Danish consulting firm can grow. Obvioulsy, the relatively small
domestic market moderate size compared to for example American consulting firms, but the
benefits of internationalization have not nearly been realized. However, based on the industry
analysis it will be quite remarkably if, in five or ten years, there exists a Danish consulting
firm with more than 1000 employees, 200-300 seems to be the limit. There is a pattern of
firms building and merging to a size of around 200 and then splitting up because of
organizational stress and incoherence. More often, the threshold size is determined by the
managers wish not to grow to larger because it perceivably hurts agility and competitiveness.
Growth results in accumulation of an increasing stock of resources, which in turn, demands
greater organizational capabilities if firm resources are to be managed and coordinated
effectively and effectively. Therefore, in this respect, this suggests that size does matter in the
consulting industry and that it is imperative that critical mass and bulk form a synthesis
through the organization design.
88
2005). Hence, if a distinction is made between partnerships and corporations11, there are some
limiting conditions of the partnership structure, which must be discussed in relation to growth.
As identified in the analysis, when consulting firms grow, this is associated with
increasing specialization and complexity, a broadening of geographical scope and
diversification of services. Typically, this means that partners become more in numbers and
consequently are more remote from strategic processes. Face-to-face contact is difficult to
maintain and consensus through collegial processes become time consuming and difficult to
manage. In essence, this can result in extra costs as partners sacrifice billable time to internal
management issues and important decisions risk being delayed (Greenwood and Empson,
2003). However, some firms manage to maintain the partnership structure in a limited size but
also introduce professional firm management. Hence, the size of the partnership is important.
Among the interviewed firms, the number of people in a partnership ranged from three to
thirty. As partnerships grow and as some partners are given the task of decision-making, other
partners still expect participation. This means that large partnerships add the costs of
hierarchy to the costs of collegial control, instead of substituting it. Age difference can also
play a disturbing role. Often the objectives of younger partners do not coincide with those
partners who are nearing retirement age. The latter group will most likely be more risk
adverse and resist changes and development within the firm.
The degree of organizational heterogeneity is another element, which needs to
be aligned with governance. Similar types of services, training and values characterize a
homogeneous consulting firm. Employees have the same educational background and are
socialized into relatively conformist behaviours. However, as suggested earlier, consulting
firms should pursue a strategy in which this homogeneity is challenged in order to create a
unique position in the market. This strategy encompasses the use of freelance consultants and
top-class consultants, a specially designed incentive scheme to motivate these and a focus
on specific service areas, which were some of the organization design elements utilized by the
successful consulting firms. Hence, a heterogeneous organization is best managed as a
corporation because heterogeneity further adds complexity to the decision-making process
(Greenwood and Empson, 2003).
The general trend for professional service firms are away from partnerships.
Since 1950, the proportion of management consulting firms governed as partnerships has
fallen steadily from 50 % to 17 % (Greenwood et al., 2002). The general impression from the
11
The legal distinctions between a partnership and a corporation are: 1) a partnership does not have a legal
identity in its own right; 2) it represents an agreement between two or more persons; and 3) each partner is
jointly and severally liable for the debts of the other partners (Greenwood and Empson, 2003)
89
empirical analysis follows this trend, and suggests that those firms, which handle growth
issues best, are those, which clearly separate ownership and leadership.
90
Development Training and developing employees and managers create a vast impact on
business success. A consulting firms ability to improve existing skills and capabilities and
learn new ones, is arguably the most defensible competitive advantage of all. That is, training
and development must be put into system and not left up to random assignments and projects.
Competence focus The consulting firm must be rooted in the market and customer priorities
and this lever must be considered in continuation of firm strategy. Using less experienced and
young consultants, demands that projects are defined, use frameworks and probably not
contain a whole lot of contact to high-level management at customers. However, it also entails
lower fees. On the other hand, if projects typically are novel and need tailor made solutions
experience is crucial.
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Chapter 7
Towards an appropriate growth strategy
This chapter ties the threads together and considers implications to the consulting industry
based on the preceding work. Hence, the ambition here is to answer the problem statement in
a manner which is as practical applicable as possible.
providing just a few core consulting services means that the consulting firm misses sales to
other customer groups. Therefore, consulting firms often take incremental steps to improve
short-term revenue, but eventually these steps blur the strategic position of the firm. Attempts
to compete in all areas and directions create compromises and inconsistency, which
eventually erode the competitive advantage of the consulting firm. Organizational motivation
and focus is blurred and profit drops. The answer is more revenue sought in short-term growth
opportunities.
Consequently, the vital question in relation to an appropriate growth strategy is;
which approaches to growth reinforce and preserve strategy? The argument presented in this
master thesis is clear; management consulting firms must seek to deepen their strategy rather
than broadening and compromising it. Growth must leverage existing competences and
capabilities through activities and create firm characteristics and services that are impossible
for competitors to match on a stand-alone basis.
provide the coordination mechanisms necessary to align the diversity of activities and
resources inherent in a consulting firm. In this way, the CEO is given the authority and
decision making capacity to react upon growth opportunities concurrent with the interest of
the firm. Furthermore, there is a need to agree on the direction and future of the consulting
firm among the decision-makers. Often the decision making process is influenced by many
individual objectives. This means that innovation, such as in the creation of a new practice
area, is often a matter of negotiation and political manoeuvring and important decisions are
either slowed down or down right aborted. In many cases, this implicates that some partners
will have to let go of sovereignty in the decision making process in order to overcome the
glass ceiling towards growth. Finally, management alignment should also consider the
development of the next chain of managers. This implies a focus on the development of
middle managers, from operational into strategic thinkers. Hereby, the food chain of the
consulting firm is secured and managerial resources, once accumulated, can be directed
towards exploring new growth paths.
Strategic development An area, which deserves more attention, than what is currently,
receives, is the strategic development of the consulting firm. Most predominant is opportunity
driven growth, but, albeit attractive in the short run, it corrupts strategy in the long run. In
continuation, growth should preferably stem from organic growth rather than acquisitions or
partner driven growth, which have proven not to be very successful in the consulting industry.
Only through a strategy that contains positioning, trade offs and fit among activities can the
consulting firm create a sustained competitive position. Hereby, it can build on already
existing resources and competences. Uniqueness in this industry is far from unobtainable, as
previous discussions have revealed. The consulting firm can differentiate itself in an
otherwise alike industry in several parameters. These strategic considerations are highly
critical when you consider how difficult it is to change the position of the firm once it has
become embedded in the minds of customers. Because there is such a high degree of path
dependence, this is the definitive argument against opportunity driven growth.
Organizational adaptation This issue is critical because of the changing market. Where the
role of consultants earlier was characterized by a state of elitism and know-all attitude, where
customers only rarely questioned the conduct of consulting firms this have changed. Today,
customers exercise a great deal of influence on the market by adding price pressure, less
loyalty, more volatility, and quality demands. Hence, the accumulated stock of knowledge
and capabilities inherent in the consulting firm must provide it with the dynamic capabilities
94
to flexible and rapidly respond to these changes. This implies two things. First, because the
industry has been very busy in the last five years, there is a need to consider if the firm has
changed along with the markets and the customers it wants to serve. Second, the capabilities
inherent in routines and learning that are essential in the process of developing new and
appropriable knowledge must be evaluated. There must be a fit between these and the
strategic ambitions which management have for the consulting firm.
HR and incentive structures Too many consulting firms experience a high turn over rate of
employees. It is imperative that the right employees are retrained in the firm, and therefore the
incentive structure and HR matters have to be weighed up. The analysis has shown that
motivating consultants today is more demanding than it used to be. Traditionally, the up-orout partnership structure was enough to provide motivation among employees and personal
attention from partners to junior consultants were almost not necessary. However, today the
odds of making partner are smaller and time to partnership is prolonged, because the
partnership structure is on its way out. Consultants want a balanced work life, personal
development, and a fun job. Professional careers are available inside large corporations at
salaries, which are competitive to those offered by consulting firms. Consequently, consulting
firms are finding it increasingly difficult to attract and keep the right people in the firm. This
implies an increased focus on HR management, which traditionally have not taken up much
interest in the industry. It means recruiting from a broader pool of candidates, developing
training programs, and creating incentive schemes, which accounts for both hard workers and
those who want a personal life on the side.
Innovation and knowledge management Very much in continuation of the need for
dynamic capabilities, there is also a need to consider the current level of innovation and
knowledge development in the consulting firm. Pressure on operations over a longer duration
of time often places innovation and knowledge development in the back seat. Consulting
firms are the epitome of knowledge-based organizations. Their product is knowledge and their
key resource is the expertise and competence of their employees. As a consequence, they are
reliant on these employees for competitive advantage through knowledge-based innovations.
However, over time the value of knowledge diffuses, it commodifies. In order to remain
innovative and be able to grow, consulting firms must differentiate from competitors and
continue to win deals with existing customers through the development of new business areas.
First, emergence of new and distinctive knowledge, based on differentiated expertise, can lead
the firm towards new activities and customers. This can be created by leveraging current
95
practice or by developing and applying entirely new knowledge. Second, for a new area to be
adopted in the firm there is also a need of an embedding process. This happens through
organizational support via directing personnel, resources, and sponsorship towards new
business areas.
The above five core issues are not stand-alone issues but must be considered as
a whole. Hence, the consulting firm must strive to achieve fit and coherence in their
organization. An appropriate growth strategy is about combining all the activities that take
place in the firm and aligning them towards organizational coherence.
7.4 Conclusion
In summary, I argue that an appropriate growth strategy for consulting firms can be
approached through three steps. First, the focus is on identifying the primary growth factors
and barriers, which the consulting firm faces. Second, focus must be directed towards five
core issues that contain crucial building blocks of growth strategy in the consulting industry.
Third, industry and firm specific organizational levers must be identified and managed in
order to create fit among the five core issues, stimulate growth enablers and overcome growth
barriers. Through this strategic agenda, the consulting firm manager can create a unique firm
with a clear competitive advantage. However, this process involves a continual search for
ways to reinforce and extend the unique position. Hence, strategy is not viewed as static but
dynamic and implies an ongoing endeavour to extend uniqueness and toughen fit. Therefore,
even though management have identified a unique position for their consulting firm it must
continually strive to find new trade-offs and leverage the system of complementary activities
into a sustainable advantage.
97
Chapter 8
Limitations and scope
In general, the overall methodological process of this master thesis is considered to have in
fact investigated what it intended to do, and consequently it has been possible to answer the
problem statement in a reasonable, practical and scientific manner. However, as the
methodological problems and issues are evaluated it becomes clear that they are related
primarily to the empirical foundation of the master thesis and choice of method. This chapter
contains an evaluation of the methodological approach and a discussion of the scope of the
findings.
strength and weakness of this master thesis. In an attempt to balance generalization and
detailed understanding, this master thesis has embraced a very broad approach, which at times
has blurred the focus. However, if an investigation is to have a certain degree of
generalization and detailed understanding then a multiple case study is an appropriate
approach (Yin, 1993). Several other researchers have been successful with a similar approach
(Ulhi, 1991; Kohli and Jaworski, 1990).
The overall approach has combined exploratory research, inductive reasoning,
and a comparative case study approach. Through this multidisciplinary advance, this master
thesis has been able to develop and expand insights concerning the problem statement.
However, it has been necessary to draw on theoretical contributions from such different areas
as economics, organizational behaviour, managerial theories, and sociology, etc. Therefore, it
has been a significant challenge to identify and fit key issues from those theories to the
specific problem at hand. Furthermore, this has been impeded by the fact that most literature
concerning the consulting industry is based on the US market. This market is much more
mature concerning the consulting industry and findings cannot be directly transferred.
99
The informal expert interview conducted with special consultant at DMR, Tom
Vile Jensen, served to clarify some of those subjects, which other surveys than those from
DMR showed to be of interest. This interview was only semi structured and roughly followed
the guideline in appendix P. Hence, it served only as an initial and exploratory tool.
Primary data have been based on nine case studies conducted with managers at
Danish management consulting firms. It was sought to ensure that the interviewed firms was
as representative of the industry as possible, that different sizes were covered ,and finally, that
three of the firms had experienced growth problems while the rest experienced strong growth.
This was a difficult task and event though, it is assumed to have succeeded, the choice of
firms rest more on the authors perception of the firms. It was not based on actual information,
and this might represent a subjective bias. However, concerning the practical approach it is
believed that there is a good and sound coherence between the primary data, secondary data
and the expert interview since it all springs from the same place, namely DMR. This master
thesis would of course have benefited from additional empirical data. Hence, because research
rests on a relative small sample size, readers who work in consulting firms should their own
experience against the results and recommendations presented here.
Based on the above discussion, it becomes evident that the population of my
investigation is not the Danish management consulting industry, but instead those
management consulting firms that are members of DMR. DMR covers 180 consulting firms
out of approximately 7500 firms, but these 180 firms are considered to be serious and
professional consulting firms and therefore represent a segment that is appropriate to analyse.
Finally, the use of the hermeneutic approach in the analysis might imply a
certain degree of subjective researcher bias. This is due to the foregoing understanding on
behalf of the researcher concerning the phenomenon in question. However, throughout the
entire master thesis is has been a primary concern to continuously be as objective as possible.
Where this objectivity might be brought in to question, is in relation to the choices of the
theoretical frameworks adopted in this thesis. To some extent these perspectives present the
subjective choices of the researcher, and run the risk of neglecting other theoretical
viewpoints with explanatory powers, which otherwise would have surfaced in the interviews.
8.3 Scope
Based on an assumption that this master thesis has in fact investigated what it intended to do,
it makes sense to consider how these findings can be used in practice besides what has been
discussed in the chapter seven.
100
To a certain extent, the whole structure, which this master thesis builds on, is a
limiting factor concerning scope. Because, an exploratory and inductive reasoning have been
applied this means that specific knowledge and information have surfaced underway, which in
turn have shaped the remaining research. Hence, the theoretical approach was developed
specifically with the problem statement in mind. On the other hand, because the purpose was
to answer the problem statement in both a detailed manner but also a generalized manner this
opens up for a possibility to generate the findings beyond the Danish management consulting
industry. Throughout the master thesis, consulting firms have been assumed to belong to
respectively the SME sector and the professional service firm (PSF) sector. Theory and
knowledge gained from these sectors have been used to open up the black box of consulting
firms, and it is thereby interesting to consider to what extent findings of this research can be
reversed to these two sectors.
Besides service firms the SME sector also covers manufacturing firms that do
not employ more than 250 people. These firms face conditions that are very different from
those which consulting firms face. Barriers to entry are higher because of scale economies,
sunk costs, investments and patents. Technology plays a larger role than it does in the service
industry. It is difficult to enter an industry without an innovative product and as a result,
competition will be much fiercer. Thereby, some firms in the SME sector face competitive
parameters, which are very different from those consulting firms face. I argue that the
findings of this study cannot be transferred to the SME sector without adapting the preceding
theoretical framework to emphasize the outside-in perspective.
On the other hand, the PSF sector in general faces challenges that are very
similar to those specific for consulting firms. The essential keys to success in the PSF sector
are human talent and alignment (Lorch, 2000). The work of professional service firms
depends on the talent and intelligence of the people delivering it. The best firms hire the best
people and motivate them to stay committed to the profession and the firm for a long period.
They develop organizational practices that motivate employees to serve clients well, and it is
through this alignment that PSF become successful. I therefore argue that the challenges,
which PSF in general face, can be addressed and acted upon by adopting the framework
suggested in this master thesis. Hence, the scope of the findings, especially the suggested
approach to an appropriate growth strategy, can be beneficial in industries such as law,
accounting, advertising and architecture, as well as a broader range of consulting firms.
101
Chapter 9
Conclusion
The purpose of this master thesis have been to examine how Danish management consulting
firms currently build and sustain competitive advantage, and how this can be translated into
an appropriate growth strategy for the individual management consulting firm.
The Danish management consulting industry is characterized by few large and
fast growing consulting firms and a long tail of small enterprises. In general, the large
consulting firms reap the majority of industry profits, while the small consulting firms seem
to struggle with growth and survival. Based on the premise that the industry is heading
towards more tough times, it is relevant to consider how growth strategy can be managed.
The main conclusion is that those consulting firms, which manage growth best,
are those firms that have managed to separate leadership from ownership. Through this
separation, these consulting firms have created the foundation for strategic and focused
growth as opposed to opportunity driven growth. This opens up for a focus on the
development of complementary competences and the capability of employees to think and act
strategically. Hereby, future growth will build on the development of mid-level managers,
services, and products from an already existing competence platform. Hence, consulting firms
cannot alone rely on growth through competent consultants and by adding new partners into
the firm. Instead, the firm must create alignment between goals and strategy, resources and
competences, as well as management and employees. This happens through the careful design
of the organization in which positioning, trade-offs and fit are considered.
Based on this knowledge, this master thesis has been able to suggest an
appropriate growth strategy. Initially the consulting firm must identify its primary sources and
limitations of growth. Through these, focus must be directed towards five core issues, which
create the foundation for growth strategy. These core issues are: Alignment of management,
strategic development, organizational adaptation, HR and incentives structures, and
innovation and knowledge management. Finally, by deploying industry- and firm specific
organizational levers, the consulting firm must create alignment across these five issues in the
organization design. Hence, this research has shown that growth must be initiated from within
the firm.
Several other perspectives have emerged through the research, which are
relevant for growth, and which can create additional insights into the sources and limitations
of growth in the industry. First, the immediate challenge for the Danish consulting industry is
to identify appropriate strategies for internationalization. When faced with unknown markets,
102
103
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114
Appendix
Content
Appendix A
Overall structure ................................................................................................................................................. 116
Appendix B
Number of active firms in the industry ................................................................................................................ 117
Appendix C
Revenue distributed across customers in 2006 .................................................................................................... 117
Appendix D
Number of firms distributed across firm size in 2007.......................................................................................... 118
Appendix E
Revenue distributed across firm size in 2007 ...................................................................................................... 118
Appendix F
Overall revenue of the industry ........................................................................................................................... 119
Appendix G
The management consulting industrys share of GNP ........................................................................................ 119
Appendix H
Service distribution.............................................................................................................................................. 120
Appendix I
Customer prioritization ....................................................................................................................................... 121
Appendix J
Life cycle model for professional service firms ................................................................................................... 121
Appendix K
Significant differences between the outside-in perspective and the inside-out perspective ................................. 122
Appendix L
Contact letter ....................................................................................................................................................... 123
Appendix M
Overview of the interviewed firms ....................................................................................................................... 124
Appendix N
Operationalization............................................................................................................................................... 126
Appendix O
Interview guide .................................................................................................................................................... 127
Appendix P
Topics of semi-structured expert interview.......................................................................................................... 130
Appendix Q
Life cycle development and related managerial issues ....................................................................................... 131
Appendix R
Core issues concerning the organization design of consulting firms .................................................................. 132
Appendix S
Business models for consulting firms .................................................................................................................. 133
115
Appendix A
Overall structure
Problem statement:
What is an appropriate growth strategy for Danish management consulting
firms relative to their current size and situation in the market?
Exploratory research
Chapter 2
Inductive reasoning
Chapter 3
Chapter 4
Analysis of data
Chapter 5
Discussion
Chapter 6
Chapter 7
Chapter 8
Conclusion
Chapter 9
Comparative research
116
Appendix B
Number of active firms in the industry
Appendix C
Revenue distributed across customers in 2006
117
Appendix D
Number of firms distributed across firm size in 2007
5%
7%
10%
Omstning 151+ mio. kr.
Omstning 51-150 mio. kr.
Omstning 21-50 mio. kr.
12%
66%
Appendix E
Revenue distributed across firm size in 2007
6%
7%
11%
21%
118
Appendix F
Overall revenue of the industry
18.000
16.275
16.000
14.000
14.408
12.000
10.842
10.510
11.849
10.031
10.000
10.106
8.000
6.000
2001
2002
2003
2004
2005
2006
2007
Appendix G
The management consulting industrys share of GNP
2008 (Est.)
1,02%
2007
0,96%
2006
0,90%
2005
0,77%
0,69%
2004
0,00%
0,20%
0,40%
0,60%
0,80%
1,00%
1,20%
119
Appendix H
Service distribution
IT-rdgivning
16,3%
(15,2%)
Strategisk
Rdgivning
19,2%
(22,2%)
HR-rdgivning
7,2%
(8,1%)
Forandringsled
else
9,4%
(12,4%)
Projektledelse
16,7%
(18,5%)
Organisation/
Operations
Management
31,2%
(23,7%)
120
Appendix I
Customer prioritization
Appendix J
Life cycle model for professional service firms
Large
Crisis: Need for
common approach
to clients and
shared ownership
Crisis: Need to
broaden services and
develop staff
capabilities
Size
Stage IV
Institutionalizing
Stage III
Diversifying
Stage II
Focusing
Stage I
Exploring
Small
Young
Age
Mature
121
Appendix K
Significant differences between the
outside-in perspective and the inside-out perspective
Ethos
Outside-in theories
Inside-out theories
orientation.
Market perception
Focus
Firm goals
capabilities
Maximizing of profit.
Collecting,
assessing
and
understanding
Competitive advantage
innovation.
product differentiation.
Normative directions
considered unproblematic.
Resource characteristics
Examples of theoretical
Neoclassical theory
exponents
SCP paradigm
Evolutionary approach
Strategic conflict
Core competences
Dynamic capabilities
Managerial theory
122
Appendix L
Contact letter
Hej __________
Mit navn er Jesper Kristensen, og jeg er studerende ved Syddansk Universitet i Odense. Mit studie har vret
fokuseret omkring strategi, organisation og ledelse (Cand. Merc. i international management) og da jeg ved siden
af har arbejdet i et mindre konsulent firma, fandt jeg det naturlig at skrive et speciale omhandlende konsulent
branchen i Danmark.
I den forbindelse har jeg gennem et samarbejde med Dansk Management Rd (DMR) fet fastlagt specialets
rammer og problemformulering. I korte trk drejer det sig om, at identificere en rkke best practice tiltag som
det enkelt konsulent firma kan benytte sig af med henblik p at opn fremtidig vkst.
Jeg er nu s langt i forlbet, at det er p tide at f indsamlet empiri bestende af ca. 10 semi-struktureret interviews.
I den forbindelse har jeg som udgangspunkt kigget p DMRs medlemsliste over konsulenter. Det er mit indtryk, at
jeres firma, __________, kan give en interessant indsigt i hvorledes man kan hndtere vkst i konsulentbranchen.
Jeg hber derfor, at I vil finde det interessant at deltage som case-studie firma og deltage i et interview af ca. 1-1
times varighed. Interviewet vil vre med en enkelt person og denne br have en ledende position i firmaet og have
indflydelse p fremtidig strategi og vkstmuligheder.
Detaljerne omkring specialets indhold og interviewets indhold vil selvflgelig blive prciseret nr vi mdes. Der
vil ingen steder i specialet blive nvnt firmaets navn, s det er kun mig som forfatter, som kender denne
sammenhng. Jeg vil ogs medbringe en fortrolighedserklring som kan udfyldes. Forventelig bliver specialet
publiceret i en forkortet version p DMR hjemmeside, ligesom I selvflgelig er velkomne til at f en elektronisk
udgave af det frdige resultat.
Jeg hber dette brev har skabt interesse, og jeg vil inden for et par dage kontakte jer telefonisk.
Med venlig hilsen
Jesper Kristensen
Tlf. 22 33 45 53
Jesper_kristensen@hotmail.com
123
Appendix M
Overview of the interviewed firms
Interviewee
CEO of a small
organization management
consulting firm
A
Interview
date
30-05 2008
www.mindweiss.dk
Senior partner in a small
strategy and operations
consulting firm
B
07-07 2008
www.dragsteddevelopment.dk
CEO of a small
management and event
consulting firm
C
16-05 2008
www.target-people.dk
CEO of a medium
strategy and IT
management consulting
firm
D
10-06 2008
www.ipteams.dk
CEO of a medium sized
communication
consulting firm
E
04-06 2008
www.operate.dk
124
03-06 2008
www.pluss.dk
Manager in a large
management consulting
firm
G
09-06 2008
www.rightmanagement.dk
CEO of a large strategy
and operations consulting
firm
H
04-06 2008
www.valcon.dk
Partner of a large strategy
and operations consulting
firm
I
02-06 2008
www.implement.dk
125
Appendix N
Operationalization
Topic of analysis
Life cycle stage
Purpose of analysis
To analyze which life cycle stage the concerned consulting firm is in.
To identify which conditions are specific for the consulting firm in relation to the life
cycle stage it is in.
History and
experience
Entrepreneurship
To asses the circumstances in the consulting firm which have shaped its history and
experience.
To identify to what degree entrepreneur ship acts out a significant role in relation to the
growth that the consulting firm have experienced.
Feasible set of
strategies
Feasible set of
growth.
To identify how the strategy of this firm might be different from other consulting firms.
To understand how the consulting firm bring about resources and competences through
resources and
competences
To understand how the consulting firm builds its strategy and how this is related to
management decisions.
To understand how these resources and competences are translated into firm specific
resources and core competences.
Factor markets
To identify how the firm addresses changes, both internally and externally.
To determine if there are any specific circumstances on the factor market which are
critical for the growth of the concerned consulting firm.
To analyse to what degree the consulting firm uses relations and networks as a growth
factor.
Product markets
To determine which factors on the product acts out a significant role in relation to the
growth of the consulting firm:
- The degree of competition and rivalry
- The role of buyers
- The external environment and the general economy
- The possibility for creating new business areas (mobility barriers)
Organizational
architecture
To analyse how the organizational architecture of the consulting firm affects growth:
- Incentives and reward systems
- Authority and hierarchy
- systems for coordinating, monitoring and evaluating performance
- Ownership model (CEO vs. partner)
The future
To understand what the consulting firms consider important in the future in order to stay
competitive.
126
Appendix O
Interview guide
Interview guide
semi-struktureret interview
Introduktion
Formalia
Culture
Hvordan er ejerforholdene?
o
Hvordan vil du beskrive jeres kultur og hvordan hnger den sammen med firmates historie?
127
Hvordan var firmaet som udgangspunkt organiseret og har dette ndret sig?
Entrepreneurship
Hvordan bliver firmaets retning skabt? Snvert omkring ivrkstterens kompetencer eller er de bredt
skabte?
Hvorledes er ledelsen/ivrkstterne involveret i vrdi kden? I alle led eller er der et srligt fokus?
Hvilke formelle systemer benytter I jer af med hensyn til at forstrke jeres forandringsberedskab?
Factormarkets
128
Hvilke srlige forhold p faktormarkedet er med til at give jer en fordel overfor andre konsulent
firmaer?
Politisk sttte?
En regional ivrkstterkultur?
Leverandr relationer?
Hvorledes har I mulighed for at tilvejebringe srlige ressourcer som kan vre svrt tilgngelige for
andre virksomheder?
Productmarkets
Hvilke eksterne generelle branche vilkr spiller en rolle for jeres vkst?
Skaber i p nogen mde forhold som gr det svrere for potentielle konkurrenter at komme ind p
markedet samt at manvrerer rundt?
Organizational architecture
The future
Hvad bliver vigtigt i fremtiden for at sikre sig overlevelse som management konsulent i branchen?
o
No cure-no pay
Certificeringer
Andet
Yderligere kommentarer, tilfjelser m.m. i forhold til emnet, som ikke er blevet berrt?
Diktafonen slukkes!
Interviewet afsluttes med tak til respondenten for deltagelse
Efterrationalisering af interviewet sammen med respondenten:
129
Appendix P
Topics of semi-structured expert interview
Emneroversigt til ekspertinterview med Tom Vile Jensen, DMR
Branchens struktur:
Hvordan vil du karakterisere den danske management konsulent branche med hensyn til:
o Strrelse?
o Vkst?
o Profit?
o Overskuelighed og gennemsigtighed?
I hvor hj grad er branchen konjunktur flsom?
Er der noget karakteristisk billede af hvem som betjener hvem? Eksempelvis at sm firmaer
bliver betjent af sm firmaer?
Strukturelle og politiske tiltag?
Hvordan spiller den offentlige sektor en rolle i forhold til den private sektor?
Er der lave adgangs og exit barrierer i branchen?
Hvad og hvordan konkurreres der i branchen?
Branchens vkst:
Hvad er jeres/branchens vkst forventninger?
Hvorledes spiller flgende faktorer en rolle i denne vkst/vkstbarrierer?
o Fusioner/opkb?
o Netvrk og relationer?
o Branding og markedsfring?
o Udvikling af kompetencer?
o Anskaffelse af ressourcer (gode medarbejdere)
Oplever i nogen srlige fastholdelses kneb, i form af:
o One-stop shopping?
o No cure no pay?
o Gratis foranalyse?
Strrelse, profit, vkst, er der en form for sammenhng eller inkonsistens?
Hvad driver udviklingen i branchen?
Er der vkstmssigt nogen forskel p sm og store konsulent huse?
Hvad er branchens vkstbarriere?
Branchens udfordringer:
Hvad er vigtigt for kunderne?
Hvilken betydning har det for konsulent firmaerne at de skal vre proces orienteret og ikke
kun opgave orienteret?
Bliver der stillet flere krav til konsulenterne?
Hvordan oplever i interessen for DMR og branche organisationer generelt?
Har mindre konsulent huse har brug for kompetence lft?
Er der behov/opbakning for certificering?
Er der tale om opdeling i et A og B-hold?
Har de sm firmaer kompetencerne til at hjlpe andre firmaer godt nok?
Forventninger om fremtidige udfordringer?
Andre relevante emner?
130
Appendix Q
Life cycle development and related managerial issues
Stage one firms identifying
growth opportunities
Opportunity driven.
Management
Organization
structure
Decision making
Development
Culture
Purpose of
Growth
Primary growth
processes
Primary growth
barriers
Crisis
Strategy
131
Appendix R
Core issues concerning the organization design
of consulting firms
Authority structures and ownership/organizational structure
Professional management
Employee structure/selection
Many freelance workers, relatively
few little permanent employees
Incentive systems
Performance pay, provision and
bonuses
A combination
Fixed salary
Strategy
Standardization, tools and
frameworks
A combination
Competence focus
Junior consultants
Senior consultants
132
Appendix S
Business models for consulting firms
Broad service
domain
Narrow service
domain
Recycled solutions
General stores
Idea labs
Speciality shops
Boutiques
133