Types of management consulting

Ishwar Kumar
Consultant, Grant Thornton Bharat LLP
 Theoretical Perspectives on the typology of Management Consulting

Institutional
Theories
(Institutional
Entrepreneurship)

Theoretical
Perspective on the
types of
Management
Consulting Transaction Cost
Organizational Theories Economics (principal-
(Professional Service agent problem,
Firms) transaction cost of advice
and implementation)
 Typology of management consulting based on specialization

Specialization Basis of Temporal Implementation Extent of client

differentiation involvement responsibilities capture/influence
Strategy and Tacit knowledge Short to medium Minimal Very high
organizational term involvement
restructuring
Technology/ Breadth of Long term, Strong Moderate to high
operations and experience and throughout the involvement in
cost control expertise assignment implementation of
the advice
Niche consulting Deep domain Long term, Ownership of the Low
expertise typically as implementation
retainers

Source: IIMB Management Review (2014) 26, 257-270

 Typology based on service: The Big 3

• McKinsey & Company, Boston Consulting Group (BCG), and Bain &
Company are the three firms that have established themselves as leaders in
the consulting industry.
• They standout due to their extensive experience, global reach, and
expertise in assisting organizations with strategic decision-making,
operational improvements, and solving complex business challenges.
• They are known for their rigorous analytical approach, thought leadership,
and high-impact client engagements.
 Typology based on service: Tier 2 Consulting Firms
• Tier 2 consulting firms, also known as "boutique" or "second-tier" consulting firms,
are the next level of consulting firms after the "Big Three."
• While they may not have the same size or global presence, Tier 2 firms still offer
high-quality consulting services across various industries.
• Accenture, Kearney, Oliver Wyman, L.E.K. are the Tier 2 Consulting firms
• Tier 2 consulting firms often differentiate themselves through specialized industry
knowledge, niche expertise, or unique methodologies.
• While they may not have the same level of brand recognition as the "Big Three,"
they are respected players in the consulting industry, delivering valuable insights
and solutions to their clients.
 Typology based on service: Big 4 Consulting Firms
• The "Big Four" consulting firms refer to the four largest professional services
firms in the world, which provide a wide range of consulting, audit, tax, and
advisory services.
• Deloitte, PwC, KPMG, and EY are known as the Big 4 consulting firms
• These firms have established themselves as leaders in the consulting
industry due to their extensive global presence, broad service offerings, and
deep industry expertise.
• They work with a wide range of clients, including large multinational
corporations, governments, and nonprofit organizations, providing strategic
insights and helping them navigate complex business challenges.
 Typology based on service: Boutique Consulting
Firms
• Boutique consulting firms, also known as specialty or niche consulting firms, are
smaller firms that specialize in specific industries, functional areas, or types of
consulting services.
• They differentiate themselves by offering specialized expertise, customized
solutions, and a more focused approach.
• Analysis Group, ZS Associates, L.E.K. Consulting, West Monroe Partners, Health
Advances, etc. are boutique firms
• Boutique consulting firms often excel in providing deep industry knowledge,
tailored solutions, and a high level of client engagement.
• They cater to specific client needs and are sought after for their specialized
expertise in niche areas of consulting.
Typology based on Domain
Typology of Management Consultants

• We call consulting services following a standard

process and where only little client contact is
required for “Chemist or Pharmacist” type services

• We call consulting services following a standard

process and where close client contact is required for
“Nursing Type” services

• We call consulting services following a customized

process and where only little client contact is
required for “Brain surgery” type services

• We call consulting services following a customized

process and where close client contact is required for
“Psychotherapist” type services.
 Typology of Management Consultants

The client is looking for a solution to a well defined issue. He knows exactly what the problem
is and he is looking for someone to run the process at the best price/performance ratio. This
scenario is close to selling and delivering a “product”. The client is familiar with the service and
knows the process associated with the delivery. He will probably ask a couple of suppliers for a
proposal before he makes his choice.

Samples of pharmacist type of consulting services are:

• Staff recruitment
• Staff profiling
• Strategy review
• Channel recruitment

Pharmacist services must be predefined and offered at competitive prices. To be profitable

with chemist type services you must have an infrastructure in place to deliver the service and
you must have economy of scale in your operation.
A team of people normally delivers pharmacist type services with well-defined division of
labour in the process. Typically there is a senior management consultant responsible for client
engagement and a series of specialized clerks and junior staff involved with the execution.
 Typology of Management Consultants
The client knows the problem and also have an idea of the process required to fix it, however he
want to be involved all along the way and possibly learn from the process. Start-up companies and
younger executives often prefer nursing types services over pharmacist services as they will learn
from the process. When they get familiar with the processes they will be better positioned to
request the services in a pharmacist format.

Samples of nursing type of consulting services are:

• Channel program development
• Executive recruitment
• Sales training
• Customer satisfaction surveys
• Market assessments
Nursing type of services must be also be predefined and offered at competitive prices. However
the coaching element allows for above average fees if you can demonstrate domain knowledge and
experience with similar type of projects.
To be profitable with nursing type services you must also have an infrastructure in place to deliver
the service, but economy of scale is not so critical.
Typically there is a senior management consultant responsible for client engagement and the
coaching while a staff of specialized clerks and junior consultants involved with the back-office
execution.
 Typology of Management Consultants
The brain surgeon applies high levels of customization, creativity and innovation combined
with a low degree of client interaction. The client is looking for a recognized top specialist
who can fix an important problem, but he doesn’t feel he needs to be intimately involved in
the solution.

Samples of brain surgeon type of consulting services are:

• Tax consulting
• Legal consulting
• Development of P&L models, remuneration schemes and other concepts
• Interim management

Recognized specialist delivers brain surgeon types of consulting. Some leverage may be
applied, but the senior consultant will do most of the work. Getting brain surgeon types of
assignments requires that you are a recognized specialist in your specific domain. Your
clients will already know who you are or you will be recommended by one client to
another. Premium fees can be asked.
 Typology of Management Consultants
The psychotherapist is required when the problem is unclear and thus the process required also
unclear. This is normally called management consulting. The consultant will help the client
analyze the situation and also help the client identify the steps required to provide a remedy.
Implementing the remedy can be an opportunity for additional consulting services or the client
can decide to perform the implementation with his own resources.

Samples of psychoterapist type of consulting services are:

• Management coaching
• Ambition discovery
• Strategy development
• Value Proposition definition/development
• Investment prospect development
• M&A consulting

Recognized thought leaders deliver psychotherapist services. Degree of leverage is low,

however the psychotherapist will identify other consulting opportunities, which can be referred
to other consultants in the organization. Your clients will already know who you are or you will
be recommended by one client to another. Premium fees can be asked.
Typology based on purpose of engagement
 Case : Software outsourcing
Question
A US software company wants to offshore its engineering/designing unit to India, as
well as to penetrate into the India software engineering market. Should they do it?
Information provided if asked:
• Market Share: the company is the industry leader in the US with close followers
chasing behind.
• Profitability: declining (unknown reason, but increasing labor costs can be a
reasonable assumption).
• Capability: strong engineering department in the US.
• Cost: R&D is the major cost and Indian engineers are estimated to be 1/4 of the
cost of the US engineers with the same technical capability.
 Case: Software outsourcing
Customers
• Company has a strong existing customer base in the US.
• Most of the customers are medium to large companies in the US.
• Customers care about the quality of service but are also considering lowering cost in the
long run.
• The most profitable clients are large companies in developed countries where the company
already has a strong base.
• The company doesn’t have any international presence yet.
Competition
• Key US competitors are all off-shoring in order to lower the cost.
• The growth of the international market is impressive compared to the more mature and
stable US market.
• Key competitors are expanding their international business aggressively.
• India is one of the fastest growing international markets as well as the one with the largest
market size.
Solution
Since it’s a two-fold question, a good solution will start with laying out a clear
scope and then gather relevant information to analyze the situation. BCG is
known for their 2x2 matrices, and this would be a good situation to draw one
up in order to frame all possible scenarios:
Solution
After using a framework to gather the information you need, you should realize that
entering the international market, especially the India market, is critical for the
company to both fulfill current customer’s emerging needs of cost saving and grow its
future business. You should also start to compare the competitive advantages
between large US companies off-shoring and local Indian players. One way to do this
in a clear way would be a feature comparison table:
Solution
After doing this, the conclusion here is a clear “Yes”. The situation falls into the upper
left corner of the matrix because:
In the long-run, even current customers with the established relationship will need to
look for cheaper alternatives. The company can offshore its R&D to lower the cost but
still keeps its customer service team in the US to maintain the high service quality.
Although clients in the developed country are more profitable, the actual growth of
the market is limited. Developing markets like India might not be as profitable as the
US, but with the huge and growing market size, even capturing a small percentage of
the market can provide substantial profits. The company might lack knowledge of the
Indian market, but its strong customer relationship management skills, large existing
customer base, and the understating of unique customer needs can be further
leveraged in India. In addition, hiring local talent or partnering with local companies
can help solve the concern of the lack of local knowledge.
The legal risk, as well as the political risk in India, can be considered low.
 Typology of Management Consulting: The Firm
Model
• This is the standard model for consulting firms.
• Consultants are employees of the company.
• Scale a firm by bringing in more consultants to carry the workload.
• Remove yourself from day-to-day client work.
• Create an operation that functions without you.
• Build a high-value asset to eventually sell at a multiple
• Demands people management skills.
• Offers a low-profit margin.
• Requires rigorous systems to keep things operational.
• Creates considerable obligations, such as employee payroll.
 Typology of Management Consulting: The
Solo/Independent Model

• The solo/independent model creates a certain degree of freedom and

flexibility.
• You can work at your own pace and set your own fees.
• Run a lean and profitable operation.
• Create flexibility, enabling you to pivot quickly.
• Build your schedule around your lifestyle.
• Unable to sell the business as an asset.
• When you stop working, the revenue also stops.
 Typology of Management Consulting: The
Productized Model
• Build a high-value and sellable asset.
• Create high multiple potential with recurring revenue.
• Unlock the flexibility to scale quickly.
• Remove yourself from the daily operations.
• Promote repeatability across all workflow processes
• Operational skills are needed to develop clear workflow processes.
• You must hire professionals for service delivery.
• You will need to conduct training and onboarding sessions.
• You must outline the best practices for client support
 Typology of Management Consulting: The Hybrid
Model

• With the hybrid model, you take the core components from any one of
these models to build the perfect consulting business model just for you.
• It is a business consulting model that marries the ideas and benefits of
multiple models.
Categorization of MCs based on business models: : value proposition, profit
formula, processes and resources
Variables Basic Medium Radical
Value Proposition
Time to value Linear project Accelerated linear Instant consulting
project
Risk distribution Risk for client Risk sharing Risk based consulting
Degree of Broad provision of services Specialization in Hyper-specialization:
specialization segment or service specialization in
segment and service
Profit Formula
Value creation ‘Shareholder’ or partner Joint value for Shared value
value; leverage consultant and client
Revenue model Time-based billing; fixed Performance fee, one- Recurring revenues;
price; one-off project basis off projects multiple revenue
streams
Cost model High fixed costs; low sunk Semi-variable costs High sunk costs, low
costs fixed costs
Categorization of MCs based on business models: : value proposition, profit
formula, processes and resources
Variables Basic Medium Radical
Process
Market Reactive, wait for demand Create demand Create client
development
Interaction with Person-to-person; consultant Blended: consultant Virtual consulting
clients physically present at client supported by
online/data
Role In and out at client site in a Part of flexible shell of Co-entrepreneur, co-
fixed role the customer: different worker
roles
Resources
Networking Calling in partners ad hoc per Regular use of the same Collaborative consulting
job if necessary partners
Knowledge Consultancy owns the Core team employed, Create knowledge and
knowledge (experts access to knowledge in innovate in co-creation
employed) flexible shell with network
 Categorization of MCs based on emerging
business models
Business model Characterized by:
Collaborative consulting • Low fixed costs
• High variable costs
• High involvement of other consultancies in projects
• Regular collaboration with consultancies in the network
• Development of new market propositions with other consultancies Much
sourcing of knowledge from other companies
Continuous consulting • Use of new tools or processes to speed up projects
• Not one time income on a project basis, but continuous flow of income
from a client
• Recurring revenues
• New services are delivered to existing clients
• High level of online interaction
Instant consulting • Clients benefit immediately and measurably from day one of an
assignment
• Little research needed before advice is given
Evolving consulting business models: From hiring a
team to offering flexible access to top talent
• Firm does not hire any consultants, but instead build an extensive network of
senior, highly experienced, independent consultants it can draw upon to staff
projects.
• Clients have a say in choosing consultants and MC tries to find the best match
between client and consultant.
• MC Partners do not manage the client projects, but instead leave this to the
consultants. Consultants are not pressured to sell new projects, as this is the job of
the partners, and hence can focus on delivering successful projects.
• The lower overhead cost translates into lower fees for the customers, while
consultants can still earn a considerable salary from their freelance work, plus they
enjoy the flexibility to decide how much they would like to work. Nobody pressures
them into accepting the next consulting project.
Example: From hiring a team to offering flexible access to top talent
Evolving consulting business models: From staffing
projects with people to commercializing expertise

• Instead of selling expertise through consultants, MC sells expertise and

advice in the form of reports.
• MC offers customized research services, and turns the findings of this
research into strategic advice for its customers.
• MC operates a global network of experts it can draw upon for putting
together its reports. Expertise is made available not through personal
consultation but through special reports. As such, expertise can be
leveraged beyond the single consultant and project and new revenue
streams are possible.
Example: From staffing projects with people to commercializing expertise
 Evolving consulting business models: From
consulting to solutions
• MC offers a very structured, repeatable and standardized process, which is
independent of the individual consultants.
• Customers pay for an end-result, which is delivered as a product, usually in
in a shorter timeframe then the typical consulting engagement.
• Through licensing agreements, the solutions business model provides a
steady revenue stream, enabling MC to engage in longer customer
relationships outside of its traditional project business.
• MC’s business model innovation leverages its expertise in these fields and
codifies the expertise in standardized solutions.
Example: From consulting to solutions
 Evolving consulting business models: From fixed
fees to aligning fees with the client’s success

• Instead of charging clients for hours spent, MC charges clients for objectives
achieved, aligning 2/3 of its fee with the successful achievement of pre-
defined goals throughout the innovation process and the success of their
innovations in the market.
• Hence, the risk for clients is considerably reduced, as they only pay if the
output of MC’s work is successful.
Example: From fixed fees to aligning fees with the client’s success
 How do we develop a business model?
• Do you want to scale your consulting firm or act as a solo consultant?
• How do you feel about managing teams of consultants?
• Do you know how to implement systems and develop workflows?
• Have you established clear income targets for yourself and the firm?
• Can you prioritize scalability over profitability in the short term?
• How much time can you dedicate to the consulting business?
• Your business model should basically answer 2 questions:
1. What is your value proposition?
2. How are you organizing to create this value?
• To answer these 2 questions, I look at the 8 building blocks.
Consulting Business Models
 Pure Consultancies Vs Hybrid

• Pure Consultancies focus solely on consulting work, such as McKinsey & Co.
Bain, BAH, and A Little.
• Companies that have added consultancy as an additional competence to
complement their other work ex: KPMG, Deloitte, Accenture
• Hybrid companies such as IBM or PwC added consultancy to the existing
company with an opportunity to cross-sell advisory work to their clients.
 Niche Vs Generalist
Generalist consultancy – one that offers many services

Ex: Accenture offers everything from outsourcing to systems integration to strategy work.

Consultants typically have a core set of analytical and communication skills

Niche companies tend to be smaller and often specialize in one service area Ex: ZS Associates
• They hire more experienced consultants
• They rely more on contracts and networks for new contracts
• Clients like to work with them because they are specialized in the field and
are cheaper than many large consultancies.
• Experience in niche consultancies allow them to produce more reliable and
successful work than generalist services that bid for the same project
 Small Vs Large

• Small and medium sized companies make up around 98 percent of all

consulting.
• These small consulting firm's employee 70-80 percent of the employees.
• Large companies bring in more than 50 percent of the industry’s revenue.
• Small firms dependent heavily on the reputation of their founding members
and often disappears when the owner retires or moves on.
 Body-shopping
• When consulting firms send “bodies” into clients to work as contractors ex:
IT consultancies in India, Software developers
• Profit-margin is low on body-shopping, but a quick and easy revenue-driver
• Large companies avoid this type of work, because it is focused around
individuals rather than services.
• Some clients manage their own body-shopping and actively recruit, train
and manage workers from poor countries ex: US hiring temporary Indian IT
workers
 Internal Consultancy
• A number of large companies employ teams of consultants ex: IBM,
Mars, Microsoft

• Internal consultants are teams between 10 and 50.

• Organizations develop teams of internal consultants if they frequently
experience the need of similar projects

• Internal consultants are also used for compliance reasons, ensuring

consistent process and procedures.
 Contractors

• Independent workers who generally take on short-term assignments to

provide clients with specific skill-sets.
• These clients can either take the help of any agency or recruit directly
(mostly through agencies).
• Win-win situation to both contractor and the employee.
 Edgar Schein’s Consulting categories

• Expert consulting,
• Doctor –patient model,
• Process consulting
Type of consultancy based on role
 Consulting by Sector
At the heart of the industry stand six main domains – Strategy Consulting, Management
Consulting, Operations Consulting, Financial Advisory, HR Consulting and IT Consulting –
that when combined, span services and offerings in over 200 industry and functional areas.

Banking & Capital Markets Transportation

Public Sector Automotive

Energy, natural resource and utilities Pharma and biotech

Manufacturing Healthcare

Construction Media and entertainment

Consumer products Real estate

Insurance Coaching/Leadership

Retail and distribution Others

 Case : Coffee shop
Question
A friend asked me if I wanted to buy his coffee shop for $100,000. Do you think I
should do it?
Information given by interviewer if asked:
Location: The coffee shop is in Vail, Colorado
Products/Prices: Cup of coffee, $4.00 Bottled Water, $2.00 Pastries, $3.00
Variable Cost: All products have a 50% margin
Customers: The shop serves mostly locals, not tourists, so demand is consistent
throughout the year
Other Costs:
• Rent was $500 per month
• Wages (for 2 employees) were $8.00 per hour.
The shop is open 12 hours a day, six days a week
The candidate can assume that the coffee shop will bring in consistent profits over
time.
Solution
This is a valuation question. So, to get the value of the coffee shop, you first need to
calculate the profitability.
Revenues
• Begin by estimating the market size. The assumptions below are just an example,
any reasonable assumptions would do.
• Assume that the coffee shop gets 10 customers per hour in slow hour and 20
customers per hour in a busy hour. The first and last 2 hours of the day are busy
hours. So, the coffee shop gets 20×4 + 10×8 = 160 customers/day.
• If we assume all the hours as busy hours on Saturday, then we have 20×12=240
hours on Saturday.
• Number of customers / week = 160 x 5 + 240 x 1 = 1040
• Number of customers / year = 1040 x 50 = 50,200
• Assume 60% of customers order coffee, 30% order pastry, and 10% order a bottle
of water, then the spend is: 50,000 x 60% x 4 + 50,000 x 30% x 3 + 50,000 x 10% x 2 =
$175,000
Solution
Fixed Costs
• Rent = 500 x 12 = $6,000
• Wages = $8 x 12 x 6 x 50 = $30,000
We can also make assumptions about utilities and insurance.
Profits
• Profits = 175,000 x 50% – 36,000 = $52,500
• Assume a 40% tax rate: Profits after tax = 52,500 x (1-40%) = $31,500
Valuation
If we assume that the coffee shop is in operation indefinitely and we use a 10% WACC, then its
value would be: Value = 31,500 / 10% = $315,000
[This formula is for the present value of a perpetuity. If you are unfamiliar with this formula, read
about it so you understand and remember it, as it is commonly used.]
Conclusion
The present value of cash flows is three times the asking price. So, as long as the profits would be
consistent for the foreseeable future, it would be profitable to buy the coffee shop. The assumption
of perpetual cash flows is optimistic, so a price closer to the present value would be less attractive.
Further analysis could be done on the management experience and the competition to ensure that
sales would be consistent.
Thank You