Consulting as a Major Global Industry

Head Table Guests

Ann Curran, Director, Corporate Development International and 1st Vice-President, The Empire Club of Canada; Grant Kerr, Associate Minister, St. Paul's United Church, Brampton; Ravivan Raveenthran, Senior Student, W.A. Porter Collegiate Institute; Leo Gotlieb, FCMC, Managing Director, Western Management Consultants of Ontario; John Simke, Partner, PricewaterhouseCoopers; Heather Osler, President and CEO, Canadian Association of Management Consultants; Sharon Rudy, Vice-President, Spencer Stuart and Director, The Empire Club of Canada; Julie Lissaman, CMC, Chair, GTA Chapter, Canadian Association of Management Consultants; David Bolton, FCMC, Vice-President, Cap Gimini Ernst & Young; and Teri Brown, National Director, Growth and Development, Watson Wyatt Worldwide-Canada.

Introduction by Bill Laidlaw

Jan Grude is the National Practice Director for Watson Wyatt Canada Consulting, and the National Chairman for the Canadian Association of Management Consultants.

Jan has 15 years of experience in the dynamics of "change" and "improvement" in both the private and public sectors. He specialises in People Effectiveness, Performance Improvement, Organisation Strategy and Change Management. Jan's consulting assignments have included participation as a key player in a number of mergers and acquisitions in health care and financial services as well as human resource and executive development transitions; change management-the development and implementation of organisation-wide change processes for insurance providers, hospitals, universities, retailers etc.; and recently business process innovations-reengineering and redesigning practices-for the province-wide health-care delivery system.

We are constantly reminded that change, and the need to improve and sometimes even "reinvent" ourselves, has become an acceptable and necessary part of business life. Sometimes we are enthusiastic initiators, and sometimes we have "change" and "new procedures" thrust upon us. In either case, the need for consultants has become an important tool in coping with the speed of change which shows no signs of slowing.

It is important to emphasise that consultants not only deal with the tangibles of our business life but also the intangiblesknowledge management, our culture, image, research and innovation and intellectual resources. It is nice, therefore, to have with us today someone with such a broad base of experience with a number of "transitioning" companies.

What Jan will share with us today are some of the pitfalls that organisations fall into when misusing consultants. He will also examine the benefits that accrue when organisations use their consultants properly. Jan will provide us with some helpful tips that can be applied to selecting the right consultant, so that we are able to better utilise our resources and maximise our efficiencies and proficiencies.

I'd like to turn it over to Jan.

Jan Grude

Thank you very much. It is lovely to be here and a privilege. I was intimidated somewhat after being told at the head table that you have had many interesting and distinguished speakers.

Every time I'm reminded of a talk being interesting, I think of a story I first heard in church. It is a story of a young minister who has just graduated from the seminary and gets his first charge in the country. He goes out to the country church parish and is quite thrilled as he drives up to find a lovely church in a beautiful setting beside a rectory. He enters the church and is met by the warden and the warden greets him and shows him around the church. The young minister is thrilled. He is then brought over to the rectory where he is introduced to the housekeeper and is told by the housekeeper that she is there to take care of the house and to ensure that he has all the time he needs for his ministry. She indicates that she lives downstairs. She has an apartment there. She says: "I have no problems with issues of privacy. I would ask you, however, to respect the privacy of one area of my home-the hope chest at the foot of my bed. That is my only private space."The minister agrees that they will maintain their lives separately and privately. He goes on to conduct what he thinks is a very successful ministry. Twenty years go by and he is still in the same parish conducting what he indeed thinks is a very successful ministry. One day, however, he cannot contain his curiosity any longer and while the housekeeper is out doing errands he creeps down to her apartment and into her bedroom to the foot of the bed. He lifts up the lid of the chest. And inside the chest he finds on one side three eggs and on the other side a whole stack of bills and money. He is confused by this and just as he is shutting the lid of the chest she comes home. She finds him there. She is distraught and horrified and can't believe that he has violated her trust. Well after amends are made, his curiosity overtakes him once again and he says: "But I don't understand. What is so private about the chest and what do these things mean? Eggs, money?" And she says to him: "Well when you came here 20 years ago I promised myself that for every boring sermon that you gave I would put an egg in the chest." Well he beams. Three eggs, that's all there were in the chest. Three eggs. He is absolutely ecstatic but then he has to ask: "Well on the other side on the chest there is all that money. What is that for?" She says: "Well, every time I got up to a dozen eggs I sold them for a buck."

One of the things I learned early in my consulting career is to set client expectations. This talk will be about 30 minutes and I will try to be on time and on budget, which is also something that consultants promise their clients.

They say that confession is good for the soul so let me begin by saying that I'm a consultant and I'm not alone. Consultants are everywhere and their numbers are increasing day by day. The organisation that I represent, the Canadian Association of Management Consultants, has about 4,500 members across Canada but I know that even with a growing membership we barely scratch the service. We have estimated that there are between 20,000 and 30,000 people in Canada who call themselves consultants and that they bill approximately $4 to 6 billion a year. Globally the industry has experienced revenue growth from an estimated $5 billion in 1980 to somewhere in the order of $200 billion today. Over the past 20 years, especially in the last five, it has enjoyed growth rates that are unprecedented and which show absolutely no sign of slowing.

Consulting exerts tremendous influence. Each year consulting magazines have named the top-25 consultants of the year as part of their annual ranking and it has become a right of passage for the consulting profession. The list is impressive and the accolades are legion. I quote: "There is probably no group of individuals that influence the ebb and flow of global business more than the top 25." Individually each of these consultants has risen to the lofty heights of the profession. Together they are reinventing the commercial world.

Why is it that consulting has become a major global industry? We can attribute most of the success of the industry or profession to certain important economic and political changes.

The first one that I would identify is political stability and deregulation. We're living in an era of tremendous unprecedented political stability. A dozen years ago over one billion people lived in market economies. Today over five billion people live in market economies. In recent years government has tended to recognise the importance of maximising efficiency in the business sector by dismantling legislation which in the past limited competitiveness. The move to market economies and deregulation has brought with it a significant need for assistance right from the boardroom, the governance level, to the shop floor manufacturing and production processes.

The second major change is the impact of information technology and information in our society. Who was it that said society is held together by communications and information? Bill Gates? No. This very contemporary sounding comment was made by Dr. Samuel Gottfried in 1778 and quite forcefully it shows us that the past can speak to the present. There's an unprecedented level of information needed to make businesses successful. Software packages which embody all types of hard-won business skills bring state-of-the-art management techniques to the smallest organisations. Technology therefore increases competitiveness and puts a premium on know-how which consultants can bring.

Thirdly, the impact of the Internet and the new economy. The growing importance of e-business and e-commerce is such that organisations of every size have no choice but to participate and for that they need expertise. Consulting revenues are expected to grow five-fold in the next four years in e-commerce consulting. Many Web boutiques and traditional firms are now repositioning themselves to offer technically or technologically enlightened strategies combined with industry experience. They're using people, and consultants in particular, to leverage the Web to achieve high-end business performance.

The fourth significant trend is the overall technical sophistication of business. There's a marked tendency for business to become generally more complex and it is more demanding. Medicine, for example. has accumulated tremendous knowledge. I was at a meeting recently at one of our major universities, where it was suggested to us that just in terms of vocabulary alone a first-year biology student accumulates more vocabulary in that biology course than a first-year student taking a foreign language. This accumulation of expertise is enhanced by the commercial fact that organisations tend to maximise profitability when they specialise in what they do bestcore competence. And it goes a long way to explaining why outsourcing-paying others to operate those things which are not core-is enjoying such an unprecedented popularity. It doesn't show any signs of diminishing. Access to expertise or outsourcing for those things which are not core to companies tends to go to consultants.

And finally there has been a tremendous increase in customer expectations, an enormous surge in consumer's knowledge of what is available in the marketplace and of course a decrease in customer loyalty. Today companies need a much more thorough understanding of the marketplace. Consultants have a vested interest in providing outside objective expertise. What's happening is that they have a window on the marketplace to offer and companies are buying it in unprecedented volumes.

That's the consulting industry as a phenomenon. There's also tremendous opportunities for people who have the skill, intelligence and determination to take advantage of them. There's always a concern that traditional professional titles of lawyer, doctor or architect have widely recognised definition, but when people hear the title "management consultant" they tend to define it within a very wide range. On the one hand it may be a bright individual who deals only with the top management of large companies on critical matters or on the other simply an unemployed individual who has resorted to selling time for a fee until a real job comes along. Neither description is entirely accurate.

Consultants have to be expert at something. It is difficult though not impossible for someone to practice as a consultant unless they have some proven expertise in a particular discipline. I made this point early on because it explains why there are many more bad consultants than good ones. Bad consultants sadly make life difficult for the good ones who are genuinely committed to providing value for their client's money. Because personality and charisma are important in winning business, there is always a danger that some consultants will win business even if he or she does not have the skills to benefit the client. Consulting is not just a job; it is a profession. Even more than that it is a vocation. Star consultants are special people who make things happen, make businesses more efficient and effective and generally make society a better place.

How do you find a consultant whose advice is expert, appropriate and effective?

The solution is to choose a consultant wisely and anyone who is in business must learn to exercise his or her judgment effectively. Very few companies attain long-term profitability and growth without at some point hiring consultants. The permanent staff may be excellent employees who perform their daily tasks with dedication and skill and the result maybe exactly what you're looking for. But every once in a while something special occurs. It may be a new technology that can give you or cost you a competitive edge, changing consumer demands, burgeoning markets or the need for rapid expansion. Your employees, as good as they are, might not possess the highly specialised knowledge and experience needed to respond quickly and effectively to these varied challenges. That's when you hire a consultant, but consultants don't always bring the anticipated benefit. There are mountains of dust-covered consultants' reports that clutter up far too many offices. It pains me to say this but when it comes to using consultants the unwary client will likely stumble into one or more of the many pitfalls that lie along the company's critical path. There are many stories of abuses, misunderstandings, and misfit between clients and consultants. The results are sometimes humorous, sometimes sad, but most often wasteful like for example the oft-told story of NASA spending millions of dollars to develop a space pen that could write in zero gravity conditions and all of you know the Russian solution-the pencil. The good news is that most of the abuses, misunderstandings and misfits between client and consultant can be prevented. Let me share with you what I call the five fatal flaws of conventional consulting.

Let me tell you a little bit about how a consulting engagement typically rolls out. First of all a manager and executive decide to find a major consultant. The responsibility for the project then shifts to the consultant and a proposal is drafted and submitted. Once the client gives the go-ahead the consultant carries out his or her work, researches the problem and develops new processes or recommendations for change. Once the consultant has provided his or her recommendation leading to new systems he or she is deemed to have completed most of the work.

The first fatal flaw. Consulting engagements unfortunately get defined in terms of the consultant's expertise or products and not in terms of the specific client results he achieves. That often leads to off-the-shelf solutions. No matter what goals a client might have in mind when engaging a consultant, it is unlikely the consultant's project will be defined in terms of achieving those goals. The project will be defined in terms of the work the consultant will do and the products the consultant will deliver. Of course the, assumption is always that the consultant's deliverables will be eventually translated into the client's desired results but that is a fatal assumption and not always a correct one.

Let me give you a couple of examples. A Canadian electronics manufacturer with huge inventories and cash receivables was strapped for cash. Senior management identifies a goal to reduce inventory by a significant amount and a consultant is hired to help. The resulting project is defined as follows. Develop specifications for an improved inventory control system and then design and sell that system. You will notice a flaw. The consultant makes no commitment to help the client actually reduce specific categories of inventory by a specific percentage by a specific date. A fatal flaw.

Another example. A Canadian retail store is enjoying healthy growth but major changes in the marketplace are producing some significant competitive pressure. Senior officers decide that store managers need to increase sales volumes. A consultant is called in to help and the project is defined as follows. Train store managers to enable them to better provide the leadership required to boost store sales volumes and profitability. Even though the words "boost store sales volumes and profitability" have been included in the project definition careful reading makes clear that the goal to which the consultant has committed himself or herself to is the training of store managers, not the boosting of sales volumes and profitability. Linking a specific expertise to a consultant as opposed to the actual business goal is a fundamental and fatal flaw that clients can make.

The second fatal flaw. The project's goal is determined solely by the subject to be studied or the problem to be solved and ignores the client's readiness for change. One of our major financial institutions just two years ago went through a significant initiative to try and shut down its network of regional offices which had an employee sales force. They wanted to look at selling directly to the consumer and eliminating regional offices and the full-time sales force. Eighteen months worth of examination, consultants' reports, interviews and so on when presented landed on the executive table with a loud thud because the executives realised that the magnitude of the change contemplated by the recommendations of consultants was so huge that the likelihood of the organisation actually successfully implementing them was zero. Five million dollars for a few months work. Defining a consulting project that turns out an actual analysis of a deliverable as opposed to looking at the organisation's capacity for change is a fatal flaw.

Fatal flaw number three. The project aims for one big solution rather than incremental success. So often clients are looking for the silver bullet-the one thing that they'd like to do which would solve all of their problems. Many executives sit in wonder and hope for something that will solve their problems. Consultants who lead clients to believe that there is a complete remedy in fact mislead clients. The most effective consulting engagements are those which ensure that there are wins which are incremental and change is made in organisations which is also incremental.

The fourth fatal flaw is where the project or a consulting engagement has a sharp division of responsibilities between client and consultant. There should be no partition but it happens, often because there's no trust. When we look at the most effective relationships between consultants of other types-doctor-patient, lawyer-client -what is the one element that defines the most successful relationship between the two? How is it a doctor can actually diagnose and treat a patient most effectively? When you as the patient are absolutely honest about what it is that is afflicting you or what your conditions are. You are completely open to the physician. Otherwise you can't be treated. Unfortunately what happens with the division of responsibilities between client and consultant is that the client is not honest and the consultant takes away a misapprehension of what the actual problem is.

The fifth fatal flaw is an engagement where a company makes labour-intensive use of consultants instead of using its own people in a complementary way. Consultants are rewarded by putting the maximum number of people on a plan as possible. It is called leverage of our own people; not leverage of client personnel. The whole reward structure suggests that we put as many people on the client site as possible. In fact the most effective consulting engagements are those where there is a significant leveraging resource in the establishment of consulting teams in order to get the work done.

The five fatal flaws too often run rampant through our industry and give the entire profession a bad name: Consulting engagements are defined in terms of consultants' expertise not specific results to be achieved;

• Scope is determined by problems, not readiness for change;

Consulting engagements aim for one big solution rather than incremental success;

Consulting engagements entail sharp division of responsibilities rather than shared responsibility; and finally

Consulting engagements make labour intensive use of consultants instead of leveraged use and shared knowledge.

I painted a pretty bleak scene for you and I'd like to put that image into proper perspective. We don't have to repeat all of those mistakes. Prevention comes in many forms with the onus falling on both the consulting profession and its clients. First I would like to explore with you what consultants can do.

We're hampered but not incapacitated by the fact that anyone can hang out a shingle that says "consultant." The Canadian Association of Management Consultants represent a sizeable portion, but by no means all, of people who call themselves consultants and it's the members of this organisation who can speak most authoritatively. To earn our Certified Management Consulting (CMC) designation individuals have to demonstrate their knowledge of management and their capacity to consult according to international standards of practice and ethics. They do this through a combination of university education, experience, peer reviews, formal study and examinations.

While I feel comfortable vouching for the general competence and ethics of anyone who has earned the CMC designation, the designation itself doesn't necessarily mean the holder is qualified to tackle the particular tasks you have in mind. After all each job has its special challenges that may require a specialised set of skills. To make sure that you, the client, hire the right consultants, you need to actively protect your interests. Begin by looking beyond the CMC designation to ensure the consultants have experience dealing with your specific circumstances. Check for academic degrees and their relevance to the tasks. Ask about clients and check out references. You'd be amazed at the number of times a reference has been asked for and recalled. Perform the same due diligence on a consultant as you would in hiring a permanent employee.

Don't be afraid to explore the workings of a consultant's mind and how he or she might approach the set of problems and what results you can expect to get. You want to do this before signing a consultant's contract. There might be limits to what the consultants can divulge but that's the consultant's problem, not the client's. Regardless of whether this process unfolds in personal interviews or presentations look for substance. Hire only consultants who demonstrate a thorough understanding of the particular problems and challenges of your organisation.

The way a client avoids the pitfalls is to do a reality check. If you are in doubt about the direction you want the consultant to take, put your assumptions aside and ask the consultant. If you're not in doubt about the direction you want the consultant to take, then still put aside your assumptions and ask the consultant. The failure to do this is one of the principal reasons for the failure of consultants to live up to client expectations.

Let's face it. Organisations usually call a consultant for one of two reasons. They have internal problems or to put it more boldly they are badly run. Or they are faced with external challenges that they can't successfully meet on their own. And in those circumstances it doesn't make sense for companies to restrict the rescuer (consultant) access to information. The key is to establish a partnership based on trust and the maximum amount of information possible in order to maintain a significant relationship. For the consultant to be effective he or she needs to have unfettered input from the client. This exploratory process helps the client and consultant identify the real source of the problem and helps the client decide whether he or she wants to work with the consultant and the consultant decide whether he or she wants to work for the client. It also builds mutual trust and confidence-prerequisites for any successful business relationship. It establishes roles, clear and specific responsibilities and creates a framework for payment. In short, if you are in the process of hiring consultants you'd better take the reins if you are the client or risk orchestrating your own personal horror show. The great consultants will rise to the challenge. Clients need to be willing to bear the onus of inquisitor, they need to be demanding, to question their own assumptions and pre-judgments and put aside fears. The worst that your probing can do as a client is put the consultant on the spot. But the greatest of consultants will rise to the challenge and work with what they have.

I have a story to share with you as I conclude. I am a lover of classical music and this story reverberated through the musical world just a few years ago. It's a marvellous lesson for consultants.

For any of you who have in fact had the experience of hearing and seeing the violinist Itzhak Perlman perform it is a marvellous one. He came on the stage of the Lincoln Centre in 1995 and if you have ever been to a Perlman concert you know that getting on stage for him is no small achievement. He was stricken with polio as a child, has braces on both legs and walks with the aid of two crutches. To see him walk across the stage one step at a time painfully and slowly is an unforgettable sight. He walks painfully until he reaches his chair. He then sits down slowly, puts his crutches on the floor, undoes the clasps on his legs, puts one foot back and extends the other foot forward. He then bends down and picks up the violin, puts it under his chin, nods to the conductor and proceeds to play. The audience is used to this ritual. They sit quietly while he makes his way across the stage to his chair. They remain reverently silent while he undoes the clasps on his legs. They wait until he is ready to play but this time something went wrong. Just as he finished the first few bars one of the strings on his violin broke. You could hear it snap. It went off like gunfire across the room. There was no mistaking what that sound meant. There was no mistaking what he had to do. People who were there that night thought to themselves that he would have to get up, put on the clasps again, pick up the crutches, limp his way off the stage to either find another violin or else find another string for that one. But he didn't. Instead he waited a moment and then signalled the conductor to begin again. The orchestra began and he played from where he had left off and he played with such passion and such power and such purity as they had never heard before. Of course anyone knows that it is impossible to play a symphonic work with just three strings. I know that and you know that. But that night Perlman refused to know that. You could see him modulating, changing, recomposing the piece in his head. At one point it sounded as though he was de-tuning the strings to get new sounds. When he finished there was an awesome silence in the room and then people rose and cheered. There was an extraordinary outburst of applause and people were on their feet screaming and cheering and doing everything they could do to show how much they appreciated what he had done. He smiled, wiped the sweat from his brow, raised his bow to quiet the crowd and then said not boastfully but in a quiet, pensive, reverent tone: "Sometimes the artist has to find out how much music he can still make with what he has left."

What a powerful line that is. It has stayed in my mind ever since I first heard it. Maybe that should be a way of life for consultants and their clients. It is a fast-paced shaky bewildering world in which we live. We should make music first with what we have and make the absolutely best use of what we have at our disposal. When that is no longer possible we will make music with what we have left. Thank you.

The appreciation of the meeting was expressed by Sharon Rudy, Vice-President, Spencer Stuart and Director, The Empire Club of Canada.