Five Reasons Why Management Consultancy (MC) Fails?
T. V. Rao
Chairman, TVRLS
T. V. Rao
Chairman, TVRLS
Today, Management systems and processes are in demand just like the Management Graduates. Many organizations rightly believe that they can do better than before by using management systems and processes. Systems enhance predictability, ensure reliability, reduce transaction costs and bring in cost effectiveness. Those who use professional management in managing their affairs- be it customers, materials, finance, people, quality, products, profits or anything- are likely to derive better benefits in terms of costs, speed, brand image, etc. and progress well. That is the reason why corporations are going at any length to employ MBAs from reputed institutions at a high cost and also getting their executives trained in management processes and systems. They also use management consultants to introduce or improve systems. However while training brings in a lot of change in outlook and also enhances skill base when organizations spend millions of rupees on management consultancy they often complain privately that it has been a waste or that the consultant walked away with the watch by telling them the time and they have to depend on the consultant every time they needed to interpret his data or recommendation and implement them. There are five reasons why management consultancy seems to fail wherever they have failed. These are working simultaneously or one of them is enough to make the management consultancy fail.
These are:
1. Ignorance and Inappropriate sourcing policies
2. Lack of commitment of the top management
3. Poor implementation and follow up
4. Lack of knowledge and experience in using consultants and consultancies
5. Frequent change of those who are responsible
There may be many more but these are the most common causes for not getting the best returns on Management Consultancies and consultants.
Now a days management consultants and consultancy assistance is sought in the following areas:
A. SAP, ERP and related solutions primarily dealing with MIS and IT
B. Strategy and business planning, Mergers and Acquisitions
C. Organizational structuring or restructuring
D. Human resources Systems including PMS, ADCs, 360 Degree Feedback, recruitment, competency mapping, employee engagement surveys including the Q12, training systems improvements etc.
E. TQM, 5S, TPM and the related solutions to rationalise production costs and enhance quality
F. Market surveys and marketing strategies
Of the above the most effective areas where the ROI is high seems to be A, B, E and F. Consulting and consultants on Marketing and Advertising strategies, M & As, IT solutions including SAP and ERP, TPM and related improvements in production have worked reasonably well in most organizations. However when it comes to Organizational restructuring and HR issues the ROI does not seem to be as much. In an any case the reasons for success or failure of management consultancy can be traced to five most possible reasons.
1. Ignorance and Inappropriate sourcing
One I was travelling from Mumbai to Bangalore and in the flight I met a person form one of the reputed family owned business firms from Chennai. He is a non-HR person transferred to HR a couple of years ago. During our conversation he discovered that Performance appraisal is (PMS) one of the areas of my specialisation. Apparently this is the most important issue that was occupying his mind at that time. He mentioned to me briefly the issues he is having in his company with PMS. I listened to him carefully for about 15 minutes. I then listed down the reasons why these kind of issues he mentioned take place in organizations and the possible ways to deal with them. He was quite surprised and said, “Sir, you have given me in 15 minutes a solution which my consultants have taken six months f study. Just the other day they presented their diagnosis and recommendations and it is exactly the same as what you are saying”.
I have been working in the field of PMS for the last 40 years and I can reasonably predict the issues involved in PMS by knowing the nature of company, profile of the people they have, systems they have tried and the current concerns. If the same thing has to be done by one of the junior consultants who most likely would have acquired the knowledge and skills by reading the books in this field, he would obviously take time. In Management consultancy the Consultant or his experience is the most critical variable. Unfortunately most firms and their “Tender Committees” do not realise this. When they need a machine they go out of way to prepare hundreds of pages of specifications to ensure that they get the correct machine. The same people from the “Sourcing” or “Materials department” or their committees do not spend any time and do not even specify the nature of the consultant they need. They do not go beyond stating the number of years of experience (whatever field does not matter and consultants have a knack of showing any work they have done as related to the need of the client. Those organizations that use the “Tendering process” make the mistake of not specifying the nature of consultant they want. They are also unable to specify the system they want in detail. This is because unlike in other materials the seeker of consultancy him/self does not know what they want. For example recently one of the organizations wanted to conduct Assessment Centres for 500 of their senior managers without knowing what exactly is an ADC, the limitations of ADCs and the difficulties in using them for promotion decisions in India. Their entire reason was that if they do not use ADCs they will not be considered as progressive HR manager and the company will be rated as backward in HR policies. They lacked education of the ADCs. Imagine such persons preparing the tender document. They normally seek the assistance of one of the Consultants to learn and prepare the Tender Document and the Consultant obviously prepares a document that he is capable of some times to discover that the project is assigned to someone else for a lower price. The firm losses all the work done by the person and gets a new person who has to learn all over again for a few thousands of rupees because of what they call as” L1” In tendering language.
Management consultants have their charges reasonably well known. For example IIMs do not differentiate normally between their faculties but let the client and the professor jointly discuss and decide as the norms are reasonably well known.
Not specifying the process they expect to be followed and not specifying the kind of person they want leads to a lot of issues and the firms most often feel that they do not get what they desired. At the end most of the line managers end up feeling that, “the Consultancy Firm is a big name but they have sent young and inexperienced consultants for doing the project”. They often say that, “ these young men come from reputed business schools, did not know how the business runs and we had to teach them a lot about the company and what works here and what does not work. At the end they gave a report that we had to shelve”. All these could be avoided if the nature of consultants is known from the beginning and the Firm kept up the promises. Normally the person who negotiates is a senior person like that of the Director and the delivery is by junior consultants.
The success or failure of MC depends on the kind of consultants you use. It is essentially knowledge transfer issue. To transfer the knowledge the consultant should assess correctly the current absorption capacity of the firm and provide a solution to them. In earlier days firms used to get consultants to diagnose first and then suggest solutions. The solutions are debated and discussed and then an implementation teams assigned and accepted systems and processes implemented. There used to be buy in by the managers in the firm and proper education of the consultant due to diagnosis. In some companies the current trend seems to be to keep changing the consultant sometimes due to a tendering process and sometimes for other reasons. Changing consultants on the grounds of incompetency or insensitivity of the consultant is necessary but change due to change of preferences or change for other reasons without realising the transaction costs develop cynicism among the line managers.
In many organizations the Tendering process itself is filled with inadequacies and results in the choice of wrong consultants. I keep saying that when you do not go to a Doctor through Tendering process why do you choose consultants who are management Doctors using tenders.
When you choose a consultant by Tenders and prefer low cost Consulting firms it may be that you prefer low cost Doctors. Experienced consultants are expensive. However the time they take to diagnose and deliver solutions gives a cost advantage to firms which they need to realise. Some consulting firms use young MBAs from reputed professional management schools. The firm prefer them because the consulting firm is well established and has a lot of global data base. However the consultants they use need to have the capability to draw from the data base and also have the acceptability of the firm’s line managers who are normally experienced people. Many consultancies of big firms fail because of this. Sometimes organizations make the reverse mistake of going for expensive consultants. I had often come across particularly PSUs specifying that Consulting Firms with less than Rs five crore or fifty crore annual turnover need not apply. They imply that the best consultancies are offered by large consulting firms and ignore the fact that reputed consultants work on their own and not and are not likely to be attached to large consulting firms. The culture of bog hospitals getting reputed Doctors on the Board has not yet started in management Consultancy. All reputed consultants have small firms of their won. Also research studies in the US have suggested that small firms deliver better results as they care more and are interested in repeat services. Big firms do not bother as they have a large turnover of the projects.
One company wanted a particular HR intervention to be done. They wanted my involvement. We had a number of meetings and it was indicated to me that they would like me to do the do the job. I have given a proposal accordingly suggesting that I will be involved for certain number of days and the project costs would be as per the number of days of my involvement as well as for conducting certain number of programs to induct internal facilitators. Suddenly without my knowledge they have asked for tenders using the same document that I have assisted in preparing with some modification to suit the tendering Language. I was again asked to send my financial quote. Not knowing that it is being subjected to tender process I sent the same quotation s before. It is only a few months later I came to know that the project was assigned to some other party who quoted at on third the amount I quoted. Obviously if the same operation is to be done by a different doctor and perhaps a junior one he will quote his rate. The consultancy firm that quoted their rate also suggested perhaps that the number of training programs they would conduct will be much less. The firm went merely by the financial quote without looking into the nature of consultants as well as the detailed process to be used. In my view this is short sighted view. This is perhaps the reason why no less a person than N. Vittal, Former Central Vigilance Commissioner called the tender committees a s those that get set up when no one wants to take responsibility ( Times of India, Ahmedabad, July 2009).
2. Lack of commitment of the top management
Another reason for failure of management consultancies is the lack of involvement and commitment of the Top management. All said and done most of our firms are still top dependent. Some of the senor level managers are very sensitive to the non verbal signals of the top management. If the MD simply remarks that “Balanced Score card is fine don’t spend too much of your time on it. Get some results” the person in-charge of BSC implementation sulks and stops all the work he is doing on BSC and also spreads the message across that the boss is not interested.
The top management needs to be sensitive to their own behaviour and give the time and support required by each of the systems. Sometimes they show commitment to every system they have come across by not letting anyone system stabilises. One day it is MBO, another day PMS, another day BSC and latter Five S or Kaizen or Restructuring etc. Our top management in their eagerness to appear to be professional, modern and global thinkers keep importing all the techniques that can be found on the Management Book stalls, or Business magazines like the HBR not knowing that the most famous Management Gurus from the US are not known beyond their University departments.
In one of the companies who invited me to help implement their PMS, the Head HR in the presence of the CEO of the company acknowledged, “Professor, we are happy to welcome you. We had all great people in Management Profession like Dr Athreya, Rangnekar etc. etc. Visiting us and helping us on different things in the last ten years. You are the only consultant we did not have the opportunity to invite to be with us and do some work. Finally the dream is now fulfilled”. Imagine the fate of all the systems we try to introduce in this company that counts consultants. It is like saying, “We got many doctors. The disease remains where it was and if any worse. It can’t be cured as it never existed. Now we changed our health goal. The new goal is to get as many famous doctors as possible on to our firm. At least it adds tour brand”.
3. Poor implementation and follow up
Most management consultancies do not give the ROI as they end with the consultant’s report. In some cases the management is not convinced. It is understandable. In a few other cases the first hurdle or the problem stops implementation. In many cases some issue or the other in implementation stops the effectiveness. In most cases the implementation is not done in a systematic and planned way. The most important phase in getting the implementation going is in planning an implementation strategy and going ahead with it.
When we did the consultancy in HRD at L&T in early seventies our report was presented in a top management meeting attended by Hock Larsen himself, along with the then MD, Mr. N M Desai and other Board members. On deciding to implement it they appointed a high powered task force which worked almost for three years and ensured that it was implemented. The task force used to report periodically to Mr. N M Desai on the progress and the consultants used to be called for discussion and review of the progress. It was one of the most effective implemented systems in my entre experience.
4. Lack of knowledge and experience in using consultants and consultancies
Some companies do not have much of experience in using consultants. They seem to think because they pay huge amounts of money that the consultants should practically run the company. In recent past one of the medium scale companies asked our assistance to design and implement HR systems. The project was to complete in six months. We did it in four months. The firm started saying now that you have completed early please continue to help in implementing. We suggested a new implementation contract to be drawn. They said there was no need as our duty is to work for them for six months and visit them whenever they needed in the same budget. It took a lot of time and effort to explain that they have not bought our time for the entire six months. However as it is an upcoming firm we went on helping them without making too much fuss. Even after six months they insisted that they should get our help without any additional fee. Sometimes I have seen clients using it to change the organizational structure, and some other times to get rid of people. Thus agenda of the sponsor of the project may be different and altogether opposite of the management principles the consultant practices or are required to appreciate.
5. Frequent change of those who are responsible
The biggest hurdle in my view is the change of those who are responsible.
A particular firm invited to me design anew PMS for the company. The firm had a Head of HR who joined it about six months prior to the invitation to me. I suggested that we start with a workshop to educate the senior line managers and HODs on the new development in PMS and take their views as a prelude to diagnosis. The firm promptly arranged a Workshop. In the beginning of the work shop the line managers appeared agitated. After the introduction given to the audience about me, I noticed the restlessness on the part of the participants. I pointed out the same and asked they what the matter was. One of them stood up and replied: “Professor Rao, we are happy to know about you and your experience in this filed. We are very willing to learn from you about various experiences you have on PMS and design perhaps a new system for this company. However, sir, we would like to have an assurance from our HR Head through you, that he will be in this company for the next few years until the new system is introduced and stabilised. We are requesting this because in the last three to four years this company has seen three HR heads and every time a new HR head is appointed he wants to change the PMS system and gets new consultant and leaves within one year. You are the third consultant that has come to change the PMS system and we seem to become gunny pigs for the experiment?” The HR Manager gave assurance and we went ahead. Unfortunately the HR head left the company six month latter. Imagine the credibility of HR introducing any system in this company after this experience.
Changing HR heads, Changing CEOs particularly in PSUs and frequent transfers of those involved is another biggest hurdle in implementation.
These are:
1. Ignorance and Inappropriate sourcing policies
2. Lack of commitment of the top management
3. Poor implementation and follow up
4. Lack of knowledge and experience in using consultants and consultancies
5. Frequent change of those who are responsible
There may be many more but these are the most common causes for not getting the best returns on Management Consultancies and consultants.
Now a days management consultants and consultancy assistance is sought in the following areas:
A. SAP, ERP and related solutions primarily dealing with MIS and IT
B. Strategy and business planning, Mergers and Acquisitions
C. Organizational structuring or restructuring
D. Human resources Systems including PMS, ADCs, 360 Degree Feedback, recruitment, competency mapping, employee engagement surveys including the Q12, training systems improvements etc.
E. TQM, 5S, TPM and the related solutions to rationalise production costs and enhance quality
F. Market surveys and marketing strategies
Of the above the most effective areas where the ROI is high seems to be A, B, E and F. Consulting and consultants on Marketing and Advertising strategies, M & As, IT solutions including SAP and ERP, TPM and related improvements in production have worked reasonably well in most organizations. However when it comes to Organizational restructuring and HR issues the ROI does not seem to be as much. In an any case the reasons for success or failure of management consultancy can be traced to five most possible reasons.
1. Ignorance and Inappropriate sourcing
One I was travelling from Mumbai to Bangalore and in the flight I met a person form one of the reputed family owned business firms from Chennai. He is a non-HR person transferred to HR a couple of years ago. During our conversation he discovered that Performance appraisal is (PMS) one of the areas of my specialisation. Apparently this is the most important issue that was occupying his mind at that time. He mentioned to me briefly the issues he is having in his company with PMS. I listened to him carefully for about 15 minutes. I then listed down the reasons why these kind of issues he mentioned take place in organizations and the possible ways to deal with them. He was quite surprised and said, “Sir, you have given me in 15 minutes a solution which my consultants have taken six months f study. Just the other day they presented their diagnosis and recommendations and it is exactly the same as what you are saying”.
I have been working in the field of PMS for the last 40 years and I can reasonably predict the issues involved in PMS by knowing the nature of company, profile of the people they have, systems they have tried and the current concerns. If the same thing has to be done by one of the junior consultants who most likely would have acquired the knowledge and skills by reading the books in this field, he would obviously take time. In Management consultancy the Consultant or his experience is the most critical variable. Unfortunately most firms and their “Tender Committees” do not realise this. When they need a machine they go out of way to prepare hundreds of pages of specifications to ensure that they get the correct machine. The same people from the “Sourcing” or “Materials department” or their committees do not spend any time and do not even specify the nature of the consultant they need. They do not go beyond stating the number of years of experience (whatever field does not matter and consultants have a knack of showing any work they have done as related to the need of the client. Those organizations that use the “Tendering process” make the mistake of not specifying the nature of consultant they want. They are also unable to specify the system they want in detail. This is because unlike in other materials the seeker of consultancy him/self does not know what they want. For example recently one of the organizations wanted to conduct Assessment Centres for 500 of their senior managers without knowing what exactly is an ADC, the limitations of ADCs and the difficulties in using them for promotion decisions in India. Their entire reason was that if they do not use ADCs they will not be considered as progressive HR manager and the company will be rated as backward in HR policies. They lacked education of the ADCs. Imagine such persons preparing the tender document. They normally seek the assistance of one of the Consultants to learn and prepare the Tender Document and the Consultant obviously prepares a document that he is capable of some times to discover that the project is assigned to someone else for a lower price. The firm losses all the work done by the person and gets a new person who has to learn all over again for a few thousands of rupees because of what they call as” L1” In tendering language.
Management consultants have their charges reasonably well known. For example IIMs do not differentiate normally between their faculties but let the client and the professor jointly discuss and decide as the norms are reasonably well known.
Not specifying the process they expect to be followed and not specifying the kind of person they want leads to a lot of issues and the firms most often feel that they do not get what they desired. At the end most of the line managers end up feeling that, “the Consultancy Firm is a big name but they have sent young and inexperienced consultants for doing the project”. They often say that, “ these young men come from reputed business schools, did not know how the business runs and we had to teach them a lot about the company and what works here and what does not work. At the end they gave a report that we had to shelve”. All these could be avoided if the nature of consultants is known from the beginning and the Firm kept up the promises. Normally the person who negotiates is a senior person like that of the Director and the delivery is by junior consultants.
The success or failure of MC depends on the kind of consultants you use. It is essentially knowledge transfer issue. To transfer the knowledge the consultant should assess correctly the current absorption capacity of the firm and provide a solution to them. In earlier days firms used to get consultants to diagnose first and then suggest solutions. The solutions are debated and discussed and then an implementation teams assigned and accepted systems and processes implemented. There used to be buy in by the managers in the firm and proper education of the consultant due to diagnosis. In some companies the current trend seems to be to keep changing the consultant sometimes due to a tendering process and sometimes for other reasons. Changing consultants on the grounds of incompetency or insensitivity of the consultant is necessary but change due to change of preferences or change for other reasons without realising the transaction costs develop cynicism among the line managers.
In many organizations the Tendering process itself is filled with inadequacies and results in the choice of wrong consultants. I keep saying that when you do not go to a Doctor through Tendering process why do you choose consultants who are management Doctors using tenders.
When you choose a consultant by Tenders and prefer low cost Consulting firms it may be that you prefer low cost Doctors. Experienced consultants are expensive. However the time they take to diagnose and deliver solutions gives a cost advantage to firms which they need to realise. Some consulting firms use young MBAs from reputed professional management schools. The firm prefer them because the consulting firm is well established and has a lot of global data base. However the consultants they use need to have the capability to draw from the data base and also have the acceptability of the firm’s line managers who are normally experienced people. Many consultancies of big firms fail because of this. Sometimes organizations make the reverse mistake of going for expensive consultants. I had often come across particularly PSUs specifying that Consulting Firms with less than Rs five crore or fifty crore annual turnover need not apply. They imply that the best consultancies are offered by large consulting firms and ignore the fact that reputed consultants work on their own and not and are not likely to be attached to large consulting firms. The culture of bog hospitals getting reputed Doctors on the Board has not yet started in management Consultancy. All reputed consultants have small firms of their won. Also research studies in the US have suggested that small firms deliver better results as they care more and are interested in repeat services. Big firms do not bother as they have a large turnover of the projects.
One company wanted a particular HR intervention to be done. They wanted my involvement. We had a number of meetings and it was indicated to me that they would like me to do the do the job. I have given a proposal accordingly suggesting that I will be involved for certain number of days and the project costs would be as per the number of days of my involvement as well as for conducting certain number of programs to induct internal facilitators. Suddenly without my knowledge they have asked for tenders using the same document that I have assisted in preparing with some modification to suit the tendering Language. I was again asked to send my financial quote. Not knowing that it is being subjected to tender process I sent the same quotation s before. It is only a few months later I came to know that the project was assigned to some other party who quoted at on third the amount I quoted. Obviously if the same operation is to be done by a different doctor and perhaps a junior one he will quote his rate. The consultancy firm that quoted their rate also suggested perhaps that the number of training programs they would conduct will be much less. The firm went merely by the financial quote without looking into the nature of consultants as well as the detailed process to be used. In my view this is short sighted view. This is perhaps the reason why no less a person than N. Vittal, Former Central Vigilance Commissioner called the tender committees a s those that get set up when no one wants to take responsibility ( Times of India, Ahmedabad, July 2009).
2. Lack of commitment of the top management
Another reason for failure of management consultancies is the lack of involvement and commitment of the Top management. All said and done most of our firms are still top dependent. Some of the senor level managers are very sensitive to the non verbal signals of the top management. If the MD simply remarks that “Balanced Score card is fine don’t spend too much of your time on it. Get some results” the person in-charge of BSC implementation sulks and stops all the work he is doing on BSC and also spreads the message across that the boss is not interested.
The top management needs to be sensitive to their own behaviour and give the time and support required by each of the systems. Sometimes they show commitment to every system they have come across by not letting anyone system stabilises. One day it is MBO, another day PMS, another day BSC and latter Five S or Kaizen or Restructuring etc. Our top management in their eagerness to appear to be professional, modern and global thinkers keep importing all the techniques that can be found on the Management Book stalls, or Business magazines like the HBR not knowing that the most famous Management Gurus from the US are not known beyond their University departments.
In one of the companies who invited me to help implement their PMS, the Head HR in the presence of the CEO of the company acknowledged, “Professor, we are happy to welcome you. We had all great people in Management Profession like Dr Athreya, Rangnekar etc. etc. Visiting us and helping us on different things in the last ten years. You are the only consultant we did not have the opportunity to invite to be with us and do some work. Finally the dream is now fulfilled”. Imagine the fate of all the systems we try to introduce in this company that counts consultants. It is like saying, “We got many doctors. The disease remains where it was and if any worse. It can’t be cured as it never existed. Now we changed our health goal. The new goal is to get as many famous doctors as possible on to our firm. At least it adds tour brand”.
3. Poor implementation and follow up
Most management consultancies do not give the ROI as they end with the consultant’s report. In some cases the management is not convinced. It is understandable. In a few other cases the first hurdle or the problem stops implementation. In many cases some issue or the other in implementation stops the effectiveness. In most cases the implementation is not done in a systematic and planned way. The most important phase in getting the implementation going is in planning an implementation strategy and going ahead with it.
When we did the consultancy in HRD at L&T in early seventies our report was presented in a top management meeting attended by Hock Larsen himself, along with the then MD, Mr. N M Desai and other Board members. On deciding to implement it they appointed a high powered task force which worked almost for three years and ensured that it was implemented. The task force used to report periodically to Mr. N M Desai on the progress and the consultants used to be called for discussion and review of the progress. It was one of the most effective implemented systems in my entre experience.
4. Lack of knowledge and experience in using consultants and consultancies
Some companies do not have much of experience in using consultants. They seem to think because they pay huge amounts of money that the consultants should practically run the company. In recent past one of the medium scale companies asked our assistance to design and implement HR systems. The project was to complete in six months. We did it in four months. The firm started saying now that you have completed early please continue to help in implementing. We suggested a new implementation contract to be drawn. They said there was no need as our duty is to work for them for six months and visit them whenever they needed in the same budget. It took a lot of time and effort to explain that they have not bought our time for the entire six months. However as it is an upcoming firm we went on helping them without making too much fuss. Even after six months they insisted that they should get our help without any additional fee. Sometimes I have seen clients using it to change the organizational structure, and some other times to get rid of people. Thus agenda of the sponsor of the project may be different and altogether opposite of the management principles the consultant practices or are required to appreciate.
5. Frequent change of those who are responsible
The biggest hurdle in my view is the change of those who are responsible.
A particular firm invited to me design anew PMS for the company. The firm had a Head of HR who joined it about six months prior to the invitation to me. I suggested that we start with a workshop to educate the senior line managers and HODs on the new development in PMS and take their views as a prelude to diagnosis. The firm promptly arranged a Workshop. In the beginning of the work shop the line managers appeared agitated. After the introduction given to the audience about me, I noticed the restlessness on the part of the participants. I pointed out the same and asked they what the matter was. One of them stood up and replied: “Professor Rao, we are happy to know about you and your experience in this filed. We are very willing to learn from you about various experiences you have on PMS and design perhaps a new system for this company. However, sir, we would like to have an assurance from our HR Head through you, that he will be in this company for the next few years until the new system is introduced and stabilised. We are requesting this because in the last three to four years this company has seen three HR heads and every time a new HR head is appointed he wants to change the PMS system and gets new consultant and leaves within one year. You are the third consultant that has come to change the PMS system and we seem to become gunny pigs for the experiment?” The HR Manager gave assurance and we went ahead. Unfortunately the HR head left the company six month latter. Imagine the credibility of HR introducing any system in this company after this experience.
Changing HR heads, Changing CEOs particularly in PSUs and frequent transfers of those involved is another biggest hurdle in implementation.
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