An lntroduction to
MANAGEMENT
CONSU LTANCY
Marc G. Baaij
Osncr
Los Angeles I London I New Delhi
Singapore I Washington DC
the mana$ement consultant as a doctor; and the consultant as a facilitator
(providing a process for problem solving).
The criticol perspective
The critical perspective acknowledges that management consultants solve
problems. In addition, this view distinguishes various informal roles. Clients
may hire mana$ement consultants to provide temporary capacity (hired
hand), to legitimize clients'solutions which other stakeholders oppose (legiti
mator), to support clients in political fights (political weapon), and to take the
blame for clients' solutions that are not in the interests of some other stakeholders (scapegoat). These reasons differ in terms of the effect of management
consultancy. Management consultancy is defined as providin{ independent
advice (see Chapter 1); however, the consultant depends on the client for
their payment. Therefore, the consultant may be vulnerable to opportunistic
clients who hire a consultant as a le$itimator, political weapon, or scape$oat.
In each of these situations, we can no lon$er qualify the consultant's advice
as
independent.
'
manufacturer, Ten years ago the com-
The efbct of qdvice
The following case study illustrates how
management consultants may have a positive effect on their clients' performance.
between components and final products.
This is a stylized case based on a synthesis of disguised real world situations.
When the final product manufacturer,
Target Corporation, one of its main cus-
The case also illustrates the importance of
independent advice.
tomers, came up for sale, Blivet acquired
it. The integrated company, however, did
ln seorch of synergies
Blivet Corporation is a vertically integrated
company. The company has positions in
the manufacturing of components and
final products (based on these components). Blivet was originally a component
84
pany decided to enter into manufacturing of final products. The management
of Blivet regarded manufacturing as an
attractive industry. Moreover, that management saw substantial synergies
not perform as was expected. On the
contrary, its revenues diminished and
its profitability declined even more. The
stock market responded negatively: the
company's stock halved. At that time,
five years ago, the management of Blivet
decided to hire one of the world's top
management consultancy firms, Brain
AN INTRODUCTION TO MANAGEMENT CONSULTANCY
& Company,
to help Blivet improve
its
shareholder value.
The odvice
Based
on three months of
rigorous
research, Brain & Company came to the
conclusion that Blivet should exit the component business and focus its resources
on the final product manufacturing. This
advice came as a shockto Blivet's management as the company had been founded
as a component producer. Moreover, the
component business represented B0 per
cent of Blivet's revenues. Divesting the
component business implied shrinking
the company to a fifth of its original size.
However, when Blivet publicly. announced
its retreat from component manufacturing,
its stock price soared. After the divestiture
of the component division, the remaining final product division was renamed
was one of their competitors. Moreover,
Target could no longer buy components
from competitors of Blivet, but was forced
to source all its components from its new
owner. However, Blivet was not the most
competitive provider. Brain & Company
showed that final product manufacturing
was an attractive industry, Economies of
scale were decisive in final product manufacturing. Blivet's scale was too small and
the company lacked the capital to invest in
its scale. By selling the unattractive component activities and reinvesting the receipts of
the sale in the final product manufacturing
business, Focus Corporation could reach
a competitive scale. Moreover, by breaking
up the relationship with components, Focus
could purchase components from the best
sources available, Finally, by pruning the
company's portfolio to final products only,
management could focus their attention on
a single core business. The rise of Focus
Focus Corporation. ln the following five
years, Focus has tripled the revenues of
its final product business while increasing
its already high profitability. Although the
company is currently about 60 per cent of
its original size, its stock market value has
increased fivefold since the announcement
of its withdrawal from components.
Corporation's stock price reflected investors' expectations about the new strategy
1
What was/were the main reason(s) why
Blivet hired an external management
consultancy? Elaborate on your answer.
Ihe logic
2
Should Brain & Company have based
its consultancy fee on the performance
effect that its advice generated? Why,
or why not? Explain your answer.
3
lf you were the chief executive officer
of Blivet, would you have accepted a
performance-based consultancy fee for
Brain & Company? What are the pros
and cons of performance-based fees
for clients? Explain your answer,
developed by Brain & Company,
Discussion queslions
The consultancy project by Brain &
Company revealed that the component
industry was no longer attractive for Blivet.
Moreover, the expected positive synergies
and final products
did not exist. ln contrast, the synergies
proved to be negative. Other customers
between components
from Blivet's
their orders
component business withdrew
when it took over Target, which
REASONS, RISKS, AND RESULTS OF MANAGEMENT CONSULTANCY
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