- A definition of strategy consulting
- Why companies hire strategy consulting firms
- An overview of key strategy consulting firms
- Issues strategy consulting firms tackle
1) A definition of strategy consulting:
At its core, business strategy is all about earning superior profits and beating the competition. Strategy consulting is the industry and practice of assisting businesses with high-level decisions that enable them to do this. Strategy is distinct from operations in that strategy addresses the question "What do we do?", while operations addresses the question "How do we do it?".
A strategic question might be: "What should we do to differentiate ourselves from the competition?", while an operational question might be: "How can we operate this plant most cost-effectively?" Operational questions cover many siloes of the organization, from manufacturing to IT to human resources to finance. Strategic questions operate at a higher level, prioritizing resources among the competing demands to maximize shareholder wealth.
2) Why companies hire strategy consulting firms:
A common question that strategy consultants face is, "Why don't these companies do that themselves?" Indeed, if the questions are so critical and strategic, it might seem that they shouldn't be outsourced. Clearly, executives at client firms do not abdicate their decision-making responsibility to consultants. Rather, they incorporate the additional input into their decision-making process.
Some questions are so important that they deserve an extra dose of talent and brainpower to ensure that they're answered properly. Getting the answer wrong could devastate the company or mean the company misses great opportunities to their competition, so it's worth spending a couple million dollars ensuring that they get it right.
Executives are often tied-up in the day-to-day decisions of the company and simply can't dedicate the time and mental resources required to get to the right answer. Executives' days are tied up with meetings, operational crises, personnel issues, customer relations, and dozens of other obligations. A strategy consulting team, however, can devote 60 hours (or more) a week focused on answering a single important question.
Another advantage of using strategy consulting firms is that they may have a deep expertise in a given industry or topic area. While a company might close down manufacturing plants a couple times a decade, a strategy consulting firm might have worked with dozens of companies who've been through that process. By having this expertise available, client firms can feel better about getting the job well done.
Sometimes it's simply illegal for a company to work on the questions a strategy consulting team tackles. For example, when two competitors agree to merge, but have not yet completed the transaction, it's illegal to share information between the companies. Sharing information about pricing or other sensitive issues can violate anti-trust legislation. Technically, these companies are still competitors and ought not to be colluding.
Any number of factors could sink the deal, yet the companies want to get a jump on their post-merger integration. So, strategy consultants can come in and operate in a "clean room" environment, where they can receive the data from both parties, identify synergy opportunities, and get a jump on seizing these opportunities when the merger is complete.
The cynic might say that strategy consulting firms are brought in when an executive wants to "wash his hands" of a controversial decision or prove that he's right. (e.g. "It's not my fault the strategy didn't work; the guys at BCG said this would make us a billion dollars!") While certain executives can have an agenda, reputable firms determine what the data suggest is best for the company and artfully navigate the underlying politics. Indeed, sometimes the sensitivity of an issue can be a source of the strategy consulting team's value-addition. Having an outside perspective can be invaluable to cut through politics and bring the most relevant facts to light.
If all corporations operated perfectly -- and all their data clearly led to informed decisions -- the strategy consultant's job would be unnecessary. However in the real world, businesses operate sub-optimally, and their data are often totally messy or not readily usable for certain decisions. Ask any strategy consulting analyst about the quality of their client's data, and you'll get an earful! In many ways corporate underperformance is the seedbed for strategy consulting engagement opportunities.
3) An overview of key strategy consulting firms:
- McKinsey & Company. McKinsey is largely regarded as the godfather of the strategy consulting industry. Headquartered in New York with 17,000 employees spread across nearly 100 offices worldwide, they've got the prestige that makes them the envy of every other firm. The alleged misconduct of its former Chairman, Rajat Gupta, may tarnish the firm's reputation, but their legacy is likely to endure.
- The Boston Consulting Group. BCG has a prestige slightly below McKinsey & Company, and does similar work with senior executives. Headquartered in (you guessed it) Boston, with over 70 offices and 4,500 employees, they're known for having a slightly more academic approach, and emphasize thought leadership.
- Bain & Company. Bain has a prestige comparable to BCG and fights for the same work in boardrooms across the world. Headquartered in Boston, with 5,000 employees, they emphasize client results fanatically. Recently Bain has gotten a lot of press with presidential candidate Mitt Romney, who worked at both Bain & Company and Bain Capital -- a completely separate entity that's a private equity, as opposed to consulting, firm.
- Booz & Company. Booz & Company used to be known as Booz Allen Hamilton, but carved out its United States government practices in 2008. The U.S. government consulting firm retains the name Booz Allen Hamilton, while Booz & Co focuses primarily on businesses. Booz is headquartered in New York with 3,300 employees spread across 61 offices.
- Deloitte Consulting. Deloitte consults in three key areas: human capital, strategy & operations, and technology. They're headquartered in New York with 50 offices worldwide.
- Monitor Group. Founded by Michael Porter (of Porter's Five Forces fame) and company in 1983, Monitor has grown its Cambridge, MA-based consultancy to 1,500 employees across 29 offices.(Note: Monitor was acquired by Deloitte in November, 2012.)
- Oliver Wyman. A part of Marsh & McLennan Companies, Oliver Wyman operates in over 50 cities with 3,000 employees. They draw on the expertise from their sister companies within the Marsh & McLennan portfolio and are known for their financial acumen.
- Roland Berger. Founded in Munich in 1967, Roland Berger is proud of its European heritage. They provide strategy consulting through over 2,000 employees in 46 offices.
- L.E.K. Founded in London in 1983, L.E.K. tackles questions of strategy with 900 employees in 20 offices.
4) Issues strategy consulting firms tackle:
Strategy consulting firms address a wide variety of issues across every industry. Indeed, many firms are loosely organized into matrices. On one dimension, Partners have deep expertise in a particular type of business question. On the other axis, Partners have a broad understanding of all the key issues facing a particular industry.
For example, on the industry axis, a firm might divide itself by:
- Consumer products
- Financial services
- Industrial goods
- Oil & gas
- Public Sector
- Utilities & Alternative Energy
While on the issue axis, the firm might divide itself by:
- Corporate finance
- Mergers & acquisitions
- Performance improvement
- Sales & marketing
Pick an intersection (e.g. risk and airlines), and you've got the starting point for forming a consulting team and engagement.
Because of this wide range of issues and industries, "strategy consulting" will likely always sound a bit vague to the uninitiated. What these firms all share is a rigorous, data-driven thought process and a commitment to tackling their client companies' biggest issues.