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A consulting firm or simply consultancy is a professional service
firm A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
that provides expertise and specialised labour for a fee, through the use of
consultants A consultant (from la, consultare "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice and other purposeful activities in an area of specialization. Consulting servi ...
. Consulting firms may have one employee or thousands; they may consult in a broad range of domains, for example,
management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activitie ...
,
engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad range of more speciali ...
, and so on. Management consultants, in particular, typically work with company executives and provide them with generalists and industry-specific specialists, known as
subject-matter expert A subject-matter expert (SME) is a person who has accumulated great knowledge in a particular field or topic and this level of knowledge is demonstrated by the person's degree, licensure, and/or through years of professional experience with the s ...
s, usually trained in management or in business schools. The deliverable of a management consultant is usually recommendations for achieving a company objective, leading to a company project. Many consulting firms complement the recommendations with implementation support, either by the consultants or by technicians and other experts. Consulting services are part of the
tertiary sector The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
and account for several hundred billion dollars in annual revenues. Between 2010 and 2015, the 10 largest consulting firms alone made 170 billion dollars growth revenue and the average annual growth rate is around 4%.


Segments

The segmentation of advisory services varies widely across organizations and countries. Categorization is unclear, in part because of the upheavals that have occurred in this industry in recent years. One approach is to separate services into five broad service delivery families, considering the managers they are targeting: * Services related to the company's overall strategy, which are addressed to the
CEO A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
, * Services related to marketing, communication, sales and public relations, which are addressed to the CMO, * Services related to management,
financial management Financial management is the business function concerned with profitability, expenses, cash and credit, so that the "organization may have the means to carry out its objective as satisfactorily as possible;" the latter often defined as maximizin ...
, taxation, accounting, compliance with regulations, for the
CFO The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financ ...
, * Services related to the company's operations, intended for operational management, which may be different depending on the industrial sector (technology director, plant managers, operations directors, Research and Development managers), for instance COO and CTO, * Service related to
information technology Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology syste ...
(see
IT consulting In management, information technology consulting (also called IT consulting, computer consultancy, business and technology services, computing consultancy, technology consulting, and IT advisory) is a field of activity which focuses on advising o ...
) intended for information management, which are addressed to the CIO.


Types

There are different types of consulting firms serving different sectors. They mainly fall under the following fields: *
Architecture Architecture is the art and technique of designing and building, as distinguished from the skills associated with construction. It is both the process and the product of sketching, conceiving, planning, designing, and constructing buildings ...
and
Engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad range of more speciali ...
*
Financial services Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
*
Health care Health care or healthcare is the improvement of health via the prevention, diagnosis, treatment, amelioration or cure of disease, illness, injury, and other physical and mental impairments in people. Health care is delivered by health pr ...
*
Hotel A hotel is an establishment that provides paid lodging on a short-term basis. Facilities provided inside a hotel room may range from a modest-quality mattress in a small room to large suites with bigger, higher-quality beds, a dresser, a re ...
and
hospitality industry The hospitality industry is a broad category of fields within the service industry that includes lodging, food and drink service, event planning, theme parks, travel and tourism. It includes hotels, tourism agencies, restaurants and bars. ...
*
Human resources Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms includ ...
*
Information technology Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology syste ...
*
Legal Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. ...
*
Management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activitie ...
* Music *
Regulatory compliance In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Compliance has traditionally been explained by reference to the deterrence theory, according to which punishing a behavior will decrease the viol ...
Some consulting firms also serve niche sectors, such as: *
advertising Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...
/
marketing Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emph ...
/
public relations Public relations (PR) is the practice of managing and disseminating information from an individual or an organization (such as a business, government agency, or a nonprofit organization) to the public in order to influence their perception. ...
*
environmental consulting Environmental consulting is often a form of compliance consulting, in which the consultant ensures that the client maintains an appropriate measure of compliance with environmental regulations. There are many types of environmental consultants, ...
*
entertainment Entertainment is a form of activity that holds the attention and interest of an audience or gives pleasure and delight. It can be an idea or a task, but is more likely to be one of the activities or events that have developed over thousa ...
/
media Media may refer to: Communication * Media (communication), tools used to deliver information or data ** Advertising media, various media, content, buying and placement for advertising ** Broadcast media, communications delivered over mass e ...
*
energy In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of ...
*
logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics manages the flow of goods between the point of origin and the point of consumption to meet the requirements of ...
* consulting in politics and the
public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, inf ...
*
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...
*
recycling Recycling is the process of converting waste materials into new materials and objects. The Energy recycling, recovery of energy from waste materials is often included in this concept. The recyclability of a material depends on its ability t ...
*
small business Small businesses are types of corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to ...
*
commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...


Models of business

A consulting firm's model of business is comparable to
staffing ''Staffing'' is the process of finding the right worker with appropriate qualifications or experience and recruiting them to fill a job position or role. Through this process, organizations acquire, deploy, and retain a workforce of sufficient qua ...
, wherein the objective is to effectively lower labour costs for clients for an intended result, or relative to an intended result or output, in order to charge for a
profit margin Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue. \text = = There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin. * Gross Pro ...
for the consulting firm. Clients are essentially looking to procure or purchase external help and assistance. Consulting firms sustain themselves from a labour economic point of view as a method for distributing labour, where certain positions, roles or fields of expertise within the labour market find it more suitable for contract work, as contrasted to in-house employment, for a few conceivable reasons: * Due to client needs being incontinuous, or continuous but otherwise volatile in that they may vary from time to time in nature and scope, * Due to a potential scarcity of skilled labour available on the market, * Due to the possibility of offering a higher work level activity, consequently acting as a source of profit for clients, consulting firms and society as proffered. As such, the consulting business model can be seen as a result of the
knowledge economy The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in technical and scientific inn ...
, and as a subset of the
knowledge industry Knowledge industries are those industries which are based on their intensive use of technology and/or human capital. While most industries are dependent in some way on knowledge as inputs, knowledge industries are particularly dependent on knowled ...
. Today it is not rare for consulting firms to offer solutions to their business clients.
Knowledge transfer Knowledge transfer is the sharing or disseminating of knowledge and the providing of inputs to problem solving. In organizational theory, knowledge transfer is the practical problem of transferring knowledge from one part of the organization to ...
is also a common sales argument for consulting services. As consulting firms grow larger, in a modern, globalised and interconnected business environment, a lot of times they will take what could be seen as a 3rd party position, as it relates to one or more clients, that are engaged in b2b business. The consulting firm utilises its
networking Network, networking and networked may refer to: Science and technology * Network theory, the study of graphs as a representation of relations between discrete objects * Network science, an academic field that studies complex networks Mathematic ...
capabilities (due to its high number of clients, often within diverse markets) to connect actors in for example M&A activity. Since the private sector isn't allowed to use officials, nor attempt to create any such equivalent as this would be regarded as
antitrust Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
behaviour, there is a natural demand for other such private or business services to offer an alternative to this type of coordinating services.


Outsourcing

It is common for consulting firms practices to be involved in the selling of
outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...
services as well. Similarly, outsourcing firms may offer consulting services as a way to help integrate their services with the client. Many consulting firms offer several service packages as part of their business
portfolio Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), a collection of assets held by an institution or a private individual * Artist's portfolio, a sample of an artist's work or a c ...
. While consulting services and outsourcing services are compatible, issues arise if the clients are not aware of the differences between the two. From an
ethical Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and wrong behavior".''Internet Encyclopedia of Philosophy'' The field of ethics, along with aesthetics, concerns ma ...
standpoint, it is important that clients are aware of what type or types of services they're procuring, as consulting services are meant to be a complementary service to the client firm, whereas outsourcing effectively aims to replace parts of the client firm that are imperative to their operational ability.


Successful consulting firm cases


Mexico

In 2013, there was a randomized trial in Mexico where 432 small and medium enterprises were allowed access to management consulting services for one year. As a result of this trial, there were many positive impacts. Such positive impacts include: increase in entrepreneurial spirit, increases in employment and higher wages for employees. Even after 5 years after the trial, positive impacts are still active. These results were achieved by advertising a consulting program to 432 enterprises and recorded data on the positive effects.


Money laundering in consulting firms

A consulting firm is a suitable instrument for
money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...
. Illegally obtained money is laundered by the employment of consulting companies. The reason consulting firms are so effective at laundering money is because consulting services are
immaterial Immaterial may refer to: * The opposite of matter, material, materialism, or materialistic * Maya (illusion), a concept in all Indian religions, that all matter is a grand illusion * Incorporeality * Immaterialism, including subjective idealism ( ...
, therefore, pricing is non-transparent. Another reason consulting firms are effective at laundering money is because sometimes consultants regularly leverage their clients into charging higher prices. When a client of the consulting firm is satisfied, the consultant can charger higher fees through more leverage while setting prices through the contracting prices. Therefore, when auditors inspect financial statements provided by the consulting firm, the consulting firm can state that a certain consulting project costed an 'x' amount of money and auditors are unable to detect fraud, thus allowing money laundering to occur.


Impact of consulting firms in emerging economies


Negative impacts

The impact of consulting firms on local businesses in
emerging economies An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or were ...
do not always have positive effects. One reason for this is that firms in emerging economies suffer from the inferiority of their technologies and innovation capabilities, thus, although they have access to consulting firms, they cannot make the most of the advice given. Advice given by consulting firms to clients may not be used efficiently as clients firms in emerging markets tend to suffer due to a lack of infrastructure, organisation, and education. Another reason firms in emerging economies struggle to effectively use consulting services is that innovation is very costly and risky.


Positive impacts

As noted above, consulting firms in emerging economies do also have positive impacts. Positive impacts include: increases in employment, increase in entrepreneurial spirit and higher wages for employees.


Impact of consulting firms in developed economies

One study shows that there is a significant difference between efficiency between consulting firms in America (
developed economy In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals a ...
) and consulting firms in Asia Pacific regions (emerging economy). Efficiency scores of consulting firms in America were significantly higher than consulting firms in Asia Pacific regions. This is because firms in developed economies have better infrastructure, organisation and education, thus advice given by consulting firms is used efficiently.


See also

*
Consulting A consultant (from la, consultare "to deliberate") is a professional (also known as ''expert'', ''specialist'', see variations of meaning below) who provides advice and other purposeful activities in an area of specialization. Consulting servic ...
*
Information technology consulting In management, information technology consulting (also called IT consulting, computer consultancy, business and technology services, computing consultancy, technology consulting, and IT advisory) is a field of activity which focuses on advising or ...
*
Knowledge economy The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in technical and scientific inn ...
*
Knowledge industry Knowledge industries are those industries which are based on their intensive use of technology and/or human capital. While most industries are dependent in some way on knowledge as inputs, knowledge industries are particularly dependent on knowled ...
*
Knowledge intensive business services Knowledge Intensive Business Services (commonly known as KIBS) are services and business operations heavily reliant on professional knowledge. They are mainly concerned with providing knowledge-intensive support for the business processes of other ...
*
Knowledge transfer Knowledge transfer is the sharing or disseminating of knowledge and the providing of inputs to problem solving. In organizational theory, knowledge transfer is the practical problem of transferring knowledge from one part of the organization to ...
*
Management consulting Management consulting is the practice of providing consulting services to organizations to improve their performance or in any way to assist in achieving organizational objectives. Organizations may draw upon the services of management consultan ...
*
Temporary work Temporary work or temporary employment (also called gigs) refers to an employment situation where the working arrangement is limited to a certain period of time based on the needs of the employing organization. Temporary employees are sometimes ...


References

{{reflist Knowledge firms