Purpose – To explore and conceptualize what is the meaning for add value, why it is difficult to define, the current variety of forms it might take and some implications for our field. As a result, this is an exploratory, conceptual paper.
Methodology – Analytical methods were used for these papers. A simple yet meaningful way to quantify the value consulting adds it is, to both their clients and the wider economy is promotion of consulting for all spheres of economy. In order to develop an objective methodology, the authors offer several areas of research focused on a specific questions: 1. How much does the consulting industry contribute to the kazakhstani economy? 2. How role interaction affects clients and consulting firms? 3. What is really value do consultants add to clients?
Originality / value – The value of this research – attempt to open a problem with the consulting industry which is insufficiently investigated in Kazakhstan.
Findings – This research will sheds light on the meaning of consultancy for Kazakhstan`s economy and the value that it provides. This paper is the step towards developing a comprehensive understanding of the contribution consultants make. Our findings demonstrate the significant value management consultants are adding both to their clients and to the wider economy of Kazakhstan as a whole.
Today, as the organization world is undergoing transformations and the consulting industry adapts, it is an appropriate time to re-examine what it means to "add value". The variety of ways consultants can add value is useful in meeting the wide range of "needs" emerging in the client world. We believe that knowing multiple ways to add value provides the consultant with more strategic levers for more clients and can lead to better methods for developing consultants. This arena of study is also rich with potential research paths.
The literature review shows that historically, troubled times in the business world creates a demand for consulting services. Many big names got their start working to help companies navigate their way out of the Great Depression. Kurt Lewin and Carl Rogers developed consulting in 1940-1950 years. The basis of their concept was the statement that "every man by nature endowed with certain abilities, has the freedom to make independent decisions and to ponder their behavior". At the dame tome, Fritz Steele [1] gave his own definition of consulting. "By the consulting process, I mean any form of providing help on the content, process, or structure, of a task or series of tasks, where the consultant is not actually responsible for doing the task itself but is helping those who are". In addition, Peter Block [2] agree with this statement by giving another one definition more developed as we concern. Peter Block offered that "You are consulting any time; you are trying to change or improve a situation but have no direct control over the implementation". Contrasting to these opinions, we can offer definitions of Larry Greiner and Robert Metzger [3] whose definitions of "consulting" rather different and more specific as we noticed. These authors suggested that "Management consulting is an advisory service contracted for and provided to organizations by specially trained and qualified persons who assist, in an objective and in depended manner, the client organization to identify management problems, analyze such problem, recommend solution to those problem, and help, when requested, in the implementation of solutions". Therefore, the issue of determination of term "consulting" has its roots and perspectives. For this papers it will interesting what value "consulting" add for business now especially for Kazakhstani entrepreneurs and state organizations.
The late 1980s and early 1990s were marked for Kazakhstan society and the countries of the former Soviet Union with significant political and economic changes. The core of these changes was the desire to create a democratic social foundations and the transition to a market economy. Since the early 90-ies, Kazakhstan has an opportunity to evaluate the benefits of a democratic way of life and market economy in the form of freely available goods and services of international standard, the availability of a free press, private businesses, etc.
However, these changes along with the obvious advantages brought to the life of Kazakh society a number of significant problems that accompany the transition of any state: inflation and hyperinflation, the decline in production, political and financial crisis, unemployment, etc. The root causes to these problems were the lack of experience in the market economy, as well as the almost complete lack of knowledge in the field of evaluation and management of market processes. At the same time according to "Expert Ranking Agency of Kazakhstan", the market of consulting services in country is well diversified.
The Figure 1 below shows the structure of consulting services in country in 2013 year.
Figure 1 – Structure of revenue of participants of the ranking following the results of 2013 [4]
Furthermore, as it shown on the Figure 2 below the state and raw sector provide the main demand for consulting services in Kazakhstan.
There are several points of view about situation in Kazakhstan with consulting business as a whole.
- In spite of the fact that the main consumer of consulting services is the corporate sector, huge influence on his priorities and preferences give a business environment in which formation the state takes the most direct part.
- The consulting market as the sphere of intellectual services is sensitive to change of the Kazakhstan business environment therefore it can be considered as the indicator of economic wellbeing of the Kazakhstan companies.
- Consulting business assumes mutual influence of the client and
According to the European Bank for Reconstruction and Development in Kazakhstan the share of microsector, small and medium-sized businesses account for 99% of the total number of registered companies. Despite the relatively high number of entrepreneurs and good rate of economy growth of country, the interest of most middle size companies to consulting services insufficient.
Figure 2 – Objects of consulting services in branches of economy of Kazakhstan [4]
One of the essential features of modern business is that with the development of new technologies (including information technologies) and increased competition has significantly changed the role of the consumer. The competition between manufacturers has led to fragmentation of the mass market on a relatively small niche, where the consumer is already dictating its terms to manufacturers, and not vice versa. As a result, the manufacturer has to continually adapt to new technologies as well as to the ever-changing demands of its customers.
Today, therefore, the market and market technologies are developing so rapidly, that there is a huge number of new technologies, consumer demands which are growing rapidly. In this difficult situation the company in order to maintain its competitiveness, has to constantly change the corporate strategy and tactics. However, unfortunately, many companies do not have enough capacity to respond promptly and in a timely manner to changing conditions, using only their own forces. Therefore, companies often have to resort to the services of external consultants or firms specializing in business consulting, or as they are called consulting firms.
What is consulting? Consulting services, when and where to seek advice this is a whole new trend in the service sector. It is impossible to identify the activities of consulting companies, consulting profile is wide enough. There are different companies, some of them carry out their activities only in one area of business, while others are engaged in consulting in almost all possible directions.
Imagine that you are driving to reach somewhere, you are at the steering wheel and you do not have the directions. You need somebody to help you navigate. That is what typically happens with most organizations and with most people. Whatever jobs we are in, we tend to develop tunnel vision. That is why management consulting exists to give one an opportunity to step back and think afresh.
Consulting is most often used when a company needs an outside, expert opinion regarding a business decision. For example, a company seeking to sell its products abroad may look for a consultant familiar with the business practices of the target country. The consultant will tell the company what best practices should be followed, what to expect from customers, and how to deal with foreign regulations [4]. Consulting is used in companies economic, financial, and managerial, investment areas, various types of planning, optimization of the overall functioning of the company, business, marketing, etc. We can say that consulting is any assistance relevant professionals or companies, provided by the company on any of the activities of the firm. The main task of consulting is to improve the efficiency of the whole company, as well as improving the efficiency of work of each employees individually.
A consultant is an experienced individual that is trained to analyze and advise a client in order to help the client make the best possible choices. A strategic consultant may evaluate a business plan and help the client develop a plan to meet those strategic goals [5].
The motivation to call in a consultant arises because managers have identified a project that they think they will benefit the organization but they recognize that they are not in the position to deliver it themselves. The reason for their inability can be found in skill gaps or the lack of resources and here the consultant offers to fill the gaps. There are five primary types of consultant-management role interaction:
- The consultant is used as an additional resource when there are now existing managers available for the task.
- When an organization notices that there is a lack of one or more important manager roles, they ask a consultant to fill that role.
- A consultant might be needed for divide responsibility and differentiate roles in an organization: designing managerial responsibilities and setting up communication systems, etc.
- The consultant tries to integrate the managerial roles and make more flexible structure.
- The most general type of role development: to improve the overall level of the manager’s performance.
Consulting is also characterized by different approaches regarding the role of the consultant:
- The expert mode: Client identifies a problem, analyses it and articulates it to the expert consultant who often has a special knowledge of the problem that the client has
- The doctor-patient mode: The consultant is both an expert (as above) and a
- The process consulting mode: The consultant can only give advices and make the client feel as if he came up with the solutions [6].
The decision to hire consultant is made after considering the opportunity costs and the conclusions that the benefits outweigh the costs. In other words, the decision to call in consultants is like the decision to buy something very useful for the business. Maintaining the client’s confidence and the belief that the consultancy exercise has something of value to offer is a critical responsibility for the consultant.
The consult must ask himself:
- What can I offer the client business that will enhance its performance and help it achieve its objectives?
- Why will my contribution be more valuable than the existing managers’ will?
- How can I communicate to the client business that what I offer is valuable?
To answer these the consultant needs to apply three skills: analytical, project management and relationship building. Management consultants add value to organizations (including governments and public sector undertakings) by providing them with unique expertise not easily available within the organizations and/or in cases where the organizations were slow to respond to the environment. This combination of lack of diagnostic expertise with lack of innovation/speed of response in clients provides a rich opportunity for consulting firms to add value to their clients through their problem-solving skills. Therefore, the landscape of the management consulting industry is characterized by consultants who are (a) external to the organization; (b) hired on a temporary basis; (c) valued for their specialized experience and expertise that is not easily available within the client organization; and (d) compensated for their advice on improving the organization’s performance and educating the client on handling similar problems in the future [7].
The consultant can add value by analyzing and presenting information in a way that enables the business manager to make effective decision from it. What does "adding value" mean in the context of consulting? This simple question can have many different answers depending upon the type of consulting being delivered, the perspectives of both the client and consultant, the nature of the organization or managerial need (perceived) and the level of analysis (individual or system). Over the years, as consulting has morphed into many different kinds of services, there have been shifts in what is considered "value", both from the standpoint of the seller and the buyer.
The range has continued to grow from buying answers to problems, to buying expertise, processes, human capital, and catalysts for change or developers of capacity.
Determining "value", we face some difficulties. One difficulty in discussing "value added" is the different dimensions and perspectives operating. There can be outcomes that benefit an individual client and/or the client system. However, benefits at one level may not be mirrored at another level. Therefore, we first have to specify the level of analysis in determining value.
Another issue with value is what timeframe is being used. Some benefits and results show up in the shortterm, while others will not materialize until a longer term. In addition, some results will appear first at the individual level and only later at the systems level.
There is also a difference between the "perceived need" and the "real need". By meeting a perceived need, a client might consider that value has been added, only to later find out that since the real need was not met, other issues continue to hinder progress or success. This muddles the determination of value added, since the client may be making the initial determination and the larger system may be making the ultimate determination.
Another aspect of value considerations involves how much is done for a client versus how much client capacity is built for doing what is needed. Depending on your perspective, either could be value added.
Finally, there are always intended and unintended outcomes. Intended we plan for. Unintended emerge or occur as a consequence of other work being done. Which produces the value? Perhaps either could produce the most useful results. What is being measured or observed might also determine what we see, allowing some value to not get captured?
In the simple case one is asked for a certain kind of help and if one is qualified they deliver it and the client is happy. The "value" requested was delivered. However, as systems and issues become more complex and organization and individual changes are required for any resolution, then identifying the "value" (or type of value) becomes more difficult.
Throughout the consulting process (analysis, action planning and implementation), there is potential to add value. During analysis, the framework used, data collected or insights developed can all lead to value added for a particular client if learning occurs, mindsets change or different decisions ensue. During action planning, clients and consultants are exploring new ideas, reviewing alternative ways to proceed or designing interventions into the existing system to move or change it. Both in the planning and action taking, one can add value for clients.
Finally, in implementation, there is still much to learn about any system and modifications, adaptations and corrections will occur. It will also become clear that implementation may involve different skills than either analysis or action planning on the part of both consultants and clients. Value can accrue through how facilitation is used, processes are designed, employees are included or training is structured [8]
В.Maister (1993) classifies consulting firms into three groups, based on the work they perform: 1) procedural (work for which the solution/approach is well known, but the success is in the efficiency of implementation); 2) brain (work that requires a lot of creativity and innovation drawn from professional expertise); and, 3) grey hair (work that is based on accumulated experience) [9]. Each of these types of consulting firms requires different kinds of resources and organization. While efficiency-based organizations thrive on large bases of codified knowledge, innovation-based and experience-based consulting firms thrive on building a team that is either professionally qualified and respected, or has significant domain knowledge and deep expertise. Consulting firms are therefore those "organizations, whose expert knowledge workers (the operating core) exercise to a greater or lesser extent control over both the means and ends of service delivery" [10]. It might be worthwhile at this point to consider management-consulting firms as professional service firms (or PSF). At the same time, von Nordenflycht (2010) defines professional service firms as possessing three distinct characteristics knowledge intensity, low capital intensity, and a professional workforce [11].
Knowledge intensity refers to a complex body of knowledge embedded in individuals (and not in the organization’s equipment, products, or routines), that forms the basis of the organization’s value addition. Low capital intensity indicates that the firm’s output does not depend on material assets like inventory, manufacturing and distribution facilities, or even significant intellectual capital, implying high mobility of the workforce. Professionalized workforce refers to the employees’ identification with a specific "profession" done that is characterized by a specific knowledge base, significant regulation and control, an ideology (an explicit code of ethics or not so explicit norms of behaviour) that governs its members, and non-price competition [9].
Kipping and Kirkpatrick (2013) argue that among PSFs, firms competing in relatively unregulated and open (or easy to enter) industries like management consulting are organized differently from those in industries like accounting and law.
Given the low levels of professional regulation (most of it still voluntary) and highly differentiated value propositions and competitive positioning, management-consulting firms adopt more "corporate and managerial modes of operation” rather than the traditional “professional mode" of operation that characterizes most PSFs. However, Malhotra and Morris (2009) argue that the differences in the organization of PSFs depend on the type of knowledge they leverage (normative, syncretic, or technical), strength of social closure, jurisdictional boundaries (such as national differences), and the type of client interaction (frequency and degree of influence). Going by their arguments, management consulting firms leverage normative knowledge, have weak social closures (there is no industry-wide accepted certification for management consulting as a profession), can extend their services across geographic boundaries easily and have significant client interactions (in several instances, even the consulting advice is co-created with the client). Therefore, management-consulting firms are more likely to be professionally organized, with hierarchical team structures; diversify into a variety of services around the core; internationalize and create global networks, have widely dispersed offices; and charge clients with variable fees based on the consultant’s time commitments [12].
Based on the specializations of the consulting firms, we evolve a typology of management consulting firms. The first set of consulting firms focus on providing strategy and organizational restructuring advice to their clients. These firms leverage their organizational tacit knowledge to differentiate their services, and are typically engaged with the client for short periods, with little or no implementation responsibilities. The extent of client capture (the degree to which clients can control or influence the process of professional service delivery) is very high for strategy consultants as the resource expertise is similar between the client and the consulting firm, and the firm is dependent on maintaining good relationships with the client for obtaining further work.
The second type of consulting firms includes those that provide technology/operations and cost control consulting. These firms advantage their technical knowledge bases gained through their breadth of experience across contexts, and are typically engaged with the client for a longer term to support the implementation, including training and handholding of the client’s personnel. Client capture varies between high (for technology consulting assignments) and moderate (for process reengineering assignments).
The third type of consulting firms comprises niche firms that provide specific solutions to their clients. Typically, they could be specialists in specific industry/sectors or in functional domains such as innovation. These firms differentiate based on their deep domain expertise and are typically involved with clients on a long-term basis. Most of these consulting firms secure contracts that retain them for specific periods of time, rather than for specific projects or assignments. Given their intense involvement with their clients, they typically also own the implementation of their advice, including handling change management issues. The expertise differential between these consultants and their clients is very high leading to low client capture.
As the consulting industry and forms of delivery change with needs, markets, globalization and economic pressures, the central tenet of "adding value" is called into question. Traditional models of analysis, use of expertise or process design are not the only variations being sought or bought. Knowing the variety of ways to add value provides consultants with choices and can lead to strategies for use with different clients. Lack of flexibility in providing value (as desired or needed by clients) could lead to limiting success.
There has always been some variety of ways consultants’ benefit for clients, but increasingly, different models are needed to respond to the wide range of issues and needs emerging. In addition, clients are more sophisticated and discerning as they deal with unprecedented issues, require "help" and have limited resources. Many consultants and firms have long used one model of adding value and may need to re-think what is actually best for the client and how to provide it.
These shifts in the industry bring with them numerous implications for practicing consultants and for how new consultants might prepare for a career. Most ethical guidelines have been established based on the old models of what consultants did. Now that the variety of services is changing, so will behaviors. This suggests calls for higher levels of integrity to retain trust and credibility and increased pressure for accreditation in a broader set of competencies, perhaps with new specialties. Emphasis on expertise or process skills could entail different educational preparation.
The role of relationships and influence could trump the old analysis skills. Coaching skills could replace expertise in some value added models. Borrowing from the medical profession, consulting needs to raise the consciousness on two tenets: "Do No Harm" and "Add Value". Both will be tested as the mix of services under the consulting banner continues to diversify.
As it was noticed by experts, initiatives of the state of development in time for medium and small business can become the demand catalyst from small and medium business not only on traditional tax and financial consulting, but and on other types of consulting services.
Consulting is a new service in our market, and most of entrepreneurs in Kazakhstan do not quite understand what it is and do not trust consultants. There is a great potential for development of consulting services in Kazakhstan, the only thing we need to do is to increase demand for this kind of service by giving proper explanation of "adding value" and positioning it.
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