Structuring Consulting Firms
Abstract and Keywords
This article demonstrates the structuring of consulting firms. It outlines the central literature on organization structure and then emphasizes the central features of this concept. It then discusses the literature on the structures of consulting firms and professional service firms, before it studies the basis of their distinct structural features and their validity. The next section shows how the literature connects the organizing procedure of consulting firms with micro-level structuring decisions of the consulting team. This article also discusses the literature on the macro-level of structure and the process of structural change that bridges the dynamics of growth and diversification to structural choices.
Keywords: structuring, consulting firms, organization structure, professional service firms, structural features, validity, micro-level structuring decisions, macro-level of structure, growth, diversification
The purpose of this chapter is to present an overview of the extant research on the structural characteristics of consulting firms, outlining the explanations for these characteristics and their relationship to the organizational dynamics of these firms. There is little discussion in the literature on the structure of consulting firms specifically, but they are generally seen as one form of the professional service firm. The chapter therefore draws on the literature on professional service firms to provide some of the overview of consulting firms’ structural arrangements and implications. The underlying assumption in the literature is that consulting firms, like other types of professional service firms, are a distinctive type of organization and that this distinctiveness influences structural arrangements. Their distinctiveness relates to the nature of their staff, whose professional norms influence their goals and the structures of their employing organizations (Hall 1968; Greenwood, Hinings, and Brown 1990; Kirkpatrick, Muzio, and Ackroyd, Chpater 9, this volume). Consulting and other professional service firms are also said to be distinctive organizations because of the extensive use of the partnership form of ownership and governance (Greenwood and Empson 2003; von Nordenflycht 2010). The partnership form has been shown to have implications for the microstructuring of professional work in teams of consultants, as will be shown below.
The chapter proceeds as follows. The first section briefly summarizes the core literature on organization structure and elaborates the central features of this concept. The second section outlines the literature on the structures of professional service firms in general and consulting firms in particular, examining the basis of their distinctive (p. 286) structural features and their validity with respect to consulting firms. The literature on structure in professional firms addresses two interrelated but discrete levels of analysis, microstructural and macrostructural forms, and in the third and fourth sections these will be discussed. Thus, the third section focuses on how the literature links the organizing process of consulting firms with structuring decisions at the micro-level of the consulting team. Section 4 then considers the literature at the macro-level of structure, where decisions about how to organize expertise also occur, principally through units called practices. Here, the focus is on the debate about the nature of international structures in consulting firms and how they are managed. The section then addresses the literature on the process of structural change that links the dynamics of growth and diversification to structural choices. The sixth section outlines some of the future directions for research on the structure of these firms before concluding.
14.2 The Concept of Organizational Structure
Scholarly interest in organization structure developed in the 1960s (e.g. Burns and Stalker 1961; Hall 1963; March 1965) when aspects of formal and more informal dimensions of organization design (a synonym for organization structure) were central to the field of organization theory (Thompson 1967). The fact that all but the smallest organizations displayed evidence of complexity, that is, substantial variety in the number of subparts and in the way these subparts fit together, spurred interest in both the categorization and explanation for organization structure and form. Much theorizing about structure developed from the concept of organizations as open systems, that is, systems of activities that were influenced by the environment in which they were located (Burns and Stalker 1961; Lawrence and Lorsch 1967) and which explained differences between organizations in their overall structural arrangements and between individual parts of their internal structure, such as departments or offices.
This chapter deals with two core aspects of structural complexity, namely horizontal differentiation and vertical differentiation or hierarchy. The comparative study of organizations in different industries by Lawrence and Lorsch (1967) explored horizontal differentiation, that is, between subunits, such as departments, with regard to the ways in which they were organized and operated. By differentiation they meant that different departments or subunits develop distinctive attributes and modes of operating to meet specific environmental demands, which also have an impact upon the attitudes and behaviours of people working in these departments. Because the study compared firms in the same industry and across three different industries, they could show differences between departments in the same organization and between industries. By comparing the same type of department, such as sales or production, across firms in the same industry they could also show similarity in structure and attitudes and behaviours. They (p. 287) explained these results in terms of the varying environmental pressures upon each unit and upon firms in different industries.
Their work also considered how firms achieved integration, which is the counterpart of differentiation. Integration is ‘the quality of the state of collaboration that exists among departments that are required to achieve unity of effort by the demands of the environment’ (Lawrence and Lorsch 1967: 47). Thus, the generic organizational challenge in terms of designing the structural architecture of an organization is to select the basis (or bases) on which differentiation will occur and then to select the mechanisms, structural or otherwise, by which the integration of different subunits can be achieved. Organizational structuring within management consulting firms therefore encompasses choices about the basis of dividing up the component parts (or subunits such as practices, departments, or work teams) of a consulting firm and the ways in which they are integrated with each other.
Some subsequent work has taken a broader definition of structure, particularly that of Miller and Friesen (1984), whose work on the concept of configurations suggests that design choices include the systems of accountability and responsibility that exist to implement strategic goals, including the allocation of human resources, information processes, and control systems. Following this, organization structure in management consulting also includes decisions about the allocation of people and resources to particular work groups and to practice areas, the core unit of the consulting firm (Kubr 2002). It also includes the supporting systems and policies that enable structures, including human resources policies, to select, monitor, reward, and promote professionals, and functions such as business development and information systems to underpin management control.
Analysis of organization structure also derives from the literature on bureaucracy, particularly drawing on Weber's (1947) ideal-type analysis. Bureaucratic organizations are characterized by formal hierarchies of authority and by a clear division of labour in which roles are filled by technically competent individuals and undertaken according to detailed procedures, and in which the office or specific position is separate from the individual office holder. Hall (1963, 1968) shows that, in practice, organizations vary from Weber's ideal-type formulation, although virtually all organizations of any size display elements of the bureaucratic model, which is designed for the efficient replication of activities in conditions of relative environmental stability (Mintzberg 1979). Subsequent research on structure has drawn heavily on aspects of the bureaucratic model, in particular by examining vertical hierarchy, formalization of rules and procedures, and the linked concept of centralization of authority, particularly with regard to decision-making (e.g. Pugh, Hickson, and Hinings 1969).
Structural choices are also said to be important because they logically follow from strategic goals and underpin the implementation of strategic decisions or, in Chandler's terms, structure follows strategy (Chandler 1962; Foss 1997). In consulting firms, strategic decisions concern both the positioning of the firm in the labour (input) market and client (product or output) market in which it operates, and how the firm chooses to develop and deploy its resources to create competitive advantage (Maister 1993; Løwendahl 2000). It is argued that this concern with the supply side of the equation occurs because consulting firms have few fixed assets and compete on the basis of intangible resources, (p. 288) notably their professional staff, firm-specific know-how, and reputation (Kipping 2002; Greenwood et al. 2005). Firms must therefore attract and retain employees of appropriate quality to execute assignments by both carrying out the core technical task (Morris and Pinnington 1998) and by creating the right impressions as they interact with clients (Alvesson 1995; Clark 1995). Damaging labour turnover occurs if employees leave and take with them their knowledge and their connections to the client market (Broschak 2004; Greenwood et al. 2005; Broschak and Niehans 2006).
These distinctive characteristics of consulting and other professional service firms drive an imperative to grow in order to offer career opportunities for staff, and therefore a reason for them to stay and work hard (Galanter and Palay 1991; Maister 1993; Malhotra, Morris, and Smets 2010). Explanations of structural choice in consulting firms are therefore based both on managing the demand side, that is, client market pressures or opportunities (how best to serve clients and maximize the opportunities they present), and managing pressures from the supply side, that is, from professional staff's aspirations (Anand, Gardner, and Morris 2007).
14.3 Sources of Distinctiveness in Organizational Structure in Consulting and Other Professional Service Firms
As noted above, there are relatively few studies of the internal structures of consulting firms, but because they are seen as a type of professional service firm (von Nordenflycht 2010; Kirkpatrick, Muzio, and Ackroyd, Chapter 9, this volume) this section proceeds by considering the broader literature on the structure of professional service firms. It then shows that as newer forms of professions such as consulting have emerged, this has raised questions in the literature about the generalizability of professional organization concepts and structural features. The section draws attention to areas where research has suggested that consulting differs from other types of professions, and looks at how this affects consulting firms’ structures.
Research interest in the structure of organizations in which professionals worked was first prompted by the growth of employment among members of formal or collegial professions (Muzio, Ackroyd, and Chanlat 2008) within organizational settings ( Gouldner 1957; Abbott 1988) and the increasing size and scale of these organizations (Wright Mills 1951). Studies of different types of professional organizations, such as hospitals and accounting firms, focused on a hybrid form of organization, termed professional bureaucracy, which blended centralized managerial decision-making with professional task autonomy and the sharing of administrative tasks among core professional staff (Litwak 1961; Smigel 1964). Thus, the typical professional organization was distinctive in structural terms from the predominantly bureaucratic organizations it served. Scholars concluded that this hybrid form was able successfully to blend these different forms of (p. 289) organizing, combining bureaucratic control of process and output, with professional control through input standardization achieved through professional training (Hall 1968; Hastings and Hinings 1970). Mintzberg (1979, 1993) subsequently detailed the distinctive features of the design and workings of the professional bureaucracy, emphasizing the strength of the operating core of professionals functioning in a relatively autonomous manner and often with informal co-ordination between each other (i.e. there was high decentralization of decision-making over day-to-day operating matters). Control was primarily achieved by the standardization of professionals’ skills in their training as well as the inculcation of the appropriate work values.
Research on the structure of professional organizations gave way to a concern with the deprofessionalization of work in the 1970s but returned in the late 1980s, when a more dynamic focus on the way these organizations were managed began to develop among organization and management scholars (Malhotra, Morris, and Hinings 2006). One reason for this renewed focus on the structure of professional organizations was a growing interest in a broader set of occupations than the formal professions, which embraced management consulting and focused around terms such as knowledge workers and knowledge-intensive work (e.g. Alvesson 1995). Another reason for the renewed interest in structure was the trend by some professions, notably led by the largest accounting firms, to diversify into contiguous occupations like consulting—which intensified jurisdictional competition (Suddaby and Greenwood 2001).
Research on organizational structure was framed around detailed examination of the archetypal organization form in accounting firms—as an exemplar of the professional service firm—how this archetype form was changing and proliferating, and the underlying forces for change (Hinings, Brown, and Greenwood 1991; Brock 2006). For Greenwood, Hinings, and Brown (1990) archetype structures express an interpretive scheme, that is, an underlying set of ideas about how best to organize or what is most appropriate as an organization structure. In other words, structures and systems are infused with the values, meanings, and preferences held by its dominant members rather than being purely functionally determined to achieve a set of goals. In the case of professional firms this interpretive scheme reflects values associated with professionalism and partnership.
Greenwood, Hinings, and Brown (1990) argued that what they called the ‘professional partnership’ or P² archetype was the dominant form among professional organizations, embodying these partnership and professional values in the interpretive scheme. Professional service firms were therefore distinct from other organizations in structural and management terms because of these values. Partnership meant that senior professionals owned and governed the firm as well as being the core producers (and even where partnership forms of ownership did not exist, as, for example, among some strategy consulting firms, a number mimicked the organizational form and attributes of a partnership (McKenna 2006)). Professionalism encompassed beliefs that professional knowledge is central to the firm, control and evaluation is exercised by peers, authority is widely distributed across partners and senior professionals, decision-making consensus is important, and work responsibility is indivisible. Structurally, the implications of this interpretive scheme are that the archetypical professional firm is characterized by a low (p. 290) degree of vertical differentiation (minimal hierarchy) but more pronounced horizontal differentiation, with specialities built around individual preferences rather than formal departments. Limited use of formal integrating devices between departments occurs. Centralization varies across several dimensions with high central control of financial performance and low central control of the day-to-day working of the operating core of professionals or of strategic decision-making (Greenwood, Hinings, and Brown 1990).
As noted above, archetypes are ideal typifications of organizations and, empirically, variation will be observable among a population of consulting or other professional service firms. However, the importance of the concept is that it seeks to explain how and why these sorts of firms are likely to be structurally distinctive from others.
Some scholars have subsequently examined the validity of the P² archetype. First, they have asked to what extent can this structural form be observed empirically and what areas of variation exist around the core model? Findings among samples of firms in formal professional settings showed evidence of structural change: they were becoming more bureaucratic with managerial methods becoming more prominent. Firms adopted strategic plans, hired professional support staff with expertise in marketing, finance, and human resources, developed formal monitoring of professionals’ performance, and instituted clearer lines of internal differentiation into practices and departments and more formal integrating devices such as client-relationship partners (Morris and Pinnington 1999; Rose and Hinings 1999). Some saw this as evidence of a new archetype, termed the Managed Professional Business (MPB) (Cooper et al. 1996; Brock, Powell, and Hinings 1999), although other studies have pointed to the persistence of features of the original P² form, in particular in the continuing control of senior professionals over strategic decision-making and client relationships in formal professions such as architecture (e.g. Pinnington and Morris 2002). Others have argued for a process of archetype proliferation, with novel forms such as the global professional network emerging as the giant business service firms diversified from accounting into consulting and other activities and built international structures around loose networks of local partnerships grouped under a one-firm brand—a theme returned to below (Koza and Lewin 1999; Rose and Hinings 1999; Aharoni and Nachum 2000).
A second line of critique of the P² archetype is focused more on its applicability to consulting firms and other entrepreneurial professions (Reed 1996), that is, occupations where the nature of the claim to professional status and jurisdiction is different from the traditional collegial model of medicine and law, for instance (McKenna 1996; Muzio, Ackroyd, and Chanlat 2008). In particular, scholars have argued that the notion of professional autonomy via high decentralization of operating decisions is contestable. For instance, Kärreman and Alvesson (2004) have argued that there is evidence of substantial bureaucratic control over day-to-day activities, including close monitoring of consultants’ daily activities, effort levels, and practices. Others have also noted the expansion of systems such as codified knowledge-bases, which prescribe the methods of work analysis and task execution among teams in large consulting firms (e.g. Hansen, Nohria, and Tierney 1999; Haas and Hansen 2001; Morris 2001; Werr, Chapter 12, this volume). Malhotra and Morris (2009) have also argued that the predominant knowledge-base of (p. 291) the profession will affect the organizational structure of firms within that profession. Using Halliday's (1987) typology (normative, syncretic, or technical), they propose normative professions such as law are more likely to adhere to the traditional archetype and professions with syncretic or technical knowledge-bases such as engineering consulting are more likely to have bureaucratic structures. More broadly, Faulconbridge and Muzio (2008) argue that the structures of firms in newer professions are replete with managerial/bureaucratic systems and even if there are vestiges of the professional archetype these are more for symbolic reasons than as signifiers of a substantive structural model.
A historical critique of the notion of a distinctive professional archetype and its applicability to consulting has been developed by Kipping and Kirkpatrick (2008). These authors segment the historical development of the consulting industry into three separate stages, suggesting that each is characterized by different forms of organizational structure. In the first, dominated by the application of scientific management, any control and co-ordination of consultants’ work is limited and high reliance is placed on the prior work experience and expertise of the consultants as engineers in applying the principles of Taylorism. In the second phase, dominated by firms focused on strategic and structural projects, there are residual elements of the professional model, supported by bureaucratic features such as committee co-ordination and systems of employee monitoring such as performance appraisal. High emphasis on integration via corporate culture complements a structure in which consultants are permitted some autonomy over their work. Horizontal differentiation exists but is not pronounced.
The third phase is dominated by large-scale information and communication consulting firms in which bureaucratic features are more explicit. Vertical hierarchy is formalized and extended, career paths are also formalized and planned, work is highly structured around codified ‘methodologies’ and techniques, and performance monitoring becomes highly developed, facilitating centralized control of employees’ performance. Horizontal differentiation is also extended, as a complex matrix structure based on expertise, client or market sector, product, and geography is developed. The largest business service firms that have grown out of their accounting base, and information and communication firms such as IBM and Accenture, exemplify this third stage. In short, the literature suggests that the structures of the large consulting firms are more managerial and bureaucratic than the traditional archetype would imply and that this is also increasingly the case with other types of professions.
14.4 Key Organizational Processes and the Micro-Structure of Consulting Firms
This section focuses on the microstructural arrangements of consulting firms. These are built on an organizing process based upon leverage and teamwork and these concepts will be discussed in relation to the literature on consulting firms. The organizing process (p. 292) transforms inputs (the expertise of individuals and the firm's know-how) into outputs (complex, customized solutions for clients in which there is a degree of interaction between consultant and client) (Maister 1993; Grey 1994; Morris and Empson 1998; McKenna 2006). This transformation is undertaken by teams of professional staff, operating with a basic division of professional labour into two groups, partners and associates (Galanter and Palay 1991; Haas and Hansen 2001). Underpinning the team structure are choices about how to enact what is called leverage (Maister 1993).
Leveraging knowledge and the labour power of juniors sustains the basic division of labour in a professional firm and underpins its profitability (Maister 1993; Sherer 1995; Malos and Campion 2000; Hitt et al. 2001). To meet clients’ demands, partners and associates need appropriate skills, experience, and training. Associates acquire these skills and knowledge by serving a long apprenticeship before being assessed for partnership. Partners, the senior members of the firm, ‘lend’ their personal expertise or that codified by the consulting firm to the juniors who carry out professional tasks under their supervision, and this is leverage (Gilson and Mnookin 1989). Exempt from other responsibilities, associates develop their professional competence by working on client assignments while partners seek out further client work. Complementing the leverage model are billing arrangements through which time and expertise are monetized. Billing models vary from fixed fees to time-based fees (Kor and Leblebici 2005). Fixed fees are the norm in consulting (Malhotra and Morris 2009). Success at meeting billing targets is an important factor in promotion decisions (Landers, Rebitzer, and Taylor 1996). Billing targets are thus a central feature of consulting firms’ monitoring and incentive systems.
In structural terms, the characteristic mode of organization to enact client engagements and secure leverage by deploying knowledge is the project or assignment team (Haas and Hansen 2001; Werr and Stjernberg 2003). This knowledge may be codified as methods and cases, or it may remain relatively tacit in the form of personal or team-based experiences (Morris and Empson 1998; Hansen, Nohria, and Tierney 1999; Morris 2001). The corollary of task delegation to associates on client projects is that partners and more senior associates devote time to supervision and knowledge transfer by working alongside juniors. Decisions about team structure involve customizing the mix of partners and associates (of varying experience levels) on a project or transaction, and the internal distribution of tasks (Maister 1993; Werr and Stjernberg 2003).
Effective leverage of associates’ labour power therefore calls for decisions about the appropriate team structure for executing a client task. To manage leverage effectively, consulting firms form pools of labour that can be deployed on several projects simultaneously (Armbrüster 2006). For the firm, pooling provides the flexibility to adjust to different levels of demand as well as the opportunity to achieve profitable levels of staff utilization. For associates, pooling offers opportunities to build human capital through on-the-job learning in the course of client engagements, as long as they can access suitable projects. More senior personnel progressively specialize and can deploy their experience and expertise to address more complex client problems, but the cost of specialization for the firm is that it has to continue to source appropriate assignments to (p. 293) keep its associates busy and committed or risk unanticipated ‘quits’ (Gilson and Mnookin 1989).
The translation of leverage into profit for the consulting firm therefore influences hiring, promotion, and the structure of teams. In turn these relate to the sort of consulting model in which the firm is engaged. Kipping (2002) has argued that the type of consulting projects which predominated in his first and second waves were typically ‘brains’ and ‘grey-hair’ assignments respectively (Maister 1993), in which leverage was relatively low (he mentions a ratio of 1:6 in McKinsey & Co. as an example) and in which the experience gap between partners and associates was less significant. The importance of this experience to the project placed a limit on the standardization and routinization of work practices and meant that through some transfer of experience to associates the leverage of the partner's personal know-how took place. In the third wave, where assignments are typically characterized by ‘procedure’, by contrast, leverage is much higher—Kipping mentions a ratio of 1:20—and routinization of work is more pronounced. Consultants become ‘implementation specialists’ (2002: 39). In this sort of assignment, teams are much larger, the hierarchical mix differs from the grey-hair model, and the skills acquired by the consultant are from codified data bases, although, as Werr and Stjernberg (2003) note, there is still some opportunity to deploy tacit knowledge to expedite assignments.
Teams are therefore the basic organizational unit of work in consulting, embodying different vertical levels of hierarchy through which different models of leverage and know-how are enacted (Haas and Hansen 2001). Assignment teams are also the key integrating device through which horizontally differentiated parts of the firm are brought together.
14.5 Diversification and the Macro-Structure of Consulting Firms
At the macro-level, it is typical to find mature consulting firms organized around a set of practices and, as was noted above, this division is a form of horizontal differentiation. Kubr (2002: 769) notes that ‘most consulting firms […] structure their operating core—the professional staff—in more or less permanent home units (called practice groups in some professions)’. Characteristically, practices are differentiated on expertise (however that term is defined within the firm and in the wider professional community). However, consulting firms typically seek to balance organization around technical expertise with organization around a market-based category like industry, sector, or client group. It is common for large firms, such as strategy consulting firms or IT-based firms like Accenture and IBM, to create practices focusing on sectors like consumer goods, financial services, retailing, and the public sector. Many of the large consulting firms add the dimension of market- or sector-based expertise to technical expertise in a matrix structure (Greenwood et al. 2010).
(p. 294) A third dimension of horizontal differentiation is based on the geographical diversification of consulting firms. One explanation for the internationalization of consulting firms is that they have followed their multinational clients. For example, Kipping (1999) shows that McKinsey moved into Europe in the 1960s both because it had exhausted its home territory market and saw opportunities to advise European clients (its first one was Shell) and because its core clients, US multinationals, offered consulting opportunities in their overseas operations (see also McKenna 2006). Often, international expansion was accomplished by entrepreneurial individuals, working for their own clients and with little central co-ordination from headquarters. Consulting firms therefore allowed individual partners to build national subsidiaries to follow clients, and ran relatively decentralized international structures. Subsequently, they formalized an organization structure more based on geographic regions in an effort to integrate their subsidiaries more completely and to transfer or build their capabilities, notably knowledge and individuals (e.g. Armbrüster 2006).
The debate in the literature that follows from this internationalization of consulting firms concerns the nature of the relationships between different parts of the organization and the extent to which these firms operate as an integrated whole. Put another way, how far and in what ways do firms achieve integration across their differentiated structures? Boussebaa (2009) notes that the evidence on consulting firms is limited but he suggests that consulting and other professional service firms have ‘often been touted as the paragons of the globally integrated network (GIN) […] requiring as they do organizational structures that can facilitate both decentralization and integration’ (ibid.: 830). Such network arrangements allow firms to share resources such as knowledge and people when necessary, perhaps on a quasi-market basis without recourse to strong central fiat, as per the orthodox multinational corporation (Ferner, Edwards, and Sisson 1995; Rose and Hinings 1999). Using data drawn from studies in four large consulting firms, Boussebaa (2009: 844) concludes that while the firms under study had ‘institutionalized resource management systems that were transnational in scope […] the process of resource management was subject to conflicts and tensions that continually undermined its raison d’être’.
A slightly different conclusion is reached by Greenwood and colleagues (2010). Recognizing the extreme degree of structural differentiation operating simultaneously among the largest business advisory firms (which they term multiplex organizations), they argue that a set of integrating devices are in place to cope with these. First, they argue that the differentiation via multiple axes of structure also acts as an integrating device by connecting professionals across a latticework of communities within the larger organization. In other words, professionals play multiple roles simultaneously in overlapping communities, creating a dense network of connections with few intermediaries. Second, they argue that the prioritization of client management systems and the teams that drive these systems within these firms also ensure that these communities function. Third, they suggest that integration is underpinned by what they term cultures of reciprocity, which encourage the fusing of these elements of the consulting firm.
(p. 295) 14.6 Structural Change and Practice Area Creation
Structural change occurs as firms seek to diversify or grow, or indeed to shed practices and refocus. The literature deals with structural change by analysing the motivation of consulting firms to pursue growth and the limits of growth possibilities as well as the process by which growth is said to proceed. On the motivation for growth, Suddaby and Greenwood (2001) argue, for example, that as expert knowledge commodifies over time professional firms seek to ‘colonize’ new territories, provoking jurisdictional disputes with other professional communities such as consulting firms (see also Heuskinveld and Benders (2005); Heuskinveld and Benders, Chapter 13, this volume, for an account of the consequences of knowledge commodification in consulting firms). Greenwood and Suddaby's account of the expansion of the Big Five accounting firms into broader business advisory services also highlights the central role of claims to legitimacy, that is, efforts to legitimize a firm's own expertise and to delegitimize its competitors through the process of diversification (Suddaby and Greenwood 2005; Greenwood and Suddaby 2006). In reputational terms, firms diversify in order to exploit their reputations, either by selling more services to existing clients or by finding new clients. The result is growth through diversification based on new products or on new client markets (Armbrüster 2006). We should also note that Kipping's (2002) evolutionary model of the industry in three stages suggests that there are structural and cultural limits to growth among consulting firms: his argument is that, regardless of motivation, firms cannot easily change from one model of consulting (such as the low-leverage grey-hair model) to another (such as the high-leverage procedural model).
These macro-level explanations for the structural forms that consulting firms may adopt emphasize the link between the choice of structure and the challenge of growth and diversification, but say less about how the process of structural development occurs. Gardner, Anand, and Morris (2008) fill this gap with a process explanation of how firms adapt to new opportunities while providing the scope for ambitious professionals to build their reputations. Central to this process is the creation of new practices. New and internally differentiated practice areas are squarely implicated in consulting and other professional firms’ innovation and diversification efforts (Heuskinveld and Benders 2005; see also Chapter 13, this volume). New practice creation occurs largely through initiatives from the periphery of the consulting firm rather than through charters directed from the centre, as the novel expertise on which new practices are based tends to come from constant interaction with clients (Fosstenløkken, Løwendahl, and Revang 2003). The process by which new practices are created illuminates the relationship between structural diversification and knowledge-based innovation, and provides a link between the micro- and macro-levels of structural change in consulting firms.
Gardner, Anand, and Morris (2008) show that new practices are relatively commonplace in consulting firms, but that only around 50 per cent of a sample of new practice (p. 296) initiatives led to a sustainable independent practice. Their model combines structural features and skilful agency and requires that four crucial ingredients— (i) social agency, (ii) expertise development, (iii) ‘turf’ or the establishment of clear territorial boundaries, and (iv) organizational support—merge in one of three possible sequences. During the combinatory process, astute actions by individual actors or groups can resolve political challenges and secure the necessary resources. Thus, new practice creation is rarely easy and is inherently political, because it requires the garnering and deployment of valued resources and because, like other forms of innovation, it demands legitimization by powerful groups such as clients, as Glückler and Armbrüster's (2003) study of the management consulting sector shows. Likewise, Heuskinveld and Benders (2005) have argued that new concept development in consulting firms relies on innovators’ ability to get round internal resistance (see also Heunsinkveld and Benders Chapter 13, this volume).
Anand, Gardner, and Morris (2007) show that all four ingredients mentioned above are necessary to build a new practice and the absence of one cannot be compensated for by amplifying any of the others. They must also be combined effectively via a two-stage process in which the agent, or champion, combines with one of the other three ingredients in the Emergence Step. For example, they may develop a specific form of expertise that is valued by clients and seen as sufficiently different from the expertise residing in other practices. This means that two of the ingredients have combined. In the second stage, the Embedding Step, the other two ingredients are successfully introduced. For example, this embedding step could involve establishing organizational ‘turf’, usually by building on existing client relationships—thereby showing others in the firm that the nascent practice has internal and external legitimacy—and by obtaining sufficient support from the rest of the organization, in the form of people, budget, and recommendations to clients that bring in a flow of work, for the practice to survive and flourish.
This account of how consulting firms’ structures develop acknowledges the relatively decentralized nature of authority to pursue innovation in these settings. Structures do not come into being by executive fiat, and individual partners enjoy considerable power by virtue of their reputations and client contacts (Morris and Empson 1998; Gardner, Anand, and Morris 2008). Viewing consulting firms as a constellation of practices in which structural variation via practice creation occurs as a political process is consistent with coalitional models of the organization (Cyert and March 1963).
14.7 Further Work
While structure is important for understanding consulting firms, because it is the means by which core resources, people, knowledge, and reputation can be deployed and developed it has only received limited attention in the literature. For this reason this chapter has drawn on the literature on the broader professional service firms as well as that on consulting firms. For both theoretical and practical reasons research focused on the outcomes of structure are important, and studies of the relationship between structure and (p. 297) performance outcomes across a sample of consulting firms would be valuable. This requires careful design to take account of confounding variables and multiple measures of performance, by perhaps including client-based measures, such as achievement of transactional objectives, and professional-staff-based measures, such as commitment.
Second, the chapter has noted that archetype concepts crystallized a great deal of work on the distinctive structures of professional organizations but subsequent research shows that the distinctiveness of consulting and other professional firms has diminished as they acquire features of the corporation in the ways they are managed and organized. A criticism of this stream of research is that it has largely been focused on small numbers of organizations and on particular sectors or industries (Morris and Pinnington 1999). More broadly, recent work on the nature of professions has challenged the generalizability of the professional archetype—particularly in relation to newer, entrepreneurial professions—and its historical veracity, given the evolution of the consulting industry (e.g. Brock, Powell, and Hinings 1999; Kipping and Kirkpatrick 2008; Muzio, Ackroyd, and Chanlat 2008). If it is to progress fruitfully, further research on the professional archetype should be based on larger samples and be more rigorously comparative in order to understand the contours of structural similarity and difference within and across sectors. Comparing consulting firms with another more formally professionalized sector like law might, for instance, illuminate theoretical accounts of the influence of professional values on structure. Archetype work can also progress conceptually by generating propositions about the causes of change and development of new archetypes, possibly by incorporating explanatory models from theoretical domains such as institutional theory. For instance, Greenwood and Suddaby's (2006) notion of contradictions triggering institutional change could usefully be applied to the question of archetype change.
Third, research needs to clarify through granular studies how structure actually works in consulting firms. As noted above, extensive work on the structures of professional service firms has been done but relatively little of it has, as yet, focused on consulting. Research in this arena is likely to be processual and sensitive to the relationship between formal, macro-level policies, for example on the structure of the practice portfolio, and more informal, micro-level activities, which enact structure on the ground. One important area where further work is required concerns the enactment of structures at their most complex, that is, in the arena of complex international assignments. A focus on the core mechanism of integration, the client management system and how this works across a range of assignments with differing outcomes, would extend existing theory by providing insight into the working of the international organization and potentially link structure to action and performance.
A fourth area of research that is needed concerns the relationship of structure and innovation in consulting and other professional firms because understanding how innovation is fostered is seen to be so important to firms’ survival and success (see Heuskinveld and Benders, Chapter 13, this volume). Much work has considered how firms achieve the exploitation of existing assets and the simultaneous exploration for new ways of competing with different organizational forms (March 1991). In consulting, however, innovation often emerges from ongoing work (Dougherty 2004). The tight coupling of exploratory (p. 298) activities with the core work of such firms suggests that more research is needed to assess how, structurally, this concurrent exploitation and exploration is achieved.
Understanding the structures of consulting firms has several important and related aspects. First, structure viewed broadly, or organization design, is distinctive in these firms because of the nature of the work, staff, and clients. Whether consultants are viewed as professionals or not, many firms have characteristics typical of the professional organization. While it appears that the largest firms have taken on corporate forms of management and become more like the corporations they serve, control of the client relationship largely remains in the hands of front-line professionals, and this mitigates the development of a uniformly bureaucratic model.
Second, structural differentiation occurs at the micro-level of the everyday consulting task and the macro-level of the firm's portfolio of practices. Structural differentiation at the macro-level has proliferated in the form of practices based on sector, expertise, and geography, and co-ordinated by complex matrices. Balancing this differentiation is the project team, the microstructural form characteristic of all consulting firms and their primary integrating device. This microstructure is also the means by which leverage is enacted. The macrostructure provides a platform for locating different types of expertise and the microstructure is a platform for integrating multiple forms of expertise in work assignments.
Third, structural choices about the portfolio of practices must be viewed in light of the growth dynamics of the firm. These are driven partly by client opportunities but also by the need to provide careers for professional staff. Growth via diversification is one route by which consulting firms seek to mitigate the risks of knowledge commoditization, although there appear to be structural and cultural limits to such growth ambitions. Growth is, in turn, linked to expertise-based innovations that take the form of new practices. In short, understanding changes in the structure of a consulting firm requires an understanding of the process whereby new practices are created.
At the macro-level, a consulting firm's strategy is embodied in its portfolio of practices and how they interact, such as cross-selling or sharing resources of staff and expert knowledge. Practices constitute the firm's organizational bedrock. Though usually defined in terms of technical expertise, practices are often overlaid with market-facing structures based on sector or client type, and in the largest firms with geographic units as well. As a result, large consulting firms are typically structurally complex and managed via matrix systems. The portfolio of practices that constitutes a firm is not exclusively the result of top-down decisions. Rainmakers and partners with valued connections to clients can influence choices about resource allocation and support for innovations. Furthermore, competing claims to expertise can affect patterns of growth. Understanding how practices are created and destroyed thus offers insight into patterns of structural development in consulting firms.
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