A STRATEGIC ANALYSIS OF A CONSULTING FIRM'S

MARKET EXPANSION PLANS

bY

Randal D. Crighton

PROJECT SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In the
Faculty
of
Business Administration

Executive Master of Business Administration Program

0Randal D. Crighton 2005

SIMON FRASER UNIVERSITY

Summer 2005

All rights reserved. This work may not be reproduced in whole or in part,
by photocopy or other means, without permission of the Randal Crighton
APPROVAL

Name: Lyla Crighton

Degree: Master of Business Administration

Title of Project: Industry Analysis - Canadian Medical Doctoral

Universities

Supervisory Committee:

Senior Supervisor
Mark Wexler, Professor

Second Reader
Carolyne F. Smart, Associate Professor

Date Approved:
 SIMON FRASER UNIVERSITY

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ABSTRACT
This Master's project examines the world of management consulting and the

challenges facing a small firm. From an overview of how the industry operates and a

brief look at the history of how today's market has been shaped by past events and the

market dynamics this shaping presents to incumbent and new entrants alike, the project

proceeds to look at the value chain of both the industry and the specific firm and assesses

the strategic fit of the firm to the industry. The market expansion plans of the firm are

examined, issues that affect the industry and those that are unique to the firm are

identified and a series of recommendations is presented.

EXECUTIVE SUMMARY
CCI Management Consultants is a small firm providing undifferentiated project

management services in a market space consisting of principally primary industries.

Secondary industries in this market are limited almost exclusively to government and

related organizations. As a result, CCI Management Consultants faces a number of

noteworthy issues.

The Canadian management consulting industry is estimated to have 5,000 firms

and up to 17,000 practitioners although the large accounting firms with consulting

practices have long dominated the industry. In the past seven years, the major firms have

either separated or sold off their consulting practices. The change in the top tier will not

lessen CCI's competitive pressures in the short term. This is due primarily to the NAFTA

treaty opening the borders to American firms and the recent offshoring activities

extending that competitive range into India and other locations.

There is intense rivalry between competitors for project management consulting

engagements. This results from the composition of the industry and the ease with which

new competitors can enter the market. In addition, there is a small number of buyers and

the use of structured competitive bidding mechanisms is prevalent. The perishability of

the consulting hour also puts downward pressure on billable rates.

Other challenges faced by CCI include high transaction costs for finding and

securing engagements and a limited availability of qualified consultants, which poses

high costs in hiring and retaining those consultants. The buyers expect more industry-

specific knowledge and experience in engagements so consultants with general

knowledge may not be qualified for specific engagements. This demand for specific

knowledge limits the firm's ability to transfer its core competencies to new market

segments and clients.

As the status quo is not an acceptable option, CCI is presented with four options

to expand its market and fulfil its strategic goals. The goals are to increase profit margins,

expand its inventory of skills, achieve a compounded annual growth rate (CAGR) of

twenty percent for the next three years and leverage its existing client relationships. The

options are:

1. Differentiation of existing project management consulting;

2. Differentiation within market sectors;

3. Develop an executive-level business management consulting practice; and

4. Diversification through strategic alliances.

The strategic options are not mutually exclusive and it is recommended that the

firm focus on two of the strategic options for expansion: differentiation by specific

market sector; and strategic alliances for diversification of services offered.

For both options, CCI should seek to improve its perceived credibility and

legitimacy, expanding upon the current certifications of its consultants. The firm should

consider joining a management consulting association such as the Canadian Association

of Management Consultants and encouraging individual consultants to attain the Certified

Management Consultant (CMC) designation offered by this association.

By focusing on local industries that have specialized needs, such as health care or

provincial and municipal governments, CCI is able to offer services that do not have to

rely on global breadth.

To expand upstream in the value chain and engage the firm earlier in the overall

consulting engagement cycle, CCI should use strategic alliances and rapidly extend both

the footprint and the skills inventory of the firm. Alliances also enable CCI to offer a

client a fuller range of solutions and potentially assist the client to avoid its own

transaction costs in searching for and securing additional resources to complete an

undertaking. By drawing resources from its alliance chain to assist the client, CCI may be

able to capture some of the savings through bundled pricing. For downstream expansion,

however, CCI should continue to rely on spot market contracts.

With industry growth projected to reach 55% between 2002 and 2012, CCI must

act now to capitalize on the opportunities.

DEDICATION
This is dedicated to my family - to my wife, Lyla, as we journeyed together through this

Master's Degree voyage of discovery, and to our sons, Jason and Lee, who, as they struggled with

their own post-secondary educations, found the resilience to face the challenges of an empty

refrigerator, a cold stove and a silent laundry room.

vii
ACKNOWLEDGEMENTS
To the professors of Simon Fraser University who selflessly shared their knowledge and

their enthusiasm and to the program area staff who tirelessly kept the program on track and were

always there to solve a problem, no matter how trivial. Your warmth and sincerity has been

greatly appreciated.
TABLE OF CONTENTS

..
Approval ..........................................................................................................................................11
...
Abstract .........................................................................................................................................
111

Executive Summary ......................................................................................................................

iv
Dedication .....................................................................................................................................
VM
..
Acknowledgements .....................................................................................................................
...
~111

Table of Contents .......................................................................................................................... ix

List of Figures ................................................................................................................................xi
List of Tables ...................................................................................................................................
Glossary
..
.........................................................................................................................................
xll
1 Overview of The management consulting industry .............................................................. 1
I .1 Introduction .....................................................................................................................
1
1.2 Products and Services ...................................................................................................... 3
1.2.1 Project Management .................................................................................................. 4
1.2.2 Business Analysis ...................................................................................................... 7
1.2.3 Solution Selection ......................................................................................................8
1.2.4 Support Services ........................................................................................................ 9
1.2.5 Consulting Services Summary ................................................................................. 10
1.3 CCI's Market ................................................................................................................ 11
2 Industry Analysis ...................................................................................................................
16
2.1 Overview of the Management Consulting Industry ......................................................16
2.1 .1 Delivering Consulting Services............................................................................... 16
2.1.2 History of Consulting Services ................................................................................ 21
2.1.3 The Size of the Consulting Industry ......................................................................... 24
2.2 The Five Factors ............................................................................................................ 26
2.2.1 Market Entry ............................................................................................................ 29
2.2.2 Buyer Bargaining Power .........................................................................................
42
2.2.3 Substitutes ................................................................................................................45
2.2.4 Supplier Bargaining Power ......................................................................................47
2.2.5 Rivalry ......................................................................................................................
48
2.3 Overall Assessment and Key Success Factors ..............................................................53
2.3.1 Key Success Factors .................................................................................................54
3 Internal Analysis ....................................................................................................................
58
3.1 Strategic Fit Analysis of CCI Management Consultants ...............................................58
3.1.2 Product Strategy: Innovative .................................................................................... 59
3.1.3 Research & Development Expenses ........................................................................ 60
 3.1.4 Structure .................................................................................................................6 1
3.1.5 Decision Making ...................................................................................................... 61
3.1.6 Production ..............................................................................................................62
3.1.7 Labour ......................................................................................................................
63
3.1.8 Marketing .................................................................................................................
63
3.1.9 Risk Profile ..............................................................................................................
65
3.1.10 Capital Structure ...................................................................................................... 66
3.1.1 1 Consulting Industry Value Chain ............................................................................. 66
3.1 .12 Firm Level Value Chain .......................................................................................... -72
3.1.13 Core Competencies .................................................................................................. 74
3.2 Alignment of Expansion Plans and Strategic Fit ...........................................................85
3.2.1 Expansion Plan Options ........................................................................................... 86
4 Issues .......................................................................................................................................
94
4.1 Persistent Management Consulting Industry Issues ......................................................95
4.1.1 Fragmented Industry ................................................................................................ 95
4.1.2 Billable Hours as an Inventory................................................................................. 96
4.1.3 Transaction Costs are High ...................................................................................... 97
4.1.4 Human Resources .................................................................................................... 98
4.1.5 Asset Specificity ......................................................................................................
99
4.1.6 Globalisation and competition ............................................................................... 101
4.1.7 Technology.............................................................................................................
103
4.2 Current CCI Issues ......................................................................................................104
5 strategic options Assessments .............................................................................................
107
5.1 Differentiation of Existing Project Management Consulting ......................................111
5.2 Differentiation within Specific Market Sectors...........................................................113
5.3 Develop Executive-Level Business Management Consulting ....................................115
5.4 Strategic Alliances for Diversification of Services Offered ........................................116
6 recommendations .................................................................................................................
118
6.1 Introduction ..................................................................................................................
118
6.2 Changes in Practices................................................................................................... 119
6.3 Strategic Alliances........................................................................................................120
6.4 Market Sector ..............................................................................................................
122
Appendices ..................................................................................................................................
125
Appendix A: CCI Strategic Fit Today .................................................................................... 125
References..............................................................................................................................
126
LIST OF FIGURES
Figure 2- 1: Industry Analysis .5 Factors Diagram ........................................................................
28
Figure 2-2: Canadian Distribution of Management Consultants....................................................50
Figure 3-1 : Consulting Industry Value Chain ................................................................................69
Figure 3-2: Firm Level Value Chain for CCI .................................................................................
73
Figure 4- 1: Student Enrolment by Subject Area ............................................................................
99
Figure 5- 1: Weighted Pairs Comparison of Strategic Options .....................................................108
Figure 5-2: Strategic Option and Goal Alignment ......................................................................110

LIST OF TABLES

Table 1.1: CCI Consulting Services.................................................................................................

4
GLOSSARY

AD DIE Analysis, Design, Development, Implementation and Evaluation

BCSC British Columbia Systems Corporation
BPO Business Process Outsourcins
~ A G R I Com~oundedAnnual Growth Rate
1 Certified Management consultant
Electronic Data Systems
Initiation, Diagnosing, Establishing, Acting and Leveraging
Information Svstems Management
~ITO 1 Invitation to Ouote
NAFTA North American Free Trade Agreement
NAICS North American Industry Classification System
~NASA I National Aeronautics and Space Administration
and Services Companies (India)

~REI 1 Reauest for Expression of Interest

~RFP I Reauest for Pro~osal
~WQ Request for Quote
Systems Development Life Cycle
Securities and Exchange Commission (United States)
Standard Industrial Classification

xii
1 OVERVIEW OF THE MANAGEMENT CONSULTING
INDUSTRY

1 . Introduction
CCI Management Consultants, hereafter referred to as CCI, was established in

1996 as a boutique consulting firm operating in the greater Vancouver region. From the

beginning as a privately owned one-person corporation, the firm has provided project

management and related services for mainly information technology based projects by

leveraging a network of sub-contracted consultants, adjusting the skills base to meet the

needs of each particular contract.

With various portions of the company's administrative functions outsourced to

other local providers, the executive of CCI concentrated on the operational delivery of

services. Despite the business opportunities of web development and Y2K projects, the

firm remained committed to its initial product offerings throughout the late 1990s,

seeking to differentiate itself on the basis of its consultants' experience and recognized

certification by the Project Management Institute (PM18) and through building client

references.

However, the firm suffered significant set backs in the worldwide consulting

market downturn of 2002 and 2003 and a sui-viva1strategy was adopted, reacting to

market developments and opportunities as opposed to carefully adjusting the initial

strategy.
 The business consulting industry, excluding consulting engineering and other

construction related activities, can be thought of as consisting of two categories:

accounting services and management consulting. Accounting services principally

includes preparation and interpretation of financial statements and the provision of tax

advice, either country specific or in the context of a growing global marketplace with

international business activities. Management consulting, on the other hand, is a broader

term that encompasses analysis of business operations, development of business strategy,

human resource management and a host of computer systems analysis and integration

services including project and change management among others.

In the 1980s and early 1990s, the business consulting industry was comprised of

large accounting firms, such as KPMG, Arthur Anderson, Ernst & Young and

Pricewaterhouse, large systems integrators, such as IBM, EDS and SHL, and a host of

small firms and many independent consultants. At one time, there was a clear delineation

of services between the large accounting firms and the systems integrators but this line

began to blur. Anderson Consulting focused on computerized solutions to business

problems and was an outgrowth of the accounting firm, Arthur Anderson. Both the

accounting firms and the systems integrators offered a subset of services that focused on

the management aspects of client firms and these services could generally be categorized

as management consulting.

As CCI Management Consultants has focused on providing project management

and related services, it participates in the management consulting industry and is one of

the "host of small firms". However, the management consulting industry has evolved

significantly in the past five years, a process that began in the late 1990s, and parallels the
landscape changes within the global business environment. As a result, the historical base

for CCI may be threatened and, if CCI is to have a future, a change in its market position

and strategy must occur.

This paper focuses on the development and assessment of a market expansion

strategy for CCI to determine if the expansion strategy will deliver a competitive

advantage for the firm.The underlying components of the strategy will be examined to

dissect the opportunities available to, and the threats facing, CCI including the

composition and trends of the market (the buyers) and the competitors. It is in these two

primary areas that the key drivers of the CCI strategy are found so these areas will be the

focus of the assessment. The additional areas will include assessing the market entry

threats, particularly with respect to the global trends relating to information technology

services, and the availability and influence of suppliers of services. This will involve

examining the business management consulting value chain and the portion in which CCI

participates today.

1.2 Products and Services

CCI offers consulting services in four categories as shown below in Error!

Reference source not found..

 CCI Management Consultants
:
Consulting Services
IProject Management IProject Governance Guidance, Project I
Management, Change Management, Risk
Assessment, Risk Response Planning, Conflict
Management, Scope Verification Assessment, Post-
Implementation Review Assessment

Solution Selection Request for Proposal (RFP) Design and Control,

Software Package Assessment,
Support Services Test Planning, Stakeholder Analysis, Team
Building and Strengthening, Project Plan Review
I
Table 1-1: CCI Consulting Services
Source: Author

1.2.1 Project Management

The primary consulting service of CCI is that of project management within the

realm of information technology. The Project Management Institute (PMIB) defines

project management as the application of knowledge, skills, tools and techniques to

project activities to meet project requirements (Project Management Institute, 2000, p.6).

Within project management, there are nine knowledge areas, or disciplines. These

are Project Integration Management, Project Scope Management, Project Time

Management, Project Cost Management, Project Quality Management, Project Human

Resource Management, Project Communications Management, Project Risk Management

and Project Procurement Management. CCI primarily offers project management as a

broad spectrum service although CCI also offers each of the disciplines as a stand-alone

service to clients depending upon the size and nature of the project undertaken. Although
experienced project managers typically have developed mastery in all nine areas, the

ability to effectively deliver such a broad spectrum of services varies based on the

complexity of the project. For instance, when developing a mid-sized application for a

single firm the CCI consulting project manager would likely provide services across the

full spectrum. In large multiple-firm projects, there is a higher degree of specialization

required and several consultants, each addressing a subcomponent of the overall project

management responsibilities, are involved.

Consulting in Project Governance Guidance was a strong service offering for CCI

during its early years in the 1990s as many businesses were struggling with establishing

Project Management Offices and implementing project management standards and

procedures. In more recent years, this offering has atrophied primarily because of the

success of local businesses in establishing internal programs. A second cause is the recent

development and marketing of project management products that include some aspects of

project governance guidance in the software.

Change management consulting services initially grew out of the opportunity to

assist clients with developing the internal processes to recognize, estimate and control the

impacts of changes that arose within their current information technology projects. These

services were rapidly extended to include the management of change impacts within the

business areas affected by the technology projects, as this was where the hidden costs of

projects were occurring. These costs arose through the loss of productivity from poor

expectation alignment and from minimal and often ineffective communications and

training. In addition, an overall lack of understanding by the technology department of

the business challenges hampered productivity as did the business department

unfamiliarity with limitations of centralized computing solutions. Change management

consulting services have been gradually included into the overall offering of project

management at CCI as the project process maturity of client organizations improves.

Risk Assessment and Risk Response Planning are also offered to clients. CCI

usually delivers these services in support of an existing project that the client has staffed

with a junior or intermediate project manager from within the client's organization. The

ability to recognize risks and develop appropriate response plans, complete with well-

defined triggers, is a product of experience as well as a solid process. Although risk

management is a concept well recognized by most business managers, the identification

of project related risks is often outside of the business managers' experience. Typically,

the managers are well versed in the day-to-day operations of their business activities but

projects introduce new aspects and risks. Some of the risks are inherent to projects while

other risks are unique to the type of solution being implemented. The Risk Assessment

and Risk Response Planning services are delivered as cross sales to an existing client for

whom CCI is providing other services.

Another service typically arising as a cross-sale for a current client is that of

conflict management. Where Human Resource departments are unwilling or unable to

intervene, an outside consultant may offer an expedient solution. The ability to

objectively identify the causes of conflict and offer mentored solutions has proven to be a

valued, albeit small, component of the CCI offerings.

Scope verification assessment and post-implementation review assessments are

post-project or project close activities. To minimize the amount of bias introduced into
the assessments, clients procure these services from consulting firms that were not

involved in the original project. Clients prefer consultants that were not engaged at the

client firm during the course of the project. CCI's services are, therefore, delivered on a

spot-basis either through previous client contacts or through responding to Requests For

Proposal (RFP).

1.2.2 Business Analysis

The second category of CCI services is business analysis. The scope of these

services has been restricted to the definition of business analysis within the system

development life cycle of information technology. CCI's services focus on the definition

and design of specific existing business functions and/or proposed new or enhanced

processes within the defined scope of a project. The CCI consultant will assess the

business needs within the scope boundaries and design a business process to fulfil

identified needs. Alternatively, the consultant may identify and document an existing

business process along with its supporting business rules, data flows and information

technology design.

In 200 1, CCI added Business Process Reengineering to its portfolio of consulting

services. This was as a logical extension of the skills for business process design

accumulated through previous business analysis efforts. The Business Process

Reengineering line of business has not developed well, though. This is due to the

combined negative experiences of the marketplace as a whole. In addition, the high

marketing transaction costs of initiating a new service have been a deterrent, particularly

during a market downturn.

 CCI has not served the market with higher tier analysis services such as assessing

the operational efficiency of businesses. Strategic assessments and realigning a business7

current or planned future operations have also not been offered by CCI.

1.2.3 Solution Selection

For a number of businesses in the greater Vancouver and Victoria areas,

development of in-house computerized solutions is either impractical or not the preferred

approach for one or more varied reasons. For these businesses, the alternative approach to

solutions delivery typically includes turning to the external marketplace to find either a

pre-built solution, such as packaged or "shrink-wrapped" software, or to contract in some

fashion with an external solutions provider, or both.

For example, many businesses were faced with aging mainframe-based

computing applications in the mid-to-late 19130s and the looming threat of the Year-2000,

or Y2K7bug. It was during this period that packaged solutions were experiencing

significant sales growth as the simplest solution for some of these businesses was the

wholesale replacement of their application base. The alternative was to invest significant

capital but still have ancient applications that did not address current or future business

needs (Schroek et al, 2002). Often the sale of packaged software was bundled with

consulting services. These services could include customisation and installation of the

product. Business and technical training required to effectively re-establish the business

on the new software platform might also have been included. Not infrequently, the

bundled services involved redesigning the business processes of the company to align the
business process with the abilities of the software. This realignment was one of the areas

in which poor market experiences with Business Process Reengineering occurred.

To obtain a package, a business engages in a number of similar processes, each of

which seeks to solicit responses from the marketplace. If the product is a simple

packaged product, often referred to as "shrink-wrapped software", then an Invitation to

Quote (ITQ) or a Request for Quote (RFQ) might be used. If the product being sought

has some level of customisation required, then a Request for Expression of Interest (REI)

might be issued. For solutions with even more customisation, either on top of a base

software product or to develop a new client-specific product, a Request for Proposal

(RFP) is generally used. There are a number of business practices surrounding the issuing

and evaluating of each of these mechanisms. If the practices are breached, exposures in

both legal and reputation sense arise. For example in the Request for Proposal process,

the evaluation criteria must be established in a final form prior to receiving any response

or bid, be that response in writing or through presentations. This minimizes the potential

for bias, the presence of which may expose the business to lawsuits or sully its reputation

for fair business practices.

Defining, conducting andlor managing the execution of these processes are the

Solution Selection services offered by CCI Management Consultants.

1.2.4 Support Services

The last of the four categories of consulting services offered by CCI is that of

support services. Three of the support services, Project Plan Review, Stakeholder

Analysis and Test Planning, target the planning stage of the project lifecycle. These
services offer clients specialized knowledge in a highly focused and thus leveraged

manner. Second in the five-stage life cycle oFa project, the planning stage is where the

detailed activities of the project are identified, sequenced and estimated. Although

conceptually presented as a second stage, the planning activities effectively span the

entire project timeframe with detailed planning decomposing the initial higher level plans

as the project proceeds. For software development projects, planning related activities

occurs during each of the execution steps including analysis, design, development, testing

and implementation. This is irrespective of whether the project is conducted following in

a traditional waterfall methodological approach (Burback, 1997) or in more intermixed

cyclical prototyping approaches (Marks, 2002).

The fourth support service, Team Building and Strengthening, is a broader-based

offering that addresses activities throughout the life of a project and relies primarily upon

human resource management skills, many of which are also applied in CCI's Conflict

Management services.

1.2.5 Consulting Services Summary

Each of the consulting services offered are based on widely available

methodologies and procedures, rendering the firm's offerings as progressively more

commonplace and minimally distinguishable from those of other consulting firms. This

lack of differentiation within project management related consulting is a key factor

leading to the formulation of the market expansion strategy.

1.3 CCI's Market
Projects are temporary undertakings intended to accomplish a set of actions to

achieve a specific set of objectives, generally moving the organization(s) undertaking the

project from one state of existence to another. Consequently, Project Management

services should be applicable to any organization that is attempting to effect change from

its status quo. The disciplines of project management offer the client firm the opportunity

to realize the expected benefits of the project more effectively while controlling the costs

more closely. As a result, the potential market for CCI Management Consultants' services

is as broad as the marketplace of business.

Delivering meaningful value to a client organization arises from the intersection

of three separate sets of skills and knowledge. The client benefits from the consultant

having specific knowledge about either the nature of the project or the nature of the

business. The consultant should also have project management knowledge and expertise.

Finally, the consultant should have a strong command of general management

knowledge, including the interpersonal skills necessary to manage teams of people.

Project management skills alone are generally insufficient to bring value to a client. For

example, an experienced video game software project manager would unlikely be the

candidate of first choice to manage a project to build a nuclear plant. In the same fashion,

many client organizations will not accept a project manager lacking experience in the

client's industry. The industry experience is perceived to be necessary to understand the

business needs and appropriately anticipate and evaluate the myriad of day-to-day

decisions required enroute to a successful conclusion. The possession of industry

specific skills and knowledge is a limiting factor to the marketing reach of a consulting

organization.

Also affecting the breadth of the market is the fact that not all organizations

recognize the benefits of project management. Historically, companies conducted

business with activities grouped together along internal function lines into 'silos' or

'stovepipes' such as marketing, accounting or shipping. Undertaking changes was a

localized event, mixed in with operational activities. In the 1960s, with a boom in

construction and the advent of the space race in the United States, the role of a project

manager began to emerge as a job title but by the end of the decade, in 1969 when the

Project Management Institute was initially formed (Project Management Institute Annual

Report, 2004, p.7), the role was still limited in its recognition.

By 1986, projects were more entrenched in business activities but the outcomes

were often disappointing, leading to the US federal government's request that the

Software Engineering Institute of Carnegie Mellon University develop a framework for

assessing the maturity of the project process. This model was intended to assist the

federal government with evaluating the performance of its software development

contractors and the initial description of the framework was unveiled in September of

1987. The framework depicts the sophistication of a company's project performance on a

five-stage scale, from ad hoc to repeatable, defined, managed and optimising

respectively. Over the next four years, the framework was refined and supporting

questionnaires for self-administration were developed and made available for use. With a

strong response from within the Information Technology community, this framework
prompted the development of a number of methodology spin-offs and increased the

profile of the need to and benefit of managing projects.

A convergent development was taking place in the ranks of project management

procedural documentation with the 1989 initiation of the Project Management Institute's

"Project Management Body of Knowledge" document. The beta draft was released in late

1993 and the first edition was issued in 1996.

It was during this timeframe of focus on formalized, controlled approaches to

managing projects that CCI was launched, offering its services to clients who were

interested in gaining control of their projects. The potential clients were primarily large

organizations with significant capital investments being made in their software

development. These firms often had the beginnings of a project management office,

operating under this or a similar title. Sophistication was rapidly improving, at least in

terms of understanding project management and the overall governance structure required

if the process of managing projects was to be successful.

Attempting to market its offerings to every business would exceed the resource

capacity of CCI. With its experience base and expertise in regulatory environments, CCI

targets government and quasi-government organizations. Initially the firm did so within

the greater Vancouver area but CCI soon expanded both the scope of offerings, to include

business analysis, and the geographic region, to include Victoria. Since the inception of

CCI, the targeted organizations have dramatically improved their level of sophistication

in assessing project performance. Over the past five years in particular, a number of

innovations have become typical everyday components of the client businesses.

Throughout government ministries, crown corporations and agencies, the development

and use of standardized scorecards to monitor project performance are routine and are

often combined with structured project methodologies complete with templates for

deliverables.

The process for winning bids has also changed since CCI was launched. In the

private industry sector, many business opportunities are not well advertised and locating

these opportunities has often been the result of well development networks of contacts. In

the regulatory environment, however, the procurement process was formalized to be

more transparent and to cover a broader range of services and products. These objectives

were achieved through altering the procurement process standards and by funnelling each

qualified opportunity through the BC Bid@ website. Because the website made the

opportunities easier to locate, it also increased the amount of competition for the

contracts, shifting more influence and control into the hands of the purchasers.

The transparency of an open bid system, however, is only one way and favours

the purchaser. For the bidders, the ability to determine the price ranges or services and

products of competitors remains hampered as the bids are developed and submitted

secretively. As a result, a firm's the ability to verify that its prices and products or

services are competitively priced or placed is often a matter of anecdotal evidence,

gleaned from conversations by its members within their own networks. CCI executive

believe their prices are mid-range and represent a good value proposition for the clients

of the firm.
 CCI executive also believe that the firm's services are marketed as differentiated

offerings based upon a combination of consultants with fifteen years or more of project

experience, certification from the Project Management Institute and direct experience in

specific industry sectors. This combination is not unique within the industry, however,

and in an unscientific poll of seven firms working in the same industry sector, all seven

were able to match these attributes. This finding suggests that CCI is truly offering

homogeneous products.
2 INDUSTRY ANALYSIS

2.1 Overview of the Management Consulting Industry

There are two aspects within the overview that are presented here. The first is the

process of delivering services through engaging the client, also known as winning the

contract, while the second aspect is the historical development of the industry and its

current condition.

2.1.1 Delivering Consulting Services

In its simplest form, a contract potentially arises when a client recognizes a need

for knowledge, skills or perspective, what is hereafter referred to as resources, which do

not exist in sufficient quantities within the client's organization. How the client proceeds

to acquire these resources differs between clients but there are three general approaches.

A client may turn to a single firm, usually one with whom the client has had extensive

business relations in the past, and enters into conversation about the nature and scope of

the undertaking. The second option is an invitation to bid on the contract, which is

generally preceded by some client efforts to research the potential market suppliers and to

limit the invitation to a small subset of the market. The third option is to conduct an open

bidding process. This may involve an invitation being sent to a list of qualified providers,

often developed by a previous open proposal process. Alternatively, the invitation may be

posted to a broad audience through an advertisement in one or more newspapers, etc. or,

the more common approach today, through a website.

 Irrespective of which approach the client organization adopts, there are common

elements to the development of each engagement. The client organization, either by itself

or in concert with the consulting firm of choice, minimally defines a number of aspects of

the engagement within the contract. The goals and objectives of the undertaking, usually

in quantifiable and readily measurable terms, are stated. The beginning and ending dates

and/or conditions of the undertaking are also defined, with the conditions being

measurable for clarity. The deliverables are stipulated and these may range from tangible

components of the undertaking, such as reports and documents or training sessions to

intangible items such as verbal guidance and mentoring. Interim milestones, which are

usually directly related to the identified deliverables, are also included.

Each consulting firm delivers its services through contracts and the process of

delivering services is known by different names such as the contract life cycle (Bartels,

2004), the consulting engagement life cycle or the service delivery cycle (University of

Birmingham) to name a few. Within CCI, each contract is referred to as a consulting

engagement. Similar to the project process, which consists of the five phases, a

consulting engagement can likewise be thought of as being composed of five phases.

These are engaging the client, gathering and analysing the data, presenting findings and

recommendations, planning and implementing the recommendations and ending the

engagement and evaluating the results (Consulting Competency Model).

In the first phase, that of engaging the client, there is a three-step process of

identifying the potential engagement opportunities, engaging the client in the

conversation and closing the deal. Identifying the engagement opportunities can occur in

a myriad of ways. One way is through market research, whereby the consulting firm
identifies organizations with attributes similar to those of previous clients. Another

approach is trend analysis, where a firm predicts a future direction and then identifies

organizations that may either have an opportunity to exploit or be impacted by that trend.

The most common form of identifying opportunities, and the least costly, is assessing the

needs of current clients.

The ability to assess a current client's needs is directly related to the skills

necessary to conduct the second step of engaging the client, the ability to build and

manage client relationships. Many engagements are awarded based on relationships due

to the intangible nature of consulting engagements and the challenges in monitoring and

measuring the deliverables, particularly when attempting to evaluate the quality of

judgements. As a result, the presence of a high degree of trust between parties is an

advantage for initiating the engagement cycle with a client.

When the client is satisfied that a need exists and convinced that the appropriate

consultant has been identified then a contract can be negotiated. This is the third and final

step in engaging the client but only the start of engagement delivery. Few management

consulting firms, however, are positioned to truly deliver end-to-end solutions from the

business concept inception through to the implementation of the recommendations and

post-implementation support and/or maintenance.

The largest management consulting firms tend to focus on finance related

services, such as cost management, and business process improvements, including re-

engineering and effective outsourcing. As a consequence, these firms typically deliver

services over the first three phases of the life cycle. It is the computer integrators that
have entered the business process improvements market, such as IBM and the Sierra

Systems Group, that offer the greatest range of services.

Historically, these firms have focused on phase four activities, with project

development and implementation as their core competencies. This approach still required

some variant of phase one and phase five activities to engage the client and to close out

the engagements appropriately. The scope of the activities and the audience within the

organization, typically involving middle management instead of senior executives,

differed between the management consulting and computer integrators.

In recent years, the computer integrators have improved their business process

knowledge and skills and strengthened their knowledge management capabilities to

leverage investments from one project to another and to deliver steadily improving

quality. This situation has expanded the range of credible services of the systems

integrators. The more established management consulting firms are responding by

introducing stronger technology teams to implement recommendations, such as is the

case with the former KPMG group, now re-branded as Bearingpoint.

With a convergence of skills and abilities, management consulting and system

integrator firms have needed to find other ways to differentiate their products and

services from one another. As a result, the product and service mix has been flexible and

has undergone frequent changes in recent years, both at the micro level and at the macro

level. For example, IBM Canada offers a range of services aligned by industry

(McDougall, 2003, pp.22-24), business topic or IT category (IBM Canada, 2005, p. 1 ) but

retains the flavour of its core competencies with a distinct systems integration orientation
to the service presentation. Sierra Systems Group, operating as Sierra Systems, has done

likewise. In their 2002 Annual Report, "eGovernment" was featured as one of Sierra's

four Specialty Practices (Sierra Systems Group Annual Report, 2002, p. 16) but this term

is conspicuously absent from their website as of July 2005. Sierra Systems' focus is

further illustrated by their July 2005 mission statement, ". ..improving our clients'

business through technology" (Sierra Systems Group, 2005, para. 1).

Whether the firm successfully acquired the engagement in the first phase of the

engagement lifecycle through relationships or through the appropriate mix of products

and services, the firm must then move into execution and delivery. These are effectively

phases two through four of the life cycle and the ability to deliver the engagement

successfully is discussed later in this paper. For the overview, however, the fifth phase is

also of importance, for how an engagement ends sets the stage for initiating the next

engagement.

The final stage of a project involves assessing whether the objectives were met

and whether the most appropriate and efficient approaches were employed. This applies

equally well to projects irrespective of whether they are in construction, software design,

business improvement or home renovation. The Project Management Institute identified

nine steps to closing a project, four of which are key to the engagement life cycle: final

acceptance (signoff); contract closeout; final reports; and lessons learned (Project

Management Institute, 2000, p.37). During the final acceptance efforts, the consulting

firm has the opportunity to direct the client's attention to particular areas and ensure that

the client is aware of the quality of the deliverables. Through the contract closeout, the
consulting firm ensures that all of its billables have been submitted, maximizing its

revenue under the terms of the contract.

The most valuable portion, however, is the content and delivery of the final

reports and lessons learned, which are excellent opportunities to frame the next

engagement with the client. The sales skills necessary to take advantage of these

opportunities, however, are not necessarily embodied in the same consultants through

whom the engagement is delivered. This is the process that has historically been followed

in the delivery of consulting services.

2.1.2 History of Consulting Services

Gerald A. Simon was the co-founder of both the Cambridge Research Institute

and the "The Journal of Management Consulting", now known as "Consulting to

Management". Mr. Simon wrote in the December 2004 issue of the magazine that

consulting services effectively began about one hundred years ago in the United States

and England and slowly gained credibility and recognition until just after World War 11,

when the pace of growth increased dramatically. The most rapid growth period, however,

has coincided with the communications and computer industries explosion in innovations

and breakthroughs, that being the past quarter century (Simon, 2004, p. 2).

The largest consulting organizations have their roots primarily in the accounting

services firms, such as the Big 8 of the early 1970s, which branched out into related

services such as management consulting and technical services. The mid- 1990s saw

unparalleled opportunities, especially for the technical consulting divisions, with the

looming year 2000 and its implications for ancient computer applications and the stock
market continuing in the longest bull market ever recorded supporting a plethora of dot-

com company start-ups. By 1996, the value of business consulting services surpassed the

value of auditing services within the large firms (GAO, 2003, p. 15).

By the end of the decade, the bubble began to deflate with some of the world's

most spectacular corporate accounting scandals. Forbes magazine, via its website,

presented a summary of the scandals in its article, "The Corporate Scandal Sheet"

(Patsuris, 2002), and listed Xerox as the first scandal, in June of 2000, followed by Enron

in October of 200 1. Although Enron seemed to capture the attention of the world,

particularly with the Arthur Anderson audit division's complicit actions that surfaced in

November of 2001, a flood of other scandals came to light in the ensuing months. The

communications industry members Qwest, WorldCom and Adelphia Communications;

retailers Homestead Stores and Kmart; other energy sector firms CMS Energy, Dynergy

and El Paso were all the subject of SEC actions. Even the stalwart AOL Times-Warner

fell prey to questionable accounting practices.

The concerns raised by the perceived lack of competition in the auditing industry

were accentuated by the scandals. When the US Congress passed the Sarbanes-Oxley Act

of 2002, the Act included a mandate to the US General Accounting Office to study four

aspects of the industry competition including "barriers to entry faced by smaller

accounting firms in competing with the largest firms for large public audits." (GAO,

2003, p. 8) The report noted that the four largest auditing firms conducted more than 78

per cent of all audits of public companies and 99 per cent of all public company sales.

However, in the face of the market failures and scandals, the large firms began divesting

themselves of their business consulting services.

 The speed of the segregation process appears to have accelerated in the post-

Enron era, likely as a direct response to the US Congress activities leading up to the

passing of the Sarbanes-Oxley Act of 2002. Under Title 11 of the Act, in Section 103, the

"Auditing, Quality Control, And Independence Standards And Rules " are defined. The

aspect of auditor independence is further addressed in the Act, including in Section 201

where the Auditor Independence Self-Assessment Questionnaire is provided. The issue of

auditor independence and the apparent conflict of interest for an auditing firm also selling

non-auditing services to the same clients was the source of complaints filed with the

Securities Exchange Commission (SEC) in the United States. This was a featured topic of

SEC Chairman Arthur Levitt's October 1999 speech at the Public Oversight Hearings in

New York (Levitt, 1999, p. 1). Since the passage of the Sarbanes-Oxley Act, the SEC has

issued a veritable stream of clarifications and directives regarding compliance with the

Act for publicly listed firms. With the impact being felt by their clients, the accounting

firms apparently concluded that the best response was to separate their operations. Ernst

& Young sold their practice to Cap Gemini Group S.A. in 2000 followed by

PricewaterhouseCoopers selling their practice to IBM in October of 2002 (DM Review,

2002. p. 1). KPMG then spun their practice off into BearingPoint. Of the Big 4

accounting firms of 1998, only Deloitte and Touche retained their business consulting

practice.

The cost of introducing and establishing a new brand is not inconsequential,

however. KPMG's Chairman and Chief Executive Officer Rand Blazer estimated that the

cost of renaming the consulting arm to BearingPoint would be between US$20 million

and $40 million (ITWorld, 2002, p. 1). Such costs were affecting the firms during an
economic downturn. For example, KPMG's fourth fiscal quarter of 2002 posted revenues

of USU83.2 million, down US$139.7 million fiom the same quarter a year before,

contributing to fiscal 2002 recording a lost of US$26.9 million for the firm as a whole on

revenues of almost US$2.37 billion. With such challenges facing the large consulting

firms, the status quo for the industry was not an option.

2.1.3 The Size of the Consulting Industry

The consulting industry is categorized within the North American Industry

Classification System (NAICS) as 54 16, a group that also includes scientific and

technical consulting. Within the Standard Industrial Codes (SIC), management consulting

is broken out into a discrete subcategory of 8742; however, most data about the industry

has been reported based on the NAICS code. This is the situation with the data reported

by Statistics Canada.

In 2003, Statistics Canada reported that the management, scientific and technical

consulting services industry generated $9.5 billion in operating revenues in 2003, with

nearly half of the revenues being generated by firms located in Ontario and only 12% of

the revenues being derived within British Columbia (Statistics Canada, 2005, p. 11). In

October of that same year, Industry Canada estimated the Canadian management

consulting market "at more than $2 billion, with 4000 to 5000 firms and approximately

17,000 practitioners" (Industry Canada, 2003, para. 2).

The average number of practitioners per firm can be extrapolated to range fiom

3.4 to 4.25; however, there are a few very large firms operating in this industry in

Canada. In addition to the Big 4 business consulting firms of 2004 (KPMG, Ernst &
Young, Deloitte & Touche, and PricewaterhouseCoopers), there are other consulting

firms. According to the Mergent stock information service, in 2004 the world's largest

publicly listed consulting firm was Electronic Data Systems (EDS) with 132,000

employees internationally followed by Accenture Limited, the reincarnation of Anderson

Consulting, with 83,000 employees. Although there is no definitive data available for the

breakdown of the Canadian management consulting industry, with the presence of a few

large firms the concentration of practitioners is self-evident; the vast majority of the firms

are independents. This conclusion is borne out by a representative sampling of the

Industry Canada listings (Industry Canada, 2003) for management consulting firms

showing a preponderance of sole practitioner firms. Presuming that the industry profile in

Canada roughly parallels that in the United States, the same conclusion could be reached

based on the Bureau of Labour Statistics stating that "professional, scientific, and

technical services represents about 5.2 percent of all employment yet makes up about

10.5 percent of all establishments" (US Bureau of Labor Statistics, 2005a, para. 5).

In British Columbia, two recent entrances by large consulting firms have changed

the landscape. The Ministry of Health Services has entered into a long-term outsourcing

deal with Maximus, a Reston, Virginia based company that has approximately 5,500

employees spread across 280 offices in the US, Australia and Canada. Maximus has

twenty-four divisions, only one of which focuses on management consulting but the same

services are utilized in support of the other operating divisions. The Health Services

operating arm is conducting the $268 million 10-year contract to provide health benefit

operations administration services for the Ministry.

 The second large entrant is Electronic Data Systems (EDS). EDS Canada

established a small presence in the province in 1997 when it acquired SHL Systemhouse

but, in November of 2004, the Ministry of Provincial Revenue signed a 10-year US$480

million outsourcing deal with EDS Advanced Solutions, a new wholly owned subsidiary

of EDS Canada. The operational deal includes a redevelopment of the Ministry's diverse

revenue management systems and operating debt collection services and involved various

portions of the Ministry's operations being transferred to EDS Advanced Solutions.

The impact on the local consulting market has not yet been fully felt; however,

the indications are that many of the small firms that once provided services to the

Ministry may be displaced, as EDS Advanced Solutions is now the holder of the previous

Ministry contracts for the services of the small firms. Although the initial outsourcing

contract is attractive in and of itself, it is reasonable to conclude that this contract will

serve as the entry point for expanded service offerings. Given the large resource base

available to firms such as EDS Advanced Solutions, marketing their services to an

expanded audience is imminently possible and can leverage their investments from other

contracts such as computer service centres, distributed offices and systems development

methodologies and artefacts. In addition, EDS has a management consulting subsidiary,

A.T. Kearney, a 5,000 member strong internationally experienced firm, from which to

source specialized resources when and as necessary.

2.2 The Five Factors

Michael Porter introduced the Five Factors Model in his 1979 article,

"Competition Shapes Strategy" (Porter, 1979). and expanded upon it in his October 1980
book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors"

(Porter, 1980). Although these five factors pertain to any industry, they are influenced to

varying degrees by each industry's set of economic microenvironments. The application

of these forces to the management consulting industry, as it exists within British

Columbia, is presented in diagrammatic form in Figure 2-1: Industry Analysis - 5 Factors

Diagram. The diagram presents the overall industry but there are focus areas within the

industry that have slight differences in some aspects. The focus areas are executive level

business management consulting, project management consulting and technical

management consulting. The following sections discuss each aspect of the overall

diagram along with the variations.

2.2.1 Market Entry

Management consulting is an industry in which engagements range from contracts

for legions of management consultants through to single-person contracts. In a similar

pattern, management consulting firms range in size from multi-thousand-member firms

with global reach to single-member local independents. There are no significant barriers

to entering the market. The US Department of Labor, Bureau of Labor Statistics stated in

its Career Guide to Industries, "almost anyone with expertise in a given area can enter

consulting." (US Bureau of Labor Statistics, p. 197)

Michael Porter, in "Competition Shapes Strategy" (Porter, 1979, pp.3-5),

identified six major sources of entry barriers for an industry. These are discussed in the

following sub-sections.

2.2.1.1 Economies of Scale

One might anticipate that the pattern of engagements would determine whether a

market entrant must do so on a large scale or not. With the opportunity to market an

individual's knowledge and skills on a small scale, it would appear that the economies of

scale factor serves to increase the threat of entry. Historically, this conclusion could be

derived from the market activities shown in the mid-to-late 1990's with the previously

mentioned increase in demand for technical services. This expansion resulted in many

business firms redirecting their internal resources to Internet related projects and

engaging more consultants to address both the year 2000, or "Y2K", projects and non-

Internet business application development projects.

 With the increase in market demand, the number of independent consultants rose

dramatically with many local independent firms being created, a pattern that was

common across North America. This trend, in part, was a response to the lack of entry

barriers into the consulting market.

However, Porter defined the implications of economies of scale with respect to a

market entry barrier in terms of whether the entrant was forced to come in on a large

scale or accept a cost disadvantage. Porter also asserted that this aspect of economies of

scale could be applied to ". ..nearly any.. .part of a business" (Porter, 1979, p. 3)

including distribution, utilization of the sales force, financing, marketing, finance and

production. Being able to enter a market by establishing a firm on a small scale is a part

of avoiding a large scale entrance requirement. The cost disadvantage within an industry

is not apparent simply on the basis of whether a firm is large or small though.

For a small management consulting firm, the percentage of potentially billable

hours that must be directed to non-billable efforts such as marketing, invoicing and book

keeping rises substantially. Marketing involves, at a minimum, establishing relationships

with the clients, monitoring Request for Proposal (RFP) issuances, preparing responses

and following up on submissions. The successful award-to-submission ratio is quite low,

even for the experienced firm, with the number of firms responding to requests. The

combined effort of these non-revenue generating activities can be significant, especially

for a new market entrant. Larger firms that can spread this effort over multiple people

have a cost advantage that can be used to undercut prices to the client or to increase the

larger firm's profit margin.

 This aspect of the barriers to market entry is consistent for management

consulting at the business executive level and. for the project management consulting tier

but for management consulting in the technical area, scale can be a barrier. Small firms

are challenged in their ability to establish knowledge management processes such as

methodologies and best practices databases.

2.2.1.2 Product differentiation

Management consulting within the BC market place consists of a few major

players, such as Deloitte & Touche, Bearingpoint, IBM and Sierra Systems Group, and a

host of small firms and independent consultants. There are no specialized requirements or

certifications to enter the overall market. Most consulting firms boast of specialized

knowledge, such as MBA degrees or industry specific experience. Firms may also feature

certification such as the Certified Management Consultant (CMC) designation. The

"Consulting to Management" journal published an article stating that limited government

intervention and regulation would be required to achieve recognition of certifications

(Bobrow, 1999). Without such intervention, the use of certification for differentiation has

narrow reach. This is consistent throughout the management consulting industry focus

areas.

Historically, the major players established personal relationships with decision

makers at the senior levels of organizations. Through such efforts, the large accounting-

turned-management-consulting firms established differentiation in the top tier of the

management consulting services market with executive level selling. In some instances,
sub-contracted consultants have delivered the product but the client has been managed

well enough that the perception of differentiation has been successfully maintained.

In the late- 1990s, the lines between the management consulting firms and the

systems integration firms started to blur. Today, there has been a significant change in the

service alignment of the large consulting firms. KPMG, through its new BearingPoint

consultancy, has clearly expanded its offerings along the value chain. It now provides

". ..business consulting, systems integration and managed services.. ." (BearingPoint,
2005), but with a global flavour. IBM has also continued to expand upstream by

purchasing PricewaterhouseCoopers' consulting practice in October 2002. IBM further

augmented its role as a solutions provider by adding a Business Consulting Services line.

IBM claims "our expertise ranges across key business issues and deep into 17 industries

in virtually every country and every culture worldwide." (IBM, 2005, para. 2) The

tradition of establishing relationships to differentiate a firm still continues and is

important for a firm's success.

An attribute that distinguishes the largest firms from the many small practitioners

is their global reach, an aspect that is prominently featured on virtually every firm's

website and in their promotional materials. By combining various services with either an

internal global workforce or global alliances, each of the major players has morphed their

product offerings and market image. Despite their attempts to differentiate themselves,

they are in effect converging once again, as each firm can rapidly imitate or duplicate the

movements of their competitors. The differentiation, however, separates the large global

firms from the rest of the management consulting market.

 The consulting industry spans horizontally across all other industries and involves

general management consulting skills and knowledge that are transferable from one

industry to another. There is, however, product and service differentiation along specific

industry lines. A firm that services the mining industry will need to acquire new

knowledge to effectively compete in the health care industry against firms with health

care expertise. This differentiation of consulting services along industry lines can serve

as a market entry barrier unless the firms are able to position themselves with a market

definition that convinces clients that the services transcend industry boundaries.

With market definitions and boundaries changing continuously, establishing

relationships through which to create a brand and market space for a firm is an important

but expensive undertaking. At the very least, this requires a firm to consume a portion of

its own inventory of billable hours for non-billable activities, such as meeting with

potential clients or speaking at conferences, with the expectation of future returns.

Incumbent firms that have successfully done so have a significant first mover advantage

over new entrants. Once established, repeated exposure to a firm's name reinforces the

client relationships. The market recognition of a name has advantages and for the largest

firms, their advertising dollars are used to reach vast audiences through sponsorship, such

as Professional Golf Association tournaments, and through broad market advertising,

such as television or large run magazine advertisements.

For the smaller firms, though, such broad market advertising to establish name

recognition is not within financial reach and other options must be pursued. For instance,

in the Telus 2004-2005 issue of SUPERPAGESTM,there are 5 1 entries under the heading

of "Management Consultants" and only two are recognizable, one being for the Certified
Management Accountants Society of BC and one for Robert Half Management

Resources, a firm more known for its executive recruitment services in Ontario than for a

management consulting practice in BC. Conspicuous by their absence are the large firms

like Deloitte and IBM. They have established their brands and market space for a

different audience, one that does not turn to the local phone book for differentiated

services.

CCI participates principally in the project management services sub-sector of the

management consulting industry. Branding, as a form of product differentiation at the

firm level, is not a typical aspect of this sector. Broader category service providers can

mix their products and services to alter the appearance of their portfolio and can seek to

differentiate themselves through the manner in which they deliver them. This has not

been the case for CCI. The Project Management Institute has clearly articulated the

project management process at the macro level. Most clients have their own deliverables

defined in the way of templates for the project management consulting firm to utilize. As

a result, CCI and other firms have attained little differentiation in these services, although

some local firms continue to try. Consequently, product differentiation for project

management services does not serve as a market barrier and, instead, the lack of branding

enhances market entry.

2.2.1.3 Capital requirements

The financial, skill and knowledge capital investment required to enter the

management consulting industry is typically acquired while working for, and at the

expense of, another firm. On the job training, experience in various projects and formal
certification-related education such as the Project Management Professional (PMP)

courses are often expenses the new consultant has avoided while employed; however,

while such training and experience must be continually enhanced as an incumbent, the

new entrant does not face an additional expense in this regard. Aside from incidental

expenses, such as the printing of new business cards, the management consulting entrant

has no financial capital-related barrier to enter on a small scale locally.

As one enters the industry, however, the regular flow of income funds will be

interrupted. The industry standard practice is for the firm's consultants to supply services

for a month and invoice at the month's end with the invoice's payment typically

following at the end of another thirty days. This leaves the new consultant without a cash

flow for two months. If a firm enters the market with a number of consultants and does

not include the consultants as partners, each suffering the same cash flow interruption,

the firm could require additional capital to float the first two months of salary

paycheques. This approach would, therefore, present a financial capital requirement but is

not seen to present a formidable barrier to market entry.

The same cannot be said for the knowl.edge and skills capital however. Both of

these categories represent a capital base that is more illiquid than that of financial capital

and consequently less transferable to new industry sector opportunities. Although general

management skills and knowledge tend to be applicable to many endeavours, the

possession of industry specific skills and knowledge is a prerequisite for entry to most

new markets. For example, the lead engineer for a mission at the National Aeronautics

and Space Administration (NASA) would not be able to effectively offer management
consulting services about automotive insurance loss prevention. The possession of the

knowledge and skills capital is a market entry barrier.

To enter the market on a large scale or to enter as a global competitor does have a

capital requirement barrier. Such entry would require the acquisition of one or more

existing firms, either through mergers or through buy-outs. Since most firms are not

publicly traded, such acquisitions would likely require transfers of significant amounts of

capital to compensate current firm owners appropriately. Alternatively, mergers could be

effective but would require a large investment of time to negotiate the details and to

establish the internal processes and artefacts necessary to deliver a consistent standard of

practice for clients. Both of these entry strategies would require the support of substantial

capital.

2.2.1.4 Cost disadvantages independent of size

As a firm gains experience within the industry, certain cost advantages accrue to

the firm. A new market entrant will suffer from a lack of these advantages and will

experience higher costs as a result. An example of this experience curve advantage is the

ability to generate bid submissions in less time. The first bid response requires a

consulting firm to understand a wide range of RFP specific information including the

general RFP process, the bid response evaluation criteria and the required structure for

the response. With each subsequent submission, the process of responding to an RFP

becomes quicker, often due to both understanding the process (the learning curve) and

reusing portions of previous submissions (the experience curve). The ability to quickly

generate and submit a high quality submission enables the firm to respond to a greater
number of bid requests for the same relative costs and, given the low ratio of contract

wins to submissions, this an important advantage for the experienced firm.

Incumbents have also built a wide variety of non-specific skills essential to

success as a consultant. New entrants may possess technical skills, such as data

architecture or project scheduling, but lack general management skills or marketing

awareness. As a management consultant, one must continually manage the relationships,

developing an awareness of needs for hture potential contracts and building a brand for

the services. In addition, incumbents have participated in numerous engagement

situations and have developed an ability to recognize the patterns with less effort,

enabling them to deliver superior performance to the client. The development of these

non-specific skills is an example of the learning curve of the industry.

In general, the learning curve pertains to an organization's ability to become more

proficient at a business activity as the experience base of the organization increases.

However, the learning curve is also taken into account when pricing a product for entry

into a market and the same is true in managenlent consulting, particularly with fixed price

contracts that stipulate the delivery of a bounded product for a set price. Under such

conditions, the buyer is concerned about the quality of the bounded product and the

timeframe in which the product will be delivered. The price is established up front and if

the consulting firm has to invest additional consulting hours over and above their initial

calculations to complete the product, none of the financial exposure accrues to the client.

For the experienced consulting firm, the productivity rate may exceed the initial

estimates and the firm would realize a higher profit margin. The market entrant, however,
lacks the benefits of walking down the learning curve and is likely to have lower

productivity. The new entrant has to price its services competitively and, as a result, will

experience lowered profits and possibly losses in the initial stages. The experienced firm

is likely to have components or artefacts from prior engagements that are applicable and

reusable within other engagements in the same industry sector, further reducing their cost

of delivering the product. This is a notable source of cost disadvantages unrelated to size

and help to form market entry barriers.

Incumbent firms also have established a network of contacts to the potential

clients within each firm's target market. Developing this network requires time and

dedicated effort and is a sunk cost for the incumbent. The new entrant will not have this

network and consequently may face higher costs to secure each engagement.

The cost advantages that are unavailable to the new entrant serve to increase the

barrier to entrants.

2.2.1.5 Access to distribution channels

This aspect is one of the most important for establishing barriers to entry within

the management consulting industry. Successful consulting firms protect their access to

the most profitable customers in a variety of way including developing expert knowledge

and binding client processes to their own. With a tightly bound relationship in place, the

profitable clients may be unwilling to entertain overtures from new market entrants,

particularly those without a proven track record. The restricted access to the distribution

channels is a significant market entry barrier in the top tier of management consulting,

selling services to business executives. At the middle and lower ranges of the market, the
introduction of internet-based bidding mechanisms has partly addressed the lack of a

distribution channel. This is where most of the smaller firms compete.

The ability to move into new client industry sectors is challenging. Being able to

establish contacts with the decision makers in organizations outside of the business

niches in which the consulting firm has been operating is not easily accomplished. This is

a time intensive undertaking that often involves expense such as travel and seminar fees.

CCI experience has shown that executives of firms are regularly approached with sales

overtures and are not open to all requests for sales meetings. The lack of access to

cultivated relationships that establish opportunities for sales presentations is an effective

entry barrier for new market participants.

For the firm that is able to place its services in front of potential clients, the

challenge has still only been partially met as the sales process often involves multiple

contacts over a period of time before a consulting engagement is established (refer to

section 2.1.1). This requires the availability of time from firm representatives and if

several clients are pursued simultaneously, a process that is nearly essential for the new

market entrant, the non-revenue generating efforts of the firm, or the fixed costs, rise

significantly.

Once a market entrant has established itself within the market with respect to

client contacts, the challenge is to sustain that entry with contract delivery. Since the raw

materials of the consulting industry are human resources and the consulting firm does not

have exclusive ownership of those resources, and given the lack of enforcement for non-
competition clauses (Reeve, 2005), new market entrants have an exposed risk. The

poaching of entrants' consultants has been an informal but effective market entry barrier.

2.2.1.6 Government Policy

The term "government policy" engenders an image of outwardly focused rules

and regulations; that is, rules that are imposed by government upon people and

organizations outside of the government that are acting within a market. This is the

perspective that Porter adopts in his "Competition Shapes Strategy" article as he points

out how government policy can affect market entry through establishing licensing

requirements, such as those found in the taxi industry in most cities, or through

establishing standards and regulations impacting conduct.

These types of entry restrictions do not apply to the management consulting

industry within BC so one might conclude tha.t government policy is not a factor in

influencing the market entry bamers, or lack t:hereof;however, the government has had,

and still continues to have, a significant impact on this aspect of the industry. This is due

to the composition of the market in BC where primary industries such as forestry, mining

and fishing abound while secondary industries, where management consulting tends to

flourish, are less prevalent in BC than is the case in some other provinces, like Ontario.

With the heavy concentration of the province's economic output in the primary

industries and the historic tendency of primary industries to not utilize the services of

management consultants, the management cotisulting industry in BC has a higher

concentration of business activity involving government and government-related entities.

As a result, government policies affecting the internal processes and procedures also have

an impact on the industry and, in particular, the magnitude of the bamer to market entry.

The Government of British Columbia has altered the government's procurement

processes in an effort to open the market to as many participants as possible while

ensuring the best value for the government and taxpayers of the province. While many of

the alterations have been procedural, such as implementing cross-ministry standards for

developing evaluation criteria for contract bids, the aspect that most directly affects the

market entry bamer was the 1996 introduction of the BC Bid@ procurement system,

followed by the direction for all British Colunibia government ministries and crown

corporations to use the BC Bid@ web site to announce opportunities for services. This

mandated approach enables small firms to have direct access to the Request for Proposals

(RFPs) issued by the participating organizations, a group which, in recent years, has

grown to also include municipalities, universities and colleges and health authorities.

On a national level, the Government of Canada's agreement to the North

American Free Trade Agreement (NAFTA) opened the borders to the movement of

goods and services, both benefiting local firms with access to the US market and

exposing those firms to American competitors. Both NATFA and the use of systems like

BC Bid@ have reduced the bamers to entry.

There is a trend developing, however, that appears to be magnifying the bamer. In

the past, many government contracts were let for individual or small group participation

in projects and this fostered an environment in which independent consultants and small

firms were able to effectively compete, if not on skills and unique assets, then upon price.
In recent months, however, the nature of the contracts has evolved so that the bids favour

or out rightly require a firm to supply fully integrated teams. This shift in the nature of

the requirements has served to create an entry barrier for new small firms and may also

result in blocking existing participants from firture government contracts.

2.2.2 Buyer Bargaining Power

In the mid-to-late 1WO's, the buyer bargaining power of the industry was very

low as the demands placed upon the buyers by the impending year-2000 threat were non-

negotiable with respect to timing. When this market demand was augmented by the dot-

com flurry, the demand for consultants exceeded supply by a wide margin. Since then,

however, the market situation has changed dramatically.

The market boom was followed by the predictable collapse once the year-2000

challenges were met, a collapse that was sped by the dot-com bubble bursting. Locally,

this market collapse was exacerbated by the softwood lumber dispute, a new provincial

government with an austerity program and the tourism reduction that followed the World

Trade Center attacks. This combination of cataclysmic conditions reversed the demand-

supply scenario, resulting in a concentration of buyers with a large diverse population of

consulting firms from which to choose, conveying bargaining power to the buyers.

Further amplifying this power are three facts. Management consulting firms have

historically offered relatively homogeneous product offerings for project management

skills, a trend that continues today. This lack of differentiation has given buyers a wider

audience from which to secure the needed services and this increases the bargaining

power of any particular buyer. Secondly, consulting firms carry a high fixed-cost
component that requires each firm to keep working, even if on narrower margins, a fact

that is well known by the buyers within the market.

Thirdly, market buyers are producing a product, typically that being a project to

assess and correct strategic or operational inefficiencies, and the consulting services

being sought will represent a high percentage of the product's end cost. This gives the

buyers an incentive to negotiate as low a price as possible for the consulting services.

Countering this increase in buyer bargaining power is the fact that the buyers have

a need to acquire the consulting services as these skills are not well entrenched within the

buyers' organizations. However, two aspects combine to partially difhse the impact of

this need: the buyers have a low appreciation for the value of the skills they are acquiring,

especially for project management services; and there is a perception of low switching

costs should the need to source from another c:onsultingfirm arise.

The nature of the buyers' business is also problematic to the consulting firms'

balance of power in the negotiations. The majority of the buyers are in non-profit

business ventures, such as government, and do not have the opportunity to alter their

market offerings' value to reflect market demands nor can the offerings be price

structured to capture consumer surpluses. This means that the buyer will consistently be

price conscious.

Government projects may also have di fhsed objectives, as governments are

responsible for addressing the needs of a diverse audience. Consequently, the quality of

the end product of the consulting services is often not as directly dependent upon the

quality of the consulting services themselves as it is on the nature of the government

policy pertaining to the product. For example, a high-calibre consulting firm engaged to

develop a licensing system may identi@ many opportunities to capture additional value in

the transactions; however, government policy regarding collection and use of information

may prohibit such value captures from taking place.

The British Columbia economy is not as diverse as that of Ontario, which has the

head offices of major financial service firms, a strong manufacturing sector and a diverse

energy sector just to name a few. Instead, the British Columbia economy features primary

industries, such as logging, mining and fishing, tourism and government. The project

management services offered by CCI are not well established in either the primary

industries or tourism; consequently the buyers are concentrated primarily in the

government sector, including government ministries, crown corporations and agencies.

This concentration and interrelationship between the buyers increases the buyers'

bargaining power.

Lastly, the buyers' bargaining power is also increased by the perception of the

possibility that the buyers could backwards integrate and simply hire the necessary skills

into their own organizations. This repatriation of skills may not be realistic in a balanced-

budget focused government environment; however, the opportunity for such a shift in the

landscape exists with each election, be that municipal, provincial or federal.

The Government of British Columbia established the "Common IT Services"

section, currently housed in the Ministry of Management Services, as an in-house

provider of common services to the government. At one time, a similar organization,

called the British Columbia Systems Corporation (BCSC) delivered systems development
services. BCSC was phased out in favour of contracting external services and the

Common IT Services section has recently outsourced its desktop support services to IBM

via IBM's subsidiary, Information Systems Management (ISM) (CITS-BC, 2004, para.

2). This trend is in direct opposition to a backwards integration threat by the government

clients; however, many ministries still maintain in-house Project Management Office

organizations through which project management services could be reestablished. The

threat of backwards integration is a limited strength variable in the balance of buyers'

bargaining power within the narrowed scope of management consulting services of CCI.

2.2.3 Substitutes

Substitutes have been defined as products from a firm in another industry that can

replace or displace products from within the industry of interest (Bukszar, 2005). The

perspective of whether a product is a substitute or simply a variant of the product from

within the same industry is, therefore, dependent upon the definition of the industry. For

example, eyeglasses and contact lenses could both be viewed as products of the eye-care

industry and therefore not substitutes for one another but the manufacturer of ground

lenses for eyeglasses would likely challenge this perspective. Wikipedia states that in

economics, "one kind of good (or service) is said to be a substitute good for another kind

insofar as the two kinds of goods can be consumed or used in place of one another in at

least some of their possible uses" (Wikipedia, 2005).

Determining whether a product or service is really a substitute or not takes place

in the mind of the consumer and is, therefore, based on impression, not necessarily fact.

Some potential clients do not perceive project management as necessary at all and prefer
to conduct projects without resource plans, scl~edulesor formal monitoring mechanisms,

relying instead on their software developers' experience and innate sense of what is

appropriate. Other local consumers of consulting services have perceived project

management skills as nothing more than managing a schedule and consequently see

anyone with three-to-five years of project experience, in any capacity, as a potential

project manager. The end result of such perspectives has been a collective market view of

project management skills as a commodity and, when combined with the provincial

government's auction-style BC Bid@ procurement system, the prices for the services

have been driven down substantially. This price movement confirms the market view of

other experiences as a suitable substitute for project management skills.

Other sources of substitute services are the use of internal resources instead of

external consultants and the current practice of securing technical skills offshore, with

India being the primary location of choice. According to the Indian National Association

of Software and Services Companies (NASSCOM) (Economic Policy Institute, 2004,

Figure 1 I), software imports from India rose from approximately US$ I billion in 2000 to

approximately US$4.7 billion 2003-4. The offshoring process is part of the greater

phenomenon called Business Process Outsourcing (BPO). With outsourcing becoming a

common event, and offshoring a featured portion of outsourcing, it is reasonable to

anticipate that offshore services will continue to be substituted for locally offered project

management consulting services.

2.2.4 Supplier Bargaining Power

Suppliers can have high bargaining power if they have a unique product for which

there are few, if any, substitutes, and there are few suppliers available. Additionally, if

the suppliers have a credible threat of integrating forward into the industry's business, the

suppliers' bargaining power will increase, as will also be the case if the fortunes of the

industry's business are not directly tied to the fortunes of the suppliers. This latter point

occurs when the industry's business is not a large component of the suppliers' customer

base.

For management consulting firms, the primary component is human resources and

that is commonly the only aspect of the suppliers' services, given the nature of the

industry (Industry Canada, 2003, para. 2). The supply varies with the niche occupied by

the consulting firm. For a consultancy to the bio-tech field, the supply would be very

limited and consequently the bargaining power of their suppliers would be high. CCI

currently delivers services in the project management niche. The services offered by the

suppliers to this niche are not unique, although there is a sliding scale based on the

experience and education of the individual in question. Higher levels of education and

longer, more diverse or unique experience can confer more bargaining power, given the

proper demand conditions. The advent of resume distribution Internet sites has further

diffused the industry and eroded the bargaining power of suppliers.

There is no credible threat of the individual suppliers collectively or individually

forward integrating on a large scale into the management consulting industry as the

suppliers are highly diffused and their fortunes are tied to the fortunes of the industry, a

combination that further decreases the supplier bargaining power. Consequently, the
Supplier Bargaining Power is low for CCI's current niche. For future expansion, the

niche changes and for the upstream portion of the expansion, the characteristics of the

consultants become more exacting. For that portion of the supplier area, bargaining

power will increase. This is, however, a small portion of the total number of consultants

involved so the overall supplier bargaining power remains low.

2.2.5 Rivalry

Porter identified a number of factors that serve to increase rivalry between

industry incumbents under certain conditions. These include competitors being numerous

and roughly of the same size and power, slow industry growth, undifferentiated products,

low switching costs, high fixed costs, product perishability, the size of capacity additions,

and high exit costs. Each of these is discussed below.

In the management consulting industry within BC, there are many competitors

with the firms clustering at the two ends of the size and power spectrum. There are a few

large firms offering services that span the traditional management consulting and

computer integration services categories, such as Deloitte & Touche, IBM, Sierra and

Bearingpoint, and a large number of small and single-operator firms. As expected with

the range of sizes, the market competition takes place within two spheres: the large firms

vie with each other for large project undertakings while the small firms bid against each

other for the smaller opportunities.

One of the measures of competition has been the four-firm concentration ratio

(The Concentration Ratio, 2005), that being the percentage of the market share held by

the largest four competitors in the market. A figure that is published for some industries
in the United States by the Bureau of Labor Statistics (200%) is not readily available for

the consulting industry but figures were available for 1997 and 2002 concentration ratio

within the accounting industry (Bloom and Schirm, 2005, para. 6), the forerunners of the

consulting firms. Based on the number of clients for the public company audit market, the

concentration ratio for 1997 was 65% and for 2002, it was 78%. The ratios were even

higher, at 7 1% and 99% respectively, when measuring the total sales of audited public

companies. The four firms were KPMG, Ernst & Young, Deloitte & Touche, and

PricewaterhouseCoopers, firms that all had or have related management consulting

practices.

Rivalry, however, is usually considered to be inversely proportional to the

concentration ratio. If the management consulting industry truly is concentrated in British

Columbia in the same manner as public company auditing is in the United States, then

one would expect the rivalry to be lessened here. That has not been the case over the past

few years and this may be due to the Canadian experience with firms numbering between

4 and 5 thousand with approximately 17,000 practitioners (Industry Canada, 2003, para.

2), averaging between 3.4 and 4.25 per firm, and only 12% of the management consulting

industry activity occurring in British Columbia. This could also be the result of the large

firms focusing on service delivery in Ontario, where 48% of the 2003 activity took place

(Statistics Canada, 2005, p. 11).

If the distribution of firms and practitioners is proportional to the value of

business conducted, then the number of firms within BC would be as depicted in Figure

2-2: Canadian Distribution of Management Consultants below.

Figure 2-2: Canadian Distribution of Management Consultants
Source: Author, adapted from Industry Canada (2003)

Additionally, with the new entrance of both Maximus and EDS Advanced

Solutions into British Columbia, rivalry due to the number of competitors has the

potential to increase. Management consulting is, therefore, a fragmented industry, one

that "is composed of small, specialized.. .firms that are not vertically integrated"

(Shapiro, 2003).

The level of rivalry is also inversely proportional to the rate of growth. As

discussed under the Buyer Bargaining Power, the management consulting industry within

BC has suffered several years of dramatic market contraction and, in late 2003, was just

starting to experience some market growth, albeit at very low levels. Since then,

however, the North American industry has been sparked by an overall economic upturn

and has enjoyed significant recovery in the United States, rising from a low of 15.7

million employees in early 2003 to the preliminary figures of July 2005 of 17.1 million

(US Bureau of Labor Statistics, 2005b). The industry is now projected to be one of high-

growth for the next few years, a trend that is reflected in British Columbia due to a

number of factors, not the least of which is the economy but also the winning of the 2010

Olympics bid. That growth does not immediately translate into a significantly lowered

level of rivalry or, in the words of the United States' Department of Labor Bureau of
Labor Statistics, "although this industry ranks among the fastest growing through the year

20 12,job competition should remain keen" (US Bureau of Labor Statistics, Career

Guide, p. 7).

Compounding the rivalry between competitors, the industry's offerings are

typically undifferentiated, at least from the buyers' perspective. Some firms have

expertise in particular lines of business while others possess skills in business aspects that

transcend an industry's classification. In addition, the level of education is a

differentiating factor in some aspects of management consulting; however, the principal

area of CCI's business has been that of software development project management and

this area does not enjoy differentiation. As a result, the buyers perceive a low switching

cost and, given the primary buyers are government based and the government's cost

tracking and charge back measurements for time and materials on non-construction

projects is not granular enough to differentiate between value-added and non-productive

time, the true switching costs are not apparent.

The management consulting industry also has high fixed costs, many of which are

sunk costs, as the primary cost component for the industry is human resources. Statistics

Canada stated that salaries and wages accounted for 42 cents of each dollar spent in 2003

(Statistics Canada, 2005, p. 1 l), a figure which is much lower than that experienced by

the small consulting firms contacted for this paper, who's salary expenses ran as high as

85 cents per dollar. This is explained by the Statistics Canada Table 360-0001 footnote

stating, "Salaries and wages do not include working owners' dividends nor do they

include the remuneration of owners of unincorporated business. Therefore the relative

level of salaries, wages and benefits will be lower in industries where unincorporated

businesses are significant contributors."). Salaries accrue even if there is not a contract

upon which to bill and the cost of preparing, submitting and/or presenting project bids,

including any travel cost, is borne by the consulting firm alone. Although travel expenses

are discretionary when the consultants are 'on the bench', recent government

procurement policies have pushed many of the expenses related to fulfilling the

successfully attained contracts back onto the consulting firms.

Product perishability is another factor affecting the rivalry of competitors. In the

consulting industry, the inventory for a firm is the billable-hour. There are a fixed number

of hours in a week from which to draw billable-hours and once an hour has passed, that

portion of the inventory of the firm has perished, never to be available again. This

immutable fact stimulates the competition between industry incumbents as each must

seek to maintain as high an operating capacity as possible over which to spread the fixed

costs, mentioned above.

The industry is able to ramp up capacity in small increments, however, and this

fact theoretically decreases the competitive pressure. Given the nature of the remaining

factors, the ability to add capacity in small increments is of limited consequence as is the

lack of high exit costs. Overall the industry incumbents have faced high competitive

pressures over the past couple of years, primarily due to the economic downturn and a

resulting overcapacity, leading to intense rivalry. The level of rivalry is now posed to

diminish with the current period of growth but. may be tempered by the recent entrance of

large consulting firms.

2.3 Overall Assessment and Key Success Factors
The management consulting industry, and the project management sub-sector in

particular, was a very difficult and unattractive industry during 2002 and 2003 and only

marginally better in the first half of 2004 but since then, the industry overall has returned

to strong growth. However, the underlying aspects of the industry that made it

unattractive in the lean years still remain. The limited ability to differentiate services, a

perishable product, the ease of entry by competitors, the crowding of the market

especially at the low-end and the lack of customer valuation for the services in the project

management sub-sector of the industry all continue to plague CCI and other firms in this

industry.

There are six key factors that affect a firm's success. To have a realistic chance to

win contracts, a firm must have the products and services that the client values and this is

a result of having the appropriate consultants available. To increase the firm's chances of

success, the relationship with the client must be carefully cultivated and managed.

Having built an attractive client list and with a strong cadre of consultants, the firm is

able to differentiate itself from the rest of the industry and command higher profits.

The market is crowded and it changes, however, and for continued success, the

firm must be able to quickly gain and disseminate knowledge within its ranks.

Alternatively, the firm could repackage its current knowledge for new opportunities but

this has a limited long-term advantage without injections of new knowledge.

The crowded market generates a low win-to-submission ratio so the firm that can

quickly respond to bid opportunities increases its chances for success by being able to
generate more potential wins in a shorter timeframe. If the firm is able to do so at a lower

cost than its competitors, it is able to sustain its profit margin, profits that are then able to

be used for attracting resources, managing clients or engaging in knowledge

management.

The last of the six factors is also related to the firm's ability to quickly respond to

market changes. To succeed a firm must first survive. With a volatile market that has

experienced significant swings in the past five years, a firm's ability to quickly adjust its

cost base to align with the market's changes is crucial. All six factors are discussed

below.

2.3.1 Key Success Factors

To be attractive to a client for a specific engagement, the firm must be able to

attract the right resources. This requires recruitment skills, such as networking within the

industry or courting graduates from various institutions such as business schools for

management consultants or technical schools for systems integration efforts. Without a

strong alignment of the firm's offering to the needs of clients, the firm will not enjoy

success so the attraction of resource is important. In the longer term, however, a firm

must also be able to retain those resources throughout the delivery phase and preferably

on through other engagements. This second area requires skills in consultant retention.

Within the consulting industry, retention has two significant aspects, that of attractive

engagements and adequate remuneration.

A consultant's value within the industry is primarily determined based upon his or

her inventory of skills and experience. As a result, a firm's ability to consistently offer
challenging engagements is typically the more important of the two aspects for the

qualified consultant. Many firms would be willing to match the remuneration but only a

relatively few firms can consistently offer ongoing marketable skills and experience. This

'resume building' perspective engenders commitment and loyalty as long as there is

continued benefit for both the consultant, through continual opportunities, and the firm,

through ongoing sales of services.

In the marketing and delivery of executive management consulting services,

suppliers (labour) hold much more bargaining power than in the more limited project

management services sector; consequently this ability to attract and retain consultants

becomes pivotal for a firm's success in this market area. For project management

consulting, there is a larger pool of qualified resources from which to draw and the

importance of the attractiodretention abilities lessens somewhat. For the systems

integration portion of the management consulting industry, there are only a few roles to

which this consideration applies as most of the resources requirements are broadly

available and consultants are readily replaced.

The next success factor is the ability to establish relationships with senior decision

makers. Key to survival and prosperity in the management consulting sector, managing

relationships requires a common base from which to build the connections. The base

could be the language of business acquired through study, such as a Master's of Business

Administration or a specialized engineering degree, or through unique experiences, such

as successfully completing a corporate turn-around. The relationships enable repeat, and

therefore lower cost of marketing, sales to the same or closely related clients. Extending
the relationships into references for other consulting sales leads is another key success

factor relating to relationship management.

Differentiation of services and products is another success factor. Although not

readily applicable to the project management sub-sector, the larger management

consulting market exhibits such traits and the ability to differentiate products from those

of competitors, based on quality or alignment with client needs, is important. This

impression-management aspect of the firm is more than mere marketing; it is a source of

competitive advantage it two ways. It allows the firm to command a higher price for its

products as clients perceive them as a superior fit to their needs. It also helps to achieve a

cost advantage, which directly translates into a higher profit margin. Simply hearing the

name IBM tells a client that this is a systems integration company, enabling IBM7s

marketing expenditures to focus on higher, more value-added services. Whether a firm is

a broad-based service provider or is more specialized, the ability to differentiate its

services from its many competitors will go a long ways to ensuring its prosperity.

A crowded market where competitors can quickly emulate new offerings

challenges a firm's ability to sustain its differentiation. In the knowledge intensive

industry of management consulting, the difference between sustaining differentiation and

melting into market obscurity is a firm's ability to rapidly acquire new knowledge areas

and translate these areas into either differentiated services or innovative products. Not

only would this help a firm remain competitive in the mainstream areas of the market, but

a rapid knowledge gainer would also be able to move into market seams as they

appeared. This rapid response through knowledge gain would enable the smaller or mid-

sized firm to compete with the large established firms.

 Alternatively, a firm may be able to leverage existing knowledge areas by

repackaging them or extending them to new market pockets. This approach would require

a firm be able to identify and exploit areas of opportunity faster than their competitors as

small or medium sized firm would unlikely be able to establish and maintain a first

mover advantage in the face of large consulting firms entering the same market pocket.

However, without adding new knowledge to the mix, the firm's portfolio of products and

services would begin to show its age and the firm would lose its differentiation.

To last factor for success in this volatile market is a firm's ability to weather the

swings. Rapid upturns in the market are not as much of a threat to the firm's survival,

provided it can retain its consultants. The downturns, however, can force a firm out of

existence if the firm cannot respond quickly enough to the change. The firm must be able

to rapidly cut its costs and, as the primary source of costs in this industry is wages and

salaries, this means downsizing its workforce. Although such swings are relatively rare in

the overall history of the industry, in the past five years they are not. This may be a

temporary anomaly and will not occur again for many years. It may, however, be the start

of a new pattern of actions in the market as globalisation may be turning the consulting

industry into more of a commodity. In either case, the ability to vary staff levels does not

fit well with an employee-based firm. Instead, a firm would be better served by alliances

and associations.

The flexibility to change personnel levels also represents a conflict with the

primary success factor, namely the ability to attract and retain the right human resources.

The firms that are able to bridge these conflicting factors will have a higher degree of

success or will succeed over a wider range of market conditions.

3 INTERNAL ANALYSIS

Michael Porter identified two effective generic strategies as enduring approaches

for companies to follow. The first is cost-based, which is a mixture of low-cost with

adequate quality. The second is differentiation, which is high-quality mixed with

adequate cost. Attempts to mix aspects of these two strategies have generally led to

failure over the longer term and, from a strategic perspective, the mixing of strategies is

referred to as being "stuck in the middle" (Porter, 1980).

Porter also proposed that the strategy of a company is not illustrated through

eloquent vision and mission statements; it is demonstrated through the company's

activities. This is the basis of the value chain, a series of activities that directly affect the

profit margin of the company engaging in, or directing the completion of, the activities.

In the following sections, the assessment of how CCI's activities support or

conflict with its stated strategic intent will be presented.

3.1 Strategic Fit Analysis of CCI Management Consultants

From its inception, the strategic intent of CCI was to differentiate itself based on

its consultants' experience and recognized certification by the Project Management

Institute (PMI) and through building client references. This strategy of differentiation was

interrupted by the market downturn of 2002 and 2003, during which time the firm reacted
developing products (templates, micro-function methodologies, etc) and alliances for

blended skills delivery and begun a focused expansion of knowledge and skills.

CCI must continue to differentiate itself within the crowded market place and

innovation of services is one avenue that will continue to be pursued. To position the firm

as an innovator, the executive must realize that what is considered innovative today will

be common place very quickly as most of the innovations within the consulting services

market sector are easily adopted by competitors.

3.1.3 Research & Development Expenses

Although innovation is a key aspect of' differentiation, it is also an expensive

aspect. Directing consulting hours towards internal product development or revision of

processes is a conscious decision to erode the inventory of billable hours for the firm. In

order for the firm to afford such development, it must grow in size to achieve a sufficient

revenue base from which to derive an R&D budget. The budget may consist of dollars,

compensating firm members for time allocated to R&D, or be comprised of potentially

billable hours being directed to non-revenue generating research and development efforts.

The directors and founding partners invest in the latter category of R&D effort.

R&D ranges from focused efforts to create new templates for products (e.g.

Project Completion Report) and developing procedural additions and enhancements to

increase customer value perception, through to the simpler task of keeping abreast of

current trends in best practices for business management, project management, etc.
3.1.4 Structure

CCI operates with a combination of both centralized and decentralized structure.

For day-to-day operational activities, the structure is decentralized with consultants

operating at various client sites autonomously and this is the hallmark of the firm.

Although this requires a number of functions to be duplicated and increases the costs of

the firm, the ability to respond to the needs of'the clients requires the firm to have a

flexible response. The flexibility of the consultant is vital to the firm's strategy of

building client references as many clients value the experience of completing a project

much more highly than they do the actual performance outcomes.

However, management consulting is a high-cost undertaking with many

overheads and successful firms constantly seek to limit costs wherever possible. At CCI,

a centralized approach is used for billing, expense tracking and other operational support

activities, leveraging the knowledge and skills of one individual area of the firm and

minimizing both the costs associated with learning the process and those connected to

correcting errors, such as those experienced in the past with a more distributed approach.

3.1.5 Decision Making

As the consulting industry is client driven, the ability of the individual consultant

to make decisions within the context of the consulting engagement is essential to the

success of the firm for that engagement but also for the future likelihood of the firm

acquiring another contract with the same or referenced clients. However, the firm has

also participated in a number of engagements where the client expectations were either

incorrectly managed or the terms of the contracts were misunderstood by the associated

consultant(s). This led to a less autonomous decision making environment being adopted.
 To fully support the strategy, more autonomy will be necessary within each

consulting engagement. Steps have been proposed internally within CCI to address the

potential sources of the misunderstandings and prevent similar occurrences in the future.

3.1.6 Production

The firm "produces" a product with each engagement, starting with the definition

of the project and a plan for delivery including a definition of a series of sub-products as

intermediate deliverables. The process for creating the products is highly flexible as are

the products themselves, each being adapted to the needs of the individual client and the

demands of the engagement. Two engagements for the same client may be conducted in

significantly different manners depending upon a wide range of factors including budget,

quality and timeframe and the deliverables that are applicable to one engagement are not

necessarily applicable to the other. This is supportive of the firm's strategy.

Currently under consideration is leveraging economies of scope, seeking to

bundle related services together where the combined sales value is higher than the value

of the same services delivered individually or where the services can be obtained less

expensively. This consideration, then, applies to both the sales and the purchase sides of

the firm's activities although the sales side is perceived to more directly support the

strategy.

Related to the project management skills are the management skills of the

Master's of Business Administration program. Leveraging this natural relationship is also

a component of the economies of scope that are featured in the CCI strategy.
3.1.7 Labour

The consulting industry is primarily comprised of highly skilled labour that is

capable of either expanding the range of the skill and knowledge pool of the client

organization or adding depth in specific areas. The primary differentiating factor between

firms is the knowledge base they possess and the skills that they are able to bring to bear

upon a client problem. This perceived difference is most notably reflected in the broad

range of technical services consulting rates commanded in the market place with the rates

for older skill bases trending downward while leading edge skills command premiums of

fifty percent upwards.

CCI, like many other consulting firms, uses a flexible supply model of including

associates through subcontracting rather than hiring full-time employees. This flexibility

is also leveraged further using co-operative programs to staff non-critical and certainly

less visible roles. For management consulting, the prime client contract roles are usually

reserved for either firm partners or very senior consultants while the hands-on roles are

staffed with more junior, and lower cost, consultants. This approach is true of CCI as

well, allowing the firm to rapidly adjust to market demands but also requires the firm's

executive to continually develop relationships upon which to draw with short notice.

This flexible staffing model is supportive of the firm's strategy

3.1.8 Marketing

In the initial stages of launching CCI, the marketing efforts were outsourced to a

firm that specializes in marketing consultants to prospective clients. Using a person-by-

person approach, often called "body shopping", the marketing firm provided limited
marketing services and correspondingly commanded a low percentage fee. In an industry

where placement fees run as high as forty percent of the contract value, securing a

relationship with a ten percent fee structure was considered an important advantage,

particularly during the start-up phase where capital conservation was seen to be key.

The lack of market entry barriers and the rapid cooling of the market's demand

following the completion of the Y2K projects coupled with the dot-com implosion

resulted in a flood of independent consultants and small firms. The increased competitive

pressures were further amplified due to the continued strategic repositioning of the major

consulting firms, expanding their range of consulting services and further blurring the

lines between financial consulting and management consulting, particularly in custom

development and systems integration. In order to grow their market share during and

because of the repositioning, the large firms began to come "down market", addressing

smaller clients and smaller initiatives. This, in turn, forced mid-market firms, such as

Sierra Consulting Group, to expand their offerings further down market. As a result,

small consulting firms like CCI struggled to maintain their client base and historical

profit margins.

The CCI marketing outsourcing agreement was inadequate in that it did not

provide a marketing plan nor any form of brand development. Product placement was

developed in a reactionary, not planned, manner and has been semi-selective, targeting

government and crown corporations. The product focus has been diffused, embracing

both information technology project management and business analysis, as these were the

contract opportunities the marketing firm identified and presented.

 This is perceived to be a movement away from the current high-cost marketing in

which the firm develops 'one-off marketing proposals to broad market Request for

Proposal (RFP) initiatives. Custom developing the proposal is expensive and the success

rate with pursuing such RFPs has been limited.

3.1.9 Risk Profile

CCI is not a firm with a high-risk profile. None of the innovations has been

capital intense nor have any of the firm's initiatives been a "bet the company" situation.

However, to be an innovator and truly develop innovative products in the future, the firm

will need to engage in risk-bearing activities. True innovations will require significant

investments, either through reallocating internal consulting hours to build the innovation

in-house or through capital expense to acquire and deploy external resources. Such

investments carry a sizeable risk of failure and, consequently, of draining the small

capital reserves of a boutique firm. The capital structure of a firm can often be used to

offset the risk exposure; however, a consulting firm is asset poor, or at least in the assets

that can be presented as collateral for a loan, and this limits the range of potential capital

sources, further increasing the risk of the firm.

In addition, CCI will incur risk if it is to position itself to target a vertical market

segment, as such decisions are inherently risky in that they tie the firm to the economic

performance of a sector. Similarly, entering into alliances with other consulting firms will

increase risk as such alliances require the parties to develop and extend trust, sometimes

with negative consequences.

3.1.10 Capital Structure

The capital structure will remain conservative as the consulting industry is not,

typically, a capital-intensive operation. Costs per engagement are high with a large

percentage of the engagement income going to consultant wages, while the remaining

margin must offset the sizeable marketing costs being incurred for each pursued

engagement. With this cost structure, the capital should not be leveraged as this presents

a risk that could affect the very survival of the firm.

3.1.11 Consulting Industry Value Chain

Project management consulting primarily operates through one of two channels,

either by selling a non-differentiated service using arms length transactions, such as bid

auctions, or through integrated management services firms, such as KPMG and

PricewaterhouseCoopers, that rely on differentiated services and highly coupled client

management efforts. Within the context of the former channel, that being the principal

channel of CCI Management Consultants (CCI), the further removed a chain link is from

the final customer, the less knowledge it has of customer preferences. Further, traditional

relationships between consulting firms operating in this channel have often been

characterized by a measure of mistrust. Consequently, this channel is not well positioned

to respond to market change with necessary change being either slow or perhaps missed

altogether. This phenomenon can be referred to as a "series of disconnects" - the fractured

or inefficient flow of information from the customer back to each link of the chain.

In contrast, a tightly integrated value chain provides a process and a structure to

respond to specific markets and customers more effectively. To this end, the value chain

is demonstrated by collaboration across the links and includes the development of trust-
based relationships with the sharing of information, costs and benefits. Within the project

management consulting value chain, sharing information about clients is the most vital

aspect to each chain link in order to respond to customer preferences in the short-term

and, more importantly, market change over the long term. It is, however, one of the

weakest links across the value chain in which CCI participates.

The value chain changes, however, with the addition of a variety-based strategy.

CCI was launched in 1996 as a muddled strategic-fit differentiator applying a then-

unrecognised variety-based strategy. This strategy promoted the project management

function as a unique service to provide the client with an unbiased presence to manage an

information technology project with the client's interests as the foremost consideration.

This approach addressed the perceived conflict of interest where bundled project

management service providers escalated project costs whenever a "new" requirement was

discovered. The implications of the variety-based strategy altered the marketing focus of

the firms participating in this strategy. "The people who use Vanguard or Jiffy Lube are

responding to a superior value chain for a particular type of service. A variety-based

positioning can serve a wide array of customers, but for most it will meet only a subset of

their needs." (Bukszar, 2005)

If one examines the value chain of only the project management consulting

industry, one will discover that the chain is very narrow as the raw materials are

effectively information, skills and knowledge which is transformed through experienced

application into efficient and effective project management performance. This value

chain extends from the end of the management consulting efforts that identify the need

for a project through to the completion and operation of the solution with project
management services participating to varying degrees in most of the value chain

components.

As CCI targets information technology projects for management services, the

value chain is different than it would be for a bundled management consulting-services

firm or a consulting-services engineering firm,although the template of activities may be

very similar. Additionally, as a result of the world-wide consulting industry downturn of

200 1-2003, the market shifted to a demand driven environment and economic survival

required CCI, like other firms using variety-based positioning, to consider expanding the

range of services further along the value chain.

The value chain is presented in Figure 3-2: Consulting Industry Value Chain with

CCI's footprint denoted in yellow.

 Prior to the transition to a demand driven environment, CCI focused on the centre

two portions of the value chain, that of developing and submitting proposals to win bids

and then, for the awarded bids, managing the project development, testing and delivery

phases with limited participation in the early operation stage activities for some projects.

For those clients with whom CCI had completed previous projects, there was also

participation in the client relationship management stage as a preceding activity for future

project opportunities.

3.1.1 1.1 Client Relationship Management

Managing the relationship with the client is the single most important activity for

a consultant but it is also a risky, time-consuming activity without a guaranteed payback,

fraught with opportunities for inadvertent missteps and failure. Fortunately, there is also a

variety of ways in which to engage in the management of client relationships, one of

which is the outsourcing of the initial contacts, the so-called cold calls. This was the route

followed by CCI, leveraging the functions of a contract services company with

established connections within the Vancouver, Victoria and Calgary markets and trading

a small percentage of eventual project revenue to lower the time requirements and risk

exposure of client management activities.

Once the contract services company identified a prospective client's need for a

project, CCI would move into the next stage of the contract process; however, the

management of client relationships does not end when the contract need is identified.

Instead, the majority of the client relationship management actually occurs during the

project execution and follows-on after the initial contract is complete. It is this "in-flight"
portion of the client relationship management activity that is depicted in blue in Figure

3-2.

3.1.1 1.2 Project Proposal Development and Submission

The format and content of project proposals vary widely between clients and,

during the initial period of a new market entrant, a sizeable knowledge barrier must be

overcome in order to prepare and submit the appropriate content in a timely fashion. A

significant portion of the Vancouver and Victoria market is comprised of government and

crown corporation clients and the timing of project initiation is quite similar given the

common budgetary and planning cycles; consequently, multiple proposal opportunities

may arise in a single day and require rapid completion. Given these factors, knowing how

to quickly complete and submit a proposal that highlights the information needed to

satisfy the evaluation team is a critical skill fix a firm to flourish.

3.1.11.3 Project Development, Testing and Delivery

Within the Project Development, Testing and Delivery stage, a number of models

are applied ranging from the standard Systems Development Life-Cycle (SDLC)

consisting of analysis, design, development, testing and implementation, to the slightly

abridged ADDIE (Analysis, Design, Development, Implementation and Evaluation) and

IDEAL (Initiation, Diagnosing, Establishing, Acting and Leveraging). All of these

approaches deliver project initiatives but each has a slightly different focal point within

the process. For CCI, the focal point has been on the project management slice that

coordinates and manages the process of completing deliverables throughout this stage.
The activities relating to creating the deliverables, such as process analysis and the

writing of computer programs, have been undertaken by other value chain participants.

3.1.1 1.4 Operation

In the early portion of the operation stage, CCI may provide benchmarking and

other performance measurement services depending upon the needs of the client. These

services measure the impact of a project on the operational environment and verify if the

project delivered the expected outcomes. As a standard management practice, this service

is typically applied to projects completed by other firms and not to the project in which

CCI was directly involved.

3.1.12 Firm Level Value Chain

Michael Porter, using process analysis depiction nomenclature developed in the

196O's, divided the activities of a firm into primary and secondary groupings and further

divided the primary activities into the categories of inbound logistics, operations and

outbound logistics with the refinements including two additional categories of marketing

and sale plus service. In the CCI situation, there is no service category and the blank

category is included in the diagram for confirmation purposes only.

3.1.13 Core Competencies

For CCI, the primary activities are subdivided into core activities, those activities

in which the firm has a competitive advantage and which enable the firm's strategy, and

ancillary activities, these being the activities that are directly involved in the delivery of

the firm's services but in which the firm does not have a competitive advantage within

the market place.

CCI maintains core competencies in the areas of proposal preparation, a stage one

activity in the engagement lifecycle, and in project related areas of integration

management, scope management, time management and risk management, each of which

are stage two through four activities.

3.1.13.1 Primary Activity

The value adding activities of CCI relate to the provision of project management

consulting services to clients. At the time of writing this paper, the firm does not derive

revenues from complementary services such as training other consulting firms or selling

project management and project development methodologies. As a result, the primary

activities of CCI relate directly to conducting projects, wrapped within a layer of both

supporting and secondary activities as depicted in Figure 3-3: Firm Level Value Chain

for CCI. This firm level value chain is anecdotally reported to be common to other

consulting firms.
3.1.13.1.1 Inbound Logistics

The identification of project opportunities is an inbound ancillary activity that

principally involves client relationship management, an activity that has been outsourced

to a contract services firm as previously mentioned in this paper. Identifjing project

opportunities requires a well-developed network of contacts in the various potential client

firms operating within the geographic or industry-related segments of the market place.

The time required to develop such a network is significant and is an effective market

entry barrier if a firm attempts to undertake the network development by itself. The

network also requires ongoing maintenance efforts to respond to changes in personnel

and keep the channels of communication fresh and open. Much of the consulting business

is based on personal perceptions and favourable perceptions are subject to the ravages of

time, diminishing like childhood memories unless they are bolstered by periodic contact.

Preparing and submitting proposals, however, is a core inbound activity. This is

because bid opportunities occasionally have very short response windows. Responding

consumes but hours that are not billable and, as such, are a drain on the firm's inventory

of sellable hours. As a result, the ability to rapidly generate a quality proposal has a direct

bearing on the viability of the firm. This requires developing an understanding of the

language of contract management but that involves more than developing a glossary of

terms. Knowing the difference between a request of proposal (RFP) and a request for

interest (RFI) can be easily acquired; knowing the difference in the semantics within

either request requires an appreciation of the business climate and culture specific to the

industry and within the client firm itself.

 Many of the indicators of the firm level culture are subtle and the senior

consultants with which CCI interacts have developed a superior appreciation of, and

sensitivity to, these indicators particularly in the regulatory-based environments of

government and related crown corporations. Understanding the priorities and cultural

expectations of these potential clients enables CCI to position itself favourably vis-a-vis

its competitors when delivery a bid proposal that encompasses the appropriate jargon and

content.

Additionally, the senior consultants have developed writing skills through

publishing articles across a wide range of topics including various aspects of projects,

client relationship management and contributing to the community. This heightened skill

is, based on feedback from clients, a distinguishing feature between a few exceptional

firms and the rest of the market participants.

For these reasons, the proposal development and submission activities of CCI

have been retained at the senior levels, driven by the principals of the firm with input

from the senior consultants involved in the particular industry sector in which the target

client participates. With an inventory of submission components tailored to meet the

generic needs of the industry participants, CCI leverages an economy of scale advantage

over the single person firm with limited experience. Attention to building and extending

this inventory, combined with efforts to ensure the content of existing components is

maintained so as to remain current, is part of the activity chain that delivers value to CCI.

These efforts combine to control costs within the submission process, one in which the

success-to-submission ratio is typically low given the number of competitors within the
market. By containing these costs and improving the speed of response, CCI has an

advantage in this area.

3.1.13.1.2 Operations

Operationally, there are a number of activities in which CCI has a competitive

advantage and are categorized as core. Project Integration Management involves three

distinct areas of operation: developing project plans at the outset of an engagement;

executing the plan; and maintaining an integrated change control process. The set of

project tasks and their interdependencies may be mistaken for the project plan, whereas

this is only the schedule. The project plan encompasses a broader set of components and

it is the command of this set and the interrelations of the components that is one of the

sources of competitive advantage for CCI. Being able to assess which components are

more important than others given the particular circumstances of a given engagement

ensures that the objectives of the project are intertwined with the planned actions. CCI

has developed this competitive advantage through a combination of three factors, the first

two of which are readily duplicated by other consulting firms: twenty-plus years of

experience and Project Management Professional (PMPR) certification for each senior

consultant plus the use of proprietary planning session management techniques, tools and

templates. The proprietary approaches deliver more comprehensive definitions of the

project's scope, deliverables and processes and assist in extensive cultivation of

relationships both between the project and the client organizations and within the project

team's various subgroups.

Executing the plan, or working the plan as it is commonly called within the

industry, refers to using the plan components to assess the progress of activities within
the project to determine where interventions are required. Performance measurement

mechanisms such as Cost Performance Index calculations and Cost of Work Scheduled

projections are rudimentary skills that are not widely used within information technology

projects but have high paybacks when used effectively. From such measurement

techniques, the problem areas of a project are identified early enabling the management

team to guide projects with a gentle touch here or there as opposed to large interventions

that are typically resource intensive.

The third aspect of integration management is change control. The key factor in a

successful change control process is the abili1:yto recognize change when it surfaces. The

competitive advantage for CCI in this area arises from its strength in the planning process

through which a clearly articulated scope definition is derived. Investing in the

relationships of the team also fosters a better understanding of their roles within the

project and the bounds of their responsibilities. This combination of clarity, combined

with a proprietary approach for comparing each team's stated planned activities of the

following period with the initial plan definitions of those activities ensures that changes

are surfaced and addressed before they are undertaken.

Closely related to the Project Integration Management activities are those of

Scope Management, particularly in the overlap with the planning definition and the

recognition of changes. However, Scope Management also involves ensuring that the

entirety of the planned deliverable is finished and this is an ongoing scope verification

that is missing from many of CCI's competitors' projects. CCI has developed a

proprietary checklist that is refined during the planning stage of a project and guides the

evaluation of deliverables as they are completed throughout the project's life.

 Time Management does not relate to managing the firm's accounting of billable

hours; instead, it relates to ensuring that the project participants are completing the

project on schedule and within the effort and duration estimates developed during the

planning stages. As with all portions of the project, this area is also related to the initial

development of the project plan and the ongoing change control process. During the

planning stage, accurate estimates of the effort and duration must be developed for each

task, requiring that each task be well defined.

Risk Management is the final core skill of the operations category and the area

that is the most technical in execution. CCI has developed several procedures for

conducting qualitative risk analysis, leveraging the team building efforts of the planning

stage. As the principle reason for managing projects is to manage the risks, this skill area

is of prime importance to client management.

Two other skills areas are included in the operations stage but there is no

competitive advantage held by CCI in either skill area; consequently, cost and quality

management are designated as ancillary skills, necessary for the successful completion of

a project but often performed by other project members, including client staff assigned to

the project.

3.1.13.1.3 Outbound Logistics

Communications is the encompassing label used in Figure 3-3: Firm Level Value

Chain for CCI that includes the delivery of project communiquCs, such as status reports,

and other sundry components such as the human resource plan for the project. For most

projects, this portion of the organizational structure is determined and supplied by the
client organization. There is no uniqueness to the services provided by CCI with respect

to communications; hence, the designation as an ancillary skill.

3.1.13.1.4 Marketing & Sales

As previously discussed, the marketing and sales efforts for CCI have been

historically outsourced to a contract services firm. In recent months, the CCI executive

have been re-examining this option, considering a more integrated approach to client

relationship management and the overall delivery of a bundled set of services. Until the

firm executive directs otherwise, however, this ancillary skill will continue to be supplied

through an outsourced service.

3.1.13.2 Secondary Activities

As a small consulting firm that operates primarily on-site at customer locations,

CCI does not maintain an outside business office; instead, each consultant operates a

home office as necessary to support the activities of the firm. This removes the need for

landlord relationships or real estate maintenance overheads from the firm's secondary

activities. In addition, each consultant provides his or her own computing resources as the

consultants operate under an associate model, whereby each consultant is freely able to

enter into contracts with clients independent of CCI undertakings. Both the CCI

executive and the associate consultants consider this flexibility essential in order to

address the variability of the market place. The costs of the computing infrastructure of

associates is incorporated into the billable rate of the consultant, thus eliminating a need

for CCI to address this portion of the firm's overall infrastructure. This approach

simplifies both the complexity and the magnitude of the secondary activities of CCI.
3.1.13.2.1 Infrastructure

Strategy development has been included as an infrastructure component as it is

not a routine activity within the operational aspects of the firm. As a result of the MBA

undertaking, the strategy of the firm has started to undergo a re-examination, or more

accurately, a creation as the initial direction of the firm was, at best, a muddled reaction

to market forces as opposed to a well considered and articulated direction. Blending the

consulting experiences of consultants is not an easy task but the frameworks provided

through the MBA have enabled the firm's executive to have a consistent model from

which to build the scope and content of the discussions, which have shaped the market

targeting of the firm. This approach is the start of differentiating the firm's services

beyond that of simply illustrating the experience level of the consultants involved and, as

a result, contributing to a higher profit margin.

Accounting services are provided by a contracted accounting firm and protect the

profit margin by ensuring the firm avoids unnecessary tax penalties and removes the need

for individual consultants to have anything more than rudimentary book keeping skills.

This service is viewed as a necessary but non-strategic undertaking as the finances of the

firm are very simple, lacking in either large capital asset considerations or opportunities

for leveraging.

As many of the engagements for CCI involve travel, the firm undertook to

establish relationships with key providers to identify opportunities for cost savings and,

more importantly, streamlining the process of arranging travel services. With a primary

site of activity being Victoria, arrangements were made with a hotel chain that operates

many properties throughout the city to ensure site-convenient locations with a committed
long-term pricing schedule that is significantly lower than the regular pricing. Additional

services, provided directly by the hotel staff, streamline reservations, arrival and

departure procedures and specialized in-room set up (desk configuration, internet

services, etc. that are tailored to the firm's needs). Travel services were also negotiated

with four transportation firms to ensure travel between and within cities were also

simplified, guaranteeing priority services for air and ground travel. This approach

contributes to the profit margin by ensuring that consultants can respond to short lead

time demands of clients, enabling a higher hourly rate to be negotiated for this priority

response while at the same time reducing the expense margin for delivery such services.

Legal services are infrequently needed for the firm as most engagements included

standardized contracts from the primary clients, either government ministries or crown

corporations. A standing arrangement is in place with a legal firm leveraging the CEO's

personal connections. These services have not contributed to the profitability of the firm

so far.

3.1.13.2.2 Human Resources

This area of the firm relies heavily on personal networking to identify potential

associate consultants and rounds out the search by leveraging electronic mechanisms to

identify candidates for less strategic positions. Having credible consultants included in a

proposal response is key to delivering a winning bid and only through consistently

winning bids can the firm generate a revenue stream; consequently, this secondary

activity contributes directly to adding value within the chain of activities of the firm.
 More importantly from the firm executive position is the ability to mentor and

develop the firm's consultants and associate consultants during engagements. With the

proprietary techniques and approaches of the firm forming a key part of delivering

services, rapidly familiarizing new or associate consultants with these items is a direct

contributor to the value provided to clients and hence to the profit margin. If the

familiarization process was slow or incomplete, the market positioning of the firm as a

superior provider of project management consulting would be undermined and would

erode the rates commanded by the firm within its traditional markets.

Establishing a compensation mechanism that adequately rewards the participants

in an engagement is key to retaining the best consultants. Despite the market's

overpopulation, there is a shortage of qualified and capable consultants; consequently, the

composition of firms is fluid and a continual threat to each firm maintaining its market

serving capabilities. By attracting superior consultants, the firm is able to command

above average rates for its services, thus contributing to the profit margin.

3.1.13.2.3 Technical Development

In an industry without well developed and entrenched standards and protocols for

cost and effort estimating, the consulting firm that can more accurately estimate its costs

will enjoy a better profit margin. Although not at the forefront of developing such

approaches, CCI is a rapid follower, continually looking for improved methods of

identifying and controlling the cost portion of engagements. This approach also enables

CCI to generate bids that, while still profitable, tend to have overall lower total cost

estimates for the client firms despite the above average hourly rates charged for

consultants.
 The enhanced estimating techniques are also leveraged in the cost tracking side of

the engagement process. With a clearer understanding of what the delivery should cost,

identieing cost overruns can take place earlier, allowing cost containment actions to be

undertaken before the profit margin is further eroded.

Having developed bid preparation templates to use in conjunction with the cost

estimating approaches also enables CCI to direct fewer non-billable hours towards bid

preparation. Even for firms that are highly selective in choosing which bids to pursue and

enjoy a better than fifty percent success rate, the ability to generate a bid with fewer

hours of effort is a competitive advantage. Although CCI has not been so selective and

has had fewer than half of its bids awarded, the firm has been able to generate those bids

in less time than has been anecdotally noted from competitors. With a refined strategy

and a corresponding improvement in market targeting, the ability to generate bids more

quickly than competitors will increasingly contribute to the profit margin.

3.1.13.2.4 Procurement

Although procurement for projects is one of the nine formally recognized project

management disciplines, this discussion of procurement is specific to the general

administrative activities of CCI, not the client engagement itself. Within this context

then, the procurement activities are limited and of little direct importance to the firm's

profit margin. Compensation, more than procurement, affects the cost factors for an

engagement so the aspects of subcontracting procurement that are reflected in this section

are limited to the setting and executing of standards for reference checking and other due

diligence efforts. These, in total, have a negligible impact on the firm's profitability.
 Given the use of associate consultants and the requirement for the associates to

supply their own computing facilities, the acquisition of software and computing

equipment is very limited in scope and, consequently, has little impact on the value of the

service delivered to the client.

3.2 Alignment of Expansion Plans and Strategic Fit

CCI has some conflicts between its stated direction towards being a differentiator

and its practices and is consequently lacking in some aspects of the key success factors

for the industry. CCI has not achieved being a differentiated provider and remaining in

the project management consulting area exclusively presents a limited opportunity to do

so. Instead, CCI has to consider new markets with new services and will achieve this

through its expansion plans.

With the recent splitting of business consulting practices from the large

accounting firms, the ability to cross sell services directly within the executive suite

diminished. The connections between the executive of existing client account firms and

the business consulting firms, whether they are newly formed such as Bearingpoint or

merged within existing firms such as Cap Gemini S.A., will still exist as the deals

involved transferring the consultants. Over time, the stranglehold that the accounting

firms had on the business consulting industry should lessen though. This opens an

opportunity for new entrants to grow and possibly challenge for some of the business

management consulting accounts.

However, CCI does not have the appropriate consultants on board at this time to

enter the upstream executive-level business management consulting market area nor does
it have a sufficient range of relationships established at this level. Although recent efforts

have improved the firm's knowledge base, CCI does not have enough of a base and is

limited in its ability to execute expansion plans on its own. To address its expansion

plans, CCI must become better at gaining and disseminating knowledge internally. The

market has a strong potential for growth but this could be short lived and require the firm

to respond quickly. Addressing these shortcomings by internal development may not be

sufficient. It is with this market and these shortcomings in mind that the following

expansion plans are discussed.

3.2.1 Expansion Plan Options

Philip Kotler, in his book "Marketing Management", presents a marketing

perspective on designing competitive strategies and delineates the options based on a

firm's position as a market-leader, a market-challenger, a market-follower or a market-

nicher (Kotler, 2003, pp.254-272). The first two position-based categories, that of leader

and challenger, contain strategy options available to the largest market competitors, thus

excluding CCI; however, the latter two categories have potential application.

In the category of market-follower, there are four options available to the firm that

wishes to avoid the expense of innovation and potentially having to educate or even

create a market. One of the options, that of counterfeiter, is not an option acceptable to

CCI even if it were possible to do so in a service industry. The Cloner, Imitator and

Adapter options involve increasing levels of differentiation of the products and services

of the market leader. These options all fit well with the first of the four CCI strategic

market expansion options, differentiation of existing project management consulting.

 The second strategic market expansion option is differentiation within specific

market sectors and this aligns well with Kotler's market-nicher options where "the key

idea.. .is specialization" (Kotler, 2003, p. 271), such as targeting a specific type of

customer or even a specific customer.

The four options for expansion presented in this paper include: differentiation of

existing project management consulting; differentiation within specific market sectors;

developing executive-level business management consulting; and entering into strategic

alliances for diversification of services offered.

3.2.1.1 Differentiation of Existing Project Management Consulting

This approach leverages the core competencies that CCI already possesses and

enables the firm to utilize its current knowledge assets about project-related issues to

expand the firm's share of this crowded and competitive market. CCI would expand its

service offerings in the realm of project management to focus more heavily on the

initiation stage of projects, including strategic goal alignment, feasibility studies and

reviews, to ensure projects initiate properly and have the best opportunities for successful

completion.

CCI would also augment its competencies by strengthening and expanding its

current set of supporting tools and more stringently applying its micro-function

methodologies and practices. The expansion of the supporting tools provides the

infi-astructure through which the firm will be able to voice its differentiation. However,

CCI will not engage in leading edge innovation, leaving such market development efforts

to the industry leaders. Instead, the executive of CCI will monitor advances in project
management and business management methods. The executive, in conjunction with

senior consultants, will develop similar products and services. Differentiation will be

based on either varying promotion and place attributes only, or through adaptation of the

products and services. The differentiation will present a client-observable benefit in

addition to adjusting the overall marketing mix of products and services.

This expansion strategy would entail CCI acquiring more project management

consultant resources either through hiring or by entering into sub-contract arrangements

with individuals or firms to secure the volume of resources necessary; in effect, a

horizontal integration. This expansion leverages the existing culture of CCI, one that is

well aligned to managing projects through mentoring and as such is suited to rapidly

orienting new project management consultants to the firm's processes and standards, and

fits well with the centralized control structures of the firm.

With this strategy, CCI would not attempt to become an end-to-end solutions

provider; instead, CCI would continue to operate within its current portions of the

industry value chain, only for a broader customer base, using existing clients for

references, or as a sub-contractor to a larger firm with more end-to-end solution provision

abilities. This is a position that is typical within the current state of the consulting

industry and one with which customers are familiar. As a result, the transaction costs

associated with this expansion are considered as low, if not lower, than the current model.

Client relationships and marketing would, however, be entrenched in-house,

eliminating the current outsourced practices, with a focused attention on differentiating

CCI's service quality as the primary value proposition.

3.2.1.2 Differentiation within Specific Market Sectors

The advantage of targeting specific market sectors is the ability to know the

clients better than the large competitors. By virtue of their size, the large competitors

have a broad range of knowledge but that knowledge may be general in nature, allowing

a smaller, more specialized firm to better meet the needs of specific clients. Additionally,

if a smaller firm is content with a limited range of growth andfor volume, the firm may be

able to identify market seams or niches where competition is lessened, enabling the firm

to establish a beach-head within the sector from which to launch expansion.

The premise of such an expansion option is to specialize to meet the needs of the

target market sector. For CCI, this means entering the market with project management

services tailored to the market sector and expanding the offerings vertically with business

management services at the upstream end and project delivery services downstream. The

key is to build credibility rapidly and develop at least three solid referential accounts,

those that are respected within their market sector and can be used by CCI to initiate

engagement discussions with other market sector participants. Another approach may

involve targeting smaller customers first before competing for the major accounts within

the market sector. This alternative is slower and may require innovations in contract

terms, even including equity positions in a finn in lieu of partial consulting fees, but may

establish a more unassailable market differentiation, particularly due to signalling

persistence and commitment to the market sector through client base and/or ownership.

Such signalling may act as a market entry banier.

3.2.1.3 Developing Executive-level Business Management Consulting

Executive-level business management consulting competencies, for the purpose

of this paper, include business strategy planning, business process re-engineering and

outsourcing, and transformational change management. Although this category of

consulting typically has a broad definition, including consulting services related to human

resources, marketing, supply chain management and customer relationship management

to name a few, these ancillary services are omitted from the category context for this

discussion.

This category of consulting competencies have traditionally been the purview of

the auditing firms with consulting practices and is a service category dominated by the

largest firms, therefore, direct competition would not be advisable, or even possible, for a

small firm lacking global reach. Instead, the approach for CCI would be to either slowly

develop these consulting competencies internally, targeting existing clients, or to acquire

a small firm already operating in this area. The capital requirements of the latter approach

may exceed CCI's capacity but alternative arrangements, such as equity sharing, may be

attractive to the right participant, given the ability to expand the service offerings along

the industry value chain and differentiate the combined strengths of the firms vis-a-vis

other competitors. This would be the first step towards CCI becoming a fully integrated,

end-to-end solutions provider.

Following the model employed by the large consulting firms, CCI will focus on

its market-entry services in the initial stage and possibly augment its presence in

engagements with the services of other firms. The pace of expansion will initially be slow

until CCI has established its basic management consulting competencies then expansion
would continue upstream along the value chain at an increasing pace, offering

progressively broader management services to capture the excluded services based on the

market demands of the time. During this period of expansion, tight financial controls will

be required to ensure a sufficient pool of capital is established to avoid exposing the firm

to growth related insolvency risks. With the rapid change of business mechanisms

demonstrated in the markets in the past ten years, it is also unlikely that the current high-

demand areas of the market will continue to be so in the coming years; as a result,

continued monitoring of market trends will be essential to select the appropriate products

and services for development.

With the size of the management consulting market, estimated at in excess of

US$52 billion in 1997 (U.S. Census Bureau, 1997) for the United States, the combined

operations of an expanded CCI would be unlikely to draw the attention or reaction of the

large market participants, offering an low-risk expansion opportunity to CCI.

3.2.1.4 Strategic Alliances for Diversification of Services Offered

Similar to the acquisition option within the section above, the development of

additional services can be accomplished by turning to existing firms to augment the core

competencies of CCI but under this option, the augmentation would not involve

ownership of the other firms, avoiding the attending and potentially significant capital

requirements. Alliances may be long-term, particularly those that are strategic in nature,

or may be short-term tactical arrangements that meet the immediate needs of one or more

firms such as a recent alliance between CCI and a Victoria-based systems development

firm to complete a single project opportunity.

 Through a strategic alliance with an existing upstream value chain participant,

CCI would participate in the earlier stages of the consulting engagement lifecycle. This is

perceived as an opportunity to capture additional project delivery engagements, stages 2

through 4 of the lifecycle, without the additional overhead costs of a second iteration of

client engagement interaction. In addition to the cost savings, the expanded market

presence would be a differentiating factor for both CCI and the upstream firm, presenting

the client with a seamless management oversight of the delivery of the engagement. This

approach would enable the upstream alliance member to cross sell CCI services and for

CCI to develop post-implementation business alignment opportunities into follow-on

projects.

For such an alliance to be a good fit for CCI, it would blend strong executive-

level management consulting competencies with CCI's project management

competencies and would be an alliance between similarly sized firms, avoiding the

complications that often arise in relationships with size asymmetry. A degree of trust

would be required between the principals of the firms and, for that reason, is likely to

arise from existing relationships. Additionally, the consulting engagements must have the

opportunity for CCI to be positioned as the prime consulting firm, with the upstream

alliance participant as a part of the service bundle, if CCI is to exercise influence and

control of the client relationship, a necessary aspect of CCI's continued growth.

Establishing alliances with downstream value chain participants, CCI would be

able to bid an end-to-end solution for project implementation which, when combined

with the upstream alliance, would expand to a fully integration solutions provider, as

opposed to just a systems integrator or technology delivery firm. This type of alliance
would fit well within the CCI core competencies and experiences and is a lower risk

undertaking than an upstream alliance. However, the trend toward outsourcing systems

development to offshore organizations suggests the use of downstream alliances may not

be a high long-term payback strategy.

4 ISSUES

CCI Management Consultants faces a number of issues in its current industry

sector that have prompted the development of a market expansion strategy, which is

faced with a number of specific issues as well. Many of the current industry issues are

structural in nature, arising from a market that is comprised of many unequally sized

firms. Economists observe that a market of monopolistic competition has many firms of

equal size differentiating their products. These firms compete on the basis of location and

quality and have easy entry to and exit from the market. These conditions generate

relatively low profits for all firms. A competitive selection market structure differs in

having firms of unequal size, homogeneous products, a relative ease of entry and exit.

Rivalry here is based on cost, delivering low profits on average but varying across firms

(Shapiro, 2003). The project management consulting industry has attributes of both, with

many firms but a variety of sizes, ease of e n t ~ yto and exit from the market and relatively

homogeneous product offerings that compete, in recent years, based on price.

The industry as a whole was an unattractive one for the first years of this century.

A competitive market structure with an industry based on perishable inventories of

billable hours, a limited sophistication in current knowledge management practices, high

transaction costs for both engagements and resources, decreased margins through price

competition and price-suppressing structured bid mechanisms for the major market

buyers were all negatives.

 For CCI, with an aging product line in a maturing service market and the threat of

offshore entrants joining the market, continuing with the status quo is a poor choice.

However, entry into other management consulting niches requires new knowledge and

time to build a base of experience.

The issues are examined below, separated into those issues that are persistent

throughout the industry versus those issues that are specific to CCI.

4.1 Persistent Management Consulting Industry Issues

4.1.1 Fragmented Industry

Without regulation enforcing qualifications, barriers will continue to be virtually

non-existent for entry into this market by individuals and small firms. The Canadian

portion of the industry, with between four and five thousand domestic firms and ready

access by American and other international firms, does not have a market price leader,

although the pricing profile of the top four international firms appears anecdotally to be

quite close and significantly higher than that of the remainder of the market. The industry

profile will continue to foster intense competition between industry participants,

effectively in tiers, as will the bidding competitions structured by large customers.

The project management portion of the industry lacks notable differentiation as

services are built from widely available components, rendering a common look and feel

to the services and products produced. Efforts to differentiate are usually based upon the

length of experience within the client's industry and the bundle of services offered. Other

competition is based on price, either through the rate per hour, which is the most
common, or through shortened duration estimates for non-time-and-materials

engagement.

4.1.2 Billable Hours as an Inventory

Time and materials contracts continue to be the norm within this industry and the

revenue generated within each contract is dependent upon billable hours; however,

billable hours are perishable. This is one of the factors that leads to intense competition

for the consulting firm for whom an hour of billable time passes without sale to a client

firm is the firm that has suffered an opportunity cost of real proportion.

The services do not have a multiplier effect available; in other words, an hour of

billable time only generates revenue once for the agreed upon rate. In a manufacturing

setting, the design and development costs are recouped over a production run and, with a

large enough run, can be recouped many times over. For example, the cost to design,

develop and test a new release of a software product may be very high but, at several

hundred dollars per copy and millions of copies sold, the firm enjoys a significant profit,

multiplied by its ability to create copies from the initial investment. In a consulting

engagement, it is a sell-build scenario and there are limited opportunities within the

confines of the engagement to introduce a multiplier effect. The relatively rare exception

is if the consulting firm will retain ownership rights to the created product and has the

opportunity to sell that product to other clients. For example, if an engagement creates a

communications network management protocol and the consulting firm retains the

ownership, then that protocol and its underlying computer programs can be bundled and

sold either on a standalone basis or as part of a bundle of services to other clients.

4.1.3 Transaction Costs are High

Transaction costs are high in several areas of the consulting industry: the search

costs associated with locating engagement opportunities and locating specialist resources;

negotiating costs for specialized engagements and bid submissions in concert with other

firms; and monitoring costs for joint engagement delivery with other consulting firms.

In some instances, the search costs may appear to have been reduced through

technological advances such as resume posting sites or internet websites posting bidding

opportunities; however, the ability to search these sites for specific content is generally

weak, resulting in an electronic 'slush pile7through which one has to wade to find value.

This is particularly true in the resume posting sites where resume contents, formats and

styles vary widely and are generic in nature due to the resume writer not responding to a

specified situation. In addition, once the apparently appropriate resumes have been found,

there are no savings in the verification and interviewing aspects.

In each consulting engagement, one firm will be the major or lead firm, accepting

responsibility for the delivery of the engagement to the agreed upon standards. This firm

accepts the risks of non-compliance within the terms of the contract, yet often does not

realize an additional benefit commensurate with the additional risk. For this reason,

smaller firms are unwilling to operate as the lead firm and forego opportunities to control

the client management aspect of the engagement. This has implications for the firm's

long-term survival but is driven the high costs of monitoring the behaviours and

deliverables of subordinate firms within the contract.

4.1.4 Human Resources

Acquiring and retaining talented consultants is a key success factor for a

consulting firm, irrespective of whether that firm is in the technical, integration or

management portion of the industry. Finding consultants is not as much a challenge as

retaining the talented ones. Each firm is faced with a shrinking supply population as the

baby boomers are entering their retirement years and there is a demographic trough

behind them. Although the 'boomer echoes' have entered the workforce, few have the

experience necessary to be considered adequate by high-demand accounts, the kind from

which meaningful references can be built. This has led to increased poaching of

consultants by other consulting firms, and in some cases employers, and CCI has

observed this behaviour particularly in the past two years.

The future availability of qualified consultants is also in question. The 2003 study

shown in Figure 4-1 : Student Enrolment by Subject Area indicates that less than 1 in 4

students are enrolled in the combined area of'Business, Computer science and

Engineering. This suggests that competitive pressures for recruitment will increase and

may become a limiting factor in expansion plans for specialized services.

to the risk of hold up behaviour by either party. CCI could also pursue developing the

knowledge and abilities internally, also known as integration, but building

complementary assets takes time and may require capabilities and resources in areas in

which the firm does not have competitive advantages. Another option is to establish a

relationship with a firm possessing the desired specialized assets, possibly through an

alliance or by acquisition or merger.

Specialized assets are also usually associated with higher transaction costs such as

the amount of time and expense required to locate the appropriate asset. This is due to the

fact that there are few suppliers and, therefore, they are harder to find in a large

marketplace. Additionally, the quality of the asset is difficult to define or measure. Most

such assets are obtained via contracts, which by themselves introduce high transaction

costs for their construction, monitoring and enforcement efforts.

For management consulting firms, the ability to develop a specialized knowledge

that is saleable to clients yet is not easily imitated by competitors can be a competitive

advantage, provided the portion of the economy that is interested in such specialized

knowledge remains healthy. If, however, there is an economic downturn, the

management consulting firm must be able to target new markets. This is where asset

specificity may become a hindrance, as the firm's assets are not transferable to other

market sectors.

To minimize the lack of mobility of specialized knowledge assets, consulting

firms employ knowledge management approaches such as developing knowledge

repositories and fostering a culture of knowledge sharing instead of hording. The current
state of practices in knowledge management, however, are relatively rudimentary and a

proficiency in locating information requires time to develop. Davenport and Prusak

acknowledged in the preface to their second edition of" Working Knowledge" (Davenport

and Prusak, 2000, p. vii) that the knowledge management industry was still in its infancy

in the late- 1990s. From structured methodologies with flowcharts to guide a project's

path, repositories were expanded to include best practices; however, the challenge of

choosing the correct path for the unique circumstances of the engagement has remained.

The judgement required to identi6 and choose the correct set of options for engagement

is tacit knowledge and despite the advances in the contents of the knowledge repositories,

the ability to consistently translate tacit knowledge into explicit, replicatable knowledge

is still elusive. It is this unstructured nature of knowledge that has challenged the industry

in developing widely available advanced methods and techniques.

4.1.6 Globalisation and competition

Based on the literature and news reports, the trend to globalisation is growing

significantly, both for client firms and for consulting industry competitors. If recent

contract awards by the Government of British Columbia are any indication, more foreign

competition will be experienced locally as the province continues with outsourcing and

Public-Private Partnership initiatives.

Additionally, firms from India that previously contended only with the latter

downstream portions of the consulting industry value chain, that of project

implementation such as computer program coding or testing, have made inroad further

upstream in the value chain (Express Computer Business Weekly, 2003), including the
early stages of project management. The question is not if but when such service firms

also begin to offer business management consulting. A search for "offshore India

technology" using GoogleTMnetted 1,2 10,000 hits. Substituting management for

technology in the phrase only reduced the hits to 1,170,000. Although a number of the

references including project management, the indication is clear that the offshore

outsourcing companies are moving upstream in the value chain, adding to the competitive

pressures in the consulting industry.

Such development may introduce new opportunities for softer skills, such as

cultural conflict management and alignment services. It is possible that such skills may

be in short supply and, for the near-term at least, could offer a niche market for the firms

prepared to fill need. The challenge will be to acquire the necessary skills within the firm

and target the clients that may best benefit at the highest profit margin. A rapid

deployment of such niche services would enable a small reactive firm to compete with

the larger dominant management consulting firms.

If CCI expands along the value chain, particularly for downstream activities,

globalisation will be a factor as such services, for large client accounts, will be in direct

competition with offshore providers, operating at a significant cost advantage.

Locally, the competitive pressures increased in 1996 with the introduction of the

BC Bid@ procurement system. From its initial launch as an electronic bulletin board with

limited breadth, the system has become the primary focal point for government related

procurement and is used by a wide base of entities including ministries, crown

corporations, municipal governments, educational institutes and health care agencies.

Accessible from anywhere in the world, the site has become an easy entry point for new

market participants or incumbents wishing to expand geographically. Such competitive

bid mechanisms are designed to create rivalrous situations amongst consulting firms,

which result in an increase in the buyer's negotiating power and downward pressure on

the fees of the management consulting industry. Such behaviour erodes the profit margins

of firms that are unable to trim costs at the same or greater pace than the erosion of

revenues.

In some instances, the entry of lower cost providers or the willingness of existing

providers to discount their fees by significant margins has led to market participants

exiting one or more sub-sectors of the industry. For example, Ernst & Young was a large

player in consulting to government in both management consulting and technology

solutions in the early 1990s but has since abandoned the sector completely, eventually

selling the entire business consulting practice to Cap Gemini S.A. in early 2000.

4.1.7 Technology

Technological change, particularly the advancements in communications and

computerization, have lead to organizations undertaking much of the business

reformation of the past twenty years. With the pace of technological change potentially

slowing, technology may no longer continue to be a cause for management consultant

demand. Instead, the upstream value chain activities of business management will

become more important and the deployment of the technology becomes more of a

commodity.
 Advances in global communications have enabled remote market entrants to

compete locally without the cost of travel, leveraging conference calling, video

conferencing and other technologies to close the gap of distance and time.

Many resume posting sites exist on Internet now and enable firms to more rapidly

find potential consultants. This is particularly true with less specialized skills and has

changed the transaction cost model for staffing technology deployment projects. This

pattern is likely to affect the level of vertical integration within the industry, lowering it

as disperse firms are more readily able to effect transaction chains outside of a direct

ownership structure.

4.2 Current CCI Issues

CCI faces four significant issues in addition to those facing the industry as a

whole. The first is the deterioration of its informal consulting networks. With the

economic downturn in British Columbia that began in the middle of 2001, many of the

consultants within the network began to either seek contracts outside of the province,

leading to a number of consultants moving to Ontario or Alberta, or close down their

consulting practices, either by retiring or obtaining employment with a client firm. This

has caused the network to atrophy and directly increase both the search costs for

consulting engagement participants and the level of risk associated with bidding services

from unknown and unproven consultants.

The second issue is the loss of client references. This has arisen from the early

retirement incentives implemented in 2001 by the newly elected Provincial Government

through which a number of key influential client references exercised options to retire
and were replaced by managers from outside of the department areas. A second source of

the loss was the core services review undertaken by the Provincial Government,

informally known as the Falcon Project so named for the minister responsible for the

project, that pared ministries and crown corporations back to their core business

functions. This initiative dramatically altered the structure of projects at several crown

corporations at which CCI was engaged and displaced client references. A third source

of client reference loss has been the outsourcing of business areas by the Provincial

Government. The outsourcing can resulted in client references moving into areas of

government in which consulting engagements are either not undertaken or are

significantly reduced. The procurement process for consulting services relating to the

outsourced business have been shifted to private organizations with internal resources to

address the majority of the market niche serviced by CCI.

The third issue is the lack of the financial capitalization necessary to quickly

embark on an expansion undertaking. The company treasury was negatively affected by

recent downturn events and recent acquisition costs that have bolstered the firm's

knowledge capital. This situation will influence the firm's choices in expanding its

service offerings.

The fourth issue is the aging product line of the firm. Without a price leader and

clear differentiation in the service offerings, consulting firms need to commit to and

conduct near-continual innovation to refresh their product lines. Not only does this offer a

visible differentiation to new clients, it enables a firm to bind existing clients through

services that are better adapted to the client's specific needs. This micro-niche tailoring is

a competitive advantage in that it prevents other firms from replicating the service
offering and, as such, protects existing client accounts and, if executed on a sufficiently

broad scale, acts as a market entry barrier. With the consulting recession of 2002 and

2003, the offerings of CCI languished as the firm operated in a reduced capacity within

its eroded consulting network.

5 STRATEGIC OPTIONS ASSESSMENTS
In this section, assessment will be presented for each of the strategic options

available to CCI and, within each option, the issues of the industry and those unique to

CCI will be discussed. The one exception is the issue of the pace of technology-spurred

change diminishing. The rate of change in business is currently being driven by

fundamental business factors needing to be addressed, particularly focused by the

Sarbanes-Oxley reporting requirements for any firm operating within the United States,

and the increased needs of security and border protection. This demand has rippled across

most categories of the consulting industry and is estimated to generate sufficient demand

to engage the industry's capacity. For this reason, the issue of technology is not a factor

in assessing the strategic options.

As in a Request for Proposal (RFP) evaluation, a clear definition of the goals, the

evaluation criteria and the weighting factors is essential in order to conduct an effective

assessment of the strategic options. From its expansion plans, CCI Management

Consultants expects to fulfil the strategic goals of: increasing profit margins; expanding

its inventory of skills; realizing a compounded annual growth rate (CAGR) of twenty

percent for the next three years; and leveraging its existing client relationships.

Tactically, the firm also expects to: increase its knowledge management abilities;

decrease its bid response time; and restore and expand its network of consultants. For

each of the strategic expectations, an assessment of the likelihood of success is provided

for each of the options available to CCI. The weighting factor is a prioritisation of the
strategic goals, arrived at through a weighted-pairs assessment by CCl executive, shown

in Figure 5- 1: Weighted Pairs Comparison of Strategic Options.

Weighted Pairs Comparison

A - increased profit margins
B - expanded skills inventory
C - 20% CAGR for 3 years
D - leverage existing client
relationships

Conclusion:
Goal Priority Sequence:
Weighting:

Figure 5-1: Weighted Pairs Comparison of Strategic Options

Source: Author

The strategic options are not mutually exclusive and some combination will be

employed by CCI; however, the following assessment will provide input to the decision

process. In Figure 5-2: Strategic Option and Goal Alignment, the ability of CCI to

achieve each goal through the identified strategic options is presented, along with a

scoring, arrived at through combining the estimated likelihood of success with the

weighting of the strategic goal. For example, goal 'C - 20% CAGR for 3 years' has a
weighted value of 4 and an estimated poor likelihood of success with Differentiation by

Project Management so the combined value is 4 x 1 = 4. This process is repeated for each

strategic goal and scored for the strategic option as a whole.

 - Strategic Options
Strategic Diversity
Differentiation Differentiation Develop through
Goals by Project by Market Management Strategic
Management Sector Consulting Alliances
poor, with a excellent, poor to good, excellent, with
crowded market particularly in based on both upstream
and recently formed internal and
undifferentiated industry niches development downstream
services with additional expansions
consultants available
hired
excellent, with good, as most excellent, with excellent, with
Existing Client strong existing clients strong strong
Relationships relationships in partially span relationships in relationships tc
place multiple market place facilitate
sectors introduction of
both upstream
and
downstream
alliance
partners
loor, with limited good, with poor, a slow excellent, with
nnovations in the ndustry specific process in a ~pportunitiestc
field available tnowledge to be zompetitive and 3xchange skill:
gained albeit dominated field with alliance
slowly partners

poor, with excellent, good, this is a excellent, with

crowded avoiding high fee market bundled
competitors and established although it is services
i d mechanisms :ompetition and dominated by
targeting new he largest firms
and/or
underserved
sectors

Strategic Goal Alignment Scoring Scale:

unknown poor good excellent
0 1 2 3

Figure 5-2: Strategic Option and Goal Alignment

Source: Author
5.1 Differentiation of Existing Project Management Consulting
The latest innovations in project management consulting are now dated by several

years, those being the adaptations of the Software Engineering Institute of Carnegie

Mellon University's Capability Maturity Model to derive a Project Management Maturity

Model. Although this adaptation was a potential avenue into business management

consulting, the local response to the model has been unfavourable, with a perception of

theoretical overhead lacking in operational gains. Without more product innovations that

deliver tangible benefits, the wherewithal to facilitate differentiation is limited to the

consultants' collective knowledge and experience and the service delivery portion of the

client engagement.

The potential for developing such innovations internally are low. Such

innovations require time to identify, develop and test and these are non-billable hours,

affecting the firm's ability to generate revenue and, unless the firm's executive

undertakes these efforts as future investments, represent a drain on current revenues.

Alternatively, innovations can be sourced for outside locations, most notably through

relationships with research institutes such as universities or private organizations like the

Gartner Group but these will likely involve capital expenditures as well.

Although CCI has core competencies related to delivering Project Management

Consulting, and thus has a low level of risk in conducting business in this area, the ability

to grow the firm's revenues is limited by the crowded and competitive nature of this

segment. The firm is unlikely to attain and sustain a 20% growth rate for three years in
such a market and, given the current pressures for undifferentiated products, is unlikely to

be able to adequately increase profit margins based on delivered products.

Differentiation on the basis of service, however, does offer some opportunity but

this is perceived to be rather limited given the nature of procurement and contract

fulfilment for the government sector, which remains the largest client base for project

management services in the province. Ministries and crown corporations have established

processes and mechanisms for the administrative components of the contract fulfilment,

therefore no opportunity for significant service improvement and differentiation arises. In

the interaction with clients, CCI can continue to maintain a high degree of

professionalism but this is a standard easily matched or already offered by most

competitors. Follow-up service activities could be added as the firm currently does not

undertake such today; however, the value to CCI may be minimal as the service

recipients are separated from the procurement decision making bodies and only marginal,

if any, improvement in service reputation would be achieved.

Remaining in this service sector, even if the service delivery could be

differentiated, would not significantly enhance the skill set of the firm. The industry

issues of high transaction costs, perishable inventories of billable hours, ease of market

entry by global competitors and high transaction costs for both engagements and human

resources would also remain under this strategic option and not be ameliorated to any

notable degree. With low likelihood of differentiation in the clients' eyes, market

competition is destined to spiral down into a price-competition, as per the competitive

selection market model, further compounding the industry issues.

 As a result, such an option would not build towards a viable hture for the firm

and is likely to simply prolong the firm's demise.

5.2 Differentiation within Specific Market Sectors

Through the Provincial Government's outsourcing activities and restructuring of

both ministries and crown corporations, a number of new or significantly altered market

sectors have been created in British Columbia. While several of these sectors have been

serviced for business management consulting, the efforts to implement the

recommendations are not hlly underway and, in some instances, have not begun.

These sectors are related to existing client accounts in that they are part of the

overall government structure and operate under similar legislative and policy boundaries

and have relationships to most other areas of government operations. For example, billing

and revenue collection spans virtually every ministry and the client relationships

established in these areas do likewise. The same is true for Health, Treasury and various

enforcement branches. With client references from long-term and influential members of

existing government and regulatory agencies, CCI is well positioned to solicit potential

clients in these sectors. With the recent creation of, or alteration in, these sectors,

competitors are not hlly entrenched so CCI can avoid the destructive price-cutting

competition exhibited in other sectors, thus increasing profit margins.

With an early entrance into these sectors, CCI also is positioned to expand its

service offerings upstream, building on recently acquired knowledge and enabling the

firm to expand its skills inventory for industry specific knowledge as well as less specific

and more transferable business management consulting skills.

 The fragmented industry aspects can be partially deflected by a rapid

establishment of CCI services within a sector, coupled with service offerings that

decrease client operational costs and also serve to increase client switching costs. This is

achieved through project structuring that provides near-full solutions but retains

justifiable follow-on projects where replacing the knowledge gained form the prior

project would prove to be expensive with compensating increases in benefits or lowering

of risks. Such actions would erect partial market entry barriers, thus limiting the impacts

of global competitor entrance to the local market.

To address the inventory of billable hours, project proposals may be presented a

fixed price or some other variant. Given the revised nature of the market sectors, the

previously well-established procurement processes are now open to innovative proposals

where overall cost reduction or performance improvement is perceived to be achievable.

Transaction costs relating to acquiring consulting engagements is expected to also

diminish as the level of competition is lowered, resulting in fewer iterations of bid

presentations and negotiation. In addition, client references offer the opportunity to

eliminate the bid submission process for some of the outsourced areas, as private industry

is not compelled to follow the onerous standards of public organizations. However, CCI

must avoid soliciting accounts where a larger or more entrenched competitor has already

established inroads as these are new market sectors and CCI is at a disadvantage with its

current skills inventory and would be likely to lose a head-to-head competition for the

account. Such an effort would increase the overall transaction costs of the firm without

benefiting from an increase in revenues.

 The search and negotiation costs relating to finding consultants is not likely to

change in this strategic option.

5.3 Develop Executive-Level Business Management Consulting

CCI, overall, has limited competencies in the executive-level business

management consulting industry and will face competitive displacement from the large,

long-established firms. The process of integration, that being the internal development of

the new competencies, would be slow even with hiring of additional consultants who

already possess the competencies, as the transference of the competencies throughout the

organization would be the limiting factor. The transaction costs associated with finding,

soliciting and binding the additional consultants to the firm are expected to be higher than

those within its current industry segment due to the specialized knowledge of and

demand for these consultants.

This strategic option is also high risk as the level of certainty about any aspect

diminishes with the lack of familiarity; consequently, the likelihood estimates may be

optimistic. Even so, it is unlikely that the firm would achieve its desired 20%

compounded annual growth rate despite the prediction for a strong consulting market in

North America through 2012 (US Bureau of Labor Statistics Career Guide, 2005, p. 197).

This option would place CCI into a less fragmented industry, which is an

advantage for fee structures and offers a good opportunity for increased profit margins;

however, a few very large and increasingly protective firms dominate this industry.

Although CCI is a small firm and would not materially affect the larger competitors, CCI
could well face retaliatory actions from the industry leaders that could include consultant

poaching, under-pricing or targeted client solicitation.

CCI would not be in a position within the first few years to establish entry barriers

for other competitors nor would CCI be able to promote itself as an end-to-end solution

provider for any client, leading to clients being exposed to rivals on a regular basis.

However, CCI would be able to leverage its current client relationships to expand its

offerings upstream in the value chain within the existing accounts, lowering the

transaction costs and partially sheltering it from global competitors.

5.4 Strategic Alliances for Diversification of Services Offered

This strategic option offers CCI its best chance of achieving all of its goals, as

reflected in the scoring of the option, and addressing the widest range of current industry

and CCI-specific issues. With a fragmented industry, CCI has many potential firms with

which to forge downstream alliances and by aligning the service offerings of CCI with

the downstream alliance partners, offers a fully integrating systems solution

implementation service that will differentiate CCI from the smaller firms operating in the

current market segment.

Additionally, a number of small to mid-sized management consulting firms

currently have informal relations with CCI and are potential candidates for forming

upstream alliances. As a result, the initial search costs for forming the alliances would be

smaller than those faced by a new market entrant, particularly those that are globally

based.
 With an end-to-end solutions provision capacity, CCI would also be able to

address the billable hours inventory issue through more flexible and innovative offerings.

Clients engaging in large scope engagements tend to be more amenable to flexible

pricing terms, a fact that has been exploited by the large management consulting firms for

many years. With a fuller range of services to offer, CCI is also able to engage in

bundling of services, thereby making direct price comparisons much more difficult and

enabling CCI to more readily differentiate its services while increasing its profit margins.

Through the alliance partners, the informal network of CCI is quickly re-

established and expanded, driving down the transaction costs associated with obtaining

the necessary human resources for any particular engagement. Knowledge management

practices would, however, become more important as the wedding of different firms

presents cultural and experiential differences and may require a common lexicon to be

established to facilitate better communication during end-to-end solution engagements.

The process of expanding CCI's inventory of skills would be accelerated as the free

exchange of ideas is essential to the successful delivery of large engagements. With a

structured enticement package, each of the alliance members would derive benefit in the

delivery yet be protected by covenants such as non-solicitation clauses.

 RECOMMENDATIONS

6.1 Introduction
The US Department of Labor, Bureau of Statistics forecasted a growth of 55% for

the management consulting industry, including the three sub-categories of management,

scientific and technical consulting, for the ten year period ending in 20 12. With such a

strong growth expectation, CCI must take action now to ensure that it exploits these

opportunities while they are available.

CCI must adjust its practices in order to address its weaknesses within the

industry's key success factors. Recommendations to this effect are presented in Changes

in Practices below. The firm is also considering the strategic options for its expansion

plans and recommendations for these plans are presented in Strategic Alliances and in

Market Sector below, reflecting the forces and the success factors affecting the industry.

For CCI, it is recommended that the firm engage in two of the strategic options

for expansion: differentiation by specific market sector; and strategic alliances for

diversification of services offered. For both options, CCI should seek to improve its

perceived credibility and legitimacy, expanding upon the current certifications of its

consultants. Consider minimally joining a management consulting association such as the

Canadian Association of Management Consultants and encouraging individual

consultants to attain the Certified Management Consultant (CMC) designation offered by

this association.
6.2 Changes in Practices
CCI has not achieved differentiation within the project management consulting

area but does not have a sufficient inventory of skills and knowledge to address the

upstream market. To address this challenge, CCI needs to build knowledge in executive-

level business management consulting. Developing this knowledge internally is a slow

process. It is recommended that CCI, instead, undertakes attracting and retaining the

appropriate consultants, ones with executive-level experience that can assist in

developing the knowledge required.

CCI needs to extend its current client relationships into the executive wing in

order for CCI to expand its service offering successfully. Additional efforts by the CCI

executive to engage clients in fundamental business aspects are recommended. These will

include discussions surrounding existing contracts, where probing questions about the

objectives and performance of current projects may provide insight to the business needs

of the client and offer sales opportunities. Other opportunities are through attending

executive focused seminars and joining the local chambers of commerce or boards of

trade. These activities will increase the overhead of CCI through consuming potentially

billable hours without any revenue generation but is a necessary preparatory step.

It is recommended that CCI direct more attention to its knowledge management

practice. To span the market boundaries into new sectors, it will be important for CCI to

quickly learn the business drivers and general characteristics of the new sectors.

Attempting to develop sector specific knowledge internally is also slow, hence the

recommendation regarding alliances, and this increases the importance of an efficient

knowledge sharing mechanism within the firm. Although this mechanism works well
across the senior members of the firm today, CCI must extend the mechanism to new

consultants.

It is recommended that CCI continue its practices regarding rapidly responding to

bid opportunities. It is further recommended that CCI undertake enhancements to the

content of its bid library to reflect the content required for executive-level consulting and

continue to make such improvements for each of the new market sectors it pursues.

6.3 Strategic Alliances

To quickly gain the knowledge, skills and experience necessary to credibly offer

services in the up-stream portion of the value chain, it is recommended that CCI establish

alliances with existing management consulting firms. Alliances address the key success

factor of the industry, that of attracting the right resources to the firm. This approach

introduces a trilateral governance model would be enforceable by either party plus a

named third party, hence the term trilateral governance. The third party can be an

arbitrator or the judicial court system. In the future, there may be a market expansion that

involve the use of highly specialized assets, such as bio-tech undertakings. In this case,

the use of bilateral governance structures, such as joint ventures or outright ownership

integration, should be considered.

Strategic alliances are recommended irrespective of whether CCI expands within

its current market sectors or enters into new market sectors. This approach is favoured

over developing competencies internally essentially for speed of deployment and

lowering of risk, as alliances bring fully matured competencies immediately. Risk is

minimized by avoiding developing competencies that may be unrelated to market

demands. Additionally, the risk associated with hiring consultants is also avoided by

allying with an existing firm in which the capabilities of the current staff is clearly

known.

The alliances firms have established relationships within their particular market

sector, something that CCI would require significant time to develop on its own. The

firms also have the necessary skills, knowledge and experience for operating in their

sector and these are assets into which CCI could tap as opposed to developing its own

knowledge assets internally.

The initial upstream market entry is anticipated to involve general executive-level

business management knowledge, an asset which is specialized but to a relatively low

degree. To implement this approach, the services of a lawyer will be required and it is

recommended that a quality firm be engaged on a retainer basis. The initial agreements

with the strategic alliance parties will require clear definitions of responsibilities through

which a breech, and the party committing it, can be readily identified. Once a trust

relationship has been established, the degree of specificity within the contract language

may be reconsidered.

For the downstream portion of the end-to-end solution creation, again irrespective

of new or existing market sectors, it is recommended that CCI also enter into strategic

alliances, as these will develop longer-term relationships that minimize or eliminate the

transaction costs associated with staffing further engagement opportunities. Several

candidate firms have responded favourably to initial overtures and these firms should be

assessed minimally on the basis of the fit of their current service offerings, their range of
consultant skills and the potential for transference into other market sectors (i.e. their

asset specificity). Alternatively, CCI could rely on spot contracts but it is recommended

that this approach be considered only for skills sets that are effectively commodities, such

as application testing.

Alliances enable CCI to offer a client a fuller range of solution and this provides

the client with the opportunity to avoid its own transaction costs in searching for and

securing additional resources to complete an undertaking. If CCI is able to assist the

client by drawing resources from its alliance chain, the CCI may be able to capture some

of the savings through bundled pricing.

6.4 Market Sector

One of the current challenges in the management consulting market is competing

with firms that have well-established global presences that are one of the features used to

differentiate the top tier firms from the rest of the industry. By focusing on local

industries that have specialized needs, such as health care or provincial and municipal

governments, CCI is able to offer services that do not have to rely on global breadth.

Starting with a narrow focus, CCI will be able to enter a market sector like the thin edge

of a wedge and progressively expand its offerings to address more of the market needs.

Additionally, the preferred market sectors would also lack domination by the

large consulting firms. Such will be the case with new sector start-ups or those that the

large firms have not identified as being sufficiently profitable.

It is recommended that a bilateral model be negotiated with one or more of the

alliance partners when targeting a specific market sector in this stage of the expansion
plan. To enable CCI to remain flexible in its market strategies, a joint venture is

recommended in place of integrated ownership. The approach is more reflective of a

meeting of partners and this aligns long-term interests better than integrated ownership.

It is further recommended that this portion of the expansion plan be undertaken

within ten months of initiating the strategic alliances to ensure momentum is maintained.

Presuming that the first three-to-six months will entail focusing on establishing the long-

term administrative consistency and building common knowledge management methods

and materials, the mid-term portion of the expansion plan must complete preparatory

steps for the market specific expansion including confirming the candidate identification

and leveraging existing client references towards those candidates. Time is of the essence

if CCI is to establish an early mover advantage and erect competitive barriers.

To counteract the market entry barrier of strong relationships that may already be

established by sector firms, CCI should select a narrowly defined specialty product and

engage in promotional activities such as offering free assessments, hosting seminars,

offering presentations at other events and writing articles for local and otherwise

recognized publications. CCI consultants should be encouraged to host social encounters

with the clients as well, a practice long practiced by the large firms.

CCI, being a smaller firm, is more readily able to reinvent its delivery style to

match to the culture of the market sector and the firm's executive can enhance this

customisation with cross-engagement support. All senior consultants should be involved

in such support efforts.

 CCI must continually monitor sources of innovation and strive to be first-to-

market with service innovations. Look outside of the common sources. Consider

marketing advice but also look to process engineering, conflict management and

psychology. CCI should also consider other industry solutions. What works for amateur

sports coaches may be a solution for a client engagement. Differentiation will be key to

continuing to expand the CCI presence within the market sector.

For the downstream portion of the expansion plan, however, the continued use of

the spot contracts form of market governance is recommended to continue. By using

web-based resume sites, the initial efforts of locating potential resources have been

simplified; consequently, their corresponding costs have also been reduced, although the

transaction costs of resume verification and corporate cultural fit assessments have not, as

yet, benefited from this technology-based improvement. Further leveraging the informal

networks will benefit the firm in its attempt to control the costs relating to human

resource recruitment.
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