#2 BCG – an overview of the top four consulting firms 2008

 

  1. McKinsey & Company
  2. Boston Consulting Group
  3. Bain & Company
  4. Booz Allen Hamilton

2. Boston Consulting Group

Organisation type

Private Company

Headquarters

Boston, Massachusetts, USA

Key people

Hans-Paul Burkner, President and CEO

Size

3,900 consultants (2007) in 66 offices across 38 countries

Revenue

$1.8 billion (2006, Vault)

Expertise

Business strategy

Mission

BCG is committed to:

· Creating competitive advantage through unique solutions

· Building capabilities and mobilizing organizations

· Driving sustainable impact

· Providing unparalleled opportunities for personal growth

· Succeeding together with passion and trust

Operational structure

BCG divides its services into functions including branding, consumer goods, corporate finance and strategy, e-commerce, globalisation, health care, industrial goods, information technology, innovation, intellectual property, marketing and sales, operations, organisation, post-merger integration and strategy.

BCG has a strong presence in Asia.

Clients

BCG draws most of its clients from the 500 largest corporations worldwide, as well as working with smaller companies, non-profit organisations and government agencies.

Culture

BCG supports openness and diversity of opinion. It has a non-hierarchical structure where junior consultants are given responsibility and have access to partners.

BCG reportedly has a friendly and cooperative culture.

BCG has a reputation as a high travel firm.

BCG reportedly has a good work life balance and is less interested in hours spent in the office than it is on results produced.

It appears that BCG does has an “up or out” policy.

 

Recent publications

2006Treasure Hunt: Inside the Mind of the New Consumer’ by Michael Silverstein

2006 The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives

2005The Forgotten Half of Change: Achieving Greater Creativity through Changes in Perception’ by Luc de Brabandere .

2004 Hardball: Are You Playing to Play or Playing to Win’ by George Stalk

Brief history

1963 founded by Bruce Henderson. Henderson left Arthur D. Little to accept the challenge from the CEO of the Boston Safe Deposit and Trust Company to start a consulting arm for the bank.

1965 Henderson pioneered Business Strategy as a special area of expertise for BCG.

1966 BCG developed their first breakthrough concept, the Experience Curve. The concept stipulates that unit costs characteristically go down over time as experience increases. This concept helped in the understanding of the role that market share plays in establishing competitive advantage.

1966 BCG becomes the first Western strategy consulting firm in Japan.

1968 BCG developed the growth share matrix, which is simple conceptual framework for resource allocation within a firm. .

1975 BCG stock is sold to its employees through an employee stock ownership plan as a means of purchasing the company from The Boston Company. This was one of America’s first ESOPs. The buyout of all shares was completed in 1979.

1988 George Stalk wrote “Time: The Next Source of Competitive Advantage”, from which academic and business communities embraced the concept of time based competition.

1990 BCG opens the Sydney, Melbourne and Auckland offices.

1998 Creation of the Strategy Institute to research and foster discussion on innovation.

Nota bene

Awards:

2008 Ranked 2nd most prestigious consulting firm in the Vault consulting firm rankings.

2008. Ranked 11th overall, and 1st among smaller companies, in Fortune Magazine‘s 2008 “100 Best US Companies to Work For” survey, based on strong employee development, a supportive culture, and progressive benefits.

2007. Named best large consulting firm in Australia in BRW magazine’s annual Client Choice Awards.

Careers information

Consultants can expect to be involved in pro bono work. Recent projects have included, developing a comprehensive environmental plan for eastern Germany and designing a five year strategy for the World Wildlife Fund.

BCG places heavy emphasis on the use of the case interview and looks for a combination of curiosity and competence.

Website

http://www.bcg.com/

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#3 Bain – an overview of the top four consulting firms 2008

  1. McKinsey & Company
  2. Boston Consulting Group
  3. Bain & Company
  4. Booz Allen Hamilton

3. Bain & Company

Organisation type

Private company

Headquarters

Boston, Massachusetts, USA

Key people

Steve Ellis, Managing Director. A Stanford MBA, Ellis co-founded Focus, Inc., a Silicon Valley consulting firm, before coming on board at Bain.

Orit Gadiesh, Chairman of the Board

Size

3,700 employees in 38 offices across 25 countries

Revenue

$US1.3 billion (2006)

Expertise

The first consultancy of its kind to establish a private equity practice. Bain & Company is well-known for offering services like due diligence, IPO preparation, portfolio profit improvement and revenue enhancement geared toward leveraged buyout and venture capital firms.

One of Bain’s areas of expertise is the luxury sector.

Slogan

Helping make companies more valuable

Mission

To help companies achieve sustainable results.

Guiding principles

Bain measures its success by the results of its clients. It distinguishes itself from competitors like BCG and McKinsey with its notion of results-oriented consultancy. Bain pioneered the idea of aligning its incentives with its clients’ results and occasionally taking equity in lieu of fees.

Clients

Bain’s engagements are divided between small- and midsized companies, with roughly 40 percent of its engagements coming from this demographic. Bain also works with Fortune 500 and private equity clients.

Culture

BCG is purported to have a relatively high proportion of undergrads relative to BCG and McKinsey. Creating a more lively office culture.

Work/life balance seems to be important at Bain but is achieved on a six month time frame, rather than being balanced every week.

Bain’s results-oriented culture means that consultants can choose when the want to work and schedule free time for important events.

Bain appears not to require as much travelling as McKinsey and BCG. Consultants will go to a client when they need to collect data or to make a presentation.

Bain has a non-hierarchical and meritocratic system, people work in teams and are hired and promoted on merit.

Exposure to clients and top-level executives is purported to be given at an early stage.

Bain encourages consultants to work on a range of project types across a variety of industries in order to develop strong generalist skills before being tied down to one area of expertise.

Recent publications

2007Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth

2006The Ultimate Question: Driving Good Profits and True Growth’ by Fred Reichheld .

2004 Mastering the Merger: Four Critical Decisions That Make or Break the Deal by David Harding and Sam Rovit

Brief history

1973 Bill Bain and others left BCG to form Bain & Company

1984 Bain Capital, a successful venture capital firm was founded by Bain partners (including Massachusetts Governor Mitt Romney). Bain Capital has around $27 billion in assets under management. Bain Capital’s funds include private equity, venture capital, public equity and leveraged debt assets.

1985 Bain was incorporated in 1985 and over the course of two years the Employee Stock Ownership Plan was established.

2000 Bain founded a non-profit group called The Bridgespan Group, which offers fresh management strategy approaches for clients in the non-profit world, such as the Bill & Melinda Gates Foundation. Bain’s consultants rotate into Bridgespan from the parent consultancy for six-month rotations.

2006 Bain is a late comer to India, in 2006 it opened a full-fledged office in New Delhi

Nota bene

2008 Ranked 3rd most prestigious consulting firm by the Vault Guide.

2007 Ranked as the best firm to work for every year for the last five years by Consulting Magazine.

2007 Ranked as the best workplace in France by the Great Place to Work Institute

2007 Ranked as the best place to work in Europe and the UK by the Financial Times

Careers information

In a Financial Times interview, Bain partner Bill Neuenfeldt identifies the desired qualities in potential hires as “intelligence, integrity, passion and the ambition to make a difference”. Bain also looks for candidates with an enthusiasm for problem-solving and an analytical skill-set.

Bain has a tradition of pro bono work and aims to make a significant investment on important social issues.

Bain is purported to be just as selective as McKinsey and more selective than consultancies like Booz Allen, Monitor and A.T. Kearney.

Intelligence is important, but demonstrating energy and professionalism is also very important.

One consultant interviewed in the Vault Guide indicated that it is important to “make sure you have a compelling and customized story about why you want to be a consultant at Bain.”

Website

www.bain.com

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#4 Booz Allen Hamilton – an overview of the top four consulting firms 2008

 

  1. McKinsey & Company
  2. Boston Consulting Group
  3. Bain & Company
  4. Booz Allen Hamilton

NOTE: In July 2008, Booz Allen Hamilton separated its two core businesses into two companies. Booz Allen Hamilton now provides U.S. government consulting, and Booz & Company provides commercial management consulting.

4. Booz Allen Hamilton

Organisation type

Private company

Headquarters

McLean, Virginia, USA

Key people

Dr. Ralph Shrader, Chairman and CEO

Other key people

Size

19,000 employees in 115 offices across six continents

Revenue

$4 billion (2006)

Expertise

Main expertise is strategy and technology consulting, in commercial and government sectors.

Mission

To deliver results that endure.

Operational structure

Firm’s services are broken into strategy and leadership, organization and change management, operations, innovation, sales and marketing, and information technology.

Clients

After WWI, Edwin Booz increasingly used his ties to Washington and the public sector, establishing a tradition of government service that continues at Booz Allen to the present.

Booz clients also include the world’s largest corporations and emerging growth companies from every industry sector and every country.

Culture

Client confidentiality is important at Booz Allen and the firm doesn’t typically publicise the names of clients.

The firm is said to have a very non-hierarchical open structure which fosters a culture of team work and cooperation.

Booz Allen consultants typically get heavy workloads and travel is a fairly regular thing. Consultants at Booz Allen would generally be out-of-town four days at a stretch, with Fridays back at the home office.

Promotions are up-or-out, you get promoted upwards or asked to leave.

Publications

Since 1995, the firm has published strategy+business, a magazine for business executives.

Brief history

1914 Founded in Chicago by Edwin G. Booz. Booz believed that companies would be more successful if they could call on someone outside their own organizations for expert advice. He is credited with being the founder of the management consulting profession.

1940 The firm was hired to help the US Secretary of the Navy with WWII preparations, marking the beginning of a longstanding relationship with the US Federal Government.

1950s The firm went global in the 1950s, with a contract in the Philippines and its first international office in Zurich.

1962 Firm changes its structure from a partnership to a privately held corporation.

1970 Booz Allen goes public with an initial offering of 500,000 shares at $24 per share.

1976 The partners took the firm private again through one of the first management buyouts to allow the firm to consider long-range investments that companies beholden to shareholders might not be able to make.

1982 Booz Allen Vice President Keith Oliver develops the concept for supply chain management working with the Dutch electronics giant Phillips.

2003 Booz Allen develops the Org DNA online self-assessment tool, enabling company leaders to better understand how the inherent traits of their organisations influence employee behaviour and affect company performance.

Nota bene

Notable intellectual contributions include the OrgDNA framework, the PERT management technique, and the product lifecycle theory.

2008 Ranked 4th most prestigious consulting firm in the world by the Vault Guide.

2007. The firm has been recognized one of the 100 Best Companies for Working Mothers by Working Mother magazine for seven straight years to 2007

2007. The firm has been recognised as one of Fortune magazine’s 100 Best Companies to Work for two years running in 2007

Careers information

There is a strong emphasis on case interviews.

Website

www.boozallen.com

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Warren Buffett on long term value investing

BACK IN 1998, Warren Buffett gave an inspirational talk to a group of MBA students at the University of Florida, College of Business. In the speech, Buffett gives his perspective on investing, in which he outlines the need to understand the underlying economics of the businesses that you invest in, and the need to stick to disciplined principles of business evaluation without being swayed by passing investment fads.

Here are 15 of the most interesting and insightful points made by Buffett in his speech about successful long term investing, as follows:

1. Return on equity is key

Return on equity is fundamental. In general, there is no point to investing, just because of the availability of cheap financing, if a business has a low return on equity. It’s hard to earn much as an investor when the business you’re in doesn’t earn very much money. Buffett elaborates that when he started out as an investor he would sometimes purchase very ordinary stocks at prices way below the value of working capital. This is what Buffett calls the ‘Cigar Butt’ approach to investing. You look around for a cigar butt (i.e. really cheap company), you find one that is old and soggy. You get one free puff out of it, and then you throw it away and try to find another one. If you’re looking for a free puff then this approach to investing works, but these are very low return businesses. By investing in a wonderful business with a high return on equity then, even if you initially pay a little too much, you’ll do well if you stay in for a long time.

2. Ownership of a stock is partownership of a business

Ownership of a stock is part ownership of a business.  With that in mind, the investors should not pay attention to the day to day stock fluctuations.

3. Invest in businesses that you understand

As Buffer jokes, this significantly narrows down the number of companies that he has to look at. You need to look for a simple business which is easy to understand, and which has honest and able management. Buffett says that this lets him understand where a company is going to be in ten years time. If he can’t see where the company will be in ten years, he won’t buy it. Buffett says that “investing is putting out money now, to be sure of getting more money back later at an appropriate rate. To do that you need to understand the business.” Buffett says that he wouldn’t invest money in a new internet business because he doesn’t understand that business and couldn’t say where it would be in ten years time. In his early years he would conduct extensive industry research. For example, by asking every CEO in an industry “if you could buy the stock of one other company in the industry, which one would it be and why?”

4. Invest within your circle of competence

The nice thing about investing is you don’t need to learn anything very new. Buffett says that he learnt about Wrigley’s chewing gum 40 years ago, and still understands that industry today. As a result, you will develop a pool of knowledge about different industries that builds up over time. Interestingly, Buffett says that most of his deals get completed in a matter of hours. If you don’t know enough about a business instantly, you won’t know enough in a month or two.

5. Invest based on solid reasoning

If someone told you about a company at a cocktail party or the charts look good, that’s not good enough. Paying a little too much for a wonderful business, you’ll do well if you stay in for a long time. You buy a lousy business for a good price; you stay in for a long time you’ll get a lousy result. If you’re right about the business, you’ll make a lot of money.

6. Invest for the long term

Buffett recommends buying businesses that you would be happy to own forever. It may happen that you have to sell for one reason or another, but you should, at the time you buy, want to be buying a company that you’ll own forever.

7. Strong businesses need a durable competitive advantage

A strong business needs a durable competitive advantage. Buffett says that although he wants to understand the businesses he goes into, he doesn’t want a business that is easy. You want a business with a moat around it with a duke defending the castle. That moat might be low cost operations, quality of products, service, patents, real estate location, or share of mind (Buffett explains that thirty years ago, Kodak’s moat was as wide as Coke’s moat. Kodak had share of mind, forget about share of market. They had something in everybody’s mind that said, “Kodak is the best”).

8. Feel strongly about the products

You want a business that has products that are not price dependant. Disney and Coca-Cola have developed a favourable impression in the mind of consumers that allows these companies to charge more for their products and sell more of them than other companies in the same industry.

9. Don’t borrow money that you don’t need

Buffett says that he never borrows money. He loves his job and was doing the same thing when he had $10,000 and when making $1,000 was a big deal. He recommends taking a job that if you were independently wealthy you would take. “If you think you’re going to be a lot happier if you have 2X instead of X, then you’re probably making a mistake.”

10. You only have to get rich once

Risking what you have and need to get what you don’t have and don’t need is foolish. Buffett gives the example of Long Term Capital Management. This hedge fund was run by smart people, with extensive experience and with their own money invested. To make money they didn’t have and didn’t need, they risked money they did have and did need. Buffett says, “if you risk something that is important to you for something that is unimportant to you, that decision just doesn’t make sense.”

11. Be patient, think carefully and avoid over stimulation

Buffett says that, in his opinion, the best way to think about investments is to sit in a room and just think. The problem with being in a market environment is that you get the feeling that you have to do something everyday, you get over stimulated. You want to be away from any environment that stimulates activity. Get one good idea a year, and ride it to its full potential.

12. Professional investors should not diversify

Buffett believes that if you are not a professional investor, which is ninety nine percent of people, then you should extensively diversify your investments and not trade. However, once you decide that you are going to bring an intensity to the game and start evaluating businesses and bring the effort, intensity and time involved to get that job done, then Buffett believes that diversification is a terrible mistake. In his opinion, if you really know businesses then you shouldn’t own more than 6 of them. “Very few people have got rich on their seventh best idea.”

13. Business size is not the important consideration

When investing, business size is not the important consideration. Small, medium and large cap stocks can all represent good investment opportunities. It doesn’t matter about the size of the business; it’s the certainty of the returns that counts. The relevant questions are:

  1. Can we understand the business?
  2. Do we like the people running it?
  3. Does it sell for a price that is attractive?

14. Only worry about what is important and knowable

Anything that is unimportant or unknowable, you should forget about it. Buffett outlines that market predictions do not affect his investment decisions. “I have no idea where the market is going to go.”

15. Make investment mistakes

Buffett says that the mistakes that he has actively made have been far less costly than his mistakes of omission. He reflected that the times where he understood a business, saw an opportunity and sat on his hands and did nothing have cost him tens of billions of dollars.

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What is management consulting?

A LOT of people have trouble describing what a consultant does, because ‘consulting’ is such broad term. The Australian Concise Oxford Dictionary defines a consultant to be a person who provides information or advice. Since consultants are typically employed to analyse the problems and challenges faced by management and to develop plans for improvement, they are called ‘management consultants’. In October 2003, the Institute of Management Consultants defined management consultants as “objective professionals who provide advice and assistance in the process of management across national boundaries.” Traditionally, consultants were employed to help management in the private sector but are now also used by government and non-governmental organisations.

Consultants are able to assist management by:

  1. providing expert knowledge;
  2. facilitating the investigation of business problems;
  3. implementing solutions; and
  4. supporting organisational change.

1. Providing expert knowledge

Consultants can provide management with the expertise needed to address specific business problems. For example, a company that needs to update its computer systems might seek advice from IT consultants. The benefit of bringing in specialist consultants is that they are likely to have experience solving similar problems and to have an understanding of industry best practice.  Large consulting firms are able provide clients with a broad range of expertise to address a variety of business problems because they can draw on a breadth of experience.

Areas of expertise that consultants can bring to clients include:

  • Industry specific knowledge
  • Business strategy, which includes looking at
    • assessing and responding to industry trends,
    • defining strategic priorities,
    • restructuring a company’s organisation,
    • developing a strong brand image,
    • increasing profitability (cutting costs and boosting revenues),
    • creating growth (developing new products, expanding into new markets, acquiring assets and companies),
    • improving marketing and distribution of products, and
    • deciding whether and how to outsource activities.
  • Information technology
  • Tax
  • Risk management
  • Human resources

2. Facilitating the investigation of business problems

Consultants can assist management by facilitating the examination of business problems. There are three reasons why consultants are well placed to do this:

  1. Performance incentives: Consultants have an incentive to be organised and to work quickly because they are typically engaged on short term contracts and paid high fees in order to provide a recommendation.
  2. Open communication: Consultants may be able to facilitate open communication within a company and to allow good ideas that already exist within a company to reach management.  As consultants are not full time employees they are able to talk openly with employees at all levels within the company. This allows consultants to collect good ideas from different levels within an organisation, structure those ideas within a strategic framework, and to present those ideas to management.
  3. Objective recommendations: Consultants are able to provide more independent and objective recommendations.  For example, consultants are able to provide disinterested advice about cost saving measures. Introducing more efficient work practices might save a company millions of dollars, but might also lead to redundancies. Existing employees may be aware that more efficient work practices exist but are unlikely to suggest changes that may lead to job loses.

3. Implementing Solutions

Consultants can assist management by implementing any business solutions that may be required to help management achieve its objectives or to tackle specific business problems.

4. Supporting organisational change

Consultants can assist management by supporting organisational change.  There are two reasons why consultants are well placed to support organisational change:

  1. Impetus for action: Consultants are able to provide independent research-based support for a particular plan of action.  This kind of external support can legitimise management’s plan, and provide an impetus for action by clearly explaining the reasons why the proposed plan of action should be undertaken.
  2. Employee engagement: In the process of collecting information, consultants should be able to engage with staff at all levels within an organisation. If employees within the organisation feel a sense ownership in the change process then they are less likely to resist any changes that are made, and the proposed plan of action is more likely to succeed.

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