Chapter 2 The Danish Management Consulting Industry

Department of Marketing and Management, University of Southern Denmark, Odense 2008
Management Management Consulting Consulting Firms
Firms
- Finding the Right ight Growth rowth Strategy trategy
A Comparative omparative Case Case Study Study of of Growth Growth and and Strategy Strategy
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Within ithin the the Danish Danish Danish Management Management Management Consulting Consulting Industr Industry Industr
Master Thesis: Cand. Merc. International Management
Supervisor: Professor Marcus Becker Autor: Jesper Kirkegaard Kristensen

Acknowledgements
First, I would like to thank Danish Management Association (DMR) for motivating and
inspiring this master thesis towards a direction, which corresponds to my own personal and
professional interests, namely strategy and consulting. Especially Tom Vile Jensen, special
consultant at DMR, deserves great thanks for his contribution and help, both economic and
information wise. This has been an enormous support throughout the whole process, and I
sincerely hope that this master thesis will contribute to the important work that takes place at
DMR. Furthermore, great appreciation goes to all the consulting firm managers who have
taken time out of their busy schedule to participate in this project. I know it has been difficult
to find the time, but I was always met with great hospitality and sincere interest. Without their
openness and helpful attitude towards my interview questions, I would not have been able to
conduct my research. Finally, I would like to dedicate thanks to Professor Marcus Becker,
University of Southern Denmark, for providing valuable feedback and guidance in my work.
Ultimately, I give great thanks to everyone who has contributed to my master
thesis, as well as provided me with support and assistance through out the process.
Jesper Kirkegaard Kristensen
Odense, 22/9 2008

Danish summary
Mange konsulentvirksomheder har kunnet leve fornuftigt de senere år på grund af den
generelle gode økonomiske udvikling, også selvom de ikke har haft en strategi og er gået
hovedkulds efter vækstmulighederne i markedet. Spørgsmålet er, hvor udbredt denne tendens
har været blandt virksomhederne, og dermed hvor svagt/stærkt konsulentvirksomhederne og
deres organisationer står rustet i de kommende år, hvor markedet ikke vokser så stærkt, og
hvor kundernes krav stiger markant. Dette speciale omhandler strategi og vækst i management
konsulentbranchen samt, hvorledes dette bedst kan håndteres i forhold til de vækstfaktorer og
-barrierer, som branchen på nuværende tidspunkt og i fremtiden står overfor. Den danske
management konsulentbranche er præget af enkelte store og hastigt voksende
konsulentvirksomheder og herudover en bred vifte af mindre foretagender. Generelt set er det
de største virksomheder, som høster størstedelen af profitten, mens der blandt de mindre
virksomheder er en større kamp for overlevelse og vækst. Set i lyset af at branchen
sandsynligvis er på vej imod sværere tider, er det derfor relevant at se på, hvorledes
vækststrategi kan og bør håndteres.
Ledende personer i en række forskellige management konsulentvirksomheder er
blevet interviewet med henblik på at åbne op for en dybere forståelse af strategi og vækst i en
ellers meget broget og lukket branche. Konsulentvirksomhederne er blevet valgt således, at de
repræsenterer henholdsvis små, mellem og store konsulentvirksomheder samt ud fra, at de er
etableret omkring år 2000. Gennem en komparativ analyse af disse virksomheder har det
været muligt at identificere signifikante vækstprocesser og -barrierer på tværs af størrelse
samt kendetegn ved de konsulentvirksomheder, som håndterer vækst og strategi bedst.
Ydermere er analysen blevet styrket af en brancheanalyse, som har haft til formål at belyse de
udfordringer, som branchen står overfor.
På et brancheplan viser analysen, at der generelt er sket et skifte fra et sælgers
marked til et købers marked. Kunder fravælger one-stop-shopping, er mindre loyale og
presser priserne. Overordnet set er kundernes forhandlingskraft steget, hvilket udfordrer
konsulentvirksomhedernes strategi og stiller højere krav til professional virksomhedsdrift. På
et virksomhedsplan viser analysen, at vækst er nødvendig for konsulentvirksomheder som en
forudsætning for internt at kunne udvikle sig kompetencemæssigt. En konsulentvirksomhed,
som fravælger vækst eller ikke er i stand til at vækste, kan ikke udvikle sine kompetencer og
risikerer dermed at miste sine konkurrencemæssige fordele. Ydermere vil analysen vise, at
danske konsulentvirksomheder vokser gennem tre signifikante stadier, der hver især er

kendetegnet ved en vækstkrise. For små konsulentvirksomheder ligger den primære
vækstbarriere hermed i, at stifteren er både ejer og leder. Dette skaber interessekonflikter og
hæmmer fremtidig vækst. For konsulentvirksomheder af mellemstørrelse består den primære
vækstbarriere i evnen til at identificere muligheder for komplementær diversifikation;
herunder de ansattes egenskaber til at støtte disse vækstmuligheder. Store
konsulentvirksomheders vækstbarrierer skal findes i deres evne til at samle et fragmenteret
firma med mange forskellige specialer i en samlet organisation og udvikle mellemledere, som
tænker i samme retning som organisationen. Afslutningsvis er de vækstprocesser, som er
karakteristisk for de mere succesfulde konsulentvirksomheder, blevet identificeret med
henblik på at kunne nærme sig en anvendelig vækststrategi.
Hovedkonklusionen er, at de konsulentvirksomheder som har oplevet stærk
vækst, er dem, som har formået at adskille ledelse og ejerskab. Ved at adskille ledelse og
ejerskab kan konsulentvirksomheder skabe grundlaget for strategisk og fokuseret vækst.
Herigennem åbnes op for et fokus på udviklingen af medarbejdernes kompetencer inden for
ledelse og forretningsudvikling samt, at virksomheden udvikler sine kompetencer
komplementært. Således vil fremtidig vækst bygge på udviklingen af mellemledere, ydelser
og produkter fra en allerede eksisterende kompetenceplatform. Konsulentvirksomheder kan
altså ikke alene være sikker på at skabe vækst gennem et højt fagligt niveau og ved at tilføje
flere partnere med et højt fagligt fundament i virksomheden. I stedet skal der skabes en langt
større grad af tilpasning mellem konsulentvirksomhedens mål og strategi, dens ressourcer og
kompetencer, samt ledelse og medarbejdere gennem designet af organisationen.
På baggrund disse resultater foreslås en tilgang til vækststrategi i
konsulentbranchen ud fra tre trin. Konsulentvirksomhederne må indledningsvis identificere de
primære vækstmuligheder og vækstbarrierer, som de står overfor. Herigennem skal fokus
rettes mod fem kerneområder, der danner grundlaget for en vækststrategi. Disse er:
Ledelsestilpasning, strategisk udvikling, tilpasning af organisationen, HRM samt innovations-
og vidensudvikling. Sidst skal konsulentvirksomheden identificere de branche- og
virksomhedsspecifikke organisationelle virkemidler, hvormed den kan opnå tilpasning blandt
de fem kerneområder. Gennem denne strategiske agenda kan konsulentvirksomheden skabe
en unik position med en klar konkurrencemæssig fordel og dermed danne det fremtidige
grundlag for vækst.

CHAPTER 1
Table of contents
INTRODUCTION ................................................................................................................................................. 1
1.1 MOTIVATION ................................................................................................................................................. 1
1.2 CHALLENGES IN PRACTICE ............................................................................................................................ 2
1.3 PROBLEM STATEMENT ................................................................................................................................... 3
1.4 FOCUS AND STRUCTURE ................................................................................................................................. 4
CHAPTER 2
THE DANISH MANAGEMENT CONSULTING INDUSTRY ........................................................................ 6
2.1 STRUCTURE ................................................................................................................................................... 6
2.2 GROWTH IN THE INDUSTRY .......................................................................................................................... 11
2.3 CHALLENGES FOR THE INDUSTRY ................................................................................................................ 14
2.4 THE FUTURE ................................................................................................................................................ 17
2.5 SUMMARY OF INDUSTRY ANALYSIS ............................................................................................................. 17
CHAPTER 3
THEORIES OF FIRM GROWTH .................................................................................................................... 19
3.1 THE CONCEPT OF GROWTH ........................................................................................................................... 19
3.1.1 The tension between growth and size ........................................................................................................... 20
3.1.2 The dynamics of growth ................................................................................................................................ 21
3.1.3 The sustainability of growth ......................................................................................................................... 22
3.2 THEORETICAL CONTRIBUTIONS.................................................................................................................... 23
3.2.1 Inside-out perspective ................................................................................................................................... 24
3.2.2 Outside-in perspective .................................................................................................................................. 30
3.2.3 Tying the ends in the organization design .................................................................................................... 33
3.2.4 Summary of theoretical contributions .......................................................................................................... 34
3.3 SME THEORY .............................................................................................................................................. 34
3.3.1 SME growth .................................................................................................................................................. 34
3.3.2 The entrepreneur .......................................................................................................................................... 35
3.3.3 Strategy and culture in SMEs ....................................................................................................................... 36
3.4 CREATING AN INTEGRATED APPROACH ........................................................................................................ 37
3.5 SUMMARY OF THEORY ................................................................................................................................. 39
CHAPTER 4
DESIGN AND IMPLEMENTATION ............................................................................................................... 41
4.1 METHODOLOGY AND SETTINGS ................................................................................................................... 42
4.2 OPERATIONALIZATION ................................................................................................................................. 44
4.3 DATA ANALYSIS .......................................................................................................................................... 44
CHAPTER 5
EMPIRICAL FINDINGS ................................................................................................................................... 46
5.1 THE PURPOSE OF GROWTH ........................................................................................................................... 46
5.2 DEVELOPMENT THROUGH GROWTH ............................................................................................................. 48
5.2.1 Stage one consulting firms ............................................................................................................................ 48
5.2.2 Stage two consulting firms ............................................................................................................................ 54
5.2.3 Stage three consulting firms ......................................................................................................................... 59
5.2.4 Concluding remarks on growth development ............................................................................................... 64
5.3 GROWTH PROCESSES ................................................................................................................................... 65
5.3.1 Culture .......................................................................................................................................................... 65

5.3.2 Entrepreneurship .......................................................................................................................................... 66
5.3.3 Strategy ......................................................................................................................................................... 67
5.3.4 Resources and competences ......................................................................................................................... 68
5.3.5 The factor market ......................................................................................................................................... 70
5.3.6 The product market....................................................................................................................................... 70
5.3.7 Organization design ..................................................................................................................................... 72
5.4 SUMMARY OF ANALYSIS .............................................................................................................................. 74
CHAPTER 6
DISCUSSION....................................................................................................................................................... 75
6.1 CHANGE IN THE SIZE AND DIVISION OF VALUE ............................................................................................. 75
6.2 DEVELOPMENTAL LEADERSHIP .................................................................................................................... 77
6.2.1 Developmental perspective in consulting firms ............................................................................................ 77
6.3 GROWTH STRATEGIES .................................................................................................................................. 78
6.3.1 Strategic growth vs. opportunity driven growth ........................................................................................... 80
6.3.2 Organic growth vs. inorganic growth .......................................................................................................... 81
6.4 BEST PRACTICE OR NEXT PRACTICE ............................................................................................................. 82
6.5 THE TENSION BETWEEN GROWTH AND SIZE ................................................................................................. 84
6.5.1 Advantages of growth ................................................................................................................................... 85
6.5.2 Disadvantages of growth .............................................................................................................................. 86
6.5.3 An optimal size ............................................................................................................................................. 87
6.6 FITTING THE ORGANIZATION DESIGN TO GROWTH ....................................................................................... 88
6.6.1 Governance and ownership .......................................................................................................................... 88
6.6.2 Organizational levers ................................................................................................................................... 90
6.7 SUMMARY OF DISCUSSION ........................................................................................................................... 91
CHAPTER 7
TOWARDS AN APPROPRIATE GROWTH STRATEGY ........................................................................... 92
7.1 WHAT IS AN APPROPRIATE GROWTH STRATEGY? ......................................................................................... 92
7.2 CORE ISSUES ................................................................................................................................................ 93
7.3 CREATING FIT .............................................................................................................................................. 96
7.3.1 The importance of organizational levers ...................................................................................................... 97
7.4 CONCLUSION ............................................................................................................................................... 97
CHAPTER 8
LIMITATIONS AND SCOPE ............................................................................................................................ 98
8.1 THEORETICAL LIMITATIONS ......................................................................................................................... 98
8.2 PRACTICAL LIMITATIONS ............................................................................................................................. 99
8.3 SCOPE ........................................................................................................................................................ 100
CHAPTER 9
CONCLUSION .................................................................................................................................................. 102
REFERENCES .................................................................................................................................................. 104
APPENDIX ........................................................................................................................................................ 115

“It is a little like the tailor’s son who wears dirty
clothes. We have not been good at developing our
own internal managers like we do at our
customers… We run change courses for other firms,
but that medicine we have not taken ourselves”.
Manager in a large management consulting firm

Chapter 1
Introduction
This master thesis seeks to investigate how Danish management consulting firms currently
build and sustain competitive advantage, and how this can be translated into growth,
development, and strategy for the individual firm. The hope is that the findings of this master
thesis will contribute to the understanding of the different growth factors and barriers that are
at play in the Danish management consulting industry, and that it can benefit managers of
consulting firms in a practicable manner.
1.1 Motivation
The state of the Danish management consultant industry is good. Firms experience very
strong growth, which even exceeds the growth of some technological sectors (Danish
Statistics). However, there is a less positive side to this as well. The biggest consulting firms
make the majority of the profit in the industry. In general, many small management consulting
firms have a difficult time overcoming growth barriers, and research show that 90 percent of
all consulting firms fail in their first 5 years (Hasek, 1997). Based on conversations with the
Danish Management Association (DMR) it quickly becomes evident that there is a tension
between small and large consulting firms.
“Profit end revenue is consolidated around a few large consulting firms. 80 % of the revenue
goes to 20 % of the firms so it is to a large degree the major players who bear the brunt and
reap the benefits”.
Tom Vile Jensen, special consultant in DMR
Most small management consulting firms stay small their entire life or evidently
perish. This raises the question about whether there exists a “best practice” in the management
consulting industry, and whether the large management consulting firms seem to stimulate a
“best practice” for growth and success. Moreover, this is especially relevant now where the
Danish economy shows signs of a recession following a period since 2004 where the Danish
consulting industry experienced increasing growth. Economic growth creates work for
consulting firms and has made it possible for many new consulting firms to start up with the
prospect of making a profit. However, experience shows that when times get tough it is often
consulting services that are among the first to be cut away by clients. The management
consulting industry faces a period where clients will be more reluctant and critical in their use
1

of consultants and competition will be intensified. This creates new challenges for the Danish
consulting industry.
This master thesis is initiated in cooperation with the Danish Management
Association (Dansk Management Råd) 1 which is a branch association for Danish management
consulting firms and represents more than 175 consulting firms. DMR’s mission is to;
develop and maintain professionalism and ethics within the Danish consulting industry,
develop and improve conditions for consulting firms in Denmark, and develop Denmark as a
knowledge-based society. Through several pleasant discussions with DMR director Susanne
Andersen 2 the topic of the master thesis was determined. The cooperation with DMR is of
great significance as DMR offers expert information on the Danish management consulting
industry on a continuing and systemized basis. Where this master thesis differentiates itself
from information already present in DMR is that it offers a bottom-up approach. Hereby, is
meant that as where DMR offers knowledge from an industry perspective, this master thesis
draws its conclusions from a firm perspective where growth, strategy and development are
investigated in a number of Danish management consulting firms.
1.2 Challenges in Practice
Initially, it is crucial to identify growth factors and barriers on an industry level. That is, the
external environment which consulting firms face must be assessed via an industry analysis in
order to identify current and future challenges that are relevant in the context of this master
thesis.
There is an immediate need to dig deeper into the tension that exists between
growth, size and success in the industry. As already mentioned, only a very small number of
management consulting firms manage to grow beyond a size of five to ten employees. To get
a thorough understanding of this creates a two-fold challenge. On the one side, it is important
to understand how management consulting firms grow. That is, to identify measures, which
the individual consulting firms, takes in order to grow, but also to understand the external
factors that have had an impact on their growth. Equally important, is to understand why only
a few firms experience a distinct growth while many fail on this path.
It is not clear what stimulates growth in the industry, and where potential
answers must be found. Therefore, an integrated approach and a theory base, which forms the
point of departure for examining and systemizing the factors of industrial, resource, and
relational character that enables and inhibits growth, must be developed. Since there is general
1 For further information about DMR consult the organization’s webpage at www.DMR.nu.
2 In may 2008 Bjarne Lundager Jensen, has been appointed director of DMR.
2

lack of existing frameworks and knowledge regarding a “best practice” in the industry, this
creates an empirical and explorative challenge. Based on theory the challenge is to create a
model that can be used on a general firm level, but also allows for insight on the individual
firm level. Furthermore, as I have chosen to approach the problem via an entire industry with
an expected internal heterogeneity there is a challenge in balancing generalization and detail.
Finally, a challenge lies in opening up the black box of strategy in consulting
firms. It is an industry where the players do not like to share too much about their strategy and
competitive advantages, and where most industry information and knowledge is collected
from a top-down perspective. Thus, a challenge lies in achieving an inside perspective from
the management consultants themselves and their take on how to devise and execute strategy.
1.3 Problem Statement
The management consulting industry has experienced a significant change over the last
decade. Where consultants earlier made their living providing general services such as market
analyses of remote countries, strategies for going global, fusions and so on, today customers
demand much more specific services. There seems to be a rising degree of professionalism
among customers of consultant services, and they demand cutting-edge competences and
quick and swift problem solving. In addition, the competition on the Danish consulting
market has increased significantly. International consulting houses, as well as a long tail of
micro consulting firms provide their services (Børsen, 2005). However, there is still a need
and demand for consultant services. What have changed, as the global market have become
more complex and competitive, is that customers who demand consulting services have much
higher standards - hot air and buzzwords do not cut it anymore.
Therefore, owing to the above described development and challenges in the
Danish consulting industry, it evidently appears that consulting firms, in general, must seek
proactive measures in every aspect of their organization in order to be able to survive and
compete in the future. However, good advice stops here as there does not seem too be much
guidance for consulting firms on how to overcome growth barriers. This consequently leads to
the following problem statement for this master thesis:
What is an appropriate growth strategy for Danish management
consulting firms relative to their current size and situation in the market?
In order to arrive at a full understanding of the problem statement it is necessary
to break it down into subcategories. First, a category of descriptive research questions is
supposed to create the basis for understanding the complex and broad management consulting
3

industry. Second, a category of research questions will focus on firm growth, and how this is
related to size and other firm factors. Finally, a category of research questions will explore
how empirical findings can be tied together to formulate a growth strategy, as well as a
general understanding of how the industry can enable growth and overcome growth barriers.
These research questions will not be explicitly answered, but serve as a guideline throughout
the research.
Research questions concerning the industry:
1) What characterizes the Danish management consulting industry?
2) Are there major significant differences between Danish management consulting firms with regard to
size?
3) How do the findings of research question 1-2 affect growth at the level of the individual management
consulting firm?
Research questions concerning firm growth:
4) What is the motivation to grow?
5) How do management consulting firms differentiate across size, and do this allow them to be categorized
into significant life cycle stages?
6) How does growth enablers and barriers relate to factors such as:
a. Firm culture?
b. Entrepreneurship?
c. Strategy?
d. Resources and competences?
e. Factor and product market influences?
f. Organization design?
Research questions concerning growth strategy:
7) How can the findings of research questions 1-6 be translated into growth strategy that accounts for the
specific size and situation of the individual consulting firm?
1.4 Focus and structure
The focus of this master thesis is on Danish stand-alone management consulting firms. The
industry definition of a management consulting firm is (Danish Statistics):
The management consulting industry is a designation for the type of firms that:
1) Deliver knowledge and advising about management and business development to decision makers and
managers in private firms, organizations, and public institutions and/or
2) Work with educating and developing management in private firms, organizations, and public
institutions with the purpose of developing organizations, business systems and people.
4

The term Danish stand-alone narrows the focus down to those firms, which
have been founded in Denmark and operate as pure management consulting firms. This focus
leaves out large international firms such as Mckinsey & Company and The Boston Consulting
Group, and consulting firms where consulting is a secondary service tied up to a primary
function such as Rambøl Management or Deloitte. The argument for this is that the mentioned
types of consulting firms have a completely different economic and organizational structure
or stem from primarily an American market, which offers very different conditions than the
Danish market.
The structure of this master is very much shaped by the adoption of a holistic
approach, which means that the entire management consulting industry is considered. Neither
a purely theoretical approach nor an analysis of a single consulting firm will provide the level
of general answers needed. Therefore, this master thesis concerns the Danish management
consultant industry as a whole. The level of analysis will be both on firm level as well as on
industry level. That is, I consider the topic from a top-down perspective (the industry analysis)
and a bottom-up perspective (the empirical part of this master thesis) through three steps.
First, I adopt an exploratory research approach in order to clarify the problem.
This is done through an industry analysis that rests on secondary data and an exploratory
expert interview. The purpose is also to explore new dimensions of the topic. Second, in order
to come to a full understanding of the complex notion of growth, and how this is related to the
Danish management consulting industry, I find that it is important not to lock in, a priori, on a
specific theoretical framework. This runs the risk of omitting important elements because of
the use of a specific paradigm. Instead, I choose to open up this complex problem by
accepting that there is no single “right” answer, and that investigating the problem cannot be
done by simply pulling together available evidence. I hope, by going from the known to the
unknown, to be able to add something new to the field by adopting inductive reasoning,
which is essentially a method of discovery. This is done through the development of an
integrated approach to the theory of firm growth. Third, comparative research is conducted in
a number of Danish management consulting firm that each display different levels of growth,
size and success. Through this assessment of growth factors and barriers, I hope to be able to
identify significant factors, which enable or inhibit growth and relate these findings to the
stages of development of consulting firms. Finally, all three elements is gathered and
discussed in order to end up with a number of practicable implications. For the sake of
simplicity, the overall structure of this master thesis is illustrated in appendix A.
5

Chapter 2
The Danish Management Consulting Industry
The point of departure of this master thesis is a description of the structure of the industry,
growth, challenges, and future perspectives. The purpose is to create a foundation for
understanding the industry from a top down perspective in the context of this master thesis.
As already mentioned, the management consulting industry is a diverse industry
with many different players. Thus, measures such as industry size, turnover, and demand are
always estimates. The results presented in this chapter rests upon three sources; an industry
analysis 3 and a tendency analysis 4 conducted by DMR and supported by the most recent
numbers, and an expert interview with Tom Vile Jensen, special consultant in DMR (see
appendix P). The two surveys are conducted on a yearly basis and builds on qualitative
questions among DMR members. Thereby, they represent the newest source of information.
In my search for information of the management industry, other surveys and articles have
popped up, but they have the disadvantage that they do not rest on the newest information. As
the industry is developing fast, it is important that conclusions be made from recent
information. However, where results from other surveys have been interesting these issues
have been discussed in the expert interview, in order to either confirm or disconfirm their
robustness and relevance.
2.1 Structure
The strong growth that has taken place in the consulting industry has attracted management
consultants with very different backgrounds. In addition, the consultant industry, as a whole,
is a relatively young and diverse industry. Many different types of consultant services take
place every day and range from coaching and teambuilding to more integrated and big
projects that help firms with strategy, organization, operations, etc. Firms range from one-
person spare-time firms over highly professional firms who employ several consultants to
global firms who have more than 20.000 employees on their pay check. At a first glance, the
industry appears very diverse and broad, but a little investigation can shred a little light upon
the industry.
3 “Branche analyse 2006/7”. http://www.dmr.nu/log/dmr403/library/BRANCHEANALYSE%202006_2007.pdf
4 “Tendensundersøgelse 2007”. http://dmr.nu/log/dmr403/library/Tendensundersøgelse2007.pdf
6

History The Danish management consulting industry had its beginning in the 60s and 70s,
but was more seriously founded in the late 80s where some of the first real consulting firms
were created. Traditionally, the role of the consultant was based on technology and rationality,
but to a higher degree, the role developed into what it is to day where the focus is on
evolution and revolution in the way an assignment is considered (Poulfelt, 1998). Where the
focus originally was on the professional content, this changed into a focus on the relationship
between the consulting firm, the organization and the concrete assignment. A more process
oriented and organic consultant role was developed where the task of the consultant was to
help line management to define and understand the problem at hand. Thereby, consulting
changed into management consulting and today management consulting services cover many
areas. Obviously, an industry so diverse will attract many different players.
Players The amount of active management consulting firms in the industry is steadily rising.
It is estimated that there is an increase of about 10 % firms every year. In 2006, it was
established that the amount of active firms was 7.550, see appendix B. This indicates an
industry where players enter the market and still expect profit to be made. At this point in
time, the market does not seem to be saturated. It is possible to classify the Danish
management consulting industry into five strategic groups. These are:
• Big international consulting companies: This group represents firms such as Mckinsey &
Company, The Boston Consulting Group, IBM Business Consulting, and Accenture
among others. Typically, these firms employ around 100 to 300 consultants in their
regional office. Strategically they are run from US offices and are supported by
international organizations with several thousands employees. To a large degree, they
provide standardized solutions based on tools and frameworks, as well as they have very
well defined career paths for their consultants.
• Large concerns with build in consulting departments: This group of consulting firms is
either departments or subsidiary companies of large international concerns. Consulting
services are tied in with another primary function such as accounting, engineering, or
architecture. Examples are; Deloitte, Rambøl Management, Cowi, and
PricewaterhouseCoopers where consulting services are build into a large business that
allows them to draw on synergies internally in the concern.
• Stand-alone Danish management consulting firms: This group represents the largest
number of consulting firms and is to be understood as firms, which has consulting as their
only business. Furthermore, they have been founded in Denmark and have achieved their
growth on the Danish market. This group can be further divided into small (1-15
7

employees), medium (16-50 employees), and large (51-200+ employees) management
consulting firms.
• Micro firms and sole practitioners: Here we find the array of micro firms that provide
some kind of consulting service either on a full time basis or as a side occupation to their
regular job. Often, the consulting services they provide have a character of being either
social events or teambuilding without a larger degree of theory, knowledge, or tools
behind. The kinds of services and the regularity with which they are provided does not
allow these firms to be characterized as true management consulting firms. Contrary, this
group also represents sole practitioners. This is typically the “consulting professor” or the
“consulting guru” who has been in the game for many years and posses a huge amount of
theoretical knowledge, which he provides/sells to senior management of large
corporations. No doubt useful, but they do not constitute the essence of a firm.
• Non-commercial consulting firms: These government-owned or -sponsored organisations
play an important role through their specialization on for example small and medium
enterprises or certain industry sectors. DMR is an example. They are, however, run in a
non-commercial fashion and growth is most likely not a core issue for them.
On the demand side, the largest customer group is made up of the manufacturing industry and
the public sector, which combined make up for little more than 50 % of industry revenue. The
second largest group is the financial sector, which constitutes almost 10 % of the sector.
Finally, there are many different customer segments which make up for 40 % of industry
revenue, with revenue shares of 1 – 5 %, see appendix C.
Types of services: It is possible to divide consulting services into different areas such as
strategic consulting, HR consulting, change management, project management, operations
management, IT consulting and outsourcing, etc. However, this does not provide much
information for several reasons. First, some consulting firms provide advice that does not
easily fall into one of these areas, for example consulting activities that are of a much more
general character. Second, even for the more traditional service providers, it is difficult to
pinpoint an assignment as pure “IT consulting” because, due to a process orientation, it often
entails more. Third, a lot of consulting work is often, in its essence, only outsourcing. That is,
firms hire in bodywork for certain projects which they do not have the capacity to lift
themselves. Finally, services change all the time and new consulting areas arrive in the
industry such as LEAN or coaching.
Instead, what is interesting is to consider the parameters with which consulting
firms can differentiate their services. The three most significant parameters are; mass, high-
8

end/low-end and specialization/full-service. First, mass indicates how many consultants a
consulting firm has at its disposal. This is critical in some customer segments, as large
companies will demand a large workforce over a long duration of time. Only the largest
consulting firms can provide this. Second, high-end/low-end refers to the type of people a
consulting firm employs and their level of education. Are they masters, PhDs, MBAs,
certified consultants, etc. or do they have hands-on approach? Some customers demand the
best because then they cannot be held responsible for a project gone wrong, but this solution
is obviously very expensive. Third, specialization/full-service refers to the amount of service
areas in which a consulting firm claims to have capabilities. A broad range of services can
allow a consulting firm to cross-sell services, and thereby, become the sole provider and
trusted consultant of a customer. As indicated, the range of services provided spans a broad
spectrum. It is suitable to deepen the knowledge of these on the individual firm level as it
indicates different strategic choices.
Size distribution The consulting industry is relatively young and therefore not fully
consolidated. Small players can enter the market in the form of one- or two-person firms and
still expect profit to be made. On the other hand, it is relative easy to leave the market again or
limit the level of activities and services provided to almost none. To be able to understand the
whole story of the structure of the industry it is very important to take into consideration the
size distribution that is at play. Appendix D shows the percentile number of consulting firms
distributed among firm size. Almost two thirds of the industry is made up of small consulting
firms with revenue of zero - 10 million Danish kr. About one fifth of the industry consists of
firms with revenue of 11 – 20 million Danish kr. while approximately the last fifth of the
industry has revenue, which exceeds 50 million Danish kr. These numbers provides a picture
of an industry characterized by a large amount of small players and only a few big. It is worth
noticing the difference in the above size distribution concerning the changes that have taken
place compared with 2005 (numbers in parenthesis). The group of the smallest firms has
increased from 65 % to 66 % while the second smallest group has decreased from 18 % to
12 % of the entire industry. This indicates that some small firms manage to grow but also that
several leave that market again or perish. It is very difficult to say anything about an average
size of consulting firms in Denmark, but based on numbers provided by special consultant
Tom Vile Jensen, an estimated average size in terms of employees is eight. This is well
below the size of the large consulting firms who employ somewhere between 50 and 200
consultants. The size of management consulting firms allows them to be characterized as
small and medium enterprises (SMEs).
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Revenue distribution The inequality in the industry becomes clear when considering how
revenue is distributed among firm size. As appendix E shows, firms with revenue of 51+
million Danish kr. made 76 % of the total revenue made in the industry in 2006. This means
that despite the fact that the industry is characterized by a large amount of small players and
only a few big, revenue is concentrated among the big players. 12 % of the industry’s players
make up for 76 % percent of the total industry revenue while 66 % of the players make up
only 6 %.
Degree of competition and concentration The industry has a concentration ratio of
approximately 880 HHI 5 points (DMR industry analysis 2006/7, p. 18). This supports what
was earlier stated about the industry. It is characterized by a large amount of firms on the one
hand and a large amount of customers on the other hand. Competition is based on providing
the best service, quality, and results to customers.
The consulting industry is a relatively knowledge and workforce intensive
industry. It is characterized by a very low need to make investments, and thereby there are
very low entry and exit barriers. So fare, there exist a number of different consulting and
project management certificates but these are only used and accepted by consultants and
customers to a very low degree. In general, the industry is not driven by authorizations,
specific educations, or certificates.
This has a significant impact on the way that the individual consulting firm
seeks to do business and define its strategy. That is, most consulting firms pursue a
diversification strategy in order to clarify the difference between them and other firms. In
addition, competition is to a great degree determined through the customer network that the
individual consulting firm operates within. The name of the firm, its references, and the
reputation of the individual consultant employed are important elements in the creation of a
large and wide clientele. Once this is established the firm has a strong competitive position
compared with other firms who do not have the same amount of clients. Thereby, experience,
5 HHI is the Herfindahl-Hirschman index, a commonly accepted measure of market concentration. It is
calculated by squaring the market share of each firm competing in the market and then summing the resulting
numbers. The HHI takes into account the relative size and distribution of the firms in a market and approaches
zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the
number of firms in the market decreases and as the disparity in size between those firms increases (Rickard,
2006). An industry where the HHI is between 1000 and 1800 are considered a moderately concentrated industry.
An industry of 1000 points or less means that many small firms with a well-functioning competition characterize
the industry.
10

knowledge, and competence of the individual consultant become important parameters of
competition.
The industry is clearly clustered around two areas in Denmark; Copenhagen and
Århus. However, this does not seem to be a problem when addressing the question about
customers’ choice of consultants. There is no connection between the geographic placement
of consulting firms and their customers. Often, consulting firms serve customers on a
countrywide basis and are not limited to doing business in their geographic region. However,
clusters can have another significant impact on the industry. Namely, that of the creation of
competence clusters.
Competition does not happen on a general industry level across strategic groups,
but instead among those consulting firms who provide the same range of services. Therefore,
even though competition is characterized as being very hard, it is normally only a few firms
who do actually end up competing about a concrete project. This further emphasizes the
arguments that competition in the industry is very much network and customer based. Most
often, the large consulting firms service large firms and the other way around. Finally, the fact
that the industry earns its living from knowledge and the people it is embedded within, as well
as the fact that there is to some extent a high degree of competition clearly affects relations
and cooperation across consulting firms. This practically does not take place.
2.2 Growth in the industry
The Danish consulting industry has since 2004 experienced a significant growth progress. For
many consulting firms a growth rate higher than 20 % has been quite usual. In 2006 the
average growth was 22,5 % and in 2007 the industry expected a growth rate of 22,9 % (DMR
industry analysis, p. 6). In 2006, the industry had revenue of 14.408 billion kr., which means
that it equalled that of the Danish audit industry, and almost doubled that of the Danish law
sector (Danish Statistics). Appendix F shows the development of the industry’s revenue.
The same figure also shows an industry that is relative sensitive to fluctuation in
the state of the market. That is, the activity will more or less follow that of the general
economy. When firms experience hard times, services provided by management consultants
are usually among the first to be cut away. The management consulting industry is central in
the change and development of private firms, as well as public institutions and organizations.
The effect of a global market booming has been felt in all areas in consulting services, be it
strategy and organization, management development, IT, HR or operations to name a few.
A growth rate as high as the one experienced now has increased the industry’s
significance within the Danish economy. Appendix G shows the industry’s share of the
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Danish GNP. If the expected growth in 2008 is achieved it will mean that the industry’s
exceeds 1 % of GNP.
Because of the strong growth since 2004, consulting firms have experienced
almost no problems with finding customers and billing hours. Actually, they have been so
busy that other problems have occurred. Finding new and qualified consultants, thinking
ahead and making sure that internal competences are developed, are some of the issues that
might be at stake. However, the central question for management consulting firms is whether
the future will bring global growth or the turbulence, which marks the financial markets, will
continue. The American market is still experiencing a crisis and there is a chance that the
Asian tiger economy will lose some of its pace, but these questions are difficult to answer
even for the economic wise men. Therefore, the assumption in this context is that there will be
some level of slowing down in the state of the market, and this will affect the Danish
management consulting industry in some way.
Based on an indication of a general market slow down it is possible to suggest
different scenarios on how this will influence the management consulting industry in the
future (Poulfelt, 2006). One scenario suggests that consulting firms will experience the same
level of workload as up until now. A decline in the economy will mean that organizations are
forced to become more efficient and effective in order to stay competitive. Some employees
will have to be laid off and there will be a need to conduct organizational reorganizations. As
change agent, consulting firms have largely become a steady partner in both private and
public markets and therefore an economic decline will not mean less work for consulting
firms but instead work where the focus is more on organizational efficiency and global
competitiveness. For example, IT and operations will still play a significant role in connection
with this. Another scenario is that there is less growth compared with current growth levels.
The reason for this is, as earlier suggested, that consulting services are the first place where
firms chose to save money. However, the general perception is that the consulting industry
will not experience as tough times as in the period 2000 to 2004 when it was in a practical
free fall. Based on this discussion it is possible to identify future growth factors and barriers.
Growth factors:
• Reformations in the public sector: The restructuring of the public sector are expected to provide the
consulting industry with a lot of work the next couple of years. Many firms specialize in this area and
some even build their entire consulting business around the public segment. In general, there seems to
be a greater accepts for public administrations to set aside money for consulting services.
• Raised quality demands in the public and private sector: The public sector is under a still increasing
pressure to administrate the money of taxpayers in the best possible way. Therefore, many of those
12

consulting services that were initially developed to the private sector have found its way into the public
sector. For example, an award for best consulting service was awarded to Valcon for implementing lean
principles in the administration of Copenhagen municipality. Private organizations also need to be
better functioning today in relation to offering a good, effective, and carrier advancing work place.
Managing human resources will continue to be in focus, and the mean is better-managed and well-run
organizations. Consulting firms can play an important role in stimulating management and
organizational development.
• Capacity problems in private companies: The general lack of labour in many private companies means
that there is a greater need to coordinate and optimize production and business practices. This raises the
demand for consulting services in areas such as operations and IT. Often firms also accept that their
employees are tied up with work, and therefore hire consultants to be in charge of temporary projects.
• Strong international competition: Currently, with the high degree of global competition, Danish firms
need to be as effective and efficient as possible concerning product development, new market
penetrations, and internal business procedures in order to stay competitive.
• The fast development of the information technology area: The fast developing IT support services that
take place in many business areas demand that firms stay up to date in this area and never relax.
Therefore, the demand for IT systems such as ERP and CRM systems will still be high, especially the
implementation of these.
Growth barriers:
• A general economic cool down: The ministry of finance expects growth in GNP to drop from 2,2 % in
2007 to 1,6 in 2008 (DMR industry analysis, p. 19).
• Significant decline in investments in the private sector: In 2006 the growth of investments was at a
staggering 15 %, but it is expected that there will be a significant decline in investments to a level of
around 2 % in 2008 (DMR industry analysis, p. 19).
• Lack of a qualified and educated work force: The consulting industry is experiencing a very difficult
time find enough qualified employees to keep up the current expansion and have to turn down orders
and thereby money. The lack of qualified work is also seen in a demand of higher wages among
consultants and an increased use of headhunting.
• Higher degree of competences in firms: Many private firms have during the period of high growth hired
academics who traditionally would not be employed in that sector. A good example is the engagement
of a communication or HR employee which can take away some of the need of consulting services
because the competences are already within the company. In general, this development means that
many firms have in them the sufficient competences to do large analytic tasks, and the demand for
consultants will move more in the direction of facilitating and implementation. In some service areas,
for example strategy, this can lead to a smaller demand or change in the service profile.
If you compare the Danish management consulting industry with its European
counterparts, it is among the leading. With the second highest growth rate, only topped by
Great Britain, and a GNP share that are higher than any European country it is safe to say that
13

Denmark, also on an international level, is among the more well functioning industries in the
European management consulting industry (DMR industry analysis, p. 21).
2.3 Challenges for the industry
Based on the discussion about the structure of the industry and the growth factors and barriers
that are present, it is possible to identify a number of challenges, which confronts the
management consulting industry.
Supply side/Firm driven One major challenge, which almost all consulting firms seem to
agree with, is the scarcity of qualified labour. Among DMR members, 37 % have experienced
to turn down a project or job and thereby revenue due to lack of labour (DMR tendency
analysis, p. 5). Consulting firms find that customers on the Danish market do not demand new
graduates or junior consultants. Instead, the demand is on senior consultants, people with a
broad experience but also detailed knowledge and often with no less than 3-5 years of
experience as a consultant. These circumstances narrow down the recruitment basis on a
market where the lack of labour is already high. In practice, this means that consulting firms
experience a claim of higher wages and benefits among employees, less qualified applicants, a
bigger flow of employees, and an increased use of headhunting. It is most likely that this lack
of labour will hamper growth to such an extent that it is not possible to maintain current
growth rates.
The high degree of busyness in the industry has of course played a significant
role in making the industry as large and important as it currently is. However, this might have
some future caveats. First, the strong demand for consulting services could mean a risk that
new consulting firms with out the necessary professional skills and foundation for doing
consulting work have been founded. The industry might have attracted an array of less
qualified consulting firms and even some without any raison d’être at all because of the low
degree of entry barriers. Combined with the fact that the industry is only controlled to a very
small extent, this means that customers who do not have any great experience in buying and
using consulting services might end up buying and implementing poor advice. Furthermore,
already established consulting firms might be temped to hire employees who are not fully
qualified which again affects the result. The individual well-qualified and skilled consulting
firm must therefore continue to make visible its quality and professionalism either through
certificates and/or branding.
In addition, there is also a risk that the busyness can have a downside effect on
the already well established and recognized consulting firms, namely, the possibility that
14

some firms prioritize capacity and quantity in their projects more than quality. It is very
important that consulting firms follow their projects all the way through, and not just deliver
some report on the desk of the management at the firm they advise. Likewise, internal
competence development and strategic planning run the risk of not getting enough attention as
daily operation and customer projects are prioritized on a here-and-now basis.
In general, the above-discussed busyness and its effects might mean that several
firms are in need of a bit of strategic soul-searching, and here a slow down in the growth
might actually be an advantage. Those consulting firms who survive and prosper in the next
couple of years will be those who have not fallen through when it comes to securing future
ethics, quality, and professionalism. For an industry where ethics, quality, and
professionalism is decisive in order to maintain customer respects and thereby to obtain
growth this is a very significant challenge.
Demand side/Customer driven The industry is to a large extent buyer driven, and its
direction is shaped of what customers demand. Often, diversification happens because a
customer demands additional services outside the scope of the consulting firm. To maintain
the customer relation, the consulting firm contracts external experts who have the specific
knowledge to do the job and eventually hire them into the firm.
In the Danish management consulting industry the main part of services is in the
area advising/consultancy. It constitutes 63 % of all consulting services. Outsourcing and
development/implementing are only respectively 2 % and 6 %. Finally, other services such as
recruitment, markets analysis and education make up 29 %. Appendix H shows the
distribution of services. A further insight shows an interesting development of the services in
the category advising/consulting. Appendix H also shows that the area organization and
operations management has increased in revenue while strategy consulting has gone down
almost 3 %. In general, this development indicates a movement from services of a more
analytic character to services where implementation is also a part of the task, which customers
demand. Consulting firms can therefore no longer rely on general consultant services and
standardized products. Instead, customers demand specific competences and results that can
be seen on the bottom line. That is, projects and assignments are to a considerable degree
characterized by process orientation as opposed task orientation. This means that consultants
must act in completely different terms, which broaden the demand of skills present in the
consulting firm. To much higher degree empathy, understanding of the customer’s situation
and follow-up services are important elements of the competitiveness of consulting firms.
Furthermore, customers have become very experienced in buying and using consultants.
15

Management consultant services are generally considered expensive among customers.
However, price is not decisive for how customers choose their consultants. Indeed, as
appendix I shows price is only ranked on a 10 th place over how customers prioritize when
they choose a consultant. This indicates that firms believe that price and the increase in
performance that a consultant will provide is in good accordance. This fits well with the fact
that delivery of concrete value to the firm is ranked as the highest priority. For the consultant
firm this means that customers demand high, visible, and sustainable results when it comes to
delivering value to the customer. Ranked as the second most important factor, is existing
relations with the customer. This backs up what was earlier stated about customer networks
and competitiveness. Often consultants engage in a direct and intimate relationship with their
consultants, and this demands a high degree of respect and trust from both sides. This means
that there is a high degree of second time buying in the industry. Once a close and tight
customer network has been created, it can become a stabile factor of future business and
growth.
There is a tendency in the industry towards an imbalance between the size of the
customer and the size of the consulting firm. Most often, large companies demand that the
consulting firm can provide regarding resources, competences, and work force. Often small
and medium consulting firms do not have the capacity to serve these large companies in
addition to their regular clients. There seems to be consistency in that large companies hire
large consulting firms.
This can have a less positive outcome in two ways. First, it means that small and
medium consulting firms only to a certain extent get the experience and competences
necessary from working with large clients. In line with the increased professionalism, this can
mean that small and medium firms risk appearing less professional and suitable for serving
large clients simply because they do not have the experience and know how. In the end, this
might further consolidate the industry and sharpen the bias between small and large
consulting firms. Second, if the argument is taken to its extreme, it means that the industry is
split up into an A-team and a B-team. One the one side, the industry consists of consulting
firms of an appropriate size who have the required skills, resources, competences and
experience to provide valuable consulting services to the market, whereas, one the other side,
there is also a large portion of small consulting firms who are in need of a quality and
competence boost.
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2.4 The future
Despite signs of an economic cool down most consulting firms, expect an increase in future
demand. It continues to be the private sector, with manufacturing companies as the most
dominating purchasers, who drives demand but the public sector is still important. Together
these two groups account for over a fourth of the turnover in the industry (DMR tendency
analysis, p. 2).
However, it will become difficult to maintain the current growth rates because
of two main reasons. First, because the Danish market to some extent has become saturated.
The relationship between supplier and buyer seems to be at an appropriate level. The Danish
market is relatively limited in size. That is, there is a limit to the size of firms operating in
Denmark, both international and domestic. The fact, that the Danish market is relatively small
compared for example to the American market, indicates that the size we see of the large
consulting firms of around 250-300 employees is a maximum size, at least within the phase
they are now. Currently it is difficult to obtain the volume and strength necessary to grow
beyond that size. Therefore, the next big issue will be to figure out how Danish management
consulting firm’s best can leverage their competences internationally. Second, because of the
growth inhibiting factors discussed above, with the high lack of labour as the primary reason,
growth will necessarily drop. The industry is relatively labour heavy and growth rates of 20 %
will roughly mean that an intake of 20 % on the employee side is needed.
The above discussion indicates that a consolidation process will take place in the
Danish management consulting industry in the nearest future. It will be in part driven by a
competence shortage caused by the lack of labour, and in part by that fact that firms seem to
demand a deeper aspect of services from one consulting firm. Practices such as no cure - no
pay and free pre-analyses that have not previously been utilized, might become parameters for
competition in the future. Furthermore it means that those small and medium consulting firms
who have only barely managed to survive the last couple of years will experience hard times
because of a lower activity level, and it will not be as attractive as it have been to establish a
new management consulting enterprise.
2.5 Summary of industry analysis
The tension between size and success in the industry shows an industry where only a few
firms manage to grow extremely fast, while the majority of firms seem to struggle in their
pursuit of growth. Successful consulting firms are to a much greater degree able to leverage
existing resources and capabilities towards customer contact and retention, internal
development, and recruitment. All these elements play an important role in the growth of the
17

firm as the development of the consulting firm very much happens trough learning-by-doing.
This raises an important question for the remainder of this master thesis. What constitutes the
primary growth factors and barriers across firm size? Thereby, the industry analysis indicates
that there is some significant differences across size but does not allow for a deeper insight.
If existing consulting firms want to stay competitive and sustain their growth
rates, satisfy customers and dodge a possible recession there are some areas, which demand
attention on the individual firm level. There is a need to consider the strategic management of
consulting firms in a new perspective. Focus on consulting capabilities alone must not put in
the shade professional management and business. Innovation must be incorporated in a
systematic manner in the firm in order to maintain competitiveness. Human resources should
be considered as a core issue, concerning both recruitment and retention to secure that the best
possible resources enter and stay in the firm. Finally, for the largest consulting firms, as the
home market is consolidating there is a need for, and future growth possibilities in,
establishing a global presence either through internationalization or alliances.
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Chapter 3
Theories of firm growth
The literature offers several different theories for systemizing the analysis of firm growth.
Looked upon in isolation these theories each uncover interesting ideas and phenomena, but in
the end, findings are of a partial character. This is a logical consequence because of the choice
of theoretical perspectives and the use of specific theoretical and explanatory models.
However, this leaves a need for a more holistic understanding of the characteristics of high
growth firms, as well as growth barriers in low growth firms. Therefore, there is a need to
integrate theoretical perspectives in order to understand the full story of the theory of the
growth of the firm. The purpose of this chapter is to review the growth literature with a focus
on the sources of growth and the limitations to growth. Hence, the first step is to investigate
the concept of growth and the effects of growth in a dynamic perspective. Second, theoretical
contributions to growth theory are assessed with regard to their explanatory value when
considering external and internal growth factors and barriers. Third, SME theory is considered
in an attempt to define growth even closer, as Danish management consulting firms belong to
this segment. Finally, an integrated approach on how to evaluate growth factors and barriers
and consequently, growth strategy, is developed which builds on the findings of the first three
steps. This integrated approach will in turn shape the way in which the empirical work is done.
3.1 The concept of growth
The point of departure of this theoretical framework is briefly to touch upon what growth is.
Growth can be manifested in many different ways; selling more, hiring more people,
expanding, broadening geographic scope, generating bigger profits, or increasing stock prices.
No general guidelines or definitions seem to exist for high growth firms, and some researchers
have even denied that it is possible to generalize about what growth is (Penrose, 1959).
Growth may result in both quantitative results and qualitative results. Measurements such as;
size, assets, net capital, revenue, or number of employees are strictly of a quantitative
character, but may not capture all of the things there are at play in small firms. Qualitative
measures such as value added, a sense of belonging, motivation, and attractiveness should not
be left out. Owing to this, growth, in this master thesis, is considered in terms of a range of
indicators and draws on contributions from several different theoretical fields. However, one
condition that must hold is the fact that in order for a firm to experience growth it must have
an advantage over its competitors. A competitive advantage leads to profits and the possibility
19

of growth. Hereby, a certain degree of selection in the industry is assumed. Hence, it is not
possible for a firm to grow if it does not excel in some areas of its business.
3.1.1 The tension between growth and size
The law of proportionate growth (Gibrat, 1931) explains the skewed growth distribution that
will take place over a period of years, and implies that some firms will grow faster than others
will. More formalized, Gibrat hypothesized that over a given time period the percentage
change in the size of an individual firm in an industry is independent of the firm’s initial size.
There are several explanations to why there are such large variations in the growth rate of
individual firms within the same industry or strategic group. Evidence show that the most
elementary fact about firm growth is that firms follows a random growth path (Geroski, 2000).
Often, it is more or less isolated events or shocks, which mark the path to success, such as a
unique innovation, and these, have a permanent effect on the size of the firm. Consequently,
growth cannot be considered a process, which follows a predetermined law or trend. However,
to consider growth as a pure game of random events and luck does not leave much motivation
or influence for managers.
Traditional growth strategies involve economies of scale and scope and mergers
and acquisitions. These strategies require a certain firm size in order to be effected, which, at
least in the starting years of a consulting firm, will not be relevant. Therefore, the focus of
firm growth is on the firm’s ability to develop the resources, which exist in the firm, and how
these resources can support the firm’s ability to innovate, diversify, and be flexible in order to
manage organizational change (Tecce et. Al. 1997). For small firms, this is in the hands of
management, which has to be capable of exploiting current routines and exploring new
opportunities as they occur. Adding this to the operational role that the manager of a small
firm has, size becomes a factor, which can limit growth, as management is simply
overburdened. If we develop the line of thought further to encompass the firm’s
organizational capability, which rests on firm specific culture and behaviour, the link between
management and its workforce becomes clear. It is necessary if a firm is to achieve growth to
constantly enable and motivate its employees in an optimal way. When the effort of both
management and employees are aligned, successful product innovation or process innovation
will provide learning and foundation for further development and innovation and
consequently growth. That is, success breeds success. On the other hand, for a small firm a
product or process innovation, which fails, is closely connected with reduced growth, profit
loss, and maybe even bankruptcy. Therefore, the uncertainty associated with starting a firm or
a diversified activity within an already existing firm is affected by the cost of capital. For
20

small firms, which are often person-owned or run as a partnership, there is a considerable
amount of risk to be aware of and in effect they will pay a risk premium, for example a higher
interest rate, in order of acquiring the necessary funds. Small firms will not have the sufficient
cash flow to engage in large investments, which again provide a barrier to growth. Instead,
they rely on opportunity driven growth and do many first-time projects, which they cannot
repeat and leverage successfully to the future projects. Furthermore, these first-time projects
strain the firm’s profitability and incur large costs as the firm is learning by doing. The
attractive force of opportunity driven growth is obvious, as it allows the firm make some
profit and engage in new businesses. The downside to this is that growth becomes random,
less profitable, and driven by occurring opportunities, rather than a careful market analysis
and a strategic response and positioning to those opportunities. The idea is that strategic
growth will allow a firm to focus its image and position it as an expert in well-defined areas.
Thereby, future business will be consistent with firm specific competences and resources and
build credibility and expertise in strategic areas. The goal is to repeat and improve past
successes and thereby increase efficiency and profit margins.
The above discussion give rise to the idea that there is some kind of “glass
ceiling” which small and medium firms have to burst through in order to achieve growth. This
breakthrough is where opportunity driven growth is changed into strategic growth, and this
raises the question of how firms achieve this, and especially, how small and medium sized
firms manage it. The next logical step is therefore to consider the dynamics of growth.
3.1.2 The dynamics of growth
Firms grow by passing through a discrete series of growth stages (Kazanjian, 1988). If the
firm does not solve strategic and structural problems connected with the transition from one
stage to the next, this will eventually prevent the firm from growing. Organizational growth
models have been developed by several authors, Greiner (1972), Kimberly and Miles (1980),
Churchill and Lewis (1983), Scoot and Bruce (1987) among others. In general, these models
are concentrated on the types of problems small and medium firms encounter. There is some
predictability in organizational development that allows it to be divided into different stages.
How many stages there are in a certain life cycle model stems from the type of research
carried out (Yusuf, 1997), but most often we see four or five stage models. The contribution
of these models is a framework for gaining insights into the options that firms face at a given
time. A life cycle model will contribute to this master thesis with an opportunity to
differentiate the growth factors and barriers that consulting firms experience across firm size
and development.
21

The choice of life cycle model falls on Greiners organizational life cycle (1972).
On first hand, this might seem as an odd choice as the originating research is more than thirty
years old and as it focuses on industrial firms. However, this framework has undergone a
development of its own, and has been adapted to professional service firms and their distinct
growth stages (Malernee and Greiner, 2005). The model is presented in appendix J. In this
model, firms pass through situations of evolution and revolution. Growth stages correspond to
a series of internal crises related to managerial and organizational issues of coordination and
control. In each stage of its life cycle, an organization is dominated by a specific focus,
exploring, focusing, diversifying and institutionalizing. Each stage is ended by a crisis that
threatens organizational survival, and brings about a revolutionary change through which the
firm passes to its next life cycle stage. In addition, each stage is dominated by a different
strategic approach to the market and a specific set of managerial practices. These allow the
firm to evolve through the stage, but this stage-specific strategy and practice are rendered
useless in the next stage. Between each stage is the crisis, which predicts a revolutionary and
necessary change for the firm in order to adapt to the market, future growth and survival. That
is, in the resolution of one crisis are the seeds for the next crisis.
An important thing to keep in mind is that the organizational life cycle model is
based on a study of American professional service firms. Hence, market conditions are very
different from the Danish market. Other general critical issues of life cycle models are; they
fail to capture the details, they assume continuity and they do not take into account external
factors (O’Gorman, 2001).
3.1.3 The sustainability of growth
Research has shown that industry factors may be less significant when explaining firm
profitability and growth (O’Gorman, 2001). The choice of a high growth market does not
condition growth for the individual firm, as the demand of a high growth industry creates
pressure on resource constrained firms. In the end, this may result in a lack of internal
development and organizational failure. Furthermore, when measuring the impact of industry
factors over time, the explanatory significance of these seem to reduce significantly (Rumelt,
1991). In essence, the choice that an entrepreneur faces is whether to enter an industry or not,
and not so much which industry to enter. Therefore, this choice is very much path dependent
of the founder(s) and his experience. This path dependency puts limits on future strategic
choices of the business and consequently its growth strategy. Superior competitive strategies
are decisive for achieving growth relative to competition and a foundation for sustained
growth. Five growth disciplines constitute the growth portfolios of companies that knew how
22

to maintain steady double-digit growth in difficult times. These are base retention, market
share gain, market positioning, related and unrelated diversification (Tracy, 2004). These
superior competitive strategies must create and develop resources and capabilities that can be
used to sustain the growth process within the firm. Because management hold different path
dependent assumptions of how to conduct strategy, and because of causal ambiguity within
the relationship between resources and success, some firms will continue to succeed while
others fail.
Usually growth is an unquestioned positive and has become synonymous with
bigness. Growth as an expansion or increase in magnitude is deeply entrenched in the way we
think. Even though, increases in size, profitability and scope are often connected with growth,
they are not what drive it. In the long run, expansion is not viable goal in itself. Because of
organizational inertia, both structural and cultural, failure happens when market conditions
shift. According to John Kay, a leading Oxford economist: “It is rare for the market power
and scale economies associated with market dominance not ultimately to fall victim to the
hubris, the insulation from the market, and the sheer bureaucratic inefficiency that goes with
such size”, (Bryan and Kay, 1999, p.106). In relation, firms often find it difficult to sustain
high and fast growth rates. Three important factors, which relate to issues already discussed in
this chapter, can be the end of sustained growth if not managed properly (Tomasko, 2005). A
fast growing firm, which expands in size, can create inhospitable surroundings. That is, a
growing firm will become the objective of more competition from other large firms and
customers might be reluctant to do business because of the sheer size. To sustain a high
growth demands that the resource intake is equally high. At some point, the supply side will
come under so much pressure that the only choice is to make do with low quality resources.
Hence, resource constraints are another factor to consider. Furthermore, when firms grow they
will experience organizational limits. Management, culture, and employees are lost in the
pursuit of efficiency as complexity and hierarchy increase. These factors are very much at
stake when one considers the Danish management consulting industry where large
international competitors are present, labour is scarce, and competition is based on internal
knowledge and customer relationships.
3.2 Theoretical contributions
If you consider the vast amount of different investigations and theories of firm growth, it is
possible to discover some main categories across economical and behavioural theories. Two
different theoretical schools of thought exist, which both consider competitive advantages but
vary when it comes to explaining how firms achieve growth and sustain it. They differ based
23

on the view they adopt, that is how for example the firm, its environment, and its markets
work. Roughly, it is possible to label them outside-in theories and inside-out theories
(Alexander, 1992).
Outside-in theories are concerned about firm growth as a consequence of
external circumstances, primarily assessed in a product market perspective. This category of
theories rests upon several main assumptions. First, the environment of the firm allows itself
to be easily and straightforwardly analyzed. Second, firms can easily adapt to its environment.
Third, theories are externally oriented and operate within a static universe. On the other hand,
inside-out theories see the firm’s environment as changeable and very difficult to analyze.
There is a great focus upon the problems, which occur in firms because of friction. That is,
firms are considered highly dependent of their firm history, resources, and existing routines.
Growth is considered a consequence of circumstances and settings in the internal situation of
the firm and factor markets. This group of theories is thereby internally oriented and contains
in it a focus on organizational development. In appendix K, the most significant differences
between the outside-in orientation and the inside-out orientation are outlined.
3.2.1 Inside-out perspective
The inside-out perspective focuses on the presence of specific competences inside the firm.
Firms are considered to be facing both implementation and friction problems and to be
dependent of specific historic and resource conditions. Penrose (1959) opened up the black
box of the firm’s internal processes and focused attention on the firm, not as a production
function, but as a flesh and blood organization characterized by firm specific resources. It is
based in developmental economic thought, and states that firm specific resources and
competences are crucial for development and growth. This section therefore deals with
theories, which explain the internal processes of the firm and how they relate to firm growth.
The theory of the growth of the firm Penrose’s (1959) idea of firm growth holds that it is
led by an internal momentum generated by learning-by-doing. As managers increase their
experience, administrative tasks require less attention and work, and they become routine.
This means that excess managerial talent can be released and focused on exploring value-
creating opportunities and training new managers. Thereby, a firm will grow in order to create
value from unused resources, which in turn will create new resources. This is what Penrose
calls “economies of growth”. This also means that growth in any period is limited by the
amount of managerial attention. Hence, “economies of growth” which are imbedded in the
growth process are the reason why firms grow. There are no advantage linked to size as such,
24

and firm size is considered a consequence of growth. This contradicts with the neoclassical
perspective, which is discussed later, because there is no optimal size. This is the main factor
to why Penrose’s theory has, to some degree, been marginalized in economic discourse
(Montgomery, 1994). For Danish consulting firms this dynamic perspective of firm growth
seems strong because it focuses on the role of firm’s internally generated resources, which in
the case of growth are much more elemental than economies of scale 6 .
However, her ideas of firms as idiosyncratic configurations of resources have
been very influential in the strategic management literature. This is another key concept in the
theory of the growth of the firm, and these resources act out a significant role in gaining a
sustained competitive advantage if they can be characterized as rare, valuable, inimitable and
non-substitutable (Dierickx and Cool, 1998).
Evolutionary approach The evolutionary approach sees the firm as a processor of
knowledge resources that provide the firm with the flexibility and speed necessary to respond
successfully to changes in the external environment (Nelson and Winter, 1982). Routines and
learning are central to the process of gaining new knowledge, and these capabilities must be
coordinated and developed within the firm. This implies that firms are likely to grow
idiosyncratically as they use and evolve their knowledge base. That is, capabilities are
constantly being modified over time, which in turn means that each firm’s growth is likely to
be path dependent. Hence, previous experience and the repertoire of routines constrain future
direction, and opportunities for diversified growth must be complimentary to current activities
in order to maintain complementarities and coherence.
Furthermore, the central premise of the evolutionary approach (Nelson and
Winter, 1982) states that competition shapes both market and organizational structures, and
thereby forces those firms out whose organizational form does not create flexible capabilities
to match the changing environment. In the consulting industry, we see many firms entering
and leaving all the time, which might indicate that these firms do not manage to adapt their
organization to the shifts that takes place in the industry. This creates an idea of the principle
of “growth of the fitter” but empirical results do not provide much evidence. Instead, it is
suggested that selection works only by elimination of the weaker, where growth is not related
to viability but instead to the discretion of managers (Coad, 2006).
6 In general, the inside-out perspective has come to be the most dominating and cited perspective in recent
strategy and management theory. Also authors such as Porter moves towards this perspective (Porter, 1991;
DeMan, 1994)
25

The resource based view (RBV) RBV argues that firms with superior systems and structures
are profitable because they have lower costs or offer a higher quality or product performance.
The focus of this approach is directed at the rents accruing to scarce firm specific resources
instead of the economic profits from market positioning and entry deterring strategic
investments. Resources can be defined as assets, capabilities, organizational processes,
information, knowledge etc. that are controlled by the firm (Barney, 1991). They are
characterized as either tangible or intangible assets, for example; technology, access to raw
materials, production equipment, location, or human resources, accumulated knowledge,
experience, and relations which are tied semi-permanently to the firm (Wernerfelt, 1984).
The main point of importance is that resources are heterogeneous and not
homogeneous. Heterogeneity among firms allows some of them to hold a competitive
advantage. The firm is considered a unique bundle of idiosyncratic resources and capabilities
where the task of the manager is to optimize the deployment of these and develop a resource
base for the future (Grant, 1996). As well as the RBV argues that resources can give way for a
competitive advantage it also argues how it can be sustained via some kind of protective and
isolating mechanism which prevails the diffusion of the resources into the rest of the industry
(Peteraf, 1993; Foss and Knudsen 2003). Various researchers have defined the characteristics
of resources that can lead to a sustained competitive advantage (Barney, 1991; Peteraf, 1993;
Dierickx and Cool, 1989). These characteristics are heterogeneity, imperfect mobility,
valuable, rareness, imperfect imitable, ex ante and ex post limits to competition, and non-
substitutable.
According to the RBV, the firm can only handle external factors based on an
internal exploration competence. The external environment of the firm is not considered as an
objective and easily measurable factor. Instead, resources have to be organized so they enable
the firm to identify and understand the opportunities that arise from it. Firms thereby follow
different growth opportunities according to their specific resource and competence
endowments, and how these fit their history, traditions, and goals (Hougaard and Duus, 1996).
Hereby, we also recognize the limitations of the RBV. First, when competitive
advantages or growth factors are rooted in situation specific resources and capabilities.
Therefore, the analysis of growth risks becoming very situation specific as well. It will
become difficult to create as set of specific recommendations, which goes beyond general
recommendations that a firm must develop competences, and capabilities that are difficult to
copy (Tecce, Pisano and Shuen, 1990). Second, because the perspective considers the external
environment as very volatile and something that you cannot predict, there is a risk of
overlooking the role of the external environment. Firm strengths and weaknesses become the
26

only focus point and threats and opportunities in the external environment are not considered
in enough extent.
The Competence approach This approach sees the firm as an organization for facilitating
learning. That is, the approach analyzes what a firm does well and sees the firm as an
organization capable of generating a knowledge stock, which can capture value. Sources of
competitive advantage, and thereby economic rents are derived from firm specific
competences sometimes rooted in physical assets but most often in the large number of
different activities performed by the firm. Therefore, this approach views the firm as a locus
of creation (Winter, 1982), creation not only as the physical process of transformation but also
much more intangible elements such as R&D, design, innovation, discovery of future
customer demands, etc. As in the RBV, competitive advantage lies upstream of product
markets and springs from resources that are idiosyncratic and hard to imitate. The crucial idea
is therefore that a firm must be able to allocate its resources so it can capture the opportunities
and value inherent in its competences.
Much focus of this approach has been on routines and processes as embodying
the skills of the firm (Nelson and Winter, 1982). The argument is that only within the firm,
can heterogeneous knowledge routines and processes be developed, coordinated, and
exploited, and therefore a firm can create more value than the market. The focus here is on the
heterogeneous knowledge resources that firms hold and how they use it. The process of
learning by doing means that the firm always adds to its stock of knowledge by a combination
of fixed routines and processes and by exploiting excess knowledge resources. This
relationship between knowledge resources, processes, and routines is subtle and it can be hard
to identify its causalities, even by the firm itself. Thereby competitive advantages rest on a
high degree of tacit knowledge, which is an immobile resource, and a strategic asset of the
firm. However, the process of learning and accumulating knowledge resources is very time-
consuming (Rickard, 2006). This implies a size limit on the firm as management resources
devoted to discovering value added activities are constrained. The notion of core competences
(Parhalad and Hamel, 1990) thereby becomes strategic building blocks for the firm, as
collective learning and resources should be allocated so they support these. A core
competence can be identified by asking three questions; does it provide access to a variety of
markets, does it improve customer benefit, and is it difficult to imitate? When a firm can
answer yes to these questions, it has a foundation for achieving a competitive advantage.
Where the recommendations of the core competence approach are highly
vulnerable is in a rapidly changing environment. If a firm chooses to build its strategy around
27

a few core competences, it can end up in big trouble if the demand for these disappears. So,
even though, the approach sees the firm as an organization that must continually develop its
resource base there is a need to add more a more dynamic perspective to this approach.
The dynamic capability approach The ability of management to rapidly and effectively
redeploy and coordinate existing core competences into new forms of competitive advantage
has been termed dynamic capabilities (Tecce, Pisano and Shuen, 1997). In general, the
approach refers to the firm’s capacity to renew and adapt competences to changes in the
external environment and considers the managerial ability to align organizational resources. It
focuses on the creation and capturing of value, but the underlying resources to do so are the
capabilities inherent in the firm. It is dynamic in the sense that a firm can build upon its
existing capabilities through innovation and then add new capabilities.
Furthermore, this theory takes on an evolutionary approach as discussed earlier
(Nelson and Winter, 1982). This approach implies that it is firm capabilities, which form the
strategic path. Thereby, there are three key factors to dynamic capabilities: Processes, position
and paths. Competitive advantage lies in the managerial and organizational processes
(routines, current practice, and learning), shaped by its asset position (the firm’s current
specific endowments of technology, intellectual property, complementary assets, customer
base, and external relations) and the paths available (the strategic alternatives available to the
firm and its path dependencies) (Tecce, Pisano and Shuen, 1997). Dynamic capabilities are
supported by routines inherent in the firm where capabilities can be seen as higher-level
routines that help implement and improve lower level routines. Routines can be defined as an
abstract way of doing things, seeing routines as a link to organisational memory based on past
learning. Thereby, the firm can avoid organizational inertia. Routines are building blocks of
capabilities and contributes dynamically by; variation (new combinations of routines may lead
to new capabilities), selection (different combinations of routines may foster new capabilities)
and adaptation (adaptations of new routines may function as a feedback loop according to
changes in the environment) (Nelson and Winter, 1982). Capabilities can be subject to
imitation which is replication performed by rivals, however, capabilities are idiosyncratic to
the firm and thus very difficult to imitate (like stated in the RBV, Dierickx and Cool, 1989).
They can also be subject to replication by the firm itself. Replication involves transferring or
redeploying competences from one concrete economic setting to another (Tecce, Pisano and
Shuen, 1997). By constantly being able to adapt to changes in the environment and by
exploiting its routines a firm can achieve sustained competitive advantages through its
capabilities.
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Hereby, three other important aspects are introduced: Organizational learning,
organizational adaptation and flexibility. Organizational learning is the process of identifying
an organizational context and successfully coping with it (Hedberg, 1981). Learning should
be viewed by the firm as an organizational process and not just an individual one. Therefore,
the firm needs to implement learning systems in order to capture the benefits of knowledge
accumulation and not just expect this to happen on its own (Shrivastava, 1983). Learning
systems should allow both first-order learning and second order learning to take place inside
the firm. For a firm to have an adaptive ability resources must therefore be deployed so
current routines are exploited to maintain stability and sustain existing rules. On the other
hand, resource deployment must also support the exploration of alternative routines, goals and
opportunities (Lant and Mezias, 1992). Organizational flexibility is thereby a combination of
a managerial task and an organizational task (Volberda, 1996). The managerial task is defined
as dynamic capabilities, and the organizational design task as the responsiveness of the
organization inherent in the relationship between exploration and exploitation. Finding the
right mix will allow the firm to adapt to the two fundamental types of change, momentum
(refinement and incremental adjustments) and revolution (gestalt shift) (Miller and Friesen,
1980).
The limitations of the competence and capability approaches are very similar to
those of the RBV but can be further elaborated. In general, there is a lack of clear definitions,
and scarce resources, core competences or capabilities are often defined ex post. Furthermore,
if you build your firm around a tight set of resources, competences, or capabilities it will
become difficult to respond to severe changes in the external environment. That is, the in-side
out perspective not only explains why firms are different but also offers an explanation to why
firms are frequently unresponsive to major shifts in their competitive environment. This
insight is crucial for the management consulting industry as it can explain why firms often
build their strategy tight around core competences and then find themselves in big trouble
when these competences are no longer in demand.
Managerial theory A “managerial theory” of firm growth holds that managers attach utility
to the size of their firms (Marris, 1964). Compensation, bonuses, prestige, power, etc. are
associated with size, and therefore firm size and firm growth are considered important factors
in the “managerial utility function”. In the case of management consulting firms, which are
often owner managed or run as a partnership this, has some implication. In the small
consulting firm, growth maximization concur with profit maximization, but if run as a
partnership, growth of certain business areas might conflict with the overall profit
29

maximization of the firm. That is, according to managerial theory, managers maximize
growth under the constraint of earning a satisfactory profit. The key take-away from this
theory is that managers sometimes act irrationally in relation to the overall benefit of the firm.
One basic prediction from this is that growth rates of manager-controlled firms
will be higher than those of owner-controlled firms. Furthermore, if SMEs are considered
some evidence show that management-controlled firms have stronger preferences for growth
than those firms, which are owner-controlled (Hay and Kamshad, 1994)
3.2.2 Outside-in perspective
Here the focus is on the analysis of the external factors of the firm. It general, the outside-in
perspective treats the external conditions as given, that is, they are analyzed and then the firm
acts accordingly. Adaptation of products and activities to these external factors are considered
to be done relatively unproblematic.
This perspective is rooted in the neoclassical foundations and the structure-
conduct-performance (SCP) postulate (Mason, 1938; Bain, 1959). The basic idea is that there
is a causal relationship between the structure of an industry, the conduct of the firms within
the industry, and the performance of these firms. That is, the number and size of firms in the
industry affect the behavioural rules followed by sellers and buyers, which again affect the
overall economic profitability of the firms within the industry. In an industry such as the
management consulting industry, where firms can easily enter and exit to obtain a part of the
profit, this perspective gives useful insights concerning the explaining of firm growth.
Neoclassical foundations The main prediction emerging from the neoclassical perspective is
that firms are attracted to some sort of optimal size (Rickard, 2006). This optimal size it the
profit-maximizing level of production and growth is only a means to achieving this size. Once
this is attained, firms are assumed to no longer grow and, consequently, this perspective
becomes very static. In continuation, transaction cost theory (Coarse, 1937; Williamson, 1981)
deals with the optimal boundaries of the firm through upstream or down stream integration.
This is determined by a trade-off between coordination via hierarchy and coordination
through the price mechanism. Factors that affect the level of integration are the frequency of
transactions, uncertainty, degree of asset specificity, and the possibility of opportunistic
behaviour. These factors are relevant in the context of management consulting firms but
predictions made by transaction cost literature most often concern vertical integration, that is,
growth by acquisition (Kay, 2000). Therefore, transaction cost theory only have a limited
scope for explaining growth as vertical integration is not the order of the day in the Danish
30

consulting industry. Furthermore, the concept of an optimal size lacks empirical support and
is suggested to have little use in the understanding of why firms grow (Coad, 2006).
Porter’s framework Competitive advantage and growth happen through already existing
entry and mobility barriers or through superior strategic choices, which increase these barriers.
To gain a thorough understanding of these forces, Porter’s framework, which is rooted in the
SCP postulate, supplies a tool for systemizing the analysis of the forces that influence
strategic behaviour and competitive advantage in the industry (Porter, 1980). The framework
views the essence of competitive strategy formulation as relating the firm to its business
environment. A Firm can achieve growth and competitive advantages by positioning itself
where it most optimally defends itself or take advantage of industry forces. These forces are
internal rivalry, bargaining power of customers, bargaining power of suppliers, threat of
substitutes, and entry- and mobility barriers. The framework deals with industry structure and
Porter’s five forces can thereby be used to identify growth barriers and opportunities primarily
on an industry level.
The degree of rivalry between incumbents can be investigated by competitor
identification. If there is a high degree of rivalry in the industry this will most likely mean that
competition is based on either price, quantity, or market share, which will affect the overall
profit, generated in the industry. The more rivalry and competition, the more likely it is that a
firm will not be able to earn profits above the industry average. Therefore, it is important to
identify the number of incumbents and the degree of market differentiation. The degree of
rivalry will also affect the cooperation that takes place in the industry. That is, the more fierce
competition, the more one will expect that firms will protect their resources and knowledge
instead of engaging in cooperation with the risk of opportunism.
Bargaining power of buyers describes the degree to which buyers can affect the
price that products in the industry are sold at. If the amount of buyers is small or they are
heavily concentrated, this can increase the power they hold to reduce the ability of the firms in
the industry to earn economic rents. If, on the other hand, demand is high and buyers are
many, this gives firms in the industry an advantage to affect the price of their products, and
thereby earn economic rents. Finally, information plays a significant role. The more buyers
are informed about production costs and competing products, the greater their ability to
reduce the rent-earning capacity of suppliers will be.
Bargaining power of suppliers follows the same story as the one above. If the
number of suppliers is large then firms in the industry can easily choose which one to use and
create competition between them, thereby earning economic rents. Contrary, if suppliers
31

provide niche goods or services then their prices are likely to be held above marginal costs,
which lower the overall value appropriation for firms in the industry. In addition, if firms in
the industry are perceived to be earning economic rents, then this might motivate suppliers to
engage in down stream integration and thereby cause increased competition.
An important influence on the demand for the products or services provided by
firms in the industry is substitute products. These products or services are substitutes in the
sense that they constitute a threat from other industries that are likely to undermine the
existing demand. Substitute products and services reduce the monopoly power of firms within
the industry.
Entry- and mobility barriers are defined as factors, which prevent either a
potential newcomer or an incumbent who wants to make a strategic group move in earning
economic rents post entry. Barriers may be structural, institutional, or strategic or a
combination of all three. Structural barriers exist when incumbent firms have a cost advantage.
Examples of structural barriers include economies of scale, sunk costs, patents, and
advertising. Institutional barriers exist when there are certain institutional factors that favour
some industries or firms compared with others. Finally, strategic barriers arise when
incumbent firms engage in entry-deterring strategies in order to keep potential new entrants
out.
However, there are some shortcomings of the Porter framework. When
considering the product life cycle hypothesis (Rickard, 2006) this becomes evident. Products
or services run through a number of stages; introduction, growth, maturity, and decline, which
will effect the conduct of incumbents directed towards entry barriers and production cost
reduction and ultimately the degree of rivalry in the industry. Porter’s framework does add
dynamics to the SCP postulate, but is not a complete explanation of the dynamic nature of
rivalry. Another shortcoming is the fact that is misses the contribution of the individual firm.
Analysis takes place on industry or product market level and does not explain individual firm
growth, but rather the development of the industry or market because of factors outside the
firm.
The strategic conflict approach gives a more comprehensive insight in the
dynamic nature of rivalry (Shapiro, 1989). The argument is that incumbent firms will soon
realize that they are mutually interdependent (Brickly et. al., 2001) and therefore play a more
interactive game. Strategic interactions with other firms, customers, and markets allow a firm
to capture any value created. Strategic behaviour that firms may engage in range from tacit
collusion to strategic manipulation of rivals’ information about market conditions. In the end,
game theory offers a more dynamic tool to analyze strategic moves over time compared with
32

porter’s framework. However, the focus of game theory is not firm growth but on how to
appropriate value. Therefore, this approach is best used as a supplement to others theories
when it comes to explaining firm growth. Furthermore, the approach stresses strategic
behaviours such as commitment and reputation, instead for example flexibility and innovation.
As already mentioned, theories from the outside in perspective do have some
shortcomings which allow them to only partially explain firm growth. The major reason for
this is that the perspective is rooted in neo-classical economic theory where the focus is on
static, homogeneous, and mobile resources, equilibrium, perfect information, and other more
or less unrealistic assumptions. Clearly, when one considers the management consulting
industry, it is obvious that these assumptions will not be maintained because of all the firm
specific competences and resources that are at play. Hereby, the above-mentioned theories
can only partly explain growth and the contribution from the inside out perspective becomes
highly important.
3.2.3 Tying the ends in the organization design
The right organization design will be a result of the chosen industry and position, internal
routines, resources, and relationships, past experience of senior management and the goals of
the firm. The central argument is that at the centre of growth strategy is the organization
design of the firm with all its limitations and opportunities. Tacit knowledge and the systems
that surround it are extremely difficult to duplicate, and thereby it becomes clear as to why
firms in the same industry show different levels of success and growth. The wrong
organization design will result in decisions, which are made based on inadequate information
and personnel, rather than organizational goals. No two organization designs will be the same
as it is determined in large measures by past experience and the actions and attitudes of senior
managers. Consequently, the organization design imparts heterogeneity on the firm. The
objective of the organization design is to carry out the variety of activities, which take place in
the firm in a manner that uses the appropriate amount of resources, the skills of the workforce,
and knowledge embedded in the firm and aligns these with the goals of the firm. These
coordinating activities, routines and relationships which are often characterized by causal
ambiguity, creates internally generated and intangible resources which have a crucial
influence on efficiency, strategic choices and competitive advantage. Furthermore, the right
organization design can bring to the firm the ability to change and adapt as the goals of the
firm vary with changes in the external environment. This is done by establishing routines and
systems that encourage learning, risk taking and flexibility.
33

3.2.4 Summary of theoretical contributions
Thereby, there exist two major discourses in the literature concerning firm growth. However,
as suggested, none of the discussed discourses provides us with a thorough understanding. In
their attempt to stay loyal to their orientation they evidently leave explanations out that are
rooted elsewhere. However, if you combine elements from both, I argue that we can reach a
more complete understanding of firm growth and in the end be better able to create a reliable
model for assessing firm growth.
3.3 SME theory
The management consulting industry consists primarily of small and medium firms, and
consequently an in-depth examination of the specific factors at play in this segment will
deepen the theoretical framework. Today, it is accepted that small firms are not just scaled
down versions of large corporations (Storey, 1994). On the contrary, it is acknowledged that
SMEs have certain particular characteristics and that these have large effects on how SMEs
operate and think. Factors that separate small firms from large corporations are among others:
The higher degree of uncertainty that small firms operate under (Storey, 1994), the big role in
innovation that SMEs take (Pavitt, Robson and Townsend, 1987), and a much more
personalized way of managing the firm (Storey, 1994). These factors, combined with
characteristics such as a small number of employees, small capital forces, small market shares,
and a degree of co-dependency with other firms make up some of the specifics of SMEs.
3.3.1 SME growth
It is suggested that SME growth may be the result of several different factors. Among these
are the strategic choices of entrepreneurs, the ability to make structural adaptations to the
growing organization, the ability to overcome barriers to growth, or the structural
characteristics of the external environment. Together these explanations lead to two generic
explanations of SME growth; the strategic choice explanation and the industry structure
explanation (O’Gorman, 2001). This discussion is in accordance with the previous distinction
between the inside-out and outside-in perspective.
The strategic choice explanation argues that SME growth is a consequence of
the strategic and structural choices made by the founder or manager. By pursuing superior
strategies and managing the firm through stages of growth, the manager can ensure the
success of the firm. Research suggest that small firms who achieve high growth do it by
pursuing a differentiated strategy (Kuhn, 1982) as they operate with few customers, and
competitors and therefore rely on qualitative competitive factors. This also makes it important
34

for SMEs to be able to respond to market changes, and, especially for medium firms, to have
organizational flexibility (Smallbone et al. 1993; Kuhn, 1982). The industry structure
explanation argues that the external environment that firms operate in affects growth (Porter,
1980; Aldrich and Fiol, 1994). One perspective, population ecology, takes this argument to
the extreme by stating that growth is a function of environmental selection (Hannan and
Freeman, 1989). Thereby, growth can be seen as the evolution from one organizational form
to another as the environment changes, or growth can be restricted to one type of
organizational form which forces it out when this form is deselected (O’Gorman, 2001).
3.3.2 The entrepreneur
Based on the above discussion of the strategic growth explanation, the
entrepreneur comes to play a significant role in the success of the SME as the decision maker.
Definitions of the entrepreneur differ but usually entrepreneurship refers to business activities
related to growth and innovation (Schumpeter, 1942; Storey, 1994). For the purpose of this
master thesis, the entrepreneur may be defined as the individual(s) who manage a consulting
firm with the intention of growing it and who has the managerial capacity to do so in the face
of strong competition from other consulting firms, both small and large. This opens up for
examining the founders of the firm and whether they bring certain characteristics and skills,
which can lead to competitive advantages. This is especially important in management
consulting firms as the partner or manager add to the firm a certain amount of abstract capital.
Under this category is for example, experience of life, business experience, the
entrepreneurial gene, a specific philosophy, and idea about the purpose of life. All these will
shape the firm’s culture, its path and its competitiveness.
The management consulting industry is characterized as a very knowledge
intensive industry. There exist a flow of routines in the firm, which draw on different kinds of
knowledge at the different stages of the value chain. At each stage, there is an opportunity for
management to achieve advantages over competitors by introducing innovative changes or
services because of accumulated knowledge. Thereby, it becomes clear how big the challenge
is for small firms to grow, as management must be involved in all steps of the value chain.
The crucial issue is that the entrepreneur can identify these opportunities. This puts a large
strain on management and it is often more concerned about survival than growth per se
(Storey, 1994). Indeed this survival mode and a possible taken-for-grantedness of existing
routines can convert entrepreneurs into being just managers and become a significant growth
barrier.
35

3.3.3 Strategy and culture in SMEs
Strategy is a continuing process, which has to be reconsidered as external and internal
changes occur. The strategic process can be divided into two main elements: Strategic crafting
and strategic execution. However, when we are dealing with small to medium enterprises the
process becomes somewhat narrower and shorter in time scope. Large corporations, who face
less uncertainty relative to SMEs, use a strategic vision to synchronize the decision making
process in the long run. Smaller firms, however, often have vague visionary plans and adjust
the direction in which they are going frequently (Storey, 1994). SMEs are often in a need of
formulating objectives that are more precise as the market situation quickly changes, and
hence lacks specific ideas of strategy execution. Indeed, the plights of small firms are many,
to an extent that much time is dedicated to survival as opposed to creating long-term firm
efforts to ensure sustained growth. The lack of a precise and specific strategic vision and
strategy can be an important growth barrier for the firm, as it will hinder execution in practice.
In this connection, firm culture also becomes important. A series of attitudes and
assumptions make up the core values and shape the purpose of the firm, its mission and vision.
Schein (1994, p. 20) defines culture as: “ A pattern of shared basic assumptions that the
group learned as it solved its problems of external adaptation and internal integration, that
has worked well enough to be considered valid and, therefore, to be taught to new members
as the correct pathway to perceive, think, and feel in relation to those problems”. For the sake
of simplicity, it can be useful to describe firm culture in terms of market orientation and
growth orientation (Hougaard and Duus, 1996). Market orientation describes the firm’s ability
gain insight onto its market, that is, to identify customer demand, the players, and suppliers.
Furthermore, it deals with the firm’s ability to share market knowledge inside the firm and its
specific competence with regard to adapting its services and activities to the market. In the
same way, growth orientation deals with the firm’s ability to identify growth opportunities,
define growth targets and its ability to implement decisions based on a growth focused
strategy. By considering firm culture in these terms, firm growth becomes a function of
growth opportunity identification but more important also a function of growth opportunity
implementation, that is the actually exploitation of these opportunities. Firm culture must be
developed around and support both elements.
The culture of a firm is largely shaped by its founder. Especially in the context
of management consulting firms, the founding partner(s) will have a dominating influence on
firm culture, and how its market and growth orientation will be in the future. Either the firm
will be build tightly around the core competences that the partners have, or it will be more
broadly build around the partners ability to explore new opportunities. This, in turn, shapes
36

the initial years of the firm’s history and experience. Since culture, history and past
experience have so strong normative characteristics, the future path of the firm will be
dependent upon these factors.
3.4 Creating an integrated approach
The two discussed perspectives are, as earlier mentioned, frequently viewed as being in
conflict, but in large measures, we can gain a more complete framework if we view them as
complementary, and add insights from SME theory. The outside-in perspective assumes away
many issues relevant for managing an economic organization but does provide predictive
outcomes for firms facing external forces and change. Because the outside-in perspective is
rooted in neo-classical economic theory, it assumes perfect information and rationality in
some degree. Therefore, no firm can gain a competitive advantage based on strategy and
structure, as competitors would soon copy them. However, if we relax the assumptions and
instead treat the world with uncertainty and bounded rationality and therefore the existence of
firms with heterogeneous strategies and structures, the inside-out perspective comes into play.
Thereby, these two perspectives come together in the firm’s organizational design as an
internally produced resource whose primary goal is to control decision-making and strategy
and react to external forces (Rickard, 2006). No two organization designs will be identical and
in the case of the SME it will in large measures be affected by the entrepreneurs/managers
and culture. Thus, the organization design can be a source of competitive advantage and
growth by aligning and motivating resources towards the firm’s goals.
In order for an integrated approach to be able to deal with growth as a science of
the specific, the focus will be on growth processes as opposed to growth factors. It is assumed
that successful consulting firms share both internally and externally a series of growth
processes that allow them to gain a competitive advantage over other firms. Thereby, the
focus is not on the specific factors that give the individual consulting firm an opportunity to
grow but instead on the shared pattern of processes that stimulate growth across several firms.
Here, the strength of a multi-theoretical contribution comes at its right as it opens up for the
possibility to look at growth from several perspectives.
The model below is put forward with the intention of structuring the succeeding
empirical work. Thereby, the model does not describe how a firm can achieve growth but
introduces important elements that must be taken into consideration when investigating
growth. The model is therefore not a goal in itself but instead a structure to capture the
processes at play in connection with firm growth in the management consulting industry.
37

Culture
set of strategies Feasible
Model for assessing firm growth
Factor markets Generators
Organization
Source: Own
design Entrepreneurship Feasible set of
making
and competences Product markets Moderators or accelerators resources
Com Competitive petitive advantage
Com
FIRM GROWTH FIRM
By culture, is meant the current performance of the firm, the markets it currently
serves and its history and experience. These elements are all path dependent and will
influence the future opportunities of the firm. The firm culture, which among others describes
the firm’s ability to gain market insight and to identify growth opportunities, is an important
element. Inherent, is also the routines which the firm has developed and which in part will
shape its possibility to exploit current resources and competences and explore new
opportunities. Entrepreneurship describes the capabilities and attitude of management. Here
the focus is very much on the creators of the firm and their qualifications in terms of abstract
capital (experience, purpose of life, etc.) and specific capital (which competences do the
entrepreneur(s) bring into the firm). The entrepreneur of the firm also plays a big role in the
degree of diversification, which the firm engages in. Whether the entrepreneur develops his
firm in broad or tight terms around his competences will shape the firms future path. These
two elements, culture and entrepreneurship, are considered interdependent. A feasible set of
resources and competences shapes the firms organization design and will in turn be shaped by
it. A set of tangible resources, human and physical, must be managed and developed to
achieve firm specific synergies ranging from intellectual property over core competences to
routines capable of rapid reaction to change. For the firm to exploit the potential value of
these internally generated resources and competences, it calls for both entrepreneurial skills
and strategies. The firm’s resources and competences therefore define its set of feasible
strategies. These will be reflected by its history and experience and the entrepreneurial flair of
its managers. The set of strategies will describe how the firm chooses to operate on
38

operational and strategic levels and this will affect the organization design as well as the
organization design will affect strategy, as it creates a limit on available strategies. The
influence from the external environment is captured in factor and product markets. Factor
markets identify the sources, which create growth opportunities for the firm. Herein lies
growth opportunities by the establishment of specific and scarce resources that are difficult to
obtain for competitors and through the possibility for cooperation with firms, which create
relational rents. These factors create a foundation for firm growth and can be viewed as
generators. Product markets identify industrial factors such as market structure, entry barriers,
and substituting products but also customer relations and insight are important factors, as this
information allows management to adapt to these circumstances. The degree of rivalry will be
shaped by the set of strategies the firm adopts, and thereby the possibility that competition
will either eat up profits or create profits through cooperation. Growth will either be
moderated or accelerated by these factors. These six elements come together in the
organization design to affect a synthesis of the two perspectives by clarifying that the role of
the organization design is to align the firm’s resources with its strategy and external
environment, in order to achieve a competitive advantage. Organization design imparts
heterogeneity on the consulting firms, and thereby become a mean to achieve competitive
advantage. Hence, the focus is on how consulting firms align and create coherence in the firm.
Furthermore, it is assumed that a competitive advantage is necessary in order to achieve
growth. That is, the market in question is not characterized by unlimited demand and a certain
selection pressure exists. I argue that this is the case in the consulting industry. Hopefully, the
model proves to show that only considering growth from one perspective will miss out on
other equally relevant issues, and that the two perspectives are not opposites but
complementary and interrelated.
3.5 Summary of theory
To reach a comprehensive theory of the growth of the firm it is necessary to explain why
firms expand their horizontal boundaries, and, especially important in the context of this
master thesis, why some firms within the same industry grow at a very high rate while other
firms seem to have a hard time breaking through the “glass ceiling”. The organization design
of the firm has been suggested as the focal point of a theory of the growth of the firm
supported by theories from the inside-out perspective and outside-in perspective. The resource
based view, in accordance with the competence and capability approach, view growth as a
process of developing, accumulating and productively utilizing internally generated specific
knowledge resources. Growth opportunities is seen as limited by history and experience and
39

the benefit of diversification, for example adding a new partner with different competences to
the consulting firm, is to expand the stock of knowledge resources in the firm. For the firm to
be able to sustain growth it has to have an entrepreneurial managerial ability to identify
growth opportunities and deploy resources necessary to realize them. However, a resource or
competence has to be “tried in the market” in order to realize its value. Recommendations
from the inside-out perspective can lead to an underestimation of the value of market
positioning and adaptation. The inside-out perspective therefore brings into consideration the
product market as an accelerator or moderator of growth.
Now the tools to conduct an empirical investigation are in place. The model for
assessing growth can give a clear indication of the issues that are at stake in the SME sector
and especially in the management consulting industry.
40

Chapter 4
Design and implementation
In this chapter the methodological settings and approach with regard to the interview guide,
the interview process, and the treatment of the qualitative data is discussed and vindicated.
When the goal is to identify an appropriate growth strategy across different firm
sizes, it is important that it is supported both by theory and empirically. This means that there
is a continuous need for theory development throughout the investigation. Therefore, it is not
appropriate to conduct a population survey where questionnaires are sent to a large amount of
consulting firms, as it will not capture the processes that are at play ex ante and does not allow
for further theory development. On the other hand, a single case study of a consulting firm
does not allow for the wanted degree of generalization. Roughly, empirical investigations can
be placed on a continuum as below:
Continuum of empirical investigations methods
Single case study Multiple case study Population study
Detailed understanding, no
generalization
Detailed understanding and
generalization at the same time
Source: Duus, 1995
High degree of generalization,
statistical significance, no
knowledge of factor interaction
Therefore, the choice of method in this master thesis falls on the multiple case
study. This allows for a combination of the advantages from the single case study and the
population study. The purpose is to generalize from the theory base developed in the previous
chapter by holding this against a number of empirical results in order to be able to develop
further theory. This approach is a combination of explanation building and pattern matching
(Yin 1998). That is, an analysis of the causal explanations and a continuing comparison of
these with the existing and discussed theory. The idea here is to conduct an analytic
generalization in relation to theory development rather that a statistical generalization in
relation to hypothesis testing. The focus of the chosen discovery-oriented methodology is to
further develop theory, as a consequence of the limited amount of theory on the management
consulting industry. A crucial part in theory development and building is the evaluation of
emergent concepts and existing theories, which consequently supports the preceding theory
base and integrated approach of chapter 3. The case study approach is recommended by
several different researchers as being especially appropriate in studies of new areas or areas
41

with inadequate existing theory, as the results commonly are novel, testable and empirically
valid (Eisenhardt, 1989; Despande, 1983).
4.1 Methodology and Settings
A multiple case study can include both qualitative data and quantitative data. In this master
thesis, qualitative data has been chosen as the primary data collection method as it is useful
for directly suggesting theory development and building.
The semi-structured in-depth interview is the general framework from which
qualitative date has been collected. The point of departure for the nine interviews was the
interview guide, which rests on the integrated approach developed in the theoretical part of
this master thesis. The interview guide is based on open-ended questions and projective
question techniques, exemplified by questions such as; “what constitutes growth for you and
your firm?”, and it was always attempted to keep the setting as informal as possible. If,
during an interview, new areas of interest surfaced they were pursued to some extent with out
sacrificing the rest of the interview. The interview guide therefore served more as a guideline
rather than a series of question that were to be strictly followed. However, to obtain a relevant
interview the questions were prioritized in order to be sure that certain crucial issues were
dealt with. The interviews lasted somewhere between 1 – 1½ hour and was conducted at the
offices of the consulting firms. This allowed for a more thorough understanding of the
individual firm, as there was often a chance to meet other employees and see office buildings,
and how this, for example, relates to firm culture. Prior to the interviews, a pilot interview
was conducted with a small local management consulting firm in order to evaluate the quality
and understanding of the questions, and based on this experience the interview guide was
subject to minor changes. The interviews were conducted in the period of the 16 th of May
until the 7 th of July 2008 and a subsequent evaluation of the interview guide was done after
each interview in order to capture experience and new relevant issues for the next interview.
The different management consulting firms who were contacted for interviews
were chosen among the members of DMR. This membership list consists of 180 management
consulting firms who adhere to an industry code 7 and thereby definitively falls under the
category management consulting firm and the focus of this master thesis. Initially, the chosen
consulting firms was sent a contact letter (appendix L) and then contacted by phone in order
to establish a concrete meeting. I believe one important reason for the success with finding
relevant firms is that they were chosen among DMR members. Even though this list does omit
many consulting firms, it still represents a long list of diverse management consulting firms
7 http://www.dmr.nu/home.asp?ContentID=205
42

that are generally interested in developing the management consulting industry. If the point of
departure had not been DMR, members it would have been difficult to identify relevant
subjects for interviews. The firms interviewed cover a broad range of consulting areas from
strategy/organization, operations, and communications to more IT heavy services. To obtain
the appropriated number of interviews only twelve consultant firms were contacted and those
who declined did so reluctantly because of busyness. It was demanded that interviewees hold
a leading position in the consulting firm and have insight and influence on strategy. All the
interviewees are either CEOs or partners in their respective firms. Consequently, all
interviewees have been promised full anonymity.
Owing to the problem statement of this master thesis, which deals with the
tension between size and growth it was important to consider management consulting firms of
various sizes. As already mentioned, Danish consulting firms belong to the SME segment but
it is not directly applicable to divide consulting firms into the small and medium category, as
it does not capture the diversity well enough 8 . Therefore, an adapted size distribution covering
Danish stand-alone management consulting firms was used in accordance with the industry
analysis:
Overview of respondents
Small consulting firms Medium consulting firms Large consulting firms
2-15 employees 16-50 employees 51- 200+ employees
3 firms interviewed 3 firms interviewed 3 firms interviewed
Source: Own making
The total number of interviewed firms is thereby nine. However, to create a
more in-depth understanding and to capture the diverse elements of growth factors and
barriers it was attempted to choose one firm in each group which either had experienced
problems to grow or currently experiences growth problems. This proved to be a difficult task
as such information is difficult to obtain ex ante but to some extent, it has succeeded.
However, because of the uncertainty connected with this information, the difference between
high growth firms and low growth firms will only serve as additional information and not be
considered as scientifically evident. Furthermore, the firms were chosen because they were
founded close 2000, give or take a few years as this allows for easier comparing. An overview
of the interviewed firms is presented in appendix M.
8 The current definitions by EU is that a firm belongs to the category “small” if it employees less then 50 people
and “medium” if it employees between 50 and 250 (http://europa.eu/scadplus/leg/da/lvb/n26026.htm).
43

4.2 Operationalization
The purpose of the empirical analysis is to give a description of and to create a
foundation for understanding growth factors and barriers in the Danish management
consulting industry with a special emphasis on their current market situation and
organizational conditions. As already mentioned, the theory base and the integrated approach
presented and discussed in chapter 3 serves as the basis for which the questionnaire has been
developed. In general, it deals with nine different topics and relating questions, all designed to
provide information about the discussed theory base. Appendix N gives an overview of the
operationalization that has been done with this in mind and the interview guide is enclosed in
appendix O.
There are several different measures, which can be applied in order to identify
growth firms. In general, the following are suggested in the literature; size, assets, net capital,
revenue, and growth in the number of employees (Hougaard and Duus, 1996). Each measure
has its own advantages and disadvantages however, because of the complexity of the
concerned industry and the high degree of competition it is very difficult to obtain exact
numbers relating to revenue and profit, etc. Therefore, to identify the degree of growth that
the individual consulting firms have experienced, number of employees has been the prime
indicator along with the perception of growth and further information supplied by the
interviewee. The argument is that in this context growth in the numbers of employees is a
viable measure as it is a consequence of growth or growth expectations in other measures.
4.3 Data analysis
The nine interviews were recorded electronically and hereafter partially transcribed with a
focus on emphasizing the most influential opinions and answers related to the theoretical
framework. While transcribing the interviews, attention was paid to the potential risk of
selectively or irrationally disregarding parts of the interviews. This is a potential outcome of
choosing to do partial transcription, and it limits the opportunity to use the disregarded parts
in later analysis. However, the subsequent reading of the data material has been systemized in
a way such that understanding and meaning was slowly developed and elaborated. The
reading of the material has been done through four steps. First, each interview was reviewed
with the intention of creating a general description and understanding of the specific firm and
its growth situation, see appendix M. Second, the interviews were reviewed in order to
establish the purpose of growth in the management consulting industry. Third, a comparative
review was made, in which the empirical data was considered in sets of three according to
their size, in order to establish significant growth differences across size and situation. Finally,
44

a reading of the data material was done in which growth processes in general was considered.
Here, it was assumed that the large firms represent the more successful consulting firms
whereas the small firms represent less successful consulting firms. This could be done
because the chosen firms have all been founded close to 2000. Hence, the data analysis is not
exact science but instead a qualitative interpretation, which is supposed to identify and create
patterns and processes. The empirical analysis will therefore comprehend and decode the
answers of the interviewees in relation to the theoretical framework. A hermeneutic approach
allows for a deeper interpretation and a chance to go beyond the direct answers of the
interviewees to identify patterns and meanings that have not been explicated. Inevitable, this
will bring the risk of scientific bias and consequently, treatment of the data in a highly
objective manner is crucial (Kvale, 1997).
45

Chapter 5
Empirical findings
This chapter presents the empirical findings based on the analysis of the nine qualitative in-
depth interviews 9 .
5.1 The purpose of growth
The point of departure is an understanding of why consulting firms choose to grow. A crucial
insight is that managers of consulting firms are not interested in profitability per se but
instead in a profitable expansion of the activities of the firm. Cost minimization and efficient
allocation of resources are not a primary concern, as much as the development of the firm is.
In the interviews, all firms expressed a wish to grow and saw it as a critical issue for future
success and development.
“There are no alternative to growth in a consulting firm, well maybe there are, but then you are
just keeping yourself occupied. If you want to be taken seriously as a firm, with regard to
knowledge production and development, then there are no alternative to development which
means that we get new strengths, inspiration, and knowledge into the firm”.
CEO of a medium sized strategy and management development consulting firm (F/08:10)
Hereby, it is underlined how consulting firm managers perceive growth as a
dynamic concept. That is, only through growth is the consulting firm able to perceive and act
upon new opportunities. There is, to a very high degree, a focus on the internal organizational
factors and the role of the firm’s internally generated resources. Hence, a growing consulting
firm is a firm, which stimulates the process of resource accumulation in order to create
services that are surplus of current business areas. The consulting firm’s productive
opportunities are thereby those growth possibilities that management perceive and act upon.
Accompanying growth is an increasing stock of accumulated resources, and as
mentioned by different managers their organizations do experience strains on the
organizational structure as they grow. Growth opportunities are only valuable if they do not
jeopardize the organizational coherence. For consulting firms, growth opportunities expand
much faster than its actual productive possibilities, as a result of being in the knowledge
business and because they are in continuous contact with customers, where they appropriate
knowledge and have the possibility to transform this into new business areas. Thereby, the
difference between growth opportunities and productive possibilities is very much dependent
9 All interviews are attached on CD-ROM for further listening. Whenever a quote is used, it can be referred back
to the interview by the capital letter and time designation through appendix M.
46

on the organization design of the firm. If this supports internal development and growth, then
the difference between growth opportunities and actual production possibilities will be small
and enable the firm to choose between a variety of different growth possibilities. The
successful consulting firms, which were interviewed, had an ability to explore new growth
possibilities and at the same time maintain an organizational ability to coherently develop and
deploy new resources.
“Innovation and change have to be a build-in part of our thinking and our way to organize the
firm. We need one or two ground-breaking projects every year”.
CEO of a medium sized strategy and management development consulting firm (F/35:20)
Consequently, consulting firms choose to grow because of the development
inherent in growth. They do not grow because of the possibility to achieve economies of scale
or market power. These might be important issues, but are not a primary concern of
consulting firm managers. Thereby, it could be considered that size is of no importance for
these managers however, that is not entirely true. In order to get at a situation where internal
development and resource accumulation is sustained there is a need to be of a certain size.
Several of the interviewed consulting firm managers name this size critical mass. At this size,
the business area or consulting firm, through a process of learning-by-doing, is always adding
to its existing stock of knowledge. Hence, size is a goal in it self but it is not an unconditioned
goal as it stresses the organization with regard to organizational coherence.
”If you want critical mass, if you really want to deliver heavy in business areas, then you need to
be at a minimum 20 consultants. If you want knowledge transfer and a well functioning team,
then you need 20 consultants in a business area”.
CEO of a medium strategy and IT management consulting firm (D/25:45)
This does not imply that there is a size optimum or a size limit to the consulting
firm. Obviously, this is very much dependent of the areas in which the individual consulting
firm operates. Thereby, growth is seen as a dynamic process and conditioned by an internal
focus on development and growing from the inside. Growth is necessary and must become an
in-build process in the organization design. Even if a consulting firm is content with its
current situation and position in the market, growth is necessary because the environment is
complex and changing. Customers demand more from their consultants and trade-specific
knowledge develop all the time. Consequently, growth in the consulting industry cannot be
perceived as a mean to achieve a static optimum but must be considered a dynamic process
that creates the foundation for further development.
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5.2 Development through growth
The second step in the analysis is an examination of the nine management firms consulting
across size and situation. The interviews covered among others; firm history, organization
structure, strategic decisions, the management system and significant challenges and changes
in the life time of the firm. Even though, the examination rests on a relatively small sample
there are clear factors, which allow the firms to be arranged in three discrete stages. Several
CEOs or partners even described how they considered their firm to be in a certain stage:
“The stage that we, in actual fact, are in is only stage two. In stage one, we were concerned
with establishing a firm altogether. Stage two is now about establishing the firm in an
economic, professional and managerial sense and stage three will be about the visionary and
exciting growth oriented issues”.
CEO of a medium sized communication consulting firm. (E/08:50)
5.2.1 Stage one consulting firms
In this group, we find consulting firms that are typically managed by one person, the founder.
Typically, he has left his job in another large consulting firm or management position. The
prime motivation for this was a wish to become master in own house. Furthermore, it was
with an expectation that he would be able to leverage the competences, which he has achieved
in previous job positions, to his own firm and that his current business network will give him
a starting point and an advantage in the start-up phase.
The stage one consulting firm is characterised by little or no formal organization
structure, and the founder and employees meet informally to make decisions about daily
matters. Only a few people are employed which typically include someone who manage
administrative work, and a few consultants who support the line of business, which the
founder has laid out. The business area that the firm operate in and the services provided is
typically centred on the competences of the founder. The main part of employees is connected
to the firm on a freelance basis and is pulled in on assignments when necessary.
In general, firms in this stage find it difficult to grow and do so only in a limited
extent. However, common for them is that they wish to grow. Where they are different from
the consulting firms who have managed to grow, is in the growth vision. Typically, their
growth vision is somewhat more narrow and limited because of the founder’s perception of
growth.
“I have a clear goal for growth. I see the firm in three years as having a maximum of 7 - 8
employees… If we grow beyond 7 – 8 employees I risk losing sight of the assignments and if we
grow beyond 20 employees I risk loosing sight of both assignments and employees”.
CEO of a small management and event consulting firm (C/12:50)
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The consulting firms in this stage seem to experience a kind of “glass ceiling” in
the pursuit of growth. That is, despite their wish to grow, there are elements in their
organizational structure and management practice, which prevents them in doing so.
Growth processes The approach to growth in this stage is characterized by a random search
and identification of market driven opportunities. The range of services provided is broad and
target a broad market. At this point, it is generally unclear which services will be most
profitable and which clients should be focused on.
“I have to say, it has not been a target-oriented or planned development. It has been very
impulsive. Now there is an area of interest, we need to get involved”.
CEO of a small organization management consulting firm (A/52:40)
The types of assignments, which are taken on, are to a large degree very
different and often put the firm under pressure, in both a competence and economical sense.
However, it is also in these new assignments that the small firm finds opportunities to grow
and develop its competences and capabilities. So, even though the firm will most likely
exceed its capabilities this is a necessary development in order to achieve means of growth.
“It might be that we take on an assignment that are so exiting and can give us some experience
and because we might be able to earn money on it in the future. We have done this quite often
but also have to acknowledge that there are many assignments we only do once. So there is a lot
of development but we do not earn any money on this”.
CEO of a small management and event consulting firm (C/34:00)
However, there is a downside to this way of developing capabilities and possible
customer relationships. The firm must spend more time and people doing research and
investigating an unfamiliar problem as the firm is learning-by-doing. In the end, it means that
a project or an assignment will be less profitable and maybe even of a poorer quality as firm
competences are stretched. Most often, the firm will not be able to perform these “odd
assignments” cheaper, faster or more competent than rivals who are already focused in that
area. This type of growth is often connected with the risk that a specific customer project is a
one-time project and will therefore never be done again. This means that the firm will have to
undertake sunk costs as it will not be able to leverage new skills.
The founder of the firm acts out a significant role in this stage concerning
growth as he brings about the necessary conditions for growth. It is his entrepreneurial skills,
combined with his professional skills, which provide the foundation for growth. His
background and experience constitute the business area that the firm operates in and the
development of the firm takes place in a narrow sense around him. All interviewed managers
49

in this segment agree with the fact that they constitute the most important resource in their
firm at the current stage.
“Drive and enterprise is very much centred on me and the thoughts and ideas about where I
want to go, no doubt about that. Ideas and strategic development lie with me or else we will not
be able to develop our self”.
CEO of a small management and event consulting firm (C/32:40)
The business foundation is created around the customer network, which the
founder has established in previous positions. Through this network of relations, the
consulting firm can get orders from customers that are crucial in the start-up phase.
“I asked my old customers (from a previous consulting job) what I need to do better in order for
them to buy my services. So, I definitely used old customers. With them there are some strong
ties, they typically constitute your network”.
CEO of a small organization management consulting firm (A/52:40)
This interdependence between the consulting firm and its customers is decisive,
as the firm both creates its economical foundation and develops it capabilities in relation with
their customers. Consulting firms which have one or two big customers from the beginning
will find it much easier to grow as this network creates an economical security for the firm
and allows it to leverage on existing capabilities and routines.
“We need one or two big customers. We need this kind of stability so we do not need to invent
new customers again and again… We use a lot of time attuning expectations through meetings
etc. and this demand a lot of time the first time but not the second time”.
CEO of a small management and event consulting firm (C/14:50)
Typically, the small consulting firms service small and medium sized customers.
They have an advantage in this segment because of a number of factors. The price of their
services are below that of the larger and more established consulting firms which opens up for
a market of SMEs who do not set aside a large amount for consulting services. The fact that
they are small also allow them easier access to the SME segment because they have a firm
profile which smaller firms better can relate to.
“We can help small and medium sized firms, especially owner managed firms, who are a little
nervous when there comes a Mckinzie consultant where the theoretical ballast and the support
base are top tuned. It can often seem intimidating, both investment wise but also strategically
wise… Where we can make a difference as a small firm is that we help with strategy but also
with carrying it out in real life”
CEO of a small organization management consulting firm (A/20:21)
Another advantage, as stated by small consultant firm managers, is the specific
culture of small consulting firms. The small consulting firm is in a highly entrepreneurial
phase where initiatives for future profit are tried in the market. The low degree of
formalization and structure allows different initiatives to be made, and in general creates more
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freedom regarding how employees can tackle different assignments. Contrary to larger
consulting firms, there are often no standardized tools or frameworks which must be used
when handling customer assignments. This improves the flexibility of the small consulting
firm and allows it to better adapt and specialize to the needs of SME clients. This relaxed
culture often attracts experienced consultants who have previously worked in large and more
tightly controlled consulting firms, and now has a wish to continue their trade under less
formalized and strict conditions. Herein, lies the advantage for small consulting firms in
attracting new employees.
“The culture must create the framework within which people are not tied on hands and feet with
regard to thinking and work methods… There is not one right way to be a consultant, there are
several ways”.
CEO of a small management and event consulting firm (C/14:50)
Having discussed the growth factors which are specific for small management
consulting firms and which they leverage in order to achieve growth it is, however, important
for understanding the whole story, to consider the duality of these factors. At the same time
these factors become processes of growth, they also become barriers to growth as the analysis
in the next part shows.
Growth barriers The manager of the small consulting firm is balancing his role as manager
with his role as consultant. The services and assignments, which the consulting firm take on,
are centred on his competences. Therefore, he often becomes an indispensable person when
dealing with clients.
“You are both the strategist and the owner but you are also the operational consultant who must
go out there and perform… I need to prioritize time to be the administrative director… When I
contact my customers they say; “you are the one we buy”. I can bring along young consultants
to do spreadsheets and stuff but I have to be there all the time”.
CEO of a small organization management consulting firm (A/03:20)
Time for strategy and administration must be prioritized which becomes a
difficult act to balance. The manager is tied up with operational work as opposed to long term
planning and strategy. He is often the one who deals with day to day decisions. Therefore,
these consulting firms often do not have a clear and defined plan for the future. Growth is
opportunity driven as opposed to strategically driven. As a result, stage one consulting firms
navigate the complex and opaque consulting market without the right conditions and
assumptions. Because the manager is often alone in his position, he finds it difficult to discuss
strategic issues and lacks a sparring partner. The manager, in effect, becomes a limitation to
growth, as it is only his vision and ideas, which the firm rests upon.
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Even though, the founder has a vast experience and knowledge from previous
jobs it is difficult for him to both maintain this knowledge, obtain new knowledge and
disseminate this to employees in a structured way. The transfer and acquisition of current and
new knowledge, which obviously is crucial in the consulting industry, is given a lower
priority.
“A barrier can be that we do not have enough focus on new knowledge. It is my responsibility
and I do not always have enough time to look into it”.
CEO of a small management and event consulting firm (C/01:02:30)
Consequently, there is often a need to specialize in a specific consulting area if
specific competences are to be maintained and developed. However, all the small consulting
firms describe their services as rather broad. In general, there seems to be a misfit between the
size of the firm, the degree of specialization and the consulting services provided. Customers,
who have become better at buying consulting services, know that it is difficult for the
consulting firm to maintain competences and capabilities within a broad range of services.
Therefore, they do not want to engage the fuzzy and turbid consulting firms in the middle
exactly because they are too broad. Hence, it is suitable for consulting firms to be either
specialised and/or a high-quality provider. However, small consulting firms lack critical mass
in order to reach a sufficient level of quality. In this industry, where the quality of the work is
decisive, the right amount of resources and competences must be present as an assignment is
taken in. There will necessarily be a limit on the size and scope of the types of assignments,
which small consulting firms can solve without jeopardizing their integrity. Often small
consulting firms find themselves balancing their current competences with large and complex
assignment that can lead to a stretch in competences. The result can be poor solutions and loos
of reputation.
In connexion with the above, another problem for small consulting firms arises.
Because education and training, as well as carrier possibilities are somewhat limited in small
firms relative to large consulting firms, young consultants choose to begin their carrier
elsewhere. The small consulting firms interviewed find it hard to attract new employees with
the right background as opposed to the medium and large consulting firms who do not
experience this as a problem to the same extent. Thereby, a problem arises concerning how to
secure the consulting firm in the future as new inputs and potential new partners do not
emerge. Instead, it is often the same group of senior partners who manage and control the firm,
which does not promote the exploration of new opportunities.
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“The new growth base for our firm does not come from us seniors but from the young
consultants. Furthermore they are also the reason why we can attract more young consultants in
the future…We need to create a food chain”.
Senior partner in a small strategy and operations consulting firm (B/28:50)
Because the small consulting firm typically services small and medium sized
customers, they will often be dependable of one or two larger customers within this segment.
This relationship creates an economical base and security for the small consulting firm. A
large customer is achieved either through personal relations or through retention of a customer
who has increased his consulting use to become a large buyer. However, this makes the small
consulting firm vulnerable. If growth happens through a personal relationship with specific
persons within the customer organization, the consulting firm is very fragile to restructuring
which might take place in the customer organization.
“Relations to customers are decisive. As an example, we just lost our biggest customer the other
day because the person who I have been working with left the firm. After six months of dialog
with the two new persons, who were my contact persons in the organization, they finally decided
on another consultant”.
CEO of a small management and event consulting firm (C/25:42)
In addition to a certain degree of dependence of key customers, small consulting
firms also face difficulties with the fact that their services are some what affected by high
season and low season changes. It clearly makes business a little bit more insecure when there
are periods where the firm only gets few or none assignments and this will affect investment
in the long run. Slow periods must be made up for in busy periods, and the personal risk for
the manager is high in slow periods. The key issue it to align the business model to the type of
customer segment that the consulting firm serves. Therefore, it becomes highly crucial how
the organization design of the consulting firm is put together.
Development of new capabilities and competences in the small consulting firms
does take place but it is not systemized. Often, it is centred on the founder or CEO and his
already existing competences and interests. However, because the founder is often not capable
of opening up for new influences, internal development is somewhat limited. This can become
an important barrier to growth if management, responsibility and development are not spread
out in the organization so that it is not only dealt with by the founder.
“On a strategic level with regard to development and growth I sometimes ask my self the
question; do I have enough competences to carry this firm? My own competences can become a
barrier”.
CEO of a small management and event consulting firm (C/48:15)
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Stage one crisis The manager is both the factor that allows the firm to grow in the first place,
but is also the barrier, which prevents further growth. Some managers realize this and some
do not.
“We have had and still do have a managerial problem. There are some senior partners who do
not give room for the young consultants. This has been our Achilles’ heel and is our biggest
problem”.
Senior partner in a small strategy and operations consulting firm (B/26:40)
“I know that if I want the firm to grow then I cannot stay in the position where I am now.
CEO of a small organization management consulting firm (A/04:10)
The crisis, which must be overcome, is rooted in the founder’s ability to let go
of responsibility and power, and let other people have an influence in the development of the
consulting firm. Only through this “letting go” can the small consulting firm be able to grow
beyond the small size. As long as the founder will not give room for others in the decision-
making process, future opportunities is limited to his competences. Either finding a
complementary senior partner or the promotion of an employee to the rank of senior partner
can be necessary steps for further growth.
Opportunity driven growth further enhances the crisis, as the consulting firm
cannot focus on any specific areas and plan strategically. The firm must overcome the “glass
ceiling” of founder control and establish a grip in a specific niche in which in can leverage it
current competences. This is certainly a difficult task but a very necessary one, because the
foundation for the firm is created here. If this crisis is not overcome, it is most unlikely that
the firm will grow beyond the small size category. Hence, overcoming the crisis lies in
finding and adapting the right structure and design for the firm in which a professionalization
and specialization can take place.
5.2.2 Stage two consulting firms
These firms are founded by partners with different wishes for the future, but these partners
have undergone a strategic change towards one common direction. In all the interviewed
medium consulting firms, there have been not one, but several partners in charge and thereby
these firms have overcome the management crisis evident among small consulting firms.
Stage two consulting firms have managed to align the visions of partners and the services they
provide so that the consulting firm, in some extent, is focusing on a specialized market niche.
These firms have chosen which competences are to become core competences
and capabilities in the search for future competitive advantage. The formal structure becomes
heavier and demanding as it must be reoriented toward supporting the firm’s capability to
deliver the chosen speciality. Furthermore, as the firm grows in size and hires more
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employees this also raises the demand of a well functioning structure that can account for
more trivial things such as maternity leave and fixed working hours. Issues, which were not
relevant in stage one consulting firms because of the entrepreneurial culture.
Decision making is still residing with the founding partners who seek to achieve
consensus before acting. Occasionally they consult with younger partners and employees on
some major decisions, but this is more in the interest of sparring, more than actual
participation in decision-making. The founding partners retain sole responsibility for devising
strategy, hiring, evaluating and compensating staff. Compensation schemes are more formal
planned than in stage one consulting firms, and account both for those employees who wish to
put in a lot of work and those who work more moderately. Profit is still allocated among
partners at the end of the year, and a part of this is reinvested into the firm.
Grow is driven by a wish to create a viable, strong and independent consulting
firm which is not shaken or threaten by consultants who change job, large customers who hire
other consultant houses, or customers who demand large assignments. Furthermore, there is
also a wish to make the firm independent of the owner so that the firm is not directly
dependent of one to three key persons to secure its future.
“A central challenge is the move from being a small entrepreneurial firm where we three
partners are a part of everything, to becoming a “real-firm” firm with middle managers,
delegation of responsibilities and business areas which run without the founders being a part of
everything”.
CEO of a medium sized communication consulting firm. (E/02:53)
Growth processes The growth that has taken place in stage two firms can be characterized as
organic growth. Organic growth represents true growth for the core company and at this
relatively early point in their lives, stage two consulting firms are still too small and internally
focused to grow through acquisitions or mergers. The rate of organic growth indicates how
well management have been able to leverage internal resources and competences to obtain
growth. This type of growth is essential in order to have a strong and well-founded resource
and competence base to build future growth on.
“We have reached the size we have now by organic growth and by gathering key persons in the
firm. The prerequisite for us to grow is the way we organize the firm more sharply towards some
key business areas and where some employees, on a higher level, takes on responsibility for
developing these. This is the process we are currently dealing with”
CEO of a medium sized strategy and management development consulting firm (F/06:00)
Hereby, the foundation for future growth can be created on core competences
and developing them into strategic business areas. The key to achieve growth in this stage is
to align the consulting firm so that structure, strategy, and employees come together around
these areas. It becomes necessary for the firm to restructure around a number of strategic
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usiness units. The interviewed stage two firms all had three core business areas, which
constituted the focal point of their strategy. Employees are clearly delegated so that they focus
their knowledge in one key area instead of drifting around between different types of projects.
This sharp focus on key business areas creates focus, and allows the firm to build a better
structure for developing routines and sharing knowledge.
“There starts to be a bigger meaning with what we are doing. We cooperate more and more,
there is a pattern in the type of assignments we solve, and this lead to the fact that we needed to
become sharper and therefore, we created three clearly defined business areas… You will see a
clearer company profile forming in the future”.
CEO of a medium sized strategy and management development consulting firm (F/16:50)
Furthermore, stage two firms have managed to grow via balanced growth.
Contrary to stage one consulting firms, there is not a direct dependence of one or two major
customers concerning economic security. Instead, these firms have managed to create a broad
customer basis by maintaining a focus on those sector markets in which they are strong and
then leveraging competences to new sector markets.
The above growth tendencies create a clear view of consulting firms, which are
very much conscious of devising and following a specific strategy. Growth is, to a much
higher degree, driven by focus considerations as opposed to opportunity driven growth. In
general, growth happens layer by layer, and it is continuously adapted towards and supporting
a clear strategy formulation. Hereby, there are from time to time assignments that stage two
consulting firms turn down because either it does not fit with the core competences of the firm,
or it will not contribute with new competences, which are relevant in relation to firm strategy.
Finally, delivering a poor solution might jeopardize firm reputation.
Stage two firms are driven by identification of strategic openings, market
considerations, and positioning. That is, the founders of these firms have not started the firm
with an idea of doing general consulting work but instead with an idea the somewhere in the
consulting market there was a strategic position open; a specific area which the firm could
specialize in and which, in effect, would shape the strategy and direction of the firm. This
choice of position and business focus translates into the rest of the firm, and affects the
organization design of the firm so that there is a fit between strategy, structure, and market
position.
“We have a position in the market which means that we are somewhat different from our
competitors… We primarily consider this an advantage because we, compared to the classic PR
firms, are experienced to be different. We can be in competition with COWI,
PriceWaterhouseCoopers, freelance journalists, IT firms and many different firms because we
are placed in between different professions. Our customers and we see this as an advantage.
This is combined with a couple of areas where we are market leaders… Finally, we have chosen
a price concept and business model that is a little different… We charge a price, which is
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somewhere between freelance agents and the established consulting firms… This has the
advantage that we can provide our services cheaper and in a longer duration of time”.
CEO of a medium sized communication consulting firm. (E/02:53)
When the consulting firm has decided which core business to pursue it
furthermore becomes possible to plan and organize sales on a more coherent level, as opposed
to the “shot gun” sale approach adopted by stage one firms. Thereby marketing efforts,
pricing and markets can be controlled and targeted much more directly. The firm can create a
much sharper image and establish cross sales of its services.
The fact, that stage two consulting firms position themselves deliberately in the
market means that they can relatively easily find and hire new employees, which is a
necessary condition for maintaining annual growth rates at about 20 percent. The interviewed
stage two firms did not find it particular difficult to employ the necessary amount of people
because they attract people from various educational backgrounds and not just one specific
type of people. Systems for monitoring and evaluating performance are slowly being
implemented. These systems supply management with information on activities and how
ideas and knowledge diffuse through the firm. Furthermore, these systems helps management
creating an overview of knowledge and development needs and keeps track on the firms stock
of human, physical, and intangible resources. Obviously, a carefully developed compensation
system also supports the recruitment process and plays a major role in attracting the right
employees.
Growth barriers A condition for a firm to be able to follow and carry out a defined strategic
business plan is a focus on the role of management. Obviously, as the consulting industry is a
“people business”, and because much development happens as project learning and on-the-job
training where senior partners is in charge of a project and act as role models for younger
consultants, managers play an important role in the field as consultants.
“More weight on the CEO role is a condition for taking the next step and this is where we are
now… Our ambitions with growth are conditioned by that fact that we, who do have formal
management tasks, deal with this to a larger extent: Strategic recruitment, employee
development and continuous development.
CEO of a medium sized strategy and management development consulting firm (F/03:30)
However, managers focus a lot of their time on selling and producing. This
means that they do not spend sufficient time on the professional management of the firm.
There is a great focus on the consulting trade among managers and not so much on the
managerial aspects of running a firm. The consequence is a lacking focus on strategic aspects
and development of mid-managers level, which in the future can be put in charge of business
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areas. This is very much in contrast to the increasing need of coordination and control, which
stage two firms experience. Hence, a growth barrier lies in the “do-sell” cycle which
management easily becomes trapped in.
“On one side we have a professional and planned progress we try to follow so we are not blind
or fumble our way forward. However, on the other side, then we are still a firm where
management is in the field and producing. This means that the resources to deal with these
things [strategic decisions and challenges] sometimes lag behind”.
CEO of a medium sized communication consulting firm. (E/04:20)
Even though, stage two firms have grown substantially since the start-up phase
there is still a lack of critical mass, both in the organization as a whole and more pronounced
in the business core areas. This means that there is always a managerial deficit. Competences
are stretched and continually under pressure, so exploring new opportunities becomes an
activity, which is seldom undertaken. In continuation, growth by diversification becomes very
difficult as all resources are engaged in current activities. There is a lack on a formalized
system or processes to explore new growth opportunities and in turn, these often pass by
unnoticed.
“We had our core business and then we tried something different. This went completely wrong.
There was no synergy and we could not get our competences to work together. We have to grow
competence wise layer by layer as long as we have the size that we have. We simply lack volume
and economy to enter completely new areas”.
CEO of a medium sized communication consulting firm. (E/18:06)
As stage two consulting firms experience growth they inevitable grow in size.
This entails stress on the organizational structure that is felt at all levels. Management
experience the increase in size by the fact that they have less control over what happens.
Suddenly, they are not in daily contact with every consultant and lose touch with operational
matters. Therefore, as size increases there is a need to formalize coordination across business
areas and assure the information travels through the firm. Employees, on the other hand,
experience this size increase as well. Where many consultants have chosen not to work in
large consulting firms because of a more rigid structure, a change is happening towards this.
Employees have much less leeway in their activities and their job descriptions are specified to
a much higher degree. Often, they are attached to a specific business area in which they must
develop their knowledge and routines. In general, it means that the firm becomes more
formalized and complex and looses some of its charm. In this respect, there is a growth barrier
in the duality between maintaining a flexible and entrepreneurial firm, while at the same time
struggling with the need of developing a professional and viable firm.
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Stage two crisis The foundation of the next crisis is created by the process, which the
consulting firm has gone through in stage two. Through a continuous focus and specialization,
the firm has become very dependent on a few core business areas in which it offers superior
value. However, this also means that the firm becomes unable to respond to changes in
customer requests or new growth opportunities. The firm simply does not have the necessary
range of in-house services or consultant capabilities for expansion. The crisis is two-fold as it
concerns the development of new services but also establishing a capable staff. Because the
managers have been caught in a “do-sell” cycle some aspects have been neglected. Mid level
managers, the development of new capabilities and knowledge and service diversification.
Therefore, the crisis that must be overcome is in developing the firm into a “real firm” while
exploring new opportunities for diversification.
5.2.3 Stage three consulting firms
A group of three to four people who were previously very skilled and successful consultants
in other large consulting firms founded these firms through partnerships. However, where
these firms are markedly different is in the fact that they, from day one, had a clear-cut vision
and idea of how to get there, formed by a consensus among the group of founders. The
founders have identified strategic positions in the consulting market, which offer unique
opportunities and allow their firm to grow. Furthermore, because the founders were a group
they have been able to draw on each other’s skills, and thereby obtain synergy effect in the
very early stages of the start up. Investments have been made in advance, in order to be ahead
of the expected growth and development.
As a stage three firm grows and becomes stronger, both financially and with
reference to resources and capabilities, it gradually starts to broaden its services and maybe
opens offices in other cities. Employees specialize in practice areas and young and newly
qualified consultants are hired. This allows the firm to take on large projects with lower
priced staff and thereby improving the economic advantage of the firm. Furthermore, it allows
senior partners to focus on strategic management. Training programs, knowledge sharing and
compensation schemes are elements which are adapted and improved to fit the growing
organization. However, to support the increasingly diversified firm a decentralized structure is
adopted which delegates responsibilities and improves career opportunities. In the end, the
true stage three consulting firm can be described as a full-service provider, but also as a firm
with several small independent, and to some degree, detached business areas.
Growth becomes a competitive parameter that is highly critical for the future of
the firm. Only through high annual growth rates, and preferable rates, which are higher than
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the industry average, can stage three consulting firms continue to develop and attract new
employees. Experiencing high growth then goes from being an organizational goal, to being a
necessary component for large consulting firms in order to stay competitive relative to the
other large and international consulting firms who operate on the Danish market.
“There is no doubt about the fact that the general growth in Denmark will drop. We are used to
growth rates of up to 35 % and this can not continue. However, it is a clear goal for us to have a
significant growth and a growth higher than the rest of the market. And it is not supposed to be a
growth rate of 7 %, no; growth has to so high that it creates opportunities for people. In this
type of firms, if we do not grow, then employees will leave… If new opportunities are not
continuously created then the most talented, who aspire for the next level, cannot move on”.
CEO of a large strategy and operations consulting firm (H/08:20)
Growth processes The successful stage three consulting firm is characterized by having a
strong and cohesive organizational culture through which it enables and motivates its work
force. That is, these firms manage to build a significant organizational capability through
culture, which acts out a significant role in reaching the objectives of the organization.
Therefore, it is highly critical for these firms to direct management efforts towards this area.
Managers openly emphasize and talk about firm culture and its beliefs. Important here is that
the culture of the firm must continuously be articulated, not only in talks and speeches but
also in direct actions. Through initiatives, employees are given a high degree of responsibility
over important elements of the organization design. Once responsibility and agreement about
these elements are reached, employees become vocal advocates of the firm’s culture and
beliefs.
“Two years ago we introduced “process owners”. A process owner is someone who have the
responsibility of developing and running a certain process in the firm; quality management,
recruitment, culture, education and training etc. Large or important management posts. Some
consultants choose to wear that hat and undertake a managerial responsibility”.
CEO of a large strategy and operations consulting firm (H/27:40)
A strong organizational culture supports the entrepreneurial drive, which resides
in the type of people who are hired into stage three firms. A common characteristic for these
people is that they undergo a thorough screening process in order to make sure that they fit
with the organizational culture and that they have an entrepreneurial capability. This
entrepreneurial capability, which is equally important at all levels of the firm, foster new ideas
and improves the dynamic capabilities of the firm. When a stage three firm manages to create
or improve the entrepreneurial capability among its employees to change existing routines and
practices, the firm will leap towards new capabilities and thereby a wider set of growth
opportunities.
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“In reality this has been the basic model; not thinking in professional areas but thinking in
persons and creating the settings in which the individual can get energy and support and
become motivated to work on what one is enthusiastic about… For example the SAP area which
is actually a very peripheral area in our firm has been carried by a contact to a few, like all
other in the firm, truly dedicated persons”.
Partner of a large strategy and operations consulting firm (I/04:20)
Based on an accumulated stock of knowledge and resources combined with a
highly entrepreneurial management and workforce, these stage three firms manage to
diversify. The interviewed firms provide consulting services in up to twenty different areas
that are all related to the core competences of the firm. Related diversification becomes a
powerful mean to achieve growth and consolidate the firm as a full-service firm. However,
equally important is also the unrelated diversification that takes place. As these stage three
consulting firms work for and with the most important firms in the country, they get a first-
hand impression of new growth opportunities and how these can be leveraged via unrelated
diversification.
“Some of the business areas which we have launched move away from consulting and into doing.
Further down the hall there is a product development centre, not consulting, they do actual
product development… Where we can see that our customers have problems with critical mass,
consulting does not give any meaning… We want to take in the executing part which some of our
customers cannot lift”.
CEO of a large strategy and operations consulting firm (H/20:00)
Traditionally, unrelated diversification in knowledge intensive industries, such
as the consulting industry, has a low chance of succeeding because of the risk of
overextending employees and diluting resources. However, growth via diversification
demands that senior managers ensure that firm resources travel to their most productive areas.
One way of dealing with this is to create strategic business units within the firm. These
become small relatively self-contained sub-units, which are managed by younger partners
with a high potential for the future. In order to keep the large firm as decentralized as possible,
these business units are responsible for important aspects such as obtaining new clients and
developing the unit’s employees and capabilities.
These large consulting firms typically employ 50 or more consultants and have
critical mass in some areas of their business. Critical mass is used to describe the existence of
a sufficient momentum in a system, such that the momentum becomes self-sustaining and
fuels further growth. Hereby, volume becomes important, as it is necessary in order to achieve
critical mass.
“We have a vision that we want to leave footprints and this demands that we are good at what
we are doing and enough so that we can deliver heavy and solid all the time, that is a critical
mass in what we are doing”.
CEO of a large strategy and operations consulting firm (H/12:00)
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Providing consulting services of high quality, in turn becomes self-sustaining as
firm reputation is gradually spread by word of mouth, through references and by branding.
Thereby, elements from industrial organization become a more important factor, such as
market leadership and power. By broadening knowledge of the firm and reinforcing
reputation, a large consulting firm can become the preferred consulting supplier. Customers
are under pressure not to choose low quality consulting firms, which do not deliver.
When consulting firms reach a significant size, it also becomes possible to
engage in growth measures more characteristic from industrial organization. Large consulting
firms acquire small 2-5 person consulting firms because they have a specialization, which fit
well with the overall business areas. However, large acquisitions and mergers are not common.
Furthermore, growth takes place as sequential steps in which the firm slowly develops
without offsetting its current capabilities. This can be both by adding new complimentary
services and by establishing new offices in different geographical locations. The same process
is used in relation to internationalization where the large consulting firms slowly establish
offices in the Nordic region and subsequently in Asia or Eastern Europe.
Growth barriers As the stage three firm grow to a size of 100-200 employees it becomes
difficult to maintain the unique culture and entrepreneurial spirit from the initial stages.
Because the firm are specialized in several self-managing business areas with their own
operational manager and assigned consultants, these business areas start to resemble small
“profit centres” within the organization. Incentive schemes conditions these “profit centres” to
behave in a manner where they act and think independently and hereby develop their own
sub-culture. A result is a lack of coordination across business areas, different approaches to
customers, and difficulties with sharing personnel for large projects.
“We have a lot of small business units… And unfortunately this is reflected on our web page and
shows that we consists of a lot of small groupings more then it is an expression of our business
areas. In general we do not have 32 different professional areas but only four”.
Partner of a large strategy and operations consulting firm (I/58:20)
Because of the lack of shared firm culture and approach, some employees might
find that the firm is loosing some of the informality and charm they initially appreciated. If
incentive schemes are not designed in a manner, which accounts for both those employees
who want to work hard and those who also want a fun job, some employees will not accept
the increase in organizational complexity. Furthermore, those mid-level consultants who have
held managing positions will expect to be rewarded either by promotion to partner or through
a higher salary and development. If the firm does not manage to sufficiently motivate its
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employees, they will begin to leave for other consulting firms that are smaller and allows for
more individuality or better career prospects.
“Internally it is a constant challenge to maintain an attractive place of work; to keep it fun and
at a high standard. But this is a derivative of growth and being as large as we are”.
Partner of a large strategy and operations consulting firm (I/04:20)
As already discussed, managerial pressure increase along with an increase in
firm size. The managerial workload becomes larger and larger, especially if management still
wants to maintain a role as producing consultants. Consequently, managers become the factor,
which inhibit growth because they are constantly in deficit. That is, up until a certain point it
was been sufficient that it only was the management group who developed and planned ahead
for the firm. Mid-level managers where responsible only for operational decision-making.
This was possible because managers were able to maintain an overview of the entire
organization. However, as this is not possible anymore, the consulting firm risk overlooking
important growth opportunities in their respective business areas because they have not direct
control or insight of what is happening. Instead, the mid-level managers who are in charge of
a business area must use the insights, which are gained through customer contact to explore
new growth opportunities, and not only worry about the completion of a project. Hence, if
management does not establish a food chain of new managerial talent that are capable of
thinking strategically and not only operational, then this will naturally impose a growth
barrier. Management will become overburdened and miss growth opportunities.
“The issue of cultivating strategic managers who are not only operational managers is
important. When we were only eighty to a hundred employees, we could manage with the fact
that only a few people had strategic vision, me as one of those, and then many very skilled
operational managers. But where we are now then it is necessary that the managers of our
business areas are in fact thinking strategically and are capable of developing their own
businesses”.
CEO of a large strategy and operations consulting firm (H/05:15)
An important element in the future growth of the stage three consulting firm is
internationalization. Through a broadening of the geographical scope, the firm can overcome
the natural barrier, which the relative small Danish market constitutes. However, this is not an
easy task, as there are no guidelines or “best practice” for internationalizing a consulting firm.
So, in this context, stage three consulting firms actually behave as stage one consulting firms
but on the global market. That is, the largest and most successful consulting firms in Denmark
are slowly trying to establish themselves in other countries through a trial and error approach
which very much resembles the opportunity driven growth characteristic of the initial phases.
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Therefore, as long as the stage three firm has to struggle with finding the right growth recipe
for the international market, this can constitute a significant growth barrier.
“How we in actual fact handle this challenge, I am not sure we fully realize yet. We try some
things and we launch a lot of ships but in reality we do not know how to deal with this so far”.
CEO of a large strategy and operations consulting firm (H/07:00)
Stage three crises The crisis, which must be overcome by stage three consulting firms, is in
creating a “one-firm” firm. Attempts to diversify the firm and to bring in new units that have
not been fully absorbed in the firm have created a firm in need for a common culture and
approach to the consulting trade. However, this is complicated by the firm’s attempts to
internationalize, which furthermore runs the risk of fragmenting the firm. Hence, the objective
for the stage three consulting firm is to re-unify the firm and identify a sensible way to
broaden geographical scope without creating more units that are disjointed. The notion of the
“one-firm” firm must be translated down through the hierarchy so that all employees,
especially mid-level managers, act towards this goal. If this does not happen then the firm
runs the risk of organizational inertia and eventually of breaking-up.
5.2.4 Concluding remarks on growth development
The three growth stages correspond to a series of internal crises related to management,
control and organizational coordination. The resolution of one crisis sows the seeds of the
next crisis and hence, suggests that growth can only take place trough organizational
development. On clear finding from evaluating growth across size, is that firm growth is
dependent of the developmental capabilities of firm managers. Hence, management plays a
pivotal role. Furthermore, as the consulting firm grows and develops it resembles a
professional firm more and more. That is, the managerial and organizational side of the firm
develop the small owner-managed firm to a professional firm where strategy and management
are essential. An overview of the suggested life cycle development and related managerial
issues is presented in appendix Q. Finally, it is important to consider the limitations of the
analysis of growth development. Developmental change did not take place through abrupt
changes, but instead as a continuous process accumulated gradually and incrementally over
time. The interviewed firms have also moved back and forth in their developmental stages and
it is never a hundred percent clear where a firm is placed. Development on the individual firm
level has most often been a result of small and less obvious incremental changes and the
manager’s perception of these.
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5.3 Growth processes
The final step of the analysis evaluates significant growth processes and strategies that have
been used by the more successful management consulting firms. On the surface, the nine
interviewed consulting firms seem different; they have different competence areas and
customers, vary in size and scope, and appear different on the market. However, there seems
to be some underlying and shared processes, which enable growth and success.
5.3.1 Culture
Consulting firms are, like all other organizations, social communities and they develop a firm
specific organizational culture and behaviour. The culture in a consulting firm is, however,
some what different from traditional firms. There is only a limited amount of formal rules
concerning problem solving, and often consultants spend a lot of time in the field without
close supervision. Without a clear and present hierarchy, there is always the risk that
employees act in ways, which are contrary to firm strategy.
However, the more successful consulting firms are characterized by having a
strong culture, which serves to reinforce the alignment of strategy, and internal practices with
the way employees act. From day one, new employees are lead trough an introduction
program that teaches them the values of the firm’s culture.
“The whole issue around culture is important. No unnecessary bureaucracy… It has to be fun -
we want to be mean something for each other, create energy and be informal… This we are
often credited for by employees who arrive from other consulting houses”.
Partner of a large strategy and operations consulting firm (I/04:20)
Culture refers to the set of beliefs employees hold about how they are expected
to behave and what values they are to share with fellow consultants. In these successful
consulting firms, there is a strong culture, which means that beliefs and values are shared and
accepted across the entire organization. Even though, it is difficult to specify the beliefs of
each interviewed firm as they obviously vary some common themes are present across
successful firms. The importance of the consulting trade, work has to be fun but solutions
always of a high quality, and the firm is a unified community are three important beliefs that
carry across the successful firms.
The managers of a successful consulting firm actively reinforce firm culture and
beliefs in their daily work. Through formal and informal talks, participation in large projects,
and mentoring they shape it by their behaviour and decisions. Hence, managing culture
becomes an important growth process both in the alignment of the firm, but even more in
periods of change where effective cultural management can create the foundation for moving
in a new direction.
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5.3.2 Entrepreneurship
Entrepreneurship has been a characteristic across all the interviewed firms. However, there
were significant differences between the more successful consulting firms and the less
successful consulting firms in two areas.
First, among some of the interviewed firms entrepreneurship resided only with
the founder who especially in the start-up phase was capable of carrying out different ideas
and develop the firm into a small business. However, as the consulting firm has increased in
size the founder has become overburdened as he maintains sole control over decision making.
Thereby, instead of challenging existing routines and practices the founder has emphasized
what currently works in the firm. Consequently, the firm becomes entrenched in status quo
and the founder changes from being an entrepreneur to simply a manager, and is more
concerned about survival as opposed to growth. In the more successful firms,
entrepreneurship did not reside only within the management team but in the entire
organization. That is, all levels of employees have entrepreneurial characteristics, and when
new staff is hired, entrepreneurship is one of those traits that are screened for. Hereby, it is
secured that an entrepreneurial capability is broadly present and supported in the firm.
“First of all, a consultant has to be well founded in the consulting trade but it is also a
prerequisite that all consultants, especially those who advance in the firm, wish for things to
develop around them. The project just solved and the reference just gained, where can these
bring the firm in the future?”.
CEO of a medium sized strategy and management development consulting firm (F/22:00)
Second, as entrepreneurial skills are very much dependent of previous business
experience and knowledge accumulated in earlier consulting jobs, the interviewed managers
display different entrepreneurial competences. The greater the entrepreneurial skills of
management, the more diversified the growth path, which they can embark on. As a greater
range of services and unrelated business areas are explored, there is an increasing need for
entrepreneurial flair and managerial ability to maintain organizational coherence.
Finally, it is important to acknowledge that the consulting industry, to a high
degree, is a person-driven industry. That is, firms, ideas, visions and development happen
mostly because one individual has the commitment to initiate something new. Hence,
consultants are highly educated and most often highly experienced individuals who are not
easy to manage. Instead, they manage others - their customers - by advice and counselling and
are probably not always good at receiving advice and guidance from others. This implies a
significant challenge on the human resource area concerning how these people are best
managed.
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5.3.3 Strategy
The most successful consulting firms separate themselves by the fact that they have a clear
and well-defined strategy, but even more so in their strategic execution. There is an actual and
detailed design of the firm’s strategy, which entails positioning, market focus, service focus,
financial objectives and characteristics of employees. Thereby, these firms are capable of
forming a strategic plan that typically covers the next three years, but more important, they
make it happen. Management decides the specific way in which their consulting firm is to
compete against other equally strong consulting firms in the market. The strategy, which is
devised, is not oblivious to competitors and market. Instead, these elements are aligned
through a series of clear and focused goals. The less successful consulting firms were
characterized by having only a vague idea of how to run their firm. Furthermore, they are
more motivated by that of being in the consulting industry, as opposed to the actual
professional management of a consulting firm.
Through communication of a clear and focused strategy, the more successful
firms create a strong strategic identity, which in turn is reflected in the behaviour of all
employees throughout the firm. Hence, it becomes a guideline, which works in relation to
firm culture, and leads to a broader and deeper understanding of why the firm are offering
some services and not others, and in turn, which growth opportunities fit with firm strategy.
Furthermore, customers who can better understand what the core competencies of the
consulting firm are also recognize a strong strategic identity. Taken together the more
successful consulting firms are better at positioning and focusing their resources and
competences and thereby avoiding strategic drift.
”I believe that you have to set clear and focused goals. You have to follow a strategy and make a
conscious decision, which all employees agree on… Where do we want to be in three years?
Everybody must shake hands and agree on the direction. That spirit must reside in the firm… It
you have the right position and the branding then I do not think that you, as a consultant firm,
will be affected that much by economic fluctuations”.
CEO of a medium strategy and IT management consulting firm (D/32:10)
Consequently, strategic driven growth is characteristic of the more successful
firms, whereas opportunity driven growth is characteristic of the less successful firms. It is
very clear that the more successful firms consider the management of a consulting firm more
in the lines of professional firm management consisting of a board, a CEO, and mid level
managers. There is a focus on the development the managerial qualities necessary to achieve
growth and not just a focus on being good consultants.
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5.3.4 Resources and competences
Resources are pulled into the firm according to what might be called an inverse competence
pyramid. The majority of consultants, which are employed, are in the age of 40 and above.
These people are characterized by having at least 10 years of experience from other
consulting houses or industries, they know their trade, and have a substantial educational
background. The interviewed managers find that seniority, experience and robustness are
important for customers, and hence only employ a limited amount of young consultants and
newly qualified candidates. Obviously, if a firm is to deploy young consultants it demands
that some of those assignments the firm solves are of a broad analytical character. In the face
of the relative strong lack of labour, it clearly becomes imperative for consulting firms to
attract the best people. Here, the largest consulting firms have an advantage because they
offer more opportunities than the small consulting firms do. However, small consulting firms
are quite able of attracting these “stars” as well, simply because they offer more flexibility
and influence. This raises a question of what it is that makes these people or resources unique
to the extent that they can enable and sustain growth for the firm.
Some consultants have a large customer network that is tied very closely to their
person. That is, if they move from one firm to another then they are able to bring along almost
all their customers, which will mean that a significant amount of customer capital is injected
into the new firm. In addition, some consultants are perceived as gurus in the industry, and
can in that manner supply the firm with something unique. Another way to bring uniqueness
into the firm is by the use of certification. Although still not very recognized in the Danish
market, some firms adopt a strategy, which necessitates that all their consultants must be
certified and even “best of class” consultants. This allows the firm to send a clear signal to
customers about the perceived level of quality. Finally, some consulting firms employ some
business and economic majors, but also make sure that their resources pool is heterogeneous
by employing candidates from other various fields. These “untraditional” consultants have the
capability to develop competences, which are novel, and allow new opportunities to be
explored. The above-mentioned strategies for attaining and deploying resources in a manner
that allows them to become heterogeneous are characteristic of the more successful firms.
That is, consulting firms have to ensure that the resources, which go into the firm, its
employees, are developed into something unique, inimitable and valuable for the firm. This
happens by fitting these resources to the strategy of the firm, its culture and organization
design. Hence, it is not possibly for a consulting firm only to differentiate on having good
consultants because the competitor will most likely employ people with the same level of
skills.
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”The industry has in general become much more professional. There are many really skilled
consulting firms and on some fundamental level, we all have the same capabilities. When I were
in Rambøl in the 80s we got by on the fact that we were better educated than our competitors,
we could make reports and analysis that made the angels sing… However, today several firms
can do this so here we cannot differentiate ourselves. Where we instead need to differentiate is
through a different twist or approach to the market”.
CEO of a medium sized strategy and management development consulting firm (F/36:40)
The consulting industry is now doubt a very knowledge intensive industry.
Consulting firms are in the business of appropriating intellectual insights from smarter clients,
and then broadening, branding, and providing it to the more needy clients at a premium price.
Another difference between the more and less successful consulting firms is the efficiency
with which knowledge is created, selected and distributed. Those mechanisms, by which
employees discover and develop new knowledge, go beyond the individual intellect and
touches upon the utilization of organizational learning.
“Development happen trough the projects we solve. It might sound a little cynical, but this is the
way it is, no matter what people might say. To be able to secure that we are a knowledge firm
where development is incorporated in the daily routines by engaging people who have the basis
for solving an assignment, but are maybe stretched competence wise is where the primary
development happens. You can send them on a lot of courses but it will not give as much as if
you are able to build that mechanism into the firm”.
CEO of a medium sized strategy and management development consulting firm (F/28:35)
“We use professional knowledge teams, development of different concepts, weekly meetings with
professional knowledge sharing and development, seminars three times a year… There is a clear
cut focus on professional development”.
CEO of a medium sized communication consulting firm. (E/37:50)
Routines and processes are systemized and embody the skills of the organization.
Knowledge resources and processes become heterogeneous within the firm as it develops,
coordinates, and exploits those general resources which management choose to pull into the
firm in the shape of employees. The learning-by-doing process means that the firm is always
adding to its existing stock knowledge. Capabilities, which are created in a systemized
manner, are so through subtle relationships that depend on the way information and
knowledge is shared and exchanged throughout the firm. Over time, the firm will accumulate
an excess stock of knowledge resources which the reasonable manager will seek to realize
into new and related profitable outlets. Hereby, the consulting firm is able to create
capabilities which rivals will find difficult to duplicate, as they resides on specific resources
and knowledge that are tacit and as such, only valuable in the firm.
This accumulation of heterogeneous resources is reinforced by strategic
recruitment. Largely, it becomes difficult for consulting firms to stand out based on
professionalism. Instead, it is important to hire the right people at the right time. That is, it is
not necessarily another “typical consultant” who is well founded in strategy or operations
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management who will benefit the firm most. The crucial issue is to employ people with skills
that can leverage what the firm already exceeds at, and then through a synergy effect, explore
new opportunities and ensure that dynamic capabilities are developed.
“Where we can differentiate ourselves is that we in some areas have a certain twist to the
market. We try to take in different competences… For example, we have a rhetoric employed,
and the meaning is not that she is supposed to be as the rest of us in six months. No, it is to
maintain what she can actually do and that we can use this in our management development
program”.
CEO of a medium sized strategy and management development consulting firm (F/28:35)
5.3.5 The factor market
A consulting firm might have an appropriate strategy, but unless the right employees are
present to deliver on that strategy, it is of no use. It is a fact that the pool of potential
candidates is larger in density in the big cities in Denmark. Thereby, some firms have an
advantage in attracting the right people because of their geographic placement. In addition,
several of the successful firms have attained employees in lumps from large international
consulting firms, because they have been able to match and exceed either salary or
developmental perspectives. Obviously, in order to do this, a consulting firm has to be large
and professional enough to compete on this level. Hereby, some successful consulting firms
profit by the fact that young candidates are trained in the consulting trade in large firms such
as Accenture, Mckinsey or BCG and then snatch them when they are experienced.
Conditions for competence clusters are present in Copenhagen and Århus.
Furthermore, both areas have more or less direct access to higher learning institutions such as
Copenhagen Business School etc. Furthermore, the concentration of industries is very high
meaning that customers are in close proximity. Finally, consulting firms in these two areas
have a more direct access to knowledge heavy public institutions such as DMR. However,
because the management consultant industry is relative new and at the same time a very
knowledge intensive industry, firms only cooperate at a very limited degree. This means that
the potential benefit of competence clusters are not fully realized at present.
“It is difficult to cooperate in this industry because a consulting firm will always use an
assignment to build its references and its customer capital. It demands a high degree of maturity
in order for the parties in a cooperation constellation to be loyal. I have burnt my fingers on this
many times!”.
CEO of a medium sized strategy and management development consulting firm (F/50:45)
5.3.6 The product market
External conditions on the product market affect growth at the individual firm level, but only
to a limited extent when compared to other more traditional industries. When perceived by the
interviewed managers, the general perception is that the product market serves to either
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moderate or accelerate firm growth, but that real growth development has to come from
within the firm. Hence, the industry is characterized by only paying little attention to market
structure, competitors, and positioning issues. This can have the affect that external changes
are overlooked, which inhibits growth.
Among the more successful firms, there is an agreement upon the fact that an
economic cool down will mean a further consolidation of the market. Those firms that are
perceived to be in danger are the less established consulting firms. This reason for this is that
customers cannot afford to choose consulting firms who do not deliver the best quality.
Thereby, there is a perception of “survival of the best” in the industry.
The interviewed managers do not perceive the general competition to be tough
and competition is often limited to the strategic group, which the individual consulting firm
operates in. Often the interviewed firms are in competition with the same 5-6 firms, among
which competition, however, is very hard. Hence, many consulting firms exist without a
broad knowledge of incumbents and their development, especially the less successful.
“It is an industry where you do not know much about the competition. I really do not know what
the others are capable of… We do not deal with competitors strategically because of two
reasons; a lack of insight in to what is important and a lack of resources”.
CEO of a small management and event consulting firm (C/01:08:05)
That is, competitor analysis is not applied to a great extent. This also means that
consulting firms compete on quality and references but not price or quantity. However, as
already touched upon, the more successful consulting firms are those who have managed to
position themselves strategically, and thereby leverage their superior quality even further.
Competition wise, the more successful consulting firms have managed to position themselves
just below the range of the large international consulting houses such as Mckinsey and BCG.
This allows them to demand a premium price without rents being eaten by competition.
Customers have increased their bargaining power and consulting firms
experience this through less loyalty, more price bargaining, and incomprehensible buying
patterns. This places more focus on the consulting firms’ ability to leverage existing customer
relationships and use these to support the strategy of the firm. Especially, the less successful
and small consulting firms are suffering under this change in power as they are much more
dependent on one or two large customers.
In line with the lack of labour, which have been a core issue in the past years,
consulting firms experience that employees demand more. This is in terms of a higher pay,
better development, and carrier opportunities, while they at the same time demand a balanced
work life. This underscores how difficult it is for consulting firms to find the right people and
fit these to the firm strategy. Because Danish consulting firms primarily employ experienced
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consultants there are no formal training programs as in the large international consulting firms.
This means that it takes longer time to educate new employees in the specific routines and
ways of the firm, and therefore it is crucial that they are retained for a longer duration of time.
As customers become more professional in their consultant handling they also
gain more insight in the consulting trade. Consulting firms increasingly experience that they
are opted out because large customers develop their own in-house consulting units.
Furthermore, there is a pressure from those consulting firms, typically the large international
ones, which deliver standardized services based on tools or frameworks.
As the industry is still characterized as very non-transparent, despite efforts
from both incumbents and organizations such as DMR, entry barriers remain small. This
means that established consulting firms can suddenly be in competition with a small one-
person firm. Hence, customer references only create entry barriers to a certain extent. As long
as there are no general support for certification in the industry and only a fraction of the entire
amount of consulting firms are members of DMR, it will be relative easy to get established on
the market. However, once established and recognized it becomes difficult to change the
image of the consulting firm and choose a different path. This implies a high degree of path
dependence concerning those choices that are made in the initial phases.
5.3.7 Organization design
The interviewed consulting firms displayed different organization designs on various aspects
of decision-making power, coordination and incentive systems. The key insight from the
analysis of these various designs is that it serves as a competitive advantage and strategic
variable. Several core issues of the organization design specific for consulting firms were
identified. These core issues can be viewed as continuums where the consulting firms place
themselves according to their strategy, core competences and place in the market. It was
obvious that the more successful consulting firms managed their organization design in a way,
which employ and develop routines and systems that encourage risk taking, learning, and
flexibility and enables the firm to create value as goals vary with changes in the external
environment. On the other hand, among the less successful firms no conscious choices or
decisions where made as to which direction the firm is going to develop in, in the first place.
Hence, in these firms the organizational structure was less consequent, and as such not able to
carry out its function. Herein lies the difference between sustaining a growth path and
determining the path in the first place. The various core issues of the organization design are
outlined below and an overview can be seen in appendix R.
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Authority structures for controlling decision-making processes can be placed on
a continuum ranging from a traditional partnership, over a construction with only a few
partners to a perfectly professional management. The more successful consulting firms have
separated ownership from the professional management of the firm. In most firms, this has
happened by appointing one of the partners as CEO and at the same time limiting the amount
of partners to 2-6 people. The less successful firms still operate with a partner structure, which
seems to inhibit growth by less risk taking, less innovation, and by maintaining a very
centralized structure. In general, there is a tendency for the more successful firms to move
away from the partner concept, and instead focus on the professional management of the firm
as a precondition for managing growth. One firm even followed this process all the way
through by abolishing the partner concept and hiring a CEO from outside the firm.
“The SWOT analysis showed that the challenges the firm was facing with regards to growth,
was the fact that it was the owners who were in the board, it was the owners who were partners,
and in reality it was the partners who yielded influence on daily operations. This was one of the
reasons why growth did not take place. There were simply too many considerations to be made
in the partner circle, there were no risk willingness… One of the most important things which
happened in the new strategy course was the abolishment of the partner term and a
reconstruction of the firm commercially with me as the CEO”.
CEO of a medium strategy and IT management consulting firm (D/08:40)
The employee structure can range from many permanent employees and only
few freelance consultants to very few permanent employees and a large network of associated
and freelance workers. The advantage, as stated by those firms who make great use of
freelance consultants, is a cost advantage as they only have a staff to pay when they are
actually working on projects. However, this also raises the need contracts to ensure that both
parts are not subject to moral hazard or opportunistic behaviour. Hence, this constellation
demands an organizational structure where systems for coordinating, monitoring and
evaluating performance are in place. The more successful firms employ freelance workers
with the perspective of employing these at a later time.
Incentive systems to reward individual performance range form a high level of
bonuses, performance pay and provision to fixed pay. The more successful firms have
managed to create an incentive system, which incorporates the best of both ends of this
continuum. In order to attract and retain the best people these systems accounts for those who
wants to work hard and long hours, and for those who want to balance their work life with
their private life.
The development of routines and thereby ways in which new knowledge is
generated and defused is to a great extent dependent of the consulting firm’s strategy. The key
choice is between standardized solutions and project based solutions. The first, assure the firm
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has consistency in its problem solving, where the latter allows for a larger range of tasks to be
handled. It is not clear which end of the continuum the more successful firms are in however,
it is clear that these firms have made conscious choices about this and incorporated this
approach in their overall design.
The more successful consulting firms have formal introduction programmes and
training/development systems, which serve to generate both new knowledge, but also to shape
resource and knowledge flows. Consultants are expected to devote a specified amount of days
on individual development, as well as participation in research and publications is appreciated
and awarded. Contrary, development in the less successful firms happens on a very informal
basis, and primarily, through on-the-job training and different emerging opportunities.
All the interviewed consulting firms employ senior consultant with a vast
experience and educational background. Using this strategy, consulting firms strive to be
identified with thought leadership and high quality in their solutions. Only a few of the largest
consulting firms employ students or people who have recently finished their education. This
means that they can delegate less demanding work to lesser-paid employees. However, the
chosen competence level must fit the rest of the organization design, such as whether or not a
firm provides standardized or tailor-made solutions. The less successful firms have not made
this distinction.
The main finding behind the organization design of consulting firms is that it
reveals several opportunities to differentiate from competitors. The crux seems to be to select
a direction for the firm, aligning strategy, and then create organizational coherence through
the design. The less successful consulting firms were clearly those where the organization
design was not aligned with a growth strategy for the firm.
5.4 Summary of analysis
From the analysis of growth in the consulting industry, a number of important issues and
challenges are raised. A change in the size and division of value in the industry has taken
place. Development in consulting firms is challenged as it often touches upon some
managerial characteristics, which are strongly embedded in the firm. A clear-cut focus on
strategic growth as opposed to opportunity driven growth is crucial in relation to success.
Consulting firms must strive to become unique and not copy the practices other consulting
firms. Size does matter, and successful consulting firms establish critical mass in business
areas and thereby sustain development. The consulting industry is characterised by a low
degree of professional firm management and focus organization design. These issues imply
sources and limitations to growth, which must be evaluated.
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Chapter 6
Discussion
Based on the empirical findings a number of crucial issues appeared regarding growth in the
consulting industry. This chapter discusses these issues in turn and how this is related to
growth theory (sources and limitations) and the formulation of an appropriate growth strategy
for consulting firms.
6.1 Change in the size and division of value
An important result from both the industry analysis and the empirical analysis seems at first to
be external but will, at a closer inspection, have internal effects on how to manage growth in
the consulting firm. As discussed in the industry analysis in chapter two, a shift is happening
in the balance of power in the consulting market. The consulting firm is, like any other
business, a nexus of contractual relationships between its various stakeholders: Owners,
employees, suppliers, lenders and clients (Graubner and Richter, 2003). The two most
important stakeholders in this context are the owners (supply side) and the clients (demand
side) who are in a continuous tug-of-war over the value generated by the consulting firms.
In the period of high growth in the industry from 2004 up until now, the size and
division of value have been in the favour of consulting firms. Customers have used consulting
services in almost every aspect of their business, and the demand has been high. This means
that most consulting firms operating in the period after the millennium have been able to
make a profit. This profit has been used for two things, satisfying the demand of owners and
employees and developing the firm. However, the distribution of value is shifting towards
customers. In general, the size and division of value is changing in the favour of customers, as
the ability of the consulting firm to appropriate value diminishes. Inevitably, it will have an
effect on the internal organization of consulting firms.
First, it means that the capacity, which consulting firms have to satisfy the
demand of both employees and partners are diminishing. Traditionally, consulting firms have
been run with highly skilled employees who benefited from generous compensation schemes
or a partner group who divided the profit, but these incentives are becoming weaker.
Combined with the already existing difficulty of finding the right employees, this raises
interesting HR related matters. The claim that the war-for-talents (Maister, 1993) will become
an increasingly important competitive arena for consulting firms still holds true, and it is
exactly here that some firms can gain a competitive advantage. The argument is that
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consulting firms must pay closer attention to HR management in order to secure new talents
and retain those already in the firm. This can be done through several different HR practices.
Recruitment must still focus on obtaining the best candidates but not of the same
kind (economic majors, MBAs, etc.). Instead, employees should be found from a much larger
and heterogeneous pool of candidates, which have not traditionally been considered. Hereby,
the consulting firm can expand its horizon and hopefully also its capabilities and be able to
offer something new and unique to the customer.
Training and development is another important HR related matter. In tough
times, senior partners might tend to focus on selling, more than on developing the younger
staff. This is especially the case if management is made up of senior partners and not a
professional CEO. In the long run, this will result in lower value added services and lower
quality. On-the-job training is the best form of development and internal mentoring from the
most experienced consultants facilitates this.
Incentives schemes and motivation have traditionally been constituted by the
prospect of partnership. However, in the future this will not be as motivating as earlier
because of the greater risk a partner bears. Therefore, consulting firms must develop other
means to motivate employees. More balanced incentive scheme, which do not rely only on
financial incentives but also on non-financial incentives should be developed. Providing a
well-balanced work-life and opportunities for training and development are decisive. In
conclusion, there is a need to examine and evaluate the organization design of the consulting
firm, and if this is in accordance with the changing power balance between consulting firms
and their customers.
The discussed change, which I argue is underway in the Danish Consulting
market, is not unique to the global consulting industry. On the US market, large players such
as Arthur D Little and niche players such as Razorfish and Oliwer Wyman have failed to react
and entered bankruptcy or take-overs. Other major players such as Accenture have given up
their partner structures and more are expected to follow suit (Niewiem and Richter, 2004).
Finally, there is another important spin off from this discussion. If conditions get
tougher, differences in strategy will show more openly and the direct effect will show on the
bottom-line. There is an immediate need for Danish consulting firms to start contemplating
their management practice and strategy and then align this with the firm in order to find new
ways to create and appropriate value. This will at the centre of the rest of this discussion.
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6.2 Developmental leadership
As already suggested, growth is imperative in the consulting industry in order to develop as a
firm. However, it was identified in the analysis that one of the most significant barriers to
growth is to be found within the management of the consulting firm, especially significant for
small and medium sized consulting firms. Hence, the growth of the firm is inseparable of the
personal growth of its leadership (Greiner and Malernee, 2005). The development of the firm
requires that the founder is capable of reformulating the firm and set aside his position of
power and ownership. A highly critical argument is therefore that if a firm is to grow, this is
very much dependent of the willingness of the founders or partners to change within
themselves. Therefore, it becomes interesting to consider growth in a developmental
perspective, and how this is related to management.
6.2.1 A developmental perspective in consulting firms
Managers of a consulting firm are by definition change agents in their organization (Avolio
and Gibbons, 1988) and they should be aware of it. This indicates that they should manage
from a developmental perspective. Most often, problems occur because of the tension
between the “pull of the future” and the “hold of the past” (Greiner and Malernee, 2005). This
was typically the case in the small and medium firms. A senior partner would not give room
for young partners or the founder was not ready to find a business partner to share his firm
with. Consequently, it becomes important for managers to understand the duality of growth,
that is, how one situation contains the seeds to for a new crisis and that past solutions will
have to be reconsidered (confer appendix Q).
In the stage one consulting firm, growth was both enabled and inhibited by the
founder. Therefore, the founder must disregard his own will, in the interest of the firm.
Through this, the firm can overcome the growth barrier of centralization and control, and
establish itself as a real firm with an area of specialization. However, in stage two consulting
firms, the intense focus on professionalism and specialization creates the possibility that the
firm will become too focused and not capable of developing along with emerging market
opportunities. Once again, management must reconsider the strategic direction of the firm in
order to spur further growth via diversification. A stage three consulting firm has managed to
diversify and provides a wide range of consulting services, but also here the firms runs the
risk of entering its next crisis. The high degree of diversification will have an impact on the
firm, which will develop into many small sub-organizations, each with their particular
speciality. This can mean that the firm suddenly sends mixed signals, have different
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approaches to customer handling and the consulting trade in general. In the end, the firm will
either be broken up into subsidiaries or manage to establish itself as a “one-firm” firm.
Some small consulting firms express a wish to stay small in order to be free
from the bureaucratic fuzz of a large organization. However, the above discussion still applies
to these firms. That is, to maintain a viable firm they must still find ways to grow other than
in size or geography. This implies that the small consulting firm should form alliances with
other small consulting firms in order to draw on different practice areas and have the critical
mass of consultants to engage in large-scale projects. The problem, however, is still the same,
the need for trust, openness, and allowing other people to have a say in decision-making is
decisive, and the manager must open up in order to enable growth. This discussion suggest
that the managing partner(s) of consulting firms hold within them the key to achieve growths
and that the key is in the ability of “letting go”. Firm growth, especially in a knowledge and
people intensive industry as the consulting industry, requires that senior partners accept a loss
of power and control.
6.3 Growth strategies
Consulting firms have a unique position as they can learn from those clients who have
managed to achieve high growth rates and apply that insight on themselves. As discussed in
section 6.1, strategies for creating and developing more value must be explored. Five growth
disciplines; base retention, market share gain, market positioning, related and unrelated
diversification constitute the growth portfolios of companies that knew how to maintain
steady double digit growth in difficult times (Tracy, 2004). These will each be discussed in
turn in the context of consulting firms.
Improving the firm’s customer base retention is the most obvious way of
improving growth, but this is made increasingly difficult by the decreasing loyalty among
customers. Therefore, consulting firms must actively use these relationships to deliver and
create better value than their competitors. It is not enough simply to rely on a relative laissez-
faire relationship management through senior partners. Instead, the argument is that this must
be put into system. This is done by increasing and systemizing knowledge of customers, in
order to deliver and tailor better projects than consulting firms who do not have this
knowledge. Consulting firms can also affect customers’ evaluation of them, and thereby
increase their market reputation as excellent advisors. In practice, this is very much what
happens when customers recommend their consulting firm for the Danish Management
Consulting Award 10 . Several of the interviewed firms have been nominated for and won the
10 For more information on this, see www.dmr.nu.
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award in different categories. Indeed, letting customers become the primary source of
advertisement via word of mouth is the best possible branding strategy for a consulting firms.
Furthermore, consulting firms must leverage the economic advantage they have vis-à-vis
other consulting firms, because customers incur costs of using new consultants as they will
have to brief these about its issues, its personnel and where to collect information. In this
strategy is also the prospect of turning customers in to one-stop shopping customers and
engage in long and continuing projects. However, consulting firms must realize that there is a
fine line between an advantageous cooperation and simply exploiting customers. Therefore,
new customer openings and relationships must proactively be sought. No consulting firm can
afford to rest on its professionalism and wait for customers to knock on the door. Hereby,
customer relationships become a scarce resource for consulting firms and a way to sustain a
competitive advantage (Barney, 1991). This relationship is characterized as intangible and
difficult for competitors to imitate.
The other side of base retention is gaining market share. But how can this best
be accomplished when, as discussed, incumbents have a natural advantage? This strategy is an
obvious extension of adding more customers to your portfolio, but it is difficult to realize. On
the one hand, consulting firms can close the knowledge gap in order to reduce incumbents’
advantage or simply wait for customers to change their consulting provider, but this might
take years and does not prompt growth. Instead, consulting firms should pursue a value
adding strategy in which they differentiate themselves from competitors. Many clam to do
exactly that, but if you take a broad look at the web pages of Danish consulting firms, they
appear very much the same! For the most part, they hire the same kind of people, deliver the
same services, and have the same cost structures. The key is therefore to be able to
differentiate significantly from competitors through recruitment, value innovation, and cost
structures, as these are intertwined. All elements play an equally important role in the firm.
This will create a unique bundle of idiosyncratic resources and capabilities that competitors
cannot easily copy because of the intangible relationship (Barney, 1991).
Clear market positioning was one of those elements, which distinct high
performing consultant firms, and this should definitely be a core issue for management.
Because consulting firms have their daily walk among the decision makers and CEOs of
Danish companies, they are in a unique position to develop powerful insight about new
growth opportunities and changes that are under way in the market. For example, some of the
current top performers in the Danish consulting industry were able to identify and implement
LEAN services ahead of competitors and became operational powerhouses. Other consulting
firms have used their interaction with customers to identify opportunities of unrelated
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diversification, and then positioned themselves in new markets based on the advantage of
clear market insights. Hence, accumulated knowledge, experience and relations will allow for
a strategic advantage (Wernerfelt, 1984). However, this means that lower level consultants,
those who are primarily in the field with customers, must be able to share, not only
professional experience about projects but, equally important, how a certain projects can
benefit strategic decision making.
Even though, it has just been mentioned that consulting firms are in a propitious
position to identify opportunities for diversification, it does not seem to as come as easy as
that. Most of the interviewed firms have burnt their fingers in this attempt. Diversification can
take place when the consulting firm gradually expands its resources and then frees these to
focus on generating profits in new activities (Penrose, 1959). A unique sub-set of growth
opportunities is developed ranging from growth opportunities with current operations, growth
opportunities for related diversified activities, and growth opportunities for unrelated
diversified activities (Rickard, 2006). However, the more diversified the growth path, the
more organizational disturbance is accompanied with the changes that must be made to
existing routines and systems. Diversified growth should build on core competence leverage
(Prahalad and Hamel, 1990). The more the consulting firm relies on diversified growth, the
more important is the role of the organization design in supporting, controlling and motivating
the growth process. Therefore, diversified growth should only be in the mindset of managers
when they identify a clear growth opportunity in a market, and should not be mean simply to
expand the firm.
The discussed elements of growth strategy are only realizable if management
devote time and effort to this. If not, then market opportunities will be missed and the
consulting firm risk lagging behind competitors who have managed to think ahead
strategically. Hence, management is a constraining element on firm growth (Penrose, 1959).
6.3.1 Strategic growth vs. opportunity driven growth
The analysis revealed an industry where focus is very much on the trade of consulting as
opposed to that of running a business. Most often, firms are started by a few very skilled
people and developed with these founders as the focal point. Growth has taken place through
exploring opportunities in relation to the skills of the founders. Advantages are obvious for
this, short-term revenue, accommodating an important customer’s request and maybe gaining
new capabilities. However, first-time projects draw them away from repeating and leveraging
what they have successfully done in the past, decreases profitability and incur large out-of-the
pocket costs. The firm will never be able to accumulate assets, which are vital for a sustained
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competitive advantage (Dierickx and Cool, 1989). A strategic focus, on the other hand, allows
consulting firms to attract business that are consistent with their overall business plan.
Projects must be chosen so they balance the exploitation of existing routines and the
exploration of new opportunities through learning-by-doing (March, 1991).
The interviewed firms express an increasing internal demand for control and
coordination and a continuous managerial deficit. A dynamic vision of firms holds that an
internal momentum generated by learning-by-doing (Penrose, 1959), leads firm growth. New
managerial resources take time and effort to integrate, but once in place, these new
managerial talents will develop themselves and the next level of employees. Hereby, the
accumulated stock of resources is increased and can be directed towards new growth
opportunities. However, growth is limited by the amount of available managerial attention.
The most progressive and successful consulting firms have managed to separate ownership
and management by choosing an administrating partner who acts and thinks strategically on a
two- to three-year horizon, and developed mid-level managers capable of strategic thinking.
However, this separation means that partners must commit to this and allow the
administrating partner the power necessary to manage the firm, without direct interference
from other partners. Only a few firms have followed this all the way through, established a
board and a CEO, and thereby abandoned the partnership structure. This focus on strategic
management and the separation of ownership and management follows much of the recent
research on managing professional service firms (Lowendahl et al., 2001; Valcon, 2005;
Morris and Pinnington, 1998).
6.3.2 Organic growth vs. inorganic growth
Organic growth has been the predominant way of developing the firm, whereas inorganic
growth has almost not taken place among the interviewed consulting firms. Where the latter
has been the case, it has often ended in failure or buy-backs. Acquisitions are expensive
growth strategies and the acquiring firm typically pay a premium of 10 – 30 % above market
stock price (Mueller, 1969). This must be added to the costs of integrating the acquired firm
into the culture and organization of the acquiring firm, if potential synergy is to be converted
into realized synergy. Hence, growth by acquisitions is very seldom as path to success in the
consulting industry, which is consistent with empirical evidence on company performance
(Dickerson et al., 2000).
However, this discussion can be further enlightened if we move down a level. It
highlights growth problems among those firms who cannot manage to grow internally, but
require momentum from the outside in the shape of partner driven growth. Creating a large
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partner circle can create future growth problems. A partnership structure focuses attention on
the consulting trade as opposed to the professional management of a firm. That is, partners
attach more utility to the consulting trade and regard management as trivial and less
prestigious. Furthermore, if a partner is promoted the rank of senior partner then this can lead
to a problem if he is not suited for the task because they are difficult to remove again.
Consequently, a broad partner circle can enhance the problems of overcoming the “glass
ceiling” because it risks creating a decision-making process that is slow, risk adverse and
fragile to partners leaving.
Organic growth is preferable when synergies exist between the firm’s existing
activities and its target. Furthermore, if time pressure is not too great, such as in the case of
the consulting industry, the consulting firm can steadily build a sound internal competence
base, which will become a base for sustained competitive advantage. This argument follows
“economies of growth” and the competence approach.
6.4 Best practice or next practice
“Best practice” has achieved much attention in recent years, and has been used to benchmark
firms and organizations against some kind of desirable condition. In the concept of “best
practice” is embedded an ideal state, which all organizations in an industry presumably will
benefit from (Poulfelt, 2007). However, there are elements of how consulting firms compete
which suggest that following a differentiation strategy is more suitable, that is, opting for
“next practice” instead of “best practice”.
Consulting firms, which are knowledge intensive firms, compete differently
from traditional manufacturing industries in that they initially fight to win the best projects
and the best employees (Maister, 1993), but hereafter they cooperate with their rivals. Often
consulting firms are seen passing a project on to another consulting firm because they are
better suited, or even share competences and capabilities on a project and work together. In
the consulting industry, reputation works as deterrent and established firms must seek to
underline their area of expertise. New and small firms who do not have a track record will
find it difficult to win customers. Where industrial firms can lure customers by prize cutting
this is not a good option for consulting firms, as it may be seen as cutting quality (Sheenan,
2004). Therefore, the business model for a consulting firm should outline a strategy in terms
of which customers they will target, what type of consulting services they will provide, and
how this is done efficiently and effectively. Here, consulting firms must focus on value
enhancement as opposed to cost reduction: Cost is important in knowledge-intensive firms,
but it is not the defining characteristic – the defining characteristic is adding the most value
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y healing the sickest patients, winning the toughest court cases or designing the most
aesthetically pleasing buildings (Sheenan, 2004. p 56).
According to Porter (1980), firms can achieve above average profitability by
shaping their business model towards low cost or differentiation. However, as suggested low
cost is not really an option for consulting firms because of two things; first, customers might
confuse low cost with low quality, and second, it is very difficult to implement a low cost
strategy due to the cost structure of consulting firms. Premium salaries are typically the
largest expense, and there is only little room to reduce these considering the lack of labour
currently experienced in the Danish consulting industry. In addition, consulting firms lack real
possibilities for scale economies. Instead, the key trade-off is the width of their problem
domain, which defines consulting services areas, and the customers to be targeted (Lowendahl
et al., 2001). That is, consulting firms can choose to specialize by focusing on a narrow range
of services, or they can choose to generalize by focusing on broad range of services.
Furthermore, consulting firms can choose a specific level of knowledge re-use in their
positioning choices (Lowendahl et al., 2001; Hansen et al., 1999). That is, a consulting firm
can choose between tailor made solutions, which are unique every time, or
template/framework/tool solutions that are in general recycled solutions. Together, these
trade-offs give a two-by-two matrix that suggest four business models; general stores,
speciality shops, idea labs and boutiques (Sheenan, 2004), see appendix S. Obviously, cost
structure, revenue, and risk varies across these four business models. General stores earn
lower fees but have lower expenses. Speciality shops also typically charge lower fees but have
a great potential of exploiting efficiency. Idea labs earn higher fees but also have high
expenses due to unclear problem definition. Boutiques earn high fees but also face efficiency
issues. In appendix S, numbers in parenthesis represent a suggested distribution of the
interviewed consulting firms. Therefore, even though they appear quite similar they have
made conscious choices of the business model in which they compete.
This logic can be further elaborated by thinking of consulting firms as problem
solvers, as opposed to industrial firms who transform input to output in the way they create
value. This adds a different set of primary activities contrary to Porter’s (1980) traditional
primary and support activities. The primary activities range from problem finding, problem
solving, choice of solution, implementation, and follow-up and control (Stabell and Fjeldstad,
1998). However, not all consulting firms are involved in every primary activity, some
specialize in problem finding or implementation, and others perform every activity. By
intentionally directing attention towards certain different business models and activities,
consulting firm managers are provided powerful insight into new growth opportunities. One
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of the interviewed firms discovered a new niche this way. Having delivered R&D problem
finding and problem solving activities to SMEs, they found that there was a general lack of
implementation power because SMEs often do not have the work force or the time to carry
out the suggested R&D initiatives. Therefore, the consulting firm set up a business service in
which it conducts R&D for customers, having highly skilled engineers doing the actual R&D
work for customers. Even though, the above suggested business models and activities clearly
simplify the content of the consulting trade, there is especially one significant point to be
emphasized: There is room for differentiation in an industry where incumbents seem very
much alike.
Consequently, a clear recommendation in the answer of “best practice” vs. “next
practice” in the consulting industry can be made. First, according to the chosen business type
and activity focus it is very difficult, if not impossible, to suggest a “best practice” which
covers everything. For consulting firms to all follow the same practice, contradicts the above
discussion. Second, “best practice” fundamentally contradicts with the resource based view,
which holds that sustained competitive advantages stems from practices that are impossible to
imitate. Consulting firms should instead ensure that innovation is more predominant than
imitation.
6.5 The tension between growth and size
The analysis has suggested that there are fundamental differences between small, medium and
large consulting firms. The entry rate of new firms in the industry is high because of
extremely low entry barriers. However, only a very small amount of consulting firms manages
to grow big. This indicates a tension between firm growth and firm size. Consulting firms
enter the industry on a small scale relative to the size of incumbents, and this put them in a
difficult situation from the beginning. They must grow rapidly in order to overcome the cost
disadvantage, which larger firms do not encounter because they are above the minimum
efficient scale of production. They can economise on repeat projects, learning-by-doing,
reputation, and expanding customer networks. For small firms, this means that growth in the
initial stages is a matter of survival and pursuit of profits. This indicates that small consulting
firms should have an average growth rate higher than large consulting firms. However,
entrepreneurship plays an important role in this context. As Santarelli and Vivarelli (2006, p.5)
states that; “one has to recognize that when dealing with gross entry across all economic
sectors we encounter a huge multitude of “followers” and very few “real” entrepreneurs”.
The most successful consulting firms were the ones who entered the industry with a clear
vision and positioning strategy, whereas those firms who enter because the founder is
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overconfident, unsatisfied with his earlier job, or simply do not like to be managed will
probably not survive for long. Those consulting firms who enter the industry on the right
premises will have to grow in size in order to reach a level where they can sustain viability
and future growth.
In this process, organizations mimic biological organisms more than machines
(Tomasko, 2005). Consulting firms that grow in size run the risk of bulking up. Too many
complex structures will invariably lead the firm to focus inward instead of outward. Managers
and employees loose sight of their customers and competitors and miss growth opportunities
and growth eventually slows down. The point of this discussion is therefore, to consider the
organizational advantages and disadvantages that accompany the growth process and whether
these indicate an optimal size for consulting firms.
6.5.1 Advantages of growth
Growth in a consulting firm entails several advantages besides the possibility of increasing its
economic value. Work is likely to become more inspiring and challenging when a consulting
firm explores new markets or business areas. This will both attract and retain employees in
the firm, as they will feel a high level of personal satisfaction. Much related, promotion
opportunities and high salaries that are present in a growing firm will attract employees. A
prestigious and respected firm name will also attract many, and probably the best, candidates
for employment. In a growing firm, it is therefore easier to achieve commitment to
organizational goals (Roberts, 2004).
“Economics of growth”, as suggested by Penrose (1959), explain the internal
dynamics and effects of growth. As managers gain experience, their administrative tasks
require less attention and as a result managerial resources are continually being released,
which can be directed towards exploring growth opportunities. Hence, the more a firm is
capable of organizational learning, the more successful it will be in the consulting market.
Consultants are desperately in the need of customer contact and experience derived there from,
because it is this knowledge they transform into new capabilities in the future. It follows that
as the consulting firms grows, it is also capable of expanding its customer network and then
include “large and serious” customers that further strengthen its reputation and position in the
market. Growth and size also affects the scope of projects, which the firm can undertake.
Obviously, some large customers will demand that the consulting firm they engage have a
certain amount of resources and availability, which can be focused on their project. Therefore,
in order to be taken into consideration for large projects the consulting firm has to be of a
certain size. Hence, two cost advantages are contributed; firms can charge premiums for their
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services because of an increased demand and lower marketing costs are incurred because
customers actively seek the services of the firm. Finally, reputation may create competitive
barriers, in that customers will only select among the most reputable consulting firms
(Greenwood and Empson, 2003)
A large and diversified firm is more capable of spreading risk among its
activities, and for some consulting firms where management equal ownership this is an
advantage. Furthermore, one reason why small consulting firms choose to grow by
diversification, even though it stretches their competences and resources, is to create a sense
of security. Hence, growth can be considered a basis for economic security (Whetten, 1987).
6.5.2 Disadvantages of growth
One central disadvantage in growing the consulting firms lies in the “control-loss” argument
(Williamson, 1967). Loss of control may be caused by an increase in size or a high growth
rate. Almost inevitable, as the firm grows, it will add employees and hierarchical levels, and
the founder will fell that he has less control because he is less informed of the state of the firm.
This increases the importance of issues of control and coordination, as they will become more
complex and there is a demand to manage these issues in more formal and complex systems.
Manager-owned firms or firms who rely on a partnership may also be very
reluctant to grow, because this entails a “letting-go” of a tight control over the firm. As
discussed in the previous section “letting-go” is essential for the founder/partner circle of the
consulting firm. A large number of employees or new partners mean that the founder(s) will
have to delegate responsibility and decision-making, in order to motivate these people.
Furthermore, the founder or the partner circle may be much more risk averse and therefore not
interested in growth. Obviously it is their own private savings they gamble with, and this will
keep some firms in a “comfort zone” (Coad, 2007).
Organizational issues will move at the forefront of managerial concern as the
consulting firm grows. Where it initially could make do with little or no organizational
structure and formalization, it now runs the risk of substituting initiative with routine and
bureaucratic stiffness with flexibility. Large firms are stated to be less adaptable and less
responsive than their small counterparts are (Coad, 2007).
Growth also affects the culture of a consulting firm and, as the analysis showed,
all managers considered employees and firm culture to be significant factors of growth.
However, large organizations often become less motivating working environments for
employees, and the energy and motivation of entrepreneurs within the firm are replaced by a
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managerial system, which role is to monitor and coordinate a more routinely method of
production (Witt, 2000).
6.5.3 An optimal size
The concept of an optimal size, as briefly discussed in chapter three, concerning both industry
level and firm level, is appealing despite the lack of empirical support. On industry level, the
notion of an optimal size is at odds with observations on the support and skewness of the firm
size distribution found even at much disaggregated levels of analysis (Coad, 2007). On firm
level, an optimal size is inconsistent with time-series analysis of the patterns of firm growth
(Geroski et al., 2003; Cefis et al., 2001). Instead, a stochastic dispersion in firms size, such as
the law of proportionate effect (Gibrat, 1931), seems to do better in empirical work than the
notion of an optimal firm size. The analysis, although based on qualitative data, supports the
notion that there is no such thing as an optimal firm size in the consulting industry. Both small
one-person consulting firms and large consulting firms seem to do well and earn profits in the
industry.
Instead, something other than an optimal size is at play in the consulting
industry, namely that of “economics of growth” as presented by Penrose (1959). “The
knowledge possessed by a firm’s personnel tends to increase automatically with experience”
(1959; p.76), but the challenge is to take full advantage of these knowledge resources.
Therefore, a firm will grow in order to create value from accumulated and unused resources,
which in turn will generate new resources. Growth is imperative for the development of
consulting firms, and this gives rise to the notion of critical mass. Critical mass is a
sociodynamic term to describe the existence of a sufficient momentum in a social system,
such that the momentum becomes self-sustaining and fuels further growth (Ball, 2004). In
some ways this resembles the term minimum efficient scale used in industrial organization
but has a more developmental perspective. Critical mass can refer to the entire consulting firm
or probably more appropately to core business areas. The core issue here is to develop
business areas that have enough critical mass to engage in larger and larger projects, to
develop and share knolwedge internally and across business areas, and probably most
important, to identify future growth opportunities. That is, critical mass is attained in a
business area when all resources does no focus on operational matters but instead on
opportunities for development. Excess managerial resources must be present and focus on
value creating growth opportunities. It is difficult to establish the specific amount of people or
resources which must be present in a certain business area in order to claim criticall mass.
This is very specific and certainly dependent of the kind of knowledge in question and the
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capabilities of employees. However, among the large consulting firms in the survey, critical
mass was suggested to be around 20 people in a business area.
There is no emperical evidence which suggest an industrial threshold size
concerning how large a Danish consulting firm can grow. Obvioulsy, the relatively small
domestic market moderate size compared to for example American consulting firms, but the
benefits of internationalization have not nearly been realized. However, based on the industry
analysis it will be quite remarkably if, in five or ten years, there exists a Danish consulting
firm with more than 1000 employees, 200-300 seems to be the limit. There is a pattern of
firms building and merging to a size of around 200 and then splitting up because of
organizational stress and incoherence. More often, the threshold size is determined by the
manager’s wish not to grow to larger because it perceivably hurts agility and competitiveness.
Growth results in accumulation of an increasing stock of resources, which in turn, demands
greater organizational capabilities if firm resources are to be managed and coordinated
effectively and effectively. Therefore, in this respect, this suggests that size does matter in the
consulting industry and that it is imperative that critical mass and bulk form a synthesis
through the organization design.
6.6 Fitting the organization design to growth
By moulding and shaping the firms organization design, entrepreneurial managers can
facilitate the accumulation of new resources and their coordination with existing resources
and create a basis upon which the firm can grow (Rickard, 2006). The analysis has shown that
the way in which management consulting firms build and think their organization design is
decisive. The internal organization of the consulting firm can be a source of competitive
advantage and hence a strategic variable which must be considered and managed. As
identified in the analysis, the organization design of consulting firms entail specific elements
that have a significant impact on firm strategy.
6.6.1 Governance and ownership
Arguably, the most critical element is that of governance form. Authority structure and
ownership can either consist of a large partner circle where all partners own a share in the
firm, or a professional construction with a board, a CEO and mid-level managers. The former
has been the most predominant way of organizing which is also the case for many other
professional service industries (Greenwood et al., 2002). However, the “Rockwool layer”, as
it is often referred to, tends to confuse the concepts of management and ownership (Valcon,
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2005). Hence, if a distinction is made between partnerships and corporations 11 , there are some
limiting conditions of the partnership structure, which must be discussed in relation to growth.
As identified in the analysis, when consulting firms grow, this is associated with
increasing specialization and complexity, a broadening of geographical scope and
diversification of services. Typically, this means that partners become more in numbers and
consequently are more remote from strategic processes. Face-to-face contact is difficult to
maintain and consensus through collegial processes become time consuming and difficult to
manage. In essence, this can result in extra costs as partners sacrifice billable time to internal
management issues and important decisions risk being delayed (Greenwood and Empson,
2003). However, some firms manage to maintain the partnership structure in a limited size but
also introduce professional firm management. Hence, the size of the partnership is important.
Among the interviewed firms, the number of people in a partnership ranged from three to
thirty. As partnerships grow and as some partners are given the task of decision-making, other
partners still expect participation. This means that large partnerships add the costs of
hierarchy to the costs of collegial control, instead of substituting it. Age difference can also
play a disturbing role. Often the objectives of younger partners do not coincide with those
partners who are nearing retirement age. The latter group will most likely be more risk
adverse and resist changes and development within the firm.
The degree of organizational heterogeneity is another element, which needs to
be aligned with governance. Similar types of services, training and values characterize a
homogeneous consulting firm. Employees have the same educational background and are
socialized into relatively conformist behaviours. However, as suggested earlier, consulting
firms should pursue a strategy in which this homogeneity is challenged in order to create a
unique position in the market. This strategy encompasses the use of freelance consultants and
“top-class” consultants, a specially designed incentive scheme to motivate these and a focus
on specific service areas, which were some of the organization design elements utilized by the
successful consulting firms. Hence, a heterogeneous organization is best managed as a
corporation because heterogeneity further adds complexity to the decision-making process
(Greenwood and Empson, 2003).
The general trend for professional service firms are away from partnerships.
Since 1950, the proportion of management consulting firms governed as partnerships has
fallen steadily from 50 % to 17 % (Greenwood et al., 2002). The general impression from the
11 The legal distinctions between a partnership and a corporation are: 1) a partnership does not have a legal
identity in its own right; 2) it represents an agreement between two or more persons; and 3) each partner is
jointly and severally liable for the debts of the other partners (Greenwood and Empson, 2003)
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empirical analysis follows this trend, and suggests that those firms, which handle growth
issues best, are those, which clearly separate ownership and leadership.
6.6.2 Organizational levers
Organizational levers are the systems, practices and structures that make an organization
successful. They are the primary tools for aligning the consulting firm and enable
management to direct the consulting firm towards high performance and growth. The analysis
revealed six industry specific levers which consulting firms can employ to create competitive
advantage (appendix R). These are discussed below:
Organizational structure This is often an overlooked factor in the consulting industry but it
has an enormous impact on performance. Hence, how decisions are made and at what levels,
exposure to experienced consultants, team structures vs. individual structures, a flat vs. a
hierarchal organization, and governance and ownership are core elements, which must be
aligned.
Selection The talent base will have a significant impact on the consulting firm’s ability to
execute strategy and deliver services. Furthermore, a competence wise broad talent base will
allow the firm to explore and take advantage of growth opportunities, which can add
uniqueness to the firm. Freelance employees add flexibility and cost incentives but are
difficult to manage and assimilate in firm culture.
Incentives Performance improves when performance is measured and holds people
accountable for generating results. However, these systems must be designed not only to
control performance but also to motivate employees towards improving performance in areas
that make the biggest difference to the consulting firm. In connexion, reward systems play an
important role in keeping teams focused on the project. However, these incentive schemes
should be adaptable to the individual consultant and his or her personal goals.
Strategy To build a high performing consulting firm the organization must be build around its
vision and strategy. Hence, the purpose of strategy is to create fit and avoid strategic drift.
Focus must be on a particular business model and what supports this. If it is not possible to
obtain fit between business areas because of missing synergy effects, then these should be
divided into different units sold to raise capital for the other business areas.
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Development Training and developing employees and managers create a vast impact on
business success. A consulting firm’s ability to improve existing skills and capabilities and
learn new ones, is arguably the most defensible competitive advantage of all. That is, training
and development must be put into system and not left up to random assignments and projects.
Competence focus The consulting firm must be rooted in the market and customer priorities
and this lever must be considered in continuation of firm strategy. Using less experienced and
young consultants, demands that projects are defined, use frameworks and probably not
contain a whole lot of contact to high-level management at customers. However, it also entails
lower fees. On the other hand, if projects typically are novel and need tailor made solutions
experience is crucial.
6.7 Summary of discussion
Based on the analysis and discussion it becomes possible to suggest where this master thesis
is heading in the attempt to suggest an appropriate strategy. First, the theoretical contributions
that best explain growth best in the industry stems from the inside-out perspective. The
process of growth comes from within the firm and its abilities to perceive and act upon new
opportunities. Through resource accumulation, a consulting firm can create uniqueness and
differentiate itself from competitors. Hence, even though the market will enter an economic
slow-down, those consulting firms, which manage to create and sustain uniqueness, will have
the ability to grow, even in difficult times. Second, some issues have been prevailing in the
investigation of growth. The role of management, strategic growth, HR management, and the
change in the market are elements which a have had decisive role in the growth process. In
the successful consulting firms, these issues have been managed in ways through different
organizational levers, which have been aligned and allowed them to create unique positions in
the market. Taken together, I now argue that we are prepared to suggest an appropriate
strategy for management consulting firms.
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Chapter 7
Towards an appropriate growth strategy
This chapter ties the threads together and considers implications to the consulting industry
based on the preceding work. Hence, the ambition here is to answer the problem statement in
a manner which is as practical applicable as possible.
7.1 What is an appropriate growth strategy?
Often threats to strategy are seen as coming from the outside environment such as changes in
technology, knowledge, or the behaviour of competitors and customers. However, I argue that
the greatest threat to strategy stems from within the consulting firm. Strategy is often
undermined by misalignment in management, organizational incoherence and a misguided
view of competitors and customers.
An appropriate strategy is one that is effective over a longer time span, affects
the firm in many different ways, and focuses and commits a significant portion of resources to
expected outcomes (Andrews, 1997). That is, the decisions behind an appropriate strategy will
define the firm regarding its members, its external stakeholders, and its position in the market
and industry. The argument, so far, has been that managers must pursue a strategy in which
they seek to create uniqueness for their consulting firm. The “next-practice” approach was
deemed superior to the otherwise appealing “best-practice” approach. Therefore, the core of
strategy is about defining the firm’s position, making trade-offs and forging fit among
activities (Porter, 1996). An appropriate strategy can be measured in a variety of ways;
success, longevity, or performance metrics, but these measurements do not capture the
importance of growth in the consulting industry. Because of the changing environment and of
sell-by date of knowledge, consulting firms are under constant pressure of developing their
resources and competences. Hence, in order to be successful in any of the above-mentioned
measures, it is imperative that the consulting firm grows, not necessarily in size but in
resource and knowledge accumulation. Therefore, an appropriate strategy, in the context of
this master thesis, is one, which focuses attention towards growth enablers and barriers and
how to most effectively take advantage of or overcome these.
However, the desire to grow has an ambivalent effect on strategy, which must
not be forgotten, and is arguably the core reason why so many management consulting firms
fail. An appropriate growth strategy entails trade-offs but this often places real or imagined
limits on profitability or revenue growth. For example, focusing on one customer group or
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providing just a few core consulting services means that the consulting firm misses sales to
other customer groups. Therefore, consulting firms often take incremental steps to improve
short-term revenue, but eventually these steps blur the strategic position of the firm. Attempts
to compete in all areas and directions create compromises and inconsistency, which
eventually erode the competitive advantage of the consulting firm. Organizational motivation
and focus is blurred and profit drops. The answer is more revenue sought in short-term growth
opportunities.
Consequently, the vital question in relation to an appropriate growth strategy is;
which approaches to growth reinforce and preserve strategy? The argument presented in this
master thesis is clear; management consulting firms must seek to deepen their strategy rather
than broadening and compromising it. Growth must leverage existing competences and
capabilities through activities and create firm characteristics and services that are impossible
for competitors to match on a stand-alone basis.
7.2 Core issues
The above argument suggests two important steps towards an appropriate growth strategy.
First, consulting firms must identify the primary growth enablers and barriers they face. This
allows the consulting firm to focus on immediate challenges and relating managerial issues.
The life-cycle development model has been proposed as a general framework (see appendix
Q), but should be matched with the individual characteristics of the consulting firm. Hereby,
the specific size and situation of the individual consulting firm is taken into account. Second,
once the primary growth enablers and barriers and their implications have been identified,
they must be managed in a way that reinforce and preserve the strengths of the firm. The key
element is what consulting firms should do, in order to ensure that growth and development is
kept in line with strategy. I suggest five core issues, which consulting firms need to act on, in
relation to their primary growth enablers and barriers:
Management alignment Developing or re-establishing an appropriate growth strategy
depends on leadership. The need for a strengthening of management in the consulting industry
has increased. Often, leadership in consulting firms has degenerated to into a field where
focus is more on the consulting trade and servicing customer in the field. This creates a
resource and qualification deficit when it comes to managing the consulting firm, and there is
a general underestimation of professional management in the growth process. Hence, the first
step towards an appropriate growth strategy is to align management through alignment of
actions and alignment of objectives. A shift towards a professional management structure will
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provide the coordination mechanisms necessary to align the diversity of activities and
resources inherent in a consulting firm. In this way, the CEO is given the authority and
decision making capacity to react upon growth opportunities concurrent with the interest of
the firm. Furthermore, there is a need to agree on the direction and future of the consulting
firm among the decision-makers. Often the decision making process is influenced by many
individual objectives. This means that innovation, such as in the creation of a new practice
area, is often a matter of negotiation and political manoeuvring and important decisions are
either slowed down or down right aborted. In many cases, this implicates that some partners
will have to let go of sovereignty in the decision making process in order to overcome the
“glass ceiling” towards growth. Finally, management alignment should also consider the
development of the next chain of managers. This implies a focus on the development of
middle managers, from operational into strategic thinkers. Hereby, the food chain of the
consulting firm is secured and managerial resources, once accumulated, can be directed
towards exploring new growth paths.
Strategic development An area, which deserves more attention, than what is currently,
receives, is the strategic development of the consulting firm. Most predominant is opportunity
driven growth, but, albeit attractive in the short run, it corrupts strategy in the long run. In
continuation, growth should preferably stem from organic growth rather than acquisitions or
partner driven growth, which have proven not to be very successful in the consulting industry.
Only through a strategy that contains positioning, trade offs and fit among activities can the
consulting firm create a sustained competitive position. Hereby, it can build on already
existing resources and competences. Uniqueness in this industry is far from unobtainable, as
previous discussions have revealed. The consulting firm can differentiate itself in an
otherwise alike industry in several parameters. These strategic considerations are highly
critical when you consider how difficult it is to change the position of the firm once it has
become embedded in the minds of customers. Because there is such a high degree of path
dependence, this is the definitive argument against opportunity driven growth.
Organizational adaptation This issue is critical because of the changing market. Where the
role of consultants earlier was characterized by a state of elitism and know-all attitude, where
customers only rarely questioned the conduct of consulting firms this have changed. Today,
customers exercise a great deal of influence on the market by adding price pressure, less
loyalty, more volatility, and quality demands. Hence, the accumulated stock of knowledge
and capabilities inherent in the consulting firm must provide it with the dynamic capabilities
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to flexible and rapidly respond to these changes. This implies two things. First, because the
industry has been very busy in the last five years, there is a need to consider if the firm has
changed along with the markets and the customers it wants to serve. Second, the capabilities
inherent in routines and learning that are essential in the process of developing new and
appropriable knowledge must be evaluated. There must be a fit between these and the
strategic ambitions which management have for the consulting firm.
HR and incentive structures Too many consulting firms experience a high turn over rate of
employees. It is imperative that the right employees are retrained in the firm, and therefore the
incentive structure and HR matters have to be weighed up. The analysis has shown that
motivating consultants today is more demanding than it used to be. Traditionally, the up-or-
out partnership structure was enough to provide motivation among employees and personal
attention from partners to junior consultants were almost not necessary. However, today the
odds of making partner are smaller and time to partnership is prolonged, because the
partnership structure is on its way out. Consultants want a balanced work life, personal
development, and a fun job. Professional careers are available inside large corporations at
salaries, which are competitive to those offered by consulting firms. Consequently, consulting
firms are finding it increasingly difficult to attract and keep the right people in the firm. This
implies an increased focus on HR management, which traditionally have not taken up much
interest in the industry. It means recruiting from a broader pool of candidates, developing
training programs, and creating incentive schemes, which accounts for both hard workers and
those who want a personal life on the side.
Innovation and knowledge management Very much in continuation of the need for
dynamic capabilities, there is also a need to consider the current level of innovation and
knowledge development in the consulting firm. Pressure on operations over a longer duration
of time often places innovation and knowledge development in the back seat. Consulting
firms are the epitome of knowledge-based organizations. Their product is knowledge and their
key resource is the expertise and competence of their employees. As a consequence, they are
reliant on these employees for competitive advantage through knowledge-based innovations.
However, over time the value of knowledge diffuses, it “commodifies”. In order to remain
innovative and be able to grow, consulting firms must differentiate from competitors and
continue to win deals with existing customers through the development of new business areas.
First, emergence of new and distinctive knowledge, based on differentiated expertise, can lead
the firm towards new activities and customers. This can be created by leveraging current
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practice or by developing and applying entirely new knowledge. Second, for a new area to be
adopted in the firm there is also a need of an embedding process. This happens through
organizational support via directing personnel, resources, and sponsorship towards new
business areas.
The above five core issues are not stand-alone issues but must be considered as
a whole. Hence, the consulting firm must strive to achieve fit and coherence in their
organization. An appropriate growth strategy is about combining all the activities that take
place in the firm and aligning them towards organizational coherence.
7.3 Creating fit
Organizational coherence will enable and mobilize intellectual and knowledge assets in the
consulting firm towards a defined objective through alignment of activities and by effectively
communicating information and knowledge. That is, it is about aligning the five core issues in
the right configuration. This means that capabilities, assets, resources, and activities must be
aligned and structured to adapt and respond to changes in the external environment.
Coherence gives the consulting firm the ability to keep employees focused, and
motivated and encourage new thinking and ideas in an efficiently and effectively manner, as it
grows larger and engages in differentiation. But there is also another vital angle to this
perspective. Competitive advantage comes from the way in which core issues and activities of
the consulting firm fit and reinforce each other. Therefore the consulting firm must achieve
strategic fit as this will enhance the uniqueness of its position and strengthen trade-offs.
Hence, fit should go beyond simply creating consistency among activities but should focus on
how these activities reinforce and optimize each other. It is also in the degree of fit that the
consulting firm will be able to sustain its competitive advantage, because the system will be
very difficult to imitate. Competitors will find it difficult to untangle, gain nothing from
replicating only a few activities, and lack the specific experience, which has been build up
over time. This reasoning further builds my argument that consulting firms cannot alone
create competitive advantage by providing premium consulting services. Instead, they have to
reconsider how the entire organizational system should be managed, in order to do all things
well and not just excel at consulting.
The objective of the organization design of the consulting firm is exactly to
coordinate the variety of activities that takes place, in a way, which uses organizational levers
to align activities towards organizational goals. Hence, these organizational levers, embedded
in the organization design, provide options of organizing which must be understood and
aligned.
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7.3.1 The importance of organizational levers
All consulting firms use levers but most do it very poorly. Either they are inadequately
designed or they conflict with each other, resulting in a neutralizing effect. However, the
primary reason why these organizational levers do not help the consulting firm is that they are
not aligned with firm strategy. Hence, it is irrelevant that a consulting firm hires top-class
consultants if for example, a partnership structure stifles initiatives from talented employees
or business areas contradict each other. Used correctly, however, organizational levers can be
the primary tools for building a high performance consulting firm. Two categories of
organizational levers exist, industry specific levers and firm specific levers. Here, six
organizational levers have been identified (appendix R), which I argue are industry specific.
That is, most consulting firms can apply these but this list is not exhaustive and more levers
can be added. However, the most valuable levers are those, which are firm specific. That is,
the ones which are rooted in the experience of management, in the uniqueness of employees
and the flexibility of the organizational architecture. Consequently, I argue that managers of
consulting firms must identify the organizational levers that are specific for their firm and
establish fit with vision and strategy. This is the last and final step towards an appropriate
growth strategy for consulting firms.
7.4 Conclusion
In summary, I argue that an appropriate growth strategy for consulting firms can be
approached through three steps. First, the focus is on identifying the primary growth factors
and barriers, which the consulting firm faces. Second, focus must be directed towards five
core issues that contain crucial building blocks of growth strategy in the consulting industry.
Third, industry and firm specific organizational levers must be identified and managed in
order to create fit among the five core issues, stimulate growth enablers and overcome growth
barriers. Through this strategic agenda, the consulting firm manager can create a unique firm
with a clear competitive advantage. However, this process involves a continual search for
ways to reinforce and extend the unique position. Hence, strategy is not viewed as static but
dynamic and implies an ongoing endeavour to extend uniqueness and toughen fit. Therefore,
even though management have identified a unique position for their consulting firm it must
continually strive to find new trade-offs and leverage the system of complementary activities
into a sustainable advantage.
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Chapter 8
Limitations and scope
In general, the overall methodological process of this master thesis is considered to have in
fact investigated what it intended to do, and consequently it has been possible to answer the
problem statement in a reasonable, practical and scientific manner. However, as the
methodological problems and issues are evaluated it becomes clear that they are related
primarily to the empirical foundation of the master thesis and choice of method. This chapter
contains an evaluation of the methodological approach and a discussion of the scope of the
findings.
8.1 Theoretical limitations
The whole idea behind the methodological approach has been to conduct an analytical
generalization in connection with theory development and not a statistical generalization in
connection with hypothesis testing. This investigation has been directed towards theory
development, because of the lack of specific theory on the subject of this master thesis.
Existing theory has been used to create an integrated approach to firm growth
and has quite roughly been divided into two perspectives. Even though a combination of these
two perspectives has sought to eliminate theoretical weaknesses and bring together the most
influential theories on firm growth and strategy, there is still a risk that important theories
have been left out because they did not fit in with the inside-out or outside-in perspective. A
concrete example is governance theory/transaction cost theory (Coarse, 1937; Williamson,
1981), which have almost not been dealt with.
Identification of growth processes among the interviewed firms has not taken
place by evaluating annual accounts, revenue or capital. Instead, the focus has been on “in-
observable factors” and “invisible assets”. These conditions, which are difficult to measure,
such as culture, entrepreneurship, competences, and capabilities, etc. are increasingly playing
an important role in economical theory. Nevertheless, they give an impression of a somewhat
casual and unstructured approach. Yet, these conditions have been considered important to
consider in relation to firm growth. Consequently, conditions such as how the firm
accumulates and applies information and knowledge, as well as attitudes and motivation of
managers and employees can best be investigated through qualitative methods.
The key strength of building theories from qualitative methods, such as case
studies, is the probability of discovering novel theories, while the prime weakness is the
temptation to build theories that try to capture everything (Eisenhardt, 1989). Herein, lie the
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strength and weakness of this master thesis. In an attempt to balance generalization and
detailed understanding, this master thesis has embraced a very broad approach, which at times
has blurred the focus. However, if an investigation is to have a certain degree of
generalization and detailed understanding then a multiple case study is an appropriate
approach (Yin, 1993). Several other researchers have been successful with a similar approach
(Ulhøi, 1991; Kohli and Jaworski, 1990).
The overall approach has combined exploratory research, inductive reasoning,
and a comparative case study approach. Through this multidisciplinary advance, this master
thesis has been able to develop and expand insights concerning the problem statement.
However, it has been necessary to draw on theoretical contributions from such different areas
as economics, organizational behaviour, managerial theories, and sociology, etc. Therefore, it
has been a significant challenge to identify and fit key issues from those theories to the
specific problem at hand. Furthermore, this has been impeded by the fact that most literature
concerning the consulting industry is based on the US market. This market is much more
mature concerning the consulting industry and findings cannot be directly transferred.
8.2 Practical limitations
Case studies usually combine various data collection methods and can be used to accomplish
different aims, where theory development is the most interesting (Eisenhardt, 1989). To
accomplish this aim, three data collection methods have been applied. First, a secondary
analysis of quantitative data concerning the industry. Second, an informal expert interview.
Third, nine in-depth interviews with managers of consulting firms. The implications of using
these three methods will be discussed in turn and finally evaluated overall.
The industry analysis rests on quantitative data gathered by DMR. This is
probably the most reliable source of information on the Danish consulting industry and the
most updated. However, this also means that other surveys have been disregarded, primarily
because they did not present the newest information. Surveys conducted in the period of
1995-2004 have indicated quite different things about the industry because of the great
changes, which have taken place in the market. Concluding uncritically from these sources
would have painted a wrong and unsatisfactory picture of the industry.
Using secondary information has meant that some issues were left untouched,
because I obviously have not had any influence on what was in fact investigated in these
surveys. Unfortunately, the size and scope of this master thesis did not allow for a quantitative
analysis of the industry as this entails a large amount of work.
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The informal expert interview conducted with special consultant at DMR, Tom
Vile Jensen, served to clarify some of those subjects, which other surveys than those from
DMR showed to be of interest. This interview was only semi structured and roughly followed
the guideline in appendix P. Hence, it served only as an initial and exploratory tool.
Primary data have been based on nine case studies conducted with managers at
Danish management consulting firms. It was sought to ensure that the interviewed firms was
as representative of the industry as possible, that different sizes were covered ,and finally, that
three of the firms had experienced growth problems while the rest experienced strong growth.
This was a difficult task and event though, it is assumed to have succeeded, the choice of
firms rest more on the author’s perception of the firms. It was not based on actual information,
and this might represent a subjective bias. However, concerning the practical approach it is
believed that there is a good and sound coherence between the primary data, secondary data
and the expert interview since it all springs from the same place, namely DMR. This master
thesis would of course have benefited from additional empirical data. Hence, because research
rests on a relative small sample size, readers who work in consulting firms should their own
experience against the results and recommendations presented here.
Based on the above discussion, it becomes evident that the population of my
investigation is not the Danish management consulting industry, but instead those
management consulting firms that are members of DMR. DMR covers 180 consulting firms
out of approximately 7500 firms, but these 180 firms are considered to be serious and
professional consulting firms and therefore represent a segment that is appropriate to analyse.
Finally, the use of the hermeneutic approach in the analysis might imply a
certain degree of subjective researcher bias. This is due to the foregoing understanding on
behalf of the researcher concerning the phenomenon in question. However, throughout the
entire master thesis is has been a primary concern to continuously be as objective as possible.
Where this objectivity might be brought in to question, is in relation to the choices of the
theoretical frameworks adopted in this thesis. To some extent these perspectives present the
subjective choices of the researcher, and run the risk of neglecting other theoretical
viewpoints with explanatory powers, which otherwise would have surfaced in the interviews.
8.3 Scope
Based on an assumption that this master thesis has in fact investigated what it intended to do,
it makes sense to consider how these findings can be used in practice besides what has been
discussed in the chapter seven.
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To a certain extent, the whole structure, which this master thesis builds on, is a
limiting factor concerning scope. Because, an exploratory and inductive reasoning have been
applied this means that specific knowledge and information have surfaced underway, which in
turn have shaped the remaining research. Hence, the theoretical approach was developed
specifically with the problem statement in mind. On the other hand, because the purpose was
to answer the problem statement in both a detailed manner but also a generalized manner this
opens up for a possibility to generate the findings beyond the Danish management consulting
industry. Throughout the master thesis, consulting firms have been assumed to belong to
respectively the SME sector and the professional service firm (PSF) sector. Theory and
knowledge gained from these sectors have been used to open up the black box of consulting
firms, and it is thereby interesting to consider to what extent findings of this research can be
reversed to these two sectors.
Besides service firms the SME sector also covers manufacturing firms that do
not employ more than 250 people. These firms face conditions that are very different from
those which consulting firms face. Barriers to entry are higher because of scale economies,
sunk costs, investments and patents. Technology plays a larger role than it does in the service
industry. It is difficult to enter an industry without an innovative product and as a result,
competition will be much fiercer. Thereby, some firms in the SME sector face competitive
parameters, which are very different from those consulting firms face. I argue that the
findings of this study cannot be transferred to the SME sector without adapting the preceding
theoretical framework to emphasize the outside-in perspective.
On the other hand, the PSF sector in general faces challenges that are very
similar to those specific for consulting firms. The essential keys to success in the PSF sector
are human talent and alignment (Lorch, 2000). The work of professional service firms
depends on the talent and intelligence of the people delivering it. The best firms hire the best
people and motivate them to stay committed to the profession and the firm for a long period.
They develop organizational practices that motivate employees to serve clients well, and it is
through this alignment that PSF become successful. I therefore argue that the challenges,
which PSF in general face, can be addressed and acted upon by adopting the framework
suggested in this master thesis. Hence, the scope of the findings, especially the suggested
approach to an appropriate growth strategy, can be beneficial in industries such as law,
accounting, advertising and architecture, as well as a broader range of consulting firms.
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Chapter 9
Conclusion
The purpose of this master thesis have been to examine how Danish management consulting
firms currently build and sustain competitive advantage, and how this can be translated into
an appropriate growth strategy for the individual management consulting firm.
The Danish management consulting industry is characterized by few large and
fast growing consulting firms and a long tail of small enterprises. In general, the large
consulting firms reap the majority of industry profits, while the small consulting firms seem
to struggle with growth and survival. Based on the premise that the industry is heading
towards more tough times, it is relevant to consider how growth strategy can be managed.
The main conclusion is that those consulting firms, which manage growth best,
are those firms that have managed to separate leadership from ownership. Through this
separation, these consulting firms have created the foundation for strategic and focused
growth as opposed to opportunity driven growth. This opens up for a focus on the
development of complementary competences and the capability of employees to think and act
strategically. Hereby, future growth will build on the development of mid-level managers,
services, and products from an already existing competence platform. Hence, consulting firms
cannot alone rely on growth through competent consultants and by adding new partners into
the firm. Instead, the firm must create alignment between goals and strategy, resources and
competences, as well as management and employees. This happens through the careful design
of the organization in which positioning, trade-offs and fit are considered.
Based on this knowledge, this master thesis has been able to suggest an
appropriate growth strategy. Initially the consulting firm must identify its primary sources and
limitations of growth. Through these, focus must be directed towards five core issues, which
create the foundation for growth strategy. These core issues are: Alignment of management,
strategic development, organizational adaptation, HR and incentives structures, and
innovation and knowledge management. Finally, by deploying industry- and firm specific
organizational levers, the consulting firm must create alignment across these five issues in the
organization design. Hence, this research has shown that growth must be initiated from within
the firm.
Several other perspectives have emerged through the research, which are
relevant for growth, and which can create additional insights into the sources and limitations
of growth in the industry. First, the immediate challenge for the Danish consulting industry is
to identify appropriate strategies for internationalization. When faced with unknown markets,
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incomplete information, and a state of incertitude, enterprises typically develop in foreign
markets by adopting a process, which evolves incrementally. However, are there any
possibility of avoiding the initial stages of internationalization and gaining a grip on the
international market faster? Networks and strategic alliances could be the answer, and further
research into the relationship between these and the management consulting industry could
generate crucial insights. Second, the degree of collaboration across consulting firms is a
relative unknown size. Several consulting firm managers have expressed a wish for more
collaboration in the industry but this only takes place in limited extent. By considering
relationships as the unit of analysis this might open up for a deeper understanding of value
creating linkages between consulting firms and, equally important, the factors that impede the
realization of relational rents. For both perspectives, it is obvious that the role of DMR is
important. Both in establishing and inspiring research but also as a link between different
consulting organizations and firms. Finally, this master thesis has advocated that consulting
firms should separate leadership from ownership. However, actual research on governance
forms in the Danish professional service firm sector is missing. If this was conducted, it might
be possible to identify correlations between specific governance forms and measures such as
size, profit and revenue. Hereby, we would get closer to an answer about the appropriateness
of the partnership.
It appears that there are enough issues to be dealt with for consulting firms. Not
only in relation to the professional management and development of the firm, but also in
relation to internationalization and cooperation in the industry. Hence, even though an
external slowing down might take place in the market, it seems essential to direct attention
and speed up on the internal lines of the management consulting firm. Thus, the next wave of
growth can be founded.
103

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114

Appendix
Content
Appendix A
Overall structure ................................................................................................................................................. 116
Appendix B
Number of active firms in the industry ................................................................................................................ 117
Appendix C
Revenue distributed across customers in 2006 .................................................................................................... 117
Appendix D
Number of firms distributed across firm size in 2007 .......................................................................................... 118
Appendix E
Revenue distributed across firm size in 2007 ...................................................................................................... 118
Appendix F
Overall revenue of the industry ........................................................................................................................... 119
Appendix G
The management consulting industry’s share of GNP ........................................................................................ 119
Appendix H
Service distribution .............................................................................................................................................. 120
Appendix I
Customer prioritization ....................................................................................................................................... 121
Appendix J
Life cycle model for professional service firms ................................................................................................... 121
Appendix K
Significant differences between the outside-in perspective and the inside-out perspective ................................. 122
Appendix L
Contact letter ....................................................................................................................................................... 123
Appendix M
Overview of the interviewed firms ....................................................................................................................... 124
Appendix N
Operationalization ............................................................................................................................................... 126
Appendix O
Interview guide .................................................................................................................................................... 127
Appendix P
Topics of semi-structured expert interview.......................................................................................................... 130
Appendix Q
Life cycle development and related managerial issues ....................................................................................... 131
Appendix R
Core issues concerning the organization design of consulting firms .................................................................. 132
Appendix S
Business models for consulting firms .................................................................................................................. 133
115

Problem statement:
What is an appropriate growth strategy for Danish management consulting
firms relative to their current size and situation in the market?
Appendix A
Overall structure
Exploratory research • Industry analysis and expert interview Chapter 2
Inductive reasoning
Comparative research
Analytical and practical
approach
• Literary studies of growth theory and development of
an integrated approach to firm growth
• Research design and implementation
• Analysis of data
• Discussion
• Towards an appropriate strategy
• Limitations and scope
• Conclusion
Source: Own making
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
116

Source: DMR industry analysis 2006/7, p. 12
Appendix B
Number of active firms in the industry
Appendix C
Revenue distributed across customers in 2006
Source: DMR industry analysis 2006/7, p. 10
117

Appendix D
Number of firms distributed across firm size in 2007
66%
11%
21%
5%
7%
10%
12%
Omsætning 151+ mio. kr.
Omsætning 51-150 mio. kr.
Omsætning 21-50 mio. kr.
Omsætning 11-20 mio. kr.
Omsætning 0-10 mio. kr.
Source: DMR industry analysis 2006/7, p. 12
7%
6%
Appendix E
Revenue distributed across firm size in 2007
55%
Omsætning 151+ mio. kr.
Omsætning 51-150 mio. kr.
Omsætning 21-50 mio. kr.
Omsætning 11-20 mio. kr.
Omsætning 0-10 mio. kr.
Source: DMR industry analysis 2006/7, p. 13
118

18.000
16.000
14.000
12.000
10.000
8.000
6.000
2008 (Est.)
2007
2006
2005
2004
10.842
10.510 10.031
10.106
Source: DMR industry analysis 2006/7, p. 6
Appendix F
Overall revenue of the industry
11.849
Appendix G
The management consulting industry’s share of GNP
Source: DMR industry analysis 2006/7, p. 6
14.408
16.275
2001 2002 2003 2004 2005 2006 2007
0,69%
0,77%
0,90%
0,96%
1,02%
0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20%
119

Distribution among services
Source: DMR industry analysis 2006/7, p. 9
Revenue distribution for the service advising/consulting
HR-rådgivning
7,2%
(8,1%)
Forandringsled
else
9,4%
(12,4%)
IT-rådgivning
16,3%
(15,2%)
Projektledelse
16,7%
(18,5%)
Strategisk
Rådgivning
19,2%
(22,2%)
Organisation/
Operations
Management
31,2%
(23,7%)
Source: DMR industry analysis 2006/7, p. 9
Appendix H
Service distribution
120

Large
Size
Small
Young
Source: DMR industry analysis 2006/7, p. 11
Crisis: Need to agree
on growth vision and
target market
Stage I
Exploring
Appendix I
Customer prioritization
Appendix J
Life cycle model for professional service firms
Crisis: Need to
broaden services and
develop staff
capabilities
Stage II
Focusing
Age
Crisis: Need for
common approach
to clients and
shared ownership
Stage III
Diversifying
Source: Malernee and Greiner, 2005
Stage IV
Institutionalizing
Mature
121

Appendix K
Significant differences between the
outside-in perspective and the inside-out perspective
Ethos Closed systems, free of change and surprises, static
orientation.
Outside-in theories Inside-out theories
Open systems, change and unforeseen situations
occur on almost daily basis, dynamic and
development oriented.
Market perception To a high degree predictable. Not predictable, complex and volatile.
Focus Product markets and industries. The firm is
described based on its placement herein.
Factor markets, internal firm competences and
capabilities
Firm goals Maximizing of profit. Superior long-term competitive advantage which
Role of the manager Assessing quantitative sizes and implementing these
for optimal production.
Competitive advantage Is gained through superior choices of strategy that
Normative directions
Resource characteristics
Examples of theoretical
exponents
enhances strategic and structural barriers to entry
and barriers to mobility. Advantages come from
market power achieved by low market costs or
product differentiation.
Analyze the industry and adapt the firm to the
conditions. External diagnosis is of most important
and implementation is less important as it is
considered unproblematic.
Capital, labor and natural resources. All are
considered homogeneous and perfectly mobile.
• Neoclassical theory
• SCP paradigm
• Porter’s five forces
• Strategic conflict
results in the survival of the firm.
Collecting, assessing and understanding
information. Creating, choosing, implementing and
adapting strategies.
Is gained and developed of rare, valuable, difficult-
to-copy and non-substitutable physical, human or
organizational resources med the goal of achieving
innovation.
Analyze the environment generally and on a long
term basis. Build firm competences, capabilities
and resources in consideration with a long term
vision of the firm. Information seeking and
gathering as well as implementation are considered
interesting.
Adapted from Hougaard and Duss, 1996
Financial, physical, legal, human, organizational,
informational and relational resources. All are
heterogeneous and imperfectly mobile.
• The theory of the growth of the firm
• Evolutionary approach
• The resource based view
• Core competences
• Dynamic capabilities
• Managerial theory
122

Hej __________
Appendix L
Contact letter
Mit navn er Jesper Kristensen, og jeg er studerende ved Syddansk Universitet i Odense. Mit studie har været
fokuseret omkring strategi, organisation og ledelse (Cand. Merc. i international management) og da jeg ved siden
af har arbejdet i et mindre konsulent firma, fandt jeg det naturlig at skrive et speciale omhandlende konsulent
branchen i Danmark.
I den forbindelse har jeg gennem et samarbejde med Dansk Management Råd (DMR) fået fastlagt specialets
rammer og problemformulering. I korte træk drejer det sig om, at identificere en række ”best practice” tiltag som
det enkelt konsulent firma kan benytte sig af med henblik på at opnå fremtidig vækst.
Jeg er nu så langt i forløbet, at det er på tide at få indsamlet empiri bestående af ca. 10 semi-struktureret interviews.
I den forbindelse har jeg som udgangspunkt kigget på DMR’s medlemsliste over konsulenter. Det er mit indtryk, at
jeres firma, __________, kan give en interessant indsigt i hvorledes man kan håndtere vækst i konsulentbranchen.
Jeg håber derfor, at I vil finde det interessant at deltage som case-studie firma og deltage i et interview af ca. 1-1½
times varighed. Interviewet vil være med en enkelt person og denne bør have en ledende position i firmaet og have
indflydelse på fremtidig strategi og vækstmuligheder.
Detaljerne omkring specialets indhold og interviewets indhold vil selvfølgelig blive præciseret når vi mødes. Der
vil ingen steder i specialet blive nævnt firmaets navn, så det er kun mig som forfatter, som kender denne
sammenhæng. Jeg vil også medbringe en fortrolighedserklæring som kan udfyldes. Forventelig bliver specialet
publiceret i en forkortet version på DMR hjemmeside, ligesom I selvfølgelig er velkomne til at få en elektronisk
udgave af det færdige resultat.
Jeg håber dette brev har skabt interesse, og jeg vil inden for et par dage kontakte jer telefonisk.
Med venlig hilsen
Jesper Kristensen
Tlf. 22 33 45 53
Jesper_kristensen@hotmail.com
123

Appendix M
Overview of the interviewed firms
Interviewee Short firm description Interview
date
Small organization management consulting firm
This firm was founded in 2001 by the interviewee who is the CEO and sole owner of the firm. It
currently employs 4 people and 15 freelance consultants. The firm is based in a large villa in northern
30-05 2008
CEO of a small
organization management
consulting firm
Sjælland, which it shares with a few other small consulting firms. The firm deals with management
consulting, organization development, education psychology and human resource management on
strategic, tactical and operational levels. In addition, it offers seminars, educations and workshops. The
general business concept combines rational, emotional and spiritual elements. In addition to the more
A
traditional consulting services, the firm also offers teambuilding and “fire walking”. Since its
foundation, the firm has experienced growth but only to a limited extent. The greatest barrier to future
growth, as stated by the owner, is to find the right persons to share management with. Its vision it to be
among the top 5 consulting firms in Denmark measured in quality and awareness.
Senior partner in a small
strategy and operations
consulting firm
B
CEO of a small
management and event
consulting firm
C
CEO of a medium
strategy and IT
management consulting
firm
D
CEO of a medium sized
communication
consulting firm
E
www.mindweiss.dk
Small strategy and operations consulting firm
This firm was founded by the leading partner in 1992 as a sole practitioner firm. Around 2000 three
additional senior partners where drawn into the firm (including the interviewee). In addition to the four
senior partners, 5 partners are associated on a freelance basis. The firm has offices in Århus, Odense
and Copenhagen are is geographically spread out. The firm offers a broad array of services; strategy,
organization, supply chain management, marketing, LEAN, IT governance and logistics. Most
consultants are CMC certified. The firm has only experienced limited growth because of a very rigid
partnership structure.
www.dragsteddevelopment.dk
Small management and event consulting firm
This firm was founded in 2001 by the CEO and owner and based on Fyn. He currently is the sole
owner and manager and employs 5 people with various backgrounds. In addition, there are about 30
freelance employees connected to the firm. These people do not have a traditional consulting
background but are more experienced in areas such as outdoor and recreational education. The firm
provides outdoor courses which focuses on management and employee development in a teambuilding
framework. In addition, the firm also has an event service where it manages company parties,
excursion, seminars etc. The firms marked by a high degree of season dependence. Recently, the firm
has experienced high growth and has problems with finding the right and qualified employees to
deliver high quality products.
www.target-people.dk
Medium strategy and IT management consulting firm
This firm was founded in 1998 as a partnership structure but in 2006 realised that growth problems
was related to this. Therefore, it abandoned the partnership structure and hired an external CEO (the
interviewee). His job is to run the firm and he does not function as a consultant. The firm provides
services in areas such as program and project management, IT management and organization
development. The firm balances it employs between a permanent staff, associated consultants and
freelance consultants. In total, it employs around 40 consultants. All consultants are highly experienced
and educated and hold top level certifications. The goal is to reach a size of approximately 100
consultants. It has it offices in central Copenhagen.
www.ipteams.dk
Medium sized communication consulting firm
This firm was founded in 2002 as two separate firms who worked together extensively and then
merged in 2004 into one firm. The two founders serve as managers and partners and the firm employs
23 people. It provides analyses, branding, strategy, PR, graphic design, and crises-, web- and change
communication. Most employees have an educational background in communication. After the merger,
the firm experienced high growth and the challenge is to grow without losing flexibility. The firm
deliberately sets its prices just below the large players, which allows it to attract assignments from the
public sector. It is based in central Copenhagen.
www.operate.dk
07-07 2008
16-05 2008
10-06 2008
04-06 2008
124

CEO of a medium sized
strategy and management
development consulting
firm
F
Manager in a large
management consulting
firm
G
CEO of a large strategy
and operations consulting
firm
H
Partner of a large strategy
and operations consulting
firm
I
Medium sized strategy and management development consulting firm
The CEO (and shareholder - 70%) founded this firm in 2002. In addition, 3 other shareholders have
ownership in the firm (10 % each). However, a process of broadening ownership to around 10
shareholders is taking place. The firm employs 20 consultants with various backgrounds. Among
others traditional consulting, rhetoric and journalism. It provides services in three areas; strategy and
development, competence development and interim management. It has its offices in Århus, Ålborg
and Copenhagen.
www.pluss.dk
Large management consulting firm
This firm has been included to examine the effect of mergers in the industry. Formerly a successful
consulting firm focusing on management development, this firm was acquired by a large international
corporation in 2000. After this, the firm has been placed under strict control from its American mother
company Manpower. However, since the merger the firm has experienced very low growth rates and
extensive problems of retaining skilled employees. The firm has gone from employing 75 consultants
to only 12 permanently employed staff. It provides services in people development and the majority of
consultants are psychologists. It is based in northern Sjælland.
www.rightmanagement.dk
Large strategy and operations consulting firm
This firm is one of the leading consulting firms in Denmark. Three persons who are currently also
partners in the firm founded it in 2000. The firm has its offices in northern Sjælland where 130
consultants work. The turnover is around 160 million kr. this year. It provides consulting in two main
areas; strategy and operations. Its services covers strategic development, supply chain management,
LEAN, innovation and product development, activity based costing, performance management,
process optimization, transfer management and sourcing and purchase. It has experienced growth rates
among the highest in the industry. Currently it is opening offices in eastern Europe and Asia. The firm
has won the consulting award from DMR several times. Since its start, it has experienced double-digit
growth rates.
www.valcon.dk
Large strategy and operations consulting firm
This firm is currently the largest Danish owned consulting firm in Denmark. It employs more 200
people, has a yearly turnover of 270 million kr. and sees double-digit growth rates. It is organized in a
number of sub divisions. Currently there are around 30 partners of various levels and approximately 50
joint owners in the firm. It provides services in areas such as strategy & growth, (service) operational
excellence, leadership & projects and IT & infrastructure. It has offices in Denmark, Norway and
Sweden.
Source: Own making
www.implement.dk
03-06 2008
09-06 2008
04-06 2008
02-06 2008
125

Topic of analysis Purpose of analysis
Life cycle stage • To analyze which life cycle stage the concerned consulting firm is in.
History and
experience
Appendix N
Operationalization
• To identify which conditions are specific for the consulting firm in relation to the life
cycle stage it is in.
• To asses the circumstances in the consulting firm which have shaped its history and
experience.
• To determine to what degree these circumstances are path dependent.
• To understand how the consulting firm understands growth.
Entrepreneurship • To identify to what degree entrepreneur ship acts out a significant role in relation to the
Feasible set of
strategies
Feasible set of
resources and
competences
growth that the consulting firm have experienced.
• To understand how the consulting firm builds its strategy and how this is related to
growth.
• To see if the consulting firm has a defined growth strategy.
• To identify how the strategy of this firm might be different from other consulting firms.
• To understand how the consulting firm bring about resources and competences through
management decisions.
• To understand how these resources and competences are translated into firm specific
resources and core competences.
• To identify how the firm addresses changes, both internally and externally.
Factor markets • To determine if there are any specific circumstances on the factor market which are
critical for the growth of the concerned consulting firm.
• To analyse to what degree the consulting firm uses relations and networks as a growth
factor.
Product markets • To determine which factors on the product acts out a significant role in relation to the
Organizational
architecture
growth of the consulting firm:
- The degree of competition and rivalry
- The role of buyers
- The external environment and the general economy
- The possibility for creating new business areas (mobility barriers)
• To analyse how the organizational architecture of the consulting firm affects growth:
- Incentives and reward systems
- Authority and hierarchy
- systems for coordinating, monitoring and evaluating performance
- Ownership model (CEO vs. partner)
The future • To understand what the consulting firms consider important in the future in order to stay
competitive.
Source: Own making
126

Introduktion
Interview guide
semi-struktureret interview
• Kort introduktion til emnet og opgaven samt formålet med denne
o Eventuelle begrebsdefinitioner klarlægges for respondenten
• Kort om interviewets forløb (ca. 1-1½ times varighed)
Appendix O
Interview guide
• Snak om fortrolighed, såfremt det ønskes af virksomheden, underskriv evt. fortrolighedserklæring
Formalia
Tænd for diktafon!- TEST DEN - Snak højt og tydeligt!
• Navn, position (job), ansættelsestid (i virksomheden, i position)
• Hvilket ansvar indebærer dit job?
• Hvad er din daglige rolle i virksomheden?
Life cycle stage
Culture
• Hvor mange ansatte er der i firmaet (konsulenter vs. Non-konsulenter)?
• Omsætning eller andre nøgle tal
• Hvor længe har firmaet eksisteret?
• Hvad er pt. de centrale udfordringer for dit firma?
• Hvordan reagerer organisationen på de disse udfordringer?
• Hvad er firmaets målsætning på længere sigt
o Ønsker firmaet at vokse eller ej?
o Hvor meget? Er der en grænse for firmaet? En optimal størrelse?
• Hvilke signifikante faser er firmaet gået igennem?
• Hvad forventer du den næste fase bliver?
• Hvilke barrierer eksisterer i forhold til at komme dertil?
• Hvad var motivationen for firmaets opståen?
• Er de oprindelige stiftere/partnere stadig i firmaet og hvad er deres rolle nu?
• Hvordan er ejerforholdene?
o Børsnoteret eller lignende
• Hvordan vil du beskrive jeres kultur og hvordan hænger den sammen med firmates historie?
• Hvad er styrken/svagheden i jeres kultur i forhold til vækst?
• Hvordan er jeres markedsorientering?
127

o Hvilken form for konsulentvirksomhed beskæftiger firmaet sig med?
o Er der tale om nicheydelser eller mere brede ydelser?
o Er der nogen bestemt markeder som i koncentrerer jer om?
• Hvordan er jeres vækst orientering?
o Hvordan betragter i vækst
o Hvordan opstår vækst (eksternt i miljøet eller internt i firmaet)
• Hvorledes har den organisatoriske struktur ændret sig gennem tiden?
o Hvordan var firmaet som udgangspunkt organiseret og har dette ændret sig?
• Hvilke forhold i firmaets historie og erfaring begrænser jer i fremtidige beslutninger?
Entrepreneurship
• Hvordan er iværksætter ånden i firmaet?
• Hvilke egenskaber har stifterne/nuværende ledere af firmaet bidraget med?
- Livserfaring, erhvervserfaring, særlig lyst til at starte firma?
• Hvordan bliver firmaets retning skabt? Snævert omkring iværksætterens kompetencer eller er de bredt
skabte?
• Hvorledes er ledelsen/iværksætterne involveret i værdi kæden? I alle led eller er der et særligt fokus?
• Hvordan definere du de vigtigste egenskaber hos lederen af et konsulent firma?
Feasible set of strategies
• Hvad betyder vækst for jer?
• Kan du ganske kort beskrive hvordan firmaet er vokset?
• Hvad har I gjort for at vokse/har i en vækststrategi?
• Hvad gør jeres firma bedre end andre konsulent firmaer?
• Hvad kan konsulent firmaer generelt gøre for at vokse?
• Hvilke strategiske udfordringer står jeres firma overfor?
• Hvad er de positive og negative konsekvenser af jeres vækst?
• Hvilke særlige vækstfremmere/vækstbarrierer har i oplevet?
Feasible set of resources and competences
• Hvad er jeres konkurrencemæssige fordele i forhold til andre firmaer?
• Hvad er firmaets vigtigste ressourcer?
o Hvordan er disse unikke for firmaet?
• Hvad ser du som værende jeres vigtigste kerne-kompetencer?
o Hvorledes er dette noget som er specielt i forhold til resten af branchen?
• Hvordan vedligeholder I jeres ressourcer/kompetencer?
o Uddannelse/nye medarbejdere/knowledge management
• Hvordan reagerer firmaet overfor forandringer?
• Hvilke formelle systemer benytter I jer af med hensyn til at forstærke jeres forandringsberedskab?
Factormarkets
128

• Hvilke særlige forhold på faktormarkedet er med til at give jer en fordel overfor andre konsulent
firmaer?
o Politisk støtte?
o En regional iværksætterkultur?
o Leverandør relationer?
o Samarbejde med universiteter og andet?
• Hvorledes har I mulighed for at tilvejebringe særlige ressourcer som kan være svært tilgængelige for
Productmarkets
andre virksomheder?
• Hvilke eksterne generelle branche vilkår spiller en rolle for jeres vækst?
• Gør i nogle tiltag for at sikre jeres position i branchen?
• Hvordan oplever i konkurrence intensiteten og hvorledes hæmmer antallet af potentielle/eksisterende
konkurrenter og substituerende produkter jeres vækst?
• Hvorledes opfatter i samarbejde med andre konsulenter og gør i det?
• Hvad gør i for at påvirke køberne forhandlingskraft?
• Skaber i på nogen måde forhold som gør det sværere for potentielle konkurrenter at komme ind på
markedet samt at manøvrerer rundt?
Organizational architecture
• Hvordan er jeres firma organiseret?
• Hvordan bliver beslutninger på operationel/taktisk/ strategisk niveau taget?
• Hvordan benytter i formelle systemer til at evaluere og belønne individuel performance?
• Hvorledes koordinere og kontrollerer I de aktiviteter/projekter som finder sted?
The future
Andet
• Hvordan ser du fremtiden for din virksomhed? For konsulentbranchen generelt?
• Hvordan skal I konkurrere i fremtiden?
o Hvad skal i konkurrere med og på?
• Hvad bliver vigtigt i fremtiden for at sikre sig overlevelse som management konsulent i branchen?
o No cure-no pay
o One stop shopping
o Certificeringer
• Yderligere kommentarer, tilføjelser m.m. i forhold til emnet, som ikke er blevet berørt?
Diktafonen slukkes!
Interviewet afsluttes med tak til respondenten for deltagelse
Efterrationalisering af interviewet sammen med respondenten:
• Nogle underlige/uforståelige spørgsmål?
• Hvad kan jeg gøre bedre?
• Noget som der mangles?
129

Appendix P
Topics of semi-structured expert interview
Emneroversigt til ekspertinterview med Tom Vile Jensen, DMR
Branchens struktur:
• Hvordan vil du karakterisere den danske management konsulent branche med hensyn til:
o Størrelse?
o Vækst?
o Profit?
o Overskuelighed og gennemsigtighed?
• I hvor høj grad er branchen konjunktur følsom?
• Er der noget karakteristisk billede af hvem som betjener hvem? Eksempelvis at små firmaer
bliver betjent af små firmaer?
• Strukturelle og politiske tiltag?
• Hvordan spiller den offentlige sektor en rolle i forhold til den private sektor?
• Er der lave adgangs og exit barrierer i branchen?
• Hvad og hvordan konkurreres der i branchen?
Branchens vækst:
• Hvad er jeres/branchens vækst forventninger?
• Hvorledes spiller følgende faktorer en rolle i denne vækst/vækstbarrierer?
o Fusioner/opkøb?
o Netværk og relationer?
o Branding og markedsføring?
o Udvikling af kompetencer?
o Anskaffelse af ressourcer (gode medarbejdere)
• Oplever i nogen særlige fastholdelses ”kneb”, i form af:
o One-stop shopping?
o No cure no pay?
o Gratis foranalyse?
• Størrelse, profit, vækst, er der en form for sammenhæng eller inkonsistens?
• Hvad driver udviklingen i branchen?
• Er der vækstmæssigt nogen forskel på små og store konsulent huse?
• Hvad er branchens vækstbarriere?
Branchens udfordringer:
• Hvad er vigtigt for kunderne?
• Hvilken betydning har det for konsulent firmaerne at de skal være proces orienteret og ikke
kun opgave orienteret?
• Bliver der stillet flere krav til konsulenterne?
• Hvordan oplever i interessen for DMR og branche organisationer generelt?
• Har mindre konsulent huse har brug for kompetence løft?
• Er der behov/opbakning for certificering?
• Er der tale om opdeling i et A og B-hold?
• Har de små firmaer kompetencerne til at hjælpe andre firmaer godt nok?
• Forventninger om fremtidige udfordringer?
Andre relevante emner?
130

Appendix Q
Life cycle development and related managerial issues
Stage one firms – identifying Stage two firms – becoming Stage three firms – diversifying the
growth opportunities
professional and specialized firm and going international
Strategy Opportunity driven. Focus driven. Strategy driven.
Management Managed by one person, the
founder who has previous
experience in the industry.
Organization
structure
Little or no formal structure exits.
Allows for flexibility and better
adaptation and specialization to the
needs of SME clients.
Decision making Resides solely with the founder.
Development Happens on an informal basis and
primarily via on-the-job training.
The driver of development is the
founder.
Culture Informal and relaxed, highly
affected by the founder.
Purpose of
Growth
Primary growth
processes
Primary growth
barriers
Limited growth visions which are
centered on the ideas and visions of
the founder.
The customer network and
entrepreneurial skills of the founder.
Dependent of one or two large
customers within that network.
The founder balances the role of
both consultant and manager. Lack
of a sparring partner. Lack of an
area of specialization or niche
service. No critical mass in any
service areas.
Crisis Overcoming the “glass ceiling”
The dominating founder must take a
step back in order to enable further
growth. For example via sale of the
firm, taking another partner into the
firm or promoting a trusted
employee to the rank of senior
partner. Hereby the creation of a
professional and specialized firm
can take place.
Managed by two or more persons
who have come to an agreement on
the focus and development of the
firm.
A formal structure with back office
administration, compensation
schemes and formalized work
processes. Size slowly becomes an
issue as the organizational
complexity rises.
Takes place between the senior
partners who rely on consensus for
both the strategic and operational
running of the firm.
Primarily takes place trough projects
as learning-by-doing but is to a
larger degree supported by internal
competence development,
knowledge sharing and seminars.
Focused on professionalism and task
oriented.
To establish a sound firm that is not
constantly under threat by internal
and external changes.
Focus on strategic business areas.
Focus and positioning relative to the
market. Strategic recruitment. Cross
selling of services.
Managers are still caught in a do-sell
position. Still hampered by a lack of
critical mass. To establish the
capabilities necessary for
diversification.
Establishing the “real” firm
It is necessary to further develop the
firm in a professional sense with a
formal structure, extended
compensation schemes and strategic
planning. The key to further growth
lies in diversifying the services the
firm provides and developing the
capabilities of employees to support
this.
Source: Own making
Managed by a group of senior partners
who have had a clear vision and
strategic plan from the start.
A decentralized structure with several
small business areas that are managed
by mid level partners. At the top of the
hierarchy is the board which one or
more of the founders are member of.
The group of founding partners
continues to make strategic decisions
but delegate operating decisions to
mid level partners.
Happen in a much larger extent via
systemized efforts to share and
develop knowledge, as well as outside
institutions, such as universities and
are
A cultural plurality characterized by
that fact that the firm consists of
several small business areas.
To stay competitive with regard to
attraction the right employees and
maintaining a market leader position.
Creating a strong, entrepreneurial and
unified firm culture. Related and
unrelated diversification. Maintaining
a market leader position. Employing
the best. Having critical mass in key
business areas. Broadening
geographical scope.
Not being able to maintain a unified
culture because of the increase in size.
Employees leaving for smaller firms.
The firm risk ending up with several
small business areas with different
approaches to consulting and
customers. Not developing mid level
partners who can think strategically.
Finding the right recipe for
internationalization.
Creating the “one firm” firm
It is necessary to direct managerial
efforts towards creating a “one firm”
firm in order to prevent fragmentation.
Mid level managers must be motivated
to act strategically and not only
operational and in the general interest
of the firm.
131

Appendix R
Core issues concerning the organization design
Authority structures and ownership/organizational structure
Professional management Few partners among which one
serves as CEO
Many freelance workers, relatively
few little permanent employees
Performance pay, provision and
bonuses
Standardization, tools and
frameworks
Large training and development
programmes
Employee structure/selection
Combination of mostly permanent
employees but also some free lance
workers
Incentive systems
of consulting firms
Many partners in a traditional
partnership
Many permanent employees, no
freelance workers
A combination Fixed salary
Strategy
A combination New approach every time, project
based
Methods of learning, training and developing employees
Small introduction programmes
and little training
Competence focus
Junior consultants Mostly senior consultants with
some junior staff
Source: Own making
Only informal training and
development
Senior consultants
132

Broad service
domain
Narrow service
domain
Appendix S
Business models for consulting firms
Recycled solutions Tailor made solutions
General stores
(2) - Pluss leadership, Right management.
Speciality shops
(3) – Target People, Operate, Mindweiss.
Source: Adapted from Sheenan, 2004
Idea labs
(2) – Implement, Valcon.
Boutiques
(2) – Dragsted Development, IP Teams.
133