- •In praise of the fourth edition
- •CONTENTS
- •FOREWORD
- •The concept of consulting
- •Purpose of the book
- •Terminology
- •Plan of the book
- •ABBREVIATIONS AND ACRONYMS
- •1.1 What is consulting?
- •Box 1.1 On giving and receiving advice
- •1.2 Why are consultants used? Five generic purposes
- •Figure 1.1 Generic consulting purposes
- •Box 1.2 Define the purpose, not the problem
- •1.3 How are consultants used? Ten principal ways
- •Box 1.3 Should consultants justify management decisions?
- •1.4 The consulting process
- •Figure 1.2 Phases of the consulting process
- •1.5 Evolving concepts and scope of management consulting
- •2 THE CONSULTING INDUSTRY
- •2.1 A historical perspective
- •2.2 The current consulting scene
- •2.3 Range of services provided
- •2.4 Generalist and specialist services
- •2.5 Main types of consulting organization
- •2.6 Internal consultants
- •2.7 Management consulting and other professions
- •Figure 2.1 Professional service infrastructure
- •2.8 Management consulting, training and research
- •Box 2.1 Factors differentiating research and consulting
- •3.1 Defining expectations and roles
- •Box 3.1 What it feels like to be a buyer
- •3.2 The client and the consultant systems
- •Box 3.2 Various categories of clients within a client system
- •Box 3.3 Attributes of trusted advisers
- •3.4 Behavioural roles of the consultant
- •Box 3.4 Why process consultation must be a part of every consultation
- •3.5 Further refinement of the role concept
- •3.6 Methods of influencing the client system
- •3.7 Counselling and coaching as tools of consulting
- •Box 3.5 The ICF on coaching and consulting
- •4 CONSULTING AND CHANGE
- •4.1 Understanding the nature of change
- •Figure 4.1 Time span and level of difficulty involved for various levels of change
- •Box 4.1 Which change comes first?
- •Box 4.2 Reasons for resistance to change
- •4.2 How organizations approach change
- •Box 4.3 What is addressed in planning change?
- •Box 4.4 Ten overlapping management styles, from no participation to complete participation
- •4.3 Gaining support for change
- •4.4 Managing conflict
- •Box 4.5 How to manage conflict
- •4.5 Structural arrangements and interventions for assisting change
- •5 CONSULTING AND CULTURE
- •5.1 Understanding and respecting culture
- •Box 5.1 What do we mean by culture?
- •5.2 Levels of culture
- •Box 5.2 Cultural factors affecting management
- •Box 5.3 Japanese culture and management consulting
- •Box 5.4 Cultural values and norms in organizations
- •5.3 Facing culture in consulting assignments
- •Box 5.5 Characteristics of “high-tech” company cultures
- •6.1 Is management consulting a profession?
- •6.2 The professional approach
- •Box 6.1 The power of the professional adviser
- •Box 6.2 Is there conflict of interest? Test your value system.
- •Box 6.3 On audit and consulting
- •6.3 Professional associations and codes of conduct
- •6.4 Certification and licensing
- •Box 6.4 International model for consultant certification (CMC)
- •6.5 Legal liability and professional responsibility
- •7 ENTRY
- •7.1 Initial contacts
- •Box 7.1 What a buyer looks for
- •7.2 Preliminary problem diagnosis
- •Figure 7.1 The consultant’s approach to a management survey
- •Box 7.2 Information materials for preliminary surveys
- •7.3 Terms of reference
- •Box 7.3 Terms of reference – checklist
- •7.4 Assignment strategy and plan
- •Box 7.4 Concepts and terms used in international technical cooperation projects
- •7.5 Proposal to the client
- •7.6 The consulting contract
- •Box 7.5 Confidential information on the client organization
- •Box 7.6 What to cover in a contract – checklist
- •8 DIAGNOSIS
- •8.1 Conceptual framework of diagnosis
- •8.2 Diagnosing purposes and problems
- •Box 8.1 The focus purpose – an example
- •Box 8.2 Issues in problem identification
- •8.3 Defining necessary facts
- •8.4 Sources and ways of obtaining facts
- •Box 8.3 Principles of effective interviewing
- •8.5 Data analysis
- •Box 8.4 Cultural factors in data-gathering – some examples
- •Box 8.5 Difficulties and pitfalls of causal analysis
- •Figure 8.1 Force-field analysis
- •Figure 8.2 Various bases for comparison
- •8.6 Feedback to the client
- •9 ACTION PLANNING
- •9.1 Searching for possible solutions
- •Box 9.1 Checklist of preliminary considerations
- •Box 9.2 Variables for developing new forms of transport
- •9.2 Developing and evaluating alternatives
- •Box 9.3 Searching for an ideal solution – three checklists
- •9.3 Presenting action proposals to the client
- •10 IMPLEMENTATION
- •10.1 The consultant’s role in implementation
- •10.2 Planning and monitoring implementation
- •10.3 Training and developing client staff
- •10.4 Some tactical guidelines for introducing changes in work methods
- •Figure 10.1 Comparison of the effects on eventual performance when using individualized versus conformed initial approaches
- •Figure 10.2 Comparison of spaced practice with a continuous or massed practice approach in terms of performance
- •Figure 10.3 Generalized illustration of the high points in attention level of a captive audience
- •10.5 Maintenance and control of the new practice
- •11.1 Time for withdrawal
- •11.2 Evaluation
- •11.3 Follow-up
- •11.4 Final reporting
- •12.1 Nature and scope of consulting in corporate strategy and general management
- •12.2 Corporate strategy
- •12.3 Processes, systems and structures
- •12.4 Corporate culture and management style
- •12.5 Corporate governance
- •13.1 The developing role of information technology
- •13.2 Scope and special features of IT consulting
- •13.3 An overall model of information systems consulting
- •Figure 13.1 A model of IT consulting
- •Figure 13.2 An IT systems portfolio
- •13.4 Quality of information systems
- •13.5 The providers of IT consulting services
- •Box 13.1 Choosing an IT consultant
- •13.6 Managing an IT consulting project
- •13.7 IT consulting to small businesses
- •13.8 Future perspectives
- •14.1 Creating value
- •14.2 The basic tools
- •14.3 Working capital and liquidity management
- •14.4 Capital structure and the financial markets
- •14.5 Mergers and acquisitions
- •14.6 Finance and operations: capital investment analysis
- •14.7 Accounting systems and budgetary control
- •14.8 Financial management under inflation
- •15.1 The marketing strategy level
- •15.2 Marketing operations
- •15.3 Consulting in commercial enterprises
- •15.4 International marketing
- •15.5 Physical distribution
- •15.6 Public relations
- •16 CONSULTING IN E-BUSINESS
- •16.1 The scope of e-business consulting
- •Figure 16.1 Classification of the connected relationship
- •Box 16.1 British Telecom entering new markets
- •Box 16.2 Pricing models
- •Box 16.3 EasyRentaCar.com breaks the industry rules
- •Box 16.4 The ThomasCook.com story
- •16.4 Dot.com organizations
- •16.5 Internet research
- •17.1 Developing an operations strategy
- •Box 17.1 Performance criteria of operations
- •Box 17.2 Major types of manufacturing choice
- •17.2 The product perspective
- •Box 17.3 Central themes in ineffective and effective development projects
- •17.3 The process perspective
- •17.4 The human aspects of operations
- •18.1 The changing nature of the personnel function
- •18.2 Policies, practices and the human resource audit
- •Box 18.1 The human resource audit (data for the past 12 months)
- •18.3 Human resource planning
- •18.4 Recruitment and selection
- •18.5 Motivation and remuneration
- •18.6 Human resource development
- •18.7 Labour–management relations
- •18.8 New areas and issues
- •Box 18.2 Current issues in Japanese human resource management
- •Box 18.3 Current issues in European HR management
- •19.1 Managing in the knowledge economy
- •Figure 19.1 Knowledge: a key resource of the post-industrial area
- •19.2 Knowledge-based value creation
- •Figure 19.2 The competence ladder
- •Figure 19.3 Four modes of knowledge transformation
- •Figure 19.4 Components of intellectual capital
- •Figure 19.5 What is your strategy to manage knowledge?
- •19.3 Developing a knowledge organization
- •Figure 19.6 Implementation paths for knowledge management
- •Box 19.1 The Siemens Business Services knowledge management framework
- •20.1 Shifts in productivity concepts, factors and conditions
- •Figure 20.1 An integrated model of productivity factors
- •Figure 20.2 A results-oriented human resource development cycle
- •20.2 Productivity and performance measurement
- •Figure 20.3 The contribution of productivity to profits
- •20.3 Approaches and strategies to improve productivity
- •Figure 20.4 Kaizen building-blocks
- •Box 20.1 Green productivity practices
- •Figure 20.5 Nokia’s corporate fitness rating
- •Box 20.2 Benchmarking process
- •20.4 Designing and implementing productivity and performance improvement programmes
- •Figure 20.6 The performance improvement planning process
- •Figure 20.7 The “royal road” of productivity improvement
- •20.5 Tools and techniques for productivity improvement
- •Box 20.3 Some simple productivity tools
- •Box 20.4 Multipurpose productivity techniques
- •Box 20.5 Tools used by most successful companies
- •21.1 Understanding TQM
- •21.2 Cost of quality – quality is free
- •Figure 21.1 Typical quality cost reduction
- •Box 21.1 Cost items of non-conformance associated with internal and external failures
- •Box 21.2 The cost items of conformance
- •21.3 Principles and building-blocks of TQM
- •Figure 21.2 TQM business structures
- •21.4 Implementing TQM
- •Box 21.3 The road to TQM
- •Figure 21.3 TQM process blocks
- •21.5 Principal TQM tools
- •Box 21.4 Tools for simple tasks in quality improvement
- •Figure 21.4 Quality tools according to quality improvement steps
- •Box 21.5 Powerful tools for company-wide TQM
- •21.6 ISO 9000 as a vehicle to TQM
- •21.7 Pitfalls and problems of TQM
- •21.8 Impact on management
- •21.9 Consulting competencies for TQM
- •22.1 What is organizational transformation?
- •22.2 Preparing for transformation
- •Figure 22.1 The change-resistant organization
- •22.3 Strategies and processes of transformation
- •Figure 22.2 Linkage between transformation types and organizational conditions
- •Figure 22.3 Relationships between business performance and types of transformation
- •Box 22.1 Eight stages for transforming an organization
- •22.4 Company turnarounds
- •Box 22.2 Implementing a turnaround plan
- •22.5 Downsizing
- •22.6 Business process re-engineering (BPR)
- •22.7 Outsourcing and insourcing
- •22.8 Joint ventures for transformation
- •22.9 Mergers and acquisitions
- •Box 22.3 Restructuring through acquisitions: the case of Cisco Systems
- •22.10 Networking arrangements
- •22.11 Transforming organizational structures
- •22.12 Ownership restructuring
- •22.13 Privatization
- •22.14 Pitfalls and errors to avoid in transformation
- •23.1 The social dimension of business
- •23.2 Current concepts and trends
- •Box 23.1 International guidelines on socially responsible business
- •23.3 Consulting services
- •Box 23.2 Typology of corporate citizenship consulting
- •23.4 A strategic approach to corporate responsibility
- •Figure 23.1 The total responsibility management system
- •23.5 Consulting in specific functions and areas of business
- •23.6 Future perspectives
- •24.1 Characteristics of small enterprises
- •24.2 The role and profile of the consultant
- •24.4 Areas of special concern
- •24.5 An enabling environment
- •24.6 Innovations in small-business consulting
- •25.1 What is different about micro-enterprises?
- •Box 25.1 Consulting in the informal sector – a mini case study
- •25.3 The special skills of micro-enterprise consultants
- •Box 25.2 Private consulting services for micro-enterprises
- •26.1 The evolving role of government
- •Box 26.1 Reinventing government
- •26.2 Understanding the public sector environment
- •Figure 26.1 The public sector decision-making process
- •Box 26.2 The consultant–client relationship in support of decision-making
- •Box 26.3 “Shoulds” and “should nots” in consulting to government
- •26.3 Working with public sector clients throughout the consulting cycle
- •26.4 The service providers
- •26.5 Some current challenges
- •27.1 The management challenge of the professions
- •27.2 Managing a professional service
- •Box 27.1 Challenges in people management
- •27.3 Managing a professional business
- •Box 27.2 Leverage and profitability
- •Box 27.3 Hunters and farmers
- •27.4 Achieving excellence professionally and in business
- •28.1 The strategic approach
- •28.2 The scope of client services
- •Box 28.1 Could consultants live without fads?
- •28.3 The client base
- •28.4 Growth and expansion
- •28.5 Going international
- •28.6 Profile and image of the firm
- •Box 28.2 Five prototypes of consulting firms
- •28.7 Strategic management in practice
- •Box 28.3 Strategic audit of a consulting firm: checklist of questions
- •Box 28.4 What do we want to know about competitors?
- •Box 28.5 Environmental factors affecting strategy
- •29.1 The marketing approach in consulting
- •Box 29.1 Marketing of consulting: seven fundamental principles
- •29.2 A client’s perspective
- •29.3 Techniques for marketing the consulting firm
- •Box 29.2 Criteria for selecting consultants
- •Box 29.3 Branding – the new myth of marketing?
- •29.4 Techniques for marketing consulting assignments
- •29.5 Marketing to existing clients
- •Box 29.4 The cost of marketing efforts: an example
- •29.6 Managing the marketing process
- •Box 29.5 Information about clients
- •30 COSTS AND FEES
- •30.1 Income-generating activities
- •Table 30.1 Chargeable time
- •30.2 Costing chargeable services
- •30.3 Marketing-policy considerations
- •30.4 Principal fee-setting methods
- •30.5 Fair play in fee-setting and billing
- •30.6 Towards value billing
- •30.7 Costing and pricing an assignment
- •30.8 Billing clients and collecting fees
- •Box 30.1 Information to be provided in a bill
- •31 ASSIGNMENT MANAGEMENT
- •31.1 Structuring and scheduling an assignment
- •31.2 Preparing for an assignment
- •Box 31.1 Checklist of points for briefing
- •31.3 Managing assignment execution
- •31.4 Controlling costs and budgets
- •31.5 Assignment records and reports
- •Figure 31.1 Notification of assignment
- •Box 31.2 Assignment reference report – a checklist
- •31.6 Closing an assignment
- •32.1 What is quality management in consulting?
- •Box 32.1 Primary stakeholders’ needs
- •Box 32.2 Responsibility for quality
- •32.2 Key elements of a quality assurance programme
- •Box 32.3 Introducing a quality assurance programme
- •Box 32.4 Assuring quality during assignments
- •32.3 Quality certification
- •32.4 Sustaining quality
- •33.1 Operating workplan and budget
- •Box 33.1 Ways of improving efficiency and raising profits
- •Table 33.2 Typical structure of expenses and income
- •33.2 Performance monitoring
- •Box 33.2 Monthly controls: a checklist
- •Figure 33.1 Expanded profit model for consulting firms
- •33.3 Bookkeeping and accounting
- •34.1 Drivers for knowledge management in consulting
- •34.2 Factors inherent in the consulting process
- •34.3 A knowledge management programme
- •34.4 Sharing knowledge with clients
- •Box 34.1 Checklist for applying knowledge management in a small or medium-sized consulting firm
- •35.1 Legal forms of business
- •35.2 Management and operations structure
- •Figure 35.1 Possible organizational structure of a consulting company
- •Figure 35.2 Professional core of a consulting unit
- •35.3 IT support and outsourcing
- •35.4 Office facilities
- •36.1 Personal characteristics of consultants
- •36.2 Recruitment and selection
- •Box 36.1 Qualities of a consultant
- •36.3 Career development
- •Box 36.2 Career structure in a consulting firm
- •36.4 Compensation policies and practices
- •Box 36.3 Criteria for partners’ compensation
- •Box 36.4 Ideas for improving compensation policies
- •37.1 What should consultants learn?
- •Box 37.1 Areas of consultant knowledge and skills
- •37.2 Training of new consultants
- •Figure 37.1 Consultant development matrix
- •37.3 Training methods
- •Box 37.2 Training in process consulting
- •37.4 Further training and development of consultants
- •37.5 Motivation for consultant development
- •37.6 Learning options available to sole practitioners
- •38 PREPARING FOR THE FUTURE
- •38.1 Your market
- •Box 38.1 Change in the consulting business
- •38.2 Your profession
- •38.3 Your self-development
- •38.4 Conclusion
- •APPENDICES
- •4 TERMS OF A CONSULTING CONTRACT
- •5 CONSULTING AND INTELLECTUAL PROPERTY
- •7 WRITING REPORTS
- •SUBJECT INDEX
Management consulting
They usually try to keep these people together in a separate division, with the leader of the purchased company in charge. Acquirers need to send a message that there will be consistency and openness in the new environment, and resist the temptation to prescribe in detail how the new people must run their operations.
22.10 Networking arrangements
Networks are spreading globally as an effective tool and structure for fundamental transformation of organizations. Companies can significantly improve productivity by focusing on the things they do best. Networks usually focus on a combination of cost reduction and customer service orientation, as the foundation for improved competitiveness. At the centre of the network should be a flagship firm, which can contribute unique capabilities. These might include competence in managing the network as a whole, developing core technologies, improving distribution and supply chains, and many others.
Networks help companies adopt agile business practices, tune in to the changing and diverse needs of their customers, and rapidly transform their supply and distribution systems as well as their own production systems. By cooperating with other firms, even competitors, companies can improve their productivity and competitiveness through better access to innovations and new technology, venture capital and new markets at lower costs, while sharing risks and liabilities with network partners. They can have more efficient specialization around their core activities while learning about new management practices.
What has made networking so popular is the fact that today’s corporate partners are more and more interested in long-term strategic alliances where gains are made over many years. The formation of strategic networks means that power often resides in a group of companies acting together as partners. Information technology increases the opportunity to use cooperative strategies to reduce costs, enter new markets, and improve competitiveness. The most common types of cooperation range from exchange of information and experience to more complex and formal relationships such as consortia. In between there are supply/value-chain partnerships, licensing, strategic alliances and others.
An excellent illustration of developments in networking is the rapid spread of contract manufacturing among electronics firms. Contract manufacturers such as Flextronic, Solectron, Celestica, Jabil and hundreds of other small firms have taken about 11 per cent of the market for electronics hardware. The amount of contract manufacturing is growing by more than 20 per cent a year, which is more than twice as fast as the electronics industry as a whole. Another form of networking, dealing with knowledge management between firms, is network intelligence, which can enable executives and entrepreneurs to grasp many phenomena shaping the future of technology companies. As network
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technologies have advanced, both the location and the mobility of network intelligence have changed dramatically.
Another form of networking is a network incubator, which provides mechanisms to foster partnerships among start-up teams and other successful Internet-oriented firms, thus facilitating the flow of knowledge and talent across companies and forging marketing and technology relationships between them. With the help of such an incubator, start-up companies can network to obtain resources and partner with each other quickly, allowing them to establish themselves in the marketplace ahead of competitors. These incubators provide fledging companies with preferential access to potential partners and advisers. Network incubators combine the best of two worlds – the scale and scope of large corporations and the entrepreneurial spirit of small venture-capital firms
– as well as providing unique networking benefits.
Virtual teamwork also represents an excellent form of networking. Communication technology now enables the balance of work to shift from stable functions tied to physical locations to electronically connected teams irrespective of location. This increases the ability of companies to gain access to specialized knowledge. Such a virtual model can bring savings as well: saving from reduced travel time, reduced office space, and avoidance of duplication of personnel can reach upward of 50 per cent of project costs. The model is also able to exploit different time zones and reduce product development time through the creation of a 24-hour workday spread across different locations.
22.11 Transforming organizational structures
As companies around the world continue to transform their strategies and structures to become more agile, the sources of competitive advantage are increasingly shifting away from traditional economic drivers such as large size, economies of scale, and proprietary technologies. Increasingly, companies are using continuous change, virtual and self-managed teams, networks and cellular organizations to revamp their strategies and ways of doing business. The fundamental objective of these shifts is to create a new type of organizational design that facilitates the rapid creation and sharing of new sources of knowledge throughout the firm.
One of the most important tasks for management consultants in advising on organization restructuring is to balance and align innovation, initiative, competence-building, flexibility and standardization. Growing decentralization and autonomy of administrative and business units have made organizational alignment or integration a critical management tool, which stimulates company learning and innovation. Harmonizing strategy and organization design is an ongoing challenge for senior managers and management consultants in all firms, but larger companies face additional challenges, in integrating numerous internal divisions.
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The organizations of the past, most of which are still in existence, were not designed to cope with constant change. They were designed for permanent employment, high fixed costs, regular work, and narrow skills and task boundaries, and offered security in exchange for loyalty and commitment. New organizations need to be designed for flexible resources, changing demands, quick reaction to market behaviour, low fixed costs, focus on core competencies and capabilities, and emphasis on talent.
The most dramatic change for those used to conventional corporate structures is the fluidity of new-style organizations. The walls around and inside corporations are collapsing and the large enterprise is already breaking down. Physical assets are no longer so advantageous: it is information and intellectual assets that matter.
Grassroots innovation in companies requires appropriate structures to provide a smooth flow, exchange and implementation. As the computing and financial service industries have shown, vertical integration breaks down when innovation speeds up. The big telecommunications firms that will win back investor confidence soonest will be those with the courage to rip apart their monopolistic structures along functional layers, to swap size for speed, and to embrace rather than fear disruptive technologies. Dell is deliberately and decisively anti-hierarchical. It has no fancy corporate offices. In fact there are only four offices, for the chairman and vice-chairmen (two of them share one office); everybody else has a cubicle.
A very important new rule is emerging: do not try to predict change precisely, but make the company structure flexible enough to respond to it. Consolidating or decreasing the number of divisions improves resource-sharing and creates sufficient critical mass to learn or build a new core competence. Divisions that benefit from such consolidation can be combined into a single larger unit. At the same time, many companies have reduced the size of their divisions to adjust to changing conditions without compromising their ability to learn and share knowledge throughout the system. By having smaller divisions or local networks, these firms can innovate faster.
In a network – a project or an alliance, for example – managers have to be everywhere. The network web is so fluid that managers cannot afford to remain in the centre: they have to move around to facilitate collaboration and energize the whole network. They need to encourage people who already know how to do their work. In a web everyone can be a manager: whoever draws things together becomes a de facto manager. For companies to thrive in today’s economy, management has to be put in its place – not at the top of the chart but within it, at the centre of a hub, or throughout a web.
It should be remembered that organizational design is just a framework to create favourable conditions for implementing company vision and strategy to meet customer needs and become competitive. What matters is whether the organization structure is sufficiently flexible and permeable to allow business processes, knowledge and experience to flow throughout the organization, regardless of where they originate.
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22.12 Ownership restructuring
Recently many companies have enhanced shareholder value by restructuring their capital, ownership and assets.
Spin-offs occur when the entire ownership of a subsidiary is divested and shares in the newly formed company are distributed as dividends to shareholders.
Equity carve-outs are the sale by a public company of a portion of common stock of one of its subsidiaries through an initial public offering (IPO). Each carve-out subsidiary has its own board of directors, operating CEO, and financial statements, and its shares are quoted on one of the stock exchanges. The parent company, which usually retains a majority of the shares, continues to provide strategic direction and selected central resources. Equity carve-outs have assumed a prominent place in US equity activity, with an average of almost 50 carve-outs a year. Some analysts believe that carve-outs are the best way to unlock unrecognized values in public companies.
Leveraged buy-outs are the technique of buying the shares of a company and issuing bonds, sometimes referred to as junk bonds, to finance the purchase. This makes it easier for conglomerates to shed non-core assets.
Management buy-outs are another form of ownership restructuring in which some managers within the company buy all the outstanding shares because they believe they can considerably improve performance and enhance the value of the company. In employee buy-outs, the employees become the owners of the business. Another variation is a management buy-in, in which an external management team buys all the shares, dismisses the existing management team and creates a new private company. In some cases these opportunities arise when a business, whether independent or part of a larger group, is losing money and cannot be sold to another company.
Employee ownership has been offered in an increasing number of companies in the form of stock options, share purchase plans and profit-sharing to improve the motivation and commitment of employees.
22.13 Privatization
Privatization refers to instances of ownership restructuring, leading to total business and financial restructuring, where assets are transferred from government (central or local) to private owners. Although the main privatization moves were completed in the developed free market economies in the 1980s and in the former centrally planned economies in the 1990s, in many countries privatization still represents an opportunity and challenge to consultants. In preparing for privatization of state-owned and state-controlled organizations, and implementing the privatization process, most governmental institutions have to rely to a considerable extent on external expertise. This may concern
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issues such as pre-privatization sector studies, privatization policies and procedures, enterprise restructuring, valuation, diagnostic and feasibility studies, management and staff training, searching for buyers, the creation of an effective market-economy infrastructure, corporate governance, legal issues, and so on.
Management consultants engaging in privatization projects should have a solid background in the sector and a track record showing that they are able to solve practical diagnostic, structural and strategic problems of companies. Management consulting firms with a good background in sector studies, business diagnosis, corporate strategy and restructuring are well placed to take the lead in advising clients on important privatization projects. They can help clients to identify and involve specialized advisers able to handle legal, financial, environmental and other aspects of particular projects.
In a typical assignment, the consultant may be called in to undertake the following tasks:
Technical and strategic assessment. These data would cover products and services; licences and technical know-how (marketability, competitive situation); technical layout and condition of business premises and facilities; productivity, management and human resources.
Evaluation of the strategic and financial situation. This will cover issues such as strengths and weaknesses of the company (markets, customer base, competitiveness, market share); threats and opportunities for the future privatized enterprise and the company’s ability to cope with external influences; actions to secure the company’s position in the local and/or international market; and financial performance (cash flow, profitability, financial structure, working capital, liquidity, quality of receivables and other assets, the company’s ability to finance itself). Owing to their generally extensive vertical and horizontal integration, many public-sector companies have to be split up or restructured to become manageable and attractive to investors. The consultant should analyse the company and as a first step suggest a horizontal separation, which might include the sale of non-essentials via various asset deals to different investors. As a second step the company may be separated into core business units, after which individual parts of the value-adding chain can be privatized separately in different asset deals. For any consultant, the most important focus of the strategic and technical assessment must be the viability, competitive advantage and development prospects of the company after privatization.
Valuation. Valuation plays a basic and vital role in the privatization process. A consultant may encounter a broad range of problems in conducting a valuation. Assumptions about future domestic and international trends (i.e. interest rates, exchange rates and inflation) in a rapidly changing market, as well as the legal and financial environment, must be dealt with. To ensure that investors become and remain interested, the valuation of the company has to be fair and reasonable and the consultant may be asked both to advise upon the method to be used and to assist in its application.
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