ORGANISATION OF CONSULTANCY SERVICES

Transcription

1 Chapter - 4 ORGANISATION OF CONSULTANCY SERVICES A well-conceived internal organisation design is absolutely necessary for achieving organisational objectives and delivering quality services to clients. Against this backdrop an indepth analysis is made of the socio-economic conditions of consultancy service firms in Kerala which would give an insight into the strengths and weaknesses of these firms. 4.1 Nature of Organisation - - A consultancy organisation exists for making profits, achieving growth by excelling competition and adding value to-- the clients. It may be organised like any other business as sole proprietorship, partnership, private limited company or public limited company. Table T2 shows the nature of organisation of consultancy services: Table T2 Nature of Consultancy Organisations Nature of Organisation Sole Proprietorship Partnership Private Limited Company Public Limited Company

2 The table reveals that out of consultancy firms studied, 78 firms (39 per cent) are organised as sole proprietorship, 69 firms (34.5 per cent) are private limited companies, 38 firms (19 per cent) are partnerships and the remaining 15 firms (7.5 per cent) are public limited companies. It is evident that sole proprietorship is the dominant form of organisation for consultancy services. This is because of the fact that most of the consultancy firms are organised on a small scale basis and they prefer to be self-employed. Architects, tax consultants, engineering and project consultants mainly organise their services as sole proprietorship. However, a good number of consultancy firms, for example, software and human resources consultancy firms are now organised as private limited companies. Private Limited company 34.5% Public Limited Company 7.5% M e Proprietorship 39.0% Partnership 1 9. P/o Soie Proprietorship I Private Lktlited Ccmpny Fig. F8 Nature of Consultancy Organisations

3 4.2 Age of Consultancy Organisation Table T3 shows the distribution of consultancy firms on the basis of the number of years of their existence since their inception. Table T3 Age of Consultancy Organisations Age in Years Less than 5 years Between 5 and 10 years Above 10 years The study reveals that the majority of the consultancy firms (68.5 per cent) have been in existence for less than ten years. The average age of consultancy firms is approximately 7.65 years. Therefore, it is concluded that organised consultancy services in the State are of recent origin and are still in their developing stage. It is realised that it is only of late that the economic scenario became more complex and diversified in the State of Kerala and clients felt the need for expert advice on their business matters.

4 4.3 Location and Area of Operation a) Location A consultancy organisation operates from a single location or from different locations through branches or franchisees. Table T4 shows the locational patterns of consultancy organisations. Table T4 Locational Patterns of Consultancy Organisations No. of locations Single location Multiple location The table reveals that the majority of consultancy firms (76 per cent) have only single locations for the distribution of their services. Only 48 firms (24 per cent) have branches or multi locational service delivery points. It shows that personalised service and direct contact with the clients necessitate single location, while partnership or active mobility permits multiple locations. b) Area of Operation A consultancy firm serves clients belonging to the area of its location or sometimes clients from the whole State and also from other States. An

5 analysis of the nature of area of operation of consultancy firms is presented in Table T5. Table T5 Area of Operation of Consultancy Organisations Within the District Within the State Outside the State also - ~ h table e shows that the majority of the consultancy firms (84 per cent) serve clients belonging to the same District or State in which they are located. It indicates the regional nature of the area of operation. Only 32 firms (16 per cent) have operations outside the State and few respondents, most of them software consultancy firms, have clients from overseas. It reveals that consultancy firms mainly focus on satisfying the needs of local clients, thereby ensuring quality of services.,- 4.4 Areas of Consultancy Sewices The areas of consultancy services are vast and wide. These are grouped under eight broad categories for the purpose of the study. Many

6 consultancy organisations offer more than one line of consultancy services. Management consultants simultaneously offer tax consultancy, investment consultancy, project consultancy etc. Similarly some software consultancy firms also carry out computer training and education. Therefore, consultancy firms are classified on the basis of their important service in the service product line. Table T6 gives the composition of respondents from different areas of consultancy services. Table T6 Distribution of Consultancy firms based on Nature of Consultancy Services 125 Area of Consultancy Services - Management Consultancy Investment Consultancy ProjectIEngineering Consultancy Software Consultancy Employment/Educational Consultancy Architechts / Interior Design Consultancy Tax Consultancy Others

7 The table reveals that management consultancy, projecvengineering consultancy and architecture /interior design consultancy together come to 55 per cent of the total consultancy services in the State. This shows that these three are the major consultancy services commonly practiced in the State. Of these management consultancy occupies 24 per cent of the total consultancy services. This is owing to the fact that it is an area having wider scope of services like organisational restructuring, capital reorganisation, financial collaboration, amalgamation, takeovers, rehabilitation, cost management, quahty control, marketing research, protection of patent rights and trade marks etc. The table also indicates that other consultancy services like investment -- consultancy, software consultancy and tax consultancy are also actively - practised in the Sate since they share 34 per cent of the total consultancy services in the State. The category of 'others' in the table includes consultancies in the areas of event management, travel and tourism, advertising and immigration services. 4.5 Number of Consultants Employed organisations. Table T7 shows the number of consultants employed by consultancy

8 Table T7 Classification of Respondents on the basis of Number of Consultants Employed Number of Consultants Above F I The table reveals that 71 consultancy firms (35.5 per cent) have only single consultant each. 96 per cent of the firms surveyed have 5 or less than 5 consultants each. Only 8 firms (4 per cent) employ more than 5 consultants each. The average number of consultants works out at 2 approximately indicating the relatively smaller size of consultancy organisations. The tendancy to be self-sufficient and the freedom of professional activities are the factors attributing to this feature. 4.6 Number of Clients served by Consultancy Firms The number of clients served by consultancy firms depends on the nature of the services and the size of the organisation. Certain consultancy services are bought only occasionally or only once by clients. These are called

9 new buys, for example, services of architects, interior decorators, project consultancies etc. While some other services are frequently demanded by clients. These are termed as repeated buys or modified rebuys. These include services like investment consultancy, tax consultancy, human resources consultancy etc. Table T8 shows the number of clients served by consultancy firms in the survey. Table T8 Average Number of Clients Served by Consultancy Firms for the period 1997=1. Average Number of Clients Served Less than 10 Between 10 and 20 Between 20 and 30- Between 30 and 40 Between 40 and 50 Above The average number of clients served by a consultancy firm for the above period is 38 approximately. 60 per cent of the respondent firms serve less than 50 clients each and the remaining 40 per cent of the firms serve more than 50 clients each on an average per year. Considering the small size of the consultancy organisation and the number of consultants employed, the volume of consultancy business is found reasonable.

10 4.7 Capital Investment in Consultancy Firms Table T9 gives the classification of consultancy firms on the basis of capital investments as on the date of the survey. Table T9 Capital investment in Consultancy Firms Investments (Rs. in lakhs) No, of firms Less than 2 Between 2 and 5 Between 5 and 10 Above The average investment (median) in consultancy firm is approximately Rs lakhs. It indicates the relatively low investment required by consultancy organisations. It is found in the study that capital investment in consultancy service firms includes cost of office building, equipments, furniture and other infrastructure for delivering the services. Capital investment again depends on the nature of services offered and the size of operation. Consultancy organisations like that of tax consultants, architects, placement services etc. require as little investpent as Rs. 50,000 or so. There are also firms having investment ranging into crores of rupees in the consultancy services.

11 4.8 Number of Employees in the Organisation Consultancy services are highly people-oriented. There is high degree of personal contact in the service delivery process. Table TI0 shows the number of persons employed in consultancy organisation as on the date of the survey. Table TI0 Table Showing Number of Employees in Consultancy Organisations Number of Employees Less than 5 Between 5 and 10 Between 10-and 15 - Between 15 and and above The table reveals that out of firms studied 79 firms (39.5 per cent) have less than 5 employees in their organisations per cent of the consultancy firms have less than 20 employees in their organisations. The average number of persons employed is approximately 10. This clearly indicates the lean structure of consultancy organisations. The number of service personnel employed is low on account of the small size of consultancy firms.

12 4.9 Revenue Earned by Consultancy Organisations Fees charged from clients for consultancy services constitute- the source of revenue of consultancy firms. Income from sale of products supporting the services and also from other lines of services are not considered under revenue. Table TI 1 gives the average revenue earned by consultancy firms for the period Table TI1 Average Revenue Earned by Consultancy Organisations Average Revenue (Rs. in lakhs) Less than Between 5 and Between 10 and Between 15 and and above The average revenue earned by a consultancy organisation for the above period is Rs. 9,70, per cent of the firms are earning revenue below Rs. 5 lakhs and 60 per cent of the firms are earning revenue below Rs.10 lakhs. It is realised that the present revenue earned by the consultancy firms under survey are sufficient to recover fully all the costs of operations, leaving a reasonable amount of surplus.

13 4.10 Factors Contributing to the Growth of Consultancy Services Several factors contribute to the growth of consultancy services. Sophistication in human life, complexities of modern business, increasing opportunities, changes in economic/technological environment are the important factors contributing to the development of consultancy services. The respondents evaluation of these factors is presented in Table T12. Factors Contributing to the Growth of Consultancy Services No. of Respondents Factors I Ran king 11 - III. - IV Sophistication in human life Complexities of problems Increasing opportunities Environmental/ Technologica. changes I

14 Table T12A Ranking of the Factors Contributing to the Growth of Consultancy Services Factors Sophistication in human life Complexities of problems Increasing opportunities Environmental/ Technological changes Mean Score Rank I1 i 111 IV Complexities of problems is stated as the most important reason for the growth of consultancy services in the study. Out of respondents 141. (70.5 per cent) consider it as the most important. 30 respondents (15 per cent) -- consider sophistication in human life as the most important reason, 18, respondents (9 per cent) consider increasing opportunities as the most important reason, while 11 firms (5.5 per cent) say that environmental/ technological changes as the most important reason contributing to the growth of consultancy services. The second important reason is sophistication in human life. 135 respondents (67.5 per cent) consider it as the second important reason for the growth of consultancy services. 124 respondents (62 per cent) consider increasing opportunities in education, employment, business or profession as the third important reason for the growth of consultancy services.

15 Environmental/technological changes is considered as the fourth important factor by 118 respondents (59 per cent) Extent of Competition in Consultancy Services Competition in consultancy services leads to better quality of service and wider choice to clients. Table TI3 shows the opinion of respondents regarding the nature and extent of competition in consultancy services. Table T13 Extent of Competition in Consultancy Services Extent of Competition Severe competition.- Moderate competition Limited competition No competition at all Nil O All the respondents agree that there is competition in the field of consultancy services per cent of the respondents state that there is severe competition, 35.5 per cent are of opinion that the competition is moderate and the remaining 22 per cent state that there is only limited competition in the field of consultancy services. It is noted that it is the increase in the number of consultancy organisations that has resulted in severe competition. It is inferred

16 that the high degree of competition calls for high professionalism and greater efficiency on the part of the consultants in order to survive successfully in their field Acceptance of Marketing Principles by Consultancy Organisations It is a pertinent question to be analysed in detail whether there is a need for applying marketing principles to consultancy services. Table TI4 shows attitudes of respondents towards adopting marketing principles for their consultancy services. Table TI4 Attitudes of Consultancy Firms towards adopting Marketing Particulars Marketing is needed Marketing is not needed The table reveals that most of the consulting firms (82 per cent) recognise the need for adopting marketing in consultancy services. It indicates that consultancy firms are generally proactive to marketing because of the multifarious benefits it offers to them. It is seen that marketing is now increasingly being applied by many consultancy firms for excelling competition and better

17 positioning in the marketplace. However, some consultancy firms are against the adoption of marketing since they consider it as something not necessary or against their professional ethics. Marketing is not needed 18% I Marketing is needed 1 Marketing is needed I 82% 1 Marketing is not needed ( Fig. F9 Necessity of Marketing in Consultancy Services Need for Marketing in Consultancy Services - Having ascertained the need for marketing, consultancy firms open their mind as to why they resort to marketing. Table TI5 shows the reasons for adopting marketing by consultancy firms. Table TI5 Need for Marketing in Consultancy Services Reasons Long-term survival Growth of firm Facing competition All of the above

18 The table reveals that out of 164 respondents who consider marketing as necessary, 62 firms state that marketing is necessary for the growth of firms, 51 firms account it for long-term survival, 20 for facing competition and 31 for all of these reasons. It is inferred from the analysis that the consultants realise that the consultancy firms need appropriate marketing strategies for retaining existing clients and attracting new prospects. All of the above 18.90% Long-term su wiva l Facing competition 12.20% Growth of firm 37.80% 1 Long-term survival Growth of firm / Facing competition / Fig. F10 Reasons for Adopting Marketing in Consultancy Services Reasons for not Recognising Marketing Function The consultancy firms which do not support marketing state that it is against ethics, not relevant or the firm is too small to afford a separate marketing department. Table TI6 shows reasons for not recognising marketing by some consultancy organisation.

19 Table TI6 Reasons why Marketing is not Necessary Reasons Marketing is against ethics Marketing is not relevant Firm is too small The table indicates that out of 36 respondents who consider marketing as not necessary for consultancy service firms, 20 firms are of the opinion that marketing is against ethics and hence not necessary, 13 firm.^ account it for the smallness of the firm and the remaining 3 firms account it for the irrelevance of marketing concept in the context of consultancy services. However, the arguments against marketing are not tenable in the context of liberaiised thinking and professional freedom according to the opinions of the majority of consultants who support marketing Classification of Activities (Departmentalisation) in Consultancy Services Departmentalisation is the process of grouping of operating tasks into jobs, the combining of jobs into effective work groups and the combining of groups into divisions called departments. Activities of a consultancy organisation

20 are classified on the basis of functions, products (services), areas or clients, Table TI7 shows the classification of activities of consultancy organisations. Table TI7 Classification of Activities of Consultancy Organisations Basis of Classification Functions Services Areas Clients Nil Nil The table reveals that 98 firms (49 per cent) organise their activities on the basis of functions, 80 (40 per cent) on the basis of services provided and 22 (11 per cent) on the basis of their clients. No firm is found organising its activities based on the geographical area of its services. It is seen that most of the consultancy firms classify their activities on the basis of functions or services mainly because of simplicity, flexibility, ease of co-ordination, operation and control Number of Departments in Consultancy Organisations organisations. Table 18 shows the number of departments in consultancy

21 Table TI8 Number of Departments in Consultancy Organisations Departments Service Department Marketing Department Finance Department Accounting Department Personnel Department (N = ) i The table indicates that 169 firms (84.5 per cent) have service departments in their organisations. Only 56 firms (28 per cent) have separate marketing departments in their organisations. 45 firms have finance departments, 33 have accounting departments and only four firms have personnel departments in their organisations. Thus it is found that the activities of a consultancy organisation are organised under departments each in charge of a function like service, marketing, finance, accounting and personnel. A large consultancy organisation has more departments depending upon the importance of these functions in the organisation. In a small consultancy organisation all these functions are discharged by a single department, most probably by the service department.

22 Servlce deparment Marketing Flname department Accounting Personnel department department department - DEPARTMENT Fig. F11 Departments in Consul tancy Organisat-ions 4.15 Delegation of Authority in Consultancy Organisations In consultancy firms it is found necessay to delegate adequate authority to lower levels so that the persons responsible for delivering the services can effectively interact with the clients. At the same time the consultant retains some key functions so as to ensure quality of service and better client satisfaction. Only a decentralised consultancy firm can meet customer expectations effectively. It is revealed in the study that all the consultancy organisations practise delegation of authority to lower levels for better operational efficiency. There is

23 good extent of decentralisation of activities in almost all the firms and staff at lower levels are fully motivated to deliver the clients best of their services Organisation Structure in Consultancy Services ' Organisation structure is primarily concerned with the allocation of tasks among members of the organisation. According to the different practices of allocation of authority and responsibility among persons, several types of organisation structure have been evolved. These are the departmental and line organisation, line and staff organisation, functional organisation and committee organisation. Table TI9 shows the organisation structure of consultancy oiganisations. Table TI9 Organisation Structure of Consultancy Firms Nature of Organisation Structure Departmental and line organisation Line and staff organisation Functional organisation Committee organisation Not clearly defined Nil Nil per cent of the respondents state that the organisation structure is not clearly defined. These are either proprietary concerns or consultancy

24 organisations with few number of members. 40 per cent of the consultancy organisations follow the departmental and line organisation per cent of the firms follow the functional form of organisation structure while 5.5 per cent follow the line and staff form. It is revealed in the study that no firm follows the committee form of organisation structure. Thus it is inferred from the analysis that consultancy organisations, generally being organised on a small scale with limited area of operation, follow a simple form of organisation structure with clear cut line of authority and responsibility Organisation Chart in Consul tancy Organisations Organisation chart is a diagrammatic representation of the network of relations between the various positions in an organisation. Table T20 shows - the classification of consultancy organisations on the basis of organisation charts. Table T20 Classification of Consultancy firms on the basis of Organisation Charts Particulars Firms having organisation charts Firms not having organisation charts The table indicates that 52 per cent of the consultancy organisations have organisation charts and the remaining do not have any organisation charts.

25 It is known from the study that in small consultancy organisations like that of architects or project consultants, the consultant himself is the chief executive or organisational head. The authority descends to the lower levels through systematic assignment of functions to each person in the organisation. In large consultancy firms, the consultant acts as a departmental head supervising the specific functions of his department. He may also act as a 'Staff' with advisory roles in certain organisations. In software consultancy, the consultants are employed as 'Staff' functionaries to develop specific software for serving the needs of clients Manpower Requirements and Training in Consultancy Organisations -- ~onsultants are well qualified professionals in the area of their services. Some of them are also members of professional bodies like Council of Architects, Institute of Chartered Accountants, Institute of Cost Accountants etc. Consultants may practice independently or may join any consultancy firm as employees or partners Procedure for Selection of Consultants From interviews and discussions with respondents it is pointed out that most of the consulting firms have been recruiting consultants through direct interview method. A few of them especially the software consulting

26 firms use the campus interview method for selection of consultants. Consultants are appointed taking into consideration their qualifications, work experience, motivations, aspirations, ability to communicate and leadership qualities Training of Consultants It is found in the study that consultants are first appointed at assistant or junior levels in many consultancy organisations. They are given adequate training at this level. The respondents state that the methods of training include on the job training, attending seminars, workshops and oral presentations. In large consultancy firms, consultants appointed are given opportunities to grow from the level of Assistant Consultants to a Senior-Consultant and goes on to become a Service Head or a Regional Head. 1t is also revealed in the study - that some consultancy firms offer very elaborate career design programmes to those who have proven their worth at the entry level Manpower Planning in Consultancy Services Planning of future requirements of consultants is very essential for efficient operation and facing competition in the long run. However, this aspect is totally ignored and little or no planning is done to meet future requirements of consultants by most of the consultancy firms. It is revealed by some respondents that the firm hires a person when a consultant quits or the need arises. Such practices often lead to poor choice of consultants.

27 It is revealed in the study that there has been no difficulty in getting qualified consultants by these firms. Consultants are suitably rewarded and career development prospects are also bright in most of the consultancy firms. It is also reported that labour turnover is very low in the field of consultancy services. It is necessary to give a certain degree of autonomy and discretion to consultants while taking up client problems. Professional freedom and ' independence are required for delivering better quality services. The study reveals that most of the consultancy organisations give necessary authority and freedom to consultants to take up independent assignments and offer - expert advice or solutions to clients' needs or problems Guiding Principles and Code of Conduct for Consultants The opinion of consultants regarding application of code of conduct for consultancy services is presented in Table T21. Table T21 Code of Conduct Applicable to Consultancy Services Particulars Consultancy firms are subject to specific code of conduct Consultancy firms are not subject to specific code of conduct No, of firms

28 136 respondents (68 per cent) in the study state that consultants are subject to specific code of conduct in their services, while the remaining 64 firms (32 per cent) state in the negative. It is revealed that there is no uniform code of conduct or universally accepted guidelines applicable to all consultants. These are governed mostly by conventions and the Rules of professional bodies to which they are associated. Some of these are codified and found in the respective Acts like the Chartered Accountants Act, 1949, The Companies Act, 1956, The Securities and Exchange Board of India Act, 1992 etc. Consultancy firms are not subject to specific code of conduct conduct 68% Consultancy firms are subject to specific code of conduct Consultancy firms are not subject to s~ecifi code of conduct Fig. F12 Code of Conduct for Consultants Consultants are unanimous in their opinion regarding service quality and client satisfaction. They state that a consultant must be competent, trustworthy, of good integrity and caring for clients. He must maintain secrecy

29 regarding operations of client and adhere to the time schedule agreed upon. Some of the comments of consultants interviewed in this respect are: - 'the services of the consultant must be result-oriented.' - 'the consultant shall render the best services possible according to the expectations of his clients.' - 'he must give the best value for the fees paid.' 4.20 Liability of Consultants to Clients Consultants are expected to give expert advice or solutions to clients' - problems. They shall not be negligent in their duties and responsibilities to their clients. Consultants have only advisory roles and they may not often engage in the implementation of the recommendations. Therefore, whether the consultants have any personal liability towards the clients for deficiency of services is yet to be settled. Some of the recent judgements of the consumer courts in the country point to the fact that service providers are liable for deficiency of services. Therefore, it is beyond doubt that consultants are liable for proved misconduct or deficiency in their services. The opinion of consultants in this respect is, however, not unanimous as shown in Table T22.

30 Table T22 Classification of Respondents on the basis of Liability of Consultants for Deficiency of Services Particulars Consultant is liable Consultant is not liable No, of firms The table reveals that 80.5 per cent of the respondents favour the view that consultants are personally liable to clients for the deficiency of services. The remaining per cent state-that the consultants are not liable. The nature of liability, as stated by the respondents who support the view, includes damages for loss arising to the clients, refund of fees or loss of clients. Penalties, disciplinary actions or even removal of membership from professional bodies are also stated as the consequences of dishonest acts by consultants. Upon an indepth analysis of the organisation of consultancy services it can be concluded that the ability of a consultancy organisation to respond to the changing requirements of a liberalised economic environment and increasing expectations of clients depends on its internal strength. The organisation design must be well-structured to meet these challenges. It must be simple, proactive to changes and based on accepted principles with complete delimination on

31 authorities and responsibilities. The object of the organisation design in consultancy services must be better client service, faster decision-making and improvement in productivity and profitability. It is found in the analysis that many consultancy organisations lack the internal strengths and vibrant organisation structures. Though there is an increasing awareness among consultancy organisations regarding the role of marketing many of them are found reluctant in applying marketing in their organisations. It is not the number of consultants or service personnel but the qualitative skills and professionalism that determine the efficiency of the organisation. But not much attention is given to strengthen the skills of - consultants..and service personnel in the organisations as revealed in the study.