Master thesis Research results: How management consultancy firms add and appropriate value. Contents Main findings...1 Implications of the conclusions...4 Evaluating the model...5 The questionnaire...5 The interviews...6 Future research...7 Erasmus University Rotterdam School of Management Faculty Strategic Management Author: Nilco Postma Date: March 2009 1
Main findings The guiding research questions of this thesis are How does the business model of a management consultancy firm explain value creation and value appropriation? How do product market strategy and the environment of a management consultancy firm explain value creation and value appropriation? These questions have been researched by quantitative and qualitative analysis. To answer the first research question, quantitative analysis demonstrated that the business model of a firm - as defined by research of Amit and Zott (2007) is not an explaining concept for value creation in the management consultancy industry of The Netherlands. There is no significant relationship between business model design (efficiency or novelty) and firm performance. This results in the lack of a the basic relationship to test the other hypotheses developed concerning the influence of the environment and firm strategy. The second research question can therefore not be answered. In contrast to quantitative analysis, qualitative analysis demonstrated that the terms innovation and efficiency are important concepts for value creation for management consultancy firms. However, besides innovation and efficiency, thirteen other factors are mentioned which impact value creation. Twelve of these items are not tested by the definition of business model design in research of Amit and Zott. Analysis of the interviews suggests that value creation by management consultancy firms is mostly dependent from the network and the reputation of the firm. Items relating to this reputation mentioned are: - The ability to create support - The ability to cooperate with the client - Approach of client as a relation (in stead of client or account) - Tailor-made services - Ability to transfer knowledge (after care) - Realization power (focus on results) 2
- Values - Business philosophy - Preferred level of analysis (strategic, tactical, operational) - The ability to define the problem of the client firm Other important elements relating to value creation in the management consultancy industry are the form of contract between the management consultancy firm and the client, participation of individual consultants in the management consultancy firm, economies of scale, and the knowledge system. Part of these elements complement the explaining concepts for value creation found in the literature study: The focus of the management consultancy firm (humanistic concerns or business effectiveness) found as a explaining concept for value creation in the literature complements the findings from the interviews that an approach of the client as a relation is a key word for value creation. The dependency from the client in quality and usefulness of the eventual service found as a explaining concept for value creation in the literature is also recognized by the interviewed consultants. The ability to create support and the importance to work together with the client are mentioned as key words for value creation. Finally, the importance of different stages in the consultancy process found as a explaining concept for value creation in the literature is complemented by the finding from the interviews of the preferred level of analysis as key word for value creation. 3
Implications of the conclusions This research suggests that the business model as defined by Amit and Zott (2007) is not an explaining concept for firm performance in the management consultancy industry in The Netherlands. This can point on the validity and reliability of the model used by Amit and Zott, on the validity and reliability of the model used by this thesis, or on the different research circumstances (a different industry, country, culture, etcetera) in which the model is tested. The number of responses from the questionnaire used in this thesis, and the number of interviews realized, is too low to question the research of Amit and Zott. Therefore, it can be assumed that the missing significance of the relationship between business model design and firm performance in the management consultancy industry in The Netherlands is a result of either the lacking validity and reliability of this research, or the different research circumstances in which the model is tested. In contrast to the questionnaire, qualitative analysis does suggest that efficiency and novelty are explaining items in researching value creation in the management consultancy industry in The Netherlands. However, analysis of the interviews suggests that the other twelve items mentioned which relate to value creation are important aspects of the business model of a management consultancy firm. For these items are not included in the definition of research by Amit and Zott (2007), it can be assumed that this is part of the explanation for the insignificant relationship between business model and firm performance in the management consultancy industry in The Netherlands. The other part can be the unexpected, low response on the questionnaire. 4
Evaluating the model The conclusions drawn in this research are exposed to a certain number of limits. The limits of the quantitative and qualitative data will be addressed, followed by a discussion on the implications of the conclusions. The questionnaire In the quantitative data gathering, the model of business model design of Amit and Zott (2007) is used. Their research focused on public, internet-driven businesses in the United States and Europe. In their research, each individual item of business model design is tested for internal consistency and reliability, using Cronbach alpha coefficients. For this reason, the model is used with as least changes as possible, to research business model design in the management consultancy industry. In copying the method, a certain number of difficulties arose. First of all, there is a problem with the validity of the research. The items had to be translated from English to Dutch. This can result in a small measurement difference. Furthermore, some items had to be adapted to the specific industry of management consultancy. This industry differs from other industries in different ways. First of all, it is part from the service industry (see chapter 3.1.2) Where some items were a good explaining factor for business model design in an industry of internet-driven businesses, these items were difficult to interpret for management consultancy firms. For example, one item that explains the business model design efficiency for internet-driven firms is: Inventory costs for participants in the business model are reduced. Since management consultancy firms do not sell a physical product which can be stored and consumed, they would not recognize this question. So some little adoptions had to be made, which are summarized in Appendix G. This resulted in the questionnaire that can be found in Appendix H. Second, there is a problem with the reliability of the research. The expected large amount of responses (over 200 responses expected from the members of the O.O.A plus a minimum of 100 responses from members of Management en Consulting ) is not realized. The quantitative data 5
collection via these two institutions (which posted a link on their website and in their newsletter to the online questionnaire) eventually only resulted in 34 management consultancy firms which eventually completed the questionnaire. There are several possible explanations for this fact. First of all, the questionnaire is held in December, which is the busiest period of the year in the management consultancy industry. Consultants might not have had the time to complete the questionnaire. Second, information concerning the business model design might be confidential information. Consultants might not want to share this information, not even with the anonymous method used. This results in a cautious interpretation of the conclusions made on the basis of this questionnaire. The interviews The qualitative data gathering provided an opportunity to go further into details. This has resulted in a improved understanding of the role of the business model of a management consultancy firm in the creation of value. However, this information should be handled with caution too. The standardized interview script (Appendix J) and the check on the documentation of the interviewed consultants minimizes a subjective interpretation of the information. Furthermore, a cross-industry sample has been taken, to improve the possibility to generalize the conclusions. These procedures have improved the validity of the research. However, these procedures can not take all the subjectivity out of the analysis. Furthermore - due to time constraints of the research and the interviewed management consultancy firms- only 6 in-depth interviews have been realized. To improve reliability, there is a need for more interviews. 6
Future research Literature on the concept of value creation and value appropriation analyzed from the perspective of the business model of a firm is still in it s infancy. Little is known about the implications of changing or not changing the business model of a firm. This thesis has attempted to make a contribution to the academic literature concerning this subject. The conclusions which are drawn from the quantitative analysis suggest that the business model as defined by Amit and Zott is not a explaining concept for firm performance in the management consultancy industry in The Netherlands. However, conclusions drawn from the qualitative research indicate that different items from the business model explain value creation, items which are not researched by the definition of a business model of Amit and Zott. This can be an insight in researching business models in the service industry. To increase the validity in researching the business model in the management consultancy industry, future research might make use of these items, adapting the definition of the business model. Osterwalder (2004) developed a systematic methodology to achieve business model innovation. He attracts attention and inputs for this model via a website which he updates continuously (Osterwalder, 2009). This model might be useful for future research on value creation in the management consultancy industry in The Netherlands. The model describes the business model of a firm, consisting of 9 building blocks: The value proposition of what is offered to the market The segment(s) of clients that are addressed by the value proposition The communication and distribution channels to reach clients and offer them the value proposition The relationships established with clients The key resources needed The key activities needed The key partners and their motivations that participate The revenue streams generated The cost structure 7
Qualitative analysis suggests that the network and reputation of a management consultancy firm are important explaining concepts for value creation. When these concepts are applied in the model of Osterwalder, two building blocks become very important: the relationship with the client and the key resources needed. This methodology, with an emphasis on these two blocks, can be applied to research value creation in the management consultancy industry in the future. Furthermore, reliability of research on this subject can be extended by extending the research period and by collecting more data. The conclusions of this research will be posted in the newsletters of the two institution which cooperated in collecting data. This can enhance attention and interest in this subject, which can result in a better understanding of the concept. 8