THE MYTH OF THE GLOBAL MANAGEMENT CONSULTING FIRM

THE MYTH OF THE GLOBAL MANAGEMENT CONSULTING FIRM Mehdi Boussebaa Department of Industrial Relations and Organizational Behaviour Warwick Business School University of Warwick Coventry CV4 7AL United Kingdom Mehdi.boussebaa03@phd.wbs.ac.uk CMS5 Conference Reconnecting Critical Management The Fifth International Critical Management Studies Conference 11-13 July 2007 Draft: please only quote with permission from author

THE MYTH OF THE GLOBAL MANAGEMENT CONSULTING FIRM This paper explores the extent to which large, international management consulting firms organise themselves as transnational enterprises. It examines the firms formal organizational structures as well as the micro level tensions that arise as a result of inherent difficulties in coordinating resources across national borders. Drawing upon indepth interviews with UK-based management consultants, the paper demonstrates that, in spite of their highly internationalised nature, the firms under study remain fragmented along national lines, casting doubts on the idea of the transnational firm. Acknowledgements The research is the product of ongoing doctoral research supported by the Economic & Social Research Council of the UK. The theoretical part of this paper benefited from conversations with and direct feedback from Professor Royston Greenwood. I would also like to thank my two supervisors Glenn Morgan and Andrew Sturdy for their ongoing support. 2

INTRODUCTION Over the past two decades, a number of influential texts have heralded the advent of a new kind of international corporation that is capable of integrating operations across national borders and, yet, of achieving local responsiveness (e.g. Bartlett and Ghoshal, 1989; Nohria and Ghoshal, 1997). Underlying this new form of organising is the assumption that companies increasingly operate in a borderless world (Ohmae, 1991) which is forcing them to adopt new organisational arrangements. The expectation is that previously multinational corporations (MNCs) will evolve into trans-national organizations. This evolutionary argument is directly challenged by a growing field of research (see Morgan and Whitley, 2003) that draws upon comparative institutionalism (e.g. Whitley, 1999). This research argues that progress towards a transnational form is not feasible because MNCs are embedded in multiple national institutional contexts that militate against processes of global integration. Rather than evolving into cohesive transnational actors, MNCs turn into unstable transnational social spaces (Morgan, 2001, 2006) ridden with micro-politics (Dorrenbacher and Geppert, 2005, 2006). From this perspective, the notion of the transnational firm is more myth than reality. The present paper extends this debate into the sphere of management consulting. Most research on the organization of MNCs has taken place within the context of the manufacturing sector, paying very little attention to the management consulting industry in spite of its prominent position in the modern world economy (see Jones, 2003 and Morgan et al, 2006 for exceptions). The large MCFs employ thousands of people in hundreds of countries and often portray themselves as global organizations with the ability to transfer knowledge, mobilise professionals and deliver services seamlessly across national borders. However, to date, little empirical research has substantiated this sort of view. Drawing upon 44 interviews with consulting staff at multiple hierarchical levels, I explore both the formal organizational arrangements that firms employ to integrate their international operations and the managerial issues arising from processes of cross-national work and resource exchange. The present paper offers two contributions. First, I demonstrate that there are indeed external market forces pushing firms to evolve into transnational enterprises. Second, I 3

explain how, in spite of real external forces for change and internal ambitions to adapt, the firms in question failed to behave as transnational organisations. I demonstrate how country-based management was the fundamental organizing unit and the primary shaper of transnational relations within the firms. Thus, I point to the continued importance of national borders on processes of global integration within international firms. The remainder of the paper is organised as follows. In the next section, I elaborate the theoretical context for this research and present arguments derived from the two competing theoretical perspectives on MNCs. Next, I briefly discuss the data collection and data analysis procedures. I then present and discuss my findings. The concluding section summarises the paper and draws out the implications for future research. THEORETICAL CONTEXT The seminal work of Bartlett and Ghoshal (1989) provides a sophisticated articulation of the strategic and organisational challenges facing MNCs in the contemporary era. They argue that external environmental forces have forced MNCs to adopt three strategic competencies: global efficiency, multinational flexibility, and worldwide learning all at the same time (1989: 138). Traditionally, MNCs mastered only one of these competencies, competing solely on the basis of national market responsiveness or global scale efficiency or the ability to transfer knowledge across borders. However, to succeed in today s ever faster changing environment, corporations are required to develop all three simultaneously. Bartlett and Ghoshal labelled the organizational form that can achieve this polysynchronicity the transnational enterprise. Various other labels have been attached to this new organizational form, including horizontal (White and Poynter, 1990), multi-center (Forsgren, 1990), differentiated network (Nohria and Ghoshal, 1997) and metanational (Doz et al, 2001). From an organisational point of view, the transnational enterprise is a complex network of interdependent subsidiaries that allows for both global integration and local responsiveness. The key advantage of this configuration is its ability to learn from multiple national contexts and transfer that knowledge on a worldwide basis, thereby allowing the MNC to add value beyond that created by individual subsidiaries. This model represents a radical 4

departure from earlier conceptions of the MNC in which the headquarters was the center of the universe [and subsidiaries] were distinctly second-class citizens (Ohmae, 1991: 99). In the transnational model, no particular national group dominates; subsidiaries are equal partners and the centre s role is simply to encourage collaborative information sharing and problem solving, cooperative resource sharing, and collective implementation in short, a relationship built on interdependence (Bartlett and Ghoshal, 1989: 92). A more sociologically oriented body of research (see Morgan and Whitley, 2003; Morgan, 2005; Geppert et al, 2006) is sceptical about the idea of the transnational, arguing that headquarters may attempt to coordinate their subsidiaries and encourage cross-national collaboration but the extent to which they succeed in practice is very limited. This is because MNCs are embedded in multiple national institutional contexts, creating a fundamental tension between, on the one hand, subsidiaries seeking to remain isomorphic with their own local institutional contexts and, on the other, home based headquarters attempting to develop a shared operating culture that transcends national borders. Kristensen and Zeitlin s (2005) rich empirical study provides a detailed analysis of how this institutional duality (Kostova and Zaheer, 1999) works in practice. They examined an MNC from the perspective of its British headquarters and subsidiaries in England, Denmark and the USA and found a fragmented company in which subsidiaries often followed their own rationalities and strategized independently. Similarly, corporate headquarters was able neither to integrate itself effectively, nor to establish collaborative relations with subsidiaries that would have enabled it to orchestrate the process of unifying the MNC as such (Kristensen and Zeitlin, 2005: 187). In this fragmented context, subsidiaries benefited little from headquarters and there was no evidence of cross-national learning or knowledge transfer. Rather than being unified across borders, the MNC was an arena for internecine rivalries in which the normal opportunism of the market was compounded by ongoing political struggles over the allocation of resources and responsibility over success or failure (Kristensen and Zeitlin, 2005: 11). Extending the debate into professional service firms Clearly, the debate between the two competing perspectives remains open and, hence, requires further empirical investigation. The present paper examines the organizational 5

arrangements of three of the world s largest professional services firms with a view to understanding the extent to which these firms have become transnational. Two fundamental elements of the nature of PSFs justify this choice of empirical context. First, much of the literature on the management and organisation of MNCs has focused on manufacturing companies, paying little attention to the internationalization and internal organisational arrangements of PSFs (Cooper et al, 2000). This lack of research is regrettable given the profound influence of PSFs in the institutional fabric of global economic activity (Greenwood et al, 2006: 3). Moreover, there is a debate about the extent to which the conclusions of the existing manufacturing-centric literature can be applied to PSFs. PSFs are said to have different historical origins and structural characteristics than firms upon which theories of MNCs are based. Thus existing theories of the MNC need to be assessed for their generalizeability (Cooper et al, 2000: 93-94). The present paper directly addresses this need by assessing how far the theoretical perspectives being discussed can be applied to PSFs. Second, over the last decade or so, PSFs have experienced significant changes in their organizational structures and management processes. In particular, new and changing demands from globalizing clients have led PSFs to become increasingly differentiated along horizontal, geographic and demographic lines, which, in turn, has put firms in a situation where they are having to integrate themselves to a level previously inconceivable (Rose and Hinings, 1999: 53; see also Aharoni, 1993; Greenwood et al, 1998). In particular, PSFs have had to integrate themselves across national borders in order to maintain their relationships with clients who themselves have been progressing along the path from multinational to international, to transnational enterprise [ ] The client becomes the source for the globalizing, internationalizing actions of the professional service firm (Rose and Hinings, 1999: 43). To date, however, we have little empirical research demonstrating the extent to which PSFs have become transnational firms. The present paper focuses, in particular, on the management consulting firms (MCFs) which grew out of the so-called Big Five accounting firms have given rise. The Big Five (now Big Four) are the world s largest firms of accountants. They have become organizations of huge international proportions, employing thousands of people around the world. Their international expansion has largely been undertaken in an attempt to serve existing or new clients as the latter internationalised themselves (Rose and Hinings, 1999). 6

Concurrently, firms have diversified into a range of services such as corporate finance, tax and government work. In particular, since the 1960s, they have moved aggressively into the lucrative management consulting market, spurred by shrinking profits in the audit field and by the increasing tendency of investors and government agencies to hold accountants legally responsible for the veracity of audited financial statements (Whitman, 1997). By 1997, consulting services comprised the largest part of the firms revenues (Consultant News, February 1999). Regulatory pressures eventually led the Big Five to either shed or re-absorb their consulting businesses in the early 2000s. To date, however, no research has examined the ways in which these consulting entities have organised themselves across borders and the extent to which they are transnational. Existing studies of the international management and organisation of the Big Five focus mostly on the accounting side of the firms and very largely predate the changes being discussed (e.g. Aharoni, 1993, 1999; Cooper et al, 1998; Greenwood et al., 1999; Cooper et al, 2000). The fact that [m]anagement consulting is quite a different kind of business than that traditionally offered by [accounting firms], and [ ] that different structures and management processes are required (Rose and Hinings, 1999: 59) makes this paucity of research even more regrettable. Thus, there is clearly scope for developing a better understanding of these firms in terms of their organisational structures, managerial practices, and globalisation processes. Although it is often believed that MCFs are already well advanced in the process of internationalization [because] [g]lobal integration represents a logical strategic response to complex environmental and demanding customer requirements for these firms (Fenton and Pettigrew, 2003: 208), we have so far seen very little empirical evidence demonstrating how global integration is achieved in practice. It is therefore important that we better understand the intra-organizational coordination mechanisms of these firms and the extent to which they achieve their purpose. METHODS This paper was drawn from ongoing research into three of the MCFs that grew out of the Big Five accounting organizations. Two of these MCFs were sold to other consulting organizations and one was re-integrated into its parent accounting firm in the early 2000s, following regulatory pressure to maintain auditors independence. It is important to note 7

that the three MCFs do not only offer management consulting services. Rather, they are broad-based firms offering a wide range of services including traditional management consulting, IT consulting and outsourcing services. I retain the term management consulting for the sake of simplicity. The bulk of the empirical data reported in this paper was gathered from semi-structured interviews with consulting professionals at multiple hierarchical levels (from senior consultant to partner). A multilevel approach was chosen because studies of MNCs within the field of international management tend to rely almost exclusively on interviews with senior executives. This top down approach has recently been sharply criticised by the institutionalist scholars (e.g. Kristensen and Zeitlin, 2005) on the grounds that is takes senior managers at face value (Belanger and Bjorkman, 1999: 249). Clearly, what executives say might not always reflect what firms and their employees actually do in practice. I conducted 44 interviews across the three firms. 21 interviews were conducted with partners (both junior and senior). These interviews focused on the strategic orientations and the organizational configurations of the firms. The aim was to understand how firms were organised internationally and why. Another 23 interviews were conducted with nonpartners, including senior managers, managers and senior consultants. These interviews focused on more micro-level dynamics related to processes of cross-border working. The aim was to elicit details concerning the social nature of cross-border work. Interviewees were invited to verify the information provided by prior interviewees and clarify ambiguities. Participation in the interviews was voluntary and the anonymity of the respondents as well as that of their firms was guaranteed. All the interviews were UK-based consultants. The aim was to obtain a UK perspective on transnational management and organization. Most interviews were conducted in offices in London but some took place in public places such as airports, hotels and restaurants. The interviews lasted between three quarters of an hour and one and a half hours. After my fieldwork was completed, I also maintained occasional information exchange with some consultants through e-mail and phone calls in order to fill gaps, clarify conflicting issues and incorporate information on issues I ignored during the interviews. All the interviews 8

were digitally recorded, transcribed verbatim and analysed through the data management software NVivo. ANALYSIS The meaning behind the word global Without exception, the three MCFs under study all explained that they were global. As one would expect, being global meant many different things to consultants. Having a presence around the world and sharing a common global brand were recurrent themes. However, what seemed to be of most importance was the ability to work together across national borders. Here, being global carried two different meanings. First, it meant having the ability to draw upon the competencies residing outside one s home practice to deliver a local client solution. I label this form of engagement competency-based collaboration. Typically, clients were served by partners, managers and staff of the practice in the geographic area of the client. However, some client projects required expertise not available locally and hence necessitated its export from another country practice. For example, a SAP expert based in Germany might be needed on a local SAP implementation project for a company based in the UK. The expert would be flown in from Germany to contribute his or her expertise to a UK project. Secondly, being global meant having the ability to go after and serve multinational clients across national borders. Multinational clients often required the same solution in multiple countries, thereby necessitating a multi-practice response on the part of MCFs. I label this form of engagement multisite client-based collaboration the assembling of cross-national teams to deliver a client solution in multiple countries. Underlying both forms of collaboration was the goal of always using the best person for the job on a project regardless of national boundaries: For each opportunity which presents itself in one of our priority sectors, we must pull together the best possible team, wherever it may come from (Partner, Firm 2) In sum, apart from having a global brand and a global presence, being global meant having the ability to act as a transnational community of consultants. However, as I show in the following pages, this global imperative was confronted by strong local inertia that went against processes of transnational collaboration. 9

The reality of national structures and incentive systems Although the three MCFs under study had a global presence with a very large number of offices around the world, the degree to which these international operations were integrated in practice proved to be very limited: We operate in major countries across the world, in most of them but it tends to be about we have people spread across the globe, we have practices spread across the globe, as opposed to we are an organization that can market under one umbrella. We kind of do but not if you scratch the surface we don t as much as we should. (Associate Partner, Firm 1) Scratching the surface revealed a surprisingly fragmented world in which the transnational field of action was dominated by national forces. To start with, the MCFs were organised as collections of country-based practices that operated relatively autonomously in their respective national jurisdictions. These country practices contracted with their own clients, collected their own income, paid their own expenses and controlled their own funds. The practices were headed by country leaders who operated as de facto managing directors of their national operations, being responsible for meeting targets relating to business development, financial performance (growth, profitability, etc.) and client satisfaction. These country leaders were measured by local revenue and profitability. Similarly, the partners and senior managers working under them were evaluated and rewarded on the basis of their contributions to their country practices: I would be evaluated on the performance of our UK business. Any of the people that I have working for me will be evaluated based on the work that they do within that space. Now my ability to reward them will at least in part be driven by the overall performance of the UK. So the more profitable and successful the UK business is, the more money that I will be given to share out between my people. (Managing Director, Firm 3) National interests and mindsets The implication of this country-based evaluation and reward system is that it gave supremacy to the national dimension of firms, producing mindsets which drove partners and their acolytes to focus exclusively on the optimisation of their home practices: 10

Where you are fundamentally rewarded on the profitability of the UK, your ability to attract revenue and profitability in the UK shapes your entire behaviour and actions. (Associate Partner, Firm 3) Thus, as opposed to being unified by a transnational mentality (Bartlett and Ghoshal, 1989), partners in different countries acted as selfish creatures (Associate Partner, Firm 1) ultimately only driven by local performance. In theory, partners had a firm-wide obligation to support each other across national borders if needed but, in practice, the optimisation of one s home practice often took precedence over the rest: [I]t makes you quite fixed on how well the UK does. Because if you ve spent all of your time supporting another practice outside of the UK, then well, that s fine, but actually the way you get paid or rewarded is just on the UK P&L [profit & loss]. (Partner, Firm 2) Because it's [the UK practice] set up as a separate profit and loss account, people can be parochial. (Partner, Firm 1) The country practices were of course linked through their international headquarters whose responsibilities included the coordination of their international operations. Headquarters did in fact frequently bring together their various national communities together through multiple mechanisms, including global annual conferences and training programmes. Global knowledge management systems designed to share knowledge across borders were also actively managed. Furthermore, national practices were connected through various virtual communities of practice and other such informal networks. However, in practice, the degree to which these transnational channels achieved their purpose is questionable. The fact of the matter is that national interests dominated transnational relations: Their [partners] view of the firm as a whole was somewhat fragmented in the grand scheme of things. I mean, ultimately, partners are basically judged on how much value they bring into the business and how much fees they generate. A simple equation there. (Associate Partner, Firm 2) The implications of national structures and mindsets The fact that there was a massive incentive to do extremely well for your local business (Associate Partner, Firm 3) severely obstructed processes of transnational collaboration. With regards to competency-based collaboration, the problem was two-fold. First, the 11

importation of an expert into one s home practice reduced local profitability. Partners and senior managers were measured on the fees they generated. Fees essentially followed the consultant. No matter which country in which an engagement was set up, the fees went to the practice of the consultant doing the work as that individual s generated fees. So the fees for any work performed by a partner or any member of his or her group, anywhere in the world, would go to that partner s home practice. What this meant is that if, for instance, the British practice needed an expert from outside the UK, the home practice of that individual would receive the fees, thereby reducing the UK s fees. The UK would therefore ensure that it used its own people first. Using consultants from practices outside the UK was looked upon disapprovingly and had a negative impact on compensation. However, although importing staff lost money for the lending practice, it still took place if a project s viability absolutely depended on the contribution of a foreign expert. With a great amount of negotiation, the parties concerned would come to some agreement. Secondly, and paradoxically, the exportation of an expert would also reduce local profitability. If practices had junior consultants sitting on the bench, exporting them to other practices was not a problem; it would in fact allow the local practice to generate fees that would not have been generated had the unemployed consultants stayed at home. However, where things became more complicated was at the level of more senior and productive members of staff. Unlike junior consultants, these individuals had to sell as well as consult. If they happened to be on the bench, they had to focus their energies on selling, bringing in projects, and generating work for those below them. Sending these individuals abroad would win fees from other practices but would in fact contribute very little to the growth of the local practice and, by implication, would reduce its profitability. Thus, partners would make sure they retained control over their senior and most productive people and put them to work locally. If other offices required their help, they would either simply decline their requests or send the least coveted members of their staff. What this meant is that consulting engagements were not always resourced with the most qualified or most appropriate staff, which of course flew in the face of MCFs promise to always staff projects with the best person for the job : It means that you possibly don t have the best resources on your job. So if I was selling a job that needed German resources you spend too long trying to find them for a start and then you are not convinced you ve got their best people because, frankly, if I am general partner in Germany, I want my best people to be 12

selling work in Germany and pulling through other German resources, not to lose one or two of them onto a job that the UK is doing. (Partner, Firm 2) Whilst competency-based collaboration happened to be a bumpy process, it is the requirement for multisite client-based collaboration that gave rise to the most challenges. In addition to serving local clients, the firms under study targeted and had relationships with large multinational corporations. Serving these companies was in fact a strategic priority for the MCFs. The reason behind this strategic orientation was simple: [Firm 3], along with other big players, realized that only large companies are truly profitable for a large consulting business [ L]ocal businesses were at rates that were so low for [Firm 3] that it was very unprofitable business [ ] and therefore over time the consulting business realized that its market lay with the FTSE 250 organizations, Fortune 500 companies, not with the so-called fish and chips shops small businesses that are profitable in their own right but for whom a 1000, 2000, 3000 and up per day consultant is never gonna make any sense. (Partner, Firm 3) Projects with these companies often spanned national borders, involving several client subsidiaries. Given that the MCFs were organised as collections of country-based practices, these projects were won at the local level; the contracts would be signed with a country practice not the global firm. Similarly, because of the pressure to maximise local profitability, partners would staff the engagements with local resources, thereby attracting revenue to the country practice; the use of foreign resources would reduce local profitability and hence would be discouraged: If your fundamental reward is to bring sales in your business, when you have a project which is going to run across a number of countries, and of course these projects did, you put UK staff on it. (Associate Partner, Firm 3) Thus, even though the projects ran across a number of countries, the country practices, not the global firms, managed and delivered them. As a result, so-called global projects often turned out to be little more than national engagements with international scope. The following example presents a good insight into what often happened: It [the project] was a reengineering of the supply-chain finance organization in Europe for Grand Metropolitan. [ ] My role in that was to sit with the European team to design the European organization, to understand which assets they needed in place, which assets they needed to close, which offices to close and how to restructure their sales, their marketing, their manufacturing, their distribution, their organization on a European level. Interestingly, although this was an international 13

project, the organisation supporting that programme was all British. There were clearly many other [Firm 3] firms in different countries like France and Switzerland, in Germany we didn t involve them at all. The relationship was held in London. And the sale was made in London. And the consultants were from London. (Associate Partner, Firm 1) The implication of this ethnocentric (Perlmutter, 1969) approach to international project management was that consulting engagements did not in fact draw upon the collective resources which the MCFs claimed they could mobilise to the benefit of clients. More importantly, it also meant that projects were not always staffed with the most qualified or most appropriate employees, which of course was at odds with MCFs promise to always resource a project with the best person for the job : You did not staff it [the project] from either the most cost effective location or the most client-focused part of the organisation and sometimes that meant that you therefore put in skills from the UK which were not adequate to the immediate requirements of the account rather than used a very experienced person in say France or Germany. It was more cost effective, profit effective to put UK staff on the job. (Senior Manager, Firm 3) Whilst this state of affairs worked in some cases, it caused significant problems with projects that demanded a truly multinational response. This would happen, for instance, when a country practice developed a relationship with a multinational client but could not supply the necessary resources to staff the engagements. Obtaining these resources from another practice was a prerequisite to winning the projects. On other occasions, the projects were so big that no single country practice could handle them on its own. As a consultant explained: We have this big project at the moment. It s with a multinational. It s a global systems roll out. Now, because of the very nature of that project, there is no way Germany can do it on its own so it has to involve expertise and people from other [Firm 1] practices. (Manager, Firm 1) A multi-practice response was also necessary in projects covering complex cultural and linguistic spaces. Clients often insisted on being served by consulting teams that could speak the domestic language and understand the specificities of the local contexts in which they operated: There is a reasonable sense of recognizing the client needs and obviously if we are rolling out in South America, we need somebody who speaks Spanish or 14

Portuguese. We need to have people with local knowledge and language skills and things (Senior Consultant, Firm 2) Clients respond to being spoken to in their own language rather than in English. And it makes it easier to understand and build rapport. There is a whole cultural aspect. Then there is the issue of being sensitive to local needs. So even global companies do things different locally. So being sensitive to that. (Partner, Firm 1) In the context of Europe, whilst UK consultants operated relatively easily in some countries, in others, being culturally and linguistically sophisticated was very important: Take Germany, for instance. The markets there are in the financial services and manufacturing industries. In manufacturing, it is very difficult to interact with clients without knowledge of German. In contrast, in the Nordic countries and Switzerland you can make do with English because companies there have made English their common language. (Senior Consultant, Firm 1) For all these reasons, country practices were often unable to win projects without calling upon their colleagues in other practices, thereby creating a significant tension between, on the one hand, the need to maximise local profitability and, on the other, the necessity to collaborate across borders. This gave rise to multiple coordination problems, the most significant among which related to the issue of profitability: There were many complexities, negotiations between France and Germany and the US about who would get what, how it would be all shared out, even before you came to the contracting process with the client. (Associate Partner, Firm 1) Clearly, because of the fee problem discussed above, the country practices would only lend their support to a multinational engagement if they could place their local resources on the project and receive a share of the revenues, not only the fees for their consultants but also a part of the project s overall profits: The key point is who makes the profit on the international projects? Because obviously, taking Nestle as a client, there will be [Firm 3] in Switzerland who would want to take any kind of profit on any kind of work in Switzerland and they don t want to bring expensive consultants from the UK and put them in hotels in Switzerland and have a partner in London, or wherever, make the profit. So it is basically the transfer of fees, profits, and agreements on that that are a major obstacle and they will continue to be an obstacle. (Manager, Firm 3) 15

In the process of negotiating revenue allocations and project staffing, partners and senior managers aggressively sought to utilize as many of their local resources as possible on the projects as a way of maximising the profitability of, and thus gaining recognition from, their home practices: There was always this pulling in your own guys to sell the job because you got credit by your home organization, credit around the utilization, keeping your guys busy, keeping your revenues up, all those sorts of issues (Senior Consultant, Firm 3) The fact that clients often negotiated prices down put even greater pressure on the system, driving the country practices in a desperate scramble for profits and, as a result, making it extremely difficult to bid for projects in a cohesive fashion: And clearly the client tries to squeeze the cost of the consulting bid. So who would actually take the hit? Would the UK take the hit on the lower price or would France take the hit. And so it actually becomes very difficult to bid against these major programmes. (Associate Partner, Firm 3) Thus, rather than acting in unison, different practices spent great amounts of effort and energy trying to advance their individual interests as the expense of each other. In this respect, the country practices resembled more rivals than allies, all focused on undercutting one another: [Firm 1] ran on a country-based P&L [profit & loss] and we spent our whole lives negotiating resources between European countries and the UK and between the US and the UK. Partners remuneration was based on country P&L so you d make sure the profits stayed within the country. So you d buy resources and negotiate with Belgium or Holland to buy resources cheaply, reduce their profit and increase yours because that was how it worked. (Partner, Firm 1) However, sophisticated clients were becoming increasingly dissatisfied with this adversarial state of affairs and began challenging their potential consulting providers: [T]hey very openly challenged us: how well can you actually put together a genuinely global team to support us because we suspect and believe that [Firm 3] you are not geared up to work globally... [C]onvince us that you can work globally. (Senior Manager, Firm 3) 16

Clients increasingly sought the service of united consulting houses rather than loosely coordinated collections of parochial country practices. The general view was that large, multinational clients were increasingly seeking to operate as globally integrated, transnational firms and, as a result, demanded seamless, multinational services. Clients increasingly insisted on being served by consultants who could mobilise not only their home resources but also those of overseas practices; they wanted consultants who could work with their colleagues not only within but also across national boundaries. In other words, they insisted on being served by communities of consultants that transcended national boundaries: I think the prime reason [for being global] is because we operate with global clients and therefore we have to be global because that s what global clients expect. Because our client base is that way, that s how we are They say to us demonstrate your capabilities in something or whatever project. Their expectation is that we demonstrate that capability globally. (Partner, Firm 1) Firms were therefore confronted by mounting pressure to coordinate their various national practices more effectively and facilitate a genuinely transnational form of collaboration. To achieve this, firms introduced the role of the global account manager (GAM). Each multinational client would be assigned a GAM whose sole responsibility was to manage the interface between the client and the various national practices of his or her firm that provided assistance and expertise on a particular project. The GAM would spend his or her time in airplanes, travelling to both client sites and his or her firm s offices around the world to coordinate work, manage relationships and mitigate conflict of interest between different national practices: The global account manager for Glaxo Smith Kline, for instance, would spend virtually all his time trying to motivate bits of the [Firm 3] organisation around the world in different countries to come to the party. (Associate Partner, Firm 3) However, whilst this compensative mechanism achieved a degree of transnational coordination, it was by no means a panacea. To start with, not all clients were assigned a GAM; only a select group of very important clients could enjoy the benefit: [Firm 3] does have a structure where it recognises a series of global accounts and they have very senior directors in charge, but it s a relatively small number of accounts it was with a handful of clients. If it s more than 20 clients or 30 clients that s all Now, the reality is that they need that behaviour across the top 1000 clients, not across the top 20 clients. (Associate Partner, Firm 3) 17

More importantly, the degree to which the GAMs could facilitate cohesion is questionable. The fundamental problem was that real power within the MCFs resided at the national level. GAMs were a nice thing to have; they would develop good working relationships with clients headquarters and make great selling efforts at that location but, ultimately, these individuals had no real authority to make things happen outside the boundaries of their home practice: The process [global account management] itself was reasonably well defined but the engagement process was described as herding cats. So there was a process, you know, on a monthly basis we ll have such and such a call. On a quarterly basis we ll do such and such a thing, this guy will do these sorts of things. But in reality, it was a role without any power, without any authority. (Associate Partner, Firm 1) Why was this role without any real, effective power? Was it simply a symbolic gesture designed to please increasingly demanding clients? After all, the country practices were aware that their very survival increasingly depended on their ability to leverage the collective capabilities of their firms. New demands from clients were prompting them to act in a cohesive manner: Our clients are becoming more international and they have more international requirements. And we are sensing that and we are responding to it. (Associate Partner, Firm 3) However, it was clear that existing organizational structures and incentive systems were not fit for purpose. The whole system was under mounting pressure and the continued presence of parochial interests was becoming a handicap for further growth; it led consultants to concentrate more on their own profitability than on the cross-border needs of their clients. In short, it engendered a set of behaviours that went against the very crossnational collaborative efforts necessary for acting as successful transnational firms. This lack of integration was becoming particularly problematic in the context of the booming consulting services following the 2003 market rebound and, in particular, the renewed demand for cross-national services on the part of large corporations: There is now again demand for global projects which you really need to be able to deliver cross border with international teams; this is the moment where the problem starts for us. (Partner, Firm 1) 18

The fact of the matter is that the country practices were not only aware of the need for collaboration; they were also keen to do something about it. The importance of transnational collaboration was acknowledged and fervently encouraged, but translating this desire into concrete practice never properly materialised: There is generally an idea of let s make things better, let s adapt. There is some flexibility and a desire to change in the organisation but making it real I get the feeling is quite slow and difficult. (Manager, Firm 2) The bottom line was that pounds were what counted and pounds had to flow into the country coffers. All the MCFs under study were seeking to improve collaboration among their country practices in concrete ways. For instance, they invested heavily in global conferences and training programmes. However, whilst these undertakings were perceived as a step in the right direction, it was clear that the structural mechanisms necessary for supporting a real change in practice were not in place: There is a drive to try and create some kind of international capability but to do that you need to have a global view of resourcing, a global view of skills, a global approach to sales and those things are missing. So even if we win a global piece of work it s not like we look at a database and say, here are the people in Holland who are free, here are the people in Germany ; it s people in the UK who look into the UK databases. That s not uncommon. (Senior Manager, Firm 1) I ve seen the partners in our organisation talk about yes, we really need to be more international in our outlook. And they ve talked about it a lot but they haven t done much about it. (Senior Consultant, Firm 3) Above all, the financial structure that would enable the effective integration of country practices was absent. County leaders were largely responsible for this situation. Whilst they recognised the fact that they were becoming increasingly interdependent across national borders and encouraged organisational initiatives designed to improve transnational collaboration, they strongly resisted the idea of a transnational financial structure. The existing country-based financial structures essentially reinforced the primacy of the national dimension and, hence, endowed the country leaders with a great degree of authority and power. Changing the status quo and moving in the direction of genuine global integration essentially required country leaders to relinquish national sovereignty and transfer authority to the transnational level, a new reality that would be hard to accept. As a global leader explained: 19

What I wanted to do is have KPI [key performance indicator] systems which fostered cross-country collaboration but so far it was not possible to do it because the country leaders, the general managers of the countries have different interests; they don t want to give it up. (Global Leader, Firm 1) This fundamental contradiction between, on the one hand, the rhetoric and the desire to act as unified, transnational communities and, on the other hand, a deeply local behaviour left firms and their leaders in a schizoid state (Powell et al, 1999: 3), caught between an almost utopian ideal of transnationalism and the harsh reality of country rivalry. This, in turn, led to the contradictory situation in which firms, on the one hand, claimed to be global and, on the other, behaved as collections of nationally structured practices: [W]e adopted the language of global business but adopted the P&L [profit and loss] of a local business. (Associate Partner, Firm 2) DISCUSSION AND CONCLUSIONS We have been expecting the arrival of the transnational or global firm for almost twenty years now. We have been told that globalisation is consigning localism to the dustbin of history and that companies must adapt to this new reality in order to survive in an increasingly competitive and globalised marketplace. In this paper, however, I argue that whilst globalisation forces are more than just rhetoric, the idea of the global firm, in the context of the management consulting industry, is more myth than reality. I have examined the organisational structures and international business practices of three of the world s largest consulting firms and found, against popular belief, a surprisingly fragmented transnational space in which localism remains very strong. Firms were indeed seeking to transcend national borders and encourage transnational collaboration, as a strategic response to external market conditions, namely increasingly complex client demand. However, the structural means to achieve this in practice were lacking. In particular, I found that the firms were little more than combinations of national entities loosely coordinated by international headquarters. They were essentially organized as multi-nationals driven by country-based profit & loss accounts and reward systems. Within this context, country management was the fundamental organizing unit, endowing country leaders with a great degree of authority and power. Moreover, financial reward and recognition were determined at the national level. These 20

organizational arrangements encouraged staff to focus purely on their national interests, to optimise their national profit centres and to fight over the allocation of revenues and resources, severely obstructing processes of transnational collaboration. Thus, the shift to the transnational form perceived and advocated by the mainstream international management literature is dismissed as a change in managerial rhetoric rather than in organizational form and practice. Clearly, much more research is needed to fully validate the above findings and arguments. Further research in the context of other MCFs is necessary. Are all MCFs characterised by the high degree of fragmentation identified here? Moreover, my thesis is based on research drawn from interviews with UK-based consultants. Further research from the perspective of other national groups in Europe as well as further afield would give voice to those I have inevitably ignored in my work. A further avenue of research would be to explore how the Big Four accounting firms are rebuilding their accounting arms and how they are organising themselves to overcome the problems identified in this research. 21

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