Ethics in Management Consulting

Contents

1 Introduction
1.1 Personal background and motivation
1.2 Relevance of ethics in management consulting
1.3 Research question and investigative aims

2 Theoretical background: Integrative consulting ethics
2.1 Management consulting
2.1.1 Definition
2.1.1.1 Management
2.1.1.2 Consulting
2.1.1.3 Management consulting
2.1.2 Historical development
2.1.3 Management consulting in Germany
2.1.3.1 Market size and structure
2.1.3.2 BDU as industry association
2.1.3.3 Current issues
2.1.3.4 Outlook
2.2 Business ethics
2.2.1 Definition
2.2.1.1 Ethics
2.2.1.2 Discourse ethics
2.2.1.3 Business ethics
2.2.2 Business ethics in Germany
2.2.2.1 Historical influence
2.2.2.2 Current issues
2.2.2.3 Outlook
2.3 Integrative consulting ethics
2.3.1 Definition
2.3.2 Historical development
2.3.3 Integrative consulting ethics in Germany
2.3.3.1 Current issues
2.3.3.2 Outlook

3 Methodology
3.1 Methodological approach
3.2 Quantitative research methods for empirical
investigation part 1
3.2.1 Objectives
3.2.2 Methods
3.3 Qualitative research methods for empirical investigation part 2
3.3.1 Objectives
3.3.2 Methods

4 Empirical investigation part 1: Awareness and institutionalisation of integrative consulting ethics in management consulting firms in Germany
4.1 Results of quantitative investigation
4.1.1 Statistical data of respondents
4.1.2 Opening statements
4.1.3 Guiding principles of consulting ethics
4.1.3.1 Understanding of ethics-oriented consulting
4.1.3.2 Ethics-oriented consulting principles
4.1.3.3 Ethics-oriented impacts of consulting
4.1.4 Integrity of consulting companies
4.1.4.1 Ethics-oriented corporate culture
4.1.4.2 Ethics-oriented personnel policy
4.1.4.3 Ethics-oriented project execution
4.1.5 Closing statements
4.2 Assessment of quantitative investigation
4.2.1 Awareness of integrative consulting ethics
4.2.1.1 Guiding principles of consulting ethics
4.2.1.2 Integrity of consulting companies
4.2.1.3 Large management consulting firms in Germany
4.2.2 Institutionalisation of integrative consulting ethics
4.2.2.1 Guiding principles of consulting ethics
4.2.2.2 Integrity of consulting companies
4.2.2.3 Large management consulting firms in Germany
4.2.3 Deductions

5 Empirical investigation part 2: Application and enforcement of integrative consulting firms in Germany
5.1 Preparation and execution of the personal interviews
5.2 Results of qualitative investigation
5.2.1 Opening statements
5.2.2 Guiding principles of consulting ethics
5.2.2.1 Understanding of ethics-oriented consulting
5.2.2.2 Ethics-oriented consulting principles
5.2.2.3 Ethics-oriented consulting impacts
5.2.3 Integrity of consulting companies
5.2.3.1 Ethics-oriented corporate culture
5.2.3.2 Ethics-oriented personnel policy
5.2.3.3 Ethics-oriented project execution
5.2.4 Closing statements
5.3 Assessment of qualitative investigation
5.3.1 Application of integrative consulting ethics
5.3.1.1 Guiding principles of consulting ethics
5.3.1.2 Integrity of consulting companies
5.3.2 Enforcement of integrative consulting ethics
5.3.2.1 Guiding principles of consulting ethics
5.3.2.2 Integrity of consulting companies
5.3.3 Deductions

6 Conclusions
6.1 Integrative consulting ethics in management consulting firms in Germany
6.1.1 Awareness and institutionalisation
6.1.2 Application and enforcement
6.2 Outlook and recommendations
6.2.1 Further research
6.2.2 Course of action for the management consulting industry
6.2.3 Consulting products and services

7 Annex
Annex 1: Questionnaire for quantitative online survey
Annex 2: Summarised results of quantitative survey
Annex 3: Interview guideline for qualitative survey
Annex 4: Interview transcriptions of qualitative survey
Annex 5: Learning experience in researching

8 Bibliography

9 References for quotes

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Tables

TABLE 1. THE GERMAN CONSULTANCY MARKET IN

TABLE 2. THE TOP 12 MANAGEMENT CONSULTING FIRMS IN GERMANY

TABLE 3. WHICH BUSINESS OBJECTIVES ARE IN YOUR OPINION IMPORTANT TO YOUR MANAGEMENT CONSULTING FIRM – AND WHICH TO YOUR CLIENTS?

List of Figures

FIGURE 1. FOUR DIFFERENT LEVELS AS DETERMINANTS OF ETHICS INTEGRATION IN ORGANISATIONS

FIGURE 2. WHAT IS YOUR CURRENT POSITION IN THE FIRM?

FIGURE 3. DOES YOUR MANAGEMENT CONSULTING FIRM HAVE A CLEAR DEFINITION, WHICH SERVICES ARE ACTUALLY “MANAGEMENT CONSULTING” AND WHICH ARE NOT?

FIGURE 4. IDEALLY, HOW SHOULD THE RESPONSIBILITY FOR THE CONSULTING PROCESS BE DIVIDED BETWEEN THE CLIENT AND THE CONSULTANT – AND HOW IS IT FACTUALLY DONE IN REALITY?

FIGURE 5. AFTER THE END OF THE PROJECT, HOW SHOULD IDEALLY THE RESPONSIBILITY FOR THE DECISION TO IMPLEMENT BE DIVIDED – AND HOW IS IT FACTUALLY DONE IN REALITY?

FIGURE 6. HAVE YOU CLEARLY DEFINED THE ETHICS-ORIENTED

CONSULTING PRINCIPLES ACCORDING TO WHICH YOUR EMPLOYEES ACT?

FIGURE 7. IN YOUR OPINION, DO MANAGEMENT CONSULTANTS GENERALLY HAVE A SPECIAL RESPONSIBILITY COMPARED TO OTHER INDUSTRIES?

FIGURE 8. IN YOUR MANAGEMENT CONSULTING FIRM, DO YOU HAVE A CLEARLY DEFINED “IDEAL OF A WELL-MANAGED COMPANY” TOWARDS WHICH YOU ORIENT YOUR CONSULTANCY?

FIGURE 9. HOW DOES YOUR MANAGEMENT CONSULTING FIRM ASSURE THAT THE CODE OF ETHICS / THE ETHICS-ORIENTED CONSULTING PRINCIPLES ARE ADHERED TO IN THE PROJECTS?

FIGURE 10. DOES YOUR MANAGEMENT CONSULTING FIRM USE A CODE OF ETHICS?

FIGURE 11. IN WHICH WAY ARE THE EMPLOYEES TRAINED WITH REGARD TO THE CODE OF ETHICS?

FIGURE 12. WHEN RECRUITING NEW CONSULTANTS, HOW DOES YOUR COMPANY WEIGHT SOCIAL COMPETENCE AGAINST PROFESSIONAL COMPETENCE?

FIGURE 13. DURING PROJECT ACQUISITION, DO YOU HAVE CLEARLY DEFINED GUIDELINES TO VERIFY THE ACTUAL NEED FOR CONSULTING SERVICES AND THEIR ADDED VALUE FOR THE CLIENT?

FIGURE 14. IDEALLY, WHICH STAKEHOLDERS SHOULD BE INVOLVED IN THE PROJECT DEFINITION AND MANAGEMENT – AND HOW IS IT FACTUALLY DONE IN REALITY?

FIGURE 15. HAS FILLING OUT THIS QUESTIONNAIRE GIVEN YOU ANY NEW “FOOD FOR THOUGHT”?

FIGURE 16. RESULTS OF ETHICS INTEGRATION IN MANAGEMENT CONSULTING FIRMS IN GERMANY AS PER DETERMINANTS

"I know what I believe.

I will continue to articulate what I believe and what I believe –

I believe what I believe is right.”

George W. Bush

President of the USA

“To know what is right and not to do it
is want of courage, or of principle.”

Confucius

Chinese Philosopher

1 Introduction

Ethics in management consulting is a highly sensitive, yet decidedly interesting topic to investigate within an academic framework. As an introduction into the present masters dissertation, the following sections give an overview as to the personal motivation and background of the author, the relevance of the topic with regard to inherent management and consulting issues as well as the research and investigative aims.

1.1 Personal background and motivation

“You want to study business ethics?

You will have to decide on one or the other!”

Karl Kraus

Writer and satirist

Having worked for over ten years as an international management consultant in the field of tourism planning and development, the author has personally come across a wide range of different projects, clients and partners. From his own experience, he has seen excellent and poor practices, highly successful and miserably failed projects, overly satisfied and deeply unhappy customers. And with every new encounter, a personal challenge emerged to investigate into the drivers that stand behind a project outcome above or below best practice.

On the whole, the author has experienced management consulting as based on the establishment of reputation and trust. With a service that in itself is largely qualitative and intangible, the degree of fulfilment can often be assessed only in the aftermath of the actual consulting activity – with possibly unexpected results from either side.

Almost all of the negative experiences witnessed over the years by the author can be attributed to either a lack of transparency, professionalism, sincerity, competence, responsibility and respect or to an excess of ambition, pressure, pride, dependency and personal aspiration. Most of these factors he identifies as the result of a deficient or lax ethical understanding and behaviour in the execution of a consulting service. This has significant consequences: not only does it jeopardise the success of a single project, but also does it put in doubt the integrity of the individual consultant and, subsequently, of the whole consulting firm. And these effects are poison pills both to serious professionals and to the industry as a whole.

The author is convinced that ethics-oriented behaviour, not only towards clients but also towards partners, employees, suppliers and even competitors, is a key component in today’s business environment. Even more so, it is essential in the management consulting industry, which depends to a large extent on individual reputation, personal relationships and mutual trust. Therefore, ethics-oriented principles and behaviour should be integral part in the business activity of any management consultant or service firm.

In a globalised world with rapidly changing values, the author considers it ever more important to accept responsibilities and to reflect upon the impacts of one’s own actions. External and internal pressure to acknowledge a moral dimension in business activities and to define standards for ethics-oriented behaviour is on the rise. And in an effort to reach a more thorough and profound understanding for his own personal and professional development, the author has chosen the subject of “Ethics in Management Consulting” as the topic of his masters dissertation.

As a personal note, the author chooses to accompany his academic work by means of illustrative quotes from thinkers, philosophers, politicians and economists. They reflect the elevated public interest that the interconnection between economy, ethics and society has raised for millennia – and highlight some landmarks in the basic understanding of the topic across time and culture.

1.2 Relevance of ethics in management consulting

“Ethics is void without economics,
economics is blind without ethics.”

Karl Homann

Philosopher and economist

In recent months, the downturn of the world economy has taken on a massive stance. Stock market indices are plummeting, incoming orders dwindle, and growth forecasts turn negative. What started out as a financial crisis in the USA is now turning into a full-fledged recession on a worldwide scale. While the crisis is seen by some international economists as to “seriously threaten global economic growth” (Cochemé 2008, p. 1), others even consider that “the world will face the worst economic recession since the Great Depression of the 1930s” (Stiglitz 2008).

While the possible magnitude of the economic recession is discussed vividly around the globe, social and natural scientists are investigating into the underlying rationale. When looking at the sharp downturn of the global markets in a holistic manner, the reasoning cannot be limited to economic mechanisms of cause and effect. “The current financial crisis is first and foremost a crisis of confidence” says Rice University’s Mahmoud El-Gamal in his recent publication (El-Gamal 2008), and the IMF observes “A crisis of confidence... and a lot more” (Kodres 2008) concerning both the financial systems and society as a whole.

Against this background, a wave of international public and institutional criticism has started amidst the apparent practices and the breakdown of major international banking institutions, and now gradually spills over also to other economic sectors (cf. Yunus 2008). Negative impacts not only in an economic sense, but also with regard to health, environment or society are becoming stigmata of bad business practices (cf. Merkel 2008). The sole goal of orientating an organisation towards profit maximisation is increasingly challenged in the open by scientists, politicians and also managers: the cornerstones of capitalism and pure market economy are put to test and a larger corporate social responsibility is postulated (cf. Ki-moon 2008).

On an increasing scale, the terms “transparency”, “values”, “responsibility”, “ethics-oriented behaviour” or “structural change” are publicly connected with the current situation (cf. Fritz 2008; Diekmann 2008, p. 46). In the era of globalisation, the heightened awareness for business conduct combined with the speed of information make economic processes increasingly transparent – and thereby expose institutions and enterprises to a more thorough scrutiny on a worldwide scale: “Moral values (...) will shape consumers’ behaviour and the economy in the coming years” (Dziemba / Wenzel 2008). To some extent, this trend is reflected in the growing demand for actions and programmes of good business conduct in international and local companies; yet, the public confidence in the economic establishment and the management practices has suffered considerably (cf. Frevert 2008).

A significant influence on business and management is exerted by management consulting firms. As advisers, they shape industries around the globe in the pursuit of corporate goals such as strategic growth, market positions, turnover or profit. Their external expertise is used to e.g. cut costs, improve processes, expand business activities, enhance portfolios or shape strategies alongside the laws of supply and demand in the marketplaces (cf. Kubr 2005). In their activity based on know-how, confidence and trust, consultants assume an exposed position with respect to their clients and additional stakeholders – which in turn gives them a special responsibility, and even more so in times of economic turbulence (cf. Gysi 2002; Hagenmeyer 2007).

The CEO of McKinsey Germany, Frank Mattern, openly articulates the general attitude: “In the present situation, it is almost impossible to promote more confidence in the social market economy” (Mattern 2008, p. 69). He states that the management consulting industry is aware of the challenges ahead, yet he eyes the business impacts of the current crisis in a two-folded manner: on the one hand, lower company budgets for consultancy services mean less business; on the other hand, cost-cutting, restructuring and strategic reorientation hold out improved prospects. While good growth rates are maintained for 2008, also other representatives of the industry acknowledge an increasingly difficult market environment for the coming year (cf. Schwenker 2008; Schnieder 2008).

Beneath the economic aspects, however, a more fundamental challenge appears to emerge: the increased public awareness for value and ethics-oriented behaviour in the global business world (cf. Hagenmeyer 2004). As inherent part of the economic establishment, the fundamental structure and self-concept of management consulting is questioned in the current debate, with an increasingly critical stance towards consultancy services. And especially against the background of the worldwide economic development, the intensity of the discourse has augmented (cf. Zeiss 2008; Fockenbrock 2008; Jazbinsek 2008).

Some years ago, the questionable involvement of management consulting firms in the downfall of international corporations like Enron, Parmalat, Swiss or WorldCom had considerable negative effects on the public opinion and led to a deep confidence crisis of the industry (cf. Doward 2002; Philips 2004). The downturn of the management consulting business was in part attributed to a lack of professionalism: “With the alarmingly unprofessional consultants that dominate in many companies, soon there will be no more business” (Scholz 2002).

Once again, the topic of ethics in management consulting appears amidst the general call for a more sustainable economic system. The Google search for the words “ethics management consultancy” produced over 200,000 hits in January 2008; by November 2008, this figure had risen to 752,000 (Google 2008). An increase by over 270% clearly reflects the topicality of the issue.

In Germany, recent occurrences like the major corruption case at Siemens, the accusation of Deutsche Post-CEO Klaus Zumwinkel for tax evasion or the loss of millions of confidential customer data at Deutsche Telekom have seriously damaged the public image of the economic establishment (cf. Dams / Lutz 2008). The general debate in Germany concerning the salaries of top managers, the massive layoffs of Nokia despite public subsidies or questionable business practices at the discounter Lidl also have a direct influence on the self-understanding and the business practices of management consultancy (cf. Nagl 2008; n-tv 2008; Jazbinek 2008). In an effort to counterbalance these developments, companies and management consulting firms alike discover the label of ethics as a means to branding and distinguishing themselves in an increasingly discerning German market (cf. Decker 2006).

The worldwide financial crisis has turned into a call to renew the focus on social responsibility as an integral part of the worldwide economic system. Ethics-oriented behaviour in all areas and on all levels of corporate activity gains a rising relevance especially on the German market. In this environment, the management consulting industry as a whole is challenged by a rising demand for ethics-oriented management practices and, subsequently, in the role as a forerunner also with an increasing request for ethics-oriented behaviour on an organisational level (cf. Peterke 2008).

Despite this vast array of challenges, the research work done in the field is very limited. In an effort to set academically backed industry standards, Ulrich Hagenmeyer has developed and widely published the fundamental concept of “integrative consulting ethics”. However, no academic research has yet been undertaken as to the practical application of ethics-oriented guidelines and standards in the industry. Given the high topicality of the subject, it is the author’s intention in the present masters dissertation to examine the extent to which ethics-oriented behaviour is incorporated in management consulting firms in Germany.

1.3 Research question and investigative aims

“Nothing has such power to broaden the mind

as the ability to investigate systematically and truly

all that comes under thy observation in life.”

Marcus Antonius Aurelius

Roman emperor and philosopher

It is the author’s specific intention to shed light on the ethical dimensions of business conduct in management consulting. Guided by the key principles of integrative consulting ethics, the investigation proposes to explore to which extent ethics-oriented behaviour is integrated in company policies and is put into practice by management consulting firms in Germany. This intention is expressed in the paramount title and the associated research question of the masters dissertation:

Ethics in Management Consulting

An examination of the extent to which the principles of integrative consulting ethics are incorporated in management consulting firms in Germany.

Being regarded as a soft and debatable subject in a management context, it is a difficult task to evaluate the incorporation of ethics in an organisational environment. However, the concept of integrative consulting ethics based on guiding principles of consulting ethics and integrity of consulting companies provides an ideal background from which to start an investigation into the field. In an attempt to determine the scope of practical ethics in management consulting, the actual integration is described by four different levels to be investigated: awareness, institutionalisation, application, and enforcement.

FIGURE 1. FOUR DIFFERENT LEVELS AS DETERMINANTS OF ETHICS INTEGRATION IN ORGANISATIONS

illustration not visible in this excerpt

Source: Own Source

While the levels of awareness and institutionalisation are of a descriptive and quantitative character, the levels of application and enforcement represent a more qualitative nature. Therefore, the first two are used as determinants of the overall status of ethics in the management consulting industry in Germany. Subsequently, the latter two support an in-depth view into organisational mechanisms related to ethics and on-the-job examples from management consulting firms in Germany. All this is done based on the comprehensive theoretical background on integrative consulting ethics.

Consequently, the title and the research question of this masters dissertation are broken down into three separate investigative aims following a clear logical pathway: firstly, establishing the baseline of integrative consulting ethics; secondly, assessing the respective awareness and institutionalisation in management consultancy; and thirdly, evaluating the respective practical application and enforcement in management consulting firms in Germany.

Aim 1:

An investigation into the academic background, the concept, the principles and the guidelines of integrative consulting ethics as related to management consulting

Aim 2:

An exploration of the awareness and the institutionalisation of integrative consulting ethics in management consulting firms in Germany

Aim 3:

An assessment of the practical application and the enforcement of integrative consulting ethics in management consulting firms in Germany

2 Theoretical background: Integrative consulting ethics

The previous introduction into the masters dissertation gives an overview of the personal background and motivation of the author, the relevance and topicality of ethics in management consulting, and the research question as well as the specific investigative aims. In the present chapter, the theoretical basis is established with regard to the conceptual background and understanding of management consulting, business ethics and integrative consulting ethics.

2.1 Management consulting

“The winner of corporate competition, at any given moment,

is the company whose moral purpose best fits

the prevailing environment and assets.”

Nikos Mourkogiannis

Management consultant, Panthea

In a first step of the theoretical framework work, the field of management consulting is investigated and put forward. This is done by ways of providing relevant definitions for management consulting in an economic context and an abstract of the historical development as well as an overview of the German market.

2.1.1 Definition

When approaching the topic of ethics in management consulting, the funda­mental pillars of understanding need to be laid out in form of a theoretical framework. Therefore, a definition of the key concepts regarding management, consulting and, subsequently, management consulting are established in an effort to delineate the investigation subject.

2.1.1.1 Management

The Merriam-Webster Dictionary defines the term “management” in three different ways: “1: the act or art of managing: the conducting or supervising of something (as a business); 2: judicious use of means to accomplish an end; 3: the collective body of those who manage or direct an enterprise” (Merriam-Webster 2008). Clear reference is thereby made to the fact that management can refer to an abstract action, an action in itself or people acting.

In general business terminology, management is commonly referred to as “a process designed to achieve an organization’s objective by using its resources effectively and efficiently in a changing environment” (Ferrell / Hirt / Ferrell 2006, p. 200). The focus is thereby set on the process of reaching a pre­determined set of goals in the business environment. This approach is also reflected in the identification of the key functions through which management operates: planning, organising, staffing, directing, and controlling (cf. Koontz / O’Donnell 1955).

In the light of integrative ethics, the functional process of decision-making is a core element of management. It is defined by a six-step model: 1) recognising and defining the situation, 2) developing options, 3) analysing options, 4) selecting the best option in the situation, 5) implementing the decision, and 6) monitoring the consequences (cf. Ferrell / Hirt / Ferrell 2006, p. 217). In this way, management takes both a strategic and an operational influence on an organisation – and it is done from within a corporation, as part of the internal system.

Specialised areas of management that have developed over the years, such as human resources (HR), operations, marketing, strategy, production, finance, project or intercultural management, aim at decreasing the complexity in which decisions are taken. Despite these refinements, continuous conflicts in the management system can be traced to two focal points: filters for reducing existing complexity identify the relevant information in a management context; and from the contingency of possible alternatives for actions, a decision is made for one option. In case of over-complexity or inability to make a decision, external support is required (cf. Willke 2000, pp. 34-35; Hagenmeyer 2006, p. 51).

2.1.1.2 Consulting

In broad terms, two main views of consulting can be distinguished. From a functional perspective, Peter Block explains the activity of consulting as “any time you are trying to change or to improve a situation but have no direct control over the implementation” (Block 1999, p. 2). From a service-oriented perspective, consulting can be described as the provision of professional or expert advice for management processes to clients with decision-making authority (cf. ICMCI 2007; Kubr 2005, pp. 3-4).

Against the background of different methods, Ulrich Hagenmeyer integrates a phenomenological and a system-oriented approach and defines five key characteristics inherent to a consulting situation:

1) Decision-maker unable to reach an important decision
2) Over-complexity of information
3) Contingency adjustment of options for actions
4) Specific situations
5) Independent expert

(cf. Hagenmeyer 2006, p. 51; Hagenmeyer 2004, pp. 54-59)

Based on these theoretical explanations, a holistic definition to essentially characterise a consulting situation is laid out:

“In light of over-complexity,

consulting adjusts contingency variables in specific situations

and thus creates new options for action.

Consulting services must be provided by independent experts

from outside the system.”

(Hagenmeyer 2004, p. 54)

Consulting has as the ultimate objective to take strategic and operational influence on an organisation – but in contrast to management, it does so from the outside. The second key difference is that consulting does not exert a direct influence, but provides options for action in an over-complex environment: The decision for one option and the subsequent implementation are not part of the consulting process. Consequently, the consultant acts as a partner for reflection (cf. Hagenmeyer 2005, p. 28; Titscher 2001, pp. 31-32).

2.1.1.3 Management consulting

In an effort to integrate the terms “management” and “consulting” as per their theoretical backgrounds, the five key characteristics of consulting as previously exposed are adjusted accordingly: The decision-maker is substituted by the management and the advice must come from a professional source (cf. Hagenmeyer 2006, p. 53). This reflects the concentration on the professional element of management consulting, thereby excluding any form of non­professional advice in the industry.

The line of reasoning leads to a clear definition of professional management consulting as per a phenomenological and a system-oriented point of view:

“Management consulting is a form of situation-specific assistance

provided by an independent, external and professional intervention-expert

who enables the management of a client’s organization

to take action in an overcomplex management situation.”

(Hagenmeyer 2007, pp. 109-110)

In case one of the key characteristics is not fulfilled in any given situation, it cannot be classified as a case of professional management consulting. By orientating management consulting services along the provided definition, a strict demarcation against other forms of professional services is given: True management consulting can never act as a substitute for management nor can it be done as a legitimisation of pre-defined decision-making (cf. Hagenmeyer 2005, p. 28).

2.1.2 Historical development

While personal and general advice was given throughout the history of mankind, the first services of professional management consulting were established in 1886 by Arthur D. Little, a professor from the Massachusetts Institute of Technology. He was followed in 1914 by Edwin G. Booz, who founded the first company to serve both private and public institutions (cf. Kubr 2005, pp. 31­32.).

The profession of management consultancy strongly developed after a series of government regulations in the USA restricted the activities of banking and insurance institutions to prevent fraud after the 1930s. Recognising the huge potential of the new profession, management consulting firms such as McKinsey emerged and helped institutionalise the sector by establishing tools and methodologies (cf. McKenna 2008). The booming decades of the 1960s and 1970s and the entering of large accounting firms into consultancy gave way to the rise of many renowned companies, especially in the USA.

After a period of consolidation and a subsequent growth by the end of the 1990s, the faltering world economy after 2001 also created a break in the success history of management consulting. The Sarbanes-Oaxley Act established new standards for both public companies and accounting firms as a reaction to the events surrounding the breakdown of global players like Enron or WorldCom. A restructuring of the entire industry, with a clear separation between accounting and consultancy services, resulted in a period of stagnation through to 2004. Until the present financial and economic crisis, worldwide management consulting came back to recording consistently high and growing revenues.

2.1.3 Management consulting in Germany

After defining the terminology of management consulting and providing a short introduction to its historic development, the research reveals the characteristics of the German market as the investigation target. An overview is given as to market size and structure, the BDU as the major industry association, current topics in the field and an outlook on future challenges.

2.1.3.1 Market size and structure

According to the BDU, the overall revenue of the German management consultancy market came to EUR 16.44 bn in 2007. Approximately 13,900 management consulting firms were recorded, employing a total of 106,200 people of which 78,200 are consultants. Compared to 2006, this represents a growth by 11.8% on the overall market size, with an employee increase by 5.1% and 7.1%, respectively (BDU 2008a, p. 4).

The lion’s share of the market is covered by 55 large management consulting firms with each more than EUR 45 mn revenue: they make up for almost half of the income in Germany. In contrast to that, the 11,850 small firms with up to EUR 1 mn yearly revenue only reach a market share of combined 20.5%.

TABLE 1. THE GERMAN CONSULTANCY MARKET IN 2007

illustration not visible in this excerpt

Source: BDU 2008a, p. 4

The market domination by management consulting firms in Germany with more than EUR 5 mn revenue is further confirmed by significantly higher growth rates in comparison to small companies (13% vs. 7%). The top 12 management consulting companies by revenue and employees are compiled as follows:

TABLE 2. THE TOP 12 MANAGEMENT CONSULTING FIRMS IN GERMANY 2007

illustration not visible in this excerpt

Source: Lünendonk 2008

The most important field of activity in terms of revenue is organisation / process consulting (including project management, change management, production & supply chain, process management, controlling) with 44% market share, followed by strategy (strategy planning, marketing, corporate finance) with 24%, IT with 21% and HR with 11% (cf. BDU 2008a, p. 4).

2.1.3.2 BDU as the industry association

The BDU was founded in 1954 as the Association of German Management Consultants. Originally aimed at distinguishing the service portfolio of professional management consultants from less qualified advice-givers, the organisation has developed over time to become the most important industry representative in Germany.

The key objectives are to actively participate in the process of shaping the sector’s economic and legal framework conditions as well as to promote and establish quality standards for the industry as a whole. Key components are the “Principles of the BDU for the Profession of a Management Consultant”: a guideline for a qualified service performance that all members are to be committed to. Further efforts in an advancing professionalisation of the industry are a certification of individual management consultants, a guideline for due planning, regular meetings on national and international scale as well as research and publications.

Today, 520 member companies with over 13,000 consultants – coming from management, personnel or IT background – are organised in the BDU. Out of the top 12 management consulting firms in Germany, only six are BDU members: Deloitte, Capgemini, Steria Mummert, BearingPoint, and Droege International. The fact that the three largest companies are not represented by the industry association can be seen as a drawback in the joint efforts to further establish uniformly accepted guidelines throughout the consultancy business in Germany.

2.1.3.3 Current issues

The last years in German management consulting were shaped by double-digit growth rates and new product concepts in the areas of expansion and innovation. But the present financial and economic crisis on a worldwide scale is not leaving the consultancy business in Germany untouched. “The growth in assignments will slow down, and there will not be a boom in projects from the financial sector”, affirms Antonio Schnieder, president of the BDU. However, he does not fail to stress the positive side of it: “Consultancy is also demanded in times of crisis” (Schnieder 2008).

On the one hand, cost-cutting, restructuring and new strategic alignments are some of the areas where consulting services will gain increasing attention. On the other hand, a number of market segments such as mergers and acquisitions (M&A) or asset management experiences a significant downturn with troubled times ahead in the near future (cf. KPMG 2008; Boston Consulting Group 2008).

Further to that, a general change of business attitude in the wake of the current economic situation can also be perceived. Tighter client budgets mean a closer scrutiny of the advantages of consulting services, and a stronger focus on values within the society also puts corporate business practices increasingly into the focus of the general public. This has direct impacts on the management consulting industry, bringing up the still pending image damage as a result from doubtful business practices in the early years of the decade (cf. Hagenmeyer 2005, pp. 13-15).

Good corporate governance as a requirement from public and private organisations – and subsequently even more so from management consulting companies – gains increasing importance amidst the general loss of confidence in the capitalistic model of market economy (cf. Berger 2008). Already in 2003, a study by Booz Allen Hamilton found out that companies with stronger values also perform better financially; now it seems, this credo is becoming more pronounced in the German markets (cf. Booz Allen Hamilton 2003).

2.1.3.4 Outlook

The management consulting industry in Germany is directly impacted by the current financial and economic crisis. The revenue forecasts predict a difficult year ahead after three years of strong growth as a result of a recession and budget cuts. Moreover, the general feeling of a gradual value change within the society appears to gain momentum.

Calls for a stronger value-orientation in business practices have a direct influence on management consulting firms, both in their internal structure and in their behaviour towards external clients. The (re-)establishment of public confidence in the system of management consulting and the building of trustful relationships in business appear to be foremost challenges in the upcoming years. And every effort in this area must come from within by providing a role model for the own consulting practice.

2.2 Business ethics

“... economics is essentially a moral science
and not a natural science.”

John Maynard Keynes Economist and politician

After having established the theoretical framework of management consulting as related to the investigative targets, the second step is the provision of a baseline for the area of business ethics. This is done by giving relevant definitions, showing the historical development and providing an overview of business ethics in Germany.

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