What do consulting firms do? Why do companies hire them? In short, companies hire consultants to help solve problems or implement business solutions when they lack the internal resources, expertise, or political capital to address the issue. However, there is a wide variation in the rationale for why firms decide to hire consulting firms. Sometimes, they don’t lack the internal expertise to address an issue, but are looking for an authoritative 3rd party to verify what they already suspect. But still, what do consulting firms do? In this article, we’ll answer the following questions:
- What is a business consultant?
- Why do businesses hire a consultant?
- What types of business consultants exist?
What Is A Business Consultant?
What is a business consultant? It seems like an easy question to answer. But if you read the introductory paragraph, you probably realize already that “business consultant” is a broad concept. One simple definition of a business consultant is: “a business or individual with industry specific or functional expertise who offers professional advice, guidance, and actionable solutions to companies experiencing issues they can’t, or prefer not, to deal with internally.”
What do consulting firms do? Well, one way to answer this question is to view reality through a functional lens. They help companies develop strategic plans (strategy consultant), implement software systems (IT consultant), cut costs (operations consultant), or design and execute marketing strategies (marketing consultant).
But another way to answer the question is by describing the typical manner in which these activities get done - via project-based work. 90% of the time, consultants work on projects. A company scopes out a question it needs answered, an issue it needs addressed, or a problem it needs solved. Then, a consulting firm designs a 2–6-month project where information will be gathered and assessed, options will be developed, and decisions will be made. Sometimes that includes implementation of the ideas or advice, and sometimes it doesn’t. But what exactly are some of the underlying reasons businesses might hire a consultant?
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Why Do Businesses Hire A Consultant?
Why do businesses hire a consultant? We’ve mentioned that a consultant may have functional or industry expertise that a company doesn’t have internally. For example, a business may need to address a tax issue that arose from dealing with an international partner. It hires a tax consultant. Or it needs help growing, so it considers a marketing consultant. Perhaps it merged with a competitor. It needs help from an operational consultant with expertise in mergers and acquisitions. Or sometimes the company needs industry expertise. Imagine that it is considering acquiring a company in a new market. It may hire a consulting firm with expertise in that market to learn more before moving forward.
But there are other reasons that don’t involve a need for functional or industry expertise. Here are some examples:
- The company has expertise internally, but multiple stakeholders disagree on what to do. It seeks an external third-party perspective.
- There is internal expertise, but the issue is time-sensitive, so it needs extra help to move quickly.
- The issue is of major strategic importance, and the CEO wants the Board of Directors to know that a top tier consulting firm has worked with him and offered its advice. This adds credibility to the decision.
- The company knows a lot about the issue, but there are many different stakeholders, and the situation is complex. It seeks advice building a decision framework and needs a facilitator.
Types of Business Consultants
There are dozens, maybe even hundreds, of different types of business consultants. Let’s focus on discussing functional types of business consultants. But remember, industry-specific consultants, like those focused on retail, or telecommunications, or industrial companies, also exist.
Financial Consultant
A financial consultant would help a company with issues related to making investments or financing its operations. A financial consultant may be great at building valuation models or figuring out the best mix of debt and equity to finance the company. SC&H group is an example of a financial consultant.
IT Consultant
An IT consultant helps a company implement various types of software or keep its information secure. An IT consultant may help a company with IT strategy, but many IT consultants are known for carrying out long implementation projects. Companies use IT consultants to implement core underlying data platforms, like Oracle databases, that keep their operations running. Accenture does many different types of consulting but is one example of an IT consulting firm.
Management Consultant
A management consultant is the most generalized term for “consultant.” They tend to help with issues related to strategy, growth, or M&A. McKinsey & Company is a great example of a management consultant.
Marketing Consultant
A marketing consultant, at its core, exists to help a company grow. They’ll conduct quantitative or qualitative customer research to help clients design and position products that customers want. Marketing consultants may implement customer segmentation strategies or focus on digital marketing concepts like SEO optimization, inbound content marketing, or “pay per click” digital advertising optimization. Brafton is a good example of a marketing consultant.
Tax Consultant
A tax consultant is a more specialized type of consultant that is often very closely related to an accountant. When companies have international operations, make acquisitions, or have complex ownership structures, there are often many tax implications to unpack. If a company does not pay attention to the tax implications, it could pay far more taxes than are necessary, and even run into legal trouble. Ernst and Young is a good example of a tax consultant.
What Does The Day-To-Day Of A Consultant Look Like?
Transitioning from “what do consulting firms do?” to “what does the day-to-day of a consultant look like?” is where the fun begins. The day-to-day activities in consulting vary across firms and roles. But there are four basic “activities” of consulting: analysis, communication, building influence, and business development.
Analysis involves data gathering, research, and analysis using tools like Excel. Communication means writing emails, creating and delivering PowerPoint presentations, and having meetings. “Building influence” refers to how consultants need to find time to build relationships and get clients comfortable and aligned with the underlying analysis and recommendations. Finally, consultants need to network and develop marketing materials that help them find their next project.
Imagine you are a newly minted MBA. What does the day-to-day of a consultant like you look like? You might spend 8-9AM on a call with a client explaining why you need a certain file with important data. From 9-11AM, you are working in Excel, building a financial model using that data. From 11-2PM, with a break for lunch, you are identifying the key insights and translating them into a PowerPoint deck for review with your manager. From 2-3PM, you meet internally with your manager and get feedback.
Between 3-4PM, you make updates, and then you have a presentation to a mid-level client at 4PM. From 4-5:30PM, you are presenting the results of your analysis, using PowerPoint, to that client. She gives you feedback, which you have to integrate after dinner in preparation for the more important meeting with a big group the next morning.
Types Of Projects That Management Consultants Work On
“What do consulting firms do?” can also be answered by going through a list of different types of projects. But here is a list of the types of projects a management consultant might be asked to work on:
- Refresh a high level, 5-year growth strategy.
- Find $100M in cost reduction opportunity.
- Build a digital marketing strategy.
- Optimize inter-company transfer policies to minimize tax liability.
- Assess and optimizing pricing processes.
- Build an M&A pipeline.
What Is the Management Consulting Lifestyle Like?
The management consulting lifestyle is generally characterized by:
- A very fast pace
- 65+ hour workweeks
- High compensation
- 2-3 nights of travel most weeks
- Consulting firm cultures that value taking a strong perspective about issues
- Analytical, almost academic discussions
- A flexible schedule that adjusts to the whims of senior clients
- Some evening and weekend work
Many people consider the consulting lifestyle glamorous. You make a lot of money, you learn a lot, and you travel a lot. But that’s only part of the story. The fast-paced lifestyle isn’t for everyone. Hence, why most consulting firms adopt an “up-or-out” model. Either you progress upwards to senior levels, or you leave the company. It’s all part of the consulting lifestyle.
Conclusion
“What do consulting firms do?” may be better answered by asking “What don’t they do?” Consulting firms come in all shapes and sizes. If you’re looking at a career in consulting, make sure your resume is in tip-top shape, and you are prepared for the famously difficult case interview.
Additional Reading:
- Top 25 Consulting Firms
- MBB: McKinsey, BCG, Bain- Are They Really the Best?
- Management Consultant Salary