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Abstract: Increased competition has forced factories and businesses to survive, to focus on their core capabilities and reduce their costs. So many companies as part of their required services are provided from outside sources. Among the services required by industry executives, management consulting services ( Golchinfar,Sh .2004). The need is felt every day more than yesterday. BecauseØŒ managers are faced with complex and diverse problems that arose from the current turbulent conditions.
In this article I try to explain the philosophy of the emergence of management consulting services, tasks, and advisory roles and help that has been serving the industrial management and using transaction cost theory (Canback, S. 1998), to justify the costs of using external consultants.
Keywords: Transaction cost theory, management consulting, market transaction costs, and bureaucratic transactions costs.
With more complex issues industry and competitive, one of the most important services required by organizations and companies, management consulting services (Block, Peter. 1999). Management consulting industry in its modern form has not a long history. But a growing trend in the industry is that the effectiveness of services provided to the industry. But the question that comes to many organizations and companies, what is the advantage of using management consultants? And how is the cost effective way for companies, the use of management consultants? In this article, I am beginning to explore the history of management consulting and industry definitions, roles and tasks management consultants, and then using transaction cost theory, I explaining the importance of using management consultants.
The main problem with slow growth and development strategies needed to solve the problems of the country. That due to design models, a lot of research in this field, because different countries, there has been little research on the effects of long-term and short-term counselling industry (Kipping. 1996).
The most important reason for consultation in the formation of America, new rules have been in the security field. The banks also refused to work as a consultant, is one of the reasons affecting the use of consulting institutions. 1960s and 1970s saw the emergence and formation of strategic consulting group (Pankaj G. 2000).
In 2000, the economic decline in the use of consulting firms affected. Consulting industry became more competitive. In 2004, changes took place in the consulting industry with economic reforms. (Plunkett Research, Ltd. 2005).
WHAT IS MANAGEMENT CONSULTING?
A cornerstone of management consultation is the preparation and delivery of business planning services. These services are wide-ranging and often combine expertise in a number of areas into a singular solution for the business that requires impartial, realistic, and market-focused advice. The services can range from providing for the needs of a small business start-up to meeting the requirements of a global company expanding into a new market. Common business planning services include feasibility studies, financial planning, market analysis, options appraisal, operational planning, and due diligence. Post planning the consultants work with the business to put the plan into action and meet goals. This means working closely alongside the management team and filling a host of roles not limited to writer, speaker, trainer, analyzer, and client liaison. Another important aspect of the consultant's role at this stage is the evolution of the plan as the business adapts to unforeseen circumstances, such as changes in the market. High-level management consultants generally specialize in one form of industry, such as environmental, manufacturing, or finance. This field is usually the one in which they earned their expertise. In addition to this extensive personal experience, they usually have a background in business administration, business finance, and personnel management. Independent contractors tend to be jacks-of-all-trades while members of consulting teams are often highly specialized. Their primary responsibilities include determining the risk levels of business ventures and making educated projections concerning the long-term benefit of policies and practices. They also have the skills needed to implement the necessary changes. This often involves providing written material and the direct participation in training and education of the business' employees on the new practices and procedures. However, a skilled management consultant's greatest asset to a business is often his or her fresh and unique perspective coupled with the honesty that the business cannot always obtain from traditional employees.
Management consultants are involved in providing objective advice, expertise and specialist skills with the aim of creating value, maximising growth or improving the business performance of their clients. They are primarily concerned with the strategy, structure, management and operations of an organisation. Consultants can assist by identifying options with recommendations, providing additional resources and/or the implementation of solutions. Consultants operate across a wide variety of services such as business strategy, marketing, financial and management controls, human resources, information technology, e-business and operations, and supply-chain management. As with the type of work, the range of consultancy firms also varies from the larger firms that offer end-to-end solutions to smaller or niche firms that offer specialist expertise, skills and industry knowledge.
DEFINITION OF MANAGEMENT CONSULTING
Management Consulting, a consulting service to organizations and are provided by qualified and trained personnel to the contract (between counsellor and client) Consultants to assist organizations in identifying problems, analyzing problems and to propose appropriate solutions to the problems organizations, And the employer's request to assist in the implementation of the recommendations organization. Consultants are individuals who are independent of their employers. This independence means having the financial, organizational, political, and sentiment against the employer.
GENESIS HISTORY OF MANAGEMENT CONSULTING
Management Consulting has a long history. But the first management consultants, as is common today emerged in the last century. Among the celebrities who will be mentioned in this context: Frederick Taylor, Henry Gant, Arthur Lettle, and Harrington Emerson. Lettle and Emerson, among those who first founded a consultancy company. Consultancy companies paid more in that period, such as operational efficiency. In mid 1910 until 1940 the second generation of consultants emerged and developed concepts related to management consulting. "Edwin Baez" in 1914, he first began offering market research services. James Mackenzie founded his company in 1926. In Europe, Lynda Arvick and Charles Brodex including those that were developed in Europe in the 1920s, the management consultancy. The early postwar years, the industry has experienced major changes in management consulting. Of companies like MC CORMICK, PERRING AND CRESAP, TOWERK, PAGET, etc. In 1963, "Borrows Henderson" the company Lettle was removed and consulting group Boston with Emphasis on strategy consultancy founded. Toward the same time, accounting for the observed growth in corporate management consultation services, Were of its own accounting consulting services. And professional practices were also consulted. Nevertheless, even in the late 1980's, but despite the growth of this industry is still in its infancy, the management consulting industry. In that period, there were approximately 18,000 management consultants and worked only 30 to 40 percent of corporate counsel. The largest management consulting companies in the period such as HAMILTON AND ALLEN, BOOZ, were approximately $ 150 million in revenue. And the entire industry, "Management Consultancy America" â€‹â€‹had revenue of $ 2.1 billion and the whole world consulting industry revenue to reach $ 2 billion. But since it's almost 20 years later, the consulting industry has been growing rapidly, so that the industry growth rate of 20 percent. In 1980 there were fewer than 5 consulting companies in the world with over 1000 consultants. While today the number is more than 30 companies. If the curve is plotted consulting experience in the industry, we will see approximately 80 percent are related to management consulting experience since 1980. Only 20 percent of management consulting experience and is related to the year 1886 (the "Lettle" founded the first consulting company) until 1980.
Creating solutions that provide a competitive advantage for the firm, industry, national and increasingly international help, are the shortcuts in the development of effective competition. Perspective of industrial organization and the resource-based approach, which are the two main approaches in the field of strategy, viewed from a different angle to the source of competitive advantage (Arnoldo C. H. & Dean L.W. 2002).
Industrial economies in recent decades, through the process of shifting from natural resource-based economy to an economy based on intellectual property (Alavi, M. 2000).
Knowledge has replaced capital, labor and natural resources (Druker, P. 1995; Hilliard, R. 2004) and the accumulation of knowledge helps to gain competitive advantage (Van den Bouch, F. A. J., Volberda, M. B. 2003).
The research is based on a source-oriented and knowledge-oriented approach has been called the knowledge, as the success factor (Alavi, M. 1999).
According to Michael Porter, the strategy of global competition, it is important to engage the national position and competitive advantage, this interaction plays a complex role in national environmental situation, the success of the firm or organization (Porter, M. 1986).
From knowledge-based approach to resource-based approach that is intended. Identification of other sources of knowledge organizations must focus on its strategy (Grant, R. M. 1996).
Consultants have a significant role in the creation and production of knowledge. And positive, short-term consequences of using an advising institution on negative stock price and long-term effects of using a consultant (Kipping. 1996; Ajay P., Andrew A. S., 2003).
Effective environmental factors such as lack of confidence, a lot of transactions, certain assets, etc., in the use of outside consulting agencies (Mortazavi,S. 2003)
RISE OF INTERNAL CORPORATE CONSULTING GROUPS
Added to these approaches are corporations that set up their own internal consulting groups, hiring internal management consultants either from within the corporation or from external firms' employees. Many corporations have internal groups of as many as 25 to 30 full-time consultants.
Internal consulting groups are often formed around a number of practice areas, commonly including: organizational development, process management, information technology, design services, training, and development.
DIFFERENT ROLES AND RESPONSIBILITIES OF MANAGEMENT CONSULTANTS
Edgar Schein, a management consultant, according to the type of interaction they have with their employers can be divided into the following three categories:
Model in doctor - patient
Specialty buyer model that is used by employers, need a professional and independent consultant to comment on your question. In this way the consultant is not expected to have much interaction with the client. In fact, the employer has to identify and seek solutions to their problems.
Model in doctor - patient, emphasizing the advantage of the employer's judgment is a consultant to identify issues and problems. Consulting with your unique experience and skills to help employers understand their diagnosis of organizational problems.
Process consulting model, counsellor plays the role of facilitator. According to this model, the client provides consulting methodology to solve the problem and offers possible solutions to resolve the issue. But ultimately it is the customer that will choose the right solution to their problem.
General Counsel Functions can be defined as follows:
Providing information to the employer
Employers recognize that it is necessary to redefine the problem
Provide solutions and recommendations based on the recognition issue
Help implement solutions
Agreement for corrective action
Facilitate employee learning
Continuous improvement of organizational effectiveness
TRANSACTION COST THEORY
Transaction cost theory has been introduced in the 1930s by Ronald H. Coase, In order to justify and explain why some of the activities, products or services are performed in organization, and to provide some external sources. After nearly 40 years in the 70's, this theory was further considered by a group of researchers, and the development and spread. According to this theory, the incremental costs can be classified in two general groups' production costs and exchange.
Production costs are directly related to the productive activities of the organization. Such as production costs, logistics, and product development. On the other hand, transaction cost refers to the costs that are associated with organization, planning and organizing activities. And so, are variable according to structure of company. In other words, transaction costs will change if you change the allocation of resources. While the production costs are only related to technology, and is the same and no change of the various economic system. According to studies, at least 45 percent of GDP in developed countries is caused by transactions costs.
According to Coase, transaction costs will determine what action is needed in the market, and what is done within the organization. In the first case, the price in the second case, the bureaucracy and the relationships within the organization acts as a regulatory mechanism. Based on this, every transaction has a cost, including transaction costs of external market and internal bureaucratic transaction costs.
According to research, the following are the most important costs of market transactions:
Determine the cost of goods and services
Cost negotiation and preparation of contracts
costs arising from deviations from contractual commitments
The bureaucratic costs of internal transactions include:
Administrative costs related to planning for production and the service received from sources within the organization.
Cost of improper allocation of resources.
Reduce the cost of employee motivation.
In any industry, trade costs and domestic market is the decisive factor in the conduct of activities inside and outside the company. According to studies by Williamson, the transaction cost theory; there are two assumptions about the behaviours that are of particular importance:
Behaviour and decision making in organizations follows the pattern of constrained rational. Thus, even if in possession of all the required information, the contracts would not be ideal.
People's behaviour and decisions are to fulfil their personal interests and take advantage of opportunities available. Therefore, if the personal interest is in conflict with their obligations, they will not abide to their commitments in the absence of any inhibitory mechanisms.
According to the above, the following three factors are decisive role in making decisions about the preferred exchanges with the outside or inside the organization:
The repeated exchanges
In the circumstances, the asset is considered to be highly specific and limited to specific uses, the high cost of using market exchange. The purposes of the assets are physical assets, human assets, location or specialty. Under such circumstances, individuals are expected to increase opportunistic behavior. For example, if a supplier to invest in the kind of equipment that is only for a specific customer (Or if, in particular the investment adviser in connection with a customer) with time, the customer will be able to exercise power over the seller, because the seller does not have another opportunity to take advantage of investment. It is therefore necessary to perform complex and lengthy negotiations between the parties. And to think, the necessary measures to prevent possible future problems. High uncertainty, such as uncertainty in technology will lead to increased bureaucratic exchanges. It would be very difficult and expensive to establish relationships and marriage contracts, to have all the desired results for the organization. Also, high frequency trading, as well as factors that increase the tendency of companies to bureaucratic exchanges, because repeats the contracting process, imposes costs more than the bureaucratic costs of the company. It is worth mentioning that according to studies, when companies decide to activities within or outside the organization; in addition to efforts to reduce transactions costs are minimal in the total cost. Companies incur additional transaction costs as well as production costs. Therefore, in some cases (As, can be seen on the activities related to management consulting) Improvement in production costs due to the use of external resources, Increase more than the costs of transactions occur.
Today's executives are faced with abstract problems associated with transaction costs, while in previous years the duties of directors were more focused on reducing production costs. In fact, today's managers also face lower production costs, are faced with a bigger challenge as to optimize transactions costs. Today, the company is constantly talking about topics such as vision, strategy,
Learning organizations, and virtual companies. The value of many companies, not only calculated on the basis of the financial statements, but may also come from abstract topics such as brand and intellectual capital. In such circumstances, to identify the issues facing their companies, and adopt appropriate procedures for dealing with them, need to convert complex and abstract issues the simple models and understand and analyze.
MANAGERS SEEKING TO EXPLOIT THE NATURE OF MANAGEMENT CONSULTING SRRVICES
The transaction costs can be used to determine the precise nature of the demand for management consulting services.
Internal transaction costs including administrative costs, costs of improper allocation of resources, and reduce the negative impact of employee motivation in the largest companies. The management techniques that are used to construct the minimal cost can be pointed to organizational design, strategic planning and organizational leadership techniques. Organizational design and employee motivation has a significant impact on administrative costs. Can be cited as examples of organizations with the multitasking performance, compared with organizations that are structured task. Strategic planning can reduce the problems of resource allocation, through the guidance and resources of the organization with a competitive advantage. All items listed are just among the issues to be solved by management consultants.
Market transaction costs include appraisal fees, costs related to the negotiation of the contract; and the risk of long-term deviations from the contract because it is not possible to predict all future aspects. Managers to reduce such costs require information on their relationships with customers, suppliers, and partners. As a result of increased demand for market information and competitors in recent years. Such services are offered by management consultants.
In summary, it is possible to justify and explain the demand for management consulting services through fundamental changes in the economy. The current business environment is complex, requiring incurs high transaction costs. This has also led to increasing demand for the use of those services, basic ability to analyze and provide solutions to complex problems, and facing managers have very abstract. Management Consulting professionals have the ability to do well. Over the past years, has been changed, the services of consultants in areas such as incentive systems designed for large areas such policy or policies, structures and strategies.
THE REASONS FOR THE USE OF EXTERNAL MANAGEMENT CONSULTANTS
Why the demand for these services is estimated to be dramatically out by management consultants within the company? In many organizations, managers and internal consultants also have this ability, but often prefer to use external consultants for this purpose. Why senior managers in many cases due to the increasing volume and complexity of its activities, Cannot deal with techniques for solving problems on their own. Based on transaction cost theory of decision-making executives of domestic and external consultants are influenced by the following factors:
The extent to which an asset (knowledge) is unique and special
The uncertainty associated with demand and technology changes
The repeated exchanges
Among these three factors, the most important is the uniqueness of the property. Purpose of assets, is physical assets, and human, and the place. Consulting services are not often designed specifically for the client's need to invest in physical assets. And the need for such investments (e.g. buying a specific Client Software) costs related directly to the customer. In cases place this is true, why does not the employer's place of permanent residence counsellor. Thus, the only asset that can be effective in the management decisions regarding the use of internal and external consultants, the unique human assets. This means that, to a certain extent as an employer is the knowledge counsellor. If necessary, the counsellor will spend a lot of time and effort to identify and understand the business of the employer. Or if the employer requires investment advisers to be aware of the way, human assets are largely unique.
Current trends and issues facing managers in the world of business have led to a dramatic increase in the use of consultant's services management in organizations. Also, most managers tend to make use of the services of professional management consultants outside the organization. Among the reasons can be cited as follows:
External management consultants that are available in many cases there are business opportunities for domestic advisors.
Counsellors work experiences are valuable because they operate in different environments. Which leads them to be able to identify and solve problems for managers
Faster, more effective and less costly.
Consultants have the opportunity to spend time and focus needed to solve the problems facing managers.
Are independent consultants, and will be better because it has no organizational ties.
The new approach of counselling, there is a process in management consulting, is based on close cooperation and mutual confidence between the Consultant and the Client and facilitated by the consultant role, That are consistent with the terms of the business environment is changing. It is expected that the coming years will also come increased demand for the services of consultants, And, the practice is considered as an attractive option for graduates in related fields.