By Joanne Sammer
Rick Morello's story is one that consulting firms are hoping will become less commonplace in the near future. Morello left Mercer Management Consulting last year to join a budding New York–based Internet company. Now vice president of pharmaceutical and health care marketing for Medsite.com, Inc., Morello is exactly the type of consultant firms do not want to lose. So impressed was Mercer with Morello that they provided the financial sponsorship to see him through business school. A year after returning to Mercer from business school, he left to join Medsite.
"It was out of the blue," Morello says. "I had worked with one of Medsite's founders early in my career. The role they were offering was extremely attractive, so I looked at the strength of the opportunity and the business model. I thought it was an extremely unique opportunity to be on the cutting edge of the evolution of the Internet."
You would be hard-pressed to find any consulting firm that has not seen or heard of multiple variations of this story over the past 18 months.
"One thing recent MBA grads already have an awareness of is how wealth gets traded, and they have already figured out that investment banking and consulting are not where wealth is being created in the New Economy," says Gary Hamel, the noted Harvard Business School professor. He has recently authored a number of articles discussing how companies must create wealth, and not just preserve it, if they want to continue to retain and attract top talent.
To Hamel, the growing struggle to attract and retain talent inside the consulting industry is evidence of much larger and deeper problems besetting traditional firms, as their largest clients look beyond strategies tied to mass manufacturing or marketing and into the age of radical new ideas.
The Big Idea
It's an age energized not only by dot-com start-ups, but also by companies such as Home Depot, Starbucks, and a myriad of others that have accumulated massive market capitalization. These powers have done so not through new efficiencies or insightful marketing, but instead via unconventional ideas, or what Hamel calls strategy innovation. (See Hamel interview, page 56.)
"Most of what the consulting industry is focused on is about conserving wealth and exorcising the things that destroy wealth, but very little of it is focused on creating fundamentally new wealth," says Hamel, who now believes that the same corporations which over the last decade spent billions of dollars reengineering their business processes to become more efficient will soon be spending billions on restructuring those same processes to make innovation a deeply imbedded capability.
It's an opportunity that no consultancy can ignore, but one which most consulting firms seem woefully ill-prepared to attack. To help lay the groundwork and attract the "big idea" people they'll need to be successful inside the business of wealth creation, consulting firms are rushing to offer a plethora of programs designed to help consultants unleash their "inner entrepreneur" without walking out the door.
Today, few consultants doubt that the fledgling programs are likely to profoundly change how consulting firms hire and reward their best people. At the moment, most of the consulting firms' efforts in the area of wealth creation are grounded in the growing number of strategic partnerships firms are establishing with start-ups and growing companies. The types of strategic partnerships firms are forging vary considerably, but most have some form of consulting-for-equity or other mechanism to give consulting firms a stake in the object company's success, such as providing seed money for business plan development and ideas.
To effectively understand and meet the growing demand for wealth creation services, firms need to immerse consultants in the nuts and bolts of the new entrepreneurial age and the companies driving it.
Creating Wealth at E&Y
Ernst & Young has even begun experimenting with setting up its own start-ups under the E&Y umbrella. In 1998, the firm created Ernst & Young Application Services LLC, an application maintenance outsourcing company that now has 130 employees. "We have created some business units to be separate entities that can be taken public at some later date," says Chell Smith, chief strategist for critical technologies for Ernst & Young in Chicago. "We plan to be much more aggressive with that as we go forward," forming what she calls a "big ecosystem of companies in the Ernst & Young family." The firm's most recent venture, a company involved in "interactive branding and information management," has the working name Yellow Corn and 65 employees. But, for now at least, E&Y is reluctant to provide any more information on these companies.
"We want to be involved in the e-commerce industry and give consultants opportunities to work with these companies," says George Stalk, senior vice president with Boston Consulting Group in Toronto. "Our focus is on building client relationships. Capital investment is secondary." If these partnerships satisfy consultants' needs to be involved with dot-com companies, so much the better. Some firms have even shown a willingness, albeit a sometimes reluctant one, to fund business ideas among their own consultants.
Notably absent from this list of programs is some way to share the wealth generated from these consulting-for-equity arrangements. However, all the firms interviewed for this article expect to roll out new compensation arrangements sometime this year.
Gaining Start-up Experience
As firms look for ways to allow consultants to explore opportunities with "wealth creation" companies on a longer-term basis, many have begun externship programs. Externships allow consultants to work full-time for a company, almost always a firm client, without leaving the employ of their firm.
For example, BCG already has such arrangements in place, although the firm does not call them externships. To give a start-up company time to hire the right management talent, BCG sometimes provides companies with BCG consultants to work full-time for six to nine months as part of a temporary management team until the permanent management team is in place. But these arrangements are not without their risks to the firm. "We expect to lose some people who choose to stay with a company" after their time is up, admits Stalk.
Booz-Allen has had an externship program in place for
several years, but is planning to expand it this year to include a broader range of opportunities. "We are having some very interesting conversations with larger clients that are setting up new ventures, but don't have the right staff," says Harry Quarls, a managing director of corporate finance with Booz-Allen & Hamilton based in Dallas and London. "They are
saying, 'Can we borrow your staff to start this thing up?'"
Mercer Management Consulting's externship program allows consultants to take six- to twelve-month jobs with a carefully selected list of client companies. "Initially, we will be working with at least a dozen companies that range from large clients to dot-coms to nonprofits" and expand that list over time, says Mike Sargent, a Mercer vice president. "The goal is to let consultants step into a very different role for a very
structured period, with the complete understanding that they will come back to Mercer."
E&Y plans to roll out such a program early this year. Initially, the program will focus on technology consultants; it will expand to include other consulting fields later on.
Seed Money and Other Support
Although many firms are aggressively seeking equity stakes in start-ups, they are ambivalent about providing similar funding to the business plans of their current consultants. BCG, for example, makes seed money available to its consultants on a limited basis, using an internal review board to make funding decisions. "Our concern is that too many people will want to pursue this," says Stalk. "Just like you don't want everyone
running to one side of the boat when you pass the Statue of Liberty," firms don't want all their consultants to expect seed money for new ventures. However, if a consultant is thinking of leaving the firm to form a start-up, BCG will let the consultant work half-time or take a break without pay to develop a business plan.
Booz-Allen does not provide seed money to consultants at all. "You don't want all your base business running in with new ideas, because then what happens to your base business?" says Quarls. "And how do you say 'no' to bad ideas?"
Quarls is also concerned that such an endeavor could create misaligned interests among the consulting staff. "Are you working for our clients or are you working on an idea for yourself? We want to give people a chance to work with start-ups, but to set up the ideas as Booz-Allen employees," he says.
Mercer Management Consulting has no such qualms about supporting consultants through its new venture program. "Why wouldn't we provide an infrastructure to help consultants take advantage of our knowledge to jump-start their venture?" asks Sargent. Eight partner teams serve as sounding boards for business plans created by would-be entrepreneurs and provide everything from potential sources of capital to advice on the nuts and bolts of starting a company. Thus far the firm is not providing seed money, but it is leaving the door open for future consulting-for-equity arrangements.
The Challenge Without Risk
Overall, firms emphasize that they are offering the opportunity to work with start-ups without the potential financial and career risks of working for one. "We are giving people a safe way to participate in the growth of the Internet economy within the security and dependability of a Big Five firm," says Smith.
But whether this argument and these programs will stem the tide of consultant defections to Internet start-ups remains to be seen. So far, at least, some firms seem satisfied with the results they are seeing. "These consulting-for-equity arrangements have the potential for returns far in excess of traditional consulting arrangements," notes Stalk. "Our retention holes have been plugged enough to take us past the panic. And the firm now has a portfolio of clients that, in the past, would not have been able to afford our fees." Moreover, Stalk estimates that 70 percent of BCG's consulting staff now has some sort of e-commerce experience.
Even so, there is a sense that firms recognize they are bound to lose consulting talent to start-ups. If nothing else, firms want to postpone that event as long as possible. "While there are a lot of success stories with people becoming multimillionaires, you have to remember that only one out of every thirty of these start-ups works," notes Quarls. "I think that we give people the capabilities to enhance those probabilities for success."
Rick Morello agrees and provides some final words of advice, urging consultants to make sure that they have the fundamental skills necessary to succeed before making the jump from consulting to a start-up. "You take on a high-level role and responsibility" in a start-up, he says. But the danger is that "in a firm with 20 employees, you are going to be uncovered quickly if you don't have those skills."
Sidebar: Power Points
• The same corporations that over the last decade spent billions of dollars reengineering their business processes will soon be spending billions restructuring them again, to make innovation a deeply imbedded capability.
• Consulting firms are rushing to offer a plethora of programs designed to help consultants unleash their "inner entrepreneur" without walking out the door.
• As more firms become focused on selling wealth creation
services to their largest clients, consultancies will make profound changes in how they hire and reward their best people.
Sidebar: Brick & Mortar: Backing Start-ups With More Than Money
Most consulting firms are making a concerted effort to work with start-ups, and a growing number have created physical sites where they will work with these companies under one roof. E&Y has established six "centers of innovation" designed, at least in part, to give consultants ample opportunity to work with start-ups.
Similarly, McKinsey & Co. has begun signing leases on different office locations to be used by a variety of client start-up companies. Dubbing them "acceleration centers" within the firm, McKinsey has six facilities in various stages of development within cities in both North America and Europe.
"Whereas traditionally we would co-locate with a client at the client location, we found that there is an increasing demand to get start-up organizations out of the mothership. These centers allow us to co-locate and bring all the resources for a start-up together under one roof," says John Hagel, partner-in-charge of McKinsey's e-business practice. Eventually, as the mothership is outgrown, the start-up can move toward being its own mother ship.
Not to be outdone, Booz-Allen is planning to open two or three "innovation centers" of its own. The centers will be a place where firm alumni can bring business plans to discuss with consulting staff. Further, B-A&H is establishing a venture fund to support specific business plans. Current clients will also be able to use the centers to house potential e-commerce ventures that they want to separate from the core business. And each center will also serve as a demonstration center to show clients about how e-commerce works. — Joanne Sammer
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