Professional Services Industry Report 2014

2014 Consulting Industry Survey & Research Report
A Study of Human Capital and Pay Practices in the Consulting Industry
Price: $3,000 USD
Consulting Industry
2014 Survey & Research Report
Human Capital Practices
Business Strategies
People Strategies
Rewards Strategies
Competitive Pay Levels

© 2014 by Grahall, LLC All Rights Reserved 2014 Consulting Industry Study | Page 1
About Grahall
An Intellectual Capital Firm
Grahall Consulting Partners. Provides market
leading human resources consulting services to
executives, Boards of Directors, Board Committees,
and other management. Our methodologies are
targeted to better align clients’ business and people
strategies with comprehensive human resource
programs through the use of advanced proprietary
solutions including concepts, processes, diagnostic
and analytical tools, research, and statistical and
other analysis.
Grahall Workforce Solutions. Provides a reliable
and flexible source of human resource contract
professionals to help our clients develop and
administer effective human resource.
Grahall Online Solutions. A distinctive suite of
web-based rewards tools targeted to human
resource professionals, executives, and directors.
These tools assist the user to obtain, calculate and
analyze information necessary to execute key
business, people and reward strategy work.
Grahall Survey and Data Services. Engages in
substantive survey projects regarding critical
business, human resource, and consulting issues to
help clients establish, refine, and improve their
business, compensation and consulting practices.
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Table of Contents
Part VII. Competitive Pay Level
Position Listing 101
By Job Family
Corporate 108
Sales / Marketing 110
Business Development 112
Practice Leadership 114
General Consulting 116
Technical Consulting 118
By Position
1000 Chief Executive Officer 122
1001 Chief Operating Officer 126
1003 Chief Financial Officer 130
1004 Chief Administrative Officer 134
1005 General Counsel 138
1006 Chief Human Resources Executive 142
1007 Chief Information Officer 146
2000 Chief Sales Executive 150
2001 Top Region / Line of Business Sales Executive 154
2002 Sales Executive 1 158
2003 Sales Executive 2 162
2004 Chief Marketing Executive 166
3000 Business Development Executive 170
3001 Business Development Manager 174
3002 Client Relationship Executive 178
3003 Client Relationship Manager 182
4001 National Head of Consulting 186
4002 Regional Head of Consulting 190
4003 Office Head of Consulting 194
Part I. Background 3
Part II. The Environment
& Key Stakeholders
13
Part III. Business Strategies 22
Part IV. People Strategies 45
Part V. Reward Strategies 78
Part VI. Reward Architectures
& Components
89
By Position
5000 Partner / Vice President 198
5001 Associate Partner / Principal / Director 202
5002 Senior Manager 206
5003 Manager / Project Leader 209
5004 Senior / Experienced Consultant 212
5005 Consultant / Recent MBA 215
5006 Entry Level Analyst 218
6000 Principal Scientist 221
6001 Principal Associate 225
6002 Senior Scientist 229
6003 Senior Associate 233
6004 Scientist 236
6005 Associate 239
6006 Senior Analyst 242
6007 Analyst 245
6008 Associate Analyst 248
6009 Research Assistant 251
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Consulting
Industry Study
Part I. Background
PART I:
BACKGROUND
PART II:
THE ENVIRONMENT
& KEY STAKEHOLDERS
PART III:
BUSINESS
STRATEGIES
PART IV:
PEOPLE
STRATEGIES
PART V:
REWARD
STRATEGIES
PART VI:
REWARD
ARCHITECTURES &
COMPONENTS
PART VII:
COMPETITIVE
PAY LEVEL

Welcome to the second Survey and Research Study of Consulting
Human Capital and Compensation Practices. Grahall Data Services,
and Grahall Consulting Partners, LLC has developed this research
report in an effort to provide insights into the key human capital
issues facing the consulting industry today.
The purpose of this report is to provide participants with perspective
on the architecture of key human capital and compensation practices
in the Consulting industry. This survey offers a unique look at the
consulting industry, as follows:
• Information in this report comes from our consulting practice,
Grahall client files, publically available information, economic
modeling and hundreds of client interviews from the past decade.
• This research addresses how people and compensation policies
work in consulting firms, and how much compensation firm
partners and employees receive.
• Data was provided by principals or senior members of client firms
and by researching publically available information.
• Data and analysis focus on policy and structure, including topics
such as form of ownership, relation of staff size to revenues and
reward and career pathing policies.
This report is organized into six major parts. These parts reflect the
Grahall conceptual diagram shown on the following page.
• The first part consists of background material and a quick history
of consulting.
• The second part is an analysis of the environment surrounding the
industry and then some commentary on the key stakeholders.
• The third part is an outline of the various business models and
key strategies.
• The fourth is the unique people strategy approaches we have
encountered in our consulting practice.
• The fifth part is an in-depth review of the various reward strategies,
architectures and typical reward program components.
• The sixth and last section is a review of how much various
consulting organizations have paid employees in the 2013 year.
Our conceptual model is on the following page and represents the
methodology we apply to our typical consulting assignment. Each major
section represents a force that impacts the design of the most effective
reward program for each client. No two reward programs are
completely alike since no two organizations are exactly alike.
We believe that people strategies and reward strategies can and do have
enormous positive and negative impacts on the success or failure of the
consulting firms we work with. We have seen the impact of the reward
program on successful organizations like Abt Associates, McKinsey &
Co., Bain, EDS, AT Kearny, Towers Watson, Hay Group, Clark
Consulting, and Andersen Worldwide. The reward program didn’t
make some of these organizations successful and others unsuccessful
but we believe having been part of each organization’s story, the people
and reward strategy programs were significant contributors to the
stories in each case.
Please do not hesitate to contact us for further information and/or
clarification of the survey results:
Michael Dennis Graham Ali Riyaz
Grahall Consulting Partners, LLC Grahall Consulting Partners, LLC
(917) 453-4341 direct (646) 287-6417 direct
michael.graham@grahall.com ali.riyaz@grahall.com
Background
Introduction to This Report

Background
The Grahall Conceptual Model: Business Strategy – People Strategy - Total Rewards Strategy Alignment Diagram
Business Strategy People Strategy Rewards Strategy

The consulting industry is connected to every market of the modern economy.
It is a very large industry, employing almost a quarter of all employees in
United States and Western Europe. The US consulting industry includes about
700,000 firms, which has grown over 10 percent annually over the past 25
years and generates over $1 trillion in global revenues. The Consulting
industry plays a large role in the global economy. The consulting industry is
part of the overall professional service industry which is going through
changes. The larger professional services industry has many segments. These
segments include IT services, legal services, and architectural and engineering
services and many more. Accounting and consulting produce around 15% of
the Consulting industry revenue.
There are several major characteristics of the consulting industry which
includes both low and high barriers to entry. With regards to barriers to entry,
many sectors within the larger professional services industry (legal,
accounting, engineering, etc.) require special subject matter expertise which
most of the times come with many years of experience and higher educational
levels along with licensing and training. Other segments of the industry (such
as general business strategy consulting) can be entered by “hanging up a
single” on the mailbox.
The industry is also predominately self-regulating, specially with regards to
high standards of ethics. Consulting advice is necessary for the normal
functioning of most companies. The profitability of individual firms depends
on having a regular flow of projects. Small firms can compete successfully by
offering special expertise or focusing on particular regions. Large firms have
advantages in marketing and in being able to offer wider ranges of services to
meet the needs of major clients.
Grahall Consulting Partners is a consulting organization whose partners have
provided consulting services to close to 50 consulting firms over the last 25
years of our consulting. There are 50 designated consulting partners who
provide services to around 100 consulting firms nation wide. What sets us
apart from other firms is that we have developed a robust concept of
analyzing the industry, starting with the environment and key stakeholders,
the business strategies, people strategies, the reward strategies, organizational
development and talent management strategies.
Grahall Consulting Partners is qualified to report on the consulting industry as a
result both our clients in the industry and of our range of services which covers
concept to detailed operating, reward and employment agreements. Not only do
we work with the details, but we also have the ability to look at the bigger picture
and think strategically. As with large consulting firms who standardize their
services and products into transaction, we go beyond just meeting the client’s
needs by advising the client how the industry is going to change over the next 10
years.
We know first hand what consulting firms are like and how they are managed.
The consulting industry is changing, since the “high IQ” people are not willing to
accept 20 or 30 percent of the revenues they generate, consulting firms are
struggling to come up with programs to attract, retain and motivate these
individuals. As with other industries, since the internet leveled the playing field
over the last decade, a similar “breaking off” of the high reputational capital
people in the consulting industry has been taking place. Replacing the benefits
and costs of a parent company’s corporate staff has never been easier.
Grahall Partners has managed and consulted to a large segment of the consulting
industry over the last 25 years and is well positioned to provide value added
management consulting advice.
We hope this report will be a useful starting point as you address human capital
and reward practices for 2014 and beyond.
Background
Introduction to Grahall Consulting Partners – “The Consultants Consultant”

Background
Research Report Authors
Michael Dennis Graham
Michael is a Consultant with the Grahall Consulting
Partners, LLC a unit of Grahall Group of Companies. He
is a consultant to boards of directors, their compensation
committees, and members of company management
(including CEOs, COOs, CFOs, CHROs and GCs). He
specializes in all aspects of people strategy, organization
design, executive compensation, including stock-based
compensation, short-term and long-term cash incentive/retention
compensation, and executive employment arrangements.
Prior to joining the firm, he worked as a Consultant and Practice
Director with four major Human Resources Consulting Firms (Andersen
Worldwide, Hay Group, Towers Perrin and Watson Wyatt Worldwide)
and has led engagement teams in over 300 different organizations in the
past 25 plus years. He specializes in advising organizations in the
financial and professional services industry.
Prior to his consulting employment, in industry he was Worldwide
Director of Compensation & Benefits for both Albany International
Corporation and Bausch and Lomb for a total of 10 years.
Mr. Graham is a frequent speaker on such topics as total rewards
strategy, people strategy, organization design and retaining key talent
with unique incentive programs. Recently, he co-authored the books
“Creating a Total Reward Strategy,” and “Effective Executive
Compensation – Creating an Executive Total Reward Strategy both
published by AMACOM, and is currently writing an additional Two
books: “Creating a Board of Directors Total Reward Strategy”, and
“People and Reward Strategy in Alternative Asset Management Firms”.
He can be reached by email at michael.graham@grahall.com or phone at
(917) 453 4341.
Ali Riyaz
Ali Riyaz currently works in the Compensation
Department JetBlue Airways. He advises in all
compensation related matters which include market
pricing, performance management and executive
compensation and compensation philosophy design and
implementation.
Prior to joining JetBlue Airways, He worked at as a consultant with
Grahall Partners, LLC. He consulted in the area of executive compensation,
proxy analysis, job evaluation, merit increase analysis, equity plan design
and administration, pay structure design and recommendation, market
pricing, custom survey design and administration, performance
management, aligning organization’s compensation strategy to advance its
business strategy. He also provided consulting services to a wide array of
privately-held and public companies.
Prior to joining Grahall Partners, LLC, he worked as a compensation
consultant at WebMD, advising on matters which relate to bonus buyout,
job consolidation resulting from M&A activity and executive market
pricing.
Prior to consulting at WebMD, he has worked as an executive
compensation manager at Cablevision Systems Corporation, where his
focus was executive compensation total rewards design and equity
administration.
Mr. Riyaz has over 8 years of experience in the compensation field. Ali has
received a Bachelor degree in Banking & Finance from Hofstra University.
He can be reached by email at ali.riyaz@grahall.com or phone at (646) 287-
6417.

Methodology
Survey Participation: Only certain firms were invited to participate in the research
study.
Survey Cycle: Data was collected from April 2014 through August 2014. Base
salary amounts were reported as of April 1, 2014. Cash bonus amounts were
reported for performance year 2013 but paid in 2014.
Source of Data: Data was complied from the Grahall Annual Consulting Survey,
client files and publically available information.
Data validity: The competitive levels of pay were also checked by creating
economic models of the various consulting firms at the different stages of
development and matching that to our consulting experience with our clients.
Confidentiality
Two members of Grahall Consulting Partners were exclusively responsible for the
review and analysis of the information
Client and Participant data was summarized by Grahall in a manner that insures
the confidentiality for clients and participants
This report includes a partial participant list. The level of confidentiality requested
by the over 100 participants and clients makes the inclusion of a complete
participant list not feasible.
Report Format
Information and Data in the report is typically provided in charts or tables with
accompanying commentary
The order of the findings in the report roughly parallels the order of the questions in
the data collection template; however:
In some instances we changed the sequence of the questions to improve the flow
of findings provided in this report; and,
Based on our review of participant responses, and also to improve the flow of the
findings in this report we have organized the report to be consistent with the
Grahall Conceptual Diagram shown in the beginning of this report.
Research Study Data
Performance data for this report was obtained in part from public sources and
leading independent providers of consulting performance statistics and Grahall
client files.
Study Demographics by Distribution. Compensation information was collected on a
managed sample that accurately reflects a significant portion of the Consulting in
the United States. We started with an invited population of over 300 Consulting
firms with revenues covering the entire range of firms ($5 million to $20 billion).
The following pages provide additional details regarding the studied positions,
architecture, and components of rewards included in this study as well as
demographic characteristics of the managed sample.
Background
Research Study and Survey Methodology

Background
The Current State of Consulting
The largest consulting firms are much larger today than they’ve ever
been in the past. We currently estimate the industry to be nearly a $1
trillion dollar industry. Today there are around 70,000 consulting firms
in US alone.
Consulting firms have evolved from their beginnings as a cottage
industry and in some cases they’re even competing with and becoming
large public companies.
It’s interesting because Consulting has turned into this massive industry
that is growing larger and larger every day and yet more and more are
closing down as well. It’s really a modern day survival of the fittest.
This is no longer the case in a lot of our mature industries. Instead of
being survival of the fittest, they’re the survival of the biggest. The
wonderful thing about this historic cottage industry is that it will go
through a self-cleaning process at a rate similar to a self-cleaning oven.
The heat will crank up so fast that the most talented people will win and
the less talented people will lose. It’s a complete meritocracy. If you
believe in the principle of absolute pay for performance, then you
should be standing on the sidelines applauding.
We frankly like the state of this industry, the best advisors rise to the top
of the competitive ranks and the rewards are considerable. The best
individuals have become a great commodity and in some cases almost
rock stars of industry. Some of them come from industry (Jack Welch),
some from academia (Michael Porter) and some from government
(Rudy Giuliani).

Background
The Future Evolution of Consulting
There are several predictions about the future trends of consulting that we feel are
fairly obvious. Although it’s impossible to predict the future, it isn’t entirely
impossible to predict the probable. There is a saying, “The future is happening
somewhere now.” It may not be happening geographically where you are, it may not
be happening in the industry that you’re in, but if you can see what is going on
around you and translate that to what you’re doing, that is your future. Using this
theory, in order to predict the probable future of consulting one must understand the
worlds massive need for advice that is action oriented.
You can look through history and see the great advisors of the world. The
Machiavellian's of the world were brilliant when giving advice. Did they do great
things? Yes. Did they do good things? Not always. For the good or the bad, for all
their strengths and weaknesses, one of the things they have had in common is that
they all had the masterful ability to take what was available to them and create
extraordinary insights from it.
While the consulting industry will undoubtedly continue to grow larger, the
consolidation of firms among the top performing firms will also be a consistent trend.
Enormous amounts of consulting revenue will continue to be given to a very small
group of people who are the very best at what they do. We will see two inevitable
results from this size and consolidation phenomenon. First, the industry will
continue to fracture itself in its quest to attract and retain the very best talent while
providing the very best advice and second, we will see some of the larger consulting
firms make a move towards “institutionalization”. These institutions will create a
“consulting as mass production” effect where the institutions are more important than
the individuals.
The fact is that many problems are capable of being “mass solutioned” since they are
in fact solvable by rote. Others are as different as the galaxies are from each other and
will require the application of unique solutions. We all hope to understand the
difference.

Firm Size by Number of EmployeesStudy Participants by Firm Size Firm Size by Maturity
Background
Profile of Research Study Participants
Revenues in
$Millions
Pct
25 33%
50 24%
100 17%
200 9%
400 6%
800 5%
1600 4%
3200 4%
6400 3%
12800 1%>
The “short-hand” references above – for Revenues are midpoints of our bracket definitions for size and the maturity definitions (start-up,
emerging, growth, established and mature) for identification of the stage of the Consulting are used repeatedly in this survey. They are defined in
the separate chapters.
Revenues
in $Millions
Average #
of Employees
Pct
25 75 30%
50 200 25%
100 500 15%
200 1000 11%
400 2500 6%
800 5000 5%
1600 10,000 4%
3200 11,500 3%
6400 15,000 2%
12800 40,000 1%
Maturity
Average
Age
Pct
Start Up 1 year 4%
Emerging 2 years 22%
Growth 4 years 5%
Established 6 years 14%
Mature 10years 55%

Background
Organizations in This Report
Abt Associates
Advocates for Human Potential
American Institutes for Research
Aon Corporation
ARIBA INC
CARANA Corporation
CBIZ, Inc.
Chemonics International
CNA Analysis & Solutions
Cognizant Technology Solutions Corporation
Computer Sciences Corporation
CRA International, Inc.
Development Alternatives, Inc.
Dynamics Research Corporation
Education Development Center, Inc.
ExlService Holdings, Inc.
Forrester Research, Inc.
Fortress International Group, Inc.
Franklin Covey Co.
FTI Consulting, Inc.
Gartner, Inc.
GP Strategies Corporation
GSI Commerce, Inc.
Half Robert International Inc.
Harte-Hanks, Inc.
Huron Consulting Group Inc.
ICF International, Inc.
Industrial Economics Inc.
Ingenix
Iridium Communications Inc.
Kenexa Corporation
LECG Corporation
Management Sciences for Health, Inc.
Marsh & McLennan Companies, Inc.
Mastech Holdings, Inc.
MAXIMUS, Inc.
MDRC
Navigant Consulting, Inc.
New England Research Institutes
NIC Inc.
Pathfinder International
PDI, Inc.
Program for Appropriate Technology in Health
Public / Private Ventures
RAND Corporation
Resolve Staffing, Inc.
SAIC, Inc.
Sapient Corporation
ServiceSource International, Inc.
Syntel, Inc.
TeleTech Holdings, Inc.
The Advisory Board Company
The Corporate Executive Board Company
The Hackett Group, Inc.
The Management Network Group, Inc.
Towers Watson & Co.
Web.com Group, Inc.
Winrock International

Part II. The Environment & Key Stakeholders
PART I:
BACKGROUND
PART II:
THE ENVIRONMENT
& KEY STAKEHOLDERS
PART III:
BUSINESS
STRATEGIES
PART IV:
PEOPLE
STRATEGIES
PART V:
REWARD
STRATEGIES
PART VI:
REWARD
ARCHITECTURES &
COMPONENTS
PART VII:
COMPETITIVE
PAY LEVEL
Consulting
Industry Study

The Environment & Key Stakeholders
Business Environmental Impacts
It’s time to talk about the individuals and organizations that have influence over the
consulting world and how these organizations approach their unique human capital and
rewards needs.
There is a common misconception that consulting firms are floating out there in “space”
like untouchable aliens that are hell-bent on taking over the world. There are people and
organizations that have the ability to impact consulting industry. In this part of the report
we will identify and discuss these various influences. They are the general public,
government legislators, and several government regulatory bodies.
A lot of concern has been voiced in the media, financial world, and even the legal system
about the consulting industry. In particular the role some firms have had in facilitating
insider trading.
Barriers to entry into the consulting profession are few and far between, the only real
requirement is that you need more experience than your client. You do not have to belong
to any group like CFA or CPA or the Bar Association.
The expert networks which have become pervasive only require that you apply and
become accepted to the network. Anyone can call you with questions. What has been
happening, according to the litigation which has come to light from the SEC is that some
of these individuals have provided inside or non-public information to asset management
firms such as hedge funds who have asked about specific companies and their plans
which has allowed them to effectively trade using the information from these expert
network. These issues provide valid concern for the industry, regardless of the fact that
they are not new issues.

Maturity of Organization
75% of organizations who responded to the
questionnaire indicated that they are
already mature, while 25% indicated they
are developing or emerging.
Maturity of Industry
90% of organizations indicated that the
industry in which they operate is either
somewhat, moderately, or entirely mature
while 10% indicated their industry is
relatively young.
Why does it matter? Companies must
adjust their business, people, and rewards
strategy based on their overall relationship
to their environment, which includes
company and industry maturity as well as
the other factors addressed on the
following pages.

22% of firms in our study claimed they are
either not regulated or slightly regulated.
37% claim they are heavily regulated. 41%
claim they are moderately or significantly
regulated.
Government Regulations
Significantly
regulated
19%
Regulation-free
10%
Heavily regulated
37%
Moderately
regulated
22%
Slightly regulated
12%
We agree that there is certainly a range of government regulation. All firms are
regulated in certain areas such as employment safety. It is the industry specific
regulations that separate airlines from pharmaceuticals to light manufacturing, which
have a significant impact on reward strategy alignment.
Government Regulations

Partners
The partner or partners of a Consulting are the people who actually own
a piece of the equity of the firm. Usually they have taken the greatest
risk because they are the ones who left wherever they were and entered
into this highly leveraged working world. One thing to keep in mind
about leverage is that it has an upside and a downside. When you fail,
you lose hard. The partners are the ones who took the risk to establish it
and obviously they have to please their investors to stay in business, but
we think that the most important stakeholders in a Consulting are
arguably the people that run it.
In terms of stakeholders, the way that a partnership is designed
determines the way the reward strategy is designed. This is very often
where partners miss the ball. We’ve had some small firms hire us to
avoid the mistakes, but most typically we get called when something is
broken.
Partners have a great deal to do with the way the people and reward
strategies are designed and executed. Historically we have seen more
success when there is a strong partner that owns a controlling interest.
We have also experienced significant difficulties when there is a diluted
ownership. We can’t ascribe an absolute to this phenomenon but we
liken it to the governance of the United States. We forgo certain liberties
when the country is at war by electing a Commander in Chief since it
was apparently believed that running a war can’t be executed by way of
a democracy. Consulting are in a constant state of war so we have come
to believe that a strong central authority is more likely to be successful
then a diluted group of partners.
One of the solutions to the partnership issue of channeling the rewards
to those that create the value is the development of non-voting shares.
As can be seen in the following slides the development of non-voting
shares is becoming more and more common among our clients.
There are also downsides to becoming a partner. As can be seen in the
slide on personal capital commitment. It is generally expected in over
70% of the organizations for partners to commit either always (56%) or
sometimes (15%) some personal capital to the firms they manage.
Clearly investors get a different feeling when there is partner skin in the
game.
The Impact of Key Stakeholders

Partners & Firm Ownership
While most firms are currently owned by the managing partner or more
widely owned by other partners some organizations (private equity)
and non-partner owners have become a unique class of stakeholders in
their own way. Generally this arrangement is beneficial for both the
sponsors and the consulting professionals.
So how are most firms owned? Currently most firms are owned by the
management and employees, but 18% are owned by either outside
investors or other individuals or entities
• 82% of participant firms are wholly-owned by management and
employees.
• Typically the larger firms are either owned by the public or are
still owned by the founders or key partners. The smaller firms
are owned by the insiders.
• Response percentages by maturity or firms who responded being
“wholly-owned” are as follows:
• Almost 90% of start-up firms are classified as wholly-owned
which we think this reflects the fact that this is an industry
where “founders are still the funders” of new consulting
firms.
• 88% of growth firms are classified as wholly- owned.
• 82% of mature firms are classified as wholly-owned.
Firm Ownership
82%
14%
4%
Wholly-owned:100% owned by management/employees
Minority Owned by Outside Investors
Other

Ownership / Stockholders
48% of firms in our study indicated that
they are somewhat or tightly controlled.
Another 10% indicated moderate control,
and 42% indicated somewhat or widely
held control by ownership.
Which ownership structure gives you the
most flexibility? Hard to say according to
the chart below. Whether you’re private,
public, non-profit, or other, you have
someone to answer to...
Customers
47% of sampled firms have many
customers. 38% indicated a mixed or open
customer concentration, while 15%
indicated a limited number of customers.
The general rule? The fewer customers
you have, the more influence they have
over you!
Ownership/Stockholders
Somewhat tightly
controlled
17%
Widely held
ownership
28%
Tightly controlled
31%
Moderately
controlled
10%
Somewhat widely
held
14%
Customers
Significant
customer
consolidation
11%
Many customers
47%
Few customers
4%
Mixed customer
concentration
19%
Generally open
customer base
19%

Employees
Employees are everyone employed by a consulting firm including partners. Employees are
stakeholders to the extent that they earn their living working for the firm. They get their
money, benefits etc from the firm. They are a stakeholder in the same way that anyone is a
stakeholder in the companies that they work for.
It’s important to note that employees within a consulting firm become of greater importance
as the firm matures. In a start-up 5-person consulting firm, the managing partner typically
knows everything about everything. However, as the firm grows to the point that it has 20 or
25 employees, it becomes increasingly important that transactional paperwork is done
correctly so that operationally all their ducks are in a row. Clients, suppliers, and partners
and sometimes investors need assurance that a firm has operational integrity. In this manner,
as a firm grows, its employees become a more important constituency.
As they become a more important source of competitive advantage there are positives and
negatives. The current status of employment for this group of significantly talented
individuals is to both become “restricted agents” then ultimately partners. Somewhere along
the way we often have a pick up requirements to become a partner or pseudo-partner and
invest in the firm as can be seen in the following slides.
The more specialized the employees are the more influence they can have the determining
the way the organization will be operated. Which services will be offered and which clients
will be serviced. They often can become very involved in the internal management of the
firm.

Employees
Mixed
47%
Generally
unspecialized
15%
Significantly
specialized
29%
Highly specialized
9%
Employees
38% of respondents indicated their
employee base is highly specialized. 47%
had a mixed reaction, and 15% indicated
that their employee base is not specialized.
We believe that larger and larger firms
have a full complement of highly
specialized employees but also have a
significant number of process controlled
employees involved in outsourcing roles.
Ready for a double whammy? The degree
of specialization at your firm not only
indicates how much control those
employees have over the firm, but affects
how, and how much, you pay them.

Part III. Business Strategies
PART I:
BACKGROUND
PART II:
THE ENVIRONMENT
& KEY STAKEHOLDERS
PART III:
BUSINESS
STRATEGIES
PART IV:
PEOPLE
STRATEGIES
PART V:
REWARD
STRATEGIES
PART VI:
REWARD
ARCHITECTURES &
COMPONENTS
PART VII:
COMPETITIVE
PAY LEVEL
Consulting
Industry Study

The business model or business strategy approach chosen by any
particular consulting firm is very much a function of the history of the
firm, and the history of its founders
In addition to the environmental and stakeholder factors outlined in the
early portions of this research study the factors that we believe
contribute to the definition of the maturity stage of the typical
consulting firm are too many to list exhaustively, however the following
are some of the most important factors:
• Growth and size of revenues, employees, and locations
• General, value chain and specific business strategies
• The vision, mission and values of the firm
• General people strategies, including organization structure,
organizational processes, and culture
While all of the above factors contribute to the general framework for
the business strategy, the specific framework is driven by the historic
success of the organization, its current consulting strategy, and
principally by the key individuals managing the firm – their
backgrounds, and their beliefs and preferences in people strategies and
reward program design.
There are three general business strategies (GBS) most Consulting can be
sorted into. Those three strategies can be described as follows:
• Cost based – where the firm is offering reduced fees or exit rights in
return for investible assets. This is more typical of institutional, firm
of firms or small start up firms then it is of established firms.
• Differential – where the firm is setting itself out as having a
uniquely effective strategy or approach to creating value. The
majority of firms can be classified in this category
• Focused – where the firm is focusing on a specific set of investors
such as extremely wealthy individuals with long term horizons,
pension firms, or particular geographic investors
In addition to the general business strategy (GBS) most firms also have a
value chain strategy (VCS). The value chain strategy is simply a
determination of where the firm decides it will add competitive
advantage value. The following list is an example of a series of value
chain elements:
• Consulting Philosophy
• Idea Generation
• Service Line Portfolio Construction
• Marketing, Sales and Customer Service
• Service and Product Quality Control
• Self-Assessment and Change Management
• Stakeholders Relations
Last but certainly not least there is always a specific consulting strategy
(SIS). These strategies generally take the form of a type of consulting and
a set of “special insights”. These consulting strategies are too many to
outline in a research study such as this but are the products/results of
combinations of man , machine, and process at a level of sophistication
that few can really comprehend.
Business Strategies
An Overview

Business Strategies
The Different Types of Consulting Classification Points
Business Strategies
General Business Strategy is a strategy that is a function of a long (10 year) horizon. Consulting
firms are not that different from other companies. There are some that are cost based, least
expensive providers, large portion of their staff located in China or India. Outsourcers are
typically cost based firms. Some small consulting firms often compete on price. The majority of
the consulting firms in the study are competing based on differentiation of the service they
provide. This service is advice. Since the advice comes from the staff it is really differentiating
based on the firms people.
Stand-Alone Single Service Consulting vs.
Institutional Multi Service Consulting Firms
Speaking about definition alone, the main difference between a stand-alone consulting firms
and an institutional consulting firms has to do with the breadth of services and ownership.
Stand-alone consulting firms are normally focused on a single service or industry and are
independently or privately owned firm. They are not public companies and therefore do not
have shareholders. In contrast, large multi-service institutional consulting firms provide a full
range of services to many industries and are typically public companies.
Ownership isn’t the only difference between a stand-alone firm and an institutional firm, it’s
just the starting point that all of the other differences stem from.

This section contains seven classifications that will help you to
more accurately identify whether or not a particular consulting firm
is what you are searching for. Each of these characteristics is
highly impactful to the business, people and reward strategies.
Ownership. This is as straight forward as it sounds. Who owns the
consulting firm? Who are the people at the top making the decisions? Is
this a single owner, multiple owners or even outside owners? If it’s a
stand-alone, who are the partners and what do their track records look
like? Ultimately, you really want to know who will be running the firm
you will be getting advice from.
Size. The size of a consulting firm is measured by revenues, consultants,
number of services, geographic capacity and many more characteristics.
This is an important aspect to consider because the size of the firm has a
direct impact on the short-term incentive and long-term equity portions
of the total reward package. Also, how large the firm is will most likely
determine how much freedom the consultants have to operate.
Age and Track Record. How long has the consulting firm been in
business can impact the sophistication of the organization, its people
strategies and the reward program. The larger and more mature the
firm, the more equity (or phantom equity) is typically shared with key
individuals. If a firm has been around for a while, then you’ll have
more of a track record indicating how it has performed over time.
Consulting Style. There is a strong correlation between the type of
consulting style (process, time based or functional and the ability to
successfully advice on different concerns for clients.
Location. The number of locations and the location of the parent
organization influences both the people and reward levels and the
approach to talent. For example, American firms tend to have more
programmatic turnover and pay higher while European firms have less
turnover and pay lower than American firms and award less equity.
Cornerstone Clients. The existence of one or more “cornerstone”
clients has resulted in higher fixed and less variable compensation, as
well as higher rewards overall for the top principals and lower
compensation for the analysts. Our hypothesis for this reward model
modification is that with some level of guaranteed income reduces the
requirements on the firm to market, sell and provide customer service.
The lack of expense for resources for these functions is captured in the
form of higher base salaries for the top people. In addition, the firm is
less risky as an organization. Also, firms fitting this profile are probably
larger and capable of hiring analysts at a lower overall level—the larger
the firm the less important the loss of a single analyst will be.
How Much Money Do The Owners Have In The firm? If the owners of
the firm have large portions of their own money invested in the firm as
shareholders, this often offers a higher level of long-term thinking and
can be a significant benefit to their clients. It offers peace of mind that
the consulting services offered will be at the very least, prudent.
Business Strategies
The Different Types of Consulting Classification Points

Business Strategies
General Business Strategy
Over half of the sampled firms in our study
indicated Differentiation as their general
business strategy. One third indicated a Focus
based approach, while another one-fifth
indicated a Cost based approach.
We asked management to discuss the degree to
which they thought they would need to change
the fundamental business strategy which we
call “General Business Strategy.”
The news here is that this “GBS” will not
change in the next three years, and in fact, we
wouldn’t expect organizations to change their
commitment to their basic long-term general
business strategy. It would be unlikely for a
cost based organization like Wal-Mart to
decide to become a differentiation based
strategist like Saks Fifth Avenue.
Section III - Question 1
What best describes your organization's general business strategy?
(multiple answers allowed)
18%
55%
36%
6%
17%
56%
31%
6%
0%
10%
20%
30%
40%
50%
60%
Overall Cost Leadership Differentiation Focus Other
%ofSurveyRespondents
Today
In the Next Three Years
1
17%
2
33%
3
50%
Number of future strategies per
company

Business Strategies
Value Chain Strategy
When responding to the questionnaire, 20% of
sampled firms indicated that the design and/or
engineering was a key part of their value chain.
Marketing and sales was critical to
approximately 30%. Generally, companies
considered customer service, the quality of
their product, and their human capital to be the
most important link in the value chain.
The results suggest that firms are willing to
invest over the next three years to create
competitive advantage in customer service,
human capital, and information technology.

Business Strategies
Specific Business Strategy
Over 60% of respondents placed emphasis on
growing market share and building better
relationships. 40% of respondents were about
improving existing processes or products such as
optimizing margins, and expanding operations.
20% of respondents included growing through
various means such as acquisitions or by increasing
distribution. Less than 10% indicated cost
improvements such as sales force reductions or the
optimization of margins will be specific strategy,
now or in the future.
What best describes your organization's specific business strategy?
10%
9% 9%
10%
8%
35%
28%
64%
40%
19%
40%
18%
42%
5%
3%
16%
45%
60%
26% 26% 26%
9%
17%
24%
1%
39%
6%
5%
9%
16%
19%
45%
28%
16%
23%
16%
15%
38%
49%
6%
8%
28% 28%
3%
32%
18%
16%
0%
10%
20%
30%
40%
50%
60%
70%
G
row
through
m
erger
G
row
m
arketshare
R
etain
m
arketshare
Increase
profitregardless
ofm
arketshare
P
rice
to
acquire
m
arket
O
ptim
ize
m
argins
H
old
price/m
argin
P
roductdevelopm
entcycle
tim
e
reduction
E
xpand
operations
geographically
E
xpand
sales
force
E
xpand
distribution
D
ifferentiate
products/services
D
ecrease
production
capacity
R
educe
sales
force
O
ptim
ize
value
chain
G
row
from
w
ithin
Increase
cash
flow
B
uild
bettercustom
errelationships
U
se
jointventures
M
anage
costs
through
reengineering
B
ecom
e
m
ore
global
B
etterm
anage
response
to
supply/dem
and
cycles
S
ix
sigm
a
quality
im
provem
ent
O
ther
Historically
In the Next 3 Years

Business Strategies
Organization Critical Capabilities
Customers
When asked to identify organization
critical capabilities, over half of the
sampled firms indicated that
improving the customer’s overall
experience is high on the list. The
same firms indicated increased
emphasis on those same capabilities
over the next three years (from
approximately 50% to 75%).
What best describes your organization's critical capabilities?
Customer Capabilities
68%
56%
52%
38%
6%
65%
76%
70%
47%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Acquire new customers Build better customer
relationships
Match services to
customer needs
Solve more problems for
the same customers
Other
Today
Critical to Succeed in the Next 3 Years

Business Strategies
Products / Services
Nearly 50% of sampled firms
indicated a need to improve
or innovate their products &
services rather than bringing a
new product or service to
market.
Companies are constantly
seeking to improve their
critical capabilities for a
variety of reasons, not least of
which is to keep up with an
increasingly competitive field.
Products and Services
74%
41%
55%
45%
30%
1%
83%
63%
65%
3%
48%
66%
48%
57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Provide excellent
customer service
Create innovative
products/services
Continuously
improve
products/services
Acquire/implement
new technology
Create and build
brand identity
Bring new products
and services to the
market
Other
Today

Business Strategies
Management
When asked to identify the most important
organization critical capabilities regarding
management, the majority of sampled firms
indicated a need to improve the effectiveness of the
organization by managing their existing capabilities,
including those related to internal growth, profit,
and internal resources.
A fewer percentage of firms indicated a need to
manage outside relationships and processes,
including entering new markets and executing
strategic alliances.
Management beware! There is a great need for
improvement of management organization
capabilities between today and the future.Section III - Question 4
Management
25%
30%
2%
51%
72%
60%
49%
66%
43%
49%
58%
44%
5%
52%
41%
36%
55%
38%
33%
47%
41%
43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Create insight
into
competitive
strategies
Manage for
growth
Manage for
profit
Negotiate and
execute
strategic
alliances
Maximize the
effectiveness
of the
organization
Execute
mergers,
acquisitions or
joint ventures
Leverage core
competencies
Enter new
markets
successfully
Effective
resource
deployment
Organize
around
customer
requirements
Other
Today

Business Strategies
People
Across all industries, 78% of firms indicated that the
ability to attract and retain employees is the most
important critical capability in their people strategy.
Accordingly, the ability to create employee
commitment and train the workforce were high on
the list of critical capabilities.
Fewer than 30% of firms indicated a need to achieve
the capacity for change or to develop a global
organization.
While we agree that attracting and retaining key
employees, training them, and getting them to
“buy-in” to the company’s success is important,
firms in this study are missing the boat when it
comes to preparing their people for an ever-
changing environment.
The big changes are in training / developing the
workforce (a part of Total Rewards in our mind)
and creating a capacity to change are going to
become more important in the future.

Business Strategies
Technology
Applying technology as a critical capability will be
important to almost 78% of the organizations in the
future; up from 43% in the past.
Managing intellectual capital will become more
important to more organizations.
We believe intellectual capital will be one of the
sources of continuing success and competitive
advantage in the future.

Consulting Philosophy1
a) Idea Sourcing
2
b) Service Line
Development
3
c) Value Proposition
4
Service Line Portfolio
Construction
Marketing, Sales & Client
Service
Quality Control5
Assessment and Change
Management
7
Intellectual Capital Generation
a) Development
b) Deployment
Are the consulting services and products designed to produce superior gains for clients and
effective returns for the firm?
Is there evidence that superior competitive advantage value is achieved while maintaining:
• High quality relative to major competitors, and
• High firm operating margins
Are there specific objectives that are defined for each service or consulting practice?
Is the consulting philosophy as described particularly unique relative to the universe of
competitive consulting firms?
Are the specifics on how (i.e., consulting process) and where (i.e., consulting strategies) the
consulting adds unique competitive advantage value which either are or can be identified or
defined?
Does the firm provide more value than its competitors on consulting services (e.g., strategy,
operations, information, human capital, merger & acquisition)?
Stakeholder Relations
6
Evaluation of Value Chain Strategy (VCS) at the consulting philosophy step can be
determined by asking some of the following questions:
Business Strategies
Consulting Philosophy

a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Marketing, Sales and Client
Service
Quality Control5
Management6
a) Development
b) Deployment
Value Chain Strategy at the intellectual capital generation step can be determined by asking
some of the following questions:
Does the potential consulting service effectively leverage its relationships with other consulting
services, managers, partners, and clients to identify new and upcoming service line opportunities?
Does the potential consulting service use a combination of quantitative and qualitative factors for
screening consulting opportunities, e.g.,
• Quantitative: Is there a likelihood of generating a minimum size of $10million and will the
intellectual capital provide a minimum competitive advantage for at least 2-3 years?
• Qualitative: Is the intellectual capital unique and differentiating and is there a high level of
consulting process?
Does the firm use a detailed and robust framework to evaluate and rank the idea sourcing, service line
development and constantly create value propositions across a broad set of criteria (e.g., consulting
process, problem resolution, and is there an opportunity to cooperate with client value chains and
different points in the clients hierarchy (client principals, middle management, and client customers)?
Are there consistent evaluations of all proposed intellectual capital and are the ideas continually
updated and reviewed by a senior management committee?
How unique and through is the firm’s intellectual capital generation and evaluation process?
In particular does the consulting firm conduct an extensive quantitative analysis at an individual by
individual service line and client by client level that only a select number of firms are able to do?
Does the firm have strong industry reputation for thorough evaluation?
Has the firm dedicated substantial resources toward intellectual capital cataloguing in terms of:
• Number, experience, and depth of intellectual capital and consulting teams?
• Heavy investments into the development of sophisticated proprietary analytical tools?
How is the firm looking at the future? Does it have a good reconnaissance, interpretation and
management of change function with regard to its intellectual capital?Stakeholder Relations7
Business Strategies

a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Sales, Marketing and Client
Service
Quality Control5
Self-Assessment6
a) Development
b) Deployment
Value Chain Strategy at the service line portfolio construction step can be determined by
asking some of the following questions:
Does the firm use quantitative analysis, industry experience and judgment in making its
annual strategic allocation decisions on its consulting portfolio?
Does the firm provide extensive analysis which is used periodically to review its strategic
portfolio of services and adjusted accordingly to maintain overall service, practice, product
and individual firm manager performance objectives?
Are firm decisions for including or removing service lines, practices, geographies, or firm
managers from the strategy or firm based upon the following:
• Quality of the service
• Need for the geography or location
• Skill of the managers based on a through performance review
• Fit with services and or managers currently in the practice to achieve consulting
objectives?
Does the consulting service line or practice incorporate margin budgeting tools in making its
consulting decisions to maintain performance and margin targets?
Is the firm’s detailed periodic review of overall strategy and individual consultants impact on
service line performance and objectives is relatively unique among firms?
How is the firm looking forward to the future with respect to services line and practice
construction?
Shareholder Relations7
Business Strategies
Service Line Portfolio Construction

a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Service
Quality Control5
management6
a) Development
b) Deployment
Value Chain Strategy at the marketing, sales and client service step can be determined by
How does the firm enter the various industries, geographies, client sizes and other marketing
initiatives?
Does it take small initial positions with selected prospects, clients, industries, etc. and
gradually increase marketing and sales efforts until predetermined consulting levels are
reached or markets penetrated?
Prior to the beginning of a marketing or sales effort, does the firm evaluate its potential and
long run opportunity to determine current and future marketing spend verses firm and
consulting capacity and the potential level of profitability?
Is the firm cautious in its approach to investing in new marketing or sales campaigns and
sales or client relationship managers?
Is the size of the firm’s intellectual capital generation sufficient to maintain a high level of
growth in revenues and to attract both clients and consultants to ensure that the firm will
continually be important to clients?
Are there planned future developments in delivery of services to clients enough to remain
both state of the art and important to all classes of clients?
Stakeholder Relations7
Business Strategies
Marketing, Sales and Client Service

a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Service
Quality Control5
Management6
a) Development
b) Deployment
Value Chain Strategy at the quality control step can be determined by asking some of the
following questions:
Are periodic performance reports created using established performance criteria with
clients?
Are reports checked for violations of consulting principles and are managers contacted when
such violations occur?
Do services and consultants get reduced or eliminated when consulting service violations
cannot be sufficiently explained?
Is the overall practice risk continually tested using a robust risk management system?
Are efficient strategy allocations constructed with the use of optimization tools?
Is there is a big gap between the firm and its competitors in regard to the sophistication of
the firm’s risk monitoring infrastructure?
How difficult will it be for other consulting firms to match the amount of resources and
consulting dedicated toward building, maintaining, and improving the risk monitoring
infrastructure the firm has established?
What are the demands the firm has placed on its practice managers and consultants for
reporting and justification of consulting results and as a result inducing the managers and
consultants to be more disciplined in their consulting approached?
In the future, are the quality monitoring efforts even further highlighted as a clear area or
strength and value added within the consulting process and by extension the consulting
philosophy?
Business Strategies
Quality Control

a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Service
Quality Control5
Management6
a) Development
b) Deployment
Value Chain Strategy at the assessment and change management step can be determined by
Does the firm have a informal non-quantitative attribution process in place for evaluation of
sources of value added in the consulting process?
Does the firm assess itself relative to other firms that provide similar services across key
value added areas:
• Intellectual Capital – Is the firm diligent about constantly creating intellectual
capital?
• Service Line Portfolio Construction – Does the firm employ a disciplined
approach to its set of services to clients?
• Quality Control – Is the firma and are the managers/consultants doing as much
or more than other firms to ensure consistent quality?
Does the firm have the ability to diagnose its sources of over and under performance at the
manager and consultant levels?
Is the firm and are the individual managers and consultants doing enough to justify its
sources of value added to clients across other areas of the consulting process (e.g., idea
sourcing and developing a full value proposition)?
Does the firm expect to develop frameworks to quantify value added to clients of process
steps?
Does the firm constantly look to the value of change and use the assessment and change
process to upgrade its service, client partnership level and portfolio of services for the future?
Business Strategies
Assessment and Change Management

7
a) Idea Sourcing
2
b) Service Line
Development
3
4
Construction
Service
Quality Control5
Management
a) Development
b) Deployment
Value Chain Strategy at the stakeholder relations step can be determined by asking some of
the following questions:
Are the stakeholder relations effective at explaining the firms past, current and future keys to
success?
Is the communications superior in terms of evaluating macro and firm based impacts
Is the type of consulting and consulting approach for the firm consistent with its major
stakeholders needs?
Are specific objectives are defined well for all stakeholders (potential clients, current clients,
partners, suppliers, employees and owners?
Is the firm’s consulting philosophy described in a clear and unique manner relative to the
universe of other consulting firms?
Are there clear specifics on how (i.e., consulting process) and where (i.e., consulting
strategies) the consulting firm adds competitive advantage value?
Is there an understanding by all stakeholders for the firms people strategy (i.e. organizational
structure, processes, culture and staffing or talent management)?
Do employees understand the reward strategy?
6
Business Strategies

Phase One – Start Up ($10M to $50M AUM) - Organizational model is
generally a function of the history of the General Partners. To the extent
a single or small group of founding partners establish the Consulting,
the firm is typically simple: it is a direct function of business
requirements.
Phase Two – Emerging ($25M to $500M AUM) - Emerging firms are
generally single strategy firms and normally have one firm and one
consulting team, with possibly a separate trading desk. Also, it is at this
point where the increased AUM requires more differentiation into
specific managerial roles, which in turn generates the need for
alternative forms of compensation vis-à-vis partners and others with
rewards driven by the performance and size of the firm.
Phase three - Growth ($250M to $1B AUM) - The growth phase is
signaled when the firm attracts additional assets based directly on its
track record -- the effectiveness of its past performance, and the
readiness of institutions and firms of Consulting to invest. This
additional and slightly more stable source of firms parallels significant
additional managerial and infrastructure requirements. The result is the
establishment of more specific roles for individuals, and/or additional
staffing of experienced specialists to perform these roles.
Phase four - Established ($500M – $3B AUM) - In Phase Four – at
established Consulting -- we begin to see a greater diversity of
organization designs; some of these designs are very much a function of
how and how quickly the Consulting grew to its present size. To the
extent that the Consulting grew its own talent from within, we see a
more conservative approach to its business strategies.
Phase Five – Mature ($2B to $10B) - These firms are generally
international in scope, diverse or multi-strategy, and have access to
significant resources, while at the same time are subject to all of the
maturity constraints of a much larger institution.
Business Strategies
The Five Phases of Consulting Development
The following outlines a general classification for Consulting business models that impact people and reward strategies based on size
and sophistication.
These (size and sophistication) are not the only factors impacting people and reward strategies (people and rewards). The usual
general, value chain and specific business strategies are also of a critical nature when it comes to determining success or failure of the
organization.

Business Strategies
Alternative Organizational Business Models for Consulting Firms
Tier 2 FirmsTier 1 Firms Tier 3 Firms
“Same roof but unrelated”
– These firms share have multiple
practices in shared office space, a
common firm name and little else
– In many cases the non-consulting
functions are fully or partially
outsourced
– There may be some shared expenses
but there is little true synergy except
that the firms may have a
complementary consulting strategies
“Shared platform” but un-integrated
consulting methods & processes
• These firms share all platform costs
(information technology, operations,
marketing, finance, human resources,
and legal)
• Typically they are not coordinated
consulting strategies nor do they share
any consulting research, risk
management, or consulting processes
“Fully integrated businesses”
– These firms have a core vision,
mission and set of values
– Share the operating and consulting
platforms
– Market and Deliver in tandem to create
multiple influences within their target
set of clients

Business Strategies
Tier 2 FirmsTier 1 Firms
Consulting firms in “tier 1” – (Same roof but
unrelated) have the following people strategy
characteristics and directly related reward
programs:
People Strategy Characteristics
Since very little integration is required by the
business model except to pay for the “shared
services costs” the degree of commonality in
people strategy is minimal
All hiring and termination decisions are a practice
managers decision, employees are considered
“contract” employees and may even be given one
year contracts
Reward strategy characteristics
The salaries and annual incentive compensation
is firm related and negotiated between the firm
manager and the individuals
The distribution of the incentive is based on the
practice managers discretion
The practice teams incentive is normally 100%
discretionary
Implications
There is very little equity value in the firm since
the parts are in fact equal to the whole plus a
small amount (1+1=2.1)
Since there is very little equity value the
ownership is a function of the equity ownership
and the small additional “firm” annual profit is
distributed based on the share ownership
Consulting firms in Tier 2 firms – “Shared platform” but un-integrated consulting methods & processes
have the following people strategy characteristics and directly related reward programs:
People strategy characteristics
The platform is integrated and typically to some degree inside the organization (rather than outsourced)
Since integration is required by the business model for the platform but not the consulting processes
there is common organizational approaches for the platform people but not the consulting professionals
All hiring and termination decisions are still a practice managers decision with respect to consulting
professionals
Staff or platform employees are considered organizational employees
Reward strategy characteristics
The salaries and annual incentive compensation is firm related and negotiated between the firm
manager and the individuals
The distribution of the incentive is based on the practice managers discretion
The practice teams incentive is normally 100% formula
Implications
There is some equity value in the firm since the parts are in fact equal to the whole plus a significant
organizational capability (1+1=2.5)
While there is “firm” value as an ongoing entity there is some equity value and the ownership is a
function of the equity ownership and the additional “firm” annual profit is distributed based on the share
ownership and when organizational events (mergers, acquisitions, firm sales) occur the firm value is
typically distributed based on the ownership

Business Strategies
Tier 3 Firms
Consulting firms in Tier 3 firms – “Fully integrated businesses” with integrated platforms and consulting methods & processes have the following people strategy
characteristics and directly related reward programs:
People Strategy Characteristics
The platform is integrated and typically to a large degree exits within the organization (rather than outsourced) and is considered a core organizational capability
and is expected to add incremental value to not only the consulting process but to the firms value overall
Since integration is required by the business model for the platform and the consulting processes there is common organizational approaches for the platform
people and the consulting professionals
All hiring and termination decisions are an organization wide process for both platform and practice managers
Staff or platform employees are considered organizational employees
Reward Strategy Characteristics
The salaries and annual incentive compensation is firm related and determined within a firm-wide structure designed to allocate reward resources on a
organization-wide basis and not negotiated between the firm manager and the individuals
The distribution of the incentive is based on the firms performance and generally at the CEO’s discretion but recommended by a compensation committee
The practice teams incentive is more likely a combination of formula and discretion
Implications
There is significant equity or firm value since the parts are in fact greater than the whole by a significant amount reflecting the organizational capability of the
platform but also the value of the integrated processes (1+1=3)
There is “firm” value as an ongoing entity and the ownership is a function of the equity ownership and the additional “firm” annual profit is distributed based on the
share ownership and when organizational events (mergers, acquisitions, firm sales) occur the firm value is typically distributed based on the ownership

Part IV. People Strategies
PART I:
BACKGROUND
PART II:
THE ENVIRONMENT
& KEY STAKEHOLDERS
PART III:
BUSINESS
STRATEGIES
PART IV:
PEOPLE
STRATEGIES
PART V:
REWARD
STRATEGIES
PART VI:
REWARD
ARCHITECTURES &
COMPONENTS
PART VII:
COMPETITIVE
PAY LEVEL
Consulting
Industry Study

People Strategies
Introduction and Background
The following pages outline a series of transformations that we have
witnessed within our clients over the last 15 years. In some cases we
have been with the clients at each of the 5 stages. In each of the
stages life settles down to “Consulting normal”. At each transition
we have experienced significant organizational trauma. The
following conceptual slides are based on Grahall’s practice
experience in advising consulting firms – it is intended to describe
an aggregated approach to organization and roles and does not
reflect any single client
While we do see a commonality of organizational and role issues
which we term “People Strategy” among consulting firms of all
sizes, we do not see a commonality of approach until the firm
reaches the “Established” phase of development; i.e. typically $500
million to $3 billion in revenue. Regardless of size, the organization
of the consulting firm , and the roles of key individuals, primarily
reflect the experience, leadership styles and personal competencies
of the founder or founders. But the importance of effective
organizational structure and roles clearly increases as a consulting
firm grows in size.
We also classify consulting firm “People Strategies” based on their
operating characteristics.
Organization Structure Type – Simple verses Complex – Simple with
little departmentalization into practices or regions with little staff to
complex where the organization has multiple layers of management
and significant departmentalization with multiple staff groups of
varying levels of authority.
Organization Processes Type – Consultants verses the Platform -
Focused on consultants with most non-consulting processes and even
some consulting functions outsourced to a complete focus on the
platform with consultants adding less value
Organization Culture Type – One of Four Culture Types - We
characterize cultures by 1) command & control, 2) process, 3) time
based, 4) network
Staffing and Talent Management Type – There is significant variation
in the approach to talent management by the different consulting
clients we have worked with. Some of the variation is a function of the
size and business model of the firm, however there are some variations
that are more a function of the firms prior history and less a function of
its current and future needs.
The first two (structure and processes) people strategies are a mainly a
function of the business strategy and business model, however the third
(culture) is more a function of the ownership and other key stakeholders.
Staffing and talent management are often the differentiators between firms
and between success and failure.

12%
82%
6%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Fewer than 2 layers of
management
Between 2 and 5 layers of
management
Between 6 and 8 layers of
management
Management Layers
How would you characterize your organization’s structure?
People Strategies
Organizational Structure

37%
27%
19%
10%
7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Less than 5%
Between 5% and 10%
Between 10% and 25%
Between 25% and 50%
More than 50%
Staffing Structure
What percentage of your employees work in staff positions?
People Strategies

47%
27%
7%
7%
13%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Executive Committee
Board All Inside Executives
Partner Committee
Board Mixed Inside and Outside
Board All Outside Independent
Individuals
Governance Structure
How would you characterize your organization’s governance structure? (Check one)
People Strategies

22%
67%
17%
33%
6%
44%
22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Personnel
Committee
Compensation
Committee
Shareholders
Committee
Nominating
and
Governance
Committee
Values
Committee
Audit
Committee
Strategic /
Long Range
Planning
Committee
Skill Level Required by Clients / Services
Governance Structure
What committees exist at the Firm? (Check all that apply)
People Strategies

Start-up Emerging Growth Established Mature
$10M - $50M $25M - $500M $250M - $1B $500M - $3B $2B to $10B
• Organization and roles
directly reflect the previous
experience of the
organization’s Founder(s)
• While a collegial consulting
atmosphere is emphasized; the
Founder(s) typically maintains
direct hands-on control of
consulting and risk
management activities, along
with 1 or 2 key consulting
professionals and a minimal
supporting cast
• The organization’s focus is
dedicated solely to maximizing
key stakeholder (clients and
owners) returns, often focusing
on niche markets where
success is based directly on
the knowledge and skill of the
Founder(s)
• The importance of role
differentiation begins to emerge
as the organization expands
consulting capabilities, extends
its reach to additional clients,
and adds operational,
technical, practice and
geographic complexity
• While a collegial atmosphere
is maintained, organizational
issues and roles become more
important as key drivers of
client and owner returns and
rewards, and as more
consulting professionals join
the team
• While the organization’s entire
focus remains dedicated to
client and owner returns, some
organizational tensions develop
as key individuals focus on
differentiated rewards and/or
differentiated contributions to
the value chain of the firm.
• The firm typically begins to
pay more attention to overhead
costs, particularly on the
support side
• More role differentiation
emerges, to a greater degree
on the consulting side of the
firm than on the support side
• The firm adds key consulting
professional staff from outside
of the organization, forcing
greater clarity in organizational
structure and roles
• Founders feel they are being
pulled in too many directions --
consulting and quality
management,; client attraction
and relations, and managing
increasingly complex
operational and delivery
activities – and they often
appoint one individual to
manage some or all of the non-
consulting activities
• Issues regarding partnership
status more clearly impact
organization structure and roles
• Emphasis on management of
operational and delivery
activities increases as the firm
attracts more clients,
consultants and competitors
•Significantly more role
differentiation for everyone.
Consulting and non-consulting
activities, and the functions
under both, are organizationally
delineated
• Organization structure is
driven in part by partnership
status
• The Managing Partner role
typically includes Intellectual
capital creation and client
allocation responsibilities, but
not direct hands-on
accountability for all practice
activities and performance
• One individual, typically titled
President, manages all non-
consulting functions, including
marketing and stakeholder
relations; may be in a “catch-
up” mode if recent growth of
the firm has been significant
• Quality management and
marketing (i.e., client attraction
and relations) are typically the
areas with relatively greater
organizational ambiguity
Managing Partner oversees all
consulting activities; may or
may not continue to directly
manage one of the key
practices
• Separate committees typically
oversee consulting and non-
consulting activities
• Some or all practice
management typically handled
by partners (advanced
internally and/or hired
externally)
• President focuses mostly on
client relations and marketing;
may add a subordinate COO
role to manage operational
functions
• Quality management and
research functions are
successfully integrated with
practice management activities
Revenues
Phase:
Characteristics:
Complexity:Least Most
People Strategies
Characteristics of Consulting Organizations

People Strategies
The following section is a review of the organizational structures
typical of consulting firms as they mature. Organizational structure is
difficult to describe in any standard way. The reason for that is basic.
Since the managing member or CEO of the consulting firm can make
a determination as to the degree of outsourcing of staff (non-
consulting) roles desirable and the degree of diversification in the
consulting staff the range of organization structures is significant. For
example we have two clients with $300 million of revenue annually,
one has a 2000 person group of employees and the other has a group
of close to 4000 employees. The first has decided that the non-
consulting activities are not a competitive advantage and the second
has decided that the “platform” (finance, client relations, human
resources, information technology, legal, etc.) is part of the
competitive advantage. Both are very successful.
Having said that, and speaking in general terms there are a significant
number of changes that take place as a consulting firm grows from
start-up to mature. There is no one path and as far as we know, no
one set of positions or structures that provide a better chance of
success than an other. The following is a series of characteristics
which identify the different organization structures:
1) The number of layers of management – Initially in small start-ups
the firm is managed by a single chief executive officer who typically is
also the chief consulting officer. All of the employees normally report
to the individual founder. As the firm grows and if it is successful in
attracting clients then the number of layers of management increase
proportionally. In the mature organization there may be as many as 6-
8 management levels of supervisory employees.
2) Degree of departmentalization – Initially the degree of
departmentalization is minimal. “We all wash windows” is a typical
way to express that everyone does whatever needs to be done and the
level of specialization is more by experience and knowledge then it is
some formal organizational accountabilities.
Ultimately the decision to move to a multi-service line strategy verses a
single service line strategy indicates that the firm believes it can
provide additional strategies to clients while still using the same or
much of the same infrastructure platform.
An additional issue that is very driving of the organizational structure
for the typical consulting firm is the determination of how much and
which non-consulting staff groups will be brought in-house. We have
spent considerable time working through the benefits and
disadvantages of the alternative degrees of outsourcing. These are
decisions that can be made by staff groups. For example it is not
unusual to outsource accounting, human resources, and legal while
insourcing some portions of information technology critical to the
development of consulting insights.
The following section on organizational structure is designed to
answer some of the most important questions and we hope that in
future years we will get to study more of the issues regarding this
important organizational/people strategy issue.

People Strategies
Generic Organization Model for Start-Up Consulting
CEO
Partner
Senior
Manager
Consultant
Analyst

People Strategies
Generic Organization Model for Emerging Consulting
CEO
Partner
Senior
Manager
Consultant
Analyst
Administrative
Support

People Strategies
Generic Organizational Model for a Growth Consulting Firms
CEO / CIO
Partner
Portfolio
Management
Portfolio Manager
Operations
Manager
Research Traders
CEO
Partner
Practice
Leader
Consultant Mgr
Operations
Manager
Sr. Consultant (2-3) Consultant (1-5)
Analysts (5– 10)
Admin Finance

People Strategies
Generic Organization Structure, Established Firm
Managing Partner *
Managing Partner President**
Practice Management ***
Sr. Manager Consulting
Consultant
Analyst
Marketing
Technology
Legal/Compliance
Finance
Operations
Partners
Managing Partner *
Managing Partner President**
Marketing
Technology
Legal/Compliance
Finance
Operations
Partners
* Typically majority owner ** Typically minority
owner *** May be minority owners
Functions that may have relatively
less organizational clarity

People Strategies
Traditional Approach, Mature Firm (i.e., $4B Sales)
Managing Partner *
President **Practice Management – Multiple ***
Marketing
Technology
Legal/Compliance
Finance
Operations
HR
Partners
Operating Committee
Investment and Asset Allocation Committee
Managing Partner *
President **– Multiple ***
Marketing
Technology
Legal/Compliance
Finance
Operations
HR
Partners
Operating Committee
Practice Management Committee
•Typically majority owner
** Typically minority owner
*** May be minority owners
Operating Committee
-

People Strategies
Organizational Processes
The following section is a review of the organizational processes
typical of Consulting as they mature.
There are seven major organizational processes that need to be
determined in order to effectively run a Consulting at any stage:
1) Knowledge management – There is always a significant build up of
knowledge within a consulting firm. They are in fact knowledge
factories. In the early years the knowledge resides exclusively within
the individuals whether it be the knowledge of the consulting services
or the knowledge of the support functions. As time passes the
knowledge increasingly becomes institutionalized within the
processes or intellectual library of the organization.
2) Decision making – The decision making authority is always an
important process which is mission critical within most consulting
firms. In start ups all the way through the emerging and growth
stages the decision making is centralized to the “strategic apex” or the
managing partner. As the firm grows a key decision which may
determine the firms success or failure is the degree of decentralization
of decision making that is allowed.
3) Planning, allocating and monitoring – Consulting firms at all levels
are notoriously bad at this organizational process. The monitoring is
not only part of the risk management process but part and parcel of
the practice valuation process. The appropriate allocation of their
consulting assets comes natural to the best firms, however even the
best firms don’t allocate their total resources effectively. We believe
that is because most don’t have the background to effectively manage
non-consulting assets. Consulting firms neglect this process at their
own peril.
4) Supervision – while this process is less important within a consulting
firm, since in the early stages the consulting team is generally within a
tight and small domain not much is made of supervision as a process. As
a consulting firm grows in size and complexity the supervision is more
important yet most consulting professionals don’t have experience or
expertise (say nothing about the interest or inclination) to supervise.
5) Communications and contacts – Initially communications and contacts
are within the firm and with the clients. However as the firm grows and
becomes more complex the contacts become significant and more delicate
both within and outside the firm.
6) Management of change – We believe this is one of the organizational
processes that separate the sustainable firms from the “also ran’s”. They
have better reconnaissance functions and ultimately they have better
interpretation and reacting functions. They understand the overall
environment not just the consulting environment and can interpret the
tea leaves accurately and objectively and are not hesitant to act. This also
refers to the way they manage internal change. If most firms progress
through some of the stages we have outline then at each stage they are
required to adapt and change. Some do and some don’t.
7) Managing innovation – A consulting firm requires a constant stream of
innovation to continue to attract clients and top consultants.
The following section on organizational processes is designed to answer
some of the most important questions and we hope that in future years
we will get to study more of the issues regarding this important
organizational/people strategy issue.

People Strategies
Organizational Culture
Organizational culture is classified into four different types of cultures.
These four cultures are outlined in People, Performance, and Pay by
Flannery, Hofrichter, and Platten. Much of our approach to culture
identification and development is linked to this excellent operational
concept of culture. We designate the four cultures in the following
manners:
Process culture – There are those consulting firms where the process is
king. It is the process that these types of firms rely upon to meet their
consulting goals. Process cultures usually focus on teamwork, and each
consulting team is equally skilled in their respective jobs. The most
important result of a process based culture is a consistent result. These
organizations tend to have well documented work processes. Generally
while that normally applies to the consulting team it can and usually
also can be found in the non-consulting teams.
Network culture – A network based consulting firm culture strives to
bring together certain people and alliances with specific skill sets and
competencies in order to invest successfully. A network culture is
normally very good at developing new insights and new processes since
the main participants come from many different backgrounds and if the
process is working effectively it is a fertile culture for creativity.
Time based culture – A consulting firm with a time based culture
focuses on getting to the consulting insights faster and being more
nimble on their consulting feet. They know time is money. Time based
cultures are very good at developing new consulting insights long
before the general consulting community sees the same events. Time
based consulting firm cultures are quick to adapt to changes in the
general business environment, and are flexible when it comes to their
approach to that opportunity. These consulting groups accept some
larger rates of judgment errors so they can be the first to be in on an
consulting opportunity.
Command and control cultures – most command and control cultures
are consulting firms where everyone has a specific function. Command
and control cultures tend to focus on stability, reliability, and
consistency. They are highly organized, with clear lines of authority and
accountability. These consulting firms are normally quite hierarchical
with very centralized decision making.
It is possible for a large consulting firms to have many sub cultures.
Particularly if they have a significant non-consulting staff where they
are contributing differently to the firm then are the consulting groups.
Most multi-strategy consulting firms have variations on the cultures
listed above. Most single strategy firms are “Command and control”.

People Strategies
Talent Management
Once the organization model has been developed or more typical
evolved the matching of the talent to the model is the next most
important step. Many organizations state in their various documents for
general consumption that “People are our most important asset”. In the
consulting world it isn’t just a nice saying - people make the difference.
There are a number of successful talent management strategies
employed by our consulting clients:
The Best of the Best – Several of our clients have talent management
strategies that entail recruiting established talent with top decile records
for premium rewards. These firms do not grow from within and don’t
spend much money on talent management. They often prefer to have
the senior practice manager bring their entire teams in what we call a”
lift-out”.
Grow Your Own From Within – One of our favorite clients generally
has all home grown talent. The firm owner believes that the success of
the firm has been based on the approach they have developed to
evaluate distressed debt. They strongly believe that it is the process not
just the people.
Halfway House With High Turnover – The firm is set up to be a
stepping stone for individuals from large institutions with great track
records, but who don’t have the capability to create their own firm from
scratch. This firm creates a contract that allows an easy entry and easy
exit. In many cases the exit is sponsored by the firm and is allowed to
develop and port the entire team to their eventual stand alone status.
One Team One Dream – These firms come as a single group of high
performing individuals and are exclusive of other possible entrants into
the team except at the very lowest level. Even at this level the
individuals never really break into the inner circle.
The Platform is King – Some of our clients have developed platforms
within which the non-consulting professionals are top shelf. The staff
groups including information technology, marketing, shareholder
relations, risk, compliance, legal, and other non-investing functions
represent a platform on top of which consulting individuals and teams
can be plugged in (and out) like legos.
Hire Smart People – Some unusual firms are people centric and look to
hire the brightest talent and let that talent follow their intellect.

Professional Services Industry Report 2014

Professional Services Industry Report 2014

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