Development management consulting services based on life cycle of company

Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017

Baitemirova Aidana, Kazakh-American Free University, Kazakhstan
Sarsembaeva Gulnara, Kazakh-American Free University, Kazakhstan

The management consulting industry has been through severe challenges. For instance, in 2002, The Economist (2002) wrote that the strategy-consulting industry was “wasting away” as strategy had become a commodity, as bright business school graduates were equally available to top corporations as they were to consulting firms for hiring. Fortune Magazine (2003) concluded that pure-play strategy - consulting as a business was shrinking, as clients reduced their engagement levels, shortened project lifecycles, and began demanding concrete, measurable returns for their investments.

The management consulting industry is known to operate under a lot of secrecy, to the extent that some consultants use code-names for their clients, lest someone discover who is offering what services to them even during informal conversations. The “big-three” strategy-consulting firms dominate the global consulting industry: McKinsey & Company (McKinsey), Boston Consulting Group (BCG), and the Bain & Company (Bain). As The Economist (2013) reported, these three firms grew by 12.4%, 14.5%, and 17.3%, with revenues of US$5.3b, US$3.1b, and US$2.1b, earned from 17,000 employees in 50 countries, 6200 employees in 43 countries, and 5500 employees in 31 countries, respectively, in the year 2011, which was marked by severe economic downturn. In spite of the increasing convergence of the processes and practices in the industry, stereotypes persist. As The Economist (2013) elucidates, McKinsey consultants are perceived to be “vainies”, as they lecture clients on the McKinsey way; BCG consultants are labelled as “brainies” as they spout academic theory to sell their services; and Bain consultants have a reputation for taking responsibility for improving the clients' bottom-line results. With the maturing of the industry, it is no longer possible even for the big-three strategy-consulting firms to only provide strategy advice and not take responsibility for implementation. In fact, as the big-three firms are expanding their service offerings to include a larger bouquet of services, other firms like the “big-four” accounting firms (PwC, Deloitte, KPMG and E&Y) are also expanding their services to step into strategy consulting. Van den Bosch, Baaij, and Volberda (2005) propose three strategic options for consulting firms: “follow the herd,” “become ambidextrous “, or “back to the original focus”, when faced with decreasing returns to exploitation of prior accumulated knowledge. These decreasing returns are caused by the entry of new players into the industry, as well as the clients becoming more capable of solving their own problems.

Christensen, Wang, and van Bever (2013) identify three steps in disruptions that can affect the consulting industry, similar to the disruptions they help their clients overcome. First, new competitors arrive at the industry doorstep with new/non-traditional business models. For instance, the consulting industry has seen entry of the big-four accounting firms, forward integration by technology consultants (such as EDS's acquisition of AT Kearney, or IBM's services), and the entry of specialized niche consulting firms. The second step in the disruption is the incumbents' responses - the responses include ignoring the new entrants or conceding the mass market to new entrants and segment-retreat into high-margin low-volume activities. The third step in the disruption process is the maturing of the disruptive entrants' business models from a “barely good enough” quality to a “generally acceptable” level, thereby flipping the market into new bases of competition. Christensen et al. (2013) suggest that consulting firms engage in any of the following six self-disruptive behaviors, in order to balance their core business model along with the disruptive models:

1) create an autonomous business unit

2) hire leaders who come from the relevant schools of experience

3) set up an independent (and custom-made) resource allocation process

4) evolve independent sales channels

5) establish new profit models, and

6) ensure unwavering commitment from the leadership.

Globalization presents another significant challenge for the management consulting industry. When small firms who differentiated themselves based on local/contextual knowledge dominated the industry, consulting firms could organize themselves as neo-PSFs (von Nordenflycht, 2010). However, with the globalization of clients, global management consulting firms have begun organizing themselves as global professional networks (GPN) (Brock, 2006).

Using the institutional theory and the resource-based view of the firm, Brock (2012) identified five managerial and organizational challenges for globalizing PSFs. First, while global market entry provides the opportunity to maintain growth through acquisitions (a means of quick capability building and customer-acquisition and retention), the challenge for globalizing PSFs is to accomplish this without compromising on the reputational capital as their source of differentiation. The second challenge for globalizing PSFs is the varied governance forms across borders, especially as firms operate in a combination of emerging and mature economies, with different institutional norms and legal frameworks. Third, traditional organizational structures that involved partners (who were owners of the firm and were considered experts/specialists) and associates (who did the analytical work and were either on a path to partnership or exit from the firm in a few years) are giving way to new organizational structures, based on specialized business functions, such as business development. A key organizational attribute of these changing structures is the concept of “leverage”, which denotes the efficiency of the firm's associates to leverage the knowledge of the partners. In other words, the number of associates per partner denotes the leverage ratio. The fourth challenge is presented by the high leverage ratios in specialized firms, which restricts new knowledge creation, and career opportunities for associates. The fifth and final challenge is to integrate the global spread of PSFs into learning from multiple contexts, efficient knowledge transfer within the organization, and effective leverage of this collective knowledge into revenues and profits for the firm, which is referred to as “organizational wisdom” (Scott-Kennel & von Batenburg, 2012).

Efficient management of the firm's internal tacit knowledge is therefore the key to effective management and growth of a consulting firm (Scott-Kennel & von Batenburg, 2012). Given that knowledge assets are multi-dimensional in nature, it is important that consulting firms invest in various human resources (HR) configurations to manage human, social, and organizational capital (Swart & Kinnie, 2013). Such firms face significant conflicts in managing the balance between routines that support external demands from clients (innovation) and internal utilization of capabilities (efficient deployment of specialized human assets) (Jensen, Poulfelt, & Kraus, 2010).

In sum, the challenges facing the management consulting industry fall into three broad categories:

1. Competition and differentiation: As competition intensifies with the entry of heterogeneous players in the market, there is a significant need for consulting firms to define their unique identities and differentiate themselves from the rest, in an increasingly fragmented industry.

2. Organizational design of the management consulting firm: The traditional professional partnership organizational form is under threat with increasing globalization of consulting firms as well as their clients. This necessitates that consulting firms consciously adopt new organizational forms that best suit their contexts and identities.

3. Internal organization of knowledge flows to serve client needs: High knowledge intensity of management consulting firms ensures that firms proactively manage their knowledge flows within the firm, especially tacit organizational knowledge. Efficient leverage of organizational knowledge is essential for creating and maintaining the balance between exploitation of existing knowledge and creating new knowledge.

The practical use of the life-cycle concept by company managers and managers is linked to the need to determine the stage at which almost all currently known methodologies are in place to permit such diagnostics to be implemented.

Situations of transition from one stage to another are particularly difficult, so there is a need to develop more precise quantitative and qualitative criteria for determining the stage of the life cycle.

The research is a consulting company-TOO «ERP-Service» KazTransCom, founded in 2004 by the efforts of experienced and qualified professionals. At this time, the company has more than 30 certified specialists in the main functionalities: FI, CO, CMS, HCM, MM, SD, PS, PM, bw / Bi, bo, BPC, BC, ABAP, Saphana, sapbasis [1].

The "ERP-service kaztranscom" (ERP) is a specialization of the SAP AG-based management systems, from implementation, maintenance and support for ERP systems to the maintenance of ERP systems through outsourcing:

- Consulting and escorting;

- Escort;

- Server equipment;

- Outsourcing.

Classic ERP systems, unlike the so-called "boxed" software, fall into the category of "heavy" software products and the correct selection of an integrating company is an important task.

The overall organizational structure of the ERP service has four levels of management and refers to the complex multi-level structures that characterize large companies with a diversified business portfolio.

The organizational structure is determined by the distribution of responsibility and authority within the organization. The organization Chart of the consulting company TOO «ERP-Service» KazTransCom is shown in Picture 1 [2].

Picture 1. Organizational structure of TOO «ERP-Service» KazTransCom

Today, the ERP service has successful experience with major implementation, development, and maintenance projects in various enterprises in Kazakhstan.

TOO «ERP-Service» KazTransCom has a rich experience with ERP systems (Enterprisers source planning) based on the world's leading developer platforms: Microsoft dynamics ax, SAPERP, 1:1. ERP, etc.

The ERP service cooperates with several vendors because it realizes that flexibility in choosing a solution will allow their customers to achieve the highest level of ERP implementation performance.

Over the years, ERP-service has developed an ERP team for the best in the marketplace, established a unique expertise, and established a proven methodology for implementing large, complex projects.

SAP systems Technical Support-TOO «ERP-Service» KazTransCom operates technical PODDERZHKUSAP systems in 24 mode (24 hours a day, 7 days a week, 365 days per year).

After the SAP implementation is complete, the system uses the enterprise's system development phase. Effective use and further development of the embedded system is possible only with quality and professional technical support. The company's technical support team, too ERP-service kaztranscom (hereinafter-ERP service), helps customers decide how to operate the system, update versions, reproduce solutions, and extend functionality [3].

Business Intelligence is a software program designed to help a manager analyze information about your company and its environment. Bi is a process of translating data into information, knowledge, understanding, and, finally, general knowledge into targeted, applied knowledge that makes decisions. "BI is supported by data from vaults, data development methods, and decision support technologies." The functional scheme of the BI platform is shown in Picture 2.

Picture 2. BI Platform functional scheme

SAP Business Information Warehouse (SAPBW) is a component of my SAPBI that includes an enterprise-wide storage mechanism, a business information platform, and a set of business information tools [4]. It was designed initially to provide the most efficient business modeling tools and methodologies-and the SAP capabilities in this area are now recognized as the best among these solutions. The SAP Business Warehouse is presented in Picture 3.

Picture 3. SAP Business Warehouse 7.4 functional diagram

On April 21, 2014, SAPAG announced the release of version 7.4 of the Sap business warehouse solution (SAPBW) on the Sap HANA platform with the new "in-memory" data architecture.

The key difference from the latest version of Sap business warehouse based on Saphana is the in-memory data architecture. Sap business warehouse 7.4 In an enterprise is used at the semantic level, combining all data warehousing, business analysis, and management into a single business context.

The TOO «ERP-Service» KazTransCom, together with Too "Alyer", provides services for installing, using and supporting ARIBASAP applications for B2B e-commerce [5].

The use of applications improves efficiency, efficiency and transparency in procurement, significantly reduces costs and reduces time for procurement and supply processes.

The consortium between TOO «ERP-Service» KazTransCom and Too "Alyer" also provides outsourcing of purchasing and supply functions through the use of ARIBASAP software applications.

A team of qualified and experienced professionals provides services to develop the structure and processes of the organization's procurement units, analysis of goods and services and development of contract strategies, compilation and normalization of directories, identification of reliable suppliers, solicitation of bids, tenders, auctions, drafting, contracting and supply management.

The performance of the company's key performance for 2016 is as follows, as shown in table 1.

Table 1. Key metrics of the company TOO «ERP-Service» KazTransCom for 2014, 2015, 2016

The financial performance of 2014-2016 is presented. In Picture 4.

Picture 4. Trends in financial performance 2014-2016

From 2014 to 2016, the company's revenues rose by 44%, net profit increased by 124%, and the profitability rate of the EBITDA decreased from 24% to 16%, due to the following reasons:

- Lower prices for consultancy services in the face of a trend towards higher prices for suppliers of goods and services associated with devaluation of tenge;

- Reduction in the company's provision of services, in particular maintenance. [6].

In the ERP service, today, more than forty highly qualified professionals with SAP certificates and the Ispat-Karma Project Experience AO "Kaztransoil", AO "Zharemsky Mine", AO "Intergas Central Asia", ao "rd" KazMunayGas, JSC "NC" KazMunayGas, and others, where the core functional modules are implemented based on SAP ERP software solutions.

The Coordination Board for the implementation of ERP systems in the JSC "NC KazMunayGas", following the successful implementation of the automated management system based on the decisions of the German company Sapag range in advance Kaztransoil, it was decided to expand the scope and set up a consulting company that is outsourcing ERP systems in Kazakhstan's oil and gas industries. [7].

In this connection, a branch of the JSC kaztranscom ("IT Service") was established in March 2005. In August 2006, the IT service was transformed into TOO «ERP-Service» KazTransCom and registered in the Department of Justice. Astana in November 2006, based on the too "ERP service", which has been in force since April 2004 and purchased by the AO "kaztranscom" to create a subsidiary.

The focus of TOO «ERP-Service» KazTransCom was consultancy for the introduction and maintenance of SAP software for automated management systems, as well as maintenance of ERP systems through outsourcing and the promotion of best world practices, advanced technology and high standards in the marketplace of Kazakhstan.

As an analysis of the ERP-service development history has shown from 2004 to 2017, the company has undergone several stages of the life cycle: the first phase relates to the period of the organization's formation, since 2004. To this stage, the following phenomena can be attributed to 2006: creating, preparing to implement the idea, legal design of the organization, hiring of operational personnel, and fulfilling the first order to implement SAP products, business solutions, and information technology to improve business performance.

But thanks to the skilful and experienced leadership and cohesiveness of ERP staff, it has been possible to achieve the goals for this period. [8].

The stage of development is determined by the rapid growth of the organization and the development strategy. The company grows and the market is being actively exploited. For ERP service, this is the period from 2007 to this day. This phase also includes the formalization of management, the design of the structure, the continuous updating and improvement of the managed business indicators. Following the selected strategies will allow you to extend the current stage of the life cycle as long as possible.

The company's business development is driven by strategic initiatives aimed at expanding the range of services provided and improving services. The organization lifecycle curve is shown in Picture 5.

Picture 5. Life cycle curve of the ERP service

ERP-Service’s SWOT-analysis

The main objective of the SWOT-analysis (strengths, weaknesses, opportunities, threats, respectively, are the strengths, weaknesses, opportunities, threats) - research on the enterprise's strengths and vulnerabilities. This analysis provides a quick assessment of the strategic position of the company [9].

The general principle is that the internal capabilities of the company [10] must be matched in the development of the strategy. There was an analysis of the potential threats from outside factors, and the search for and determination of the company's perceived development.

It should be noted that this phase was preceded by a great deal of preliminary work in the company's external and internal environment. The following is an analysis of the company's audit results and the market environment study in the table.

Table 2. TOO «ERP-Service» KazTransCom’s SWOT-Analysis

In practice, SWOT analysis is often prepared for each leading competitor and for individual markets. This reveals the relative strengths and weaknesses of the company, its ability to deal with threats, and to take advantage of opportunities. This analysis allows the company to examine the market opportunities and to weigh its ability to pursue them.


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Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017

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