Written by: Petr Vykoukal
Photo: Petr Poliak
A well prepared client can get a lot from a consultant, while a poorly prepared client can expect disenchantment with unfulfilled plans. However, according to Czech consultants, the latter type is becoming a thing of the past.
INTERNATIONAL consulting firms came to the Czech Republic in the early nineties. The Czech economy of that time, undergoing a transition from socialism to capitalism, offered undreamed-of opportunities. Former state enterprises needed to rebuild their management structures, introduce modern information systems, and find optimal strategies. The consultants were prepared to provide them with all of this. “But at that time the problem frequently was that managers of large firms or institutions were unable to take the advice of their consultants,” recalls Stanislav Červeňan, a partner with KPMG Czech Republic’s Risk and Advisory Services division. But the times changed. When in 2000 Erste bank of Austria purchased Česká spořitelna, it had to change this old-style institution from the bottom up. Consultants also played a role in the change. “While in 1999 Česká spořitelna was in dire straits, in 2002 it was named bank of the year. Without the assistance of consultants such a change would have taken longer,” says Petr Hlaváček, a member of the board of directors and the deputy general director of Česká spořitelna. However, according to Hlaváček, the consultants by themselves could not have brought about such a change. The customers had to be thoroughly prepared – what they wanted to achieve had to be precisely defined, and staff at the bank had to be assigned to work with the consultants. If clients want to get the most possible from consultants, it is important to match them up with their own high quality people. Hlaváček believes that Česká spořitelna succeeded, and in matching their own people with the consultants, a by-product of the transformation was a transfer of their know-how to the bank’s employees who worked in teams with them.
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Petr Hlaváček
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Why hire consultants?
The story of Česká spořitelna as related above indirectly illustrates the two main reasons why firms hire consultants. According to John Winkler, a partner with Deloitte & Touche, the first reason is usually that there is a need to acquire know-how, and the second is a lack of staff to devote its time to solving specific, one-time problems (i.e., a transformation). Jan Petr, the director of CS-Project, offers one more reason that often arises – politics. “Firms often hire consultants in order to justify necessary changes to their employees and shareholders,” he explains. The firm’s management can tell its employees that lay-offs were recommended by the consultants, thus putting someone else in the role of the “bad guy”. But most engagements are motivated by clients’ efforts to improve certain aspects of their business activities or resolve specific problems.
The comment at the beginning of this article about customers who were unable to take advantage of the results of consultants’ work applies only rarely today. On the contrary, clients have substantially greater demands. This is due not only to their efforts to get as much as possible from the money they spend, but also because “people who used to work for consulting firms are now on the other side as well, so they know what they should be looking for,” says Martin Smekal, a partner with Ernst & Young. Although it might seem that this could also help the consulting firms which these people came, according to Radim Hradílek, a partner with IBM Business Consulting Services, but in practice this is not often the case. “Some of them deal with us grudgingly, preferring to use the competition’s services so as to avoid accusations of favoring former employers.”
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Aleksandar Obradović
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Only experts from abroad?
There have also been changes in firms’ requirements regarding teams to work on projects. “All clients want strong local teams,” says Aleksandar Obradović, country manager for Arthur D. Little, explaining that, “no one wants to pay for foreign consultants to become acquainted with local conditions.” For this reason, foreign consultants today represent a marked minority on the teams; in fact only highly specialized experts who come to give advice in areas that people here are only learning about. According to Hradílek, foreign consultants accounted for four-fifths of the consulting teams at the beginning of the nineties. Today that figure is more or less reversed – foreigners account for one-fifth or even less. But this in no way means that the consultants have less international experience. “Ninety-five percent of our employees are Czech, but most of them have experience abroad behind them,” says Winkler. “Also, knowing the Czech language is important, particularly in communications with middle and lower management in firms,” he adds. Winkler himself speaks very good Czech, having spent several years in this country.
But cooperation with Czech firms is still far from ideal in many ways. Nelly Jenicek-Morisson, the director of the Czech branch of the consulting firm Roland Berger, says that it is difficult to work with many Czech managers, as they are inclined to overvalue themselves and have problems with taking advice. She knows whereof she speaks, as she can compare the attitudes of Czech and Croatian managers. The latter have no problem with saying, “we don’t know,” and they are able to take advice equably. Petr of CS-Project adds that the managerial skills of many Czech managers are not very developed, because they were promoted more from technical positions, neglecting during their careers to learn the basics of “the art of management”.
Enron, et al.
The Enron affair and the subsequent accounting scandals brought about a huge change in the way the consulting industry functions. The strict view of the American Securities Exchange Commission set rather stringent rules for the so-called Big four firms. “We must not provide consulting services to clients for whom we carry out auditing or accounting activities,” says Eva Racková, a partner with KPMG. This firm, along with many others, had to sacrifice primarily IT implementation, because information systems can be subjected to audits, so one part of the firm would do the implementing and another part would audit the work, which is not permissible in the light of the recent accounting scandals. “There are many consulting services that can be provided to clients along with accounting,” says Smekal of Ernst & Young, but he adds that “it’s always necessary to determine whether the risk that we audited our own work could arise.”
As a result of these rules, all firms except Deloitte (their consultants constitute a separate firm) spun off their consulting and sold parts of them, especially system implementation. Hradílek of IBM Business Consulting Services, which acquired a part of the consulting division of PricewaterhouseCoopers, recalls that a large international company that PwC audited and also provided with consulting services (and had a significant share in global revenues from this activity) decided, in the aftermath of the Enron affair, to terminate its cooperation with the consulting division. The simultaneous operation of consulting and auditing under the name of a single firm became problematic for the development of the consulting division. This was resolved by the sale of the division to IBM.
An elusive market
Surprisingly, very little information is available about consulting. When you look for data on another specific industry, consultants can be an ideal source, but they don’t have much to say about themselves. This has its own logic under Czech circumstances. “The Czech market is small; everyone knows all there is to know about everyone else, and if the numbers for the Czech Republic were published, others could easily figure out how much specific assignments were sold for,” Obradović explains. The Czech market’s small size has one more specific characteristic. It is enough for one firm to get a large job and the entire imaginary rankings (if they existed) according to billed sums could be turned upside down in the given year.
But not only are there no data on individual firms, in fact it is impossible to find exact numbers on the industry as a whole. Jean-Pascal Duvieusart, a partner with McKinsey, says, “there is no unified definition of consulting, so it’s impossible to estimate the size of the market.” The important thing is what can be included under consulting. If IT implementation can be included, can one also include hardware, or just the consulting part of the project? Despite these unknowns, Winkler makes a very rough estimate of the size of the market in the hundreds of millions of dollars.
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Nelly Jenicek-Morisson
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Steps toward the future
Besides the changes brought about by the Enron scandal, consultants are facing additional competition. “The borders between consulting and investment banking are melting away – consultants compete in tenders with (investment) banks over acquisition projects, and conversely, banks are becoming involved in industrial analyses,” says Obradović. But that certainly won’t be a bad thing. In the opinion of Nelly Jenicek-Morisson, the coming years should see many large orders or privatization projects, and they need not involve only Český Telecom or ČSA, but also Česká pošta or České dráhy. Following EU accession, the state itself (and mainly the regions and cities) will need advice on how to create projects for acquiring resources from the European Union. All agree that the state is and will be a big customer. For example, Jan Petr says that the state accounts for 15-20% of all CS-Project jobs. Today’s projects include mainly the implementation of internal audits of state institutions, which is an EU requirement.
Adapting to new standards and regulations will probably represent the lion’s share of new orders connected with EU accession. Smaller firms and state institutions will also be interested in these services. Large companies that had to resolve the issue of international competition and adapt to new rules long ago are already well prepared for Czech accession to the EU, and their problems of today are in fact similar to those that firms in advanced countries face.
Chances even for small ones
EXCEPT FOR EXTRAORDINARY situations, wherein they might receive money from EU development programs, mid-sized Czech firms cannot afford to hire the services of renowned consulting firms. Instead, they must turn to local consultants. |
New chance in human resources
The Czech labor market has transformed over the last few years. While not so long ago the main task of consultants in the field of human resources (HR) was to seek out and hire managers, today the role of firms seeking employees is different. They can be more selective and more demanding. According to Erik Slingerland of Egon Zehnder International, the role of HR in the workplace is changing. Now it should focus more on motivating and developing the talents of employees. However, the transformation is a gradual one; there is still a lack of talent, which can be attributed to the current image of the field. People in central Europe still see personnel workers more as they existed under communist rule, while in the west there is a tendency to see them as purely administrative staff. This view is also evident in the positions that personnel workers hold in Czech firms. According to Ctirad Vondrášek, the country manager for Hays Czech Republic, HR remains on the periphery of Czech management’s interests. |
The future lies in outsourcing
Consulting in the area of information technologies is indisputably the largest and also the most rapidly changing field in the realm of consulting. Where it was formerly a part of management consulting, today it is becoming more and more distinct and going its own way. This is most clearly seen from developments of recent years. “In the beginning of the nineties most projects involved the building of information systems, so-called back-office work, today it mainly involves the implementation of modern technologies like CRM, etc. The future lies in outsourcing, which leads to the greater efficiency of processes,” says Radim Hradílek, a partner with IBM Business Consulting Services, one of the top companies in the field in the Czech Republic and around the world. The company recently acquired PricewaterhouseCoopers’ consulting division (where Hradílek originally worked). |
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