“MONITOR’S clients, and those seeking to advance business knowledge, consistently recognize the firm’s rigorous analysis and advice and the results they produce.” Though this sounds like marketing fluff, it comes from a bankruptcy filing. While it is true that Monitor, a consulting firm based in Cambridge, Massachusetts, once had a sparkling reputation, on November 7th, it declared it can no longer pay the bills and sought bankruptcy protection. Failing a higher bid at auction, Monitor will be bought by Deloitte, an enormous professional-services firm, for just $116m, a figure subject to future reductions as Monitor sorts out its finances.
Monitor had seen bright days. It was founded by six partners with close ties to Harvard in 1983. One of them, Michael Porter, is one of few who can legitimately claim the title of a legendary business guru (pictured). Over the years, Monitor was able to compete with the likes of much bigger McKinsey, the Boston Consulting Group and Bain, for top graduates, whom it offered an almost academic image and cachet.
But the recession was hard on the firm. As the economy nosedived after 2008, few companies shelled out for pure strategy consulting. Meanwhile, the top-tier firms had long since begun to push into operations as well as strategy, and so went on being hired as companies sought help getting lean. That, plus their sheer size, helped the top-tier consultants ride out the storm. Monitor was not so lucky; pure advisory consulting took years to recover, as economic uncertainty kept companies sitting on their plans (and cash) for taking over the world. (An unforced error did not help: Monitor, which had gotten into government consulting, took millions in fees from Muammar Qaddafi’s Libya, to polish the country’s image. The engagement ended up damaging Monitor’s own.)
Tom Rodenhauser of Kennedy Information points to other firms he considers vulnerable in Monitor’s middle-sized tier. AT Kearney and Booz & Company, for example, considered merging several years ago, a union that many observers thought was born of weakness. Small specialist firms have loyal clients and fewer costs. Mid-tier firms try to maintain a global footprint of offices and top-shelf brands, but cannot deliver 50 experienced consultants on short notice. Mr Rodenhauser expects more of them to be snapped up by the likes of Deloitte or PricewaterhouseCoopers, its rival for the title of the world’s biggest professional-service firm.
Many of Monitor’s 300-odd inactive partners are left holding an empty bag. Consultants buy into a firm with their own money when they become partners. Normally, when they leave active partnership, the firms buy back those stakes. For the past few years, though, Monitor generated too little free cash to buy these old partners out. With Monitors’ assets and liabilities now roughly equal, as revealed in its bankruptcy filing, those old partners’ equity stakes are now worthless.
These old partners describe a business that had lost focus. Monitor was brilliant at extending its brand to executive education, nonprofit consulting, government work and the like. But each of these units, comprising an unusually complex structure for a consulting firm of its size, carried its own costs. The whole became unwieldy and unaffordable. Add that to the outside forces hitting the firm, and it was only a matter of time.
What will the union of Deloitte and Monitor look like? Monitor’s staff of 100 partners and just 1,200 total employees will be a drop in Deloitte’s ocean of 200,000. Many of Monitor’s strategy brain-boxes will not stay at a firm best known for accounting. But those whom Deloitte can convince to stay will strengthen Deloitte’s claim that it can compete with the McKinsey-tier firms in consulting. For good or for ill, multidisciplinary behemoths like Deloitte seem to be the future of professional services.http://www.economist.com/blogs/schumpeter/2012/11/consulting?fsrc=scn/ln_ec/monitors_end