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Many managers in traditional product-oriented businesses are struggling to turn their companies into solutions-oriented ones, a strategy that is widely considered the route to success in the 21st century.1 An effective first step in this direction can be to establish corporate consultancies — consulting units whose main purpose is to provide solutions based on the traditional business’s products or expertise.2 That is why computer companies such as IBM are moving toward integrated information-technology solutions, telecom-equipment manufacturers such as Nokia are providing turnkey network solutions, and the train and signaling manufacturer Alstom is offering “train availability.”
To make the transition to a solutions business, companies must develop new capabilities in consulting, systems integration, operational services and financing.3 They need to change organizational structures, strategies for recruitment and skills development, and performance measures. For some (Xerox attempting to become a supplier of “document solutions”; Hewlett-Packard struggling to integrate its broad range of products into customer solutions), making the transition all at once is problematic.4
Corporate consultancies can be a better alternative. Under names such as Ericsson Consulting, Shell Global Solutions and AT&T Professional Services, traditional product businesses now offer value-adding professional services. Some have been so successful they have outgrown their product businesses, indicating that creating corporate consultancies may be a first step toward complete reorientation of the organization. The new IBM was built around IBM Global Services, in part a corporate consultancy, which during the 1990s built the world’s largest IT service operation. With the recent acquisition of PricewaterhouseCoopers Consulting, IBM is also one of the world’s largest business-consulting companies.
But even the intermediate step of corporate consulting presents daunting challenges. Three types stand out: the mission challenge, the identity challenge and the structure challenge. New research demonstrates that enterprises mastering those challenges not only strengthen their consultative component but also gain synergies with the product business. (See “About the Research.”)
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1. For a description of the customer-centric logic of solutions providers, see A.C. Hax and D.L. Wilde, “The Delta Model: Adaptive Management for a Changing World,” Sloan Management Review 40 (winter 1999): 11–28; and S. Vandermerwe, “How Increasing Value to Customers Improves Business Results,” Sloan Management Review 42 (fall 2000): 27–37. How product manufacturers are moving downstream in the value chain is described in R. Wise and P. Baumgartner, “Go Downstream: The New Profit Imperative in Manufacturing,” Harvard Business Review 77 (September–October 1999): 133–141.
2. The term corporate consulting is based on R.F. Good, “Pros and Cons of Corporate Consulting,” Journal of Management Consulting 2, no. 3 (1985): 29–34.
3. The SPRU research program at University of Sussex, United Kingdom, recently started a project on integrated solutions. For their outline of a capability framework, see A. Davies, P. Tang, T. Brady, M. Hobday, H. Rush and D. Gann, “Integrated Solutions: The New Economy Between Manufacturing and Services” (Brighton, U.K.: Science and Technology Policy Research [SPRU], 2001).
4. See N. Foote, J. Galbraith, Q. Hope and D. Miller, “Making Solutions the Answer,” The McKinsey Quarterly, no. 3 (2001): 84–97; and E. Cornet, R. Katz, R. Molloy, J. Schädler, D. Sharma and A. Tipping, “Customer Solutions: From Pilots to Profits” (New York: Booz Allen & Hamilton, 2000).
5. Establishing a product business based on a traditional service business involves a similar challenge of finding synergies. See S. Nambisan, “Why Service Businesses Are Not Product Businesses,” MIT Sloan Management Review 42 (summer 2001): 72–80.
6. Similar know-how CCs at Boeing and Hewlett-Packard are described as internal knowledge brokers in A.B. Hargadon, “Firms as Knowledge Brokers: Lessons in Pursuing Continuous Innovation,” California Management Review 40 (spring 1998): 209–227.
7. For a case description of the establishment of PeopleSoft Consulting, see M. Gregoire, “How PeopleSoft Created a Successful In-House Consulting Division,” Consulting to Management 12 (June 2001): 6–11.
8. For a description of how image is mirrored in organizational identity, see J.E. Dutton and J.M. Dukerich, “Keeping an Eye on the Mirror: Image and Identity in Organizational Adaptation,” Academy of Management Journal 34 (September 1991): 517–554.
9. Multiple identities are becoming more common as organizations face increasingly complex environments. In addition to corporate consultancies, there are joint ventures, co-ops, churches running banks and so on. For four recommended managerial responses to multiple organizational identities, see M.G. Pratt and P.O. Foreman, “Classifying Managerial Responses to Multiple Organizational Identities,” Academy of Management Review 25 (January 2000): 18–42. The authors consider various combinations of two dimensions: identity plurality and identity synergy. See also H. Bouchikhi and J.R. Kimberly, “Escaping the Identity Trap,” MIT Sloan Management Review 44 (spring 2003): 20–26.
10. See also R. Sandberg, “Managing the Dual Identities of Corporate Consulting: A Study of a CEO’s Rhetoric,” Leadership & Organization Development Journal 24, in press.
11. An ideal organizational design for this has recently been described as the “hybrid organization” and consists of customer-centric front-end units and product-centric back-end units, coordinated by a number of linking processes. See J.R. Galbraith, “Organizing To Deliver Solutions,” Organizational Dynamics 31 (fall 2002): 194–207.
12. For Gerstner’s own thoughts about IBM’s transformation, see L.V. Gerstner, Jr., “Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround” (New York: HarperBusiness, 2002).