by Jordan Markov and Daniela Bobeva
Intro
Branch
structure of the surveyed enterprises
Survey
Results
Concluded contracts with consulting
firms
Number
of contracts Share of the enterprises
The
price of consulting services
The
object of consultations
Consulting services
Selection of consulting firms
How
enterprises evaluate consulting services
Evaluation of efficiency of consulting
firms
The beginning of the reforms in
the economy brought about the establishment of a market for
consulting services. Its formation was determined on the one hand
by the appearance of demand for consulting services, and on the
other - by the wide range of legal and economic analyses, expert
evaluations and recommendations offered by the rapidly growing
number of private persons and firms engaged in this specific sphere
of the economy. The extremely liberal conditions for economic
activity in Bulgaria allowed the mass registration of consulting
firms unrestricted by any licensing procedures. The lack of such
restrictions makes it impossible to make even a rough estimate of
the number of firms working in this field. The absence of
restrictions with respect to Bulgarian natural and legal persons
carrying out such activities also applies to foreign persons.
Unlike Poland, for instance, where the activities of foreign
consulting firms are subject to licensing, Bulgaria is more
liberal. This allowed for the registration of most of the largest
international consulting firms - Price Waterhouse, Deloitte
&.Touche, Arthur Andersen, Moore Stephens, KPMG, and others. The
overall effect has been beneficial both in terms of a wider range
and of higher quality of the consulting services offered. The
increasing competition has proven to be of benefit above all to
potential clients. Providing technical assistance in company
management, as a normal practice in market economies, has very
rapidly become common practice in Bulgaria. These processes are
characteristic of all countries undergoing transformation. The role
and efficiency of consulting services in the countries in
transition are of particular interest not only to macroeconomic
theory and to decision-makers, but likewise to the consumers and
producers.
A survey aimed to investigate the effect from the
consultancies on the economic performance of the enterprises was
carried out by CSD in May, 1994.
More specifically, the survey collected information
on:
- the financial state of the company;
- why and how the consulting firm was hired;
- the client's evaluation of the performance of the
consultants and whether the conditions of the assigned task were
met;
- are there any observable results of the work,
assessment of these results;
- what measures have been undertaken as a result of
consultations, how successful was the work with the consulting
firm.
The survey considered 125 state-owned companies with
over 500 employees.
The principal method of collecting information was
the semi-standardized interview with executive managers of
enterprises and deputy managers.
The survey included enterprises from the entire
territory of the country (small, average and large towns).
The branch structure of the sample represents the
branch structure of the economy.
Branch structure of the
surveyed enterprises
|
value percent |
1. Industry |
78.8 |
2. Transport |
3.5 |
3. Agriculture |
2.4 |
4. Communications |
1.2 |
5. Construction |
3.5 |
6. Other |
9.4 |
Survey Results
One surprising finding of the survey is that almost
every third state-owned enterprise has sought the services of a
consulting firm in the course of the last five years, and a
considerable number have concluded more than one contract for
consultation.
Concluded contracts with
consulting firms
Number of contracts |
Share of the enterprises |
none |
62.4 |
one |
16.5 |
two |
14.1 |
three |
3.5 |
four |
2.4 |
five |
1.1 |
The demand for consulting services tends to increase
the larger the size of the enterprise. This is accounted for by the
greater need for professional expert evaluations and analyses of
the new market environment on the one hand, and the financial
resources of the enterprises, on the other. This is one of the
specific characteristics of the demand for consulting services in
the countries undergoing reforms. In the developed countries public
resources are being invested mainly in technical assistance to
small business, which has the greatest need of consulting in the
elaboration of the strategy of the company, the business plan, the
investment programs, accounting, etc. The practice in this country
has shown that the principal clients are above all the large
state-owned enterprises. The latter are finding it more difficult
to adjust to the new market economy conditions and therefore need
professional analyses and recommendations. In addition they can
more easily afford these costly services. In the countries under
transition there has emerged a complex pattern of client-consultant
relations, unlike the traditional bipolar structure in the
developed countries.
The price of consulting
services
The planned restructuring of the state-owned
enterprises prompts the central administration to commission sector
analyses, privatization valuations, elaboration of business plans
and others from well-known consulting firms established in the
respective field. In this sense, the central institutions are
typically the ones to make the commissions, while the concerned
enterprises are the immediate clients. In a considerable number of
cases these consultations are paid by foreign financial
institutions. The survey has shown that of all enterprises which
have used consulting services, 68% have paid for them with the
company's own money, 11% with PHARE funds, 9% with funds from the
World Bank, 8% - from the European Bank, and 4% - from other
sources.
This complex commissioning institution-financing
institution-client-consultant pattern gives rise to a number of
internal contradictions and more often than not is the reason for
lack of interest on the part of the specific enterprise to make use
of the offered recommendations and expert evaluations, in which
case the service proves to be quite pointless.
As has been shown by the survey, prices vary from
1,000 Leva to DM 1m, depending on the scope and duration of the
required services and the prestige of the consulting firm. Not
surprisingly, the prices set by foreign consultants are higher than
those of local ones. Also, the enterprises tend to seek mostly
short-term services - up to three months. 73.9% of the concluded
contracts involve a term of up to three months.
Bulgarian enterprises still regard the prices of
consulting services as high. Their management finds it difficult to
accept a price of DM 1m, for instance, regardless of the obtained
results. That is why, the question whether prices correspond to the
quality of the work typically obtains positive answers with respect
to Bulgarian firms, but negative ones with respect to foreign
firms.
The object of
consultations
Consultants are most often approached in connection
with company strategy and its implementation. Apparently, one of
the mechanisms for facilitating the adjustment of the enterprises
is commissioning the strategic analyses and expert evaluations from
external private - local and foreign - firms. The demand for
services connected with privatization comes in the second place.
This is an additional confirmation of the fact that privatization
is a costly process, whose success would be unthinkable without
investing in valuations, in the working out of privatization
projects, staff training, etc.
Consulting services
type of service |
share of the enterprises |
1. Strategy of the firm |
43.4 |
- elaborating a strategy |
26.1 |
- internal restructuring |
17.4 |
2. Privatization (valuation, legal analysis,
etc.) |
21.7 |
3. Auditing and financial matters |
14.1 |
4. Introducing information technologies |
8.7 |
5. Staff training |
8.7 |
6. Others |
3.4 |
Selection of consulting
firms
Of the companies which have used the services of
consultants, 60.9% chose Bulgarian, and 39.1% - foreign firms.
Among the foreign firms, German ones tend to be most sought after.
This might be accounted for by the traditional economic contacts
with Germany and the fact that the Bulgarian economy is more
familiar to partners from that country.
The chief criterion in selecting a consultant is
above all the experience of the firm. In other words, preferences
favor consultants who already have a certain number of contracts
and have been recommended by former clients. The second important
factor in the choice of consulting firm is its international
prestige. It tends to impress Bulgarian managers but also leads to
unreasonably high expectations regarding the effect of the
consultation, which are subsequently very difficult to satisfy. The
price of the service comes third in importance.
One of the problems in consulting state-owned
enterprises is that in the cases when the service is commissioned
by the institution exercising the property rights (30% of
consultations), the companies do not have access to the selection
of the respective consultant, which subsequently gives rise to
communication problems between the two sides.
How enterprises evaluate
consulting services
Consulting is a complex and bilateral process which
requires the building up of a certain economic and institutional
culture in management. Under the deep crisis in which the larger
part of the enterprises now find themselves, consulting services
are sometimes viewed as a panacea, in a position to reveal the
magic way to success for the firm. All of this reflects on clients'
evaluation of the effect of consulting services.
The survey has shown that merely 4.3% of consultants
failed to meet the conditions of the task they had been assigned.
52.2% fully met the agreements, and the remaining 43% on the whole
fulfilled what the commissioning party expected them to do.
Obviously, one of the problems in enhancing the efficiency of
consulting is the clear and detailed formulation of the task.
The general evaluation made by the surveyed
state-owned enterprises of the consultants they worked with is not
very favorable. It is interesting to note, however, that even those
who were not satisfied with the performance of the consulting firm
nevertheless use consulting services again. On a 2-5 scale, only
4.5% of the consultants were given the highest marks, and 14.4% -
the lowest. The larger part - 34.8% - were rated as passable.
The effect of consulting services depends on a great
many factors, among which we find not only the quality of the
provided services, but equally the readiness and ability of the
clients to make the most of them. On the other hand, the
deficiencies and the dynamic nature of the market situation in
Bulgaria make the steps recommended by consultants very difficult
to implement successfully. For instance, a professionally executed
valuation of the assets of an enterprise under privatization may
lose its value in the course of the auction or tendering procedure.
This is not an excuse for the mediocre rating of consulting
services, but rather, an illustration of the risky character of
consulting activities in an unstable market environment.
The rating on a 2-5 scale of Bulgarian and foreign
consulting firms tends to give slight precedence to Bulgarian ones.
At first sight it might seem illogical that, even if the
respondents assess the professional qualification of foreign
consultants as higher than that of Bulgarian ones, the final result
of their activities is nevertheless rated lower than that of
Bulgarian consultants.
Evaluation of efficiency of
consulting firms
(2 to 5 scale)
|
price |
qualification |
result |
Bulgarian consultants |
2.66 |
3.00 |
3.80 |
Foreign consultants |
3.66 |
3.50 |
3.00 |
|