A study on core business shift from diagnosis service to systems integration service in major business consulting firms in Japan.

Author:Nagayoshi, Sanetake
Position:Report
 
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INTRODUCTION

Business consulting firm is a sort of professional service firm. Many business consulting companies in Japan gradually shifted their core business from business diagnosis service into systems integration service.

As Figure 1 and Figure2 show that Nomura Research Institute, Ltd., for instance, have been increasing their employees and the ratio of IT consultant on the entire employee since 2000. Nomura Research Institute was a consulting company in Japan established by merging the think tank company (previous Nomura Research Institute, Ltd.) with Nomura Computer Systems Co., Ltd. in 1993. Accenture which was one of the world's leading organizations providing management consulting, technology and outsourcing services expanded the technology and outsourcing services including systems integration business. The ratio of the technology and outsourcing services on all their revenue reached 44% (UZABASE, 2013), as Figure 3 shows.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Consulting company, in general, is a professional service firm which provides business strategy with their customers based on established management theories and their rich experience. For instance, they provide differentiation strategy (Porter, 1980) with their customer in order to win the market and/or beat their competitors. Nonetheless a lot of Japanese business consulting companies themselves similarly seemed to execute the same strategy, because they shifted their core business from business diagnosis to systems integration.

In this paper, the reasons why the shift from business diagnosis service to systems integration service in the Japanese business consulting companies were studied from the point of their strategy, business model and forces in the consulting industry in Japan.

The remainder of this paper is organized as follows: First, the consulting industry and in Japan and its history are studied. Then research method is described and the related study is reviewed. Next hypothesis is created by combining related studies. Then, four cases are introduced and the cases are analyzed and discussed. Finally, limitations of this study and implications for future research are described.

CONSULTING INDUSTRY IN JAPAN

According to UZABASE (2014), consulting industry covers companies that offer services commonly called consulting services and financial advisory services, and provide client companies with advice on management strategies and financial strategies, as well as support for implementing such strategies.

Players are split into groups related to strategy, research, independency, IT, accounting and M&A by major domain or parent company. Players in the strategy-related group mainly deal with large companies, and solve a wide range of business challenges from planning of medium-and long-term strategies to operational reforms of individual businesses. Research-related players engage in issues similar to those dealt with by the strategy-related players, but more orders come from public sector agencies. Independent players deal with smaller companies than strategy-related players. Players in the IT-related group have a strong capability to solve business challenges like operational improvement by using application software such as ERP (Enterprise Resource Planning) package software. Accounting-related players are affiliated with an auditing firm. Players in M&A-related group specialize in M&A advisory and intermediation services. Part of this field competes with investment banking units of securities firms.

HISTORY OF THE JAPANESE CONSULTING INDUSTRY

According to our interviews for the consultants who worked or had worked for consulting companies in Japan, consulting industry in Japan began in 1966 and was in growth stage with booming economy in 1980s. At that time, accounting-related consulting companies imported a business concept to Japan market, and then they started to provide business diagnosis service and solution service including IT consulting and IT implementation. Since IT service company at that time generally provided only IT implementation service, such services of the accounting-related consulting companies were surprising for IT service industry. Then it became common that IT solution service was one of the service menus in the businesses consulting company.

Business consulting companies in Japan faced difficulties due to the economic depression in 1990s. Most of them dismembered, and even blue-chip business consulting companies were not able to expand their business.

Hammer and Champy (1993) introduce Business Process Re-engineering (BPR). Business process re-engineering is a business management strategy, originally pioneered in the early 1990s, focusing on the analysis and design of workflows and business processes within an organization. This was well notable for business consulting company to recover business performance of their client companies.

At that time, systems integrator also emerged in Japan. A systems integrator is a person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together, a practice known as systems integration. Systems integrators worked in many fields but the term was generally used in information technology field. Although, before they emerged, most information systems had been developed by internal information systems division, or part of them had been sometimes developed by software developers, systems integrator often took responsibility for developing large scale information system on behalf of their customer with advanced technology.

In the meantime, Enterprise Resource Planning (ERP) package software also emerged, which covered functions like accounting, sales force management, procurement, production management, human resource management and payroll control. These functions were developed individually before 1990s. Since ERP allowed having an integrated view of core business processes, often in real-time, using common databases maintained by a database management system, these functions were totally integrated to develop. Company implemented ERP packages for their enterprise information systems in order to improve productivity and competitiveness in 1990s. In the meantime, the international accounting standards (IAS) also accelerated Japanese company to implement ERP package, which allowed company to covert its accounting system to international standards easily, and many accounting-related consulting companies supported to implement the international accounting standards into their customers with ERP package.

Many mainframe computers in Japanese company were replaced with open-system based computer in 1990s. They also changed their enterprise...

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