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Surprised? Partly

Craig Smith

Craig Smith well remembers what it’s like to be the new boy. On his first day
as finance director at Management Consulting Group plc last April, he had the
company AGM, a board meeting and an audit committee meeting. After several hours
of all that, there wasn’t much of the company that remained hidden from his
view. And given that most of the conversations had been about the things that
weren’t going so well, you would forgive him for wondering what he’d got himself
into. It was certainly “a baptism of fire”, he admits. “That was a really
interesting day.”

Smith had done his homework, of course ­ and the management of MCG had done
theirs. Smith had several interviews before finally getting the FD job, so by
the time he showed up for work he already knew most of the opportunities and the
problems that the company was grappling with.

So day one “wasn’t too much of a surprise,” he insists, but “until you
actually join a company, it’s probably not all concrete. It’s all in your head
and you’re not quite sure about the weightings of the various issues until you
sit down and see it. There were one or two things where the emphasis was
different from what I was expecting from having done my own due diligence.”

Trivial pursuits
There were a few more trivial issues ­ acronyms, for example. Smith had spent
around 20 years in the manufacturing industry, most recently as FD of medical
equipment group Huntleigh Technology plc. More importantly, he knew how to read
a manufacturer’s balance sheet, but the accounts for a people business was
something else. “There are no inventories, there are almost no creditors because
it’s all personnel and one or two rents and rates ­ but personnel is 70% of the
cost of the business. I’m used to paying suppliers big sums of money for raw
materials. When you’re looking for a bit of extra profit at month-end or at
quarter-end and suddenly not to be quite sure where to look, it was a very
interesting learning curve,” he says.

One of the differences with manufacturing that Smith had to get used to was
the amount of forward visibility in the business: at Huntleigh Technology,
thanks to long-term supply contracts with the NHS, revenue streams could be seen
up to 15 years ahead; with MCG being project-based, “your visibility is three to
six months at the absolute maximum,” he says. “So unless you keep generating new
work, the company is dead in three to six months’ time.”

The cashflow management is a little easier in a people-based business,
though, Smith says. “You haven’t got the inventories. We convert business into
cash very quickly. In a normal manufacturing business you’ve got all that
dormant stock sitting in your warehouse.”

Character building
But we have to ask: who’s better behaved, people or fixed assets? “Obviously,
fixed assets,” he answers. “In the consultancy industry you meet some
extraordinary characters ­ sometimes quite unconventional people ­ but the
people who often generate the business, they’re the people with that spark, that
extra bit of personality who can get a client to sign up for you rather than for
somebody else. These people often have their quirks and it’s our job in the
finance department to help them out if they have tax issues, to make sure that
they’re comfortable with their remuneration package. You don’t have to worry
about remuneration packages for machinery. You buy it and it runs and hopefully
it doesn’t break down too often.”

MCG is an umbrella business that owns a number of consultancies with
different specialisations and different business models:
• Proudfoot Consulting advises on operational improvements, usually involving
huge projects, and is the original constituent business of MCG; it floated on
the London Stock Exchange in 1987 and took the MCG name for the parent group in
2000.
• Parson Consulting is a finance function specialist firm which came in useful
in helping change Smith’s own finance department at MCG.
• Ineum Consulting was the French consultancy arm of Deloitte until it was
acquired by MCG in 2006; it was also one of the problem areas Smith heard so
much about on his first day, mostly because of cultural issues arising from the
integration.
• Salzer is a 51%-owned HR consultancy operating in the Asia-Pacific region.

• Kurt Salmon Associates was a major US acquisition completed last October which
required a £100m finance-raising exercise in the midst of the autumn credit
crunch (we’ll look at the details in a future issue).

These businesses have their own ways of charging clients ­ some on a
fixed-fee basis with client-benefit guarantees, others timesheet-based or, as
with Parson Consulting, charged and invoiced weekly.

Having a business like Parson Consulting just down the corridor proved
useful, however. When MCG found itself without a finance director for about nine
months, chief executive Kevin Parry effectively doubled-up as FD for a while.
Having a team of people whose job it is to advise on best practice in the
finance function came in handy. It came into its own again after Smith’s arrival
as he set about reorganising the finance department.

He acknowledges that it can be an issue when you divert your
externally-facing, fee-earning consultants onto in-house projects. “I would
certainly want Parson to be there in how we design the plans to move forward,”
Smith says, “then we have to make the decision whether they have the capacity to
do that project or whether they should just be supervising other people to do
that project.”

Back to front
A top priority is to get more value from the back offices of all the
acquisitions the company has made in recent years, in some cases moving to a
shared service centre model, but doing so by reorganising and linking existing
back offices rather than building a single new unit. “That’s my big plan. I
think it’s a massive plan, actually,” he adds.

And it’s a 100-day plan, though it’s US-orientated. The requirements in
Europe, where there are different language, cultural and payment issues, will
require a different kind of solution. “One of the things I’ve learnt in many
years of doing international business is that you have to treat each
jurisdiction, each country, very specifically.

“That’s not to say there aren’t some things we can do: for example, we’ll do
a global insurance policy and there are various savings in purchasing power that
we can put in place, such as travel policies. But in terms of a single European
shared service centre, I’m not convinced. There are lower hanging fruit to get
first and there’s a limit to how many projects you can do at the same time.”

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