Description
Abstract explain coming of age for a consulting company an entrepreneurial transition case study.
Coming of age for a consulting company: An entrepreneurial
ABSTRACT
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulti
various strategic alternatives, including whether to take their company “public”
have to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming
to decide the best course of action and to provide their reasons.
real-world situation of a small, but successful, private consulting firm that has reached a
point where a strategic assessment of the firm’s future is appropriate.
that students can gain exposure to a real
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent
and professionalism in style of writing.
Rubrics for student evaluation are provided. The case can be used as the entrepreneurship
component of a senior level capstone course i
entrepreneurship strategy course.
Keywords: consulting industry, forms of ownership, entrepreneurial options, costs
benefits of IPO versus internal growth
Journal of Business Cases and Applications
Coming of age for a consulting company: An entrepreneurial
transition case study
Wayne Koprowski
Dominican University
Khalid A. Razaki
Dominican University
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
an AOL component, but looks at a completely different
(management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
various strategic alternatives, including whether to take their company “public”.
to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company. Students
to decide the best course of action and to provide their reasons. The case is based on a
of a small, but successful, private consulting firm that has reached a
ent of the firm’s future is appropriate. It is designed so
that students can gain exposure to a real-life situation.
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent and logical argumentation, and
writing. Extensive Teaching Notes and Assessment
for student evaluation are provided. The case can be used as the entrepreneurship
component of a senior level capstone course in business strategy or in an MBA
entrepreneurship strategy course.
consulting industry, forms of ownership, entrepreneurial options, costs
benefits of IPO versus internal growth
Journal of Business Cases and Applications
Coming of age
Coming of age for a consulting company: An entrepreneurial
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
, but looks at a completely different
(management consulting versus manufacturing) and decision
ng firm who are considering
Students
to analyze and evaluate strategic alternatives available to the firm, and specifically,
a publicly traded company. Students have
The case is based on a
of a small, but successful, private consulting firm that has reached a
is designed so
The student evaluation is based on extensiveness of literature search, creativity in
and clarity
Extensive Teaching Notes and Assessment
for student evaluation are provided. The case can be used as the entrepreneurship
consulting industry, forms of ownership, entrepreneurial options, costs-
INTRODUCTION
Brumagim [2010] developed an
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL component, bu
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
various strategic alternatives, including whether to take their company “public”
have to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company.
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
strategic assessment of the firm’s future is appropriate. The
students can gain exposure to a real
have achieved a certain level of growth and success.
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent and logical argumentation, and clarity
and professionalism in style of writing.
Rubrics for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6]
student evaluation are provided in the Appendi
entrepreneurship component of a senior level capstone course in business strategy or in
an MBA entrepreneurship strategy course.
Serafina Invicelli, age 38, and
successful management consulting business
together ten years ago. Together they have grown their business from a start
respected consulting business headquartered in C
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
approximately 300 billable consultants and has a support staff of about 100 employees.
Revenues for the last fiscal year ended December 200
All of their office space is leased
primarily by the two principals.
Serafina is a PhD in Economics and
Serafina has established a reputation as an economics and statistics expert while
has leveraged years of experience as a corporate executive into a successful management
consulting practice. Their particular niche client market is small to mid
that are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
various government agencies.
At their 10th anniversary celebration,
plans for the future. They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
firm’s future. Being consultants by training, t
possible alternatives for the future of the firm.
Journal of Business Cases and Applications
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL component, but looks at a completely different
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
arious strategic alternatives, including whether to take their company “public”.
to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company. Students
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
strategic assessment of the firm’s future is appropriate. The case is designed so that
students can gain exposure to a real-life situation faced by small private companies which
have achieved a certain level of growth and success.
The student evaluation is based on extensiveness of literature search, creativity in
eveloping different transition strategies, coherent and logical argumentation, and clarity
writing. Extensive Teaching Notes and Assessment
s for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6]
in the Appendices. The case can be used as the
entrepreneurship component of a senior level capstone course in business strategy or in
an MBA entrepreneurship strategy course.
, age 38, and Horatio Brutus, age 55, are the principals in
successful management consulting business Invictus Solutions, which they started
Together they have grown their business from a start-up to a well
respected consulting business headquartered in Chicago with offices in Boston, Dallas,
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
able consultants and has a support staff of about 100 employees.
Revenues for the last fiscal year ended December 2008 were slightly over $165 million.
All of their office space is leased and not owned. So far, the firm has been capitalized
is a PhD in Economics and Horatio is an attorney and also has an MBA.
lished a reputation as an economics and statistics expert while
has leveraged years of experience as a corporate executive into a successful management
Their particular niche client market is small to mid-sized businesses
are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
iversary celebration, Serafina and Horatio were asked about their
They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
firm’s future. Being consultants by training, they started collecting facts and developing
possible alternatives for the future of the firm.
Journal of Business Cases and Applications
Coming of age
entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
t looks at a completely different
business environment (management consulting versus manufacturing) and decision
The case involves two principals in a private consulting firm who are considering
Students
to analyze and evaluate strategic alternatives available to the firm, and specifically,
Students have
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
case is designed so that
life situation faced by small private companies which
The student evaluation is based on extensiveness of literature search, creativity in
eveloping different transition strategies, coherent and logical argumentation, and clarity
Extensive Teaching Notes and Assessment
s for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6] for
entrepreneurship component of a senior level capstone course in business strategy or in
, age 55, are the principals in the
, which they started
up to a well-
hicago with offices in Boston, Dallas,
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
able consultants and has a support staff of about 100 employees.
65 million.
he firm has been capitalized
is an attorney and also has an MBA.
lished a reputation as an economics and statistics expert while Horatio
has leveraged years of experience as a corporate executive into a successful management
sized businesses
are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
were asked about their
They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
hey started collecting facts and developing
As the two principals reflect on ten years of being in the consulting business, they
are considering different strategic
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
principal-financed expansion; (3) Enhance the growth rate throug
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
consulting company; or (6) becom
Public Offering (IPO) is successful.
rewards associated with different strategies.
CONSULTING INDUSTRY OVERVIEW
Consulting industry history
Serafina and Horatio discovered that re
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
only 29 of the largest 75 consulting firms are st
consulting firms are now publicly traded [Adams
management consulting companies by revenues according to Careers in Business
Research (August 2009) are as stated in
Management consulting firms began to proliferate after World War II as the United
States transitioned into a peace-time economy. Management consulting has grown, with
growth rates in the industry exceeding 20% in the 1980s and 1990s. In 20
revenues for management consulting exceeded $3
revenues were approximately $160
Scope of consulting industry
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
Consulting firms offer expertise, experience and knowledge that their clients lack.
Generally, there are three types of consulting firms:
• The traditional business consulting firms which offer a wide array of consulting
services to a wide range of clients. Co
McKenzie and Company,
Group;
• The specialized or boutique firms. Examples include Watson Wyatt (human
resources and compensation) and Hewitt and Associates (ben
• The technology consulting
and it derives the majority of its revenues from technology consulting
is not a pure-play tech consulting company)
The consulting industry consists of firms
work-from-home practices, to the large multi
Journal of Business Cases and Applications
As the two principals reflect on ten years of being in the consulting business, they
strategic alternatives for their firm. They have developed a list
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
expansion; (3) Enhance the growth rate through substantial bank
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
become a publicly-traded company and cash out if the Initial
Public Offering (IPO) is successful. They realize that there are different risks and
rewards associated with different strategies.
CONSULTING INDUSTRY OVERVIEW
discovered that recent trends in the consulting industry
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
only 29 of the largest 75 consulting firms are still private. As of 2004, 17 of the top 20
consulting firms are now publicly traded [Adams & Zani, 2005]. The ranks of the largest
management consulting companies by revenues according to Careers in Business
are as stated in Table 1 (Appendix).
Management consulting firms began to proliferate after World War II as the United
time economy. Management consulting has grown, with
growth rates in the industry exceeding 20% in the 1980s and 1990s. In 2010, total global
revenues for management consulting exceeded $345 billion while domestic consulting
revenues were approximately $160.5 billion [Plunkett Research, 2011].
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
ulting firms offer expertise, experience and knowledge that their clients lack.
Generally, there are three types of consulting firms:
traditional business consulting firms which offer a wide array of consulting
services to a wide range of clients. Companies in this sector include firms such as
McKenzie and Company, Booze, Allen and Hamilton and The Boston Consulting
specialized or boutique firms. Examples include Watson Wyatt (human
resources and compensation) and Hewitt and Associates (benefits);
consulting firms: Accenture Ltd. is probably the most prominent
and it derives the majority of its revenues from technology consulting. (Accenture
play tech consulting company)
The consulting industry consists of firms of all sizes, from self-employed, one-person,
home practices, to the large multi-practice, global companies. The industry is
Journal of Business Cases and Applications
Coming of age
As the two principals reflect on ten years of being in the consulting business, they
eveloped a list
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
h substantial bank
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
cash out if the Initial
They realize that there are different risks and
cent trends in the consulting industry
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
ill private. As of 2004, 17 of the top 20
the largest
management consulting companies by revenues according to Careers in Business
Management consulting firms began to proliferate after World War II as the United
time economy. Management consulting has grown, with
0, total global
ion while domestic consulting
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
ulting firms offer expertise, experience and knowledge that their clients lack.
traditional business consulting firms which offer a wide array of consulting
mpanies in this sector include firms such as
, Allen and Hamilton and The Boston Consulting
specialized or boutique firms. Examples include Watson Wyatt (human
firms: Accenture Ltd. is probably the most prominent
(Accenture
person,
practice, global companies. The industry is
comprised of educated, experienced professionals
degree [Bureau of Labor Statistics,
industries, has gone global with many of the large consulting firms mainta
Europe and Asia.
Where do consultants come from?
Consultants come to the profession from several different route
managers and executives who have been terminated from their employment. Then there are the
“entrepreneurs”, which may also include “retirees,” who decide to leverage their years of
experience and expertise into part
theoretical knowledge which they desire to leverage
in which consulting positions are considered desirable by newly minted MBAs, the profession
attracts recent graduates. Since sta
consulting business is a very competitive one
smaller shops. It has become easier for small firms
electronic tools, availability of relevant datasets and the general escape of qualified professionals
from the ‘grind’ to be found in larger firms” ( Careers in Consulting,
business.com/consulting/mcfacts.htm
Consulting industry culture and work attributes
Critics of high-fee consulting services say that a consultant will borrow your
watch to tell you the time and send you a bill.
service business.” Generally speaking, clients hire a person, not the firm. Once a
consultant-client relationship is established, consultants become a valuable commodity
with respect to generating revenue
sometimes characterized as either revenue generators or producers, although the most
successful consultants are both. The
skilled at client development, i.e. finding clients who are willing to retain the firm. The
“producers” actually perform the client work and are generally
the rain-makers are. Compensation arrangements in firms can become complicated affairs
in terms of rewarding consultants
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
demands and schedules take precedence. It is not
extensively on client engagements, which can last several months. This is especially true
in the larger, multi-practice firms.
positions that go from zero to 100% trave
(careers.accenture.com). “Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
and live at the site of the client company, although they generally return home every
weekend” (http://www.arts.cornell.edu/career/careers_in_management_consulting.pdf
[2011].
As a consultant progresses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
Journal of Business Cases and Applications
comprised of educated, experienced professionals with about 74% having a bachelor’s
[Bureau of Labor Statistics, 2008-09].The consulting business, not unlike other
industries, has gone global with many of the large consulting firms maintaining offices in
Where do consultants come from?
Consultants come to the profession from several different routes. Some are
managers and executives who have been terminated from their employment. Then there are the
, which may also include “retirees,” who decide to leverage their years of
experience and expertise into part-time work. Others are academics who possess great
theoretical knowledge which they desire to leverage into economic advantage. Finally, in years
in which consulting positions are considered desirable by newly minted MBAs, the profession
Since start-up costs and barriers to entry are relatively low, the
consulting business is a very competitive one [Reh, 2011]. “There has been an explosion of
smaller shops. It has become easier for small firms to navigate the marketplace due to better
electronic tools, availability of relevant datasets and the general escape of qualified professionals
from the ‘grind’ to be found in larger firms” ( Careers in Consulting,http://www.careers
business.com/consulting/mcfacts.htm ) [2011].
Consulting industry culture and work attributes
fee consulting services say that a consultant will borrow your
and send you a bill. The consulting business is a “personal
service business.” Generally speaking, clients hire a person, not the firm. Once a
client relationship is established, consultants become a valuable commodity
g revenue or managing costs for the firm. Consultants are
sometimes characterized as either revenue generators or producers, although the most
The “revenue generators”, also called “rain-makers,” are
lopment, i.e. finding clients who are willing to retain the firm. The
“producers” actually perform the client work and are generally not rewarded as well as
Compensation arrangements in firms can become complicated affairs
rewarding consultants [Peterson, 2010].
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
demands and schedules take precedence. It is not unusual for consultants to travel
extensively on client engagements, which can last several months. This is especially true
practice firms. Accenture, the world’s largest consulting firm, has
positions that go from zero to 100% travel depending on the specific consulting position
“Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
t company, although they generally return home everyhttp://www.arts.cornell.edu/career/careers_in_management_consulting.pdf
ses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
Journal of Business Cases and Applications
Coming of age
a bachelor’s
The consulting business, not unlike other
ining offices in
s. Some are refugee
managers and executives who have been terminated from their employment. Then there are the
, which may also include “retirees,” who decide to leverage their years of
are academics who possess great
to economic advantage. Finally, in years
in which consulting positions are considered desirable by newly minted MBAs, the profession
up costs and barriers to entry are relatively low, the
“There has been an explosion of
to navigate the marketplace due to better
electronic tools, availability of relevant datasets and the general escape of qualified professionalshttp://www.careers-in-
fee consulting services say that a consultant will borrow your
The consulting business is a “personal
service business.” Generally speaking, clients hire a person, not the firm. Once a
client relationship is established, consultants become a valuable commodity
for the firm. Consultants are
sometimes characterized as either revenue generators or producers, although the most
makers,” are
lopment, i.e. finding clients who are willing to retain the firm. The
not rewarded as well as
Compensation arrangements in firms can become complicated affairs
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
unusual for consultants to travel
extensively on client engagements, which can last several months. This is especially true
Accenture, the world’s largest consulting firm, has
position
“Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
t company, although they generally return home everyhttp://www.arts.cornell.edu/career/careers_in_management_consulting.pdf )
ses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
Consultants who routinely find themselves either “on the bench,” i.e. not engaged in
client projects, or who cannot generate clients find themselves at risk of being terminated.
Between disenchantment and burn
Annual employee turnover of 12.5
news.com/article_display.aspy?P=adp&id=2079
Professional service organizations are unique in th
consultants, can literally walk out the door with their clients, potentially damaging the
firm severely since lost clients are lost revenues
Consulting firms, like other professional
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
companies tend to be more vulnerable
Consulting industry trends
A research study conducted by Plunkett Research
following:
Globalization.
Much of the recent growth in the industry has come from increased global demand
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
consulting companies maintain offices in Europe, Asia, and
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
This trend seems to be reversing itself because
acquisition activity still sluggish, management consulting firms are turning to emerging markets
like China and India for growth”
Information Technology.
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
also increasingly includes the outsourcing of IT services to consulting firms by clients
www.accenture.com ).
Current Outlook.
The consulting industry is not immune to the slowdown in the world economy.
Both the private sector and government have cut their spending budgets. The end result
is that competition in the consulting industry will become more intense.
are some positive signs that a mild recovery is underway, especially with the governm
stimulus package, the large traditional consultancies may face increased competition
Journal of Business Cases and Applications
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
ly find themselves either “on the bench,” i.e. not engaged in
ot generate clients find themselves at risk of being terminated.
Between disenchantment and burn-out, the “glamour” of consulting soon loses its appeal.
12.5%, or higher, is possible (http://www.consulting
news.com/article_display.aspy?P=adp&id=2079 ) [2005].
Professional service organizations are unique in that their “assets,” the individual
consultants, can literally walk out the door with their clients, potentially damaging the
firm severely since lost clients are lost revenues if there is no non-compete agreement.
Consulting firms, like other professional service organizations, remain constantly
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
nd to be more vulnerable to adverse changes [Peterson, 2010].
research study conducted by Plunkett Research [2011], Plunkett reported the
Much of the recent growth in the industry has come from increased global demand
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
consulting companies maintain offices in Europe, Asia, and South America. However, the boom
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
This trend seems to be reversing itself because “With their fees under pressure and merger and
ish, management consulting firms are turning to emerging markets
” (www.consultingcase101.com) [2010].
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
includes the outsourcing of IT services to consulting firms by clients
The consulting industry is not immune to the slowdown in the world economy.
e private sector and government have cut their spending budgets. The end result
is that competition in the consulting industry will become more intense. And while
are some positive signs that a mild recovery is underway, especially with the governm
the large traditional consultancies may face increased competition
Journal of Business Cases and Applications
Coming of age
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
ly find themselves either “on the bench,” i.e. not engaged in
ot generate clients find themselves at risk of being terminated.
out, the “glamour” of consulting soon loses its appeal.http://www.consulting-
at their “assets,” the individual
consultants, can literally walk out the door with their clients, potentially damaging the
compete agreement.
service organizations, remain constantly
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
Plunkett reported the
Much of the recent growth in the industry has come from increased global demand for
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
South America. However, the boom
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
With their fees under pressure and merger and
ish, management consulting firms are turning to emerging markets
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
includes the outsourcing of IT services to consulting firms by clients (
The consulting industry is not immune to the slowdown in the world economy.
e private sector and government have cut their spending budgets. The end result
hile there
are some positive signs that a mild recovery is underway, especially with the government
the large traditional consultancies may face increased competition
from smaller, niche firms. Therefore,
competitive advantage [Plunkett, 201
INVICTUS SOLUTIONS BACKGROUND
Invictus Solutions Practice Areas
Invictus Solutions falls into the category of a traditional consulting firm
consisting of a number of practices within the firm, which provides a variety of
professional services to its clients. The firm assists client companies
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
and implementing appropriate business solutions with respect to busines
firm’s practice areas mirror very closely those of one of its competitors, Navigant
Consulting, Inc. which are detailed below
Risk management and complia
The services range from conducting a company
purpose of recommending audit improvements and compliance programs, to conducting
individual investigations. Specific services include:
Regulatory compliance reviews
Recommending corporate governance programs
Economics and statistical services:
Specific services include:
Evaluation of strategies for settling versus litigating claims
Statistical data analysis
Business valuations
Identifying and monitoring performance metrics
Corporate fraud investigations:
Invictus Consulting has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
risks or threats to various aspects of a business. Specific services include:
Special investigations
Management and employee fraud
Training on fraud awareness and prevention
Financial and accounting services:
The firm has expertise and strong project m
financial processes, financial reporting and internal controls. It does not, and c
provide independent accounting services. Services include:
Journal of Business Cases and Applications
Therefore, size and name recognition could provide a
, 2011].
BACKGROUND
Practice Areas
falls into the category of a traditional consulting firm
consisting of a number of practices within the firm, which provides a variety of
professional services to its clients. The firm assists client companies in understanding
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
and implementing appropriate business solutions with respect to business problems. The
firm’s practice areas mirror very closely those of one of its competitors, Navigant
detailed below (www.navigantconsulting.com). [2011]
Risk management and compliance:
The services range from conducting a company-wide risk assessment for the
purpose of recommending audit improvements and compliance programs, to conducting
individual investigations. Specific services include:
ding corporate governance programs
Economics and statistical services:
Evaluation of strategies for settling versus litigating claims
Identifying and monitoring performance metrics
Corporate fraud investigations:
has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
sks or threats to various aspects of a business. Specific services include:
Management and employee fraud
Training on fraud awareness and prevention
Financial and accounting services:
The firm has expertise and strong project management experience analyzing
financial processes, financial reporting and internal controls. It does not, and cann
provide independent accounting services. Services include:
Journal of Business Cases and Applications
Coming of age
size and name recognition could provide a
in understanding
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
s problems. The
firm’s practice areas mirror very closely those of one of its competitors, Navigant
[2011]
wide risk assessment for the
purpose of recommending audit improvements and compliance programs, to conducting
has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
anagement experience analyzing
annot,
SEC reporting and disclosures
Strategic and operations planning
Company Clients:
Invictus Solutions has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
industrial equipment, telecommunications, and consumer products as well as
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
to its current clients as a way of growing its business (known as “
servicing”). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
well-known competitors like Navigant Consulting.
While the two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
not only for individual advancement and growth, but also for the long
the firm.
Company Competition
Depending on the particular practice area,
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
The practice area offerings are very similar. Another competitor
(symbol HURN) (www.huronconsultinggroup.com
company.
While both Navigant and Huron compete with
practice areas, their service offerings are broader. For example, in addition to the
practice areas mentioned for Invictus Solutions
in Accounting and Finance, Disputes, Government Contracting and E
also offers consulting services in Restructuring and Turnarounds, Transactions (Due
Diligence Investigations), Strategy and Operations.
Company Culture
Serafina and Horatio have intentionally created a professional, yet casual, non
threatening atmosphere within their or
culture:
“I like to believe the consultants at
stimulating yet comfortable work place. We encourage our consultants to devote non
billable time to non-project related lea
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
our consultants can find that balance,
they will be more productive and happy employees.
Journal of Business Cases and Applications
ing
has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
industrial equipment, telecommunications, and consumer products as well as various
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
to its current clients as a way of growing its business (known as “cross selling” or
). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
known competitors like Navigant Consulting.
two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
l advancement and growth, but also for the long-term survival of
Depending on the particular practice area, Invictus Solutions has any number of
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
The practice area offerings are very similar. Another competitor is Huron Consulting
www.huronconsultinggroup.com). Huron Consulting is also a NYSE
While both Navigant and Huron compete with Invictus Solutions in a number of
ir service offerings are broader. For example, in addition to the
Invictus Solutions, both Navigant and Huron offer services
in Accounting and Finance, Disputes, Government Contracting and E-Discovery. Huron
lting services in Restructuring and Turnarounds, Transactions (Due
Diligence Investigations), Strategy and Operations.
have intentionally created a professional, yet casual, non
threatening atmosphere within their organization. Horatio commented on his firm’s
I like to believe the consultants at Invictus Solutions find a professional,
stimulating yet comfortable work place. We encourage our consultants to devote non
project related learning. Also, we have tried hard to create an
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
our consultants can find that balance, Serafina and I continue to believe that ultimately,
and happy employees.”
Journal of Business Cases and Applications
Coming of age
has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
various
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
or “cross-
). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
term survival of
has any number of
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
is Huron Consulting
). Huron Consulting is also a NYSE
in a number of
ir service offerings are broader. For example, in addition to the
, both Navigant and Huron offer services
Discovery. Huron
lting services in Restructuring and Turnarounds, Transactions (Due
have intentionally created a professional, yet casual, non-
commented on his firm’s
find a professional,
stimulating yet comfortable work place. We encourage our consultants to devote non-
rning. Also, we have tried hard to create an
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
and I continue to believe that ultimately,
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
subjected to unrelenting demands for continually improving pe
in more outside scrutiny.
Company Financials
The firm has grown and has performed well as a private company.
financial information for the past three years is set forth in Table 2
STRATEGIC ALTERNATIVES
As Serafina Invicelli and
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
IPO of Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
albeit exceptional and in no way comparable to the small/medium size
Goldman Sachs raised $3.6 billion of capital in its 1999 IPO. After going public,
according to the Goldman Sachs 2000 and 2008 annual reports,
$25 billion in revenues in 1999 to $46
partners at Goldman Sachs held shares worth $63 million per partner.
More instructive to Serafina
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million.
3 (Appendix) shows, following the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, the
growth rate was much higher than
percent.
They also researched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
reporting requirements [SEC]. They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
regulations.
For example, as a result of the excesses which came to light in the early 2000
2002 time period, Congress enacted the Sarbanes
corporate compliance and governance issues. The Act imposes additional requirements
on publicly traded firms, such as personal certification by the chief executive officer and
chief financial officer regarding the accuracy of financial
systems; a “whistleblower” procedure monitored by an independent audit committee.
Serafina and Horatio have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
pleasure from the status associated with being the firm’s owners. While the
administrative aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
Journal of Business Cases and Applications
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
subjected to unrelenting demands for continually improving performance, which results
The firm has grown and has performed well as a private company. Selected
inancial information for the past three years is set forth in Table 2 (Appendix).
STRATEGIC ALTERNATIVES
and Horatio Brutus contemplate their firm’s future, they
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
f Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
and in no way comparable to the small/medium size Invictus Solutions
ion of capital in its 1999 IPO. After going public,
according to the Goldman Sachs 2000 and 2008 annual reports, the company grew from
ion in revenues in 1999 to $46 billion in 2007. On the IPO date, the 221 senior
partners at Goldman Sachs held shares worth $63 million per partner.
Serafina and Horatio, however, was the 1996 IPO of the
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million.
ollowing the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, the
growth rate was much higher than Invictus Solutions which is growing less than 10
arched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
e, as a result of the excesses which came to light in the early 2000
2002 time period, Congress enacted the Sarbanes-Oxley Act (“Act,”), which addresses
corporate compliance and governance issues. The Act imposes additional requirements
firms, such as personal certification by the chief executive officer and
financial officer regarding the accuracy of financial statements; internal control
systems; a “whistleblower” procedure monitored by an independent audit committee.
have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
pleasure from the status associated with being the firm’s owners. While the
e aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
Journal of Business Cases and Applications
Coming of age
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
rformance, which results
Selected
contemplate their firm’s future, they
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
f Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
Invictus Solutions.
ion of capital in its 1999 IPO. After going public,
the company grew from
ion in 2007. On the IPO date, the 221 senior
, however, was the 1996 IPO of the
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million. As Table
ollowing the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, their
which is growing less than 10
arched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
e, as a result of the excesses which came to light in the early 2000-
Oxley Act (“Act,”), which addresses
corporate compliance and governance issues. The Act imposes additional requirements
firms, such as personal certification by the chief executive officer and
statements; internal control
systems; a “whistleblower” procedure monitored by an independent audit committee.
have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
e aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
the firm’s direction. However, they realize that a review of strategic alternat
timely and appropriate. Although
they are also willing to consider other strategic options.
CASE ENDING QUESTIONS:
1. List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
2. What other alternatives should the principals consider? List and evaluate the
advantages and disadvantages of each of these alternatives?
3. Evaluate the legal implications of “going public
4. Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
TEACHING NOTES
The teaching notes consist of Learni
issues, and Student Evaluation Rubrics.
LEARNING OBJECTIVES
The instructor should give homework assignments and conduct class discussions
to focus on the following concepts and points regarding critical attr
forms of ownership of a service business and their respective complications and financial
and psychological costs-benefits:
• List and evaluate the various advantages and disadvantages of becoming a publicly traded
company.
• What other alternatives should the principals consider? List and evaluate the advantages
and disadvantages of each of these alternatives?
• Evaluate the legal implications of “going public.”
• Decide on the best course of action for the firm, i.e. stay private, ta
(IPO), or another alternative. Give reasons to support your decision.
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
Students should be able to identify the following three
publicly-traded company.
A. Access to Equity Markets
Journal of Business Cases and Applications
the firm’s direction. However, they realize that a review of strategic alternatives is both
timely and appropriate. Although Invictus Solutions are focusing primarily on an IPO,
they are also willing to consider other strategic options.
CASE ENDING QUESTIONS:
List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
What other alternatives should the principals consider? List and evaluate the
advantages and disadvantages of each of these alternatives?
gal implications of “going public”.
Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
consist of Learning Objectives, detailed discussion of relevant
issues, and Student Evaluation Rubrics.
The instructor should give homework assignments and conduct class discussions
to focus on the following concepts and points regarding critical attributes of the different
forms of ownership of a service business and their respective complications and financial
benefits:
List and evaluate the various advantages and disadvantages of becoming a publicly traded
other alternatives should the principals consider? List and evaluate the advantages
and disadvantages of each of these alternatives?
Evaluate the legal implications of “going public.”
Decide on the best course of action for the firm, i.e. stay private, take the firm public
(IPO), or another alternative. Give reasons to support your decision.
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
Students should be able to identify the following three advantages of being a
Access to Equity Markets
Journal of Business Cases and Applications
Coming of age
ives is both
are focusing primarily on an IPO,
List and evaluate the various advantages and disadvantages of becoming a
What other alternatives should the principals consider? List and evaluate the
Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
ng Objectives, detailed discussion of relevant
The instructor should give homework assignments and conduct class discussions
ibutes of the different
forms of ownership of a service business and their respective complications and financial
List and evaluate the various advantages and disadvantages of becoming a publicly traded
other alternatives should the principals consider? List and evaluate the advantages
ke the firm public
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
advantages of being a
Unlike a private company, which has limited opportunities for raising capital
(primarily the owners’ personal capital investments), publicly
the financial markets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
expansion.
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
later changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
$244.6 million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
like Invictus Solutions Consulting.
Stock is commonly used to finance a portion of an
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
increasing wealth if the stock, which is
appreciates in value. A typical purchase price formula would consist of cash, stock
(equity in the acquiring company) and an “earn
specified performance goals. The percentage of
amount of each is a subject of negotiation between the buyer and seller.
B. Equity Ownership
A major inducement for any owners wishing to take their firm public is the
opportunity for a large payday upon the sale of thei
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
potential riches associated with an IPO. On the
221 senior partners at Goldman Sachs held shares worth an eye
partner [Goldman Sachs, 2000].
Equity is also used as a form of compensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders
congruence), since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Equity is also used as a form of com
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be pr
aligns the interests of the employees of a company with those of its shareholders
congruence), since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Journal of Business Cases and Applications
Unlike a private company, which has limited opportunities for raising capital
(primarily the owners’ personal capital investments), publicly-traded companies can tap
rkets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
ater changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
Consulting.
Stock is commonly used to finance a portion of an acquisition (NOTE: The instructor
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
increasing wealth if the stock, which is received as a part of the purchase price,
appreciates in value. A typical purchase price formula would consist of cash, stock
(equity in the acquiring company) and an “earn-out” bonus, i.e. pay for achieving
specified performance goals. The percentage of each portion of the formula and the
amount of each is a subject of negotiation between the buyer and seller.
A major inducement for any owners wishing to take their firm public is the
opportunity for a large payday upon the sale of their stock holdings in the new publicly
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
potential riches associated with an IPO. On the day that Goldman Sachs went public
221 senior partners at Goldman Sachs held shares worth an eye-popping $63 million per
.
Equity is also used as a form of compensation for employees, which can be an
r join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
interests of the employees of a company with those of its shareholders
, since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Equity is also used as a form of compensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders
, since employees have a vested interest in ensuring the company performs
n a higher stock price.
Journal of Business Cases and Applications
Coming of age
Unlike a private company, which has limited opportunities for raising capital
traded companies can tap
rkets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
ater changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
acquisition (NOTE: The instructor
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
appreciates in value. A typical purchase price formula would consist of cash, stock
out” bonus, i.e. pay for achieving
each portion of the formula and the
r stock holdings in the new publicly
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
day that Goldman Sachs went public, the
popping $63 million per
Equity is also used as a form of compensation for employees, which can be an
r join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
interests of the employees of a company with those of its shareholders (goal
, since employees have a vested interest in ensuring the company performs
pensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
oductive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders (goal
, since employees have a vested interest in ensuring the company performs
C. Size
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
not necessarily always better. But in a professional services organization like c
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
loss of a consultant who is responsible for generating $10 m
affects the firm. However, if the firm’s
rainmaker will have a less serious impact.
Issue 2. Evaluate the legal implications of “going public.
Students should be able to ide
publicly-traded company:
A. Legal Implications – Transparency
The legal implications of becoming a publicly traded company are significant.
Publicly traded companies exist in a “fishbowl.” The federal secu
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
corporate scandals which came to light in the early 2000
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
their officers and directors. The idea behind these required disclosures i
i.e. the extent to which investors have ready access to corporate personnel and financial
information about the company.
For example, the Securities and Exchange Commission (SEC) has promulgated
elaborate disclosure rules in connection
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
CFR 240.14a-101]. Item 402 of Regulation S
executive officer compensation such as sa
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
information about the directors and of
Regulation S-K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
investment decision. In a private co
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
compensation. Compensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
disclosures in a publicly traded company, security and safety issues are a legitimate
concern.
Journal of Business Cases and Applications
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
not necessarily always better. But in a professional services organization like consulting,
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
loss of a consultant who is responsible for generating $10 million in revenue dramatically
affects the firm. However, if the firm’s revenues were $500 million, the departure of
will have a less serious impact.
implications of “going public.
Students should be able to identify the following five disadvantages of being a
Transparency
The legal implications of becoming a publicly traded company are significant.
Publicly traded companies exist in a “fishbowl.” The federal securities regulations
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
corporate scandals which came to light in the early 2000-2001 time period (Enron,
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
their officers and directors. The idea behind these required disclosures is “transparency,”
i.e. the extent to which investors have ready access to corporate personnel and financial
information about the company.
For example, the Securities and Exchange Commission (SEC) has promulgated
elaborate disclosure rules in connection with the content of proxy statements sent to
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
101]. Item 402 of Regulation S-K requires disclosure of director and
executive officer compensation such as salary, bonuses, stock ownership, stock option
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
information about the directors and officers (Items 103, 401 and 404(1) and (b) of
K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
In a private company, the principals maintain a certain anonymity
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
pensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
cly traded company, security and safety issues are a legitimate
Journal of Business Cases and Applications
Coming of age
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
onsulting,
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
illion in revenue dramatically
were $500 million, the departure of a
ntify the following five disadvantages of being a
The legal implications of becoming a publicly traded company are significant.
rities regulations
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
e period (Enron,
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
s “transparency,”
i.e. the extent to which investors have ready access to corporate personnel and financial
For example, the Securities and Exchange Commission (SEC) has promulgated
with the content of proxy statements sent to
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
K requires disclosure of director and
lary, bonuses, stock ownership, stock option
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
ficers (Items 103, 401 and 404(1) and (b) of
K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
mpany, the principals maintain a certain anonymity
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
pensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
cly traded company, security and safety issues are a legitimate
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
Exchange (NYSE) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
development of corporate governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
that the CEO is unaware of NYSE violations
“Notice to and Filings with the E
of business occurrences including changes in capital, changes in directors or executive
officers, or changes in auditors.
B. Legal Implications – Cost
Going public is not an inexpensive undertaking. There
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
expenses. For example, the minimum listing application f
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
million. (The maximum listing fee is capped at $250,000)
Various authors have calculated the costs for going public. Draho
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
involve direct costs between $8.4 million and $8.8 million” (these costs i
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
state fees, transfer agent and miscellaneous fees). Ritter
costs of an IPO in the range of 16.96% for IPO’s of $10 million or les
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
IPO. Lastly, Entrepreneur Magazine
estimated IPO costs of “no less than 25%” of the company’s stock offering.
In addition, publicly traded firms have significant ongoing expenses. While there have
always been expenses associated directly with being a publicly traded co
legal and accounting fees and ann
example, the minimum annual listing fee for the NYSE is $38,000), costs have increased
since the passage of the Sarbanes
Congress as a direct result of the numerous corporate abuses that came to light
2000-2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
policies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
Estimates of first-year compliance costs range from $4.6 million for large compani
billion in sales) to $2 million for medium to small companies.
compliance with the Act is estimated at $2.9 million
be interesting to ask students to guess what the
Journal of Business Cases and Applications
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
that the CEO is unaware of NYSE violations [NYSE, 2009]. Section 204 entitled
“Notice to and Filings with the Exchange” requires notice to the NYSE for any number
of business occurrences including changes in capital, changes in directors or executive
Going public is not an inexpensive undertaking. There are significant upfront costs
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
expenses. For example, the minimum listing application fee for the NYSE is $37,500
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
million. (The maximum listing fee is capped at $250,000) [NYSE, 2009].
Various authors have calculated the costs for going public. Draho [1998] in his book
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
involve direct costs between $8.4 million and $8.8 million” (these costs include
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
state fees, transfer agent and miscellaneous fees). Ritter [1998] estimated total direct
costs of an IPO in the range of 16.96% for IPO’s of $10 million or less to 5.72% for
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
Lastly, Entrepreneur Magazine [2005] in an article entitled “Going Public”
estimated IPO costs of “no less than 25%” of the company’s stock offering.
In addition, publicly traded firms have significant ongoing expenses. While there have
always been expenses associated directly with being a publicly traded company, such as
annual membership fees for an exchange listing (for
ual listing fee for the NYSE is $38,000), costs have increased
since the passage of the Sarbanes-Oxley Act of 2001 (Act). The Act was passed by
Congress as a direct result of the numerous corporate abuses that came to light during
2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
licies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
year compliance costs range from $4.6 million for large compani
ion in sales) to $2 million for medium to small companies. The average cost of
compliance with the Act is estimated at $2.9 million [Hartman, 2007]. (NOTE: It might
be interesting to ask students to guess what the annual costs of compliance are).
Journal of Business Cases and Applications
Coming of age
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
. Section 204 entitled
xchange” requires notice to the NYSE for any number
of business occurrences including changes in capital, changes in directors or executive
are significant upfront costs
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
ee for the NYSE is $37,500
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
in his book
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
estimated total direct
s to 5.72% for
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
itled “Going Public”
In addition, publicly traded firms have significant ongoing expenses. While there have
mpany, such as
ual membership fees for an exchange listing (for
ual listing fee for the NYSE is $38,000), costs have increased
passed by
during
2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
licies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
year compliance costs range from $4.6 million for large companies ($5
The average cost of
Hartman, 2007]. (NOTE: It might
C. Equity Downsides
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
circumstances which are beyond a company’s control. For instan
market leader may adversely affect stock prices in other companies within the same
sector or industry. Invictus Solutions
on morale should the company’s stock fail to increase in v
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
14.1% in the month of October 2008 alone) [Steverman, 200
(ii) When there is too much focus on increasing the stock price, two unwelcome
side effects are possible. The first is short
making). There may be decisions required for the long
which may result in lower short-term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the
can have short-term negative financial consequences,
company’s stock price leading to a
expenditures.
The second “unwelcome” consequence of too much focus on a company’s stock
is the temptation to take shortcuts in order to inflate stock price. Examples
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
that Bernie Ebbers, the former CEO of WorldCom
price several times a day).
D. Investor Expectations
Unlike a privately held company, publicly
pressure for results from outside sources
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio;
financial analysts who follow the company. Si
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
large pension funds which have a long
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
on management. They can also influence chang
membership. Going public would entail constant pressure for financial results. As one
CEO stated, “there’s no fourth quarter when you’re the CEO.” In other words, the
attitude of new investors is “what have you done for me lat
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
Journal of Business Cases and Applications
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
circumstances which are beyond a company’s control. For instance, poor results for a
market leader may adversely affect stock prices in other companies within the same
Invictus Solutions will have to consider the possible negative effects
on morale should the company’s stock fail to increase in value, or worse, suffer declines
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
14.1% in the month of October 2008 alone) [Steverman, 2008].
(ii) When there is too much focus on increasing the stock price, two unwelcome
side effects are possible. The first is short-term thinking (managerial myopic decision
. There may be decisions required for the long-term viability of the compa
term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the
term negative financial consequences, it may adversely affect a
leading to a temptation to defer costly, but necessary,
The second “unwelcome” consequence of too much focus on a company’s stock
the temptation to take shortcuts in order to inflate stock price. Examples abound
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
t Bernie Ebbers, the former CEO of WorldCom, would check the company’s stock
Unlike a privately held company, publicly-traded companies face considerable
pressure for results from outside sources. These include shareholders who invest in a
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio;
financial analysts who follow the company. Since most shareholders (over 60%) are now
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
large pension funds which have a long-term perspective do focus on the quality of
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
on management. They can also influence changes in management and board
membership. Going public would entail constant pressure for financial results. As one
, “there’s no fourth quarter when you’re the CEO.” In other words, the
attitude of new investors is “what have you done for me lately.” There is always some
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
Journal of Business Cases and Applications
Coming of age
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
ce, poor results for a
market leader may adversely affect stock prices in other companies within the same
will have to consider the possible negative effects
alue, or worse, suffer declines
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
(ii) When there is too much focus on increasing the stock price, two unwelcome
(managerial myopic decision
term viability of the company,
term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the future
The second “unwelcome” consequence of too much focus on a company’s stock
abound.
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
would check the company’s stock
traded companies face considerable
shareholders who invest in a
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio; and
nce most shareholders (over 60%) are now
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
rm perspective do focus on the quality of
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
membership. Going public would entail constant pressure for financial results. As one
, “there’s no fourth quarter when you’re the CEO.” In other words, the
ely.” There is always some
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
purchased stock in a well-managed, high performing comp
performance does not meet their expectations).
E. Culture
(NOTE: The instructor might ask students to define “culture”).
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
importance and significance to an organization c
As the principals of Invictus Solutions
considerations will be to evaluate the impact of becoming a “public” company on the
culture of their firm. They learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
generate billable hours to satisfy investor expectations. Career development is an area
that Serafina and Horatio actively promoted.
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
recruited directly from college with an expectation of workin
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
“psychological contract” formed during the recr
prospective employees that the firm will continue to “honor” its contract by maintaining
the firm’s culture. In addition, not all consultants fit well in a large, results
organization and prefer a more flex
public would alter the firm’s culture possibly disappointing some employees,
causing morale problems.
Issue 3. Identify and evaluate the advantages and disadvantages of the following
three strategic alternatives:
A. Status Quo
(NOTE: The instructor might ask students what they believe the most obvious
strategic alternative is).
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
maintain the status quo, and simply continue operations as they have in the past. There
are several advantages to this option:
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
disclosures about the firm’s performance, personal information about its of
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
maintain anonymity and privacy, but also would have more independence, c
flexibility in operating their firm.
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
Journal of Business Cases and Applications
managed, high performing company and the company’s
performance does not meet their expectations).
NOTE: The instructor might ask students to define “culture”).
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
significance to an organization cannot be underestimated.
Invictus Solutions evaluate the IPO option, one of their major
considerations will be to evaluate the impact of becoming a “public” company on the
learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
able hours to satisfy investor expectations. Career development is an area
actively promoted.
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
recruited directly from college with an expectation of working in a small private firm
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
“psychological contract” formed during the recruiting process, i.e. an expectation by
prospective employees that the firm will continue to “honor” its contract by maintaining
the firm’s culture. In addition, not all consultants fit well in a large, results-dominated
organization and prefer a more flexible environment with less outside pressure. Going
public would alter the firm’s culture possibly disappointing some employees, and/or
Issue 3. Identify and evaluate the advantages and disadvantages of the following
(NOTE: The instructor might ask students what they believe the most obvious
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
simply continue operations as they have in the past. There
are several advantages to this option:
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
disclosures about the firm’s performance, personal information about its officers/directors
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
maintain anonymity and privacy, but also would have more independence, control and
flexibility in operating their firm.
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
Journal of Business Cases and Applications
Coming of age
any and the company’s
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
evaluate the IPO option, one of their major
considerations will be to evaluate the impact of becoming a “public” company on the
learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
able hours to satisfy investor expectations. Career development is an area
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
g in a small private firm
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
uiting process, i.e. an expectation by
prospective employees that the firm will continue to “honor” its contract by maintaining
dominated
ible environment with less outside pressure. Going
and/or
Issue 3. Identify and evaluate the advantages and disadvantages of the following
(NOTE: The instructor might ask students what they believe the most obvious
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
simply continue operations as they have in the past. There
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
ficers/directors
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
ontrol and
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
public accountants, legal fees for vari
and shareholder meeting costs.
(iii) The firm could retain its culture. Consulting firms grow by adding
consultants. One source of new consultants is college graduates. Some individuals
prefer working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
carefully nurtured culture.
(iv) The principals can maintain their “status” as owners of
an intangible factor, its importance should not be underestimated.
personally witnessed the adjustments that former owners of acquired firms struggle with
after the acquisition. Once the euphoria of the bi
can arise.
There are several disadvantages to remaining private:
(i) Growth opportunities may be more limited As
companies can leverage their size, visibility and can use the capital
growth. This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
for non-gilt-edged firms because of the harsher lending standards of
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]
have become more risk adverse. Up to this point, the two main principals of
Solutions have financed the firm primarily through their own
coming from other principals. However,
personal investment in the firm is prudent.
(iii) No equity cash-out. While there are certain restrictions generally imposed by
the underwriters concerning how soon the principals can liquidate their stock holdings in
a newly created publicly-traded company (“lock
payday if the firm remains private. Also, there may not be equity upside potential
ability to compensate consultants with equity.
B. Remain private but make acquisitions in order to grow.
Consulting firms, like other professional services organizations, can grow by
either raising fees, getting more work from current clients (both way
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
delicate balance between meeting ever increasing expenses and yi
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
serious consideration.
The advantages of an acquisition
(i) The firm can grow. A firm can raise fees, or sell more services to current
clients. But with an acquisition, the firm acquires new clients
consultants virtually instantaneously
overnight, thereby short-circuiting the tedious and time
new “book of business” in a practice area from scratch.
Journal of Business Cases and Applications
public accountants, legal fees for various disclosure issues, stock exchange fees, printing
(iii) The firm could retain its culture. Consulting firms grow by adding bill
consultants. One source of new consultants is college graduates. Some individuals
r working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
The principals can maintain their “status” as owners of the firm. While this is
an intangible factor, its importance should not be underestimated. One of the authors
witnessed the adjustments that former owners of acquired firms struggle with
after the acquisition. Once the euphoria of the big “payday” fades, real morale problems
There are several disadvantages to remaining private:
(i) Growth opportunities may be more limited As stated earlier, publicly traded
companies can leverage their size, visibility and can use the capital markets to fuel
This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
edged firms because of the harsher lending standards of banks that have been
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]
have become more risk adverse. Up to this point, the two main principals of Invictus
have financed the firm primarily through their own resources with some capital
coming from other principals. However, there are limits as to how much continu
personal investment in the firm is prudent.
out. While there are certain restrictions generally imposed by
rs concerning how soon the principals can liquidate their stock holdings in
traded company (“lock-up provisions”), there would be no large
payday if the firm remains private. Also, there may not be equity upside potential
bility to compensate consultants with equity.
B. Remain private but make acquisitions in order to grow.
Consulting firms, like other professional services organizations, can grow by
either raising fees, getting more work from current clients (both ways referred to as
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
delicate balance between meeting ever increasing expenses and yielding to the pressure
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
The advantages of an acquisition are:
(i) The firm can grow. A firm can raise fees, or sell more services to current
clients. But with an acquisition, the firm acquires new clients and new billable
virtually instantaneously. The firm can also diversify into new practice are
circuiting the tedious and time-consuming process of building a
new “book of business” in a practice area from scratch.
Journal of Business Cases and Applications
Coming of age
ous disclosure issues, stock exchange fees, printing
billable
consultants. One source of new consultants is college graduates. Some individuals
r working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
the firm. While this is
the authors has
witnessed the adjustments that former owners of acquired firms struggle with
g “payday” fades, real morale problems
, publicly traded
markets to fuel
This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
banks that have been
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]. Banks
Invictus
resources with some capital
continuing
out. While there are certain restrictions generally imposed by
rs concerning how soon the principals can liquidate their stock holdings in
up provisions”), there would be no large
payday if the firm remains private. Also, there may not be equity upside potential or the
Consulting firms, like other professional services organizations, can grow by
s referred to as
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
elding to the pressure
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
(i) The firm can grow. A firm can raise fees, or sell more services to current
. The firm can also diversify into new practice areas
consuming process of building a
(ii) The firm acquires new talent, experience, expertise and resources, which it
can market to current and prospective clients.
(iii) If integrated properly, the new combined firm should experience certain
operating efficiencies, i.e. more bill
the same, or slightly increased number
support functions like accounting and human resources can usually absorb new
consultants with little or no additions to their staff.
The disadvantages of making an acquisition are:
(i) Acquisitions are risky.
statements) can make a firm appear attractive as a potential target company, there are
intangible considerations. Statistics show that the failure of most mergers and
acquisitions lies somewhere between 40
outside the existing core competencies
the same specialty space. Research
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
reports are handled; flexibility of
office. Therefore, the post acquisition assimilation and integration of an acquired firm
are critical to the eventual success of an acquisition.
(ii) Increased overhead expenses. As a condition of some
of a privately held firm, the seller will require the buyer to hire all of its employees,
including non-billable staff. Owners of small firms who are selling their company and
“cashing-out” feel an obligation to their employees w
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
In addition, the seller may have office, a
which the buyer must assume.
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
investing a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
debt of the target company, or taking on too much debt to make the acquisition.
C. Sell firm, i.e. be acquired by another company
The advantages of selling the firm are:
(i) Cash-out by owners. The potential exists for a large cash payment. Private
acquisitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
appreciates in value.
(iii) Shedding administrative and operational responsibilities. The day
duties and responsibilities of running an organization can be time
frustrating. It is very likely that most, if not all, these responsibili
off to other individuals within the acquiring company.
Journal of Business Cases and Applications
(ii) The firm acquires new talent, experience, expertise and resources, which it
can market to current and prospective clients.
(iii) If integrated properly, the new combined firm should experience certain
billable consultants generating revenue and profits with
the same, or slightly increased number of support staff. Savings are possible since
support functions like accounting and human resources can usually absorb new
consultants with little or no additions to their staff.
The disadvantages of making an acquisition are:
(i) Acquisitions are risky. While financial projections (pro forma financial
statements) can make a firm appear attractive as a potential target company, there are
intangible considerations. Statistics show that the failure of most mergers and
acquisitions lies somewhere between 40-80% [Anonymous]. Acquisitions that are
competencies are more risky than those that are horizontally in
Research also suggests that a primary reason for such failures is
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
flexibility of office hours and the formality or informality in an
office. Therefore, the post acquisition assimilation and integration of an acquired firm
critical to the eventual success of an acquisition.
(ii) Increased overhead expenses. As a condition of some acquisitions, especially
of a privately held firm, the seller will require the buyer to hire all of its employees,
able staff. Owners of small firms who are selling their company and
out” feel an obligation to their employees who have been loyal and want to
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
In addition, the seller may have office, and/or equipment leases, or other obligations
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
g a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
bt of the target company, or taking on too much debt to make the acquisition.
C. Sell firm, i.e. be acquired by another company
The advantages of selling the firm are:
out by owners. The potential exists for a large cash payment. Private
sitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
(iii) Shedding administrative and operational responsibilities. The day-to-
duties and responsibilities of running an organization can be time-consuming and
frustrating. It is very likely that most, if not all, these responsibilities would be handed
off to other individuals within the acquiring company.
Journal of Business Cases and Applications
Coming of age
(ii) The firm acquires new talent, experience, expertise and resources, which it
(iii) If integrated properly, the new combined firm should experience certain
able consultants generating revenue and profits with
of support staff. Savings are possible since
While financial projections (pro forma financial
statements) can make a firm appear attractive as a potential target company, there are
are
horizontally in
suggests that a primary reason for such failures is
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
the formality or informality in an
office. Therefore, the post acquisition assimilation and integration of an acquired firm
acquisitions, especially
of a privately held firm, the seller will require the buyer to hire all of its employees,
able staff. Owners of small firms who are selling their company and
ho have been loyal and want to
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
nd/or equipment leases, or other obligations
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
g a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
out by owners. The potential exists for a large cash payment. Private
sitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
-day
consuming and
ties would be handed
The disadvantages of selling the firm are:
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
acquisition with a combination of cash, stock and
percentages of each portion of the formula are subject to negotiation, a typical purchase
price formula might be one-third cash payable at closing (subject to tax, which obviously
reduces the pay-out); one-third in some
may require the recipients to hold for a period of time in order to insure key employees
stay; and finally, one-third in the form of an “earn
that payment is subject to the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
there may be severe “buyers’ remorse” after the deal once tax is paid, the stock received
decreases in value and/or earn-out goals are not achieved.
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
However, it should not be taken lig
former owners (principals) of acquired consulting firms who face difficult adjustments in
merely being “one of the crowd”
position with the acquiring company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
this morale issue.
(iii) Loss of influence/control. This disadvantage is closely related to the previou
one. After being “in charge,” previous owners may find it difficult to accept not being a
policy maker or decision maker in terms of the firm’s operations.
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
culture, one which may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
focused workplace, others may feel uncomfortable. The “fit” within the new
organization may prove to be difficult for some resulting in departures of competent and
experienced billable consultants. A certain amount of attrition should be expected.
(v) Non-compete agreements. (NOTE: Ask students to define a non
explain the purpose of a non-compete agreement. You can also ask their views on non
competes, i.e. are they fair, what’s a “reasonable” duration).
million dollars to purchase a business only to find that the previous owners have started a
competing business. To prevent this possibility, it has become the norm to require that
key employees of the acquired firm execute non
the closing. These agreements provide that the person signing the non
be allowed to compete, or work for a competing company for a certain period of time.
Issue 4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
One alternative to “going public”
remain a private firm. Given the steady, but
Solutions, an IPO may not be attractive at this time. Generally, companies electing to go
public have growth rates which exceed 10
Journal of Business Cases and Applications
The disadvantages of selling the firm are:
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
acquisition with a combination of cash, stock and an “earn-out.” While the amounts and
percentages of each portion of the formula are subject to negotiation, a typical purchase
third cash payable at closing (subject to tax, which obviously
third in some form of equity, if available, which the acquirer
may require the recipients to hold for a period of time in order to insure key employees
third in the form of an “earn-out.” An earn-out provision provides
the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
severe “buyers’ remorse” after the deal once tax is paid, the stock received
out goals are not achieved.
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
However, it should not be taken lightly. Serious morale issues can be encountered by
former owners (principals) of acquired consulting firms who face difficult adjustments in
merely being “one of the crowd”. While generally, former owners negotiate a title and
company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
(iii) Loss of influence/control. This disadvantage is closely related to the previou
one. After being “in charge,” previous owners may find it difficult to accept not being a
policy maker or decision maker in terms of the firm’s operations.
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
hich may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
focused workplace, others may feel uncomfortable. The “fit” within the new
be difficult for some resulting in departures of competent and
able consultants. A certain amount of attrition should be expected.
compete agreements. (NOTE: Ask students to define a non-compete and
mpete agreement. You can also ask their views on non
competes, i.e. are they fair, what’s a “reasonable” duration). Imagine paying several
million dollars to purchase a business only to find that the previous owners have started a
prevent this possibility, it has become the norm to require that
key employees of the acquired firm execute non-compete agreements as a condition of
the closing. These agreements provide that the person signing the non-compete will not
te, or work for a competing company for a certain period of time.
4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
to “going public”, and the most obvious alternative, is simply t
remain a private firm. Given the steady, but unspectacular, growth of the Invictus
, an IPO may not be attractive at this time. Generally, companies electing to go
owth rates which exceed 10% annually, as shown in Table 4 (Appendix
Journal of Business Cases and Applications
Coming of age
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
out.” While the amounts and
percentages of each portion of the formula are subject to negotiation, a typical purchase
third cash payable at closing (subject to tax, which obviously
form of equity, if available, which the acquirer
may require the recipients to hold for a period of time in order to insure key employees
out provision provides
the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
severe “buyers’ remorse” after the deal once tax is paid, the stock received
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
can be encountered by
former owners (principals) of acquired consulting firms who face difficult adjustments in
While generally, former owners negotiate a title and
company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
(iii) Loss of influence/control. This disadvantage is closely related to the previous
one. After being “in charge,” previous owners may find it difficult to accept not being a
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
hich may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
be difficult for some resulting in departures of competent and
able consultants. A certain amount of attrition should be expected.
compete and
mpete agreement. You can also ask their views on non-
Imagine paying several
million dollars to purchase a business only to find that the previous owners have started a
prevent this possibility, it has become the norm to require that
compete agreements as a condition of
compete will not
te, or work for a competing company for a certain period of time.
4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
is simply to
Invictus
, an IPO may not be attractive at this time. Generally, companies electing to go
Appendix).
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dra
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
revenue from billable consultant hours.
revenue. In addition to adding new consultants and clients, acquisitions can also add new
service lines not currently offered.
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
is cultural fit, especially in people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
people. Small business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
firm. As mentioned in the Teaching Notes, there are obvious advantages: cash
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
reasonably successful firm to warrant serious consideration by the tw
While there is no “right,” or “best” answer to the question of which strategic alternative is
most attractive, an “A” student might suggest that
the time being, while putting out “feelers” for a possible
certain advantages to this approach
itself as an attractive acquisition candidate;
Invictus Solutions can take steps to grow the company, either organically or by
acquisitions, to better position itself for an eventual IPO; and lastly
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
Being an independent firm is not without its benefits; status, control, continued
employment and comfortable income.
ACKNOWLEDGEMENTS
The authors would like to acknowledge Mr. Alan Peterson for providing
information and guidance in developing this case that is based on his
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
REFERENCES
Adams, S. M. and Zani, A. (2005). “The consulting career in transi
to corporate.” Career Development International
www.emeraldinsight.com/1362-0436.htm
Journal of Business Cases and Applications
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dra
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
able consultant hours. The more consultants there are, the greater the
revenue. In addition to adding new consultants and clients, acquisitions can also add new
service lines not currently offered.
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
As mentioned in the Teaching Notes, there are obvious advantages: cash-out,
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
successful firm to warrant serious consideration by the two principals.
While there is no “right,” or “best” answer to the question of which strategic alternative is
most attractive, an “A” student might suggest that Invictus Solutions remain private for
the time being, while putting out “feelers” for a possible sale of the firm. There are
advantages to this approach. The firm can continue to operate while positioning
itself as an attractive acquisition candidate;
can take steps to grow the company, either organically or by
to better position itself for an eventual IPO; and lastly
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
firm is not without its benefits; status, control, continued
employment and comfortable income.
he authors would like to acknowledge Mr. Alan Peterson for providing
information and guidance in developing this case that is based on his personal
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
(2005). “The consulting career in transition: from partnership
Career Development International. Vol. 10, 4.
0436.htm
Journal of Business Cases and Applications
Coming of age
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dramatic
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
ter the
revenue. In addition to adding new consultants and clients, acquisitions can also add new
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
out,
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out to
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
o principals.
While there is no “right,” or “best” answer to the question of which strategic alternative is
remain private for
There are
The firm can continue to operate while positioning
can take steps to grow the company, either organically or by
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
he authors would like to acknowledge Mr. Alan Peterson for providing
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
tion: from partnership
American Bar Association. (2009).
Business Law Corporate Governance Committee On Delineation of Governance Roles
and Responsibilities.
Anonymous. “Intercultural Synergy in Mergers and Acquisitions”http://www.kwintessential.co.uk/cultual
Anonymous. (October 11, 2010).
(www.consultingcase101.com).
Brumagim, A. L. (2010). “Entrepreneurial
case”. Journal of Business Cases and Applications
Bureau of Labor Statistics, U.S. Department of Labor
09 Edition, Management, Scientific and Technical Consulting Services,http://www.bls.gov/oco/cg/cgs037
Secutities and Exchange Comission (SEC).
sec.240.14a-101.
CNN Money. (1999). “End of an era for Goldman”http://money.cnn.com/1999/05/03/markets/goldman/
Draho, J. R. (1998) The IPO Decision: Why and How Companies Go Public
Elger Publishing Inc.
Entrepreneur Magazine. (December 7, 2005).http://www.entrepreneur.com/growyourbusiness/howtoguides/article81394.html
Goldman Sachs. (2000). Annual Report 2000
Goldman Sachs (2008). Annual R
Hartman, T.E. (November/December, 2007). “The
Company”. The Corporate Board
New York Stock Exchange Listed Company Manual
Peterson, A. [2010 – 2011]. Personal interviews. [Alan Peterson established and sold two
successful small consulting companies,
Consulting, at different times, to Navigant Con
dollars.]
Plunkett Research. (2011).http://www.plunkettresearch.com/Consulting/
@20market@research/industry@
Journal of Business Cases and Applications
(2009).Report of the Task force of the ABA Section of
Business Law Corporate Governance Committee On Delineation of Governance Roles
“Intercultural Synergy in Mergers and Acquisitions”.http://www.kwintessential.co.uk/cultual-services/articles/intercltural-mergers.html
October 11, 2010). “Consulting Firms Turning to China and India for Growth”.
). “Entrepreneurial decision-making: The Best Backgammon, Inc.
Journal of Business Cases and Applications.
Bureau of Labor Statistics, U.S. Department of Labor. Career guide to Industries, 2008
09 Edition, Management, Scientific and Technical Consulting Services,http://www.bls.gov/oco/cg/cgs037.
Secutities and Exchange Comission (SEC). Code of Federal Register. 17 CFR.
“End of an era for Goldman”http://money.cnn.com/1999/05/03/markets/goldman/
The IPO Decision: Why and How Companies Go Public. Edward
(December 7, 2005). “Going Public”.http://www.entrepreneur.com/growyourbusiness/howtoguides/article81394.html
ual Report 2000
ual Report 2008
(November/December, 2007). “The Continued Costs of Being a Public
The Corporate Board. P.13.
New York Stock Exchange Listed Company Manual. (2009).
Personal interviews. [Alan Peterson established and sold two
uccessful small consulting companies, Peterson Consulting Company and Tucker Alan
Consulting, at different times, to Navigant Consulting, Inc., for hundreds of millions ofhttp://www.plunkettresearch.com/Consulting/
@overview
Journal of Business Cases and Applications
Coming of age
Section of
Business Law Corporate Governance Committee On Delineation of Governance Roles
mergers.html
“Consulting Firms Turning to China and India for Growth”.
making: The Best Backgammon, Inc.
Career guide to Industries, 2008-
. Edwardhttp://www.entrepreneur.com/growyourbusiness/howtoguides/article81394.html
Continued Costs of Being a Public
Personal interviews. [Alan Peterson established and sold two
Tucker Alan
, for hundreds of millions of
Razaki, K.A., Koprowski, W., Alonzi, P. and Irons, R. (2010)
Capstone Course on the Banking Crisis: Concrete Integrated Pedagogy
Education Journal.
Reh, F. J. (2011). “Barriers to Entry”
Ritter, J. R. (1998). Initial Public Offerings.
1. p 5-30.
Steverman, B. “Stocks: Rating the 2008 Meltdown”.http://businessweek.com/investor/content/oct2008/pi20081031_960768.htm
.
APPENDICES
Table 1: Consulting Firm Rankings: 2009
Names
Accenture
Cap Gemini
KPMG
PriceWaterhouseCoopers
Deloitte
McKinsey & Company
Booz Allen & Hamilton
Boston Consulting Group
Bain & Company
Oliver Wyman Group
Booz & Co.
Roland Berger
AT Kearney
Huron Consulting
Navigant Consulting, Inc.
Journal of Business Cases and Applications
, K.A., Koprowski, W., Alonzi, P. and Irons, R. (2010). “Centering the Business
Course on the Banking Crisis: Concrete Integrated Pedagogy”. Research in Higher
Entry”. About.com Guide
R. (1998). Initial Public Offerings. Contemporary Finance Digest, Vol. 2 No.
Steverman, B. “Stocks: Rating the 2008 Meltdown”.http://businessweek.com/investor/content/oct2008/pi20081031_960768.htm
Table 1: Consulting Firm Rankings: 2009
Revenue
(in millions) Structure
$25,300 Publicly traded
$12,270 Publicly traded
$7,270 Publicly traded
$6,900 Private
$6,300 Private
$5,300 Private
$4,100 Private
$2,400 Private
$1,600 Private
$1,500 Private
$1,000 Private
$1,000 Private
$785 Private
$630 Publicly traded
$355 Publicly traded
Journal of Business Cases and Applications
Coming of age
Centering the Business
Research in Higher
, Vol. 2 No.
Source:http://www.careers-in-business.com/consulting/consrank09.htm
Journal of Business Cases and Applications
business.com/consulting/consrank09.htm
Journal of Business Cases and Applications
Coming of age
Table 2: Selected Data for Invictus Solutions
(Dollar Amounts in Thousands
20
Revenues 1
Revenue growth % 17%
Net Income 24
Net Income growth % 25%
Table 3: Revenues of Navigant Consulting, Inc.
(Dollars in Millions)
2000 1999
$244.6 $219.4
Source: Form 10-K for Year ended December 31, 2000 for Navigant Consulting, Inc.
Table 4: Fourth Quarter 2010 IPO’s
Company Name
SciQuest, Inc.
China Cache International
Holdings Ltd.
Amyris, Inc.
QR Energy, LP*
Rig Net, Inc.*
Fortega Financial
Corporation*
Sow Fun Holdings*
China Ming Yang Wind
Power Group Limited
Rhino Resource Partners, LP
Elster Group
Source:http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788
*http://www.moneycentral.hoovers.com/global
Journal of Business Cases and Applications
Selected Data for Invictus Solutions for 2010, 2009, 2008
(Dollar Amounts in Thousands, rounded)
2010
2009
2008
165,000 141,000 126,000
17% 12% 14%
24,000 18,000 14,000
25% 22% 18%
Table 3: Revenues of Navigant Consulting, Inc.
1998 1997 1996
$202.5 $183.7 $149.9
K for Year ended December 31, 2000 for Navigant Consulting, Inc.
Table 4: Fourth Quarter 2010 IPO’s
Revenues (in millions) One Year Sales Growth
$36.2 21.5%
$39.8 6.3%
$64.6 365.1%
$72.8 74.1%
$80.9 10.0%
$83.1 48.4%
$127.0 22.0%
$171.6 843.2%
$419.0 4.4%
$1,600 11.0%http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=160162
Journal of Business Cases and Applications
Coming of age
126,000
14,000
$149.9
K for Year ended December 31, 2000 for Navigant Consulting, Inc.
One Year Sales Growthhttp://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788
/msn/factsheet.xhtml?COID=160162
Table 5: Entrepreneurship Evaluation
Exemplary Acceptable
Student’s work correctly
identifies not only the main
but also the secondary
issue(s) in the assignment.
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s work correctly
applies and clearly
demonstrates a deep
understanding of relevant
framework(s) in her/his
analysis.
Student’s work correctly
applies and demonstrates an
understandin
framework(s) in her/his
analysis.
Student’s work identifies all
of the important
stakeholders.
Student’s work identifies
most of the important
stakeholders.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work proposes
several alternatives to the
assignment’s issue(s) – all
of which demonstrate in-
depth thinking and
understanding.
Student’s work proposes
several alternatives to the
assignment’s issue(s).
Student’s work makes a
strong, compelling case for
her/his proposed
resolution(s).
Student’s work makes an
adequate case for her/his
proposed resolution(s).
Overall, student’s work
demonstrates an in-depth,
nuanced understanding of
how management
principles and financial
reasoning can be used to
resolve the assignment’s
entrepreneurship issue(s).
Overall, student’s work
demonstrates a good
understanding of how
management principles and
financial reasoning
used to resolve the
assignment’s
entrepreneurship
Journal of Business Cases and Applications
23
Table 5: Entrepreneurship Evaluation Rubric
Acceptable Marginally Acceptable Not Acceptable
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s wo
to correctly identify
the issue
assignment.
Student’s work correctly
applies and demonstrates an
understanding of relevant
framework(s) in her/his
analysis.
Student’s work either fails
to apply or misapplies a
relevant framework in
her/his analysis.
Student’s work fails
to apply any
framework in
her/his analysis.
Student’s work identifies
most of the important
stakeholders.
Student’s work identifies
only the most obvious
stakeholder(s).
Student’s work fails
to identify any of
the relevant
stakeholders
assignment.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work fails to
distinguish between
assignment facts and
personal opinion.
Student’s work fails
to distinguish
between assignment
facts and personal
opinion.
Student’s work proposes
several alternatives to the
assignment’s issue(s).
Student’s work proposes
one resolution to the
assignment’s issue(s).
Student’s work
proposes a
resolution to the
assignment iss
based solely on
personal opinion.
Student’s work makes an
adequate case for her/his
proposed resolution(s).
Student’s work fails to make
an adequate case for her/his
proposed resolution(s).
Student’s work fails
to make an adequate
case for her/his
proposed
resolution(s).
Overall, student’s work
demonstrates a good
understanding of how
management principles and
financial reasoning can be
used to resolve the
ignment’s
entrepreneurship issue(s).
Overall, student’s work
minimally demonstrates an
understanding of how
management principles and
financial reasoning can be
used to resolve the
assignment’s
entrepreneurship issue(s).
Overall, student’s
work fails to
demonstrate any
understanding of
how ethical
principles and moral
reasoning can be
used to resolve the
assignment’s
entrepreneurship
issue(s) .
Journal of Business Cases and Applications
Not Acceptable
Student’s work fails
to correctly identify
the issue(s) in the
assignment.
Student’s work fails
to apply any
framework in
her/his analysis.
Student’s work fails
to identify any of
the relevant
stakeholders in the
assignment.
Student’s work fails
to distinguish
between assignment
facts and personal
opinion.
Student’s work
proposes a
resolution to the
assignment issue(s)
based solely on
personal opinion.
Student’s work fails
to make an adequate
case for her/his
proposed
resolution(s).
Overall, student’s
work fails to
demonstrate any
understanding of
how ethical
principles and moral
reasoning can be
used to resolve the
assignment’s
entrepreneurship
issue(s) .
Table 6: Writing Quality Rubric
Exemplary Acceptable
Ideas relevant to the
assignment demonstrate
sophistication of thought
and are unique.
Ideas relevant to the
assignment demonstrate
clarity of thought.
Writer’s central idea or
thesis is communicated in
clear, easy-to-understand
language and the writer
makes an eloquent case for
why the idea(s) is/are worth
developing.
Writer’s central idea or
thesis is clearly
communicated and the
writer makes the case
why the idea(s) is/are worth
developing.
Organization is very clear
and has a very logical
structure appropriate to
assignment's topic, purpose
and audience.
Organization is generally
clear and generally has a
logical structure
appropriate to assignment's
topic, purpose and
audience.
Writer’s reasoning or
progression of ideas is
exceptionally clear and
none of the ideas must be
inferred.
Writer’s reasoning or
progression of ideas is
generally clear or is easily
inferred.
Clear, sufficient and
appropriate evidence is
deftly used throughout.
Good, sufficient evidence is
generally used.
Style demonstrates words
artfully chosen for
precision, appropriate level
of specificity.
Style demonstrates
appropriate words, meaning
is clear.
Sentence style fits
assignment's audience and
purpose.
Sentence style fits
assignment's audience and
purpose.
Almost entirely free of
spelling, punctuation, and
grammatical errors.
Any spelling, punctuation,
or grammatical errors do
not distract reader.
Journal of Business Cases and Applications
24
Table 6: Writing Quality Rubric
Acceptable Marginally Acceptable Not Acceptable
Ideas relevant to the
assignment demonstrate
clarity of thought.
Ideas relevant to the
assignment are clear but
general and/or simplistic.
Ideas relevant to the
assignment are not
clearly presented, well
developed and may be
obvious or trivial.
Writer’s central idea or
thesis is clearly
communicated and the
writer makes the case for
why the idea(s) is/are worth
developing.
Writer’s central idea or
thesis is overly broad
and/or vague.
Writer’s central idea or
thesis is not expressed.
Organization is generally
clear and generally has a
logical structure
appropriate to assignment's
topic, purpose and
audience.
Organization is not always
clear and/or is structured in
ways that are confusing to
the assignment’s topic,
purpose and/or audience.
Organization is not
evident and/or is
confusing or incoherent.
Writer’s reasoning or
progression of ideas is
generally clear or is easily
inferred.
Writer’s reasoning or
progression of ideas must
be inferred and is not clear.
Writer’s reasoning or
progression of ideas is
totally lacking.
Good, sufficient evidence is
generally used.
Inconsistent and/or
insufficient evidence is
used.
Evidence is
unsupported which may
consist of assumptions,
and leaps of faith.
Style demonstrates
appropriate words, meaning
is clear.
Style demonstrates
inappropriate word choice,
unclear meaning.
Style demonstrates
poorly chosen words,
meaning is inaccurate
or unclear.
Sentence style fits
assignment's audience and
purpose.
Sentence style is awkward. Sentence style is
difficult to understand.
Any spelling, punctuation,
or grammatical errors do
not distract reader.
Recurring spelling,
punctuation, and
grammatical errors distract
reader but still
understandable with effort.
Recurring spelling,
punctuation, and
grammatical errors
distract reader and
muddle ideas beyond
comprehension.
Plagiarized
Journal of Business Cases and Applications
Not Acceptable
Ideas relevant to the
assignment are not
clearly presented, well-
developed and may be
obvious or trivial.
Writer’s central idea or
thesis is not expressed.
Organization is not
evident and/or is
confusing or incoherent.
Writer’s reasoning or
progression of ideas is
totally lacking.
Evidence is
unsupported which may
consist of assumptions,
and leaps of faith.
Style demonstrates
poorly chosen words,
meaning is inaccurate
or unclear.
Sentence style is
difficult to understand.
Recurring spelling,
punctuation, and
grammatical errors
distract reader and
muddle ideas beyond
comprehension.
Plagiarized
Journal of Business Cases and Applications
25
Journal of Business Cases and Applications
doc_136639383.pdf
Abstract explain coming of age for a consulting company an entrepreneurial transition case study.
Coming of age for a consulting company: An entrepreneurial
ABSTRACT
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulti
various strategic alternatives, including whether to take their company “public”
have to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming
to decide the best course of action and to provide their reasons.
real-world situation of a small, but successful, private consulting firm that has reached a
point where a strategic assessment of the firm’s future is appropriate.
that students can gain exposure to a real
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent
and professionalism in style of writing.
Rubrics for student evaluation are provided. The case can be used as the entrepreneurship
component of a senior level capstone course i
entrepreneurship strategy course.
Keywords: consulting industry, forms of ownership, entrepreneurial options, costs
benefits of IPO versus internal growth
Journal of Business Cases and Applications
Coming of age for a consulting company: An entrepreneurial
transition case study
Wayne Koprowski
Dominican University
Khalid A. Razaki
Dominican University
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
an AOL component, but looks at a completely different
(management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
various strategic alternatives, including whether to take their company “public”.
to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company. Students
to decide the best course of action and to provide their reasons. The case is based on a
of a small, but successful, private consulting firm that has reached a
ent of the firm’s future is appropriate. It is designed so
that students can gain exposure to a real-life situation.
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent and logical argumentation, and
writing. Extensive Teaching Notes and Assessment
for student evaluation are provided. The case can be used as the entrepreneurship
component of a senior level capstone course in business strategy or in an MBA
entrepreneurship strategy course.
consulting industry, forms of ownership, entrepreneurial options, costs
benefits of IPO versus internal growth
Journal of Business Cases and Applications
Coming of age
Coming of age for a consulting company: An entrepreneurial
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
, but looks at a completely different
(management consulting versus manufacturing) and decision
ng firm who are considering
Students
to analyze and evaluate strategic alternatives available to the firm, and specifically,
a publicly traded company. Students have
The case is based on a
of a small, but successful, private consulting firm that has reached a
is designed so
The student evaluation is based on extensiveness of literature search, creativity in
and clarity
Extensive Teaching Notes and Assessment
for student evaluation are provided. The case can be used as the entrepreneurship
consulting industry, forms of ownership, entrepreneurial options, costs-
INTRODUCTION
Brumagim [2010] developed an
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL component, bu
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
various strategic alternatives, including whether to take their company “public”
have to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company.
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
strategic assessment of the firm’s future is appropriate. The
students can gain exposure to a real
have achieved a certain level of growth and success.
The student evaluation is based on extensiveness of literature search, creativity in
developing different transition strategies, coherent and logical argumentation, and clarity
and professionalism in style of writing.
Rubrics for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6]
student evaluation are provided in the Appendi
entrepreneurship component of a senior level capstone course in business strategy or in
an MBA entrepreneurship strategy course.
Serafina Invicelli, age 38, and
successful management consulting business
together ten years ago. Together they have grown their business from a start
respected consulting business headquartered in C
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
approximately 300 billable consultants and has a support staff of about 100 employees.
Revenues for the last fiscal year ended December 200
All of their office space is leased
primarily by the two principals.
Serafina is a PhD in Economics and
Serafina has established a reputation as an economics and statistics expert while
has leveraged years of experience as a corporate executive into a successful management
consulting practice. Their particular niche client market is small to mid
that are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
various government agencies.
At their 10th anniversary celebration,
plans for the future. They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
firm’s future. Being consultants by training, t
possible alternatives for the future of the firm.
Journal of Business Cases and Applications
Brumagim [2010] developed an entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
entrepreneurship and is also an AOL component, but looks at a completely different
business environment (management consulting versus manufacturing) and decision
context (entrepreneurial transition versus startup issues).
The case involves two principals in a private consulting firm who are consider
arious strategic alternatives, including whether to take their company “public”.
to analyze and evaluate strategic alternatives available to the firm, and specifically,
the advantages and disadvantages of becoming a publicly traded company. Students
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
strategic assessment of the firm’s future is appropriate. The case is designed so that
students can gain exposure to a real-life situation faced by small private companies which
have achieved a certain level of growth and success.
The student evaluation is based on extensiveness of literature search, creativity in
eveloping different transition strategies, coherent and logical argumentation, and clarity
writing. Extensive Teaching Notes and Assessment
s for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6]
in the Appendices. The case can be used as the
entrepreneurship component of a senior level capstone course in business strategy or in
an MBA entrepreneurship strategy course.
, age 38, and Horatio Brutus, age 55, are the principals in
successful management consulting business Invictus Solutions, which they started
Together they have grown their business from a start-up to a well
respected consulting business headquartered in Chicago with offices in Boston, Dallas,
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
able consultants and has a support staff of about 100 employees.
Revenues for the last fiscal year ended December 2008 were slightly over $165 million.
All of their office space is leased and not owned. So far, the firm has been capitalized
is a PhD in Economics and Horatio is an attorney and also has an MBA.
lished a reputation as an economics and statistics expert while
has leveraged years of experience as a corporate executive into a successful management
Their particular niche client market is small to mid-sized businesses
are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
iversary celebration, Serafina and Horatio were asked about their
They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
firm’s future. Being consultants by training, they started collecting facts and developing
possible alternatives for the future of the firm.
Journal of Business Cases and Applications
Coming of age
entrepreneurship case (The Best Backgammon,
Inc. case) that can be used for assessment of learning (AOL) to support AACSB
international accreditation. The case developed in this paper is also in the area of
t looks at a completely different
business environment (management consulting versus manufacturing) and decision
The case involves two principals in a private consulting firm who are considering
Students
to analyze and evaluate strategic alternatives available to the firm, and specifically,
Students have
to decide the best course of action and to provide their reasons. The case is framed in
terms of a small, but successful, private consulting firm that has reached a point where a
case is designed so that
life situation faced by small private companies which
The student evaluation is based on extensiveness of literature search, creativity in
eveloping different transition strategies, coherent and logical argumentation, and clarity
Extensive Teaching Notes and Assessment
s for Entrepreneurship Evaluation [Table 5] and Quality of Writing [Table 6] for
entrepreneurship component of a senior level capstone course in business strategy or in
, age 55, are the principals in the
, which they started
up to a well-
hicago with offices in Boston, Dallas,
Washington, D.C., New York, Los Angeles and San Francisco. The firm employs
able consultants and has a support staff of about 100 employees.
65 million.
he firm has been capitalized
is an attorney and also has an MBA.
lished a reputation as an economics and statistics expert while Horatio
has leveraged years of experience as a corporate executive into a successful management
sized businesses
are looking for reasonably priced management assistance in dealing with a variety of
business issues as well as plans for improving their businesses. Clients also include
were asked about their
They did not have a ready, well conceived plan to answer the
question, but realized that it was crucial that they think critically about their own and the
hey started collecting facts and developing
As the two principals reflect on ten years of being in the consulting business, they
are considering different strategic
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
principal-financed expansion; (3) Enhance the growth rate throug
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
consulting company; or (6) becom
Public Offering (IPO) is successful.
rewards associated with different strategies.
CONSULTING INDUSTRY OVERVIEW
Consulting industry history
Serafina and Horatio discovered that re
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
only 29 of the largest 75 consulting firms are st
consulting firms are now publicly traded [Adams
management consulting companies by revenues according to Careers in Business
Research (August 2009) are as stated in
Management consulting firms began to proliferate after World War II as the United
States transitioned into a peace-time economy. Management consulting has grown, with
growth rates in the industry exceeding 20% in the 1980s and 1990s. In 20
revenues for management consulting exceeded $3
revenues were approximately $160
Scope of consulting industry
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
Consulting firms offer expertise, experience and knowledge that their clients lack.
Generally, there are three types of consulting firms:
• The traditional business consulting firms which offer a wide array of consulting
services to a wide range of clients. Co
McKenzie and Company,
Group;
• The specialized or boutique firms. Examples include Watson Wyatt (human
resources and compensation) and Hewitt and Associates (ben
• The technology consulting
and it derives the majority of its revenues from technology consulting
is not a pure-play tech consulting company)
The consulting industry consists of firms
work-from-home practices, to the large multi
Journal of Business Cases and Applications
As the two principals reflect on ten years of being in the consulting business, they
strategic alternatives for their firm. They have developed a list
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
expansion; (3) Enhance the growth rate through substantial bank
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
become a publicly-traded company and cash out if the Initial
Public Offering (IPO) is successful. They realize that there are different risks and
rewards associated with different strategies.
CONSULTING INDUSTRY OVERVIEW
discovered that recent trends in the consulting industry
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
only 29 of the largest 75 consulting firms are still private. As of 2004, 17 of the top 20
consulting firms are now publicly traded [Adams & Zani, 2005]. The ranks of the largest
management consulting companies by revenues according to Careers in Business
are as stated in Table 1 (Appendix).
Management consulting firms began to proliferate after World War II as the United
time economy. Management consulting has grown, with
growth rates in the industry exceeding 20% in the 1980s and 1990s. In 2010, total global
revenues for management consulting exceeded $345 billion while domestic consulting
revenues were approximately $160.5 billion [Plunkett Research, 2011].
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
ulting firms offer expertise, experience and knowledge that their clients lack.
Generally, there are three types of consulting firms:
traditional business consulting firms which offer a wide array of consulting
services to a wide range of clients. Companies in this sector include firms such as
McKenzie and Company, Booze, Allen and Hamilton and The Boston Consulting
specialized or boutique firms. Examples include Watson Wyatt (human
resources and compensation) and Hewitt and Associates (benefits);
consulting firms: Accenture Ltd. is probably the most prominent
and it derives the majority of its revenues from technology consulting. (Accenture
play tech consulting company)
The consulting industry consists of firms of all sizes, from self-employed, one-person,
home practices, to the large multi-practice, global companies. The industry is
Journal of Business Cases and Applications
Coming of age
As the two principals reflect on ten years of being in the consulting business, they
eveloped a list
of various widely divergent choices that are available to them. These are: (1) Maintain
the status quo and grow at the natural growth rate; (2) Enhance the growth rate through
h substantial bank
lending; (4) Enhance the growth rate by admitting one or a very small number of
professional partners who enlarge the capital base; (5) Merge with a similar size or larger
cash out if the Initial
They realize that there are different risks and
cent trends in the consulting industry
indicate a shift from private firms to publicly traded firms. Formerly, management
consulting was an industry dominated by private partnerships. However, since 2003,
ill private. As of 2004, 17 of the top 20
the largest
management consulting companies by revenues according to Careers in Business
Management consulting firms began to proliferate after World War II as the United
time economy. Management consulting has grown, with
0, total global
ion while domestic consulting
Consulting practices cover the entire gamut of business issues and there are as many
different types of consultants as there are business issues that need to be addressed,
including information technology, healthcare, general management and strategy.
ulting firms offer expertise, experience and knowledge that their clients lack.
traditional business consulting firms which offer a wide array of consulting
mpanies in this sector include firms such as
, Allen and Hamilton and The Boston Consulting
specialized or boutique firms. Examples include Watson Wyatt (human
firms: Accenture Ltd. is probably the most prominent
(Accenture
person,
practice, global companies. The industry is
comprised of educated, experienced professionals
degree [Bureau of Labor Statistics,
industries, has gone global with many of the large consulting firms mainta
Europe and Asia.
Where do consultants come from?
Consultants come to the profession from several different route
managers and executives who have been terminated from their employment. Then there are the
“entrepreneurs”, which may also include “retirees,” who decide to leverage their years of
experience and expertise into part
theoretical knowledge which they desire to leverage
in which consulting positions are considered desirable by newly minted MBAs, the profession
attracts recent graduates. Since sta
consulting business is a very competitive one
smaller shops. It has become easier for small firms
electronic tools, availability of relevant datasets and the general escape of qualified professionals
from the ‘grind’ to be found in larger firms” ( Careers in Consulting,
business.com/consulting/mcfacts.htm
Consulting industry culture and work attributes
Critics of high-fee consulting services say that a consultant will borrow your
watch to tell you the time and send you a bill.
service business.” Generally speaking, clients hire a person, not the firm. Once a
consultant-client relationship is established, consultants become a valuable commodity
with respect to generating revenue
sometimes characterized as either revenue generators or producers, although the most
successful consultants are both. The
skilled at client development, i.e. finding clients who are willing to retain the firm. The
“producers” actually perform the client work and are generally
the rain-makers are. Compensation arrangements in firms can become complicated affairs
in terms of rewarding consultants
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
demands and schedules take precedence. It is not
extensively on client engagements, which can last several months. This is especially true
in the larger, multi-practice firms.
positions that go from zero to 100% trave
(careers.accenture.com). “Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
and live at the site of the client company, although they generally return home every
weekend” (http://www.arts.cornell.edu/career/careers_in_management_consulting.pdf
[2011].
As a consultant progresses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
Journal of Business Cases and Applications
comprised of educated, experienced professionals with about 74% having a bachelor’s
[Bureau of Labor Statistics, 2008-09].The consulting business, not unlike other
industries, has gone global with many of the large consulting firms maintaining offices in
Where do consultants come from?
Consultants come to the profession from several different routes. Some are
managers and executives who have been terminated from their employment. Then there are the
, which may also include “retirees,” who decide to leverage their years of
experience and expertise into part-time work. Others are academics who possess great
theoretical knowledge which they desire to leverage into economic advantage. Finally, in years
in which consulting positions are considered desirable by newly minted MBAs, the profession
Since start-up costs and barriers to entry are relatively low, the
consulting business is a very competitive one [Reh, 2011]. “There has been an explosion of
smaller shops. It has become easier for small firms to navigate the marketplace due to better
electronic tools, availability of relevant datasets and the general escape of qualified professionals
from the ‘grind’ to be found in larger firms” ( Careers in Consulting,http://www.careers
business.com/consulting/mcfacts.htm ) [2011].
Consulting industry culture and work attributes
fee consulting services say that a consultant will borrow your
and send you a bill. The consulting business is a “personal
service business.” Generally speaking, clients hire a person, not the firm. Once a
client relationship is established, consultants become a valuable commodity
g revenue or managing costs for the firm. Consultants are
sometimes characterized as either revenue generators or producers, although the most
The “revenue generators”, also called “rain-makers,” are
lopment, i.e. finding clients who are willing to retain the firm. The
“producers” actually perform the client work and are generally not rewarded as well as
Compensation arrangements in firms can become complicated affairs
rewarding consultants [Peterson, 2010].
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
demands and schedules take precedence. It is not unusual for consultants to travel
extensively on client engagements, which can last several months. This is especially true
practice firms. Accenture, the world’s largest consulting firm, has
positions that go from zero to 100% travel depending on the specific consulting position
“Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
t company, although they generally return home everyhttp://www.arts.cornell.edu/career/careers_in_management_consulting.pdf
ses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
Journal of Business Cases and Applications
Coming of age
a bachelor’s
The consulting business, not unlike other
ining offices in
s. Some are refugee
managers and executives who have been terminated from their employment. Then there are the
, which may also include “retirees,” who decide to leverage their years of
are academics who possess great
to economic advantage. Finally, in years
in which consulting positions are considered desirable by newly minted MBAs, the profession
up costs and barriers to entry are relatively low, the
“There has been an explosion of
to navigate the marketplace due to better
electronic tools, availability of relevant datasets and the general escape of qualified professionalshttp://www.careers-in-
fee consulting services say that a consultant will borrow your
The consulting business is a “personal
service business.” Generally speaking, clients hire a person, not the firm. Once a
client relationship is established, consultants become a valuable commodity
for the firm. Consultants are
sometimes characterized as either revenue generators or producers, although the most
makers,” are
lopment, i.e. finding clients who are willing to retain the firm. The
not rewarded as well as
Compensation arrangements in firms can become complicated affairs
The work environment in consulting firms can be very demanding. More often
than not, individual consultants have little or no control over their workday. Client
unusual for consultants to travel
extensively on client engagements, which can last several months. This is especially true
Accenture, the world’s largest consulting firm, has
position
“Consultants can work long hours. The firm expects them to
provide clients with ‘no excuse’ customer service. In addition, many consultants travel to
t company, although they generally return home everyhttp://www.arts.cornell.edu/career/careers_in_management_consulting.pdf )
ses within a firm, he/she assumes responsibility for “client
development,” i.e. attracting new clients to the firm. Many individuals are neither
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
Consultants who routinely find themselves either “on the bench,” i.e. not engaged in
client projects, or who cannot generate clients find themselves at risk of being terminated.
Between disenchantment and burn
Annual employee turnover of 12.5
news.com/article_display.aspy?P=adp&id=2079
Professional service organizations are unique in th
consultants, can literally walk out the door with their clients, potentially damaging the
firm severely since lost clients are lost revenues
Consulting firms, like other professional
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
companies tend to be more vulnerable
Consulting industry trends
A research study conducted by Plunkett Research
following:
Globalization.
Much of the recent growth in the industry has come from increased global demand
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
consulting companies maintain offices in Europe, Asia, and
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
This trend seems to be reversing itself because
acquisition activity still sluggish, management consulting firms are turning to emerging markets
like China and India for growth”
Information Technology.
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
also increasingly includes the outsourcing of IT services to consulting firms by clients
www.accenture.com ).
Current Outlook.
The consulting industry is not immune to the slowdown in the world economy.
Both the private sector and government have cut their spending budgets. The end result
is that competition in the consulting industry will become more intense.
are some positive signs that a mild recovery is underway, especially with the governm
stimulus package, the large traditional consultancies may face increased competition
Journal of Business Cases and Applications
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
ly find themselves either “on the bench,” i.e. not engaged in
ot generate clients find themselves at risk of being terminated.
Between disenchantment and burn-out, the “glamour” of consulting soon loses its appeal.
12.5%, or higher, is possible (http://www.consulting
news.com/article_display.aspy?P=adp&id=2079 ) [2005].
Professional service organizations are unique in that their “assets,” the individual
consultants, can literally walk out the door with their clients, potentially damaging the
firm severely since lost clients are lost revenues if there is no non-compete agreement.
Consulting firms, like other professional service organizations, remain constantly
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
nd to be more vulnerable to adverse changes [Peterson, 2010].
research study conducted by Plunkett Research [2011], Plunkett reported the
Much of the recent growth in the industry has come from increased global demand
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
consulting companies maintain offices in Europe, Asia, and South America. However, the boom
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
This trend seems to be reversing itself because “With their fees under pressure and merger and
ish, management consulting firms are turning to emerging markets
” (www.consultingcase101.com) [2010].
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
includes the outsourcing of IT services to consulting firms by clients
The consulting industry is not immune to the slowdown in the world economy.
e private sector and government have cut their spending budgets. The end result
is that competition in the consulting industry will become more intense. And while
are some positive signs that a mild recovery is underway, especially with the governm
the large traditional consultancies may face increased competition
Journal of Business Cases and Applications
Coming of age
comfortable nor particularly adept at developing a “book of business,” i.e. clients.
ly find themselves either “on the bench,” i.e. not engaged in
ot generate clients find themselves at risk of being terminated.
out, the “glamour” of consulting soon loses its appeal.http://www.consulting-
at their “assets,” the individual
consultants, can literally walk out the door with their clients, potentially damaging the
compete agreement.
service organizations, remain constantly
exposed to sudden and possibly dramatic adverse changes to their business. Therefore, a
certain “critical mass” can insulate firms from drastic changes. In other words, smaller
Plunkett reported the
Much of the recent growth in the industry has come from increased global demand for
consulting services. Consultants are retained because they possess expertise, experience and
skills not currently available in developing countries such as China, India and Brazil. The major
South America. However, the boom
in consulting outside the U.S. diminished in 2008 as a result of the global economic downturn.
With their fees under pressure and merger and
ish, management consulting firms are turning to emerging markets
Information technology (IT) consulting is one of the fastest growing segments
within the consulting industry. Services in this segment include hardware systems design
and implementation, software design and website design and operation. This segment
includes the outsourcing of IT services to consulting firms by clients (
The consulting industry is not immune to the slowdown in the world economy.
e private sector and government have cut their spending budgets. The end result
hile there
are some positive signs that a mild recovery is underway, especially with the government
the large traditional consultancies may face increased competition
from smaller, niche firms. Therefore,
competitive advantage [Plunkett, 201
INVICTUS SOLUTIONS BACKGROUND
Invictus Solutions Practice Areas
Invictus Solutions falls into the category of a traditional consulting firm
consisting of a number of practices within the firm, which provides a variety of
professional services to its clients. The firm assists client companies
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
and implementing appropriate business solutions with respect to busines
firm’s practice areas mirror very closely those of one of its competitors, Navigant
Consulting, Inc. which are detailed below
Risk management and complia
The services range from conducting a company
purpose of recommending audit improvements and compliance programs, to conducting
individual investigations. Specific services include:
Regulatory compliance reviews
Recommending corporate governance programs
Economics and statistical services:
Specific services include:
Evaluation of strategies for settling versus litigating claims
Statistical data analysis
Business valuations
Identifying and monitoring performance metrics
Corporate fraud investigations:
Invictus Consulting has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
risks or threats to various aspects of a business. Specific services include:
Special investigations
Management and employee fraud
Training on fraud awareness and prevention
Financial and accounting services:
The firm has expertise and strong project m
financial processes, financial reporting and internal controls. It does not, and c
provide independent accounting services. Services include:
Journal of Business Cases and Applications
Therefore, size and name recognition could provide a
, 2011].
BACKGROUND
Practice Areas
falls into the category of a traditional consulting firm
consisting of a number of practices within the firm, which provides a variety of
professional services to its clients. The firm assists client companies in understanding
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
and implementing appropriate business solutions with respect to business problems. The
firm’s practice areas mirror very closely those of one of its competitors, Navigant
detailed below (www.navigantconsulting.com). [2011]
Risk management and compliance:
The services range from conducting a company-wide risk assessment for the
purpose of recommending audit improvements and compliance programs, to conducting
individual investigations. Specific services include:
ding corporate governance programs
Economics and statistical services:
Evaluation of strategies for settling versus litigating claims
Identifying and monitoring performance metrics
Corporate fraud investigations:
has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
sks or threats to various aspects of a business. Specific services include:
Management and employee fraud
Training on fraud awareness and prevention
Financial and accounting services:
The firm has expertise and strong project management experience analyzing
financial processes, financial reporting and internal controls. It does not, and cann
provide independent accounting services. Services include:
Journal of Business Cases and Applications
Coming of age
size and name recognition could provide a
in understanding
regulations, evaluating and implementing compliance programs, and analyzing the
potential financial risks of management programs. The firm helps clients in evaluating
s problems. The
firm’s practice areas mirror very closely those of one of its competitors, Navigant
[2011]
wide risk assessment for the
purpose of recommending audit improvements and compliance programs, to conducting
has earned a reputation as experienced business investigation
consultants. It has experience and expertise in preventing, detecting and investigating
anagement experience analyzing
annot,
SEC reporting and disclosures
Strategic and operations planning
Company Clients:
Invictus Solutions has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
industrial equipment, telecommunications, and consumer products as well as
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
to its current clients as a way of growing its business (known as “
servicing”). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
well-known competitors like Navigant Consulting.
While the two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
not only for individual advancement and growth, but also for the long
the firm.
Company Competition
Depending on the particular practice area,
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
The practice area offerings are very similar. Another competitor
(symbol HURN) (www.huronconsultinggroup.com
company.
While both Navigant and Huron compete with
practice areas, their service offerings are broader. For example, in addition to the
practice areas mentioned for Invictus Solutions
in Accounting and Finance, Disputes, Government Contracting and E
also offers consulting services in Restructuring and Turnarounds, Transactions (Due
Diligence Investigations), Strategy and Operations.
Company Culture
Serafina and Horatio have intentionally created a professional, yet casual, non
threatening atmosphere within their or
culture:
“I like to believe the consultants at
stimulating yet comfortable work place. We encourage our consultants to devote non
billable time to non-project related lea
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
our consultants can find that balance,
they will be more productive and happy employees.
Journal of Business Cases and Applications
ing
has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
industrial equipment, telecommunications, and consumer products as well as various
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
to its current clients as a way of growing its business (known as “cross selling” or
). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
known competitors like Navigant Consulting.
two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
l advancement and growth, but also for the long-term survival of
Depending on the particular practice area, Invictus Solutions has any number of
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
The practice area offerings are very similar. Another competitor is Huron Consulting
www.huronconsultinggroup.com). Huron Consulting is also a NYSE
While both Navigant and Huron compete with Invictus Solutions in a number of
ir service offerings are broader. For example, in addition to the
Invictus Solutions, both Navigant and Huron offer services
in Accounting and Finance, Disputes, Government Contracting and E-Discovery. Huron
lting services in Restructuring and Turnarounds, Transactions (Due
Diligence Investigations), Strategy and Operations.
have intentionally created a professional, yet casual, non
threatening atmosphere within their organization. Horatio commented on his firm’s
I like to believe the consultants at Invictus Solutions find a professional,
stimulating yet comfortable work place. We encourage our consultants to devote non
project related learning. Also, we have tried hard to create an
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
our consultants can find that balance, Serafina and I continue to believe that ultimately,
and happy employees.”
Journal of Business Cases and Applications
Coming of age
has a variety of clients in such diverse industries as banking
and finance, various retail businesses, real estate development, energy, pharmaceutical,
various
agencies of the U.S. government. Many clients are repeat clients who have employed the
firm previously. The firm continually attempts to sell/market its other consulting services
or “cross-
). Generally, the firm acquires new clients by word of mouth, since, as a
private company, the firm does not have the same visibility as compared to some of its
two principals have performed a significant amount of new client
development, they continue to emphasize the importance and necessity of client
development to the more senior consultants in the firm. This responsibility is essential
term survival of
has any number of
competing consulting firms offering similar services. Navigant Consulting, Inc., a New
York Stock Exchange (NYSE) company (symbol NCI), is the firm’s closest competitor.
is Huron Consulting
). Huron Consulting is also a NYSE
in a number of
ir service offerings are broader. For example, in addition to the
, both Navigant and Huron offer services
Discovery. Huron
lting services in Restructuring and Turnarounds, Transactions (Due
have intentionally created a professional, yet casual, non-
commented on his firm’s
find a professional,
stimulating yet comfortable work place. We encourage our consultants to devote non-
rning. Also, we have tried hard to create an
environment where all of us have the opportunity to enjoy a healthy work/life balance. If
and I continue to believe that ultimately,
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
subjected to unrelenting demands for continually improving pe
in more outside scrutiny.
Company Financials
The firm has grown and has performed well as a private company.
financial information for the past three years is set forth in Table 2
STRATEGIC ALTERNATIVES
As Serafina Invicelli and
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
IPO of Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
albeit exceptional and in no way comparable to the small/medium size
Goldman Sachs raised $3.6 billion of capital in its 1999 IPO. After going public,
according to the Goldman Sachs 2000 and 2008 annual reports,
$25 billion in revenues in 1999 to $46
partners at Goldman Sachs held shares worth $63 million per partner.
More instructive to Serafina
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million.
3 (Appendix) shows, following the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, the
growth rate was much higher than
percent.
They also researched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
reporting requirements [SEC]. They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
regulations.
For example, as a result of the excesses which came to light in the early 2000
2002 time period, Congress enacted the Sarbanes
corporate compliance and governance issues. The Act imposes additional requirements
on publicly traded firms, such as personal certification by the chief executive officer and
chief financial officer regarding the accuracy of financial
systems; a “whistleblower” procedure monitored by an independent audit committee.
Serafina and Horatio have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
pleasure from the status associated with being the firm’s owners. While the
administrative aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
Journal of Business Cases and Applications
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
subjected to unrelenting demands for continually improving performance, which results
The firm has grown and has performed well as a private company. Selected
inancial information for the past three years is set forth in Table 2 (Appendix).
STRATEGIC ALTERNATIVES
and Horatio Brutus contemplate their firm’s future, they
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
f Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
and in no way comparable to the small/medium size Invictus Solutions
ion of capital in its 1999 IPO. After going public,
according to the Goldman Sachs 2000 and 2008 annual reports, the company grew from
ion in revenues in 1999 to $46 billion in 2007. On the IPO date, the 221 senior
partners at Goldman Sachs held shares worth $63 million per partner.
Serafina and Horatio, however, was the 1996 IPO of the
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million.
ollowing the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, the
growth rate was much higher than Invictus Solutions which is growing less than 10
arched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
e, as a result of the excesses which came to light in the early 2000
2002 time period, Congress enacted the Sarbanes-Oxley Act (“Act,”), which addresses
corporate compliance and governance issues. The Act imposes additional requirements
firms, such as personal certification by the chief executive officer and
financial officer regarding the accuracy of financial statements; internal control
systems; a “whistleblower” procedure monitored by an independent audit committee.
have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
pleasure from the status associated with being the firm’s owners. While the
e aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
Journal of Business Cases and Applications
Coming of age
Both of them are concerned about what effect “going public” might have upon the
carefully nurtured culture they have created for their firm since publicly traded firms are
rformance, which results
Selected
contemplate their firm’s future, they
begin to investigate the reasons why so many consulting firms have decided to “go
public” and evaluate whether an IPO is a viable strategic alternative for their firm. The
f Goldman Sachs, the venerable Wall Street investment banking firm, is illustrative,
Invictus Solutions.
ion of capital in its 1999 IPO. After going public,
the company grew from
ion in 2007. On the IPO date, the 221 senior
, however, was the 1996 IPO of the
Metzler Group, a small private consulting company, which, after a series of acquisitions,
eventually became Navigant Consulting, Inc. The 1996 IPO raised $37 million. As Table
ollowing the IPO, Metzler embarked on a series of acquisitions
growing from $149 million in revenues in 1996 to $244.6 million in 2000 Also, their
which is growing less than 10
arched the New York Stock Exchange (NYSE) Listing Application,
the NYSE Listed Company Manual, as well as the Securities and Exchange Commission
rules and regulations pertaining to publicly traded companies, specifically disclosure and
They recognize that becoming a publicly traded company
will require new compliance obligations. The firm will need to retain attorneys and
outside public accountants to assist them in complying with the various rules and
e, as a result of the excesses which came to light in the early 2000-
Oxley Act (“Act,”), which addresses
corporate compliance and governance issues. The Act imposes additional requirements
firms, such as personal certification by the chief executive officer and
statements; internal control
systems; a “whistleblower” procedure monitored by an independent audit committee.
have enjoyed growing their business and have immense pride in
their success and accomplishments as business owners. In addition, they particularly take
e aspects of operating their firm tends to be tedious and trivial at times, they,
nevertheless, like the ability to have an influence on their firm and enjoy being able to set
the firm’s direction. However, they realize that a review of strategic alternat
timely and appropriate. Although
they are also willing to consider other strategic options.
CASE ENDING QUESTIONS:
1. List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
2. What other alternatives should the principals consider? List and evaluate the
advantages and disadvantages of each of these alternatives?
3. Evaluate the legal implications of “going public
4. Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
TEACHING NOTES
The teaching notes consist of Learni
issues, and Student Evaluation Rubrics.
LEARNING OBJECTIVES
The instructor should give homework assignments and conduct class discussions
to focus on the following concepts and points regarding critical attr
forms of ownership of a service business and their respective complications and financial
and psychological costs-benefits:
• List and evaluate the various advantages and disadvantages of becoming a publicly traded
company.
• What other alternatives should the principals consider? List and evaluate the advantages
and disadvantages of each of these alternatives?
• Evaluate the legal implications of “going public.”
• Decide on the best course of action for the firm, i.e. stay private, ta
(IPO), or another alternative. Give reasons to support your decision.
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
Students should be able to identify the following three
publicly-traded company.
A. Access to Equity Markets
Journal of Business Cases and Applications
the firm’s direction. However, they realize that a review of strategic alternatives is both
timely and appropriate. Although Invictus Solutions are focusing primarily on an IPO,
they are also willing to consider other strategic options.
CASE ENDING QUESTIONS:
List and evaluate the various advantages and disadvantages of becoming a
publicly traded company.
What other alternatives should the principals consider? List and evaluate the
advantages and disadvantages of each of these alternatives?
gal implications of “going public”.
Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
consist of Learning Objectives, detailed discussion of relevant
issues, and Student Evaluation Rubrics.
The instructor should give homework assignments and conduct class discussions
to focus on the following concepts and points regarding critical attributes of the different
forms of ownership of a service business and their respective complications and financial
benefits:
List and evaluate the various advantages and disadvantages of becoming a publicly traded
other alternatives should the principals consider? List and evaluate the advantages
and disadvantages of each of these alternatives?
Evaluate the legal implications of “going public.”
Decide on the best course of action for the firm, i.e. stay private, take the firm public
(IPO), or another alternative. Give reasons to support your decision.
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
Students should be able to identify the following three advantages of being a
Access to Equity Markets
Journal of Business Cases and Applications
Coming of age
ives is both
are focusing primarily on an IPO,
List and evaluate the various advantages and disadvantages of becoming a
What other alternatives should the principals consider? List and evaluate the
Decide on the best course of action for the firm, i.e. stay private, take the firm
public (IPO), or another alternative. Give reasons to support your decision.
ng Objectives, detailed discussion of relevant
The instructor should give homework assignments and conduct class discussions
ibutes of the different
forms of ownership of a service business and their respective complications and financial
List and evaluate the various advantages and disadvantages of becoming a publicly traded
other alternatives should the principals consider? List and evaluate the advantages
ke the firm public
Issue 1. List and evaluate the various advantages and disadvantages of becoming a
advantages of being a
Unlike a private company, which has limited opportunities for raising capital
(primarily the owners’ personal capital investments), publicly
the financial markets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
expansion.
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
later changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
$244.6 million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
like Invictus Solutions Consulting.
Stock is commonly used to finance a portion of an
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
increasing wealth if the stock, which is
appreciates in value. A typical purchase price formula would consist of cash, stock
(equity in the acquiring company) and an “earn
specified performance goals. The percentage of
amount of each is a subject of negotiation between the buyer and seller.
B. Equity Ownership
A major inducement for any owners wishing to take their firm public is the
opportunity for a large payday upon the sale of thei
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
potential riches associated with an IPO. On the
221 senior partners at Goldman Sachs held shares worth an eye
partner [Goldman Sachs, 2000].
Equity is also used as a form of compensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders
congruence), since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Equity is also used as a form of com
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be pr
aligns the interests of the employees of a company with those of its shareholders
congruence), since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Journal of Business Cases and Applications
Unlike a private company, which has limited opportunities for raising capital
(primarily the owners’ personal capital investments), publicly-traded companies can tap
rkets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
ater changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
Consulting.
Stock is commonly used to finance a portion of an acquisition (NOTE: The instructor
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
increasing wealth if the stock, which is received as a part of the purchase price,
appreciates in value. A typical purchase price formula would consist of cash, stock
(equity in the acquiring company) and an “earn-out” bonus, i.e. pay for achieving
specified performance goals. The percentage of each portion of the formula and the
amount of each is a subject of negotiation between the buyer and seller.
A major inducement for any owners wishing to take their firm public is the
opportunity for a large payday upon the sale of their stock holdings in the new publicly
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
potential riches associated with an IPO. On the day that Goldman Sachs went public
221 senior partners at Goldman Sachs held shares worth an eye-popping $63 million per
.
Equity is also used as a form of compensation for employees, which can be an
r join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
interests of the employees of a company with those of its shareholders
, since employees have a vested interest in ensuring the company performs
well, which ideally is reflected in a higher stock price.
Equity is also used as a form of compensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders
, since employees have a vested interest in ensuring the company performs
n a higher stock price.
Journal of Business Cases and Applications
Coming of age
Unlike a private company, which has limited opportunities for raising capital
traded companies can tap
rkets for their capital requirements. Justifications for going public
include the ability to finance acquisitions, capital to finance growth and stock to fund
The 1996 Metzler Group IPO raised $37 million. Following the IPO, Metzler (which
ater changed its name to Navigant Consulting, Inc.) embarked on a series of acquisitions,
which continued until 2000 when the company was forced to retrench due to poor
performance. However, the company grew from $149 million in revenues in 1996 to
million in 2000. A portion of most of these acquisitions was financed with
Metzler (Navigant) stock, which financing option would not be available to a private firm
acquisition (NOTE: The instructor
could ask students why stock is used to fund an acquisition). Not only does issuing stock
lessen the cash outlay for the acquired company, stock also offers sellers the promise of
appreciates in value. A typical purchase price formula would consist of cash, stock
out” bonus, i.e. pay for achieving
each portion of the formula and the
r stock holdings in the new publicly
traded company, as well as the continuing possibility of significant wealth appreciation
through equity ownership. Once again, the Goldman Sachs IPO is an example of the
day that Goldman Sachs went public, the
popping $63 million per
Equity is also used as a form of compensation for employees, which can be an
r join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
an incentive to perform well and be productive. Equity ownership also, theoretically,
interests of the employees of a company with those of its shareholders (goal
, since employees have a vested interest in ensuring the company performs
pensation for employees, which can be an
inducement to either join a company, or remain with a company. Stock has the benefit of
allowing employees to own a part of the company, to participate as an owner, as well as
oductive. Equity ownership also, theoretically,
aligns the interests of the employees of a company with those of its shareholders (goal
, since employees have a vested interest in ensuring the company performs
C. Size
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
not necessarily always better. But in a professional services organization like c
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
loss of a consultant who is responsible for generating $10 m
affects the firm. However, if the firm’s
rainmaker will have a less serious impact.
Issue 2. Evaluate the legal implications of “going public.
Students should be able to ide
publicly-traded company:
A. Legal Implications – Transparency
The legal implications of becoming a publicly traded company are significant.
Publicly traded companies exist in a “fishbowl.” The federal secu
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
corporate scandals which came to light in the early 2000
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
their officers and directors. The idea behind these required disclosures i
i.e. the extent to which investors have ready access to corporate personnel and financial
information about the company.
For example, the Securities and Exchange Commission (SEC) has promulgated
elaborate disclosure rules in connection
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
CFR 240.14a-101]. Item 402 of Regulation S
executive officer compensation such as sa
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
information about the directors and of
Regulation S-K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
investment decision. In a private co
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
compensation. Compensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
disclosures in a publicly traded company, security and safety issues are a legitimate
concern.
Journal of Business Cases and Applications
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
not necessarily always better. But in a professional services organization like consulting,
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
loss of a consultant who is responsible for generating $10 million in revenue dramatically
affects the firm. However, if the firm’s revenues were $500 million, the departure of
will have a less serious impact.
implications of “going public.
Students should be able to identify the following five disadvantages of being a
Transparency
The legal implications of becoming a publicly traded company are significant.
Publicly traded companies exist in a “fishbowl.” The federal securities regulations
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
corporate scandals which came to light in the early 2000-2001 time period (Enron,
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
their officers and directors. The idea behind these required disclosures is “transparency,”
i.e. the extent to which investors have ready access to corporate personnel and financial
information about the company.
For example, the Securities and Exchange Commission (SEC) has promulgated
elaborate disclosure rules in connection with the content of proxy statements sent to
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
101]. Item 402 of Regulation S-K requires disclosure of director and
executive officer compensation such as salary, bonuses, stock ownership, stock option
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
information about the directors and officers (Items 103, 401 and 404(1) and (b) of
K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
In a private company, the principals maintain a certain anonymity
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
pensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
cly traded company, security and safety issues are a legitimate
Journal of Business Cases and Applications
Coming of age
Size matters in professional services organizations (NOTE: the instructor might ask
“why” size is important in a professional services organization like consulting). Big is
onsulting,
the larger the firm, the less likely it is that the loss of any one or two “rainmakers” will
have an adverse affect on the firm. For example, in a firm with sales of $100 million, the
illion in revenue dramatically
were $500 million, the departure of a
ntify the following five disadvantages of being a
The legal implications of becoming a publicly traded company are significant.
rities regulations
require elaborate disclosures about all aspects of publicly traded companies, including
personal information about the executive officers and directors. Even prior to the
e period (Enron,
WorldCom, Tyco), publicly traded companies were required to make disclosures
concerning financial results, compensation arrangements and personal information about
s “transparency,”
i.e. the extent to which investors have ready access to corporate personnel and financial
For example, the Securities and Exchange Commission (SEC) has promulgated
with the content of proxy statements sent to
shareholders when soliciting their votes on various corporate matters [Schedule 14A, 17
K requires disclosure of director and
lary, bonuses, stock ownership, stock option
awards, severance arrangements (“golden parachutes”) and perquisites (company offered
benefits like cars, club memberships etc.). The regulations also require biographical
ficers (Items 103, 401 and 404(1) and (b) of
K). The idea being that investors are entitled to know in detail information
about the individuals charged with operating a company in order to make an informed
mpany, the principals maintain a certain anonymity
and privacy. Financial results are shared only with the owners. The firm is not subject to
outside scrutiny since there is no public disclosure of firm results, personal information or
pensation is confidential whereas in a publicly traded company,
compensation arrangements of senior executives are not only very public, but also quite
detailed. Because of the very public nature of officer and director compensation
cly traded company, security and safety issues are a legitimate
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
Exchange (NYSE) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
development of corporate governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
that the CEO is unaware of NYSE violations
“Notice to and Filings with the E
of business occurrences including changes in capital, changes in directors or executive
officers, or changes in auditors.
B. Legal Implications – Cost
Going public is not an inexpensive undertaking. There
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
expenses. For example, the minimum listing application f
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
million. (The maximum listing fee is capped at $250,000)
Various authors have calculated the costs for going public. Draho
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
involve direct costs between $8.4 million and $8.8 million” (these costs i
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
state fees, transfer agent and miscellaneous fees). Ritter
costs of an IPO in the range of 16.96% for IPO’s of $10 million or les
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
IPO. Lastly, Entrepreneur Magazine
estimated IPO costs of “no less than 25%” of the company’s stock offering.
In addition, publicly traded firms have significant ongoing expenses. While there have
always been expenses associated directly with being a publicly traded co
legal and accounting fees and ann
example, the minimum annual listing fee for the NYSE is $38,000), costs have increased
since the passage of the Sarbanes
Congress as a direct result of the numerous corporate abuses that came to light
2000-2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
policies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
Estimates of first-year compliance costs range from $4.6 million for large compani
billion in sales) to $2 million for medium to small companies.
compliance with the Act is estimated at $2.9 million
be interesting to ask students to guess what the
Journal of Business Cases and Applications
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
that the CEO is unaware of NYSE violations [NYSE, 2009]. Section 204 entitled
“Notice to and Filings with the Exchange” requires notice to the NYSE for any number
of business occurrences including changes in capital, changes in directors or executive
Going public is not an inexpensive undertaking. There are significant upfront costs
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
expenses. For example, the minimum listing application fee for the NYSE is $37,500
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
million. (The maximum listing fee is capped at $250,000) [NYSE, 2009].
Various authors have calculated the costs for going public. Draho [1998] in his book
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
involve direct costs between $8.4 million and $8.8 million” (these costs include
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
state fees, transfer agent and miscellaneous fees). Ritter [1998] estimated total direct
costs of an IPO in the range of 16.96% for IPO’s of $10 million or less to 5.72% for
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
Lastly, Entrepreneur Magazine [2005] in an article entitled “Going Public”
estimated IPO costs of “no less than 25%” of the company’s stock offering.
In addition, publicly traded firms have significant ongoing expenses. While there have
always been expenses associated directly with being a publicly traded company, such as
annual membership fees for an exchange listing (for
ual listing fee for the NYSE is $38,000), costs have increased
since the passage of the Sarbanes-Oxley Act of 2001 (Act). The Act was passed by
Congress as a direct result of the numerous corporate abuses that came to light during
2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
licies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
year compliance costs range from $4.6 million for large compani
ion in sales) to $2 million for medium to small companies. The average cost of
compliance with the Act is estimated at $2.9 million [Hartman, 2007]. (NOTE: It might
be interesting to ask students to guess what the annual costs of compliance are).
Journal of Business Cases and Applications
Coming of age
In addition, each stock exchange has its own rules concerning listed companies.
For example, Section 303A, entitled “Corporate Responsibility,” of the New York Stock
) Listed Company Manual provides that the board of directors must
consist of a majority of outside directors (Section 303A.01); elaborate rules concerning
Audit and Compensation Committees are contained in Section 303A.05 and .06;
governance guidelines, i.e. director qualifications and
responsibilities are in Section 303A.09; Section 303A.12 provides for CEO certification
. Section 204 entitled
xchange” requires notice to the NYSE for any number
of business occurrences including changes in capital, changes in directors or executive
are significant upfront costs
associated with an IPO, such as listing on an exchange, preparation of a registration
statement and prospectus, printing and legal fees, outside independent accountant
ee for the NYSE is $37,500
plus $.0048 per share for a $75 million offering; $0.00375 per share for an offering
between $75 million and $300 million and $0.0019 per share for an offering over $300
in his book
entitled “The IPO Decision: Why and How Companies Go Public” stated that the “direct
costs … of a typical $100 million IPO with 10 million shares listed on NASDAQ would
attorney’s fees, accounting fees, underwriter spread (profit), printing costs, SEC fees,
estimated total direct
s to 5.72% for
IPO’s of $500 million or more, where the costs are a percentage of the offer price of the
stock. He calculated that the average total direct costs are 11% of total proceeds from the
itled “Going Public”
In addition, publicly traded firms have significant ongoing expenses. While there have
mpany, such as
ual membership fees for an exchange listing (for
ual listing fee for the NYSE is $38,000), costs have increased
passed by
during
2002. Even more transparency was the order of the day. The Act requires
compliance on a number of levels including enhanced accounting procedures and
licies, routine audits, increased internal controls and adoption of corporate governance
programs to mention a few. The additional cost of compliance is not insignificant.
year compliance costs range from $4.6 million for large companies ($5
The average cost of
Hartman, 2007]. (NOTE: It might
C. Equity Downsides
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
circumstances which are beyond a company’s control. For instan
market leader may adversely affect stock prices in other companies within the same
sector or industry. Invictus Solutions
on morale should the company’s stock fail to increase in v
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
14.1% in the month of October 2008 alone) [Steverman, 200
(ii) When there is too much focus on increasing the stock price, two unwelcome
side effects are possible. The first is short
making). There may be decisions required for the long
which may result in lower short-term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the
can have short-term negative financial consequences,
company’s stock price leading to a
expenditures.
The second “unwelcome” consequence of too much focus on a company’s stock
is the temptation to take shortcuts in order to inflate stock price. Examples
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
that Bernie Ebbers, the former CEO of WorldCom
price several times a day).
D. Investor Expectations
Unlike a privately held company, publicly
pressure for results from outside sources
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio;
financial analysts who follow the company. Si
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
large pension funds which have a long
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
on management. They can also influence chang
membership. Going public would entail constant pressure for financial results. As one
CEO stated, “there’s no fourth quarter when you’re the CEO.” In other words, the
attitude of new investors is “what have you done for me lat
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
Journal of Business Cases and Applications
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
circumstances which are beyond a company’s control. For instance, poor results for a
market leader may adversely affect stock prices in other companies within the same
Invictus Solutions will have to consider the possible negative effects
on morale should the company’s stock fail to increase in value, or worse, suffer declines
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
14.1% in the month of October 2008 alone) [Steverman, 2008].
(ii) When there is too much focus on increasing the stock price, two unwelcome
side effects are possible. The first is short-term thinking (managerial myopic decision
. There may be decisions required for the long-term viability of the compa
term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the
term negative financial consequences, it may adversely affect a
leading to a temptation to defer costly, but necessary,
The second “unwelcome” consequence of too much focus on a company’s stock
the temptation to take shortcuts in order to inflate stock price. Examples abound
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
t Bernie Ebbers, the former CEO of WorldCom, would check the company’s stock
Unlike a privately held company, publicly-traded companies face considerable
pressure for results from outside sources. These include shareholders who invest in a
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio;
financial analysts who follow the company. Since most shareholders (over 60%) are now
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
large pension funds which have a long-term perspective do focus on the quality of
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
on management. They can also influence changes in management and board
membership. Going public would entail constant pressure for financial results. As one
, “there’s no fourth quarter when you’re the CEO.” In other words, the
attitude of new investors is “what have you done for me lately.” There is always some
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
Journal of Business Cases and Applications
Coming of age
(i) While equity is a powerful incentive and motivator, there is a “dark” side to
equity: investors can experience tremendous losses, occasionally due to conditions or
ce, poor results for a
market leader may adversely affect stock prices in other companies within the same
will have to consider the possible negative effects
alue, or worse, suffer declines
in value. In the first 10 months of 2008, the S&P stock index lost 34% and the DOW
Jones Industrial Average dropped 29.7% (the S&P fell 16.8% and the Dow Jones fell
(ii) When there is too much focus on increasing the stock price, two unwelcome
(managerial myopic decision
term viability of the company,
term earnings. Lower earnings can adversely affect the
stock price. For example, a company may need to invest capital in research and new
product development, or to upgrade/modernize facilities. Since budgeting for the future
The second “unwelcome” consequence of too much focus on a company’s stock
abound.
Students could cite Enron and WorldCom as instances where senior management’s
excessive preoccupation with increasing stock values led to abuses. (It has been reported
would check the company’s stock
traded companies face considerable
shareholders who invest in a
company expecting a return, sometimes unrealistic, on their investment; fund managers
whose compensation is tied to the performance of the companies in their portfolio; and
nce most shareholders (over 60%) are now
institutions such as mutual funds, insurance companies, pension funds and hedge funds,
there is reduced loyalty to a particular company in favor of expected returns (although
rm perspective do focus on the quality of
management) [American Bar Association, 2009]. Large institutional investors like the
California Public Employees’ Retirement System (CALPERS) can and do exert pressure
membership. Going public would entail constant pressure for financial results. As one
, “there’s no fourth quarter when you’re the CEO.” In other words, the
ely.” There is always some
investor who just purchased a company’s stock and is not interested in past successes
(NOTE: The instructor could ask students what their attitude would be if they recently
purchased stock in a well-managed, high performing comp
performance does not meet their expectations).
E. Culture
(NOTE: The instructor might ask students to define “culture”).
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
importance and significance to an organization c
As the principals of Invictus Solutions
considerations will be to evaluate the impact of becoming a “public” company on the
culture of their firm. They learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
generate billable hours to satisfy investor expectations. Career development is an area
that Serafina and Horatio actively promoted.
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
recruited directly from college with an expectation of workin
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
“psychological contract” formed during the recr
prospective employees that the firm will continue to “honor” its contract by maintaining
the firm’s culture. In addition, not all consultants fit well in a large, results
organization and prefer a more flex
public would alter the firm’s culture possibly disappointing some employees,
causing morale problems.
Issue 3. Identify and evaluate the advantages and disadvantages of the following
three strategic alternatives:
A. Status Quo
(NOTE: The instructor might ask students what they believe the most obvious
strategic alternative is).
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
maintain the status quo, and simply continue operations as they have in the past. There
are several advantages to this option:
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
disclosures about the firm’s performance, personal information about its of
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
maintain anonymity and privacy, but also would have more independence, c
flexibility in operating their firm.
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
Journal of Business Cases and Applications
managed, high performing company and the company’s
performance does not meet their expectations).
NOTE: The instructor might ask students to define “culture”).
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
significance to an organization cannot be underestimated.
Invictus Solutions evaluate the IPO option, one of their major
considerations will be to evaluate the impact of becoming a “public” company on the
learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
able hours to satisfy investor expectations. Career development is an area
actively promoted.
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
recruited directly from college with an expectation of working in a small private firm
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
“psychological contract” formed during the recruiting process, i.e. an expectation by
prospective employees that the firm will continue to “honor” its contract by maintaining
the firm’s culture. In addition, not all consultants fit well in a large, results-dominated
organization and prefer a more flexible environment with less outside pressure. Going
public would alter the firm’s culture possibly disappointing some employees, and/or
Issue 3. Identify and evaluate the advantages and disadvantages of the following
(NOTE: The instructor might ask students what they believe the most obvious
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
simply continue operations as they have in the past. There
are several advantages to this option:
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
disclosures about the firm’s performance, personal information about its officers/directors
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
maintain anonymity and privacy, but also would have more independence, control and
flexibility in operating their firm.
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
Journal of Business Cases and Applications
Coming of age
any and the company’s
Culture is a set of beliefs, values and customs of a group. While it is an intangible, its
evaluate the IPO option, one of their major
considerations will be to evaluate the impact of becoming a “public” company on the
learned through their research that in firms that went public,
less time was being spent on learning and career development because of the pressure to
able hours to satisfy investor expectations. Career development is an area
Moreover, the two principals are concerned about breaching the “psychological
contract” between their firm and its employees. Many of the firm’s consultants were
g in a small private firm
where the external pressures for results are absent, or at least reduced, and where there is
the prospect of becoming a partner or equity owner who shares in the profits. There is a
uiting process, i.e. an expectation by
prospective employees that the firm will continue to “honor” its contract by maintaining
dominated
ible environment with less outside pressure. Going
and/or
Issue 3. Identify and evaluate the advantages and disadvantages of the following
(NOTE: The instructor might ask students what they believe the most obvious
The most obvious alternative for the firm is to stay a private consulting firm, i.e.
simply continue operations as they have in the past. There
(i) Less outside pressure and scrutiny. There would be no need for elaborate SEC
ficers/directors
and their compensation. Moreover, there would not be the same constant pressure for
continually improving financial results. Additionally, the owners would not only
ontrol and
(ii) No compliance costs. By remaining a privately held company, the firm would
not incur the additional expenses associated with compliance requirements, i.e. outside
public accountants, legal fees for vari
and shareholder meeting costs.
(iii) The firm could retain its culture. Consulting firms grow by adding
consultants. One source of new consultants is college graduates. Some individuals
prefer working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
carefully nurtured culture.
(iv) The principals can maintain their “status” as owners of
an intangible factor, its importance should not be underestimated.
personally witnessed the adjustments that former owners of acquired firms struggle with
after the acquisition. Once the euphoria of the bi
can arise.
There are several disadvantages to remaining private:
(i) Growth opportunities may be more limited As
companies can leverage their size, visibility and can use the capital
growth. This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
for non-gilt-edged firms because of the harsher lending standards of
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]
have become more risk adverse. Up to this point, the two main principals of
Solutions have financed the firm primarily through their own
coming from other principals. However,
personal investment in the firm is prudent.
(iii) No equity cash-out. While there are certain restrictions generally imposed by
the underwriters concerning how soon the principals can liquidate their stock holdings in
a newly created publicly-traded company (“lock
payday if the firm remains private. Also, there may not be equity upside potential
ability to compensate consultants with equity.
B. Remain private but make acquisitions in order to grow.
Consulting firms, like other professional services organizations, can grow by
either raising fees, getting more work from current clients (both way
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
delicate balance between meeting ever increasing expenses and yi
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
serious consideration.
The advantages of an acquisition
(i) The firm can grow. A firm can raise fees, or sell more services to current
clients. But with an acquisition, the firm acquires new clients
consultants virtually instantaneously
overnight, thereby short-circuiting the tedious and time
new “book of business” in a practice area from scratch.
Journal of Business Cases and Applications
public accountants, legal fees for various disclosure issues, stock exchange fees, printing
(iii) The firm could retain its culture. Consulting firms grow by adding bill
consultants. One source of new consultants is college graduates. Some individuals
r working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
The principals can maintain their “status” as owners of the firm. While this is
an intangible factor, its importance should not be underestimated. One of the authors
witnessed the adjustments that former owners of acquired firms struggle with
after the acquisition. Once the euphoria of the big “payday” fades, real morale problems
There are several disadvantages to remaining private:
(i) Growth opportunities may be more limited As stated earlier, publicly traded
companies can leverage their size, visibility and can use the capital markets to fuel
This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
edged firms because of the harsher lending standards of banks that have been
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]
have become more risk adverse. Up to this point, the two main principals of Invictus
have financed the firm primarily through their own resources with some capital
coming from other principals. However, there are limits as to how much continu
personal investment in the firm is prudent.
out. While there are certain restrictions generally imposed by
rs concerning how soon the principals can liquidate their stock holdings in
traded company (“lock-up provisions”), there would be no large
payday if the firm remains private. Also, there may not be equity upside potential
bility to compensate consultants with equity.
B. Remain private but make acquisitions in order to grow.
Consulting firms, like other professional services organizations, can grow by
either raising fees, getting more work from current clients (both ways referred to as
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
delicate balance between meeting ever increasing expenses and yielding to the pressure
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
The advantages of an acquisition are:
(i) The firm can grow. A firm can raise fees, or sell more services to current
clients. But with an acquisition, the firm acquires new clients and new billable
virtually instantaneously. The firm can also diversify into new practice are
circuiting the tedious and time-consuming process of building a
new “book of business” in a practice area from scratch.
Journal of Business Cases and Applications
Coming of age
ous disclosure issues, stock exchange fees, printing
billable
consultants. One source of new consultants is college graduates. Some individuals
r working for a small company where the culture fosters an atmosphere that is
informal with less bureaucracy. By remaining a private firm, the owners can continue its
the firm. While this is
the authors has
witnessed the adjustments that former owners of acquired firms struggle with
g “payday” fades, real morale problems
, publicly traded
markets to fuel
This option is often not available to private companies of a particular size.
(ii) Financing options may be more limited. Credit in the current economy is tight
banks that have been
decimated by the global economic crisis that began in 2008 [Razaki et al., 2010]. Banks
Invictus
resources with some capital
continuing
out. While there are certain restrictions generally imposed by
rs concerning how soon the principals can liquidate their stock holdings in
up provisions”), there would be no large
payday if the firm remains private. Also, there may not be equity upside potential or the
Consulting firms, like other professional services organizations, can grow by
s referred to as
“organic growth”), signing on new clients, or acquiring other firms. Of the first three
mentioned ways to grow, the firm can only control raising its fees, which is always a
elding to the pressure
from clients to hold the line on fees. Securing additional work from current clients and
finding new clients is not guaranteed. Therefore, growth by acquisition becomes a
(i) The firm can grow. A firm can raise fees, or sell more services to current
. The firm can also diversify into new practice areas
consuming process of building a
(ii) The firm acquires new talent, experience, expertise and resources, which it
can market to current and prospective clients.
(iii) If integrated properly, the new combined firm should experience certain
operating efficiencies, i.e. more bill
the same, or slightly increased number
support functions like accounting and human resources can usually absorb new
consultants with little or no additions to their staff.
The disadvantages of making an acquisition are:
(i) Acquisitions are risky.
statements) can make a firm appear attractive as a potential target company, there are
intangible considerations. Statistics show that the failure of most mergers and
acquisitions lies somewhere between 40
outside the existing core competencies
the same specialty space. Research
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
reports are handled; flexibility of
office. Therefore, the post acquisition assimilation and integration of an acquired firm
are critical to the eventual success of an acquisition.
(ii) Increased overhead expenses. As a condition of some
of a privately held firm, the seller will require the buyer to hire all of its employees,
including non-billable staff. Owners of small firms who are selling their company and
“cashing-out” feel an obligation to their employees w
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
In addition, the seller may have office, a
which the buyer must assume.
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
investing a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
debt of the target company, or taking on too much debt to make the acquisition.
C. Sell firm, i.e. be acquired by another company
The advantages of selling the firm are:
(i) Cash-out by owners. The potential exists for a large cash payment. Private
acquisitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
appreciates in value.
(iii) Shedding administrative and operational responsibilities. The day
duties and responsibilities of running an organization can be time
frustrating. It is very likely that most, if not all, these responsibili
off to other individuals within the acquiring company.
Journal of Business Cases and Applications
(ii) The firm acquires new talent, experience, expertise and resources, which it
can market to current and prospective clients.
(iii) If integrated properly, the new combined firm should experience certain
billable consultants generating revenue and profits with
the same, or slightly increased number of support staff. Savings are possible since
support functions like accounting and human resources can usually absorb new
consultants with little or no additions to their staff.
The disadvantages of making an acquisition are:
(i) Acquisitions are risky. While financial projections (pro forma financial
statements) can make a firm appear attractive as a potential target company, there are
intangible considerations. Statistics show that the failure of most mergers and
acquisitions lies somewhere between 40-80% [Anonymous]. Acquisitions that are
competencies are more risky than those that are horizontally in
Research also suggests that a primary reason for such failures is
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
flexibility of office hours and the formality or informality in an
office. Therefore, the post acquisition assimilation and integration of an acquired firm
critical to the eventual success of an acquisition.
(ii) Increased overhead expenses. As a condition of some acquisitions, especially
of a privately held firm, the seller will require the buyer to hire all of its employees,
able staff. Owners of small firms who are selling their company and
out” feel an obligation to their employees who have been loyal and want to
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
In addition, the seller may have office, and/or equipment leases, or other obligations
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
g a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
bt of the target company, or taking on too much debt to make the acquisition.
C. Sell firm, i.e. be acquired by another company
The advantages of selling the firm are:
out by owners. The potential exists for a large cash payment. Private
sitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
(iii) Shedding administrative and operational responsibilities. The day-to-
duties and responsibilities of running an organization can be time-consuming and
frustrating. It is very likely that most, if not all, these responsibilities would be handed
off to other individuals within the acquiring company.
Journal of Business Cases and Applications
Coming of age
(ii) The firm acquires new talent, experience, expertise and resources, which it
(iii) If integrated properly, the new combined firm should experience certain
able consultants generating revenue and profits with
of support staff. Savings are possible since
While financial projections (pro forma financial
statements) can make a firm appear attractive as a potential target company, there are
are
horizontally in
suggests that a primary reason for such failures is
“people issues.” Every organization possesses a culture and personality and, when
companies combine, there can be culture clashes: for example dress codes; how expense
the formality or informality in an
office. Therefore, the post acquisition assimilation and integration of an acquired firm
acquisitions, especially
of a privately held firm, the seller will require the buyer to hire all of its employees,
able staff. Owners of small firms who are selling their company and
ho have been loyal and want to
return that loyalty. While this contingency is factored into the financial justification for
the acquisition, it does limit the savings an acquirer can achieve from the acquisition.
nd/or equipment leases, or other obligations
(iii) Overvalue the target company. Acquisitions take on a life of their own. It is
sometimes difficult for management to make a decision to “cut losses” and move on after
g a significant amount of time, resources and money pursuing a target company.
So there is a tendency to push the acquisition through even when it stops making good
financial or business sense. Closely associated with this disadvantage is assuming the
out by owners. The potential exists for a large cash payment. Private
sitions can be as financially rewarding as an IPO without all the legal consequences.
(ii) Equity. If the acquiring company is publicly traded and offers stock (equity)
as part of the purchase price, the potential exists for additional wealth if the stock
-day
consuming and
ties would be handed
The disadvantages of selling the firm are:
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
acquisition with a combination of cash, stock and
percentages of each portion of the formula are subject to negotiation, a typical purchase
price formula might be one-third cash payable at closing (subject to tax, which obviously
reduces the pay-out); one-third in some
may require the recipients to hold for a period of time in order to insure key employees
stay; and finally, one-third in the form of an “earn
that payment is subject to the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
there may be severe “buyers’ remorse” after the deal once tax is paid, the stock received
decreases in value and/or earn-out goals are not achieved.
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
However, it should not be taken lig
former owners (principals) of acquired consulting firms who face difficult adjustments in
merely being “one of the crowd”
position with the acquiring company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
this morale issue.
(iii) Loss of influence/control. This disadvantage is closely related to the previou
one. After being “in charge,” previous owners may find it difficult to accept not being a
policy maker or decision maker in terms of the firm’s operations.
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
culture, one which may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
focused workplace, others may feel uncomfortable. The “fit” within the new
organization may prove to be difficult for some resulting in departures of competent and
experienced billable consultants. A certain amount of attrition should be expected.
(v) Non-compete agreements. (NOTE: Ask students to define a non
explain the purpose of a non-compete agreement. You can also ask their views on non
competes, i.e. are they fair, what’s a “reasonable” duration).
million dollars to purchase a business only to find that the previous owners have started a
competing business. To prevent this possibility, it has become the norm to require that
key employees of the acquired firm execute non
the closing. These agreements provide that the person signing the non
be allowed to compete, or work for a competing company for a certain period of time.
Issue 4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
One alternative to “going public”
remain a private firm. Given the steady, but
Solutions, an IPO may not be attractive at this time. Generally, companies electing to go
public have growth rates which exceed 10
Journal of Business Cases and Applications
The disadvantages of selling the firm are:
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
acquisition with a combination of cash, stock and an “earn-out.” While the amounts and
percentages of each portion of the formula are subject to negotiation, a typical purchase
third cash payable at closing (subject to tax, which obviously
third in some form of equity, if available, which the acquirer
may require the recipients to hold for a period of time in order to insure key employees
third in the form of an “earn-out.” An earn-out provision provides
the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
severe “buyers’ remorse” after the deal once tax is paid, the stock received
out goals are not achieved.
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
However, it should not be taken lightly. Serious morale issues can be encountered by
former owners (principals) of acquired consulting firms who face difficult adjustments in
merely being “one of the crowd”. While generally, former owners negotiate a title and
company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
(iii) Loss of influence/control. This disadvantage is closely related to the previou
one. After being “in charge,” previous owners may find it difficult to accept not being a
policy maker or decision maker in terms of the firm’s operations.
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
hich may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
focused workplace, others may feel uncomfortable. The “fit” within the new
be difficult for some resulting in departures of competent and
able consultants. A certain amount of attrition should be expected.
compete agreements. (NOTE: Ask students to define a non-compete and
mpete agreement. You can also ask their views on non
competes, i.e. are they fair, what’s a “reasonable” duration). Imagine paying several
million dollars to purchase a business only to find that the previous owners have started a
prevent this possibility, it has become the norm to require that
key employees of the acquired firm execute non-compete agreements as a condition of
the closing. These agreements provide that the person signing the non-compete will not
te, or work for a competing company for a certain period of time.
4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
to “going public”, and the most obvious alternative, is simply t
remain a private firm. Given the steady, but unspectacular, growth of the Invictus
, an IPO may not be attractive at this time. Generally, companies electing to go
owth rates which exceed 10% annually, as shown in Table 4 (Appendix
Journal of Business Cases and Applications
Coming of age
(i) All that glitters is not gold. It is not uncommon to pay the purchase price of an
out.” While the amounts and
percentages of each portion of the formula are subject to negotiation, a typical purchase
third cash payable at closing (subject to tax, which obviously
form of equity, if available, which the acquirer
may require the recipients to hold for a period of time in order to insure key employees
out provision provides
the achievement of certain performance goals, i.e. revenue or
profit growth goals, for example. An individual’s failure to achieve such goals reduces
the purchase price that the seller anticipated receiving for selling the company. In sum,
severe “buyers’ remorse” after the deal once tax is paid, the stock received
(ii) Loss of status/prestige. This factor is extremely subjective and intangible.
can be encountered by
former owners (principals) of acquired consulting firms who face difficult adjustments in
While generally, former owners negotiate a title and
company, the fact remains that after the acquisition they may
be one of several hundred similarly situated consultants. An “A” student might recognize
(iii) Loss of influence/control. This disadvantage is closely related to the previous
one. After being “in charge,” previous owners may find it difficult to accept not being a
(iv) Assimilation. Consultants from the acquired firm will have to adapt to a new
hich may be very different from the atmosphere and environment of the
acquired firm. While some consultants might actually welcome a more structured and
be difficult for some resulting in departures of competent and
able consultants. A certain amount of attrition should be expected.
compete and
mpete agreement. You can also ask their views on non-
Imagine paying several
million dollars to purchase a business only to find that the previous owners have started a
prevent this possibility, it has become the norm to require that
compete agreements as a condition of
compete will not
te, or work for a competing company for a certain period of time.
4. Decide on the best course of action for the firm, i.e. stay private, take the
firm public (IPO), or another alternative. Give reasons to support your decision.
is simply to
Invictus
, an IPO may not be attractive at this time. Generally, companies electing to go
Appendix).
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dra
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
revenue from billable consultant hours.
revenue. In addition to adding new consultants and clients, acquisitions can also add new
service lines not currently offered.
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
is cultural fit, especially in people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
people. Small business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
firm. As mentioned in the Teaching Notes, there are obvious advantages: cash
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
reasonably successful firm to warrant serious consideration by the tw
While there is no “right,” or “best” answer to the question of which strategic alternative is
most attractive, an “A” student might suggest that
the time being, while putting out “feelers” for a possible
certain advantages to this approach
itself as an attractive acquisition candidate;
Invictus Solutions can take steps to grow the company, either organically or by
acquisitions, to better position itself for an eventual IPO; and lastly
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
Being an independent firm is not without its benefits; status, control, continued
employment and comfortable income.
ACKNOWLEDGEMENTS
The authors would like to acknowledge Mr. Alan Peterson for providing
information and guidance in developing this case that is based on his
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
REFERENCES
Adams, S. M. and Zani, A. (2005). “The consulting career in transi
to corporate.” Career Development International
www.emeraldinsight.com/1362-0436.htm
Journal of Business Cases and Applications
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dra
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
able consultant hours. The more consultants there are, the greater the
revenue. In addition to adding new consultants and clients, acquisitions can also add new
service lines not currently offered.
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
As mentioned in the Teaching Notes, there are obvious advantages: cash-out,
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
successful firm to warrant serious consideration by the two principals.
While there is no “right,” or “best” answer to the question of which strategic alternative is
most attractive, an “A” student might suggest that Invictus Solutions remain private for
the time being, while putting out “feelers” for a possible sale of the firm. There are
advantages to this approach. The firm can continue to operate while positioning
itself as an attractive acquisition candidate;
can take steps to grow the company, either organically or by
to better position itself for an eventual IPO; and lastly
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
firm is not without its benefits; status, control, continued
employment and comfortable income.
he authors would like to acknowledge Mr. Alan Peterson for providing
information and guidance in developing this case that is based on his personal
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
(2005). “The consulting career in transition: from partnership
Career Development International. Vol. 10, 4.
0436.htm
Journal of Business Cases and Applications
Coming of age
A slight variation to remaining private is growing the company with acquisitions.
Organic growth, i.e. increasing fees, acquiring new clients, or doing more work with
existing clients, while less risky than acquisitions, will most likely not result in dramatic
revenue growth. Growing the firm through acquisitions of other consulting companies
has the potential of dramatically increasing revenue since consulting firms generate
ter the
revenue. In addition to adding new consultants and clients, acquisitions can also add new
There are risks to growth by acquisition. Probably the biggest risk in acquisitions
people intensive organizations like consulting firms. Different
styles, values and traditions are intangibles that often derail the most thoroughly
researched and investigated acquisitions. At the end of the day, the acquired “assets” are
business owners and employees transitioning into a larger organization
often chafe at the sometimes impersonal and bureaucratic culture of the acquiring firm.
Another alternative to the IPO is to sell the firm, i.e. be acquired or merged into another
out,
possibly less stress, fewer management/administrative responsibilities. From a business
standpoint, there could be significant strategic synergies to be achieved by selling out to
another firm. Given the age differences of the two principals, there could be a difference
of opinion about this alternative. However, there is sufficient merit in selling a viable,
o principals.
While there is no “right,” or “best” answer to the question of which strategic alternative is
remain private for
There are
The firm can continue to operate while positioning
can take steps to grow the company, either organically or by
The principals, having at least considered strategic alternatives, can take some time to
evaluate and decide whether remaining a private firm remains the best possible choice.
he authors would like to acknowledge Mr. Alan Peterson for providing
experiences. Further, the authors wish to thank the Brennan School of Business at
Dominican University for providing the student evaluation rubrics in Tables 5 and 6.
tion: from partnership
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successful small consulting companies,
Consulting, at different times, to Navigant Con
dollars.]
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@20market@research/industry@
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(2009).Report of the Task force of the ABA Section of
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“Intercultural Synergy in Mergers and Acquisitions”.http://www.kwintessential.co.uk/cultual-services/articles/intercltural-mergers.html
October 11, 2010). “Consulting Firms Turning to China and India for Growth”.
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(December 7, 2005). “Going Public”.http://www.entrepreneur.com/growyourbusiness/howtoguides/article81394.html
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Consulting, at different times, to Navigant Consulting, Inc., for hundreds of millions ofhttp://www.plunkettresearch.com/Consulting/
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Continued Costs of Being a Public
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Tucker Alan
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.
APPENDICES
Table 1: Consulting Firm Rankings: 2009
Names
Accenture
Cap Gemini
KPMG
PriceWaterhouseCoopers
Deloitte
McKinsey & Company
Booz Allen & Hamilton
Boston Consulting Group
Bain & Company
Oliver Wyman Group
Booz & Co.
Roland Berger
AT Kearney
Huron Consulting
Navigant Consulting, Inc.
Journal of Business Cases and Applications
, K.A., Koprowski, W., Alonzi, P. and Irons, R. (2010). “Centering the Business
Course on the Banking Crisis: Concrete Integrated Pedagogy”. Research in Higher
Entry”. About.com Guide
R. (1998). Initial Public Offerings. Contemporary Finance Digest, Vol. 2 No.
Steverman, B. “Stocks: Rating the 2008 Meltdown”.http://businessweek.com/investor/content/oct2008/pi20081031_960768.htm
Table 1: Consulting Firm Rankings: 2009
Revenue
(in millions) Structure
$25,300 Publicly traded
$12,270 Publicly traded
$7,270 Publicly traded
$6,900 Private
$6,300 Private
$5,300 Private
$4,100 Private
$2,400 Private
$1,600 Private
$1,500 Private
$1,000 Private
$1,000 Private
$785 Private
$630 Publicly traded
$355 Publicly traded
Journal of Business Cases and Applications
Coming of age
Centering the Business
Research in Higher
, Vol. 2 No.
Source:http://www.careers-in-business.com/consulting/consrank09.htm
Journal of Business Cases and Applications
business.com/consulting/consrank09.htm
Journal of Business Cases and Applications
Coming of age
Table 2: Selected Data for Invictus Solutions
(Dollar Amounts in Thousands
20
Revenues 1
Revenue growth % 17%
Net Income 24
Net Income growth % 25%
Table 3: Revenues of Navigant Consulting, Inc.
(Dollars in Millions)
2000 1999
$244.6 $219.4
Source: Form 10-K for Year ended December 31, 2000 for Navigant Consulting, Inc.
Table 4: Fourth Quarter 2010 IPO’s
Company Name
SciQuest, Inc.
China Cache International
Holdings Ltd.
Amyris, Inc.
QR Energy, LP*
Rig Net, Inc.*
Fortega Financial
Corporation*
Sow Fun Holdings*
China Ming Yang Wind
Power Group Limited
Rhino Resource Partners, LP
Elster Group
Source:http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788
*http://www.moneycentral.hoovers.com/global
Journal of Business Cases and Applications
Selected Data for Invictus Solutions for 2010, 2009, 2008
(Dollar Amounts in Thousands, rounded)
2010
2009
2008
165,000 141,000 126,000
17% 12% 14%
24,000 18,000 14,000
25% 22% 18%
Table 3: Revenues of Navigant Consulting, Inc.
1998 1997 1996
$202.5 $183.7 $149.9
K for Year ended December 31, 2000 for Navigant Consulting, Inc.
Table 4: Fourth Quarter 2010 IPO’s
Revenues (in millions) One Year Sales Growth
$36.2 21.5%
$39.8 6.3%
$64.6 365.1%
$72.8 74.1%
$80.9 10.0%
$83.1 48.4%
$127.0 22.0%
$171.6 843.2%
$419.0 4.4%
$1,600 11.0%http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788http://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=160162
Journal of Business Cases and Applications
Coming of age
126,000
14,000
$149.9
K for Year ended December 31, 2000 for Navigant Consulting, Inc.
One Year Sales Growthhttp://www.moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=161788
/msn/factsheet.xhtml?COID=160162
Table 5: Entrepreneurship Evaluation
Exemplary Acceptable
Student’s work correctly
identifies not only the main
but also the secondary
issue(s) in the assignment.
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s work correctly
applies and clearly
demonstrates a deep
understanding of relevant
framework(s) in her/his
analysis.
Student’s work correctly
applies and demonstrates an
understandin
framework(s) in her/his
analysis.
Student’s work identifies all
of the important
stakeholders.
Student’s work identifies
most of the important
stakeholders.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work proposes
several alternatives to the
assignment’s issue(s) – all
of which demonstrate in-
depth thinking and
understanding.
Student’s work proposes
several alternatives to the
assignment’s issue(s).
Student’s work makes a
strong, compelling case for
her/his proposed
resolution(s).
Student’s work makes an
adequate case for her/his
proposed resolution(s).
Overall, student’s work
demonstrates an in-depth,
nuanced understanding of
how management
principles and financial
reasoning can be used to
resolve the assignment’s
entrepreneurship issue(s).
Overall, student’s work
demonstrates a good
understanding of how
management principles and
financial reasoning
used to resolve the
assignment’s
entrepreneurship
Journal of Business Cases and Applications
23
Table 5: Entrepreneurship Evaluation Rubric
Acceptable Marginally Acceptable Not Acceptable
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s work correctly
identifies the issue(s) in the
assignment.
Student’s wo
to correctly identify
the issue
assignment.
Student’s work correctly
applies and demonstrates an
understanding of relevant
framework(s) in her/his
analysis.
Student’s work either fails
to apply or misapplies a
relevant framework in
her/his analysis.
Student’s work fails
to apply any
framework in
her/his analysis.
Student’s work identifies
most of the important
stakeholders.
Student’s work identifies
only the most obvious
stakeholder(s).
Student’s work fails
to identify any of
the relevant
stakeholders
assignment.
Student’s work
distinguishes between
assignment facts and
student’s personal opinion.
Student’s work fails to
distinguish between
assignment facts and
personal opinion.
Student’s work fails
to distinguish
between assignment
facts and personal
opinion.
Student’s work proposes
several alternatives to the
assignment’s issue(s).
Student’s work proposes
one resolution to the
assignment’s issue(s).
Student’s work
proposes a
resolution to the
assignment iss
based solely on
personal opinion.
Student’s work makes an
adequate case for her/his
proposed resolution(s).
Student’s work fails to make
an adequate case for her/his
proposed resolution(s).
Student’s work fails
to make an adequate
case for her/his
proposed
resolution(s).
Overall, student’s work
demonstrates a good
understanding of how
management principles and
financial reasoning can be
used to resolve the
ignment’s
entrepreneurship issue(s).
Overall, student’s work
minimally demonstrates an
understanding of how
management principles and
financial reasoning can be
used to resolve the
assignment’s
entrepreneurship issue(s).
Overall, student’s
work fails to
demonstrate any
understanding of
how ethical
principles and moral
reasoning can be
used to resolve the
assignment’s
entrepreneurship
issue(s) .
Journal of Business Cases and Applications
Not Acceptable
Student’s work fails
to correctly identify
the issue(s) in the
assignment.
Student’s work fails
to apply any
framework in
her/his analysis.
Student’s work fails
to identify any of
the relevant
stakeholders in the
assignment.
Student’s work fails
to distinguish
between assignment
facts and personal
opinion.
Student’s work
proposes a
resolution to the
assignment issue(s)
based solely on
personal opinion.
Student’s work fails
to make an adequate
case for her/his
proposed
resolution(s).
Overall, student’s
work fails to
demonstrate any
understanding of
how ethical
principles and moral
reasoning can be
used to resolve the
assignment’s
entrepreneurship
issue(s) .
Table 6: Writing Quality Rubric
Exemplary Acceptable
Ideas relevant to the
assignment demonstrate
sophistication of thought
and are unique.
Ideas relevant to the
assignment demonstrate
clarity of thought.
Writer’s central idea or
thesis is communicated in
clear, easy-to-understand
language and the writer
makes an eloquent case for
why the idea(s) is/are worth
developing.
Writer’s central idea or
thesis is clearly
communicated and the
writer makes the case
why the idea(s) is/are worth
developing.
Organization is very clear
and has a very logical
structure appropriate to
assignment's topic, purpose
and audience.
Organization is generally
clear and generally has a
logical structure
appropriate to assignment's
topic, purpose and
audience.
Writer’s reasoning or
progression of ideas is
exceptionally clear and
none of the ideas must be
inferred.
Writer’s reasoning or
progression of ideas is
generally clear or is easily
inferred.
Clear, sufficient and
appropriate evidence is
deftly used throughout.
Good, sufficient evidence is
generally used.
Style demonstrates words
artfully chosen for
precision, appropriate level
of specificity.
Style demonstrates
appropriate words, meaning
is clear.
Sentence style fits
assignment's audience and
purpose.
Sentence style fits
assignment's audience and
purpose.
Almost entirely free of
spelling, punctuation, and
grammatical errors.
Any spelling, punctuation,
or grammatical errors do
not distract reader.
Journal of Business Cases and Applications
24
Table 6: Writing Quality Rubric
Acceptable Marginally Acceptable Not Acceptable
Ideas relevant to the
assignment demonstrate
clarity of thought.
Ideas relevant to the
assignment are clear but
general and/or simplistic.
Ideas relevant to the
assignment are not
clearly presented, well
developed and may be
obvious or trivial.
Writer’s central idea or
thesis is clearly
communicated and the
writer makes the case for
why the idea(s) is/are worth
developing.
Writer’s central idea or
thesis is overly broad
and/or vague.
Writer’s central idea or
thesis is not expressed.
Organization is generally
clear and generally has a
logical structure
appropriate to assignment's
topic, purpose and
audience.
Organization is not always
clear and/or is structured in
ways that are confusing to
the assignment’s topic,
purpose and/or audience.
Organization is not
evident and/or is
confusing or incoherent.
Writer’s reasoning or
progression of ideas is
generally clear or is easily
inferred.
Writer’s reasoning or
progression of ideas must
be inferred and is not clear.
Writer’s reasoning or
progression of ideas is
totally lacking.
Good, sufficient evidence is
generally used.
Inconsistent and/or
insufficient evidence is
used.
Evidence is
unsupported which may
consist of assumptions,
and leaps of faith.
Style demonstrates
appropriate words, meaning
is clear.
Style demonstrates
inappropriate word choice,
unclear meaning.
Style demonstrates
poorly chosen words,
meaning is inaccurate
or unclear.
Sentence style fits
assignment's audience and
purpose.
Sentence style is awkward. Sentence style is
difficult to understand.
Any spelling, punctuation,
or grammatical errors do
not distract reader.
Recurring spelling,
punctuation, and
grammatical errors distract
reader but still
understandable with effort.
Recurring spelling,
punctuation, and
grammatical errors
distract reader and
muddle ideas beyond
comprehension.
Plagiarized
Journal of Business Cases and Applications
Not Acceptable
Ideas relevant to the
assignment are not
clearly presented, well-
developed and may be
obvious or trivial.
Writer’s central idea or
thesis is not expressed.
Organization is not
evident and/or is
confusing or incoherent.
Writer’s reasoning or
progression of ideas is
totally lacking.
Evidence is
unsupported which may
consist of assumptions,
and leaps of faith.
Style demonstrates
poorly chosen words,
meaning is inaccurate
or unclear.
Sentence style is
difficult to understand.
Recurring spelling,
punctuation, and
grammatical errors
distract reader and
muddle ideas beyond
comprehension.
Plagiarized
Journal of Business Cases and Applications
25
Journal of Business Cases and Applications
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