5 ms·

I've never understood why the management consultants get so much money for so little. They are, in the end, selling the labor of clever and well-credentialed bu

I've never understood why the management consultants get so much money for so little. They are, in the end, selling the labor of clever and well-credentialed but woefully inexperienced people at really eye-popping rates. You'd think any well-run company could get the same sort of insight from its own people. It's really a masterpiece of packaging and brand-building, as far as I can tell. Let's be clear; I'm not talking here about specialist consultants with deep industry experience and consequent insight. Those make sense to me. I'm talking about generalist corporate-strategy/management consultants who are peddling what sure looks like a suite of industrial command+control or planning+strategy techniques. How could they possibly be providing enough value to be worth hiring?

elorant 8y ago
Short version: connections and/or tax evading advises.
- ajiang 8y ago
  This is an over-generalized assumption with no sources. Tax evading?
  - mtremsal 8y ago
    I believe the comment above refers to the fact a big 4 would also have a "tax optimization" business unit. However it is separate from the management consulting one, same as audit.
harryf 8y ago
One reason is deflecting blame to shareholders. The executive board can claim "We hired the best to help us..." > You'd think any well-run company could get the same sort of insight from its own people. The paradox is many companies disenfranchise their own employees through hierarchy and politics.
- gcatalfamo 8y ago
  the MAIN reason
perseusprime11 8y ago
Well these inexperienced consultants also are trained to identify the silenced but real voices in the company. Because the leadership ignores their own employees, these consultants represent them and the leadership listens because they are paying a huge price.
sebiol 8y ago
I can see a few points that a consultancy can sell * Insights across the companies competitors (because they have / had engagements with them) * Insights from other industries / markets * Experience with a certain situation (assuming similar trends happen in different industries at different times) Employees of the company might have similar knowledge but distributed across many instead of focused in the consultant team.
Spooky23 8y ago
What you’re paying for is reasonably intelligent advice or project execution without organizational bias. Their objective is to get paid, so they bypass many of the mechanisms that middle management uses to undermine executive initiatives.
ajiang 8y ago
I've been in this role. It is pretty common at Fortune X00 companies to have its own people have "the answer" or "an answer" but either 1) not have the conviction to bet their careers on it, i.e. don't rock the boat, 2) don't care enough to push for it, or 3) don't have the credibility to get the attention of the senior executives. Consultants get past all three of these challenges to surface a good solution and in the process get buy-in from everyone who needs to agree in order for a major change to be made. Additional point is that usually there is involvement of industry specific specialists that advise project teams. They put in fewer hours, as they're not needed for the more mundane project work (slide making). Often times they're hyper-specific to the topic at hand, e.g. former CEO of competitor.
- knightofmars 8y ago
  "1) not have the conviction to bet their careers on it, i.e. don't rock the boat, 2) don't care enough to push for it, or 3) don't have the credibility to get the attention of the senior executives." 1. Poor executive leadership. 2. Poor executive leadership. 3. Poor executive leadership. When you breed a culture of fear and silence this will always be the result. It's the CEO who says, "I'm not surrounded with people who say 'Yes' to me. I'm surrounded with people who share my vision." The CEO, after having replaced, removed, and reassigned anyone who is willing to call into question a decision made by the CEO, will make decisions without any real feedback from their executive team (an echo chamber). The alternative?[0] The CEO who lets and encourages everyone to speak their mind. The CEO who rewards those with differing opinions and seeks truth by asking "Why?" instead of shutting down dissent. The CEO who actively seeks out executive leadership that will challenge them to justify their decisions and to keep a written record of those decisions. [0]https://www.ted.com/talks/ray_dalio_how_to_build_a_company_where_the_best_ideas_win https://www.ted.com/talks/ray_dalio_how_to_build_a_company_w...
  - mgmtconsultant 8y ago
    You linked to a TED Talk from Ray Dalio at Bridgewater - a company that has hired McKinsey and BCG frequently. It's not as simple as just communicating. The reality is that strategy consultants sell services targeted at senior management at large corporations, a category that ~0% of Hacker News falls into.
mathattack 8y ago
You overestimate how many big companies are well run. In addition, smart people in large companies have their own agendas. It can help to get analytical advice from outsiders who lack these agendas and have seen similar problems elsewhere. This isn’t to say that consultants are without agendas. It’s just different agendas.
- Consultant32452 8y ago
  In my limited experience management consultants interview all the employees and deliver a report to management that is approximately the average of what the employees said was wrong.
  - iagovar 8y ago
    I did this, and I have to say it's easy, convenient, and most of the times on point. The problem is simply that executives do not believe their own workers, as bad as it sounds, or maybe they are incapable of filtering the signal from the noise, or maybe internal politics prevent communication, etc, so you hop all the fences in one move. Also, it's way easier for me to get actionable knowledge talking and surveying people than making models or any complicated stuff. I still have to polish this knowledge and bundle it in a way that executives can consume it, but most of the times it is what I do. Executives in Spain tend to be very old-fashioned.
shadowtree 8y ago
Your company is running at full steam, you are smart and keep headcount in line with the actual needs to deliver products and services, e.g. everything is a good bit understaffed. A big decision looms - a new product, a new market, whatever it is, it requires the full attention of a team of people to just outline the knowledge needed to make rational decisions in it. You're also worried about tunnel vision of your own team, success tends to bread that. This is when you hire outside help. Temp workers to research and present a deep topic. They don't decide, you do. But rather than putting people on full payroll and then maybe need to axe them, you have them do a project. Absolutely valuable, if employed correctly. And don't underestimate what a McKinsey or BCG can pull in terms of network. Their research can go into places where your team simply can't reach. Good VCs act the same way btw, the value of a16z for a small startup as an advisor and door opener is the same as McK or BCG for a public co.
yawz 8y ago
There are a few big assumptions in what's written above, but reality is: - Not all big companies are ran efficiently. - Most managers/leaders don't/can't create a culture of trust where they empower their people.
exelius 8y ago
Because having a team of polished people spouting buzzwords is an effective sales tactic regardless of the industry. Your sales people do it, so do mine. Generalist consulting is like 90% sales skills, 10% content.
sah2ed 8y ago
The article provides a great illustration of how some large businesses derive value from hiring management consultants: to give legitimacy to an unpopular decision. In some cases, of course, management consultants are hired to give cover to unpopular decisions or even to send a message to one’s workforce. In The Firm, Duff McDonald argues McKinsey in particular “might be the single greatest legitimizer of mass layoffs in history.” “If you were a CEO and felt you needed to cut 10% of costs but didn’t feel you were getting buy-in from your employees,” he wrote, “the hiring of McKinsey generally got the point across quite clearly.”
philipodonnell 8y ago
> They are, in the end, selling the labor of clever and well-credentialed but woefully inexperienced people at really eye-popping rates. You'd think any well-run company could get the same sort of insight from its own people. You'd be thinking wrong. Companies hire consulting firms _because_ they can't get the same types of insights from their own people... mainly due to the fact that their people have jobs doing other things and can't stop to spend a few months doing nothing but research. Also sensing some bias here: consulting firms work in teams with a mixture of new graduates and people with "deep industry experience and consequent insight" in order to provide a mix of expertise and exposure to new technologies/techniques coming from academia. If your experience with consultants was as a line employee or middle manager, you likely interacted only with the new grads from the team because they do most basic research and interviewing, so be aware that there may have been more experienced people on the engagement.
- ghaff 8y ago
  The one time I worked with a management consulting outfit, the team had a very sharp partner, a fairly inexperienced but sharp associate, and another associate who... wasn't so sharp. I wouldn't overestimate the value of the dedicated research they do. In my experience, the research was mostly interviewing and getting educated about a market and technology that the product managers, etc. were already familiar with. It felt like sort of a waste of money but it did validate pretty much what we were doing anyway. They created some elaborate financial model which was fairly useless but which was the sort of thing internal business staff liked. Net net. It was probably useful from an internal political perspective (which is always a consideration) even if it didn't deliver any particularly novel insights.
skgoa 8y ago
Surprisingly often the consultants are not hired to bring entirely new knowledge. Instead they are hired to make certain people in the org listen to and accept a message they would have rejected, had it come from the inside.

elorant 8y ago

Short version: connections and/or tax evading advises.

ajiang 8y ago
This is an over-generalized assumption with no sources. Tax evading?
- mtremsal 8y ago
  I believe the comment above refers to the fact a big 4 would also have a "tax optimization" business unit. However it is separate from the management consulting one, same as audit.

harryf 8y ago

One reason is deflecting blame to shareholders. The executive board can claim "We hired the best to help us..." > You'd think any well-run company could get the same sort of insight from its own people. The paradox is many companies disenfranchise their own employees through hierarchy and politics.

gcatalfamo 8y ago
the MAIN reason

perseusprime11 8y ago

Well these inexperienced consultants also are trained to identify the silenced but real voices in the company. Because the leadership ignores their own employees, these consultants represent them and the leadership listens because they are paying a huge price.

sebiol 8y ago

I can see a few points that a consultancy can sell * Insights across the companies competitors (because they have / had engagements with them) * Insights from other industries / markets * Experience with a certain situation (assuming similar trends happen in different industries at different times) Employees of the company might have similar knowledge but distributed across many instead of focused in the consultant team.

Spooky23 8y ago

What you’re paying for is reasonably intelligent advice or project execution without organizational bias. Their objective is to get paid, so they bypass many of the mechanisms that middle management uses to undermine executive initiatives.

ajiang 8y ago

I've been in this role. It is pretty common at Fortune X00 companies to have its own people have "the answer" or "an answer" but either 1) not have the conviction to bet their careers on it, i.e. don't rock the boat, 2) don't care enough to push for it, or 3) don't have the credibility to get the attention of the senior executives. Consultants get past all three of these challenges to surface a good solution and in the process get buy-in from everyone who needs to agree in order for a major change to be made. Additional point is that usually there is involvement of industry specific specialists that advise project teams. They put in fewer hours, as they're not needed for the more mundane project work (slide making). Often times they're hyper-specific to the topic at hand, e.g. former CEO of competitor.

knightofmars 8y ago
"1) not have the conviction to bet their careers on it, i.e. don't rock the boat, 2) don't care enough to push for it, or 3) don't have the credibility to get the attention of the senior executives." 1. Poor executive leadership. 2. Poor executive leadership. 3. Poor executive leadership. When you breed a culture of fear and silence this will always be the result. It's the CEO who says, "I'm not surrounded with people who say 'Yes' to me. I'm surrounded with people who share my vision." The CEO, after having replaced, removed, and reassigned anyone who is willing to call into question a decision made by the CEO, will make decisions without any real feedback from their executive team (an echo chamber). The alternative?[0] The CEO who lets and encourages everyone to speak their mind. The CEO who rewards those with differing opinions and seeks truth by asking "Why?" instead of shutting down dissent. The CEO who actively seeks out executive leadership that will challenge them to justify their decisions and to keep a written record of those decisions. [0]https://www.ted.com/talks/ray_dalio_how_to_build_a_company_where_the_best_ideas_win https://www.ted.com/talks/ray_dalio_how_to_build_a_company_w...
- mgmtconsultant 8y ago
  You linked to a TED Talk from Ray Dalio at Bridgewater - a company that has hired McKinsey and BCG frequently. It's not as simple as just communicating. The reality is that strategy consultants sell services targeted at senior management at large corporations, a category that ~0% of Hacker News falls into.

mathattack 8y ago

You overestimate how many big companies are well run. In addition, smart people in large companies have their own agendas. It can help to get analytical advice from outsiders who lack these agendas and have seen similar problems elsewhere. This isn’t to say that consultants are without agendas. It’s just different agendas.

Consultant32452 8y ago
In my limited experience management consultants interview all the employees and deliver a report to management that is approximately the average of what the employees said was wrong.
- iagovar 8y ago
  I did this, and I have to say it's easy, convenient, and most of the times on point. The problem is simply that executives do not believe their own workers, as bad as it sounds, or maybe they are incapable of filtering the signal from the noise, or maybe internal politics prevent communication, etc, so you hop all the fences in one move. Also, it's way easier for me to get actionable knowledge talking and surveying people than making models or any complicated stuff. I still have to polish this knowledge and bundle it in a way that executives can consume it, but most of the times it is what I do. Executives in Spain tend to be very old-fashioned.

shadowtree 8y ago

Your company is running at full steam, you are smart and keep headcount in line with the actual needs to deliver products and services, e.g. everything is a good bit understaffed. A big decision looms - a new product, a new market, whatever it is, it requires the full attention of a team of people to just outline the knowledge needed to make rational decisions in it. You're also worried about tunnel vision of your own team, success tends to bread that. This is when you hire outside help. Temp workers to research and present a deep topic. They don't decide, you do. But rather than putting people on full payroll and then maybe need to axe them, you have them do a project. Absolutely valuable, if employed correctly. And don't underestimate what a McKinsey or BCG can pull in terms of network. Their research can go into places where your team simply can't reach. Good VCs act the same way btw, the value of a16z for a small startup as an advisor and door opener is the same as McK or BCG for a public co.

yawz 8y ago

There are a few big assumptions in what's written above, but reality is: - Not all big companies are ran efficiently. - Most managers/leaders don't/can't create a culture of trust where they empower their people.

exelius 8y ago

Because having a team of polished people spouting buzzwords is an effective sales tactic regardless of the industry. Your sales people do it, so do mine. Generalist consulting is like 90% sales skills, 10% content.

sah2ed 8y ago

The article provides a great illustration of how some large businesses derive value from hiring management consultants: to give legitimacy to an unpopular decision. In some cases, of course, management consultants are hired to give cover to unpopular decisions or even to send a message to one’s workforce. In The Firm, Duff McDonald argues McKinsey in particular “might be the single greatest legitimizer of mass layoffs in history.” “If you were a CEO and felt you needed to cut 10% of costs but didn’t feel you were getting buy-in from your employees,” he wrote, “the hiring of McKinsey generally got the point across quite clearly.”

philipodonnell 8y ago

> They are, in the end, selling the labor of clever and well-credentialed but woefully inexperienced people at really eye-popping rates. You'd think any well-run company could get the same sort of insight from its own people. You'd be thinking wrong. Companies hire consulting firms _because_ they can't get the same types of insights from their own people... mainly due to the fact that their people have jobs doing other things and can't stop to spend a few months doing nothing but research. Also sensing some bias here: consulting firms work in teams with a mixture of new graduates and people with "deep industry experience and consequent insight" in order to provide a mix of expertise and exposure to new technologies/techniques coming from academia. If your experience with consultants was as a line employee or middle manager, you likely interacted only with the new grads from the team because they do most basic research and interviewing, so be aware that there may have been more experienced people on the engagement.

ghaff 8y ago
The one time I worked with a management consulting outfit, the team had a very sharp partner, a fairly inexperienced but sharp associate, and another associate who... wasn't so sharp. I wouldn't overestimate the value of the dedicated research they do. In my experience, the research was mostly interviewing and getting educated about a market and technology that the product managers, etc. were already familiar with. It felt like sort of a waste of money but it did validate pretty much what we were doing anyway. They created some elaborate financial model which was fairly useless but which was the sort of thing internal business staff liked. Net net. It was probably useful from an internal political perspective (which is always a consideration) even if it didn't deliver any particularly novel insights.

skgoa 8y ago

Surprisingly often the consultants are not hired to bring entirely new knowledge. Instead they are hired to make certain people in the org listen to and accept a message they would have rejected, had it come from the inside.