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Whilst some of this is true, don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent managemen

Whilst some of this is true, don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent management, with business divisions generating hundreds of millions/billions that are in turn run by and staffed with mediocre people. For businesses operating at such scale, bringing in McKinsey, BCG or the likes can often lead to the implementation of a series of smaller process improvements that together add up to tens/hundreds of millions in cost savings. You don't necessary need to be an industry expert to identify process improvements and many industry experts are really useless outside of their domain. I did some consulting in university through a student consulting organisation (didn't make the move into consulting after uni, though) and felt completely embarrassed to present the findings of our research to the senior management of a successful medium sized business that was a market leader in their industry. After all, I hadn't even started working full-time and these people had decades of experience! However, they had no experts in-house for the specific issue they were looking into and implemented our recommendations successfully after properly scrutinising it. Additionally, companies often hire a consulting company that has previously advised their competitors to indirectly benefit from a knowledge transfer. There will obviously not be a transfer of actual IP, but a lot of abstract knowledge about operations can be gained from these engagements. Lastly, I don't have an MBA myself but I've worked with some extremely smart MBAs who absolutely blew most mediocre engineers out of the water in terms of intelligence, problem solving, people skills, etc.. Not every engineer is a super smart code wizard and not every MBA is an empty suit. Don't judge a book by its cover!

huitzitziltzin 6y ago
> don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent management, with business divisions generating hundreds of millions/billions that are in turn run by and staffed with mediocre people. 100% on board. Running a large organization is hard. > You don't necessary need to be an industry expert to identify process improvements and many industry experts are really useless outside of their domain. I guess this is their value to firms, I just find it extremely surprising that this is even possible. Is it possible to be specific about what value a 22 year old Yale econ grad (or 30 year old Northwestern MBA) w/ no industry-specific experience brings to, e.g., Boeing? Microsoft? Motorola? > they had no experts in-house for the specific issue they were looking into and implemented our recommendations successfully after properly scrutinising it. This seems like a great use-case for consulting, but by experts in the field, which McK et al are almost always not. > companies often hire a consulting company that has previously advised their competitors to indirectly benefit from a knowledge transfer. Very believable. If they are paying for information about what McK last told their competitors, that's understandable. Seems like that would not be in McK's interests though! > I've worked with some extremely smart MBAs who absolutely blew most mediocre engineers out of the water in terms of intelligence, problem solving, people skills, etc. Definitely agree. On the other hand, the MBA/PhD consultants I know don't have industry-specific experience in the areas they work in! This is the essence of the puzzle to me.
- sidpatil 6y ago
  > On the other hand, the MBA/PhD consultants I know don't have industry-specific experience in the areas they work in! This is the essence of the puzzle to me. I took a project management course once. One of the things we were told is that project managers don't need to have domain knowledge or experience in order to be effective. I think it's possible, but not probable, since the project manager would lose an opportunity to tailor the standard project management practices to the needs of the specific project. In any case, it would explain your observation. And I believe that effective project managers would recognize the value of domain knowledge and make an attempt to gain it even if they didn't start the project with it.
  - JulianRaphael 6y ago
    Exactly! Good consultants are subject matter experts in process/project management. I guess this is what MBAs and PhD consultants are really good at: they have a big toolkit of industry best practices because their employers advise so many (often market-leading) companies in any given industry and they are good at doing in-depth research to apply these best practices to the specific requirements of their client. Not being a subject matter expert can sometimes be quite helpful when assessing a project/process as you have more room for free associative thought than a SME. Oh, McKinsey and others are also experts in downsizing operations (i.e. letting people go) under the umbrella of efficiency improvements. When a new CEO comes in, they know that their compensation is tied to the share price of the company. Often one of the first things they do is to call in McKinsey to assess the efficiency of the company and then cut/outsource a few thousand jobs together with implementing some process improvements. Cutting expenses is easier and faster than delivering real value through innovation! Also, McKinsey - the experts - recommended this! At the next financial earnings call, the CEO can talk about how they increased their profit margins, investors like that the CEO is already delivering results so quickly, the stock price goes up, the CEO receives his bonus. It's similar to what Bain Capital and other Private Equity investors do: they are not subject matter experts in a specific industry, but they are subject matter experts in capital extraction. I think this form of abstractive capitalism has done a lot of damage to many great companies, but as long as the system rewards this behaviour, there will be a lot of demand for consulting companies and private equity investors...maybe we should go back to the philosophy of old Greece, where the pursuit of knowledge was valued and the pursuit of wealth was openly derided (but use robots instead of slaves for day-to-day labor). In the words of Plato (in his lat work, Laws): "My dear Clinias, small is the class of men—rare by nature and trained, too, with a superlative training — who, when they fall into diverse needs and lusts, are able to stand out firmly for moderation, and who, when they have the power of taking much wealth, are sober, and choose what is of due measure rather than what is large. The disposition of the mass of mankind is exactly the opposite of this; when they desire, they desire without limit, and when they can make moderate gains, they prefer to gain insatiably; and it is because of this that all the classes concerned with retail trade, commerce, and inn-keeping are disparaged and subjected to violent abuse."

huitzitziltzin 6y ago

> don't forget that there are so many large companies out there that are run in an extremely inefficient way by incompetent management, with business divisions generating hundreds of millions/billions that are in turn run by and staffed with mediocre people. 100% on board. Running a large organization is hard. > You don't necessary need to be an industry expert to identify process improvements and many industry experts are really useless outside of their domain. I guess this is their value to firms, I just find it extremely surprising that this is even possible. Is it possible to be specific about what value a 22 year old Yale econ grad (or 30 year old Northwestern MBA) w/ no industry-specific experience brings to, e.g., Boeing? Microsoft? Motorola? > they had no experts in-house for the specific issue they were looking into and implemented our recommendations successfully after properly scrutinising it. This seems like a great use-case for consulting, but by experts in the field, which McK et al are almost always not. > companies often hire a consulting company that has previously advised their competitors to indirectly benefit from a knowledge transfer. Very believable. If they are paying for information about what McK last told their competitors, that's understandable. Seems like that would not be in McK's interests though! > I've worked with some extremely smart MBAs who absolutely blew most mediocre engineers out of the water in terms of intelligence, problem solving, people skills, etc. Definitely agree. On the other hand, the MBA/PhD consultants I know don't have industry-specific experience in the areas they work in! This is the essence of the puzzle to me.

sidpatil 6y ago
> On the other hand, the MBA/PhD consultants I know don't have industry-specific experience in the areas they work in! This is the essence of the puzzle to me. I took a project management course once. One of the things we were told is that project managers don't need to have domain knowledge or experience in order to be effective. I think it's possible, but not probable, since the project manager would lose an opportunity to tailor the standard project management practices to the needs of the specific project. In any case, it would explain your observation. And I believe that effective project managers would recognize the value of domain knowledge and make an attempt to gain it even if they didn't start the project with it.
- JulianRaphael 6y ago
  Exactly! Good consultants are subject matter experts in process/project management. I guess this is what MBAs and PhD consultants are really good at: they have a big toolkit of industry best practices because their employers advise so many (often market-leading) companies in any given industry and they are good at doing in-depth research to apply these best practices to the specific requirements of their client. Not being a subject matter expert can sometimes be quite helpful when assessing a project/process as you have more room for free associative thought than a SME. Oh, McKinsey and others are also experts in downsizing operations (i.e. letting people go) under the umbrella of efficiency improvements. When a new CEO comes in, they know that their compensation is tied to the share price of the company. Often one of the first things they do is to call in McKinsey to assess the efficiency of the company and then cut/outsource a few thousand jobs together with implementing some process improvements. Cutting expenses is easier and faster than delivering real value through innovation! Also, McKinsey - the experts - recommended this! At the next financial earnings call, the CEO can talk about how they increased their profit margins, investors like that the CEO is already delivering results so quickly, the stock price goes up, the CEO receives his bonus. It's similar to what Bain Capital and other Private Equity investors do: they are not subject matter experts in a specific industry, but they are subject matter experts in capital extraction. I think this form of abstractive capitalism has done a lot of damage to many great companies, but as long as the system rewards this behaviour, there will be a lot of demand for consulting companies and private equity investors...maybe we should go back to the philosophy of old Greece, where the pursuit of knowledge was valued and the pursuit of wealth was openly derided (but use robots instead of slaves for day-to-day labor). In the words of Plato (in his lat work, Laws): "My dear Clinias, small is the class of men—rare by nature and trained, too, with a superlative training — who, when they fall into diverse needs and lusts, are able to stand out firmly for moderation, and who, when they have the power of taking much wealth, are sober, and choose what is of due measure rather than what is large. The disposition of the mass of mankind is exactly the opposite of this; when they desire, they desire without limit, and when they can make moderate gains, they prefer to gain insatiably; and it is because of this that all the classes concerned with retail trade, commerce, and inn-keeping are disparaged and subjected to violent abuse."