July 15, 2024

Advancing Business Excellence

Pioneering Corporate Success

The many-sided crisis in consulting

I once worked for a large magazine company in the US that was worried about falling revenues and loss of readership amid what was then called the dotcom revolution. Corporate leaders decided to hire a major management consulting firm to analyse what should be done. After months of meetings and millions in fees, the verdict came in. Apparently, we just needed better story ideas. Needless to say this sage advice saved neither readers nor the product.

For this and other reasons, I’ve always been sceptical of management consulting. For starters, the “if you can measure it, you can manage it” approach to business just misses so much. Certain things, such as input costs and share price, can be discretely tallied. Others — like culture, loyalty and creativity — cannot.

Then there’s the buck-passing problem: companies very often hire consultants so they can blame someone else if the solutions to challenging problems go awry. Add to this the fact that artificial intelligence can increasingly do the lower end of consulting work, and you’ve got a profession that may very well be in for secular decline.

The signs are everywhere. Firms such as Bain and McKinsey are shedding workers and offering them financial incentives to leave. Deloitte and EY are cutting costs and reorganising. Throughout the industry, there’s a new sense of penny-pinching where things had once been flush.

While the profession boomed during Covid, when companies desperately sought help to deal with everything from supply-chain troubles to work-from-home shifts to the uncertain nature of the economic cycle, it is now slowing. According to the Kennedy Consulting Industry Monitor, revenue growth halved to 5 per cent last year.

Consulting firms are coming under political pressure, too. A couple of weeks ago, a bill to ban McKinsey from US government work, put forward by the Missouri senator Josh Hawley, passed the Senate homeland security committee. There are still multiple hurdles to it becoming law but the idea is to stop the defence department and other federal agencies contracting with firms that do business with the Chinese government.

But it’s not only populist politicians who are sceptical of consultants. Academics and industry insiders alike have become more critical in recent years. Economist Mariana Mazzucato and her colleague Rosie Collington last year published The Big Con: How the Consulting Industry Weakens our Businesses, Infantilizes our Governments and Warps our Economies.

The book argues that consulting has thrived on the problems of modern capitalism, from financialisation and corporate short-termism to risk-aversion in a starved public sector, earning undue economic rents while creating very little value. “While consulting is an old profession,” they write, “the Big Con grew from the 1980s and 1990s in the wake of reforms by both the ‘neoliberal’ right and ‘Third Way’ progressives — on both sides of the political spectrum.”

Indeed, the industry’s problems go even further back. One could argue that modern management consulting is the unfortunate love child of early 20th-century Taylorism — in which Frederick Winslow Taylor, a mechanical engineer from Philadelphia, aimed to clock the productivity of workers down to the second — and Chicago School ideas about “efficient” markets, which gained steam from the 1960s onwards.

Consultants have created a huge global market by preaching the gospel of disruption. As Harvard professor Clayton Christensen argued in The Innovator’s Dilemma, in 1997, big companies were always at risk of having their lunch eaten by smaller upstarts. In order to get ahead of that, they needed to be changing all the time, internally.

But while that may have seemed true during the dotcom boom of the late 1990s, most sectors have become more concentrated, with big firms taking an ever larger slice of the economic pie.

Still, the cult of disruption dies hard. As reformed consultant and Deloitte/Cisco veteran Ashley Goodall writes in his new book The Problem With Change, “while we were all busily disrupting ourselves hither and yon, we somehow lost sight of the fact that change and improvement are two different things”.

In the beginning, he says, executives thought “we need to fix this problem; therefore, we need to change”. Now, he says, too many believe that “we need to change, because then all the problems will be fixed”.

Consulting itself will have to change, because technology can today do so much at the lower end of the pay scale. AI can put together a good-enough PowerPoint presentation or research document, knocking out a lot of what freshman consultants used to do. Meanwhile, there’s more competition at the top, with all sorts of boutique risk analysis firms and sector experts vying for a slice of the advisory business.

It’s possible that a recession will give the industry new life. Management consulting often makes money by telling companies to cut staff. It can also replace them temporarily with either technology or more consultants, without all those bothersome issues of full-time employment or benefits. But I suspect that, just as many superfluous jobs at the bottom end of the socio-economic food chain have gone away in recent decades, white-collar industries such as consulting will be disrupted, too. 

Will the result be fewer slide decks, mission statements, mandatory work bonding sessions and corporate-speak? If so, I’m all in.

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Letter in response to this column:
Tongue-in-cheek explainer on the consultant’s toolkit / From Tom Savory, London SE15, UK