What Does Consulting Do?(nber.org)
nber.org
What Does Consulting Do?
https://www.nber.org/papers/w34072
70 comments
This!
In many large companies, there are non-aggression pacts. “I don’t air your dirty laundry so you don’t air mine.”
The best consultants comment on the Emperor’s wardrobe, or lack thereof. And they do it in a way that makes everyone pleased that the logjam is released. And they can only get away with it by being temporary.
And for all the complaining of consultant bill rates, independent consultants have a lot of overhead to cover. (Sales, taxes, insurance, downtime, legal…)
In many large companies, there are non-aggression pacts. “I don’t air your dirty laundry so you don’t air mine.”
The best consultants comment on the Emperor’s wardrobe, or lack thereof. And they do it in a way that makes everyone pleased that the logjam is released. And they can only get away with it by being temporary.
And for all the complaining of consultant bill rates, independent consultants have a lot of overhead to cover. (Sales, taxes, insurance, downtime, legal…)
In my experience 99% of consulting is fully in the business of telling whatever emperor or micro emperor with budget authority that their clothes are just beautiful the way they are. Very few billable hours are people like GP. But maybe Im unlucky.
I consulted for about 10 years and enjoyed building stuff, but I didn’t like how the key metric was “is the client happy? will they extend?” And frequently the client is happy with what is not best.
Now I strive to work in organizations that don’t use or rely on consultants very much. I actually think a health metric for organizations is having low levels of consultants.
I consulted for about 10 years and enjoyed building stuff, but I didn’t like how the key metric was “is the client happy? will they extend?” And frequently the client is happy with what is not best.
Now I strive to work in organizations that don’t use or rely on consultants very much. I actually think a health metric for organizations is having low levels of consultants.
In my experience there's a pretty fundamental difference between business consultants and consultants who "build stuff". I've done both and had similar experience to both your experience and GPs experience, but I'd put it down to the expected role of the consultant, rather than the customer.
Also ...
Bringer of news from your own employees - "I had no idea we were setting prices by just adding 70% to each item's cost, regardless of competition or inventory level or a new version about to obsolete the one that already has six years of supply"
Explainer of things that should be obvious - "95% of transactions generated by Facebook ads lose money and the DC is already at capacity filling unprofitable orders, so spending even more on Facebook ads is not going to fix your cash flow problem"
Bringer of news from your own employees - "I had no idea we were setting prices by just adding 70% to each item's cost, regardless of competition or inventory level or a new version about to obsolete the one that already has six years of supply"
Explainer of things that should be obvious - "95% of transactions generated by Facebook ads lose money and the DC is already at capacity filling unprofitable orders, so spending even more on Facebook ads is not going to fix your cash flow problem"
> Designated Teller of Hard Truths.
As a small time consultant, as a side hussle, I tell my customers that their complete website like an LMS (learning management system) system cannot be done for $1000 on Upwork.
As a small time consultant, as a side hussle, I tell my customers that their complete website like an LMS (learning management system) system cannot be done for $1000 on Upwork.
Hi Jonathan!
I agree with all that :-)
Might just add that you can make time to do things that just aren't on the day-to-day calendars of employees.
I agree with all that :-)
Might just add that you can make time to do things that just aren't on the day-to-day calendars of employees.
Gordon gets it—no surprise. We fought from the same foxholes. I stepped out of that world; he’s still in it, still an ace.
zwnow(6)
I am a consultant, and while I agree with the sibling comment from jonathaneunice (especially the point about being what I call "business therapist"), there is one thing I will add: a lot of what you are paying a top-tier consulting for is _speed_.
Many organizations, especially large ones, are very slow at making decisions, even if they ultimately make the right ones. Bringing in people outside the hierarchy to synthesize a great deal of info from across the org, and give upper management the insight to make a decision quickly (and, depending on the engagement and the firm, also implement it) is very often worth the bill at the end.
I will not pretend all of the work we do is 100% the most urgent work all of the time, but I have helped make the sausage for a number of years now, and despite the usual disparaging comments in this thread, it really is often an intellectually rewarding environment where you work with smart colleagues and help people solve real problems.
Many organizations, especially large ones, are very slow at making decisions, even if they ultimately make the right ones. Bringing in people outside the hierarchy to synthesize a great deal of info from across the org, and give upper management the insight to make a decision quickly (and, depending on the engagement and the firm, also implement it) is very often worth the bill at the end.
I will not pretend all of the work we do is 100% the most urgent work all of the time, but I have helped make the sausage for a number of years now, and despite the usual disparaging comments in this thread, it really is often an intellectually rewarding environment where you work with smart colleagues and help people solve real problems.
My wife is a management consultant and it feels 80% of her job is just interviewing people across different levels of the org and tell executives what the hell is actually going on and what the real problems are.
The amount of filtering of information going on throughout several layers of management is insane. People just keeping their heads down and not forwarding important information because it will affect short-term results/workload is insane in large companies.
IMO every large company should have dedicated people conducting _actual_ interviews with all employees regularly, outside the normal chain of command. Not that bullshit anonymous peer assessment crap. There is no reason companies need to pay external consultants crazy amounts of money for this kind of service.
By the way, the other 20% is usually just applying some common sense and/or industry best practices to the problems detected on the 80% part.
The amount of filtering of information going on throughout several layers of management is insane. People just keeping their heads down and not forwarding important information because it will affect short-term results/workload is insane in large companies.
IMO every large company should have dedicated people conducting _actual_ interviews with all employees regularly, outside the normal chain of command. Not that bullshit anonymous peer assessment crap. There is no reason companies need to pay external consultants crazy amounts of money for this kind of service.
By the way, the other 20% is usually just applying some common sense and/or industry best practices to the problems detected on the 80% part.
Worked with McKinsey once as a senior product manager at a computer company. The partner was sharp as was one of his associates; the other one not so much. But they talked to a lot of people. Basically, they created a big spreadsheet that kept our business planning people busy and off our backs. And told senior management that we knew what we were doing (which we did).
Yes, it was expensive but it kept the company afloat/independent for a few years longer which is about all you can ask.
>There is no reason companies need to pay external consultants crazy amounts of money for this kind of service.
I think there's always a degree of suspicion that the person from internal audit or HR can really be trusted vs. an external consultant.
Yes, it was expensive but it kept the company afloat/independent for a few years longer which is about all you can ask.
>There is no reason companies need to pay external consultants crazy amounts of money for this kind of service.
I think there's always a degree of suspicion that the person from internal audit or HR can really be trusted vs. an external consultant.
I've never done management consulting myself although I have done IT industry analyst consulting (with jonathaneunice). But I have worked with management consultants and consulted with large IT companies. My general sense is that it brings clarity and outside affirmation to issues that upper management was unsure about. So, in that sense, it accelerates processes that people are unsure about. Doesn't mean it's always right. But a lot of time making a decision is the important thing.
I went to one of those universities where a lot of people are hired by consulting firms.
I don't think I've ever met anyone in the business who thought they were doing what it says on the tin. This is a story you will hear over and over again: "The MD went and sold the project, but now a bunch of graduates are tasked with helping the company". I know someone who was advising a central bank, aged 22.
At best, the young consultants tell the company what they wanted to hear, and use the report as their excuse to do what they were going to do anyway.
You also have to wonder how much their public facing advice actually is based on experience, rather than being advertising. You often get these dressed-up white papers and pseudo-academic articles talking about some aspect of business coming from these firms.
I don't think I've ever met anyone in the business who thought they were doing what it says on the tin. This is a story you will hear over and over again: "The MD went and sold the project, but now a bunch of graduates are tasked with helping the company". I know someone who was advising a central bank, aged 22.
At best, the young consultants tell the company what they wanted to hear, and use the report as their excuse to do what they were going to do anyway.
You also have to wonder how much their public facing advice actually is based on experience, rather than being advertising. You often get these dressed-up white papers and pseudo-academic articles talking about some aspect of business coming from these firms.
This feels like you don't actually have experience with consulting.
The amount of hierarchy and peer review is extensive and apprenticeship was core to my experience in multiple consultancies. One might say post-covid, in a pro-hybrid world, this has been hard. Still, as a new hire couldn't introduce myself to a group of clients without sharing my intro with the associate partner first and getting notes on my literal 3 sentence bio and then feedback afterwards. Every deck I've ever presented has been through multiple hands above and below me in the hierarchy. That 22 year old usually if not always has had a discussion, notes, notes reviewed, questions listed that need answers etc.
The amount of hierarchy and peer review is extensive and apprenticeship was core to my experience in multiple consultancies. One might say post-covid, in a pro-hybrid world, this has been hard. Still, as a new hire couldn't introduce myself to a group of clients without sharing my intro with the associate partner first and getting notes on my literal 3 sentence bio and then feedback afterwards. Every deck I've ever presented has been through multiple hands above and below me in the hierarchy. That 22 year old usually if not always has had a discussion, notes, notes reviewed, questions listed that need answers etc.
This feels like you’re applying absolutes to a massive industry with wildly varying standards for peer review and work product.
I was a consultant for years at a Big4 and I can personally attest to a lot of the stuff I was producing as a 22 year old going straight to the client leadership with zero oversight or review from my higher ups. Whether something got extensive quality checks was dependent on the type of work, notoriety of the client, and of course personal management styles of the partners involved.
In several of my projects, nobody on the team had experience with a particular topic, including the senior management, but the client was all told we did. The juniors on the project were then expected to put together product and deliver it, and none of it was reviewed by the higher ups (not like they had any expertise in it to provide feedback anyway).
I was a consultant for years at a Big4 and I can personally attest to a lot of the stuff I was producing as a 22 year old going straight to the client leadership with zero oversight or review from my higher ups. Whether something got extensive quality checks was dependent on the type of work, notoriety of the client, and of course personal management styles of the partners involved.
In several of my projects, nobody on the team had experience with a particular topic, including the senior management, but the client was all told we did. The juniors on the project were then expected to put together product and deliver it, and none of it was reviewed by the higher ups (not like they had any expertise in it to provide feedback anyway).
You're not actually disagreeing with the parent, just providing more (useful) context for their comment.
> I know someone who was advising a central bank, aged 22.
I know a young consultant who, while consulting for a company during an internship (place by a big consulting company), saved the client millions in shipping costs.
Do you find that, say, the ECB did a particularly stellar job with the Euro? A currency that's in trouble since it was created? (do not forget that Greece already partially defaulted on its public debt).
When I hear someone like Christine Lagarde speak she doesn't strike me as someone particularly smart: just a regular politician doing what politicians do best (i.e. aim for well paying jobs). Typical french political career: we're not exactly talking about rocket scientist here (despite what mainstream media shall write about her).
I'm pretty sure a smart 22 y/o can be helpful.
I know a young consultant who, while consulting for a company during an internship (place by a big consulting company), saved the client millions in shipping costs.
Do you find that, say, the ECB did a particularly stellar job with the Euro? A currency that's in trouble since it was created? (do not forget that Greece already partially defaulted on its public debt).
When I hear someone like Christine Lagarde speak she doesn't strike me as someone particularly smart: just a regular politician doing what politicians do best (i.e. aim for well paying jobs). Typical french political career: we're not exactly talking about rocket scientist here (despite what mainstream media shall write about her).
I'm pretty sure a smart 22 y/o can be helpful.
In some risk averse environments, when a critical decision needs to be made, part of the consulting does is take responsibility and be the party that can be blamed later in case things go south.
Exactly -- they are professional scapegoats to insulate management from the consequences of their actions.
You see this argument all over. If it's so widely known how can anyone justify the cost a corp pays them?
If everyone knows you're just hiring them to cover your own ass why does anyone go along with it?
Pure corporate laziness and cowardice supports the entire MBB Market Cap?
If everyone knows you're just hiring them to cover your own ass why does anyone go along with it?
Pure corporate laziness and cowardice supports the entire MBB Market Cap?
Ultimately, (good) consulting just gets decisions made. Companies hire consultants when they don't know what the decision should be, or where to go next. Whether the decision is right or not, depends on the competence and experience of the firm (and also some luck).
The best case is a company so terminally indecisive that the consultants can undo their own recommendations.
Merge with company N — terrific synergies!
Ten years later: spin out the N business — lots of value to be unlocked!
Or like HBO Max which became Max and now has become HBO Max again. Tremendous opportunity for brand consultants.
Merge with company N — terrific synergies!
Ten years later: spin out the N business — lots of value to be unlocked!
Or like HBO Max which became Max and now has become HBO Max again. Tremendous opportunity for brand consultants.
Each of these changes probably got somebody a promotion. There is a lot of incentive to make some big changes, get a bonus or promotion and then run quickly before the consequences get visible.
Yes, except your example was not a decision made by consultants. Also, the people promoting acquisitions, mergers and spin offs are usually bankers. Indecision can come from a lot of places.
Consultants were involved for the merger, current splitting, and the streaming branding debacle. Of course, all decisions and later actions lay with the Board and executives.
From what I have seen, consultants are just the messenger of the plans top management has already.
"Consulting" is a term so generic and ill-defined it almost doesn't mean anything at all.
When I did software consulting, I was basically a decent "modern" web dev brought into crusty old companies to bring some new perspective and approach. I'd help with some project direction and initial implementation and try to get a team up to speed to continue the work. I typically embedded as part of the team for a while and did plenty of hands-on design, coding, and troubleshooting work right alongside.
But this was just a small consulting shop, not one of the big "strategic" consultancies. Very different worlds.
When I did software consulting, I was basically a decent "modern" web dev brought into crusty old companies to bring some new perspective and approach. I'd help with some project direction and initial implementation and try to get a team up to speed to continue the work. I typically embedded as part of the team for a while and did plenty of hands-on design, coding, and troubleshooting work right alongside.
But this was just a small consulting shop, not one of the big "strategic" consultancies. Very different worlds.
Consulting: Making money by promising and sometimes delivering a bit of value.
>Using difference-in-differences designs exploiting these sharp consulting events, we find positive effects on labor productivity of 3.6% over five years, driven by modest employment reductions alongside stable or growing revenue. Average wages rise by 2.7% with no decline in labor’s share of value added, suggesting productivity gains do not come at workers’ expense through rent-shifting.
Snide internet comments are once again wrong...
Snide internet comments are once again wrong...
Here in the Netherlands, they help government avoid taking responsibility. 90% of the decisions are outsourced to consultancy firms. When there's a controversy, they hire another consultancy firm to investigate. I think GenAI can replace this perfectly well.
there’s a sort of self-answering irony in having a academic paper try to answer the age old question “what exactly do you do around here?”
It's also turning the "What would you say... ya do here?" query on the Bobs themselves.
I have people skills!
The “strategy” consulting offered by the big firms is mostly BS. It’s typically a few senior folks that have minimal real world experience in the thing they claim to be an expert at leading a bunch of junior folks that have minimal to no experience in just about anything. The firms talk a lot of hype about how they’re guiding innovation and such but in practice they’re mostly hired to do fairly routine grunt work and just be an extra set of hands for an exec with budget to burn.
The best “consultants” that actually consult are typically sole proprietorships that is just some semi-retired person truly an expert at something that’s offering up temporary help at a thing they just enjoy doing and making some $ on the side. Ironically the big firms have very few of these true experts floating around.
The best “consultants” that actually consult are typically sole proprietorships that is just some semi-retired person truly an expert at something that’s offering up temporary help at a thing they just enjoy doing and making some $ on the side. Ironically the big firms have very few of these true experts floating around.
>It’s typically a few senior folks that have minimal real world experience in the thing they claim to be an expert at leading a bunch of junior folks that have minimal to no experience in just about anything
Sounds like any company ever. Or even government (did you watch the show Diplomat?)
>The best “consultants” that actually consult are typically sole proprietorships that is just some semi-retired person truly an expert at something that’s offering up temporary help
Ibid
Sounds like any company ever. Or even government (did you watch the show Diplomat?)
>The best “consultants” that actually consult are typically sole proprietorships that is just some semi-retired person truly an expert at something that’s offering up temporary help
Ibid
What does a big4 consultancy company and dating app have in common? They don't want to lose their clients.
What happens if a consultant really solves the problem they have been tasked with? The hiring company no longer needs the consultant.
Consultants aren't interested in solving problems, it goes against their income stream. And so it goes.
What happens if a consultant really solves the problem they have been tasked with? The hiring company no longer needs the consultant.
Consultants aren't interested in solving problems, it goes against their income stream. And so it goes.
[deleted]
I forget where I read this, but it's impossible to get it out of my mind after I heard it!
"Consulting is a job laundering program. We use the allure of travel points, prestige, and a six figure income to match some of our country's best and brightest minds to work on capitalism's most banal problems."
What 21 year old Stanford grad would want to work in the back office of a paper mill in Ohio? Sure, sure, but if we told them, instead, they were working for a Big 4 Consulting firm? :)
"Consulting is a job laundering program. We use the allure of travel points, prestige, and a six figure income to match some of our country's best and brightest minds to work on capitalism's most banal problems."
What 21 year old Stanford grad would want to work in the back office of a paper mill in Ohio? Sure, sure, but if we told them, instead, they were working for a Big 4 Consulting firm? :)
they provide expertise to companys who don't have domain knowledge. it's a specialist, thats it.
when companies hire 300 consultants its weird, but hiring someone who specializes in boilers is not weird.
when companies hire 300 consultants its weird, but hiring someone who specializes in boilers is not weird.
And the expert on boilers is probably a 50-year-old dude who repairs them for a living and who you can only find by word of mouth, not a 25-year-old just out of college with flashy pitch decks and pristine Gucci loafers.
Ultimately, a consultant is whatever you hire him to do. Sometimes that means listening to what they have to say (boiler expert, lawyer, etc.), sometimes that means having them listen to what you have to say. The 25-year-old in Gucci loafers is happy to do the latter.
Yeah if you hire a big 4. My consulting team is all people with actual industry experience ...
Consulting provides a report supporting the strategy the leadership already decided on.
I've seen that, but I've also seen (from both sides) a total lack of understanding on what to do that consultants came in to help. I am/have been a search relevance consultant for years - I've seen lots of teams just without a clue how to make things better, and we did. I've also been on the other side where for the life of us we could not decide how to price a product, and had pricing consultants come in and get us out of our paralysis.
Dispense costs, shift/take blame (more on article's bottom links): https://medium.com/@trendguardian/why-we-are-dispensable-7a5...
Subjective value: https://www.quora.com/Is-the-world-of-consulting-full-of-bul...
Subjective value: https://www.quora.com/Is-the-world-of-consulting-full-of-bul...
There are two kinds of consultants: those who write code and those who only give advise. It seems to me that those who only advise lost their market to LLMs pretty completely.
1. Designated Teller of Hard Truths. I operated outside each client's organizational hierarchy and internal factions. By design, I was expendable and not seen as having a particular bias or “dog in the hunt.” That made it easier to say the difficult things that needed saying. E.g. "Your product...is not good and not competitive." "Competitor X is eating your lunch because A, B, and C. You need to get your act together and admit that those are important issues."
2. Bringer of News from the Outside World. Large organizations become exceptionally insular and self-referential. Everyone inside has to speak the house jargon and more-or-less toe the company line. I could break that spell, bringing in new concepts, perspectives, language, and attitudes. Over the years as a tech analyst, I introduced object-oriented programming, CAD/CAM/CAE, distributed computing, Unix, “Big Iron Unix,” the Internet, grid and clustered computing, web services, standardization, buy-not-build strategies, Linux and open source, virtualization, automated provisioning and orchestration, cloud computing, blade servers, scale-out architectures, and DevOps. Many of these were initially unfamiliar or viewed with disbelief and hostility. I also was a conduit for shifting customer expectations and appetites, market attitudes, and cultural vibes—offering a “voice of the customer” or “voice of partners” when internal teams wouldn't otherwise get a clean, unfiltered read on what was happening in the world outside their walls.
3. Family Counselor. Surprisingly often, I told organizations what other people inside the same organization were thinking, saying, or doing (and what customers or partners thought of that). The degree of insularity, siloing, and parochialism in large organizations is hard to overstate. I was almost like a counselor, helping internal teams see, understand, and appreciate their peers, and put what they were doing into a larger perspective that would have otherwise been overlooked.
I did a lot of other things, but these were my largest, most systematic, and most recurring patterns of "adding value."