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Thanks for the podcast. Six years in management consulting, and a tremendous amount of what you said is true. A few additional hypotheses on the rise of management consulting:
1) The massive turnover of executives (CMOs average less than 2 years) creates a type of rotating vacuum on the leadership team. Someone is either leaving, or just arrived.
2) CXO are running out of time to think. Drucker said that executives should have 1/2 of their time to think through problems. That is certainly not the case with reporting requirements (SOX), end-of-quarter sales push, conference calls all day long that stretch from India to California.
3) Executive have become a bit lazy. They seek “benchmarking” and “best practices” as a surrogate for real strategy (know what activities to NOT do).
4) Consulting costs have become a fixed cost (like audit, or advertising). For the budgeting cycle, it is copy/paste to the next fiscal year x 103 percent to adjust for inflation.
There are more than 500,000 management consultants in the U.S. – more than 700,000 if you count the self-employed. And even more are on the way. So we thought it was worthwhile to ask a few questions about the industry. For instance: Where did management consultants come from? What do they actually do? And … does it work?
Our latest Freakonomics Radio podcast is called “I Consult, Therefore I Am.” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript below; it includes credits for the music you’ll hear in the episode.)
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HANSON: Two puzzles stand out. One is that people who are closely involved tend to say that the advice you get isn’t spectacularly insightful. It’s often puzzling why companies pay often millions of dollars for sort of generic, straightforward advice. If you had asked around in your company, you would have gotten some similar advice. And then it’s also puzzling, the companies that give this advice, what they tend to do is hire people out of the very top schools, immediate graduates, and then a large fraction of their work force are these immediate graduates of top schools. And you got to wonder, well I’m sure they’re sharp but, you know, doesn’t it help to have some experience?