More Thoughts on the Rise of Management Consulting

A very interesting response to our recent podcast “I Consult, Therefore I Am,” from a consultant who blogs here.

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.

5) The alumni of top consulting firms go on to be very successful and have a broad reach. It only makes sense that they hire people they know and trust (i.e., from their old firm).

6) Corporate American culture has become increasingly short-term focused. This also extends to the view that human capital is a commodity and completely fungible. If we lose someone with 20 years knowledge, we can hire a 20 year veteran from a competitor. As companies are more willing to hire from outside (not promote from within), it only makes sense that they are more inclined to “buy” analysis, decision-making, and sometimes leadership.

And another comment here, from a listener named Florian:

I love this show very much but I was tremendously disappointed by this episode mostly by missing the number one reason consulting is so popular: money laundry. I live in Romania and am now 23, in my last year of a Masters, and I have and work for a small company. The “most legal” way to launder money is to hire a consulting company. If I want to get $1000 out of my company accounts, I hire a consulting company owned by a friend which only pays the 16 percent VAT tax, give him a bit (4 percent to 10 percent) and tada! — he gives me $800 “clean cash” back. This is extremely efficient because the paper trail and proof of this illegal act is minimal, and so is the risk of getting caught. It’s done by pretty big companies by having 2-3 conferences which the managers attend, eat some finger foods, and watch some slideshows for 2-3 hours and take some pictures, and it’s almost impossible to get them for the huge consulting fees…