I Consult, Therefore I Am (Ep. 102)
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 here; it includes credits for the music you’ll hear in the episode.)
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?
You’ll hear from a former (and admittedly disgruntled) consultant named Keith Yost, whose experience seems to justify Hanson’s skepticism:
YOST: I had conversations with sort of fellow consultants and associates and their advice was that fifty percent of the job is nodding your head at whatever’s being said, thirty percent of it is just sort of looking good, and the other twenty percent is raising an objection but then if you meet resistance, then dropping it. That was sort of the breakdown of my role as a consultant.
But you will also hear stout defenses of the consulting industry. Traci Entel, chief human resource officer at Booz & Co., has her say; the Stanford economist Nicholas Bloom talks about his study “Does Management Matter? Evidence from India,” which unequivocally shows a strong return on consulting investment; and our own Steve Levitt talks about his consulting past and present:
LEVITT: The question is, can a really talented generalist come in and help a bunch of specialists? And I think in general the answer to that question is probably yes, that my own experience has been that even though I know nothing about an industry, if you give me a week, and you get a bunch of really smart people to explain the industry to me, and to tell me what they do, a lot of times what I’ve learned in economics, what I’ve learned in other places can actually be really helpful in changing the way that they see the world. And the implementation is always a hard part, but my own view is that business is so unbelievably complicated, and the tasks are divided into so many tiny pieces that are done by hundreds or thousands of people that there’s tremendous scope for improvement. And especially in big firms you hardly have to improve at all to make the consulting fee look trivial compared to the value that you add.
And Christopher McKenna, an Oxford historian and author of The World’s Newest Profession: Management Consulting in the Twentieth Century, gives us a fascinating history lesson on the topic.
Given that most of us carry around pretty strong biases on just about everything, whether we can see it or not, I am curious to hear reactions to this podcast from people within the consulting field and from those who have nothing to do with it. I expect there will also be a fair number of jokes, as I’ve already started getting e-mails from listeners. Steve Cohen, for instance, writes to say:
The definition of a consultant is a guy that can tell you 50 ways to make love but doesn’t know any women…