6 reasons why companies spend $2 million to hire management consultants

Today’s post departs from its usual focus on recruiting to take a 5,000 mile view of the consulting industry and its purpose.

Consultants can have a negative reputation – charging $2 million for 12 week’s work that results in stacks of PowerPoint slides, all of which are archived into a dusty closet (digital or otherwise) soon after McKBain Group leaves the premises.

When consultants’ recommendations are implemented, employees often argue that the actions are not beneficial and don’t reflect day-to-day business realities.

That’s one side of the story.

Below, I’ll paint a more positive (and personally held) view on the 6 reasons why companies hire consultants. Through it, you’ll have a better view on business consulting and the consulting industry as a potential career.

1) Staff augmentation – the least impactful role that consultants can play and self-explanatory. Companies often have short to medium-term staffing needs (in the case of government work, this can extend for several years) due to a variety of factors (eg, recent downsizings, sudden expansion). Consultants in this situation “plug a hole” for the company by filling the role of full-time employees. While expensive, it’s common work for operational consultancies (eg, Deloitte and Accenture) and, to a lesser extent, for government consultancies (eg, Booz Allen)

Further reading: Interview with a Booz Allen consultant

2) External change force aka “political cover”. It can be hard for companies to do what’s right (sacred cows and all that jazz) – particularly when it comes to job layoffs, salary and benefit changes/reduction, major operational and strategic shifts. Hiring consultants can be a way to reach the desired conclusions with sufficient political cover in case certain parties are unhappy (eg, a displeased Board or disgruntled employees) or things go wrong (“Despite the significant cost uptick, we implemented BCG’s recommendations to the letter – I’m not sure what we could have done better”)

3) Best practices across industries and functions (eg, organization, supply chain) – consultants have the rare privilege of:

  • Serving multiple clients in the same sector (eg, Beverages, Enterprise Software)
  • Serving multiple clients facing similar problems across different sectors (eg, Latin American expansion, Southeast Asia outsourcing)

This enables them to recognize common attributes of effective solutions, applying lessons learned in applicable situations. This knowledge is partially institutionalized at each consulting firm (in the form of white papers, databases, post-project reviews, etc); however, much of the information exists in the collective heads of partners and to a lesser extent, senior consultants.

A former McKinsey partner put it best when he called business consultants “masters at reinventing the wheel”

4) Analytical horsepower

A corollary to staff augmentation, companies may need help solving issues and executing strategies where their skillsets and knowledge are insufficient. Consultants can be of great value given their training and capabilities. A note here on big vs boutique: big consultancies have a breadth of resources that they can bring to bear on problems (eg, data mining and analytics, primary market research). Boutiques may have specialized expertise on specific dimensions (eg, retail pricing best practices, financial industry benchmarks).

Further reading: Global consulting firms versus boutiques

5) Fresh perspective

Companies often need a fresh set of eyes – you’d be amazed at the amount of value consultants can add based on the most mundane observations and insights. Critics contend that this is an example of consultants selling “glorified common sense”, but for front-line client employees, it can be easy to fall into daily routines without a critical eye towards measurement, analysis, and improvement.

6) Training and skillset augmentation

I’d argue that every consulting project – particularly ones with heavy client interaction – incorporates client training as a major ingredient. The best recommendations are worthless if clients can’t implement and maintain suggested changes. Thus, a large part of what consultants do is educate client employees on necessary knowledge, skills, and mindsets.

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