Why do firms and Governments hire consultants?
In a recent Economist podcast, the paper tackled this question. It focused on the rise of McKinsey, Bain & BCG (aka MBB), their reputation for earning ‘fat fees’ and controversies, for example McKinsey’s work in China and Saudi Arabia.
For many, including the Economist it seems, the role of consultants is shrouded in mystery.
On the podcast I learnt MBB revenues have doubled in the last 5 years and these firms now employ over 70,000 staff.
Most consultancies, including these giants, are either partnerships or privately held, meaning there’s few published metrics on their performance. This opacity exacerbates their secrecy, and to some extent I’d argue, contributes to their allure.
One interviewee on the podcast, who had recently left Bain, theorised several drivers behind MBB’s growth including internationalisation, DX (digital transformation), and most recently ECG (Economy for the Common Good) projects. He added that consultants had moved beyond providing strategic advice to implementation, hence assignments had got longer (and therefore more costly).
I enjoyed the podcast but expected to hear more perspectives from consulting clients. Unfortunately these weren’t forthcoming.
So why do CEOs hire consulting firms?
Having spent the last few years consulting, here are some takes:
Many companies don’t have the breadth of staff to handle complex assignments, beyond their day jobs. Often teams are swamped managing operations or fire fighting. Western companies in particular have shaved off significant chunks of people overhead, and young talent is increasingly mobile. The internal bench strength isn’t always there.
Need advice on new geographies or require an entirely different capability set? Good consulting firms have you covered.
Need advice, and fast? Big consulting firms can put hundreds of people into a project literally overnight. Imagine having to hire, or get approval, for that number?
Want to hear or confirm some unpleasant truths? Often the CEO, especially when they’re newly appointed, seeks a more objective appraisal. Anyone who’s worked in a big corporate knows there are always vested interests, excuses; and let’s not forget the silos!
Hence leadership is often lonely. CEOs are paid to take big decisions but they’re typically realistic and recognise they don’t have all the answers; increasingly they only have one chance.
It’s become increasingly common for senior executives to have a background in consulting. Think Laxman Narasimhan at Starbucks, who is ex-McKinsey, for example. Where will he turn for advice?
Yes it’s true consulting fees can be hefty. However, they’re usually not an ongoing component of SG&A, unlike full time staff, so actually these fees can be easier to justify when reporting.
The podcast talked up the intellectual prowess of consultancies’ staff. McKinsey hires a lot of PHDs and Rhodes scholars, said one participant. No doubt, but it’s not just their pure intellect, it’s the consultants’ business experience and networks which are a more tangible pull in my experience.
I was on the client side for nearly 20 years; it can be myopic. You notice what is happening elsewhere and ask why. Often you remain in the dark. Imagine never going to the doctor. That’s where great consultants help.