Management Consulting: A Peek into the World of ‘Strategy’
Advertising executive Carl Ally famously remarked, “A consultant is someone who borrows your watch to tell you the time, and then keeps the watch.”
Consulting is a large industry that is in high demand and attracts the attention of the brightest college students from around the world. According to IBIS World Statistics, the management consulting industry in the US, alone, is estimated at $263.5 billion and is expected to grow to $357.2 billion by 2026. Nearly all Forbes 500 companies call in management consultants at least once every 12 months. Over one-third ask for help more than four times annually. “Whenever I read the Wall Street Journals ‘Who’s News’ column, I ask, ‘Gee, which consultant did that?’” said George Whitmore, a consulting business owner. Ivy League graduates flock to consulting firms after their undergraduate studies. According to the school's newspaper, 22% of Harvard graduates entering the workforce after college enter the consulting field. Even the Vatican engaged Mckinsey & Co. and other consulting firms. So, what makes “watch thievery” such an attractive industry? Where did it all begin?
The first spark of what later developed into management consulting emerged from a book titled “The Principles of Scientific Management.” In his work, Frederick Taylor argues that management must be thought of as a science, with clear rules and structures. He said to his fellow engineers that, “adoption of scientific management would readily in the future double the productivity of the average man engaged in industrial work.” He saw that companies would perform tasks haphazardly and believed that there was a “best” approach for each given task. Taylor's methods saved railroad companies millions of dollars and were the inspiration for the revolution of strategy in the 1900s.
Arthur D. Little, a chemist from MIT, believed that Taylor’s approach was too systematic and that there needed to be a more individual methodology for each client. He founded a consulting firm that would later adapt to a more structured approach and is one of the oldest and largest consulting firms to this day.
In truth, strategy dates back all the way to the ancient era. In the Bible, Moses led millions of people out of Egypt and did not have an effective way to manage the numerous problems and questions of the nation. His father-in-law instituted a more effective system that allowed for every individual to be heard.
Fast forward to the 1930s and the reputation of consultants was not the strongest. One consultant remarked that he was too embarrassed to tell his mother that he was a consultant and, instead, relayed that he was a pianist in a brothel. Things changed when McKinsey & Co. arrived at the forefront of strategic management. With a focus on highly educated MBA graduates, and in an attempt to distance himself from the Scientific Management crowd, James O. McKinsey began McKinsey & Co. His emphasis was on “why” managers did things instead of how they did them.” Using the title of consulting engineers, the firm focused on the combination of accounting and engineering, as well as law, to shape the first stage of the company.
By the 1960s, other firms followed McKinsey’s lead and the Boston Consulting Group arrived on the scene. In an attempt to shape the narrative of business leaders and not just provide advice behind the scenes, BCG broke down the notion that consultants were only hired when companies went through hard times and instead focused on the future of the company and its growth aspirations. In this time period, many now popular frameworks and structures emerged, like Porter's Five Forces, SWOT Analysis, and The Rule of Three and Four.
Although the emergence of powerful, widespread business ideas was generally good for business, one consulting firm found that a better business model was to create long-term relationships with clients rather than short-term strategy work. So in 1973, Bill Bain left BCG to begin Bain & Co. and would join Mckinsey and BCG to be recognized as what is known today as “the big three.”
Then, in the 1970s, came the race for globalization. Before this era, all of the major firms had most of their revenue come from the US. After 1970, Mckinsey led the global race with more than 50% of its revenue coming from outside the US. The firm spent years building long-term relationships with companies overseas and it paid off.
Over the years, other consulting firms focused on strategy emerged, such as Parthenon, LEK, Monitor, and others. Many firms began focusing on implementing the strategies they were recommending in order to have longer engagements and build client relationships.
Consultants today can be found working on a variety of projects aimed at using data to optimize businesses by solving complex business problems. Many large companies as well have dedicated internal teams that focus solely on their own strategic initiatives. Companies have to make crucial decisions and they are willing to pay big for those decisions to be made for them. This is why they hire the best and the brightest to help them decide the future of their company.
This new wave of strategy has taught many businesses that they need to think about each component of their business as one entity in which each component affects the other. Even though strategy will morph with the constant advancement of technology, it will be a crucial core piece of every business for years to come.
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Picture Caption: Consultants help businesses approach problems more efficiently and optimize company initiatives
Picture Credit: Unsplash
