Why the need for hiring management consultants when the job can be performed just as well by an in-house corporate strategy team

Valorsq's picture
Rank: Gorilla | 610

I haven't worked in management consulting or CS (which is my dream job) yet but don't they do a very similar work? Then why is there a need for hiring outside consultants when you have an in house strategy team who can probably do the job better and more cheaply (assuming it's cheaper to hire in house consultants than paying hundreds of thousands to millions for a single engagement)? Also, I think the in-house strategists have better expertise as compared to someone coming straight out of undergrad or MBA after a career change.

TL;DR Why does the MC industry even exist when there are in-house CS departments?

Comments (37)

Sep 12, 2019

External 3rd party validation of management ideas for Board support, outside creativity injection, expertise outside of CS team's wheelhouse, speed / one time initiative. /ex Strategy Consulting Manager

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Sep 12, 2019

Objectivity, lack of politics.

Frequently both internal and external consultants are used for different things.

Sep 12, 2019

External consultants exist is so you can hire someone from outside your org to blame in case things go tits up. That and their general objectivity is worth the extra shekels.

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Sep 12, 2019

This is it. They can point to someone else and say, "Well I hired Bain and they said..." when shit goes sideways.

Sep 12, 2019

Yep. All about accountability (or skirting it).

Sep 18, 2019

Wouldn't things going wrong cause client goodwill loss? Why is MC still a lucrative industry then?

Sep 18, 2019

Again, the whole point is to have someone to blame if things go wrong, or have someone who can come in and just agree with management. At the end of the day they're just consultants so if shit goes wrong, it was just advice and it's mgmts fault for taking bad advice. But, they've got plausible deniability because it came from an MBB or one of the Big 4. For example, many see McKinsey as the herald of widespread layoffs. There have been times where a corp's mgmt wants to go that route, the board says no, so corp mgmt hires McKinsey to come in and be the "bad guys" instead. Insulates mgmt from totally owning the responsibility themselves and they still get to do what they wanted in the first place. It's not their money they're spending, it's the company's. Corporate bloat and poor spend management has been around as long as modern capitalism. Sometimes MCs bring genuinely good ideas, in fact during the earlier years many of these top firms were adding real value since many of these now widespread strategies weren't really taught outside of top MBA programs. But as time passes, so does information that was once proprietary. Thousands have students have gone through those MBA programs and taken that knowledge with them. It's no longer that huge of an edge because everyone has read the books, the briefs, and many business schools now buy their cases from Booth, HBS, etc.

Stop trying to make sense of why the industry exists. It does, whether or not we all agree that MCs are mostly worthless.

Sep 12, 2019

You raise a good point. Like why would you call a contractor when you have a coupla tools and some YouTube tutorials for a massive home improvement project?

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Sep 12, 2019

So you're comparing in-house consultants who have been through years of training to YT tutorials? Nice

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  • Associate 2 in CorpDev
Sep 13, 2019

Haha - think you're underselling youtube videos there my man

Sep 13, 2019
jnhadekjs:

So you're comparing in-house consultants who have been through years of training to YT tutorials? Nice

In case your serious, here lies the problem with in-house consultants.

  1. Corporate bias.
  2. Blind spots to competitors and industry.
  3. Asymmetric interests.
  4. Risk aversion.

Let's say for instance, the in-house consultant does a study and finds the headcount at this organization has grown 20% over the past 5 years. The problem is revenue didn't grow at the planned exponential rate. Now headcount should to be reduced with executive bonuses cut. Would an in-house consultant really put that in a report? What if the consulting group should be part of said reduction; would any normal employee openly admit that their job does not create value and they should be removed from the payroll?

I'm not saying third party consulting firms are much better, but they don't have the aforementioned conflicts in the way.

Some case study was done in the last decade illustrating publicly traded companies that rely heavily on third party consulting firms end up destroying shareholder value compared to their peers.

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Most Helpful
Sep 12, 2019

Management consultants are a complete and utter scam symptomatic of the fact that the internal administrative department to hire them are also scams- The amount of shareholder fraud and waste in corporate America is epidemic.

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Sep 14, 2019

Elaborate?

Sep 14, 2019

Watch House of Lies on HBO.

Sep 15, 2019
Pio nono:

Management consultants are a complete and utter scam symptomatic of the fact that the internal administrative department to hire them are also scams- The amount of shareholder fraud and waste in corporate America is epidemic.

May not be frauds, but a study about a decade ago illustrated that publicly traded that retained consulting firms under-performed comparable peers that did not.

There used to be a blog called gettingdrunkinfirstclass where an alleged top tier consultant would rail the profession explaining how they do nothing more than shakedown an organization in exchange for a pretty PowerPoint presentation with lots of Mortan's Steakhouse per diems in-between.

Don't believe me? Look at the Statement of Work (SOW) one of the big consulting firms send out. There are statements in there such as "Help support the work." pertaining to the deliverables. Heaven forbid one of these white glove consultants would actually DO the work. No, instead they help support the work.

Bankers and Excel>Consultant and PowerPoint

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Sep 12, 2019

In-house corporate strategy teams usually aren't large. If the organization is going through a big shift and there are tons of projects across cost optimization of different BUs or expansion strategies cutting across different initiatives and business lines etc, in-house folk can get super stretched and nothing gets done efficiently. Therefore there is a need to hire external folk, and in-house strat will oversee the direction of the outsourced projects.

But like all the others have pointed out above, external MC is often hired to validate management's ideas. Also, bosses in internal corp strat tend to come from MC...they'll likely want to hire their old friends to work on projects.

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Sep 13, 2019

The same reasons agencies exist when there are in-house marketing teams, recruitment firms exist when there are in-house HR teams, law firms exist when there are in-house legal teams.... they focus on different things. Your in-house CS guys will be able to support your day to day strategic analyses, but for really big projects (e.g. large scale merger) you will need more bodies and in some cases expertise that nobody on your in-house team has

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Sep 13, 2019
  • It's good to have a outside view of things
  • Sometimes management want to push through some agenda, but also with a CYA. So they hire reputable consultants to do the bidding, and if anything fails, the consulting firm will take responsibility
  • Management consulting firms have very, very wide reaching networks, and can seemingly conjure up any resource if you have the money.
  • Management consulting firms have probably worked with a ton of similar firms and cases, and have built up a database of best-practices
  • They hire smart and motivated people that will work around the clock on your problems
  • Their motivations may be different from those that work for a the firm in-house. As others have mentioned, if you work in-house, there's politics, bias, motives ,etc. that can / will affect a case or project.
  • Top consulting alumni tend to end up as executives at corporations, and may invest money into keeping a good relationship with their old firm.
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Sep 13, 2019
  • Consultants generally also work for your competitors and will disclose what they were doing (helpful for bench-marking and ensuring you're not lagging behind the rest of the industry)
  • There's lots of garbage work that needs to be done, but it's almost impossible to get someone qualified that's willing to do it as a full time job (think documentation related to AML, model documentation, etc.)

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Sep 13, 2019

Consulting firms can't simultaneously work with competitors in an industry because that creates a blatant conflict of interest which they would be legally required to disclose. Disclosing the details of work they may have done for other clients in the same industry (at a different time) would be an immediate cause for a massive lawsuit. Sure if they're industry specialists they can help with bench-marking but definitely not via simultaneous engagement or disclosing confidential information from a former client. That's how you get a reputation where no one will hire you and your loose lips.

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Sep 13, 2019
PrivateTechquity:

Consulting firms can't simultaneously work with competitors in an industry because that creates a blatant conflict of interest which they would be legally required to disclose. Disclosing the details of work they may have done for other clients in the same industry (at a different time) would be an immediate cause for a massive lawsuit. Sure if they're industry specialists they can help with bench-marking but definitely not via simultaneous engagement or disclosing confidential information from a former client. That's how you get a reputation where no one will hire you and your loose lips.

Lol, you're quite naive. You've also clearly never worked on any sort of bank reg work.

For CCAR, etc., at its peak, every major bank hired essentially every consulting firm in some capacity for the same project. There was just so much administrative work to do and so much confusion around the vague guidance that no one really had a choice.

They might not say specifically, BAML is doing this or JPM is doing that, but they'll say the other leading banks are doing "x", or a top five bank did "y". More often than not, they'd eventually tell you enough over time to know exactly who did what.

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Sep 14, 2019

Thank you guys for all the wonderful replies!

Sep 14, 2019

I agree that rampant use of (management) consultants can be problematic, it can be a sign of incompetence higher up. This is especially something I've seen in gov. planning and decision making, where departments will hire consultants for pretty much anything that needs to be done.

Consultants can deliver great value if you use the correctly, that is identifying and coming up with real solutions for pressing but complex problems, which you do not have resources for to solve internally.

But when the gov. starts hiring McKinsey for every bike shed problem under the sun, that's a sign of laziness and incompetence IMO.

With that said, management consultants have nothing on the shit you see in the world of IT, where firms like IBM and Accenture manage to fuck up $MM - $B projects with almost nothing to show for. You'd think that for some firms, their MVP is to deliver half-finished products, and then bill their clients another 10-15-20 years for patching up their shitty own shitty work.

Sep 14, 2019

Complete scam. The best ones are the "generalists" who get staffed on a biotech project and spend the next week on the phone with industry experts/reading wikipedia before they unveil their deep insights to people who have been in the industry for 30+ years longer than they have.

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Sep 14, 2019

There was one firm Im aware of that helped bankrupt 8 or 9 of the top players in a whole industry by pushing companies to make acquisitions at peak valuations right before the bottom fell out.

Also, we are currently using some at work and it's laughable how basic their advice is ... but more laughable that the operators cant figure it out themselves with fleets if people. "Get more quotes from more vendors" and mysteriously prices start falling LOL. Yet no one gets coached out of the organization and we continue spending millions on duplicative headcount/services.

  • Associate 2 in CorpDev
Sep 14, 2019

Interesting - would you mind elaborating on the first firm and sharing more about such basic advice? More curious than anything

Sep 15, 2019
Lester Diamond:

Complete scam. The best ones are the "generalists" who get staffed on a biotech project and spend the next week on the phone with industry experts/reading wikipedia before they unveil their deep insights to people who have been in the industry for 30+ years longer than they have.

I think the whole point of consulting is for the C level is to be able to say: We brought in (McKinsey/BCG), they sent people from all over the world and spent months here helping us with this idea, and if they're wrong and it tanks badly, what else could have we done then?

Besides spreading the blame, these firms are helpful to do difficult things when a suit is convinced a specific strategy is necessary, but it needs further validation because some decisions are politically challenging when there is a conflict of interests with other suits within the firm. Then they are willing to pay absurd amounts of money, and the firm's partners dine and wine them like there's no tomorrow in return. For instance in one small project, at some point I was the only guy assigned to this client, and our client paid to my firm $150K a month, just for me. I was just 25 or 26, and was there like 10 months or so. I mean, what could I have possibly done to justify a $1.5M bill? Not that much really, just chasing the local girls and drinking with the clients, like always. It was funny because even in one occasion one of the senior partners in my firm called me to basically ask what exactly I was doing because they kept paying that money just for me. I answered with consulting jargon saying almost nothing. He just said okay then, keep doing .... whatever you're doing. A few weeks later he went to visit my client and talked to me. Months later he signed one of my recommendation letters for business school.

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  • Associate 2 in CorpDev
Sep 18, 2019

As crazy as this sounds, I've seen multiple examples myself before. Wild industry, consulting is...

Sep 14, 2019

Sometimes you just can't help yourself.

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Sep 14, 2019

Elaborate?

Sep 14, 2019
Comment

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

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