Consulting=money suck?

Is consulting a money suck for the companies that hire these firms? From what I have seen, a lot of consulting firms (especially the big ones) do not add a ton of value for the clients.

Change my mind.

 

A lot of value provided by consulting, at least at companies I’ve worked for, is just for an audit trail to validate management decisions. But as far as actually adding fresh ideas / good value, meh, I’ve worked with McKinsey consultants and all big 4 besides EY, and I’ve never seen a fresh idea to write home about.

Nicely done presentations though, can’t argue that.

 

Agree with this with the caveat that sometimes "nice presentations" are exactly whats needed and that you may be undervaluing.

Oftentimes the most difficult part of conveying your viewpoints / strategy / findings is to keep it clear and concise, but at the same time offer enough detail and background info so that someone who hasn't spent 3 months working on a project can understand key findings.

It's easy to have moonshot ideas, not so easy to execute or convince others to sign off on them.

 

Yeah because that's not what they're for... They specialize in being on top of and then applying data driven best practices to organizations. If there's no data there's no case to be made. That's why most stuff that comes out of them is hella dry and boring (and why e.g. McK got the adoption of mobile phones so wrong for AT&T), but it helps large corporates stay in their lane and make marginal improvements

 

Consulting might add more value at private equity companies that are looking to professionalise. I did a pricing project for a £1bn EV PE portco (a fresh rollup), where management was basically doing pricing based on gut feeling. I had a ton of ideas that we could provide them on how to optimise pricing, and apparently they were quite blown away. 

 

My conspiracy theory is that consulting is one massive scheme. These firms are all about selling themselves: to candidates, to clients, to their own consultants. Candidates believe it's the perfect opportunity because they're told you can go anywhere after; except, of course, anything technical because that requires actual know-how, not just an 'ex-MBB' label and basic communication/structuring skills. And people in industry hire ex-MBB because they know the smartest people (who MBB convinced to join, although the best undergrads are now going FAANG or quant) are there. I'm convinced C-level clients see past MBB prestige, and only hire these firms because of their perceived prestige to satisfy whoever keeps them accountable. Selling is the bread and butter of these firms, and they're extremely good at it.

 

+1 SB, this actually sounds really logical. Any counterarguments, I would love to hear multiple sides to this?

 

Not a conspiracy theory - I've spent my career at boutique banks - despite having a close relationship with chief executive team we've lost engagements to more brand name banks because they were covering their ass from the board in case anything went wrong.  I can absolutely see this transferring to consulting as a cover from accountability - people will do anything to survive.

Also, consulting is a joke...

"A man can convince anyone he's somebody else, but never himself."
 

we provide a fair amount of market intelligence that our clients seem to like

sure we're being brought in for an op model evaluation or process improvement job, but the client gets to learn about how their competitors are structured and how their competitors run their processes, which are valuable data points... and we have that information because we've done the same projects at their competitors

it's always been kind of interesting to me because most clients i've worked with don't have the appetite to pay for just that market intelligence, but it ends up being the most impactful part of our work

 

i mean it's pretty impactful

no one gets salty about the information share as long as you don't say *who* the client is that you're sharing insight from. and if you have enough clients you can pull from it's pretty anonymous (i work in alts and we have data / process examples from 10-20 firms depending on the specific comp among MF / UMM)

there is an implicit understanding in sharing this info that the client themselves is going to be added to this dataset, and i've never heard a single complaint about that

these guys fuckin *love* hearing what their competitors are doing, both from an org structure perspective and a process perspective

also, process improvement jobs are all about "best practices"... well we don't make those up whole cloth we see who's doing it best and use that as a model

 

Yeah this was where I was going with this post. Any arm that goes into the business and adds cost efficiency/time efficiency/all around rx is going to be more valuable than the strategy guys who go in and build a clean presentation that becomes the Management teams’s Kevlar shield. Sure these guys add some strategic initiatives but are it helping the business make more money? I don’t see it.

There can only be one Dirty Dan, the rest of you are Pin-head Larrys...
 
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I suppose the value consultants provide is intrinsically tied to the reason they're hired. If you are running a really lean organization, consultants act as extra sets of arms and legs. They increase the bandwidth a company has to handle crises or one-off projects that the business isn't naturally designed to tackle. Due diligence in an investment setting is a prime example--not just for funds, but for companies too. I've worked in both lean funds and lean corporate development teams, and in both cases, we tended to use consultants on large deals because we simply didn't have the staff to do all the work internally. Even at a multi-billion dollar company with 100K+ employees, the number of people who were useful on a deal team was exceedingly small, so you bring in consultants to fill the gaps.

Speaking of gaps--consultants don't just provide additional bodies when needed. Sometimes, consultants really do have specialist knowledge outside the expertise of your organization. Pension consultants, for instance know more than I ever care to learn about pensions. On any large deal,, this can be a big issue and their knowledge is worth something in that context. The same is true in restructuring. Alix, Alvarez and Marsal and FTI have few strategists and many CPAs. Those guys tend to be pretty useful when it comes to making operational improvements in businesses, even if their projects tend to last 18 months or more.

Further, you could make a similar argument for economic consultants when it comes to competition policy. While not enforced as often as they probably should be, the whole of the West has laws concerning anti-competitive dealmaking. The likelihood that you have an expert on competition policy on staff at your firm is low, so getting an opinion from one of the specialist firms who do that sort of thing BEFORE wasting a bunch of time and money on a deal that ultimately goes nowhere is definitely worth the price. The same can be said for consultants who specialize in regulatory policy. If you're a non-US entity attempting to buy a US company, it definitely helps to know if CFIUS is going to stop you from making the acquisition, force you to divest some assets to do so, or compel you to own the business by proxy. To that end, I also see value in tax consultants and lawyers because there is such an abundance of tax law in existence that if you're doing cross-border deals, you might just be wasting your time if the taxes don't work out. No matter how good your internal tax guys are, they can't be experts in all the world's tax regimes, so paying for consultants in this context also makes sense.

There are many other types of consultants that are worth paying for, but I suppose that 'consultant' in the context you were using it was specifically meant to connote MBB strategists. I'm not sure I see a lot of value in what they do. The kids who work there tend to be very clever, so I've hired a couple, but I don't find any special magic in MBB strategies these days.

I think that 25 years ago, the big strategy shops really did have knowledge that corporates lacked. Back then, information was far more difficult to come by. Data wasn't so readily available. And market intelligence was a thing discussed over business lunches. In the era of Windows 95, producing high quality decks was immensely difficult. PowerPoint sucked back then and Excel only handled 65K lines and was slow AF when moving between arrays. The execs at any company in the mid-90s were born in the 30s, 40s and 50s. They didn't know how to use computers at all, so even a modicum of data analysis combined with a sleek presentation was enough to justify MBBB's price points (Booz used to be in there in those days). 

Obviously, those firms have evolved since then, but they're still mainly known for their strategy legacy. The whole reason Booz Allen Hamilton started losing prestige relative to the other MBB firms was because it moved into operations and tech work in the early 2000s--long before MBB did. Doing so watered down Booz Allen's rate card and made it more difficult for the firm to compete for the comparatively more prestigious strategy work their peers were still chasing. This ultimately led to Carlyle buying out the legacy strategy partners at Booz Allen and splitting the business. Perversely, MBB have all moved into ops and tech work these days, but they've managed to retain their rate cards even though less than half the work at any of those firms is truly 'strategy' work these days. 

I feel like that fact is lost on many employers who simply seek to hire ex-MBB consultants. A huge percentage of their consultants aren't strategists these days. It matters materially which projects you get staffed on. I think a lot of people get staffed on some shitty projects and do their best to make them sound good on their CVs, but don't have a huge amount of impact. But because corporate execs today were just starting their careers in the 90s, they still remember the legacy of those MBB firms. That's a major reason why those firms retain their prestige even while their work product and strategies have become increasingly less impressive.

To their credit, MBB all recognize this. That's why they started to diversify their revenue streams about a decade ago. McK started going after what they called 'asset-based' consulting. Essentially, they wanted to 'productize' some of their service offerings. That led not just to an increase in ops and tech work, but also to the creation of McKinsey New Ventures. You might have noticed that BCG did the same thing. Booz attempted to do so with Booz Digital, but those partners eventually left to join BCG Digital. Bain has always had a larger portion of its revenues coming from longer-term operations contracts than McK or BCG, and I don't think Bain has really strayed as much from its strategy and ops heritage as the others, which is why it's also the smallest of the three.

In any case, I think consultants have value--though that value is situational. I see less value in general strategy consulting these days. The skill sets that were really the province of H/W/S MBAs turned MBBB consultants 25 years ago are much more commoditized now. Still, they have their place. They provide some CYA for C-suite execs when making big decisions. They provide even more CYA for BoDs. They have some clever employees capable of data analysis and presentation production--that has some worth. But a lot of what strategy consultants do today isn't worth the price they charge for those services. I suspect that as a new generation of execs come to power, MBB's rate cards will be under serious pressure. This will further push them to alter their business models and will probably ultimately hurt prestige in the field. But as the rate cards drop, I think consultants will become comparatively more attractive to use as a flexible workforce, so you will probably see even more consultants as that happens. Just what the world needs, right? More consultants...

 

I agree. I can attest that as someone who works for a reputable boutique in the healthcare space, we often can provide a decent amount of insight on particular matters (e.g., pricing strategy, market access approaches etc.) to a variety of firms and often "beat" MBBs or Big 4s in those types of bake-offs. Even within corporate functions, you may have 3-4 consultancies working there at once. We come in and do the pricing strategy, another company specialized in HEOR modelling does builds out their model and a firm with endless local contacts does on on-ground salesforce deployment. The era of a single company (or 2 at most) having fingers in all branches of an organization and doing massive turnarounds is over. The push towards more specialized consulting is also seen by the evolving recruitment criteria. In my industry people tend to come from at least a BSc or MSc in biomedical sciences + some form of business education or a biomedical PhD. This is simply because you need to be able to talk details in front of the relevant stakeholders. The appeal of a pure business background to industry or function-specialized consultancy is rapidly decreasing.

 

Value of consulting to firms is all about who is hiring them and for what reason. The most valuable has been when my boss or I have hired the consultant for VERY specific reason, i.e., to sell an agenda to the board, to validate a hypothesis, to do an investigation into something etc.

The least valuable has been when I've seen other execs hire them to "define a strategy" or "figure out a go to market approach". That shit will cost you $1m for 6 months of nice slides and a summary of trends you can find on Google or spending an hour speaking with an industry / geographic expert. 

As with anything, the more experienced the buyer, the better outcome they'll get from their purchase.

 

There's two places where I view them having value in how we've utilized them. 

1. Breaking decision deadlock. Especially for closely held companies, partnerships, etc. It's somewhat of an inside joke - that you hire consultants to tell you what you already know, but the person telling you is 'objective' or something. But I've come to believe it's actually a real value add in some cases. You could argue that that company has bigger structural issues, i'd tend to agree, but it can add value. 

2. Filling in expertise gaps. Especially more niche consultants, or even smaller firms. As an example we may leverage them to take on a project or resource an effort that we otherwise A. would have to hire someone or B. redirect resources, that don't have the direct knowledge. That latter option while attractive - involves either a learning curve or just simply not the best use of their time. I think in that sense they can certainly add value, especially where it helps to have a third party do the work. Similar example - I'd argue that we've successfully utilized consultants to get a broader industry picture that.. again... would have taken quite a bit of resources or time on our own. 

To your point about the larger, just general consultants - I don't have much first hand knowledge. But I do think if you have a clear view of why you are leveraging consultants, and what they are doing, they can add value. 

 

Nobody will say this but one of the primary reasons to hire one and especially an MBB is to offload a decision making responsibility onto them. If it goes right, exec team looks genius for having tapped the consultants. If it goes south, it's not like an internal organic effort that fell flat on its face, they can shove some of the blame onto the consultants for having "tinkered" but got no where. 

When asking these questions-- think psyschologically from exec perspective

 

Not true. Consultants can't be seen as running the show. That's why there's basically a rotation between McK/Bain/BCG in many multinationals every X projects/years

 

Here's my perspective from managing large consulting engagements from the client side at a sponsor-backed business.

They offer significant horsepower and bandwidth. The tighter you manage them and narrow the focus of each team, the higher the work output and quality. Said another way - when we have a list of projects and need a team of very capable, ambitious, and hard-charging talent to plow through it then we've enjoyed our experience. Where we have been disappointed and what we no longer pursue (for the most part) are the workstreams related to comprehensive value creation, strategy ideation, etc. We've found that while they are expert in niches fields, they don't know the business well enough to design value creation strategies from scratch. When we define a narrow workstream and manage the teams, we receive great work product.

 

Some comments here have been really insightful. This board is skewed towards people in FO IB/PE and oftentimes the value consultants brings is promised, but out of sight for these two groups i.e. all parties collect fees on an LBO where the valuation is based on post-deal savings. Consultants are brought in to facilitate the savings you collected fees promising. Yes, the actual corporate will be the ones operationally carrying out those savings plans, but there is always a consultant there to oversee at a high level and ensure those cost savings have been not only captured but planned and realized. In large organizations it can be difficult to facilitate meaningful change in practice/mindset without outside pressure which is then reinforced by superiors.

 

I've spent over a decade cumulatively across bulge bracket banks and consulting firms (MBB and niche), and now work at a late-stage VC-funded startup.

The work product from consultants is hardly earth-shattering. But you'd be surprised by how capacity-constrained most large corporates are. Large corporates, of course, still account for the lion's share of consulting revenue pools. And as a result, there's still plenty of demand for consulting work.

To clarify: corporates are machines. Some are better oiled, some are clunkier. Some have more bloat, some have less. Some are newer and shinier, others are headed toward the scrapyard. But they are process-oriented machines, and the vast majority of work done by employees are just turning the cogs in the machine. There is almost no capacity to do any work outside the bread-and-butter cog-turning. This may be due to lack of skillset in-house; lack of specialist resources; or simply lack of free hands. Whatever the reason, you have fairly important/sensitive work that needs to be done, and you need to tap into external capacity. That's when you bring in consultants.

That isn't going to change any time soon.

Hint: much of the same applies to why companies hire investment banks. 

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 

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I've spent over a decade cumulatively across bulge bracket banks and consulting firms (MBB and niche), and now work at a late-stage VC-funded startup.

The work product from consultants is hardly earth-shattering. But you'd be surprised by how capacity-constrained most large corporates are. Large corporates, of course, still account for the lion's share of consulting revenue pools. And as a result, there's still plenty of demand for consulting work.

To clarify: corporates are machines. Some are better oiled, some are clunkier. Some have more bloat, some have less. Some are newer and shinier, others are headed toward the scrapyard. But they are process-oriented machines, and the vast majority of work done by employees are just turning the cogs in the machine. There is almost no capacity to do any work outside the bread-and-butter cog-turning. This may be due to lack of skillset in-house; lack of specialist resources; or simply lack of free hands. Whatever the reason, you have fairly important/sensitive work that needs to be done, and you need to tap into external capacity. That's when you bring in consultants.

That isn't going to change any time soon.

Hint: much of the same applies to why companies hire investment banks. 

^Agree with the above and what many others have said on this thread. Capacity constraint and economies of scale are the primary reasons why consulting currently exists and will continue to exist. The days of Michael Porter redefining how corporations think about their competition are long in the past.

Consider a few use cases supporting the notion of capacity constraints:

  • A PE firm investing in a space in which they know very little about the market - it makes a lot of sense for a strategy firm to do a quick 2-week CDD to better understand the market and, given PE firms tend to be staffed leanly and their employees are very expensive, it makes sense to offload this task
  • A large corporation looking to make a pivot into a new market or product - a strategy firm hired to size the opportunity, assess monetization opportunities, identify areas of differentiation, develop a business case, etc. can pull all of this together in weeks whereas most companies would struggle to get this done in months using their existing workforce
  • A large corporation has just bought another firm and needs to integrate it - a Big 4 (or similar) firm can come in and help look at all of the tech, ops, HC, etc. integration components, identify the most critical integration projects, document all this stuff, help prioritize everything and then help project manage.... not the most glorious work but it's a necessary task most corporations can't effectively do themselves since their employees need to focus on keeping the lights on

A few quick use cases for economies of scale (they're all pretty similar ideas and this is where the implementation firms excel - this def isn't the glorious stuff) - essentially the gist is you wouldn't keep these people on staff given their infrequent need, so the labor market makes this efficient in a one-to-many consulting arrangement:

  • Any one-off risk management-type function that requires niche expertise that would only be used under particular circumstances (e.g., cybersecurity assessment for a new product being launched, RCSA for banks)
  • The installation, configuration, etc. of any large tech system where specific domain knowledge is needed
  • Economic consulting during litigation

Hopefully this helps anyone not as familiar with what consultants do and who either thinks that A) consultants are out there shining the light on innovation to F500 CEO's (they're not) or B) consultants add zero value and leech off of society (they don't any more than any other professional services job)

 

The only comment that's correct here tbh. Not surprised too, since you actually have experience working in both consulting and client side. Other comments I've seen here are 90% just speculations by outsiders.

 

I'm pretty jaded about consultant value add. But I have seen one type of case where it helps. PE funds sending consulting firms in coach/advise/create plans for portfolio companies. The PE fund has no time or bandwidth, and the consulting firm has a blueprinting/roadmap-making system and the smooth talking consultants to make that medicine go down easier. PE fund can also keep a healthy distance from the portfolio company and thus keep paws clean.

 

I've actually gotten a wide range of exposure when it comes to "Consulting", whether it be strategic, customer solutions, technical implementations, or my current line of work, which is program management transformation.

I think most of the users here have hit the nail on the head when it comes to strategy & customer, and even from the technical implementation side, again, we leverage the "leading" practices behind our solutions, our client/user experiences, and our research arms.  While I disagree with alot of users that consulting is sales-only (in fact, I believe its encompassed in a low energy sales environment and people over promise and under deliver 90% of the time).  The value add for implementation consulting is actually cost reduction:  do you know how expensive it is even for a F500 to hire permanent employees to run a 3-5 year transformation? 

From the PM side of things, it's actually horrifying how badly most organizations and initiatives are run, from lackluster PMOs, to crappy and decentralized data, "paralysis by analysis",  to unclear escalation paths and toxic cultures that discourage the organization from escalating critical risks.  Studies show that majority of ALL projects/implementations/programs either experience significant cost slippage, schedule slippage, or both, and sizeable % of initiatives fail to even reach their "go-live."  Consulting's value-add is the coaching, breadth of experience, best systems, and diverse skillsets to help organizations from the Executive-->Director-->PM level be guided through the quagmires, allow the clients to focus on the strategic rather than the day-to-day, and enable clearer insights.  You can't internally or externally hire that type of guidance...you have to look to consultants fix those issues.

 

These have mostly been covered above, but in my experience (consulting side and client side), there are a few major reasons companies hire consultants: 

1.  Expertise gap: There are some business issues that come up infrequently enough that it doesn't make sense to have someone in-house at all times to work on them.  A good example was given above re: antitrust - there aren't many companies who could justify having a full-time antitrust expert on staff, yet every few years they may need one.  

2.  CYA for boards and senior execs. 

3. Legalized industrial espionage:  This is bigger than most people think.  Companies definitely value insight into what their competitors are doing, even if it's from a "best practices" point of view.  Consultants provide this in a legal way by anonymizing the clients.  

 

I'm in business development at an REPE shop, but we're here to make the hard decisions on what businesses to keep and close - not do endless competitor analysis or present.

Saved a ton of our time so we won't set up unprofitable funds, researching unsuitable areas that would lead to nowhere. Easier to convince the investment professionals actually on the front lines to be on the right direction.

There's only a few dozen of us globally in all of US/EU/APAC. Technically we may be able to do this in-house but we don't need a huge team doing that yet.

 

What do people think about democratisation of information and clients potentially asking MBB etc for just/mostly their data, unbundling of solutions etc?

Had a convo with a Tier 2 consultant recently and he said the lack of operational/implementation is being felt industry wide.

Additionally, what if business travel cannot resume as before for the next 1.5-2 years? What then?

https://www.google.co.uk/amp/s/hbr.org/amp/2013/10/consulting-on-the-cu…

 

It seems like a massive waste of money for corporations...but corporations are into that kinda thing so guess it makes sense. 

 

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