Do consultants add value?

Introduction

I recently caught up with a former boss (whose company I left to work at Bain) and one of the first things he asked me was: “is consulting a scam”. As much as it sounds facetious I think it’s a valid question given the ample examples of similar questions in popular channels. It’s also more complicated than you might think, and it’s a question I’ve asked myself many times, discussed with friends in and out of consulting, and changed my mind on in the last few years.

My initial impressions

When I joined Bain in 2019, my position on this question was probably best described as “yes, mostly a scam, but they pay well and lead to good jobs so I’ll take it”. That seems cynical but I was comfortable with the tradeoff. Today, I have a more nuanced view.

My current view

To be very clear, the type of consulting I’m talking about here is management consulting, specifically the ‘Big Three’ – McKinsey, BCG, and Bain. This is the only type I have a decent view of. 

Over the ~3 years I worked at Bain, I oscillated back and forward, usually based on the project I was working on. That said, taking my experience in aggregate, and with some time out of the business to reflect, my view is this: consultants are not a scam and provide significant value, but probably not in the ways you expect, and this leads to misunderstandings. 

The value of consulting firms

The ‘standard’ view of consulting firms is one of two diametrically opposed positions:

1. The inside view: we combine world class talent with a deep understanding of your business and industry and can help you define a winning strategy, outperform competitors, and deliver great outcomes for your shareholders, employees, and customers

2. The outside view: consultants will steal you watch and charge you to tell you the time. This is a bit dramatic and the more sincerely held view is that companies hire consultants to rubber stamp their own plans. This supposedly insulates them from blame. 

Unsurprisingly, the answer probably lies somewhere in between. My view is that consultants can, and often do – although not always – add substantial value to companies that hire them, in the following ways:

1. Best practices

One thing you learn when you start working on strategy projects for very large companies is that there is no one behind the curtain. That is, they’re mostly fumbling along similar to most smaller or less successful businesses, but usually with the advantage of existing distribution (e.g., a very large base of entrenched customers). This typically means they have a fairly stable business. Put another way: they were usually once a great upstart, doing something genuinely innovative or distinct, but today, they’re fighting over fractions of a percent of market share and trying not to have their lunch eaten.

What this means is that there’s often a lot of room for simply taking the best version of whatever it is they’re trying to do, and showing them how to replicate it. That makes it sound very simplistic, and it’s usually quite a bit more complicated than that, as you have to take some set of capabilities and shoehorn them into a (typically) much larger, more bureaucratic, more complicated organization. But consulting firms are well placed to do this as they’ve often seen lots of examples globally. It’s not at all uncommon to find yourself speaking to a partner in Europe about how Bank X or Utility Co Y built and rolled out a new business line. People sometimes find this hard to believe, but the truth is that existing distribution counts for a lot in business. Much more than people expect. Large companies can survive a surprisingly long time by offering an okay product eventually. This doesn’t mean ‘winning’. It just means they’re probably growing by something like GDP plus a few points of pricing growth minus a few points of churn, with each variable in that equation having a confidence interval of 5%pts.

2. Speed; breaking through inertia; side-stepping politics

This is, in my view, probably the way consulting firms add the most value. In a typical company you have a range of siloed teams, each with their own reporting lines, KPIs, and opinions on what is the most valuable thing to do (unsurprisingly, this is usually closely aligned to whatever they happen to be working on – who knew!). Whenever an ambitious up and coming leader wants to get something done, they need to cross a lot of these invisible-but-very-real boundaries to do so. They need to convince executives to bless their idea, then convince people to work on it, technologists to build it, sales teams to push it, customer teams to service it, and so on. This is far less straightforward than people assume, and it requires an inordinate amount of effort to generate enough internal support and momentum for your idea to exceed the activation energy required to get a large company moving in the direction you want.

Consulting firms have a different experience. They get hired by the CEO or a C-suite executive with a mandate to get something done. And because they’re so expensive to hire, there’s usually a fairly short deadline to work to. The hired firm then gets to cross team boundaries, co-opt resources, and wave away previously impossible-to-avoid bureaucracy in order to get the job done. When you call the data analyst in business line X to ask for data to help validate a statement made by a sales manager in business line Y to support the work that will benefit business line Z, you get to do it with the implicit mandate of the CEO. It’s the big business equivalent of being able to make an outrageous request of someone at a wedding and hand-wave away their unwillingness with “it’s for the bride”.

This ability to quickly get whatever information or access you need across a large business, as well as an audience with any executive, and the ability to do and say things without having to worry (as much) about what something might do to your internal reputation¹ is truly game changing. And it’s the reason consulting firms can often finish a project in 4 weeks with 5 people that a team of 20 internal folks have been spinning their wheels on for 6 months.

3. Talent agglomeration effects

This is the one I expect is most contentious, but in my experience is simply true. Any given company has a mix of interesting strategy work and often-less-interesting-but-necessary business as usual work. This means that for most roles at a company, you will have some mix of these two things, with the mix skewing towards the less interesting work. In a way, consulting firms have been able to build a sort of Interesting-work-as-a-Service (IWaaS) model, where they come in, do the ‘fun’² stuff, and then leave you to handle the details and actual work involved. Rather than debate whether the value is created in the strategy or the implementation, I’d just note that the reality is most young people think the strategy is the interesting part that they want to work on. As a result, consulting firms are able to attract, on average, higher quality graduates than the typical large company. They can then leverage these high quality people into doing genuinely good work. Large companies on the other hand might struggle to hire these same people because of the perceived lower status/quality of the roles on offer. This creates a self-fulfilling effect where the smarter people do better work, so the large companies hire them for the interesting work, so more smart people want to work at these consulting firms…

Regardless of your opinions of whether consulting firms are valuable or a scam, I’d argue they are demonstrably able to attract and hire a very high density of smart people. In a way, large companies are then paying to rent this talent pool as needed, rather than trying to compete for them at the same scale in the market.

4. Communicating

I won’t spend much time on this other than to say that having a good idea is difficult. Convincing other people – especially executives and boards – that you have a good idea and a plan for implementing it is also difficult. For better or worse, consulting firms have had much more practice at this than almost anyone inside a large firm and are probably better placed to do this. Executives, knowing this, are often inclined to hire one of these firms to come in and help with a board presentation, or a pitch to the CEO for exactly this reason.

Conclusion

Consulting firms absolutely have some downsides, but I do believe in these strengths, and for some combination of these reasons, they are very reliably hired again and again to work on some of the most important projects at some of the largest companies in the world. In a sense, it’s not a fair competition – a lot of these benefits simply aren’t available to non-consultants. Regardless, this is the reality, and companies have learned to live with it, as evidenced by the ever growing staff and revenue of the top consulting firms. 

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(1) This is only partly true, since a lot of work is with repeat clients, but the point still stands as it is nothing like being an internal employee

(2) Note that fun here means perceived as relatively more fun than day-to-day operations