The Business of Management Consulting

Ever feel like your consultants are nothing more than "rent-a-body" consultants with "pre-packaged ideas"? That the only reason they are there is because your boss didn't believe you when you told him the exact same thing the consultants spent the last three months figuring out? You believe that their presence is an insult to your own credibility and swear that when you're in charge, you'll have none of that. Or better yet, get 4 or 5 consultants to submit ideas that you'll just pass on to your team to dissect, then implement and take the credit for. Because the very existence of consulting means that someone like you may be a retard, you frown on the business. Consultants, being only human, retaliate by giving away ideas meant for you to your competitors. Yes, it's tough to be a consultants' client these days. But it's even harder to be a consultant.

How does an industry with such a dire reputation survive? If you disagreed with the above sentiments, you are selfless and genuinely interested in the well-being of your business. And it is thanks to you that consulting survives. You rely on consultants to help you "sustain your competitive advantage" (as peers at the recent Consulting Summit at the flashy Barclay Intercontinental here in NYC proclaimed) by surveying the landscape to make sure you avoid costly mistakes while you run your business. You understand that if a dedicated outsider stirs things up internally, your business will never stagnate.

But most importantly, you appreciate your consultants because before you were even able to eat your breakfast this morning, you had to go through 4 newspapers, 10 voicemails, and 66 emails while watching CNN, and you're about one unscheduled office pop-in away from throwing your Blackberry out the window; in other words, it's an information economy, baby, and there's simply too much of it out there for you to catch and make sense of it all. So thank goodness you've got an army of consultants at your disposal to do that for you. And hey, if you miss something, it's not your fault.


The origins of consulting began when engineers started figuring out how to manage a factory operation more efficiently (in my opinion, to more effectively compete in the chaotic markets of the early industrial age). The monopolies borne in this era gradually gave birth to government regulation of commercial enterprises (i.e. Sherman Anti-trust Act, Securities Act). These early government regulations yielded what some academics believe to be the earliest incarnation of true management consultants, advising on something other than internal operations, but rather the way in which external forces impact the operation. The roles of bookkeepers and lawyers were quickly elevated (previously, lawyers dealt with crimes and politics, not business). But because they had no operational familiarity, these professionals often could not address the intangible failures of a business enterprise.

In the 1930s, business law, economics, and technological advancements gave way to a new science, the science of management, where understanding how to systematically address problems in business models was gaining prominence as the best way to avoid bankruptcies and protect loss of shareholder value (at the time shareholders being owners.) Management consulting was born when this new breed of consultant successfully and spectacularly proved that outside objective managers can operate a business much better than subjective owner-managers by evaluating all internal and external forces, both tangible and intangible, with methodologies and tools unavailable to owners.

These consultants proved that strategy formation never initiates by putting every known tactic into a bucket to then pull out different combinations. They further proved that strategy formation seldom started with known goals. Strategy formation is always started with exploring the opportunities, given resources, knowledge, (and later, relationships). During this exploration phase of the entire systematic analysis of management, goals and objectives emerge and develop. With goals in hand, a strategy consultant then seeks supporting evidence and perspectives, brainstorms and weighs the best alternatives, and is ultimately responsible for delivering an objective opinion, in the context of all known facts and history of the strategy formation process. Later, these type of strategy consultants would seek to implement their recommendations throughout the organization.

The Future

Today, 55% of the nation's economy is service-based; the U.S. currency's value is pegged to creditors' faith in our ability to repay our debts instead of collateral like gold; and consumer sentiment is a leading indicator of economic growth. Therefore, the most valuable asset of the economy is human capital, not the traditional commodity assets like factories, warehouses, or inventory. The most important consequence of this economic transformation has been the explosive volume of information and how it motivates, inspires, and shapes human behavior.

It's not enough to forecast sales; consultants should be able to predict how religious, political, educational, economic, cultural and lifestyle forces will affect clients' constituents' decision to spend their time and money with an organization - how their decisions impact an organization's financial performance. This evolution in commerce ("the information age") brings with it a need to deliver services to seekers of information.

As a result, the role of the consultant has changed. After 70 years, the professional leading the charge will no longer be professionals with broad depth in the knowledge of business challenges, but professional social scientists such as economists, anthropologists, and political scientists that combine their expertise with an understanding of business. And business leaders will seek the council of these social strategy consultants as they recognize that consumerism is replacing capitalism and operational capability is no longer a competitive advantage.

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