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Why We Love to Hate Consultants

August 15, 2013
Why We Love to Hate Consultants

An interview with Dan McGinn, HBR senior editor.

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SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. I’m talking today with HBR Senior Editor Dan McGinn, author of the Synthesis essay in our September issue. The topic this month is “Inside Consulting’s Black Box.”

Dan, thanks so much for joining us today.

DAN MCGINN: Thanks, Sarah.

SARAH GREEN: So Dan, in the essay, which is sort of a review of books and a TV show, why do you call consulting a black box?

DAN MCGINN: I think we all know a bit about consulting. We know the names of the big firms, maybe we know a few people who are in consulting, but when it comes to the actual work that they do, the day to day work, I don’t think we understand it as well as we do, say, accounting or law. And I think there’s a few reasons for that. I think it’s a very secretive business. Consultants generally are forbidden from talking about who their clients are or what they’re doing. The clients don’t really want to advertise the fact that they’re relying on outside help, and when projects go wrong, nobody wants to admit that they paid and took bad advice. So it’s a secret industry compared with a lot of other industries.

SARAH GREEN: So does one of the TV shows that you review in the piece, Showtime’s House of Lies, does that show actually shed any light on the subject?

DAN MCGINN: Well, the show is based on a 2005 memoir by a guy named Martin Kihn who worked for a few years at Booz Allen, one of the big consulting firms. And the book actually sheds a lot of light on the industry. He was a former TV writer, and it’s really funny and entertaining. And he really does describe what it’s like to live the life where you wake up at the crack of dawn on Monday, your suitcase is all ready, and you fly into some company you know nothing about and work really hard to try to figure out something smart to tell these people. The book is really worthwhile.

The TV show in the first few episodes, you can see they really did have an interest in trying to convey what consultants do. In the pilot, there are great scenes where the main character, Don Cheadle, can stop the action and look into the camera and tell you a little bit about how consultants deal with this situation. After the first few episodes though, they sort of got rid of that– it just probably wasn’t working– and it’s become much more of sort of a racy workplace show where the consulting is much more of an afterthought. The third season of it starts next year and the consulting is really a minor bit of it this day.

SARAH GREEN: So the book that you talk about in the piece, The Firm by Duff McDonald, does that give any better sense of what consultants actually do?

DAN MCGINN: It’s a much different kind of book. The Firm by Duff McDonald is a really comprehensive history of McKinsey, which is probably the best known and certainly the most elite of the big consulting firms. It starts in the 1920’s when McKinsey was founded by a University of Chicago accounting professor, and you get a good lesson in how the firm has evolved, how it tends to recruit a certain kind of very smart, very polished person usually from an elite undergraduate school, and it’s really become this finishing school for people to go on to big corporate careers. Sheryl Sandberg is a former McKinsey consultant to name one.

The thing that I got the most out of this book is McKinsey is sort of a strange place. It’s a partnership and it’s very democratic. They literally vote on who’s going to be the managing director of the firm. You’re only in the job for three years, yet the person in that job really affects what the firm does over the years, so the corporate culture really is unusual compared with an ordinary company that we’re familiar with.

SARAH GREEN: And that’s interesting too, because I know anecdotally that a lot of McKinseyites really still identify with the firm even after they leave and that seems to actually be something that other firms have tried to emulate.

DAN MCGINN: You’re right. McKinsey has a really well organized alumni network much like a college alumni network, and it was one of the first firms to really do that. And it’s a place that people– they know that it’s good for them when talented people leave and go into corporate America because those people will often become McKinsey clients. So we’re all in a world where people network these days, but McKinsey for decades has had its own really robust form of networking and it’s one that’s really helped drive the business.

SARAH GREEN: I think that we’d be remiss if we didn’t mention here talking about McKinsey the recent scandal with Rajat Gupta because that seemed to be covered somewhat in the press, yet even at a time when the Occupy Movement was front and center and so many people in the investment banking community and other big companies– big, successful, remunerative companies– were getting a lot of public flak, that Raj Gupta scandal didn’t really seem to occupy the public’s attention or imagination in any way. Why do you think that is? Why did we just sort of gloss over that one?

DAN MCGINN: Right. Well so, the basics of the Gupta scandal– the former managing director at McKinsey, Rajat Gupta, was a director at Goldman and at Procter and Gamble and was convicted of passing inside information to a big investor who was a friend of his, and he’s actually been sentenced to prison for it. It certainly was well covered in the press. It’s well covered in this book. But you’re right, the public didn’t seem to get that outraged about it and McKinsey’s business didn’t seem to get hurt that badly by it, and I think there are two reasons for that. The public didn’t seem to care much because real people tend not to be hurt very directly by insider trading. This wasn’t the subprime mortgage meltdown. This wasn’t the failure of a big bank. Nobody really lost their job over this, no one lost their house, so the actual damage of it was fairly narrow.

In terms of McKinsey, I’m a little surprised that they didn’t seem to suffer more fallout from it, but I think the important thing is that Gupta’s leaking did not take place as a result of any consulting directly. This was in his duties as a board member. I think he was sort of semi-retired by the time the scandal happened. And I guess clients just decided that McKinsey is so valuable to them that this wasn’t relevant.

SARAH GREEN: Well and that raises an interesting question, because I think– we’ve sort of been talking today about consulting as a black box, and yet it is a very valuable box as you point out in the piece. McKinsey, Bain, and BCG billed a combined $10 billion just last year, so clearly they’ve got to be adding some kind of value even if we’re not really sure what it is, right?

DAN MCGINN: Right. Clearly each of the firm’s every so often comes up with some sort of a breakthrough idea that really can transform the way a particular industry or even a wide set of industries works. And even when they’re not coming up with these gigantic, game changing insights, they do have armies of people that they can deploy to sort of attack numbers and to bring in outside perspective that a company itself probably can’t see. So they do seem to offer a lot of value to companies in their ability to dive through data, make sense of it, and come up with ways to make a business better.

SARAH GREEN: Now is that at risk of going away with the rise of big data and increasing ability of companies to sort of crunch their own numbers with the right databases and the right software?

DAN MCGINN: Absolutely. Towards the end of the Duff McDonald book, he talks a bit about the fact that companies seem to be relying a little bit less on the so-called strategy consultants to actually do strategy than they did, say, 20 years ago. A lot of the work that these firms do does seem much more numbers based and data driven and analytic. And you’re right, companies themselves are starting to become smarter about this themselves. So one of the competitive challenges for this business is what’s their next trick as their clients become a little bit more adept at doing their old trick themselves.

SARAH GREEN: So one of, I think, the interesting challenges or issues with consulting is that depending on where you sit, you either think it sounds kind of glamorous and exciting– a high paying job with lot to travel– or you think it sounds kind of like guys who push paper around and fire people and reorganize businesses. So did you get a sense from the books you looked at, were they skewing more on one side of that debate or the other?

DAN MCGINN: Well, I looked at a few books beyond the ones that I wrote about in the essay directly. I think you’re right that you can look at this in two ways. There’s an old line about consultants that they steal your watch to tell you what time it is, that there’s sort of an emperor has no clothes element to it. And in some of the books, there are anecdotes that support that. In the book House of Lies, really what the consultants do is they sit in one cubicle poring over numbers and then they ask the actual employee of the company in the next cubicle, what do these things mean? And he’s really the one who’s helping them figure this stuff out. So you can definitely come away from these a bit cynical about what it is these people do.

On the other hand, if you’re 22 years old coming out of school, you don’t really know what you want to do for the rest of your life, signing on with one of these firms it’s clear that you’re going to learn a whole lot, you’re going to be exposed to a lot of different kinds of businesses and a lot of different kinds of problems very quickly, you’re going to be surrounded by other really smart people. So in terms of a career choice for the short term, I can understand why it is so glamorous and so sought after at business schools.

SARAH GREEN: Well and one of the things that you mentioned in the piece that I found really interesting was that I think 16% of Harvard seniors this year are going into consulting jobs. But when they were asked by the Harvard Crimson how many of them wanted to keep doing that in 10 years on, only 1% said they wanted to be 32-year-old consultants. Why do you think it does drop off so quickly, and yet why is it so compelling when you’re younger?

DAN MCGINN: Well I think there’s two things at work here. So more than most companies and even, I think, more than law firms these days, the McKinseys of the world really do have that kind of talent funnel where they bring a lot of people in but they advance only a few. So it’s very common for people to spend two or three years at these firms and then decide to go off and do something else. So that’s part of it. And I think that it seems to me that millennials in particular do think about work-life issues at probably an earlier stage of life than my generation did, so they probably realize even a 22 that when they’re 32, the idea of getting on an airplane every Monday for a different city and doing that every week might not be the way they want to live.

SARAH GREEN: And just to wrap up– in the magazine, we have a policy of not reviewing our own books. But a few years ago, we did publish a book about the history of strategy consulting by Walter Kiechel called The Lords of Strategy, and he actually took a pretty positive view of the industry. And his view was basically that despite their flaws, these big firms have really contributed to the big ideas, the sort of intellectual firmament that shapes business today. And that is something that I think the sort of naive optimist in me hopes that they will continue to do even as there’s sort of maybe less appetite for those big strategy ideas. Do you think that is something that they will continue to do, or having read these books are you kind of like, nah?

DAN MCGINN: I love the Kiechel book. And I think you’re right. Kiechel’s book does a fantastic job of capturing the wave of ideas that these firms and some other people at some of the big business schools have brought to us over the past 40 or 50 years. There’s a reason why if you open any month’s issue of Harvard Business Review, there’s probably at least one or two articles by consultants. That’s because they’re really smart people who are exposed to a lot of different businesses, solve problems, see patterns, and come up with breakthrough insights. So the market for their services may be changing, but I agree with you that now and in the future, a lot of the big ideas in business are going to come out of firms like this.

SARAH GREEN: Well, Dan, thanks so much for talking with us today.

DAN MCGINN: Thank you.

SARAH GREEN: That was HBR Senior Editor, Dan McGinn. For more including his review of House of Lies and The Firm, see HBR.org.