Being just over halfway through my first year at Sloan, it’s hard to avoid the fact that recruiting is weighing heavily on the minds of the majority of the people I interact with on a daily basis. I’ve personally never been too attracted to the idea of working in management consulting, but for those who are grappling with consulting decisions, I found James Kwak’s posts on the topic to be extremely insightful. I’d say they provide a fairly balanced and honest perspective from someone who’s worked at McKinsey, but remains critical and objective.
For those who don’t know James Kwak, he’s a law student at Yale, and is an author, along with MIT Professor Simon Johnson, at The Baseline Scenario blog. I’ve included the majority of his two most relevant posts below.
Here’s his most recent post, Management Consulting Myths:
Two people forwarded me Johann Hari’s Huffington Post article about management consultants, provocatively titled “The Great Management Consultancy Scam — and How it Could Be Coming for Your Job.” It seems that someone is once again bashing management consultants as witch doctors and scam artists, and I, improbably, must come to their defense. “Improbably” because I am generally critical of management consulting, and I have spent many hours with former McKinsey colleagues talking about how little we knew back when we were consultants. I am frequently asked by other students whether they should become consultants, and my general answer is, in a nutshell, “It’s a lousy job, and not nearly as exciting as the recruiting pitch makes it out to be, but it’s a good thing for your resume if you actually want to be in the business world.” (If you know me and are actually considering becoming a consultant, feel free to call me.)
Hari’s article is largely based on books by former consultants, primarily David Craig’s “brave” memoir (written five years ago; David Craig is a pseudonym). Here’s a quote from Craig: “We were proud of the way we used to make things up as we went along. . . . It’s like robbing a bank but legal. We could take somebody straight off the street, teach them a few simple tricks in a couple of hours and easily charge them out to our clients for more than £7000 per week.” According to Craig (according to Hari), all of management consulting boils down to recommending that the client lay off thirty percent of its staff, after one week of observation and analysis.
Hari also cites Matthew Stewart, for whom (according to Hari) consulting was also all about firing people: “he was taking a fortune in payments, and firing thousands of productive people.” That is not really what Stewart is about, at least according to his own article, although I don’t agree with him either.
Here’s where I need to give my disclaimers. I was only a consultant for a little less than three years, from 1997 to 2000. I only worked at one firm, and only in two offices of that firm. So my experience may not be representative. But since McKinsey is widely considered the premier management consultancy, any criticism that doesn’t apply to McKinsey somewhat misses the mark.
I worked on nine client projects during my time in consulting, and only one and a half had anything to do with cost-cutting.* In both of those cases, a large proportion of the cost savings came not from firing people, but from dealing with various systems problems. (And in neither case did the recommendations come after one week.) The other projects were a combination of strategy, mergers and acquisitions, entering new markets, and implementing new processes.
Besides the supposed focus on cost-cutting, another part of the stock criticism repeated by Hari is that consultants take untrained people right out of school and bill them out for large amounts of money. This is true, but it misses the point. Yes, it may seem shocking that new consultants cost 7000 pounds per week. (That’s Craig’s figure—if I told you the McKinsey numbers, the Firm** might send someone to kill me and make it look like an accident.***) But they get it because those people, as part of McKinsey teams (I’m not going to speak for the competition), do work that most large corporations are simply incapable of doing internally.
The fact is that first-year McKinsey associates are very smart, very ambitious, very hard-working, and very insecure people. That insecurity is crucial, because it means they will metaphorically kill themselves before they will fail to do whatever they are asked to do, even if it is typing hundreds of numbers from printed reports into a spreadsheet and averaging them, or flipping through dozens of bound reports to make sure that none of the pages was photocopied incorrectly. Plugged into a consulting team, they provide leverage—the ability to get large amounts of moderately high quality work out of a team where only a few people—the more senior members—know what they are talking about.
Now, there should be a cheaper way to get the same results than hiring McKinsey to get them for you. But most companies, for whatever reason, are incapable of doing it internally. Any company only has a finite number of smart, ambitious, hard-working, insecure people. And—here’s the problem—they are already doing the most important jobs in the company. They are running business lines, or designing products, or selling products, or keeping important customers happy—all the things a company has to do to be successful. They can’t be spared to go work on some consulting project. I’ve seen internal consulting arms of Fortune 500 companies and, believe me, you are better off paying the premium and hiring McKinsey. My old software company had a higher proportion of overachievers than any other company I have ever seen, and there is no way we could have spared four good people to work full-time on some research project for four months.
So what’s the secret to the McKinsey model? There are a few, and they are interconnected. One is that, however they did it, they created an institution that is prestigious enough to skim off some of the top people produced by our educational system—which is, at its high end, probably the best in the world. Then, having secured those people, they figured out how to resell them to ordinary Fortune 500 companies—who can’t hire them out of college, because what twenty-two-year-old wants to work for Proctor & Gamble?—at a huge premium. Sure, the clients aren’t always happy. But they don’t really have a choice. Because every now and then, a big company has an important question, like whether or not to enter a new market, and it cannot find the people internally to answer the question (again, because the best ones are too important to take away from their day-to-day jobs). And the question is so important that it dwarfs the premium that McKinsey charges relative to other consulting firms.
Is this good? Hari talks about how “the better you treat a workforce, the better they work,” and I agree with that. But McKinsey is not going around telling companies to abuse their workers (at least not the large majority of the time), unless it’s changed drastically in the past decade. Maybe the other management consulting firms really are as bad as Craig and Stewart make them out to be; I have no idea. Big companies do need people to study important questions now and then, and for many of them management consultancies are the only way to find those people. They should always read the reports carefully, understand all the assumptions, and challenge the conclusions. But if they do that, management consultants are not a bad way to get the grunt work done.
There is a more intelligent criticism to be written about management consulting. And there is a better way for companies to use management consulting services. But those will have to wait for another blog post, or for my own memoir (which is somewhere in the backlog of books I’m planning to write but probably won’t get to). If Craig’s and Stewart’s books are anything like Hari makes them out to be, though, they’ve missed the point.
* One project had two parallel components, one of which involved cost-cutting.
** Yes, (some) people at McKinsey do refer to their company as “the Firm,” with a capital “F.”
*** That was a joke. But McKinsey is very serious about confidentiality, and I see no reason to betray its confidences.
And here’s another, older post titled Why Do Harvard Kids Head to Wall Street?:
When I graduated from college, I had no interest in investment banking or its close cousin, management consulting. But I went to McKinsey for reasons that were only slightly different than those of the typical Ivy League undergrad; after getting a Ph.D. in history, I discovered that I was unlikely to get a good academic job and was pretty much unqualified for anything else, and McKinsey was one of the few places that would hire me into a “good” job with no discernible qualifications (other than academic pedigree). Now that I’m at Yale Law School, where maybe 15% of students (my wild guess) come in wanting to be corporate lawyers but 75% end up at corporate law firms (first job after law school, not counting clerkships), I’m seeing it again.
The typical Harvard undergraduate is someone who: (a) is very good at school; (b) has been very successful by conventional standards for his entire life; (c) has little or no experience of the “real world” outside of school or school-like settings; (d) feels either the ambition or the duty to have a positive impact on the world (not well defined); and (e) is driven more by fear of not being a success than by a concrete desire to do anything in particular. (Yes, I know this is a stereotype; that’s why I said “typical.”) Their (our) decisions are motivated by two main decision rules: (1) close down as few options as possible; and (2) only do things that increase the possibility of future overachievement. Money is far down the list; at this point in their lives, if you asked them, many of these people would probably say that they only need to be middle or upper-middle class, and assume that they will be.
The recruiting processes of Wall Street firms (and consulting firms, and corporate law firms) exploit these (faulty) decision rules perfectly. The primary selling point of Goldman Sachs or McKinsey is that it leaves open the possibility of future greatness. The main pitch is, “Do this for two years, and afterward you can do anything (like be treasury secretary).” The idea is that you will get some kind of generic business training that equips you to do anything (this in a society that assumes the private sector can do no wrong and the public sector can do no right), and that you will get the resume credentials and connections you need to go on and do whatever you want. And to some extent it’s true, because these names look good on your resume, and very few potential future employers will wonder why you decided to go there. (Whether the training is good for much other than being a banker or a consultant is another question.)
The second selling point is that they make it easy. Yes, there is competition for jobs at these firms. But the process is easy. They come to campus and hold receptions with open bars. They tell you when and how to apply. They provide interview coaching. They have nice people who went to your school bond with you over the recruiting period. If you get an offer, they find out what your other options are and have partners call you to explain that those are great options, but Goldman/McKinsey is better, and you can do that other thing later, anyway. For people who don’t know how to get a job in the open economy, and who have ended each phase of their lives by taking the test to do the most prestigious thing possible in the next phase, all of this comes naturally. (Graduate schools, which also have well-defined recruiting processes, are the other big path to take.) The fact that most companies don’t want new college graduates makes it easier to go to one of the few that do.
The third selling point — not the top one, but it’s there — is the money. Or, more accurately, the lifestyle. The glossy brochures never say how much money you can make. But they make it clear that you will be part of the well-dressed, well-fed, jet-setting elite. When people walk into those offices, with fresh flowers and all-glass walls and free food and modern technology everywhere, they get seduced. Last summer one person wrote to my school’s email list about how wonderful his office was, with its view of Central Park. I mentioned this to an old friend who used to work at McKinsey, and he said, “he fell for the office.”