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McKinsey and Co

Tue, 19th Apr 2011

Big Consultancy is in the news at the moment, and not for the right reasons*. McKinsey’s former managing partner, Raj Gupta, is facing civil charges brought by the SEC in an insider trading case, while a colleague has already admitted culpability. Boston-based Monitor was embarrassingly found to have been burnishing the reputation of Gadaffi's Libya.

As observers have noted, consultancy was already in recession after the crisis – 10 per cent off from 2009, according to one estimate – and the new controversies can hardly help. Breaches of confidence go to the heart of the consultancy model: if a company doesn’t believe what it gets out is worth the risk of putting its secrets in, then a good part of the sales rationale collapses. For isolated CEOs who use their McKinsey partners as shrinks as much as business advisers the betrayal must seem particularly wounding.

Andrew Hill recently got some characteristically well-turned mileage  (and subsequent comment) in the FT out of the idea of consultancy as a virus.

But it seems to me that the real issue is not the way it spreads but what the virus carries.‘We don't have to look far fro clues. Your agenda is our agenda,’ PWC says helpfully on its website. ‘Let's work together to make sure your company is ready to take advantage of new opportunities to grow’.

Yes, and this of course is exactly the problem. Let’s see: you want growth via a bet-the-farm merger? Yep, no problem. Cost-cutting? Naurally, all part of the service. Envelope-stretching financial engineering? Just ask. Strategy to maximise shareholder value? A new pay structure to incentivise top performers? Of course – and would you like fries with that?

As London Business School's Julian Birkinshaw notes in an article on the MIX entitled ‘The Future of Management: Is it Déjà-Vu all over again?’, the reason the traditional model of management is so pervasive and hard to shift is that it is trussed in place by a spider’s web of sticky threads, including power structures and inertia at systems level (everyone agrees that bankers’ bonuses are out of hand, but it’s hard for one company to change it alone).

The consultancies are a powerful structural support for the web of status quo. No one got fired for hiring IBM – and no one got fired for hiring McKinsey or PWC either. Meanwhile PWC and McKinsey never got fired for playing back to their clients what they want. This is what Said Business School’s Chris McKenna was referring to when he gave his excellent book on the history of consultancy the title ‘The World’s Newest Profession’.

Because of this Big Consultancy will never sell you anything really new or different. It’ll sell you safe – stuff partners can point to and say, ‘See? IBM/GE does it. (By the way, fries come free.) ’ In sum, the large consultants are adept purveyors of what one blogging ex-consultant perspicaciously identifies as ‘leading-edge conventional wisdom’ – techniques that promise you'll be able to do what you’re already doing faster and bigger, but without changing anything fundamental underneath.

This is why big consultancies adore technology – and vastly overestimate its importance. Much technologt is devoted to doing the wrong thing righter. As Russ Ackoff unimprovably put it, ‘The righter we do the wrong thing, the wronger we become. When we make a mistake doing the wrong thing and correct it, we become wronger. When we make a mistake doing the right thing and correct it, we become righter. Therefore, it is better to do the right thing wrong than the wrong thing right.’

Today’s iconic example of the wrong thing consultancies are doing is the mass production of services. The ubiquitous front- and back-office service design, with its inevitable accompaniments of outsourcing/offshoring, shared services and central call centres for dealing with customers, is pure Fordism, with the assembly line replaced by computers. Despite the IT, such white-collar factories are just as obsolescent as Henry Ford’s auto plants, offering no incentives for system improvement and increasingly alienating customers. The Web 2.0 ‘solutions’ where the ‘leading-edge conventional wisdom’ now resides and to which (no coincidence) the big consultants are now  transferring their sales hopes, suffer from exactly the same drawbacks and are no more the ‘answer’ to performance issues than was Web 1.0.

In the same way, the major (mainly US-based) consultancies have played an important supporting role in the propagation of the shareholder-value management ideology of the last 30 years, together with the backing governance structures that were been found so wanting during the crisis. When in trouble, rather than question the model, they have diligently searched for ways to make it look as if it is working righter. Corporate social responsibility is one good example. In recent months consultant-architects of the old order have been coming up with articles in Harvard Business Review promising ‘How to Fix Capitalism’ (Michael Porter, Monitor) or ‘Capitalism for the Long Term’ (Dominic Barton, McKinsey). Note the terminology: these are fixes, attempts to salvage shareholder capitalism, not change it.

But it would be mad to expect anything different. Consultancies are big businesses, so why would they not reflect the attitudes and opinions of other big businesses, including greed and envy – particularly when it is in their self-interest as well as nature to do so? The major consultancies are chameleons at best, viruses at worst, and they have no reason to care much which, either. Before they hire in big name advisers, organisations in need of advice would do well to be careful what they wish for. They may not get fired for hiring them – but on the other hand, they will almost certainly get what they deserve.

*I'm talking about the major international organisations, not the smaller single-issue outfits one or two of which (in the interests of disclosure) I do some editing work for.

 


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