Consulting — Has the Solution Become Part of the Problem?

Behold the growth of management consulting: industry revenues worldwide grew from $3 billion in 1980 to $22 billion in 1990.1 Expenditures on such services by U.S. companies grew from about $7 billion five years ago to almost $14 billion in 1991.2 It is the rare Fortune “500” company that does not use management consultants. In some companies, annual fees to the leading consulting firm are $10 million per year or more — in a few, significantly more.

Yet the following complaints are common:

Consultants are always hawking the latest fad, but when they leave we never seem to be much closer to achieving our goals.

Consultants tell whoever hired them what they want to hear, effectively becoming a rubber stamp for management decisions.

Consultants spend a huge amount of time gathering internal information and then tell us what we already know.

Consultants send senior people to negotiate but the work is actually done by a flock of junior people with little business experience.

Consultants never want to leave and constantly try to expand the length and scope of their work.

Consultants make recommendations that none of us understands well enough to execute with the required commitment and judgment.

Consultants make recommendations that only they can implement, leaving the rest of us disenfranchised and ultimately unprepared to manage without them.

These problems are not inherent in the client-consultant relationship; consultants can be powerful catalysts for productive change. But clients and consultants must make new choices throughout the process to ensure that the core tasks of managing stay with management —and are not subcontracted to outsiders.

We have identified four decisions that clients and consultants make, whether consciously or unconsciously, that are critical to how effective the work will be:

  • Focus versus Fad Surfing. In a bull market for panaceas, it’s easy for managers to seek preprogrammed answers and for consultants to profit from selling them. But the company that relies on fads will lose focus on higher-impact actions.
  • Accepting Responsibility versus Sidestepping Responsibility. Change requires decisions that are personally unpleasant for the client and therefore risky for the consultant. The consulting effort or new program therefore can too easily become a way to postpone or avoid making these tough decisions.
  • 80/20 versus All-or-Nothing. Managers feel safer with a complete analysis before they make any changes, and consultants certainly benefit from comprehensive approaches. But an all-or-nothing effort often doesn’t move fast enough to make a difference.<

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References

1. “Solution-Pedlars Lose Their Charm,” The Economist, 9 February 1991 p.

2. J.A. Byrne, “Management’s New Gurus,” Business Week, 31 August 1992, pp. 44–52.

3. For a longer discussion, see R.G. Eccles and N. Nohria, Beyond the Hype (Boston: Harvard Business School Press, 1992), ch. 1.

4. P. Hemp, “Preaching the Gospel,” Boston Globe, 30 June 1992, pp. 35, 39.

5. According to one Wallace manager, one of Wallace’s problems was that while the company improved its on-time delivery dramatically (from 75 percent in 1987 to 92 percent in 1990), a benefit customers sought, it also increased its overhead by $2 million over the same period, leading to price increases that customers did not see as a sufficiently good deal. See:

“The Ecstasy and the Agony,” Business Week, 21 October 1991, p. 40.

6. The precipitating event for Florida Power & Light came in February 1990, when state regulators in Florida refused to reimburse the company for the $400,000 in direct costs and $885,000 in fees paid to its Japanese consultants. A good picture of what went wrong is contained in the letters to employees sent by the new CEO and chairman, James L. Broadhead. These can be found in:

“The Post-Deming Diet: Dismantling a Quality Bureaucracy,” Training, February 1991, pp. 41–43.

7. Both the A.D. Little and A.T. Kearney studies are cited in:

“The Cracks in Quality,” The Economist, 18 April 1992, pp. 67–68.

8. G. Fuchsberg, “Management: Total Quality Is Termed Only Partial Success,” Wall Street Journal, 1 October 1992; and

The International Quality Study: Best Practices Report (Cleveland, Ohio: Ernst & Young and the American Quality Foundation, 1992).

9. These seemingly easy questions can be difficult to answer because of the way corporate truths can keep poor strategies in place. See: E.C. Shapiro, How Corporate Truths Become Competitive Traps (New York: John Wiley & Sons, 1991), chs. 4–6.

10. L. Harper, “Hazardous Cuts: Travel Agency Learns Service Firms Peril in Slimming Down,” Wall Street Journal, 20 March 1992, pp. A1, A9.

11. See Shapiro (1991), ch. 3; and

T. Gilovich, How What We Know Isn’t So (New York: Free Press, 1991).

12. In some professions, such as debt rating, accepting responsibility for being tough is an explicit part of the bargain. But the risk of losing customers is lessened for debt-rating agencies like Standard & Poor’s and Moody’s because the consumers (in this case, investors) have sufficient power over the customers (in this case, issuers) to insist on accurate ratings, regardless of what the issuers would like to hear. There is no analog to this for consulting.

13. Reported in J.E. Russo and P.J.H. Schoemaker, Decision Traps (New York: Doubleday/Currency, 1989), pp. 29, 235.

14. See Shapiro (1991), ch. 1.