This month is my silver anniversary. I'm 25 years in the management consulting business. Let me borrow your watch and I'll tell you the time. Let me take you back to the summer of 1977 when, with an Eng Lit degree from Cambridge, I started working with Booz Allen & Hamilton in London. Booz had a fourth-floor garret office just off Old Bond Street. There were a couple of partners and six consultants, plus Janet the office manager and lots of secretaries.
Business was tough. Consulting was in a tailspin after the recession of 1974-75. Most of the time, Booz had only one big project going on in London: a review of UK energy policy, a strategy for British Leyland (don't ask), then a big thing for the Scottish Development Agency on Silicon Glen. The US corporate axe was always hovering over us. Booz had gone public in 1973, then seen its senior partners leave and its share price collapse. The junior partners took the firm private again and were rebuilding from a flimsy base. London staffing was down from 100 in 1972 to 15.
But I loved it. A year before, I had no idea what to do. My Eng Lit mates were all going into academia (the horror, the horror) or the media (bunch of Trots). I'd never heard of management consulting, or opened the FT.
Then I bumped into a summer job with Booz. The UK managing partner was a friend of my girlfriend's dad, and he was looking for cheap back-office research help. Within a week I was flying out to meet solo with the Irish Development Agency and the CEOs of the biggest businesses in Ireland, staying in five-star hotels and being chauffeured through airport security in a government limo. I was writing and presenting a report to the Japanese company Ajinomoto, and they were taking my advice on whether to set up a chemicals plant in Cork. I was 22, and I was hooked.
Consulting was very different in 1977. It was mainly experience-based: after 20 years in the steel industry, you advised steel companies. Few consultants had an MBA. The concept of inexperienced research analysts/assistants (RAs) hired straight out of Oxbridge for their raw analytic horsepower didn't exist - I wrote my own job spec in 1977 and became Booz Allen's first RA worldwide.
Strategy consulting was hardly known: BCG had just emerged in the US, McKinsey was still pooh-poohing it, Bain didn't exist in the UK. A bunch of us generalists at Booz started calling ourselves strategy consultants; in 1980, maybe 50 people in the UK would put themselves in that category, and we could name most of them.
Clients had never heard of shareholder value, segmentation or the capital asset pricing model. You could be a strategy star by showing them that their sales were declining if you adjusted for inflation, and dazzle them by asking: 'What are your competitors doing?' If you drew a 2x2 matrix, you were Einstein; a log-log price/ volume curve (good old BCG), you'd solved the Unified Theory.
A huge difference was the technology. With cap ex approval from the States, Booz London bought its first PC in 1980. Gareth, the managing partner, was against it (reasonably, given the hours I spent playing Space Invaders).
There was no internet or Datastream; research was grubby and laborious, in the coma-inducing environs of Companies House or the LBS library; and no Excel spreadsheets - we did them by hand, with pencil and rubber. Bill, a project manager, stayed up all night before one client board presentation, rubbing out cells and re-calculating the totals; when we presented, none of the cells added up and Bill fainted in front of the CEO. And no PowerPoint: Phil from Norwood used to draw up the charts by hand and glue them on to the master copy. We needed two weeks of project budget just for physical report production.
In 1977, I was earning pounds 5,000. New consultants were on pounds 13,000. In 2002 sterling (adjusting for earnings inflation over 25 years), that's pounds 30k and pounds 80k - great money for an Eng Lit grad. The partners were making pounds 50k to pounds 60k, about pounds 350k in today's money and more than most CEOs of The Times 100 companies. I'd hated the left-wing Marxist babble that was hegemonic in my time at Cambridge: 'King Lear as a dialectic of feudal versus bourgeois society.' Being a management consultant was the best revenge.
Let's contrast that with 2002. The industry has mushroomed. McKinsey has more than 6,000 staff worldwide, and 500 in London. Accounting firms have piled into consulting, and merged to create monster professional services firms. The biggest, PricewaterhouseCoopers, has 9,000 partners and 160,000 staff, and the highest travel spend of any business anywhere.
The biggest headcount growth has been in IT-related consulting, which blends into IT outsourcing: Accenture, EDS, Cap Gemini. Technology vendors have added huge services arms like IBM Global Services (second-biggest travel spend). A year ago, HP's Carly Fiorentina tried to buy PwC's IT services business (the deal fell through, luckily for HP shareholders).
And that's just the big fromages. Little chevres have been germinating all over, in new niches: e-commerce and web design, marketing and media, EVA, financial services. From one-man bands to firms with hundreds of staff. No ex-manager is now 'unemployed', he's 'doing some consulting' - when not tending his Tuscan olive trees (if he's saved some dosh), living out Charles Handy's portfolio lifestyle.
Consulting is now a huge part of the business landscape. Recruiting is a big, well-oiled machine, sucking in university graduates as researcher fodder and year-after-year being the largest sector employer of MBAs (apart from a year of dot.com delusion - in the consultancy world, B2C now stands for Back to Consulting). Strategy firms go for pure smarts with 'brains the size of planets' that they can mould and mature, rather than business experience. A strategy firm believes that a smart consultant can spend five days on an industry she knows nothing about and have as useful an understanding of it as someone who's worked in it for 10 years.
Yet everybody still loves to hate consultants. Nothing gets the outrage juices flowing like a story on the UK government squandering millions on consultants for the London Underground PFI, or on McKinsey being a key adviser to Enron. Middle managers: who else can they blame for a week of change management workshops, or for the latest reorganisation from functional lines into business units, reversing last year's reorganisation?
Shareholders: they're up in arms over conflicts of interest in accounting firms, whose audit clients buy bucket-loads of consulting. And a fair number of CEOs, very publicly: like Greg Dyke, Anita Roddick, Alan Sugar.
The best send-up of consulting is the Dilbert dog. I'll combine two punch-lines. The dog-consultant is presenting his Phase I report to his client, the pointy-haired boss. The dog says: 'The business is doomed! You're spending too much money on consulting!' The boss says: 'What can we do about it?' The dog says: 'We'll study that in Phase II.'
These are common views of consultants: self-serving, incompetent, faddish, spineless, uncreative, rubber-stampers of what management wanted to do anyway, over-paid. They take your watch and tell you the time.
So why is this such a growth industry? Is it a case of emperor's new clothes, or do consultants add real value?
Clients are looking for two things from consultants: expertise and leverage. These are related but different. In strategy consulting 20 years ago, the primary value was expertise and insight, with a strong analytic bias, and based on smart concepts and smart people rather than on experience.
New strategy concepts had a revolutionary impact on business, first in the US and then globally: BCG's growth/share matrix, experience/ scale curves, and segmentation; Porter's five forces and the value chain; shareholder value analysis. They underpinned Jack Welch's success over two decades at GE ('only stay in a business if you can be number one or two'), and the re-structuring of corporate America in the '80s. There were powerful new concepts in operational areas: total or 6-sigma quality, just-in-time inventory, KPIs, business process re-engineering (a bit over-sold). Consultants were instrumental in developing and disseminating these concepts, and they usually added a lot of value.
Of course, there was also a fair amount of bullshit. My pet hate was change management, particularly as practised by Gemini in the early '90s, which was beyond parody. While I was on the client side for a year, working as strategy director for a UK plc, my CEO foolishly commissioned a Gemini project. I spent an afternoon having them present a report to me by being walked around a conference room reading bits of toilet paper stuck up on brown paper round the walls. In revenge, I produced a chart showing how the start of a decline in corporate profits coincided exactly with Gemini's arrival.
Times have changed. These concepts are now mainstream. Every middle manager can talk a great game on market segmentation, time-based competition and barriers to entry (although the dot.com debacle suggests many could do with Profit & Loss 101). Most CEOs have been to Harvard and spent time at McKinsey, Bain or BCG. You can't dazzle anybody now with a 2x2 matrix.
And nothing new has come along with the same power and insight. E-commerce, with its paradigm shifts and disruptive business models, provided intellectuals with a brief flash- back to the '70s, till everyone realised this was just a new channel and a new technology and you could think about it in normal ways.
You can see this phenomenon in what seem like radical strategy choices today: BT deciding it can make more money by re-focusing on its home market; M&S moving to offshore, low-cost production, and bringing design values into its range. Con- sultants were heavily involved in both decisions; why did BT and M&S take so long to arrive at blindingly obvious conclusions?
So the focus of consulting value has shifted onto leverage. In the '80s, we strategy consultants made a big thing about this shift. We weren't 'seagull consultants', dropping something meaningful on the client's head and flying off into the sunset; we'd stay with you through implementation and help make things happen.
Leverage consulting probably accounts for 90% of the entire industry. The client expects basic expertise, and wouldn't say no to a bit of insight, but generally just wants help getting stuff done, better and/or faster and/or cheaper than if they did it all in-house. There are a zillion great ideas out there, the client has heard most of them and has a hundred issues on his plate; he wants execution.
Leverage consulting is the best description for most IT consulting and outsourcing, business process re-engineering, cost- reduction, metrics, and so on. It's not a full description of strategy consulting (including M&A and organisation work), where clients still look for a mix of leverage and fresh insight - but even there leverage is primary.
The big exception to this shift is the public sector, stuck in the obsolete mode of purchasing seagull consulting, demanding door-stop reports that get pored over for months in draft and then sit on the shelf. That's why so much of the bad consulting that gets chewed over in the press is for the public sector.
In general, the shift has been A Good Thing. Business consultants have become more pragmatic as clients have made them stick around until they have concrete results. But not a Universal Good Thing. Some clients have let consultants run wild in deciding strategy and getting involved in operations. But a business must have core strategy leadership and line management in-house, and consultants, being too project-focused, often make weak line managers. At the dot.com peak, big corporates were employing BCG or McKinsey to run e-commerce start-ups, with tortuous results.
And consulting budgets have become too big. Every consulting partner wants to sign up huge projects (lots of money, lots of time) so their revenue and staff utilisation are guaranteed for several months - then they can slide off and do something else. Clients need to keep consultants on a short leash, working on bite-sized pieces of work with quick deliverables.
The idea that consultants just rubber-stamp what management wants is naive. We get into strong arguments with clients, and tend to stick to our guns. Part of what makes a strategy successful is the degree to which the client buys into it and actually implements it. If you have to make compromises and accept organisational realities to get that level of commitment, that in itself is part of the correct strategy; you have to make a pragmatic call on where the boundaries are.
Another big change has occurred. Consultants still make great money: at the top strategy firms, pounds 35k to pounds 40k for an RA recruited straight out of Oxbridge, and up to pounds 100k for a fresh MBA in their late 20s. And the partners are making more in real terms than they did 25 years ago: pounds 1 million to pounds 2 million for a senior partner, pounds 350k for a new promotion.
(Outside the top strategy shops, the numbers are lower: only the managing partner in a Big Four accounting firm might hit a million, and the average consulting partner take is under pounds 250k.)
But CEOs and senior managers now make much more money, relative to consultants: UK CEO packages for The Times 100 are well into the pounds 1 million to pounds 2 million range and higher, and in the US the numbers can be tens or hundreds of millions of dollars.
Let's talk about the future of consulting. The current downturn is nasty, and with the emergence of WorldCom and Xerox (and Vivendi on this side of the pond), the Enron snowball has become an avalanche. EBITDA now means 'Earnings Before I Tricked the Dumb Auditors'. Stocks are at five-year lows. Deals have dried up. IT projects are a dim memory. Consulting partner bonuses are luncheon vouchers. Mama, can this really be the end?
No. Accountants may have to shed their consulting arms, and even the white-sock firms may be at 50% billability for a year. But I can't see the growth trend reversing. Spring 2004, they'll be back with their recruiting machines at Oxbridge and Harvard.
The En-Com saga has lots of contenders for Top Bad Guys: institutional investors and their stock analysts (my number one candidates); the CEOs and CFOs; the non-execs; the auditors (equal number one - it is amazing they could claim that the WorldCom scam was outside normal audit territory).
Consultants, I'm afraid, just don't make the Top Bad Guys list - even though we read that an Enron-advising McKinsey partner published a business guru book last year called Creative Destruction.
We need market solutions to market problems: auditors and compensation committees appointed and paid for by investors, not by management; stock analysts who actually do some analysis; long-term institutional investors willing to fund independent business appraisals.
We need tougher regulation on standards, transparency and conflicts of interest. Companies are already being forced to disentangle consulting relationships from fiduciary oversight functions such as audit and the compensation committee. Unilever recently served notice on PwC Consulting, citing conflict with PwC's auditor role. PwC's consulting business with Unilever was pounds 40 million in 2001, compared with half that in audit and tax work. No wonder PwC Consulting - to be expensively re-branded as Monday - is planning a spin-off and an IPO (don't invest; why would a consulting business need equity capital?).
And consulting needs to re-emphasize judgment and experience. The dot.com era was probably the apogee of bad judgment. Business plans churned out by 25-year-olds who'd never seen a recession or done a cost-reduction programme looked cosmic in VC presentations, but were just stupid if you did a grey-hair reality check.
How do i feel about spending 25 years borrowing other people's watches? Pretty good for a folically challenged individual in his late forties. I found a profession that fills my brain and fully engages me. It has let me work with an interesting, diverse bunch, both consultants and clients, many of whom became close friends. I've participated in some of the biggest economic and global trends, and been in the thick of some of the biggest business dramas.
And, contrary to the views of today's consultant-haters, it has been a decent place to be. Consultants may be fat cats, but most of those I know well are on the side of the angels: free markets, competition, ethical business practices, globalisation, equality of opportunity, social tolerance, productivity. Consulting is a meritocracy, and it doesn't care where you came from. But it isn't for everyone. If you want more money, go into investment banking; more status, authority or control (and maybe money), go into corporate line management or start up your own business. Several ex-consulting friends made these choices and are much happier.
My own sources of motivation and gratification shift as I get older. I still have core consulting clients, but my role is quasi-line management - I've worked with them for several years, and I'm effectively a part-time strategy director. And spend half my time as CFO and European chairman for a US software company, which is line management for real.
Oh, and I'm writing articles for MT. That's a serious career shift - and I can tell you, the hourly rate doesn't match consulting.
Segmentation, diversification, scenario planning, experience curve, star/cow matrix
He works for
McKinsey, Booz Allen & Hamilton, BCG, ADL
pounds 5,000 - graduate
pounds 50,000 - partner
The dawn of strategic consulting in the UK, and in the country of the blind, the one-eyed man is king. No PCs means handmade reports; research means hours in the library rather than minutes on the net.
Total quality, value chain, just-in-time, shareholder value, competitive analysis He works for
Bain, Monitor, OC&C, Marakon, LEK, Braxton
pounds 14,000 - graduate
pounds 120,000 - partner
The era of the corporate raider, red braces and huge 'mobile' phones.
Consultants grow fat on the proceeds of mega-mergers as Thatcher and Reagan's market forces span the globe.
Right-sizing, change management, globalisation, core competencies, EVA
He works for
PwC, Index, Stern Stewart, Gemini, Andersen/Accenture
pounds 28,000 - graduate
pounds 250,000 - partner
Recession and restructuring (read redundancies) is replaced by the dot.com boom as the decade closes. It's a 'paradigm shift', the rulebook goes out of the window and for a couple of years anyone over 25 is unemployable.
Virtuality, the internet, CRM, unbundling, creative accounting, corporate governance
He works for
Sapient, Scient, KPMG, PwC (Monday), McKinsey, Booz Allen & Hamilton, BCG, Bain
pounds 40,000 - graduate
pounds 400,000 plus - partner
The tech crash, and the survivors sprint back to the bottom line. Or beyond it, in the case of Enron and WorldCom. Over-imaginative auditors tarnish the image of all professional advisers, but consultants look secure.