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Industry Issues

Management Consulting: Help Or Hazard?

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While no one has the real number, it has been estimated that management consulting has a global market of more than $50 billion. Consultants are drawn to money like bees to honey. So naturally, big rich companies are surrounded by all types of consulting firms, trying to collect as much as they can to feed their expensive teams. (It costs about $250,000 a month to have one of McKinsey’s consulting teams on site.)

An Army of Consultants. But No One to help.

I’ve seen many big brands in trouble. In fact, I wrote a book about them – Big Brands, Big Trouble: Lessons Learned The Hard Way (Wiley, 2001). Can you guess what common denominator bound them all? They were each surrounded by consultants who took their money but apparently offered no real help with the problems threatening to overwhelm them. From their performance with these big brands, one could accurately portray these folks as modern-day Robin Hoods: They rob from the rich and keep it.

Two Examples

A look at Levi’s and AT&T begins to prove my point. Levi’s spent $850 million on Andersen Consultants to reengineer the company to serve the customer better. All this did was create chaos that made things worse. The board of directors finally had to stop the nonsense. AT&T was reported to have spent over half a billion dollars on consultants between 1989 and 1994. To get a sense of how much money AT&T spent, consider the following numbers that were collected and reported in a wonderful book by James O’Shea and Charles Madigan (Penguin, 1998) on the subject of consultants entitled Dangerous Company: Management Consultants and the Businesses They Save and Ruin (a must read):

  • McKinsey & Co. collected $96,349,000 during that period of time.
  • Monitor, Michael Porter’s Harvard-connected consulting business, gathered a total of $127 million from 1991 to 1994, collecting $58,817,000 of that amount in 1993 alone.
  • Andersen Consulting collected $39,808,000 from AT&T in 1992 and $36,096,000 in 1993 ($87 million over four years).
  • Hundreds of smaller companies collected millions upon millions as AT&T jumped from philosophy to philosophy such as “business transformation,” “change management,” or “business process reengineering.”

So, what did AT&T get for all that money? It’s now apparent that they learned very little to keep them out of trouble.

It’s All a Mystery

Big consulting companies tend to create cultures that make them seem more like law firms than consulting businesses, with secrecy and “client privilege” being dominant themes. This has a legitimate purpose in that clients don’t want their secrets discussed. But it also provides a perfect excuse for not talking about anything that might be uncomfortable.

One of my favorite consulting pitches comes from Monitor, a guru-driven consulting company with Michael Porter (pictured above) of Harvard fame at the top. They readily admit that most consulting engagements fail because of excessive promises. This invokes the law of candor: “Admit a negative and the prospect will give you a positive.” the positive here is that they will “ engender action” while creating long-term relationships. (Translation: We love to get our hooks into you.)

Needless to say, $127 million of engendered action didn’t help AT&T very much.

The Hustling of Ideas

To make real money, a consultant has to have an idea to sell.

As the authors of Dangerous Company outline, the recipe for consulting success has four ingredients:

  1. Get an article in the Harvard Business Review.
  2. Pump it up into a book.
  3. Pray for a best-seller.
  4. Hustle the idea for all it’s worth.

Firms like McKinsey can avoid being attached to any particular trend, but the consultants-come–late need a unique concept to hustle. But these aren’t just ideas—they are called management tools. If you have any doubts about the size of this industry, just check out the following list of what could be called the “explosion of management tools”:

ABC, MBO, TQM, JIT, OVA, SVA, CPR, SPC, Kanban, Reengineering, Mass Customization, System Dynamics Workout, Concurrent Engineering, Zero-Based, Budgets, PIMS Analysis, Quality Circles, DCF, Portfolio Analysis, Experience Curves, Mission and Vision Statements, Cycle Time Reduction, Pay for Performance, Customer Satisfaction Measurment, Visioning, Core Competencies, Baldrige Award, Micro-Marketing, MRPI and MRPII, Technology S-Curves, Delphi Technique, Gap Analysis, ISO 9000, 7-Ss, 6-Sigma, 5-Forces, 4-Ps, 3-Cs, 2X2 Matrices, 1-Minute Managing, O-Defects, Empowerment, Strategic Alliances, Service Guarantees, Self-Directed, Service Guarantees, Self-Directed Teams, Strategic Planning, SOT, KSFs, Benchmarking, Life Cycle Analysis, Excellence, Scenario Planning, SPIRE, Kaizen, Learning Organizations, Environmental Scanning, Metagame Analysis, Horizontal Organizations, Value Chain Analysis, Nominal Group Technique, Conjoint Analysis, Competitive Gaming, Groupware, Psychographics and Loyalty Management.

Some “Robin Hood Research”

Bain & Co. oversees a force of more than 1,300 consultants from their deluxe offices in Boston’s Copley Place. They are so secretive they don’t carry business cards. And it has been reported that when discussing clients on airplanes they use code words instead of names.

In recent years they have been researching the use of these many tools. And in a Wall Street Journal (May 21, 2001) article they advised business executives not to “get hammered by management fads.” Most likely, it was a clever way to help companies sort out the good guys (theirs) from the bad guys (all the others). Bain felt that there was no objective data on whether increased tool usage was good or bad and which tools were producing results. Their point was that in the absence of data, groundless hype “makes choosing tools a dangerous game of choice” (absolutely).

When you consider that few people would acknowledge wasting hundreds of thousands of dollars on these efforts, I was startled to see that 81 percent of the 5,600 executives surveyed said that tools promised more than they delivered. (That’s a politically correct way of saying, “We blew a lot of money.”)

One problem with all these tools is that they are process driven. To use an automobile analogy, they are intended to get the corporate engine running more smoothly not to show how the car should be designed and promoted, which is what will spell success or failure. Another problem is that all of the company’s competitors have access to the same tools. Michael Porter has written that these process-oriented tools aren’t enough in today’s competitive market. He does indeed talk about the need for a unique position but he never offers much help on what it takes to be unique.

At about the same time his organization was sucking millions out of AT&T, Ma Bell was plopping $10 billion into the obviously terrible strategy of buying NCR and taking on IBM in the computer business. Where were Porter and his gang when help was desperately needed? He should have been in the CEO’s office pointing out what was a very bad strategy.

A good consultant has to search for what is right in the context of what a company can or cannot do. It has nothing to do with buzzwords or fancy processes. But there’s also an important lesson in all this.

LESSON: Good leaders know where they are going.

The three most popular tools in the Bain study were strategic planning, mission and vision statements, and benchmarking.

Benchmarking is a trap. The trick is to be different, not the same as your competitors.

Strategy, vision, and mission statements are dependent on the simple premise that you must know where you’re going. No one can follow you if you don’t know where you’re headed. Big companies are so encumbered with rules, traditions, and egos that top management is prone not to lead anyone anywhere. There aren’t too many Jack Welch types pointing out the direction and setting the pace.

Peter Drucker had it right when he wrote in The Effective Executive (Harper Business, 1993): “The foundation of effective leadership is thinking through the organization’s mission, defining it and establishing it, clearly and visibly. The leader sets the goals, sets the priorities, and sets and maintains the standards.”

He didn’t write, “First you hire some consultants to help you work out your vision and mission statements.”

Also, the best leaders know that direction alone is no longer enough. They don’t have an army of McKinsey types roaming the halls and undermining morale. They themselves are in the halls acting as cheerleaders, storytellers, and facilitators. They reinforce their sense of direction or vision with words or action.

I’ve told this story before, but it’s worth retelling in the context of this lesson.

There is no greater leader in the airline business than Herb Kelleher, the chairman of Southwest Airlines. He has become the king of the low-fare, short-haul airline business. Year after year this airline is on every list of the “most admired” and “most profitable” companies.

Anybody who knows Herb realizes that the airline’s personality is Herb’s personality. He is an amazing cheerleader who keeps those planes moving and morale high. He is indeed “walking behind them.” He also knows his people and his business. In a meeting with Herb, we were encouraging him to buy one of the East Coast shuttles up for sale. It would instantly make Southwest a big player in the East.

He thought a minute and said, “I sure would like their gates in New York, Washington, and Boston.” But what I don’t want is their airplanes, and more importantly their people.”

He sure was right. Cheerleading those East Coast shuttle people would have been impossible. And he didn’t need a consultant’s report to tell him that.

Indirect Damage

Management consultants can have a negative impact on a company even when they do a good job. One of the interesting stories in Dangerous Company was about Sears. They touted Arthur Martinez as an enlightened CEO who didn’t believe in the typical broad-brush strategy engagements. As the authors reported, Martinez was against the “Come help me figure out what I should do with this company” approach.

After the first round of internal cost-cutting was finished, Mr. Martinez looked at the money being spent with suppliers of the products being made for Sears. Obviously, it was a lot. How could they reduce their vendors’ costs `a la Walmart? So he hired the consulting company of A.T. Kearney to go in and push “best manufacturing practices” among their suppliers. These are code words that mean finding ways to encourage vendors to reduce their costs. Kearney would go through a supplier’s plant from top to bottom and come up with an assessment of how it could be improved to cut costs.

Nice idea with, sometimes, bad consequences.

The DieHard Saga

Kearney showed up at Johnson Controls Inc., a company that had been making DieHard Batteries for 25 years and made an assessment that Sears could save 20 percent in costs of batteries with improved manufacturing practices.

How could a CEO say “No” to that?

When asked to reduce their costs, Johnson Controls declined and lost the business to other suppliers. But then, a not-so-funny thing happened. The market began to notice that DieHard’s quality was dropping and they weren’t dying quite as hard. (Hey, when you squeeze costs 20 percent, something has to give.)

Losing a little quality might not be a big deal in most situations, but this is a big problem for Sears. DieHard is one of their premium brands with a premier reputation. This must be protected at all costs because it is brands like DieHard, Kenmore, Craftsman, and Weatherbeater paint that make the difference for Sears versus WalMart or Home Depot. It’s the only place to get these highly respected products. To squeeze out quality is to weaken these brands. To weaken them is to weaken Sears.

LESSON: Consultants are rarely candid about mistakes.

Even if consultants spot a bad strategy and have doubts about it, rarely will they run the risk of alienating their client who cooked it up. When their objective is to get into what they call a long-term relationship, they certainly don’t want to risk it by being brutally honest about a client mistake.  Millions are at stake, so consultants tend to leave their best tool out in the parking lot. It’s called “objectivity.”

If you look that word up in the dictionary, it means “without bias or prejudice: detached: impersonal.” As outsiders, the role of consultants is to cut through all the bias, personal agendas, and personalities that surround many tough decisions. They can’t be in a “protect their billings” mode because they then have a conflict of interest on their hands. They have introduced their own organization’s bias into their equation and hindered their ability to truly help a client by being honest and objective.  (This same principle also causes advertising agencies to be less than candid.)

Good consultants put down on paper what they think is right as they see it. They shouldn’t worry about reaction or whether a client will like this or dislike that. And they should avoid concerning themselves about the compromises that might be needed to make the recommendation acceptable. There probably isn’t an executive in the company who doesn’t know how to make compromises with little outside help. What they really need is some help on what “right” is. Then they will be able to make the appropriate compromise.

Now, let’s say you’ve come across a rare consultant who is indeed objective and even brutally honest. Are you out of the woods? Will the right advice be forthcoming? The next lesson says there’s a good chance it won’t be.

LESSON: Consultants rarely understand the mind of the customer.

The problem is one of training. Marketing battles take place in the mind of a customer or prospect. That’s where you win. That’s where you lose. It’s all about positioning your brand or company in the mind. It’s also about understanding the following six principles on how the mind works and the psychology behind people’s decisions:

1.    Minds can’t cope.

2.    Minds are limited.

3.    Minds hate confusion.

4.    Minds are insecure.

5.    Minds don’t change.

6.    Minds can lose focus.

Your bright MBA consultant has had little or no training on this subject. What he or she gets trained on is understanding and getting into the minds of the CEO and the board. It’s like going to war but not knowing how to shoot.

Michael Porter uses the word “positioning,” but he doesn’t know much about the process of differentiating a brand in the mind. Nor is he interested in learning. (I once was the speaker just ahead of him at a big management conference. He didn’t even come in to listen.) He sees what I do as “marketing” and what he does as “strategy.” Will someone please explain the difference? To me, marketing brings strategy to life in the mind of the prospect.

If Porter or his people understood the mind, they would have said to AT&T that people see them as a telephone, not a computer. And since minds don’t change, there is no chance of success whatever they do in the computer business. That advice could have saved their client a great deal of money (billions) and effort.

In my book Big Brands Big Trouble the troubles I describe were mostly caused by companies and their consultants not recognizing that perceptual problems were at the heart of their difficulties:

  • General Motors did not recognize they were causing customer confusion by pricing their cars alike and making them look alike.
  • Xerox tried to convince the minds in the marketplace that they could make computers. Any Xerox machine that couldn’t make a copy did not compute in the mind.
  • Digital Equipment failed to build perceptions in the marketplace that 64 –bit workstations were the “next thing.”
  • Levi Strauss did not exploit its pioneering position by making the competitors nothing but copies in the minds of their customers.
  • Crest did not evolve in the mind from “cavity prevention” to the perception of being “the pioneer in tooth care.”
  • Burger Kind did not hang the perception of “kiddieland” on McDonald’s and make “flame broiled” the essence of a grown-up burger.
  • Firestone, long-term, was not able to overcome a massive amount of negative publicity that built perceptions of their tires being unsafe.
  • Miller failed to understand that it can be only one thing in the mind, not nine things.

If that army of consultants had understood that strategy is a battle for the minds of their customers and prospects, they would easily have spotted the preceding problems, and those big companies could have avoided big trouble.

It reminds me of a wonderful little story about a consultant.

The Shepherd and the Consultant

A shepherd is herding his flock in a remote pasture when suddenly a brand-new Jeep Cherokee advances out of a dust cloud toward him. The driver, a young man in a Brioni suit, Gucci shoes, Ray-Ban sunglasses and a YSL tie leans out of the window and asks:

“If I can tell you exactly how many sheep you have in your flock, will you give me one?”

The shepherd looks at the yuppie, then at his peacefully grazing flock and calmly answers “sure.”

The yuppie parks the car, whips out his notebook, connects it to a cell-phone, surfs to a NASA page on the Internet where he calls up a GPS satellite navigation system, scans the area, opens up a database and some 60 Excel spreadsheets with complex formulas. Finally he prints out a 150-page report on his hi-tech miniaturized printer, turns around to the shepherd, and says:  “You have here exactly 1,586 sheep.”

“This is correct. As agreed you can take one of the sheep,” says the shepherd. He watches the young man make a selection and bundle it into his Cherokee. Then he says: “If I can tell you exactly what your business is, will you give me my sheep back?”

“Okay, why not” answers the young man.

“You are a consultant,” says the shepherd.

“That is correct,” says the yuppie. “How did you guess that?”

“Easy” answers the shepherd. “You turn up here although nobody called you. You want to be paid for the answer to a question I already knew the solution to. And you don’t know anything about my business because you took my dog.”

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