What Do You Get for $50 Billion?

According to a new book on the consulting business, a year's worth of advice — and more questions than answers.

It's human nature: even though something is bad for us, we won't automatically give it up. In fact, we usually do just the opposite. Take management consulting. For some time now, companies have been swallowing consultants' advice despite the warning on the package: results highly erratic and often disastrous. Consumption of consulting services has soared, with $25 billion in revenues in the United States and $50 billion worldwide. That's dangerous, say James O'Shea and Charles Madigan, authors of "Dangerous Company: The Consulting Powerhouses and the Businesses They Save and Ruin" (Times Business, 1997).

What's so scary about a bunch of MBAs with big salaries, bigger buzzwords, and patented slideshows peddling advice? The authors start with the obvious answer: cost. As a "typical consumer" of management consulting from 1989 to 1994, AT&T spent $500 million on consulting services and nearly $40 billion more on related acquisitions and on restructuring charges. The result? According to O'Shea and Madigan, "AT&T seems as confused today" as it did before it wrote those oversized checks.

But the real threat, they say, is not how much money consultants make but how they make it. The authors tell a series of "unbelievably true stories" — an account of McKinsey & Co.'s "sacred brotherhood," an "international thriller" starring Guinness and Bain & Co., and a chronicle of one conglomerate's fateful spree in the advice market — to expose the inner workings of this young but powerful industry.

O'Shea and Madigan are great raconteurs, weaving tales of spectacular success and failure. They create a rich tapestry of the relationships, motivations, and practices that drive management consulting today.

In the process they expose the central quandary of the industry: with so many variables at play in any one engagement, how do you identify what exactly contributes to success or failure (or even whether there is success or failure)? And that reveals the central flaw of the book — which often becomes muddled as it brings characters to life, delves into industry lore, chronicles trends, and seeks to present a coherent argument about what works and what doesn't. Yet in the end the authors manage to expose the dangers of the advice trade, and to provide useful guidelines for practicing safe consulting.

Danger #1 Consultants are money magnets.

Because consultancies are set up as partnerships, everything from their billing systems to their personnel development strategies works to feed the central treasury. Senior partners can claim fees as high as $1,300 an hour. What's more, consultancies reserve partners for pitching new business and send legions of fresh recruits — "money mills" — into the field to implement projects. These firms also excel at turning one project inside a company into a license to roam for new business. At one point in the late '80s, for example, one of Cleveland-based manufacturer Figgie International's divisions had 20 separate major undertakings in process. There were so many consultants in-house that the unit ran out of parking spaces.

Rule number one of any consulting engagement, the authors admonish, is to set a clear goal with clear terms — How much will it cost? How long will it take? What if it doesn't succeed? — and include them in the contract.

Danger #2 Consultants are salespeople — not saviors.

They will sell you whatever you want to buy. Consultants pitch their unique value and specialized services, but their practice is uniform: "Find something that works well, reproduce it, and sell it." For his invention of the "product portfolio matrix," used to manage conglomerates in the '80s, the authors name Boston Consulting Group (BCG) founder Bruce Henderson the original huckster.

The lesson is clear: these are products and services, not a substitute for management or vision. Sears CEO Arthur Martinez is a leader who understands that, at best, consultants offer support, service, and perspective. He says that the CEO who tells a consultant, "'Come help me figure out what I should do with this company,' ... is a little bit bankrupt."

Danger #3 Consultants thrive on mystery.

The consultants profiled in Dangerous Company spend so much time explaining abstract concepts that it's difficult to determine what they actually do. Deloitte & Touche charged tens of millions of dollars to turn Figgie into a "world class" manufacturing operation. Yet none of the consultants involved could even come up with a basic definition of that term.

The authors advice? Confront problems and confusion immediately. Find a trustworthy devil's advocate within your own company to monitor the progress of the consulting project.

Danger #4 Consultants wield influence far beyond the corporations that hire them.

The McKinsey "gold boys' network" is a case in point. McKinsey alums form a Who's Who of corporate America, including such leaders as IBM's Lou Gerstner, American Express's Harvey Golub, and Westinghouse's Michael Jordan. Consulting has recently burrowed deeply into such arenas as compensation, benefits, and personnel; it's moved into the public sector; and, most dismaying to the authors, consulting has seeped into the consumer arenas of ATM banking, car rentals, and grocery shopping.

"Nothing is too mundane" for consultants to touch, the authors say. That's a double-edged sword. Consulting firms like BCG are responsible for innovative efforts in such critical areas as health care services. At the same time, they have unleashed a host of financial and organizational strategies with no quantifiable impact.

When it comes to consultants, the book's advice for playing in "dangerous company" comes down to a homespun message: remember not to lose your head.

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