Thought Leader

The Forces That Launched Management Consulting Are Still at Work

After graduating from the law and business schools at Harvard, I joined a large corpo­rate law firm in Cleveland in June, 1930. As the Great Depression deep­ened, I became involved in the legal side of corporate bond defaults and worked with many bondholders’ com­mittees. The committees, which were made up largely of the investment bankers who had issued the bonds, were responsible for the financial re­structuring required by the defaults. They were qualified to develop the plan of financial reorganization, but I observed that they paid little atten­tion to the reasons for the default or the outlook for restoring earning power. There appeared to be a clear need for a firm that could examine the other aspects of a defaulting com­pany—its competitive position, strat­egy, volume and profit outlook, and management effectiveness-as knowl­edgeably, searchingly, and indepen­dently as our law firm examined the legal aspects of the reorganization. But I could find no such firm. Then, on a client trip to Chicago, I met James O. McKinsey, a Univer­sity of Chicago professor who had organize a “management engineering” firm to address such problems. His sense of need and opportunity grew out of his World War I experience as an officer in the Army Ordinance De­partment; he had seen corporations default on their war contracts because of poor managing. After Mac and I compared notes on the need for in­dependent managing advice, he sug­gested that I join his small firm. In 1933, after a few weeks of thought and a few interviews, I did. (We worked together until his death in 1937.) The decision to walk away from a fine start on a legal career, to which I had devoted five years of graduate education, was neither as difficult nor as foolhardy as it seemed to my col­leagues in our law firm. The need and opportunity for independent manag­ing advice appeared great because the forces at work appeared favorable. A veteran management consultant tells how he got started half a century ago. The economic and organizational forces that propelled the profession in the 1930s are still at work today and are being joined by a continuing parade of new forces. The Forces Do Their Work The forces that seemed favorable in 1933, when the field was virtually unknown—and looked down on when it was known-have since propelled management consult­ing into becoming a profession that today is serving the world’s leading corporations and governments. Million- dollar fees are being paid because business and government leaders find the service worth it. Among the pro­viders of professional management consulting services are not only countless small firms and individuals, but also firms much larger than the largest law firms. Some even have worldwide networks of offices. My current work with clients and discussions with prospective clients shows that precisely the same forces that were at work in 1933 are operat­ing today. And I believe that they will be operating tomorrow. So a back­ward look is also a forward look. However, the old forces have been joined by new ones. This confluence will stimulate a constantly increasing demand for professional management consulting services, provided that we maintain high standards of compe­tence and professionalism. What are the perennial forces at work and the new forces that have joined them? What can the consultant do to capitalize on both sets of forces? The true professional thinks deeply about the profession, and considera­tion of forces affecting it is grist for that mill. Actually, most of the forces are fairly obvious. It is whether and how the consultant capitalizes on them that determines whether he or she will be a better and busier consultant. Perennial Forces When a professional service is unknown, its value goes unrecognized. During the De­pression, however, the urge to “try anything” was strong, and for this and other reasons, companies did be­gin to employ consultants. Once a few companies had experienced the value of independent managing advice, the force of emulation took over. One company followed another in retain­ing consultants, and consultants of competence and high standards multi­plied. As companies of greater and greater stature became “users,” the field began to live down the opprob­rious term “business doctors.” Grad­ually the bandwagon effect helped executives surrender their prideful insistence, ‘We don’t need outside help.” Although pride still keeps some managements from retaining consul­tants, such managements are an en­dangered species, and quality of con­sulting work of perceived value is gradually making them extinct. What generated the bandwagon effect? I would say six forces. Competence. Executives found the service helpful. Fundamental to any personal service is knowledge of value to the client; in our profession, it was a knowledge of managing methods that was greater than the client could provide for itself. Often the value of that knowledge was enhanced by other factors, or even based on them. Skill in diagnosis. Consul­tants who dealt continually with dif­ferent and complex situations were better able to identify a real problem and determine its causes and solution. Analytical skill. As managers learned the value of fact-based deci­sion making, the consultant’s trained analytical skill gained value for gath­ering and interpreting facts. Creativity. One of the compe­tencies that experienced consultants had and managements often lacked was the ability to synthesize, which goes with analysis and leads to the de­velopment of innovative and creative solutions. Varied experience. Consultants brought knowledge that was new to the client: fresh viewpoints, up-to- date managing know-how, and skills honed in many client situations. Time for study. Consultants could devote their full time to important special problems that occurred infre­quently; for such studies, the client had neither the staff nor the re­sources to build a staff. Even the ad­vent of large and competent corporate staffs has not diminished the need for and the value of consultants, for consultants can usually outperform corporate people. Consultants have better training, superior leadership skills, a wider variety of experience, and higher motivation through greater advancement opportunities. Professionalism. As consultants adopted and adhered to professional standards, the power of other forces was compounded. Perhaps client ex­ecutives did not even recognize their growing trust and confidence in con­sultants, who put the client’s interests ahead of their own and did not “sell” unnecessary studies or needlessly ex­tend studies. As trust and confidence gradually replaced doubt and suspi­cion, executives sought additional help and were willing to recommend con­sultants to others. Independence. Although indepen­dence is an inherent part of professionalism, its importance as a band­wagon force is worth noting separately. Progressive and sophisticated execu­tives appreciated the great value of the consultant who told the truth as he saw it, even at the risk of termi­nating the relationship. They also re­alized that the recommendations they received from subordinates were typ­ically tempered, consciously or sub­consciously, by career prospects or other personal interests. Action on recommendations. Fi­nally, it was increasingly recognized that consultants could help clients get action on recommendations. They had experience in developing coordinated and actionable programs; they could get the attention of decision makers; and they had time to devote to the effort. These now well-known forces started the bandwagon rolling, and they are still propelling it. As the de­mand for independent managing ad­vice increased, more and higher-cali­ber consultants appeared on the scene. And as leaders flourished, charlatans vanished. Some of the perennial forces have developed a momentum of their own. Others will continue to operate only if they are nourished; that is, compe­tence must be maintained and ser­vices adjusted to newly emerging forces. Like all true professionals, however, progressive consultants rec­ognize these responsibilities and op­portunities and are willing to devote time, research, and diligence to meeting the challenges they pose. And since 1968, the Institute of Manage­ment Consultants has been actively helping the profession by certifying management consultants who meet professional standards and by pro­viding training assistance. New Forces Foreshadow the Future The continuing stream of new forces that is joining the perennial or basic forces is compounding the growth of the profession’ s opportunities, new and old, as well as the demands for and on consultants. Some of the new forces are already maturing but are still creating demand. For example, the com­puter revolution has multiplied the need for specialists to teach compa­nies when and how to use com­puters. The systems staffs of public accounting firms have prospered from assisting companies and government bodies with their EDP installations. The new needs and opportu­nities for consultants spring from any major external force or adver­sary that requires internal change. The cartel set up by the Organiza­tion of Petroleum Exporting Coun­tries is a good example; in fact, the market system’s tremendous re­sponse to that cartel produced an­other force that precipitated the need for internal change-the oil glut. Inflation, declining productiv­ity, and increasing competition in world markets are also examples of a powerful combination of continu­ing forces that creates new needs and opportunities for consultants. A fairly recent phenomenon is the upheaval in financial institu­tions. The long history of regulation in these institutions, combined with persistently high interest rates, is spurring the use of new instruments (e.g., money market funds), disin­termediation, and new competition, especially for banks and thrift insti­tutions. It is also leading to the for­mation of new types of financial in­stitutions through mergers of the older, traditional types. This dan­gerous and dynamic situation is cre­ating new and increasing needs and opportunities for independent managing assistance. Another new force—already of bandwagon proportions—is Japa­nese managing methods. A recent New York Times list of the 15 best­selling nonfiction works contained two books about adapting those methods to the management of U.S. companies. Management consul­tants will need to assess this force and help clients capitalize on it to the extent feasible, in a balanced and sensible manner. It is significant that the two best-sellers deal largely with methods already in use in some progressive American companies. Mergers, acquisitions, and take overs (both friendly and unfriendly) create new needs for consulting as­sistance, and independent consul­tants-having no emotional involve­ment-can help create an effective new organization by objectively fit­ting together the new partners. Self- dismantling of conglomerates, through sales of divisions and sepa­rate business units, also creates needs for independent managing assist­ance on both ends of these numerous transactions. As always, any major internal change in an organization creates problems that the manage­ment consultant can help solve. More subtle forces are also at work, creating new demands for consulting assistance from sophisti­cated managements. There is a growing recognition that short-term decisions have negative effects on the creation of long-term values and that planning demands assistance on revised incentives, executive com­pensation, manager rotation poli­cies, and other managing methods- all geared to the long view instead of to quarter-to-quarter earnings com­parisons. Any alert management consul­tant can easily add to this list of new forces that are currently increasing the demand for professional managing services. Capitalizing on the Forces The consulting needs and opportunities engendered by perennial and new forces are enormous. Because they are so large and varied, they are naturally creating substantial competition within the profession. So the indi­vidual consultant and consulting firm face strategic decisions in determin­ing how to capitalize on the oppor­tunities. Is specialization the best course? Does a broad range of ser­vices best serve the client and the firm? How can the firm, large or small, attract and motivate the per­son of the caliber and skills needed for its particular practice? Success in coping with these is­sues will depend, of course, on the conceptual and strategic ability of firm leaders or individual consultants and their ability to translate concepts into effective, efficient, and consistent action programs. A bril­liant concept has limited value un­less it is put into day-to-day operation. Moreover, the experience of the profession during the past 50 years shows clearly that, quite apart from the strategy chosen, two principles are so fundamental that they will strongly influence success. First, there must be competence in the services rendered, with competence defined increasingly by advanced, state-of-the-art techniques in what­ever type of service is rendered. Technological competence will, of course, be determined by the caliber of the consultant and his or her knowledge and leadership ability. However, competence in delivering the service will also be a factor— e.g., the consultant’s personable­ness and his or her interpersonal and persuasive skills. Only a few con­sultants can live by technological skill alone. Second, professionalism has become so well established in consult­ing that only consultants who main­tain professional standards can succeed. But those who maintain high professional standards-and build reputations for doing so-will capitalize more fully on the attrac­tive opportunities ahead and will grow faster than their colleagues. Obvious though these observa­tions may be, I feel confident that the future leaders of the profession will give the obvious the highest at­tention and make the greatest effort to translate it into day-by-day ac­tion. The surge in demand is sure to continue, but a substantial share in the opportunities must be earned through solid conceptual thought, dedication to competence and professionalism, hard work, and leadership….

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