Thought Leader

The Anatomy of Ideas Behind a Successful Consulting Firm

by Homer J. Hagedorn Bruce Henderson, widely acknowledged for his original ideas about management consulting, shares some of them in this article based on an exhaustive interview. He is still formulating fresh ways to look at his profession. The Making of a Master Consultant Bruce Henderson founded the Boston Consulting Group (BCG) in the mid-1960s and led the firm through years of major growth and impact until he gave up the role of CEO 1980. BCG’s efforts have changed the face of management consulting through its contributions to the field of business strategy and through the several other firms it has spawned (Bain, Braxton, and Strategic Planning Associates being well-known examples). In the opinion of the editors of the Journal of Management Consulting, Bruce Henderson’s high accomplishments in management consulting in the last 20 years put him among the leaders of our profession.Ninety days before he was due to get the M.B.A. at Harvard in 1941, Henderson started work at Westinghouse Electric, having accepted a job that was conditional on his reporting for work immediately, as the company geared up for the war effort.He started in purchasing as an assistant buyer, and after two months was transferred to the Small Motors Division, in time to take charge of a massive wartime expansion in purchasing.Later in the war, he was transferred to the Meter and Instrument Division. After serving several years as general manager of Purchasing and Traffic for the corporation, he became, at age 37, the youngest Westinghouse vice president since 1903. He had worked in three divisions of the company and had been on the management committees of two of them. He now joined the management committee of the corporation. His first major line responsibility was to head the Westinghouse Transformer Division in 1955, an operation he already knew well from an earlier assignment and which he reorganized within the first three months of his tenure. Later he was put in charge of Westinghouse’s fledgeling semiconductor applications. Continuing to be promoted, he was also given the management of a newly acquired residential heating company, which was to be merged into an ongoing activity. Although he ultimately turned the heating business around, it required several years of turmoil to do so. The effect on his career was, he knew, negative.He left Westinghouse to join the firm of Arthur D. Little, Inc., in Cambridge, Massachusetts. In his new job, Henderson became responsible for about 200 professionals in management services and also functioned as a senior professional staff member.He remained at this post until 1963, developing a reputation as a talented professional on the basis of a series of successful cases. He had believed himself unsuitable for consulting (“too direct, too opinionated, too impatient”). Challenged on that statement later, however, he said, “I know I changed the futures of my personal clients at Arthur D. Little as well as the first five clients at BCG, and I changed them forever.” What he claims to have done was to look for system dynamics and then figure out how to use them better or how to change them. Since, despite his accomplishments, Henderson eventually, in his own view, lost the confidence of his professional staff, it is understandable why he looks on his experience at Arthur D. Little, Inc., as both alluring and hazardous. (“It was like taking a girl on a moonlight walk through a minefield you didn’t know was there.”) He had brought growth to the Management Services Division, but he believes that in the process he was perceived as violating the shared values and assumptions of the professional staff. He left Arthur D. Little to join the Boston Safe Deposit and Trust Company in 1963, at the age of 48.Henderson and the bank agreed that he should set up a management consulting service, intended to complement some of the bank’s financial services. Boston Safe, which became The Boston Company, served mainly as a trustee for wealthy individuals.Henderson’s consulting venture was actually quite foreign to the bank and, in some respects, he believes, was incompatible with the bank’s activities. For nearly five years, the consulting venture struggled for survival as a small division of the bank. In 1968, however, the consulting venture, renamed The Boston Consulting Group, became an independent but wholly-owned subsidiary of the Boston Company. BCG began to take off in the same year, and in 1975 was able to become truly independent by buying back its shares. The price was a down payment, in cash, of BCG’s net worth plus about $2 million in notes. In 1980 these notes were paid off, five years ahead of schedule, and BCG became totally owned by its employees, in proportion to their past-accumulated compensation, without cost to them. Henderson turned the leadership of the company of approximately 300 individuals over to others in that year, though he will remain chairman of the board until 1985. To other management consult­ants, the most significant as­pects of Bruce Henderson’s career are his consulting methods and his accomplishments during the two decades just past. The varied experience, the unusual opportuni­ties, and the intensity of the chal­lenges Henderson had encountered, as sketched in the accompanying vi­gnette, constituted an unusually rel­evant preparation for consulting. This article aims to represent Hen­derson’s own thinking. In the inter­view on which this article is based, the author asked him to share some of his -reflections on management consulting, how consulting works, and what purposes management consulting serves. Although the au­thor’s own interpretive bias may dis­tort Henderson’s message at some points, the intention is reportorial: to provide the clearest possible re­statement of Henderson’s own re­flections on his own experience, in­deed, using Henderson’s own words wherever interview notes permit ac­curate quotation. One preliminary issue is the im­portance in Henderson’s practice of the work the Boston Consulting Group (BCG) did in experience curves, cash cows, and other mani­festations of fantastic geometry that have captured the imagination of BCG’s clients, BCG’s competition, business scholars, and business journalists. Henderson acknowledges that the approach to business strategy through the experience curve provided a halo for BCG: tremendous client interest and the enhanced visibility and good publicity that goes with it has surrounded BCG’s strategic taxonomy. His basic point, however, has to do with ideas, and with the development and use of ideas in the practice and development of management consulting, not with a particular strategic approach.Consulting is an engrossing subject to Henderson, and the remainder of this article is about three aspects of the subject that particu­larly interest him: (1) The consulting transaction itself is a fascinating puzzle. How does a consultant con­tribute? What does a consultant con­tribute? (2) Consulting as a social phenomenon is interesting because it has begun to acquire the property of time compression. Once it be­comes possible to make predictions that are more accurate than chance, the evolutionary process (learning from failure) starts to accelerate. Consultants can, in Henderson’s view, do much more than they have so far to bring about this kind of time compression and to enable so­ciety to profit from it. (3) The con­sulting business is fascinatingly dif­ferent from any other business. People are the principal resource employed; so the essence of consult­ing operations is instability. In most other productive businesses, by con­trast, the object is to maximize a value that arises by properly manip­ulating a relatively fixed productive resource (with, therefore, a sense that core operations are fixed and in­variant). The manufacturing indus­try is the obvious example. A fac­tory can change, but only slowly and at great cost; to “manage” is to set up routines in response to relatively constant conditions. The instability and variability inherent in managing professional people makes the management of professional service or­ganizations an essentially different art from factory management. Consultants Have Subtle Powers to Engender Change How is it that a management consultant can make any contribution at all? Would- be consultants have much the same upbringing and life experiences as their clients. They and their clients are educated at the same schools and colleges. It may be impossible (and it is certainly risky) for consultants to try to demonstrate that they are smarter than their clients. Further­more, consultants hardly ever learn a client’s turf as well as the client knows it, and already knew it before the consultant arrived. Yet consult­ants can make a difference, in Hen­derson’s opinion. Though he ques­tions his own temperamental right to be a consultant, Henderson says he knows he changed the futures of his first five clients forever, and he knows he brought about those changes himself. Insight, persua­siveness, and the consultant’s right and obligation to use the freedom he has are the keys that Henderson uses. Underneath the concepts in terms of which the consultant ex­presses his findings, there must be insight into the “system” that the business in fact constitutes, the dy­namics that maintain that system, and the constructive changes that would be consistent with the sys­tem’s real requirements. Insights of value are not readily available to the client separately, be­cause clients looking for clues to sys­tem dynamics are partially blinded by their own organizational impera­tives, the workings of their culture, and the internal politics generated by differences in interest. Consult­ants can come by insights of value more readily, because they are beyond these imperatives, provided they seek the big picture. (“Give me peo­ple to work with who give me the big picture,” says Henderson. “Spare me from people who call themselves consultants and only give me information.”) Consultants do best of all when they can collaborate with one another. (“People working by them­selves are inefficient information processors. Consultants working to­gether polish each other’s ideas. Furthermore, there are politics on both sides, and the way the consult­ing team surpasses its own politics is partly responsible for the quality of the insights it achieves.”) The consultant has to be able to see and use the client’s system bet­ter than the people who are a part of that system. What is in equilibrium? What streams of information or con­trol feedback on themselves? (“Not facts but loops are to be studied.”) What weightings are to be assigned? What time lags are significant to how the system works? What im­ages or figures of speech do clients use? Imagery as expressed by clients, says Henderson, portrays the de­tails that instinct or organizational culture allows to be noticed, as well as many other forces and relation­ships simply not noticed by the peo­ple who live and work in the system. Imagery insightfully interpreted, therefore, portrays something of the real dynamics of the system. (A typ­ical one for Henderson, for example: “Taking a girl for a walk through a minefield you didn’t know was there.”) Distilling the Essence of Interaction Answers to the questions asked in the preceding paragraph bring to the surface the outlines of the “system dynamic,” in particular those very important as­pects that help to characterize the interaction of the system and its en­vironment. Henderson admires the thinking of Harvard biologist E. O. Wilson, the advocate and theorist of sociobiology.” The system Hender­son focuses on is sharply constrained by the activities of other nearby sys­tems, by its own historical anteced­ents, and by the workings of the culture that has arisen out of the face-to-face interactions among the people in the system. One senses that Henderson’s aim is to describe client systems as being the results of unique combinations of influences; to look for that which specifically char­acterizes a particular client organi­zation’s behaviour before concerning himself with the organization’s more typical features. So, as a consultant, he starts with the system and its dy­namics rather than with assess­ments from functional perspectives, comparisons to industry standards, or specific data-gathering require­ments. He wants to call attention to the practices, attitudes, and rela­tionships that, in fact, underlie the way a client firm does its day-to-day work but that are either disre­garded, taken for granted, or ac­cepted as inevitable by the client’s people. “The effective consultant is reconciled to the fact that clients cannot say what’s going on in their system.” Two additional steps are neces­sary to develop added insight into client system dynamics. Once the outlines of the system have been dis­cerned, a basis is available for de­scribing its overall rationale as a set of logically related propositions. At that point, it becomes a matter of pure logic to identify any “bugs” in the system, or at least to describe rationally the flaws or conditions that cause the deficiency sensed to be a problem in the first place. The second step is to zero in on possible solutions or approaches that will be acceptable in the culture and will support improved functioning of the system. Insights Need Selling Persuasiveness is the second fundamental requirement for the consultant, who must not only have insight but also must know how to gain acceptance for it. Persuasiveness depends on rapport. Rapport, in turn, is founded on a va­riety of consultant-initiated activi­ties and can, therefore, be within the consultant’s control. Consultant rapport can be aided by the fact that consultants are a class of businesspeople motivated to seek client ap­proval and governed by the need for client approval far more than they are governed by the need for peer approval. To be persuasive, consultants must Be able to use all of the thousands of channels that are simultaneously available for any two human beings to communicate with each other. Words have their own power to lead and to mislead, but gestures, postures, and mannerisms are fun­ They transcend reality. Understand the complexity in the seemingly cynical aphorism, “Act­ing is just lying with the body.” Have no hidden agendas and be able to demonstrate integrity, whatever personal feelings and val­ues that the consultant may have. Take nobody’s side and be able to show impartiality. Apply the insights being developed (use the client system better than the client does or can). The first objective in bringing about changes in client behaviour is to use the now-developed rapport to get the client to see the problem as the consultant discerns it. This is usually easiest if the same person leads the team throughout. (“The person who defines the problem must be responsible for delivering the goods.“) That is the person who promised help; that is usually the person who initiated whatever rap­port exists. If that person is perceived as someone with ideas and insight, his or her suggestions will also be taken seriously. This provides still another reason why it is important for con­sultants and consulting firms to de­velop, polish, and constantly renew a set of current ideas to be known by, a set that is somewhat independ­ent of the value of the ideas them­selves in a given situation. Finally, persuasiveness de­pends on the manner in which the suggestions are made. In his first consulting endeavours, Henderson more or less automatically engaged in “telling the client what to do.” He now thinks that a less directive ap­proach is almost always more ac­ceptable and, therefore, more effec­tive. (“Don’t tell, suggest.”) Even the most persuasive consultant will go farther toward bring­ing about constructive and ulti­mately acceptable changes in client behaviour by going beyond the role of the persuader. The consultant must maintain the position of being free of client constraints, including such at­titudes and actions as Expecting to find a constructive so­ (“If I am building a building, I want to hire a man to be in charge who expects to bring the project in under budget.” Henderson hires consultants who expect to solve the problem.) Crossing organizational boundaries in the client organization as though they did not exist. Setting precedents for the client rather than observing the preexist­ing precedents. Henderson, therefore, believes that what a consultant contributes is changes in client behaviour, following which the client (1) is better off and (2) thinks so. That these changes are worth their cost derives from yet an­other quality, however; namely, the consultant’s ability to engage in time compression on the client’s behalf. Consulting Makes a Social Contribution Consultants contribute value in excess of their cost by com­pressing time for the client. That is, a consultant makes it possi­ble for a client to reach a particular developmental point sooner than the client could without the consultant, and without significantly altering the rate at which the client expends resources. Time compression can begin to occur once it becomes possible to predict outcomes more accurately than chance will dictate. Even pre­dictions that offer only small improvements over chance finally cascade into valuable consulting out­comes, because the prescription to “do it the way I will show you” is ap­plied in so many different but re­lated ways that generate so many different change processes. Each change process offers opportunities for monitoring, feedback, reflection, replanning, and self-improvement, thus raising the chance of success by profitable utilization of the “feed­back loops.” What happens is precisely anal­ogous to speeding up the evolution­ary process of natural selection in biology. Nature keeps species repro­ducing, peremptorily rejects fail­ures, retains successes to reproduce their kind in relatively greater num­bers, and eventually “selects” ge­netic combinations that are con­sistently competent (i.e., whose chances of reproducing themselves adequately in their environment, is better than random change would dictate). A “learning curve” can then be traced that reflects the changes that came about compared with the time elapsed during transition. In time compression, the learning curve is steeper. That is, it takes less time to reject failures, to generate supe­rior types, and to stabilize their reproduction. In the process of consulting, as in natural selection, the name of the game is uncertainty. But workably accurate predictions (better than chance) can be made if there is enough certainty about a prescrip­tion to test it and predict what will happen. Confronting “what if” ques­tions as real situations will ulti­mately reduce a great deal of un­certainty. Henderson assumes that time compression, and thereby ultimate value-added, can be effected in man­agement consulting because busi­ness behaviour is reasonably orderly, in the sense of being subject to sta­ble constraints. Businesses and other institutions in society, just like plants and animals in nature, tend to be in a rough equilibrium with one an­other, appropriate to the stage they have achieved in the individual life cycle. Businesses, like species, in­teract with one another in a particu­lar ecology; in other words, they adapt, to some extent, to one an­other. Mutual adaptations constitute mutual restrictions on one another’s growth. The effect of restriction is orderliness that permits prediction. Obviously, consultants do have opportunities to predict, to test, to modify the testing procedures used in response to learning, and eventu­ally to compress time. The starting point for the most advantageous prediction is the consultant’s ability to perceive patterns and relation­ships more profoundly and accu­rately than the client can perceive them. In fact, it may be only predic­tions founded on impressionistic ob­servations that are worth their cost, in terms of time compression as their benefit. If nearly perfect data are required in order to make an ac­ceptable prediction, the time and ef­fort required to get the data will rob the process of its contribution to time compression. Intuition Is a Keystone of Consulting That the impressionistic con­ceiving of patterns and rela­tionships tends to justify the special role of the consultant is sug­gested by a comparison of typical consulting behavior with typical ac­ademic and journalistic behavior. Academics tend to move in little steps, to require rigorous proof and perfect data. Incremental movement is a consequence of the way in which schools of thought arise and are maintained within academia. A school of like-minded academics may exist for two or three generations before it collapses. The members make common assumptions, explore the nuances of only selected themes, and permit little deviation from school standards. Any changes in agenda, perspective, or priorities that a school will permit are minimal and accord­ingly incremental. What is slowly being worked out—or at least at­tempted—in such a school is suffi­cient means of proof and data that are irrefutable. When academics compress time, they do it by making impressionistic leaps, like anybody else. Academics can make major contributions to time compression in another way, however, by accumulating the con- fumed results of their own intuitive leaps and of many other people— and then teaching these results to students. In early stages of mastery, students can in a few days or weeks recapitulate intellectual develop­ment that took lifetimes originally to develop. In this sense, the MBA program plays its own kind of role in compressing time. Journalists do not bring about very much time compression, either. Like academics, they want the facts, but unlike academics, they tend to treat facts very naively or very ma­nipulatively. It is rare for journalists to discern an inherent fundamental pattern in the facts they obtain that can help effect time compression. This is so because they usually do not look for fresh patterns. If jour­nalists decide to use an interpretive pattern at all, it tends to be an im­posed preconception. It is, in Henderson’s judgment, the social purpose and ultimate busi­ness rationale of consulting to find puzzles that have not been solved and that, if they were solved, would compress time for clients, puzzles that, therefore, should be solved; and to see to it that they are solved, in trial and in practice. Consultants Should Collaborate Still more time compression can occur if consultants work to­gether as professionals, tran­scending some of the traditional kinds of competitiveness that have char­acterized consulting from its begin­nings. In Henderson’s opinion, col­laboration can make sense in Propagating solutions Sharing concepts and conceptual frameworks Polishing one another’s ideas Sharing data Disseminating results Using modern information systems more effectively The result of greater consultant col­laboration, Henderson believes, would be to amass and apply knowl­edge to achieve further time compression, for the benefits of clients and for the survival of con­sulting as a socially beneficial activ­ity. The collaboration will beget height­ened creativity. Creativity without One person, usually the foun­der, generates and develops leads (one cohesive group) One person assigns leads to individual case leaders or assignment managers (subdi­vision of groups has begun) renewal and acceleration lapses into a routine. At that point, consulting loses its justification. Henderson’s views on proprie­tary positions and patents are con­sistent with his advocacy of collabo­ration. Good consulting firms, like individual consultants, develop their skills patiently and protect their energies for themselves, often by trying to keep their ideas restricted to the use only of their own clients. Though there are exceptions to the rule and a level of specificity which in any case may deserve protection, in general, consultants should not take proprietary postures on their own behalf. In Henderson’s view, the tendencies that consultants ex­hibit to cancel each other out are self-defeating, because they weaken the one benefit that consultants must all do everything they can to strengthen: time compression. Consultants, in Henderson’s judgment, are the only business practitioners with direct access to evolutionary processes, the continu­ous opportunity to be creative, and the right to use all that they learn. He suggests that consultants have a concomitant obligation to dissemi­nate results, in addition to the day-by-day rewards that are inherent in consulting such as when a client pays the bill and continues to en­trust some of the other problems to the consultant. Can consultants dare to take the risk of sharing what they are learning? They can if they are the best. “Those truly the best realize that remaining in the role of spirit­ual leadership demands constant change.” The best idea is soon sur­passed, at least in part. Furthermore, no two good consultants will have identical perceptions, nor will one viable firm really endanger another. In consulting, as in other kinds of business, “no two competitors can make their living in exactly the same way and continue to coexist.” It is important for each firm in its own way to maintain the actual position of low-cost producer. The next section considers some of the special challenges that con- made up of small groups is unsta­ble. Each small group has its own tendency to behave self-sufficiently and to create its own culture. The groups tend to compete with each other, to spin-off, and to self-de­struct. It is paradoxical that they cause the fundamental manage­ment problems within the consult­ing firm. It might seem a good management practice to keep people busy, by, for example, giving them all leads to follow. Leads, however, should be given only to the busiest people. It is another paradox that giving leads to the less busy will destroy a business, while giving leads to those who are already busy will build business. Cost centers and profit centers in consulting firms are identical in the sense that they are made up of the same people. But for management purposes, profit centers and cost centers have to be recognized as being only loosely coupled. The principles and processes by which the costs and values of consulting work are calculated have little or no relationship to one another. These paradoxes can be re­solved if we understand the condi­tions for making a professional ser­vice organization succeed. We present Henderson’s description of these conditions in the categories of devel­opmental stages, recruiting and building a working organization, marketing, and general administra­tive principles. One paradox will remain, how­ever, at least within this article. Though he is surely a major apostle, if not the messiah, of business strat­egy, Henderson embedded what he had to say about managing a consult­ing business in the vocabulary and concepts of human and organiza­tional behaviour, only occasionally re­ferring to strategic concepts as such. Let us turn first, however, to the one clearest application in his discussion of one of the strategic concepts now in vogue, the develop­mental morphology of the firm-in this case, a management consulting firm. The Way Good Firms Grow Internal Identifier One person, usually the founder, generates and  develops leads (one cohesive group) One person assigns leads to individual case leaders or assignment managers (subdivisionof groups has begun) Each group generates leads within its own bailiwick (groups begin to have viability) Groups continue to form and to subdivide, dissolve, or spin-off (total number of groups changes slowly) Groups shrink in size, number, and activity The developmental stages in a consulting firm are defined by who gets the leads to new business and who develops them. The founder both obtains the leads and develops them for the embryonic firm. Later on, though the founder is still mainly responsible for acquiring leads, others share in their develop­ment. If growth occurs, then project leaders, having developed leads as­signed to them into successful cases, become able to generate and acquire leads for themselves. The firm then progresses to the next stage of growth, characterized by the forma­tion of potentially numerous groups of consultants, which operate in some respects autonomously. In the ma­ture consulting firm, spin-offs occur as some of the groups that form around particular case leaders become strong and ambitious enough to make it on their own, become dis­affected, or are run off because they become threatening to the firm or its proprietors in some way. Growth, therefore, depends on having and developing highly quali­fied case leaders who are capable of sustaining very good personal chem­istry within their groups and with their clients. In structural terms, a fully developed consulting unit con­sists of ten to a dozen staff members and a management structure of three closely collaborating officers. Grow­ing groups eventually have to sub­divide, simply because of group dy­namics. A group of more than 15 consultants is no longer a society but an aggregation of role players. Or to say the same thing another way, communications difficulties are pro­portional to the sum of the pairs of persons in the group. Typical natu­ral growth occurs by subdivision of successful existing units. Merged firms that are not mu­tually assimilated fall into internal conflict and use up their energy— the energy that could otherwise be used to grow. If, on the other hand, the merger does not call for actual assimilation, there will be no syn­ergy—no net increase in available energy. As in a marriage, so in a merger of consulting firms or groups: initial differences and conflicts will be sur­mounted only if mutual need is strong and growing stronger and if increas­ing face-to-face interaction ulti­mately generates a common, shared culture. All kinds of business and in­dustrial mergers are hampered by sheer cultural difference, variability in clientele, differences in ap­proaches and thinking processes, poor functional fit, and a sense of mutual violation (the professional in­tegrity of the firm acquired versus the right to know the activities and plans of the acquiring firm). The bar­riers to a successful merger are high. In fact, all that is likely to be ac­quired in the long run by merger is almost incidental, though it may prove well worth the cost: a physical setting, a geographic foothold, legal rights, or (in foreign countries) the beginnings of acculturation. It is rare to gain and keep strong staff through a merger. BCG tried at least three such mergers, in Italy, England, and Ja­pan, from which the preceding ideas were initially derived. In Hender­son’s opinion, the accumulated ex­perience of attempted mergers did teach BCG something about how to establish branch offices, and it sug­gested that growth through branch offices is generally more effective than growth by merger. Careful ad­vance work will enable a good team to develop the business of the branch office with necessary speed and ef­fectiveness. In Chicago, BCG an­nounced its intention to open a branch a full year in advance and leased prime office space opposite the Sears Tower at a time when no staff were assigned and no clients had been as­sociated with the prospective office. The Chicago branch of BCG flourished immediately. Growth by a branch office in this way can work because it is very similar to growth by internal proliferation of groups. Creating branch offices, however, involves new and somewhat differ­ent investment and operational considerations (logistical requirements, image building, and business devel­opment preparations). Successfully mastering the art of establishing branch offices constitutes at least a variation on the developmental stage through which the consulting firm is progressing, and may in itself mark the beginnings of a new stage. Spin-offs are to be expected no matter what method of growth has evolved. Spin-offs will occur more or less independently of overall suc­cess. The strong people who make a consulting firm successful will some­times develop ambitions that cannot be satisfied or can be met only at the price of altering the firm’s behaviour or its management structure. In a particular case, it may make sense either to let an insurgent take over the firm, or to face him down, or to run him off. The continued viability of the firm (or the reputation of its founder) need not be damaged by any of these choices in a particular case and may be enhanced, so long as it is obvious that whatever con­sulting firms result all came from the same source. Henderson recom­mends keeping in touch with those groups that spin-off. He says he oc­casionally sees the leaders of all those firms that seceded from BCG or were otherwise assembled among former BCG people. He wants to be on good terms with them. Indeed, he says, it may make sense if the op­portunity arises to buy some of the stock of seceding organizations. Table 1 summarizes the portion of Henderson’s thinking about developmental stages just de­scribed. It emphasizes some of the crucial issues in the internal man­agement of the human resources that constitute a consulting firm. Is there inherent superiority in firms of a particular size? Very small firms can be exciting places to work because they are flexible, even vola­tile, in their behaviour. But small firms are less effective consulting in­struments than middle-sized firms, though easier to manage, in Hender­son’s judgment. On the other hand, Henderson believes that large firms tend to be rigid, but they are able to undertake assignments that smaller firms cannot handle; so they, too, can be justified and can be operated profitably. Table 2 summarizes Henderson’s expressed judgments, in particular the conclusion that it is possible to develop a defensible po­sition for consulting firms in all three size categories. Managing the Firm’s Growth Henderson had to contend with corporate invisibility in or­der to hire BCG’s first professional staff. Eventually, he ap­plied the same principles to recruiting as to business development: Build an image, provide excitement, and make it dramatically obvious that the highly qualified simply cannot afford to pass you by. Rather quickly, Henderson set­tled on some straightforward princi­ples for recruiting MBAs: Appeal to ambition, assure candidates of the quality of the BCG leadership and offer starting salaries 20 percent above those being offered by Mc­Kinsey. Enough candidates could be attracted, once BCG got started with recruiting. The problem was to get the right candidates to identify themselves, since the distinctions among interested applicants could not be drawn in interviews and cer­tainly not in 20-minute preliminary interviews at business schools. So Henderson used such provocative devices as magazine advertisements suggesting how few people were truly qualified and asserting heavy burdens, adventure, and big pay for that rare few who belonged. The idea was to get applicants to self-se­lect and to continue the process of self-selection as people joined the company, gained experience, and worked their way toward seniority. Henderson acknowledges that this recruiting strategy was a pene­tration strategy, not a long-term pol­icy. Competition for highly regarded MBA candidates ultimately turned the business school faculties against consultants, after the consulting firms came to be big attractions and major winners of new MBA graduates of prestigious schools during the 1970s. The glamorization of consulting re­sulted in 25 to 30 percent of the graduates from some schools enter­ing the field. It also attracted na­tional publicity, which strengthened the conviction that consulting firms hired the best of the best. Although many clients resented the competi­tion, the result was increased mar­ketability for consulting firms and also for their staff and alumni. In a sense, this recruiting strategy ex­emplified the dynamics and multiple, hidden, delayed consequences of any good strategy. The young graduates were being paid well; they were also expected to be very productive and to learn very fast. The corollary was that BCG ap­pointed many officers in their early thirties. Promotions offered explicit reasons and explicit steps for people to go through in really “joining up” with BCG. Promotions perpetuated the mutual dedication of a group of consultants to one another and the firm. In Henderson’s view, a person either joined the firm wholeheart­edly or that person should leave— indeed, be driven away if necessary. The impact of generous starting salaries on the salary structure at BCG was less than might be imag­ined. During his years at the helm, Henderson’s policy was annually to lift the trend-line salary paid to con­sulting staff only a half percent more than the current increase reported in the GNP. But BCG’s trend line for salary was a carefully calculated curve that represented increased value with increased experience. This salary policy was based on the as­sumption that the real value of the consulting firm is the lead profes­sional whose value goes up with ex­perience, the rest of the firm exist­ing mainly to leverage that value. The economics of a consulting firm are at least as complex as those of their clients-and less transparent. Selling the Firm to Clients Marketing consulting services becomes easy and natural if a firm is a fountainhead of new perceptions and approaches—a status achieved by BCG within a few years of its founding. Provocative ideas help, such as the concept of the experience curve. The taxonomy ex­pressed in the four-cell business portfolio matrix offered fresh in­sights (market share history versus anticipated market growth). The taxonomy helped also to summarize and organize the reasons that com­panies fall into Wall Street perfor­mance categories like “cash cow,” “star,” and “dog.” BCG’s prospective clientele was initially the Fortune 500. Once client excitement created by the exposure to fresh thinking had begun to be reinforced by the media, BCG’s vis­ibility shot up dramatically. It then became easy for Henderson to invite mixed groups of key people repre­senting past, current, and prospec­tive clients to conferences or semi­nars. Past clients offered powerful testimonials by their presence at such meetings. Many who felt mis­cast in attempting to bring BCG’s message to friends or colleagues were nevertheless happy to provide sponsorship by their presence. Such conferences constituted an integrat­ing experience among past, present, and prospective clients, and tended to create-or promote-a chain of relationships in which the consul­tants also were linked. Apparently, contacts developed through conferences and other activ­ities were numerous enough to ena­ble BCG to choose clients selectively from time to time. Consulting ob­viously is “good business” when the consultant is in the position of turn­ing away customers. The point Hen­derson stresses is that the consult­ing firm itself is in charge of getting into and keeping itself in that happy condition. One additional marketing prin­ciple is the advisability of building a relationship with clients, not just carrying out projects for them. This principle harks back to the small groups in which the consulting firm is to be organized. Compact, long-lived groups develop very long col­lective memories over long-standing relationships with clients. Strong group leadership mobilizes these memories in maintaining and devel­oping those relationships with a lim­ited number of client firms to whom the members of the group become well known. A management policy that demands continuous relation­ship as a success criterion quite gracefully guarantees work that the client will deem effective and gener­ally acceptable. The basis for defin­ing these groups’ boundaries can be geographic, structural (e.g., by in­dustry), functional, disciplinary, or otherwise. The most important issue to be decided, ultimately, is the basis for the continuing relationships. But that issue will be decided by oppor­tunity seized, practice conducted, reflection, prediction, observation, and correction, rather than by abstract thinking. Once a new con­sulting group is established within a firm of consultants, only about one-third of its total volume should be new business; two-thirds of the busi­ness it does should be based on ex­isting clients and the firm’s deepen­ing relationships with them. What forces some particular type or pur­pose of relationship to emerge, how­ever, is the fact that a nearby bound­ary exists, so that mere hunting and gathering will not suffice and culti­vation must begin. The power to set boundaries around the constituted consulting groups within the firm is, accordingly, among the principal mo­tivational, marketing, and develop­mental tools available to its man­agement. Notes on Administrative Principles Consulting firms develop man­agement systems, which may vary considerably and which presumably reflect the individual re­quirements of each firm. Behind the system that Henderson discussed there seem to have been principles or rules of thumb, consistent with Henderson’s views on the nature of a professional service business. The administrative challenge, of course, is to take full advantage of the en­thusiasm of professional people and to evoke and channel that enthusi­ asm while not exceeding a maximum affordable cost. Henderson sug­gested five principles for doing this. First of all: Tie consulting staff pay patterns to client billings. Make the feedback between cause and ef­fect as direct as possible, and mini­mize the politics and subjective evaluations of hierarchical judg­ Second: Keep the support staff at or below a ratio of one support to two consulting staff. If the pay of consultants is to be tied to billings, consultants must also feel that management is doing a good job of cost control by keeping the support staff lean. However, there is an ob­viously related requirement to provide high-quality support that is at least equally important. Good people can use and will demand ex­cellent support. Third: Let the officers in charge of particular projects and client rela­tionships use anyone they choose, in any group in the firm, to help ac­complish their contracted work. But hold the officer in charge to the budget established at the outset. In other words, never let it be an excuse for any failure, including cost overrun, that a case leader or assignment manager was forbidden to have access to the resources But give all staff the choice of what they want to work on and with whom. Provide maximum per­sonal freedom. Fourth: In making changes in pol­icy or practice, do not act just be­cause you can—if your job is to manage anything, including a con­sulting firm or a part of it. Recog­nize how difficult it is to grasp the new factors in a situation or prop­erly weigh the elements that are beyond your own personal experi­ Study the business, the or­ganization, the people. Try out par­tial solutions, bits and pieces, so that reactions to them provide clues that enable you to reach your own conclusions—conclusions you know before your people know them. Season the conclusions inside your own mind until consensus becomes possible. First prepare, then act. The corollary, however, is that the leader must act, on the basis of that broader view that the leader alone is obliged to express. The ne­cessity to act requires special em­phasis. “Avoidance management” is endemic in professional service or­ganizations, according to Hender­son. While it is perhaps understand­able to want not to cope with issues that are part and parcel of a business that consists of people and their re­lationships, the results of avoidance are almost inevitably destructive. Leadership goes to those who do best those things that the organiza­tion feels to be the most important. Failure to face the difficult and con­troversial is a failure of leadership. Leadership means responsibility for maintaining foresight, for achieving consensus on goals, and for estab­lishing cooperation. Popularity, power, or persuasiveness are not necessarily leadership; responsibil­ity for achieving the goals of those led is the essential justification for entrusting leadership to anyone. Conclusion Bruce Henderson’s opinions about consulting constitute a coherent sys­tem of ideas. These ideas have util­ity for all of us who are practitioners and students of consulting, whether or not we agree with them. Hender­son’s account of the beneficial effects consulting can have and what con­sultants do in order to achieve those effects should stimulate others to share their views. Homer J. Hagedorn is the head of Arthur D. Little, Inc. ’s Organizational and Managerial Effectiveness Section. Before joining ADL in 1966, he was as­sistant to the director and project leader at the Institute of Naval Studies. Before that he was on the staff of MIT’s Lincoln Laboratory as assistant director of professional personnel and administra­tor of a graduate study program. Dr. Hagedorn received the Ph.D. in history from Harvard University. He spent a postdoctoral year as a Fulbright Fellow at the London School of Econom­ics, primarily studying relationships between selected technical innovations and management controls in the British aircraft industry—essentially a study of the limits and possibilities inherent in business strategy....

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