JUNE 2002: Features (print version)
The End of Consulting?
>> Long the darling of job-hunting students and strategy-seeking clients, management consulting deals with upheaval of its own.
There it was: the button.
Like most buttons in this modern era, it existed to be punched. Ted Boles, AB'01, had already heard from his People Matters representative that it was in the pipeline. When it arrived on September 21, 2001-three-dimensional and almost tactile, embedded at the end of an e-mail, subject heading "The Flexible Leave Program"-he let it sit in his Lotus Notes in-box for half a week before resolving to depress it. With one small-motor motion, accompanied by the soft but audible click that denotes an e-action taken, Boles froze his six-week-old consulting career for exactly one year.
"It was entirely voluntary. I did it to save my career," says Boles, an analyst for Accenture who has spent the past nine months' deep freeze working as the public relations and marketing manager of the University's Career and Placement Services (CAPS). The case was one of simple supply and demand: like most consulting firms when the recession hit in April 2001, Accenture's supply of consultants soon exceeded the demand for their services. Many employees were given the option of a FlexLeave sabbatical in return for 20 percent of their salaries, all their benefits, and the guarantee of a position at the same salary and career level in a year's time. If too few employees opted to take the offer, head-count reductions would follow. (Accenture, the world's largest management-consulting firm, spun off from parent accounting firm Arthur Andersen several years ago and is now a separate entity not to be confused with Andersen's internal consulting arm. So Accenture's actions are entirely recession-not Enron-related.)
Boles is no fool. He'd just rolled off Accenture's three-week Client Engagement Readiness School in St. Charles, Illinois-"basically a converted college campus with a corporate feel," he says, where Accenture trains new hires from around the globe and where he learned, among other things, that the easiest heads to reduce are those that haven't even made it onto the totem pole. Nevertheless, he reflects, "Given where I was, it was frustrating. I was eager to start."
Since September Boles and Danielle Kranacher, AB'01, who joined Accenture in June 2001 and like Boles is on FlexLeave from the Resources Group in Accenture's Chicago office, have watched long distance as their cohorts from St. Charles spread out across the country on client engagements. They've received frustrated e-mails about long hours and difficult clients and exhilarated e-mails about how cool it is to actually be a consultant. They attended the holiday party and quarterly outings held by their Chicago Resources Group Community, dubbed Earth Wind and Fire in honor of the natural-resources businesses it advises, and kept up on the group's doings via the newsletter Elementals. They autosubmit charge codes every two weeks so Accenture can keep track of its nonbillables, and once a month their assigned mentors check in to see how they're doing and if they still want to come back to work. Despite their short tenures on staff, they continue to use the company's lingo, "Octelling" each other (referring to the brand of Accenture's voice-mail system) and "dropping Lotus Notes" to one another (particularly when a cryptic corporate communication arrives). It's a strange limbo. Yet it hasn't dulled their desire to get to work.
"I'm anxious to start my career," Boles says during a conversation in the sweaty third-floor CAPS offices of Ida Noyes one unseasonably warm April day. In the waiting room down the hall third-year students in wool suits and ties, stockings and heels, clutch leather portfolios and dab their foreheads with damp hankies as they wait to be called for Metcalf Fellowship interviews: next year's class of alumni hoping to land prestigious summer internships and an upper hand in the job search ahead. "If there's ever a point in my life to be a consultant," continues Boles, "it's now. My body can take working 80 hours a week."
He's not kidding. The consulting industry has a reputation for two things among students: what most call "the lifestyle"-long, grueling hours and travel schedules that keep you on the road four days a week, four weeks a month; and "the exposure"-to a broad cross section of industries, to senior-level clients, to CEO- and enterprise-level quandaries, to the brightest colleagues one could hope for.
For the increasingly smaller number who make it through the intensive interview process with job offers, the pros of the exposure seem to outweigh the cons of the lifestyle. For those 10-12 percent who, before the recession, left after two or three years to get an M.B.A. or take a position in one of the industries to which they were exposed, the lifestyle doesn't top the list of things missed. For those who stay in consulting and climb the ladder to director or partner, such as Mary Tolan, MBA'92, a partner at Accenture and a 20-year veteran of the firm, the thought of doing anything else is pretty much inconceivable. "I'm an addict of challenge," she says. "I think I'd fall asleep if I had to stop consulting."
Certainly for the past 20 years there hasn't been much time for consultants to sleep. During the 1980s and 1990s management consulting was one of the fastest growing sectors in the world's advanced economies. The Kennedy Information Resource Group estimates that total management-consulting revenues worldwide are $62 billion a year, compared to about $3 billion in 1980. Roughly 80 percent of today's management-consulting firms were established after 1980, according to The Expansion of Management Knowledge (Stanford, 2001). Observers explain the explosion as part of a larger shift in advanced economies away from manufacturing toward business services. But it's also because clients' demand for management-consulting services has increased, mainly in response to the perplexities of a globalized, high-tech economy.
"Change is real, and it's fast," says Mark McGrath, MBA'69, a director in McKinsey Consulting's Chicago office. "It comes from competitors, consumers, and suppliers. Uncertainty is the name of the game, and ambiguity is always present." He speaks in the practiced tones of someone who's been around the block enough times to be a tour guide. "It's a lot harder now than when I started. We have a much more global economy. Transaction costs are much different. The life expectancy of a Fortune 500 has dwindled. Small competitors can be much more aggressive with the use of technology."
There's also been a shift, he says, in the perception of hiring management consultants. "Seeking help is viewed as a good course of action," says McGrath. "Thirty years ago in company after company management had a machismo about tackling problems. Now seeking targeted help is much more acceptable. When you can tackle a problem with heavy-up resources, the quality of the outcome will be proportionate to the effort you spend. For a company to devote five or six of their most talented people to a problem typically just isn't feasible." But hire a consulting firm noted for employing the best and brightest M.B.A.s from elite programs like the GSB who devote themselves full time to the problem, and, says McGrath, they'll break its back in no time. The perception shift has also been helped along by the many consultants-turned-corporate-managers who hire the firms.
The most striking change in recent years, says Joni Bessler, MBA'83, a partner at Booz Allen & Hamilton in San Francisco, is that "the integration of strategy and technology is now fundamental. They are not separate and distinct, period. We've been fortunate because that has played into our strengths. I can't think of a single piece of work that I've bid on that doesn't intertwine those two."
Given this reality, management consultants like Bessler, McGrath, and Tolan take pains to differentiate themselves from the large number of information-technology consulting firms, such as the formerly robust and now emaciated Sapient and the defunct MarchFirst, whose fast-selling, high-priced, and some would say unwieldy and unfathomable Web-based systems contributed substantially to the growth of the consulting industry during the 1990s. It's a telling sign, McGrath notes, that traditional strategist McKinsey has gotten into the business of helping clients figure out what to do with the systems they paid other consulting firms so much to build.
"It was a surreal time. I don't think we'll ever see it again," says Harsh Jawharkar, a part-time GSB student and freelance consultant who was laid off from Sapient in February. "It was very casual. Everyone was pampered. There were video games and Nerf toys everywhere, and our office fridges were stocked with beer. We had lunch catered once a week." The firm could afford the luxuries, he explains, because "big corporations were scared to death. They didn't know what the Internet does, and they'd pay millions for our help. The pricing pressure was unbelievable." He tells of a client in Oklahoma City who could only pay $1 million for a project. "That was peanuts to us. The partner on the engagement said, 'Let's take it, and then halfway through tell them we can't finish without more resources.'"
Tales like this are exactly what make McGrath, Tolan, and Bessler cringe, in part because they are quickly gobbled up by a small army of journalists who devote themselves to questioning whether, at the heart of it all, consulting really works. In the late 1990s books about consulting horror stories proliferated: Con Tricks: The Shadowy World of Management Consultancy and How to Make It Work for You (1998), Dangerous Company: The Consulting Powerhouses and the Businesses They Save and Ruin (1997), and The Witch Doctors: Making Sense of the Management Gurus, the last written by Economist editors John Micklethwait and Adrian Wooldridge.
As those titles make clear, much has changed in the perception of consulting since Hal Higdon, X'59, wrote The Business Healers in 1969. Even then, Higdon noted what was called the Fortune syndrome. "[A]bout once every five years Fortune publishes a debunking article on management consultants that completely punctures their egos," he wrote, leading to a general industrywide lip zipping and a dearth in press interviews with consultants. Higdon seems to still have it right: a quick search of Fortune's online archives dredges up "Why Consultants Generally Suck," from May 2000.
Few professions incite such extreme views as the consulting field. Consultants are presumed to be shallow and immoral because of their high prices and association with "cost cutting" (read: head-count reductions). At the same time they are respected for their problem-solving skills, adaptability, and broad understanding of business. The effectiveness of their work is scoffed at, and yet the industry's growth demonstrates that they must be doing something right.
For their part, students seem unswayed by the naysayers and consider a consulting position to be the liberal-arts degree of the business world. "It's a chance to flex every muscle in my M.B.A. portfolio," says Jeff Koebler, a part-time M.B.A. student at the GSB's downtown Gleacher Center campus who hopes to leave the textile industry for a strategy-consulting position when he graduates next year. "A friend of mine at McKinsey puts it this way: consulting is like a finishing school after your M.B.A."
The best finishing schools, as one might guess, are highly competitive. Ask M.B.A.s in the heat of a consulting job search where they'd like to work, and you can almost chant along with the names: McKinsey, Booz Allen & Hamilton, Boston Consulting Group, Bain & Company. These elite strategy consulting firms have traditionally eschewed tinkering with a client's day-to-day operations and focused instead on the big picture and the long-term. They are also the oldest firms; McKinsey was founded in 1910 by James O. McKinsey, a U of C business professor, while Edwin G. Booz, a Northwestern graduate, founded Booz Allen & Hamilton in 1914.
The elites recruit heavily at Chicago, where consulting is the No. 1 career choice for M.B.A.s, ahead of investment banking. Roughly 30 percent of 470 new hires from the GSB Class of 2001 took consulting jobs, with McKinsey as the GSB's top employer, at 32 new hires and 19 interns. Boston Consulting Group was No. 5, and in the top 15 were Deloitte Consulting and Accenture, members of the Big Five, that is, the consulting companies that grew up as parts of the nation's biggest accounting firms.
Thirty years ago, of course, the Big Five were the Big Eight accounting firms, but the complicated glomming of mergers and acquisitions-as evidenced by the firms' compound names-has winnowed them down to Accenture, Deloitte, PriceWaterhouseCoopers, KPMG Consulting, and Cap Gemini Ernst & Young. These consulting firms built multibillion dollar businesses by streamlining clunky processes and creating enterprisewide information-technology systems for many of the world's biggest firms. But Accenture's Mary Tolan notes that the "Big Insert-Number-Here" nickname is inaccurate, given that the consulting arms have grown up and diversified and may no longer even be associated with the big accounting firms that spawned them.
The Big Five, for lack of a better name, have had almost as much cachet among Chicago M.B.A.s and certainly as much among undergraduates as the elite strategy firms. Like most college career centers, CAPS has only just begun to track student employment interests and job offers, but as director Liz Michaels, AB'88, says, "By no means a majority but certainly not an insignificant number of our undergraduates interview in consulting, and not an insignificant percentage of our alums work at consulting firms," demonstrating that consulting is a leading career choice for College grads. The National Association of Colleges and Employers (NACE) is able to be more specific: in 2001 consulting firms ranked first among employers hiring new college graduates.
What's interesting is that many undergraduates who have gone into consulting say they had no idea what consulting was when they walked into their career centers in early fall and saw flyers announcing all the firms coming to recruit. "The buzz on campus was that these companies hire a lot of students for their liberal-arts backgrounds, for how you think and learn versus your specific skills," recalls Ted Boles, a biology concentrator. "But I knew very little about it. To an outsider, the word is so bizarre-what does a consultant do? And even now I know that answer is always changing and being redefined."
Boles, like many of his peers, attended each firm's informational reception and submitted résumés even as he was signing up for interviewing workshops and figuring out what a exactly consultant does, much less what a McKinsey versus an Accenture consultant does. (These specifics he learned by prowling the consulting hub at Vault. com, "the insider career networkTM." Vault provides statistics on individual firms, "why work for us" paid pitches, job-hunting tips, and very active chat boards on specific companies and general trends. Recent threads range from which girl the consultant on ABC's reality show The Bachelor would choose to KPMG's April round of layoffs, with farewell after bitter farewell from ex-consultants who sport usernames like consultmaniac and AlfredENeumann.)
After interviews with four companies-McKinsey, Accenture, Cap Gemini, and Watson Wyatt, including five rounds of interviews with Accenture-Boles had a job offer and two weeks to decide whether to sign on the bottom line. He took one week. "It was all over very quickly," he says, "and I spent the summer wondering what it would be like, how long I would stay"-two or three years and then on to business school is standard for entry-level consultants. "By August, when I started training, I felt reassured that it was all real and happening and I'd done the right thing."
Contributing to the dreamlike feel of landing a consulting position is the compensation: NACE reports that the average starting salary for an entry-level consultant was $47,893 in 2001, down slightly to $43,070 this year, reflecting the recession. And although Chicago M.B.A.s know before they enter GSB programs that large numbers of their predecessors have gone into consulting-and been paid very nicely to do so, with a 2001 median salary of $110,000 and a median signing bonus of $25,000-it's not unusual to hear an M.B.A. tell a story much like Boles's. "When I began this process, I had no idea what consulting was," says Dean Rosenblum, MBA'02. "I had no idea why anyone would agree to pay me 100-some-odd-thousand dollars to consult a CEO of a Fortune 500 firm." A chef by trade, this summer Rosenblum will become a consultant at the Chicago office of a top-tier strategy-consulting firm that prefers to keep a low media profile.
Yet, he says, consulting was among the "low-hanging fruit." Along with investment-banking firms, consulting companies were the most plentiful recruiters on campus during his first year, and the more he learned what a consultant does-being in a group of "resources dedicated to a specific problem, where on this hand is the question the client wants answered and on the other hand is the larger question, and it's up to us to figure out the eight or so things we need to know, split up, and then come back together and reassemble this incredibly rigorous analysis we've conducted into a cohesive strategy for our client"-the more he wanted to do it.
Rosenblum spent fall and winter of his first year practicing "case interviews." (M.B.A. recruiting takes place in the first year, when students compete for summer internships with firms that, they hope, will extend full-time offers a year later.) A standard method used by recruiters of both M.B.A.s and undergraduates, case interviews are essentially story problems designed to test an applicant's ability to think systematically on his or her feet, ask the right questions, and demonstrate problem-solving skills. For example: "An aircraft manufacturer is thinking of building a plant to produce a 600-seat airplane. Development costs will total about $10 billion. Should they make this investment or not?" Compare this to a case posed to Andy Hong, AB'01, a McKinsey business analyst: "Estimate how many windows there are in Chicago."
Rosenblum did about 75 two-hour practice runs with second-year M.B.A.s who volunteer to help their classmates prepare. In the first and second weeks of February he interviewed with three top strategy firms, with whom he had 13 half-hour case interviews and three "fit conversations" in which he explained why his experience and skills might match a specific employer's style and culture. He received an internship offer from his top choice halfway through the second week and immediately cancelled five other interviews. He accepted the internship two weeks later and by August was among the five of nine interns who were offered full-time positions after graduation.
Those were the glory days. As Ted Boles says, "everything changed on a dime." Although the recession hit last spring, recruiters such as Rosenblum's employer figured business would pick up soon enough. But when the World Trade Towers fell, whatever consumer confidence was weathering the recession was badly shaken.
By the traditional fall recruiting season in early October consulting jobs for undergraduates had all but evaporated and weren't exactly plentiful for M.B.A.s. The industry dropped to No. 11 on NACE's list of this year's top employers of college graduates. Hiring projections for consulting firms plummeted 89.7 percent, according to NACE's April 2002 employer survey. It's part of a general 36.4 percent decrease in hiring for college graduates that reflects the drop in demand for all professional-service industries. The drought has made headlines across the country, with lots of "I don't know what am I going to do" reports from jobless students about to collect their diplomas and enter the "real" world.
"It's no secret to anyone that consulting firms aren't hiring and in fact are laying off," says Michaels at CAPS. "So what are our students doing instead? They're looking for other stuff. A lot are planning to go to graduate school. They're looking at nonprofits, at programs like Teach for America. Some of the small boutique consulting firms [with niche businesses] are coming to campus, and they've been able to compete for students they might not have in the past. And students are going into other business sectors."
At the GSB, Associate Dean of Career Services Glenn Sykes reports 175 fewer consulting job offers than at this time last year, when there were 263. "The growth in M.B.A.s' interest in consulting went along with the growth in consulting," he says. "M.B.A.s pursue growth. When growth shifts, their interests shift. Our top hiring firms this year are companies that actually make things. Students are realizing there's more stability in corporate positions."
From inside consulting, the view is not great but not that bad. "I think the economy is changing fundamentally," says McGrath at McKinsey, calling the downturn "a lot less severe than others I've seen in the past. The mid-1970s recession was quite severe, and even compared to those in 1981-82 and 1990, this isn't the same. Recessions are different now, at least for a firm like ours that's geographically diverse. That means downturns don't hit at the same time. Our European, Asian, and Latin American practices are really strong. We have the rest of the world out there, and in addition to that, our practice is pretty widely based. We find now we're focusing on what we can do to make our clients' organizations more effective or make cash registers ring."
The message from Mary Tolan at Accenture is similar but the story has a slightly different twist. "Accenture is less focused on classical strategy studies and more on shareholder value creation: how to double the client's share price, where the break-away strategy for the firm is. We tend to form very close relationships with senior-level executives and, taking their ideas, accelerate their ability to implement them and get results." The firm's shift away from information-technology systems and toward "value creation" has been about seven years in the making, and, she says, it's been a boon during this downturn.
"Even in bad times clients want to improve their businesses," she explains. "They want ideas that can get them cash flow quickly, not some big hairy ERP [enterprise-resource planning] program that's going to cost them a lot of money and not get immediate results." She talks about solutions that take six or ten weeks to implement rather than four years and her firm's expansion into outsourcing-taking on a client's back-office functions so clients can focus on core businesses.
The news from Booz Allen echoes what McGrath and Tolan say. "We're cautiously optimistic, and our clients are too. But it's a much different marketplace than it was before," agrees Bessler. "The work is there, but the clients are putting themselves through the rigor of whether we consultants add value."
What does that mean for job prospects? Not much-at least not for undergraduates, in the view of Philip D. Gordon, director of the Collegiate Employment Research Institute at Michigan State University. "In the past couple of years consulting companies loaded up on new hires and threw a lot of bodies at problems because clients had the money to throw at problems," he says. "There's going to be a restructuring after this recession," he predicts, "and the demand for undergraduates isn't going to bounce back." Many corporations, he believes, will tackle the strategy problems that in the past they handed over to consultants. That means the hiring demand among consulting firms, he concludes, will be for "high-skilled people such as M.B.A.s-who will allow consulting firms to be quicker and able to take on shorter-term projects."
Can a vast, globalized company be so nimble? Freelance consultant Jawharkar has his doubts: "Smaller consulting firms are very quickly becoming more significant now, and not only because of lower prices but also quality of work." Adds Susan Hendrie-Marais, MBA'88, who left McKinsey ten years ago because she felt stifled by the firm's highly structured approach and now freelance consults for nonprofits, "Any large organization is not going to be as fast or creative as a small organization could be."
Blame the recession for the slackened demand for consulting services and the downturn in hiring-but there also seem to be larger forces at work, and Jawharkar's words are reminiscent of the environment McGrath said his clients face.
The growth and shifts in the consulting field has caught the attention of, among others, Matthias Kipping of Great Britain's University of Reading. "The evolution of the consulting industry and of its preeminent firms," he writes in "Trapped in Their Wave: The Evolution of Management Consultants," a chapter in Critical Consulting (Blackwell, 2002), "is closely linked to the development of management practice and ideology.... This means that consultancies are ultimately dependent on the evolution of management." If Michigan State's Gordon is right, the latest evolutionary wave is in our midst. It's plausible, notes Kipping, that the large firms now dominating the sector could, as McGrath suggests, "avoid the trap into which most of the earlier generation consultancies have fallen. Their efforts to diversify their activities and offer a broad range of services might suggest they are better able to respond to future shifts in the locus of managerial and organizational problems."
Kipping is among a small but growing number of business and social-science scholars who have attempted in recent years to quantify the impact of consulting work and to understand the complexities of the client-consultant relationship. Perhaps most telling have been studies by Eric Abrahamson of Columbia University who notes that, increasingly, it's consultants and management "gurus"-and not academics-who generate the ideas that catch on in the corporate world. In a 1996 Academy of Management Review article, Abrahamson urged scholars, "not only to study the management-fashion-setting process... but also to intervene in this process in order to render it a more technically useful, collective learning process...."
For those on the outside looking in, consulting has a mystique that can be almost frightening in its scope. Yet its allure is unmistakable, if not addictive. "Do I feel like I'm a part of the consulting world? Yes and no," says Ted Boles in his CAPS office, waiting out another three months before he returns to Accenture. "I feel a tie, a relationship with it. I'm hopeful this will happen." Whether consulting will be the same industry it was when Boles punched that FlexLeave button is anyone's guess.
©2002 The University
of Chicago® Magazine