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Deloitte Consulting is not a global partnership. Each region, country, and sometimes regions within a country, like India, operate as different legal and economic entities. They have separate P&Ls.

This means no one office can tell a region what they need to do. If quality drops, or an office is unwilling to meet the standards of true management consulting excellence, an office can merely advise.

10 issues that hold Deloitte Consulting back

The fact that Deloitte Consulting is not a global partnership is a major weakness. Many of the ten problems we listed below stem from this point.

1) There are standards differences between offices. There are tremendous standards differences between Deloitte Consulting offices. If you held up a report from the Santiago office, Indian offices, Australia and New York, USA, you would see different branding, quality standards, references, etc.

This is a big problem. When pursuing a global client like Toyota, Deloitte Consulting will claim it is a global firm, but in reality the office which sold the work understands the differences between countries and will try to do all the work itself.

2) Different partnerships breeds mistrust. Different partnerships breeds mistrust. This need to hoard work means that Deloitte Consulting does its best work when it can leverage its consulting teams in the developed markets like UK, Netherlands and the US.

When it needs to “hand-over” thinking and work to emerging markets offices, the larger partnerships are unwilling to do this. Quality suffers as a consequence.

3) Unwillingness to send its top global people onto a client. Deloitte Consulting cannot send its top global people onto a client. It can send its best regional people, but not the best people globally. That’s because there is no global firm.

Staffing of international projects can be a nightmare. Different partnerships implies different rates, mistrust between offices and an unwillingness for one Deloitte Consulting office to send its best people into projects run by another separate office in a different partnership.

Therefore, an engagement in Russia, for example, is usually staffed by the Russian offices, unless it was sold by the Deloitte Consulting partnership from another country, in which case the consultants from the foreign office will likely lead and the Russian consultants will have a very minor role. This is driven by the separate partnerships and separate P&L structures.

4) Weak training and development of consultants. Deloitte Consulting has spent a lot of time and money trying to recruit heavy weights from McKinsey. The problem with this approach is that Deloitte Consulting has not yet developed an approach to produce star management consultants.

All they are doing is relying on McKinsey’s and BCG’s training programmes to produce great consultants and they are poaching them. Until Deloitte Consulting fixes its development process it will always be playing catch-up. Great firms produced stars steeped in their own cultures.

5) Does not put the client first. Has Deloitte Consulting ever turned away work because it was not in the client’s best interests or because it was not proper management consulting etc? The metrics for senior managers, directors (non-equity partners) and principals (equity partners) is heavily skewed towards sales and delivery. We looked at a partner’s assessment sheet and revenue type of targets (including margin) makes up over 85% of the metrics.

Management consulting is about putting the client first. That means putting the client first in the performance metrics.

6) Deloitte Consulting tries to be everything to everyone. Deloitte Consulting’s moniker of being the largest consulting firm does have one major, gaping caveat. Deloitte Consulting consists of strategy, operations, etc as well as a very large technology consulting business. In terms of sheer numbers, there are a lot of technology consultants. They do not do high end management consulting work. There are lots of code writers, etc.

Deloitte Consulting tries to be everything to everyone. Therefore, its brand worldwide really stands for very little. Think about it for a minute? Worldwide, what do people think of the Deloitte Consulting brand? In some places it means technology consulting, in others operations, etc. There is no consistent brand and it is very difficult to build one if the activities of regions cannot be controlled.

7) Deloitte Consulting has a mediocre knowledge management system. Knowledge management is the lifeblood of management consulting. Deloitte Consulting has a mediocre knowledge management system. Forgetting the technical system itself, offices are particularly reluctant to place their best material on a knowledge sharing system which can be accessed by an office in a different partnership, which will use the material to sell work, which will likely exclude the office which produced the material which sold the work.

Therefore, offices hoard work and it is excruciatingly difficult to get the best material.

8) The consulting capabilities in emerging markets are weak. The action is in the emerging markets. Yet, Deloitte Consulting is not active there in a meaningful way. If you look at Deloitte Consulting’s offices in Santiago, Rio, Sao Paulo, Bogota, Caracas, Mexico City, Johannesburg, Moscow, Kiev, New Delhi, Mumbai, Beijing, Bangkok etc, they are not offices where heavy investment has been made. The consulting capabilities are quite weak.

That’s because these partnerships may not be able to afford the investment nor can they hire from the best schools. For example, the Bogota partners will hire from local schools. Deloitte Consulting scores quite poorly on its ability to leverage opportunities in the emerging markets.

9) Weak thought leadership. Critical infrastructure such as knowledge management systems, research centres and industry groups are rarely shared. Yes, an effort is made, but these are superficial efforts at best.

You know a firm is producing quality research, insights and thinking when its work is heavily (and usually illicitly) trafficked on the net. See how many Deloitte Consulting documents you can find on the internet. If a consulting firm’s reports are not widely shared and distributed that tells you a lot about the perceived quality of the reports. Things worth distributing are distributed.

10) Deloitte Consulting is not yet a leadership factory. At random, think of 5 Fortune 500 firms. Go to their websites and see the profiles of the executive officers. If a management consulting firm is training future CEOs, then surely their alumni should be populating the executive ranks of industry. Deloitte Consulting does not score very highly here.

On an aside, Accenture does score particularly highly when it comes to technical leadership positions. Bain’s head of IT consulting was a former Accenture Senior Partner.

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Today’s Interview is with a partner in Deloitte’s Strategy and Operations practice. He holds an MBA from the Harvard Business School and an AB, both with highest distinction.

Why did you agree to this interview?

I liked the idea of an anonymous interview. Although this format does not personally change my answers, it removes the pressure of sticking to the so-called party line. This is an opportunity to provide an honest perspective on consulting and Deloitte Consulting. I also think more needs to be written and discussed about DC besides the high-level features and pieces I see in the press and business schools.

There are some who think that Deloitte is a tier-2 management consulting practice trying to be McKinsey. What do you say to that?

I do not think we are a tier-2 consulting practice. Neither are we trying to be McKinsey. Most people know only the audit side of Deloitte and use that knowledge to make assumptions about DC. Our work, the kind of people we recruit, our growth, our client response and employee feedback all indicate that we are good and getting better at a very, very fast rate. To me that is more important; the rate of improvement.

Let me put it another way. In terms of revenue, we are the largest strategy and operations consulting firm in the world. Each year we produce more revenue per a head which can be invested in parts of the business which need to be improved. If we continue growing, continue generating a pool of investment capital and continue investing, we will not just be within the top group; we will be at the top.

We have lots of improvements to make. Yet, we are coming off a high base and making these improvements and still growing rapidly. Let me put it another way. In terms of revenue, we are the largest strategy and operations consulting firm in the world. Each year we produce more revenue per a head which can be invested in parts of the business which need to be improved. If we continue growing, continue generating a pool of investment capital and continue investing, we will not just be within the top group; we will be at the top.

My other comment is that a consulting firm is only as good as the results it produces and the feedback of its clients. Everything I mentioned earlier helps us produce excellent client work. Our clients certainly do not see us as anything but a leading firm. I believe that counts the most.

Management consulting is about first-rate ideas and intellect. How does Deloitte stack up?

There are so many ways to prove we are at the forefront of business thought. I will give you a few examples.

1 – John Hagel III and John Seely Brown, two legends in the fields on business technology run our Centre for the Edge out of the East Coast. They are regularly appearing in the Harvard Business Review and other prominent publications. They are just two of many internationally recognized business leaders at Deloitte.

Over the last 2 years we recruited more than 50 partners from BCG and McKinsey; including the former editor-in-chief of the McKinsey Quarterly. Most were highly prized leaders in their fields and chose to make their home at Deloitte.

2 – Over the last 2 years we recruited more than 50 partners from BCG and McKinsey; including the former editor-in-chief of the McKinsey Quarterly. Most were highly prized leaders in their fields and chose to make their home at Deloitte.

3 – We continue to produce leading ideas and publish them through our Deloitte Review.

4 – In the last 2 years, Deloitte was second to only McKinsey in the number of authors to appear in the Harvard Business Review.

5 – Deloitte has consistently increased its share of graduates from the top business schools.

6 – Cathy Benko who is our global talent officer is regarded as the leader in her field and sits on the HBR Review Committee. Do I need to continue?

Beside the US and UK practices, how strong is Deloitte Consulting in the other regions?

Most definitely. We have a world-class supply chain practice primarily centered in the Netherlands. We have done supply chain strategy work for an impressive list of multi-national companies. That part of the business has tremendous potential. Our Japanese practice has continued to grow very rapidly albeit off a very small base. Our Canadian practice remains one which has a strong foothold in resources, as does our Australian practice.

We have grown very fast in the CIS, out of our Moscow office where we are now the largest professional services firm in that country.

We have grown very fast in the CIS, out of our Moscow office where we are now the largest professional services firm in that country. Our Turkish office has won several landmark studies against significant competition. Our South African office continues to do amazing work and has eclipsed its rivals in the region. We are investing time and money to bring the Brazilian offices to a level where they can manage the enormous workload generated. India and China are also major growth areas for the firm. Those are just some examples. We are a global practice and operate as a global firm with strength around the world.

It would be great if all candidates today could meet our firm-wide leader for management consulting, Punit Renjen. He espouses our value-system and is the reason for our dramatic improvement.

Why did you join Deloitte Consulting?

I believed in the values of the partners who interviewed me. They were impressive, they promised me an exciting time, interesting work, dynamic clients and a chance to change the world while I developed as a professional. Everything they promised me came true.

It would be great if all candidates today could meet our firm-wide leader for management consulting, Punit Renjen. He espouses our value-system and is the reason for our dramatic improvement.

Management consulting firms are ultimately measured by the number of partners who become executives in Fortune 500 companies. How does Deloitte measure up on just this one statistic?

I read a statistic somewhere, not sure where, that said somewhere in the region of 15,000 Deloitte Consulting alumni worldwide are in middle to senior management positions. Now if we include the chief-financial-officers in that list this number could quite easily increase five-fold.

What does Deloitte Consulting need to fix?

I think there are some obvious things. We need to improve our presence in the market since too many people are still basing their opinions on old information. We are trying to build a uniform brand, practice and skill-set globally. We want to be more responsive to the needs of our clients. We need to increase our investment and development in our people.

Monty is a principal with Deloitte’s Strategy & Operations practice in the tri-state area, primarily working out of the New York office. He holds an MBA from a top-5 school, an engineering degree and has worked around the world for Deloitte.

Could you introduce Deloitte Strategy & Operations, Deloitte Consulting and Deloitte to our readers?

Deloitte is a global professional services firm based in the UK; it is no longer a Swiss Verein. It comprises of tax, audit, consulting and financial advisory services as the core businesses. Each of these divisions is wholly owned by Deloitte, although the employees belong to separate legal entities – partnerships as you call them on the blog.

Deloitte Consulting is one of the largest divisions hiring tens of the thousands of consultants. Consulting focuses on human capital work, technology and strategy & operations (S&O). There are other areas but these are the largest of them all. So S&O is the part of Deloitte Consulting which only focuses on strategy and operations work. Leadership and organizational design consulting, for example, would be done out of Human Capital and technology consulting work would be done out of technology consulting.

S&O is large and growing rapidly. It is a multi-billion dollar business, the largest strategy and operations consulting team worldwide by revenue and has a presence in 75 countries around the world. We are structured around a number of focus areas: strategy, operations, innovation, cost reduction, supply chain and finance transformation. We have about 15,000 consultants in the practice worldwide.

Tell us about the culture of the firm?

The culture is one of being collegial, innovative and driving excellence. We see ourselves as a home to consultants who want to stay and build a long-term career, and not just race to the top. Therefore, we do not have an up or out policy. That said, poor performers will be asked to leave, like in any firm which cares about its clients. Without this pressure of constantly needing or having to impress, Deloitte consultants can focus on solving problems. We believe in executable strategy, strategy which can be implemented by our clients, and that is what counts for us. Our culture is about encouraging people to seek opportunities to develop ideas and solutions which work for clients.

That said, we do creative things and inspire excellence. We have strong relationships with the Harvard Business School, Stanford GSB and other top schools. To bring in these top people, we need to do inspiring work and make a meaningful impact at clients. So the culture is very creative and we do our work in a collegial way. We compete for the clients and not against each other for personal gain.

On a lighter note, we have so many Indians working in some of our offices that Diwali leads to the office being almost deserted. This is not just in India. I am talking about Manhattan. Deloitte S&O has a culture which embraces diversity.

Is there a memorable engagement or story which shows Deloitte’s rise in management consulting?

Yes, one more than any other shows our rise. When HP and Compaq merged, Deloitte S&O, McKinsey, BCG and another firm were in contention to help with the post-merger integration. After a tough process of getting to know the client and really understanding what they needed to make this work, we submitted a formal proposal. At the time, the odds were stacked against us and although Punit Renjen pushed us to go for the work, I think internally we were worried whether we would get it. HP did give us the work. One of the largest ever post-merger integration engagements in the US.

The McKinsey partner actually called the HP executive and asked why Deloitte was awarded the work over McKinsey!

That award, and the way we overwhelmed our competition, along with their response shows that Deloitte S&O has been playing in the highest levels of management consulting for a long time. It is just that only after we started sharing what was happening “under the engine” that people have realized there is much more going on here. For example, we set up special sessions with Kennedy Research so they would not make assumptions about the business but understand what we are actually doing.

Let’s talk about some landmark engagements which Deloitte runs, which our readers would typically expect to go to McKinsey and BCG.

I will have to be careful in answering this and will only speak to engagements which do not give away confidential client data. The first one that comes to mind is us helping execute a strategic rebalancing of Agilent’s business unit portfolio to help position several multi-billion dollar global divestitures. We concurrently performed a global cost reduction program targeting $450 MM in annual cost savings (38% reduction). The fees for that engagement were up in the low $20M.

I also do not want the readers to think that Deloitte S&O only performs major work in the US. I want to talk to some landmark projects outside the US. Turquality comes to mind – this is in the media. Our Turkish office, with strong support from the Dutch, German and UK offices are helping to literally transform the Turkish economy. We helped the Turkish government review all Turkish companies across all sectors and find those who could be helped, through improved strategies and business practices, to become more profitable and stronger. This 4 year engagement is the center of Turkey’s plan to make sure its economy can grow, and the results speak for themselves. At its peak, we had 40 consultants on the engagement generating fees well in excess of $40MM.

We helped ABM set the strategic guidance for all Mexican banks on pricing, growth and technology adoption. Deloitte S&O developed an interchange fee structure for card transactions in the Mexican banking system to maximize growth of electronic payments for the domestic network while optimizing benefits. Just a couple million dollars in fees and this engagement was of great importance to the Mexican government and economy.

In another engagement, growth for CNN International had slowed as multi-channel TV penetration peaked and profitability was being challenged by local channels. We delivered a real and robust growth strategy, adding incremental revenue exceeding $100MM. This engagement was led from the UK practice.

Finally, Bluescope Steel faced increasing maintenance costs and needed sustainable cost reductions. We beat all our peers to design and deliver an improved maintenance program, enabling a data-based approach to find and resolve bottlenecks. The fees exceeded $2MM on this engagement.

This list can go on and on. Yet, I think your readers get the point. We do great work.

Why do you think many, rightly or wrongly, consider Deloitte tier-2? For the record, I do not like that phrase much.

I just think people need to take more time to learn about Deloitte and not go on perceptions and hearsay. For example, you taking the time to ask these questions is a good example of what candidates need to do. You would not be asking these questions if you already knew about Deloitte. Granted, we should be doing more to make it easier for candidates to learn about Deloitte S&O. I have for long time advocated a separate website to address this issue and I think that will help. However, even without the separate website, as I explained earlier, we still do outstanding work and a serious candidate would dig behind the misperceptions to find out what is happening.

What is happening with the Deloitte Review?

It is still going strong. It is the flagship publication of Deloitte S&O and captures our best thinking. It can be found on the Deloitte website. There are plans to expand the review and I think in a year it will be a very different, and more exciting, initiative.

Tell us about the strategy laid down by Punit Renjen (previous S&O leader) and the results so far.

Punit’s vision was simple. He wanted us to be within the top-3 recognized consulting firms by 2009. Granted, we are still not there on the general market perception, but he made huge strides, and we are there in terms of quality and client perception. We now have one consistent and unique identity and branding worldwide. The momentum we built attracted a drove of McKinsey, Bain and BCG partners to come across to Deloitte S&O. Profits surged, we started winning major assignments and recruitment went through the roof. We are one of the largest recruiters of MBA candidates worldwide. In terms of eminence, Deloitte partners wrote more books than most of our peers last year and we repositioned the Deloitte Review.

He also had some specific themes he pushed very hard. He pushed hard on training and teaching the consulting fundamentals, as well as giving recognition through internal awards. He also worked aggressively to integrate the different offices around the world and encourage cooperation. He pushed heavily into improving our practices in cost reduction & shared services, growth & corporate strategy, supply chain and M&A. Finally, but not least important, he focused on raising salaries, fixing our business and training models, and developing more support systems for consultants.

All good news, but most importantly, Punit showed our clients that we were their best partners for their business and he changed the markets perception of Deloitte.

Why was Jeff Watts, a partner leading the smallest S&O practice (Japan) appointed to succeed Punit Renjen?

I am not sure if Jeff led the smallest practice! However, even if he did, should size correlate to ability? Jeff is a widely respected partner, who was groomed to work in one of the fastest growing regions in the world. No one questioned Dominic Barton’s appointment to lead McKinsey from South Korea and the logic is roughly the same. Jeff had the values the firm needed and had exposure to a key region.

That’s the first time I have heard Japan referred to as “one of the fastest growing regions in the world.” Let’s talk about Deloitte S&O around the world.

I meant Asia-Pacific in its entirety. As mentioned earlier, we are in most major countries and cities. We generally served about 30% of the largest companies in all economies where Deloitte is present. In major economies Deloitte S&O serves up to 80% of the largest companies.

Let’s talk about the implications of having separate P&Ls across Deloitte S&O. How do you manage the challenges associated with this?

There are definitely challenges, but we manage them well. The fact that we continue to grow aggressively would show that our clients feel we are handling things very well. S&O has 91% of work from repeat clients. That is a figure we are proud of. Logically, we want that to be lower, around 85%, and still grow, since it implies we are bringing in new clients.

What about staffing? Why would the Australians, for example, put in place an international team and “give” revenue to another partnership at their expense?

They would rather have 30% of a big pie versus 100% of a tiny pie. Seriously though, yes it does happen at times, but that is normal with human nature. When it counts, the partners will always do what is best for a client. Our clients will bear testimony to this.

So the UK partnership (separate P&L) is buying up partnerships across Europe, the US led partnership (separate P&L) is buying up practices in South America and others are doing the same. What is the end-game?

If we can manage the risk of integration, then integration is the end game. But I am skeptical we could.

I have always wondered this. If Deloitte Consulting has a separate technologies consulting practice from S&O, who is on the technology strategy projects? Is it the SAP implementers?

Yes and no. Technology strategy projects are led by our technology practice, but if needed, S&O will have people on the engagements. It depends on the nature of the engagement. Our strength is our ability to form teams which have strategy depth, technology ability, finance skills and more. Is there any firm in the world today which can help you restructure your entire technology base, run your IPO, develop and carry out your strategy, align your organization’s culture and finally make all these pieces work? We have a unique base of skills.

What is the S&O practice looking for in new hires?

Passion, intellect, a track record of accomplishments, entrepreneurial nature, inquisitiveness and a bent for interesting work. There is no need to be obsessed about your school, GPA, GMAT Score and so on. We look at the application in its entirety and rely heavily on the fit and case interviews. I think the most important thing is to be sincere. We can quickly see whose resume, background and style does not mesh.

What is the application process?

Although we have peak seasons for recruiting, we look at talented people all year round. So it is best to contact the office you would like to join and get advice from the HR team.

We also work through campuses and you should see if we visit your campus. If so, try to attend our sessions and learn more about us.

I have offers from BCG and Deloitte S&O. Why would I pick you?

If you want to learn, grow as a business thinker, add value to clients and join the world’s fastest growing, and largest, strategy and operations team, you will want to be one of us.

And the salaries?

It really depends on the country and level. Depending on who is reading this, the numbers may be irrelevant. I can say that we offer highly competitive salaries which match or exceed our peers.

Do you have any fast-facts or memorable sound bites to remember?

These numbers are just for Deloitte S&O and not for Deloitte Consulting!

  • We are committed to management consulting for the long-term and did not cut or sell the business during the last 3 recessions/downturns
  • ~ $3bn revenue
  • ~ 15,000 consultants worldwide
  • Fastest growing management consulting firm worldwide
  • Largest management consulting firm worldwide
  • Presence and opportunities in every major city and country
  • Exposure to landmark clients on critical projects
  • Rapid growth opens up tremendous promotion opportunities

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Why The Consulting Billable Hours Model Does Not Work For Consulting Firms

Today I want to talk about the billable hours model and why it is unsuitable for management consulting. I have had a lot of discussions about the billable work model with aspiring management consultants, clients currently working for consulting firms, and other people in our network. I find that most consultants misunderstand the problem with this model.

One misunderstanding I would like to address is that the billable hour model is not bad. It is a fine model. The problem is that it is inappropriate for management consulting.

This is worth discussing because most consultants are quick to conclude that this model is poor without providing a convincing reason. We insult accounting firms for using the hourly rates model purely because we assume that if accounting firms are using it, it can’t be good, or if lawyers are using it, it can’t be good.

On the contrary, the billable hours model works well for these two professions.

Management Consulting Work  – How The Billable Hours Model Works

In the billable hour model, you have a consultant at, for example, Deloitte, who is going to be measured on the number of hours that he has billed to a client and the total work hours he has billed in a year as a percentage of the total hours he could have billed.

The consulting firm will track billable hours as a percentage of the total working hours the consultant could have billed out. For example, a consultant can have 77% billable hours, 88% billable hours, or even over 100% billable hours.

The percentage of billable work hours out of total working hours is called utilization. It is a key metric used in performance evaluation and productivity tracking by the consulting arms of professional services firms like Deloitte and PwC.

Why The Billable Hours Model Works For An Accounting or Legal Firms

Let’s look at the most important difference between a consulting firm and an accounting or legal firm. This difference is what makes the billable hours model work for accounting and legal organizations. An accounting or legal firm is significantly more regulated than a consulting firm. There are various professional bodies involved in tracking all the activities of these organizations. There are also a lot of guidelines in terms of being able to benchmark the performance of employees of such a firm.

As an example, you know when the legal firm wins because the judge decides if the firm wins. You also know when an accounting firm does an excellent job because the standards bodies in different countries will not penalize the firm for the work done.

In other words, great work is significantly less subjective because the work of the legal and accounting firm is publicly available, and a body with known criteria for success evaluates the work. You may very well disagree with the rules of the accounting bodies, but you know what they are.

The consulting work is a different ball game. There is no transparent way of assessing the performance of most consultancies, which is why it is such a lucrative industry that so many people want to jump into, and that is why there are so many bad consultants, meaning consultants that do not add value or add significantly less value than what they receive in terms of compensation.

I call it relative transparency since I am sure some lawyers and accountants will tell you their performance is not transparent. If you are in an organization where there is relative performance transparency, it is a lot easier to know how each employee is performing. Therefore, it is a lot easier to assign the right people to projects.

In management consulting, the transparency concerning performance is significantly lower. Consequently, it is harder to know how individuals are performing. McKinsey, BCG, and Bain will tell you it’s easy to assess their consultants and project teams, but it is not easy because there is no global standard.

Right now, a top international consulting firm’s Singapore partner will think twice about using that same top international consulting firm’s Madrid and Zimbabwe consultant. That is because even within the same major consulting firms, performance is not clear and there is no global and public scorecard against which they can compare performance.

Therefore, the billable hours model works for accounting and legal organizations because they are in a standardized profession and, most importantly, they are regulated and relatively more transparent. In those professions, it is clear what is good and bad.

In those professions, it is okay if people pursue billable hours, as if they seek billable hours at the expense of quality, it will eventually show up in most cases, ultimately leading to being reprimanded by audit committees or by the designated bodies that control the quality of audits or legal work.

This is the check built into the legal and audit professions. When things go wrong at McKinsey, Bain, BCG, Deloitte, PwC, etc. that information is usually never becomes available publicly. There is no check in the system to help clients. It is not the fault of those consulting firms. It is due to lack of governing bodies and standards in place.

Thus, in an audit and a legal profession, the billable hours system can work, and it does work. People can pursue billable hours.

Firstly, they know what good looks like.

Secondly, the billable hour model indicates the time spent to achieve the goal of a project. So, the billable hour model will work if there are metrics in place to assess if the desired result was achieved or not. 

So, suppose an accounting or legal organization starts pursuing revenue at the expense of high-quality work. In that case, the firms will know quickly if the quality is dropping because they will see it through the transparent way those two professions are run.

However, when the accounting organizations went into consulting, they adopted the billable hours model. It worked in accounting, so they thought it would work in consulting

Billable Hours And An Emphasis On Profitability

Many believe that the billable hours model is wrong for consulting because of its emphasis on profitability. They believe that because the consulting arms of companies like Deloitte and PwC use a billable hours model and companies like McKinsey and BCG don’t, Deloitte and PwC somehow emphasize profitability.

This is an incorrect assumption.

It is incorrect when people say that utilizing the billable hours model forces consulting firms to put profits first. McKinsey and BCG are not profit averse as they charge a lot of money for the work they do.

I can assure you when McKinsey, BCG an dBain partners are sitting there deciding if they want to serve a client, they are not going to offer their services unless doing so is expected to deliver a lot of profits now or at some point in the future as part of their master plan.

McKinsey, BCG and Bainareis not charities and many of those partners are not particularly charitable.

6 Reasons Why The Billable Hours Model is Bad for Consulting Firms

If the billable hours model is not bad for management consulting because of the emphasis on profitability, then why is it bad? Here are five reasons why the billable hours model is bad for consulting.

There Is Very Little Performance Transparency

You don’t know when a consulting project is doing well. If the consultants working on a project are pursuing billable hours at the expense of a client, you will only know the work is bad if a client complains. And even if a client complains, there is no transparent system to compare performance or track productivity

Management consulting firms will say they are good at comparing performance, but they aren’t actually good at doing this. That is why most professions have oversight boards, standards, and benchmarks.

It Does Not Encourage Teamwork

This is another reason why the billable hours model is bad for management consulting. The model does not encourage teamwork. It fosters a pattern of behavior where every junior consultant is looking out for themselves.

If you are pursuing billable hours, then you are not pursuing teamwork. You will only be doing things that will give you the highest billable hours at the end of the day.

The Model Leads To Higher Turnover And Lower Job Satisfaction

Another reason the billable hours model is a bad idea for management consulting is that it puts junior consultants in an unfair situation.

Assume there is 20 million US dollars worth of work in an office for this particular year. If you put everyone on projects equally, it will lead to 80% across the office in billable hours for that year. In other words, all consultants will have 80% utilization.

However, in reality, people are usually on projects at 100% utilization. Their entire working day is usually dedicated to a particular project. This means some people will likely have higher utilization than 80%, and others will probably not meet their utilization target.

Moreover, suppose someone is staffed on an engagement team for clients during the strategy phase. The partner will usually want the same person to be involved in any subsequent work with this client to take advantage of knowledge gained during the first engagement phase.

Also, if an office is involved predominantly in a particular type of work, e.g. pricing studies for clients within the banking industry, consultants with directly relevant experience will have plenty of options to increase their utilization while consultants without relevant experience will, all other things being equal, not be as in demand.

Therefore, some people will have high utilization, often over 100%, and some will not be sufficiently utilized because there is not enough work to go around.

As a result, the billable hours model puts junior consultants in an unfair situation. They are not responsible for securing work. Consequently, if the partners secure too little work, the associates and younger consultants should not be punished if they cannot get staffed onto projects.

Also, if the junior consultant puts in more effort than the senior consultant, there would be no way to measure this and adequately reward them. Their pay would still be significantly lower than that of the senior consultant. With the inequality in pay and juggling between several projects, it becomes challenging to achieve a work-life balance, which resulted in a negative perception people have about consulting lifestyle. This eventually leads to lower job satisfaction and a high turnover. 

When McKinsey, BCG and Bain hire lateral partners from Deloitte and Accenture into the firm, there are times some partners have to fight pretty hard to ensure the lateral hire does not measure younger consultants on utilization.

The Billable Hours Model Does Not Encourage Professional Development

Since when do we allow the associates and analysts to determine what projects they need to be on?

Firstly, junior consultants rarely have a clear understanding of which projects are most suitable for their professional development.

Secondly, if the billable hours model is in place, analysts and associates, or senior consultants, whatever you want to call them, are going to do things to increase their hourly rate versus being put onto projects that are important for their professional development.

This is obviously detrimental to the firm’s performance and is one of the reasons why tier-2 firms struggle to catch BCG and McKinsey. Even when they get great people into the firm, they fail to develop them.

Potential Damage To Client Relationships

When you put the responsibility of meeting utilization targets onto an analyst or associate, you are placing the responsibility of “sales” onto people who are not mature enough, experienced enough, and, I would say, sensitive enough to manage the process.

What do I mean by that? A young associate or senior consultant, straight out of business school, who is terrified of losing his job, doesn’t understand the nuances of explaining decisions to clients. He will do whatever is possible to get his billable hours up, even if it will hurt the firm in the medium to long term.

For example, a junior consultant may try to influence the duration of the engagement to pick up more billable hours, and their interactions with the client may be damaging to the firm.

It Affects Work-Life Balance And Leads To People Burning Out From Consulting Lifestyle

This model will negatively affect the consulting lifestyle. Consultants will want to increase their time spent in the office just to increase their billable hours and therefore, hopefully, increase their pay at the next performance evaluation. They will put in most of their time to pursue many activities, even if it doesn’t have any impact on project objectives. 

This will subsequently affect the work-life balance of a consultant. 

For example, take a consultant who is well aware that his pay depends on the number of hours he puts in (number of billable hours or unitilzation). Such a consultant would not mind working overtime, even if it affects other aspects of his life. His focus will be on increasing his working hours so he can get good pay at the end of the project, or at least not get managed out. He might even spend the weekend at the office. The issue becomes worse when consultant was on the beach for a large portion of time and struggled to find a project to join.

While you might be tempted to say the consultant is diligent, don’t forget that many of the activities do not have any impact on the client’s project. And also, not having a work-life balance leads to the type of consulting lifestyle that leads to burnout. 

 

 

Final Remarks

When you think of billable hours, remember this: two conditions must be met to work.

First, billable hours will work in professions that are standardized, transparent, very open to benchmarks, and reviewed by global bodies. In other words, it works in professions where good performance and bad performance are universally known.

It’s like watching a game of football and you don’t know if someone is winning. That is what consulting is like. When you go in, no one knows if the consultant has done a good job.

On the other hand, you go into battle in the audit or legal profession. The audit committee rules or the judge rules, so you know if they are doing a good or bad job. In that case, billable hours can work because if billable hours lead to poor performance, firms and employees within those firms get punished. They lose cases and clients.

Second, billable hours can only work where younger consultants are not forced to take work which raises utilization at the expense of their professional development.

Professional services firms with consulting arms that use the billable hours model are not inherently more profit-focused than McKinsey or BCG. The problem with the billable hours model is whom the model forces to make the profit trade-offs.

Billable hours pressure a junior consultant to make those trade-offs. This is someone who is not ready to handle those demands and not equipped to judge between engagements. This leads to decisions that are likely detrimental to firm performance in the medium and long term.

It’s like telling your two-year-old kid, “Here is a knife. Go and source your own food”. They may “prepare” the family dog just to put food on the table, unable to make the necessary judgment calls.

The role of any partner is to protect and guide employees so that they can focus on their professional development. When they understand the firm’s culture and how to make decisions, they can decide how they will allocate their time to get their billable hours up.

When you hand over the accountability for billable hours to a junior person, you are basically saying, “You are on your own,” and that is not right. In fact, we know it leads to problems.

The billable hours model is not bad. It is clear why accounting and legal firms use it. For an accounting or legal firm there are reasons for using the hourly rate model, and it makes sense in the legal and accounting professions.

In management consulting, it does not make sense for many reasons, especially because there is a lack of performance transparency. Things are different when you don’t have that sort of buffer pushing back and transparently assessing performance.

If you are in a firm that is forcing you to focus on billable hours, like Deloitte and PwC, you can’t really get away from it. If there is not enough work to go around, you are going to suffer. You will get punished because some partner somewhere did not sell enough work or because you are not that good at networking and showcasing your abilibites so partners would want to put you on their projects.

You should not be fighting these battles. You are too young to be making those calls, and you ultimately will be making bad calls just to get your billable hours up, even if you are learning nothing of value.

So when you are thinking about these decisions, don’t just belittle the billable hours concept. It can work and has been known to work, but it works better in some professions and definitely not in management consulting because of the behavior it forces people to exhibit.

QUESTION(S) OF THE DAY: What is your advice to readers who work for firms which force them to focus on billable hours? SPREAD THE WORD! Like this? Please share it.

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Consulting vs Banking: 4 Key Differences

Many FC members, especially those currently completing an MBA, are considering consulting vs banking. I had a privilege to work in both fields so I can compare the pros and cons of both based on my own experience. Below are some key differences I noticed in being exposed to both environments.

Four key differences when comparing consulting vs banking

Asset vs resource:

The number one difference for me when comparing consulting vs banking is what I call asset vs resource. In consulting a lot is invested in your development and you are treated as a valuable asset to the company. People are the most important asset for consulting firms and while there is the up or out policy pressure, you do have to compete with only top performers on a daily basis, you do feel very clearly that YOU are important and your development as a professional is important for the firm.

In banking, you are a resource. Your development is, to a large degree, not important. If you deliver results they will promote you. If you don’t they will push you out, or to the side. I have seen VPs being demoted, senior business development person pushed to a lateral but less important role or made feel so uncomfortable they leave to join a competitor.

People are escorted out of the building the moment they say they are joining another bank. My friend went through this. He had to leave all his belongings, including his jacket and photos of his baby daughter as security walked him out of the building, the moment he said he was leaving to join another bank.

The culture shock for someone from consulting was huge, at least in my case. You get this clear feeling that you are just NOT valued, you are used. This contrast was shocking to me and I hated this about banking.

Cream of the crop vs politically savvy long-timers:

The next thing that was very different when comparing consulting vs banking is the type of people you get to work with. While you will be working with competent people in consulting and in banking, in consulting the caliber of your colleagues will generally be much higher.

In banking, most bosses are in their high seats because they served the bank for decades and know how to navigate the political landscape and be in good graces with important decision-makers. In consulting people at the top are generally more than politically savvy long-timers.

They are highly competent people who made tremendous sacrifices in serving their clients.

Tiring but exciting travel vs. missing out on seeing new places but sleeping in your own bed:

And the last biggest difference I noticed when comparing consulting vs banking is, of course, the travel schedule. During my years in banking, I only had to travel out of city one time on business and several times for training. While I missed not visiting amazing cities that I otherwise may never get a chance to visit, I also really enjoyed being able to plan my weekly meals, not having to pack all the time and live out of a suitcase and sleep in my own bed.

And nothing is really worth to be away from those you love.

Life is too short for this. I would say that overall, not traveling for work turned out to be a benefit, even taking into account the downsides of not seeing amazing parts of the world. So I would say this point is a pro for banking and con against consulting.           

Clear and guided career path vs confusing maze with mostly lateral moves:

And the last key difference I found when comparing consulting vs banking is in navigating and figuring out a career path. In consulting the career path forward is crystal clear. You join as an analyst, you move to associate, you become engagement manager, junior partner and then senior partner.

In banking, my experience was a complete opposite. No coaching or guidance. It was not clear what was the career path. There is a maze and you can take various turns and hope to get somewhere at the end of the road.

The bank is huge. There are plenty of options available for your next role, but most of them are lateral. You could stay in investment banking and follow a set path, or do a lateral move to fixed income. Or you could go into wealth management. While all have their own set promotion path it is not clear where to do and what they really do.

My verdict when comparing consulting vs banking

So what is my verdict when comparing consulting vs banking? I would say, by far, consulting was, and is, a much better fit for me. I love learning. I put a lot into my work and I expect to be viewed as an asset to be invested in vs. a resource to be used and squeezed.

Also, during my years in banking, I met maybe a maximum of 4 people who were somewhat happy. All of them NEVER worked outside of financial services so I think they were happy because they never seen the world outside of financial services. Everyone else was at various levels of misery. In consulting most people I worked with were happy or at least content with their jobs, careers and future prospects.

So based on my experience, if you are anything like me, my advice is to choose consulting or something else, but don’t go into banking.

This is, of course, based on my experience only. I am sure there are a lot of very happy bankers and maybe the issue was the organization I worked in vs the entire banking industry. But I thought to share this so you can avoid some disappointments that I experienced when I picked banking over consulting after MBA.

Looking at FC clients, there has also been a big shift away from banking. Ten years ago banking and consulting dominated our client choices. Today, even when clients receive McKinsey offers, most end up at tech firms, consulting is second, PE/VC is third and investment banking and wealth management are in the lower top ten list.

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Consulting Group Case Interview: What to Expect and How to Prepare

As you probably know, the leading consulting firms use case interviews to evaluate job applicants before extending offers. Some consulting firms use a group case interview as part of the evaluation process. If you have a group case interview coming up you are probably thinking, “How can I set myself up to do well?” In this article, we provide some advice on how to succeed in a group case interview.

What is a group case interview?

A group case interview includes a few candidates being interviewed simultaneously within the same room, with the same interview and with the same case problem. Candidates are usually given copies of the case to read. A group case interview usually takes place after initial 1-on-1 evaluations are completed, like resume screening and the PST. So only the best candidates would generally be attending a group case interview.

For example, if you are going through consulting case interview recruitment process during an MBA, consulting firms will usually do first-round interviews on campus. This will allow firms to select the best few candidates to invite for second-round interviews, which may include a group case interview. Some firms may do the opposite and some regions within firms may do things differently. For example, in the US the group interview usually is the first interview.

The case usually includes a business scenario where a client is facing a problem. Reading of the case may be followed by a group discussion or by group discussion and a solution presentation.

Why do consulting firms use group case interviews?

So, why do consulting firms use group case interviews. The same as 1-on-1 case interviews, a group case interview helps consulting firms assess critical thinking, analytic skill, and communication skills. However, in addition, a group case interview also helps firms assess team work and leadership skills.

Firms also tend to be believe some degree paths de-emphasize teamwork and communication. They use the group case interview to test for these skills. The group case interview is testing to see how a case would be solved while managing conflicting opinions and strong personalities.

The most important advice: treat candidates like teammates

Now, the most important advice we can give you for a group case interview is to treat the other candidates like your teammates. In other words, interact with other candidates as you would with your colleagues on a real consulting engagement.

One of the key things to understand is that a group case interview is not a zero-sum game. You should not be competing against other candidates. During a group case interview, the interviewer will be evaluating how you will work with your colleagues and clients, so keep this in mind as you interact with other candidates during a group discussion.

This is one of the most common mistakes we see candidates make during a group case interview. Candidates often view it as a competition and, as a result, interviewers view such candidates as a bad fit and someone who can’t be a good team player. Your goal should be to help the team solve the case, help include opinions from all members, build on what has been said and find ways to help the team. If you solve the case and the whole team fails and ends up looking poorly, it is not a good reflection on you.

If someone says something incorrect or something you think is stupid respond in a way you would respond if you already joined the firm and were working on a real project with other consultants at the firm. Be professional, respectful and watch out for the best interests of the firm and the client. On the other hand, if someone says something spot-on, be the first to point group’s attention to it and build on it. If you say something that turns out to be wrong, acknowledge your mistake and move on.

WHAT IS NEXT?

Now, if you would like to fast track your case interview preparation and maximize your chances of getting an offer from McKinsey, BCG, Bain, Deloitte etc, we welcome you to train with us. The Consulting Offer program, which is a part of Premium membership, was designed specifically for this purpose.

There is nowhere else in the world where you can see real candidates trained by former partners from major consulting firms.

You will see the candidate’s progression through each step of the case interview preparation process, including a group case interview example led by Kevin P. Coyne, ex-McKinsey worldwide strategy practice co-leader and director. And you will see candidates receiving real offers from McKinsey, BCG, Bain, Deloitte etc.

group case interview

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I have many great moments of working with Michael but the most far-reaching moment occurred when I received offers from McKinsey and a Fortune 500 company to join as a strategy manager.

I had been a Senior Consultant at Deloitte S&O in London and was wrapping up my MBA. I thought the decision was a no-brainer. All my friends were high-fiving me for getting into McKinsey – it was a bad year for recruiting and only a few people got in.

Michael provided a new perspective for me. He pointed out that by going to McKinsey as an associate I was actually taking a step back because I had already been the Deloitte equivalent in a fairly good office. He also showed me – which he proved via a simple LinkedIn search while sharing screens – that the role I was offered as strategy manager was something I may or may not get after McKinsey, and if I did, it could only happen after spending about 2 or 3 years as an associate.

He basically said that the strategy manager role is the role people take after working at McKinsey for a few years and I was being offered it right now. He said that choosing McKinsey only made sense if I wanted to stay there for many years, because I was being offered a short-cut to get into corporate and eventually join line management. Something I would eventually need to do after McKinsey.

Turning down McKinsey was very hard, but I trusted Michael and believe I made the right decision because ex-McKinsey associates now report to me and I am on track for a senior management role in the next 6 months. Thanks for always bucking the trend Michael. I can always count on you to challenge me.

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