Cesare Mainardi must have the foresight to make Strategy& disappear into PwC

Headlining Mainardi’s Tenure


Lets us begin by stating the obvious. Booz & Co. failed as an independent firm and was bought by PwC. Irrespective of the technicalities of the deal or how it is presented; Booz traded independence and a storied heritage for the basic privilege of barely surviving in one form or another.

A firm that once advised the US Ballistic Missile Nuclear Command on the optimal way to manage, structure and deploy the last line of defense for the free world at the height of the Cold War, was unable to survive the onslaught of a rapidly changing consulting market.

In that regard, the only one that counts, the era of Cesare Mainardi was a failure that led to the capitulation of Booz & Co.

It is a failure because Mainardi was unable, or unwilling, to shrink the firm back to its core to remain independent after the separation from Booz Allen Hamilton.This is not to say this capitulation was entirely Mainardi’s fault. The Booz & Co. separation occurred under the watch of then CEO Shumeet Banerji who clearly negotiated a deal which did not enable Booz & Co. to remain independent for too long. At the very least, Banerji handed over to Mainardi a badly wounded and under-capitalized firm.

Our editorials are read widely, including within the leadership of the major consulting firms. We know this because some firms write to us. These critiques may be hard to read but they have the sincere purpose of helping the firms improve. The history of management consulting is one of many great firms that either failed and/or were unable to survive as independent concerns, or were tainted by scandal. As you read this the firms are constantly making decisions, some of which may lead to the same fate.

Rather than getting upset about these pieces, it may be more useful to think about the real problems we discuss and how you can play a role in fixing them. It is not healthy for you to assume the firms are perfect nor are we attacking the firms by pointing out their areas for improvement. Other case interview preparation services choose to avoid these topics because it hurts their business. Our clients go on to join all these firms. We hope they take a hard look at what they find and try to make the firms even greater than they currently are.

That said, Mainardi could have done much more to preserve the firm’s independence.

When any consulting firm reaches a growth plateau, or keeps growing with a simultaneous drop in quality, the pot-bellied beast of a firm must unfortunately still be fed in terms of revenue.

It must still be fed since consultants in the weaker parts of the firm, which are probably tarnishing the firm’s image, must  be paid and to pay them, the firm needs to actively seek out work to pay their salaries. It is usually work the firm no longer wants to do.

As a consequence, this continuous replenishment of sub-par work reinforces, and grows, the very same parts that should be shrunk. In other words, Booz & Co. was pursuing unhealthy growth that weighed it down.

This is a vicious and ultimately self-reinforcing cycle of destruction.

The solution to this problem is very simple. Yet, it is painfully difficult to execute because it requires incredible stamina, focus, effort and determination from the consulting firm’s leadership team. It takes remarkable fortitude on the part of the CEO to convince his peers to cull the parts of the business dragging the partnership down, free up capital tied to weak parts of the business and reinvest it in the core business.

To accomplish this turnaround of sorts, the partners need to not only forgo bonuses, they need to put money back into the business and work harder to convince clients that the necessary pruning does not forebode an impending death of the firm. Moreover, this is hard to control in the media since the the firm’s own consultants leave due to cost cutting measures and spread exaggerated tales of an imminent lack of eminence.

Partners who care about their salaries more than the firm do not like going through this. To be fair, who would go through this pain unless they really cared about the firm’s mission and values? For those partners who could not care and do not care, it is far easier to simply sell the firm. That is what the majority of Booz partners voted to do.

That is worth repeating. The majority of Booz & Co. partners did not believe their mission and values were worth taking a salary cut, and/or making an equity investment, to protect.

Given this, why should Booz client’s believe the firm is different if the partners of the firm do not believe that difference is worth protecting with an additional mortgage, or two, on their homes?

This is the tragedy of what happened to Booz & Co. PwC is a great firm and we are not in any way criticizing Booz because they sold themselves to PwC. It is tragic because Booz sold themselves at all, irrespective of who bought them.

Yet, by the grace of PwC’s leadership, Mainardi has been given a lifeline that may very well burnish his legacy and lead to the creation of a new consulting giant.

The single greatest problem with bringing so-called strategy consultants together with auditors is that the consultants look down on the auditors with a we-are-better-than-you-are-so-leave-us-alone attitude. If acquired strategy firms act this way, can you imagine how strategy firms act in a merger of semi-equals? They would be unimaginably insufferable.

The worst thing that could happen at Strategy& is if the suicidal desire to preserve the old Booz and keep it apart from PwC, while operating within PwC, will be satisfied. To an extent, this is happening.

Even if the acquisition was designed to temporarily keep Strategy& apart, it will only prolong the animosity between Strategy& and PwC partners, generate destructive uncertainty and lead to the slow departure of talented consultants. Mainardi needs to resist that push from many Strategy& partners. Yes, some of these possibly great Strategy& partners will leave but that is the necessary price to be paid for the greater good.

It is far better to initially have marginally weaker combined PwC / Strategy& teams that operate as a motivated group, versus entertaining selfish partners who implicitly sabotage the merger, to preserve their egos, by staffing pure Strategy& teams.

Mainardi needs to work aggressively to blend the teams in a way that diffuses Strategy&’s ideas, approaches and methodologies into the DNA of PwC so that consulting across the firm improves. He needs to share Strategy& thinking, ideas and property as much as possible and as deep as possible into any PwC office that is interested.

The key measure is not whether the quality of the old Booz has deteriorated. It will and should deteriorate in the short to medium term if PwC is serious about playing the long game. The key measure is whether the overall quality of PwC’s broader consulting business has improved. This acquisition will fail if the objective is to create an island of Booz strategy consultants within an ocean of PwC’s potential.

It is sobering to remember that no matter what happens, Booz is going to disappear. The Booz partners and consultants need to accept that. They sold the firm. They made that choice and need to accept the consequences. In 5 to 10 years we will no longer even be mentioning Booz, unless it is about a cruise with university students and beer. There is no point in striving to protect the old Booz within PwC when its fate is inevitable. The only thing to focus upon is ensuring PwC Consulting benefits in the long term.

Strategy& consultants have a tendency to hoard ideas from the PwC consultants. Anyone who looks down on another group does this, and strategy consultants have always looked down on the Big-4 consultants.That is how Booz consultants have been thinking for years and it is not as if their behavior  magically changed overnight due to the acquisition. Humans are terribly slow to adapt their prejudices.

In fact, there are probably plenty of Strategy& consultants who think the acquisition will change nothing, because they are strategy consultants and the PwC consultants do not understand their business and, therefore, have no right telling them what to do.

Yet, hoarding allegedly prized strategy methodologies, because audit-centric consulting teams may incorrectly use them, will result in absolutely zero use of the material and create resentment. Sharing the material at least raises interest and builds excitement. After-all, ten percent incorrect use of the material is much better than zero percent correct use.

Moreover, PwC now owns the material and the firm. Things should change.

It comes down to the way Strategy& disperses its thinking within PwC. Crucially, the Strategy& staff tasked with training and seeding strategy within the PwC teams must be effective goodwill ambassadors. They must be selected both for their people skills and knowledge of management consulting. They must empower PwC to use the materials, ideas and methodologies; while making the PwC teams feel good about the process of learning.

In other words, emotionally stunted and socially myopic jerks need not apply for this role.

Mainardi needs to set the tone. He needs to find ways to leverage PwC’s enormous capabilities in corporate finance, technology, risk, audit and human capital to deploy teams that can solve problems in a way BCG and McKinsey cannot. Yes, as much as PwC consultants need to learn about Strategy& techniques, Strategy& consultants need to learn about PwC’s approach.

Learning works both ways, and the danger is that Strategy& consultants will think and act like PwC can add nothing to their strategy and operations thinking.

Corporate finance and corporate strategy both teach us that a firm must overwhelmingly deploy a unique point of differentiation to succeed. The Strategy& partners must avoid trying to be a mini-McKinsey, not only has that ship  sailed – we are now in the space age, and the PwC partners need to move away from their conservative tendencies to only leverage what they know. As much as risk and compliance work pays the bills at PwC and is a sustainable revenue stream, who wants to go through life just paying the bills?

This is not about replicating BCG or McKinsey within PwC. This is about overtaking them by practicing management consulting in a way that is unique to PwC. That is something Strategy& and PwC need to develop together. It is not as easy as just plopping down Strategy& in the firm and saying, “Go fetch!” It will time and experimentation to develop this new interpretation of management consulting that should look nothing like what either firm was doing before the acquisition.

To build something new, PwC must learn the mistakes from past failures in management consulting acquisitions by audit firms. And if you are wondering which major acquisitions we are referring to, it is all of them. Every single one has failed. Sadly, the PwC integration of Strategy& is following that very same treacherous playbook which doomed every single major consulting acquisition.

Alas, at this rate PwC seems content to simply mimic Deloitte S&O.

PwC and Strategy& may position this integration as being different, and young consultants may be seduced by the repeated promises, but how is it different? Other acquisitions have led to the temporary retention of the acquired firm’s name. Other acquisitions have temporarily kept the businesses apart. And other acquisitions have done everything now happening with Booz.

If PwC does the same things, PwC will get the same result. This acquisition will fail on its current trajectory because everyone is expecting the old Booz to survive within PwC. That should not happen, could not happen and will not happen.

Leaving aside the  implementation issues for a few minutes, the genesis of the transaction is deeply flawed for two reasons.

First, where is the differentiation? As Mainardi himself said, “We believe this positions us together as a ‘Category of One’ – the only global consulting team that’s figured out how to truly bridge the best of operational and strategy consulting.”

It’s only a category of one if you ignore the big blue elephant in the room with a green trunk. As Jim Moffatt, chairman and chief executive officer of Deloitte Consulting LLP, said during the announcement of the Deloitte takeover of Monitor, “Our ability to implement the advice we provide has always been a differentiator. This acquisition further enhances our ability to serve clients from strategy to execution.”

This seems more like a category of two. Maybe they hired the same PR firm to write the release?

It is worrying when firms routinely ignore their competitors and only compare themselves to the strategy firms. Ignoring a deep and entrenched competitor does not make the competitor magically disappear in the mind of a potential client.

Second, successful management consulting firms do not get acquired. They find a way to survive and preserve their independence, since independence is the key ingredient for unbiased results, which is the unrivaled foundation on which client trust is built.

Which major client will trust a Strategy& recommendation if there is even the faintest hint that the advice is skewed to protect the audit partners’ recurring revenue streams? The odor of bias is enough to turn away the most discerning client. Does this mean Strategy& will pursue the less discerning classes of capitalists?

Moreover, how will the work and zones of influence be split between audit, tax, corporate finance and consulting? Which practice’s needs will take precedence? The client’s needs should take precedence, but that is not going to happen here, especially since partner reviews are heavily skewed to sales.

No partner is going to give up the chance to make their sales quota’s in a firm so entrenched in bottom-line thinking.

Strategy consulting may have fancy analytic tools, but those tools only work when you have the independence to tell a client the truth as you see it. An audit-muzzled strategy consultant is unable to do that.

This is something Bain & Co. understood in the 1990’s when Mitt Romney stepped in as CEO to lead the firm back from the brink.

Bain did not sell.
Bain did not capitulate.
Bain shrunk to survive.
Bain is unique in that regard.

Romney deserves a lot of praise for fixing Bain’s mistakes.

PwC has basically bought a strategy firm that, through the act of agreeing to the acquisition, has given up the one thing that allowed it to be a prized acquisition in the first place; its independence.

Yet, the check as cleared and PwC must work with what it has. Mainardi must push for deeper integration between Booz and PwC. It will take a significant amount of patience, stamina and discussions to paint such a vision of collaboration and get teams to work in this way. Yet, it must be done or this merger too shall fail. As much as PwC acquired Booz, the acquisition agreement is merely a legal construct that will have zero influence on blending the cultures.

Now that the ink on the contract has dried, Mainardi needs to ensure Strategy& is accepted into PwC’s culture.

By their nature, management consultants are not very humble, yet Mainardi must lead by example and demonstrate sincere humility as he seeks the privilege, and not the right, to leverage PwC’s relationships and abilities. Acquisitions are not about change management, migration maps or even implementation plans.

That is modern management witchcraft which consultants prepare to make it look like they are adding value. There is a more suitable indicator of an acquisition’s success.

A successful acquisition will occur when a Booz and PwC partner who happen to be sitting together can have a pleasant discussion and come out of that interaction with a personal belief that the legal transaction is worth honoring with sincere personal transactions on a daily basis.

Acquisitions are about trust.

Yet, they need to be managed like a financial option. We generally apply financial options thinking before a deal is done: from the time between when an initial option is taken, like the right to buy an oil field, to when the option is exercised, when the oil field is purchased.

However, after a company makes an acquisition to enter a new business, every subsequent investment to build up the business should also be viewed through this real options lens. In other words, the subsequent investments to expand a business after the acquisition are usually far larger than the investment to enter the business.

Crucially, in this way of thinking, the Booz acquisition can be seen as an option for the right, but not the certainty, that PwC will invest even more money into the strategy business.

Why this is important to the Strategy& partners and consultants?

If the Strategy& partners view the merger as the culmination of their survival efforts, they are sadly mistaken. It is best to think of the initial purchase price of Booz as a very expensive option that PwC has taken on building a major consulting practice. More investments will be needed for consulting and none of them are guaranteed.

As PwC learns more about Strategy&, its business model and capabilities, and make no mistake about this – it is still learning, PwC is continuously deciding if it should make more, less or no investments.

In fact, every budget meeting after the merger is a moment when PwC decides if it should walk away from the option by stopping further investments and letting the integration meander along, or act by making larger and larger investments.

PwC will make more investments if the Strategy& consultants can show the merger is working. That is why there is a clear incentive to see the merger as just the start. There must be a continuous commitment to creating a successful business that justifies further investment in this practice.

True success for Mainardi is when he retires and we no longer have PwC Strategy&. We simply have a stronger and unique PwC Consulting with no clear boundaries. Sadly, history shows us this is unlikely to happen since the old Booz firm is already ring-fencing itself, thereby presenting a target for the PwC antibodies.

Booz & Co may very well have been acquired, but can Mainardi orchestrate an integration process that leads to a better firm? We sincerely hope so but we see little evidence of this.

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