How Great Consulting Firms Die

Introduction to Consulting How Great Consulting Firms Die

6 comments

This podcast is linked to the article about recent recruiting problems at BCG. We elevate the problem here and discuss the basic elements which lead to the decline of great firms or why smaller firms never become great.

There are many lens through which to analyze this and we have chosen two.

First, we want to distinguish between the health and performance of consulting firms. We look at what drives both and how it it possible to increase performance while damaging the health of the business. Any action which aggressively pursues revenue/profits typically will hurt the health of a consulting firm.

Second, we examine the 5 broad areas where consulting firms must engage and how they can end up doing this in a detrimental manner:

Revenue – a consulting firm must generate revenue to survive and can either do this in a healthy manner or unhealthy manner, such as hiring external people to drive sales.

Engagements – the firm must deliver what it has sold, and again, many firms tend to select experienced consultants or sector specialists first, without seeking generalists or strong cultural fit.

Hiring – this is probably the most important area for consistency and most firms get swayed by the need to cut down on training costs and having consultants who can be immediately staffed.

Training – this cost is largely neglected by firms who delegate training to junior employees or training specialists. Partners should train.

Intellectual property – unless a firm can generate new ways to solve problems, it will always slide down the scale of value it can generate, conversations it can start, relevance to clients and ultimately its brand value.

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6 responses to How Great Consulting Firms Die

  1. Yes, that is entirely true. The key is to ask why a firm does something, and it is ALMOST never the advertised or stated reason since the firm will always try to generate a positive spin on a topic.

  2. Hi Michael,

    Thanks for the response. I guess what I was really driving at was as follows:

    Doesn’t the reduced financial risk associated with expansion given a high-travel model reduce the incentive to take a cultural risk for the purpose of establishing a new office? Does that then suggest that a high-travel model confers a competitive advantage re: expanding while retaining cultural standards?

  3. Raja,

    Yes, from a financial risk perspective your reasoning is correct. Yet, the main risk is not financial, it is the dilution of the culture of the firm.

    The worst thing is to have steep ramp up in profits yet the foundation to destroy the culture could have been laid through the ramp up.

    Michael

  4. Hi Davor and Michael,

    I have a question regarding Davor’s comment about the need to establish an office and then wait for the investment to repay back over time as the office develops.

    Is this a more significant problem for lower-travel firms than higher travel firms? McKinsey is constantly flying people everywhere anyway, so they should be able to develop a sizeable client base in the area before even establishing an office. At that point, the geographical expansion is a far lower-risk proposition. GIven that Bain uses a more local staffing model, does this make it harder (or at least higher risk) for such a firm to expand organically and fueled strictly by internally developed talent?

  5. Davor,

    You just made the case for us. These firms are pursuing financial objectives over and above placing their culture and clients needs first. Looking outside in it is very hard to understand how different the culture is at the major firms. You NEVER EVER sacrifice that for financial reasons.

    When the market is down the solution is to grow slower. These are partnerships and should not have to meet arbitrary growth targets.

    Michael

  6. The firms are buying local small consultancies to penetrate the new markets instead to grow the office from scratch.
    I agree with the argument made in the podcast, that acquiring local partners who don’t have the knowledge of MBB culture may have negative effects on health of the firm in long term (e.g. brings connections of local market, but does not understand the culture and doesn’t have a value system).
    However, what else is anoption in the current economic climate when return on investment and equity have become more then crucial to sustain in short to medium term, and firms need to generate revenue streem quickly?

    Given the economic downturn, there is not much space for various firms including Bain to establish office and wait over long term for investment to repay back by building internal talent from scratch and battleing for the market share from the beginning. Somehow, although not the very best strategy, their current approach in buying local small established consultancies with access to the market is maybe the most vital action they can take. I’ve noticed the same approach with big4 accountancy firms expanding on their consultancy arms.

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