Cause and Effect: When Not to Choose Consulting
Cause and effect are discussed to help readers understand when working for P&G, GE, Nestle etc., may be a better career path versus working for McKinsey, Bain, BCG, Deloitte, etc.
Misunderstanding Cause and Effect
Do you remember the days when it was cool to roll out software and stick a beta sign on it? There was a time between 2004 and 2008 when it was a badge of honor to roll out broken software and expect the beta sign to make up for the poor performance. Companies loved saying they were in beta-mode. Some start-ups actually rolled out software in this format just to have the beta sign up, even when they could have easily waited for a more refined version.
Why did this happen?
There is a one-word answer: Google.
Google may not have pioneered the beta idea but they certainly made it acceptable. After Google started doing it, betas became famous for three reasons.
First, Google was becoming cool and everyone wanted to be cool so they wanted to be like Google. If Google was releasing beta software, then they said, “What the heck, I should do it too.”
Second, Google was this mythical company that no one really understood. People just assumed that if Google did it and it worked, they should do it as well, since it will probably lead to the same results.
Third, and the basis of this post, is that Google was supposedly this company encouraging employees to work on fancy new projects in their spare time and roll them out for testing. This, the pundits claimed, was the secret to their success.
Well, betas died. Apple killed that by showing that well designed and integrated products matter. Now, you would look slightly ridiculous if you rolled out anything in beta. Yet many companies still do it, although they tend to give it more fancy names like fail-fast or lean-start-up.
Most people misunderstood cause and effect by getting sucked up in the whole beta craze.
In Google’s case, its incredibly successful and profitable search engine business allowed it to tinker with many ridiculous projects, which may or may not work in the future. The point is, existing success in the search business allowed Google to experiment in new areas.
Not the other way around.
The tinkering was merely collateral damage the company would bear on the path to hopefully finding something useful.
It is a mistake many people made, and still make. They assumed the tinkering led to enormous profits. Even large companies fell for this trap in their thinking.
Many years ago I was the corporate strategy partner in a discussion with the CEO of very large client company: US$15B in market capitalization. I liked this CEO and liked his leadership team. I felt they were trying to make a difference and create value for their employees.
In a strategy planning session, their head of planning had this entire presentation about how they should be more like Google and launch these unrelated and dubious ventures only tenuously related to their business. The CEO was taken with this idea and was almost going to go for it.
Some ideas were plain crazy. They had lots of land so they decided they could create low cost housing and that would be profitable. They used a lot of water so they wanted to recycle the water, clean it and go into the water bottling business. None of these were even remotely related to businesses they understood.
I had to explain to them why that would not work. It comes down to the core of strategy. Strategy is about making choices that allow a company to offer a distinctive value to customers. That is it. Sounds simple but it is very hard to do. It is worse when you have angry shareholders screaming for capital appreciation and you have nothing to show for it.
The easiest way to show a company why they should not do this is to demonstrate the strain on the balance sheet. You will find most executives and consultants do not understand a balance sheet. They leave it to the CFO and his minions. By showing the strain on the balance sheet, the need to create new supporting structures for unrelated business and the stress on employees, most CEO’s sober up.
They realize their crazy dreams cannot be built. So you see, even the smartest people confuse cause and effect.
Cause and Effect in Consulting Careers
How does cause and effect impact career choices in management consulting?
Candidates see (x) number of people joining McKinsey and BCG, and (x – y) of these people becoming CEOs?
Therefore, McKinsey and BCG must be the reason they were successful.
A better question would be: is this the only route for these people to be successful? The answer is an unequivocal no.
McKinsey and BCG, and to some extent Bain do have a very strong institutional system of training people, provided you stay there long enough, and by that I mean 4 years or more. If you stay for less than that, or heaven forbid was never promoted, it is questionable if you learned enough.
So even though these firms take very good people, they can, all other things being equal, make them better.
So, in this way, McKinsey and BCG are (were) the cause.
Yet, there has been a shift in recent years, and this is the part that matters.
In the 1980s and 1990s management consulting was more self-selecting. Not everyone wanted to be a management consultant. The firms were smaller. They had offices in fewer countries and they recruited from fewer schools. You were usually invited to interview versus having to submit an application.
This made recruiting eminently easier. The best applied and the best were selected.
Since 2000, the firms have become larger, expanded to new markets, expanded their services and are looking for newer skills. They have expanded their recruiting net exponentially.
The net has become so wide and placed such a strain on the system that several groups of people have been getting in. Not all of the people in this net should be there.
In this net, you have roughly two groups of candidates.
Group A: Confident and intelligent. They have a rough idea of how they will use management consulting as a launchpad for their careers.
Group B: Also intelligent and confident. They are, however, choosing management consulting because everyone is doing it. They do not really have a plan for consulting, think it will work out somehow and really are just hoping to “find themselves.”
I want to talk about the latter group because I do feel they are making horrendous choices and potentially damaging their careers. I personally feel management consulting is a great career choice. But it is not the only choice to be successful.
There is more to life than management consulting. There are companies that offer equally stunning career training for leadership roles. There are companies that pay far more money. There are companies doing more important things in the world.
Before blindly hitting the send button on your online application, have a clear idea of what you want to achieve and then decide.
Management Consulting Firms versus Multinationals
McKinsey and BCG are not the number one producers of CEOs. That is a widely held and incorrect myth. Procter & Gamble, Nestle, Coca Cola, Pepsi-Cola, GE etc., are the companies that dominate this group.
I know they never tell you this in glossy brochures but it is true. Sometimes GE, P&G etc., produce fewer CEOs in a year, but this is not because those companies have weaker talent. It is because rising share prices and rich stock options packages make it hard for senior executives to jump ship and head up another firm.
So why are people not falling over themselves to join the so-called multinational-enterprises (MNEs)?
Usually, it is due to a lack of good career advice and a focus on short-term gain.
To start, many candidates are driven by ego and salaries. McKinsey and BCG will pay more now, and it sounds nicer on your resume. Moreover, a consulting firm trains well so, on average, you will end up well. It is about playing the odds.
Now, lets look at a path through P&G or GE. Starting salaries are not great but not bad as well. You will also be one of literally hundreds hired in that year. Maybe thousands. The roles are not as glamorous. It is sales, marketing, R&D, operations or finance. I am simplifying things, of course, but that is more or less what will happen.
Yet, there are some profound differences between P&G and McKinsey that matter.
P&G hires a lot of people and not all of them are stellar or want to be promoted every year. McKinsey works on an up or out policy and P&G is more of a grow-or-go model. So the company is arranged for everyone to be happy. You need to be accepting of this. You need to get along with everyone and work your way up.
Exceptional people at firms like P&G and Nestle will go very far very quickly and have the same, if not better, career than at McKinsey or BCG. The mistake many candidates make is to assume that if they are struggling in their current roles in corporate, going to BCG will make them better.
That is not going to happen. The companies can only channel the skill you already have. They cannot create it for you.
If you are truly exceptional you probably do not need BCG on your resume. You will make it anyway.
Therein lies the issue with P&G or GE. While GE may have produced more executives in corporate America, it is doing it off a vastly larger base. In terms of percentages, more McKinsey and BCG partners will reach the c-suite. Most candidates are not happy with these odds. That is why they prefer consulting firms.
However, they are making a math mistake that is important. You should not compare yourself to all P&G employees.
With so many people who are happy to just get the job done, or at least have a job, there is room for someone truly exceptional to shine. So while P&G may have many more employees, the number that is truly competing with you is much lower. In other words, the percentage of P&G, GE etc., employees who end up in executive positions is far higher if we consider only those who wanted executive positions in the first place.
And that is what you should be considering: a like-for-like comparison.
You also need to consider the training and effort made to support those high-performing employees, which is substantially more than that for the average employee.
To thrive at a firm like GE you need to be a self-starter. A company of that size, with that amount of resources, has sufficient budget for training and sufficient challenges for a person willing to ask for it. But you need to prove you deserve it and ask for it since the company is not organized to find and coach stars as easily as McKinsey.
The training at these firms is very good. Yet, the training is more linked to the experience it affords you, versus distinctive problem-solving skills. If you join P&G as a brand manager in Russia, for example, given the skills shortage, you will be given lots of responsibility and control. Your growth traction is therefore much higher. So, the training comes from running a business versus advising a business.
In other words, you will learn the skills to run a large business in your sector, but you will likely not have the foundational skills to analyze any business in any sector. Though, to be fair and blunt, even an associate at McKinsey does not have those skills. They come with time at the firm, as you get more senior.
Most candidates fall into a simple logic trap at this point. They claim that joining McKinsey will teach them business problem-solving skills. That is true. A better question is: why do you want business problem-solving skills in the first place?
The answer to that question is more important. Most of you need those skills so that when you eventually leave McKinsey, you can hopefully run a business.
However, is that not what P&G or Nestle is teaching you in the first place? Granted, P&G has a different training program, longer training cycles and focused on a particular sector, but it is teaching you those skills.
I once spoke to a regional head of paper products for P&G in Switzerland who was adamant she wanted to join McKinsey. When I kept asking her, why, why, why… she realized she needed a different type of training to improve her corporate career. Leaving P&G to join McKinsey would take her further away from her corporate leadership role and would have led to a brutal cut in salary. More than a 50% cut.
She stayed at P&G and went through a different training program, which really helped her both lead teams and make better quantitative decisions.
It is crucial to understand when McKinsey, BCG or Bain helps your career because joining them on a whim can certainly hurt your career.
No matter how good you are as a consultant when you join a corporate you will need to prove you can manage a business operation. And that will not come easily. You will have to learn it. You will likely initially move into an internal strategy role and after a year or two, if you are really lucky, be given a small operating role.
Compare that with someone who joined Nestle at the same time you joined McKinsey. The roughly four-year gap since your MBA means the colleague joining Nestle could very well be a brand manager with significant operating responsibilities. In fact, if you joined Nestle from McKinsey, at the end of the 4 years, and assuming your colleague was as good as you, you will probably be reporting to them.
That is hard to believe but it is true.
Why would Nestle give a relatively junior consultant (associate to early engagement manager level) oversight of an operating team when the consultant has no operating experience?
The friend who went to Nestle is far more equipped to manage an operating team with profit and loss responsibility.
The type of training also matters. MNEs offer significant international experience, both in developed and developing economies. That is one of the critical reasons for these roles. You can manage business and understand operating conditions across a wide variety of industries. That is a really sought after skill in business.
Salaries are also worth discussing. They are not even comparable. Corporates pay more, much more. After 4 to 8 years at P&G, provided you do well and are promoted often, McKinsey could not match your salary. You would be taking a steep salary cut to satisfy your ego and work at McKinsey.
Moreover, as you get to Level 3 or 4, vice-president level, then you are earning significantly more, even if you exclude the likely stock options you will have.
So to bring back this article full circle be clear about what you want in your career and also get a clear understanding of cause and effect: realize there is more than one cause to generate the same effect.
In plain English, there is more than one path to be a c-suite executive.
I see a lot of good candidates with great roles in firms like P&G, GE etc., wanting to join McKinsey. Be very clear about when such a transition will benefit or harm you.
Thought-leadership versus Operating Skills
If you happen to be at Nestle, GE, P&G and so on and are reading this article, be wary of falling for the thought-leadership trap. I routinely receive emails from employees at these firms wanting advice on how to improve or demonstrate thought-leadership.
I have some bad news for you. In the corporate world thought-leadership is for people who have zero corporate future.
You have to think about this for a second to understand why this seemingly counter-intuitive point is eminently logical.
A consultant does not actually run anything. All we could do is generate ideas that help clients run their businesses better. Our currency of value is our ideas. We have to show a thought-leadership. In a corporate environment, how you run a business is what matters.
Let us look at an example to clarify this point. Let’s assume Norman headed one of GE’s turbine facilities and wrote an award-winning HBR article on factory management. Would Norman be lauded if his facility’s performance were in the gutter? The answer is a unanimous “no.”
Who is going to read that article or book if Norman cannot prove his skills in an operating environment? Even if the contents of the article are truly insightful, GE is not hiring Norman to write articles. He was hired to run a plant and that is what he needs to do.
The source of a consultant’s value is the ideas which clients implement in their operations to improve results.
The source of a corporate employee’s value is the operating results he/she achieves which leads to new ideas to help the business. So, do not model yourself on a management consultant if you work in a corporate environment. It is a bad idea.
You can certainly learn the analyses, team management, project management etc., skills of a management consultant but channel them towards achieving operating results.
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