Are management consultants of any use?

Recently I read and enjoyed THE MYTH OF MANAGEMENT: Why the Experts Keep Getting it Wrong by Matthew Stewart (2009).

Stewart told two stories in alternating chapters.  One is a history of theories of management, which is the topic of my previous post.  The other is Stewart’s personal experience of BS jobs in management consulting.

In 1988, Stewart, at age 26, found himself with a philosophy doctorate from Oxford and no job,  On a whim, he sent his CV to some management consulting firms.  By chance, he got a job from a firm looking for “non-traditional” hires—that is, people without MBA degrees.

Matthew Stewart

He soon found himself going to distant countries and convincing executives twice his age that he understood their businesses better than they did.   His tools were a set of algorithms developed by his firm, and his ability to play the role of an expert.

The main algorithm, as described in his book, was a system for estimating the cumulative cost, revenue and profit for serving each of a business’s clients.

What the system almost always produced was a graph, which looked like a whale, that showed that 20 percent of a firm’s clients produced more than 100 percent of its profits, 70 percent added virtually nothing and 10 percent cost the firm money.

Of course the question is how to disentangle the high-value, little-value and negative-value clients.  If you follow the Pareto 80/20 rule, then 20 percent of a public library’s books can be expected to represent 80 percent of its circulation, and the remaining 80 percent of the books only 20 percent of the circulation.  But you wouldn’t want a library to dump 80 percent of its books.

Companies that stop making low added-value products, as Eastman Kodak did with cameras and Xerox did with small copiers in the 1980s, find that ceding these markets empowers potential competitors.

That’s not to say that the quantitative analyses done by Stewart and his colleagues were worthless.  Understanding numerical data is useful.  But nobody ever checked whether Stewart’s firm’s interpretation of the data was helpful or even correct.  The consultants never suffered any consequences for being wrong.

Stewart did risk analysis—he had no training in risk analysis—for a Mexican bank in the eve of the collapse of the Mexican peso and the Mexican banking crisis.  Neither he nor his client had any notion that the crisis would be upon them, and his firm walked away with millions of dollars in fees.

He quit his firm for a while, then was enticed to join with some breakaway employees to form a new firm.  He invested all of his savings in the new firm.  After a time some the partners started to squeeze out Stewart and other partners.  They stopped his pay without telling him and refused to let him withdraw his stake.

But he successfully sued, got what was owed him and sold his shares in the company at the height of the dot-com stock market bubble.  He then began his new career as an author.

His whole saga reads like a satirical novel.  Indeed, since he doesn’t mention the name of his firm, his clients or his co-workers, it could just as easily have been fleshed out and published in the form of a satirical novel.