Consulting the Stars

Is management consulting just a lot of hocus-pocus?

Dangerous Company: The Secret Story of the Consulting Powerhouses and the Corporations They Save and Ruin
By James O’Shea and Charles Madigan
Times Business; $27.50; 384 pages

Just after World War I, General Motors asked a team of industrial engineers from outside the company to survey its business and recommend strategies for the future. After careful study, these pioneer management consultants advised GM to rid itself of Chevrolet because it “could not hope to compete in its field.” GM executives somehow saw their way clear to disregarding this counsel and, 15 years later, the Chevy was the country’s most popular car.

This is a good story. So too is the one about consulting firm Booz Allen & Hamilton’s recommendation in the 1960s that gasoline companies not sell food in their stations for fear of annoying local restaurant owners. In fact, the history of consulting is full of tales like these, showcasing the hubris, shortsightedness, and one-size-fits-all attitude of firms like McKinsey, Deloitte & Touche, and Andersen. If, like James O’Shea and Charles Madigan, writers at the Chicago Tribune and authors of Dangerous Company, you feel “a growing sense of unease” about the authority consultants enjoy in today’s business world, finding evidence to feed your anxiety won’t be a problem. The Deloitte & Touche advisers who promised to turn a company into “a world-class manufacturer in 10 to 12 weeks” while remaining unable to explain what “world-class” meant; the Andersen consultants whose fee was set by how many jobs they eliminated; the Bain consultant who got himself appointed controller of the company he was counseling–they’re all here, and they’re all preposterous.

The history of management consulting, though, is more complex than these horror stories would suggest. The profession originated in the early years of this century with the application of the principles of scientific management to production lines. The first consulting firms sprang up after World War I, when consultants were regarded primarily as “efficiency experts.” In the late 1950s, consulting came into its own. The corporate need to understand the burgeoning consumer market, a more general faith in the value of expert advice, and the demands of an unprecedentedly strong economy created a market for firms like Booz Allen and McKinsey. In the last two decades, consultants have benefited from anxieties about profitability and foreign competition. Corporations looking to reinvent and downsize themselves have made consulting the new hot profession.

Unfortunately, little of this history makes its way into Dangerous Company, which is the first real study of consulting since business journalist Hal Higdon’s 1969 work The Business Healers. Instead, the book is constructed–unintentionally or not–as a series of case studies that echo the teaching methods of Harvard Business School, prime consultant training ground. Each chapter is meant to illuminate a larger truth about consulting in general. The chapter on Deloitte & Touche shows how willing consultants are to assume absolute power, the chapter on Andersen how readily they chop heads, and the chapter on Gemini how successful consulting firms are at selling themselves. In, O’Shea and Madigan paint a bleak picture of corporations dazzled by snake-oil salesmen operating with “a blind and sometimes fatal certainty,” and of long-term financial health sacrificed to short-term thinking. But while the picture is bleak, it isn’t sharp or convincing. Instead of a serious analysis of the evolution of consulting or a discussion of the differences and similarities between consulting and traditional corporate management, we get argument by anecdote.

O’Shea and Madigan take this approach, ultimately, because they have no thesis to offer. To be sure, they want to persuade us that the work consultants do is too often not in the best interests of their clients, and they do reveal how often hubris and open checkbooks have been recipes for disaster in the past. But they have remarkably little to say about why they think consultants–as opposed to any other managers with power–are particularly dangerous. Nor do they explain why consulting firms continue to enjoy the authority they do in the business world. For the underlying tenets of consulting–faith in the value of a disinterested rationality, the idea that what works in one place will work in another–have given way since the 1980s to the idea that people with vested interests in a company are the best-equipped to run it. (That’s why stock options, for example, have become a preferred form of executive compensation.) So why have consultants, who are asked to help companies in which they have no financial stake, survived?

These are serious questions, and answering them would tell us important things about the transformation of the U.S. economy in the postwar period and specifically in the last two decades. Instead, Dangerous Company often reads like a self-help book for executives who just can’t stop picking up the phone to call Arthur Andersen or James O. McKinsey. The last chapter even ends with a 10-point checklist of things to keep in mind when dealing with consultants. “Never give up control,” we’re told. “Value your employees,” and, “Beware of glib talkers with books.”

In a way, though, the sheer banality of this advice points up the lockhold that consultants have over the corporate mind. After all, no one would need to be told to “never give up control” unless there were executives all too willing to cede authority in a crisis. Nor would “value your employees” be necessary counsel unless companies were routinely putting more stock in outsiders’ analyses than in the intelligence of their own people. One thing Dangerous Company does show convincingly is how quick companies are to look outside for solutions, especially when these come with the imprimatur of a major consulting firm.

And yet, looking outside isn’t necessarily a mistake. Executives are often too close to problems or too hidebound in their thinking to produce new solutions. American business, in fact, has a long history of bringing in outsiders to transform companies, though these outsiders haven’t always been called consultants. Taylorization, for example, shaped the auto industry assembly line even though Frederick Winslow Taylor developed his theories by studying carters. Later in the century, Ford was saved by the so-called Whiz Kids, a group of managers (including Robert McNamara) who came to Detroit after World War II from the Army. More recently, outside CEOs like Harvey Golub at American Express and Lou Gerstner at IBM–both McKinsey alums–have forced fundamental changes on corporations seemingly stuck in long-term ruts. As many corporations have fallen apart listening only to those inside as have collapsed from bad advice from those outside.

Besides, blaming consultants for companies’ failures seems, in the end, to be beside the point. No one forced AT&T to pay $450 million in consulting fees over the course of five years. That doesn’t mean AT&T was stupid to do so, but it does suggest that Ma Bell is the one responsible for its woes. It also suggests that the real riddle–and one that O’Shea and Madigan don’t thoroughly investigate–is why companies call in management consultants to begin with. The answer probably has something to do with the needs of corporate America today–the need to pass off responsibility, the need to appear to be on the cutting edge, the need to believe that every problem has a ready-made solution. Dangerous Company levies a powerful indictment against management consulting, but in doing so it confuses a symptom with the disease. Consultants aren’t the real problem. The needs they’re asked to fulfill almost certainly are.