History of Management Consulting
Management Consulting began to develop shortly after the rise of management as a unique field of enterprise in the late 19th Century, along with the Industrial Revolution. The early firms were started by university professors. The first management consulting firm was named Arthur D. Little, after the founding MIT professor, in the late 1890s. This firm originally specialized in technical research, but later became a general Management Consultancy. Booz Allen Hamilton was founded as a Management Consultancy by Edwin G. Booz, a graduate of the Kellogg School of Management at Northwestern University, in 1914, and was the first to serve both industry and government clients. This firm later changed its name to Booz & Co.
The first pure Management Consulting company was McKinsey & Company. McKinsey was founded in Chicago during 1926 by James O. McKinsey (known as Mac to most people), an accounting professor from the University of Chicago. Marvin Bower, hired in the late 1930s as a partner, ran the company for 30 years and crafted the firm into what it is today. He believed that Management Consultancies should adhere to the same high professional standards as lawyers and doctors. Thus McKinsey, under Brower, is generally credited with developing into the first Management Consulting firm in the modern sense.
McKinsey is also credited with being the first firm to make it a practice to hire newly graduated MBAs from top schools to staff its projects (as opposed to hiring experienced personnel from industry). It should be noted that Andrew T. Kearney was McKinsey’s first partner, and he left the firm to found A.T. Kearney in 1937.
In the 1960s, a number of new management consulting firms formed, most notably Roland Berger and the Boston Consulting Group (BCG). These firms helped bring a rigorous analytical approach to the study of management and strategy. During the 1960s and 70s, firms such as BCG, Roland Berger, Booz Allen Hamilton, McKinsey and the newly-formed Bain & Co (1973), as well as Harvard Business School, pioneered many of the analytical tools and approaches that would define the new field of strategic management. The publication of these concepts has set the groundwork for many Consulting firms to follow.
Bain & Company in particular set an early focus on the concept of shareholder wealth, which set it apart from other firms and has become the model used frequently across the industry today. Bain has also “put its money where its mouth is,” developing and branching off its Private Equity business based on these principles. Its Private Equity arm has been wildly successful and is considered a leader in the space.
In the late 1990s, the Consulting industry blossomed, driven by a broad array of factors (a strong global economy, increases in computing power, penetration of emerging markets, privatization, globalization, and the new Information Technology Consulting practice). Many established firms were growing revenue at rates of 20% annually or more, and new firms were popping up all over the place. There was thus a huge demand for Undergraduates and MBAs alike, and firms were recruiting extremely aggressively on campus.
After this boom period, the growth stalled for a couple of years in the early 2000s. the dot-com bubble burst; there was a painful recession, and many corporate clients began contracting their Consulting budgets for the first time in decades due to the uncertainty generated by the recessionary economy of 2001 and 2002. As a result, many young/small firms had to downsize or withdraw from the market entirely, and larger firms sharply reduced their recruiting efforts.
Current Industry Outlook
Since 2004, the Consulting industry has recovered substantially—all firms are now aggressively recruiting again. Most firms were surprisingly resilient to the Great Recession of 2008 and 2009. Currently, most consulting offices are working at full capacity and the outlook for the sector as a whole is very positive. Top Consulting firms continue to compete with Investment Banks and each other for the top candidates from universities and business school programs across the country, offering highly attractive compensation packages and career opportunities. At many top business schools, as much as 1/3 of the graduating class will sign with Consulting firms upon graduation.
The current trend in the market is a clear segmentation of Management Consulting firms by function. Major/Strategy-Focused firms such as Bain, BCG and McKinsey retain their dominant global brand in strategy-oriented projects, with smaller, more specialized firms such as L.E.K. and Oliver Wyman competing effectively in the high-end market for specific projects in which they have a competitive advantage. Many other generalist Management Consultancies are broadening their offering include higher volume, lower margin projects such as IT deployment and retail sales analysis. There has always been a bit of an unclear dividing line between Management Consulting and other Consulting practices, such as Information Technology Consulting and Human Resources Consulting, and this line continues to be blurred.
Management Consulting also continues to branch out more and more into non-business related fields as well—specifically, working with governments, quasi-government agencies, and not-for-profit organizations. As the need for professional and specialized advice in these areas grows, these other institutions are relying more and more on the same strategic and analytical principles that have helped corporations for decades.
Type of Firms
There is plenty of overlap across disciplines, and specific Management Consulting firms may practice multiple disciplines. But broadly speaking, Management Consulting firms focus on engagements that can be grouped into four different, important areas:
- Major (Strategy-Focused): Consulting geared towards high-level, corporate decisions. This category can include broad industry analysis, competitor assessment, merger integration, new product strategy, etc. In other words, this category fits most large-scale, high-level Consulting engagements. Most MBA Graduates are hired by these types of firms.
- Information Technology (IT): Consulting that focuses on Information Technology development in several different areas (Assessment, Design, Implementation, Infrastructure, and other areas).
- Human Resources (HR): Consulting that focuses on maximizing value created from Human Resources, or employees, in an organization. Can include topics such as Compensation schemes, Health & Benefits planning, Recruitment processes, etc.
- Niche: Consulting that tends to focus on a specific technology, research, or analysis method, or is particular to a specific industry or region. For example, a Management Consulting firm that only serves the Bioengineering industry would be a type of Niche consulting; another example would be a firm that has developed a proprietary profitability analysis technique and sells it to various firms in the Financial Services Industry. Often, Niche Consulting firms were founded by ex-partners at Major/Strategy-Focused firms that had developed a strong Consulting practice in a particular area during their tenure there. Specialized firms have increased pressure on larger, more generalist Consulting firms to increase their sophistication in industry and geography-specific knowledge in order to compete for business.
Types of Projects
Once again, Management Consultants can be called upon to tackle a broad spectrum of different project types. Each industry and each client have their nuances. There are certain types of projects, however, that tend to occur fairly frequently. Here we describe some common types of projects you might work on as a Management Consultant, and what the work entails. Note that this list tends to focus on the “Major” and “Niche” Consulting areas:
- Post-Merger Integration: When one company buys another, it is often complicated: there are now multiple supply chains, IT systems, customer loyalty programs, etc. Not to mention that there are frequently two people filling certain positions (one from each side), while the newly merged company may only need one. Enter the Management Consultants: this is a classic situation in which Major and Niche consultants tend to be brought in (as well as HR and IT consultants!). These types of projects tend to be large in scope and longer-term—post-merger work can often take a year or two to complete. Additionally, for larger acquisitions, Post-Merger Integration projects tend to have multiple Consulting teams working on different pieces of the Post-Merger Integration work. For example, a Major Management Consulting firm may be coordinating the entire project and overseeing major strategic decisions and analyses, while an IT Consulting firm may be working on an IT Integration and Implementation plan and an HR Consulting firm may be evaluating candidates for key positions, making hire/train/fire decisions, and developing revised compensation schemes for the combined entity. These projects tend to have a high degree of client interaction. Post-Merger Integration projects also tend to have many process elements to them, as you can imagine—the client needs to merge the combined entities quickly and efficiently to maximize shareholder value and reduce risk (e.g., minimize the possibility of business disruption). Consultants with experience at managing such projects efficiently and effectively therefore can command a handsome premium.
- Growth Strategy: This is the classic project type most frequently used to explain what a Management Consultant does for a living. The description often sounds something like, “How can Company A enter the Chinese or Brazilian market? What types of products should they be marketing? What existing products should they exit? How can market share be increased?” These are the types of problems you will work to resolve on a Growth Strategy case. These projects are usually 3-6 months in duration and involve significant analysis–e.g., competitor profiles, industry SWOT analysis, expert interviews, customer surveys—depending on what specific growth issue you are trying to solve. The cadence of client meetings tends to be less regular, with management meetings likely happening once per month.
- Business Diagnostic: A business diagnostic project involves quickly developing a broad snapshot to assess a company or business unit. It is a great way for a new manager, such as a CEO or SVP, to get an understanding of the business and understand what needs attention. These projects are typically ~3 months in length and are highly analysis driven. The focus is typically on breadth rather than depth. For example, you might look into everything from procurement to cost effectiveness to market position to sales effectiveness. You are also likely to do a lot of competitor benchmarking to understand how your client compares to peers in the industry. Once the diagnostic is complete and your team has identified areas that the client should focus on, your firm is likely to sell follow-up work to really understand the topic area in-depth and provide a more detailed recommendation.
- Private Equity Due Diligence: Over the past couple of decades, Private Equity firms have increasingly hired consulting firms to assist with the due diligence of target companies. The PE firms certainly have the capabilities in-house to run management interviews and create the deal model (to determine the appropriate price and financing for a proposed acquisition), but use Management Consulting firms to help provide better inputs to that model. For example, Management Consulting firms have more expertise at offering broad industry insights and assessing the attractiveness of the target company relative to its peers on a number of different dimensions. In performing due diligence on the target company, the PE firm will evaluate the market environment (how fast is the industry growing, who are the key players) and understand the customer dynamics (what do they think of the target company and why). This is often accomplished by conducting several industry expert interviews and running a large customer survey. Ultimately, this information will feed into the PE firm’s model and determine the firm’s interest in moving forward with the deal. The Management Consultants also operate as an “extra pair of eyes” prior to the PE firm spending a large amount of investor funds to purchase the company—they can offer opinions about the attractiveness of the proposed transaction, identify areas of concern, and help with financial due diligence. Private Equity Due Diligence projects will be fast-paced, with a heavy workload and a lot of client interaction; typical engagements will last 3-9 months. For more on what Private Equity firms do and how to look for a job in the Private Equity space, please see our Private Equity Training Course.
- M&A Due Diligence: Similar to Private Equity Due Diligence, M&A Due Diligence involves analyzing a target company that may be acquired by a strategic investor—i.e., a company in the industry—rather than a Private Equity firm. For the most part, acquiring companies mostly leave the details of deal valuation and financial underwriting to the corporate M&A groups and investment banks, respectively, that represent them in the transaction. However, a Management Consulting team can add tremendous value in the transaction process. On an M&A project, Consultants will develop company profiles for potential acquisition candidates and strategically evaluate each one—i.e., how good of a fit is the company, what are its strengths/weaknesses, how do customers perceive it, etc. This assessment will ultimately help determine whether your client is interested in acquiring any companies, and if so, which ones are most attractive. If one is selected for potential acquisition, deeper analysis into this target company will provide useful inputs to the M&A Model managed by the investment bankers and buy-side M&A advisors. This will help determine how much the client might be willing to pay for the target. There is an additional benefit to using Management Consultants for M&A Due Diligence: some experts argue that investment bankers have much more incentive to “get a deal done” than the company itself—i.e., the investment bank makes revenue from the closing of an acquisition, but does not get paid if no deal takes place. Management Consultants, meanwhile, do not have an incentive either way—their incentive revolves around clients making good decisions. Thus having a Management Consulting firm as part of the process may help the client make an important decision—whether to buy a company, not just which company and at what price. M&A Due Diligence projects will be fast-paced, with a heavy workload and a lot of client interaction; typical engagements will last 3-12 months.
- Cost-Reduction: Companies often look to Management Consulting companies to help them streamline costs. This can come from many different sources–reducing production overhead; switching to superior technologies or less expensive raw materials; reducing procurement spending; or a reduction in headcount. In particular, reducing headcount can be a difficult, painful, political process. Management Consulting firms provide the benefit of being an external party, which helps the client make objective decisions in situations such as this, because reductions and other forms of cost savings can be highly sensitive. On a cost-reduction project, Management Consultants might be acting upon the results of a Business Diagnostic (see #3 above) that identified a particular area a company is overspending. Based on the findings, the Consultants might get involved in a Spans and Layers Analysis to determine which costs to cut and how. Also, the Cost-Reduction project might entail contract negotiations if the cost reduction is procurement/sourcing related, or due diligence in alternative markets if the need involves switching to different raw materials. These projects can vary greatly in length, and will involve a high degree of client interaction—in particular, headcount-reduction projects will typically involve many meetings and interviews with different employees to help determine the right way to reduce costs and reshape the organizational chart.
- Organizational Design: There are several types of organizational projects you might work on in Management Consulting. When conducting a true organizational re-design, a company might be moving from a region-based structure to a global, function-based structure. On this type of project, Consultants will likely work intensively and directly with the client to ultimately design the new Organization Charts with the right new roles (and often, determine the right individuals to fill those roles). Another type of Organizational Design project is a Spans and Layers Analysis, which we have mentioned previously. In this type of analysis, Consulting teams evaluate the “span”—i.e., the number of individuals in each part of the org chart—and “layers”—i.e., the number of different hierarchical levels at each point in the org chart. This will help determine where there are opportunities to reduce headcount or reorganize it more sensibly. A third kind of org study is concerned with decision-making and culture. Here, you will likely use the RASCI model (or a comparable model) to identify the key decisions that need to be made in the organization and identify who is currently making them, and who should be making them.
- Customer Retention/Churn: Customer Retention and Customer Churn projects are very similar in nature—they help companies identify the current customers they are likely to keep, as well as likely to lose, and help make determinations about how to keep more of the customers they want to keep. Customer Retention is a critical part of a company’s ongoing viability, and it can be especially useful when there is a competitive threat to a client’s existing customer base. Classic examples of this occur frequently in the cable and cell phone industries – there is a constant threat that a customer may “churn,” or switch to a different provider, in any given year. If these customers are profitable, companies will do whatever is reasonable to attempt to retain those profitable customers. On projects of this type, Consultants will likely conduct analysis to understand the state of the client’s customer base – length of the average customer lifespan, annual churn rate, profitability per client, root causes of churn. Consultants will often conduct focus groups or customer surveys, as well as in-depth microeconomic analysis of the decisions faced by the customer. Then the Consultant might help prescribe ways to convince churning customers to stick with the client as a provider. Ultimately, this work will feed into several different parts of the client’s business–for example, the customer loyalty program or the pricing scheme established for the client’s products. As you can imagine, these types of projects involve a high degree of interaction with a client’s customers, and at least a fair amount of interaction with the client itself. These projects also tend to be heavily data-driven. They typically last 3-6 months but can be longer depending on the scope and complexity of project.
Learning More about Management Consulting
We are often asked about best books, online resources or journals to read to learn about Management Consulting or to prepare to interview for or enter the Management Consulting field. Unlike in many other fields, there are no singular bibles to study, because so many different industry, technology, or analysis-based books might be useful. The field is broad and deep, and highly varied.
That said, reading good business strategy books will help prepare you for interviews and increase your knowledge of the jargon used in the industry. These books should also interest you on some level if you are serious about this job pursuit—particularly if you are interested in Major, i.e. Strategy-Focused, Management Consulting.
Consulting/Strategy-Related Books and Periodicals
- Competitive Advantage, and just about any other book, written by or about Michael Porter, such as Understanding Michael Porter by Joan Magretta
- Good to Great and How the Mighty Fall by Jim Collins (he has several other related books that are also excellent!)
- How To Get Into The Top Consulting Firms by Tim Darling
- Flawless Consulting by Peter Block
- The McKinsey Way and The McKinsey Engagement by Ethan Rasiel
- The Boston Consulting Group on Strategy by Carl W. Stern
- The Lords of Strategy by Walter Kiechel
- What the Best CEOs Know by Jeffrey Krames
- Harvard Business Review: Considered by most to be the leading academic publication of strategic issues faced by companies and industries.
- Consulting Magazine: Industry trade journal for Management Consulting, featuring annual Top Consultant rankings, Best Firms to Work For, Industry-specific articles and analyses, and many other features.
- Management Consulted: Articles and accounts from former Management Consultants, detailing their experiences, as well as resources for individuals looking for employment in Management Consulting.
- Finally, be sure to see this list of mistakes to avoid BEFORE you begin contacting Management Consulting firms. I can tell you from experience that every year, otherwise well-qualified candidates eliminate themselves from the running for Consulting jobs by making these mistakes. (Note that some of this advice applies even better to experienced Consultants!)
Consulting Firm Publications
Publications available on the sites of each of the leading Management Consulting firms should not be overlooked–they are wonderful sources to learn more about Consulting. In these publications, many articles discuss major issues in various industries, prevalent consulting methodologies, and findings from client engagements. They provide an inside look at the type of work Management Consultants perform. (Not to mention that reading them allows you to bring up the publications in interviews!) Some regular publications from leading Consulting firms include:
- McKinsey Quarterly
- BCG Perspectives
- Bain Private Equity Report
- Booz Strategy Publication
- Katzenbach Center: Booz portal for organizational culture and leadership
- Oliver Wyman Insights
- Monitor Institute
- THINK: ACT: Roland Berger strategy publication