Bob MacDonald on Business

Sage Advice for Superior Business Management

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We Exterminate Rats and Cockroaches – Why Not Management Consultants?

May 5th, 2013 · 4 Comments · Business Ethics, Business Management, Financial Services

Except for maybe bankers, can you think of any group more useless to business than management consultants? These people are a confirmation of the old theory that if you don’t have the ability to actually do the job then you can teach others to do the job.

I don’t mean to have a closed mind, but hiring a management consultant to tell you how to manage your company is like buying a horsewhip to get more horsepower out of your car. But, you have to give grudging credit to these clowns, because they have figured out a way to get the management of numerous companies to pay billions of dollars for their “advice.” And management consultants have found a willing host in the tissues of corporate management and have taken advantage of it.

The reality is that too many companies are being managed by too many hardcore bureaucrats who have no idea how to effectively lead. It has become an accepted cop-out for these weak managers to hire someone who has never run a company to teach them how to run a company. Talk about the blind leading the blind!

Management consultants have been able to disguise the fact that they bring no real value to an organization. They have accomplished this sleight-of-hand through the creation of a whole new argot of buzzwords which enables them to charge ridiculously excessive fees in order to translate the meaning of this language. We have all heard the words and phrases like “best practices,” “synergy,” “concentric,” “methodologies” and of course the all-time favorite “granular.”

I recently read (well, I didn’t read it, but did see it) a report from one of the leading consulting firms that was titled, “A Multi-granular Linguistic Model for Management Multi-criteria Decision-making.” (I did not make that up!) Need I say more? What incompetent, insecure bureaucratic manager would not be willing to pay millions (of company money) to learn the secrets in a report with such a title?


Big fees are another way management consultants hide their uselessness. Once when I was running Allianz Life we had a decision to make regarding a specific market segment. It was no big deal, but the Lords of Allianz in Germany told me that we should retain McKinsey & Company to provide consulting assistance in making the decision. (At the time, Allianz SE was the single largest customer of McKinsey; paying them scores of millions each year to help them run the company.) We had no interest in bringing McKinsey in, but in order to placate our bureaucratic masters at Allianz SE we agreed to have McKinsey bid on the project. When the bid came in, before sharing it, I asked the executive group what they felt such a service should be worth. The consensus was, being generous, maybe $50,000. The McKinsey bid was $460,000. Only in America could a company have such arrogance. The irony was that Allianz thought it was a good deal and were disappointed when we laughed McKinsey out of the office.

Management consultants have four standard plays – synergy, best practices, downsizing and outsourcing – in their playbooks. They use these strategies and the supposed efficiency and cost cutting they will generate in order to justify their obscene fees.

I was witness to this playbook in action. One of the truly incompetent bureaucratic executives at Allianz of North America paid management consultants literally millions of company dollars in an effort to synergize, downsize and outsource the company to success. In the process, not only were millions of dollars wasted on management consultants, but employee morale was destroyed, efficient operations reduced, marketing became a confused process and expenses actually increased. Later, Allianz had to spend even more money to unwind these misguided efforts. The only winners were the consulting companies. Fortunately, the executive responsible for this waste lost his job and was allowed to “retire.”

I don’t mean to pick on or single out Allianz; they are just one of hundreds of companies that fall prey to the illusionary promises of management consultants. Like other companies infested with a bureaucratic culture of management they are highly susceptible to the illusion of management made simple by tactics.

Now don’t get me wrong, I am not against a manager or executive seeking advice and input from others to be successful. It is a sign of a strong leader to be open to input. But it is a cop out to pay millions of dollars to outside gunslingers – who can’t shoot straight themselves – to take the burden of managing off your shoulders. I favor a different approach. Anyone can benefit from having a mentor, but few can benefit from a consultant. There is a difference. The mentor cares about you while the consultant cares about the fee.

A good example of this approach would be to build a board of directors whose members have varied, actual, successful, hands-on experiences managing and leading a company. As directors these individuals care about you and the success of the company. If used properly, they can be an effective sounding-board for you and other executives in the company. (Not to mention at a whole lot less cost than a management consultant!) And, one does not have to be a CEO to benefit from a mentoring system. In fact, the concept of mentoring can be built into the very culture of the company.

The bottom line is that management consulting can be very effective in the leadership of a company, but it should be an internal not external process.

And the Moral of the Story …

If the management of a company believes it needs to bring in management consultants to teach and help them manage the company, then they should not be in charge of managing the company.

When you see a company constantly seeking outside help to run the company and, in the process, paying thousands, if not millions of dollars, to management consultants, then you are looking at a company with a poor internal culture, managed by weak, incompetent bureaucratic executives stumbling down the road to ultimate failure.

(Bob MacDonald is transitioning from his winter hideout in Key West, Fla. to his warm weather enclave (is it spring, yet?) in Minnesota. Hence, a repeat of this blog originally published September 20, 2009) 
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