Why do companies hire management consultants

Organisational Dynamics

One answer for why companies hire management consultants lies in organisational dynamics – simply put, companies are structured to maintain operations and keep doing what they are doing. They have systems, processes and departmental silos purposely build to keep the wheels turning and to protect against anything that could potentially disrupt that. This is not necessarily bad, as pointed out by the Harvard Business Review, it just doesn’t lend itself to continuous improvement.

The inertia of a supertanker and that of a large company are very similar – it takes a lot of force to affect a change of direction. It is important to remember that even the most seasoned line manager is likely to have had limited experience managing major change. In fact, they have probably been promoted to their position because they are good at the day-to-day rather than the strategic aspects of business. So not only is creating change extremely difficult, but typically company executives have limited or no experience in changing the status quo.

This is why companies hire consultants to bring specialized skills capable of refocusing the organisation away from their historic day-to-day operations and towards innovative ideas capable of fundamentally improving the performance of the organization.

A consultant cannot compete with company managers on same-sector knowledge but they do have strong transformation skillsets. As an example, a line executive might see three to five transformations in their career, whilst a good consultant is likely to be involved with three to five change programs each year. By engaging consultants, firms gain access to deep experience in driving change and a different perspective with respect to taking tough decisions.

Operational Dysfunction

Most people would likely be surprised by the amount of dysfunction in most firms. As consumers, we typically see a company’s shiny façade – be that its website or store front – but we rarely get to see the back of house, which we often assume to be equally efficient. That is rarely the case, with organisations suffering from a range of organizational dysfunction issues, from misallocation of resources to process inefficiency and absence of planning. Thernos, Enron and Lehman are some extreme examples of where a glossy cover hid large defective back-ends.

Notably, nearly all corporate dysfunction occurs across departmental silos. Therefore, whilst many folks in the firm know about the problems and their workable solutions, they are neither empowered nor incentivized to address them. “Not my problem,” is a surprisingly common refrain from line managers who are struggling daily just to keep their heads above water.

At the other end of the spectrum, senior management might have been made aware of the issues but do not have the time or resources to address these challenges. Significant problems require detailed analysis and review…and so many organisational problems go unaddressed. This is not to suggest that firms do not try to improve. It´s just that all the low hanging fruits have typically been picked already. What is left are the big, complex, inexplicable problems that despite internal efforts to address still plague the organisation.

This is a key reason why companies engage teams of strategy consultants. They bring to the table tools and methodologies that are capable of quickly identifying and developing an approach for solving enduring organisational dysfunction. They have the ability to oversee the implementation of cross functional initiatives which would otherwise fall between the cracks of departmental profit and loss accountability.

Change Resistance

Whilst employees and staff should always act in the interests of the organisation, economic theory correctly predicts they are more likely to act in their own best interest and the interests of those closest to them. This means that many attempts at organisational improvement suffer from internal spoilers who are happy to sabotage company-wide transformation efforts in order to maintain some kind of personal advantage. For example, a bank may be working on an improved risk matrix which, whilst increasing overall company return, would significantly limit the ability of the sales team to earn commissions on what are in reality subpar deals.

Addressing spoiler-type issues from inside an organisation can be extremely difficult – personalities and an unwillingness to upset colleagues can mean that spoilers have an outsized influence in derailing change programs.

Management consultants have extensive experience dealing with stakeholders who are emotionally invested and can provide expert advice as well as professional credibility to navigating the change process. Consultants are able to provide effective solutions to managing employee resistance through the development of structured projects which seek to replace emotion and personal agendas with logic, analytics and psychology. Whilst they are not magicians, skilled senior consultants are at a minimum able to shine an objective light on employee misbehaviour, providing managers with tools to address non-conforming employees.  

CEO – Strategy or Operations

The role of a CEO is the other key to understanding the proliferation of management consulting firms over the last quarter century. The relentless pressure on business leaders to meet quarterly expectations means that CEOs spend a large proportion of time working “in the business,” solving day-to-day problems, dealing with human resources, smoothing over clients and suppliers, and managing stakeholders. This leaves a significant lack of resources working “on the business,” developing new and innovative ideas capable of leapfrogging the company ahead of other organizations. Strategy is also ironically a rare skill set amongst CEOs. It is important to remember that most CEO’s have been promoted from industry-specific COO roles, making them excellent at solving issues but less experienced in being able to step back and see the big picture.

The influence of Mckinsey and BCG at boardrooms around the world is clear evidence that many CEOs need help developing an overarching strategy to achieve the company’s vision. Consulting firms not only provide the structure for such thinking, but they can also provide a dedicated team of career consultants to help the CEO build the logic and data that he needs to justify the direction in which he wants to take the company.

Closing Thoughts

Undoubtedly, management consulting firms operate in the shadows of an executive team, quickly filling the gaps in management capability and strategic planning. Companies hire management consultants to ensure they outperform their peers over the long term despite any immediate term resourcing constraints that they might have. At Barcley, we have a singular focus in helping companies achieve their vision. Contact us now at www.barcley.com.au to discuss how we can help transform your business.

FAQ

What do management consultants do

Management consultants help business leaders solve their most complex and difficult problems in order to help the business achieve long-term profitable growth. They build bespoke solutions to the company’s specific problems using proprietary methodologies and advanced data analysis techniques.

What is business advisory?

Business advisors help small-to-medium-sized organizations develop business strategies and execute performance improvement programs. They will often help businesses across a broad range of functions, including strategy, marketing, financial planning and human resources.

What is the difference between advisory and consulting?

Advisory and consulting are both services that offer expert advice to solve problems or achieve specific goals. However, there are some differences between the two:

Advisory

Advisory typically refers to a more informal, high-level type of service. It focuses on providing strategic advice and recommendations to clients without necessarily getting involved in the day-to-day operations of the business. It will also typically cover a broad range of functions, from marketing to finance, HR and operations. This broad-brush approach is typically geared towards small-to-medium-sized businesses with more straight-forward business models.

Consulting

Consulting is typically utilised by more sophisticated corporations. Consultants work closely with client counterparts to identify problems and develop solutions, including the implementation of those solutions. Consulting typically utilises a highly structured approach and relies heavily on deep data analytics.