In Defense of Management Consulting: A Critique of Matthew Stewart’s “The Management Myth”
I recently tweeted this Wall Street Journal book review titled, “Bogus Theories, Bad for Business,” a review of Matthew Stewart’s The Management Myth. I’ve not read the book nor do I know much about consulting, but found the article rather provocative. Sure enough, a friend who is much more knowledgeable about this space than I am penned the response below, which I found too insightful to not share. Adam B. Hopkins, Princeton ’05, is a former Mercer Oliver Wyman consultant and currently a PhD student in physics at Princeton.
Evan: Coming from a former consultant - and one who left consulting because he didn't believe that in the long run he wanted his life to revolve around increasing the "shareholder value" or profits of businesses that already make plenty of money - the article/book you tweeted is really off-base, and you might not want to support such a clearly biased "piece of work.”
Perhaps Matthew Stewart has some interesting things to say about management philosophy (or management science, as it is sometimes called) and its moral (or amoral) implications. I don't know, I haven't read his book. But his bombastic statements about the uselessness of consultants are quite overblown. He writes that management consultants are "intelligent nut-jobs devoted to corporate in-fighting, client-gouging, psychological humiliation and sexual harassment", according to the article.
Management consultants, in my experience, and I must add that I worked for a firm that both was one of the most expensive in the world and that paid its constituents some of the highest salaries (which, if business means anything, suggests that it was also one of the best firms), do a great job of "increasing shareholder value" above and beyond that which can be accomplished by businesses alone. Management consultants are able to act on the big picture because they are less encumbered by the politics and day-to-day operations of the business for whom they are working. They are able to provide a more independent view than business managers, which is invaluable to an upper-level manager (or officer) who otherwise would (rightly) assume that the views of his or her upper-middle managers were biased toward their own ends. Consultants look with a critical, and less political, eye - one bolstered with the best practical economic quantitative methods available (as provided, oftentimes, by intelligent Ph.D's who otherwise would not be contributing practically to the world).
Additionally, consultants spread the best ideas around the best firms - that is to say, when one firm implements a good idea, consultants grab it, call it "best practice", and disseminate it throughout the ranks of the competition. In the same way that the 50 states are proving grounds, in a sense, for different laws and political ideas, so are businesses: and management consultants are the catalysts that move the best ideas to other companies, therefore incipiating constant innovation. They are the bees that pollinate the flowers, and they are the grease on the gears of American competition - what could be better for a free market system?
Consultants surely do not always take the best action morally, or even for business. But in general their job is to make their client happy by increasing their client's revenues/net income. The best consultancies do this well, and if the incentives of the people at the businesses for whom they work (the clients) are properly aligned, than competitive capitalism triumphs and is indeed bolstered by the catalyst consultants. (As an aside, I worked in 2007 directly for the CFO at a very large bank to implement a compensation system, i.e., an incentive system, that took both risk and net income into account. Such incentive systems were poignantly lacking over the past decade and this inadequacy surely contributed significantly to the current recession).
To speak specifically to Stewart, who has a problem with management science, consultants proliferate the methods that have been found (practically) to work best: if he has better ideas to put forth, he should start his own consultancy instead of complaining about current consultants. Just because he had negative experiences working for a few small consultancies and just because it's easy to throw stones at a system in which a guy out of college stays at the Ritz while traveling doesn't mean that the entire system is bad. Along that path, the analysts support the ideas and teachings of the much-more experienced directors and job managers, just like at any other firm - they aren't giving the advice, they're crunching the numbers and learning the ropes.
Could the system be improved? Surely. Maybe Stewart should improve it instead of taking the view that he is right while the world is wrong.
My 2 cents,
Adam Hopkins