Why picking the right consultants for your business still works

There are other ways of gaining expertise than developing an addiction to consulting, says one author.

LONDON: They say you are never more than six feet from a rat. Similarly, it often seems as though every other executive is a management consultant, an ex-consultant, or a consultancy client. The ubiquity of rattus norvegicus is almost certainly overstated. So with consultants: How familiar you are with the breed and its habits depends where you are standing.

CONCENTRATED MARKET

Consulting is remarkably concentrated. North America alone accounts for more than half of the US$180 billion of annual consulting revenue as measured by Source Global Research. A “consulting G7” of the US, UK, Germany, France, Australia, China and Canada, in that order, represents 75 per cent of the market.

Break those numbers down and a few anomalies become clear. If you live in Otranto or Osaka, you are more likely to spot a rodent than a consultant. Italy and Japan rank 11th and 12th in the world for consulting expenditure. They punch well below their weight measured against gross domestic product or population.

Yet Italian or Japanese organisations have not suffered from their unwillingness to pay for the silky advisory skills of the vainies, brainies and Bainies, as consultants from McKinsey, Boston Consulting Group and Bain are sometimes dubbed. What if — whisper it — management consultants are not essential to business success?

Hypotheses for the patchiness of the global market abound. One industry analyst told me Americans’ willingness to talk about their problems to paid advisers could explain the disproportionate US appetite for consulting. He suggested, half-jokingly, there might be a link between use of therapists and use of consultants.

WHAT’S BEHIND THE DEMAND FOR CONSULTANTS?

Last week, the International Council of Management Consulting Institutes debated the creation of a “consulting readiness index” to show countries how to create a fertile market for consulting.

Key ingredients include an individualistic national culture, economic freedom, well-developed information and communication technology, high levels of creativity and low levels of corruption.

Researchers from Bristol and Cardiff universities have examined some of these raw materials. They say, for instance, that a dearth of management education in a country does not necessarily encourage its corporate leaders to seek outside advice. MBAs and former consultants who already “speak the language” are more at ease dealing with consulting pitches.

The captain of industry who once told me consultants were a virus will understand why this is known as a “contagion effect”. At best, it spreads good practice; at worst, it infects companies with one-size-fits-all solutions ill-suited to their specific problems.

“There are different ways of gaining expertise other than developing an addiction to consulting,” points out the University of Bristol’s Andrew Sturdy, co-author of the study.

The logo of Bain Capital is displayed on the screen during a news conference in Tokyo, Japan October 5, 2017. REUTERS/Kim Kyung-Hoon/Files

CONSULTANTS AREN’T NEEDED FOR FIRMS TO GROW FAST

Companies in countries such as Italy and Japan have traditionally relied on strong industry associations, government agencies or family advice and support. Others use professional counsel selectively.

Huawei, the Chinese telecoms company, learnt from western consultants as it grew in the 1990s, before ploughing its own path. South Korea sucked in consultants to help its industry restructure after the 1997 crisis and dropped most of them as it recovered.

Fast-growing countries may believe they can do without outside advice. In 2014, China ordered state-owned companies to sever ties with US consultants it suspected of spying. It still spends as little as Italy on consultants, relative to GDP, though the market is expanding fast.

Similarly, technology groups such as Amazon and Alphabet are more likely to compete with consultancies than buy their services. These groups generally rely on the talented strategy brains they can hire as employees.

BUT CONSULTANTS WILL KEEP KNOCKING

A consulting partner with a globe will always see a region or sector not coloured McKinsey blue, BCG green or Bain scarlet as an opportunity rather than a dead-end. Sometimes with good reason.

Even a corporate culture unused to hiring consultants will contain some new chief executives prepared to pay for a new perspective, an edge over rivals or a source of well-trained bodies to plug a skills gap. And fast-growing companies will one day have to grapple with the challenges of complexity and complacency.

Opening the door to an outside adviser will not be chief executives’ only option when that day comes, as these studies show.

But that scratching noise will probably be a consultant trying to find a way in.

Source: Financial Times/sl