Ideas That Drive the Consulting Business John Maynard Keynes
"Ideas shape the course of history."

The true measure of success of a consulting firm is its ability to help clients solve difficult problems. Sometimes this happens because consultants legitimize certain viewpoints within a firm because of their "blue chip" backgrounds and ability to persuade. But more often this happens because consultants bring the right ideas to bear on a company's problems. Consulting is unique in the field of business because it is driven by ideas. The essential act of any consultant is thought. And thought is driven by understanding of the factors which lead to success in particular industries and stages of a company's life cycle. Of course, consultants increasingly assist in the implementation of their recommendations, but this assistance mainly comes in the form of education, change management activities and follow-up rather than as the primary service being provided.

The process of thinking about client problems is what sets consultants apart from each other. Different individuals and firms apply very different frameworks, or intellectual lenses, to the same problems. There is enormous diversity in the way consultants think, and to a large extent, the results that they obtain. This is why there is such a high premium in the labor market for consultants with an exceptional ability to think, create and communicate. Firms are anxious to hire the best and the brightest because the marketplace rewards them for doing so.

The process of solving a client problem starts with framing the problem, followed by diagnosis of its cause, followed by formulation of solutions. Finally, a consultant will assist in the adoption of a solution, providing specialized know-how and talent that is not otherwise available to the client. Each stage of this process requires thought and understanding. The very best consultants probably add the most value in the framing and diagnosis stages. Don Sull, a professor of strategic management at London Business School, has consulted for a variety of firms over the years including Cambria and McKinsey. He argues that the best consultant he ever encountered was distinguished by his ability to look at a very wide and unclear set of facts about a client, quickly suggest a few diagnostic surveys, discussions or tests and then arrive at a conclusion about the root problem. The very best consultants are original and incisive thinkers who can quickly bridge the gap between theories, frameworks and a company's profitability.

BCG: A Testament to the Power of Ideas

Perhaps no greater testament to the power of ideas in consulting exists than the Boston Consulting Group. By the early 1960s, the field of management consulting was well-established in the United States, populated by several leading firms including Booz Allen, A. T. Kearney, McKinsey, Cresap Morgan and Paget. Then, in 1963, Bruce Henderson, a former strategic planner for General Electric, leaves a job at Arthur D. Little and founds Boston Consulting Group -- a firm that many consider the first pure strategy consultancy. Henderson believed in the power of ideas and tools and develops the experience curve model and the growth share matrix which he applies to client firms along with a very talented pool of recently hired consultants. In five short years, Boston Consulting Group joined the top tier consulting firms after experiencing extraordinarily rapid expansion of its business. The company made millions in revenues and helped numerous clients using the power of a few good ideas. Since then the firm has continued to devote significant resources to the development of new ideas that can explain the performance of their clients. Today, the Boston Consulting Group probably remains the most idea driven major consultancy in the world.

The consulting industry is now driven by ideas more than ever. Popular trade books by authors such as Peters, Champy and Reicheld help popularize new ideas, generating significant business in the process. The major firms define themselves by ideas that they embrace and those that they do not. Many firms encourage their consultants to take time out from projects and studies to engage in R&D--the process of conceptualizing and operationalizing new ideas about the determinants of business success. Some would argue that consulting firms have usurped much of the research role traditionally played by business schools.

A major challenge facing many large consulting companies is to generalize from their growing body of research and institutional experience, building an institutional memory that can be drawn upon for new tasks and assignments. Bain, for example, chronicles several decades of its past work in an "experience center". McKinsey keeps a data bank of past projects in order to facilitate cross-functional consulting and Andersen Consulting has an enormous databank of information about client processes, costs and solutions which are used to drive the business forward.

Major Intellectual Frameworks

To get a better sense of the impact of ideas in business consulting, lets examine some of the major intellectual views or frameworks that get used. And, while were at it, let's have a look at some of the major proponents of these frameworks.

It all starts with a body of thought, a discipline, something that gets studied by a large body of professionals. You can usually understand how someone thinks about a problem by inquiring about their disciplinary training.

The Engineer's View: To an engineer, business problems boil down to processes and technology. Some processes are more efficient than others. Some technologies give companies an enormous advantage over competitors. The key then is to figure out the right process and technology for making a product, for managing people, for dealing with competitors and the like. Frederick W. Taylor (1856-1915), whose tomb carries the inscription "The Father of Scientific Management", was an engineer and one the first management consultants. At the age of 31, Taylor was made chief engineer of the Midvale Steel Works. He began to question many assumptions made at the company and began to develop a set of principles which should guide the division of work into almost equal shares between management and the workers, each department taking over the work for it is best able to do. By 1898 when Taylor went to Bethlehem Steel he determined that the 600 shovelers at the plant should handle a load of 21.5 pounds after an extensive study! By optimizing the amount of work each laborer could accomplish in one day, Taylor pioneered what is now known as a time study. Ever since this time, engineers have played a very important role in management consulting. Many early consultants referred to themselves as "consulting engineers" and employed the standard tools of their trade to solve business problems. Today, engineers are behind the great interest in business process redesign, sometimes known as "reengineering".

The Psychologist's View: To a psychologist, business problems boil down to people. If a business organization leads to dysfunctional behavior of its people, then all other efforts to improve will not work. Psychologists, or more precisely industrial psychologists, have had an enormous impact in management consulting. Frederick Taylor had two contemporaries in Frank and Lillian Gilbreth who carried out numerous studies of industrial efficiency between 1910 and the 1940s. Like Taylor, the Gilbreths also studied factors which affected worker productivity, but their lens was different. The Gilbreths were psychologists. Frank Gilbreth built a scaffold that made him the fastest bricklayer on a construction site. Even though the foreman repeatedly threatened to fire him, his innovation persisted. When one of Taylor's assistants was found timing bricklayers on a Gilbreth site one morning, Frank Gilbreth was incensed. A secret time study! And no solid working method! Fundamentally, Taylor and the Gilbreths saw the world differently. The Gilbreth's started with the human factor and found that the best way to increase productivity in factories was to create an employer-employee board, which made work assignments based on aptitude. Psychologists have been instrumental throughout the history of the consulting industry. For example, Walter Dill Scott, was a psychologist with extensive experience with testing instruments. In WWI he met and impressed upon Edwin Booz, the founder of Booz Allen & Hamilton, the importance of a psychological perspective. Several key firms including George Fry & Associates and Cresap McCormick and Paget split off from Booz Allen and carried the psychological perspective forward. Today, industrial psychologists (or OB types as they are now called) work in many consulting firms. "Soft ideas" about motivating people and increasing productivity have been enormously important in the quality movement, in efforts to revitalize teamwork, in the dismantling of hierarchies and in leadership training. Well-known people-oriented thinkers include Covey, Handy and Katzenbach.

The Economist's View: To an economist, business problems boil down to a failure to maximize profit by taking advantage of production, pricing and buying opportunities. Actually, it's hard to justify the existence a problem at all in an economic framework, since economists model optimal behavior of firms and people. All people maximize utility subject to budget constraints determined by the price system. All firms maximize profit subject to production possibilities and input prices controlled by scarcity. The economic paradigm has been extremely powerful in the field of consulting because it provides a benchmark with which to understand what firms should look like in a market equilibrium. Moreover, economic theories of industry structure, supply and demand, input price determination, games, international trade, complementarity, market lock-in and the like have proved to be transferable and relevant in the realm of strategy consulting. Perhaps the best known economist in the field of consulting is Professor Michael Porter of Harvard Business School. Professor Porter entered the Harvard MBA program in 1969 with a degree in engineering. He then completed a Ph.D. in economics with economist Richard Caves as a mentor. In 1979, Porter published a Harvard Business Review article "How Competitive Forces Shape Strategy" that revolutionizes the field of strategic management and suggests a variety of strategies that firms can follow to enhance and protect their profitability. Porter's article was followed by a number of widely read books on corporate competitive advantage and national competitive advantage. Today, Porter works with Monitor, a firm which applies a variety of leading edge ideas in economics to problems in consulting. Recently ideas from the field of game theory and behavioral economics have been particularly influential in the consulting world. Ideas developed in the early part of the century by economists such as Irving Fisher have also been very important in the value-management movement promoted by firms such as Braxton Associates, McKinsey and Stern Stewart. Economic theory can become heavy going and there may be a premium for those with a Ph.D. in the field. Other well-known figures in consulting who take an economic perspective include Tom Copeland at Monitor (recent author of books on real options and valuation), Gary Hamel at Strategos (author of books on corporate revolution and radical change ), Richard Rumelt at UCLA and Rawley Thomas at BCG.

The Biologist's View: To a biologist, a business is just another living, growing organism and an industry is an ecosystem where the fittest survive. Ever since Darwin's day, scholars of business have been tempted to apply natural science ideas to companies. Alfred Marshall, perhaps the greatest economist of the late 19th century frequently used biological analogies to explain commercial phenomena and saw biology as offering a richer body of thought than physics and mechanics to explain the business world. Whereas the economic lens focuses on optimizing choices to be made given a set of constraints (decisions are to be made), the biological lens focuses on changes that take place as a consequence of the environment and random mutation (things just happen according to laws of nature). Insights from biology have come in the theory of the profitability of the firm. Richard Nelson and Sidney Winter in their influential 1982 book An Evolutionary Theory of Economic Change argued that much can be learned by studying how the unfolding of economic events over time influences firms, innovation and economic growth. Nelson and Winter focus on how firms develop routines or decision-rules that evolve within firms, how those routines get replicated and mimicked in the market and how firms grow in a market that serves as a selection mechanism. More recently, biological ideas have proven to be quite powerful in the consulting world as James Moore of GeoPartners has used the idea of business ecosystems to explain the competition between software and telecommunications companies (interestingly, Moore has a Ph.D. in industrial psychology and has used his ideas to build an impressive client list and strong consulting business). Moore views businesses as competing in opportunity environments defined in terms of unmet customer needs, new technologies and opportunities for intense specialization. This view recognizes that opportunities may come in the form of networks between groups of companies which synergistically create markets and products which feed each other. While not explicitly recognized, many other ideas in consulting (e.g. those involving organizational learning) are underpinned by biological thinking.

Related Reading

The Visible Hand: The Managerial Revolution in American Business by Alfred Dupont Chandler

Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them by Richard Foster, Sarah Kaplan

Strategic Renaissance: New Thinking and Innovative Tools to Create Great Corporate Strategies Using Insights from History and Science , by Evan Dudik.

Perspectives on Strategy : From the Boston Consulting Group . By Carl Stern, George Stalk and others.

Gaining and Sustaining Competitive Advantage. By Jay Barney and Mary McEwing.

Corporate Strategy: A Resource Based Approach. By David Collis and Cynthia Montgomery.

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The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment by Robert S. Kaplan, David P. Norton