International Businesses spend millions of dollars a year on international business consultants giving internal consulting on companies’ management strategies. Internal consulting sometimes can be as intricate as rocket science or as simple as a new perspective from a fresh set of knowledgeable eyes.
In an article published by The Online Review in “The Corner”, international business consultants give valuable internal consulting strategies that can save large companies and even small companies a lot of money. Under the notion, big consultant firms are paid for fresh ideas that companies don’t have to generate externally.
International business consultants graduating from college are bringing fresh perspectives to internal consulting.
The puzzle is why firms pay huge sums to big name consulting firms, when their advice comes from kids fresh out of college, who spend only a few months studying an industry they previous knew nothing about. How could such quick-made advice from ignorant recent grads be worth millions? Why don’t firms just ask their own internal recent college grads?Tyler Cowen argues that consulting is a way for such very young, but smart, people to add value without the years of apprenticeship that are required in other fields:
The rest of the world is increasingly specialized, so the returns to your general intelligence, as a complementary factor, are growing too, in spite of your lack of widget knowledge. “Hey you, think about what you are doing! Are you sure? How about this?” often sounds bogus to outsiders but every now and then it pays off and generates a high expected marginal product.Strategy consulting is a pretty big industry with thousands of projects every year, so it’s possible to find anecdotes that support basically any theory, but I spent about ten years as a strategy consultant, and none of this sounds very realistic to me. A consulting team is sized to the project, but a typical team might include three research analysts with 0–2 years of experience each, two associates with 3–5 years of business experience each, an engagement manager with 5–7 years of experience, and a junior partner with about ten years of experience. Such a team is ultimately supervised by a senior partner who has overall responsibility for the relationship between the firm and the client, reviews the outputs, and attends key client meetings, but does not directly lead the specific project. No competent consulting firm is going to have a bunch of unsupervised “kids fresh out of college” standing in front of a Fortune 500 CEO telling him what they think. In a typical CEO-level final presentation, a good senior partner will let the engagement manager do a lot of the meat of the presentation, so that he or she gets experience. The partners lay out the overall recommendations at the start of the meeting, and then fly air cover for the rest of it. The associates and research analysts sit at the table or against the wall, and answer questions when data or analysis is challenged. The recommendations of a typical consulting project are the product of the 23-year-old research analysts in about the sense that a published biochemistry paper is the product of the graduate students on the research team. It’s been a very long time since the work product of a good strategy-consulting project has been something like the observation that “No, you’re not in the railroad business, you’re in the transportation business.” The consulting projects that I worked on were usually much nerdier than this. Not all projects add value — like all real activities done by people, they are a mixed bag — but a typical set of recommendations might be something like raising the prices for the following list of products, based on a combination of: (1) historical price elasticity analysis, plus a conjoint analysis piece of market research intended to forecast consumer response; (2) activity-based costing of the integrated manufacturing / logistics economics of the resulting changes to production levels to predict margin change; and (3) competitive analysis to estimate the likely competitor price response based on their production capacity and costs by manufacturing line. This kind of work can sometimes go awry, but usually for the opposite reason: The work becomes an arcane art form that gets too disconnected from practical reality. A good partner on such a project has done each of these types of analyses many times, supervised them at the engagement manager level many times, delivered them to clients many times, and seen the results play out. Further, he or she probably has lots of general experience in the industries and/or the analytical methods in which he or she specializes. This is why career consultants typically work their way up through these ranks over many years, and are subjected to up-or-out at each stage. As a rule of thumb, you might spend two years as a research analyst after college, then two years doing an MBA, then seven years to partner, and then 10–20 years as a partner, if you are successful. In fact, strategy consulting is a mature industry in which a multi-year apprenticeship is required before you are actually put in control of a project, never mind a client relationship. Hanson answers his own question with the following theory:
My guess is that most intellectuals underestimate just how dysfunctional most firms are. Firms often have big obvious misallocations of resources, where lots of folks in the firm know about the problems and workable solutions. The main issue is that many highest status folks in the firm resist such changes, as they correctly see that their status will be lowered if they embrace such solutions. The CEO often understands what needs to be done, but does not have the resources to fight this blocking coalition. But if a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant.”
The Online Review does mention that every situation is different. International Consulting News senior staff points out that internal consulting is all about trying new strategies with the goal of ultimate efficiency, and the ideas pointed out by The Online Review are a new fresh perspective. International Consultants still have plenty of value to add to any corporation; but, this article just states before companies look externally they might want to evaluate their internal talent.
International Consulting News also published an article last year discussing companies that built their own internal consulting divisions within their own companies. This is also an emerging concept that companies can use to adjust their budget. For more information join our email list and look to ICN for more coverage on this topic.
