Why Do Companies Hire Management Consultants?

Last Updated on February 26, 2024

In the ever-evolving landscape of global business, companies continually seek strategies to enhance their performance, competitiveness, and innovation. One approach that has stood the test of time is the hiring of external management consultants, professionals who provide expert advice and solutions to organizational challenges.

In this excerpt from “Consulting Career Secrets,” we delve into the multifaceted reasons behind companies’ decisions to engage with management consultants. Through a comprehensive exploration, this section sheds light on the value these consultants bring, including their ability to offer fresh perspectives, specialized expertise, and strategic insights that drive substantial improvements in business operations and outcomes.

As we navigate the complexities of why and how organizations leverage external consulting services, you will gain a deeper understanding of the symbiotic relationship between companies and consultants, and the impact it can have on business success.

What is Management Consulting?

The management consulting industry is a professional services sector that helps organizations improve their performance by analyzing and solving problems related to strategy, operations, and organizational structure. Management consulting firms work with businesses, governments, and non-profit organizations to identify areas for improvement, develop and implement solutions, and measure the results.

The management consulting industry is a large and diverse sector that includes a wide range of firms, from small boutique firms to large multinational corporations. These firms offer a range of consulting services, including strategy consulting, operations consulting, technology consulting, and human resources consulting, among others.

The management consulting industry is highly competitive and consultancies often compete for projects based on their expertise, reputation, and the quality of their work. Many management consulting firms are known for their rigorous hiring processes and are highly selective in their recruitment.

Management consulting is a fast-paced and dynamic field that requires strong analytical skills, problem-solving ability, and the ability to work effectively in teams. Management consultants often work long hours and may travel frequently to meet with clients. The industry is known for its high salaries and strong career advancement opportunities.

Responsibilities of Management Consultants

The specific responsibilities of management consultants can vary depending on the size and focus of the consulting firm, as well as the needs of the client organization. Some common tasks that management consultants may be involved in include:

• Analyzing data and conducting research to identify problems and opportunities
• Developing and presenting recommendations to clients based on data analysis and best practices
• Assisting with the implementation of changes or new initiatives
• Providing expert advice and guidance on strategy, operations, and organizational structure
• Building and maintaining relationships with clients

Overall, the goal of management consultants is to help organizations improve their performance and achieve their goals. They do this by using their expertise and analytical skills to identify and solve problems, and by working closely with clients to develop and implement effective solutions.

What are Consulting Firms Hired For?

Hiring management consultants and firms such as McKinsey, BCG, and Bain can be costly, especially when engaging leading strategy firms. The price tag for typical projects can range from a few hundred thousand dollars for a short project with a small team to several million dollars for strategy development and implementation involving multiple teams.

Exploring the benefits of hiring management consultants reveals their crucial role in facilitating strategic decisions and optimizing operations for businesses. There are five primary and interconnected reasons why consulting firms are sought after by the management of clients who are willing to pay a substantial premium for external advice:

Consultants are expert problem solvers

Consultants are adept at deconstructing and analyzing problems using a first-principles approach and a hypothesis-driven mindset. Top firms boast established cultures, processes, tools, and access to data and experts to tackle any issue. Their small, motivated teams are renowned for quickly identifying and solving problems that clients struggle with despite longer timeframes and larger workforces. Problem-solving lies at the heart of consultants’ daily tasks, and when combined with their extended working hours, they can facilitate rapid insight generation and solution-oriented recommendations.

Many organizations have seen substantial improvements in business performance with consultants, who apply their knowledge and strategies to foster growth and efficiency.

Consulting firms offer an outside-in perspective

Consultants provide an unbiased, external view to their clients, who often comprise large corporations or governments. These clients are susceptible to management inertia, groupthink, and daily routines. Introducing fresh, objective thinking can challenge the status quo, disrupt entrenched structures and paradigms, and streamline strategic and operational topics.

Consultants can develop innovative, out-of-the-box solutions without being influenced by the client organization’s internal dynamics. Firms looking to enhance their bottom line increasingly turn to consulting services for operational efficiency, leveraging expert advice to streamline processes and reduce waste.

Consulting firms drive change

As an external force, consultants are often tasked with helping to navigate internal politics to drive change within the organization, in addition to bringing their business and operational expertise. Unencumbered by the client’s political landscape, consultants’ substantiated advice can potently catalyze change. Moreover, while strategy development was once the primary value driver, top consulting firms increasingly support the implementation of their recommendations to ensure client success.

Innovation is often ignited by how management consultants drive innovation, introducing new ideas and practices that challenge the status quo and stimulate progress.

Consulting firms bring and create industry-leading expertise

Large consultancies specialize in various industries and business functions. When adding up the experience of a client service team, partners, knowledge experts, and support networks, they can bring hundreds of years of experience to solve a client’s problem. Top firms like McKinsey adhere to the philosophy of bringing the best of the firm to the client, flying in experts from around the world when needed, sometimes only for one meeting, if their value-add is worth it. As a junior consultant, you are responsible for tapping into this knowledge to inform your problem-solving and analyses, enabling the cooperation of different stakeholders.

Top firms can also access external knowledge networks, synthesizing perspectives and insights on any topic. Additionally, they invest heavily in industry-leading research, shaping entire economies and industries. The often cited example is McKinsey co-creating the barcode in the 1970ies, something we all have become used to daily. There are many such examples, most of which the public is unaware of.

The provision of industry-specific consulting solutions ensures that companies in various sectors receive tailored advice that directly addresses their unique challenges and market dynamics.

Consultants train clients’ employees

Besides their analytical work and acting as political agents of change, consultants often spend a significant portion of their time training their clients’ employees through one-on-one coaching sessions or comprehensive workshops. They transfer skills, tools, and methodologies, impart knowledge, and facilitate implementation, working with client staff ranging from senior leaders to sales personnel and shop floor workers. As a result, the entire client organization benefits from improvements in human capital.

What Problems Do Consultants Solve?

Consultants deliver value by addressing two overlapping problems: a lack of expertise and resources.

Lack of expertise

In case of missing expertise, consultants provide external expertise and knowledge to help clients improve their organization in specific areas. For example, if a client aims to expand into an unfamiliar market segment, consultants with relevant experience can offer valuable insights and develop a tailored strategy.

External consultants can also bring additional resources and capacity to tackle challenging problems. Employees within client organizations are often preoccupied with daily tasks, making it difficult for them to address pressing issues. Consulting firms can assist by briefly integrating their teams into these organizations, focusing intensely on specific objectives. A common saying is that a team of three top-tier consultants can accomplish in a week what a client organization could hardly do in one month.

Lack of resources

A lack of resources may also stem from organizational reluctance or inability to initiate and implement change. In these situations, consultants act to dismantle old structures and expedite change. Their role as change agents occasionally creates tension, and consultants may not always be welcomed by working-level clients and sometimes even C-level executives. Implementing strategies for organizational improvement has become more effective with the insights and methodologies provided by experienced consultants, leading to enhanced performance across departments.

The role of consultants in strategic planning cannot be overstated, as they bring a wealth of experience and objectivity to the formulation of actionable and forward-looking strategies. Companies benefit from the specialized expertise in consulting services, accessing niche skills and knowledge that drive targeted solutions and results.

Industries that hire consultants

As a consultant, you will solve these problems across an industry-function matrix. The industry refers to the client’s business type, i.e., the product or service they sell, while the function relates to the area of the business, i.e., the aspect of the company you are addressing with specific capabilities.

Functional expertise of consulting firms

Each period has its focal topics. For example, while digitization has been a hot topic for consulting firms over the past decade, sustainability will be the primary focus for the next 10 years. Many projects currently have a sustainability emphasis or, at the very least, a workstream that deals with the project’s ESG impact.

Based on the industry and function, your actual engagements (another word for projects commonly used in consulting) might revolve around a wide variety of topics in each area.

Contrary to a common myth, consultants are not hired as scapegoats to implement pre-decided strategies, enabling organizations to avoid blame for unpopular decisions. All large consulting firms have achieved incredible success across thousands of clients and millions of projects, consistently being called upon to tackle an ever-evolving set of problems.

Who Hires Top Management Consultants?

A diverse array of organizations from both the business and non-business sectors engages top consulting firms. In the business realm, their clients include multinational corporations, industry leaders, medium-sized enterprises, and unconventional players such as large sporting organizations. These clients generally possess the financial means to afford these premium services.

In the non-business sector, clients typically consist of governmental entities, such as ministries and authorities, and non-governmental organizations, including NGOs and religious institutions, such as the Vatican. Hiring consultants is a common and constant occurrence across all major organizations. You would be hard-pressed to find a large organization that has never worked with top consulting firms.

It is not uncommon for a single consulting firm to have completed over 1000 projects with a large client, demonstrating the depth and longevity of such professional relationships. Sometimes, large organizations engage multiple competing consulting firms simultaneously across various projects.

Within these organizations, top consulting firms are primarily engaged by C-level executives. Smaller consulting firms may also be hired by other stakeholders, such as division heads or country managers. In specific situations, consultants may be engaged by a board or financial investors during critical corporate events or mergers and acquisitions. These clients expect complete confidentiality regarding the collaboration, the projects, and their organization. Consultants work on high-profile cases and have access to sensitive client data and strategic information that must be safeguarded.

Additionally, most clients prefer not to be perceived as relying on external advice. Consequently, consulting firms often do not receive credit for their successful work, and similarly, they may not shoulder the blame if their strategies falter. However, significant failures might become public and make headlines now and then. You might have read several relevant articles over the last few years.

Consulting firms are well compensated for their services, traditionally with a fixed fee structure based on team composition, resources utilized, and time spent on the project. There is a growing shift toward fees-at-risk models, wherein consulting firms are paid in relation to specific success metrics and the impact they provide rather than simply for their presence and analytical efforts.