Consultants Are Overpaid Deadweight. Here's Why Companies Hire Them.

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Consulting is often seen as an appealing career by business majors around the world. As a management consultant, you get to travel the world, work with the largest companies, and get to do something new with every project. You also enjoy the perks of great workplace culture and strong salaries. However, while the career of a management consultant may seem glamorous, it’s not actually all that useful. It’s rare that management consultants ever tell companies something that they don’t already know. But then, why do companies spend a fortune on hiring management consulting firms? Well, the answer boils down to two reasons which are corporate barriers and responsibility. For one, management consultants are helpful in breaking through corporate politics and actually implementing the change desired by the leadership. Similarly, management consultants are the perfect scapegoat if and when things go wrong. This video explains the truth about management consultants and why companies actually hire management consultants.

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Timestamps:
0:00 - Management Consultants
2:58 - Breaking Barriers
6:05 - Unpopular Decisions
9:43 - Deadweight

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Disclaimer:
This video is not a solicitation or personal financial advice. All investing involves risk. Please do your own research.

[DraftedByTheMan]

I was a department manager for a finance company.
One day a management consultant came into my office and asked to interview me regarding senior management, processes, hiring, etc.
He assured me that everything I said would be completely confidential.
I proceeded to give my honest opinion of what an absolute mess senior management was making of the companies current situation (very high growth but just continuing to put out fires rather than have a well thought out strategy).
The next day, the vice-president (who was previously a friend) came into my office and fired me.

[JamnTV]

I'm an IT consultant and I can agree with some management consultants can be completely useless, but companies will hire consulting companies to get an outside perspective that is unbiased for market entry, OCM, market expansion, etc. It is more beneficial to hire an outside company for a short term project then HR having to onboard, hire, and interview workers for a project that will take 3-9 months.

[matthew]

I made $40K/year at my old job. I told my boss how to fix the automated answering service to ask the appropriate questions of callers.
The company then decided to pay $1.3 million (it was a utility company) to a consulting firm that did studies of sampled people to see which set and order of questions was best.
The end result was what I suggested with a couple minor differences in wording.
I asked my boss what percentage of the $1.3 million was mine, he just laughed.
Wasn’t long after that I quit.

[gijbuis]

As a young IT team manager working for a major bank in the seventies I was asked to lead a project to automate our mortgage financing. The director clearly wanted the sort of systems he had probably seen in James Bond movies. Real SF stuff, where the top managers sit around a table, pressing buttons which set lights flashing in a huge visual screen surround the room. I had to convince him that this was not doable, but he obviously didn’t want to take advice from a kid half his age. I had however seen that we had access to services from a highly rated management consultant company, run by a former boss who I knew. So I persuaded my own IT director to hire this consultant. The consultant together with an assistant were hired and placed in an office next to mine. They visited me daily, asking me what they should be saying in their report. After 2 weeks they were finished. They presented their (my) report to the head of the mortgage bank and the message got through. I was subsequently presented with requirements for a realistic doable project. The consultant’s fee for 2 weeks work was more or less equal to my annual salary.

[shivamvishnu]

The biggest perk of being a management consultant is that you get to move and interact with the high-powered executives of various companies. You get tons of exposure. After just 2-5yrs in the field, consultants can network enough to get cushy top management roles propelling them on the fast path to CEO in fortune 500 companies. Not bad for a young fresh out of college little experienced management graduate.

[anlanther]

My management consultant professor in uni would always say one of the bigest reasons they are hired is so that the firm can have another entity to blame for when a plan fails

[sayaksengupta]

Consulting is basically getting expert advice from a 22 year old guy/girl who got out of college last summer. 😂

[aadam]

As a previous consultant, consulting is the quintessential “fake it til you make it” career. Imagine someone telling you how to improve something that they’ve actually never done in their career and putting it in a pretty deck, that’s literally consulting.

[dandeluca]

Management Consultant -- someone who borrows your watch, and then tells you what time it is.

[F_M_J]

I'm a management consultant at one of those big firms you talk about and I agree with the premise behind this video. I just want to clarify that MCs may be young (like me) but we do not make recommendations from just our own limited knowledge & experience or just the internal MCs (seniors, managers, principals who were MCs). The expensive fees of the MC also pay for the tools we leverage (which other companies would only need a few weeks or months for). We use the clients' fees for internal research teams, internal international experts (who weren't MCs, but specialized in certain industries over the decades), get access to expensive data sets, and hire niched vendors (like the engineering consultants, legal consultants, etc. you mentioned) before tailoring the recommendations from all the experts.

[DraftedByTheMan]

My second comment here but different perspective because I was a management consultant for two years.
My company specialized in small businesses experiencing growth.
On Sunday night, I would receive my next assignment which always involved a flight to a different city. (Side note: this was not too long after 9/11 so I was constantly getting pulled aside at airports for a secondary search as males traveling alone with one way tickets triggered their algorithm).
Either Sunday night or Monday morning I would take a 1 to 5 hour flight somewhere in North America and then arrive at the business and still work 4 to 6 hours.
I always dealt directly with the owner and we were trained to take control by actually kicking the owner out of his office and taking his chair. If we didn’t do this, we might get shoved into a broom closet to the snickers of the employees (and sometimes partners). Then the other control tactic was to get the owner to order me lunch. The line was “You’re being billed $500 an hour for my time, I intend to work through lunch/dinner but it you want to waste $500 on me finding a sandwich, that’s fine”. There wasn’t one business I went into that these tactics didn’t work. The main roadblock to getting results was to get over the owners ego. Unless I took control immediately, the owner would spend the first hour giving me his life story and how he became such a successful businessman which would then beg the question “so punk, how are you going to tell me to run the business?”
The first thing I would do is gather the financial statements and plug them into my laptop. I could break down the statements to monthly to quarterly and then compare each expense to sales. I could give a very compelling picture of which the expenses could be directly measured against sales. This is extremely helpful when making decisions regarding advertising, expansion (higher sales can actually lead to lower profits), etc.
Also, since I always dealt with small/medium sized businesses there would be between 5 and 100 employees so a good part of my time was spent doing employee interviews (in my earlier comment I mentioned how this backfired on me when I faced a consultant myself).
Most times, the employees were relieved to unload on me all the problems they were unable or unwilling to disclose to management.
My clients included bakeries, salons, construction companies, advertising companies, etc all over North America.
I would be in and out in no more than 2 1/2 days so could visit 2 clients a week and fly home Friday night.
After I left, the client could either just follow my brief synopsis or they could choose to get a full consulting team (where I would receive a large bonus). The next team would spend their time writing procedure manuals for the client, organizational charts, and sometimes actually run the company for a few months before handing it back to the owners.
In two years of consulting, I only had one client (an HVAC company) that was so well run that I had absolutely no recommendations. Even then, the owner told me it was well worth the cost to confirm he was on the right path.
After two years, no matter what the income, it’s too difficult on a personal life to continually travel and only sleep in my own bed 1 or 2 nights a week.
As an epilogue to my previous comment. I took a management position with a finance company I had previously been hired as a private consultant, then was fired after 18 months. I used my severance package to start my own business and used what I had learned from the dozens of small businesses I had visited to achieve success.

[brianh]

I worked at a bank back during the 2008 financial crisis. Obviously after the bank took a big hit they wanted to restructure operations so that they wouldn't make so many "bad" loans. All the employees already knew what they were doing wrong - bank managers had been approving loans that didn't meet the criteria for a credit worthy loan. In many cases they had been overriding the recommendations made. The bank hired Deloitte to come in and do an "analysis" of operations and guess what they found "Bank managers are approving loans they shouldn't based on credit criteria." They paid Deloitte close to a million dollars for them to tell them that when the statistics were already right in from of them if they had bothered to look. Some of the employees banded together and wrote an "anonymous" letter and sent it to the board of directors basically calling them idiots in a rather cold and analytical way. Some of us needed to get it off our chests.

[finnwheatley]

Im afraid you got this one wrong. I used to run a tech and strategy consultancy. The number one reason companies hire management consultants is to get a look into what the competition is doing and follow industry best practice. The single easiest way to get hired at a company as a strategy/management consultant is to say you worked for their competition. Companies know this and everyone who hires MBB plays this game

[thetrends]

Watching this video just made me realize why I'm still broke. I need to start charging consultant rates for my 'expert' opinions.

[mrparkerdan]

I always wondered why organizations waste so much money on these outside “experts”. Thanks for solving the mystery!

[baz]

At a big4 consultancy, I work with the biggest banks in the world. They bring in a consulting team when they don't have the capacity or in-house expertise themselves and don't want to hire a group of people just to fire them 6 months later.

So the consulting team is brought in for a specific project, leverages the expertise of the Partners and Senior Managers, and honestly walks circles around the banks Directors.

[sirius_b_]

I have no idea how management consulting works nowadays, but someone I know really well used to be a management consultant in the late 80s, early 90s and he mostly did so for medium sized companies that were either on the verge of bankruptcy (which scared shareholders into drastic actions, like hiring a consultant) or at the beginning of their exponential growth phase but had no idea how to properly grow the business and especially the revenue alongside the company valuation so as to not become overvalued. Unfortunately, because of the situations in which this acquaintance was braucht into companies, he was most often tasked with drastically cutting expenses or turning up the pressure on various onderperforming parts of the company. This means that across most sectors, when people here the word management consultant, they think of an outsider who comes in and tells everyone what to do, fires anyone who doesn't immediately seem necessary and creates a hostile work environment. I won't deny that that is essentially what they do, but you do have to admit that for many companies, that is exactly what is needed for the company to keep operating. Of course, these extreme scenarios are often the result of poor management/shareholder decisions way earlier but the consultant is often not braught in until the very end, which means he's there to clean up the mess that others made and take the blood of their hands. It is a necessity for many businesses to hire consultants to do these things as doing so with internal people will lead to a lot of bickering and wasted time that these companies no longer have.

These consultants are also often hired for the purpose of cleaning up the books (showing profitability) to potential buyers when the owners of a company are no longer willing to keep the company. This is also the result of bad decisions from the top again, but the alternative would be to let the same people who took the bad decisions in the first place to keep doing so and hope it gets better.
There is a third option here again, which is trying to find internal people who are familiar with the business and capable of turning things around. I will admit that this solution probably makes the most sense from a technical perspective. The only problem with this, is again the managers who made the mistakes in the first place who would have to admit to their mistakes and "promote" employees to their jobs better for them. You can see it is quite obvious that most bad managers would never do such a thing and rather wait until the situation gets too dire and the shareholders/owners finally step in and force the managers to get a consultant to clean things up as shareholders/owners fail to see the value in their current employees, as the only employees they interact with are the reporting managers who have just tried to hide the fact they screwed everything up.

I'll end this by saying, I would love to live in a world where external management consultants do not have to come in and do the "dirty" work but that would require investors to be proactive with their knowledge of the business and operations as well as have managers that are capable of admitting wrongdoing and forgo short term profits for long term profitability. If you have ever worked in a corporate environment, you know both of these are very hard to come by.

P. S. My friend who used to do this told me that in his experience, many of the people he ended firing or SOPs he ended up rewrite/deleting were often based on the opinions of the people at the bottom of the company as they are most often the ones who actually know what is going on.

In one specific case, the company he was hired to fix was in a lot of debt and unable to make any kind of revenue, so he had to get rid of 90% of the workforce which is obviously bad for all those people, but for the employees that ended up staying, another cost saving measure that was implemented was getting rid of a large downtown office space and thus making all the employees remote workers. This was quite an achievement to do in the 90s way before covid, zoom, Skype, teams, etc and as you can imagine the employees who got to benefit from this change were very happy about it, especially as this was happing in a large city with a lot of traffic problems which caused up to 4hrs of transit just for employees to get in/out of work.

Anyway, I hope this gives a better understanding of the opposite side of the coin.

[Nope_handlesaretrash]

Most managers are overpaid dead weight too

[undivided_unified]

can you please not tell my employers the truth more often than they already think it!

[shubhammishra]

YouTube recommended me this video on my first day of job at PwC as IT consultant & I am actually 21 years old.
Hail algorithm!!