I just did a search on keyword "consulting" and found that two
of the top articles that appeared were on the problems that the large Indian
outsourcing firms were having in getting enough visas for their employees to
work in the US, and McKinsey’s attempts to get female workers who left the
company to return.
It is a nice feature of searches that the results sometimes
juxtapose items that I would not normally think about at the same time.
McKinsey's business is management consulting, and especially strategic
management consulting, which is essentially outsourcing of the task of making
strategy and organizational designs and objectives. It is a way to let others rework
the brains of the corporation. The information technology outsourcing that the
Indian firms are famous for (they also do management consulting) consists of
making large systems for corporations, often mission-critical systems such as
those that process transactions and maintain databases for your bank and
insurance company. It is a way to let others rework the guts of the
corporation.
It seems scary that the modern corporation would rely on
others for these tasks. It might also sound a bit like cheating, because one
might argue that a CEO is rewarded richly and given the freedom to create a
management team in order to be able to make strategies inside the corporation. The
case for consulting and outsourcing is that it leaves the tasks to firms that are
specialists, and very good at what they do. A management consultant and a
manager have similar education, but a junior management consultant working on
strategy will gain experience faster and have a greater selection of
experienced senior colleagues for support than the counterpart working in a
firm. The same thing goes for the IT outsourcing specialist, who is dedicated
to making new systems (often similar ones) rather than maintaining them, and quickly
builds expertise.
Much research has been done on how corporations choose which
activities to do internally or externally. There is a lot of repetition of
simple cost/benefit arguments that are hard to measure. What is the long-term
cost of letting the management consultant learn from making a strategy, for
example, as opposed to letting the corporation’s own managers learn from making
a strategy? Hard to tell.
A recent article by Robert David, Wesley Sine, and Heather Haveman in Organization Science offers a new and refreshing perspective on the
question. They took a broader view and asked how management consulting became
established and took the form that it currently has. They were able to trace it
back to the origins of three individuals starting the now-famous consulting
firms McKinsey, Booze, and Arthur D. Little. These three founders acted as
entrepreneurs on two dimensions, forming their businesses and shaping the business
environment. Some of the things they did to shape the environment are well known:
they built status from elite connections, and they built acceptance from
academic connections. But the most striking part of their actions was the
apparent altruism: they claimed more concern for the societal benefits of their
work than their own business (a claim they made credible by not being
particularly profitable, unlike modern consulting firms!). That is a very nice observation,
because shaping the environment around a new form of business is much easier if
you can convince potential clients that they, not the new business, take first
priority. The combination of status, science, and zeal made management
consulting an accepted activity.
Management consulting has come a long way from these
entrepreneurs working before WWII to its current position as an accepted and
even essential part of management. The outsourcing business is still under
debate, but it is already home to some very large corporations and an
increasingly accepted part of management. But if history is any guide, the
debate will end. After all, management consulting and outsourcing have in
common the movement of activities from the inside of the firm to the outside,
with a rationale based on expertise and cost.
Reference
