Posts Tagged With: consulting

A disastrous tale from a young BCG consultant

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This story by Keith Yost, an MIT alum, was featured on Hacker News today. Yost was hired out of school to work for the Boston Consulting Group in Dubai, making about $200,000 a year straight out of school. When the world economy crashed hard, the bubble that was Dubai crashed even harder, and Yost describes living in what was for all intents and purposes a ghost town.

Here’s Yost discovering that consulting isn’t about giving good advice:

The first clue that my mental picture of consulting was off came with “training” in Munich. I expected instruction in Excel programming, data analysis, and business theory. Instead, Munich turned out to be little more than a week long social outing with other recently matriculated consultants and analysts within the BCG’s European branches. We donned name tags, shook hands, and drank often. Classes were fluffy, and mostly consisted of discussion of high-level, almost philosophical topics. I got along well – as both an American and a member of the Dubai office, I was doubly foreign and therefore double the curiosity.

The importance of appearing credentialed:

Despite having no work or research experience outside of MIT, I was regularly advertised to clients as an expert with seemingly years of topical experience relevant to the case. We were so good at rephrasing our credentials that even I was surprised to find in each of my cases, even my very first case, that I was the most senior consultant on the team.

Clients hiring consultants beacuse they think they should:

I quickly found out why so little had been invested in developing my Excel-craft. Analytical skills were overrated, for the simple reason that clients usually didn’t know why they had hired us. They sent us vague requests for proposal, we returned vague case proposals, and by the time we were hired, no one was the wiser as to why exactly we were there.

I got the feeling that our clients were simply trying to mimic successful businesses, and that as consultants, our earnings came from having the luck of being included in an elaborate cargo-cult ritual. In any case it fell to us to decide for ourselves what question we had been hired to answer, and as a matter of convenience, we elected to answer questions that we had already answered in the course of previous cases – no sense in doing new work when old work will do. The toolkit I brought with me from MIT was absolute overkill in this environment. Most of my day was spent thinking up and writing PowerPoint slides. Sometimes, I didn?t even need to write them – we had a service in India that could put together pretty good copy if you provided them with a sketch and some instructions.

Clients hiring consultants because they want to be told things they already know:

What I could not get my head around was having to force-fit analysis to a conclusion. In one case, the question I was tasked with solving had a clear and unambiguous answer: By my estimate, the client’s plan of action had a net present discounted value of negative one billion dollars. Even after accounting for some degree of error in my reckoning, I could still be sure that theirs was a losing proposition. But the client did not want analysis that contradicted their own, and my manager told me plainly that it was not our place to question what the client wanted.

[…]

At one point my manager said to me, “Change the numbers, but don?t change the conclusion.” Of course, there’s no trouble in changing the numbers – it’s not as if there was much of a basis for this set of numbers over another – but change them how, and to what? Who knows?

I signed a non-disclosure agreement when I first took the job, but that only covered BCG’s intellectual property and client identities, things that seemed entirely reasonable to protect. This agreement [BCG’s non-disclosure offer upon firing] went much further. Not only did it bar me from making any disparaging comments about BCG or my work experience, but I wouldn?t even be allowed to reveal the existence of the non-disclosure agreement itself. The implication was clear: I could either be a cheerleader for BCG or stay silent, but anything else would bring swift legal retribution. When I asked to have the non-disclosure clauses removed, I was told that the agreement was a standard offer to employees, and that its terms were non-negotiable.

I’m not in a position to evaluate how much of this is true, or how representative Yost’s claims are of the consulting industry for graduates. It’s possible, but unlikely, that he didn’t fit in and he’s now telling extravagant lies about his employers. Yost did have his blog, and lots of consulting practice revolves around secrecy, so it’s possible that he didn’t fit in and is now disgruntled.

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The evidence for evidence-based management

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Evidence-based management is the idea that you should implement programs or choose amongst strategies based on what the existing literature or data suggests is the best thing to do. If there isn’t any evidence, then invest in data collection, or run small-scale experiments, to figure out what works and what doesn’t. It’s a useful method for making decisions and implementing programs in a company. There’s evidence that companies that persistently rely on data and experiments do better than those who make guesses.

Put this way, evidence-based management sounds like something every company says it does. Yet the truth is that few companies pursue this approach, and many managers use alternatives to evidence-based management, like relying on intuition about the best way to go forward, making guesses about the future, or assuming that the current setup is optimal.

The problem is larger than it should be because many business gurus, consultants and business schools peddle misinformation and outright falsehoods. There’s a consistent business in selling hot new trends to companies, even though the best strategies may be really old. No one likes being told they have to execute better; they’d rather grasp at some new thing that’s going to give them an advantage. The evidence about which strategies work often runs contrary to what the conventional wisdom says. For example, one law firm held a big meeting to reveal its new “secret” strategy, developed by a consulting firm; Sutton guessed the whole strategy without looking, which mainly involved getting rid of unprofitable partners and developing more profitable business. It was old advice that every law firm knew, and the trouble was in the execution.

Debunking myths is the subject of Bob Sutton and Jeffrey Pfeffer’s book Hard Facts. The authors use evidence, and numerous case studies, to explain that financial incentive plans often don’t work, developing a comprehensive long-term strategy isn’t that important, most mergers only work under certain specific circumstances, and company culture can be more important than hiring the best workers. In each of these cases, studies have shown that the conventional wisdom is often wrong, and companies, schools or hospitals that implement evidence-based programs do better than those who don’t. Yet given the choice between the CW and the data, most managers and firms choose conventional wisdom. This leads to worse outcomes and helps explain why profit levels and efficiency levels can be so different in firms competing in the same industries.

I used to believe that, all else being equal, firms and industries were pretty efficient and there wasn’t much to be gained from entering a crowded industry, or in stooping to pick up a $20 bill. I don’t believe that anymore. The absence of evidence based management at most firms is strong evidence that there are tons of bills on the ground, and that people aren’t looking for them.    

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