What drives companies to hire expensive consulting firms like McKinsey, Bain, & BCG?

Hi there,

the most relevant dimensions based on my experience of serving clients for McKinsey and BCG:

Expertise. Sometimes this is being questioned, but MBB consulting firms are indeed specialized in a large array of industries and business functions. When adding up the experience of their consultants from junior business analysts to senior partners and knowledge experts, they can bring thousands of years of experience in each particular sector to their clients. Additionally, top firms spend millions in industry-leading research each year. Lastly, they are able to tap into the best external knowledge via expert platforms.

Problem solving & methodological toolkit. Consultants are the most experienced problem solvers in the business world. They have established processes, tools as well as access to data and experts to deal with any question a company, government or NGO could possibly imagine. From my own experience, it is just amazing how the drive of a small motivated and experienced team of hard working problem solvers can identify and solve business problems, that the client they are working for is unable to solve within a much longer timespan and a much bigger workforce.

Outside perspective. Consultants can bring an objective outside perspective into the client organisation. Since they serve mostly very large corporations or governments, the clients are prone to suffer from management inertia, groupthink, and daily routines. Bringing fresh and objective thinking from the outside can go a long way in such environments to crack crusted structures and old paradigms.

Driving change. As an external force, they are often called to evaluate a company’s issues, recommend solutions and lastly, help overcome or circumvent internal politics to drive change in the organization. Consultants are not bound by the client’s internal political landscape or other issues. Therefore, their substantiated advice can often be used as a powerful force of change. Additionally, especially McKinsey have made huge strides to increasingly support the implementation of their recommendations and have established a rich set of "new delivery models".

Capability building. Besides the analytical work a typical consulting engagement often includes, consultants can spend a significant amount of their time to train employees of their client, either in 1-on-1 coachings or full-fledged workshops. They transfer skills, build up knowledge to help bring their solutions into the organization and facilitate the implementation. Consultants usually train people from senior client leadership to sales staff and shop floor workers.

Cheers, Sidi

At the end of the day, when a company needs to make a decision to hire a consultancy three key questions must have a clear answer:

-can we do this by ourselves?

-if yes, can we do it for cheaper and with similar returns?

-if yes, do we want to do it or does it distract us from our core business?

So traditionally the reasons to hire consultants were:

-bring expertise -->some consultants do same project type over and over (e.g. Pricing, organizational restructuring) and know how to do that task well, fast and with ability to benchmark with other players/industries

-create momentum -->external consultants can help accelerate projects that are stalled due to internal politics (external opinion provided by consultants helps resolve a go/no go decision that is politically charged) or by the fact that they are more efficient and work 1.5-2x hours as much as clients do

-frame and provide recommendation on strategic questions -->this is the "strategic" project that all consultants dream about (decide what market to enter and how, etc)

In the last 5-7 years strategic consultancies started building centers of excellence / operational arms focused on implementing solutions they recommend and enabling clients in delivering them in a continuous way (digital, oil asset management, organizational structure optimization, dynamic pricing, etc). Therefore to the three reasons to hire consultants above, transferring skills has also been added (although this is done by the specific arms of the consultancies).

hope it helps,

andrea

Hi Anonymous,

I agree with the mentioned points. As additional reasons I would add:

• Time efficiency. A consulting team can produce results in a very short amount of time. Hiring someone as part of the company can hardly allow to get a perfect due diligence done in 2-3 weeks only
• On-demand services. Consulting companies may be expensive but they are on demand. Many projects (eg due diligences) are designed exactly for such on-demand support, thus not needing internal hiring. Could be far more expensive for the company to internalize the team.

Best,

Francesco

So I am actually working in a large chemical company, and have heard presentations by consultants from PWC and EY before. The big value added for me was their industry knowledge, not necessarily the analysis or skills. Consultants and their firms have access to lots of private industry knowledge of competitors, and while they can't present that data, they are able to present to a company their benchmarked status (how they stack up). This to me was the most valuable aspect a consultant provieds to a large firm.

I'm nowin the process of applying to consulting firms because I have seen the value of the broad industry knowledge that is gained from working there.

I think there are 3 general ways a Consulting organization can bring value:

1. Bring in actual expertise, which every large company has in droves. Operation, Finance, Strategy... you name it!

2. Help work on a thorny problem that the company's leadership doesn't really want to tackle themselves, or doesn't have the staff to put on it. Includes "right sizing"

3. Give credibility. If MBB said so, it must be true -> now your CEO can get his pet project approved by the board

I suspect many projects are a little bit of every one of these categories btw. And yes, they do provide real value. There wouldn't be such a large industry of 'overpriced' consultants otherwise.