Do management consultants add value?

Sam Altman is the President of Y-Combinator, an American seed fund with investments in over 840 companies including Dropbox, Airbnb, Stripe, Reddit, Zenefits, Instacart and Weebly. Sam sent a Tweet out the other week expressing the view that consultants get paid the most money whilst delivering the least value. Sam is of course entitled to his perspective but I’m not comfortable with it.

“Give a consultant a watch and they will tell you the time”

For a profession so derided, in 2014 the management consulting industry was worth $9.4 billion in the UK and $43.6 billion in the US (according to Interestingly, the UK Management Consulting Association, which represents all the major UK consulting firms, highlights that 25% of all consulting activity now relates to digital activities. 

Those are some very big numbers for an industry that is perceived to offer no value proposition. Either consultants are a helpful addition to the value chain or there’s an awful lot of senior people out there wasting very good money on useless advice.

Personal experience

I was a management consultant for 10 years and I know it’s a funny business. I’m thick skinned enough to know what a bad reputation consultants can have but I’m also self-confident enough to know that I’ve worked with many businesses, large and small, where I’ve contributed a significant amount of value. I’m not just delusional, the client feedback has supported this and the relationships I’ve built have been long term.

I’ve had the privilege to work with some incredibly capable consultants and some frankly useless ones.

One of the biggest issues the industry faces is that anyone can choose to become a ‘consultant’. Unlike most other professions, no letters after your name are needed to set yourself up: a laptop, mobile phone and internet connection and you’re good to go. There are plenty of individuals out there with a dose of successful on the job experience who think that they can earn more by setting themselves up as a ‘consultant’ and farming themselves out on a chunky day rate.

The complexity

Consulting is a little more complex than this. As defined by the MCA, it is:

The practice of creating value for organisations… [achieved by] solving problems, providing outside perspective, and enhancing business capability.

The ability to add value through problem solving is an art, not a job title. Sam’s colleague Paul Graham summed it up in his essay How You Know. He comments on one of the last century’s greatest mathematicians, Hilbert, who used to tell his students that “a perfect formulation of a problem is already half its solution”. I love this. Helping a client get to this point is the domain of the true consultant. Operational support often then follows, that is part of the consulting business model as it is where the real margins lie.

So what?

A good consultant will tell you if they don’t believe they can add value to your business, because their long term reputation as a trusted advisor is worth considerably more than the fees they will collect for any one assignment.

If you are working as a consultant and knowingly not adding value then you are not doing your job properly. If you have a consultant working in your business who isn’t helping you to identify and solve your business critical problems then it’s surely necessary to question why you are employing them at all?