Comment by sgt101 | Hacker News Reader

Comment by sgt101 | Hacker News Reader

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"It seems that while these firms do sell concrete consulting services to their customers, what they are mostly selling is a prestigious aura around that advice."

It's actually the network: CEO A is in trouble, investor B says "you need help, get help or we will get you out". A asks B "who can help", B says "Firm C know how to help you - know the managing partner there and he fixes stuff like this all the time".

This is code for "give C work or you will get sacked."

B will receive information and assistance from C, possibly a job himself in the future.

A will receive 12 - 36 more months of employment as CEO while she/he implements the change program proposed by C. A will get $4m -> $45m of pay for this. The change program will have a random impact, because there is no evidence that any of them are efficacious or applicable in any context - so they are randomly applied and even if they can help sometimes they don't mostly.

But, if you are smart you go along with this and don't argue because you absolutely will be forced out if you do. A, B and C all have more power than you, and they all have incentives in the millions of $ to do this.

"The change program will have a random impact"

The book Rip-Off: The Scandalous Inside Story of the Management Consulting Money Machine by David Craig mentions one firm of management consultants (called The Butchers - he doesn't give names of consultancies for obvious reasons) who apparently only ever make one recommendation: lay off a quarter of your staff. Regardless of what the problems of the client are or even if they have any problems.

This makes the job of the management consultants easier - they know what the answer is, they just need to gather some plausible sounding data to support it (or make it up).

The amazing thing is that this, from the viewpoint of an executive, will actually work for a few years - numbers will look great and the company will survive long enough for the executives to move on based on their track record of being "turn around" experts at their last company.

There's a bias there. You often hire consulting firms to do specific things.

If you're hiring PWC to do a Fit For Growth Transformation, that means you believe you need layoffs. The symptoms of are usually obvious: you're burning money, and you'll run out soon. They can be less obvious: You lose contracts based on cost, because your overhead is hire. You don't hire the PWC/FFG team if you believe you're poised for actual growth or need help hiring to move into new markets.

You can get their book. It says point-blank that FFG generally involves a 25% layoff. This isn't some big secret or inside story. It's just what they do.

The advertised value-add of PWC/FFG isn't to tell you that you need a layoff (you knew that already). The value-add is understanding how to structure that layoff. An ideal outcome of a layoff is that you've cut the corporate fat: people doing useless things with no value add. You've removed a big chunk of the corporate bureaucracy. You have faster, simpler, more agile business processes. When you want to do something, you don't need a 3-month approval from Jim in legal, Alice in finance, and Yoav in branding, since Jim, Alice, and Yoav no longer work there. On the other hand, parts of your business which contribute business value are left untouched.

Does it work? I don't know. But most executives go through this occasionally. As an executive, you're an expert on your own business. PWC/FFG has done layoffs over and over and over again. They've seen what can go right and what can go wrong. You're paying for that experience.

I suspect that if the company is that inefficient and badly run it's not the rank and file that are the problem but the people around the boardroom table.

My (limited) experience is that with most organizations, the fault is neither with the rank-and-file, nor with the boardroom table, but either with the organizational design / incentive structures, or with the corporate culture.

Tech is a bit different, since things move fast. Less organizational cruft has time to accrue, so I'd agree boardroom table is the predominant problem. But most companies don't move that fast.

Or middle management. Most of the fat trimmed could be MM.

Believe it or not, a big part of FFG is trimming out middle management. One of the goals is to decrease number of layers. They describe a process by which layers accumulate over time, often unnecessarily.

That implies that senior managers can't work out who in their own organisation is performing or not. Which rather questions their competence as senior managers?

Most of this isn't about high-performing individuals so much as about organizational structures:

1) Organizations build up capabilities over time they don't need. For example, there might be a purchasing department with a complex approval process. Getting rid of that process can cut costs and improve efficiency.

2) There might be opportunities for outsourcing nonessential internal roles into organizations who specialize in those, and can do them at better quality and lower cost.

3) There might be efficiency gains by combining or breaking up units which grew up organically.

... and so on.

Once you come up with a good structure, there's a question about how to transition:

1) Good people tend to leave during layoffs, which is the opposite of what you want. How do you protect critical units?

2) People who leave don't necessarily want to train their replacements.

3) Some people just don't want change.

... and so on. You want to minimize morale hit. A lot of that is in the details of how transitions are handled. In some sense, in a best-case, if you're, for example, outsourcing IT to a company which specializes in IT, your top IT employees will seamlessly transition to that company. Your lower-tier IT employees will have some path out which leaves them minimally disgruntled about being laid off, but no opportunity to do damage on the way out.

Think about it. You're a competent, qualified executive who grew a 10 person company to 10,000 people. It's no longer competitive, and you realize you need 7,500 people to compete.

Would you know how to do that? Or would you like to work with someone who has done it 50 times before, day-in-day-out, and seen things go right and wrong?

That's the selling point. How much value does it add? I've seen it go both ways.

To me most of those things sound like stuff that a competent management team should be able to handle themselves - I've worked for fairly large multinational companies who didn't need management consultants to handle basics like that.

Yes, and no. Management teams have different specialties. You can't be an expert at everything. A big part of doing management well is understanding what to do yourself, what to delegate internally, and what to outsource.

There are plenty of companies which didn't do so well when the management team went from a domain-specific background (e.g. having an electronic engineering run an IC firm) to people with an MBA background.

Bill Gates, Steve Jobs, Jeff Bezos, and many other founders were exceptionally competent managers, but at the time, they had never run a major firm before. Everyone has their first major restructuring at some point.

Or they need to launder their knowledge through an outside party to maintain social cohesion post-purge.

Maybe it's better than tailored advice. These guys probably get hired in cases where downsizing is the desired answer.

The way big, obvious decisions get made gets a lot of scrutiny. They're litigated, literally and otherwise. It's pretty hard to go into major layoffs without a "no choice" mentality. The advice might create an air of certainty, help with labour courts, settle dissent in management, etc. It might play an "explored-all-alternatives" role, etc.

It's the type of thing we never hear a full throated defense of, because these things don't ever work without some level of ambiguity.

The book is fairly even handed in general about management consulting - but it does emphasise that the "Butchers" strategy can often be good for executives but bad for shareholders.

I've read of this other view that the true value of management consulting is hiring an outside group of people to tell you what you want to hear so the executives can justify their decisions to the shareholders / board / whatever.

I guess from this perspective it makes sense that such a firm operates that way. If a company wants to layoff people but is worried about PR or whatever they can hire this firm who they know is going to tell them to layoff people

That's bold, a usual recommendation is 10%.

The book is from 2005 and is based on the authors experiences from a career in consulting so that could be from the 1980s.

Somehow I don't think the details have changed and I've actually witnessed people in a meeting room in a shared office building doing the brown paper trick fairly recently!

brown paper trick?

It's a way of doing process mapping:

https://www.ifm.eng.cam.ac.uk/research/dmg/tools-and-techniq...

However, what is neat is how management consultants can use this as a sales weapon - that books describes it how to use it that way.

That makes your decisions look mediocre, you want to look bold.

Confident, decisive and bold.

Edit: I know from experience that in a lot of sales situations a pitch that is delivered confidently, decisively (with no "It depends") and boldly will pretty much always beat a technically better pitch delivered less boldly.

Why does this comment have such a complaining vibe? It’s B’s money, B can hire whatever combination of A and C they want to get the work done.

It's not B's money, B is managing other peoples money, B is a pension fund.

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