Why do firms hire young consultants (and what does that have to do with development)?

Some enormous percentage of my school’s best and brightest go on to business consulting. The supply side seems obvious: broad experience, exposure to many firms, flexibility and prestige, lots of brainy practical work.

But why do client firms demand an army of 20-somethings who have only run a lemonade stand?

The puzzle is why firms pay huge sums to big name consulting firms, when their advice comes from kids fresh out of college, who spend only a few months studying an industry they previous knew nothing about. How could such quickly-created advise from ignorant college students be worth the millions paid? Why don’t firms just ask their own internal recent college grads?

That is Robin Hanson, writing last week. (I am slow to blog these days.) There are some good responses at MR as well.

Robin’s answer: most intellectuals underestimate just how dysfunctional most firms are. Firms leaders need outside support for organizational change.

Here I can chime in with modest experience, having been just such a dewy-eyed, inexperienced business consultant during and after college.

I worked on a motley crew of projects: a big telecoms merger, a retail tire expansion, a national art galley’s control system, internet strategy for a real estate tycoon, and an engineering firm’s management structure.

When it became clear to my firm I was headed to grad school (and development), they stuck me with the lemon of the year: a donut chain upstart, a little firm deciding it would take on the country’s largest donut company (Tim’s–a shop so successful it managed to make itself synonymous with Canadian national  identity), in the most concentrated oversupplied donut market in the world (by a factor of about three). My entire job consisted of trying (in vain) to convince them this was horribly, horribly wrong. At least I got free donuts.

What use could these clients possibly have for young me? Robin is right that many firms are deeply dysfunctional. As much as I complain about the UN, or the average NGO, in many ways they are better run than my former clients.

Robin’s idea that the CEO has the right idea, and sees the need for outside support, is more dreamy. Often the CEOs were deeply dysfunctional themselves, and possibly victims of their own success. Two of my favorite insights into management: The five stages of small business growth and the collected works of Henry Mintzberg. A precis: the skills and ideas that help a business take off are seldom the same ones that bring it to the next stage.

One could draw the same parallel of skill mismatch and cycles of growth and crisis to political development. The founding fathers often have a little too much trouble letting go. Some take their country back down with them.

Back to the firms and the puzzling demand for bushy-tailed young consultants. I think part of the answer also lies in internal politics. It is very difficult to figure out the answer to questions or problems that cross-cut the organization, or to build consensus around change. Everyone inside the firm is too busy and also too entrenched in the politics of the firm. The consultant plays the role of neutral arbiter. Bright and earnest youngsters also have the advantage of seeming rather harmless. I was shocked at the way senior managers opened up to me, telling me things they would hesitate to tell their colleagues.

Another part lies in technology diffusion, and how it is really, really hard. Ideas do not spread as easily as you think. They must be painstakingly carried in, laid out, explained, lobbied, and discussed. For a nice example of this from India, see one of my favorite new papers, on Indian manufacturers.

In the end, though, I grew bored with business. You need something to get yourself out of bed in the morning and to work, and I can only get so excited about making old rich white men older, richer and whiter. So now my job is now figuring out how to make young poor non-white men older and richer (but hopefully not whiter). That is some progress.