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.

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

  1. Another issue with Robin’s theory is his suggestion that CEOs face coalitions that block their attempts to do the right thing, but ignores that those coalitions, if they existed, would have the power to block the use of consultants (or control the outcomes).

    That is certainly part of my experience. Everyone in the firm knows both the nominal and real reasons the consultants are there. The blocking coalitions work against the agendas and conclusions they oppose. That’s one of the reason why so many consultant’s reports end up being ignored.

    The theory that I think needs further development is not why firms pay for consultants but why firms pay for consultants when the consensus belief inside the firm is either, a) the consultant’s will recommend doing what was going to be done anyway, or b) the consultants’ recommendations will simply be ignored. (Which belief is prevalent is based on the relative power of the project sponsor).

  2. And the women (regardless of colour)? Still, and again, no one helps them…

  3. @twitter_katiworonka. Good point. My lack of clarity. I’d say my research is slightly tilted towards men, but mainly because I study aggression and violence, which is less prevalent among women (at least acute political and communal violence). But still women are about a third to half of the work.

  4. I think you might have some causation confusion here:

    Blattman’s Consulting Work –> whiter CEOs
    Blattman’s Consulting Work –> Older CEOs

    Somehow I don’t think your work caused either of those things.

  5. @Tim, your a) assumes that a consultant’s recommendation would be actualized without the consultants in the first place. But organizations are dysfunctional and loathe to change. So while a consultant may not recommend anything ‘new’, they are providing the final, galvanizing proof point that action is ‘needed’. In regards to b), the sad truth is that there is quite a bit of, ahem, smile-fudging going on within these dysfunctional organizations. To wit, for a coalition of the unwilling it is sometimes in their long-term best interest to feign support for the project, only later to set it up to fail. If they give the project support initially and go through the motions, but then quietly dig their heels in when it comes time to activate the resulting recommendations, they can effectively doom the initiative. Afterwards, they can call for the sponsoring CXO’s head and block like future efforts with a simple “We already tried it, and it was a waste of time and money.”

  6. @cblatts Agree with your conclusion, would offer additionally: 1) Consulting firms like to sell school branding of their consultants in RFP proposals to win clients 2) They are getting an energetic, smart, efficient young workforce to get the job done, even if attrition and burnout is high…they’ve factored this in already, and 3) Regardless of consultant ages, client firms are getting access to industry best practices, methods and templates they wouldn’t otherwise have access too…as a former consultant, I definitely scrubbed, improved upon, and re-used a lot of templates from our knowledge database of previous work. “Legal plagiarism”!

  7. * Client firms don’t “hire” the young consultants. The analysts are staffed there by the consultant firm. The clients get an entire team, and this team is served mostly by these young consultants. And they bill $280+ per hour for each analyst (new college grad you speak of…partners can bill $600+ per hour) and pay the analysts ~$65K/year while pressuring them to work 60-80 hour work weeks (so that’s a good deal for the consulting firm…they’re only actually paying the analyst $17-$30 per hour while making $280 depending on how hard they utilize them…at my firm you had to be at least 80% utilized at all times or you were on the chopping board).
    * Strange phenomenon at my firm. All the analysts and consultants (1st two levels) were bright, top students from top universities. Most of them quit after consultant to go to business school or got tired of the job. Most of the managers are overweight, middle-aged industry lateral hires not from said schools, who feel a bit threatened by the young analysts’ sparkle, so they set out to “manage” these analysts and put them in their place, until the bushy-eyed analysts get tired of it and quit after 2 years. Then these managers manage a whole new entering class, naive to what’s about to happen to them. LOL. And that’s the truth.

  8. Very true. I work inside a firm and I can confirm that no matter how bright people are, they are resistant to positive change. Either it is not their idea so they reject it, or it is their idea and they don’t want others to implement it. But they are too busy to implement change…

    Sure, internal people could implement change. But they don’t.

  9. Chris,
    I really connected with this post – especially the last paragraph. If you have a moment, please check out what we’re building at ReWork (www.rework.jobs) and if it resonates, let’s connect.
    – Evan

  10. There are two diametrically different relationships that can be produced within an organization, dysfunction and change–dysfunction being the negative relationship and change being the positive relationship. While these two are different, it can be said that without dysfunction preceding change there might not be any bit of positive change at all.
    It is very true that most organizations are dysfunctional. This dysfunction is measured by the degree by which the behavior goes against the original perspective of the organization. When a consultant is brought in to remedy the dysfunction, his or her ‘green’ perspective on the organization gives him or her the ability to look at the organization without any political incentives. This clear lens prevents the consultant from getting ‘entrenched in the politics of the firm’, making him or her the brilliantly coined ‘neutral arbiter’. The consultant can then work on bringing the organization from dysfunction to change by advising the management on the proper steps to take (steps which the management wouldn’t otherwise see unless looking through a clear lens).
    The parallel you draw to political development can be extrapolated to the recent revolution in Libya. While Moammar Gadhafi did not have ‘consultants’ per se, he had masses of people demanding change to his leadership and control, and because he did not heed any of the warnings, and ‘failed to relinquish control’, his state collapsed on him. In fact, parallel situations are happing across the globe with the financial crisis. Do politicians, presidents, or leaders effectively utilize their own secretaries/advisors/etc. as consultants? Or is it up to the people of the state to lobby/protest to end the dysfunction and in turn, become one giant conglomerate of consultants seeking positive change?

  11. The complex and cross-cutting challenges facing a firm do often require a global perspective, and innovation does often require building new relationships between people at the intersection of disparate disciplines. Consultants, young and old, can help to provide this perspective and convene the right people at these intersections. But many consultants, myself included, eventually grow weary of “quick wins” and short-term profit maximization. That is why I joined Dalberg (www.dalberg.com), a consulting firm that is both mission- and profit-driven. So what does hiring young consultants have to do with development?

    * The need for firms to access opportunity by building non-traditional alliances. Firms may hire a bright, energetic and motivated consultant to help them “think outside the box,” and become the partner of choice for governments and civil society via superior contributions to the host economy.

    * The need for firms to deliver new products and services to the ‘base of the pyramid’. Firms may hire a bright, energetic and motivated consultant to identify new customer segments, innovations in distribution, and novel financing strategies in emerging and frontier markets.

  12. here is a life of a consultant
    age22(woo-hoo, i can make more money in one hour then i did working pizza job in a week)
    age23(ok, my boss got a real nice ca, wife and a house, but i need to stay put, and work hard to advance)
    age 24(ok, my plan is not working quick enough)
    age (somewhere 25><45)screw this, i can make it 10 times faster if i open up my own firm, and hire some fresh outa school meat)DING DING DING

  13. @cblatts

    1) I’m with twitter_katiworonka; reducing your work to an intention to simply shift power from one male-centric economy to a different male-centric economy categorically alienates women from your idea of “progress.” What is the justification for introducing sex categories into your political science research? Why not study aggression and violence blind to sex trends and correlations? Why is the introduction of sex categories into your research conclusions necessary to understanding violence and aggression? Is there appropriate acknowledgement in your work of the overlap of political science and sex studies? Could your alienation of women from “progress” and your unexplained assignment of sex categories regarding violence and aggression be steps in the perpetuation of the very same sex trends and correlations?

    2) Replacing an old/rich/white/male economy with a young/poor/non-white/male economy solves nothing. Even if you were successful in actualizing this intention, you would have failed to revolutionize the status quo oppressive power structure of an unduly privileged class over an unduly marginalized class. If you’re successful, perhaps your distant progeny will reverse your intention and conduct Political Science research at Columbia to figure out how to elevate the marginalized white males in a non-white female-centric economy. Rather, what do you think of a paradigm shift towards universally inclusive success, or at least the abolition of oppressive and exclusive hierarchies? Could a discussion of that dream be more practical and progressive than a conversation of simply weaving power through disposable hosts?