Management consulting – where did it begin?

EXECUTIVES often rely on the advice of expert management consultants. Was it always this way? Where did it all begin?

The very first management consulting firm was Arthur D. Little, founded all the way back in 1886 by a professor at MIT whose name was (funnily enough) Arthur D. Little.

Almost 30 years later, Booz Allen Hamilton was founded in 1914. Booz was the first management consultancy to serve both industry and government clients.

Interestingly, McKinsey & Company was the world’s first pure management and strategy consulting company. Founded in 1926, McKinsey is is now the world’s most prestigious consulting firm.  The culture of the firm was heavily influenced by a man named Marvin Bower, who served as managing director from 1950 to 1967. Bower believed that management consultancies should adhere to the same high professional standards as lawyers and doctors. To this day, the core guiding principle at McKinsey is professionalism.

Boston Consulting Group, arguably the world’s second most presigious consulting firm, was founded in 1963 by Bruce Henderson. It all began when Henderson left Arthur D. Little to accept a challenge from the CEO of the Boston Safe Deposit and Trust Company to start a consulting arm for the bank.

Ten years later, in 1973, Bill Bain and others left the Boston Consulting Group to form Bain & Company, which is also one of the world’s leading consulting firms.

What is management consulting?

A LOT of people have trouble describing what a consultant does, because ‘consulting’ is such broad term. The Australian Concise Oxford Dictionary defines a consultant to be a person who provides information or advice. Since consultants are typically employed to analyse the problems and challenges faced by management and to develop plans for improvement, they are called ‘management consultants’. In October 2003, the Institute of Management Consultants defined management consultants as “objective professionals who provide advice and assistance in the process of management across national boundaries.” Traditionally, consultants were employed to help management in the private sector but are now also used by government and non-governmental organisations.

Consultants are able to assist management by:

  1. providing expert knowledge;
  2. facilitating the investigation of business problems;
  3. implementing solutions; and
  4. supporting organisational change.

1. Providing expert knowledge

Consultants can provide management with the expertise needed to address specific business problems. For example, a company that needs to update its computer systems might seek advice from IT consultants. The benefit of bringing in specialist consultants is that they are likely to have experience solving similar problems and to have an understanding of industry best practice.  Large consulting firms are able provide clients with a broad range of expertise to address a variety of business problems because they can draw on a breadth of experience.

Areas of expertise that consultants can bring to clients include:

  • Industry specific knowledge
  • Business strategy, which includes looking at
    • assessing and responding to industry trends,
    • defining strategic priorities,
    • restructuring a company’s organisation,
    • developing a strong brand image,
    • increasing profitability (cutting costs and boosting revenues),
    • creating growth (developing new products, expanding into new markets, acquiring assets and companies),
    • improving marketing and distribution of products, and
    • deciding whether and how to outsource activities.
  • Information technology
  • Tax
  • Risk management
  • Human resources

2. Facilitating the investigation of business problems

Consultants can assist management by facilitating the examination of business problems. There are three reasons why consultants are well placed to do this:

  1. Performance incentives: Consultants have an incentive to be organised and to work quickly because they are typically engaged on short term contracts and paid high fees in order to provide a recommendation.
  2. Open communication: Consultants may be able to facilitate open communication within a company and to allow good ideas that already exist within a company to reach management.  As consultants are not full time employees they are able to talk openly with employees at all levels within the company. This allows consultants to collect good ideas from different levels within an organisation, structure those ideas within a strategic framework, and to present those ideas to management.
  3. Objective recommendations: Consultants are able to provide more independent and objective recommendations.  For example, consultants are able to provide disinterested advice about cost saving measures. Introducing more efficient work practices might save a company millions of dollars, but might also lead to redundancies. Existing employees may be aware that more efficient work practices exist but are unlikely to suggest changes that may lead to job loses.

3. Implementing Solutions

Consultants can assist management by implementing any business solutions that may be required to help management achieve its objectives or to tackle specific business problems.

4. Supporting organisational change

Consultants can assist management by supporting organisational change.  There are two reasons why consultants are well placed to support organisational change:

  1. Impetus for action: Consultants are able to provide independent research-based support for a particular plan of action.  This kind of external support can legitimise management’s plan, and provide an impetus for action by clearly explaining the reasons why the proposed plan of action should be undertaken.
  2. Employee engagement: In the process of collecting information, consultants should be able to engage with staff at all levels within an organisation. If employees within the organisation feel a sense ownership in the change process then they are less likely to resist any changes that are made, and the proposed plan of action is more likely to succeed.