Management consultants: they charge a lot but know a little

Mark Carney, the new Governor of the Bank of England, has called in the management consultants to conduct a strategic review of his new empire. I suspect that this will be greeted by near universal disappointment within the bank. Almost every firm I have ever been involved with has had occasion to cough up large amounts of money to pay consultants to think deep thoughts. My first such experience, not long after leaving university, involved meeting a team of highly polished (in all senses of the word) men and women, sent in to review the strategic direction of the business I had just joined. That one of these people had recently been in college with me, gave rise to my first doubts about just what was the "value proposition" (to borrow one of their phrases) of the exercise. Their report was duly delivered, greeted enthusiastically by management and then gathered a lot of dust, making no apparent difference to anything.

Anyone who has watched "House of Lies", a Sky Atlantic TV series allegedly based on House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time, written by Martin Kihn, a former consultant at Booz Allen Hamilton, will appreciate why people are cynical. It isn't much of a show. Despite injecting unlikely amounts of sex, alcohol and foul language, the series fails to cover up its basic flaw: there really is only one idea, namely that consultants charge a lot despite knowing very little. There aren't that many interesting story lines that can be squeezed from that rather dull premise, even if it is at least partly true.

Many people assume that calling in consultants is a signal of management failure. It is an admission that they do not know how to run the business. Sometimes, they never knew and have been floundering for years. If that is the case, it is to their credit that they have had a sudden attack of self awareness and are now honest enough to admit the truth, even if it’s a bit late. Sometimes, the competitive environment in which a business operates can change dramatically and suddenly. At such times, it is perfectly possible, in theory at least, that someone else has more insight than current management.

Technological change can be a source of sudden disruption. For example, phone companies were once sleepy, quasi monopolistic businesses that extracted rather too large profits from their captive customer base. Then the internet came along and, quite literally, blew the underlying business model to bits. That would have been a good time to call in knowledgeable people in to explain that only firms with enough cash to spend on the new, very expensive, technologies would survive, let alone thrive. Those firms would also need the flexibility to manage their cost bases far more aggressively than in the past. We might argue, with some justification, that incumbent management should have been able to spot all this, but this would have missed the point. Indeed, such arguments, such cynicism, completely miss the point of management consultants.

Anyone who has ever run a business will tell you that there are plenty of lies that people tell each other. Indeed, there is a list of great lies that have become clichés: “the cheque is in the post”; “I welcome criticism”; and other, often more colourful, examples come to mind. Thoughtful (I use the term advisedly) managers know that the greatest lie of all is, “I welcome and embrace change”.

The late, great Douglas Adams devoted a considerable part of his Hitchiker's Guide to the Galaxy novels putting management consultants down (his father was one). But even he missed this fundamental point: the hardest task any manager of any business faces is getting that organisation to change. The bigger the change, the harder the task. If management consultants do have a role, it is to get over this problem: to persuade, truly persuade, people of the merits - sometimes dire need - for change. Organisations, particularly if they are old or large, are genetically programmed to resist change.

I suspect Mark Carney knows this. An organisation as steeped in history as the Bank of England will have a thousand ingenious ways to resist change. Its culture cannot be anything other than conservative. The management consultants are his way of signalling that change is needed - really needed.

I only hope that Mr Carney has read Douglas Adams. In his books, management consultants proposed introducing a new currency - the leaf. The authorities adopted this new currency with open arms. Within a very short space of time, cafes were charging two deciduous forests for a cup of tea. That’s as good an explanation of the quantity theory of money as you can find.