Many important events—such as the Industrial Revolution, advances in technology, and federal regulation of the financial, business, and health care industries—have shaped the evolution of consulting from a fledgling industry into the high-tech, multifaceted field it is today.
The Industrial Revolution Creates Demand for Consultants
The beginnings of the modern consulting industry can be traced to the Industrial Revolution in the mid-1800s. During this time, the economies of the United States, England, and other nations began to change, with agriculture matched in importance by the mechanized processing of raw materials, such as iron and steel, and mass production of finished goods. According to the “Origins of Modern Management Accounting,” by Christopher D. McKenna, the “growth and complexity of the largest industrial organizations in the United States created a market…for the professional firms of engineers, accountants, and lawyers, which offered independent corporate counsel.” These professionals became the first management consultants (or management engineers, as they were known at the time), and their advice was sought after by a growing number of companies. According to McKenna, “this expanding corporate clientele enabled younger partners [at engineering, accounting, and law firms] to build practices of management engineering within older, larger firms or to found new specialty firms”—and, thus, the field of management consulting was off and running.
Marvin Bower and the Culture of Professionalism
Many consider Marvin Bower to be the father of professional management consulting. He was a guiding influence at McKinsey & Company, one of the Big Three consulting firms (along with Bain & Company and the Boston Consulting Group), from the time of his hiring in 1933, through his retirement in 1995, until his death in 2003 at the age of 99. His decisions as managing partner of McKinsey & Company (the firm’s founder, James O. McKinsey, died suddenly at age 48 in 1937) helped management consulting firms expand their service offerings (from strategies to improve accounting and manufacturing efficiency to advice on organization, management, marketing, and distribution) and develop a reputation for professionalism that remains today. As he told Fortune in a 1993 interview: “My vision was to provide advice on managing to top executives and to do it with the professional standards of a leading law firm.”
Bower created a variety of rules and practices to encourage professionalism. He required his consultants to adhere to a conservative dress code that included hats, white shirts, and long socks (Bower thought it inappropriate to show flesh in a business setting). Bower insisted that consultants use “professional,” not “business,” language when talking with clients. (For example, McKinsey and Company is always “the Firm,” not “the company”; the Firm has a “practice,” not a “business”; and “jobs” are “engagements.”) He also established the following rules that are still part of McKinsey and Company’s operating philosophy:
- Put the client’s interest ahead of our own.
- Behave as professionals.
- Keep our client information confidential.
- Tell the truth as we see it.
- Deliver the best of our firm to every client as cost effectively as we can.
After World War II, Bower, who had both a law degree and an MBA from Harvard, began recruiting graduate students and MBAs, instead of established experts, to work as consultants. Many firms followed his lead; Bower has been credited with inspiring the founding of many new business schools to meet the staffing needs of consulting firms and the business world. Bower also structured McKinsey and Company as a meritocracy by creating the concept of “up-or-out,” which is the practice of requiring employees to either advance their careers to the next level of responsibility or move out of the firm. This practice created a highly competitive, but also high-performing, workforce that achieved excellent results—and profits—for McKinsey and Company. Many consulting firms still use this model today.
Bower stressed these beliefs and practices so often that they eventually defined McKinsey & Company—helping it to achieve a sterling reputation for much of its existence. (Recent investigations by The New York Times, ProPublica, and other news organizations have raised questions regarding the firm's work for countries such as Saudi Arabia that have a poor track record regarding human rights.) The firm rapidly became one of the top management consulting firms in the world, and competitors took notice, integrating Bower’s business practices and principles of professionalism into their own practices. Today, thanks to Bower and other pioneers, consulting is one of the most prestigious and lucrative industries in the United States.
Key Laws Generate Job Opportunities
Consultants can thank the members of Congress for passing several important laws that have fueled the growth of the consulting industry.
The first major boost was provided in 1933 with the passage of the Glass-Steagall Act, which prohibited commercial banks from providing “non-banking activities” such as management consulting, insurance, and real estate development services. Simultaneously the U.S. Securities and Exchange Commission was established to regulate financial markets and promote more extensive corporate financial disclosures. These developments opened the doors for consultants to provide these services, and, as a result, the industry expanded quickly.
In the 2000s, financial scandals prompted public outrage at the abuses engaged in by corporations (such as Enron and WorldCom) and financial firms. Congress passed several laws to address improper activity, including the Sarbanes-Oxley Act of 2002, which requires higher levels of financial accounting and disclosure from all publicly held companies, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which increased regulation of the financial industry and offers improved protections to consumers. In 2018, Congress weakened some aspects of the act, especially relating to financial oversight of small- and medium-sized banks. The act has proven to be great news for consultants, as financial firms and companies have struggled to comply with new regulations or identify loopholes to reduce the effects of the act on their bottom lines.
Demand is also growing for consultants who can help large financial institutions, as required by Dodd-Frank, to develop “living wills,” or emergency plans, which will wind down their businesses in the event of a financial collapse. The New York Times reports that “firms are hiring small armies of outside advisers to develop the plans and handle the mountains of paperwork…[and] accounting firms like Deloitte and PricewaterhouseCoopers and financial consultancies like Oliver Wyman and the Promontory Financial Group are all working overtime to land assignments.”
The Patient Protection and Affordable Care Act of 2010 has also created more opportunities for health care consultants who have expertise in the digitization of health records, improving efficiency, and managing costs. Although the Trump administration continues to try to revise or repeal the act, there will still be a strong need for health care consultants.
Promoting Quality in the Profession
The Institute of Management Consultants USA (IMC USA) was founded in 1969 by 143 experienced management consultants. Today, this nonprofit association plays an important role in the management consulting profession by offering certification to management consultants and firms. The consulting industry is largely unregulated, and the institute’s certification program serves as an effective way for consultants and firms to demonstrate that they have met the highest standards of practice. Only 1 percent of all consultants have earned the IMC USA certified management consultant designation. In addition to certification, the institute offers continuing-education opportunities and a variety of other resources for management consultants.
Technology Changes the Face of the Consulting Industry
Technological developments such as the business computer, the Internet, mobile devices, cloud computing, and social media have changed the way consultants do their jobs. E-mail and instant messaging have replaced snail mail. Meetings are held using Skype or other online video conferencing software. Consultants now promote themselves via Twitter, blogs, and personal Web sites, and they can be “on the job” anywhere they have an Internet connection. The Boston Consulting Group, for example, connects with clients and potential clients and employees via social media sites such as Facebook, Twitter, LinkedIn, YouTube, and Instagram, as well as a Specialized Insights Web site (https://www.bcg.com/featured-insights/thought-leadership-ideas.aspx). Many consulting firms allow applicants to apply for jobs at their Web sites. In a matter of a few decades, technology has changed the way the consulting industry does business, and these changes are expected to continue at a rapid pace in the coming years.
Technological innovations have also expanded career options in the industry. Technology consulting was formerly just a small subsector of management consulting. Today, information technology (IT) consulting—from e-commerce and Web site design, to digital security and hardware and software development, to social-media marketing, cloud computing, and artificial intelligence—has grown into a separate specialty. “Clients are embracing technologies such as artificial intelligence, robotics, automation, and Internet of things to gain competitive advantages, and in doing so, tapping the expertise of consultants who stand at the forefront of such developments,” according to Consultancy.eu. “Consultancies now work with clients to design and develop apps, prototypes and intelligent systems, among other areas.” The U.S. IT consulting sector had revenues of $481 billion in 2020, according to IBISWorld, up from $387 billion in 2016. This was nearly double the amount earned by the management consulting sector.
Advances in technology have also created challenges in the consulting industry. Clients are expecting consulting firms to be experts on all aspects of constantly changing technology. “In an attempt to meet the mammoth demand for such limitless technology knowledge, some larger consultancies are now acquiring high-tech start-ups; mergers and acquisitions of digital agencies, for example, are fast becoming common amongst leading consultancies,” according to the technology company InfoDesk. Customers are also asking their consulting services providers to partner with technology companies and technology consulting firms (in a process known as multisourcing) in order to tackle IT-related tasks. This emerging trend toward multisourcing is forcing management consulting firms to develop collaborative relationships with IT knowledge providers in order to retain clients and provide requested services.
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