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Masters Of Illusion: The Great Management Consultancy Swindle

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http://www.independent.co.uk/news/business...le-1788556.html

It's cost the NHS £300m and its practitioners are wielding the axe at magazine giant Condé Nast. But is it all just smoke and mirrors? Ex-management consultant Matthew Stewart recalls his career in the "efficiency business" – and reveals its dark arts

It was 1988, and I was just finishing a D.Phil at Oxford University on the topic of "Nietzsche and German Idealism". The annual recruiting season had long since gone. My life savings had dwindled into three digits. It came to me in a pub, over a game of pool. I was losing badly to a pair of undergraduates who had recently received offers from a prestigious management consulting firm. They were about 22-years-old; I was going on 26. As I gazed at the pool balls ricocheting around the table, it hit me that, instead of spending the next year watching daytime TV, I too, could earn some ready cash by offering strategy tips to CEOs of Fortune 500 companies.

The more I thought about it, the grander it seemed. The next morning, I sent out 10 CVs. One ended up in the hands of the founding partner of a small and enlightened consultancy firm based in New York. I landed the job by providing a credible response to this question: How many pubs are there in Great Britain? The purpose of that question, I realised after the interview, was to see how easily I could talk about a subject of which I knew almost nothing, on the basis of facts that were almost entirely fictional. It was an excellent introduction to management consulting.

Over the past three decades our civilisation has made a massive investment in people like me – the kind of people who can allegedly practice or sell management expertise. Within a few months of the interview in New York, I was suited up and billed out at a rate of about a third of a million pounds per year (only a fraction of which landed in my pocket in those first years). I soon discovered that my lack of a proper business education was no disadvantage on the job, which turned out to be more interesting and enlightening than I expected. I would eventually leave the business in 1999 to work full-time as a writer, but during the previous decade, I would advise French businessmen on how to succeed in Germany; tell Americans what to do in Eastern Europe; show the Spanish how to become more like the Americans. I spent one particularly haunting year advising bankers in Mexico.

Wherever I was in the world, at the beginning of every consulting project, one thing was certain: I would know less about the business at hand than the people I was supposed to be advising.

"The Whale" is a graph. Its official title is "Cumulative Customer Profitability" and it also goes by the generic name "skew chart". The Whale is my madeleine. One glance at its distinctive curves and in my mind I'm back, cutting and pasting charts and text, running through airports, hovering over a transparency projector in front of sceptical men in suits, and trading boozy stories with team-mates in an overpriced hotel restaurant.

I learned the art of whale-hunting – as we called the art of landing a big client – from a partner I will call Roland. He was a jolly, well-rounded figure, with a face like a pink bowling ball. He had a thick French accent and drew heavily on a limited stockpile of American colloquialisms, cheerfully painting the world in the bold strokes and primary colours, in a style typical of those who live their lives in a foreign language.

In the firm, Roland was the harpooner. His specialty was sinking the barbed hook of our services deep within the flesh of unsuspecting clients. Roland would say: "I asked Joe (or whoever the client was) 'Joe, can your people tell you, right now, which of your customers are profitable?'" (It always sounded like he was calling them "profiteroles".) Joe would have had no idea how his profiteroles were doing.

The analysis Roland and his team performed for Joe followed a prescribed course. Firstly, they constructed a database of the client's customers, detailing each customer's product and transaction activity over the preceding year. Next they established a clean profit and loss statement for the whole business, including all overheads but excluding extraordinary items. Then, to allocate the revenues and costs of the business to each customer, they devised algorithms based on detailed models of each kind of product and transaction. The complexity of these algorithms, naturally, was such that they were far beyond the powers of most clients to comprehend. The result was an analysis of the exact revenue, expense, and profit to the client attributable to each of its customers. Finally, the team lined up the customers according to their profitability, thus allowing the client to see how much of its profits could be attributed to its most profitable customers, and how much to the least profitable.

"Et voilà!" Roland would announce, revealing his graph. It was the leviathan.

The typical Whale showed that the top 20 per cent of the client's customers accounted for significantly more than 100 per cent of its profits. That is to say, if the client had served only these star customers, it would in theory have made much more money than it did. For the next 70 per cent or so of the customers, the line went flat, indicating that they made little additional contribution to the bottom line. For the final 10 per cent of customers, the line took a nosedive, meaning that these dogs were subtracting from the client's profits. Toss in lines to track the cumulative revenues and expenses of customers, and the whole thing assumed the distinctive shape of a giant fish.

I eventually came to understand that it is possible to construct a Whale chart for just about any business anywhere. It makes no difference whether the business is inherently good or bad, well-managed or in the hands of chimpanzees. It doesn't even have to be a business – it can be a football game or a population chart. In fact, you don't even have to do the analysis. You can save 80 per cent of the effort by just borrowing data from a previous analysis. There's always going to be a skew. It isn't science; it's a party trick.

But it is also something close to a universal law. Joseph Juran, a Romanian-born engineer who championed quality control in industrial and manufacturing settings, called it the principle of "the vital few and the trivial many". The Whale is about focusing on the things that really make a difference. It is the number one item on every management guru's to-do list. It's about the big break, the main chance, the sweet spot, the Big Kahuna.

It was just one among a variety of quantitative models that occupied the analytic core of my consulting career, but it best represents the data-driven approach to life that stayed with me long after I left the business. In its best moments, management consulting is a recognition of the quantitative nature of our reality – of the fact, too easily overlooked by innumerate arts graduates, that a hard look at the numbers can explain much of the structure of the world around us.

So we are paying millions out to people who know even less than the people they are advising. Excellent.

Now if we where paying a crack management team who had managed hospitals before and improved services / productivity etc... then that's good investment, paying out millions for people to talk sh1t to you seems stupid.

Edited by interestrateripoff

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http://www.independent.co.uk/news/business...le-1788556.html

So we are paying millions out to people who know even less than the people they are advising. Excellent.

Now if we where paying a crack management team who had managed hospitals before and improved services / productivity etc... then that's good investment, paying out millions for people to talk sh1t to you seems stupid.

My other half is a management consultant contracted to a government dept.... She’s on a £100k + a year but being charged out at probably 3x this amount. She says that half her colleagues are moonlighting on the side doing “other work†and shall we say not exactly working late hours.

There appears to be little to no come back on either side and effectively some have gone “native†within the dept. There are 40 of them how many is this multiplied across the whole government? And we’re paying for this? WASTAGE. Of course I can’t complain!

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Public sector purchaser (ex social worker/nurse/something or other, got promoted to the job because nobody else wanted it or could be bothered with it) approaches Private sector company for a new washer for a tap that's been dripping in the female sanitary facilities at head office for the past 6 months.

Purchaser: Erm Hi, I want to buy a new washer

Shopkeeper: Certainly Sir/madam/non gender specific drone...do you have one there?

P: Yes it's this one

S: (Noticing P's public sector ID badge) *sharp intake of breath* oooooh dear oh dear, one of them eh? Oooo that's gonna cost ya...made by Peruvian Lllama's fleas these are, in orbit, up at the hinternashnull space station.

P: Oh god...expensive then?

S: Oh yes, Sir/madam/being, one of them, it'll be *thinks of astronomical number, multiplies it out to the power 10* that'll 6 sersquillion Zanupounds please *reaches into 100 kilko bag of 2p washers beneath counter and deposits it before P.

P: How much?????

S: Sorry sir/madam/labrador...best I can do I'm afriad.

P: But that's robbery...can't I get one anywhere else.

S: Well, you could sir/mamdam/cheeseboard but I can see that you work for the dept of (insert any, frankly) don't you? You have a govt contract with us, and it states here that all the washers you buy have to come from us, a cheap, efficient private sector company.

P: Oh Christ on a bike...why for heaven's sake?

S: I don't rightly know sir(etc)...I just work here...it's instructions from on high.

P: Your high or mine?

S: Same fing innit?

P: Well sod it, just send me the invoice...though I don't see how I can pay this and keep that ward/care home/disabled childrens scheme open.

S: Terrible innit?

...Later on HPC/Newsnight/Discussion down the pub

S: Bleedin public sector, my flippin taxes that is, none of em do nuffin anyway, all paid too much...

Ah the wonders of a modern global economy.

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Tell me about it.

They come in and look at systems which have evolved and been honed for years and tell us that we should be working "smarter rather than harder."

Indicate that their recommendations to sack the experienced staff and replace them with Phillipinos on minimum wage could save the Trust £100,000 and then send a bill for £200,000.

The hospital senior management are then absolved of responsibility when the experienced staff go and work elsewhere as locums or agency staff at twice the pay and the Phillipinos can't cope.

I say send a bill for £200,000 but I think it was many millions at Guys and St Thomas's

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Tell me about it.

They come in and look at systems which have evolved and been honed for years and tell us that we should be working "smarter rather than harder."

Indicate that their recommendations to sack the experienced staff and replace them with Phillipinos on minimum wage could save the Trust £100,000 and then send a bill for £200,000.

The hospital senior management are then absolved of responsibility when the experienced staff go and work elsewhere as locums or agency staff at twice the pay and the Phillipinos can't cope.

I say send a bill for £200,000 but I think it was many millions at Guys and St Thomas's

On the incompetence/planned debate I find this type of thing indicative of corruption. Don't know where in the chain but it's certainly happening.

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On the incompetence/planned debate I find this type of thing indicative of corruption. Don't know where in the chain but it's certainly happening.

Its at many levels and just short of illegal.

Our last two Trust CEOs both found work with these companies and left the NHS

Many of the large accounting companies that do this work have strong Nulabour associations and many are political donors.

Senior NHS management appointments are often strongly politically bias in favour of the ruling flavour

Senior management could be held personally responsible for decisions they take so they don't take any without consulting a "consultancy firm" first. Even if the advice is worthless or even wrong the blame has been shifted.

The people who know how to run the system are actively disempowered because they are an obstruction to the break up and privatisation of the NHS which is the agenda.

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Good find! Enjoying this :)

Want a funny story then?

About 15 years ago I was heavily sold to by a Management Consultancy firm who promised me they could massively improve my profits. I kept saying no, but they wouldn't let go. In the end they offered me a 1 week analysis for free after which either I would take them on or they would walk away at no cost to me.

I told them they were wasting their time, that I knew I had problems and opportunities, that I knew where they were and that I'd fix them myself. They said I'd be amazed at what I'd learn and since I couldn't make them go away short of calling some big men I agreed to the test.

They came in for a week - 3 of them - quizzed my people, did loads of measurement and worked late every night compiling their stats. Come Friday the big presentation arrived. I had my managers there (which the MCs didn't like - they said management tends to say there's no problem).

The presentation was everything (and more) they'd promised. It was festooned with graphs, charts, profit projections and "evidence" that they'd be paid a fraction of our take. We listened attentively, asked questions throughout and at the end I asked my managers to feed back their opinion. They said they thought it was excellent analysis and they pretty much accepted all their criticisms (as indeed it was - my managers had told them everything in the last week).

I dismissed my guys and told the MCs that I agreed with every word they'd presented and for that reason would not be taking it any further. I reminded then what I'd told them; that I knew my problems and had a management team whose sole purpose was to address them. If they weren't up to it I'd fire them and get another, not hire another layer to patch up.

They were aghast and protested, but I kept telling them that every word I was saying was what I had told them in advance I would. They topped it off by asking for a contribution to the cost of the "free" week, which was the point at which I laughed and concluded the meeting.

---------------------------------

MCs aren't w@nkers; it's the Managers and Directors who employ them who are frauds and incompetents. Changing business is the job of Directors & Managers; hiring consultants is the same as a factory packer asking for an extra temp to be hired to help him with his job.

One of my axioms of business is this; if you see any firm which is employing consultants in anything other than a highly focussed project, sell their stock and keep well away - it is managed by idiots.

Edited by bogbrush

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I used to be a management consultant for one of the big strategy houses, working on private sector companies. Successful projects were ones where we were hired by a CEO (often new), who knew that something needed to be done, but required political and data backing to enable him/her to do it. This was the purpose of a consultant, to provide data driven evidence that the company should change strategy/fire people/make an acquisition etc, that the CEO could then use to push through reforms. In the cases where the CEO was a reluctant customer the project was inevitably utterly pointless. This is the problem with public sector consulting; no real buy in from the people who are meant to be the customers/ implementers.

Very boring job. Lots of PowerPoint. I left after a few years.

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http://www.thestar.co.uk/headlines/Council...hool.5653308.jp

SHEFFIELD Council has forked out almost £3.6 million on consultants as part of a flagship school rebuilding programme, new figures have revealed.

The local authority has spent more on external advisers for the Building Schools for the Future programme than many other councils, according to a Freedom of Information survey of English councils by the Tories.

The Conservatives accused the Government of "mismanagement" which meant taxpayers' cash was being spent on expensive advice, rather than on new buildings and better classrooms.

Sheffield's £320m BSF programme will see every secondary school rebuilt or refurbished by 2014.

The Liberal Democrat council last year revealed plans to complete the programme were being hampered by a £23 million 'black hole' in Government funding grants and claimed Labour had concealed the size of the deficit.

The city council eventually approved plans to find the money from its coffers over the next five years. But the new figures will raise fresh questions about the way the money for the massive project has been spent.

They show Sheffield Council spent £75,500 on consultants before the scheme had secured government funding. It then spent another £3,524,200 on consultancy fees once the programme was running.

The 15-year BSF scheme - the largest school rebuilding programme since Victorian times - is aimed at revamping, or replacing, every secondary school at an estimated cost of up to £55bn.

The total cost of consultants across England stands at just under £170m, with only 12 councils having spent more than Sheffield.

Doncaster Council has spent £826,000 on external advice and Rotherham Council £8,110. Barnsley Council did not provide figures.

Shadow Children's Secretary Michael Gove said: "In tough economic times it is vital ministers get good value for taxpayers' money.

"But under the Government's bureaucratic school refurbishment scheme, millions has already been spent on consultants with hardly any improvements delivered."

Coun Andrew Sangar, Sheffield Council's cabinet member for children's services, said consultants were needed to advise on the Private Finance Initiative deals involved in the scheme. He said the council had used specialist legal and contractual advisors.

Would £3m build a new school?

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It's the 'close the supermarket down' analysis.

Look at the stock you're selling - see which products are unprofitable and cut them out. Only, you have to re-allocate fixed costs to the remaining products and lo and behold some more products suddenly become unprofitable - the process continues until you are left only with baked beans on the shelves.

So you're saying we should take over Tesco and turn it into a baked bean niche retailer? :unsure:

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So you're saying we should take over Tesco and turn it into a baked bean niche retailer? :unsure:

Clearly the charts would say that would be highly profitable.

Although the charts neglect to highlight the fact that maybe your profitable goods are selling because people come into the store for the less profitable items and then buy others.

The problem with the analysis is that maybe you top 20% of profitable customers are already ordering the maximum they can from you, so concentrating on them won't actually increase your profits. Clearly the charts will say you will increase profits but that probably won't be the case.

I'm wondering why these geniuses aren't coming up with ideas to make the least profitable customers more profitable? Or would that actually take real talent and ability, the one thing management consultants lack which is why they are MC's?

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Guest DissipatedYouthIsValuable
Its at many levels and just short of illegal.

Our last two Trust CEOs both found work with these companies and left the NHS

Many of the large accounting companies that do this work have strong Nulabour associations and many are political donors.

Senior NHS management appointments are often strongly politically bias in favour of the ruling flavour

Senior management could be held personally responsible for decisions they take so they don't take any without consulting a "consultancy firm" first. Even if the advice is worthless or even wrong the blame has been shifted.

The people who know how to run the system are actively disempowered because they are an obstruction to the break up and privatisation of the NHS which is the agenda.

Darzi clinics were the foot in the door.

There's nothing left in Britain for the big boys of the private sector to rape, except the NHS.

I got a call from an Aussie recruitment agency this morning, we're off in January.

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I worked all this out over 15 years ago. My partner and I have both suffered at the hands of these parasites (along with the native stupidity of most senior managment). First she lost her job in an insurance company after the 'big' consultancy was called in to sort it out, the savings they made over the next 2 years just about paid for their fees but then the IT managment bill doubled over the next year on account of the 'Advised' outsourcing. I lost a job back in the 90's after a similar 'consultancy' and then she lost another job later in the 90's. The only reason senior managment do this is to offload responsibility to someone else and appear to be doing something but mostly they do it in order to make a killing with their own bonus 'this year' and always and without exception leads to more expense in future years. This stuff is up there with whats been happening with the financial sector over the last 20 years or so, completely buggering up life for the majority of the human race in order to fill a very few greedy pockets.

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It's the 'close the supermarket down' analysis.

Look at the stock you're selling - see which products are unprofitable and cut them out. Only, you have to re-allocate fixed costs to the remaining products and lo and behold some more products suddenly become unprofitable - the process continues until you are left only with baked beans on the shelves.

Brought to mind those late-night buses.

Bus with three passengers is not profitable. But take it away, and the buses overall become less viable for passengers, and the profitable daytime ones lose not just the three passengers who can't get home tonight by bus, but also those who might want it some other night, and base lifestyle choices on whether it's available.

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I was working at a company that was getting into difficulty and the prospect of getting consultants in was raised.

I said 'the problem in this company is that nobody listens, why on earth would you pay thousands to a consultant that you are then going to ignore'.

Still, at least they would have ignored them!

The business went down but it was due to over expansion, which there was no willingness to address. the boss was bored of it anyway so didn't care.

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