The World's Newest Profession: Management Consulting in the Twentieth Century

Cambridge Studies in the Emergence of Global Enterprise

by Christopher D. McKenna

In The World's Newest Profession, Christopher McKenna offers a history of management consulting in the twentieth century. While management consulting may not yet be a recognized profession, the leading consulting firms have been advising and reshaping the largest organizations in the world since the 1920s. This groundbreaking study details how the elite consulting firms, including McKinsey and Booz Allen, expanded after U.S. regulatory changes during the 1930s, how they changed giant corporations, nonprofits, and the state during the 1950s, and why consultants became so influential in the global economy after 1960. As they grew in numbers, consultants would introduce organizations to "corporate culture" and "decentralization" but they faced vilification for their role in the Enron crisis and for legitimating corporate blunders. Through detailed case studies based on unprecedented access to internal files and personal interviews, The World's Newest Profession explores how management consultants came to be so influential within our culture and explains exactly what consultants really do in the global economy.

Genres: Business, History, Nonfiction

394 pages, Hardcover

First published January 1, 2006

Reviews

[Marks54 · Rating 4 out of 5]

This book presents a history of the management consulting profession from its origins in the late 19th and early 20th century until the collapse of Enron and Arthur Anderson at the start of the 21st century. The author is an economic historian, trained at Johns Hopkins, who is also on the faculty of the Said Business School at Oxford. The focus is on the major top general US management consultancies, including Booz Allen Hamilton; Cresap, McCormick, and Paget; and McKinsey. The general stories of these firms and their different origins are well known if you follow the business, but

Professor McKenna does a fine job of specifying how these firms were different as well as how they overlapped. The book is excellent in explaining how the business in its varied forms was launched in large measure on the basis of various New Deal federal regulations and how the business has evolved as government policies and initiatives (for example the Hoover Commission) have evolved. McKenna even has a theory of consulting firms as important economic actors (hint - they leverage transactions costs). The story lines in the book are informative and well worth following. Even the later developments, such as the role of consulting firms in the liability crisis leading up to the Enron Scandal are highly informative and also actually explain how the industry developed and changed.

This is a particular cut on the industry. Smaller niche firms (Bain, BCG) receive less attention. There is also less attention on accounting firms and investment banks, although the arguments on cost accounting are valuable.

It would be easy for a book of this sort to drag, but the book is actually an easy read. McKenna even includes cartoons about consultants (such as from the McKinsey coloring book) to lighten the dogma a bit. I am surprised I missed this when it first came out but am glad I got back to it.

[Larissa Fauber · Rating 3 out of 5]

By the title of the book, you may think that a new type of engineering was invented. Actually, in the 1930s and 40s, “management engineering firms” was simply giving us an idea what it would be called “management consulting firms”.
The interesting point of this book is that, apart from its concern with history, it shows practical examples of companies that have played an important role in terms of consultancy. Shall we start by focusing on history? I think so. Firstly, as a good reader, you may have conjured up the image of a consultant in your mind. No, do not bother about it, the book cover has done this job for you. Can you describe it? I am sorry if you have not bought the best version of this book, which has a man in suit and hat. Does it ring a bell to you? If not, just try to picture John F. Kennedy who decided to forgo the hat in his inauguration to lay emphasis on his youthfulness.
What does it have to do with consultants? Well, when the word “consultancy” comes to our mind, I am under no illusion that “experience” comes together. If you are to consult a knowledgeable person, you will definitely single out the one with the great length of experience. Moreover, the suitcase that this specialist carries also creates an association with the image of a “doctor”. Having thought of that, it is of great value to think that whilst dealing with a consultant, you automatically become his patient. However, it is quite hard to “open up” to a doctor who will have access to all information of your company.
Conversely, having stated the peculiarities of a consultant, the author has provided remarkable examples of companies in this business. To support this statement, I would like to ask you a simple question: “have you ever heard of McKinsey?” For sure it sounds familiar. And I am certainly not talking about your neighbour’s surname, but one of the management consulting firms that advises the world’s most renowned organisations. It was even invented the verb “to Mickinsey” meaning “reorganize”. Notwithstanding this, “Booz, Allen and Hamilton” is also cited amongst others.
In addition, McKenna also put forward the idea that American consultants were highly requested in the past and that even European companies had an appeal for American consulting firms. Whichever the nationality in demand, what it is valid to say is that from history to practice, the book leaves up to our expectation to understand the development of management consultancy and its dilemmas. Now, let me “consult” you about your opinion...

Larissa Fauber 29/10/10

[William · Rating 5 out of 5]

A well-researched book full of incredible insights. This book answers several questions that have puzzled me for a long time:

1. Why do client companies prefer to hire external consultants rather than figure out strategy and management problems by themselves (How do consulting firms provide value to clients)?

2. What factors shape the birth and growth of the management consulting industry?

3. Among professional service occupations, lawyers, doctors, and accountants all require special training and exams to get certified for their practice. (a) Why does the consulting profession never institute a training and licensing process? (b) Without certification, how do consultants gain legitimacy from clients?

---------------answers from the book ----------------
1. Why do client companies prefer to hire external consultants rather than figure out problems by themselves?

Management consulting firms provide values for client firms in three ways:

a. They are the knowledge brokers that provide client firms access to industry best practice (See Ronald Burt's description of structural holes).

b. They provide temporary workforce for client firms working on strategic decisions (e.g. market expansion, merger, acquisition, etc). These types of work only last for a short time period. Hence, hiring temporary workforce makes more sense than permanent employees.

c. Their outsider status provides legitimacy for corporate board's strategic decisions and protects board members from personal liabilities if the companies get sued.


2. What factors shape the birth and growth of the management consulting industry?

Government regulations play an important role.
-Glass-Steagall Banking Act in 1933 outlawed commercial and investment banks from providing consulting services to client companies. The law created an empty market for cost accounting firms (e.g. McKinsey) to pivot to management consulting and fill the function of knowledge broker.

-Smith v. Van Gorkom (Del. 1985) (Trans Union Case) decision rendered corporate boards liable for gross negligence. As a result, the demand for external consultants to provide liability transfer increased significantly.

-The Private Securities Reform Act of 1995 gave professional services firms protection from liabilities transferred from corporate boards. Consequently, consulting firms are willing to increase their supply of services.

3. Among professional service occupations, lawyers, doctors, and accountants all require special training and exams to get certified for their practice.

(a) Why do consultants as a profession never institute a training and licensing process?

-The author argues that the top management consulting firms refuse to create a certification program because doing so would weaken their superiority at the top of the hierarchy.

-I personally believe the reason is that, unlike other professions, the consulting industry lacks a standardized body of theory (paradigm) that practitioners can agree on. From BCG’s growth share matrix to McKinsey’s 7s framework, these models lack sufficient rigor and lasting acceptance. Without a stable theoretical framework to support practice, the consulting profession lacks the legitimacy enjoyed by doctors, lawyers, or even accountants (See Andrew Abbott’s The System of Professions).

(b) Without certification (and sound theory), how do consultants gain legitimacy from clients?

-Consulting firms gain legitimacy by “performing” as professionals, which range from dress code to communication style. In other words, because consultants lack theoretical depth, they have to sound smart and dress professionally to leave a good impression on their clients.

-Consulting firms institute “up-or-out” HR policy to ensure employee quality. Up-or-out means that for every consultant position in a firm, every employee has two years to either get promoted or get kicked out of the firm. Hence, consulting firms replace professional licenses as the main guarantee of their employees’ quality to clients.

[A. L · Rating 3 out of 5]

This falls right between enticing and educational, at least for me. An appropriate title would be "A History of Management Consulting (in a Nutshell)" The author traces the origins of modern consulting giants such as McKinsey and Booz Allen Hamilton to its expansive role today or really 10 years ago where it ends with Enron and Anderson. They began as consultants in production engineering and process improvements developing systems of incentives for factory and wage workers and worked there way up to the top of the pyramid, armed with chance and policies, advising CEOs and executives in organization and administration to eventually strategy, auditing, IT, and whatever the technological trend held for that decade. It is fascinating how consultant served as "economics of knowledge" transferring ideas and practices from one area to another. Now I know why NGOs are structured like a business. In a short read, the book provides a solid introduction of where it began to how it is somewhat today, its impact across sectors of the economy, how policies can raise and crash industry.

If you are a consultant, read this book to know your history. For others, it may bore you.

[Dan · Rating 2 out of 5]

Really dry. I work as a management consultant and I've tried to read this book multiple times, but I don't know if I've gotten all the way through on any one attempt. I am admittedly not a big history buff, so I would have appreciated more tie-ins to how developments in the past have shaped how the industry is today. I wanted to like this book, but it wasn't a fun read.

[Yisu Z. · Rating 4 out of 5]

职业企业咨询师的历史意外的简单：这是一个只能在美国成功的『职业计划』，二十世纪早期企业规模的扩张和新技术的快速迭代创造了需求，但最重要的推手却是反垄断法，导致管理知识（预算，效率，技术运用）通过外部购买变成了一种交易成本最低的获取模式。于是催生了一项新职业。

[Richard Newton · Rating 5 out of 5]

I am not, as a matter of habit, a reader of business history books - but if more of them are as well written, as original and as interesting as this book then perhaps I will. I bought the book after a recommendation from a friend - and also because of the title which can be read in different ways!

I admit a bias I have spent a far part of my career as a management consultant, and I have also written on the profession. I recommend this book to anyone interested in consulting or to some extent the changing face of business over the past 100 years or so. McKenna has written a truly original book - insightful in ways you would not expect, interesting and because of the huge amount of research that must have gone into this book, convincing in its conclusions. This is almost certainly not a book for everyone - but for those who are tempted I say try it. It really is excellent.

[P · Rating 4 out of 5]

Relatively dry and technical history of management consulting. As many of the best and brightest of my friends work for consultants, I am glad that I know a bit more about the history of what is now an over $100 billion a year industry in the US alone. The role of adaptation to regulation, connections, and other elements are explained with thorough primary source research. I would love to own a full copy of "The Consultant's Coloring Book."

[Li Hao]

Rate till later.