What is consulting?
Consulting in its most basic definition is one person providing knowledge that another person does not have for the sake of accomplishing a task (be that business related, technical implementation, gig-work for tasks within a company, or more).
As such, consultants have always been around, with the service coming into existence as soon as someone develops a useful skill which they can teach to someone else, but over time this role shifted into a more defined profession within certain areas. Especially with technical and social changes that began around the 18th, but really picked up in the 19th and 20th centuries.
Scientific management and Rationalization
Rationalization in the social sciences is the process of systematically replacing the variable and individualistic practices that arise in society by a set of maintained and structured rules and procedures using measurements and calculations—essentially quantifying the qualifiable (“Rationalization”). George Ritzer breaks it down in his book The McDonaldization of Society as the four main areas of Calculability, Control, Efficiency, and Predictability, and improvement in them would help boost general performance.
The Social Responsibility of Business Is to Increase Its Profits
In the 1970s, Milton Friedman penned this argument in The NY Times. This idea, now known as the Friedman Doctrine, claimed that the sole pursuit of profit would drive all other benefits a business might create, and became the guiding force behind 20th and 21st century American corporate entities and their pursuit towards structure and management. Initially transforming manufacturing, its values eventually began to impact every aspect of modern life by transforming the approaches we take to general tasks in society.
Around the turn of the 20th century, individuals such as Fredrick Taylor, having studied managerial principles separate from a specific business, applied their skills to hundreds of various businesses to aid in the rationalization of their factories during the industrial revolution resulting in the idea of "Scientific Management" which helped create modern consulting (McKenna “The Origins of Modern Management Consulting.” 51).
Consultants and Large Firms
Business consulting as a rationalizing profession became a reality with the rise of scientific management and management consultants working to implement these principles. With the rise of management consultants during the early 20th century, the early standard was individuals such as Taylor and Little who would sell their services in a freelancing contract form. Yet, with Arthur Little’s firm and future larger firms, new players entered the field of consulting to occupy a larger focus of the profession, shifting it into the public eye and creating an increasingly rationalized industry of consulting.
These larger firms represented a broader shift in the demand for consulting services, such as the need for financial services following the Great Depression, or the rise of the internet and the digitalization of business in the late 20th century, yet this shift in demand equally impacted the much wider field of smaller firms and independent consultants, both generalists and specialists, who were driven to promote further rationalization to compete in the field and successfully maintain their professions. These generalists and specialists helped form a standard example of organizational ecology for the consulting industry.
Organizational Ecology and Consulting
Raymond Zammuto outlines the core ideas of organizational ecology and how it relates to two separate forces of operating within a niche: method of entry/presence in the market, as well as generalism vs specialism. Combining these two forces there are four main types of players in each market: Those who are fast-moving generalists, slow-moving operations-focused generalists, fast-moving specialists, and slow-moving operations-focused specialists. Each of these approaches satisfy unique needs within a market, and often different types of firms and individuals fit each role.
Due to the nature of a larger firm, their advantages lie in being increasingly scaled and rationalized, with their strengths lying in developing specific practices they can apply to numerous clients and train their constant stream of new employees. However, this does mean that certain levels of individualization are lost due to the high-volume and high-turnover nature of a large firm. Similarly, since so many employees are relatively new university graduates with minimal industry experience, there is only a certain extent of specialization they can achieve on a larger scale.
These gaps allow smaller firms and freelancing individuals to fill in and serve a much wider range of clients providing more expertise, specialization, personalization, and flexibility of options. As a result, while the large firms are dominant in the public eye and tend to serve the most high-profile clients such as Fortune 500 Companies and larger government contracts, the smaller firms and individual consultants fill out the day-to-day needs of the economy. As such, one can view the larger firms as being the most visible measurement of changing needs and demands for consulting services, while the consulting profession itself lies more in the realm of the smaller players.
Smaller Consultants and Freelancing
Thousands of smaller players continue to serve the clients unable/unwilling to work with larger firms. These individuals have had to directly interact with the new industries created and changed by these larger firms, reflective both in their identities as individual professionals but also in the work they’ve had to complete for clients (Cross and Swart).
The digitalization of the economy has also led to an increase in the ability for independent workers such as consultants to find work. Moving more aspects of business online, especially with platforms such as LinkedIn and Twitter, independent workers can network, self-promote, and work on larger scales/distances than ever before, leading to a much more decentralized and open market for professional work in recent years and going forward (McKeown and Leighton).
Within this focus of digitalization is the idea of freelancing and freelancing’s future in the modern economy. This rise in digitalized resources mentioned above has led to a rise in higher-skilled freelance work beyond lower-skilled gig work in spaces such as programming, marketing, IT, and business consulting (Ozimek). For business consulting specifically, flexibility, human capital value, more diverse career paths, work/life balance, and higher earning potentials are all reasons for both increased demand and increased numbers in independent freelancer consultants (Basuthakur).
Considering these reasons for growth in freelancing, it is no surprise that the U.S. Census Bureau has reported a steady increase in the number of Non-Employer Businesses (NEB) from 1997-2019. During this time, the Census reported both the total number of establishments (which most frequently are self-employed individuals freelancing separately from an established corporation) and the receipts from said establishments. All this data is gathered through the IRS, and currently is updated up to 2019. As indicated in the following graph, there has been a steady growth in total NEBs over the 22-year period.
As the next graph shows, the ratio of receipts to establishments has also continued to climb at a steady rate indicating increasing importance, efficiency, and productivity of these NEBs over this period.
With all these factors in consideration, while it seems that the large firms themselves aren’t likely going anywhere, it certainly appears that the niche of independent consultants is thriving and expanding.
Examples of Rationalization within Consulting
Within both areas, whether larger firms or smaller independent workers, these historical factors have led to specific examples of rationalization within the realm of consulting itself. George Ritzer identifies four key areas of rationalization: Efficiency, Calculability, Predictability, and Control. Each of these forms a foundational pillar of rationalization within any area, and when considered together they each help explain the rationalization of the profession and industry at large.
Specialization
As Consulting.us outlines in their article on the topic, industries have grown both larger and more specialized in the digital age, and in this setting both established and emerging companies more often require more specific consulting services than a general consultant could provide. This has directly led to an increase in more specialized consultants, leading to an increase in specialization across all areas of the consulting profession.
This trend can be seen very clearly in larger firms represented by the increasingly diverse list of master’s programs they will now sponsor for their associate consultants compared to the previous trend of exclusively MBA programs. On a more individual level this shift can be seen in the growth of smaller and more specialized firms. In recent years, this growth has been significantly higher than that of larger firms. In data from a recent Consulting.uk analysis, they identify that while large and midsized firms have only grown 4% and 6% respectively, smaller Niche firms have grown 20% annually. This is likely because of the increasingly digital and specialized demands of the consulting industry, as represented by the indication in the same study that shows Digital and Technology Services now make up 28% of the fee income across the industry—all while the more traditional management specialty has decreased by 4.0% from the previous year to only 8% of the total fee income of the industry.
Data Analytics
Due to their exclusive focus on business problems and the high volume of problems they go through, consulting firms are privy to more extensive and sensitive data about businesses than anyone else, allowing them to better calculate exactly how certain solutions have panned out, and as a result give the most accurate advice. McKinsey, for example, has been conducting extensive surveys with their top employees, citing on their website how they poll “thousands of executives and managers to generate new and distinctive insights on today’s critical business topics” (McKinsey). The sheer amount of data involved has led to more data-driven solutions in the field, causing consultants themselves to shift more towards a data-analytics side of their work rather than exclusively business experience. The other “Big Three” consulting firms (BCG and Bain) have similar programs, with BCG emphasizing their sub-firm of BCG Gamma and its emphasis on AI and analytics solutions (BCG Global) and Bain advertising its extensive analytics services (Bain & Company).
Benefits to working with Large vs Small Consultants
As Peek outlines in his guide to working with a consultant, there are pros and cons to weigh when considering hiring an independent consultant instead of an employee at an established firm. Namely, while there is more flexibility and custom aid that an individual can give, especially since you can occupy more of their total attention, they lack the structure and controlled training expected at a larger firm (Peek). When hiring a larger firm, a client can be more confident that the guiding principles and hierarchical structure of the firm will dictate how they receive their aid rather than depending entirely on the individual consultant they hire. In turn, smaller consultants had to compete with these increasingly controlled and formulaic approaches of larger firms, leading to various problems about the control a client could have over their services. While still not as controlled as a larger firm, a legal change arose that helped solve this issue. Specifically, the idea of a “Written Independent Contractor Agreement” is becoming incredibly standard in process of hiring independent consultants. As they highlight in their guide on the matter, All Business emphasizes how typically a company would have far less control over an independent consultant compared to a in-house employee. However, the numerous benefits of hiring an independent consultant mean that this written agreement, essentially dictating the exact terms of hiring the consultant, serves as some form of control the company has over the consultant.
The Idea of Irrationalities
According to Ritzer and his ideas of rationalization and irrationalities, an irrationality is a negative issue that arises through the general approaches of rationalization, a rationalized process, a poor implementation of rationalization, and more. Essentially, it is the unintended side-effect of rationalization which, instead of benefiting society and industry, creates direct negative impacts on these. Being so deeply intertwined with both rationalization and the entire business landscape, consultants are especially susceptible to irrationalities, both at the small and large scale.
Irrationalities of Compensation
Since given tasks vary from any previous task they had to do for a different client, consultants must be flexible and adaptive in their delivery of solutions. One of the biggest issues facing consultants as a result is payment. The billable hour is a common payment a key issue faced by this model is if an employee does the same work in less time, hourly costs rise and losses for the firm increase (Schnabel). This results in the firm striving to spend as much time as possible on a given task with a given employee resulting in a lack of prioritization of non-billable essential tasks within the firm, unnecessary wasted time drawing out projects for the sake of higher pay, emphasis on quantity of work rather than quality, promotion of most intense workers rather than most qualified for promotional positions, prioritization of billable clients, and unknown total costs of tasks (Wilson). While there are good alternatives such as pay-by-project, the variable nature of consulting work means that settling on a fixed price to begin with remains problematic regardless of method.
Irrationalities of Ethical Purpose in Consulting
Another concern with the irrationality of consultants surrounds the role that they play in certain businesses. Since consultants’ primarily goal is to help a company better achieve their main goal, consultants help aid in the ultimate goals of profits. However, this pursuit means that consultants are enabled to inflict harm more easily on companies and industries through this external input towards profits. This is best seen in the most high-profile cases of the largest firms such as McKinsey. As Kolhatkar explains in their NYTimes article, McKinsey has done harm to humans/society for the sake of clients’ profits. Just a few examples of this include OxyContin, cigarettes, outsourcing of jobs, reducing employee benefits/standard of living, supporting oppressive national governments, and more (Kolhatkar). However, this doesn’t seem to be because McKinsey is breaking laws and going against the designs of the company. They are doing exactly what the whole purpose of consulting is: creating an incredibly streamlined and rationalized process to help businesses achieve the maximum possible returns on their operations.
This issue spreads across the entire consulting industry and profession, not just in the largest firms. While McKinsey is the most notable example due simply to its scale and the high-profile and high-impact nature of its clients, any consultant falls into the same pitfalls of the way the profession is structured. As such, perhaps the focus shouldn’t be on blaming the highest success of the industry, but rather assess its place and regulation in society as well as external limitations on the clients it serves (both private businesses and governments). Essentially, to maintain the most ethical solutions that they claim to promote, there must be some added amount of external regulation or governance to help determine that they are acting in order with ethical laws and guidelines.
Artificial Intelligence and the Future of Business
Consultants and AI: Replaced or Enabled?
With the recent advent of Chat-GPT and similar language models, all industries are entering a new phase of rationalization never seen: the rationalization of complex intellectual tasks.
While many jobs will be completely obliterated by these models, the professions likely will not. This is because of prompt-engineering and the utilization of AI to enhance human tasks. Like a super-computer calculator in the hands of a talented mathematician, AI in the hands of a talented prompt engineer will super-charge countless individuals in their professions. Additionally, the freelancers discussed so far will benefit from this the most, since they will be able to harness more power than any large team or firm ever could all at their fingertips resulting in a democratization of innovation.
Concluding Thoughts
Organizational ecology distributions highlight the high importance of specialization within a niche—even if that specialization is serving generalized clients and needs. Additionally, the ability to successfully freelance is both increasingly important and achievable. The digital ecosystem of the internet serves as the democratizing force of anything and everything, freeing individuals to create, communicate, and share. It has never been easier or more potentially rewarding to work and exist in a freelancing setting, free to work for yourself and specialize in what you are best in, with an infinite potential of clients worldwide to pull from. The ability to successfully navigate this space and its challenges is rapidly becoming the most essential skills for every profession, second only to the services themselves you hope to provide.
The most important aspect of consulting remains being someone who brings a desired skill others aren’t easily able to work with or achieve on their own. The only way to compete in a future where everyone has access to high-powered computation tools is to provide some mental service and approach to problems which isn’t innately accessible to your typical company or individual.
If there is skilled work to be done that people don’t want to do or don’t know how to do themselves, there will be a place in the world for consultants.
References:
“Advanced Analytics Consulting.” Bain & Company, https://www.bain.com/vector- digital/advanced-analytics/.
Basuthakur, Radhika. “5 Reasons Why Independent Consulting Is on the Rise.” BTG Business Resource Center - Business Talent Group, 13 Oct. 2022, https://resources.businesstalentgroup.com/btg-blog/why-independent-consulting-is-on-the-rise.
Baysden, Chris. “Time's up: The Benefits and Challenges of Moving Away from the Billable Hour.” Journal of Accountancy, 1 Aug. 2014, https://www.journalofaccountancy.com/issues/2014/aug/billable-hour-20149888.html.
“BCG Gamma.” BCG Global, https://www.bcg.com/beyond-consulting/bcg-gamma/overview.
“Consulting Campus Opportunities.” Deloitte United States, https://www2.deloitte.com/us/en/pages/careers/articles/join-deloitte-consulting-campus- opportunities.html.
Cross, David, and Juani Swart. "Professional fluidity: Reconceptualising the professional status of self-employed neo-professionals." Organization Studies 42.11 (2021): 1699-1720.
“Independent Contractor and Consulting Agreements.” All Business, https://www.allbusiness.com/independent-contractor-and-consulting-agreements-514-1.html.
Keyes, Frederick G. “Arthur Dehon Little (1863-1935).” Proceedings of the American Academy of Arts and Sciences, vol. 71, no. 10, 1937, pp. 513–19. JSTOR, http://www.jstor.org/stable/20023256.
Kolhatkar, Sheelah. “McKinsey Is a Consulting Powerhouse. but Is It a Force for Good?” The New York Times, 29 Sept. 2022, https://www.nytimes.com/2022/09/29/books/review/when-mckinsey-comes-to-town-walt-bogdanich-michael-forsythe.html
Friedman, Milton. “A Friedman Doctrine‐- the Social Responsibility of Business Is to Increase Its Profits.” The New York Times, The New York Times, 13 Sept. 1970, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.
Laffitte, Helene. “History of Consulting: The 8 Important Stages That Shaped the Industry [2022].” Consulting Quest, 17 May 2022, https://consultingquest.com/insights/8-stages-history-of-consulting/.
Markovits, Daniel. “How Mckinsey Destroyed the Middle Class.” The Atlantic, Atlantic Media Company, 16 Feb. 2022, https://www.theatlantic.com/ideas/archive/2020/02/how-mckinsey-destroyed-middle-class/605878/.
McKenna, Christopher. “A Brief History of Strategy Consulting.” ParisTech Review, 2 Feb. 2012, https://www.paristechreview.com/2012/02/02/history-strategy-consulting/.
---. “The Origins of Modern Management Consulting.” Business and Economic History, vol. 24, no. 1, 1995, pp. 51–58. JSTOR, http://www.jstor.org/stable/23703271
McKeown, Tui, and Patricia Leighton. “Working as a Self-Employed Professional, Freelancer, Contractor, Consultant … Issues, Questions … and Solutions?” Journal of Management & Organization, vol. 22, no. 6, 2016, pp. 751–755., doi:10.1017/jmo.2016.45.
“McKinsey Global Surveys.” McKinsey & Company, https://www.mckinsey.com/featured- insights/mckinsey-global-surveys.
Ozimek, Adam. “Freelance Forward Economist Report.” Upwork, https://www.upwork.com/research/freelance-forward-2021.
Peek, Sean. “Guide to Working with Business Consultants.” Business News Daily, 21 Feb. 2023, https://www.businessnewsdaily.com/4610-business-consultant.html.
"Rationalization." Oxford Reference. Ed. Calhoun, Craig. . Oxford University Press. https://www.oxfordreference.com/view/10.1093/acref/9780195123715.001.0001/acref-9780195123715-e-1392
Ritzer, George. The McDonaldization of Society. 10th ed., SAGE Publications Inc., 2021.
Schnabel, Lior. “Between Profit and Loss: Billable Hours and Utilization at Architecture and Engineering Firms.” Architizer, 16 Nov. 2021, https://architizer.com/blog/practice/tools/billable-hours-and-utilization/.
“Timeline: Arthur D. Little.” Linking People, Technology and Strategy, https://www.adlittle.com/en/timeline.
“Three Reasons behind the Rise of the Specialist Consultancy.” Consulting.us, 12 Aug. 2019, https://www.consulting.us/news/2713/three-reasons-behind-the-rise-of-the-specialist- consultancy.
“UK Consulting Industry Grows by 5% to £9 Billion, but Faces Challenges.” Consultancy.uk, 2 Oct. 2017, https://www.consultancy.uk/news/14069/uk-consulting-industry-grows-by-5-to-9-billion-but-faces-challenges.
U.S. Census Bureau. “NES Datasets, 1997-2019,” Programs-Surveys, https://www.census.gov/programs-surveys/nonemployer-statistics/data/datasets.html.
Wilson, Jeff. “Why Hourly Billing Must Die.” LinkedIn, 8 Aug. 2017, https://www.linkedin.com/pulse/why-hourly-billing-must-die-jeff-wilson/.
Zammuto, Raymond F. “Organizational Adaptation: Some Implications of Organizational Ecology for Strategic Choice.” Journal of Management Studies, vol. 25, no. 2, 1988, pp. 105–120., https://doi.org/10.1111/j.1467-6486.1988.tb00026.x.
Zipursky, Michael. “How to Scale Your Consulting Business to $1M (and beyond).” Consulting Success, 4 Oct. 2022, https://www.consultingsuccess.com/how-to-scale-your-consulting- business.
Credits:
Created with images by R.M. Nunes - "Looking up at high rise office building architecture against blue sky in the financial district of a modern metropolis, business and finance concept." • leeyiutung - "Exterior of modern architecture. Building abstract background" • Archivist - "Factory Interior. Date: 18th century" • Pavel - "Empty gray tones office with tables and chairs and large floor-to-ceiling windows in a meeting center. The concept of workplaces with expensive furniture and stylish design" • Andrii Yalanskyi - "Network of interconnected people. Interactions between employees and working groups. Social business connections. Networking communication. Decentralized hierarchical system of company. Organization" • Quang - "High angle view of woman working on laptop" • Lek - "Asian businessman reviewing document reports at office workplace with computer laptop. legal expert, professional lawyer reading and checking financial documents or insurance contract" • stokkete - "Stressed frustrated businessman making a facepalm gesture" • Pormezz - "Happy office worker receiving extra money from boss as a reward." • Uuganbayar - "Wooden blocks with words 'ethics, respect, code, honesty, integrity'. code of conduct" • ipopba - "AI, Machine learning, Hands of robot and human touching on big data network connection background, Science and artificial intelligence technology, innovation and futuristic." • logoboom - "Los Angeles city skyline, sunrise"