What drives companies to hire expensive consulting firms like McKinsey, Bain, & BCG?

At the end of the day, when a company needs to make a decision to hire a consultancy three key questions must have a clear answer:

-can we do this by ourselves?

-if yes, can we do it for cheaper and with similar returns?

-if yes, do we want to do it or does it distract us from our core business?

So traditionally the reasons to hire consultants were:

-bring expertise -->some consultants do same project type over and over (e.g. Pricing, organizational restructuring) and know how to do that task well, fast and with ability to benchmark with other players/industries

-create momentum -->external consultants can help accelerate projects that are stalled due to internal politics (external opinion provided by consultants helps resolve a go/no go decision that is politically charged) or by the fact that they are more efficient and work 1.5-2x hours as much as clients do

-frame and provide recommendation on strategic questions -->this is the "strategic" project that all consultants dream about (decide what market to enter and how, etc)

In the last 5-7 years strategic consultancies started building centers of excellence / operational arms focused on implementing solutions they recommend and enabling clients in delivering them in a continuous way (digital, oil asset management, organizational structure optimization, dynamic pricing, etc). Therefore to the three reasons to hire consultants above, transferring skills has also been added (although this is done by the specific arms of the consultancies).

hope it helps,

andrea

Hi Anonymous,

I agree with the mentioned points. As additional reasons I would add:

• Time efficiency. A consulting team can produce results in a very short amount of time. Hiring someone as part of the company can hardly allow to get a perfect due diligence done in 2-3 weeks only
• On-demand services. Consulting companies may be expensive but they are on demand. Many projects (eg due diligences) are designed exactly for such on-demand support, thus not needing internal hiring. Could be far more expensive for the company to internalize the team.

Best,

Francesco

I think there are 3 general ways a Consulting organization can bring value:

1. Bring in actual expertise, which every large company has in droves. Operation, Finance, Strategy... you name it!

2. Help work on a thorny problem that the company's leadership doesn't really want to tackle themselves, or doesn't have the staff to put on it. Includes "right sizing"

3. Give credibility. If MBB said so, it must be true -> now your CEO can get his pet project approved by the board

I suspect many projects are a little bit of every one of these categories btw. And yes, they do provide real value. There wouldn't be such a large industry of 'overpriced' consultants otherwise.

So I am actually working in a large chemical company, and have heard presentations by consultants from PWC and EY before. The big value added for me was their industry knowledge, not necessarily the analysis or skills. Consultants and their firms have access to lots of private industry knowledge of competitors, and while they can't present that data, they are able to present to a company their benchmarked status (how they stack up). This to me was the most valuable aspect a consultant provieds to a large firm.

I'm nowin the process of applying to consulting firms because I have seen the value of the broad industry knowledge that is gained from working there.