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Consultants Are Paid to Fix Businesses. Why Can’t They Fix Their Own?

The Spritzler Group has recently opened a Boston Office specializing in the Defense Industry. "Our phone is ringing off the hook...I don't understand how people can complain about their business being off?"

Consultants Are Paid to Fix Businesses. Why Can’t They Fix Their Own?

Slower promotions, partner layoffs and fewer office snacks as big firms grapple with a slowdown. Recruits wait months to start, ‘Here I am…doing Uber Eats.’

By Lindsay Ellis and Chip Cutter, WSJ

Updated March 16, 2024

At Boston Consulting Group, junior staffers have been peppering more senior consultants with a now-familiar query: Do you have work for me?

The answer has often been no.

Big and established consulting firms such as McKinsey, BCG and Deloitte, which are paid to predict the future for the world’s biggest corporations, have gotten their own destiny wrong. The fallout is messy.

Some new recruits are struggling to find work. Firms are losing contracts as one-time clients slash budgets for strategic reviews amid broad cost-cutting efforts. Some employees are working long hours for the assignments they do have, while others are twiddling their thumbs. A number of firms are cutting staff by imposing large-scale layoffs or by quietly showing staff the door, citing performance reasons.

The troubles are arising after the industry boomed with new business—and hired staff to match—during the Covid-19 pandemic when companies sought expertise on how to handle the global slowdown, the work-from-home paradigm and supply-chain delays. When relative normalcy returned, companies looked hard at their costs and many have been in contraction mode ever since.

Interviews with more than 60 current and former consultants and partners from Bain, EY, McKinsey, and beyond reveal a new frugal environment where everything from office snacks to Uber rides are under scrutiny and travel for client meetings has scaled back.

Consulting executives say the problems are temporary. A number of firms say they are already seeing an uptick in business, and some add that they would not categorize the past 18 months as a massive downturn for the industry.

“2024 is already a strong year, and I am confident in the momentum of the market,” said Sharon Marcil, North America head for BCG, adding that the firm’s operations in the region saw “very strong” double-digit growth in recent months.

Yet companies from Adidas to Citigroup have said they are ratcheting back on consultants. In the U.S., the consulting market is expected to grow by 6% in 2024, down from double-digit growth in the pandemic, according to Source Global Research estimates. That group found that 86% of U.S. clients said they plan to cut spending on consulting this year.

One of the first things Bjørn Gulden did when he returned to Adidas as chief executive in 2023 was to ax the sports giant’s consultants, blaming their strategies for hobbling the company. Consultants’ reports typically run dozens of pages filled with charts and models. Gulden told The Wall Street Journal, “I don’t even see them.”

McKinsey asked partners last year to defer some of their pay to weather the downturn in client interest, though by year’s end business was good enough that they got their full pay. The company also cut 1,400 largely back-office employees last year, and slowed down the pace of promotions and trimmed some in-person training and retreats.

McKinsey has put thousands of staffers on notice with unsatisfactory performance ratings.

McKinsey global managing partner Bob Sternfels narrowly survived an effort to unseat him, laying bare the dissatisfaction with how one of the world’s most lucrative partnerships is operating. Some partners felt frustrated over the firm’s restructuring last year and how McKinsey responded to slowing growth; others complained about a changing firm culture and a top-down leadership style.

In an almost unheard-of move, EY recently laid off more than 100 U.S. consulting partners amid broader cuts. The partner layoffs ricocheted across the industry, as firms rarely eliminate a cohort that can bring in new business. Making partner at a large firm once meant a career for life, with potentially millions in earnings each year.

“The country club isn’t safe any more,” said Kevin McCarty, chairman and CEO of Chicago-based consulting firm West Monroe.

Business dried up

Private-equity work—a big wellspring of consulting contracts for top firms—has dried up, due to a drop in dealmaking amid high interest rates. Management consultants often advise on due diligence for mergers and acquisitions and then get contracts to integrate one firm with another. The overall M&A market, globally, dropped 15% last year to a total value of $3.2 trillion, according to a Bain analysis.

Jane Fraser, CEO of Citigroup and a former McKinsey partner. Citi has scaled back spending on consultants.

Citi hired outside consultants in recent years to help it overhaul its operations. The bank embarked on an ambitious plan under CEO Jane Fraser, a former McKinsey partner, to reshape the company, selling off some international consumer businesses, cutting thousands of jobs, growing its wealth-management division and improving its technology.

In January, Chief Financial Officer Mark Mason said the company had shifted its spending, moving “from consulting expenses to technology and compensation as we have gotten deeper into the execution” of a transformation. Fraser remains under pressure from investors to boost profits.

Block’s chief operating officer and chief financial officer, Amrita Ahuja, said this fall that the company had identified a number of areas where it expected to cut corporate overhead costs, including on consultants and contractors. Block is the parent company of payments-platform Square.

Some of the spending companies once allocated for consulting has shifted to spending on tech, in particular artificial intelligence. Consulting firms themselves are also spending on AI. Some say it will be a savior as a tool to improve their own processes as well as an area of expertise to grow and sell services against. McKinsey reported record revenue of approximately $16 billion last year thanks, in part, to a new wave of work relating to generative AI.

McKinsey senior partner Sven Smit, a veteran who joined the firm in the early ‘90s and co-wrote books such as, “The Granularity of Growth,” on improving company performance, said the industry is cyclical. Smit has emphasized to colleagues that life isn’t a straight line; just a few years ago, the company had a backlog of demand. Executives are also facing tougher conundrums than ever, he said, and need the expert advice a consultant can offer to navigate changing consumer behavior and geopolitical unrest. “I have not seen more complexity—and more big issues on the minds of CEOs—ever,” he said.

There is demand for how to use generative AI to boost productivity and restructure workforces, he said. Internationally, many companies are still calling, Smit said, especially from China where some companies are having to conduct layoffs for the first time.

“Demand for our services is actually accelerating, not declining,” said Liz Hilton Segel, a senior partner and McKinsey’s chief client officer.

Clients have demanded that consultancies charge less. Some are trying to save by hiring experienced freelancers who work solo, often specializing in a single industry, said Pat Petitti, CEO of Catalant, a freelance marketplace for consultants. Not only is it cheaper than engaging a big-name firm, he said, but clients don’t have to spend as much time bringing teams of consultants in their 20s up to speed.

Consulting firms are trying to keep clients engaged by staffing projects with fewer, cheaper staff. They can lean on lower-ranked staff or employees in places like India who cost less for clients than a midlevel consultant would.

Job insecurity

Working at a big consulting firm has long been a ticket to a highflying corporate career. McKinsey internally has referred to itself as “the #1 ‘CEO Factory,’” with hundreds of its former employees leading large organizations. Soon-to-be graduates spend hours practicing for interviews where they analyze business strategy, and some keep suits nearby in case there is a chance to network. On the job, they take pride in working long hours and navigating the up-or-out culture. They meet clients from government to finance to tech, calling the field an “M.B.A. part two”—the chance to meet executives and see how business really works, one Sunday-to-Thursday trip at a time.

Now, job cuts are on the table at several consulting companies and some firms have already made significant reductions. Many, however, hung on to staff as long as they could, expecting that new business would rebound quicker than it has. Consulting firms are closely held partnerships so they have less incentives than public companies to cut staff quickly.

West Monroe laid off 10% of staff, or about 200 people, last summer after executives realized their assumption was incorrect that the downturn would last six or nine months before clients came back. Instead, it dragged on longer, though, the CEO, McCarty, said demand is starting to return.

“You have to do something,” and make tough decisions, said McCarty, who started the firm in 2002 with colleagues from Arthur Andersen, the accounting and consulting giant felled by the Enron scandal. “You can’t just hang on to too many people.”

One reason firms have cut staff is that corporate employers—including client companies’ executive teams—have slowed white-collar hiring and continue to announce plans to trim jobs. That means consultants hoping to leave the field have struggled to do so voluntarily, and so firms must lean on cuts to thin the ranks.

Bain encouraged some consultants to take sabbaticals at roughly 25% of their salary to lighten the payroll load. Some young management consultants without projects describe spending their time napping or binge-watching Netflix.

At BCG, multiple team leaders said they felt pressure to score junior staffers more harshly in performance ratings. Worse scores allow more consultants to be quietly jettisoned for performance reasons, they said, without the bad publicity that comes with official layoffs.

Boston Consulting Group, McKinsey and other consultancies see artificial intelligence as a tool for their work and as an area of expertise to offer clients.

In slower times, “there’s less opportunity for them to show their stuff,” said Alicia Pittman, BCG’s people chair.

That can breed anxiety, but there are still ways to grow, like work on business development, she added. “The standard itself on what we expect actually doesn’t change very much,” she said.

Doing layoffs is an about-face from consultants’ strategies during the pandemic when McKinsey and others put hiring on overdrive to avoid falling behind, paying ever higher salaries, with median base salaries for recent graduates of some top M.B.A. programs climbing to $175,000 by 2022. Salaries broadly this year flatlined, according to Management Consulted, a website that tracks industry pay and trends.

McKinsey has grown to 40,000 worldwide, up from 30,000 in 2021. In McKinsey-speak, consultants still worry about getting “CTL’d,” or counseled to leave, if they don’t get assigned to a project or if their performance is lacking. McKinsey recently put about 3,000 staffers on notice with unsatisfactory performance ratings, according to people familiar with the matter.

One Deloitte consultant was assigned to a project last year that would normally require four consultants, but to save money was staffed with two. Some days she worked from 7 a.m. to 2 a.m. At the project’s peak, she took Adderall daily to stay motivated, and when she washed her hair, clumps of it fell out.

Deloitte cut about 1,200 staffers last spring.

When Deloitte cut about 1,200 staffers last spring and then kept cutting, text chains with colleagues would light up, comparing notes about who was safe and who was out.

When her project ended, she was laid off, too.

Deloitte said it has invested in workers’ learning and development, including programs to help consultants navigate their careers.

“From a client perspective, they have every right to look at the firms and say. ‘How well are you managing yourself?’ That’s something the firms have to contend with,” said Michael Mische, a former principal at KPMG who now teaches classes on consulting at the University of Southern California.

Recruiting, recruiting, recruiting

Firms stay in recruiting mode regardless. Last fall, as another Deloitte consultant was flying to a college campus to woo students to his firm, he received an email inviting him to a talent update meeting. Translation: He was out of a job.

He went to the campus and pitched the students on a great career they could have at the firm, knowing that by Monday he would be unemployed.

Plenty of people still want a spot in the industry. In a note at the end of last year, McKinsey’s Sternfels told employees and alumni that the firm continues to receive a flurry of applications.

“I’m reminded each time I speak with our Talent Attraction colleagues that so many would love to be in our shoes—more than one million people apply to work here each year,” Sternfels wrote in the memo, which was viewed by the Journal.

To secure top talent from college campuses, Rod Adams, who leads recruiting for the U.S. and Mexico for PricewaterhouseCoopers, said firms start recruiting would-be consultants as college sophomores. Doing so means the firm has to speculate about future client demand, he said. The firm onboarded 575 new grad hires in January, after delaying many of their start dates from summer 2023 because of the downturn in business.

Other 2023 graduates won’t start until this summer, and some had their start dates delayed to as late as October 2024, said Patrick Holton, executive director of Hofstra University’s business school career center.

Deloitte has paid some with delayed start dates $2,000 a month to wait around, and KPMG offered a payment of $10,000 to stop recruits from taking other jobs. The retention stipends don’t compare to their consulting pay, which can top $110,000 for those with undergraduate degrees and $190,000 for M.B.A.s, according to Management Consulted. Consultancies are stringing along new grads with the hope that they’ll tire of waiting and find other work, Holton said.

What’s more, many newly minted M.B.A.s from top-ranked universities like Harvard Business School and Yale’s School of Management received signing bonuses of about $30,000 with their job offers. Backing out now from a consulting job could require repaying those bonuses, several recruits to Big Four firms said.

“The golden handcuffs are now tighter,” said one new consultant who started at PwC in October, several months after earning an M.B.A. As he waited, he patched together odd jobs to make ends meet, including delivering takeout and tutoring high-school students. “Here I am,” he thought, “graduating from this top M.B.A. program—and doing UberEats.”

Mark Maurer and Walden Siew contributed to this article.

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