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<p>Understanding</a> the business behind business schools - Video on msnbc.com</p>
<p>And then he’s shot down and goes into a discussion of general income allocation.</p>
<p>A team of four consultants working at a high level with an executive board to define a firm’s operating strategy, marketing strategy, risk profile, and organizational strategy can generate more welfare to that company and to the general welfare of society in 8 weeks than a team of 500 engineers working on efficiency improvements over 10 years. </p>
<p>That’s what makes consulting more valuable to society than engineering, why consultants are paid much more than engineers, and why it’s good for the top engineering students should go into consulting.</p>
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<p>How’s that? I doubt that anybody seriously disputes the notion that some people have indeed been redirected from engineering to finance or consulting for the higher salaries. Furthermore, while Kaplan’s counterargument rests upon the overall positive economic growth of the past 30 years, Khurana challenged how much of that could legitimately be attributed to, at least, the private equity sector (and I suspect also to the consulting industry). </p>
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<p>But that’s the real issue, of which you may have implicitly conceded yourself. I certainly agree that consultants can generate more value for companies and for society as a whole than do engineers. The real question is whether they actually do so. And, at least to me, that’s very much an open question. </p>
<p>I’ve scoured the literature myself, and to date, I am not aware of any unbiased literature that definitely empirically demonstrates that consulting services as a whole actually generates value above and beyond their costs. What little literature does exist always seems to come from the consulting industry itself and always argues that such value was indeed generated (natch). {Indeed, I would be most impressed if the consulting industry were to publish a study that concluded that they do not create value.} While I can also agree that certain consulting projects have indeed added value, others - such as McKinsey’s notoriously intertwined relationship with Enron - surely destroyed billions in value. Yet shockingly, those projects never seem to be discussed within the consulting industry’s own retrospective studies. </p>
<p>So if there actually is a collection of trustworthy literature that does indeed empirically (not theoretically or philosophically, but actually empirically) demonstrates the value-add of the consulting industry, then by all means, point us to it.</p>
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<p>I “implicitly” conceded nothing. As mentioned in the video, management consulting firms have more influence and add more value to the marketplace than any other interfirm organization in the world. As far as adding value, how can you say that they don’t? The big three are working literally at the entire Fortune 500 at the c-level, as well as with all major governments at the cabinet level. Virtually all major projects that companies and governments introduce these days were either proposed by or vetted by the consulting firms (of course, some were launched despite the firms’ disagreement). You’d be hard pressed to find something they didn’t influence, positive or negative.</p>
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<p>Um, actually you once again implicitly conceded my case, for nobody is denying their ‘influence’. The question is whether the influence has been net positive, and that is very much an empirical question, to which you yourself have acknowledged (as being hard pressed to find something they didn’t influence, positive or negative). The consulting industry is absolutely notorious for its boondoggle failed projects, yet they obviously and conveniently always seem to be omitted whenever the consulting industry markets its services.</p>
<p>As I said before, if the case that the consulting industry added value was such a slam-dunk, then that fact should be trivially easy to verify empirically. So where exactly is the evidence that they do so? Heck, you don’t even have to give me the evidence, you could simply point me to the datasets where I could find the evidence (and trust me, I have access to a bevy of datasets). </p>
<p>And besides, even this discussion is moving beyond the point that Khurana has made. Even if the consulting industry did indeed provide a net positive value-add (after subtracting fees) to its clients - a notion that is far from obvious - that wouldn’t speak to Khurana’s concern regarding the net value add to this society. As a topical case in point, if the consulting industry were to universally recommend that every client outsource their entire manufacturing and engineering arm out of the US to China, that might provide a value-add to those clients and surely also to China. But would it provide value to this society (that is, the US)?. That’s far from clear. </p>
<p>And that gets to Khurana’s second point regarding growing income inequity and concomitant stagnant wages for the average American. Sure, the US has indeed experience tremendous economic growth over the last 30 years. But even if that growth could be partially attributed to the consulting industry - which itself is far from obvious - that growth has nevertheless clearly failed to benefit the average person in this society. </p>
<p>Ultimately why that matters is that Harvard Business School, Chicago Booth, and their peers are American business schools. They’re provided tax exemptions which ultimately must be covered by American taxpayers. {As a trivial case in point, Harvard is exempt from property taxes in the city of Cambridge despite being the wealthiest property owner in the city). Much of their R&D funding is provided by American taxpayer dollars. Many of the MBA students are paying for their educations with American taxpayer-backed student financing. </p>
<p>Hence, I think it is entirely appropriate to ask whether American business schools - and the consulting industry that it fosters - actually provides a value-add to this society.</p>
<p>Again, nothing is “implicitly conceded”. Either you don’t understand what is being said or, more likely, you’re just being an ass. </p>
<p>The implicitness in my comment has to do with the obvious argument that civilization has positively progressed over the last 90 years. If civilization has positively progressed, and management consultants have their hand in virtually everything civilization has done, then the benefit of their services is obvious. </p>
<p>As far as boondoggles, you cannot name many since the 1920’s when the profession was founded. Enron? The work McKinsey did there was successful in growing a small energy company into a global leader. The scandal involved accounting fraud, which is not an area that McKinsey advised (and Anderson was punished appropriately). You can name maybe half a dozen others, but that’s small compared to the volume of work these firms do on an annual basis.</p>
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<p>It is not easy to empirically validate because these firms work under confidentiality and do not take credit for successful projects. Their effectiveness can be validated from the fact that they are hired at will by the entire Fortune 500, most of the Global 2000, and the governments of most industrialized nations. If they added little or no value, business leaders simply wouldn’t hire them, especially not at the current rate.</p>
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<p>Now you’re moving the goalpost. Consulting firms are largely international with many international employees and the corporations they serve are international. So the response they might give is why should they be primarily concerned about what’s right for the US?</p>
<p>It is the role of consulting firms to recommend what is best for their clients and it is the role of corporations to do what is best for their shareholders. It’s the role of the US government to ensure that what is best for these groups is also best for the US. This can be done through regulations (or the lack thereof), tax rates, legal protections, access to infrastructure, and/or access to appropriate (cheap and/or skilled) labor (which is where government subsidies for education come in).</p>
<p>“A team of four consultants working at a high level with an executive board to define a firm’s operating strategy, marketing strategy, risk profile, and organizational strategy can generate more welfare to that company and to the general welfare of society in 8 weeks than a team of 500 engineers working on efficiency improvements over 10 years.”
This is just the right thinking China needs to kick america’s ass.Keep pretending that consulting is a value adding industry.Isnt it any wonder that its wall street with its team of consultants that needs bailing out and silicon valley that is booming?Have you noticed that the nations that are on the rise have more engineeers than MBA’s?</p>
<p>It seems like we should put our best people into situations where there’s the possibility of great risk and great reward. So, maybe consultants have goofed badly a few times, and the results have been high-profile catastrophes. Given two people, one an intelligent, diligent and serious worker, and the other a dull and lazy, who would you hire as a brain surgeon, and who would you have dig ditches? I believe the same principle may be at play here, with only slight modification to the situation: there is not as much difference between the value associated with the professions, and there is not as much difference between the quality of individuals.</p>
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<p>The US graduates 222,000+ engineers per year (140,000 if looking just at bachelor’s degrees) and about 100,000 MBAs. </p>
<p>What I think you mean is that countries graduating more engineers have a higher GDP. Let’s look. </p>
<p>Top GDP growth: China (8.9%), India (6.9%), Canada, Australia, US (1.6%, then Western Europe and Japan finish the top 10.</p>
<p>Let’s just look at India, China, and the US and just first degree engineers. The US graduated 140,000 bachelor’s level engineers; India graduated 112,000. So it’s not necessarily true that more engineers leads to more GDP growth. China graduated 335,000.</p>
<p>The real reason India and China are growing faster than the US is because these countries have very large populations that are upgrading their skills rapidly. In addition, they pay much less (the average engineer salary in China is the equivalent of $252 per month), which attracts low cost firms. Further, these countries have low tax rates than the US and faster growing consumer bases. </p>
<p>If you want to grow the US GDP rapidly, cut corporate tax rates in the US in half and lower the average engineer’s salary to $25,000 per year (and everyone else by 70%, as well).</p>
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<p>First, Wall Street and Consulting are two different things. Second, Consulting is an extremely value-added industry. They wouldn’t exist if that’s the case. </p>
<p>Your basic claim is that you know more about business and the economy than thousands of CEO’s, boards of directors, and cabinet level government officials. In that argument, I take their opinion over yours.</p>
<p>CFB53B writes “The real reason India and China are growing faster than the US is because these countries have very large populations that are upgrading their skills rapidly. In addition, they pay much less (the average engineer salary in China is the equivalent of $252 per month), which attracts low cost firms. Further, these countries have low tax rates than the US and faster growing consumer bases.
If you want to grow the US GDP rapidly, cut corporate tax rates in the US in half and lower the average engineer’s salary to $25,000 per year (and everyone else by 70%, as well).”</p>
<p>It’s easier for China/India and any other less developed country to grow quickly when you are starting from a small baseline GDP. There are many reasons why some LDCs will grow and others won’t including low wage labor, technical skills and government policies to promote exports. Most importantly, the Asian Tigers and now China had access to Western markets. Without that access they wouldn’t have grown at all.</p>
<p>CFB53B “A team of four consultants working at a high level with an executive board to define a firm’s operating strategy, marketing strategy, risk profile, and organizational strategy can generate more welfare to that company and to the general welfare of society in 8 weeks than a team of 500 engineers working on efficiency improvements over 10 years.”</p>
<p>Pure hyperbole. Your 4 consultants are the same ones that convinced the GM and Ford executive boards to invest all the company money in ancillary businesses and to purchase niche auto companies in other countries. The strategies were flat out wrong and destroyed more welfare of the company and society. In contrast, engineers and computer programmers created a great deal of wealth through product development for Apple, Amazon, et al.</p>
<p>All of these Fortune 500 companies have hordes of MBAs and Engineers. They don’t need to hire outside consultants to do something that the in-house executives were hired to do themselves. But, if they hire an outside consulting company the pricey recommendations put an independent seal of approval on the strategies suggested to the executive board.</p>
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<p>Oh, I think understood what you said - and so did you. Here’s your direct quote (emphasis added): “You’d be hard pressed to find something they didn’t influence, positive or negative”. Hence, it seems to me that you conceded that consulting firms may have negative influence. Or would you like to take back that quote? </p>
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<p>Every year, I get another year older. And every year, the universe expands. Therefore it is clearly ‘obvious’ that I am causing the universe to expand, right? </p>
<p>The very first principle one must always remember when analyzing data is that correlation are causation are two entirely different phenomenon. One highly plausible counterstory is that the line of causation actually runs the other way: the positive economic progress of the last 90 years allows firms to purchase more consulting services, as a discretionary luxury good. After all, if I make more money as I progress through my career and therefore can afford to buy increasingly better cars for myself, does that automatically mean that better cars caused progress in my career? </p>
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<p>Actually, you just contradicted yourself. You cannot on the one hand claim that McKinsey built Enron into a ‘successful global trading powerhouse’ and then on the one hand concede the massive accounting fraud that underpinned that supposed powerhouse. Enron only appeared to be a successful global trading powerhouse because of the accounting fraud when, as it turns out, Enron’s supposedly robust assets and profits that ‘proved’ the viability of the trading strategy turned out to actually be nothing of the sort. So even in the most charitable scenario where McKinsey holds absolutely zero responsibility for the fraud, we still cannot credit McKinsey for building a successful trading strategy, because no actual successful strategy existed, but rather only the appearance of success. </p>
<p>But more importantly, McKinsey’s involvement with Enron extended to its very core. McKinsey was instrumental in forging Enron’s broadband strategy, which was quickly and widely discredited. McKinsey designed Enron’s finance subsidiary that at best was unprofitable, and at worst was embedded with fraud from its very inception. Far more importantly, McKinsey probably should have known that something was amiss, but never wanted to upset a lucrative client. After all, the relationship between the two was highly symbiotic: both of them benefitted from the brand-name value of the other. </p>
<p>But since you asked for a few more debacles, let’s list a few more. McKinsey notoriously advised AT&T in the 1980’s that the mobile phone market was destined to be a niche technology, thereby discouraging AT&T from investing in that market. McKinsey in 2007 notoriously advised Jeff Immelt that GE Capital’s asset base was sufficiently liquid and solvent (and only a year later, GE Capital was forced to go cap-in-hand to the Federal Reserve’s emergency liquidity facilities). McKinsey advised KMart to develop BlueLight - how did that do? Mckinsey infamous advised SwissAir on its “Hunter” M&A strategy to roll up a number of smaller European airlines and expand into general aviation services, ultimately resulting in a massive liquidity crisis and ultimate bankruptcy despite two separate bailouts from the Swiss government. </p>
<p>And of course those are simply the recent debacles that are well publicized. Both consulting firms and clients have strong vested interests in concealing problems. If a McKinsey project loses money, but isn’t a complete disaster, we’re probably not going to hear about it. But that doesn’t mean that it never happened.</p>
<p>But I don’t mean to pick on McKinsey specifically, for the issue is regarding the entire consulting industry. I have a suspicion that McKinsey alone may in fact add positive overall value to the clients (although perhaps not to society), but whether the entire consulting industry adds value in the aggregate is very much an open question. Let’s face it - there are numerous lower-end consulting firms. Are they all really adding value? </p>
<p>But like I said, these are ultimately all empirical questions. I’m actually agnostic to the question. Maybe consulting does add client value, maybe they don’t. I don’t know. But since you seem to be so emphatically adamant that consulting does indeed add value to clients, then the empirical evidence for that assertion should be readily available. So perhaps you could point to that evidence. If consulting is such a slam-dunk case of added client value, then it should be easy to find unbiased evidence to that effect. </p>
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<p>Nice try. If the events of the past few years should have taught us anything at all, it is that business leaders and politicians do stupid things all the time. As a case in point, I suppose it must have been a ‘brilliantly effective strategy’ for all of the world’s banks to have loaded their balance sheets with AAA-rated mortgage backed securities and structured financial vehicles. It was equally ingenious for all of them to have cobbled together a morass of opaque, interlocking counterparty arrangements. After all, since everybody was doing it, it must be correct, right? So maybe we should go ask the managers at Lehman, Bear Stearns, Washington Mutual, CIT, IndyCorp…oh wait, we can’t. </p>
<p>Similarly, during the late 90’s, it was clearly the correct strategy for every firm to breathlessly invest their cash flow into as many dotcom properties as they could. After all, all of your competitors were doing it, and if everybody is doing something, it must be the correct move. So Time Warner clearly should have merged with AOL, just like Telefonica clearly should have merged with Lycos, @Home clearly should have bought Excite and BlueMountain, Disney clearly should have bought Go.com. Everybody else was breathlessly sprinting to build a dotcom strategy, and indeed, the financial markets rewarded you for building a dotcom strategy as quickly as you could, so clearly it must be correct, right? </p>
<p>Yet I think all of those firms would like to have a do-over. </p>
<p>The truth of the matter is that managers and financial markets are heavily driven by fads, sentiment, market psychology, and ‘social proofs’. Just because something is highly popular doesn’t mean that it is useful. Just because every bank inundated its balance sheet with MBS’s doesn’t mean that MBS’s are valuable and similarly just because every firm uses consultants does not make consultants valuable. </p>
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<p>Wrong, I never moved the goalposts: they were Khurana’s original goalposts. Frankly, if anybody had moved the goalposts, it was you in post #2. I’m simply moving the goalposts back to what they always were. Khurana was always talking specifically about the value to US society. </p>
<p>As to why we should care about the value to US society, the core issue is that consulting firms still to this day draw disproportionately from US business schools such as Khurana’s employer. US business schools enjoy a litany of tax subsidies provided by US taxpayers. Hence, it is entirely appropriate to ask what US society is receiving in return for subsidizing these business schools who produce consultants who may not be serving in the best interests of the US. </p>
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<p>I agree completely and that may well include no longer subsidizing US business schools if they primarily produce graduates for industries who may not be serving the best interests of US society. Put specifically, why exactly should US taxpayers continue to subsidize, say, Harvard Business School if its graduates then turn around and preach the offshoring of the jobs currently held by those very same taxpayers?</p>
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<p>Hahaha. I don’t have the energy Sakky has for this but let me just say that as a business school professor, who teaches future consultants and works as one as well…this is just so wrong, on so many levels.</p>
<p>If we just admit that engineers should be paid more, will you stop posting threads like this?</p>
<p>Look, I’m not going to stop. If y’all don’t like my posts, fine, you have the freedom to simply not read them. So exercise that freedom. But at the same time, let the people who want to read my posts be allowed to read them.</p>
<p>After all, I’m frankly tired of the incessant posts regarding whether School X is better than School Y. That’s why I don’t read them. But if other people want to discuss that topic, fine, I don’t bother them.</p>
<p>You DO know that this board is supposed to be for students ages 15-25 who are choosing colleges and their parents. This really isn’t the board for solving all the problems related to engineering. So Sakky, would you rather that students who have no intention of ever being engineers stop applying to MIT and leave those spaces open for the serious engineers or what exactly do you want from students and their parents? That is the audience here, students, that is why there are so many posts about which school should I pick, because that is the point of the board…
So would you rather that all the engineering students just go major in finance? Or maybe everybody should major in math for undergrad and then they can choose to get Masters degree in either finance or engineering. No point in wasting all those important MIT professors’ time teaching undergrads afterall. Let’s just dumb it all down.</p>
<p>Um, seems to me that they are plenty of threads within the engineering subsection that are far removed from simply regarding choosing colleges. Many of them deal with the general state of the engineering career: as a case in point, apparently one poster who asked “any petroleum engineers here who can tell me how it is” generated over 20,000 views. And that’s not even including the smorgasbord of topics discussed on other subsections of CC. For example, it’s not clear to me what the racial implications of Jeremy Lin have anything to do with choosing colleges, but apparently plenty of people want to talk about that. </p>
<p>Look, my stance is that this board is for whatever people want to talk about. If people want to talk about a certain subject, they should be allowed to do so without interference. If you’re not interested in talking about this topic, fine, don’t. Nobody is forcing you. Feel free to participate in one of the thousands of other threads that does interest you.</p>
<p>And yet Sakky, you still didn’t answer the question as to what you want from us. Would you like nobody to ever major in engineering again? This is a very serious question. You are not talking you are venting. Look it is broken, look it is broken, look it is broken. Well you are supposedly an engineer, what are you going to do to fix it?</p>
<p>Look, the only thing I want from anybody is their opinions, and perhaps that way, there is the wisp of a chance of a social movement that will spearhead reforms. That’s the most that I can ask for, and frankly, the most anybody that anybody on this discussion board can ever ask from anybody. After all, when other posters discuss whether ‘engineering jobs are hard to find’, or ‘the 6 biggest problems with higher ed’, let’s face it, there probably is little that anybody here can do about it. Probably nothing will change.</p>
<p>But certainly, if nobody ever talked about it, then definitely nothing will change. Even a 0.0001% chance is still better than 0%.</p>