The management consulting industry emerged in the late 19th century during the industrial revolution to help large factories organize their growing workforces and maximize efficiency. The first recognized consulting firm was founded in 1890 by Arthur D. Little, initially focusing on technical research and later on management engineering. Booz Allen Hamilton, established in 1914, was the first to serve both industry and government clients. Over time, consulting firms developed tools and methodologies that became standard practices, and the industry expanded globally along with increased international trade and outsourcing following World War 2. However, recessions like the dot-com crash in the early 2000s and the late 2000s financial crisis caused declines in consulting revenues as clients cut discretionary spending.
2. IT ALL BEGINS
• The rich and powerful have always
needed advice on how better to manage
their affairs and make effective decisions.
Biblical kings had prophets, Persian
sultans had viziers, and Greek city states
had the oracle at Delphi. Even the Mafia
had their consigliere. Yet formal
organisations that specialised in
management advice didn’t emerge until
relatively late in the industrial age.
3. The demands for mass-produced goods
(initially weapons, but later consumer
products) drove thousands of new
employees into large, unfamiliar factories
where there was little expertise on
organising people, processes and
machinery to maximise efficiency. Specialist
engineers such as Charles Babbage and
Frederick Taylor turned their hands to these
management problems and achieved
significant improvements by deploying new
methods for work organisation.
4. THE FIRST
The first recognised management consulting
firm was formed in 1890 by Arthur D. Little,
initially specialising in technical research, later
building a specialism in what became to be
known as ‘management engineering’. The first
management consultancy to serve both industry
and government clients was Booz Allen
Hamilton, founded in 1914 and the first modern,
pure management and strategy consulting
company was McKinsey & Company
5. DURING INDUSTRIAL REVOLUTION
• Whilst the industrial revolution provided the key
driver for the emergence of consulting firms, the
trajectory of their evolution was influenced by
other factors. The early alignment of companies
such as A.D. Little, McKinsey and Booz Allen
Hamilton with the banking and financial
institutions provided a strategic advantage that
later competitors found it hard to compete with.
Various government interventions, such as the
Glass-Stegall Act (1933), prevented banks from
engaging in non-financial activies, thus enabling
the growth of early consulting firms.
6. • Seeking credibility for their new firms, the
founders sought to model themselves on legal
practices and adopted the partnership model.
Central to the ‘style’ of early consulting firms
was Marwin Bower, the CEO of Mckinsey
from 1950-1967. He developed the
‘professional’ status of consultants, focused
on top MBA graduates (thus insipring the
growth of Business Schools and MBA courses
around the world) and implemented the
infamous ‘up or out’ policies that have
plagued aspiring consultants for years.
7. POST WORLD WAR
• After WW2, the growth in globalization aided the
boom in consulting and saw the development of a
number of tools, methods and products that are now
taught in business schools around the world. Very
much a demand-driven industry, consultancy grew off
the back of economic development, first in the USA,
then Europe and the rest of the world. Whilst most of
the first consultancies have maintained their
stronghold of strategic advice, growing demand for
expertise in implementation, IT and outsourcing have
allowed other companies to develop advisory services
in these areas. The result has been strong growth in
consulting services for companies that originally
focused their advice in different areas: IBM, Deloitte,
PWC and Accenture.
8. RECENT YEARS
In more recent history, consultancy had
continued to expand on the back of increasingly
globalised companies, the information
revolution and cost-cutting in government. The
expansion has not been constant however, and
two important breaks in this trend have been:
9. • The Dot-com crash (2000-2002) where the high-tech / e-business
bubble popped with severe consequences for clients and,
therefore, their consultants. This lead to a plateauing of income for
consultancies rather than a decline.
• The Credit Crunch (2009-2011) where a collapse of liquidity in the
money markets triggered a sharp drop on the stock markets and a
decline in consumer confidence. The resulting recession witnessed
private sector clients cutting back on discretionary spend which
lead to the first decline in global consulting revenues for decades.
The debt burdens of central governments was worsened by their
attempts to improve confidence and ease liquidity by pouring
billions into financial institutions. This debt has meant cut-backs in
the use of consultants by most western governments.
