Do What Consultants Say, Not What Other Firms Do
| Peter Klein |
McKinsey suggests this strategy: when other firms ignore strategy consultants, earn rents by listening to strategy consultants.
- Companies don’t react to competitive threats in the way management theory says they should, according to a McKinsey Global Survey.
- Instead of undertaking extensive, sophisticated analyses when faced with a competitive threat, most companies assess just a few responses, and they often choose the most obvious one.
- These practices give companies an opportunity to seize a competitive advantage by understanding how their competitors are likely to react to their moves.
The pointer is from the ever-valuable Luke Froeb. Most economists are puzzled management consulting, believing that consultants add little real economic value. I am sympathetic to a signaling explanation with a separating equilibrium in which high-quality firms can afford to signal quality by hiring expensive consultants and low-quality firms cannot. But I haven’t studied this closely. Can anyone recommend literature on the economics of consulting?