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They're not just executive insurance.

They're also a normalized industrial espionage and wink-and-nudge collusion service. They call all that stuff "best practices".

Ok... you got me. Can you unpack this a bit? Are you saying the consulting services, like, launder techniques and IP from their clients and reuse it other clients or...?

Yes. Part of why you use a consultant like McKinsey is because they are talking to everybody else. So when they tell you "best practices" they are telling you what everybody else is doing.

In a way that cover's everyone's ass legally* of course. But that's what they're doing.

EDIT: * - by "legally" I mean allow information to be shared in a way that precludes legal repercussions but I do not necessarily mean adherence to the law.

Yes their libraries are their most valuable asset. They also collect benchmarking data across companies to help you gauge how you are doing. You cannot ask aws about their practices but you can ask McKinsey about the market leader benchmark practices

AWS is probably guarding their IP, there is a chance McKinsey is just making things up, you can't verify it.

The way that it works is that if you want access to the benchmarks you need to provide your data.

But in general there is no way to verify whether the consulting company is lying or not. They have been caught pants down multiple times recently.

Take a look at publicly traded companies post pandemic to see this effect.

Take McDonalds for an example, they are running around 30% margins and you see on social media customers complaining about prices.

Why don't those customers seek an alternative business?

The rest of them also follow pricing "best practices" so you have no where to run to.

Yum Brands is at ~20% profit margins, Shake Shack is at 3% or less profit margins, and QSR is at 10% to 15% profit margins.

There must be a reason McDonalds earns so much more. As far as I understand, McDonald’s has a significant real estate component to its business (which is technically selling its brand/real estate to franchisors, not selling food), bolstered by its very strong brand with loyal customers (that the others don’t).

https://www.mashed.com/178309/how-much-mcdonalds-franchise-o...

> The cost of running a business, especially a restaurant, can really eat into its profits. At the end of the day, McDonald's only keeps around 16 percent of the revenue its company-owned stores make, but it keeps 82 percent of the revenue franchisees pay out to it.

That’s what excellence looks like. I think chik-fil-a has similar net margins. QSR is more typical for their industry. I think Starbucks is down around 10-12% net margins too.

20% used to be considered a high margin business, like luxury vehicles. That's a shockingly high margin in food.

Because the margin isn’t in food. It’s in franchising (selling a platform and brand) and real estate.

I wouldn’t call it collusion but, of course, they’re aggregating what leading companies find to be best practices—although they presumably don’t share individual company IP. Not much different really from when tech folks go to conferences.

Companies benchmark and consider industry best practices all the time. If they don’t they’re idiots.

Im not a huge fan of management consultants generally, but consultants and analysts can provide useful third party perspectives, in part because they talk to a lot of companies that you may have mess directly with access to.

Private equity firms and large management consulting firms gain extreme visibility and influence into an entire sector. If mckinsey recommends raising prices, its likely everyone in your sector is raising prices. If everyone in the sector does the same action, then no one loses out.

Is this how we ended up with an entire generation of business managers being taught that competing on price is bad?

That's a part of it. The other part was the federal government not enforcing anti trust law for decades, enabling consolidation. Matt Stoller writes extensively about this at https://www.thebignewsletter.com/ and in his book "Goliath: The 100-Year War Between Monopoly Power and Democracy." Consolidation and monopolies are good for shareholders and management, competition is good for consumers and labor, broadly speaking.

Business consultants exist for a purpose that can be described as "how can we squeeze this enterprise or deal for as much as we can?" Sometimes that's squeezing your customer base through anti competitive practices. Sometimes thats offshoring (labor arbitrage). Sometimes it is M&A (realizing "efficiencies"). Sometimes it is squeezing your existing labor pool as hard as you can. Or a combination of the above.

https://www.simonandschuster.com/books/Goliath/Matt-Stoller/...

Competing on price is something all business do anyway, at least as long as there is competition.

What McKinsey and the rest of the scumbags have taught CEOs is to be aggressive, cheating and ruthless at cutting costs no matter what. That's how we ended with almost all manufacturing and associated know-how getting shipped over to China (sometimes literally - they bought an entire steel manufacturing plant in Germany's Ruhrpott, tore it down and reassembled it in China [1]!), that's how we ended up with the clown show that is Boeing, that's how we ended up with "employee loyalty" not being a thing any more in either direction.

[1] https://www.wiwo.de/unternehmen/wiwo-history-tatort-dortmund...

> Competing on price is something all business do anyway

Not if none of the competitors do, that was the point of the comment if they all think the competitors aren't competing on price then it becomes an informal price fixing scheme.

Exactly, and there are plenty of examples within the tech industry. Apple/Android app store fees didn't end up at 30% because of ruthless competition that drove margins down to almost nothing. If a market is controlled by a duopoly the two parties can easily keep prices absurdly high and everyone else has to just deal with it.

There's a market. Almost everyone is a market taker.

For instance, a company has to figure out how much to pay people. If McKinsey comes in and says "pay them less and we'll tell everyone else to pay them less" that just doesn't work. Why would any company that is 1 of N decide to pay them less when they can just pay them slightly more and attract the talent from all these other places. There is an incentive to cheat and without a legally binding agreement all collusion services will collapse. And this even ignores new entrants. You can have individual (illegal) agreements between companies like Google and Apple where they agree to not hire their employees, but those break down and have nothing to do with consultants (why would you want a middle man in an illegal activity?)

The reality is there is a market for most things. To hire an analyst it'll cost you X. McKinsey and other try to discover that and tell their clients. But they can't change the nature of the market as much as someone installing an HVAC unit can change your temperature but giving you a rigged thermostat.

Sounds like the spherical cow market?

Big players can collude. The CEOs can know each other by name and call around. Steve Jobs etc. did that.

Never thought of it like that. Mabey they are also saying this is what you should price this product at per the "market"

> I don't think AI will have much of an impact on management consulting, since it's really just executive insurance. If anything, management consulting might be the perfect use for generative AI in its current state.

I think your second point is actually the reason why this will have a big impact on the industry, since McKinsey et al generally operate on a billable hours basis, and automation / AI will exert significant downward pressure.

Initially, I imagine they will staff smaller teams at a higher hourly rate (mostly by replacing some number of analysts and associates with automation/AI). Long term, I can imagine some firms will attempt to make up for the loss of revenues by expanding into SMBs ("Own a struggling Plumbing business? Get help from McKinseyAI!") or by dramatically reducing the size of their staff (as you noted, their product is mostly executive insurance, and for that you really only need the Partners).

Totally agree - the industry will thrive (unlike some others that could be totally obsoleted in an AI-powered economy), but it will need far fewer paid humans to run it.

The retention of accountability and access to otherwise-inaccessible information will continue to be among the hottest commodities.

If you’ve ever wondered what makes “shady data brokers” so powerful in cyberpunk stories, it’s not their collections of stolen credit card numbers - it’s insider knowledge of what your trillion-dollar competitor is doing.

That is from the Secrets of Consulting :-)

https://www.goodreads.com/book/show/566213.The_Secrets_of_Co...

> since it's really just executive insurance

But now you just need 2 associates instead of a team having you as part of their portfolio of clients. The fact that many the consultants are going "AI won't come for us" has me betting against the consultants lol.

This is such a meme on Hacker News. How much evidence is there really for this? There might be some, but saying its the primary reason CEOs hire consultants is an even stronger claim that needs justification.

> executive insurance > It's not my fault we're doing badly, I brought in a team of best in class consultants and even THEY couldn't help us turn things around yet - it must be the macro economy, industry headwinds,

its unreliable insurance, since board may not buy this excuse.

In this article: https://medium.com/@takafumi.endo/how-ai-is-redefining-strat...

You can see how AI is already transforming consulting at the Big 3.

Did you even read the article? You might have missed the main point entirely. It’s not discussing the job security of management consultants, but rather the job satisfaction.

Particularly for junior professionals, the expectations placed on them have suddenly increased tenfold, while the expectation to utilize generative AI for the most intellectually and creatively demanding tasks has diminished the mental reward. As a result, the most unsatisfying manual tasks are only ones left to be done - needing most of their attention.