What is Management Consulting?

Management consulting is a professional service offered to organizations which aims to help internal management improve operating performance. Consultancies are brought in to tackle individual problems (falling revenue, rising costs, geographical expansion) or to evaluate the company through a deep dive of operations for a modest fee ($1-2 million for these engagements).

The management consulting value chain encompasses strategy (idea origination, analysis and presentation of findings), implementation, operations and maintenance/feedback. Strategy consulting is the most human capital intensive and highest margin segment of management consulting, and the terms are used interchangeably.

Strategy Consulting

Strategy consulting firms are ranked by a variety of factors, including compensation, pay, prestige and exit opportunities. the MBBs (McKinsey, Bain and BCG) has dominated the list, and are considered to be the most desirable firms to work for. Slightly below the top 3 are Accenture, ZS Associates, Kearney, Oliver Wyman, LEK, and Roland Berger. Depending on the location, the Big 4: Deloitte (Monitor), E&Y (Parthenon), PwC (Strategy&), and KPMG are in or below this tier.

Tier 1 Strategy Consulting Firms

Tier 2 Strategy Consulting Firms

Management Consulting in Canada

The hours are less gruelling (factoring out travel) than those in investment banking but average 55-70 a week.

Traditionally, strategy consulting firms have operated independently from the rest of the consulting value chain, with prominent firms including McKinsey, Bain, BCG, AT Kearney, Booz & Co, Monitor Deloitte, ZS Associates, Booz Allen Hamilton (Government & Defense) having busy practices. Accenture, Deloitte and the rest of the Big 4 accounting firms were previously more on the operational side.

The industry has undergone considerable consolidation as clients migrate towards one stop solutions and competition for fees tightens. Deloitte has since purchased Monitor, PwC has purchased Booz, and KPMG has purchased SECOR as firms look to poach client bases and cross-sell products. Even traditional strategy consultants are expanding further downstream in the value chain with McKinsey and BCG starting “Knowledge” and “Implementation” practices.

IT consulting (Accenture, IBM) has recently come into prominence, with the proliferation of big data and the internet of things. Other reputable firms with operations in Canada include Oliver Wyman and Roland Berger.

The Big 3 Strategy Consultancies (McKinsey, Bain, Boston Consulting Group) are top feeders and employers for elite MBA programs (Harvard Business School, Stanford Graduate School of Business, Wharton, Columbia, INSEAD, Kellogg).

Along with the prestige, a career in consulting is alluring to graduates with well known tenets of the job including exposure to C-level executives from day one, frequent business class travel, complimentary fine food and beverage, and extensive training and mentorship.

Rationale for Hiring a Management Consultant

Political Leverage

Management consultants can be brought in by management to justify unpopular decisions. Often, management wants to act on an issue in a certain way, but require external buy-in to overcome internal resistance. Hiring a consultancy also insulates management from the fallout of a failed strategy.

Pooled Knowledge

By hiring a consultant to solve a problem, management indirectly has access to data from the consultancy that consider numerous past projects (including those for competitors). Although data and corporate best practices from other projects are strictly confidential, the consultancy has internalized the information and will formulate the best solution based on that experience.

Staff Augmentation

Bringing in a consultancy may be cost effective outsourcing. An engagement entails bringing in a team of industry experts that work extensive hours. This can be cost effective compared to reallocating internal resources and training staff to operate outside of their core competency.

Cross Functional Problem Solving

In many large companies, functional groups are siloed off, with little communication across departments. Not only do consultants get an unbiased view of the problem through interviews across departments, they create an impetus for communication that promotes cross functional problem solving. Similarly, consultants interview and shadow employees throughout the organizational structure, where they gain insight on issues from various layers of management.

Why Management Consulting?

Ex-McKinseyites are ubiquitous amongst the C-suite for Fortune 500’s and strategy consultancy alumni are common at all levels of management. Consultants have a head start on most other corporate workers as they are interviewing CEOs from day one and pushed to conduct analysis and original thought leadership that is actionable (albeit no guarantee the client organization will follow the advice).

Many Ivy League graduates will choose to start a consulting career in Toronto, so McKinsey, Bain and BCG tend to provide a more global initiation to the workforce versus investment banking.

Breaking into Management Consulting

Aspiring management consultants do not need a business degree to break in. McKinsey/Bain/BCG often prefer STEM majors over business majors. Steps to be well positioned for a career in management consulting include:

1. Getting a prestigious undergrad
2. Achieving a minimum GPA of 3.5 (GPA is used as a screen for candidates) – 3.7 is necessary for MBBs
3. Taking on internships and co-op at well known corporates that involve data analysis and problem solving
4. Joining programs such as UBC’s SCMP (or equivalent)
5. Attending consulting conferences and participating in case competitions

If no consulting job is lined up after undergraduate studies, a master’s or MBA may be required to reinvent a resume. Industry experience with extensive networking may be enough, but breaking in with that method is certainly the exception rather than the rule.

The MBA route is similar to the undergrad route.

1. Getting a prestigious MBA (Rotman, Queen’s, Ivey, Schulich or Sauder for Canada, M7 for the US)
2. Achieving a minimum GPA of 3.7
3. Interning at an external or internal strategy role
4. Attending recruiting events and doing consulting case competitions
5. Networking and coffee chats

Management Consulting Salaries and Exit Opportunities

At McKinsey/Bain/BCG, ~$80,000 base salary is standard as an entry level business analyst/associate, with a $5,000 to $10,000 bonus. At the big four (Deloitte, PWC, KPMG, EY), $65,000 to $75,000 base salary and a ~$5,000 bonus is standard.

Grad school/MBA consultants and experienced hires start at $170,000 to $190,000 base for MBBs, and $100,000 to $150,000 for tier 2 consulting firms. Bonus ranges from $10,000 to $30,000. Interestingly, select consulting firms will also pay for your second year of MBA if you were to stay on after the internship, which can range from $30,000 to $80,000. This is a significant bonus, and can change the NPV of your MBA significantly. Firms that are known to offer this are Monitor Deloitte and Accenture in the US, and ZS Associates in Canada.

In most firms, you travel from Sunday to Thursday. Most costs during your travels can be expensed, which reduces your personal expenses significantly. The flight and hotel rewards you accumulate during your travels will also reduce your personal vacation expenses.

Exit opportunities are outstanding for management consulting – one of the biggest non-monetary benefits of a career in management consulting is the strength of its alumni network. McKinsey, for example, has more current and former Fortune 500 CEOs that are alumni than of any other company.

Exits are outstanding in terms of managerial positions in corporates, especially in strategy, but McKinsey and Bain have the added bonus of being great private equity feeders due to their focus on valuation. Megafund Bain Capital originated from Bain.

How to Prepare for a Management Consulting Interview

Management consulting interviews are usually in 2 parts, a behavioural interview and a case interview. Different consulting firms may have different combinations of behavioural and case. For example, McKinsey might have 2 rounds of interviews, one with an engagement manager and one with multiple partners, and each will give a behavioural and case interview.

Consulting Case Interview

In the case portion of the interview, the interviewer is looking for a structured, logical approach to problem solving. Typically, you are given a business problem where a company is performing sub-optimally, and are asked to find out why. As you work your way through the problem, you can be given additional information that will guide your analysis and ultimately your proposal.

Outside of normal case prep, mental math, brain teasers and interpreting graphs should be practiced. When practicing the case questions, remember to apply the MECE (Mutually Exclusive, Collectively Exhaustive) principle.

Case interviews are typically 30 minutes long, we recommend spending 2 to 3 minutes exploring the context of the problem, 2 to 3 minutes structuring the problem, 20 minutes gathering supporting evidence, and 5 minutes structuring your recommendation. If they are longer or shorter, scale each step accordingly.

Case Interview Example

The client is an ice cream store. It has seen its profits erode year over year, and has asked you to find out why, and solutions to increase profits.

Exploring the Context

You would ask general question to explore the context, and guide your structure. Some examples might be:

• How does the store generate revenue? – selling ice cream
• How is the industry as a whole doing? – profitability eroding
• Does our client have a criteria to measure a successful increase in profits? – double profits

Structuring the Problem

There is no one correct method to structure a problem, but it is good to be MECE. You would want to cover both quantitative and qualitative factors. For this specific problem, we want to cover both costs and revenue. Costs can then be broken down into fixed and variable costs, and revenue into price and volume.

Gathering the Supporting Evidence

Go through your structure and gather supporting evidence for your recommendation. These may be exhibits with charts and tables, or just verbal hints. Do not be afraid to be flexible, you can go outside of your structure if you believe your interviewer is guiding you that way. Some questions might be:

• Is the company doing worse than the industry? – No, it is performing at the same level, colder weather is reducing sales
• Are there competitors that are doing better? – Yes, 3 competitors are doing better, they remodeled their stores to sell egg tarts, pineapple buns, and cheesecake during the winter
• Do we have information on the incremental costs and revenues if we were to copy their strategy? – Yes, here is an exhibit detailing the expected costs and revenues of each product
• Do we incur any fixed costs if we were to copy their strategy? – Yes, there is a one-time remodeling cost, amortized over 2 years
• Would we lose ice cream sales? If so, what are the COGS associated with the lost sales? – Yes, we would expect to lose X sales, we have a gross margin of 80%.

Structuring the Recommendation

Based on the exhibits and verbal hints, we can structure a recommendation for the business problem. Be sure to support your recommendation with evidence. It is also important to outline qualitative risks and a concrete plan of action.

• I recommend the ice cream store to remodel and sell egg tarts during the winter. This would increase profits by 150%, meeting and exceeding management expectations of 100%. Some risks may be warmer winters and changing consumer preferences. To mitigate these risks, management should survey their customers to better understand their purchasing patterns.

MECE Principle

Mutually Exclusive, Collectively Exhaustive describes scenarios that do not overlap, and cover the entire universe of possible scenarios. To apply MECE for problem-solving, consider the brain-teaser “how many basketballs can fit on a 747?”:

1. Come up with a list of possible scenarios, notice how the scenarios do not overlap
   1. The 747 can be full with passengers, void of passengers, and void of chairs, washrooms etc. (note that some of these scenarios are uncommon and may help you exhibit your out-of-the-box problem solving skills)
   2. The basketball can be inflated or deflated, while deflated it can be neatly stacked or randomly oriented (note that the stacking orientation is contingent upon state of inflation, this gives the interviewee a chance to show the interviewer the depth of your logic)
2. Roughly estimate the volume of the 747 (you can assume cylinder) and the volume of a basketball, and divide to get the answer (here is when mental math and common sense comes in, the interviewer wants to see quick calculations and a reasonable estimate on the volume)

An interviewee will want to be able to explain how the changes will affect their answer.

Behavioural Interview

In the behavioural portion, the interviewer is trying to gauge for the ability to communicate and collaborate with others. Consultants need to be able to solve problems in politically sensitive environments, and the interviewer needs to be sure that the candidate can represent the firm with poise under that pressure.