Chapter 46 Question ○4○

Why would a company pay a premium to hire a temporary management consultant rather than a full-time manager at a lower salary? (Jums Beret) When an enterprise adopts the services of a management consulting company, it not only needs to pay the consultant's working hours, but also pays the consulting company a high remuneration.Many consulting firms charge three dollars for every dollar they pay their consultants.Why doesn't the client company directly hire additional managers to save money? One possible reason is that management consulting services are like expensive generators that power companies use to meet peak demand.The power plant can meet most of the demand with normal duty generators.Generators are expensive to buy, but relatively cheap to maintain.Meeting short-term peak demand with such expensive equipment is not worth the cost because it sits idle most of the time.Therefore, the power plant will use high-frequency generators to make up for the insufficient power generation during peak power consumption.Compared with ordinary generators, high-frequency generators have higher operating costs and can be purchased cheaper.

Similarly, the demand for management services within the enterprise is not always at full capacity.Therefore, most companies will hire their own full-time management staff to provide most of the day-to-day management services, while external management consultants are hired during brief peak periods.It is true that the cost per hour of consulting services is much higher than the management hourly wages of in-house employees.Assuming that the period of peak demand for managed services is short enough, it is still cheaper to hire expensive consultants outside.After all, switching to additional in-house managers leaves them with nothing to do once the peak period passes.

Another possible reason is that companies are willing to pay a premium for management consultants because they know that controversial business strategies are easier to execute if they are initiated by respected outside consultants.For example, let's say a company is struggling with product sales and management knows it's going to lay off workers, but fears that doing so will negatively affect the morale of the remaining employees.In this case, it may be easier for employees to accept that it was not management's idea to tell employees that layoffs were to be made, but McKinsey's advice.