Nicholas Bloom: evaluation

Transcript context

…What exactly is the value of management consultants? Because to many outsiders, it appears absurd that these not-so-well-trained young people come in. They tell companies what to do. Sometimes it’s even called fraudulent if they command high returns. How does this work? What’s the value added? I don’t know if everyone knows, but I worked at McKinsey for about a year and a half. I should state that I no longer work for them. I don’t take any money from them anymore. That was a long time ago. It was almost 20 years ago. Just from that and from my research, there’s two or three things they do. It is true on the negatives. To start with the negative side, the critique that’s often thrown at them is they tell you the obvious. They ask to borrow your watch and tell you the time. Or they tell you things that the CEO normally knew, but she or he basically didn’t want to ’fess up to tell the workers. Now, it’s true that I felt there was some element of that. There was one project in particular that I was involved in. I remember it seemed to us to be reasonably clear what to do. I think it seemed to be reasonably clear to the division head what to do, but it was hard for her to tell the whole group. McKinsey came in, the project was highly successful, the division improved dramatically, but it was, partly, we were there to bolster evidence. The third element, I think, is generally useful, and I’ve seen this. When I think of the randomized controlled trial we did in India, where we hired Essentia to work in a number of firms, is a lot of management improvements aren’t that obvious to people on the ground. Just to give you one example, dating back in history — after World War II, the big movement in the US was what’s called mass production. Henry Ford had the production line, and the idea is you just scale up, get bigger and bigger and bigger and make more and more Fords and roll it off in a massive factory setup. Toyota and the Japanese car manufacturing sector at that time in the 1950s — because they were obviously so devastated by the war — didn’t have access to capital and had to produce things on a small scale. They went for an alternative system called lean. The whole idea of lean is that you try and spot mistakes and immediately stop the line. It’s very painful in the slow run. If you see a problem in the car, you stop it, you go through it, you figure out, and then you restart. It takes time to start off, and it’s a slow burn. By the 1980s, the Japanese car factories were clearly starting to dominate. They had lower costs and higher quality. In fact, there’s a great MIT book, called The Machine That Changed the World, that documents that. Now, if you think of the way consultants were operating in the ’90s, 2000s, it isn’t obvious to many firms that lean was a far better way to run your factory, that you really want to introduce these Kaizen production processes, et cetera, and consultants come in and help you adopt them. It’s not just factories. Healthcare — there’s been a huge transformation in lean health whereby when you go in and see a doctor, you really, really don’t want there to be process mistakes. Lean is actually very good at reducing quality defects and improving productivity. That’s the area where consultants are great. ee a doctor, you really, really don’t want there to be process mistakes. Lean is actually very good at reducing quality defects and improving productivity. That’s the area where consultants are great. I remember when I was at McKinsey, and one of the projects I did with a retailer — we had someone that used to work at Toyota. This Toyota guy had been there for three, four years and was just fantastic. He went around the retailer and said, “Here’s the kind of tools we use in Toyota, and just apply them.” And that was extremely valuable. That’s the positive side of managing consulting — highlighting things that maybe, ex post after the event, are obvious why it works, but in advance just aren’t.…

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