The Engineer’s Guide to Consultants
In which I conclude an ongoing tale about a successful business
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Welcome to the startling conclusion of this trilogy* of articles which you may not have realized were actually part of a series. In Parts 1 and 2, I discussed a fictional, but totally realistic, company which grew from a small enterprise with a single engineer to a large firm with appropriate levels of bureaucracy that ensures steady paychecks and perks for countless executives. In Part 3, we will see how this once small engineering company turns into a business success story. With the help of consultants.
*(A trilogy being comprised of three (3) pieces, this being the third and final installment. But who’s counting?)
At this point, our company has entered a steady state. Products are developed, shipped, and sold to customers, and the people involved enjoy ongoing employment and perhaps even fulfillment in their cubed-shaped pigeonholes in this world.
But the CEO of a company is not there to ensure steady state of the business or fulfillment of the workforce. They are there, instead, to find ways to wring all possible money from a company for their shareholders’, and their own, benefit. However, a good CEO doesn’t usually have ideas of their own. Instead, they rely on experts to do that hard work while they are at executive off-sites playing golf and drinking limited-run vintage booze. And since they are often buffered from experts inside their own company, they typically turn their gaze outward. They hire consultants.
Specifically, the CEO will bring in a consultant, at some unbelievably high billing rate, and pose the following question: “How can my company make more money?” The consultant will immediately determine that the first step toward making more money is to have more people pondering this question, so they have the company hire many more consultants, creating many more billable hours for the consulting firm.
Once the consultants have established a significant beachhead in the company, they get to work analyzing everything about the company: the products that it makes, the various functions in the bureaucracy, and the departments that have budget for hiring more consultants.
One of the first observations that consultants will make comes directly from their education. Consultants, particularly Management Consultants, always come complete with an MBA degree, wrapped in that certificate like fish and chips in newsprint and grease. An MBA degree is necessary if you want to sell people on your ability to understand their business. But, more importantly, consultants realize early on in their careers that their BA in English didn’t get them anything beyond the ability to make grammatically-correct YouTube comments. Simply adding that M to the start of the BA made them employable.
These management consultants draw on their deep knowledge of theoretical business to dredge up the complex concepts illustrated in the graph on the left, which shows this fundamental premise of money: More products lead to greater revenue.
More Products Lead to Greater Revenue
So when the CEO tasks these consultants with figuring out how to make more money for the company, they devise the brilliant strategy of having the company produce more products. Of course, these products need to be sold in order to create more revenue, so the consultants also create more product opportunities (setting more fires, in our ongoing company metaphor, which creates need for more water).
This strategy works well; more products are developed and sold, leading to (as was clearly illustrated in the preceding figure), more revenue. So there is more money coming into the company, which is a good start. But the consultants job is not finished.
The consultants also know, from their extensive background in academic business case studies, that Revenue is not the same as Profit. That is, there may be more money coming into the company, but that doesn’t mean the money is staying with the company. Specifically, these consultants are thinking about the Profit premise, as illustrated here.
Profit = Revenue — Cost
What these consultants want, because the CEO asked for it, is increased Profit for the company, where Profit = Revenue — Cost. And they also know, by asking one of the engineers in the company to calculate it for them, that they can achieve higher Profit by reducing Cost, just like I can achieve more significance in this sentence by increased use of italics. So their next step is to examine the costs of the company and reduce those one by one until maximum profit is attained.
The most obvious place to turn to is payroll; a large company pays a large number of people — every single pay period. Specifically, the consultants examine the large payroll in this large company and know that this is an ongoing cost that can easily be reduced by simply having fewer people on the payroll. The most obvious place to start is with engineering, since these salaries tend to be quite high. Also, the consultants know that engineers typically have poor people skills and therefore can’t really contribute to sales of the company’s products. Once the engineering department is lightened, it calls into question the large engineering management overhead, so various management positions are eliminated as well.
The consultants make their way steadily through the organization, burning and slashing costs wherever they find them, until they eliminate all eliminatable costs, leaving an organization that eventually looks like this:
achieving their ultimate goal of eliminating costs altogether:
which leads to this beautiful graph, the envy of MBA students everywhere:
At this point, the consultants realize that the company only has the bare, necessary functions (the executives and consultants). But a large, successful company can’t operate with such a bare-bones workforce, so they do the next obvious thing — they fill the company with consultants.
Now the company has an appropriate size workforce. But the consultants are not the right people to invent, create, deliver, or sell the products that the company used to make. In fact, they don’t have any usable skills in the current business. So the company needs a new business model.
The consultants look outside of the company for potential customers. They notice a lot of smaller engineering companies that are making money delivering products based on customer needs, just like their company once did. These look like companies in need of consulting services.
As a final step on the road to success, the company changes its name from Happy DevShop, Inc. to Services Organization, Inc. and bills out its services to all of these other companies. And who knows — maybe these other product-focused companies will one day reach their own success — through consulting.
By the way, the content from this series of articles, and more, is covered in the presentation, Really Important Things about the Business of Technology, which is available for viewing online. Watching the video requires creating an account, but it’s free (unlike the services from a successful consulting company).
If you’ve enjoyed this deeply technical and moving article, you might consider finally going back and reading part 1, The Engineer’s Guide to Management, and part 2, The Engineer’s Guide to Companies. Or you could just read this one again. It’s your choice. I could help you choose, but I’d have to charge you for it.