The Fad Factory: Management Consultants' Real Work
The outrageous story of how management consultancies exploited our hard-wired aversion to uncertainty and our human drive for sense-making to extract billions - based on complete nonsense.
We live in a world primarily shaped by the technologies we invented, where our domination as a species is now absolute. But in one curious respect, we remain constrained by our biology. Our human brains have been unable to evolve at the same dramatic pace at which we have transformed our environment. Humankind has broken evolution. Our brains continue to operate in ways that were hard-wired many thousands of years ago. We still have an automatic physiological response to acute stress (often called the ‘fight or flight’ response).
But there are three other areas where evolution has left its mark on our cognition – the fundamental way our brain processes information about the world around us. The first is a marked aversion to uncertainty; the second is an innate drive for sense-making; and the third is belief perseverance – persistently maintaining beliefs in the face of new information that strongly contradicts them. And it is the combination of these three evolutionary hangovers that leaves us so susceptible to nonsense today (for a detailed explanation, see Chapter 1 in Magnetic Nonsense: A Short History of Bullshit at Work and How to Make it Go Away).
Because of these cognitive hangovers, we constantly take a ‘reductionist’ approach, seeking to simplify complex situations and interactions. Unfortunately, this means we tend to accept oversimplified explanations at face value, leaving us open to being easily manipulated by those who stand to gain from our hard-wired naivety.
In his bestselling book Thinking Fast & Slow, Nobel Prize-winning economist Daniel Kahneman pointed out that the illusion of understanding the past leads to the further illusion that we can predict and control the future. Kahneman noted that this illusion is comforting because it avoids the uncertainty generated by admitting that the world is messy and complex. Most business books, he suggested, were based on feeding this illusion.
Boston Consulting Group (BCG) was the first consultancy to understand the appeal of this illusion to business executives. It popularised the famous BCG matrix, an over-simplified 2 x 2 grid model with market share on one axis and market growth on another. The quadrants were memorably named problem children, stars, cash cows, and dogs, no doubt helping the matrix become widely discussed and adopted and helping BCG generate billions in sales.
Not to be outdone, McKinsey later developed its most popular over-simplification, the 7S-Framework, based on the pseudo-research of former McKinsey consultants Thomas J. Peters and Robert H. Waterman, who wrote the bestselling book In Search of Excellence, an early example of the post-rationalised success genre. ‘Shared Values’ were at the model’s centre, which should immediately raise a red flag for any sensible reader.
Despite multiple recent scandals, most notably at McKinsey (under criminal investigation into its work for opioid firms, after already paying out nearly $1bn to settle civil claims), most executives worldwide pay close attention to the opinions, insights, and pseudo-research of the big consultancies. After all, many of them are former consultants. A 2008 study by USA Today calculated that the odds of a McKinsey consultant becoming CEO of a public company were the best in the world, at 1 in 690. The closest rival was Deloitte, at 1 in 2,150.
In recent years, big consulting firms have stumbled on an incredibly lucrative business development approach. Combining reverse-justified case studies with business school articles and ‘discoveries’ from the bestselling books of fake leadership gurus, consulting firms create management fads that they hype up as rapidly as possible. They then sell their ‘expertise’ in the fad to executives afraid they’ll miss the next big thing. They have discovered a three-step Nonsense Framework that works every time:
1. Trigger our aversion to uncertainty
2. Create the illusion of sense-making
3. Promise control over the future
Fads that have burned brightly and disappeared just as quickly, generating billions of dollars in consulting revenue, have included Lean, Six Sigma, then Lean Six Sigma, Business Process Reengineering, Outsourcing, Onshoring, Delayering, Rightsizing, Agile, etc. More recently, top fads hyped by the big consulting firms have included Blockchain, Non-fungible Tokens (NFTs), Cryptocurrencies, and my personal favourite, the Metaverse.
Deloitte’s April 2022 report, A Whole New World? Exploring the Metaverse and What it Could Mean for You(1) aimed to “provide a brief overview of future possibilities (and pitfalls) as executives consider their entry into what some believe could be the next new world for almost every business.” The report went on to suggest that the metaverse may be “a paradigm shift for consumer and enterprise behaviour” that was “analogous to the introduction of smartphones” and could create a “potentially massive new market” with estimates of commercial opportunity “as high as $13 trillion, and 5 billion regular users by 2030”. According to the report, the metaverse could “reorder the competitive landscape in many industries”.
Hot on Deloitte’s heels, McKinsey issued their report in June 2022 entitled Value Creation in the Metaverse: The Real Business of the Virtual World(2), with the aim of helping “leaders of both consumer and business-to-business clients better understand its power and potential” and “identify strategic imperatives”. The report stated that McKinsey’s “bottom-up view” of use cases suggested that the metaverse may “generate up to $5 trillion in impact by 2030”, equivalent, they said, to the entire economy of Japan. The concluding remarks even suggested that by 2030, it was “entirely plausible” that more than 50% of live events could be held in the metaverse, and more than 80% of commerce would be impacted by consumer activity in the metaverse.
Executives worldwide went into panic mode as they scrambled to try and understand how not to lose out on the multi-trillion-dollar opportunity that seemed to be materialising out of (literally) nowhere. The consultants were selling bogus advice so quickly that they started to run out of capacity. By November 2022, the BBC reported that nearly $2bn had been spent on virtual real estate in the metaverse(3), with Samsung, UPS and Sotheby’s among the companies buying “land” and building shops in Decentraland(4), a leading metaverse ‘world’, while Adidas, Warner Music and Gucci had set up in The Sandbox(5), seen as the leading other ‘world’ contender. Facebook even changed its name to Meta and announced plans to invest $10bn in Facebook Reality Labs, its metaverse division working on ‘Augmented Reality’ and ‘Virtual Reality’ hardware, software, and content(6).
So, how did it all work out? By August 2024, Meta had burned through a staggering $45 billion with little to show (reported revenues of just $2 billion in 2023). Many observers expect Meta to pull the plug on Facebook Reality Labs, given that the latest fad of Generative Artificial Intelligence has wholly pushed the metaverse out of everybody’s mind. Google searches for “the metaverse” spiked in January 2022, declining steeply since then, and are currently (August 2024) averaging between 1% and 6% of their 2022 peak levels(7).
Things are not going well in Decentraland or The Sandbox, either. DappRadar (dappradar.com) provides data on transactions in the metaverse. When I last looked, on August 13th 2024, there were 374 transactions by 219 users totalling $111.31 in Decentraland. Yes, just over 100 dollars in 24 hours. In The Sandbox that day, there were 461 transactions totalling $79k. At that combined revenue generation rate, it would take approximately 173,157 years to hit $5tn. The value of virtual real estate in the metaverse has plunged, with ‘land’ prices in Decentraland down 95% from their peak by August 2024 and The Sandbox dropping by 89%(8). Is the metaverse dead? Perhaps, like the famous Monty Python parrot sketch(9), it’s just ‘resting’. I hope it is dead. The vision of a dystopian future where we all but abandon the real world to live through digital avatars with little genuine human contact is the stuff of my nightmares. The big technology companies already have far too much control and influence over our lives. Let’s not let them take the rest.
The sound of silence from the big consultancies about the failure of the $13tn metaverse to change everything is deafening. No refunds appear to be on offer. But no matter. They quickly found an even better fad to hype – Generative AI. Sensing the fee-earning bonanza of a lifetime, consulting firms have latched on to the rise in Artificial Intelligence investment by the big technology firms, launching AI institutes and practices and, in some cases (e.g., PWC in the UK), announcing restructures of their organisations to meet the upcoming booming AI market demand.
In McKinsey’s June 2023 report, The Economic Potential of Generative AI: The Next Productivity Frontier, the consultancy claimed that “Generative AI will have a significant impact across all industry sectors”, suggesting that in banking alone, the technology could deliver “value equal to an additional $200 billion to $340 billion annually”. The report indicates that McKinsey’s “updated scenarios” now lead to estimates that “half of today’s work activities could be automated between 2030 and 2060.” Are you beginning to spot a familiar pattern?
Meanwhile, over at Deloitte, a new Generative AI practice was established in 2023 along with the Deloitte AI Institute. Dan Helfrich, Chairman and CEO of Deloitte Consulting, had this to say: “It’s our responsibility as a society, and our responsibility as business leaders to create new talent with AI skills - not only for the engineers and data scientists but also for every single role in an organisation, no matter how technical.” Every single role in every single organisation – sounds like a gold rush for the next few years, Dan. Happy days!
In a recent article titled “The A.I. Boom Has an Unlikely Early Winner: Wonky Consultants”, The New York Times suggested that management consultants were currently the only winners from the vast investments by technology firms in AI, estimating that up to 40% of McKinsey’s 2024 revenues would be from AI-related consulting - no wonder they aren’t saying much about the metaverse anymore. Don’t look over there; look over here. The fad factory has a shiny new product - more on AI in Part IV.
Excerpts from Magnetic Nonsense: A Short History of Bullshit at Work and How to Make it Go Away
3. https://www.bbc.co.uk/news/technology-63488059
4. https://decentraland.org
5. https://www.sandbox.game/en/
7. https://trends.google.co.uk/trends/explore?date=today%205-y&geo=GB&q=the%20metaverse&hl=en-GB
8. https://www.coingecko.com/research/publications/metaverse-land-prices
This is an excellent piece. I will share it every time I hear consultant bullshit!! Stand by….
Is there a better way to lead?
Responding to this compelling provocation by Paul S., and the incredibly successful and totally bullshit three-step "Nonsense Framework":
1️⃣ Trigger our aversion to uncertainty
2️⃣ Create the illusion of sense-making
3️⃣ Promise control over the future
I certainly hope we can adopt a better way. It seems to me this is part of the same battle for meaning and purpose and truth amidst spin and superficiality and fakery.
I believe we must.
So, (swallowing the irony that I believe reality doesn't tend to fall neatly into three step linear processes) what would an alternative three step process look like?
1️⃣ Create psychological safety and resilience to hold uncertainty together.
2️⃣ Pursue rapid iterative collective sense-making, seeking and embracing diversity, ambiguity, contradiction, structural tension and conflict.
3️⃣ Generate multiple visions of several radically different but equally plausible possible futures, and identify the actions needed now to be better ready to survive and thrive in each of them.
➡ What do you think?
➡ What's missing?
#Leadership