Consulting Firms Feeling the Heat
By Lenora Chu

I feel proud to have dabbled in a majority of the “Asian Parent-Approved” career choices—engineering, law and business. Medicine—probably the most popularly approved path—was left for my little sister, who never minded the sight of blood.

So, I studied engineering in college and worked in corporate litigation support after graduation. After deciding that the lawyers I worked with were too full of corporate angst to spend 80 hours a week with, I took a position as a strategic consultant to Fortune 500 companies.

Or rather, I should say that I sacrificed my health and well-being for the life of a traveling management consultant. (At one time, I knew by heart United Airlines’ daily flight schedule connecting San Francisco, Los Angeles and New Orleans). Of course, I eventually found my true calling in journalism.

But recent developments in the consulting industry have caught my eye. Whereas management consulting firms once coughed up the hottest job offers on college campuses, now they are fighting to retain talent—the result of the “Internet Brain Drain.”

During my senior year at Stanford, navy-suited seniors lined the halls of the university’s career planning center, waiting their turn for a job interview with McKinsey, Bain and the Boston Consulting Group. Not to mention the consulting arms of the “Big Six” at the time—Andersen Consulting, Price Waterhouse, Coopers & Lybrand, Ernst & Young, Deloitte & Touche and KPMG Peat Marwick.

Management consulting promised glamour and prestige. Traveling each week to visit clients sites—sometimes even in foreign cities like London and Hong Kong. Sitting in executive board meetings of Fortune 500 companies, recommending strategic alternatives to the management team. Dining out on the client expense account. Accumulating enough frequent flyer miles to fly the entire family to Hawaii.

But, in light of dot-com mania, things have changed over the past few years. Ever since Silicon Valley began promising riches to young, starry-eyed entrepreneurs, the Internet “brain drain” and the resulting problems for consulting firms have become big headlines. Talent has been fleeing management-consulting firms in droves to form or join startups.

In an industry that normally sees a 10 percent annual turnover, some firms have been plagued with talent losses of 20-30 percent a year. Firms large and small are refusing to take the mass exodus lying down. More than ever, partners are rolling out the red carpets to keep their consultants happy and compete with startups for top undergraduates and MBAs.

Many traditional consulting firms have reexamined their famously rigid compensation structures. Firms that are active in e-business, such as the Boston Consulting Group and McKinsey & Co., are actively looking for ways to turn equity stakes in their clients into wealth for their consultants. And in general, firms are offering raises and considering promotions more frequently with each coming year.

More than one-third of consulting employers have also enhanced their educational reimbursement programs since 1993. Hewitt Associates surveyed 460 companies in 1998 and found that 75 percent paid for job-related courses and 23 percent even paid for courses unrelated to the job.

Improving the work-life balance is another popular initiative. To alleviate the burden of a lifestyle involving frequent travel and extended engagements away from home, many firms, including KPMG, are trying harder to put their consultants to work on local projects.

At firms where travel is unavoidable, policies such as Deloitte Consulting’s “3-4-5 program” are becoming standard. Barring client emergencies, the policy mandates that consultants spend “only” three nights and four days of the week at the client site, and the fifth day at their own home office.

But late nights at the office are still inevitable, leaving little time for a social life, let alone mundane errands. To relieve some of the stress, Andersen Consulting’s company concierge services satisfy a gamut of needs, from waiting for the cable company to making dinner reservations. The service bills on an hourly basis, and Andersen either picks up part of the tab or charges the consultant a nominal fee.

As for major initiatives, Mercer Management Consulting has radically altered its employees’ work conditions. Mercer recently implemented six employee-friendly programs, including an initiative for a 10- or 11-month work year, another program in which entrepreneurial employees can get backing for their personal business plans, and an “externship” program in which employees work as managers at a client company for a year.

Andersen has also been making fundamental changes to increase their retention rate. I spoke with David Reed, the director of human resources at Andersen, who told me that the company plans to launch two major programs in September 2000. And not a minute too soon. He said that “right now, there’s no disincentive to leave. [Consultants] have their compensation, and they don’t leave anything on the table if they depart.”

Andersen’s first initiative awards financial incentives called “e-units” (“e” for employee) to top-performing consultants each year. The reach of e-units spreads far and wide; thousands of consultants will be eligible for consideration. The second initiative makes partnership more accessible to talented consultants, lopping four years off the traditional 13- to 14-year partner track.

The consulting industry has also made a collective shift toward giving consultants more control over their lives. McKinsey has been emphasizing consultant choice over other factors such as availability or partners’ orders; associates have more power than ever to choose staffing engagements. Price Waterhouse-Coopers has implemented its “3-Cs” program, offering consultants more compensation, choice in projects, and control over their professional lives.

Consulting firms are also trying harder to give their employees a taste of what life is like as an entrepreneur. McKinsey, for example, is trying to increase its consulting business to start-up companies or smaller firms, where consultants get on the front line with clients and even help define the business model. The Boston Consulting Group is offering some of its consultants the opportunity to head up a joint Internet venture with client companies.

And the venerable Bain & Company has launched an in-house e-commerce company entitled Ideaforest.com, partly to combat defections to dot-coms. Bain consultants—instructed to research businesses with online potential—considered hundreds of ideas, including selling petrochemicals and running an adoption agency online. They finally settled on the staid old arts and crafts industry, which surprisingly logs $20 billion in annual sales.

Have these new initiatives helped? The general consensus is that the new programs and options are great pluses. But many consultants who have left for start-ups say the new changes rarely factor into the decision-making process. A business consultant at Deloitte & Touche told me that “the initiatives do nothing.” An Andersen consultant agrees. “You either like consulting or you don’t. It’s as simple as that.”

Robin Briggs, a former human resources representative for Deloitte told me that “sometimes, we just can’t compete.” Briggs said that Deloitte has stepped up its human resources activities “to make people feel like they’re part of our office.” she says. Ironically, Briggs recently left the firm to join a start-up.

A former McKinsey consultant believes internal changes will not be enough to stave off the brain drain. “The nature of the external opportunities are too great—the external situation needs to change before talented people make different decisions.” That prophecy may be fulfilled if the Internet economy continues to take a dip as it has over the past week or two.

For now, the consulting firms must fight the talent wars to the bitter end. The peril they face is growing deeper and more real, for the hits have climbed higher and higher up the organizational ladder. The “26-year-old Web gazillionaire” is giving way to the “baby boomer Web gazillionaire.” Just a few years ago, start-ups had time to allow green employees to grow into their management roles. Now with competition popping up like weeds, start-ups can no longer afford the time to nurse young executives—they want older, more experienced managers. And they’re getting them.