Management consultants as Soviet apparatchiks
The management consultant is one of those phenomena that people take for granted, but which are really ridiculous as a sociological phenomenon. Consider a standard example of a management consulting engagement: you have a giant corporation with tens or hundreds of thousands of talented people that are good at doing its corporate crap, whatever it might be. You are going to make an important decision in bigCo, so you hire a management consulting firm: a company which knows nothing about what you do as a company, has no inborn expertise about anything, and which hires fresh out of Yalevard imbeciles to wear nice clothes and give powerpoint telling you what you want to hear. You then make your decision and proceed to feed millions of dollars to the management consultancies.
The management consultants often get paid to do long term planning, as if the firm itself can’t do this. Most of the firms they advise are already old, so they must be at least historically adequate at long term planning. The management consultants won’t be there to take the consequences at the end of the long term planning, unless the planning fails and short-memory bureaucrats hire the consultants to sort out the long term disaster they created.
There are obvious benefits to working for a consulting firm as an individual: you get to belong to a powerful mafia and you get trained in the latest in corporate rhetoric and polish. Look at Sundar Pichai; he went from McKinsey consultant to Google CEO. And everyone knows Sundar Pichai is the best Google manager of all time. It’s certainly not clear they bring any value to their clients.
Now, let us examine what the apparatchik was. It’s a vaguely derogatory term, but most of us have no real knowledge of what these people did. We have an idea that they’re brown-noser loyalist commies who sit somewhere in the upper-middle tier of the Soviet bureaucracy. The Wakipedia entry has a few more choice words to put color on it:
An apparatchik (/ˌæpəˈrættʃɪk/; Russian: аппара́тчик) was a full-time, professional functionary of the Communist Party of the Soviet Union or the Soviet government apparat ….. Members of the apparat (apparatchiks or apparatchiki) were frequently transferred between different areas of responsibility, usually with little or no actual training for their new areas of responsibility. Thus, the term apparatchik, or “agent of the apparatus” was usually the best possible description of the person’s profession and occupation.
McKinsey reached its present form via the leadership of someone named Martin Bower. George Booz was another inventor of the modern approach, though Booz Allen Hamilton is basically a publicly traded branch of the American intelligence services at this point, so they are more like nomenklatura than apparatchiks. Both men were from the finest Ivy League lizard backgrounds, and believed in the idea of firms taking outside advice from gentlemen of a certain education and social class. Probably this originated in some social club where these fellows were already doing this with their CEO pals, without the formal engagement.
Of course the types of firms these guys did business with were being led by …. people who get the job by being of a certain social class, rather than people who actually created the company or made it grow. Since we’re good Kleinian economists here, pretty much all victims of management consulting are Klein type 3 or type 4 organizations. To remind everyone of the organization types of Burton Klein:
Type 1: “Happy warrior rationality” is associated with ideological outbreeding and is commonly employed in making fast history.
Type 2: “Middle-class rationality” is associated with ideological inbreeding and is commonly employed in making slow history.
Type 3: “Accounting rationality” is associated with a zero rate of ideological change and is commonly employed by profit maximizing firms in a temporary equilibrium with an unchanging outside environment.
Type 4: “Conservation-of-power rationality” is associated with organizations which have such a low ability to deal with unpredictability that they must manipulate the rules of the game if they are to survive.
So it was in the time of the fathers of Management Consulting and Burton Klein: and so it is now. There are no management consultants in Type 1 startups, and few to none in Type 2 organizations. If you have a sclerotic 25, 50 or 100 year old American firm though: you hire management consultants to sort out your problems. Essentially the management consultant tells higher management what they want to hear by doing an end run around middle management bureaucracy. At best they may add value by asking people in the trenches what they think: something that could be done by proactive management. At worst they just regurgitate some bullshit they read in HBR. There are variations on this formula: Accenture does this with a specialization in technology. They were probably a normal tech consulting firm at one point, but now they’re McKinsey with Eclipse editors. Bain seem to specialize in extracting value from functioning companies by bankrupting them or sending their factories overseas. They also dabble in government corruption and insider trading. BCG also government corruption (aka colonialism) with a tech arm. McKinsey offspring Kearney is known for insider trading, colonialism and being WEF lackeys. McKinsey of course; they also do government corruption (aka colonialism), drug dealing and insider trading. They want to get into big data as well.
Let’s forget about the numerous ethical monstrosities of these management consulting firms for the moment and look at these firms for what they are. All of these firms are made up of members of a certain social class. The social class they’re drawn from are top bureaucrats and “leaders” in the American establishment. They’re people who went to Harvard and Northwestern, not U-Mass or U-Michigan. They have an ideology: pretty much it is the ruling class ideology -whatever it might be at the time. All that Davos/WEF “eat the bugs” horse pookey? That’s all management consultant stuff; I think WEF even has their favorite firm. I’m not sure what ruling class organ the apparatchiks of the Soviet Union were reading: Management Consultants read the Economist and HBR for their ideological updates. While the Economist and HBR are bad enough by themselves, these clown cars also have their own ideological tools, as lurid and ridiculous as anything out of communist apparatchiks.
Consider the DICE framework of BCG. It is a heuristic I guess designed to assess successful outcomes for consulting engagements.
Duration (D)either the total duration of short projects, or the time between two milestones on longer projects
Team Performance Integrity (I)the project team’s ability to execute successfully, with specific emphasis on the ability of the project leader
Commitment (C) levels of support, composed of two factors: C1 visible backing from the sponsor and senior executives for the change C2 support from those who are impacted by the changeEffort
(E)how much effort will it require to implement (above and beyond business as usual)
D + (2 x I) + (2 x C1) + C2 + E
These are all subjectively scored on 1-4 basis. People actually take this gorp seriously. The scientastic veneer of having an equation apparently confers credibility. It is, of course, the sheerest nonsense (they optimize for revenue like everyone else). The entire field is filled with goofy rubbish like this; for example the BCG “growth share matrix” I can imagine people in 1970s three piece suits with large collars to match long sideburns coming up with this nonsense. They probably went to a sex orgy on an orange shag carpet afterwords to celebrate. I’m certain the apparatchiks had their own such tools based on some weird Hegelian gorp.
The role they’re supposed to fill is to fix dysfunction in sclerotic type 3 and type 4 organizations. This is always going to be a problem facing human beings. Large organizations are going to become disorganized and have ill defined self-serving groups within. Giving a pipe-fitter or machinist supreme power to hire, fire and reorganize the sclerotic organization is more likely to work than hiring McKinsey. Pipe-fitter is a regular no bullshit kind of Joe. Executives could explain their problems in minute detail to no-bullshit working man, working man will give advice, then get a million dollars if it works out. Unlike McKinsey he’d get paid on performance. Unlike McKinsey associates, Mr. hypothetical pipe-fitter isn’t afflicted with the degree or kinds of ideology and nonsense that afflict current year management consultants. His solution will likely have a lot of common sense baked into it, possibly even including the kinds of pool room Solomonic wisdom utterly foreign to management consultants. Plus, everyone’s incentives are aligned. I can go find legions of these people: they’re in Boston, drinking beer in taverns.
For what it is worth, this was the original Soviet idea, and it wasn’t a terrible one. Killing everyone to implement it was rude and listening to that gibbering dunderhead Marx and his squalid followers about economics was moronic, but the basic idea of having practical men give feedback on complex systems is quite sound. Note that the Soviet system never had a problem with its type-1 and type-2 organizations; they were arguably better at it than the West was; it was always a difficulty with type-3 and 4 organizations. Of course, all the practicality of having a construction worker or tractor mechanic look at your pantyhose factory was forgotten after the war, and they educated a class of peasant-souled bureaucrat ideological apparatchiks who proceeded to destroy the place. Much like the parasitic management consulting apparatchik bugmen are destroying the West.
While the technical oriented consultancies may do some good, it’s obvious at this point that the management consultancies do not serve any socially useful purpose in modern society. Mostly, they are a self serving group who exist to support their in-group and their customers. By “customers” I don’t mean the corporations and shareholders, I mean incompetent bureaucrats who have been promoted beyond their capabilities. Mind you, people from these groups have a lot of polish: they dress up nice and give good powerpoint. If you wanted to hire, say, a lobbyist or something that requires diplomatic skills, someone formerly at one of these firms would probably be ideal.
However, they should mostly be laughed at, as people eventually laughed at communist apparatchiks. They’re the same phenomenon; ridiculous, self regarding goblins who get paid lots of money to, for example, get Americans addicted to pain pills to up your margins. At some point in the happy future, if people aren’t living in nuclear rubble, the management consultant will become a sort of punch and judy comedy stereotype the way the communist apparatchik did. As it is, they should be shunned from all decent society for what they are.
Locklin on science 
There is one practical function consultants fulfill — whether it is ethcial or not is debatable, considering where you fall on the free-market/antitrust spectrum. Or just how much you despair of dysfunction of our system.
Given the fear in large corporations of falling afoul of antitrust (or more often — simple embarrassment), everyone bends over backwards to avoid sharing info with the market, even when it makes sense for ethical reasons (risks and known harms, for example) or when it would be much more efficient to do so e.g. to aid price discovery. (Aside: It always amazes me how little is known about how price discovery and information diffusion happens in the thin markets in the real world, and how it is assumed to be a minimal cost (at most a ‘matching problem’). On other hand, seems academics are mostly interested in tying themselves into ideological knots to prove HF on exchanges does not do much to aid price discovery, so perhaps unsurprising).
Anyway, large firms often bring in external consultants, spill out their dirty laundry to them, under guise of asking them for advice (usually ignored, this was not the point). Then the consultants would collate all this information and run around to the large co’s competitors re-selling the project and data to everyone else (one of the few attempts of economies of scale consultants have), in turn sucking out dirty laundry and data from them. Then return and re-sell/report back.
It was a game everyone played, which is why NDAs were flimsy and privacy agreements often not enforced against consultants even when obvious.
A previous startup (Type 1) by an unnamed person had to sell to larger corporations so hired consultants to get information abouttarget firms they would not directly provide. Stuff like how they were organized, who had budget, who had line responsibility, comparative pricing, production pain points etc. As long as the advice we got was ignored it turned out to be an efficient way to increase hit rate. And of course, silo’d them very carefully internally –easier since we were small — no need to have them run around shopping our problems for $$s
Which is also one reason we liked young graduates, they were naturally unable to keep their mouths shut and loved to show how connected they are.
But yeah, generally, bringing them in to actually have responsibility was a bad idea.
Agreed on the panjandrumancy of apparatchiki wrt consultants. Two things + a corollary:
Consultants can really be helpful with boards, either from the perspective of introducing an idea that leaves you neutral at the table or dealing with a hostile board dynamic. The second is relationships. It’s (un)fortunately a fact that relationships are necessary at points and many of the top people at these companies prove useful in that regard.
The corollary is that there’s an update to Klein that probably makes sense in today’s world, with globalization, especially as it relates to capital and dry powder. Sovereign or not, the asymmetric world of waging war out of global domiciles really does add a 2.5 or a 3.5 layer, especially given the latency and ineffectiveness of regulation. I always cite private equity (and credit) in the last decade. This has created massive leverage to balance sheets that you can’t find easily in statutory filings. Consultants and bankers have been sucking on this teet in the dark and it’s been good for them
I developed a rule to follow when doing a technical consult. Identify the poor low level bastard who knows all of the problems, and listen to him. 😉
Invisible Technologies: the only Type-1 org I’ve dealt with that often takes over for the McKinseys and builds the process with automation or humans or both. And charges clients per unit (whether the unit is resolving a customer service ticket or cleansing a string of data) so large-scale “management” occurs in the background for free. The aligning incentive of charging by result is becoming more popular with outsourced management and even hedge funds (see Kraus’ Aperture fund charging clients on a performance model).
http://www.invisible.co
https://www.cnbc.com/2022/08/18/this-3point8-billion-hedge-fund-is-shaking-up-the-industry-with-its-pay-for-performance-model.html
Actually, in early Soviet Union, communist ‘apparatchik’ – or commissars – are usually from working class (or low-level middle class), have a lot of common sense and really believe in communism.
It make them really useful.
But, unfortunately, most of them have children.
The second generation is not bad: they remember the stories of their fathers, spend early childhood in actual poverty (yes, at this time even ‘apparatchik’ was required to live the same live as everybody else – moreover, required to return to government/party earned money above some level: ‘партмаксимум’ until 1932).
The third and fourth generation is actually become something like hereditary aristocracy of Soviet Union.
And cause total collapse.
Actual collapse of Soviet Union цфы not because of ‘economic problems’ or ‘low oil prices’.
All such problems can be solved.
But mad desire to turn public property into private property and live ‘as on the West’ between communist номенклатура – become not a hired managers for government companies, but owners of such companies – cause actual collapse.
Very funny, but most of old Soviet Union ‘apparatchiks’ are actually become losers.
Not actually poor (grandfather’s flat in the center of Moscow usually enough to live the life of a rentier), but not multimillionaires.
And – hate with the passion current Russia and Putin government.
I asked a couple of Russian pals for good apparatchik jokes, but unfortunately I’m slightly older than most of them (I identify as 10 years younger I guess), so they didn’t hear so many.
It’s obvious the first generation Soviets who modernized the country were doing something right; the modernization was both rapid and successful, despite lots of adverse conditions. Amusingly a lot of McKinseyites I know are 2nd generation immigrants: they should have peasant wisdom from parents, but they never do.
It is my understanding the soviets used to make college students pick potatoes, which I assume was a way of inculcating the working class spirit. I’d definitely support that in America, just on principle.
Probable because of WW2.
Second generation take a part in it – in actual combat, and in rebuilding after victory.
———
“College students pick potatoes” – actually, it’s for dual reasons.
Second reason is: USSR do not have cheap unqualified working force from nearby countries.
Mass import of cheap labor from, for example, Vietnam, China or North Korea is not allowed because it contradicts with communist ideology.
So, solution is to force high-qualified people sometimes make a low-level physical work.
Not really bad idea: personally, I prefer it to mass immigration.
“So, solution is to force high-qualified people sometimes make a low-level physical work.
Not really bad idea: personally, I prefer it to mass immigration”
If that’s the choice, point me at the potatoes…
I can happily report that I’ve managed not to kill my potatoes yet this year. Will see if I can keep the weeds from eating everything.
Alexander,
There’s no doubt that the USSR could have continued to stagger on for a long time, possibly decades – but what was the point? Once the dream of a classless society overflowing with plenty was dead (and by the 1980’s, who believed in that anymore?), there was really no object – far better to build a Russia based on reality, than on a half-insane dream that no one bought into. Of course, the transition was a deranged mess (as was the transition from Tsarism to Communism) but at least Russia has a chance now – as long as the Neoclowns don’t mess it up…
this is definitely a class thing. McKinsey was the place everyone wanted to get an internship at and where everyone wanted to work, not even big tech firms where there is the promise of a large salary. So basically the business model is a group of your superiors from a self-styled special class of priestesses (that you are not good enough to join) will bless your org. That’s it. You brought up the nomenklatura, it’s exactly the same thing. There is even a hereditary element to this class, as there was the nomenklatura, that they pretend doesn’t exist but it does. Starting at age 3 you begin the piano, violin, and SAT lessons so that the high temples will accept you. Unlike the great unwashed who do like… normal things.
on the other hand I feel like there is a former elite that actually accomplished impressive things but was stripped of power by the new elite maybe around mid 20th century. there’s always an elite that takes on hereditary privileges. I can’t think of a society this didn’t happen in. So you would rather have an elite that is some what grounded and interested in improving things rather than one that is focused on structuring society to increase its own power and raise its own status. You can kind of see how the top universities are more interested in byzantine quasi-religious rituals and credentialism rather than things like innovation and moral improvement. A lot of it, like admissions, is so secretive though that it’s hard to theorize about. But is it not the case that the castes of people in the highest positions of the US changed abruptly??
Caroll Quigley writes a bit about this in the last chapter of his brick (1966), section “The United States and the Middle-Class Crisis”. An excerpt:
“Unfortunately for the aristocrat who wishes to expose his son to the same training process that which molded his own outlook, he finds this a difficult thing to do because the organizations that helped form him outside the family, the Episcopal Church (or its local equivalent), the boarding school, the Ivy League university, and the once-sheltered summer resort have all changed and are being invaded by a large number of nonaristocratic intruders who change the atmosphere of the whole place.
This change in atmosphere is hard to define to anyone who has not experienced it personally. Fundamentally it is a distinction between playing the game and playing to win. The aristocrat plays for the sake of the game or the team or the school. […]
The petty bourgeois are rising in American society along the channels established in the great American hierarchies of business, the armed forces, academic life, the professions, finance, and politics. They are doing this not because they have imagination, broad vision, judgment, moderation, versatility, or group loyalties but because they have neurotic drives of personal ambition and competitiveness, great insecurities and resentments, narrow specialization, and fanatical application to the task before each of them.”
This follows a coherent theory explaining the weak men, neurotic wives, whore girls and timid boys of the middle class, or why their children became hippies and nobody else’s.
Can you provide a better citation than this, or a PDF?
Click to access Tragedy_and_Hope.pdf
The quote is from pages 2070 and 2071 in print, 1285 and 1286 in the PDF.
“because they have neurotic drives of personal ambition and competitiveness, great insecurities and resentments, narrow specialization, and fanatical application to the task before each of them.”
I’ll bet Quigley wanted to use a different term than “Petit Bourgeois”, given that description. Whoever could he have been thinking of…
Thank you for the reference.
As a former management consultant at one of the big firms, I’ll add my two cents. In most of my engagements, somebody at the client company knew what to do and how to do it but was blocked by internal dysfunction. So we were called in to give a facade of outside independent advice but we were really used as pawns in internal politicking. I’ll give a couple of examples:
– A Fortune 50 company had a division run by a guy three years away from retirement who didn’t want to do anything. He had a subordinate who was widely understood to be his future replacement. The subordinate had some ideas but kept getting blocked by the division head. So we were parachuted in to package these ideas as our advice, the corporate board forced the division head to approve them, and something actually got done.
– An electric utility had their rates slashed by regulators and had to save money by cutting capital expenditures. People whose projects got cut would be canned so it was a ticklish situation and nobody wanted to step up and point at the overstaffed and unnecessary boondoggles (there were plenty). I came in and took the heat for shutting down a bunch of projects. I’m pretty sure every engineer at the place knew what needed to be cut but was worried that he would make unnecessary enemies if he raised his voice.
My time as a management consultant was spent dealing with this stuff. Why the hell would I have a clue about power plant capex, or life insurance distribution, or online marketing? Sure, I could bullshit convincingly about all of the above. But in the end, some guy at the client was using me to push his agenda against internal opposition or dysfunction.
Anyway, I quit after a few years. The endless politics was exhausting.
As Wayne pointed out above and I alluded to, this is generally the essence of technical consulting; find the guy who knows what’s going on and present his findings.
Almost all these internal problems are ultimately lack of character problems. If a company works properly they should be able to solve these problems themselves without outside “assistance.” But it involves someone making a difficult decision and possibly (oh noes) being held responsible for it.
In one of your earlier posts, you speculated that the main benefit of SAP ERP software might be to force all departments of a company to follow processes in the first place. And – based on my personal experience – that is also a benefit of external consulting firms: Someone with relatively good theoretical economics knowledge models enterprise processes across departments and presents that to management as a nicely spiffed-up process map.
The majority of workers are trapped by their mortgages and local situation. So there’s no hope of overcoming company politics. The finance department is ideally placed to be an internal consultant, but is already loathed for its proximity to power and its fingers in everyone’s pie. So even the most obvious analyses are never done except by outside consultants. Sorting our customers into buckets by profitability. Rating our workers’ productivity. Here’s a BCG deck that was made public because the client was the City of Dallas. A lot of basic insights, delivered gently: https://www.consultantsmind.com/2017/04/28/bcg-dogs/
In my simplified view of the universe, people who are incapable of doing their jobs will be removed from their positions of authority (preferably removed from the payroll also) and you hire someone who can solve the problem. Dogcatcher is a problem solved in every civilized society I have visited. Crimea is the only place I’ve been where it seemed to be an unsolved problem. Dallas Texas paying millions for consulting on the topic is a travesty (the report itself seemed pretty good TBH). People avoiding responsibility for problems they created, of course, being the primary disease of a dying civilization.
BCG did a great job in hiding the fact that they are analyzing a dying civilization. The study says that catching loose “community dogs” was useless because people would just acquire more community dogs. With no possibility of changing community mores, BCG smartly says that catch-neuter-and-release is the best idea available.
I guess, like the apparatchiks, it is their job to paste over problems with dying civilizations.
Even in late eighties the communist party in Soviet Inion still had some feedback loops and the worst cases of mismanagement were panfished either by sacking or via a transfer to some remote place. The latter was really bad if one was used to lavish live style of a high-ranking apparatchik in a big Soviet city. And the party was very much against extramarital affairs, those again resulted in sacking.
On the other hand modern management consultants can bullshit until pension with no consequences while earning high income. So I think there are strictly worse than Soviet apparatchiks.
Being a newly trained (very junior) industrial manager myself, I’d like to ask if you could kindly recommend a few practical books, articles and videos on company and production organization that are worthwhile. The more technical the better! Especially without years (decades?) of practical experience, it is practically impossible to sort sparkly nonsense (“Agile”!) from helpful approaches.
Burton H. Klein books.
I don’t remember the original tweet author, but there may be a connection between this post your prior post.
SillyCon Valley – Soviet Union parallels
1.) Years to receive a Tesla, Lada, errr, I mean car. When arrives, it is of poor workmanship and quality
2.) Promises of colonizing the Solar System as the masses suffer in drudgery.
3.) 5 adults to a 2 room apartment
4.) They are told that they are constructing a utopia – even in the midst of obvious moral, ethical and economic collapse
5.) Extralegal taxis run by private citizens trying to make ends meet
6.) All activities are actually slaved to the interests of a military-intelligence-industrial complex.
7.) Mandatory political education eg. Marx/Lenin, DEI.
8.) Productivity falsified to please ruling elites
9.) Deviate from mainstream mantras and be faced with social ostracism and political danctions
10.) The networked computers that exist are shit and are inferior to prototypes of a generation prior
11.) Elite power struggles cause massive collateral damage and even purges
12.) Failures are upheld as triumphs
13.) Otherwise intelligent people are just checking in to get by.
14.) The plight of the Working Class is eagerly discussed by people who do their very best yo not work
15.) USA depicted as Evil by Defailt
16.) Currency is just fake and worthless symbols
17.) Economy is centrally planned using algorithms that are barely understood by its participants.
There may be some Theory of Technocratic Failure that may be derived from such.
Found that “Silicon Valley – Soviet Union” similarity thread.
https://threadreaderapp.com/thread/1014974099930714115.html
Great post, great blog, thank you. Niccolo Soldo sent me here. Will check in regularly.
I can’t help but notice the similarities between the class you describe and the Liberal party of Canada MPs and functionaries all the way up to and including the prime minister itself. So high on their own supply. Narcissistic grandiosity complexes writ large.
Glad you mentioned pipefitters. That is a serious trade where bullshit policies can get you maimed or killed very easily. As a sparky working alongside them, I’ll give them serious respect any day.
I have no experience working at such a high corporate level but the behaviour is observable daily in the media.
Cheers from Canada
Excellent article – one thing to add: consultants have written themselves into fiduciary laws which is very clever. Anytime a publicly traded firm wants to buy another company, the board and management can be found liable if they overpay. If they hire outside consultants to confirm the acquisition price (hint: the consultants never disagree with the price), the board and management cannot be found liable under fiduciary claims from shareholders. Bain and PWC are experts in this field. All they do is serve as CYA for idiotic management
Wasn’t aware of that! Thanks!