Thursday, June 26, 2014

Great Moments in management consulting

I know I blow through a lot of pixels on this topic but I don't think most people who haven't navigated a large corporation realize just how much of a drain charlatans and trendsters put on American business. The best analogy I can come up with is with corruption. Like the brothers-in-law of some Third World cabinet official, these con artists use an association with power ("the CEO is following this very closely.") to ask for money, make demands and generally be a nuisance to the productive.

As with corruption, the damage done by charlatans can occasionally rise to the level of existential threat (Barry Ritholtz has some examples we've discussed previously). Most of the time, though, they are just an irritant, a drag on the people who are actually trying to satisfy customers and make money for stockholders.

To get a feeling for just how far back this goes, check out this exceptional piece from the New Yorker's Jill Lepore (from which I've quoted before and will, undoubtedly, quote again):
Taylor is the mortar, and the Gilbreths the bricks, of every American business school. But it was Brandeis who brought Taylor national and international acclaim. He could not, for all that, have saved the railroads a million dollars a day—the number was, as a canny reporter noted, the “merest moonshine”—because, despite the parade of experts and algorithms, the figure was based on little more than a ballpark estimate that the railroads were about five per cent inefficient. That’s the way Taylorism usually worked. How did Taylor arrive at forty-seven and a half tons for Bethlehem Steel? He chose twelve “large, powerful Hungarians,” observed them for an hour, and calculated that, at the rate they were working, they were loading twenty-four tons of pig iron per man per day. Then he handpicked ten men and dared them to load sixteen and a half tons as fast as they could. They managed to do it in fourteen minutes; this yields a rate of seventy-one tons per man per ten-hour day. Taylor inexplicably rounded up the number to seventy-five. To get to forty-seven and a half, he reduced seventy-five by about forty per cent, claiming that this represented a work-to-rest ratio of the “law of heavy laboring.” Workers who protested the new standards were fired. Only one—the best approximation of an actual Schmidt was a man named Henry Noll—loaded anything close to forty-seven and a half tons in a single day, a rate that was, in any case, not sustainable. After providing two years of consulting services, Taylor billed the company a hundred thousand dollars (which works out to something like two and a half million dollars today), and then he was fired.

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