Consultant, Heal Thyself

Management consultants, those freelance high priests of an arcane science, earn their living by helping other companies solve problems. Lately, though, many have been hard-pressed to solve their own. Faced with waning profits and a changing market for its services, the $2 billion-a-year consulting industry is undergoing a sweeping turn over in its own top executive suites.

In the past 18 months, nearly a dozen major consulting firms have changed their chief executives. At McKinsey & Co., the largest, with billings of about $45 million last year, C. Lee Walton Jr. stepped aside last month as managing director after tiring of administrative burdens. At Booz, Allen & Hamilton, the second largest (consulting billings: $18 million), James W. Taylor was fired in January as president over policy disagreements with Chairman Charles Bowen -- after the company's stock had fallen from 24 to 5 1/8 in three years. At Arthur D. Little, the third largest (billings: nearly $18 million), Howard O. McMahon resigned in November 1971 after two years of earnings declines; his replacement, John F. Magee, last month launched a reorganization of the company. In addition, other firms among the industry's top 30 have gone through major management shakeups. They include H.B. Maynard Co., a Pittsburgh-based subsidiary of Planning Research in Los Angeles; Science Management of Moorestown, N.J.; Lester B. Knight & Associates and George Fry Consultants, both of Chicago; Spencer Stuart & Associates and Boyden Associates of New York.

The industry has long had a built-in problem: good-advice givers are not necessarily good administrators. Many of the recently departed executives are former consultants who had trouble making the transition. "It is a safe assumption that if a man is a good consultant, he does not want to be president in a large firm," says Earl W. Eames of Manhattan's Wright Associates. Beyond that, a number of important consulting firms have gone public since the late 1960s, but most of their stocks are selling far below the original offering price, breeding discontent among shareholders and managers. Part of the problem is that going public usually enriches a firm's original partners but not its younger and more energetic members who, because they can no longer become partners themselves, often become embittered and drift away. Though the firms charge as much as $1,000 a day for the services of a partner, costs are rising fast; starting salaries for M.B.A. graduates have, more than doubled since the 1950s. Lately, one of the industry's biggest customers, the Federal Government, has cut spending for consultants in many agencies.

The changing market for consulting services has made the industry even more precarious. In the past, major firms concentrated on such bread-and-butter subjects as cost cutting and inventory control. But many large corporations today have inhouse consulting staffs to handle those jobs, and professional consulting firms now counsel clients on more advanced matters, like long-range corporate planning, job enrichment or pollution control. Such services are among the first to be cut if a client suddenly becomes cost-conscious or the economy takes a dip, and many companies that were moved by the recession to consider such advice a dispensable frill have yet to change their minds despite the swelling boom. In the quest for more business, many consultants are taking on institutional clients like hospitals, schools, art museums and state and municipal governments. The last often turn out to be slow payers and occasionally drag a firm into local politics. McKinsey & Co.'s billings with the city of New York dropped off abruptly because one of its consultants took on a nonpaying job with the city, prompting Mayor John Lindsay's political opponents to cry conflict of interest.

Despite immediate difficulties, the consulting industry's future may be surprisingly bright. The American Academy of Consultants predicts that billings will rise fivefold by 1980 as management techniques become increasingly complex. "There will always be a robust consulting industry if for no other reason than that you cannot replace objectivity," says James Kennedy, publisher of Consulting News, an industry newsletter. A study by Philip W. Shay, executive director of the Association of Consulting Management Engineers, indicates that Americans of executive age (35 to 55) will drop from 47% of the population to 38% by 1980. If so, then more and more corporations will have to turn to consultants for help --provided that the consulting industry can solve its own problems first.

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