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Introduction
The journey of consulting as a professional service has been both varied and rich, filled with ideological shifts and major economic transformations. Understanding the history of consulting not only provides insight into its current state but also sheds light on its foundational practices and the evolution of modern business thinking.
The Roots of Consulting
Business historians often debate the origins of consulting, but two key ideological practices stand at the forefront of this discussion. The first is the concept of Scientific Management, or Taylorism, conceptualized by Frederick Taylor in the 1880s. This method, which reached its peak application in the 1910s, focused primarily on optimizing factory operations, emphasizing efficiency and productivity.
Running parallel to Taylorism was the concept of management engineering. This approach, championed by Arthur Dehon Little, who established his company in 1886, differed significantly from Taylorism. Management engineering was less about the efficiencies of production and more about advising businesses on improving their overall operations. This encompassed a range of services, primarily focusing on legal, engineering, and accounting advice.
The Rise of Specialized Consulting Firms
The turn of the 20th century witnessed the growth of large industrial organizations, shifting the focus towards management engineering. A key figure in this movement was Edwin G. Booz. Through his company, Business Research Service founded in 1914, Booz advocated the idea that companies could boost their profits by hiring impartial external experts. This concept was revolutionary and led to the birth of what many consider the first management consulting company.
The demand for outside expertise in engineering, legal, and accounting soon led to a boom in specialized consulting firms. This era saw the rise of companies like Arthur D Little’s Company and Stone & Webber in engineering consulting, and accounting firms such as Arthur Anderson, Haskins & Sells, Ernst & Ernst, and legal firms like Cravath Swaine, Davis Polk, and Sullivan & Cromwell.
The Expansion of Consulting Post-Great Depression
The consulting industry underwent significant changes after the Great Depression. The U.S. government, attributing the 1929 crash to large banks, passed the Glass-Steagall Act, which mandated banks to divest their non-commercial banking operations, especially investment banking. Concurrently, the creation of the Securities Exchange Commission promoted transparency and regulation in banking. One of its key mandates was the utilization of external entities for internal audits and assessment of large-scale corporate transactions.
In this environment, two companies emerged with innovative approaches to consulting. George S. Armstrong & Company, founded in 1933 by George Simpson Armstrong, was the first independent management consulting firm, capitalizing on banks needing to comply with the Glass-Steagall Act. Meanwhile, James O. McKinsey, a professor of accounting at the University of Chicago, began to systemize the process of client acquisition and company performance assessment through his firm, McKinsey & Company. His work laid the foundation for McKinsey to evolve into a national and global consulting powerhouse.
The Modern Era of Consulting
By the 1940s, McKinsey & Company had transformed into the first pure management and strategy consulting firm. This marked a significant shift in the consulting industry, turning it into a full-fledged profession driven by graduates from top universities employing standardized systems and practices. The concept of Taylorism, once a separate practice, was now fully integrated into the services offered by McKinsey and its emerging competitors like PA Consulting Group, Boston Consulting Group, and Bain & Company. While the true origin of consulting may be disputed, McKinsey & Co is often recognized as the first modern consulting company.
Conclusion
The history of consulting reflects the dynamic nature of business and management practices over time. From its early days focused on specific operational efficiencies to the broad, strategy-focused advisory services of today, consulting has continuously evolved to address the changing needs of businesses. This rich history not only highlights the significant contributions of pioneers in the field but also underscores the ongoing importance of consulting in the modern business landscape.
