The (Overdue) Collapse of Corporate Consulting

In 2024, New York City, hired one of the

world's largest consulting firms to give

them advice on one of the city's most

pressing issues, how to put rubbish in a

bin. McKenzie, the firm in question,

came back with a shining 80page deck,

all centered around the novel idea

called containerization, and its

benefits, which included, but were not

limited to, getting rid of rats, cleaner

streets, and less clutter for

pedestrians. While getting a 20-some

year old grad to make rubbish bins seem

innovative might sound like a joke, the

report cost the government a hefty $4

million, equivalent to $42,000 per

slide. This is of course a somewhat

extreme example, but these firms have

been getting away with dressing up

obvious advice as strategic realignment

and stakeholder management for decades.

That is until the last couple of years.

>> At this point, McKenzie is a total

racket. It's just all fake. Names like

McKenzie, PWC, and Deote are all cutting

their consulting workforce. So, what

happened to the industry? After all,

just a few years ago, most graduates

would give anything for an internship at

one of these firms. You might think the

industry is just another victim of the

AI revolution. While that's in part

true, there's actually a lot more going

on here. Because for the past few

decades, the industry has constantly had

to reinvent itself. But doing that comes

with risks, and phones are only just now

starting to pay the price. Deote used

artificial intelligence to prepare a

report. The

>> University of Sydney welfare academic

Chris Rajshu discovered the errors in

the report.

>> Management consulting firm McKenzie that

has laid off 2,000 employees.

>> As laughable as the consulting industry

might seem today, there was once a time

when it was considered one of the most

useful industries in America. Back in

the 1990s, businesses genuinely needed

consultants for the simple reason that

most businesses were really badly run.

At the time, the US was embracing

deregulation with almost religious

intensity, tearing down rules that kept

industries in check for decades. The

results were dramatic. Entire sectors

suddenly opened up with companies free

to expand in ways that had previously

been off limits. In less than a decade,

the annual value of mergers and

acquisitions ballooned from about 200

billion to more than $1.7 trillion, more

than the entire GDP of Canada. In many

ways, these mergers made companies

stronger, but they also made a mess so

big it gave rise to an entire industry.

Suddenly, companies were stuck with two

finance departments, two HR teams, two

marketing divisions, and nobody quite

sure which ones were actually necessary.

If you kept them all, the companies

became bloated and inefficient. But if

you cut the wrong one, the whole machine

would stop working. And that's where

consultants came in. Their skill set was

basically going into these companies

after a merger, working out what bits

needed to stay and what parts could be

cut without any real consequence. Thanks

this wave of post merger cleanups,

consultancies became hugely profitable

businesses. And by the late 1990s, firms

like McKenzie and BCG had become

permanent fixtures of corporate America.

But unfortunately for consultants, they

were also digging their own grave.

Scandals like Enron, which worked out

$60 billion in shareholder value, ended

up forcing the government to reintroduce

the very same rules they had been

cutting just a couple of decades

earlier. This quickly put a stop to the

mad rush of deals that had been

happening across the country. And in

just a couple of years, the industry

lost nearly 2/3 of its value. When the

merger gold rush ended, you might expect

that consultants would just fade into

irrelevance. But instead, they pulled

off one of the greatest pivots in

corporate history, selling their

services to governments. By the 2000s,

the government's workforce had nearly

doubled. And with that rapid growth came

huge inefficiencies. So officials turned

to consultants to try and fix this,

hoping that their advice would help sort

out the bureaucracy. Over the course of

a few years, US federal spending on

outside management consultants tripled.

On the surface, this looked like the

perfect business opportunity, but it

also planted the seeds of the industry's

downfall. the point where consulting

began drifting away from being a serious

business service and towards the

punchline we think of today. In 2012,

the US Air Force scrapped a project

called the Expeditionary Combat Support

System. After nearly a decade of work

and more than a billion dollars spent

largely on consulting fees, it produced

nothing. The system had been designed to

replace 200 separate databases with one

streamlined platform. But it collapsed

under endless delays and mismanagement.

And yet no single consultant or

department paid the price. The point is

in government contracts accountability

was so diffuse that even billiondoll

disasters had no clear culprit.

Consulting firms figured this out pretty

quickly. And unlike in the private

sectors, bad recommendations didn't

threaten their reputation. For

consultancies, this was the dream. Not

only did this shield them from

responsibility when projects failed, but

as long as they weren't actually solving

the government's problems, they could

keep coming back for more contracts. Of

course, building your entire business

model around giving advice without

consequences is a pretty risky

foundation. If a new technology comes

along that can actually solve those

problems, then suddenly you don't have a

business anymore. But anyways, year

after year, the amount being spent on

these contracts continued to grow

despite the fact the sheer amount of

waste didn't seem to be getting any

better. Unsurprisingly, it was around

this time that we saw the rise of what

we now call corporate speak. Take a look

at this slide. Develop value creating

partnerships. Build a clear mission.

Develop strategies to create sustainable

related opportunities. These words are

the output of million-dollar contracts,

but it's not actually like they mean

anything. But with a fancy graph and a

complimentary color tone, it seems like

the advice must be valuable. And it was

around this time we saw the explosive

rise of the big four management

consultancies. Firms whose job in theory

is to advise the world's biggest

companies and governments on how to run

more efficiently. Whether that's

restructuring, cost cutting, or entire

business strategies. The obvious irony

being that these firms quickly became

part of the costs that they were

supposed to cut. But companies kept

bringing them in because they gave

executives an easy safety net. As any

tough decision could now be justified by

saying, "Well, McKenzie said we should

do it." Whenever firms needed to lay off

staff, spin off a division, or justify a

big merger, they'd bring in consultants.

That might sound absurd as a business,

and in many ways it is. But as long as

the firms maintain an illusion of

prestige, it just about works. The

problem is, after decades of charging

millions for advice that wasn't actually

useful, people do eventually start to

notice. A 2024 survey found that only

13% of businesses felt that consultants

were actually doing more good than harm.

By this point, growth had stalled, staff

were being laid off, and even the most

prestigious firms were quietly admitting

that demand for their services was

drying up. But just as the industry

looked like it was on its last legs, it

got thrown an unlikely lifeline, AI.

For decades, a classic consulting

assignment was market entry analysis. A

firm like Mckenzie would parachute in a

team of Ivy League graduates and MBAs

who'd spend weeks interviewing staff,

cleaning spreadsheets, and building

sprawling financial models. Companies

paid millions for it. But now, large

language models have burst onto the

scene, and suddenly much of the same

grunt work could be done in minutes. But

of course, it does come with a catch. In

2023, Accenture landed a $75 million

contract with the US Patent and

Trademark Office to embed AI into its

patent examination process. The pitch

was classic consultancy. Machine

learning would scan millions of

documents, making the system faster and

more accurate. But instead, the system

routinely mclassified applications,

missing obvious prior patents, and even

hallucinated entire references. It

performed so badly that the office

eventually banned generative AI

outright. This failure isn't isolated.

It captures the bind consulting firms

are in. Reports suggest roughly 27% of

their tasks are directly automatable

with today's AI. And Deote admits its

own work is already being replaced from

market analysis to risk modeling. And

yet the very technology getting their

old business model is also the one

they're supposed to be selling to new

clients. McKenzie has already felt the

consequences. In the last 18 months

alone, it was forced to cut 10% of its

workforce. And these weren't

underperforming back office roles. They

were consultants whose bread and butter

was exactly the kind of analysis AI now

automates in minutes. On paper, guiding

companies through disruptive change is

what consulting firms were built to do.

But in practice, it's just exposing how

thin their value proposition has become.

This isn't just a one-off. A recent

study found that 90% of AI

implementation projects fail to meet

business objectives and 42% of companies

abandon the efforts after less than a

year. For the firms that claim to be

selling expert advice, it's a pretty

awful track record. That's not to say

there isn't a lot of good that AI

projects can do in theory. MK, the

world's largest shipping company,

recently stated they've used AI to

forecast port congestion weeks in

advance. A move that is saving the

company over $300 million every year by

avoiding costly delays. So why do so

many consultancy-led projects fall flat?

Part of the problem is that actually

pulling off these implementations

requires deep expertise in AI which is

something today's consultancies don't

have. The real talent isn't sitting at a

deote office or a McKenzie slide deck.

It's inside the research labs at places

like OpenAI or Anthropic. And that

leaves consultancy stuck in a strange

position. AI has managed to make the

majority of their old services obsolete.

And at the same time, it's one of the

few technologies they've actually

struggled to sell their advice on. Put

those together and you get a dangerous

feedback loop. Consulting firms relied

on attracting the best and brightest

graduates. But with AI exposing the

industry as far less prestigious, top

talent is now heading to tech, finance,

and engineering instead. Without that

talent, those glossy slide decks start

to look suspiciously overpriced. What

the downfall of consulting really

highlights is a broader principle that

runs through almost every industry.

Businesses can survive for years,

sometimes decades, by selling an image

of value rather than delivering the

thing itself. As long as nobody has a

clear way of measuring outcomes, that

illusion can hold. But the moment a new

tech arrives that makes those outcomes

visible or cheaper to achieve, the whole

model starts to unravel. Consulting

isn't unique here. We've seen the same

thing with travel agents after online

booking, stock brokers after free

trading apps, and even parts of higher

education now facing pressure from

online learning. The point is, these

models work only as long as the tools to

see through it don't exist. And once

they do, no amount of glossy branding

can hide their cracks.