Ask any head of practice in the mainstream consultancy industry what their major headache is, and the likelihood is that they will say: “recruitment”. However, one would not immediately have associated this problem with strategy firms. Cited as the employers of choice for graduates from top business schools, and noted for their rigorous selection process, one would have thought that the main problem was whittling down the queue of top people laden with double Firsts, MBAs, sporting trophies and four-figure IQs.
Recent evidence suggests, however, that even the top boutiques are finding it difficult to staff up. David Warren, a senior partner at specialist search and market intelligence consultancy ADD-Resources, says that recent months have seen something of a bidding war break out among the strategists.
“In the last few months, a couple of the major firms have radically changed their salary structures,” he says. “It’s getting to be a bit of an auction.” Signing on with a strategy house is certainly one of the more profitable ways of cashing in on an MBA. The average pre-MBA salary of a business school student is around #40,000: MBAs who return to their original firms generally improve their salary by a meagre 3 per cent, which scarcely justifies that sacrifice of time and effort. Signing on with a strategy house is a ticket to a #12,000-15,000 sign-on bonus, a #55,000-58,000 salary hike and a performance-related bonus.
However, it appears that even these sorts of figures are not enough of a draw for the top MBAs that the strategy houses are after. This is partially due to competition between strategy firms, but there is also a renewed pull from a revived City, which is once again able to offer salaries and bonuses beyond the dreams of avarice.
For the strategy firms this is causing problems: funding a salary war is not such a problem as in the world of process consulting, where margins are tighter and there is less possibility of passing increased overheads on to clients. There is plenty of overhead in strategy day-rates to pay the MBAs a bit more. But the knock-on effect from this year’s recruitment costs on the rest of the salary structure: “People recruited now can be earning more than those who’ve been there a year,” says Warren. “We believe there are areas of discontent further up the ladder.”
Once accepted, a career in strategy is a risky, but not necessarily ruthless progression. A typical career path would be to join from university as an analyst, crunch figures for two to three years, then be sent off into the big wide world to “win your spurs” and get that top MBA. Alternatively, strategy houses will also seek MBA graduates with strong records in industry.
“They may promote non-MBAs,” says Warren. “But these tend to be real stars who won’t gain anything from an MBA. Otherwise, they look for the ‘Dean’s list’ graduates, the top 10 per cent from the top schools.”
Most firm’s salary structures are based on MBA sign-on rates, and generally lead to a 10-15 per cent increase each year. ADD’s figures (see graph) indicate that the patttern is broadly similar across Europe.
“In Italy and Germany the top ends ramp up because of tax rates,” says Warren, “But the take home is similar.” The variations between countries are mainly a reflection of the current growth of sterling. This is a truly international market, with highly-qualified, polyglot professionals able to command world-class salaries wherever they are based.
There are downsides: the consistency of salary growth reflects a continued adherence in the industry to “up-or-out” policies. Basically, you have two or three years to prove yourself and move on to the next step: from consultant to manager then to principal. Beyond principal things are not so rigid, but another three to four years is a good yardstick for making partner, by which time you would be in your mid-30s. The ratio of partners to consultants is pretty encouraging at around 7/8:1, but this is offset by the relative longevity of partners and high rates of attrition in the immediate post-MBA period. What is clear is that there is no point at which you can safely “plateau”. If you are unwilling to progress, it is time to move on. That said, most of the firms recognise the value of maintaining good relations with their alumni: the McKinsey network is the most famous example of this, but all the firms do it to some extent.
“There are senior partners and whole departments geared to assisting the transition out of the business, so that when they have left the firm they see it as their alma mater and are happy to use it as a consulting firm,” says Warren. “It’s not a ruthless ‘pour encourager les autres’ process.”
The salary chart: process versus strategy illustrates the gulf that exists between the two worlds. In recent years we have seen the extreme difficulty that the process firms have had in developing and then managing strategy operations because of the clash of cultures, values, and, to be brutally frank, remuneration. Coopers’ attempt to maintain OC&C as a strategy “implant” within its Embankment Place office – with separate reception, sealed off premises and radically different dress code – proved unsustainable, and the firm moved out of the partnership altogether. Deloitte & Touche avoided a complete break with its strategy partner Braxton, but recognised that a more arm’s length relationship would work better for both parties.
Other Big Six firms have cast longing glances at the sunny uplands of strategy – and the increased opportunities for account control that come with it – but have found it difficult to gain a foothold.
Now the boot may be on the other foot. Process consultancies have seen major upheavals in their business as clients have increasingly demanded that they “walk the walk” as well as “talk the talk”. Now it seems that the demand that consultants stick around to see their recommendations put into practice is being articulated at the strategy level. Strategy houses may find it as difficult to incorporate implementation skills in their business model as their downstream rivals have to acquire strategic capability.
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