Studies show that the consulting industry today faces a high turnover rate. On the face of it, it would seem that turnover is a looming problem for consulting firms. It certainly poses a number of challenges. At the same time, however, high consultant turnover does have some positive effects for the consulting industry. Ultimately, the answer for consultants will be to achieve the right balance between retaining and relying on talent and remaining innovative in the industry.
Consulting firms today rely on talent.
The top consulting firms today rely heavily on talent as one of their main differentiators. Studies show, for example, that McKinsey alone has hired 17% of all MBAs from the nation’s top schools. Top firms such as McKinsey focus their offerings around their talent expertise and the knowledge leadership their consultants bring.
The problem with relying so heavily on talent is that consulting firms are also notorious for high turnover rates. In a survey of 31 influential consulting firms by Top-Consultant.com, over 60% of consulting firms indicated that retention was becoming increasingly difficult. Yet less than 25% indicated that their firms were doing anything significant to improve retention.
Turnover among employees from the millennial generation is only growing. The long and demanding hours of consulting and lack of flexibility remain top causes for turnover, but additionally, many top MBA graduates today look to join startups instead of consulting firms. In order to determine the full impact that turnover has on the consulting industry, we will examine both its pros and its cons.
Although turnover certainly creates difficulties for consulting firms, it is not without positive effects, as well. Perhaps the most obvious of these is lower salaries. While starting salaries at the top firms certainly outstrip the starting salaries for most other professions straight out of graduate school, relying on recent graduates allows firms to keep their talent costs down.
Additionally, high turnover creates the constant need for new employees. This turnover is costly, but it also brings in a constant flow of fresh perspective and innovative ideas. For an industry that relies so heavily on thought leadership, it is especially important for consulting firms to remain innovative and stay ahead of the continually evolving world of business. Rather than getting complacent or bogged down in ideas of the past, consultants should maintain a broad perspective, constantly thinking about problems and solutions from new angles. Having a constant inflow of new talent, therefore, can be valuable. By capitalizing on the fresh perspective new talent brings, consulting firms can maintain a competitive edge.
Many of the cons of turnover for consulting firms are typical. Turnover poses significant costs to an organization, both the obvious costs of severance, recruiting, and training, as well as hidden costs such as demands on management time and the time it takes for a new employee to reach full capacity in a new role.
For consulting firms in particular, turnover poses additional risks. Because thought leadership is another primary differentiator for top consulting firms, knowledge retention is critical. Creating best practices from internal consultant knowledge and thought leadership is a key way in which firms maintain their success, and so it is important for firms to maintain key personnel who possess that knowledge. Moreover, a high-turnover environment is risky from a hiring perspective. Losing employees too fast will not only result in a loss of their knowledge, it will also make bringing new employees up to speed more difficult.
In addition, high turnover contributes to the rise of internal consulting. According to the Harvard Business Review, former consultants are joining corporations in droves to form internal strategy units. These “armies” of internal consultants frequently negate the need to hire external consultants, so they pose a serious threat to traditional consulting firms.
Because talent is such a focus for most premier management consulting firms, turnover is something that consultants need monitor carefully, regardless of whether they perceive it as a good thing or not. Consulting firms for which turnover poses real difficulty have a few options.
The most obvious thing consulting firms can do to reduce consultant turnover is to work on improving retention. According to Top-Consulting.com’s report on consultant retention, the approaches most consulting firms take to improve retention, such as raising salaries and expanding promotion opportunities, have been the wrong ones. According to the consultants themselves, the number one thing that would encourage them to stay is being involved in the engagement staffing process and having more control over what engagements they are assigned. Other top requests were for better training and better management of client expectations around the time the consultant would spend on-site with the client.
Another option open to consulting firms is to adopt an approach to consulting that does not rely so exclusively on talent, such as asset-based consulting. While asset-based consulting continues to involve talent, it places some of the focus on products and tools rather than on talent alone. Adopting such an approach can relieve the pressure of hiring and retaining the nation’s top talent.