Consulting successes and failures

Marta Szczerba examines some notorious cases of good and bad advice given by consultants
Types of work

Consulting firms work hard to keep their client and engagement lists confidential: they do not want to bear any of the glory for the successes, or any responsibility for the failures, of a client, taking the view that they provide advice and it's up to a client's management team to choose whether or not to follow it. However, not all remains confidential. Here we examine some notable successes and failures that have made it into the public eye.


BCG helped to restructure Chrysler and GM after the financial crisis

In 2008, Chrysler, General Motors (GM), and Ford requested a $35 billion (£21 billion) bailout from the US government, stating that their demise would trigger three million layoffs within a year. In January 2009, the federal government gave $23.4 billion (£14.0 billion) of operational cash to GM and Chrysler. In return, these companies agreed to fast-track the development of energy-efficient vehicles, consolidate operations and streamline the number of brands they produced.

The Boston Consulting Group (BCG) advised President Obama's automobile industry task force on the restructuring of General Motors and Chrysler, including the establishment of the Chrysler-Fiat alliance. The restructuring is widely thought to have been successful: none of the big three automotive companies went under, more than 340,000 jobs were created, and the government recovered a substantial amount of the bailout money.

Admittedly, there were some controversies along the way, such as BCG's recommendation that the commercially non-viable electric Chevy Volt should be discontinued - supporters of the car argued that more time was needed to make the environmentally-friendly new technologies used in it profitable. However, all in all, BCG's work was a success, and was recognised with numerous awards, including Global M&A network's "Turnaround Firm of the Year 2010" award.

PA Consulting helped the UK's Ministry of Defence develop a new explosive detection system

PA Consulting Group assisted the UK's Ministry of Defence (MOD) in the creation of a new remotely-controlled explosive detection system that led to cost savings of around £17 million and saved lives in Afghanistan.

The MOD needed a new explosive detection system, but off-the-shelf solutions were manned and so risked casualties, while creating a brand-new unmanned solution would be near impossible. PA advised the MOD to take 200 obsolete Land Rovers and customise them by adding off-the-shelf remote control and sensor subsystems. As a result of using these devices, there's been a ten-fold increase in the rate at which a route can be searched, and the process of detecting explosives now puts fewer lives at risk.

KPMG's cost optimisation programme helped Nationwide increase profits

In 2011, Nationwide's margins were under pressure due to the UK's continuing low interest rate environment, the need for investment in the business, and the integration of three other recently acquired building societies.

In order to reduce the bank's costs, KPMG advised Nationwide to cut administrative costs, reduce the bank's network of branches, integrate regional brands, redesign core processes, and streamline IT systems. As a result, Nationwide achieved significant savings, contributing to a rise in profit.

EY transformed Xerox's business unit, bringing in significant profit uplift

As part of an operating model revision, EY took a detailed look at Xerox's production businesses. They discovered that one of its business units - perceived as a top performer - was in fact their bottom performer. The team developed a new strategy, which included a new sales strategy focused on aligning resource proportionally to profitability, the discontinuation of low-margin offerings, a shift to more profitable customer segments, and changes in equipment sales structures.

McKinsey correctly warned about the likely failure of American healthcare website

In autumn 2013, US President Barack Obama was touting his shortly to be launched healthcare scheme sign-up website. However, just six months before, the White House was privately warned that McKinsey & Co had found that the new web portal was at risk of failure. McKinsey said the US government had relied too heavily on outside contractors, and the system would not be sufficiently tested before the planned 1 October launch date.

On the launch date, the website crashed, and the rollout failed so badly that only 106,000 people were able to sign up for insurance in the first month when 500,000 were expected to do so.


Swissair went into bankruptcy after implementing a McKinsey strategy

In the 1990s, the European aviation market was ripe for consolidation. Europe had 28 national airlines, excluding small regional carriers. Swissair had a problem: it wasn't big enough to be a market leader, but also not small enough to fit into a niche. Moreover, it was based in an expensive country and because it wasn't a member of the EU, it wasn't able to expand in Europe. Swissair tried some global alliances - the airline paired up with Austrian and Singaporean airlines - only to see them collapse.

Advised by McKinsey, Swissair followed the so-called "hunter" strategy: it bought stakes in small European airlines. The condition of each deal was that partners switched to Swissair for all their retail, catering and aviation service needs. Swissair spent $1 billion on such purchases, on top of similar amounts spent building up its catering operations.

However, nearly all the airlines Swissair was buying had financial difficulties: they had high costs and active trade unions, which prevented any meaningful action, so Swissair had to put money into them while restructuring. With declining profitability in its core operations, the financial strain was overbearing and the company went bankrupt in 2001.

McKinsey provided consulting services to Enron before its bankruptcy

A series of companies that hired McKinsey have subsequently entered administration. Most famously, Enron, an energy company, was paying McKinsey $10 million a year before its meltdown. Under Jeff Skilling, a Harvard Business School graduate and McKinsey alumnus, Enron implemented many of McKinsey's practices and was championed by the consultancy for its innovation: "Enron has built a reputation as one of the world's most innovative companies by attacking and atomising traditional industry structures," gushed McKinsey Quarterly. As an example, the company was run on a "loose-tight" management model, which decreed that certain aspects of the business, like budgets, should be kept under central control while staff should be given a huge amount of freedom to "think outside the box".

But despite the fact that McKinsey has worked for Enron on over 20 projects, the consultancy has consistently denied that it gave Enron advice on financing issues, the primary cause of its bankruptcy.

Mercer Oliver Wyman advised UBS to invest in sub-prime debt instruments

In 2005, Mercer Oliver Wyman advised UBS that the bank should invest in collateralised debt obligations (CDOs), securities made up of collections of sub-prime and other debt, to close the gap against its competitors in fixed-income trading.

The UBS board approved the strategy and the bank's traders began buying significant amounts of CDOs. In October 2007, the sub-prime mortgage market collapsed and UBS wrote off losses totalling $4 billion for that year. The bank later had to be bailed out by the Swiss government.

McKinsey failed to effectively reform the NHS

McKinsey's consulting for NHS over the years "failed to move the stultified British bureaucracy an inch", according to one book on McKinsey. Moreover, McKinsey was providing advice to both the government on the NHS and to companies that hoped to profit from the reforms.

McKinsey advised Railtrack before its collapse

Railtrack was advised by McKinsey to reduce spending on infrastructure. Instead of regular fixes, Railtrack should fix faults on an ad hoc basis. It's been claimed that this strategy led to a number of fatal accidents and subsequently to Railtrack's liquidation.

Oliver Wyman failed to spot Anglo Irish Bank was in trouble

In 2007, Oliver Wyman named Anglo Irish Bank the best bank in the world in a piece of research to coincide with the World Economic Forum in Davos, Switzerland in 2007. The next year, the Irish government was forced to nationalise the bank.

Continue learning below