“I felt out of my element," a consultant told the IC, "as if people there always made me feel like [they were thinking] ‘you don’t know how it is'”. He still works in the industry so asked not to be named, but the comment underlines why consultancy work can grind up against entrenched operational processes.
But it is not an unreasonable response. When the shiny young consultants arrive at the mine or oil rig from New York, Milan or Dubai asking why a certain part is being replaced and not fixed, most people would get defensive. My source was made to watch and take photos of what maintenance workers were doing at a mine without telling them why he was doing it.
The news this week about the UK government spending over £600m hiring consulting firms to work on the Covid-19 response got me thinking about what role they play in the extractives business. Yes, it is highly specialised, but surely these slow-moving sectors need some help to keep up with the times.
BP (BP.) even hired its sustainability chief Giulia Chierchia directly from McKinsey last year.
The general idea of the industry is certainly sound: hire the best people and then rent them out to companies and governments for big bucks.
But there is a clear disconnect between how consultants from the 'big four' audit firms – EY, KPMG, Deloitte and PwC – or specialist consultancies such as McKinsey & Co and Boston Consulting Group (BCG) depict their work and how they are actually used by management.
The reality is that they are often hired to do unpopular work, such as lay-offs or restructurings that companies don’t have the time or stomach to do themselves. My consultant source said 70-80 per cent of his work involved looking for costs to cut, and he had seen colleagues climb the ladder on the back of struggling industries.
The firms work hard on their images as strategic visionaries rather than scythe-wielders, however. In recent weeks, McKinsey Insights has published reports on refractory gold ores, artificial intelligence and electric vehicle battery design in China.
KPMG even came up with a snappy new cartel in a March publication: the Organisation of Mineral Exporting Countries (OMEC), although it had to tell readers in a footnote that “this grouping may not yet exist, but the point remains: geopolitical power could shift from oil-dominated countries to critical metal-dominated countries”. Sounds like KPMG is just the firm to guide miners into this brave new OMEC world.
Rather than well formatted but silly reports, the real value of a consultant might be knowledge gained from working across the extractive industries. If a company is buying 50 haul trucks, for example, it could be worth paying a firm who knows what the last miner paid Caterpillar (NYSE:CAT) for its specialist kit rather than negotiating in the dark.
Rio Tinto (RIO) has decided even this is not worth the bother. In 2019, former boss Jean-Sebastien Jacques told the Australian Financial Review his company had its own in-house team of consultants that do the same work, without the exorbitant day rates, of course; only bringing in external people for niche jobs.
That perhaps starts to blur the lines of what a consultant is. A company running the government’s track-and-trace programme? That’s a contractor. A colleague from down the hall trying to save the company cash? Sounds like the traditional finance department. How about moving in as prices plunge and companies need help deciding who to let go? Yep, that’s a consultant.
