In 2024, New York City, hired one of the<br>world's largest consulting firms to give<br>them advice on one of the city's most<br>pressing issues, how to put rubbish in a<br>bin. McKenzie, the firm in question,<br>came back with a shining 80page deck,<br>all centered around the novel idea<br>called containerization, and its<br>benefits, which included, but were not<br>limited to, getting rid of rats, cleaner<br>streets, and less clutter for<br>pedestrians. While getting a 20-some<br>year old grad to make rubbish bins seem<br>innovative might sound like a joke, the<br>report cost the government a hefty $4<br>million, equivalent to $42,000 per<br>slide. This is of course a somewhat<br>extreme example, but these firms have<br>been getting away with dressing up<br>obvious advice as strategic realignment<br>and stakeholder management for decades.<br>That is until the last couple of years.<br>>> At this point, McKenzie is a total<br>racket. It's just all fake. Names like<br>McKenzie, PWC, and Deote are all cutting<br>their consulting workforce. So, what<br>happened to the industry? After all,<br>just a few years ago, most graduates<br>would give anything for an internship at<br>one of these firms. You might think the<br>industry is just another victim of the<br>AI revolution. While that's in part<br>true, there's actually a lot more going<br>on here. Because for the past few<br>decades, the industry has constantly had<br>to reinvent itself. But doing that comes<br>with risks, and phones are only just now<br>starting to pay the price. Deote used<br>artificial intelligence to prepare a<br>report. The<br>>> University of Sydney welfare academic<br>Chris Rajshu discovered the errors in<br>the report.<br>>> Management consulting firm McKenzie that<br>has laid off 2,000 employees.<br>>> As laughable as the consulting industry<br>might seem today, there was once a time<br>when it was considered one of the most<br>useful industries in America. Back in<br>the 1990s, businesses genuinely needed<br>consultants for the simple reason that<br>most businesses were really badly run.<br>At the time, the US was embracing<br>deregulation with almost religious<br>intensity, tearing down rules that kept<br>industries in check for decades. The<br>results were dramatic. Entire sectors<br>suddenly opened up with companies free<br>to expand in ways that had previously<br>been off limits. In less than a decade,<br>the annual value of mergers and<br>acquisitions ballooned from about 200<br>billion to more than $1.7 trillion, more<br>than the entire GDP of Canada. In many<br>ways, these mergers made companies<br>stronger, but they also made a mess so<br>big it gave rise to an entire industry.<br>Suddenly, companies were stuck with two<br>finance departments, two HR teams, two<br>marketing divisions, and nobody quite<br>sure which ones were actually necessary.<br>If you kept them all, the companies<br>became bloated and inefficient. But if<br>you cut the wrong one, the whole machine<br>would stop working. And that's where<br>consultants came in. Their skill set was<br>basically going into these companies<br>after a merger, working out what bits<br>needed to stay and what parts could be<br>cut without any real consequence. Thanks<br>this wave of post merger cleanups,<br>consultancies became hugely profitable<br>businesses. And by the late 1990s, firms<br>like McKenzie and BCG had become<br>permanent fixtures of corporate America.<br>But unfortunately for consultants, they<br>were also digging their own grave.<br>Scandals like Enron, which worked out<br>$60 billion in shareholder value, ended<br>up forcing the government to reintroduce<br>the very same rules they had been<br>cutting just a couple of decades<br>earlier. This quickly put a stop to the<br>mad rush of deals that had been<br>happening across the country. And in<br>just a couple of years, the industry<br>lost nearly 2/3 of its value. When the<br>merger gold rush ended, you might expect<br>that consultants would just fade into<br>irrelevance. But instead, they pulled<br>off one of the greatest pivots in<br>corporate history, selling their<br>services to governments. By the 2000s,<br>the government's workforce had nearly<br>doubled. And with that rapid growth came<br>huge inefficiencies. So officials turned<br>to consultants to try and fix this,<br>hoping that their advice would help sort<br>out the bureaucracy. Over the course of<br>a few years, US federal spending on<br>outside management consultants tripled.<br>On the surface, this looked like the<br>perfect business opportunity, but it<br>also planted the seeds of the industry's<br>downfall. the point where consulting<br>began drifting away from being a serious<br>business service and towards the<br>punchline we think of today. In 2012,<br>the US Air Force scrapped a project<br>called the Expeditionary Combat Support<br>System. After nearly a decade of work<br>and more than a billion dollars spent<br>largely on consulting fees, it produced<br>nothing. The system had been designed to<br>replace 200 separate databases with one<br>streamlined platform. But it collapsed<br>under endless delays and mismanagement.<br>And yet no single consultant or<br>department paid the price. The point is<br>in government contracts accountability<br>was so diffuse that even billiondoll<br>disasters had no clear culprit.<br>Consulting firms figured this out pretty<br>quickly. And unlike in the private<br>sectors, bad recommendations didn't<br>threaten their reputation. For<br>consultancies, this was the dream. Not<br>only did this shield them from<br>responsibility when projects failed, but<br>as long as they weren't actually solving<br>the government's problems, they could<br>keep coming back for more contracts. Of<br>course, building your entire business<br>model around giving advice without<br>consequences is a pretty risky<br>foundation. If a new technology comes<br>along that can actually solve those<br>problems, then suddenly you don't have a<br>business anymore. But anyways, year<br>after year, the amount being spent on<br>these contracts continued to grow<br>despite the fact the sheer amount of<br>waste didn't seem to be getting any<br>better. Unsurprisingly, it was around<br>this time that we saw the rise of what<br>we now call corporate speak. Take a look<br>at this slide. Develop value creating<br>partnerships. Build a clear mission.<br>Develop strategies to create sustainable<br>related opportunities. These words are<br>the output of million-dollar contracts,<br>but it's not actually like they mean<br>anything. But with a fancy graph and a<br>complimentary color tone, it seems like<br>the advice must be valuable. And it was<br>around this time we saw the explosive<br>rise of the big four management<br>consultancies. Firms whose job in theory<br>is to advise the world's biggest<br>companies and governments on how to run<br>more efficiently. Whether that's<br>restructuring, cost cutting, or entire<br>business strategies. The obvious irony<br>being that these firms quickly became<br>part of the costs that they were<br>supposed to cut. But companies kept<br>bringing them in because they gave<br>executives an easy safety net. As any<br>tough decision could now be justified by<br>saying, "Well, McKenzie said we should<br>do it." Whenever firms needed to lay off<br>staff, spin off a division, or justify a<br>big merger, they'd bring in consultants.<br>That might sound absurd as a business,<br>and in many ways it is. But as long as<br>the firms maintain an illusion of<br>prestige, it just about works. The<br>problem is, after decades of charging<br>millions for advice that wasn't actually<br>useful, people do eventually start to<br>notice. A 2024 survey found that only<br>13% of businesses felt that consultants<br>were actually doing more good than harm.<br>By this point, growth had stalled, staff<br>were being laid off, and even the most<br>prestigious firms were quietly admitting<br>that demand for their services was<br>drying up. But just as the industry<br>looked like it was on its last legs, it<br>got thrown an unlikely lifeline, AI.<br>For decades, a classic consulting<br>assignment was market entry analysis. A<br>firm like Mckenzie would parachute in a<br>team of Ivy League graduates and MBAs<br>who'd spend weeks interviewing staff,<br>cleaning spreadsheets, and building<br>sprawling financial models. Companies<br>paid millions for it. But now, large<br>language models have burst onto the<br>scene, and suddenly much of the same<br>grunt work could be done in minutes. But<br>of course, it does come with a catch. In<br>2023, Accenture landed a $75 million<br>contract with the US Patent and<br>Trademark Office to embed AI into its<br>patent examination process. The pitch<br>was classic consultancy. Machine<br>learning would scan millions of<br>documents, making the system faster and<br>more accurate. But instead, the system<br>routinely mclassified applications,<br>missing obvious prior patents, and even<br>hallucinated entire references. It<br>performed so badly that the office<br>eventually banned generative AI<br>outright. This failure isn't isolated.<br>It captures the bind consulting firms<br>are in. Reports suggest roughly 27% of<br>their tasks are directly automatable<br>with today's AI. And Deote admits its<br>own work is already being replaced from<br>market analysis to risk modeling. And<br>yet the very technology getting their<br>old business model is also the one<br>they're supposed to be selling to new<br>clients. McKenzie has already felt the<br>consequences. In the last 18 months<br>alone, it was forced to cut 10% of its<br>workforce. And these weren't<br>underperforming back office roles. They<br>were consultants whose bread and butter<br>was exactly the kind of analysis AI now<br>automates in minutes. On paper, guiding<br>companies through disruptive change is<br>what consulting firms were built to do.<br>But in practice, it's just exposing how<br>thin their value proposition has become.<br>This isn't just a one-off. A recent<br>study found that 90% of AI<br>implementation projects fail to meet<br>business objectives and 42% of companies<br>abandon the efforts after less than a<br>year. For the firms that claim to be<br>selling expert advice, it's a pretty<br>awful track record. That's not to say<br>there isn't a lot of good that AI<br>projects can do in theory. MK, the<br>world's largest shipping company,<br>recently stated they've used AI to<br>forecast port congestion weeks in<br>advance. A move that is saving the<br>company over $300 million every year by<br>avoiding costly delays. So why do so<br>many consultancy-led projects fall flat?<br>Part of the problem is that actually<br>pulling off these implementations<br>requires deep expertise in AI which is<br>something today's consultancies don't<br>have. The real talent isn't sitting at a<br>deote office or a McKenzie slide deck.<br>It's inside the research labs at places<br>like OpenAI or Anthropic. And that<br>leaves consultancy stuck in a strange<br>position. AI has managed to make the<br>majority of their old services obsolete.<br>And at the same time, it's one of the<br>few technologies they've actually<br>struggled to sell their advice on. Put<br>those together and you get a dangerous<br>feedback loop. Consulting firms relied<br>on attracting the best and brightest<br>graduates. But with AI exposing the<br>industry as far less prestigious, top<br>talent is now heading to tech, finance,<br>and engineering instead. Without that<br>talent, those glossy slide decks start<br>to look suspiciously overpriced. What<br>the downfall of consulting really<br>highlights is a broader principle that<br>runs through almost every industry.<br>Businesses can survive for years,<br>sometimes decades, by selling an image<br>of value rather than delivering the<br>thing itself. As long as nobody has a<br>clear way of measuring outcomes, that<br>illusion can hold. But the moment a new<br>tech arrives that makes those outcomes<br>visible or cheaper to achieve, the whole<br>model starts to unravel. Consulting<br>isn't unique here. We've seen the same<br>thing with travel agents after online<br>booking, stock brokers after free<br>trading apps, and even parts of higher<br>education now facing pressure from<br>online learning. The point is, these<br>models work only as long as the tools to<br>see through it don't exist. And once<br>they do, no amount of glossy branding<br>can hide their cracks.