Soon after I began teaching strategy at the University of Oxford's Saïd Business School, one of the MBAs whom I supervised came to talk with me. The economic downturn in 2000 had left most of the business school students scrambling to find jobs when only a year before they would have been considering offers from several well-known employers. The student began by describing his work experience; he had served as a general manager both in his family business and also in another traditional company before he decided to pursue an MBA. The man, in his mid-twenties, explained that he was having a difficult time finding a job in either a management consulting firm or in an investment bank because neither group of professional service firms was hiring during the current recession. Did I have any suggestions or contacts that I could offer him?

My initial response was simple and reasonable, or so I thought. Given his work experience and the fact that he was so clearly a superb general manager, why wasn't he looking for a challenging job within an industrial company that would suit his newly acquired “Master of Business Administration” degree? The student smiled at me and indulged my naïveté by replying that if he had really wanted another job in industry, why would he have spent all that time and money to acquire an MBA?

One of the distinguishing characteristics of the American federal government since 1945 has been its amalgamation of administrative capabilities with professional expertise, a combination that historian Brian Balogh has labeled “the proministrative state.” Federal bureaucrats and independent professionals, although initially wary of one another, united during the postwar era to take on emerging technological and administrative challenges. Government officials in concert with professional experts promoted commercial nuclear power through the Atomic Energy Commission, oversaw advances in medical research through the National Institutes of Health, and worked to stabilize the economy through the Council of Economic Advisors. Balogh has described how these internal experts, however, eventually lost political power in the 1970s as grassroots organizations entered the political fray with their own “independent” experts, challenging the entrenched authority of professionals employed within the bureaucratic agencies of the American state.

This description of the proministrative state is extremely useful, but it overlooks a crucial paradox of the federal government in the postwar era: its remarkable lack of growth during a time of constantly expanding responsibilities. Although the number of state and local government employees in the United States more than tripled from a postwar base of 3.8 million in 1947 to 12 million in 1975, the number of federal civilian employees rose less than 50 percent from 2 million to 2.9 million over the same period.

In 1930, Business Week introduced its readers to a new professional service: management consulting. As the writers at Business Week explained, the existing system of business professionals had become so complicated that, according to James McKinsey at the University of Chicago, a new type of professional was “increasing in numbers and influence … the advisor that tells business what other advisors to use and when.” Although Business Week would go on to chronicle the rise of management consulting over the next seventy years, consultants struggled to explain to the public what service they performed, particularly as the world's newest profession kept expanding faster than the wider American economy.

Since the 1930s, observers have repeatedly been surprised by the growth of management consulting. In 1965, Business Week commented with astonishment that there was one consultant for every hundred salaried managers. By 1995, the ratio stood at one for every thirteen. “Will the growth of consulting finally stop,” people were prone to ask, “when every manager employs their own personal consultant?” The sheer number of consultants nowadays may be striking, but their relative increase is particularly interesting when one wonders, following Peter Drucker's lead: “Why management consultants” at all? In other words, why should executives routinely employ outsiders to advise them on administrative issues about which they, presumably, are themselves the experts? Or, following the language of economists, why do executives employ external advisors to span the boundaries of the firm?

No event made management consulting more visible than the collapse of Enron in 2001. Unlike the other corporate failures after the “New Economy” stock market crashed in 2000, Enron's bankruptcy was followed by breathless descriptions of late-night shredding of documents by Arthur Andersen employees. The story captivated the public in a way that no other corporate bankruptcy had. As Arthur Andersen's international partnership broke apart in 2002 under the threat of criminal indictment in the United States, public officials in America explicitly linked Andersen's malfeasance to the inherent conflict of interest between the firm's $27 million in management consulting fees for Enron and the $25 million that Andersen earned from Enron for its audit work. In 2002, for example, The Wall Street Journal highlighted the fact that more than 85 percent of the Dow Jones Industrial companies, “paid their auditors more for consulting, tax, and other services than for the company's audit.” It was no coincidence, therefore, that Congress wrote into the Sarbanes-Oxley Corporate Reform Act (which followed the collapse of Arthur Andersen), language that specifically barred accounting firms from offering consulting within any company in which they were simultaneously performing an audit. Following the public outcry and regulatory changes, the large accounting firms divested themselves of their consulting divisions, effectively ending the ascendancy of the multidisciplinary professional service firms.

Since the 1920s, management consultants have reorganized the largest institutions in the world, including IBM, The University of California, Shell Oil, Congress, Westinghouse, and the Bank of England. Listing their important clients, however, sidesteps the obvious question: “how have consultants mattered?” The case of Lukens Steel, which was purchased by Bethlehem Steel in 1997, is a particularly useful case-study of the efficacy of management consultants, because executives at Lukens corresponded with, and hired, many of the best-known consulting firms from 1912 through 1970. These consulting firms included: Harrington Emerson & Company; International Bedaux Company; Arthur D. Little, Inc.; Robert Heller & Associates; Arthur Andersen & Company; and Booz •Allen & Hamilton. Using Lukens's internal records, this chapter will analyze the continuing influence of management consultants on a medium-sized industrial firm that was always better known for its traditional production than for rapid changes in its organization or technology.

A Brief History of Lukens Steel

Lukens, founded over 170 years ago in Coatesville, Pennsylvania traditionally produced one major product: plate steel. Throughout the twentieth century, Lukens trailed the two largest manufacturers of plate steel, U.S. Steel and Republic Steel. U.S. Steel and Republic, both nationally known, vertically integrated steel producers, made a range of plate steels. But the two industrial giants focused on high volume, low-cost steel. Lukens, by contrast, remained a specialty competitor focused on high quality, batch production with consistently higher costs than the market leaders.

By 1960, the three leading management consulting firms in the United States – Booz Allen & Hamilton, Cresap, McCormick and Paget, and McKinsey & Company – had reached the height of their power. Not necessarily the largest consultancies, these three firms oversaw the most prestigious assignments and referred to themselves, like the American automobile oligopoly, as the “big three” of management consulting firms. As the journalists at Forbes magazine explained in a feature article on Booz Allen & Hamilton:

Like the “big three” automotive manufacturers, this elite “club” of consulting firms exercised significant economic influence and power. As management consulting firms, like the large law, accounting, and engineering firms, became a crucial element of the institutional infrastructure that undergirded the American economy, the leading management consulting firms commanded greater respect and authority. Thus, when these leading firms expanded overseas in the early 1960s, consultants not only transferred American managerial models but also the American institutional system that had routinized the use of management consultants within large organizations.

In retrospect, the big three consulting firms reached the height of their influence in the United States during the early 1960s.

In the 1950s, only two groups – management consultants and the American Internal Revenue Service (IRS) – viewed “nonprofits” as a distinct sector of the economy, and both hoped to find profit in these nonprofits. While the IRS worried that federal tax receipts would decline because of the rapid growth of these tax-exempt institutions, management consultants from Cresap, McCormick and Paget worked to create a niche for the sale of their organizational advice by targeting what they labeled for the first time in 1955, in a promotional brochure, “nonprofit organizations.” By the time they published their brochure, Cresap, McCormick and Paget, one of the three leading U.S. management consulting firms, had reorganized dozens of nonprofit organizations including St. Paul's School (1948), the New York Public Library (1949), Yale University (1950), the Republican Party (1951), the Presbyterian Church of the U.S.A. (1952), the Rockefeller Institute for Medical Research (1953), the American Civil Liberties Union (1954), and the Metropolitan Museum of Art (1955). Although these organizations did not yet see themselves as a unified “third sector” of the American economy, the consultants at Cresap, McCormick and Paget understood that this was a distinct sector of the economy – one with growing power and substantial potential profits for consultants.

The management consultants at Cresap, McCormick and Paget had good reasons for focusing on nonprofit institutions in the 1940s and 1950s.

At the end of the twentieth century, academic and journalistic coverage of consulting took off as the leading management consulting firms exploded in size and prominence. After Business Week's cover proclaimed that there was an ongoing “Craze for Consultants,” journalists published a popular exposé on management gurus, The Witch Doctors, and a tell-all book on the large consulting firms, Dangerous Company. Simultaneously academics, emboldened by the “critical management studies” movement in business schools, began to analyze the broad theoretical and institutional implications of the rapid growth in management consulting. This swell of interest in management consulting stood in stark contrast to the isolated, intermittent studies that had preceded it. Ever since the modern form of management consulting had first emerged in the 1930s, the academic analysis of consulting had not only been sporadic, but also disconnected from the preceding scholarship. In the 1990s, however, management consulting became the focus of an active group of scholars across a variety of academic disciplines. Management consulting finally had a serious academic following even if consultants still viewed the field's development as a recent phenomenon.

This new scholarship on consulting took a different tack from the older, spasmodic analysis. In the 1950s, when Richard Paget, of Cresap McCormick and Paget, addressed the management consultants at Booz Allen & Hamilton on the anniversary of the firm's founding and Homer Hagedorn, a doctoral student in history at Harvard, wrote his thesis on the historical evolution of consulting, they each analyzed the extent to which consultants had achieved professional status.

When the editors of Fortune magazine published, in 1944, a feature on the increasing importance of management consulting, the article included a perfunctory description of the field's origins. As the Fortune writer explained, “its development in the U.S. started with Frederick W. Taylor, Henry L. Gantt, Harrington Emerson, and other pioneers of scientific management.” This first popular magazine article profiling management consulting in America set the presumed genealogy. Subsequent journalists, historians, and consultants would all presume the same lineage, pointing out that the early efficiency engineers “pioneered the use of scientific management principles” and, more generally, that the craze for scientific management predated the general rise of management consulting as a distinct subject. This presumed lineage, however, was based on circumstantial evidence and was misleading.

Instead of evolving from Taylorist firms, from the 1930s on, the leading management consultancies in the United States had little or no connection with scientific management. If the staff at Fortune had investigated the backgrounds of the eleven leading consultants whom they profiled in their 1944 article, they would have noticed that only one, Wallace Clark, had any ideological or institutional ties with Taylorism and, not coincidentally, only Wallace Clark & Company among those profiled had largely forsaken the United States, by the 1940s, to pursue clients in Europe. Although there was a connection in the United States between the modern form of management consulting and the development of Taylorism through their mutual involvement in cost accounting, that institutional legacy was less direct than casual observers have routinely presumed.

Management theorists spent much of the 1980s and 1990s analyzing “corporate culture,” the unique culture of a company or, more generally, the culture of white-collar work, with considerable success. Their scholarship on corporate culture, in turn, spilled over into other academic disciplines with historians tracing the paternalism of big business, economists analyzing how shared values foster economic efficiency, and cultural critics attacking the hegemonic influence of American capitalism. But research on corporate cultures was not purely academic, for it was chiefly management consultants from McKinsey & Company, alongside academic theorists sponsored by McKinsey, who first popularized the concept of “corporate cultures.” Although “softer” managerial concerns about the impact of social factors on organizational efficiency predate Elton Mayo's studies at Western Electric in the 1930s, the particular phrase “corporate culture” gained momentum through a trio of influential management books published in the early 1980s that the consultants from McKinsey & Company underwrote. The best-known of these books, Thomas Peters and Robert Waterman's In Search of Excellence, written when both men were partners at McKinsey, eventually sold over five million copies. As a journalist from the New York Times wrote in 1983: