The Anatomy of a Consulting Firm 02 - Leverage and the People Marketplace

By David Maister

The connection between a firm’s leverage structure and the people marketplace can be captured in a single sentence: people do not join consulting for jobs but for careers. They have strong expectations of progressing through the organization, from grinder to minder to finder, at some pace agreed to (explicitly or implicitly) in advance.

While the pace of progress may not be a rigid one (“up or out in x years”), both the individual and the organization usually share strong expectations about what constitutes a reasonable period of time for each stage of the career path. Individuals who are not promoted within this period will seek greener pastures elsewhere, either by their own choice or career ambitions or at the strong suggestion of the firm.

Few firms offer career positions at the middle-level or junior ranks. Partnership or ownership is usually restricted to those who attain the highest levels. In recent years, however, which have seen a people shortage or “war for talent,” some firms have experimented with offering profit sharing, stock options or other financial incentives to allow those who are not at the highest levels to share in the firm’s overall success. This has not removed the expectation that most staff will continue to strive for promotion to the highest levels.

This promotion system serves an essential screening function for the firm. Not all young professionals hired will develop the project management and client relations skills required at the higher levels. While good initial recruiting procedures may serve to reduce the degree of screening required, they can rarely eliminate the need for the promotion process to serve this important function. The existence of a “risk of not making it” also serves the firm in that it puts a degree of pressure on junior personnel to work hard and succeed.

The promotion incentive is directly influenced by two key dimensions: the normal amount of time spent at each level before being considered for promotion and the “odds of making it” (the proportion of juniors promoted.) For any given rate of growth, a highly leveraged firm (one with a high ratio of juniors to seniors) will offer a lower probability of making it to the top, since there are many juniors seeking to rise and relatively few senior slots opening up. A less leveraged firm at the same rate of growth will need to bring along a higher percentage of its juniors, thus providing a greater promotion incentive.