Status As Strength

Yesterday I offered a theory of (some) management consulting:

Firms often have big obvious misallocations of resources, where … many highest status folks in the firm resist … changes. … If a prestigious outside consulting firm weighs in, that can turn the status tide. Coalitions can often successfully block a CEO initiative, and yet not resist the further support of a prestigious outside consultant. … Good-looking kids from our most prestigious schools … are the cheapest folks you can buy with our most prestigious affiliations.

What is status? One theory is that status is a commonly-seen summary of one’s value as an ally. In places where physical strength is more useful, strength counts more for status. In places where knowing the king is more useful, knowing the king counts more. And so on. But the consulting tale I tell above seems at odds with this theory.

Imagine that status in a firm was a proxy for one’s usefulness as an ally within that firm, summarizing the threats one could credibly make, the people one could fire, the favors one could plausibly call in, etc. And imagine that the current equilibrium was that opponents of change together held more of these useful resources – they successfully blocked change.

Now imagine that the CEO hires an outside consultant who writes a report recommending change. It should be clear to everyone that this outside firm has no direct power within the firm. It cannot fire anyone, go slow on a project, etc. So if status was just a proxy for relevant local abilities, then this consultant should have little status. Thus if a consultant actually does help the CEO by lending status to the CEO’s side, status must be something else.

So I’m led to consider a sticky-feature concept of status. Long ago coalition politics was important, and foragers had to estimate how useful each person would be if they joined a coalition. So our distant ancestors considered a standard set of features, such as strength, intelligence, charisma, etc., that tended then to indicate that someone would be a useful ally. Humans evolved specialized mental modules for making such estimates, and for estimating common perceptions of such estimates.

Today we have inherited such mental modules, and often use them to estimate which side will win a contest of coalitions. And even though relevant abilities have changed somewhat, our inherited expectations about who will win a coalition contest are somewhat self-reinforcing. For example, if we expect that coalitions of taller people tend to win, then we will be reluctant to cross such a coalition, which will tend to make them win. This can be a self-reinforcing focal equilibrium of the coordination game that is coalition politics.

If the features that define status are sticky, being somewhat locked into mental models that estimate which coalitions would win contests, then outside consultants with no formal power inside a firm could still tip the balance of status by siding with a CEO. Celebrities who know little about a product could make us more willing to buy it by endorsing it, and students could gain status via past affiliation with professors who have no power in their future work world.

If students gain status by graduating from prestigious schools, and if employers hire students for the status they add to a work coalition, is school productive? Well in this situation school is privately productive, both for the student and the employer. The employer isn’t inferring a hidden ability, but buying a visible feature. So this isn’t signaling exactly. But on the other hand, it isn’t obviously globally productive. The gain an employer gets from adding status to his coalition may well come at the expense of competing coalitions.

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  • Bryan Willman

    There are actually at least two different uses of consultants – one of which I’ve not seen you write about.

    A. Change agents. What you have been talking about. Why can outsiders help force the issue when, say, the CEO can’t? Whose arm would they help twist – the board. Maybe a union. Analysts? Large investors? Regulators? So it’s not “status” or “influence” in some abstract sense – it’s w.r.t. whoever the power pivots are – the board, the unions, other executives, the city council, etc.

    B. Justifiers. (Ass covering.) Sometimes their role is to look at your watch, and then *loudly announce* what it says. Particularly to the superiors of whomever hired them (management, the board, analysts, shareholders, regulators, etc.)

    [We’re ignoring specialist consultants who are actually experts or at least active participants in something the hiring company doesn’t do or has botched. Outside patent lawyers, various kind of technical experts, etc.]

  • http://juridicalcoherence.blogspot.com Stephen R Diamond

    If you posit that status describes the potential to be a powerful ally today, you run into the contradictions you mention. But if you posit that the factors conferring status were frozen in the stone age, then you’ll find it hard to account for the cultural variability of the sources of status. (For example, that old people are today low status.) This scissors rebuts the conception of status as conferred by power in alliances.

    Maybe it’s time to test that conception against competing hypotheses. Mine is that status is conferred by having things other people want. My evolutionary conjecture is that status served to help repress impulses to seize those things for oneself. The award of status is an antidote to envy—I’m tempted to say, since you have some appreciation of Freud, a _reaction formation_ to envy. (Status reflects degree of _prestige_, whose root the SOED tells us is “origin mid 17th cent. [the sense ‘illusion, conjuring trick’]: from French, literally ‘illusion, glamour,’ from late Latin praestigium ‘illusion,’ from Latin praestigiae (plural) ‘conjuring tricks.’ The transference of meaning occurred by way of the sense ‘dazzling influence, glamour,’ at first depreciatory”—which reflects both the hostility it covers up and its illusory nature, quite unlike power otfer to potential allies.)

    Consider how much more smoothly this explains the enigmas about management consulting. How important was physical attractiveness for alliances? But it’s a plausible object of envy by the ugly old farts who hire the consultants.

    (Another counter-example that comes to mind is Nelson, the school bully in the Simpsons (tv show). Everyone wants him as an ally, but he is low status. This can’t be explained easily by the frozen theory, since popularity, which defines status for school kids, isn’t what determines status in adulthood. The point is that popularity is what kids most want and envy.)

    If my conception is correct, then management consulting is probably a fad. The consulting boom won’t last because it’s based on a misapprehension that time will dispel. Consultants’ roles require that the consulting firms be truly independent of the CEO, which posters point out just isn’t the reality. In time the falsehood will be dispelled, as disconfirmable falsehoods tend to be. This, my conception predicts, will be fatal because one thing that people don’t want is having to kowtow to others. When it’s revealed that consultants are really toadies for the CEOs, the prestige illusion will shatter.

  • http://jseliger.com jseliger

    What is status?

    This sounds like the topic for the book Bryan Caplan has been encouraging you to write.

  • rpl

    Now imagine that the CEO hires an outside consultant who writes a report recommending change. It should be clear to everyone that this outside firm has no direct power within the firm. It cannot fire anyone, go slow on a project, etc. So if status was just a proxy for relevant local abilities, then this consultant should have little status. Thus if a consultant actually does help the CEO by lending status to the CEO’s side, status must be something else.

    Status jockeying notwithstanding, the ground rules of business still require everyone to pretend that the success of the enterprise is their highest priority. When a consultant comes in and blesses a particular plan as best for the business, people opposing it find themselves in an awkward position. Some of them defect rather than risk being exposed as putting their agenda ahead of the success of the company. Thus, the consultants’ status comes from their (purported) neutrality and expertise, which allows them to portray themselves as honest brokers (whether or not they actually are).

  • jb

    Alternative theory: Ass-covering.

    The CEO wants what he wants. But if he executes his strategy and it fails, he loses status and looks bad and possibly gets replaced. But if he pays consultants a lot of money, and they recommend his strategy, and it fails, he has some “cover” to avoid the negative consequences.

    I like the idea of consultants as ‘unbiased observers, breaking a corporate logjam’, but in my experience, this is usually just a facade.

    • http://www.ramblingperfectionist.wordpress.com ramblingperfectionist

      I was going to make a variant of this point. They DO have power by virtue of their residual “frozen” status as experts. It’s not the “kids” themselves that have this power, of course, but the institution behind them. This power comes from the fact that if they recommend a course of action, the board or powerful insiders of whatever nature oppose them and get their way, and later it turns out that what the consultants had said was indeed correct, then those guys are a bit screwed.

  • http://hanson.gmu.edu Robin Hanson

    Bryan, my story doesn’t depend much on whether opposing coalitions prevent change or create change.

    Stephen, the sticky factors can still be modifiable by culture. For example, one of the factors could be about who has the shiniest baubles, or which high status folks have been seen with you. Culture can modify who gets the baubles and who is seen with who.

    rpl and jb, it is a problem for the theory that consultants mainly offer useful info when their advice is known to be made by kids who knew nothing about the industry before a few months ago.

    • Finch

      > rpl and jb, it is a problem for the theory that consultants mainly offer useful
      > info when their advice is known to be made by kids who knew nothing
      > about the industry before a few months ago.

      How much of the advice-creating are those kids doing, versus the interviewing, slide-deck making, and model-fiddling? To an extent they exist to put polish on the work of the senior folk. The senior folk can’t possibly look at all the data in a complex real-world problem, so they build an apparatus to surround them and extend their capability. But they are still the ones making the judgments.

      • Someone from the other side

        Sadly way too much of the grunt work.

        And yes, often it is about getting over opposition, reconciling differences between departments etc – from wherever it may come.

        However, sometimes the CEO IS told he is wrong (that just usually does not make it to paper) as consulting firms do not want to be seen giving faulty advice that then blows up and makes it to the press – reputation is tantamount, after all.

    • JL

      I think you are ignoring the “alliance” aspect.

      The CEO and his inside team have the internal business knowledge to justify the change. They will tell the consultant what they want to accomplish.

      The consultant merely justifies their case using external references: academic knowledge, industry best practices, government regulations and experience of the consulting firm with previous clients.

      And this brings the opposing coalition in the awkward position. Previously, they were on equal footing with the CEO: both camps know the business and the industry and justify their position based on this knowledge.

      But the consultant invalidates the opposing coalition by showing that what the CEO wants is in line with modern best practices. This implies that what the opposing coalition wants is not in line with best practices.

      For this task you need somebody who is quick and smart: he must quickly and correctly understand the stakes and then write a report to justify the position based on authoritative sources.

      Finally, about the looks: Young people look good and smart young people have figured out how to “dress to impress”.

      Unless you are hideously deformed it’s not hard to look good: manage your weight, buy a suit, get a trendy haircut and groom yourself. If necessary, wear braces and/or treat acne.

      If you do that, then you *will* look good. Maybe not Hollywood-level good, but certainly consultant-level good.

  • Alex

    What about outside consultants as changers of the playing-field?

    Someone working at the company is less likely to affect your external status – the company will show a unified face to the outside world.

    You might find friends, extended network members, potential future employers, investors/clients/etc… changing their opinion about you if you act against the advice of a high status external consultant.

    • JL

      Yes,

      I also think that by hiring expensive consultants firms can:

      -Signal that they are succesful (have money to burn)
      -Network with young people who have a high potential of becoming influential in the future

  • http://webtrough.wordpress.com DW

    The interaction of productivity and status is an interesting puzzle. How about Tyler’s plea for raising the status of science as a way of enhancing global productivity?

    Highly productive firms raise the status of their employees, but are these firms productive because they hire high status employees?

    At the margin, status definitely helps salespeople sell but probably doesn’t help engineers engineer.

  • http://lukeparrish.rationalsites.com/ Luke Parrish

    One thing that springs to mind is that an outside consultant has nothing to gain by cooperating with coalition insiders (since it doesn’t have the relationship with them to expect quid pro quo), so is more likely to defect in prisoner’s dilemma situations with them, e.g. refuse to ignore negative empirical data about something they are doing, in return for small rewards.

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