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Thursday, May 16, 2013

To the brainy, the spoils


Economist: ... Big trends that befuddle clients mean big money for clever consultants. Barack Obama’s gazillion-page health reform has boosted health-care consulting; firms would rather pay up than read the blasted thing. The Dodd-Frank financial reform has done the same for financial-sector work. Energy and technology are hot, too.

Companies are reluctant to talk about their use of consultants, and consultancies are relentlessly tight-lipped. Bain is said to use code-names for clients even in internal discussions. Such secrecy makes this a hard industry to analyse.

It also lets stereotypes flourish. McKinseyites are said to be “vainies” (who come and lecture clients on the McKinsey way). BCG people are “brainies” (who spout academic theory). And the “Bainies” have a reputation for throwing bodies at delivering quick bottom-line results for clients. ...
See here for discussion of hiring practices at what I refer to as "soft-elite" firms such as consultancies.
...

4) In Rivera's research school prestige was the number one signal used by soft elite firms in evaluating prospective hires. Extracurricular activities came in second, but this is probably just a way to differentiate between applicants who have already been filtered using school prestige.

5) It is odd that the soft firms, which market themselves to clients as being super-smart repositories of brainpower (of course this is largely a fiction; see point 3 above), would rely so heavily on university admissions committees. They effectively outsource a big chunk of due diligence on their most important investment (human capital) to a group of people whose judgement they somehow trust, but perhaps without detailed understanding. When I was on the faculty at Yale I knew people in admissions and it's not clear to me that they were the best able to spot potential in 18 year olds. In studies of expert performance admissions people are less good at predicting UG GPA than a simple algorithm. (The "algorithm" is simply a weighted sum of SAT and HS GPA!)

But this doesn't matter if the success of HYPS grads becomes a self-fulfilling prophecy. Once soft elite firms and large parts of the rest of society (in particular, clients) have accepted the idea that elite universities should be trusted to do the filtering, these schools will automatically produce large numbers of successful alumni -- the imprimatur itself has value. The outsourcing of human capital filtering is more dangerous for hard elite firms, with their more objective criteria: if they find that Yale grads aren't actually any good at pricing derivatives, writing code or designing chips, then they'll have to adopt a different filter. Fortunately, since even the dumbed down SAT is still pretty g loaded, hard elite firms can be confident that the lion's share of top talent is at elite universities.
An excerpt from Lauren Rivera's article on elite firm hiring:
... In addition to such an intelligence-based perspective on university admissions, evaluators frequently adopted an instrumental and unconstrained view of university enrollment, perceiving that students typically “go to the best school they got into” (lawyer, Hispanic, male). Consequently, in the minds of evaluators, prestige rankings provided a quick way to sort candidates by “brainpower.” When sorting the “mock” resumes, an investment banking recruiter (white, female) charged with screening resumes at her firm revealed how such assumptions played out in application review. She remarked, “Her [Sarah's] grades are lower but she went to Harvard so she's definitely well-endowed in the brain category…Jonathan… went to Princeton, so he clearly didn’t get the short end of the stick in terms of smarts.” This halo effect of school prestige, combined with the prevalent belief that the daily work performed within professional service firms was “not rocket science” (see Rivera, 2010a) gave evaluators confidence that the possession of an elite credential was a sufficient signal of a candidate's ability to perform the analytical capacities of the job. Even in the quantitatively rigorous field of consulting [HA HA HA], a junior partner (white, male) asserted, “I’ve come to the stage where I trust that if the person has gone to Wharton, they can do math.”

By contrast, failure to attend an “elite” school, as conceptualized by evaluators, was an indicator of intellectual failure, regardless of a student's grades or standardized test scores. Many evaluators believed that high achieving students at lesser ranked institutions “didn’t get in to a good school,” must have “slipped up,” or otherwise warranted a “question mark” around their analytical abilities. ...

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