1. Introduction: Explosive Growth and Negative Publicity for Management Consultancies over Decades
Over the past few decades, consultants have faced critical scrutiny regarding the value added to client firms and their impact on the broader economy. In the 2000s, several revealing books sharply criticized consultants’ practices (e.g., Craig, 2005; Kihn, 2006). Around the same time, a number of scandals emerged, allegedly due to flawed consultancy advice. One notable case was Swissair, where McKinsey & Company advised the airline on its strategy, which led to significant financial strain and eventually contributed to Swissair’s bankruptcy in 2001. Another prominent case in the same year was Enron, where Arthur Andersen provided both auditing and consulting services. Enron’s collapse, due to deceptive accounting practices, also led to the dissolution of Arthur Andersen. More recently, consultants have been accused of undermining their clients’ interests by “hollowing out” client organizations, advising them, for example, on massive outsourcing, while benefiting afterward as providers of outsourced services, which is overall regarded as a “confidence trick” (Mazzucato & Collington, 2023).
Despite this negative publicity, the demand for consultants from both the private and public sectors has surged over the last decades. Between 2005 and 2023, the global consulting market has tripled in size (Global Data, 2023). The three major strategy consulting firms have even surpassed this overall market growth. It is estimated that McKinsey has grown by a factor of 4, Bain by a factor of 5, and BCG by a factor of 9, based on self-reported revenue figures by the consultancies.
There are several lines of explanation for the continuous above-average growth of the consulting industry. Ernst and Kieser (2002) point to the important functions of consultants in the light of dynamic economic developments, among which are transfer and capacity as well as political and legitimization functions, all in essence to remedy clients’ fear of control loss. Kieser further states that companies adopt consulting practices not only for their intrinsic value but also to align with the latest management fads and thus maintain legitimacy in the business community (2002). In line with Kühl (2008), Kieser additionally points out that on a personal basis, consultants build collaborative ensembles with client managers in pursuing their individual career goals. Both authors highlight that these ensembles are mutually beneficial when consultants provide innovative solutions and credibility while managers gain recognition and career advancement within their organizations. This symbiotic relationship encourages a continuous exchange of ideas and strategies, fostering career growth for both parties involved. Mazzucato and Collington (2023) suggest that consulting firms have gradually shaped their clients’ decision-making processes to create a reliance on their services. Over time, this influence has made clients dependent on consultants for strategic guidance and problem-solving. This dependency would ensure a continuous demand for consulting services, perpetuating the influence and growth of consulting firms.
Many of these explanations are well in line with concepts of identity theory, according to which consultants and clients engage in collaborative identity work to co-create a shared understanding of their roles and goals. Such joint identity projects facilitate alignment between consultants’ identities as experts and the clients’ identities as proactive, forward-thinking leaders. This shared identity construction can reinforce trust and perceived value in the relationship, boosting consultants’ social capital and enhancing the clients’ status as innovative leaders. Their partnership supports collective strategic narratives and legitimizes the need for cooperation (McGivern, 2013).
In addition, the identity of consulting firms as agents of change who bring structured solutions to uncertain situations is appealing to client organizations facing rapid market shifts or crises. The consultants’ ability to project an identity that embodies continuous adaptability and high strategic competence reassures clients, even when the broader public might view them skeptically (Sturdy et al., 2009).
What is rarely addressed in this context is the dual need for identity stability and flexibility in consulting firms. While social identity theory (SIT) covers identity coherence and stability, little is known about how firms balance these aspects with the flexibility required to thrive in complex, fast-changing environments. The main question for this paper is, therefore, how do management consulting firms balance the need for identity stability with the flexibility required for effective performance in complex and dynamic environments while even facing pressure from poor public image?
In this paper, it is argued that identity regulation plays a crucial role in the continued economic success of major management consulting firms. Identity regulation refers to the processes and strategies employed by organizations to shape and influence the identities of their members. The mechanisms of identity regulation can be explicit, such as through mission statements, codes of conduct, and training programs, or implicit, such as through organizational culture, socialization processes, and leadership behaviors (Alvesson & Willmott, 2002; Nair, 2010). The paper takes a novel, transdisciplinary view on identity regulation, integrating findings from chaos and complexity theory into the debate about organizational identity (OI), which is primarily based on SIT.
In the following, the fundamental building blocks of OI, with a main focus on SIT and its applications to professional service firms and especially management consultancies, are presented. Afterward, the basics of chaos and complexity theory are introduced; then, thirdly, the dynamics of OI regulation in management consultancies from the perspective of complexity science are described. Here, the metaphor of the edge of chaos is suggested to illustratively describe the dynamic development and regulation of OI in top management consulting firms. The edge of chaos denotes a situation between order and disorder, enabling the emergence of novel structures and adaptive behaviors. It is proposed that exactly this state enables consulting firms to constantly adapt to new requirements from the external sphere while keeping a stable (identity) perception as elite professional service providers who are worth hiring at the cost of high fees and despite negative publicity. Consultancies may achieve this on a temporal as well as a spatial dimension. The first means to allow for short phases of instability (implementing, for example, major organizational changes), which are followed by longer stable phases afterward. The second can be achieved by organizing experimental “islands of instability,” such as spin-offs or competence centers, which have their own rules and are rather disconnected from the main operations.
2. Foundations
2.1. Fundamentals of Organizational Identity
In this section, fundamental elements of OI theory are introduced, starting with the definition of OI. In their seminal article, Albert and Whetten define OI as those attributes that are simultaneously “central, enduring and distinctive” to an organization (Albert & Whetten, 1985, p. 265). These attributes serve as “identity referents” (Whetten, 2006, p. 228), guiding organizational members in their actions, communications, and decision-making processes. Identity referents can include technologies, product qualities, business activities, leadership styles, organizational structures, and the values of management and employees (Balmer & Greyser, 2002). They comprise (1) what the organization formally claims, (2) the identity beliefs of stakeholders, and (3) the organization’s identity aspirations (Lerpold et al., 2007). Examples are Bang & Olufsen’s company and product attributes (“imagination, full aesthetic experience, uncompromising quality, and simplicity of form and function,” according to Ravasi & Schultz, 2006, p. 111) in the 1990s.
Regarding their identity, organizations must be similar enough to their category (e.g., a particular business sector like management consulting) to be perceived as legitimate (King & Whetten, 2008; Navis & Glynn, 2010). However, they must also possess distinct differences to achieve competitive advantage (Whetten, 2006)—an “optimal distinctiveness” (Brewer, 1991, p. 477) and “strategic balance” (Deephouse, 1999, p. 147) between similarity with and difference from other category members.
At this strategic balance, OI is crucial for legitimizing everyday practices, routines, and policies (Lerpold et al., 2007), as well as for individuals making sense of their organizational membership. According to SIT, personal identity at the micro level links to OI at the macro level through identification, which means that identity referents overlap between the two levels (Cole & Bruch, 2006). Individuals continuously categorize themselves to indicate their identification with a group, a process defined as “the perception of oneness with or belongingness to some human aggregate” (Ashforth & Mael, 1989, p. 21). Identification can lead to the incorporation of group values and norms, resulting in homogeneous attitudes and behaviors. Organizational members use “interorganizational comparisons” (Albert & Whetten, 2004, p. 93) to define their identity. Extensive socialization processes within organizations also inspire stronger identification (Zaheer et al., 2003), driven by the desire to enhance self-esteem (Hogg & Terry, 2000). A good reputation or prestige of a group increases motivation for identification (Whetten & Mackey, 2002), while a bad one can also lead to embarrassment and frustration (Dutton & Dukerich, 1991).
As OI applies to individual, organizational, and business network levels, dual or multiple identities often exist (Greenwood et al., 2011; Kraatz & Block, 2008). Albert and Whetten (1985) noted the existence of hybrid identities, distinguishing between ideographic and holographic forms. Ideographic identities arise when different perceptions of central, enduring, and distinctive attributes exist in different organizational parts. Holographic forms are hybrid identities present throughout every part of the organization.
From the perspective of organizational leaders, OI also serves as a means of normative control (Alvesson & Willmott, 2002), allowing the infusion of organizational aims, values, and beliefs (Nair, 2010). Leaders are interested in so-called identity regulation, which is a mode of control that is “accomplished through the self-positioning of employees within managerially inspired discourses about work and organization with which they become more or less identified and committed” (Alvesson & Willmott, 2002, p. 620). Despite its importance, systematic research on the formation and development of OI, which is also crucial to understanding its regulation, is still scarce. Fundamental in this respect is Mead’s model of personal identity. According to Mead (1934/2004), personal identity develops through a social and dynamic process involving the ‘I’ and the ‘me.’ While the ‘me’ represents learned societal behaviors and expectations about oneself, the ‘I’ represents the individual’s response to social behaviors and expectations. Based on Mead’s model, Hatch and Schultz (2002) describe OI construction as a “dance” between organizational culture and image, involving four processes: mirroring, reflecting, expressing, and impressing.
The mirroring process involves reflecting the image perceived by external stakeholders, leading to a construed external image. Hatch and Schultz argue that stakeholder images directly impact identity, bypassing employees’ cognitive filtering. The impressing phase bridges identity and image by sending messages to shape external perceptions, integrating identity notions into these impressions. The ‘I’ aspect is addressed in the reflecting and expressing processes. Reflection integrates identity into the organizational culture’s assumptions and values, providing meaning for artifacts. Organizational culture serves as a reference against which external images are compared, allowing the collective members to reflect on and potentially alter their culture and, hence, OI based on received images. Significant discrepancies between received images and existing identity can pose identity threats. Expressing involves discourses enabling organizational self-expression. Through these discourses, members articulate their organizational identity internally and externally. Organizational culture expresses identity meanings embedded in reflections. Elements like dress codes, corporate rituals, and organizational myths and heroes help construct OI. Overall, a strong OI, resulting from a balance between the ‘I’ and the ‘me’ processes, is supposed to enhance organizational performance. Identity formation and regulation are important in many industries. In this paper, the focus is on professional service firms (PSFs), to which the topic is especially relevant.
2.2. Organizational Identity in Consulting Firms
Pertinent research on OI in PSFs, particularly consulting firms, reveals a focus on elite identity and identification (Alvesson, 2012; Alvesson & Empson, 2008; Alvesson & Kärreman, 2007; Alvesson & Robertson, 2006; Sandberg, 2003). A key finding is that the elite and prestigious identity of management consulting firms enhances the organizational identification of the employees by boosting self-esteem and positive self-categorization (Dutton et al., 1994; Hogg & Terry, 2000). This elitism is intrinsic to consulting due to the industry’s dependence on attracting and retaining top talent (Alvesson, 2012). An elite identity helps draw, keep, and motivate the “best and the brightest” employees (Alvesson & Robertson, 2006, p. 203).
The argumentation goes as follows: Consultants work in complex environments with diverse teams and clients, where results are often ambiguous and quality is difficult to measure (Alvesson, 2012). Strong self-esteem is crucial, as consultants’ competencies can be challenged by clients. Elitism stabilizes self-esteem and maintains reputation, which is essential for success in consulting (Alvesson & Robertson, 2006). However, achieving identification in consulting firms is challenging due to the complex work environment (Alvesson, 2012). Consultants spend more time at client offices than at their own, necessitating relatively strong control mechanisms. Bureaucratic control is limited in such a flexible environment, so normative control, such as elitism, is necessary, fostering identification, commitment, and incorporation of organizational values (Ashforth & Mael, 1989).
Alvesson (2012) emphasizes the elite image as a strong control mechanism in that aligning aspired and actual images ensures appropriate behavior. Kärreman and Rylander (2008) note that branding supports this process by projecting an elite identity and fostering internal identification. In this sense, branding manages meanings, influencing values and beliefs. Alvesson and Robertson (2006) studied the construction of elite identity in four British consulting firms using Hatch and Schultz’s (2002) OI model. They found that both the ‘I’ and the ‘me’ processes are crucial. Impression management and mirroring help members seek external confirmation, while cultural resources, like meaningful artifacts, facilitate internal reflection on OI (also see Alvesson & Robertson, 2006; Kärreman & Alvesson, 2009). Stanske et al. (2017) found that elite identity is especially fostered in professional partnerships (like McKinsey and BCG) compared to managed professional businesses (like KPMG and Accenture). This is mainly achieved through the selection of office locations, organizational routines according to the highest professional standards, and respective discourses.
Over the last few years, new challenges have appeared in identity regulation in consulting firms. First, digitalization has developed fast across the globe. While Christensen et al. have already seen the consulting business at the “cusp of disruption” in 2013, with traditional consulting firms being challenged by new entrants offering specialized services, leveraging digital technology, and thus providing more accessible and affordable solutions, digitalization has continued and transformed the work of consultants ever since: More hours are being worked in home offices, client meetings are held virtually more often, and many services are delivered online. This development has been speeded up by the COVID-19 pandemic, during which personal face-to-face interaction was limited. This obviously gave further rise to the establishment of virtual interactions. In the meantime, consequently, a myriad of consulting platforms such as Malt, 10EQS, or Consultport have been founded and have grown rapidly. Furthermore, demographic and social changes have altered the workplace in terms of employee expectations, especially with regard to work-life balance (Chillakuri, 2020). Members of Gen Z expect workplaces to offer flexibility, including remote work options and adaptable schedules. They also seek meaningful work that aligns with their values, desiring roles that provide a sense of purpose and social impact. This has a major effect on consulting firms that hire hundreds of university graduates as new consultants every year.
Finally, a new stream of critical publications on consulting firms’ practices has emerged. In their widely perceived book, Mazzucato and Collington (2023) claim that consultants have a detrimental effect, “weaken(ing) our businesses, infantiliz(ing) our governments and warp(ing) our economies.” The authors argue that consultants frequently prioritize profit over public good and capitalize on crises and uncertainties, positioning themselves as indispensable while often delivering generic solutions. They supposedly prevent the public sector from developing and maintaining adequate in-house capabilities. Mazzucato and Collington consequently call for greater transparency and accountability, urging governments and organizations to develop internal expertise rather than relying excessively on external consultants.
Given these challenges, it appears more difficult than ever to enforce normative control over employees in a consulting firm. As laid out above, this difficulty specifically arises because, in the digital era, employees often work from home and have fewer in-person interactions with their peers and clients. It is questionable whether the same level of trust can be established in this remote environment as in times of more frequent face-to-face meetings. Additionally, the elite image of consultancies seems to be crumbling, especially when they are accused of exacerbating rather than solving crises. This raises the question of how consulting firms can regulate their identity to remain attractive and manage continued growth, recruiting sufficient numbers of top talent in the future. In this context, I propose that this is achieved by identity regulation at the edge of chaos. The edge of chaos is a concept from complexity theory, which will be introduced in the next chapter for the sake of a transdisciplinary view of the topic at hand.
2.3. Fundamentals of Complexity Theory and the Edge of Chaos
Chaos and complexity theory study dynamic systems that exhibit unpredictable behavior. While chaos theory focuses on deterministic systems that are highly sensitive to initial conditions, resulting in outcomes that appear random and unpredictable despite following defined rules, complexity theory explores how interactions within systems of many interconnected components give rise to emergent properties and behaviors that cannot be predicted solely by analyzing the individual parts.
In the context of organizations, chaos and complexity theory concepts such as emergence, self-organization, and adaptation highlight the importance of creating conditions that allow for adaptation to complex environments, flexibility, and self-organization. Google’s organizational structure reflects such principles; for example, when small, autonomous teams can pursue diverse projects, the “20% time” policy allows for exploration and unexpected innovations one day per week. This is similar to 3M, where employees are allowed to spend 15% of their time on personal projects, which are staffed across different departments. From these interactions, new products often emerge unexpectedly.
More technically speaking, chaos and complexity theory deals with dynamic systems governed by nonlinear relationships between their main system variables. Chaos theory analyzes deterministic nonlinear systems composed of variables and nonlinear equations with structural parameters. Complexity theory builds on chaos theory by including structural adaptations during system development. This allows for the analysis of both deterministic and adaptive dynamics. Systems are often modeled as networks, with system variables as nodes and system equations as connections. In both deterministic and adaptive dynamics, four resulting development classes of system variables are possible: punctual stability, periodic stability, deterministic chaos, and a class between stability and chaos called “the edge of chaos” (Wolfram, 1984). Which development class is reached by the system variables over time is determined by the network node connections’ structure, with (1) connectivity of network elements and (2) intensity of rules being decisive factors (derived from Forrest & Miller, 1990; Kauffman, 1990).
The edge of chaos is reached with high—but not maximum—connectivity and low—but not minimum—rule intensity within a narrow range of these parameters. The exact parameter values leading to the edge of chaos are unique for each system. The edge of chaos combines elements of stability and flexibility in terms of space and time (Langton, 1990). Spatially, some elements exhibit stable and periodic development (“islands”), while others behave irregularly (Kauffman, 1996; Waldrop, 1992). Temporally, an element’s behavior can shift from periodic in one phase to irregular in another, depending on structural adaptations. At the edge of chaos, adaptive systems can optimally self-organize for success by incorporating and processing feedback from their environment. This self-organization process is characterized by micro-level interactions leading to new qualitative action patterns at the macro level (Allen & Phang, 1993). The edge of chaos is marked by the network’s universal computing ability (Langton, 1990), enabling the generation of all theoretically possible system developments through information processing (Forrest, 1990). Only at the edge of chaos, the conditions for this universal computation ability are met, while “the ordered regime does not allow information to propagate at all, and the disordered regime propagates effects too well, causing information to decay rapidly into random noise” (Langton, 1990, p. 32).
Also, organizations can be interpreted as “dynamic systems governed by nonlinear relationships” (Thiétart & Forgues, 1995, p. 21). The relationships are basically characterized by (1) the degree of connectivity of members—meaning how many members influence the actions of others (Coleman, 1999)—and (2) the intensity of rules, meaning how strongly rules determine concrete actions. From individual actions, a pattern of all actions emerges on the macro level in the process of deterministic dynamics. The dynamic pattern can be either called stable (punctual or periodic), chaotic, or at the edge of chaos (Thiétart & Forgues, 1995, 1997). Which class of pattern will actually be reached is determined by the general value of the structural parameters, while the exact values are individual in each system: Low connectivity and high intensity of rules imply a stable pattern. Raising connectivity and lowering the intensity of rules increases the instability of the dynamics. At a certain point, when very high connectivity and low intensity of rules are reached, the deterministic dynamics result in a chaotic pattern. Just before this jump into chaos is reached, there is the “dynamic balance” (Conner, 1998, p. 33) at the edge of chaos.
The edge of chaos has been found to be beneficial to organizations in dynamic environments, e.g., for high-performance teams (Scholz & Schmitt, 2011), improvising jazz orchestras (Scheer, 2007), and generally when the requirements (what to do), as well as the technology (how to do it) for coping with a complex problem, are far from certainty. At maximum levels of uncertainty, the state of chaos is reached, but at high and not maximum levels, it is the edge of chaos. This is the ideal spot for developing novel practices in an organization (Stacey, 2002).
With respect to consulting, Shaw (1997) has applied the concept of the edge of chaos to the consultant-client-interface and stated that acknowledging a balance between stability and instability during consulting projects and that consultants often informally irritate clients backstage rather than plan with them on center stage, spurs self-organized change of the client organization. Also, Clegg et al. (2004) for management consultants and Innes et al. (2005) for doctors describe implications from chaos theory for counselors’ involvement and point to the fruitful balance between security and insecurity, realities and chances, as well as order and chaos. In this paper, the edge of chaos is applied to the identity regulation process in consulting firms. The metaphor of the edge of chaos appears appropriate to describe this process over a sustained period of time and to explain how consulting firms maintain their elite identity and image, even in times of significant changes with regard to consulting topics, client industries, and broader environmental conditions.
3. Discussion: Identity Regulation in Management Consulting Firms at the Edge of Chaos
In this section, the ideas of OI and the edge of chaos are brought together to offer a new transdisciplinary conceptualization of the identity regulation process in top management consulting firms (see Table I). It has been shown above that the key identity referents for consulting firms are those that support an elite identity. Among these are, for example, office locations in prestigious neighborhoods, human resource practices for promoting only the best employees, as well as behavioral routines and narratives that support the conviction that members of these consulting firms are among the “best and the brightest.” Maintaining this elite notion is a significant stabilizing factor in the normative control of employees who are constantly confronted with considerable anxiety about losing their elite status (Gill, 2015). In this context, the standard characteristics of consultancies as neo-professional organizations (Smets et al., 2017) also support a stable legitimization for the firms.
At the same time, for top management consultants, staying at the forefront of knowledge is essential to being recognized as thought leaders. In dynamic times, consultants must learn and adapt quickly, thinking ahead. This demands significant adaptability and flexibility to manage constantly emerging topics and new projects. Addressing ubiquitous trends like digitalization and sustainability also requires consulting firms to demonstrate optimal distinctiveness. On the one hand, all firms must develop client solutions for these same trends to remain current and be recognized as experts in their category of top management consultants. On the other hand, consultancies need to differentiate themselves to gain competitive advantages. In this respect, the top consulting firms have distinct enduring claims, e.g., “the firm” (McKinsey), “pioneers of strategy consulting” (BCG), or being a particularly “results-oriented” company (Bain), while developing and promoting proprietary solutions for their clients.
Identity regulation in consulting firms can, according to the above-described Hatch & Schultz model (2002), be regarded as a dance between internal culture and external image, also including dynamics of cooperation and competition of employees as well as constant changes (e.g., high attrition and hiring of new employees, fast career progressions) within the boundaries of rather stable neo-professional rules (e.g., pyramidal structure of staff—see Maister, 2003). A major factor for the “adaptive stability” of the OI of consulting firms is their ideographic identities, which means that for innovation, “islands of instability” are created, whereas the main parts of the organization remain in well-established operating mode.
From a complexity-theoretical point of view, top management consultancies regulate identity at the edge of chaos on a temporal as well as a spatial dimension. With regard to the temporal dimension, external shocks like the burst of the dot-com bubble in 2000, the global financial crisis in 2008, and the COVID-19 pandemic in 2020 constituted disruptive developments, including drastic short-term job cuts. These were then short phases of instability, which were followed by stable growth and staff development paths afterward. With regard to the spatial dimension, consultancies reach the edge of chaos by keeping stability—the elite identity via stable routines, like recruiting, promotion system, elements of (neo)professionalism—and showing flexibility content-wise, constantly updating their service portfolio, thus demonstrating thought leadership with regard to industry-specific as well as functional topics and tools. To realize this, they create “islands of instability,” which do not have too much connectivity to the main part of the organization, i.e., not merged and fully integrated into the core, and at the same time, not too much central regulation but somewhat different routines (see the parameters for reaching the edge of chaos above). These islands can, for instance, be spin-offs and subsidiaries (e.g., BCG Platinion, McKinsey Orphoz), acquired but not fully merged with smaller consulting boutiques (e.g., Bain Pyxis, BCG BrightHouse, McKinsey Aberkyn), or internal practice groups or initiatives (e.g., on new cultural elements or flexible time models).
4. Conclusion: Continuously Regulating the Best and the Brightest at the Edge of Chaos
This paper explored the concept of identity regulation in management consulting companies, focusing on how these firms balance identity stability with flexibility in complex environments. It is argued that identity regulation plays an essential role in the continued economic success of major management consulting firms despite considerable negative publicity over the last decades. Research on organizational identity in consulting firms reveals a focus on elite identity and identification, which enhances the organizational identification of employees by boosting self-esteem and positive self-categorization. Consulting firms deploy mechanisms to maintain their elite status in a stable manner while flexibly adapting to new challenges and environmental developments. The paper introduces the concept of identity regulation at the edge of chaos, integrating complexity theory into organizational identity discussions.
In terms of practical recommendations, management consulting firms should surf the edge of chaos by establishing “islands of instability,” which are experimental units or spin-offs that operate under somewhat different rules and are relatively disconnected from main operations. This allows for innovation and adaptation without destabilizing the entire organization. They should also allow for short phases of instability (e.g., implementing major organizational changes) followed by longer stable phases. This approach enables adaptation while maintaining overall stability. It also contributes to generally continuing to cultivate and reinforce an elite identity to attract and retain top talent, as this is crucial for maintaining a competitive edge in the industry. Based on the findings of this paper, it is suggested that further research focus on qualitative case studies of consulting firms and their processes of identity regulation. This could bring forward rich first-hand insights into how the edge of chaos is practically reached. In this regard, it is important to investigate how emerging technologies (e.g., AI and big data analytics) are influencing the identity regulation processes in consulting firms.
In sum, consultancies have a crucial interest in maintaining their elite identity. At the same time, they need to stay at the forefront of new and modern developments to be continuously accepted as thought leaders and experts. This results in a constant modernization “on the edge,” reflecting an ideographic identity. Clients appear to appreciate this approach and continue to hire consultants, seeking security in times of perceived loss of control. This could be called “modernization in a conservative manner,” another formulation denoting the edge of chaos. Individual case studies and the effect of emerging technologies will be relevant units of further research.