Do consultants add business value?
Hands-up, I am somewhat biased since this is my job and I believe passionately in the value I bring to my clients, but this is also why I am interested in getting to the truth behind this question and so I will nonetheless try to provide a balanced view.
I myself have had experience in my previous career of using “average” consultants as well as “excellent” ones. I also have several long-standing clients that have told me their scare stories. Thus, I am keen to probe further for all those that have been rocked by a poor experience, for those that have support in place but don’t have a benchmark and for those who have not used a consultant before or are perhaps using a mentor and now considering further support.
Several attempts have been made to quantify the value of consulting, one of the most notable being research conducted by the MCA in 2010, entitled “The Value of Consulting”. Having examined 1800 public sector projects, based on a model it concluded that £56Bn of value had been created to UK clients in one year, with an average return of £6 for every £1 spent. However, we should make some allowance for the fact that this report was not independent. In contrast, the report “Does Management Matter” was produced by the World Bank and Stanford University. This involved an experiment at 14 large, randomly selected textile firms in India that received consultancy support. The report showed that besides benefits to defects, loss of inventory, and operations, productivity increased by 17% which was equivalent to $325,000 and a return on investment in the first year alone of 130%. Considering other benefits and productivity savings across future years trading as well as the opportunity to re-invest the profits, this demonstrates a healthy return on investment.
Assuming the evidence does point to significant added value from consultancies, but perhaps this is dependent on there not already being good practices embedded. How might this translate for Small to Medium Enterprises (SME’s) using smaller consultancies or independent advisors? Small businesses certainly cannot afford to source all the expertise they need internally and need some way to bridge the gap. A report by Zeqr showed that £60Bn was spent yearly on professional services by UK SME’s but approximately 1/5th was being wasted on unnecessary or bad advice. Notably, 2 out of 5 respondents cited “inefficient” fixed fees as a main contributor.
Other criticisms that have been cited are too much focus on operational matters, being allocated available consultants rather than the specialist ones anticipated during negotiations and being too formulaic; often based upon serving the needs of larger businesses and not adapting to the needs of the SME client.
A report by Middlesex and Cambridge Universities also makes an important distinction between “soft” (e.g. improving leaderships and management skills, resilience, reducing risks etc.) and “hard” outcomes (e.g. costs, profitability, turnover etc.) The research concluded that intangible benefits interrelated with “hard” benefits and created some of the widest effects. This certainly matches my own experience of working in consultancy; it is often possible to quantify the potential benefits where you can reference a direct link between the project work and for example cost savings or profitability and yet there are other instances where it is difficult to measure the benefit accurately. There are also other benefits to consider, for example, when the advice you give prevents a business being exposed to significant risks. That type of advice may have little or no quantifiable value yet is invaluable!
In conclusion, it seems to me that there is a weight of evidence that demonstrates significant added value from the use of consultants both tangible and intangible, but you should never use a sledgehammer to crack a nut, and you can certainly tip the balance further in your favour by finding the right “fit”, i.e. a consultant with relevant experience that understands your issues. At Empiric Partners we tailor our approach to match the needs of our clients, we don’t make any false promises about returns on investment, but we do add real value by drawing upon our own experiences and by taking time to understand our clients and how we can best help them to overcome their challenges.