Author: Tom Michielsen – The Time
Consultants mainly come to tell top management what they should have known already. Or: consultants make it easier for a CEO to deliver the bad message of a round of layoffs. These are just a few of the many clichés that cast the consulting world in a not very positive light. However, companies, government agencies and other organizations spent 350 billion euros on consulting assignments worldwide last year, according to a Financial Times estimate.
Are the clichés true? Or more positively, do you get value for money when you hire a strategy or management consultant? With that question, economists Simon Jäger and Benjamin Schoefer of the prestigious American universities of Princeton and Berkeley knocked on the door of Belgian Gert Bijnens, an economist at the National Bank of Belgium. Whether he wanted to help them analyze business data available to the National Bank? Specifically, the anonymized customer lists of companies in VAT returns on the one hand and annual accounts on the other, over a 20-year period (2003-2023).
Using the client lists, the three researchers examined which companies had called on a strategic management consultant, with the financial statements showing how well the companies did over the five years that followed. The results of the companies that had used a consultant – usually for a period of a few months to a year – were compared with those of a control group of virtually identical companies.
It showed that companies that hired a consultant saw their productivity (output per hour worked) increase by 3.6 percent over the following five years. ‘This growth does not come primarily from an increase in output (translated into turnover, ed.) but from a slight decrease in the number of employees,’ Bijnens explains. ‘Note that the extra profit a company makes as a result does not flow to shareholders, but translates into higher salaries, plus 2.7 percent on average. More costs are also incurred in external services, such as IT or marketing, but not in outsourcing or temporary work.’
The gist:
- The National Bureau of Economic Research commissioned a study on the impact of consultants. Working on it were three economists: Simon Jäger (Princeton University, USA), Benjamin Schoefer (Berkeley University, USA) and Belgian Gert Bijnens (National Bank).
- Companies where consultants are engaged achieve 3.6 percent productivity gains over the following five years.
- That gain comes from a slight decrease in the number of jobs, but salaries for remaining employees are up an average of 2.6 percent.
Bijnens does see a Matthew effect: “It is mainly large companies that afford consultants. Equally striking: companies that are already performing well also benefit from consultants, not just weaker companies that are not fully exploiting their growth potential. Those laggards do gain more.
Cynical view:
Critics speak of the hawthorne effect: employees automatically improve their performance because of the fact that more attention is paid to them. So it is independent of the specific methodologies or advice given by consultants. ‘We don’t know exactly what those consultants do with their clients,’ says Bijnens. ‘And therefore also not whether the better results are the result of someone externally watching their fingers.’ Even a cost-benefit analysis, comparing productivity gains with the cost of a battery of consultants, is “possibly fodder for further research,” Bijnens says.
‘Consultants are a hot topic. Everyone has an opinion about them based on individual cases,’ Bijnens concludes. ‘This is the first study that is really based on facts and figures. The cynical view of consultants held by some rabid detractors – ‘They lead to layoffs,’ or ‘They only serve to make shareholders richer’ – we don’t see in our data. Even though, of course, individual case studies may well show otherwise.
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