July 19, 2024

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Consultancies are coming off a pandemic boom. Are they still worth hiring?


London
CNN
 — 

They’re the go-to people in every crisis, and they’ve boomed in recent years. Management consultancies helped design vaccination programs during the pandemic and are currently providing advice on how to rescue one of the world’s biggest banks.

But they’re now in retreat as the economy slows, laying off thousands of people, and facing renewed criticisms about some of their work and the impact they have on the ability of governments and companies to solve their own problems.

The $230 billion management consulting industry is a broad church: it includes companies offering everything from project management expertise to designing new organizational structures. Within that, strategy consultants offer clients their take on how to build and improve their organizations.

Many big firms — think EY and KPMG — also conduct audits and advise on their clients’ tax issues, though these services are generally seen as distinct from their consulting work.

Last week, the Swiss government awarded a contract worth 8.7 million Swiss francs ($9.8 million) to Alvarez & Marsal Switzerland, a management consultancy, to help with aspects of the emergency takeover of Credit Suisse by its bigger rival UBS.

But this type of professional problem-solver has come under strong criticism as of late.

In The Big Con, published in February, prize-winning economist Mariana Mazzucato and her co-author Rosie Collington argue that management consultancies “infantilize” governments by keeping them dependent on their services.

Mariana Mazzucato, professor of economics at University College London, photographed on March 7, 2023

National administrations have “become reliant on consultants, and the problem is the consultants take advantage of that,” the University College London professor told CNN. “They have no incentive to make governments better; otherwise they won’t get a future contract.”

Officials farm out some of their most interesting work to consultants who, she argues, often lack the necessary skills and experience to do it well.

“Governments have stopped investing in their own brains,” Mazzucato said. “They’ve become… inertial, not very capable, because they don’t invest in their own capacity.”

The professor, who also advises policymakers around the world, reserves much of her ire for the United Kingdom — a key provider of public and private sector work for consultancies, although the United States, Canada, France and Germany are also big markets.

Many of the criticisms are not exactly new. The stereotype of the overpaid and underqualified consultant advising an organization on how to cut costs (read: headcount), or simply rubberstamp a decision it has already made, has long hung over consulting firms like McKinsey & Company and Boston Consulting Group.

An article published in 2013 in the Harvard Business Review noted that “consulting has long inspired some degree of the-emperor-has-no-clothes skepticism,” citing books such as The Witch Doctors and The Management Myth.

Even so, demand for consultants’ services grew last year, with overall revenue up 10.7%, according to Source, a consulting sector think-tank.

The global consulting industry also enjoyed an “exceptional” period of growth in the wake of the pandemic, said Fiona Czerniawska, chief executive of Source. Between late 2020 and the first half of 2022, companies and governments hired consultants to work on a glut of new projects while many of their own staff were off sick.

Consultancies are on shakier ground now. In recent weeks several major players have announced thousands of layoffs as the outlook for the global economy darkens.

Consultancies hired “aggressively” because of “all the restructuring work coming out from the pandemic, which is now ending,” according to Nicholas Bloom, a research fellow at the London-based Centre for Economic Policy Research and an economics professor at Stanford University.

Layoffs are concentrated in back-office functions, Czerniawska also notes, rather than among client-facing consultants.

“We don’t see any shortage of demand from clients,” she said, referring to both governments and businesses.

Source forecasts total industry revenue will rise between 6% and 10% in 2023.

Mazzucato is not opposed to governments’ use of consultancies in principle. Yet, all too often, she argues, these firms don’t deliver on their promises.

While some companies do have credible experience, she calls a lot of their work “expertise-free.”

Similarly, UK lawmaker Meg Hillier, who chairs the parliamentary Public Accounts Committee, says there has been “a mushrooming” of big consultancy firms that can do “sort of anything you ask,” but some consultants “haven’t got the experience.”

The committee has raised concerns about the UK government’s reliance on consultancies over a number of years, including conducting an inquiry in 2019 into the tens of millions of pounds spent on these firms to prepare the country for leaving the European Union.

Mazzucato packs her book full of examples of high-profile blunders. One is Britain’s £37 billion ($46 billion) test-and-trace program, designed to limit the spread of Covid-19, but which, according to Hillier’s committee, failed to make any “measurable difference.” Deloitte, one of the Big Four accounting firms, was paid about £1 million ($1.2 million) a day for its work on the program.

The author also cites the case of the US federal health insurance website, which ran into technical problems in 2013 shortly after its launch. President Barack Obama’s administration largely took the flak, she writes, despite the participation of 55 contracted companies, including consultancies, in the project.

Tamzen Isacsson, chief executive of Britain’s Management Consultancies Association, counters with other examples: consultants were involved in the successful rollout of the Covid-19 vaccine in the country, she told CNN, and have helped the UK National Health Service speed up its screenings for breast cancer.

“The results speak for themselves,” she said. “We bring in short-term, specific, technical expertise to our clients, and we leave them in a better place.”

Isacsson vehemently rejects the charge that consultants often lack relevant expertise. Mazzucato is trading in “outdated stereotypes,” she says, adding that firms are bound by contracts to deliver specific results.

Czerniawska of Source also argues that consultants’ expertise is not in question. Nearly 80% of firms surveyed globally have told the think-tank that consultants’ work is either of high or very high quality, she noted.

But Czerniawska acknowledged that some “really big, complex projects” were not delivering “the kind of success that taxpayers would expect.”

McKinsey & Company's stand at the 2023 Mobile World Congress in Barcelona

Bloom at Stanford University, who is a former McKinsey consultant, argues that “the big question is what is the average impact of consulting?”

“From the data I’ve seen it’s positive, although it’s hard to know if they earn their fees,” he told CNN, noting that consultancies do not share relevant information on that.

And Mari Sako, professor of management studies at Oxford university, points to the “revolving door” between governments and management consultancies, with many former civil servants now working for these firms.

That can be a strength, she said.

“You need very contextual knowledge [to work in government], and if that’s done well, then I think that consultants, as part of a team, would add value.”

The UK government is hiring more digital, procurement and finance specialists, in part, to become less reliant on consultants, according to Hillier, the lawmaker.

“There can be a very high cost to consultants,” she told CNN. “Sometimes, some of the consultancy work, you wonder why they’re paying quite so much for it.”

Ultimately, Mazzucato argues, only by doing more of the work themselves can governments become better at solving problems, devising economic strategy and innovating.

“You learn how to ride a bike by falling off, and getting up again.”

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