Economists Mariana Mazzucato and Rosie Collington are to publish a new book ‘The Big Con’ in which they argue that management consultants are ‘weakening businesses and warping economies’ – I must declare an interest here, having once worked for a major management consultancy – I must also admit to having much sympathy with what they say in the following precis of their article in The Times
Many businesses and governments have stopped investing in their own capabilities – they fear failure, so they do not take risks – they shirk responsibility for change and focus on earning short-term profits through easy, unproductive strategies such as buying back their own shares to boost stock prices or not paying their workers their fair share
These trends have depleted organisations of knowledge, skills and vision (and so growth)
At the same time, management consultancy firms have earned huge sums of money – their global market is now estimated to be worth a trillion dollars – and global consultants have been at the highest tables of decision-making during many of the past decade’s global economic upheavals
In particular, the ‘Big Three’ (McKinseys, Boston and Bains re strategy) and ‘Big Four’ (PwC, Deloitte, KPMG and EY re accountancy) have been hired to:
- Help design smart cities
- Develop national zero carbon strategies
- Propose education reforms
- Counsel armies
- Manage the construction of hospitals
- Draft medical ethics codes
- Write tax legislation
- Oversee the privatisation of state-owned enterprises
- Manage mergers between pharmaceutical companies
- Govern the digital infrastructure of countless organisations
- Outsource public services
Consulting contracts thus affect all levels of society – they claim to help make their clients more efficient and enable them to do things they can’t do
However, they not only offer a helping hand – their advice and actions are not purely technical and neutral, facilitating a more effective functioning of society and reducing the costs of clients – their claim to add value to the economy and society by brokering knowledge and reducing costs is exaggerated – (quantification of actual benefits achieved and so paybacks is deemed too difficult) – in the public sector, costs are often much higher than if government had invested in the capacity to do the job and learnt how to improve processes along the way
‘The Big Con’ grew from the 1980s onwards when companies were increasingly run in the short term interests of their shareholders whilst governments required their public sector units to be run more like businesses – executives in all sectors became insecure, constantly needing to justify their decisions to shareholders or an ever-sceptical populace and media which would blame them for any failure or mistake
The more government units and businesses outsource to consultants, the less they know ‘how to do’, causing them to become hollowed out, stuck in time and unable to evolve – with consultants involved at every time, there is very little ‘learning by doing’
The result is consultants may reduce an organisation’s costs in the short term but will eventually cost it more due to the loss in knowledge about how to deliver those services, and thus how to adapt the collection of capabilities within to meet customers’ changing needs
Of course, there is a place for consultants – their advice and capacity is productive when it comes from the sidelines, from capable actors with genuine knowledge that creates value – the problem arises when they move from the sidelines to the centre
P.S. And a splendid alternative to employing expensive consultants on the sidelines is to obtain copies of our new book ‘Productivity Knowhow Revisited’ for each of your managers which will keep them well grounded and focused on what matters most