Does management consulting improve business performance?
Randomised studies show that management consulting can improve performance, with results depending on the intervention, company and follow-through. Read the evidence.
What does the evidence say about management consulting?
There is evidence that management advice from external experts can improve performance. In a randomized experiment, factories that received consulting saw a 17% increase in productivity in the first year, and Mexican small and medium-sized companies had about 50% more employment five years later. However, since about half of the practices introduced have disappeared after 9 years, first plan what will remain within the company after the consultation is over.
How effective is management consulting confirmed by randomized experiments?
The reason why the company that received consulting did well may be because it was originally a better-run company. Therefore, it is accurate to look at the results of an experiment in which subjects were randomly divided. Three representative studies are:
A study measuring the effectiveness of management consulting through a randomized experiment
| research | Target and Design | Key Results |
|---|---|---|
| Bloom et al. (2013) | Randomly select factories of large Indian textile companies and provide free management practice consulting | Productivity increased by 17% in the first year, additional production plants opened within 3 years |
| Bruhn, Karlan, Schoar (2018) | Provides one-year management consulting to 432 Mexican small and medium-sized businesses | Total factor productivity and return on assets improved, with total employment and wages increasing by about 50% even after 5 years. |
| Bloom et al. (2020) | The factory studied in 2013 was surveyed again 9 years later. | About half of the practices disappeared, but the difference from the control group was still large. |
The paths to productivity in the Indian study were improved quality and efficiency, and reduced inventory. This means that consulting is more effective when changing daily operational practices rather than grand strategies. The Mexican study found that increases in total employment and wages continued five years later, showing that the effects of advice can lead to larger businesses.
Why didn't we use practices that were clearly effective in advance?
Indian researchers cited information barriers as the main reason why companies did not adopt beneficial practices. The explanation is that they either did not know that good practices existed, or even if they knew, they did not believe that they would be effective in their factories. Recording defects by cause or regularly counting inventory is not expensive, but its value may not be apparent to companies that have never done it before. Also, because the time of managers was limited, well-run companies could not grow indefinitely, so competition was unable to push out poorly run companies from the market.
These results can help you distinguish between reasons to hire outside counsel. If the problem is caused by not knowing the method, external knowledge can easily be effective. If the problem is that you know the method, but do not have the people or time to implement it, internal roles should be re-divided with advisors.
Will the effects remain even after the consulting is over?
A follow-up study that revisited the same factory nine years later (Bloom et al., 2020) found that about half of the practices initially introduced had disappeared. Still, the difference in practices between factories that received consulting and those that did not was still large and clear. The practice rarely spread to other companies, but it spread to many other factories of the same company.
The most common reasons for the disappearance of the practice were manager turnover and lack of time on the part of management. This means that if you leave the results of your consultation only in the heads of one or two people, the results may disappear when those people leave.
Can I transfer overseas research results to our company?
The three studies targeted manufacturing companies or small and medium-sized enterprises in developing countries, and consulting for the India study was provided free of charge. For companies that already have basic practices in place, it is difficult to expect the same amount of improvement, and if there are areas where basic practices are not in place, there is room for improvement there. When referring to the results of other companies, Korea Research Institute of Business & Branding explains differences in industry, size, timing, and market environment. This principle can be seen further in How to leverage success stories from other companies.
What should a company decide before entrusting external advice?
First, decide on the problem you want to solve, an indicator to measure performance, and an internal person in charge of implementing the results. Depending on the scope of your entrustment, remaining at the company will also vary.
Comparison by scope of consulting
| range | the right situation | staying with the company | danger |
|---|---|---|---|
| Diagnosis only | Don't know the cause of the problem | Cause analysis and priorities | Execution remains with the company |
| Diagnosis and action plan | The cause is visible, but there are many options. | Alternative Comparison and Execution Order | Gap between plan and site |
| run together | I know the method, but I lack the drive. | Changed practices and indicators | Habit of relying on external personnel |
| education linkage | Similar problems repeat | Members’ judgment capabilities | Effects appear late |
Korea Research Institute of Business & Branding's scope of activities ranges from problem discovery and analysis to implementation and learning of alternatives. The research method can be viewed at Management Research Methods.
How can we ensure that the results of our consultations remain within the company?
Leave changed practices in documentation and indicators, and have multiple managers, not just one person, learn them together. For newcomers, you can address this as In-house mentoring. It is a good idea to schedule in advance to check whether practices are maintained at intervals of several months after the consultation. When transferring a method that has proven effective in one department to another department, you can try having the person in charge of the department that introduced it first explain it and check it together. Korea Research Institute of Business & Branding aims to be a partner that enhances the ability of companies to make decisions and execute on their own. Check out Research independence and confidentiality for independence of conclusions and data management, and check out Trade secret protection for what the company will do before handing over the data.
Management consulting effect Frequently asked questions
How long does it take for the effects of consulting to appear?
In the India study, productivity gains were seen in the first year, while in the Mexico study, employment growth continued five years later. Since it depends on the type of assignment, set both short-term and long-term indicators.
Can even small companies benefit from management consulting?
The target of the Mexican study was small and medium-sized enterprises, which saw both productivity and employment increase. The smaller the scale, the more important it is to determine who will be in charge, as managers often have less time.
What do I do if the consulting results are different from expectations?
Ask them to explain the basis and assumptions for their conclusions. If the evidence is clear, a conclusion different from expectations becomes new material for judgment.
Which should you do first: consulting or in-house training?
If there is a problem whose cause is unknown, the natural order is to start with diagnosis through consultation, and then continue with education if the solution needs to be repeatedly written by members.
References
- The Quarterly Journal of Economics, 「Does Management Matter? Evidence from India」(Bloom, Eifert, Mahajan, McKenzie, Roberts), 2013. https://doi.org/10.1093/qje/qjs044
- Journal of Political Economy, 「The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico」(Bruhn, Karlan, Schoar), 2018. https://doi.org/10.1086/696154
- American Economic Journal: Applied Economics, 「Do Management Interventions Last? Evidence from India」(Bloom, Mahajan, McKenzie, Roberts), 2020. https://doi.org/10.1257/app.20180369