There has never been a time when leaders, managers and businesspeople have not sought and obtained advice from external experts. Modern capitalism and the development of a welfare state increased this requirement for additional support.
In recent years, organisations have grown even more complex, technology has developed at unprecedented pace, and citizens have demanded that their governments deliver higher standards of public services but accompany this with lower taxes. The use of outside consultancy services has expanded significantly as a result. Today’s UK-based management consultancies earn fees each year of around £9bn.
This should not be a surprise. We know that it would be uneconomic and probably impossible for organisations to recruit and retain all the knowledge and expertise that they need in order to stay efficient and up-to-date. There are what the economists call ‘economies of knowledge’ available via the consulting industry and other outside sources; making use of them makes economic sense.
This thinking applies in the public sector as well. Recent transformations and waves of modernisation mean that it, too, is now very much alive to the important role of consultancy, often wanting to draw on the best thinking and practice from the private sector. The past decade saw a significant growth in the sector’s use of consulting, fuelled by the need to bring more services online, to deliver greater efficiencies from the use of IT, to update and reform management and organisational structures and to deliver complex government programmes.
It is striking however that, while there has been plenty of analysis and probing of the cost of management consultancy particularly in the public sector there has been relatively little discussion of the value that it generates. Clients are traditionally either reluctant or unable to quantify the benefits of working with consultants, and many consultancies have assumed that, since their services continue to be used, they must be fully appreciated and understood. The public conversation about consulting is unbalanced and distorted as a result.
The MCA (Management Consultancies Association) is seeking to address this gap. A pioneering piece of research, guided by a working group drawn from consultancies together with Tim Morris from Oxford University, suggests that the value of consulting projects is equivalent, on average, to around six times the fees paid. We don’t claim that this is the final word on the subject; it is, however, the strongest indication yet of the scale of return on investment that clients can expect from their use of consultants.
Our research began by collating the results of the largest ever survey of client satisfaction, analysing data from more than 1,800 projects. Firms submitted complete sets of data, enabling us to draw reliable conclusions.
In total, 58% of clients reported that they were ‘very satisfied’ with the work of their consultants; a further 41% said that they were ‘satisfied’. If anything, levels of satisfaction have improved in recent years, suggesting that consultants are learning from past mistakes and are attentive to the need to deliver an improving level of service.
We then conducted 30 in-depth interviews with clients and asked them about their experience of working with consultancies. Using our own model and framework, it is clear from this part of the research that consultants add value in three main ways:
We discovered that clients are happy, in this context, to judge the value that they attribute to the contribution of their consultants. To help our understanding, we asked them whether this was less than their fees, around the same as their fees or a multiple of their fees.
Very satisfied clients reported that the value of consulting ranges from around twice up to twenty times the cost, with most groups around multiples of eight to twelve. Assuming an average of ten times the fees paid, and taking account of other projects where value is equivalent to price (the ‘satisfied’ group of clients), this suggests that the benefits provided by consultancies are equivalent in value to around £56bn to UK clients, a return of £6 for every £1 spent.
These findings are certainly not comprehensive. But the methodology is robust and objective. And the results have major implications for how decision-makers view their use of consulting.
In this context, for instance, it makes little sense to set a ‘consulting budget’ for a government department or local authority without a full analysis of that organisation’s needs and the opportunities that may be lost as a result of under-investment. No decisions should be taken – by politicians or anyone else without a full analysis of the risks involved particularly at a time when the whole sector is looking for ways of saving money and reducing the public sector deficit.
At the same time, it is clear that consultancies must work even harder to increase the proportion of clients who are ‘very satisfied’ with their work and who therefore see this healthy return on their spending. A focus on value as well as price, and benefits as well as cost, will help both consultancies and their clients to deliver the best possible outcomes.
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