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

The management consulting industry is in retreat as the economy slows, laying off thousands of people. They are 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.

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

London CNN

In recent years, they have grown in popularity. Management consultancies designed vaccination programs for the pandemic, and they are now providing advice to one of the largest banks in the world on how to save it.

They're now retreating as the economy slows down, laying off tens of thousands of workers, and facing new criticisms over some of their work, including the impact it has on governments and businesses being able to solve their problems.

The $230 billion industry of management consulting is very broad: It includes companies that offer everything from project-management expertise to new organizational structure design. Strategy consultants are part of that industry and offer their clients advice on how to improve and build their organization.

Most large firms, such as EY and KPMG, also perform audits and provide advice on tax matters for their clients. However these services are usually seen as separate from their consulting work.

The Swiss government last week awarded a contract to Alvarez & Marsal Switzerland (a management consulting firm) worth 9.8 million Swiss francs to assist with the takeover by UBS of Credit Suisse.

This type of professional problem solver has been criticized heavily in recent years.

The Big Con by Rosie Collington and Mariana Mazzucato, a prize-winning economist, was published in February. They argue that management consultants 'infantilizes' governments, keeping them dependent on the services they provide.

The University College London Professor told CNN that national administrations are'reliant on consultants'. They have no incentive to improve government; otherwise, they will not get a contract in the future.

She argues that officials often farm out their most interesting projects to consultants, who lack the skills and experience necessary to do them well.

Mazzucato stated that governments have stopped investing their brains. They've become... inertial and not very capable because they don’t invest in themselves.

Professor, who advises policymakers all over the world, reserves most of her anger for the United Kingdom, a major provider of work in the public and private sectors for consultants, though the United States are also a big market.

Many of the criticisms made are not new. Overpaid, underqualified consultants who advise an organization to reduce costs (read: staffing) or rubber stamp a decision already made have long been a stereotype for consulting firms such as McKinsey 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.

Source, an industry think tank, reported that the demand for consulting services increased last year. The overall revenue grew by 10.7%.

Fiona Czerniawska is the chief executive officer of Source. She said that the global consulting industry has also experienced a period of 'exceptional growth' in the aftermath of the pandemic. Companies and governments hired consultants between late 2020 and the beginning of 2022 to help them with a slew of new projects, while their own employees were sick.

After a boom

The consulting industry is in a more precarious position now. In recent weeks, several major players announced thousands of job cuts as the outlook for global economic growth dimmed.

According to Nicholas Bloom, a Stanford University professor and former McKinsey Consultant, consultants were hired 'aggressively,' due to 'all of the restructuring work that was coming out of the pandemic which is now ending.'

Czerniawska notes that layoffs tend to be concentrated in the back-office functions rather than among clients-facing consultants.

She said that she did not see a shortage in demand, both from governments and business.

According to sources, the total revenue of this industry will increase between 6% and a 10% by 2023.

Mazzucato does not oppose the use of consultants by governments in principle. She argues that these consultancies don't always deliver on their promises.

She says that while some companies have experience they can rely on, a large part of their work is 'expertise free'.

Meg Hillier of the UK Parliament's Public Accounts Committee says that there is a 'poisoning' of large consultancy firms, which can do "almost anything" you ask for, but some consultants are lacking in experience.

The committee raised concerns over the UK government's use of consultancies for a number years. In 2019, the committee conducted an investigation into the tens and millions of pounds that were spent by the UK on these firms in order to prepare the country to leave the European Union.

What are the fees that they charge?

Mazzucato's book is full of examples. The first is Britain's PS37bn ($46bn) test-and trace program, which was designed to curb the spread of Covid-19. However, Hillier's Committee found that it failed to make a'measurable impact'. Deloitte was one of the Big Four Accounting firms and received about PS1,000,000 ($1.2million) per day for their work on the Covid-19 program.

She also mentions the US federal insurance website that had technical issues in 2013, shortly after it was launched. She writes that President Barack Obama's Administration took most of the criticism despite 55 companies participating in the project, including consulting firms.

Tamzen Isacsson is the chief executive of Britain’s Management Consultancies Association. She counters by citing other examples. Consultants were involved in the successful launch of the Covid-19 vaccination in the country.

She said, "The results speak volumes." We provide our clients with short-term technical expertise and leave them better off.

Isacsson rejects vehemently the accusation that consultants lack expertise. Mazzucato trades in "outdated stereotypes," she claims, adding that companies are bound to contracts to deliver certain results.

Czerniawska, of Source, also asserts that the expertise of consultants is not in doubt. She noted that nearly 80% of the firms surveyed in global surveys told the think tank that consultants' work was of high- or very-high quality.

Czerniawska admitted that some "really large, complex projects" were not delivering the kind of success taxpayers expected.

Bloom, at Stanford University, argues that the 'big question' is 'what is the average impact consulting has?'

He told CNN that he had seen positive data, but it was difficult to determine if the consultants were earning their fees. Consultancies did not provide any relevant information.

Mari Sako is a professor of management at Oxford University. She points out that many former civil servants are now employed by management consultancies.

She said that this can be a positive.

"You need to have very contextual knowledge (to work in the government), and I think that, if done well, consultants as part of a group would add value."

Hillier, a lawmaker, said that the UK government hires more digital, procurement, and finance specialists in part to reduce its reliance on consultants.

She told CNN that consultants can have a high price tag. Sometimes, you wonder what they are paying for some of the consulting work.

Mazzucato believes that governments can only become more innovative, better at solving problems and devising economic strategies, if they do more work themselves.

You learn to ride a bicycle by falling and then getting back up.