Are consulting projects a waste of resources?

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Management consultancies provide significant value due to their ability to solve projects that are time-critical, complicated, or require external expertise. However, despite their potential, they are increasingly viewed with skepticism by companies. This skepticism may stem from a lack of understanding of the necessity to engage with consultants or from experiences where the value added to a project was questionable. In this article, we delve into this issue through interviews conducted with Frederik Reimann (Partner at AuxilPartner, specializing in restructuring projects) and Fabian Aymanns (Manager at a prominent multinational consulting firm, overseeing a diverse range of business units including strategy and organization). Both consultants possess extensive experience with projects in medium-sized companies and large corporations. We examine the impact of consulting on clients based on these interviews and pose the question: Are consulting projects a waste of resources?

To address this question, we differentiate between medium-sized (less than 1,000 employees) and large companies (more than 2,000 employees).

Parallels between Consulting projects

Before delving into the differences between these two groups, let's explore their similarities, which provide insight into the value consultancies provide and the challenges contributing to increased skepticism about the industry.

While there is no "typical" consulting project, we'll use the example of restructuring projects to illustrate similarities. The process of analyzing a company, understanding the problem, and defining and implementing measures remains consistent for both medium-sized and large companies. Consequently, clients of all sizes share similar experiences. These experiences may be influenced by success stories but are often shaped by negative encounters, such as encountering a theoretical concept that was never put into practice. According to Frederik Reimann, the feasibility of measures developed by companies lacking change management expertise is frequently overlooked. Combined with concerns about potential job losses, it's understandable why consultants are met with skepticism by clients.

While many aspects apply to all types of companies, a closer examination reveals differences based on client size.

Large companies benefits from scale effects

Large companies boast impressive overall revenues and substantial project budgets. This financial advantage allows them to engage consultants more frequently and recoup investments more swiftly, for instance, through significant cost reductions.

Another factor contributing to increased consultancy usage may be the ongoing dialogue established between consultancies and their largest clients. This rapport enables consultancies to identify potential improvements within the company and propose projects that may not have been internally considered.

Large corporations, by their nature, tend to be more structured and hierarchical, with numerous formalized processes. While this structure provides stability, it can impede change. Consequently, organized communication is essential, particularly when informing managers before engaging with employees, as highlighted by Frederik Reimann. Implementing change in these environments demands more time and effort, often necessitating consultant assistance.

However, there are substantial benefits. Once identified and implemented, measures initiated by larger companies yield remarkable stability that endures shifts in the corporate landscape.

According to Fabian Aymanns, one of the significant potential pitfalls of projects in larger organizations is their duration. Abundant resources can lead to a loss of focus, resulting in time inefficiencies. For consultancy projects, this may lead to consultant turnover and additional billable days.

Medium-Sized Companies Showcase Competitive Resilience Through Agile Business Structures

As noted by Frederik Reimann, over half of medium-sized companies have limited or no experience working with external consultants. This may stem from the unique challenges they face. Due to their comparatively modest revenue streams, consultant fees appear notably higher, imposing greater restrictions on projects and often leading to a reluctance to engage consultants.

To mitigate these limitations, smaller companies often internalize various project aspects to shorten project durations, according to Fabian Aymanns. This can result in primary consultant usage for analysis and recommendation development rather than implementation. However, ensuring proper implementation is crucial and depends on the quality of recommendations developed by consultants. Therefore, it is crucial to ensure well-thought-out, comprehensively explained, and feasible recommendations.

A significant advantage of medium-sized companies is their quicker implementation process compared to larger companies, owing to typically less rigid structures and hierarchies, allowing for more efficient internal communication.

However, the journey toward achieving long-term change is not without challenges. In a more agile business environment, the sustainability of implemented measures hinges on ongoing monitoring and accountability. Implemented changes can be at risk of being disregarded, particularly in the event of a loss of accountability, such as when a project sponsor leaves a company.

Ensuring Value Creation Through Consulting Projects

In conclusion, numerous situations demonstrate the value a consultancy can add to a company. While larger enterprises may struggle more to maintain extensive projects' cost-effectiveness, smaller companies may still hesitate due to high costs. Focusing on maintaining project management control and externalizing only parts of a project is one potential solution. This way, companies can benefit from consultants' expertise and speed while minimizing costs. For this to work, it is essential to ensure that recommendations can be implemented. Therefore, to ensure consulting projects are not a waste of resources, clients must retain project control. A consulting project is akin to a tool, and the user is responsible for identifying its correct fields of application.

This article was written by Lucas Erbsch and Katharina Fughe, students at the MSc Business Strategy & Consulting.