Scrutinizing the Consulting Industry: 5 Revealing Critiques
Technological complexity and economic challenges are growing aspects of our time. Companies and governments are increasingly looking for help from consultants. These consultants provide strategic advice and operational expertise. However, economists Mariana Mazzucato and Rosie Collington warn in their book "The Big Con". They signal the dangers of this growing dependency. This article describes some implications of their analysis, additions from the review of the English version of the book, and some possible solutions.
Critique 1: Conflicts of Interest
The consulting industry is often praised for its ability to look at complex problems objectively. However, Mazzucato and Collington highlight a critical aspect that is often overlooked: conflicts of interest. According to them, consultancies often serve opposing interests. Their advice is influenced by the interests of key customers or markets. This can lead to a dangerous situation in which important decisions are made based on incomplete or biased information.
An illustrative example of this criticism is provided in their analysis of McKinsey's role in Puerto Rico's bankruptcy proceedings. The authors show how the advice of the consultants can lead to significant reforms, such as privatization and the abolition of labor protection, without sufficient local knowledge and understanding.
Critique 2: Misconception of cost savings
The authors state that there is a misconception that consultants always cut costs. In some cases, they can spot inefficiencies and propose solutions that lead to cost savings. But Mazzucato and Collington also indicate that consultants can cause higher costs, especially on large-scale projects.
This is further underlined by their analysis of the UK Covid contract. Consultants were brought in for the test and trace programme, at one point spending more than £1m a day on consultants, some billing more than £6,000 for a single day's work.
Critique 3: Alleged expertise
The third criticism directed at the consulting industry concerns the alleged expertise it offers. Companies and governments often assume that consultants have superior knowledge. They believe that consultants provide better insights. However, the authors warn that this is not always true. Consultants do not always deliver the promised expertise.
The book emphasizes the assumption that young consultants from the big companies know better than shop floor or healthcare workers, when they often seem to know very little.
Critique 4: Legitimacy of decisions
The authors' fourth argument focuses on the legitimacy afforded by the consulting industry, even when decisions are not based on solid arguments or are not in line with the organization's actual policies. Consultants are often hired by business leaders or governments to provide a semblance of authority – and a convenient scapegoat – for controversial “reforms.”
An example of this is the situation in Puerto Rico. When Puerto Rico began bankruptcy proceedings in 2016, McKinsey was hired to advise a federally appointed oversight board. Ultimately, McKinsey advised on a "schedule" for the island's ailing economy, which included privatizing public companies and removing labor protections.
Despite the questionable foundations of such decisions, the involvement of a well-known consultancy firm gave a certain legitimacy to the process. This highlights how consultants have the ability to reinforce the image of legitimacy, even if their advice is not always in the best interest of the organization. It can even lead to situations where important policy decisions are made based on the advice of consultants, regardless of the consequences or inconsistencies with existing policies.
Critique 5: Erosion of organizations
Finally, the authors state that too much dependence on consultants can be detrimental to organizations. They argue that if consultants are given too many responsibilities, organizations can lose internal expertise and competencies. This could lead to an 'infantilisation' of organisations, as expressed by a Conservative minister in 2020. This situation is reflected, for example, in the UK government's growing reliance on consultancy firms, which has ensured that essential knowledge and skills are no longer built in-house.
This is not only detrimental in the short term, but may also lead to a decline in institutional capacity in the long term. The author write: “ The more governments and companies outsource, the less they know how to do it.” This can lead to a vicious circle in which organizations increasingly rely on external consultants, further reducing their internal capabilities . This criticism emphasizes the importance of maintaining internal competencies and knowledge, despite the potential benefits of using external consultants.
Conclusion and Recommendations
This article highlights the potential pitfalls and risks of over-reliance on consultants, as presented by economists Mariana Mazzucato and Rosie Collington. From conflicts of interest to the erosion of internal competencies and knowledge, the analysis reveals profound concerns about current trends in the consulting industry.
Businesses and governments should carefully consider these criticisms when making decisions. A balanced approach to consultancy is essential, leveraging the valuable insights and expertise that consultants can provide, without neglecting one's own internal capabilities and expertise. It is critical that organizations invest in developing and retaining internal knowledge and skills, and ensure transparency and control in their relationships with consultants.
In addition, there is a need for further regulation of the consulting industry to prevent conflicts of interest, ensure the quality of services provided, and ensure fair pricing and billing. More research is also needed to evaluate the long-term impact and effectiveness of consultancy.
In short, “The Big Con” offers a valuable, critical look at the consulting industry and calls for a more balanced, thoughtful approach to consulting that recognizes both the benefits of external expertise and the need for in-house capabilities.