Need a consultant? This book argues that hiring such a person can harm your institution.

Caution, say the authors of the new book. Suited jetsetters armed with prestigious degrees and PowerPoint slides have infiltrated governments and corporations around the world. They claim to offer valuable experience and fresh ideas. But don’t be fooled! The authors argue that the consulting industry sells snake oil that poisons governments and distorts economies.

The book was written by economists Mariana Mazzucato and Rosie Collington, and it has one of those titles that really supports the authors’ argument. It is called The Big Scam: How the consulting industry is weakening our businesses, infantilizing our governments, and warping our economies. He offers several provocative arguments against what you might call a Big Consultant.

Big Consultant Gets Bigger

The consulting industry, dominated by firms such as McKinsey & Company, Boston Consulting Group, Bain & Company, PricewaterhouseCoopers, and Deloitte, has seen astounding growth in recent decades. Mazzucato and Collington cite estimates that the global consulting market is currently valued at a trillion dollars a year.

[Editor’s note: This is an excerpt of Planet Money‘s newsletter. You can sign up here.]

Although the modern consulting industry has more than a century of history, Mazzucato and Collington write that the use of consultants increased dramatically after the 1980s. It was then that free market advocates like Ronald Reagan and Margaret Thatcher began to dismantle government bureaucracy and rules. More left-wing Third Way leaders such as Bill Clinton and Tony Blair continued to follow in their footsteps. “Public sectors were reshaped in line with the credo of the New Public Administration, a political program that sought to make governments more like businesses and diminished faith in the ability of civil servants,” write Mazzucato and Collington.

As governments lost faith and the ability to do things on their own, they increasingly turned to consultants to help them get things done. Governments have begun using consultants for almost everything, from drafting new tax rules to advising armies, overseeing the privatization of state-owned enterprises, managing information technology departments, and developing strategies to reduce carbon emissions.

At the same time, private corporations have also increasingly turned to consultants to help them become more profitable. And here Mazzucato and Collington portray consulting companies as opportunistically sliding wave after wave of destructive capitalism. McKinsey & Company, for example, was involved in the Enron scandal and profited from the opioid crisis by helping Purdue Pharma boost sales of its OxyContin pain reliever.

“The big scam is certainly not responsible for all the ills of modern capitalism, but it thrives on its flaws, from speculative finance to the short-term business sector to the risk-averse public sector,” write Mazzucato and Collington.

Problems with over-reliance on consultants

Mazzucato and Collington argue that beyond their occasional scandals and disreputable reputations, consultants—and over-reliance on them—create systemic problems for business and government alike.

One big issue is whether consulting services actually provide real value for the large amounts they charge. The authors suggest that in many cases, consultants lack the knowledge and experience that organizations turn to them for. Instead, they write, consultants often simply create an “impression of value” strong enough to secure lucrative contracts, but in the end, their work is not reduced to anything more. Mazzucato and Collington argue that, without sufficient hard data to back it up, these “contracts enable the consulting industry to earn revenues that far exceed the real value it generates.” The authors suggest that the work that consultants do can often be done cheaper and more efficiently at home.

But, the authors write, leaders often turn to consultants not because they need special knowledge or exciting new ideas that they can’t get at home. Instead, the authors argue, leaders often turn to consultants to simply approve controversial decisions they wanted to make anyway. The authors argue, for example, that consultants are quick to green-light such practices as laying off workers and cutting R&D budgets. These decisions may improve short-term profits, but they can also be unpopular and detrimental to the health of the organization in the long run. And these decisions can be given additional legitimacy when they are supported by reputable consultants.

Another major problem associated with the consulting industry is conflicts of interest. In some cases, the same consulting firm advises both the regulators and the regulated. “For example, in climate consulting, large consulting firms work simultaneously for governments whose populations would like to see lower emissions and the fossil fuel companies that contribute most to the climate crisis,” write Mazzucato and Collington. Lack of transparency contributes to these conflicts of interest.

Finally, and perhaps most importantly, Mazzucato and Collington argue that the practice of outsourcing responsibilities to consultants weakens the ability of staff members to improve their work. “The more governments and businesses outsource, the less they know how to do it, leaving organizations empty, stuck in time, and unable to evolve,” the authors write. The authors argue that governments and businesses are often better off doing tasks on their own, and sometimes even fail. This allows their institutions to learn by doing.

The authors suggest that institutional capacity is a cumulative process of trial and error that helps an organization get smarter and better. However, when organizations outsource critical work to others, they shorten the process. Worse, Mazzucato and Collington argue, what is learned from consultants doing real work is often not communicated to the organization properly, meaning that the organization does not actually receive valuable information that it can use in the future. Instead, he remains dependent on consultants.

“The cumulative use of large consulting firms that work with extractive business models stifles innovation, capacity development and learning, undermines democratic accountability, and obscures the impact of political and corporate actions,” write Mazzucato and Collington. “At the end of the day, we are all paying the price of a lack of domestic investment and training: public funds and other resources are wasted, decisions in government and business are made with impunity and lack of transparency, and our democratic societies are deprived of their dynamism. The big scam threatens all of us.”

Mazzucato and Collington offer various ideas to keep the Big Scam from threatening us all. These include greater faith in government officials, the recognition that important technological breakthroughs such as the Internet and GPS were the result of the government’s work at the Defense Advanced Research Projects Agency (DARPA). They argue that government employees can be just as capable as private consultants. The authors recommend limiting the use of consultants and empowering staff.

If you are absolutely sure that you absolutely must use a consultant

Where governments or businesses are forced to use consultants, Mazzucato and Collington recommend that organizations enter into contracts with clauses to ensure that any knowledge gained from a task is properly transferred to full-time employees.

Finally, Mazzucato and Collington recommend reforms to ensure greater transparency and accountability in consulting contracts, a necessary step to combat conflicts of interest. “In democratic societies, it is important for both business and government organizations – and their employees – to be aware of the conflicting interests of another organization when it enters into a contract with them,” the authors write.

A big scam appears on the cover of another recent book, When McKinsey comes to town, which sheds light on the numerous scandals associated with the consulting company McKinsey & Company. In late February, McKinsey announced it was laying off approximately 2,000 employees, one of the largest layoffs ever. With such a deluge of bad publicity, it seems like consultants might need their own consultations these days.

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