Saturday, June 23

Is management consultancy a waste of money?

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Not if you link it to performance outcomes

There’s an old management cliché that goes something like “50% of my marketing spend is wasted but the problem is I don’t know which 50%”. When it comes to spending on management consultants it could be that 100% of your spend is wasted if recent research into their value in the National Health Service (NHS) is to be believed.

The reality, however, is a little more complicated.

Headline-grabbing

A research project took place last year carried out by the University of Warwick Business School, Seville University and the University of Bristol to evaluate NHS health trusts’ spending on management consultancy. It was an open-minded investigation into the impact on overall efficiency but when the findings were published they made for another money-wasted-in-our-NHS story in some newspapers. The academics found – against their expectation it has to be said – that the more that health trusts spent on consulting the less efficient they were. It was said that the money – some £640m in 2014 – could have been better spent on more doctors and nurses.

The hackles of the management consulting industry were duly raised and the consultants’ own City Livery Company, the Worshipful Company of Management Consultants organised a debate in May with the researchers, the Chief Executive of the Management Consultancies Association (MCA) and a large number of company members (including me) who turned up to get to the bottom of this apparent slur on their competence.

Numbers

The researchers – Professor Andrew Sturdy, University of Bristol, and Ian Kirkpatrick, University of Warwick, kicked off the debate with a summary of their approach. Andrew Sturdy has been focusing on evaluations of the value of consulting for a number of years, most of which has relied on qualitative evaluations of value, and therefore relished the opportunity to get some more quantitative data. The data was quite extensive and covered 120 hospital trusts’ consulting expenditure over a four-year period, correlating that with changes in each health trust’s financial performance.

Source: Policy Bristol

And the numbers do not lie: apart from a minority of trusts where efficiency improved, amounting to one third of the top 25% of consultancy users, the impact on the overall population was negative. I won’t go into the statistics used in detail but, on face value, they don’t paint a great picture.

Alan Leaman, from the MCA, had the task of responding to these results. He pointed out that, even though the press release had equated consultancy expenditure with spending on doctors and nurses this was an inappropriate comparison – and much along the same lines as those campaigning for a leave vote in the Brexit referendum suggesting we would have £350m a week to spend on health after leaving the EU. His main objections, which the researchers did not dispute, covered three areas:

  • The data sources are quite crude, and the figures included the costs of interim staff, including Chief Executives
  • The outcomes from consultancy work were much wider than efficiency and included improvements in care quality, inventory management, procurement, IT and relationships. In some cases, consultants had identified areas of underspend that had been corrected.
  • No hospital is an island – the best work comes when hospitals are joined up with other care providers.

(We have also covered examples of joined-up approach in earlier articles on The Next Ten Year – see our article on Asheville for example.)

Punch-up

With questions open to the floor an introduction from the chair setting out what he described as “Queensberry Rules” the stage was set for some furious debate. However, anyone expecting a punch-up would have been disappointed – I’ve seen more argy-bargy at my local residents’ association meetings – as the contributions were considered and thoughtful.

Everyone agreed that more detail was needed to be able to highlight areas of good practice in procuring consultancy services and that data quality could be improved. It was also recognised that the NHS – subject as it is to a high degree of imposed change – may not provide the best conditions for effective consultancy. Imposed change tends to create resistance: imagine the level of resistance if the change team you are meeting with might result in your redundancy and appears to challenge your accepted ways of working. In this environment, good results are going to be scarce. One questioner asked whether consultancies should decline contracts that were set up not to achieve results – the temptation to take fees without accountability for the results being key here.

Poor work in some areas was certainly acknowledged, particularly where firms had deployed consultants with little knowledge of the sector or had used standardised approaches. It was also possible that the wrong types of consultants were employed in a number of cases. It was commented that there McKinsey seemed to be a surprisingly popular choice of consultant. Strategy consultants such as McKinsey are very different from more operational providers and there seemed to be a temptation to go for a prestige brand rather than a more considered outcome-driven appointment. Expensive, inappropriate and ineffective – in my mind a bit like buying a Ferrari to go off-roading.

Buying better – think F.A.S.T.

As a customer success specialist, NextTen has taken the opportunity to define how we can provide services differently – using our culture and leadership expert Gordon Tredgold’s F.A.S.T. approach (Focus, Accountability, Simplicity and Transparency) I offer some principles for engaging third party service companies better:

  • Review your own capability for change (transparency) – many of the NHS trusts in the study had their own change departments – many of which were quite effective. It might be a valuable, if challenging, piece of work to compare internal and external projects and the results they delivered. I have frequently found – once engaged on a project – that organisations already have highly expert people with an acute understanding of what needs to change and whose voices have sadly been ignored. (This is also increasingly the trend for Customer Experience.)
  • Start small with quick wins (simplicity)– a good discovery project can flush out areas of potential change with the potential to deliver a good return on investment and identify the capability of the organisation to deliver it themselves.
  • Invest in capability (focus) – rather than do the work for the client organisation, it’s much better to start education-centric and work out how the consultants will transfer and build capability so that you can manage the change after the consultants have left the building
  • Link to measurable results (accountability) – as was pointed out in the debate, it’s not beyond the capability of most buying organisations to have some form of performance-related clause in their contracts. The questions over performance data in aggregate in the NHS doesn’t mean it can’t sensibly be used in specific cases.

None of the above is rocket science: it’s good practice for any significant investment. What seems to cause the confusion and misapplication of consultancy is the apparently “intangible” nature of the benefit delivered. As a way of getting beyond this, the work of Professors Sturdy and Kirkpatrick is an important start to an essential debate.

On an individual project level, starting with critical customer outcomes is the most effective way of driving effective estimates of benefit. If these can’t be defined the project isn’t worth doing. Once they are, the principles above will ensure an effective use of whoever your service provider is.

In short, you can use consultants to add value. And still keep hold of your watch.

 

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About Author

Business strategist, consultant and change manager who helps companies become genuinely customer-centric. Nick delivers customer-driven business transformation projects and has worked across many industries including banking and finance, insurance, telecommunications, industrial and public sector. Has held senior roles with variety of blue chip names including BT, Royal Bank of Scotland, CSC and Sema Group. Currently Head of Delivery at NextTen Innovation Solutions

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