Tuesday, February 1, 2011

Are consultants worth the price?

I recently read a case study by Jessica Bruder in the New York Times. She was detailing the struggles a family owned business was going through after years of uncontrolled growth which resulted in the company being “functionally bankrupt”. They were hoping, at best, for an $80,000 loss on $3.5 million in sales. Desperate, they hired a consultant to come in and analyze the business and determine what was needed to save the company. The consultants determined that the business was lacking internal financial and operational controls. Employee job descriptions were weak and the organizational chart was haphazard resulting in a lack of coordination, inefficiency, frustration and a tendency for workers to focus a single task.

The thrust of the article was whether the $170,000 the consultants would charge to implement the turnaround plan was worth the money. The plan called for creating more detailed financial data which included job-costing as well as an improved organizational chart, job descriptions and employee performance reviews. Several experts offered their thoughts which included:

“If the long-term problem is that the family has exceeded its managerial capabilities, then getting a list of solutions from a management consultant — however accurate or perfect a list it is — won’t solve the problem.” Matthew Stewart “The Management Myth”

“This is the definition of crazy. Each year they keep doing the same things and hoping for a different result. I think they’re smart to bring in an outside resource, but I would make sure the resource is focusing on the entire business, not just operations. And I would make the payment performance-based.” Chris Carey of Chris Carey Advisors.

Beth and I offer consulting services such as this and we are helping a couple of businesses turn themselves around. We don’t charge $170,000 but we are interested in people’s opinions on the effectiveness of consultants. What have your experiences been?

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