I've been sitting on this post for quite some time, as I wasn't sure whether I wanted to write it or not. It's a long story, as I have very mixed feelings on the topic. However, a recent report published in the Journal of the American Medical Association (JAMA) prompted me to finish this post. The report ("Changes in nonprofit hospitals' finances, operations, and quality of care after using management consultants") used several different data sources to quantify non-profit hospitals' spending on management consultants over a nearly 12 year period. They next evaluated whether the use of these management consultants had any significant impact on finances, operations, or the quality of care delivered.
The investigators compared 306 US nonprofit hospitals that used a management consultant for the first time in 2010-2022 with 513 matched hospitals that didn't use a management consultant during 2009-2023. More than 20% of nonprofit hospitals hired a management consultant during the study period, paying an average of $15.7 million for these services. All told, the nonprofit hospitals in the study spent $7.8 billion on management consultants between 2009-2023. Financial performance (e.g., revenue, expenses, margins, cash reserves), operational performance (e.g., inpatient utilization, staffing, executive and worker compensation), and quality of care measures (e.g., 30-day mortality, readmission rates) did not appreciably change after the consulting engagement. In other words, nonprofit hospitals spend exorbitant amounts on management consulting fees with very little return on their investment!
I've read a lot about the management consulting industry over the past few years. A few years ago, I posted a reply to someone else's post on LinkedIn about the 2023 book, The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies by Mariana Mazzucato and Rosie Collington and an accompanying review that appeared in the Wall Street Journal by Barton Swaim (see "The Big Con Review: The Conquering Consultants"). The main premise of the book is that management consultants are becoming increasingly influential in both business and government, but rather than adding value, they are instead oftentimes weakening the organizations that they are trying to help. As these organizations outsource strategy and other operational functions to the consultants, they lose in-house expertise, creating a vicious cycle in which the organization becomes even more dependent on the management consultant. If you read the 2014 book The Firm: The Story of McKinsey and Its Secret Influence on American Business by Duff McDonald, you will learn that this is the exact business model for these consultant firms. They essentially work to make organizations dependent on the consultants for key business functions.
If you are interested in reading further, there are two additional books that I've found to be worthwhile on this subject. The first is the 2023 book When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm by Walt Bogdanich and Michael Forsythe, and the second book a older (published in 2005), but still worth a look, Martin Kihn's House of Lies: How Management Consultants Steal Your Watch and Then Tell You the Time. Kihn's central argument is that management consultants frequently repackage common sense recommendations as high-priced expertise, offering fancy slide presentations instead of practical solutions. The title is self-explanatory - these consultant firms often "borrow" information from clients, reframe it in polished language, and then sell it back to them as strategic insight.
Last, but not least is an old video clip from a 1992 talk that Steve Jobs gave at the MIT Sloan School of Management. Jobs said that one of the biggest issues with the recommendations that management consultants make is that they are never around long enough to see their recommendations put into action. They never get the opportunity to learn from their mistakes if the recommendations are not the right ones. He said, "I think that without owning something over an extended period of time, like a few years, where someone has a chance to take responsibility for one’s recommendations, where one has to see one’s recommendations through all action stages and accumulate some scar tissue for the mistakes and pick one’s self up off the ground and dust one’s self off, one learns a fraction of what one can." Jobs suggested that management consultants just don't have enough "skin in the game."
As you are reading this post, I may have led you to believe that I am against the practice of bringing in management consultants in general. That's not necessarily the right conclusion. I have had some great engagements with management consultants. However, as I reflect, the engagements that have been the most successful are the ones with a specific, focused problem to solve (e.g., "Let's improve efficiency of operations within the call center"). The ones that have fallen short (in some cases, far short) of success are the ones that have tried to take on too much (e.g., "Let's transform the organization's culture").
Back to the JAMA article - if these management consultants were brought in to transform the organization by driving improvements in financial metrics, operational metrics, and quality of care, I can't imagine that they would be successful. As a matter of fact, there is a well-known statistic provided by McKinsey that 70% of organizational transformations fail. What's not clear is whether organizational transformations succeed any better when management consultants are involved. The data published in JAMA would suggest that is not the case.