The Consultancy Conundrum

The New Zealand government has faced criticism for its excessive reliance on business consultants, but would marketing companies benefit from more use of consultants?

The previous New Zealand government spent millions of dollars on consultants for various projects, some of which were eventually abandoned. For instance, the RNZ-TVNZ media merger cost approximately $23 million in consultancy fees before being scrapped. Other policies also incurred substantial expenses, notably, the Three Waters reforms which has been lucrative for management consultants, with Ernst and Young billing of $5.2 million.

The government increasingly relies on private sector consultants to devise innovative approaches across various sectors, including health and water infrastructure. Last year alone, consultancy spending surged by $300 million.

The “Big Four” management consultants, Deloitte, KPMG, Ernst and Young (EY), and PricewaterhouseCoopers (PwC) have become integral to policymaking. Critics argue that these external contractors are overshadowing the role of the public service in designing state programs.

The use of consultants has sparked debate, with concerns that more money is allocated to “consulto-crats” than to the actual delivery of public services. The need for transparency and accountability in consultancy spending remains a pressing issue.

There are several well-known international examples of organisations facing consequences due to overreliance or misuse of consultants.

In the early 2000s, the UK National Health Service (NHS) hired thousands of consultants from firms like McKinsey, PwC, and Accenture, spending billions of pounds. However, many of the consultants' recommendations were seen as impractical or failed to deliver the promised benefits, leading to criticism of wasteful spending.

Multiple U.S. Federal Government agencies, including the Department of Defence and the Internal Revenue Service, have faced scrutiny and criticism for overspending on consultants. For example, the IRS paid over $1 billion to consulting firms like Deloitte and Accenture between 2008 and 2013, with some questioning the value received.

The infamous Enron scandal involved conflicts of interest and questionable relationships between the energy company and its consulting firms, such as Arthur Andersen. The consultants were accused of helping Enron hide financial losses and liabilities, ultimately contributing to the company's collapse.

Boeing faced criticism for relying heavily on low-paid contractors and outsourced staff during the development of the 737 MAX aircraft, potentially contributing to the design flaws and software issues that led to two deadly crashes.

In the 1990s, New York City hired several consulting firms to implement a new payroll system, but the project became mired in issues, costing over $600 million and taking more than a decade to complete, with much of the work eventually brought back in-house.

In the early 2000s, the Ontario government spent over $1 billion on consultants, including firms like Accenture and Deloitte, for various initiatives like health care and education reforms. However, many of the projects faced criticism for cost overruns, delays, and failing to deliver expected results.

The iconic toy retailer, Toys R Us, hired several high-profile consulting firms, including Bain & Company and Alvarez & Marsal, to help restructure and try to avoid bankruptcy. However, the company still ended up filing for bankruptcy in 2017, with some critics arguing that the consultants' strategies, such as aggressive cost-cutting and store closures, exacerbated the company's problems.

During the tenure of former General Electric (GE) CEO Jack Welch, GE became known for its heavy reliance on consultants from firms like McKinsey and Boston Consulting Group. However, this dependence was later criticised as contributing to a culture of outsourcing core competencies and a lack of internal innovation and expertise within the conglomerate.

In the early 2000s, Ford Motor Company hired several consultants, including former IBM CEO Louis Gerstner, to help turnaround the struggling automaker. However, the company continued to face financial challenges, and some analysts argued that the consultants' recommendations were too focused on cost-cutting rather than addressing deeper product and strategic issues.

During the tenure of CEO Marissa Mayer, Yahoo brought in numerous high-priced consultants and advisers, including from firms like McKinsey and Boston Consulting Group. However, these efforts did little to reverse Yahoo's decline, and the company was eventually acquired by Verizon in 2017.

The struggling retailer Sears spent heavily on consultants, including from firms like AlixPartners and M-III Partners, in an effort to restructure and avoid bankruptcy. However, the company ultimately filed for Chapter 11 bankruptcy in 2018, with critics arguing that the consultant-driven strategies, such as selling off assets and closing stores, failed to address the company's deeper issues.

These examples illustrate how excessive reliance on consultants, without proper oversight and internal capabilities, can sometimes lead to questionable strategies, lack of long-term solutions, and even contribute to the decline of established businesses.

While the overuse and associated costs of consultants have raised valid concerns within New Zealand's public sector, perhaps marketing companies could benefit from leveraging consultants to bring external viewpoints and novel ideas. Their diverse experiences can help marketing companies break free from routine thinking and explore innovative strategies. Marketers should, however, be aware of the pitfalls, and enter into any relationships with eyes wide open.

Marketing consultants often specialise in specific areas such as digital marketing, branding, or market research. By hiring them, companies gain access to specialised knowledge without committing to long-term hires.

Instead of maintaining a large in-house team, marketing companies can engage consultants on a project-by-project basis. This flexibility allows them to manage costs effectively and allocate resources where needed, as they provide temporary support during peak seasons, product launches, or major campaigns. Their expertise can enhance efficiency without the need for permanent staff expansion. They also offer objective assessment of existing marketing strategies, and identify areas for improvement, recommend adjustments, and help companies stay competitive.

It is, however, important to note that not all marketing companies will benefit equally from consultants. Larger companies with established marketing departments may have less need for external consultants compared to smaller businesses. For complex projects requiring specialised skills, consultants can be invaluable. However, for simpler tasks, using internal resources might be more efficient, and some companies prefer to keep their marketing efforts in-house to retain company culture.

Consultant fees can be expensive, especially compared to regular employee salaries. This can be a burden for smaller organisations or those requiring ongoing support. There are often implementation challenges, as recommendations from consultants may not always translate well into an organisation's existing culture or structure..

Also, overreliance on consultants can create a dependence on external expertise, hindering the development of internal capabilities and knowledge transfer, while consultant goals may not always be perfectly aligned with the organisation's long-term objectives, potentially leading to conflicts or a lack of ownership over implemented solutions.

Critics argue that consultants may not possess genuine expertise beyond generic frameworks and off-the-shelf solutions. This raises concerns about the value for money companies receive, especially for hefty fees. Additionally, some suggest young consultants lack the deep understanding of specific industries or company cultures, leading to recommendations that are impractical or poorly adapted to the specific context.

They also often highlight the tendency of consultants to offer standardised solutions across different organisations, neglecting the unique nuances and complexities of each client. This can lead to ineffective implementation and a lack of tailored solutions that address the root causes of problems.

As consultants typically move on to new projects after recommendations are made, they may not be held accountable for the long-term success of their solutions. This raises concerns about ownership and responsibility for the implemented changes.

Overreliance on consultants can weaken an organisation's internal capabilities. By outsourcing problem-solving and strategy development, employees may lose the opportunity to develop their own skills and knowledge. This can create a long-term dependence on external expertise, hindering the organization's self-sufficiency and innovation.

Critics point to potential conflicts of interest, where consulting firms might push specific solutions that benefit them financially, even if they are not the best fit for the client. Additionally, concerns exist regarding data privacy and confidentiality when sensitive information is shared with external consultants.

These are criticisms, not absolute truths. Consulting firms can offer valuable expertise and fresh perspectives, but being aware of these potential downsides allows for a more informed and critical evaluation of whether or not engaging consultants is the right decision for an organisation.

Finding specific, publicly available information about successful projects solely relying on consultants in New Zealand can be challenging due to confidentiality agreements and the nature of such engagements. However, we do know that in 2017, kiwifruit marketer Zespri partnered with global consulting firm McKinsey & Company to embark on a digital transformation journey. The project aimed to improve customer experience, optimise supply chains, and leverage data analytics for better decision-making.

While specific details are scarce, Zespri has publicly acknowledged the positive impact of the collaboration, crediting it with contributing to their continued growth and success in the global market.

Consulting firms in New Zealand often participate in industry awards that recognize their work with clients. These awards can be a good indicator of successful projects, but it's important to note that winning an award doesn't necessarily guarantee the project's specific details are publicly available.

Consulting NZ, the industry body, organises the "Consulting Excellence Awards" annually, which might be a starting point for further exploration.

It's important to remember that successful projects involving consultants often involve a combination of factors, including internal efforts, market conditions, and the specific expertise brought by the consultant. While finding specific, detailed examples in the public domain might be difficult, the potential benefits of using consultants like specialised knowledge, fresh perspectives, and cost-effectiveness remain relevant for New Zealand businesses across various industries.