Why Does Consultancy Exist?

The immediate response from both students and consultants when I ask this question is to say “they can do things which clients can’t do for themselves”. Indeed, this is the most common reason clients give when asked why they purchase consultants:

As Armbruster argues in his book, the client decision to buy can be modelled on simple transaction-cost economics. If an activity is done rarely (e.g. BPR) or requires significant resources or expertise (e.g. outsourcing) the cost of ‘doing it yourself’ is often more than getting experts in to do it for you, even if their daily rate is high.

Yet, we all know that humans are not simple rational creatures, so it is unsurprising that ‘expertise’ is not the only reason why clients bringing in consultants. In Andrew Sturdy’s academic study of management consultants, for example, he found that they frequently did work that clients were quite capable of doing themselves, yet did not have the time.

Many academics have argued that client managers call in consultants because their image of ‘expertise’ provides security in an inherently insecure and uncertain business world. Clients can use this ‘expert identity’ to bolster their own image in an organisation or to provide legitimacy to a decision that the client has already made. Consultants also provide a very real succour to clients in that they provide a legal liability for when decisions go wrong.

Whilst the client is an important unit of analysis when seeking to understand the existence of consultancies, it is also important to take a wider, more historical view of their existence. Organised advisary firms are very much a feature of a a very Western, neo-liberal form of capitalism: in these countries consultants, rather than friends, family or local firms, as seen as the source of expertise. The consulting business is driven by many of the pillars of this extreme form of capitalism: privatisation, e-business and cost-reduction.

Finally, the influence of government, as both a legislator and a client should be noted in the growth in use of consultancies. For example, in McKenna’s account of the history of management consultancy, he outlines the Glass-Stegall Banking Act of 1933, which prevented banks from engaging in non-banking activities and, therefore, provided a significant spurt of growth to the consulting industry. In more recent years, the Sarbannes-Oxley Act (2002) provided management consultants with a vast new market for business process work. Direction also comes from government bodies such as the Securities and Exchange Commission (SEC) in the US or the Financial Services Authority (FSA) which both successfully put pressure on audit firms to divest their consulting arms in the period 1999 – 2001.