Are consultants really an utter waste of time and money?

Journalists, telemarketers and used-car salespeople can console themselves that there is one profession even more widely detested: consultants.

After all, most people have had at least one direct or indirect interaction with the professional class of pseudo-managers churned out by business schools and hoovered up by the likes of McKinsey, Deloitte or BCG – and most of them unpleasant, frustrating or simply baffling.

Sure, sometimes they get involved in high-profile projects like ambitious mass relocation programmes or daring pharmaceutical sales initiatives. But most of the work seems to revolve around 30-something MBAs too dim for private equity being parachuted into multinational businesses or sprawling government departments to tell the bosses what they should already know. And that seems to be a generous interpretation.

Nonetheless, it is estimated that consulting globally generated revenues of about $400 billion (€346 billion) last year. How can something so widely mocked as an utter waste of time and money be so profitable?

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As it happens, three academics have recently had a stab at measuring whether consultants actually add any value, which the National Bureau of Economic Research published this month. And lo: “We document that consulting take-up is concentrated among large, high-labour-productivity firms. For TFP [total factor productivity] and profitability, we find a U-shaped pattern: both high and low performers hire consultants.

“New clients spend on average 3 per cent of payroll on consulting, typically in episodic engagements lasting less than one year.

“Using difference-indifferences designs exploiting these sharp consulting events, we find positive effects on labour productivity of 3.6 per cent over five years, driven by modest employment reductions alongside stable or growing revenue. Average wages rise by 2.7 per cent with no decline in labour’s share of value added, suggesting productivity gains do not come at workers’ expense through rent-shifting.

“We do observe organisational restructuring with small increases in dismissal rates, and higher services procurement but reduced labour outsourcing. Our heterogeneity analysis reveals larger productivity gains for initially less productive firms, suggesting improvements in allocative efficiency.”

How did the three authors – Gert Bijnens of the National Bank of Belgium, Princeton University’s Simon Jäger and Benjamin Schoefer of Berkeley – calculate this? Through a pretty nifty data set.

They combined two decades worth of granular value-added-tax data from the Belgian tax authorities, confidential and anonymised firm-level data provided by the National Bank of Belgium and public financial accounts to create what they reckon is “the first comprehensive data set of major strategy consulting relationships in an entire economy”.

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The tendency of consulting work to be episodic – typically lasting for about a year and a half – allowed them to examine the subsequent impact on employment, wages and productivity. To focus squarely on classic consulting, Bijnens, Jäger and Schoefer excluded the “Big Four” accountancy firms Deloitte, EY, KPMG and PwC, where most of the revenues come from audits and tax advice.

Lots of fancy equations later, and they found that:

“Consulting events are associated with labour productivity growth, appearing to stem from mild reductions in employment against mildly growing revenue and value added. We find positive effects on average wages, no effect on the labour share, and a reduction in a proxy for outsourcing and, if anything, a shift towards managerial labour.

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“We find a mild increase in dismissals, against an overall modest or insignificant employment effect, consistent with some restructuring activities that, overall, increase productivity. Hence, overall, our findings point towards consulting being associated with positive or neutral outcomes for firms and, arguably and in a more complex picture, workers.

“On average, our results are more in line with a productivity-enhancing view of consulting and reject a view of consulting as a rent-shifting institution. We do not find strong profitability effects – perhaps in part because the moderate productivity effects are “eaten up” by wage boosts (although we cannot rule out compositional effects driving both margins).”

This probably won’t assuage the baying hordes of management consultant critics, nor is the report glowing enough to constitute a full-throated endorsement of the consulting business model. But it was interesting enough to warrant a midweek post in late July. – Copyright The Financial Times Limited 2025