Return on Consultant

Are consultants really worth the big bucks we pay them? Hmm…let us guess.

In the midst of high summer, with the sun consulting its way across the sky, even the leather-skinned old CDU is inclined to, well, act nice. So it is with a hot flash of joy that we report a counterintuitive finding: Consultants really are worth the money.


Just ask them. Consultants “add significant value to society,” said Bruce Henderson, founder of Boston Consulting Group. “Consultants can usually outperform corporate people,” trumpeted the late Marvin Bower, an early McKinsey & Co. partner. And Bain & Co. currently claims its clients “outperform the market three to one.”

Briefcase closed. Or is it? We couldn’t help but wonder — with an average-sized McKinsey team costing its clients some $100,000 per week — if there was any tan under that lotion. That is: Has anyone ever proved that high-priced consultants are worth it?

Turns out, few have even tried — mainly because consulting firms themselves make it so difficult. Just try to confirm, for example, those sizzling Bain returns. “You can’t,” admitted spokesperson Cheryl Krauss. “We never, ever reveal who our clients are, and very few of them have publicly spoken about hiring us.”

A study done in the 1960s showed that some British firms using consultants realized an economic benefit — but that was in England, back when the Lovin’ Spoonful was realizing economic benefits. More recently, in 2003, Dartmouth College researchers identified a group of 78 publicly traded companies that announced they had hired a top-10 consulting firm between 1991 and 2001. The researchers compared these firms’ stock price, return on assets, and so on, against their peers.

What did they find?

Not surprisingly, the sample companies’ stock prices fell 4.3% on average after the announcement, which usually included some bad news. But gradually they turned around, and three years after the announcement they were beating their peers by 1.3% before ebbing back into line.


“I was surprised by the results,” one of the researchers, Andrew Samwick, told us. “I would have expected to see…negative risk-adjusted returns.” Does this mean consultants really do add value? “I would not characterize the results as strong,” said Samwick.

Turns out something else happened at many of the firms after the consultants showed up: layoffs. Although Samwick and coauthor Ajay Prakash found employment contractions and the firms’ subsequent rebounds were only “weakly correlated,” other studies have shown, sadly, that layoffs can lead to brighter days ahead.

And when you factor in all the companies using consultants that weren’t included in the study because they didn’t make a public announcement (a majority), we’re right back where the consultants want us: in the dark.


afterwork (n.) work done after the original assignment ends, for an additional fee