Why Doesn’t Management Implement Consulting Advice?
This has mystified me since my first consulting gig. The client pays for advice, doesn’t complain that the advice is bad, but never implements.
An interview with Chad Syverson, an economist with the Federal Reserve Bank of Richmond, provides an interesting answer to this in an interview in June of 2018.
EF: Regarding management practices, it seems a little puzzling that lagging firms wouldn't have done more to replicate what more successful firms have done. You could imagine possible stories about why that may be the case, but it seems like an important question to answer.
Syverson: I agree, and there is some evidence we can look at from work done by Bloom and some colleagues. I'll call it the India experiments. They did a randomized controlled trial with textile producers in India. They provided management consulting practices to 28 plants — a small sample but still useful — and asked the management of every plant why they hadn't previously instituted some of the management practices that the consultants recommended. Basically, there were three classes of explanations. First, there was, I didn't know about them. The second was, I knew about them, but they're just not going to work here. The third was, they might work here, but I didn't have the time to put them into place. And then they tracked the plants over time and asked those who still had not adopted those practices why they hadn't. Obviously, plants are unlikely to still give the first answer, but you still had a lot giving answer two or three.
Now, maybe there's something special or unusual about the setting of that experiment. But I do think the fact that management is often just mistaken is a nontrivial factor. There is evidence coming out of this body of work that suggests companies don't know where they are in the distribution — they don't know whether they are well-managed or not. You can't fix yourself until you know you have a problem.
Also, I think even if you know you have a problem, a lot of firms can't simply say, well, we see this competing company over there has an inventory management tracking system that seems really useful, so we'll install it on our computers and our problems will be solved. That's not how it works. The firm that has adopted this practice has people trained in how to do it. It has changed its system, so that there's an interaction and a feedback loop between what the system is recording and recommending and what you do. If you just say, OK, we're going to start collecting these data now and then do nothing else, you're not going to get the productivity benefits that the company with the complements is getting. I just think this stuff is way more complex than people might initially think.
An example I talk about in class a lot is when many mainline carriers in the United States tried to copy Southwest and created little carriers offering low-cost service. For instance, United had Ted and Delta had Song. They failed because they copied a few superficial elements of Southwest's operations, but there was a lot of underlying stuff that Southwest did differently that they didn't replicate. I think that presents a more general lesson: You need a lot of pieces working together to get the benefits, and a lot of companies can't manage to do that. It also typically requires you to continue doing what you have been doing while you are changing your capital and people to do things differently. That's hard.
Read the whole interview at https://www.richmondfed.org/publications/research/econ_focus/2018/q2/interview?cc_view=mobile
When it comes to small businesses, the “I didn’t know about it” is not relevant. Business owner of course no about all consulting engagements since they are usually the only ones that can initiate them.
The number two explanation of “it won’t work here” probably has some relevance, but then why don’t we hear direct complaints about the advice being not workable? Some of it could be because they are complaining, but we are not listening. But this does not likely explain why so much of the consulting advice is not implemented.
Then there is the third explanation of “I don’t have the time to implement” which probably explains most of it. In the end, we all know of lots of things that we wish our businesses were doing better. It’s just hard to implement anything that is extensive and takes a long time to implement.
My takeaway is that if I want my consulting engagements to be more effective, I have to include an incremental approach to implementation.