What's next in Business Consulting? Charting the course for effective policies and necessary research

By Sara Garcia Arteagoitia and Anna Segura on Wednesday, 18 May 2022.

Good business practices matter for performance. But managers running the day-to-day operations of businesses might have a hard time seeing the forest for the trees and be constrained in their ability to recognise barriers, innovate new ideas, and implement solutions. An external review by business consultants can help. They can identify business needs, propose improvements and help with their implementation. 

So why aren’t SMEs hiring business consultants at higher rates? One factor is awareness: firms might not know how they are performing compared to their peers and how business consultants might help them reach their potential. If they are aware of their need for improvement and the ability of consultants to help them get there, they might be unsure about whether the returns from using business consulting justify the costs. Further, they might face search frictions trying to find the right provider for their needs. And finally, the cost might be the ultimate barrier to access. 

Policymakers tasked with supporting businesses improve their performance thus grapple with questions about how to help businesses access consulting services in the most effective way - and how these compare to other support schemes aimed at increasing business performance. For example, they consider how to encourage SMEs to use business consulting services, whether subsidising them might be an effective approach, how the consulting sessions should be set up, or whether business consulting should be complementing business training programmes.

We want to help, so we are charting a clear course: highlighting what we know about what works through our evidence portal and detailing below what research we are still missing. We want policymakers to have a clear and full picture of the things they should care about when designing and implementing Business Consulting schemes - and academics to have new policy-relevant research avenues based on what policymakers are demanding.

IGL Evidence Bites: A space for policymakers seeking to improve their Business Consulting programmes

To help increase the effectiveness of entrepreneurship and business support programmes, we have developed Evidence Bites, funded by the Ewing Marion Kauffman Foundation. The portal contains a series of evidence summaries that make it easier for policymakers and business support providers to access and act on the most rigorous evidence on how to effectively support entrepreneurs and businesses. 

The evidence summaries are organised using what we have named bitesize questions: specific questions that, as revealed by our work with stakeholders, policymakers face when designing and rethinking support schemes. Along with the summaries, the portal includes actionable insights to take into account in the form of ‘Ideas worth trying’ and ‘Things to avoid’.

The section on Business Consulting summarises the existing experimental evidence on the topic. It provides an overview of what we know regarding design choices such as subsidising consulting, encouraging sign-ups to consulting services, the adequate size of consulting session groups, and how the benefits of consulting depend on company size. Among the concrete conclusions from the research, we have seen that business consulting is particularly useful to improve the performance of firms with at least five employees, and that subsidising the costs of an SME’s first experience of using business consulting services can make them more willing to pay for and more likely to use similar services in the future. Also, the evidence shows that partially subsidising the costs of hiring a worker with the right expertise or outsourcing specific tasks to external professionals can be effective and cheaper alternatives to business consulting.

Make sure to visit the portal next time you are (re)designing a programme or to find ideas worth trying to improve your Business Consulting schemes!

Furthermore, we are aware of studies currently underway that will soon expand the frontier of knowledge in Business Consulting. A study in Uganda is comparing the relative cost-effectiveness of standardised training to complementing the training with intensive, personalised consulting in helping women develop the skills they need to run their businesses. A study in Bangladesh is looking at how new management practices are adopted and implemented and what determines their success. And a study in Mexico is looking at the effects of access to management consulting on productivity. The findings will be added to our portal as they become available. 

What’s next for research: Four randomised controlled trials we would like to see 

As we have reviewed the literature through the lens of policymakers’ needs for effective programme design, we have discovered some especially interesting and relevant areas in need of exploration. Here are the four that stood out the most and would make the highest impact in our understanding of what works for Business Consulting:

  • Compare different group sizes and compositions in group consulting

Business consulting seems to work. But individual consulting is very expensive, so it is difficult for governments to scale up such programs. While group consulting could be a middle ground solution, the evidence is mixed. One study found that group consulting can outperform one-to-one consulting while cutting costs by two thirds if the programme creates opportunities for learning amongst participants. But a study in a different context suggested that a single one-to-one session outperformed a single group session, despite being ten times more expensive. Looking more broadly, we see further evidence for the benefits of bringing businesses to learn together but also how these can vary by the characteristics of participants, levels of competition and the types of information being shared. We would therefore like to see more work to help policymakers know when and how to make the best use of group consulting.

  • Compare different levels of intensity of business consulting

The question about cost and scalability around business consulting influences both the choice to provide it at all but also the intensity at which to provide it. If providing many businesses with a short period of consulting support – say a few hours in total – proves effective in improving performance, then this can be scaled at reasonable cost. However, if it is necessary to provide businesses with longer-term or more intense support in order to see an impact, then the calculation changes and questions about participant selection gain relevance. Thus, with the evidence on this important question very thin, we would like to see more studies comparing different levels of intensity of business consulting to aid policymakers in their decision-making.

  • Compare personalised consulting by highly experienced consultants to more standardised consulting by less experienced people

Another way to go about increasing the scalability of business consulting is by providing more standardised support. A highly experienced consultant providing individualised support drawing from their many years of experience is more expensive and less scalable than someone with less seniority providing an external look at the company in a more standardised way. But we do not have good evidence about the effectiveness of the latter compared to the former - perhaps the secret ingredient is lost when interactions have to follow a more rigid format. We would therefore like to see more experiments looking at different degrees of standardisation in business consulting. 

  • Compare business consulting to in-sourcing and out-sourcing in developed business services markets

In some circumstances, business support may only be necessary to help identify needs and set a direction that businesses can follow. Often, however, there are concerns that businesses struggle to develop and implement solutions and face barriers to draw in the external expertise to address those areas where their capabilities are lacking. On these occasions, policymakers face a set of decisions about how to provide support. In particular, they have to consider whether to try and build the capabilities within the business (through training or new hires) or to direct them towards external expertise. ‘Teaching them to fish’ may sound like the natural solution, but overstretched managers may lack the time for training - while small businesses may not have the resources and scale to hire new staff.

One very promising study from Nigeria shows that enabling businesses to hire specialist staff (in-sourcing) or to contract with an external specialist (out-sourcing) can both be more effective than business training, at least as effective as consulting and cost half as much. However, we do not know how this approach translates to contexts where the business services markets are more developed and the relative cost of the different options might differ. Thus, more studies comparing business consulting to business training (or combinations thereof) to in-sourcing and out-sourcing would help us better understand contextual constraints. 

The evidence lessons: Tips for researchers

In our review of the existing literature we have observed likely pitfalls and potential tweaks to research that could greatly benefit our understanding of what works and what the different trade-offs are with regards to Business Consulting. 

  • Look for results in the mid-term (2 to 5 years)

The effects of business consulting on business performance will most likely not be immediate. It is quite common for firms to adopt many new business practices right after the support has been delivered, only to abandon some of them in the medium run. Sustainable effects require firms to implement modifications and adapt to changes, so we should expect that the true results will only become clear several months if not years after the start of the intervention.

  • Look not only at the rate of adoption of business practices but also at changes in the type of practices over time

Business consulting seems to enable firms to develop meta-skills that help them make better decisions in the long term. Firms that receive business consulting appear to be better at deciding which practices to keep and which to drop in the future. So we should not look just to the immediate adoption of business practices, but also to medium-term improvements.

  • Look for heterogeneous effects – by firm size, entrepreneurial mindset and years operating

Current evidence suggests that business consulting is more useful for firms with more than five employees, but is not effective for smaller ones. There is also suggestive evidence that consulting is particularly useful for more entrepreneurial individuals, and more established firms.

So one should expect heterogeneous effects to appear in the data. In order to be able to capture these effects, make sure you collect baseline data on the firms and the individuals within them and ensure that you have sample sizes that allow for these types of subgroup analyses.

I am a researcher/practitioner working on Business Consulting and I am interested in testing new ideas and contributing to building rigorous evidence on how to make Business Consulting more impactful. What should I do?

Get in touch! Our work at IGL is focused on building bridges between policymakers and research(ers). We help develop new ideas, test them, and amplify existing evidence.
So, contact us if you are:

(1) Working on projects related to Business Consulting and would like to share your work with the right policymakers, or 

(2) Would like to explore the viability of ideas you are considering, or 

(3) Would like to collaborate on making them happen.

We can support you! Send us an email and we’ll continue from there!