Assessing the value of advice : Evaluation approaches of small management consulting firms

Abstract: Whilst utilization of management consulting services has become an integral part of the contemporary economy and functioning of many organizations, intangibility leaves clients unable to predict or objectively assess the values created in consulting engagements. According to scholars, attempts to counteract the principal-agent related risks of opportunism and divergent incentives are expected to increase following higher competition, consumer awareness and anticipated increased demand for performance-based pricing. Improved comprehension of means to evaluate consulting services should become increasingly significant not only for the management consulting firms with increasing needs to tangibilize value and prove “success” to a greater extent, but also for the purchasing organizations in both private and public sectors. The academic attention to the industry has been described as surprisingly low, and previous scholars urge for increased empirical data on evaluation practices in general, and for additional contexts and sizes of consulting firms, in particular. Accordingly, this study aims to contribute with empirical data and understanding of consultants’ reasoning and approaches through asking; How do small Swedish management consulting firms approach evaluation of their engagements in terms of client satisfaction and value generated within the client organization, and; what is the rationale behind the eventual evaluation approach(es) used? Based on a literature review on primarily the fields of; the management consulting industry, intangibility of knowledge-intensive services, and scholarly suggested evaluation methods, semi-structured interviews were conducted with senior managers, partners and CEOs representing ten small-sized management consulting firms in Sweden. The purposively sampled respondents were categorized based on relative size and relative service offering, enabling comparison between size and type of business. Thematic analysis of the interviews showed great similarities between firms, and that valuation approaches are commonly unstructured, situational and goal-oriented, focused on aggregated satisfaction, rarely including objective measurements, initiated by the consultant, conducted through dialogue and sometimes supported by questionnaires. It was concluded that the evaluation approaches are generally highly subjective and focused on capturing client perceptions. Discrepancies between respondents’ practices and scholarly suggested methods were identified, and analysis of variations concluded that smaller firms seem to have less developed evaluation approaches. The respondents’ rationales were described and categorized into; drivers, deterrents and obstacles. Potential catalysts for change, including price sensitivity, client demand and performance-based pricing were identified. Whilst the study does provide requested empirical data and may facilitate improved comprehension of means to counteract intangibility to benefit clients and consultants - and hopefully increase public interest for these issues - further research is needed to nuance the findings, especially through capturing clients’ perspectives.