High-Cost Tailored Consulting Inefficiency

In Simple Words

Imagine hiring a top corporate lawyer charging $500 an hour to help a child run a neighborhood lemonade stand. Even if the lawyer teaches the child a few clever accounting tricks, the total extra earnings from lemonade sales will never come close to paying the lawyer's steep fee.

Research question

Providing intensive, tailored, one-on-one consulting from elite international firms to microenterprises generates high administrative expenses that vastly exceed the financial returns generated by small-scale firms. Even when training slightly improves business literacy, the modest income gains fall far short of covering the market cost of professional advisory services.

Participants

N = 160 urban tailors in Accra, Ghana (41 assigned to consulting only, 36 to consulting and capital).

Study Design

Randomized evaluation of 1,200 total hours of tailored, one-on-one consulting provided over one year by Ernst & Young (market rate US $75/hour, averaging 10 contact hours per tailor).

Results

Consulting increased business literacy by 0.3 questions on a 4-question quiz (0.52 standard deviations, p < 0.05), but generated an average stated income change of only 0.90 GH¢ (upper bound 95% CI of 41 GH¢ / 28% increase), which is negligible relative to the $75/hour consultant cost. Participants expressed a mean willingness-to-pay of only 5.9 GH¢ (US $4) per hour for continued consulting.

Takeaway

Replace high-cost individualized professional consulting for microenterprises with low-cost, simplified "rule-of-thumb" group training modules.

Related findings

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• Asymmetric Management Practice Stickiness →Firms & operations

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• Baseline Practice Prevalence as Persistence Predictor →Firms & operations

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• Cadence-Matched Payout Architecture →Firms & operations

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