High-Cost Tailored Consulting Inefficiency
RCTClinical Trial
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.
Picture this
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.
What the evidence says
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.
- Who was studied
- N = 160 urban tailors in Accra, Ghana (41 assigned to consulting only, 36 to consulting and capital).
- How
- 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).
What to do
Replace high-cost individualized professional consulting for microenterprises with low-cost, simplified "rule-of-thumb" group training modules.
From the source
"Although this is not trivial, it is small relative to the cost of the consultants' labor."
8dfcee5c-2a63-4460-a220-837509002b85-Consulting and Capital Experiments with Microenterprise Tailors in Ghana.pdf