High First-Year Return on Management Consulting
RCTClinical Trial
Manufacturing firms in developing nations often hesitate to engage international management consulting services due to high upfront costs and uncertainty regarding concrete financial returns.
Picture this
Think of buying an expensive tune-up kit for a factory engine; even though the mechanic charges a steep initial fee, the engine runs so much more efficiently and saves so much fuel that the savings pay off the entire bill and generate extra profit within twelve months.
What the evidence says
Experimental treatment plants increased output by 9.4%, increased Total Factor Productivity by 16.6%, and expanded annual plant profit by approximately $325,000, representing an average 130% one-year return on the market cost of consulting services.
- Who was studied
- 28 manufacturing plants across 17 large, family-owned cotton textile firms near Mumbai, India (human participants, averaging 270 employees, $8.5M assets, and $7.5M annual sales).
- How
- Randomized Controlled Trial (RCT) measuring output, Total Factor Productivity (TFP), and annual profit changes following a 4-month consulting implementation phase.
What to do
Calculate expected profit gains from quality defect reductions and machine downtime prevention before commissioning external operational consulting services.
From the source
"These improvements were estimated to have increased profits per plant by about $325,000 per year. We estimate that this represented, on average, a 130% one-year return on the market cost of the consulting services."
Do-Management-Interventions-Lasts_Bloom-et-al_June2018.pdf