Every business wants a rate of return on the investment that has been made into their core business. Yet many small and micro-sized businesses fail to invest in management consultancy because they do not typically understand the value that a third party brings to the table. Fortune 1K and Fortune 500 corporations know how management consulting affects ROI in a consistently positive manner and for a variety of reasons. So why do so many smaller businesses fail to understand and take full advantage of outside consultants?
For the purpose of this discussion, we'll refer to "return on investment" (ROI) and "rate of return", interchangeably, because each term is based on the same ratio of profit to capital. Likewise, in this discussion, when we refer to a business' return on investment or overall success, we're speaking to the profits derived from business operations versus ancillary investments, such as investments in other companies via the stock market.
It seems silly really when you think about it. Huge corporations hire consultants at every operational level absolutely every day of the year. Yet, smaller businesses tend to overlook the value of consultancy. Sometimes the company is strapped for cash and just doesn't understand that they absolutely need help from a third party in order to stay afloat.
Closely held companies are often lead by a patriarchal or matriarchal figure who believes that only they, and they alone, understand their business enough to turn it around. Sadly, even after the patriarch/matriarch's efforts continue to fail, they will stubbornly dig in and may even go so far as say to themselves, "If this ship is going to sink, as the Captain, I am the one who needs to stay aboard until the bitter end!".
Far too often small ships do sink and their captains go down with them. Had the 'captain' hired a management consultant to take even a peek into his/her operations prior to being fully submerged, they may have been able to get a handle on the problem(s) before it was too late.
Every business that ultimately fails, does so because they lack an adequate rate of return. The reasons for a lacking ROI usually have less to do with 'finance' than some managers would have you believe. In fact, the 'operations' side of any business is where the rubber meets the road. Some businesses are challenged by inefficient manufacturing, sales, marketing or purchasing practices. Others may find their rate of return suffers because of an external force that they failed to respond to in an adequate and timely manner.
Had the failed business hired a general business or management consultant to work with the business leaders and perform an 'operational reality analysis', when their ship was still treading water, they would have been provided with a great deal of valuable information and additional insight so that they could have had the opportunity to make better informed decisions. Hiring a management consultant doesn't guarantee success. It's not an instant spray-on armor that is completely resistant to a business failing.
How management consulting affects ROI is summed up as follows. A third party intervention into the management and operations of a business provides far better odds of the business financially succeeding than having no intervention at all. Ultimately, all management teams and all leaders must make executive decisions based on their own knowledge, skill and fiduciary responsibility to their company. A management consultant can't make the decisions for them, but he/she can certainly help business management and leadership quickly identify what parts of their ship is treading water and what areas of the ship might eventually take the entire crew into the darkest depths of disaster.
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