There is now strong evidence that good management practices matter for firms, and that these practices can be improved by consulting. However, two big issues in translating this evidence into policy are cost and sustainability. Individual one-on-one consulting can be expensive – a global consulting company that we partnered with in India provided services valued at $250,000 per firm, and even using local consultants in Colombia cost about $29,000 per firm. Moreover, even if these consultants succeed in improving management, there are many reasons to worry about fade-out. Boston Consulting Group estimates that two-thirds of corporate transformations fail, as staff turns over and priorities change. Once a shock arrives, perhaps management is like a new habit that reverts to the old.
Together with Leo Iacovone and Bill Maloney, we worked with the government of Colombia to test out a novel solution to the cost issue: rather than just one-on-one individual consulting, we would have consultants work with small groups of 3-8 firms at a time in a collaborative setting, where firms could collectively try to improve and learn both from the consultants as well as from one another’s efforts. We tested this with a sample of 159 SMEs in the auto parts sector, with a second treatment group given individual consulting, and a control group just receiving a diagnostic. This group-based model was one-third of the cost ($10,000 per firm), and we found that in the first year it improved management practices at least as much as individual consulting, and improved sales and profits (see this summary of the original paper).
Measuring impacts 8-10 years later
In a new paper, Leo, Bill and I return to see whether these impacts are sustained 8-10 years later. Tracking impacts over such a long period is difficult for several reasons. First, the willingness of SMEs to answer surveys is typically much lower than for microenterprises and households, and can be even lower as more time passes. Second, over time, some firms close down, and survival becomes an outcome of interest in its own right, but also something to deal with in both data collection and analysis. We were fortunate that Colombia has excellent administrative data, and were able to link our firms to the annual manufacturing survey (EAM), the social security data (PILA), as well as to export data and an innovation survey (EDIT) conducted by the government. We supplemented this by having IPA call to verify which firms had closed down, and with detailed case studies to provide qualitative insights.
Group consulting had large and sustained impacts
We use these administrative data to track firms through to 8-10 years post-consulting.
· Group-treated firms were more likely to survive, especially those that were initially poorly managed: group-treated firms are 11-13 percentage points more likely to survive through to 2024 compared to the control group (for which 75% of firms were still operating). In the control group we see a positive association between baseline management levels and survival, with poorly managed firms being particularly likely to close. 62% of control firms in the bottom quartile of baseline management survive, whereas 92% of group-treated firms in this quartile survive.
· There are large long-term impacts on profits and sales: the long-term treatment effect is that annual sales increase by almost $1 million (55%), and annual profits by $382,000 (48%). Recall this is for an intervention that cost $10,000.
· Group-treated firms increase employment by 17 workers per firm or 29% conditional on survival. Our base estimates code firms that close as having zero workers. Our treatment impacts on levels then combine the extensive margin effect of keeping some firms open, with the intensive margin impact of operating firms having more workers. Control firms average 53 workers, and we see in Figure 1 the long-term impact is an increase of 17 workers. Using log employment, which conditions on operating, shows a 29% increase.
read more: https://blogs.worldbank.org/en/impactevaluations/the-large-and-sustained-impacts-of-group-consulting-on-firm-perf
