Can Management Consulting Help Small Firms Grow?

By Duflo, Annie; Karlan, Dean | Stanford Social Innovation Review, Summer 2012 | Go to article overview

Can Management Consulting Help Small Firms Grow?


Duflo, Annie, Karlan, Dean, Stanford Social Innovation Review


? Shouldwe assume that small enterprises in developing countries are lacking in business skills-and that guidance and training will improve these businesses? Economic theory says that firms do as much as possible to maximize profits- including paying for advice from management consultants. In developing countries, interventions ranging from quick lectures during microcredit meetings to extended engagements with international consulting firms aim to improve management practices.

These interventions presume that the existing management must be missing something. And whenever there is a ton of activity, questionable data, and competing theories, researchers often try to fill the knowledge gap. We want to know: What is all this interventionist effort for? Can mere advice really help these enterprises run better, earn more money, and create more jobs-and, if so, why?

Two randomized evaluations recently conducted by Innovations for Poverty

Annie Duflo is executive director of Innovations for Poverty Action.

Action (IPA) in Ghana (by Dean Karlan, Ryan Knight, and Chris Udry) and in Mexico (by Miriam Bruhn, Dean Karlan, and Antoinette Schoar) explore this question for small and medium enterprises (SMEs). We aim to shed light on when advice will help SMEs, so that policymakers can decide how best to support them. The evaluations also challenge our assumptions.

In February, we asked SSIR website readers to predict the results of the two studies. Most got the answer wrong. Granted, the online article was short, with little room to provide the full contexts from which readers could make their predictions. Nearly everyone expected the consulting advice to affect enterprise growth positively in at least one of the studies, and almost half expected positive impact in both studies. The consulting advice did positively impact enterprises in Mexico, but generated some adverse effects in Ghana.

Why did we study these programs with randomized evaluations? For years, evaluations of such programs would follow participants over time, observing the change in their business afterward compared to beforehand. But countless outside factors influence the success, or failure, of a business. This fails to answer the question of impact: How have the businesses changed compared to how they would have changed had the training or consulting not taken place? Even if an analyst compares nonparticipants to participants, one must ask: Why are some participating and others not? Could it be that those participating are striving to improve their businesses? Random assignment to treatment and control addresses these factors.

In Accra, Ghana, IPA partnered with Ernst & Young to provide urban tailors and seamstresses with customized consulting advice on record keeping, customer service, and management of employees. Those offered the consulting services were randomly selected from a group of 160 tailors and seamstresses; we subsequently compared business outcomes for those selected to receive the consulting with those who got no consulting.

Our results showed that although the consulting intervention caused short-term changes in business practices, these impacts dissipated within a year after the consulting ended. On average, we found no long-term benefit from the consulting, and actually lower short-term profits. We believe some businesspeople hoped the advice would work and thus took it But better bookkeeping and other business practices potentially took time away from the physical act of sewing clothes. Once profits took a hit, enterprise owners likely abandoned the practices and reverted to their previous methods. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Can Management Consulting Help Small Firms Grow?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.