Subsidising the costs of an SME’s first experience of using business consulting services can make them more willing to pay for and more likely to use similar services in the future.
What’s the rationale behind this?
Despite the evidence suggesting that in many settings business consulting might provide a good return on investment, many businesses aren’t using it. Some possible explanations are:
- Motivation: Firms might not know how their performance compares to their peers and potential, so they simply might never have considered hiring a consultant because they’re unaware that they could benefit from implementing better management practices.
- Returns uncertainty: Even if they know they need to improve, they may be unsure about whether the returns from using business consulting justify the costs.
- Search frictions: In countries where the consulting services market is less developed, firms might not know which providers exist or find it difficult to judge the quality of the services offered. The latter can also be true in more well-developed markets. As a result, SMEs might perceive that it would take a lot of effort to find the right provider.
- Capital constraints: Business consulting might be costly. Firms might not be able to afford the upfront costs, especially when benefits are uncertain and may take years to be realised.
Subsidising the costs of business consulting for SMEs on a permanent basis would be extremely expensive for governments. What else can be done to promote the use of business consulting among SMEs?
Small and medium firms
Outcomes of interest
Use of business consulting services
Does it work? Here’s what we know so far…
- Uncertainty regarding the return on investment of business consulting is among the top reasons mentioned by SMEs that have never used business services for not doing so.
- Firms that have had access to free or highly subsidised business services seem to be more willing to pay for similar services in the future.
- They also seem more likely to be using business services years after the subsidy has ended.
- Information barriers and search frictions are often mentioned by SMEs as reasons for not using business consulting. However, just creating a marketplace with basic information and provider quality ratings might not be enough to increase the use of professional business services, as other barriers might persist.
- Including quality ratings in the information on providers can help firms to choose higher quality providers as their top choices.
Ideas worth trying
- If you’re aiming to increase the use of business consulting, try subsidising a first experience for firms that have never used these services before.
- Try offering information on the quality of the business service providers available to firms to help them to screen higher quality ones.
What to avoid
- If aiming to increase the use of business consulting, avoid only providing information on providers if you are not simultaneously providing complementary measures for reducing other barriers to use.
This summary is based on experimental evaluations of the following programmes and tweaks:
Marketplace for business servicesprogrammetweak
Comparing training, consulting, insourcing and outsourcingprogrammetweak
Management consulting for large manufacturing firmsprogramme
Management consulting for SMEsprogramme
Kaizen training and consulting for small and medium-sized manufacturing firmsprogrammetweak
Training and consulting based on Kaizen principles for garment micro and small firmsprogrammetweak