Measuring value: inputs versus outputs

Value has never been a more important – or contentious – issue in consulting. Much of the discussion around cutting back on the use of consultants during the recession, now being echoed in public sectors across the world, stems from the difficulty in measuring the contribution consultants make and consequent lack of evidence of value added.

Working on a project last year with the UK Management Consultancies Association, the focus was on outputs. It’s a helpful starting point in an important debate, but, reading the economist Dan Ariely recently, I’ve been wondering if we shouldn’t also be thinking about inputs. What is it that consultants do, or could do, that will increase the probability that they add value? It won’t measure value, but it might have the practical advantage of increasing it.

Ariely is a behavioural economist who has studied, among other things, why people who fundamentally consider themselves to be honest are sometimes dishonest, claiming personal taxi fares as businesses expenses, and so on. From experiments using students, he concludes that, given the opportunity, many people will cheat, but cheat just a bit. Knowing that we won’t get caught makes no difference: we still cheat a bit. Honesty is important to the vast majority of us – it’s a social virtue – but it only kicks in when faced with bigger moral choices. Claiming an extra taxi fare doesn’t mean we’ll rob a bank. Ariely argues that trying to legislate to make people honest won’t work.

So what does? He makes two suggestions, again based on more experiments on students (of which he appears to have an unending supply).

In one case he asks students to write down as many of the Ten Commandments as they can remember before giving them a chance to cheat in a test, and then compares their behaviour with a second group which is not asked to recall the Commandments. The result surprises him: the first group don’t cheat at all, even though they have just as much opportunity as the other. Religion doesn’t come into it (students who only remember two Commandments are just as honest as those who remember all ten): “This indicated that it was not the Commandments themselves that encouraged honesty, but the mere contemplation of a moral benchmark of some kind... Once [people] begin thinking about honesty... they stop cheating altogether.”

For the second experiment Ariely leaves cans of Coke and dollar bills in a communal student fridge, only to discover that people took the drinks, but not the money. From this and other more complex trials, he concludes that we’re more likely to be honest where actual cash is involved: we may cheat on expenses, but we don’t steal the petty cash.

Extrapolating from this to the recent financial crisis, he suggests that bankers’ remoteness from hard cash (all those impenetrable financial products) may have contributed to a cavalier attitude towards other people’s money. Applying similar logic to a different issue – how to ensure consultants add value – raises some interesting possibilities. First, could we increase the value we add by repeating some type ethical code that states we will add value? Should, for example, all consultants starting on a project, sign a pledge committing them to adding value? Second, if proximity to money makes people more honest, would closeness to results encourage consultants to add value?

The value of consulting isn’t – and is unlikely ever to be – a simple issue. It’s not a switch that you throw on and off. But, in all the discussion about measuring outputs, we shouldn’t underestimate the importance of inputs.