Using Business Consultants - A "How To Guide" for SMEs

In the increasingly competitive and unpredictable business environment, UK small and medium-sized enterprises (SMEs) face a variety of challenges, ranging from market uncertainty to operational inefficiencies. In response, many SMEs turn to business consultants for expert guidance and solutions. While the use of consultants can bring substantial benefits, it also carries certain risks, particularly for smaller businesses that have limited resources. This blog provides a detailed, objective critique of UK SMEs engaging with business consultants, weighing the advantages and disadvantages and offering insights into how such partnerships can be optimized.

1. Why Do SMEs Hire Business Consultants?

SMEs in the UK, which account for over 99% of all businesses, often face unique challenges related to scale, resources, and competition. Unlike larger corporations, SMEs typically do not have extensive in-house expertise in areas such as strategy development, digital transformation, financial restructuring, or human resource management. This is where business consultants step in, offering specialized skills and an outsider’s perspective.

There are several reasons why UK SMEs might seek the services of a business consultant:

• Expertise: Consultants provide expertise in specific areas such as marketing, finance, supply chain, and IT, which might not be available within the company.

• Objective Perspective: A consultant, being an outsider, can offer a fresh, unbiased view of the company’s strengths and weaknesses.

• Focus on Core Activities: By outsourcing certain strategic or operational tasks to a consultant, business leaders can concentrate on running their day-to-day operations.

• Change Management: Consultants can help facilitate and guide SMEs through periods of significant change, such as mergers, acquisitions, or new market entries.

2. The Benefits of Using Consultants for SMEs

There are several clear advantages for SMEs that work with business consultants, especially when used judiciously and aligned with specific business needs.

a. Access to Specialized Knowledge

One of the most significant advantages is access to specialized expertise. SMEs often lack the internal resources to hire full-time experts in every field. Hiring a consultant gives SMEs the flexibility to bring in specialists as needed, without the long-term commitment of full-time hires. Whether it’s navigating a complex tax situation, developing a digital marketing strategy, or optimizing supply chain processes, consultants provide access to niche knowledge and experience.

b. Efficiency Gains

Consultants can streamline business processes and help SMEs operate more efficiently. For instance, consultants with a background in Lean Six Sigma or similar methodologies can identify inefficiencies in production, distribution, or service delivery. By implementing best practices, they can help SMEs reduce waste, improve turnaround times, and increase profitability.

c. Strategic Planning and Growth

SMEs often face difficulty in long-term planning due to a lack of strategic vision or internal resources. A business consultant can offer strategic advice, helping the company to define its long-term objectives, identify growth opportunities, and navigate market challenges. Consultants can also help with crafting business plans that attract investors, which is particularly important for SMEs looking to scale.

d. Change Management and Transformation

When SMEs undergo significant transformations—whether through digital adoption, new product launches, or international expansion—consultants play a crucial role in managing the change process. Their experience in managing change ensures that transformations are smooth, minimizing disruptions to day-to-day operations.

e. Market Insights and Competitor Analysis

Consultants often have access to market research, benchmarking data, and industry insights that may not be readily available to SMEs. By leveraging this information, SMEs can make informed decisions about their market positioning, pricing strategies, and expansion plans. Consultants can also provide a detailed analysis of competitors, helping SMEs to stay ahead of the curve.

3. The Downsides of Engaging Consultants

While the benefits of hiring consultants are clear, there are also risks and drawbacks that SMEs need to consider. In some cases, these risks can outweigh the advantages, particularly for businesses with limited budgets and uncertain returns on investment.

a. High Costs

One of the biggest downsides for SMEs in hiring consultants is the cost. High-quality consultants, especially those from established firms, charge substantial fees for their services. For an SME, which often operates on tighter margins than larger businesses, the costs associated with consulting services can be prohibitively expensive. Additionally, the actual return on investment (ROI) can be difficult to measure. While consultants may provide a clear plan or strategy, there is no guarantee that it will translate into tangible improvements in revenue or efficiency.

b. Generic Solutions

Another criticism of the consulting industry is that consultants sometimes offer generic, one-size-fits-all solutions. While they may be experienced in their field, consultants often rely on templates and pre-established methodologies that may not take into account the unique challenges and nuances of a particular SME. As a result, the solutions they provide may not be fully customized to the business’s specific needs, potentially leading to ineffective or suboptimal outcomes.

c. Over-reliance on Consultants

One risk SMEs face is becoming overly reliant on consultants. If a business turns to consultants for every decision or problem, it can lead to a dependency that weakens the internal capacity to solve problems independently. Over time, this reliance can erode the decision-making ability of the SME’s management team, leading to higher costs and a diminished sense of ownership over key business decisions.

d. Disruption of Internal Dynamics

Introducing an external consultant into an SME can sometimes disrupt internal dynamics. Employees might feel threatened or undermined if they perceive the consultant as being brought in to do their job or if their input is overlooked in favor of external advice. This can lead to reduced morale and internal resistance to the changes proposed by the consultant, hampering the effectiveness of their recommendations.

e. Lack of Accountability

While consultants are hired to provide expert advice, they are not always accountable for the outcomes. Once their contract ends, the responsibility for implementing their recommendations falls squarely on the SME. If the outcomes are not as expected, the SME is left bearing the consequences, while the consultant moves on to the next project. This lack of accountability can sometimes lead to a disconnect between the recommendations provided and the feasibility of their execution.

4. Best Practices for SMEs Working with Consultants

To maximize the value of hiring a business consultant while minimizing risks, SMEs should consider the following best practices:

a. Clearly Define Objectives

Before hiring a consultant, an SME should have a clear understanding of what they hope to achieve. Whether it’s improving operational efficiency, increasing sales, or navigating a specific business challenge, clearly defined goals ensure that both the SME and the consultant are aligned from the outset. Without clear objectives, there is a risk of scope creep, where the consultant’s work expands beyond the original remit, leading to higher costs and potentially diluted results.

b. Seek Tailored Solutions

SMEs should be cautious of consultants offering generic solutions. During the selection process, businesses should ensure that the consultant has a deep understanding of their industry and business model. Customized solutions are far more likely to be effective than off-the-shelf strategies that don’t consider the specific context in which the SME operates.

c. Ensure Knowledge Transfer

To avoid becoming overly reliant on consultants, SMEs should prioritize knowledge transfer during the consulting engagement. This means ensuring that the consultant not only provides solutions but also trains the internal team on how to implement and maintain those solutions. This builds the internal capacity of the business, ensuring that it can sustain improvements long after the consultant has left.

d. Monitor and Measure Success

SMEs should establish clear metrics for success before engaging a consultant. These could be financial targets, operational improvements, or other key performance indicators. By establishing measurable goals, the SME can evaluate whether the consultant’s recommendations are having the desired impact. Regular check-ins throughout the project can also help to ensure that it stays on track and that any issues are addressed promptly.

5. Conclusion

Business consultants can offer significant value to UK SMEs, providing access to specialized expertise, strategic planning, and operational efficiencies. However, the decision to engage a consultant should not be taken lightly. The costs can be substantial, and there is always the risk that the consultant’s advice may not be fully customized to the SME’s specific needs. By clearly defining objectives, seeking tailored solutions, and ensuring proper knowledge transfer, SMEs can make the most of their investment in consulting services.

Ultimately, the effectiveness of a business consultant depends on how well the SME manages the relationship. When used judiciously, consultants can be a powerful asset in driving business growth and navigating complex challenges. However, SMEs must remain vigilant to avoid the pitfalls of high costs, generic solutions, and over-reliance on external expertise.