Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 633

Is it time to fire the consultants?

Suppose you hire a painter to slather your Victorian-era house in bright red paint, with purple accents. The painter’s brow furrows as they warn you that such colors are rarely a good look. But, you proceed: you just want a red house and you’re sure Vogue said that purple is in this season. Your painter proceeds with love and care while your neighbours look on in shock.

When it’s finished, you gaze lovingly at the creation. You adore how the purple pops against the red. Passersby recoil in shock. Neighbours give you incredulous glances. After a few months of people snickering, you start to feel self-conscious. You tell neighbours that the painter chose the wrong shade. You really wanted a subdued yellow with lilac highlights. The painter messed up. You’ll hire another one to fix it.

Is it the painter’s fault that your house is ugly? Or is it your fault for setting a ridiculous brief?

That’s precisely the question we face with consultants. Consultants are often blamed for giving bad advice while charging princely sums. To this end, the NSW government is attempting to reduce the use of consultants. Universities have been criticized for relying on consultants as cover for, and to prepare, restructuring plans.

But are consultants really the problem? Or do they get a bad rap? And, here, I want to focus on three core issues.

1. What do consultants do?

Let’s start with what exactly consultants do. Much like the painter in that example, the company, government department, or university hires the consultant to perform a specific task. Sometimes the task is relatively self-contained, such as advising on making a building energy efficient. Sometimes the task is significant, such as how to turn a structural deficit into a surplus.

Regardless of how large or small the task is, the task always starts with the brief. The client tells the consultant what they want to achieve. The consultant is beholden to the client’s parameters and requirements.

Thus, if the client incompetently allocates expenses between departments, then the consultant is stuck with shoddy accounting. For example, if different departments have different capital expenditure requirements; and thus, different depreciation expenses, but the depreciation is treated at the parent level, you will get an incorrect picture of each departments’ actual costs. This, allegedly, is how universities come up with the nonsense suggestion that business schools are more expensive to run than hard sciences.

Garbage in, garbage out thus describes the situation: set a bad brief or give bad information, and you will get a bad result.

2. Why do you hire consultants?

The next issue is precisely why you hire consultants. Sometimes it is necessary. For example, a heritage consultant for a development application provides essential skills. But, in the corporate context, you hire them because you want to make an unpopular decision.

Want to cut a department without wearing the blame? Hire a consultant. Want to put off making a decision until your term is up? Hire a consultant. Want to promote a pet project that really makes no economic sense? Hire a consultant to tell you how to do it, while pretending the consultation also justifies why you are doing it in the first place.

In all cases, the consultant gets a brief. They can perform the brief competently, but they will still be blamed if the implementation is bad or if the brief was unpopular to begin with.

In short, consultants exist so you can blame someone if things go wrong or if the decision is unpopular.

3. Can you replicate consultant work in-house?

What about when the consultant is hired for their expertise, rather than to blame shift or to justify a terrible decision: could you not just internalize the role and do it cheaper?

This is the logic underlying the NSW government’s push to reduce its reliance on consultants. It is inherent in the question of ‘if universities have so many experts, why don’t they just use their own academics’.

Leaving aside the problem with a bloated public service, and a nebulous bureaucratic blob that can entrench political parties, there are clear issues with internalizing consulting functions.

The short answer is incentives. If you want the best, most motivated, hard-working people you must incentivize them. It’s basic economics that when you own your own business, you work harder. Various academic studies confirm that if you want people to go above and beyond, then they must have incentives, preferably tied to the value they create. 

Consultants have those incentives. Internal hires typically have little, if any, upside to working hard. There is no incentive mechanism. A public servant has no incentive to, and is not paid to, work late nights or weekends. A consultant is. The difference in workload is clear. Furthermore, if we work on the premise that people like money, then many of your top workers will go to the private sector unless they prefer a more stable job, with greater job security, and better hours. In short, the private sector will always be more productive because the incentives in the public service do not motivate people. Indeed, a rational public servant should ‘quiet quit’ given the incentives in play.

To use an analogy: suppose you run a superannuation fund. You can choose either: (a) internalize portfolio management and pay portfolio managers a fixed salary, with minimal bonus, (b) pay those portfolio managers like at Macquarie Group, with nigh unlimited bonuses, or (c) outsource to an external fund manager whose fees and industry reputation are directly tied to their performance and whose pay scales align with their skill. It is very obvious that if you choose (a), then many of your talented portfolio managers will defect to the likes of Macquarie or will establish their own fund.

Consultants also have significant expertise and limit insular group think. By working for multiple clients, consultants see myriad different projects, workplaces, and outcomes. This enables cross-learning. To use an analogy, it is well-documented that directors learn skills and expertise by sitting on other companies’ boards. Similarly, a consultant can improve outcomes by seeing what works, and does not work, at other companies.

The net result is that consultants are not useless or disposable. Rather, consultants serve a useful purpose. They wear the blame for unpopular decisions. They can be a scape goat. They can also perform good work. Consultants are necessary.

 

Mark Humphery-Jenner is an Associate Professor of Finance at the UNSW Business School and is Founder and CIO of Otso Capital.

 

  •   15 October 2025
  • 5
  •      
  •   
5 Comments
Roy
October 17, 2025

As Sir Humphrey would say"Make sure you select a safe pair of hands"

L.H. Moore
October 19, 2025

A good article but it ignores one basic area. Internal management of (for example) funds management works well if staff and directors are strongly motivated by having plenty of skin in the game: preferably by a combination of shareholding and long-term incentives. Short term incentives are often dangerous and, to my mind, should be avoided or be only very modest as they promote distortions which adversely impact longer term results and thus encourage a mentality of taking the money and running. Charlie Munger's approach of show me the incentive and I'll tell you what the resulting behaviour will be rings very true. Likewise big "welcome on board" payments are only worthwhile if they are deferred for several years and tied to performance (i.e. become a form of medium/long term incentive). When such payments have been subject to only a short qualifying period (e.g. 12 months) or none there have been too many examples of people moving on quickly, before the lack of worthwhile long-term progress, let alone of the damage they have done, becomes obvious. In those situations the welcome on board payment has become money wasted.


Robert G
October 19, 2025

My somewhat limited experience with consultants is that they are hired by management to offer solutions for management-created problems.
The consultant then disappears ( with a fat wallet ).
Management introduces the recommendations ( usually to decrease inventory and/or headcount, or change established and proven processes ) and then blames the consultant.
Repeats the process as necessary.

Manfred S
October 19, 2025

A good company or uni wouldn't need consultants to solve problems. They could do it themselves. Therefore, hiring consultants is an addition of weakness.

Or am I wrong?

 

Leave a Comment:

RELATED ARTICLES

Two great examples of why company management matters

8 reasons business has little to learn from 'The Last Dance'

The business case for diversity and inclusion

banner

Most viewed in recent weeks

How cutting the CGT discount could help rebalance housing market

A more rational taxation system that supports home ownership but discourages asset speculation could provide greater financial support to first home buyers.

Is there a better way to reform the CGT discount?

The capital gains tax discount is under review, but debate should go beyond its size. Its original purpose, design flaws and distortions suggest Australia could adopt a better, more targeted approach.

Want your loved ones to inherit your super? You can’t afford to skip this one step

One in five Australians die before retirement and most have not set up their super properly so their loved ones can benefit from all their hard work and savings. 

Super is catching up, but ageing is a triple-threat

An ageing Australia is shifting the superannuation system’s focus from accumulation to the lifecycle of retirement. While these pressures have been anticipated for decades, they are now converging at scale and driving widespread industry change.

Meg on SMSFs: Last word on Div 296 for a while

The best way to deal with the incoming Division 296 tax on superannuation is likely doing nothing. Earnings will be taxed regardless of where the money sits, so here are some important considerations.

Has Australia wasted the last 30 years?

The 20 years after Peter Costello left Treasury have been deemed wasted...by Peter Costello. The missed opportunities for Australia began long before.  

Latest Updates

Taxation

3 ways to defuse intergenerational anger

With the upcoming budget increasingly likely to include bold proposals to alter the tax code I’ve outlined three incremental steps with fewer unintended consequences.

Economy

Why an extended US-Iran war will punish mortgage holders

The impact of the Iran War is far more than expensive petrol. Higher oil prices have secondary inflationary impacts that reverberate throughout the economy which could be bad news for Australians with mortgages.

Infrastructure

Don’t forget the yield

Global Listed Infrastructure dividends are forecast to grow 5-6% p.a over the next two years. After a hiatus, share buybacks are back on the agenda and will play an integral role in shareholder returns.

Iran war hands politicians free ticket to blame oil prices for inflation

Past oil shocks offer lessons for investors dealing with the fallout from the Iran War and the ongoing impact on inflation.

Economy

Japan 2026: A new PM heralds a new golden age?

Former Australian Prime Minister, Paul Keating, once said "When you change the government, you change the country." We're about to see whether that holds true in Japan.

Investment strategies

Why are central banks moving from US Treasuries to gold?

Central banks now hold more gold reserves than US Treasuries, signalling a shift in safe-haven asset strategy and portfolio diversification as geopolitical risks increase.

Strategy

Has global human wellbeing peaked? What the data reveals

Historically economic progress is measured by GDP growth but there is an increasing body of work that explores quantitative measures of wellbeing.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.