Rare Wisdom or Hot Air

Category: Applied Microeconomics and Organization Seminar
When: 12 February 2025
, 14:15
 - 15:30
Where: RuW 4.201

Title: Rare Wisdom or Hot Air

Abstract: This study investigates the value creation potential of former management consultants when they transition to managerial roles in non-consultant firms. The paper explores the dual perspectives on prior work experience as a consultant as a training ground, highlighting both the advantages of exposure to diverse industrial contexts as well as the risks of superficial knowledge lacking firm-specific insights. We examine the hiring patterns of firms, differentiating between high-growth and low-growth scenarios, and assess the impact of former consultants on reorganization and productivity outcomes. Using a unique dataset from Sweden, we analyze longitudinal employer-employee data across nearly 100,000 firms from 2007 to 2015. Our empirical strategy employs dynamic panel data models combined with Heckman-type selection to investigate the consequences of hiring consultants. Comparing the hiring of consultants to that of hiring external non-consultant managers, our findings are threefold. First, primarily firms experiencing periods of low growth are hiring management consultants, potentially as a countermeasure to the perceived performance deficits. Second, hiring consultants as managers significantly increase firm-level productivity. Third, this effect is mediated primarily by induced structural reorganizations in the hiring firm, while other obvious candidates such as cost-cutting or investment programs appear to be of lower importance.

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