Signal to Noise Ratio in the Consulting Industry
October 4th, 2007As what is essentially a research consultant, I run into a fair amount of joking, nudging, and winking when I start to talk about ’surveys’ and ‘focus groups’.
Fortunately I work with data and statistics, so I get to claim a little bit of distance from the more laughable methods.
Regardless, it has me thinking about how consultants are generally perceived and very expensive and ineffectual. I think the idea of hiring someone to research and evaluate a problem or policy, though it has it’s issues, isn’t inherently bad. The methods themselves are terribly bad. It really comes down to one thing:
A few consultants are exceptionally good and the rest spend a lot of time surfing the web.
It’s true of any industry that there are a few exceptional people and/or businesses and the rest are mediocre, but with consultants the mediocrity is easily visible. The problem then isn’t that all consultants are hacks, but that it is difficult to tell whether a consultant has done a good job.
In other words, the signal to noise ratio (Paul Graham) is poor.
There are copious examples of situations with a poor signal to noise ratio (SNR). Consider the employer trying to figure out if the employee is working, the lender evaluating a potential borrower, regulators eyeing a company and any application process such as for school, work, Ycombinator, Peace Corps, or hiring a babysitter.
If you have a background in Game Theory, you might notice that poor SNRs tend to exist in a principal-agent situation. A principal-agent situation is one in which one person/organization has something and the other person/organization wants it. The possessor (the principal) has to decide whether to give it to the desirer (the agent). A poor SNR exists because the agent is always motivated to present themselves in the best light possible, and so the principal has to do their best to see through the presentation to determine actual quality. In other words, the agent is actively reducing the SNR.
So back to consultants. The mediocre consultant will choose to purposely increase the amount of noise in the presentation of their work because they realize that 90% of perception is how you look and not what you say (to cite an irrelevant and entirely made up statistic). Further, it is easier to increase the value of your work by making it look spiffy than by doing better quality work (to a point).
From the point of view of the person who hired the mediocre consultant, they have little incentive to attack the consultants work unless it is obviously shoddy. The hirer doesn’t want to be the person who hired a bad consultant, and so will only attack the consultant’s work if it is obviously shoddy.
Is it any wonder that the industry as a whole is a joke?
The consultants holy grail is to discover the aspect that separates excellent consultants from mediocre ones and make that the center of their work. It also has to be easily discernible but not easily faked.
Somehow I think the only thing that qualifies is thorough hard work.
-zot
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