Significance of consultancy sector for economy

This article is an attempt to share the observations made so far during my new career of business consultancy adopted a few years ago.

Right from the start what perturbs me the most is a preponderant tendency of many in the market to try to utilise the services of a consultant free of cost or cheat on the billable hours or offer unrealistically low fees. Few examples of the genre come to my mind.

A CEO of a company verbally sought my services and soon after requested to assist him in a few meetings. I complied with the request and then also shared with him my feedback. Later he offered a fee disproportionately low vis-a-vis the extensive and complex scope he wanted me to deliver in a short time. When I declined, he cited frivolous alibis, including shortage of funds and never compensated even for the services already delivered.

Another MD approached with a sense of urgency, kept everything verbal and hazy and then attempted to disappear under various pretexts, ie, when his purpose stood served. Some prove more sophisticated. They try to secure a free supply of ideas vide technical proposals and clarification meetings and then start avoiding contact under the pretext that approval is awaited from higher authorities, which, mostly, never arrives.

Of course, there have been clients who, in contravention to the above, were throughout highly professional.

There is another category, which apparently does not believe in spending on adopting a considered approach and seeking an expert's advice at the planning stage. For instance, I visited a few manufacturing units where safety seemed just one casualty in the design and work practices among many.

Similarly, I have observed oil and gas plants apparently installed without much risking with respect to their locations and future potential of the pertaining exploration blocks and fields and their integrated development. This made the owners perennial hostages to higher capex and opex.

Also, operating without SOPs and meticulous data monitoring and record keeping seems to be quite common. It not only increases the probability of bad investments, but also makes a business unit indulge in corner cutting at the cost of safety and efficiency. A large manufacturing unit incurring excessive fuel cost wanted to optimise it, however, they failed to provide associated data and engineering documents for the required analysis due to the habitual disregard for the importance of pertaining records.

It is mostly because of the above general attitude of the industry to specialised knowledge and skills and associated corporate practices that so far we have not been able to develop any consultancy firm, truly, of global scale. As to the said firms, they also hardly invest in the development of their staff. This keeps the common denominator of the staff quality quite low, thereby further diminishing their chances in the competitive market. Therefore, even firms, which were once promising, appear to be fast losing their glitter and substance.

Potential role

The above challenges to the consultancy business are despite of the pivotal role consultants can play for the economy, especially when Pakistan's Human Capital Index (HCI) value of 0.41 is lower than the South Asian average of 0.48. The HCI's negative impact on per capita GDP would be around eight times vis-a-vis the GDP's theoretical growth potential at optimal capacity during the next 20 years.

We all know that labour productivity constitutes the most vital component of the required inputs for economic productivity. Over the last around five decades, Pakistan has observed an alarming retardation in average labour productivity annual growth rate from 4.2% to 1.5%. For India and China, it stands at 5.7% and 8.5%, respectively. Experts and consultants can be effectively utilised to bridge this ever increasing capacity gap and even reverse it.

Another tool which more aptly reflects the urgency of optimal utilisation of experts and consultants is the total factor productivity (TFP), which reflects the economic efficiency of a unit. It is primarily a measure of the efficiency by which a business unit or on a larger scale a country converts its inputs into outputs. Thus, it is more of a measure of how effectively a business unit manages its resources by deploying the modern tools of management and governance, new technologies, etc.

A recent research of PIDE shows that economies with TFP growth above 3% achieve GDP growth rates of 8%. In Pakistan's case, it has consistently remained substantially below 3% over the past more than five decades. For the past decade (2010-19), it remained at 1.5%. According to some studies, it hardly ever crossed even 2%. Example; for a sample period of 1985-2005, it remained around 1.1%.

In my view, the list of the sectors which observed negative TFP growth during the past decade (2010-19) is a charge sheet against our rulers and the captains of the industry. The list comprises 21 critical sectors with mining at the top with shrinkage of 12%, auto sector with 6%, steel 3%, engineering 2%, textile spinning and weaving 1-2% and E&P 0.7%.

As to the textile sector, the main pillar of our economy and currently fetching two-thirds of export revenues, I am afraid that it may soon stop serving the role. It is because of the above trend and sluggish response to EU regulations with respect to the carbon border tax, wastewater handling and digital product passport.

For a country like Pakistan with burgeoning population, strangulating poverty coupled with an antediluvian feudal structure of land ownership, decreasing public spending on education and skilling and increasing security challenges, the above list is a vivid manifest of the ongoing implosion of the economy and the concomitant erosion in the capacity of our rulers to create, adapt and govern.

What is to be done

Based on the above analysis, I understand that a consultant always needs to agree upon the scope of services and the rates in writing before undertaking any assignment. Secondly, it is high time that consultancy firms introduce modern methods of management in their own organisations in terms of SOPs, organisational design and workflow, annual corporate KPIs, staff remunerations and their performance evaluations including mandatory spending a certain percentage of profits on their capacity development.

As to the role of the industry, if effectively utilised, a consultant can prove to be a true catalyst of change for any business unit and that too at a negligible cost. This becomes more valid when considered in the context of the unique capacity challenges our economy is plagued with.

The writer is a petroleum engineer and an oil and gas management professional