Why consultants fail
Everyone knows that many consulting projects fail. Nobody involved wants the project to be seen as a failure, so it often goes unnoticed by others and unremarked by insiders.
There are tremendously successful projects which depend on a skilled, interested consultant, but it seems as though many more simply transfer cash from one hand to another. However, many businesses can increase their success (or turn around hard times) by hiring a consultant with full knowledge of the traps and problems.
First, before even thinking about hiring a consultant from the outside, explore the skills, resources, and knowledge of your own staff. Your employees may be able to contribute ideas and information that make a consultant unnecessary for the moment. You may also be able to use a consultant only for the most "value-added" services.
One of the biggest problems is that old saying, "Give a child a hammer, and everything will need hammering." Many consultants have a limited toolpack, and apply a few methods to all problems. If a consultant does mainly surveys, they are likely to think you need a survey. If they do mergers and acquisitions, they think you need another company (which is why an M&A specialist should be the last person on your speed dial, given how expensive this option can be). The best consultants have a large toolbox of techniques, and will refer you to other people if they cannot help. Those who are less capable will sell what they have to sell.
Some consultants "specialize" in a wide range of services. Some consultants can help with marketing and market research, and others can help with financial issues. The problems start to come when the financial (or marketing, etc.) advisers think anything can be solved using their tools. The same is true in any field: many doctors think all psychological ailments can be solved with drugs, some psychologists think they can all be solved with therapy. Neither is true. The real skill comes from knowing where help is most beneficial. Often, resolving organizational issues helps the other areas; so I'd usually recommend organizational development as a place to start.
Financially successful consultants are often salespeople first; it takes a lot of skill to sell services, especially when they are hard to describe. The most successful consultants are not always the best. It is essential to hire the best consultant possible, regardless of their sales ability or the name and fame of their company.
The largest consulting firms are not the best, any more than the largest auto or computer companies are necessarily the best. Very busy consultants can also have little time or inclination to innovate, and, from an economic perspective, there is no reason why they should. Even if they are hurting the companies who hire them, they have no financial reason to work any differently.
Watch out for consultants who are too distant from your front-line employees. The best change efforts, even those including marketing or mergers, rely on the front-line employees for both their efforts and their ideas. An aristocratic consultant who treats executives far differently from their own (or your) employees is likely to be out of touch. Even processes such as the balanced scorecard, which are top-down in nature, involve front line people eventually.
Check your consultant's credentials carefully. It can't hurt to call their past clients and ask for information on what they did, and, more importantly, what the results were. Try to look behind the sales spiel and "schmoozing" to see how skilled and honest the consultant is. Watch out for "one size fits all" products, and people who try to sell services you don't need. Often, you can work with consultants to handle many parts of a project yourself, and only tap their skills where necessary to keep the bill down to an affordable size.
Finally, seriously consider a process consultant. They can be very useful in making your own team work more effectively. It may be the most cost-effective consulting method, and can help you to use your resources more effectively to make other consultants (and future consulting projects) unnecessary. That should be the goal of any consultant; most importantly, it should be the goal of yours.