public advisory services - theory and practice

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Public advisory services - theory andpracticeDan Hjalmarsson a & Anders W. Johansson ba EuroFutures, PO Box 415, SE - 101 28 Stockholm, Swedenb Mälardalen University, PO Box 883, SE - 721 23 Västerås,Sweden; e-mail: [email protected] online: 09 Nov 2010.

To cite this article: Dan Hjalmarsson & Anders W. Johansson (2003) Public advisory services -theory and practice, Entrepreneurship & Regional Development: An International Journal, 15:1,83-98, DOI: 10.1080/0898562021000011205

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Public advisory services – theory and practice

DAN HJALMARSSON{ and ANDERS W. JOHANSSON{{EuroFutures, PO Box 415, SE – 101 28 Stockholm, Sweden

{Malardalen University, PO Box 883, SE – 721 23 Vasteras, Sweden; e-mail:

[email protected]

Public advisory service to SMEs is a multibillion pound activity throughout the industrializedworld. Yet very little research has been done on the theoretical basis for this field. This paperproposes some elements in a theoretical understanding of the rationale behind public measures.

The authors argue that public intervention should be considered at two levels, as a publicmarket intervention and as a consultant-client relation at the micro level. At the market inter-vention level, public advisory service is seen in the perspective of economic theory, comparingneo-classical and neo-Austrian theory. Two different kinds of services are identified and dis-cussed: operational and strategic.

At a micro level, the concepts of client identity and clientifying power relations serve tounderstand the small business manager’s way of responding to services. In combining both levels– the market perspective and the micro level – it is argued that the neo-classical theory isconnected to operational/expert services and objectifying power technologies. The neo-Austrian theory corresponds with the empirical findings at the micro level showing strategicservices embedded in a subjectifying power technology. With the neo-Austrian perspective therather symmetrical relations between client and consultant at the micro level is comprehensible.

Keywords: public advisory services; market intervention; client identity; power; policy implemen-tation.

1. Introduction

SMEs have long been the target of public policy. A key assignment of any governmentis to ‘create a suitable macroeconomic framework’ (Storey 1994: 315). A frequentlyused argument for the keen interest in SMEs is their importance as a major source ofjob creation. Alongside general measures to foster a climate that promotes these firms,selective initiatives are considered. Two of the most common public interventions areto supply SMEs with venture capital and to provide public advisory services.Although these types of interventions have been undertaken for decades, the objectivesof public policies and the rationale behind the measures are rarely specified directly.

Theoretical arguments of publicly financed advisory services, when stated, usuallyemanate from neo-classical theory. The basic argument can be derived from theconcept of imperfect markets (Caves 1982, Stiglitz 1986). SMEs are being seen asdisfavoured because of size, as consulting services are rather expensive and even moreso if the cost is to be carried by small companies with small revenues while big com-panies can carry the same cost with much higher revenues. This argument does not, aswill be discussed further below, consider the practical problems with implementationof the public intervention that is supposed to make the market more perfect.

According to Storey (1998: 34) ‘most policy initiatives in OECD countries currentlyare merely monitored, rather than evaluated’. He advocates the use of evaluation

Entrepreneurship and Regional Development ISSN 0898–5626 print/ISSN 1464–5114 online # 2003 Taylor & Francis Ltdhttp://www.tandf.co.uk/journals

DOI: 10.1080/0898562021000011205

ENTREPRENEURSHIP & REGIONAL DEVELOPMENT, 15 (2003), 83–98

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where the performance of recipients of advisory services is compared with other groupsof individuals or enterprises. Referring to recent cases of evaluation, Storey makes asomewhat discouraging conclusion. The evidence so far tends to suggest that the moresophisticated and careful the evaluation analysis, the weaker the apparent impact ofpolicy seems to be.

It is argued that public intervention should be considered at two levels. At the firstlevel, public advisory service is seen as a market intervention. This is relevant in orderto determine what kind of market intervention can contribute to renewal andenhancement of the service market and thus enhance growth in the whole economy.

At a more aggregate level the public service cannot be seen only as a marketintervention. The effect of a certain programme or a specific service encounter mustbe considered on the field. Otherwise unintended or even reverse effects of publicintervention can be expected. A basic additional understanding of the nature of theservice encounter is therefore required.

The focus of this paper is to show how the advisory service can be understood atthese two levels and how they are related to each other. In the first section of the paperwe characterize the public advisory market. We then distinguish between operationaland strategic services and argue that they differ substantially in nature. In the secondpart of the paper we discuss these services in a market perspective, our first level. Wefind operational services to fit with arguments from neo-classical theory and strategicservices to be more in line with neo-Austrian theory.

In a micro perspective, our second level, we see that the advice-taker, the client, hasa more vital role in the advisory process than is usually recognized. We also argue thatthe power aspects of the advisory process need to be taken into account. Therefore weintroduce two theoretical concepts, client identity and clientifying processes. These twoconcepts provide a basic understanding of the service encounter, which enhancesthe prospects of understanding and evaluating publicly financed advisory pro-grammes. In the last part of the paper we summarize our argument and discuss theimplementation of our ideas.

Empirically we draw from a number of our own previous studies. The distinctionbetween strategic and operational services is mainly based upon case studies, inter-views and surveys of public services performed by Swedish state-owned ALMI (for-merly the Swedish Regional Development Funds).

The concept of client identity is based upon narrative analysis of the stories of smallbusiness managers. Participant observation and subsequent critical analysis of serviceencounters between SMEs and service providers gives the empirical basis of the con-cept of clientification. Besides academic research the authors have extensive experi-ence as consultants to SMEs as well as consulting to service organizations of variouskinds. This practical experience has certainly informed our interpretation of theempirical data we refer to in this paper.

One of us (Hjalmarsson) draws mainly from experiences associated with the firstlevel. This includes experience from writing public policy as a government officer. Theother author (Johansson) has worked as a consultant to SMEs as well as a middlemanager in a large accounting firm in Sweden. His experiences are more related toour second, micro, level.

84 DAN HJALMARSSON AND ANDERS W. JOHANSSON

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2. Characteristics of the public advisory service market

A traditional argument for public advisory services to SMEs has been the notion ofweaknesses in the small firm sector (OECD 1995). Small firms are regarded as lessefficient in using external management skills than large firms are. Their demand forconsulting services is much lower due to unfavourable economies of scale and marketimperfections on the supply side.

It is a well-known fact, though, that there is a growing market for business advice. Asurvey of SMEs in the UK by Bennett and Robson (1999) reports that as many as95% of the respondents make use of external advice. However, SMEs seem to berather different in their use of services. Some use just a few sources from the privatesector, especially technical professionals such as accountants and solicitors. A quitedifferent category of the respondents, roughly one out of three, uses a significant rangeof services including public sector support as well as private sector sources. WhenBennett and Robson (1999) evaluate the impact of service providers, their conclusionis that there is a considerable difference between, on the one hand, professionals,customers, suppliers and business friends and on the other hand government-backedsuppliers and intermediary collective associations. The former are used to a muchhigher level as external suppliers but also have much more impact as reported by therespondents. The advice provided by government-backed suppliers appears to be lesssignificant and oriented to fill gaps in the supply.

The demand for advisory services by SMEs seems to be best explained from anetwork perspective. From a subjectivist approach to networking (Johannisson1995) the personal network of the entrepreneur is the origin of the venture in thefirst place. External assistance is sought primarily from this personal network.Managing a small firm also involves formal ties to suppliers, customers, authorities,etc. Networks for service and assistance therefore include formal and informal ties(Mønsted 1993).

Empirical findings strongly support the idea that SMEs seek advisory servicesthrough their networks. Belotti (1999) found that suppliers and exchange with col-leagues in other small firms played an important role for technological renewal insmall manufacturing firms. From a competence perspective, survey studies of manu-facturing firms in Sweden underlined the importance of smaller firms’ customers,suppliers and external board members as advice providers (Ylinenpaa 1999). Froma network perspective, trust is an inherent characteristic. On the basis of their large-scale survey Bennett and Robson (1999) conclude that the level of trust seems toexplain the use of advice. They distinguish between two forms of trust, institutionaland personal trust. The former relates to accountants, solicitors and banks, who drawgreat trust from professional self-regulation. The latter applies to business friends/relatives, suppliers and customers.

Bennett and Robson (1999) also find that SMEs use consultants sparsely. Thisfinding harmonizes with the traditional argument concerning small firms and theirlack of demand for consulting services. The network perspective explicitly formulatedby Bennett and Robson (1999: 176) give a reasonable explanation to this phenom-enon.

Consultants, whom we expect to be mainly dependent on market signalling, using reputa-tion, branding and recommendation, have a relatively low level of use. This is suggestive ofthe difficulties of consultants breaking into a market for advice, which tends to be domi-

PUBLIC ADVISORY SERVICES 85

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nated by specialist suppliers who benefit from a higher level of trust derived from eitherinstitutional regimes or personal relationships.

This conclusion harmonizes fairly well with experiences from assistance programmesin the USA. Small business managers in general found assistance in administrative(e.g. finance and accounting) and operating (e.g. marketing and inventory control)functions as the most helpful. Very few clients mentioned receiving useful help instrategy formulation (Chrisman and Leslie 1989). However, the tentative findingsof Chrisman and Leslie (1989) indicated that comprehensive assistance includingstrategic, administrative and operational issues was most fruitful.

The attempt by Chrisman and Leslie (1989) to differentiate between different areasof outsider assistance is further developed by Hjalmarsson (1998). In Sweden ALMI isthe leading provider of public advisory services. Surveys of how their consultants usedtheir time show a large variation in tasks (strategic initiatives, market research, prac-tical support) and methods (training, brokerage, sounding board assignments, etc.;Hjalmarsson and Johnsson 1982). Further analysis of tasks and methods suggested acontinuum of services with operational services at one end and strategic services at theother end. A further elaboration of these two extremes indicates that these two kinds ofservice differ substantially in nature.

In Hjalmarsson (1998) the empirical findings are summarized into two categories ofservices; operational and strategic. The operational service has been regarded as‘objective’, e.g. it has a clear and undisputed meaning independent of the relationshipbetween the client and the service provider. Thus it is easy to communicate and is‘static’ in the sense that the advice is not changing during the process of providing theservice. Finally, the operational service is ‘known to be available’, e.g. it is a knownknowledge among ‘experts’.

Strategic services, on the other hand, are ‘subjective’ meaning that the service andinformation depends on the relationship between the client and the service provider.The information is ‘tacit’ and embedded in the relationship and the context in whichthe service is ‘produced’. In this relationship new and previously unthought-of infor-mation emerges. These characteristics emanate from our empirical findings and willbe further discussed below when we look for theoretical explanations (table 1).

In the following sections of this paper we will return to this distinction betweenservices and explain why it is important to keep these different characteristics in mind.Our point is that these differences must be considered in policy-making as a basis for asuccessful market intervention.

So far we can conclude that almost all SMEs demand and find operational services.When looking for advice they prefer to use their personal networks. Let us now ex-amine some features of the rather small proportion of firms that use public advisoryservices. Are their performance improved as a result of these services? There certainly


Table 1. Characteristics of advisory services.

Kind of services/

characteristics Operational Strategic

Nature Objective SubjectiveCommunicability Communicable TacitContent Static DynamicAvailability Information known-to-be-available Information unthought-of

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are proponents that suggest a positive answer. Chrisman and Katrishen (1995) foundthat the clients of the Small Business Development Center (SBDC) programme in theUSA increased sales and employment significantly more than they would have done ifno assistance had been received. Similarly Nahavandi and Chesteen (1988) reportedthat business managers were highly satisfied with the services received from a par-ticular SBDC and that consulting had a positive impact on their business. Incubatorsfor start-up businesses linked to universities are often mentioned as a measure thatfacilitates business development. It is assumed that they play an important role inhelping these businesses to take off and grow (Jones-Evans and Klofsten 1997).

Others are less convinced. According to Storey (1994: 291) ‘there is currently littlepersuasive evidence that, for the small proportion of firms which use public informa-tion and advice services, their performance is improved as a result’. Much evaluationof public support programmes ends with collecting recipients’ views on received ser-vices. A more conscious evaluation includes comparison with other firms that do notreceive public support where account of selection bias1 is taken. When selection biaswas considered Wren and Storey (1998) found that the positive effect of a policyprogramme fell considerably.

Given that rigorous evaluation is undertaken there still remains the problembetween cause and effect (Nystrom 1996: 19). Even if positive effects are ‘proven’we still do not know what features of the support programme actually caused thoseeffects. Our conclusion is accordingly that public initiatives could not be legitimizedby ‘proven’ positive effects. Moreover if the recipes of adequate measures could beformulated, the market would soon take care of the distribution of such services.

The basic problem seems not to be how to measure cause and effects of publicsupport but that initiatives seem to be undertaken without clear objectives. There is

a basic lack of a theory explaining the reasoning underlying the programme (Bell 1975: 45, Patton1986: 150, Hoogerwerf 1990, Vedung 1997). Such a programme theory, according toVedung, should imply ways to attain a goal, in this case the reasoning behind publicadvisory services. In the next section we will explain public support programmes byusing neo-classical theory and neo-Austrian perspectives.

3. Public advisory services at the market intervention level

The neo-classical idea rests on the calculation of prices and quantities on markets. It isassumed that companies have access to market information about production func-tions, quantities and market prices and are characterized by rational action in thecontext of that given information. In the model it is rational firms, not acting andcreative entrepreneurs, that shape the market.

Within this theoretical school, the validity of the rationality assumption has ofcourse been discussed, resulting in theories about rational behaviour under uncer-tainty and conditional decision-making. Further theories about information-marketshave been constructed, but still with the rationality assumption as a basis. Thus, theoverall assumption about rational economic man remains a theoretical cornerstone(Kirzner 1997). Information, as an underlying assumption, is regarded as indepen-dent of the subject (entrepreneur) and of the context (for example other actors on themarket). The focus is on a closed systems approach. In accordance with this line ofthinking, advisory services could be seen as a way of bridging the gap between businessdecisions and efficient decisions in a welfare economics perspective.


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The neo-classical approach, seen as a scientific undertaking, has thus served as afoundation for widespread normative policy recommendations (OECD 1995 is oneexample). In a world of rationality and profit maximizing firms it is assumed that it ispossible to find rational solutions to economic problems. Provision of public advisoryservices is such a solution, responding to the need to compensate for economies of scalein information markets.

From a neo-classical point of view the concept of ‘information’ and service is per se

not seen as problematic. In principle information about efficient production functionsand market opportunities could be diffused throughout the market by business advi-sory services. With this interpretation of neo-classical literature, it is reasonable toassume that advisory services could contain concrete, objective, communicable andstatic information on all matters, and that business advisory service could be under-stood as professional advice (operational as well as strategic information) in order toremedy market imperfections.

Research into public services in Sweden (Hjalmarsson 1998) has shown the exist-ence of a supply of operational, expert services, based on the neo-classical idea. This isevident from the fact that publicly financed consultants offer professional advice andthat there is a private market for this kind of business advisory service, often providedby SMEs. These services are given on an expert-client basis. The expert knows theanswers and the client benefits from following advice.

There are reasons, though, to question this kind of public support. We have alreadyconcluded that these services exist on the private market and are purchased by SMEs.A subsidized support of this kind therefore interferes with an existing private servicemarket. It can’t be taken for granted that subsidized support of selected firms makesthe market more perfect. Some firms get advantages and other disadvantages. In theworst case the support could be an obstacle and cause distortions on the market. Thestate support could not only be ineffective, but also be a hindrance to the dynamicdevelopment of a private service market.

It is also evident from previous studies (Hjalmarsson and Johnsson 1982) thatpublic support activities include strategic services to SMEs, undertaken in totally dif-ferent ways. In these cases support on strategic issues are being ‘produced’ by aninterplay between the consultant and the client.

If the neo-classical assumptions are generally valid, the operational information –the ‘expert’ services – and the strategic services should in principle be similar. Ourresearch shows that operational information and advice are delivered in an expert andsolution-oriented way while the strategic advisory services must be seen as an activitycontaining a complex interplay between the consultants and the entrepreneurs. Asmentioned above, strategic measures contain other methods such as education,brokerage, sounding board assignments, etc. (Hjalmarsson and Johnsson 1982).When arguing for that kind of business service, we need a perspective other thanthe neo-classical.

Neither the neo-classical approach, nor the consulting literature (Greiner andMetzger 1983, Ettinger 1991, Kubr 1996) recognizes the difference between opera-tional and strategic services.2 The consultant is presented as an objective and compe-tent professional with unquestionable knowledge and experiences of great benefit forany client he/she meets. We hold that professionalism can go together with expertservices, where the expert ‘helps’ the ‘needy’ client to solve a specific problem in acontext where information is homogeneous and operational. In that situation theexpert could be seen as the knowledgeable teacher and the entrepreneur as a pupil.


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However, if we address strategic services the asymmetric relation between a ‘profes-sional’ helper and a ‘needy’ client is irrelevant and unhelpful. In practice(Hjalmarsson 1982) it is evident that the role of actual providers of strategic servicesdoes not resemble the supposed role of a professional helper.

A very typical operational service is legal advice related to succession planning infamily firms. There is a well-developed market for this kind of service where accoun-tants, auditors, solicitors, etc. provide the client with solutions for minimizing taxes,finding adequate legal structures, etc. In our research we have seen publicly financedadvisors providing this kind of service and similar operational services. As theseconsultants often are less specialized than the private actors there are reasons tobelieve that the solutions provided by public consultants are less qualified althoughthey are ‘cheaper’ for the client who happens to be in a situation to get access to publicsupport. Through in-depth study of a Swedish public consultant we were able toidentify a case where the consultant in practice ‘took over’ the management functionof a small firm and modified its business idea. A follow-up interview 10 years laterrevealed that this firm still held on to this modified business idea. In this case theconsultant had made even the strategic concern of the business an issue for expertoperational advice.

Let us give another example from our research: a consultancy process, which hasbeen followed through participant observation over one year. The consultant in thiscase acted as a ‘sounding board’ for his client. They met once every other month for acouple of hours. Both consultant and client acted as if strategy considerations, whichwere a major issue in their meetings, could be understood as doing a jigsaw puzzle. Intrying to find pieces that matched one another the consultant could not draw fromany objective information source, only from his own experience and other contexts.The client also searched for matching pieces out of the specific context of the firm aswell as his personal experience. The consultancy process was thus a joint effort to findways and strategies for the client company in a turbulent situation displaying a sym-metric relation between consultant and client. This case in contrast to the one abovedemonstrates what we mean by strategic services.

To propose an explanation to the difference between the providers of strategicservices and professional helpers we turn to the neo-Austrian perspective. While therationalistic neo-classical theory focuses on economies of scarce resources on markets,the neo-Austrian authors (Kirzner 1973, Shand 1984, Lachmann 1986) are interestedin the more subjective exchange process on markets. The neo-Austrians are concernedwith how resources and possibilities are developed by the entrepreneur and not so muchwith optimizing and allocating given resources.

Within a neo-Austrian perspective explained by Kirzner (1973, 1994, 1997),Lachmann (1986) and Eliasson (1996), information is seen as being dependent onthe subjective/actor and on the context. The discussion focuses on the active andreflexive character of the entrepreneur and on an ongoing experimental activity(e.g. trying new products and services) on an expanding and unlimited market.From this strategic perspective information is subjective, tacit and dynamic.

According to the neo-Austrian perspective there are no general solutions suggestingwhat information to provide SMEs with. There is no support for the notion of perfectmarket information. It is also evident that most providers of strategic advice pursue anapproach very different from the ‘expert’ or the ‘professional helper’. In the neo-Austrian perspective there is no room for advice containing finalized, static informa-tion on strategic matters. It is not possible to inform about things that have not been


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thought of earlier. The strategic services identified by Hjalmarsson (1998) show thatconsultants act as information brokers, ‘sounding boards’ or providers of ‘creativearenas’. The ultimate aim is to improve existing and develop new business opportu-nities.

4. Public advisory services at the service encounter level

4.1 Recognizing client identity

So far we have discussed the theoretical foundation of public advisory services as amarket intervention. Now we turn to our second level, a micro perspective and discussthe actual implementation and the small business manager’s way of responding to theservice offered. The concept of client identity gives a theoretical understanding of thisresponse and how to target the public initiatives towards different types of entrepre-neurs. It is argued that client identity as a concept should be included in a programmetheory built upon a neo-Austrian perspective. We also propose that the power aspect ofperforming advisory services be regarded. Therefore we introduce and discuss theclientification effects of advisory services. After adding the power aspect to the pro-gramme theory a fruitful discussion about the design of the services can begin. Thepower aspect also provides links between our two levels. While neo-classical theorydeals with the small business manager more or less as an object whose actions can beregulated, the neo-Austrian perspective makes him/her a subject.

Johansson (1997, 1999) has interpreted the narratives of nine small business man-agers who tell about their firms and lives. Through their stories the small businessmanagers construct their identities. Analysing their stories Johansson interprets theway they make this construction specifically in relation to the meaning of advising,thus focusing on their identity as clients. Every story contains a plot. FollowingRicoeur’s (1981) idea of translating and summarizing a plot into a specific ‘thought’,each small business manager generates a specific thought on advising.

As each story is unique, displaying a unique and context-dependent identity, eachspecific thought refers to a specific way of relating to advisors. Johansson (1997, 1999)has generalized these nine thoughts into three typified identities. The identity ‘anti-client’ refers to a manager who is defining himself as a non-receiver of consultingservices. To be in need of advice is seen as something that disqualifies the manageras a manager. Second, the ‘consultant-modifier’ is someone who defines and re-defines theessence and meaning of the consulting functions. This is the most common trait amongthe managers interviewed, and appears in several variants. Third the ‘ideal client’resembles the neo-classical picture of the needy client. The ideal client has acceptedthat he/she has a need, and use, for advice. This identity is the least common amongthe nine managers.

These general types appear in several varieties and can carry attributes from morethan one of the typified identities. The anti-client can be a manager who seriouslydoubts that a consultant can give better advice than herself/himself about how to runthe firm efficiently. After all, the manager knows the context much better than theconsultant does. A different case is when the anti-client looks for role models ratherthan advisors. When a manager wants to become a hero (s) he might be interested inwatching other heroes, but not to hire consultants.


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The consultant-modifier also appears in different shapes. For some the consultant issupposed to be someone who has very specific competencies and is able to ‘fix’ things.For others the consultant is expected to act most of all as a sounding board, someoneto have a fruitful dialogue with. Still others use consultants to test their own plans.

One shape of the ideal client is the manager who becomes impressed by ‘manage-ment gurus’, attends their classes and tries to implement the ideas in his/her own firm.Another character is the manager who carefully listens to his/her auditor in order tolearn to keep his/her books in a better shape.

Considering the concept of client identity indicates that small business managerswill respond to advisors in specific ways that are related to how they construct theiridentities. This construction is deeply rooted in their experiences and in what givesmeaning to their life as small business managers. To some (anti-clients) it will notbe meaningful to relate to consultants at all. For others it will be relevant to useconsultants if the small business manager can decide on the agenda (consultant-modifiers).

Ideal clients welcome expert solutions and could be expected to regard strategicservices as expert advice. However, as we have argued it is not possible to find expertsolutions in strategic matters, a conclusion derived from a neo-Austrian perspective.The action of the entrepreneur must in each context and time reflect the uniquesituation. The ideal client, however, will abdicate and leave the decisions to theconsultant. We question whether a publicly financed consultant should give advicethat in essence means that he or she is taking over the decision-making and speculatingwith another person’s money, acting in the cloths of a ‘professional’ consultant.3

Contrary to the ideal client the consultant-modifier could more realistically beexpected to take the initiative in the performance of strategic services. He or shecould be expected to set the agenda and invite consultants to discuss strategic matters.Consultant-modifiers could be expected to recognize the difference between consul-tants and choose whom to interact with. The conclusion is therefore that the neo-Austrian perspective on public advisory services leads us to activities where consul-tant-modifiers are involved or at least that a ‘consultant-modifying behaviour’ isencouraged.

The consultant-modifier could be expected to develop a more symmetric relation-ship with the consultant than the two other identity types. The knowledge-creatingprocess is fed by two actors, who on comparatively equal terms can view opportunitiesand problems from different angles.

4.2 Clientifying power relations

Finally we will further emphasize the difference between operational and strategicconsultancy processes considering the political nature of advising. This will strengthenour argument that strategic services fit together with symmetric client-consultantrelationships.

Johansson (1997, 1999) uses the concept ‘clientification’ to identify how a smallbusiness manager can be formed or forced as an advice-taker in the advising process.The concept of clientification is inspired by Foucault (1977, 1978, 1983). Central toFoucault’s writings is how power technologies are related to discourse. By discourseFoucault means a historically generated idea that has permeated society (Dreyfus andRabinow 1982). Discourse has been formed through a myriad of discursive practices,


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constituted by ‘serious speech acts’, i.e. what experts say when they talk as experts.Discursive practices go hand in hand with institutions, which are formed by the ideasof the experts. In this way Foucault (1983) shows how psychiatrists’ ideas aboutmental illnesses form mental hospitals as well as mental hospitals form the ideas ofthe psychiatrists. For Foucault truth does not exist independent of power relations.Psychiatrists do not find the truth about mental illness; instead ‘truths’ about mentalillness are produced through the interplay between discursive practices and institu-tions.

In a similar way we can view beliefs in society about advisory services to smallbusiness managers as a discourse that has emerged historically. We have argued abovethat publicly financed advisory services have been motivated mostly through arationalistic approach with roots in neo-classical theory. From a Foucaudian view-point neo-classical theory thus represents a discourse. What we have suggested in thispaper is a counter-discourse, when we suggest that a neo-Austrian perspective shouldreplace the neo-classical theory as a basis for publicly financed advisory services.

Also the entire idea of supporting SMEs can be viewed as a discourse that can betraced genealogically. Having roots in consulting to big firms and extension services tofarmers, this discourse seems to have emerged largely from the 1960s onwards. Fromthis time investigations have been made showing that small business managers have aspecial need for advice due to a number of reasons: the size of their firm, their level ofeducation, etc. This need is supposed to be met through competent consultants.Accordingly in most western countries governmental advisory programmes are con-tinually undertaken and state institutions have been built up to meet the need of thesmall business managers (OECD 1995). If we don’t recognize the power of discourseto regulate our society we are less able to understand and change systems that we infact do not want. Foucault’s theory of power/knowledge therefore justifies the atten-tion we pay to discussing the theoretical understanding of public advisory services,which we mean is the same as questioning the discourse that underlies current publicinitiatives towards SMEs.4

Foucault is mainly interested in identifying power technologies at work in theevolution of discourse. These technologies are of two different kinds, objectifying(Foucault 1977) and subjectifying (Foucault 1978) technologies. Related to the dis-course of advising small business managers, objectifying technologies appear when themanager is made an object of advice. This is what easily happens, for example, when amanager takes part in a public advisory programme and accepts receiving advice andbeing monitored. When the small business manager deals with his own ideas aboutwhat happens in advisory situations subjectifying technologies come in focus. ForFoucault surveillance is the panacea of objectifying technologies and confessions typi-cal for subjectifying technologies.

Johansson (1997, 1999) has documented fragments of a clientifying process byinterpreting two meetings where a small business manager, Steve, is prepared forand receives advice. The background of these meetings is that Steve’s colleagues inthe local business association inform Steve about the possibility of obtaining subsidiesfor consulting services designated for investigations into improvements of workingconditions. A consultant was hired who made his investigation of Steve’s firm andwrote a consulting report with far reaching recommendations concerning improve-ments in the firm. Based upon the consultant’s report an application was sent to theSwedish Working Life Fund (WLF) to request funding for an improvement project inthe firm.


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The WLF can, with inspiration from Foucault, be viewed as a disciplinary institu-tion, which promotes the discourse of advising small business managers. When themanager applies for subsidies he also has to follow the restrictions imposed by theWLF and must agree to be ‘surveyed’ during the implementation of the measuresthe subsidies are designed to support. The first of the two meetings is when Steve meetsthe WLF officer John. In line with the obligation of the WLF to give special assistanceto SMEs, John actively tries to help Steve finalize his application and get subsidies.When the meeting is interpreted in Foucault’s power perspective, disciplinary objec-tifying technologies can be identified. These technologies are related to the setting ofthe agenda by John, locally produced knowledge about what is good and bad inSteve’s case and promises and threats initiated by John, related to the consequencesof receiving subsidies or not. Steve seems to be interested in getting financial supportfor his firm. At the same time he appears to be ‘forced’ into a project in which he cannot control the timetable but has to follow the guidelines of the WLF and it alsobecomes evident that entering this project will make him need more help from advi-sors. It also means that he has to change the organization of his firm and thereby alsohis style as manager.

The second meeting that was documented is a board meeting where the chairman,Tom, assumes the role of advisor. During this meeting the application to the WLF isdiscussed. In this meeting subjectifying technologies are identified. These are associ-ated mainly with Steve’s confessions about how he views himself as a manager andhow he thinks he should change himself as a manager regarding the growth process inthe firm. Steve’s confessions are stimulated and promoted by the active assistance ofTom as an advisor. Through the confessions Steve ascribes to himself a greater needfor help/advice.

The use of objectifying power technologies encourages resistance (Foucault 1977).Signs of resistance were recognizable in the meeting between Steve and John. Stevefirst tried to discuss things he had in mind, but was silenced by John. Then Steve’sresistance took a more passive route, as he seemed to realize that arguments could nothelp him getting more money or fewer restrictions. A follow-up interview with Steve 5years later revealed that Steve, after fulfilling the WLF project, had avoided anyfurther contact with similar projects. Steve said in the interview that, in principle,he thought it was better for him to run the firm without assistance of this kind, even ifit would mean losing financial support.

In an advising situation characterized mainly by subjectifying power technologies,where confessions are the typical expression, resistance is not encouraged in the sameway. For Foucault, confessional technologies mean that the client uses power uponhimself. Thus confessions appear to be more effective than objectifying technologies intying the subject to discourse. This means that when a small-business manager beginsto reason with himself that he needs more help from advisors, he captures himself indiscourse. The follow-up interview with Steve also showed that he had continuallyused Tom as an advisor. Whether this use of advisors is good or bad is however not aquestion from a Foucaudian perspective, as Foucault does not consider power in thisrespect. It is the productive aspect of power he emphasizes. The clientifying process isproductive as small business managers either are made objects of advice or makethemselves subjects who invite advisors. (It should be noted that Foucault’s tendencyto avoid all kinds of normative recommendations has been heavily criticized, seeTaylor 1986.)


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Following Foucault (1977, 1978, 1983) we as authors of this paper of course do nothave a neutral outlook tower from which we can argue that the neo-Austrian per-spective is better than a neo-classical perspective. Neither can we claim that we havebeen able to make a neutral comparison between the two. The reason for us to useFoucault is not because we want to follow the implications of his uncompromisingattention to power as a productive force. Instead we argue that his thoughts on powermake it obvious that advisory services and public funding fuels power technologies.Our conclusion is that public money spent on disciplinary technologies is less desirablethan money spent on subjectifying technologies. Objectifying technologies presumesexperts with a preconception of what is good or bad for SMEs such as the WLFarrangement.

Another point we want to make in our discussion about power relations in advisoryservices is that financial support can evoke strong power relations where the smallbusiness manager is clientified into a needy client. The relations within the clientifyingadvising situation tend to be rather asymmetric when financial aid is involved. Thismeans that small business managers are lured, forced or bribed into a situation wherethey ‘receive’ advisory services. However when small business managers are madeobjects of disciplinary power in this way, resistance is encouraged.

When related to our two theoretical perspectives on advising we mean that the neo-classical idea is more in accordance with objectifying power technologies while theneo-Austrian perspective harmonizes better with subjectifying power technologies.The neo-classical idea could be used to advocate a notion of competent consultantswith rational solutions and improvement agendas. When these kinds of solutions arepresented to small business managers, coupled with financial subsidies, they seem topromote resistance. The neo-Austrian perspective is more open for the initiative of theentrepreneur. It seems to us that when advisory services are subsidized without anyconnection with financial aid, these services are demanded on their own merits andtherefore the power relation to the advisor can be supposed to be more symmetric.This symmetry can, instead of stimulating resistance, encourage the owner-managerto focus upon unthought-of information as a basis for identifying new business oppor-tunities.

5. Conclusions

Public advisory services towards SMEs represent a multi-billion pound industry. Theimpact, however, as reported by the receivers of these services and by independentevaluators, seems to be comparatively weak and insignificant. A lot of different meas-ures are taken but the rationale behind is rarely considered. Consequently the pur-poses of specific initiatives remain unclear.

The aim of this paper has been to outline a theoretical understanding to form arationale as a basis for public intervention. This rationale has been developed throughconsidering neo-classical versus neo-Austrian theory and distinguishing betweenoperational and strategic services at a market level. We have found operational ser-vices to fit with neo-classical theory and strategic services to be in accordance withneo-Austrian theory. Without considering asymmetries in power relations, strategicservices can be distorted into operational services.

A more or less mature market for operational services to SMEs exists. Small businessmanagers generally find their suppliers for this kind of service on the private market.


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Public interventions to provide these services are therefore inappropriate and likely tocause distortions on the existing market. With strategic services it is different, as theredoes not exist a mature market for these services. Therefore public intervention couldbe motivated for this kind of service as such an intervention can be seen as a measureto enhance growth and renewal in the small business community.

At the encounter level, strategic services deal with subjective, tacit and dynamicknowledge, which is ‘produced’ from within the advisory process and contains infor-mation, which has not been thought of in advance. We have argued that these servicespreferably should be initiated by the users, the SMEs. This is in line with the networkperspective, which shows that SMEs seek assistance through their networks and it isalso in accordance with the fundamentals of the neo-Austrian perspective that it ispeople (subjects, entrepreneurs) that do business on ever-changing markets.

A typical strategic service, illustrated above, is when the consultant acts as a ‘sound-ing board’ for the client. We think that the consultant in such a case should be anindependent consultant preferably. Public funding could then be designated for thesake of arranging these kinds of services. This means that public organizations couldact as brokers of consultancy services and providers of creative arenas, such as policy-implanted inter-firm network initiatives (Huggins 2000). It is a well-known fact thatconsultancy services are difficult to evaluate (Clark 1995). In the case with the ‘sound-ing board’ arrangement we have illustrated that this service was mediated through alocal community office. This office has a few brokers who have listed a number ofindependent consultants whom they have worked with. As they have followed andevaluated earlier assignments they have accumulated knowledge about what can beexpected when certain consultants are hired. They have also developed a competenceto match consultants and clients with one another. This competence is of course verydifficult for small firms to attain on their own. Therefore public initiatives could beexpected to be productive as a way of stimulating interfirm networks with access toexternal resources.

In more and more cases the concept of creative arena has been introduced. Theunderlying thought is that entrepreneurs learn from one another. The role of publicintervention is to provide the arena, to give entrepreneurs a chance to learn from otherentrepreneurs. These kinds of activities can be exemplified in many ways. One way ofoffering a creative arena is the EU activity, the Europartenariat. An evaluation(NUTEK 1998) shows that the idea of a gathering SMEs from all over Europe wasa success. Entrepreneurs met, exchanged views and made business. In the nationalcontext several similar meeting-places were arranged.

It is not enough to specify the kinds of services that should be publicly supported.We must also consider how it is done. Huggins (2000) found some inter-firm networkinitiatives to be successful while others failed. We have suggested two theoreticalconcepts, client identity and clientifying power, by which consultancy processes andpublic initiatives can be evaluated in order to fit with the neo-Austrian perspective.Paying attention to client identity means that the role of the client can be evaluated.We have argued that consultant-modifiers, better than ideal clients or anti-clients, canadopt the kind of active role on the side of the client that is necessary to performstrategic services, as this kind of service by definition is a collaborative effort betweenclient and consultant.

Paying attention to power techniques makes it possible to evaluate processes accord-ing to asymmetries in power relations. We argue that rather symmetric power rela-tions are necessary in order to establish a dialogue and a genuine collaboration


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between client and consultant. Recognizing objectifying techniques is the first step.Resistance is often a spontaneous action and necessary for attaining dialogue.Openness to the other is a further step where a more genuine dialogue can takeplace (Falzon 1998). This openness presupposes rather symmetric relationships.

In conclusion, the following general implications for practitioners in the publicadvisory service industry could be drawn.

. The service should supplement the private market for services, i.e. providestrategic services but not operational services.

. Implementation of strategic services should be based on a symmetric relationbetween clients and consultants.

. Support should be directed towards SMEs that have the potential to contri-bute to a mutual activity, i.e. to consultant-modifiers.

. Financial incentives should not be used to bribe or force small business man-agers into using services, i.e. loan or subsidies should not be connected to theservice activity in a way that could evoke unequal power relations.

. Sounding board activities or creative arenas should be used as measures toenlarge business networks.

We see a point in following Foucault’s unwillingness to give recommendations whenit comes to the concrete implementation of advisory services, at least if such directionsmean how to perform different programmes in detail. It seems that the very nature of‘unthought-of issues’ goes against the thought of giving specific recommendations.When implementing public strategic advisory services it seems appropriate to attaina tentative approach where flexibility, trial and error are used and where evaluationsare followed by constant restructuring of the programme (Boter et al. 1999). Ascreativity is believed to be a valuable asset of an entrepreneur we think that experi-mentation should characterize publicly-financed advisory programmes.

However, the authors think that leading regional public support advisors shouldhave an obligation to continually evaluate their performance in relation to a specifiedrationale (programme theory), which is negotiated with the public funding agency.We also welcome initiatives at an international level to make independent compar-isons of the proposed character between different regional actors.

Acknowledgements

The authors would like to thank the editor and two referees for their constructivecomments on earlier drafts of this paper.

Notes

1. Selection bias arises when support givers choose participants who are more positive and have betterprospects for improvement than average or when participants with better prospects tend to be more alertto take part in support programmes.

2. Our distinction between operational and strategic services resembles the traditional dichotomizationbetween expert and process consultancy. However process (as well as expert) consultancy can appearin a variety of forms (Alvesson and Johansson 2002) and to make this distinction is not an informativeaccount of services as operational or strategic in our sense.

3. For a critical discussion of professionalism in management consultancy work, see Alvesson and Johansson(2002).


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4. Foucault’s power-knowledge perspective can be seen as a resource for changing the way of thinking andmaking people free by considering power mechanisms (Dumm 1996).

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public advisory services - theory and practice

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