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The last two years represent an upheaval of almost unprecedented proportions in the consulting industry, with demand collapsing in some areas, shrinking margins and wide-spread lay-offs. Such restructuring has inevitably had implications for clients. ‘We’ve seen a dramatic change in the way that consultants want to work with us,’ said one. ‘During the e-business hey-day, self-confident consultants weren’t selling consultancy, so much as the future. They saw themselves leading you into the land of glory, and they didn’t want to get paid per hour, but by results. We’ve now gone in completely the opposite direction – perhaps even too far into the doom state. Consultants are now offering to work for free. But that’s not good either: people need decent pay to do a decent job. We always seem to be going too fast from one extreme to another.’
Clients are also concerned about the repercussions of so many lay-offs for the quality of service they receive. ‘We see some of firms struggling because partners who were good at the relationship building relationship have had to roll up their sleeves and work,’ said one client. ‘The career path has also become more difficult: there are fewer promotion opportunities, and some of those people slogging away are bound to become disenchanted. If I worked in one of these firms, I’d want to see significant cultural changes going forward.’
Lean times have increased the pressure consultants are under to sell work. According to more than one executive, ‘there’s a lot more hunger: we get more sales calls.’ Prices in some areas have come down, but are more conventionally structured. ‘There are some good deals around,’ said one client, but, overall, we’re less likely to see unorthodox proposals. Consulting firms, that used to approach us on the basis “we’ll do it for free, if you give us a percentage of x”, have now reverted to time and materials billing and are much less willing to take on any risk.’
But, for some clients, prices have been less affected than attitudes. ‘We haven’t seen a significant change in fee rates, but we’re finding that consulting firms are being far more careful in terms of planning and resourcing projects, and there’s greater transparency when it comes to delivery,’ was how one client described this trend.
The momentum for change has been accelerated by Enron. While consultants may like to believe that this was an issue that affects only audit firms, roughly half of the clients surveyed for this report said Enron had reinforced concerns they had about the consulting industry as a whole. ‘Enron has contributed to the view that I and other members of the management team have, that you can never outsource responsibility,’ said one client. ‘If we don’t maintain our internal competencies and our ability to keep certain activities in-house, then we’re putting our business at risk … It has been a useful sobering up.’ ‘Enron hasn’t changed my attitude,’ said another, ‘because I’ve always thought there were underlying problems with the idea of bringing together a whole host of services under one organization. I’m just surprised something like this hasn’t happened before.’ ‘I think we’ll see much clearer delineation of services in the future,’ agreed a third, ‘and a more rigorous evaluation of who is doing what with whom.’
Clients believe that the key lesson of Enron is that they have to be in the driving seat, when it comes to using consultants. ‘You have to manage the consultant,’ stressed one executive. ‘There is a great tendency for it to be the other way around.’ ‘Lack of stewardship of consulting contracts – indeed, of any contract – suggests a fundamental vacuum at the heart of an organization’s management,’ agreed another.
The key lessons
‘Managing consultants takes more time than most clients expect, or are prepared to admit,’ one executive pointed out. ‘Perhaps counter-intuitively, if consultants see that their client is focused and determined to deliver a successful project, they’ll be more motivated to raise their game and deliver real value. Left to their own devices, consultants will seek to broaden the scope of the project and maximize their revenue, rather than client value.’
According to one public sector client, due to a number of reasons (poor scope of work, incomplete expectations and technical requirements, etc) consultant contracts are often ill-managed. This has a number of implications: project timelines can be allowed to creep; there is neither provision nor request for deliverables; the scope of the work changes; the cost of the project skyrockets. This is a good case for “buyer beware”, yet more and more government personnel depend upon the consultant to “take care of them and their project”. While the vast majority of consultants do, there are some who take advantage of the situation. This obviously creates problems and issues regarding quality within the client community and ill-will among all concerned about expectations. It brings an air of suspicion to the situation as a whole.’
Such comments are equally applicable to the private sector: the message is simple – putting in the effort to manage consultants effectively reaps significant dividends. ‘My best advice?’ said one client. ‘Choose your consultants carefully and use them wisely. Your reputation will become established and consultants will know your work ethic beforehand.’
Clients make ten key recommendations too organizations about to engage the help of consultants:
1. Always maintain up-to-date knowledge of the areas in which you’re seeking consulting help
According to one client, ‘the lower a client’s knowledge level, the more time they waste with consultants and the more dependent they are on the conclusions. Just because you use consultants, doesn’t mean you can afford to be less knowledgeable than them. It’s only by being their equal that you can use them effectively. Inferior knowledge makes for inferior consulting.’ ‘You have to ensure that some of your own people are trained in same disciplines you’re using consultants for,’ agreed a second. ‘You can outsource many things, but Enron has shown just how dangerous it is to have blind faith in an outside expert.’
2. Be actively involved in the specification of the consulting project
The knowledge required to manage consultants should not be acquired in isolation. ‘The effective management of consultants has to be based on a real understanding of what the consultants are trying to do, and how they are trying to do it,’ argued one client. ‘Such understanding can only be gained through involvement.’ ‘Clients have to take a more pro-active attitude when it comes to defining a solution and be more assertive when they think the proposed solution may de flawed,’ agreed a second. ‘Take a more pro-active attitude towards the definition of a solution and be more assertive when a solution design may de flawed,’ advised a third.
3. Set a clear scope for the project
‘I believe in the 70/30 rule,’ commented one client. ‘70% preparation and 30% execution. If you do enough upfront planning of what you want and how you intend to get it, the rest of a project part is just following the roadmap you’ve established.’ ‘We try to leave nothing to chance,’ another agreed. ‘We attempt to include in the consulting agreement a sufficient scope of work. The scope of work will typically include deliverables and assigning to the project manager specific milestones to work towards, evaluate, and accept or reject. Managing consultants requires some levels of trust and a personal relationship structured within a legal framework.’
These were points made by many clients. According to one typical view: ‘we’ve learnt that we have to define our problems, needs, expectations, and the potential risks. Failing to scope the work is unfortunately construed as writing an open check, such is the reputation of consultants’. Scoping the project should include a definition of what needs to be done, exclusions and assumptions, the specification of individual tasks, and acceptance criteria for the whole solution. It’s also important to break the work down into controllable phases and to have a clear exit strategy. ‘Keep the goal of the project clear and simple,’ advised one client. ‘Choose a deadline, agree on the financial aspects, and only set the next step once the previous step is finished.’ ‘Agree a strict date and a strategy to get them out of town,’ suggested another. ‘The tighter the contract, the better. This means thinking through what it is you want, otherwise you end up paying through the nose for things you didn’t include.’ ‘An ambiguous scope or timeline or requirements will result in either significant scope creep (with increased costs) or an unsatisfactory conclusion,’ agreed a third.
4. Specify clearly who is responsible for what
‘You need to know exactly what you expect consultants to achieve, and to agree this in a brief that spells out exactly who will do what,’ is how one client put it. ‘You need to see the CVs of the majority of the consulting team, to know how much time each member of the team will commit, and to agree the extent and means by which the consulting team will interact with your staff. If the scope is clear, then agreeing this will be simple, but, if the project is likely to involve changes within your company, these issues need to be thought through prior to employing consultants.’ Although important in every project, it’s particularly so in projects where the consultants will not be based in the client’s offices. ‘Off-site teams tend to be less well-managed,’ one executive observed, ‘but it’s important to retain the upper hand yourself. No project should be primarily driven by consultants.’
5. Choose the right people, not the right firm
Experienced clients look for experienced consultants: they look at the individual’s track record, not the firm’s. ‘People have become fed up with 25 year olds delivering packaged presentations on the basis of no industry knowledge whatsoever,’ said one client. ‘The key to using consultants successfully,’ another observed, ‘is to be absolutely ruthless about demanding the individuals you want to hire. Typical consultancy practice is to bring senior people to the sales pitch and then look to deploy more junior staff.’
As a result, more and more clients appear to be turning to niche consultancies or sole practitioners. ‘We rarely use consultants but have an independent consultant in our office at present,’ commented one person. ‘His function is to open doors and to make our capabilities known within our sector, and he is ideally suited to this task as he is well known within the industry and has had 31 years of experience at one of the major players within it.’ ‘The great thing about most small consulting organizations is that they have no ego,’ agreed another. ‘We have an ex-Big Four consultant working with us at the moment, who is immensely talented. His process skills have been honed by his background, but he’s carrying none of the political baggage you’d associate with a bigger firm: he’s completely task-focused. With more people like him becoming available on a freelance basis all the time, the smart buyers of the future will go straight to the market.’ Many clients now consider other qualities alongside know-how: ‘you have to look at their integrity and professionalism,’ said one. ‘I buy the individuals, not the firm.’ ‘The individuals are more important than the reputation of the firm,’ another concurred.
6. Respect your consultants, and ask them to respect you
‘No one will have all the answers, particularly where large-scale projects are concerned,’ was one comment. ‘Clients may, in fact, have more of the answers, but lack the time or resources to act on them.’ ‘Make consultants aware that – to a large extent –they’re facing equals with respect to knowledge and experience. Be open about what you expect from them,’ was another. But greater sensitivity on the part of the consultants to the contribution of clients needs to be matched by genuine openness by clients themselves. According to one executive, ‘working effectively together requires a degree of honesty on both sides. Many clients pretend that what they want is help when they really just want the consultants to do everything. In other instances, clients want consultants to do everything, but then interfere and try to fix the answer.’ ‘You have to be free in sharing internal information,’ was the advice of another.
The key is equality: ‘a consultant needs terms of reference and to be bedded in with the rest of the team like a permanent employee,’ is how one client put it. Moreover, the need for mutual respect extends beyond the conventional boundaries of the client-consultant relationship. ‘While there’s obviously considerable competition between firms, we employ many firms working together in a “rainbow” team,’ commented one client. ‘This takes trust: we need to see more trust.’
7. Ensure that skills are transferred from client to consultant
‘Consultants can strip more value away than they bring,’ admitted one executive. Skills transfer is consequently high on the agenda – ‘this is one of the most important benefits to using consultants’, remarked one individual, ‘because it gives us greater capability in the future.’ ‘We use consultants sparingly, and only where we perceive a genuine skill shortage that cannot be filled by training,’ said another. ‘Even then, I like the deal to include knowledge transfer so that we don’t remain dependent.’
Three barriers have to be overcome, if an effective transfer of skills is to be achieved. First, clients accept that they need to be more aware of how the skills of consultants complement, rather than replace, those in their own organization. As one client pointed out, ‘waste comes in when an organization uses consultants, either without checking what skills are available in-house, or on a long-term basis as a member of a team. I work in the public sector where business experience is at a premium, but the skills and knowledge we need can often be obtained through courses, seminars and networking.’ Second, everyone involved has to be aware that the consultants will not be around in perpetuity. ‘Don’t give your consultants a free hand,’ advised one client. ‘Most of them will stay over years and don’t have extra value for the organization.’ The third problem is the attitude of consulting firms themselves. ‘Many consultants only want to sell their hours,’ said one executive. ‘They don’t understand the value of their knowledge to the client. Managing this kind of consultant is very easy; send them home as soon as possible….’ ‘Learning about best practice usually means having to force individual consultants to draw on the experience of the whole firm,’ commented another. ‘This is often difficult, as consultants don’t get any credit for this. Such synergy doesn’t happen naturally.’
8. Demand that consultants make a difference
Many clients complain that consultants leave no ‘footprint’ behind them, that the client organization continues just as it did before the consultants intervened. ‘There needs to be greater recognition by consultants that they have a responsibility for the ultimate outcome,’ said one executive, ‘rather than just for advice which may lead to an outcome.’ Part of this involves consultants being able to see beyond the confines of an immediate project in order assess its implications for the client’s organization as a whole. ‘There needs to be a broader focus on why the project is there,’ added a second. ‘Consultants often show little commitment to the client’s organization – the bigger picture. Perceptions of service would be much higher if they did so.’
But having an impact isn’t just a matter of taking a broader view of any issue or bringing a new skill. ‘I would like to see more inspiring – more guiding – consultants, not just consultants that do the work,’ was a comment made by several clients. At the same time, asking consultants to take on this role requires a significant change in the way clients treat them. According to one client, ‘consultants should be encouraged to be creative and to try to make a real difference. They must be able to operate in a failure tolerant environment, and, if they’re going to avoid mistakes, they need to be coached intensively.’ Nor does it mean that clients can abdicate responsibility: ‘make sure you always decide yourself,’ advised another. ‘In the end consultants can be blamed but they can’t be held responsible.’
9. Know your deliverables
In a perfect world, every deliverable in a consulting project would be clearly specified, measurable and enforceable. ‘You have to check the services against the contract to ensure you are getting what you asked for at the agreed price,’ was one typical comment. ‘Make sure you have a deadline that cannot be changed,’ was another. But many clients also recognized that it’s not always easy to be so clear-cut. As one client put it, ‘one of the problems with consulting projects is that it can be hard to attribute a value directly to the consultants’ input. With so many variables to take into account, who’s going to say “you did this” or “you didn’t do that”.’ However, the consulting industry’s apparent unwillingness to engage in this problem has left clients feeling frustrated and means that they’re looking at options for resolving the issue themselves.
There can’t be a single solution which standardizes the output of consultancy to the point where all consulting projects can be compared, which doesn’t also blur the different ways in which value is genuinely created. This means that the first step has to be to sub-divide projects, so that comparisons can be made more meaningfully. Clients see consultants as generating two different types of value:
But the two over-riding criteria for judging success are, first, that the criteria set are shared by as many organizational stakeholders as possible and, second, that it’s the medium-term, practical impact of a project that matters, not it’s short-term ‘wow’ factor. ‘Consultants should come to the point with deliverables the organization can use,’ remarked one client. ‘They should speak the language of the company.’ ‘Value is measured by the ability to implement the suggestions and recommendations made by the consultant,’ said another. ‘Good performances that add value to the organization usually result in additional work or positive recommendations of the consultant.’
10. Share risks and rewards
A corollary of mutual respect is that both sides should benefit when a project goes well, and suffer when it goes badly. Consultants have for some time been complaining that their attempts to negotiate performance-based contracts have fallen on deaf ears, largely because clients have been unhappy with the scale of the potential upside to the consultants. For their part, clients claim to have found consulting firms unwilling to go down this route. ‘While it inevitably varies from firm to firm, I generally believe the consulting industry is still too conservative when it comes to pricing engagements. Risk sharing and value pricing remain difficult topics, and it’s much easier just to charge hours,’ said one
But a combination of greater realism in pricing by consultants (the result of the recession) and greater recognition by clients of the benefits to them of performance-based contracts is producing a slow, but substantial, sea-change. An unambiguous pricing structure remains essential: ‘you have to be clear on the pricing structure and how hours will be billed or how the consulting project will be priced,’ was a typical comment, but so too was the recognition that alternatives need to be considered. ‘We weren’t very innovative when we contracted with the consulting firm we hired,’ recalled one client, ‘and assumed that standard time and materials payment would be appropriate. We subsequently realized that a risk / reward arrangement would have been far more effective. It would have meant that we didn’t need to be concerned about – for example – the time the consultants had off for training, because it was only the final deliverable that mattered.’ ‘Consulting is often accused of breaking the link between risk and reward,’ commented another. ‘In the old days, the risks were negligible and yet the rewards were still high. Where consultants have been forced to share the risks with the client, the job is invariably done better, and both clients and consultants work well together.’ At the same time, many clients are wary of too much reliance on the contract. As one pointed out, ‘unfortunately, with all the requirements and safeguards written into a contract, if the contract begins to “go bad”, there’s often no way to stop the downhill spiral. All the insurance and licensing in the world will not prevent the project capsizing. As the potential for larger and multi-faceted consulting contracts becomes greater, the probability that important issues get overlooked or ignored increases.’
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