Consultants are expensive. Their cost can be far greater than the fees you pay them if they provide bad advice or fail to implement the solution that you were counting on. On the other hand, they can provide a wide perspective, specialized knowledge, or an outside voice for change that has a significant positive impact on your business. The way in which you manage the relationship with the consultants plays a large part in determining how successful they are going to be and how much value you will get out of the engagement.
SHOW ME YOUR RESUME
Once you have made the decision to employ a specific consulting firm, you may be tempted to vet the individual consultants who are going to work on the project. Save yourself the trouble for the simple reason that you are not employing individual consultants, but rather hiring the firm. If you hire an electrical contractor, then you assume that they will send only qualified electricians to your facilities. The same holds true for consulting firms. A consultant working for a reputable firm under an agreed approach and effective management will deliver the expected result and unlikely to harm your business along the way.
Focus on selecting the right consulting firm and let the consulting firm select the right consultants.
If you do want to have a say in who works on the initiative, wait until you have had the opportunity to observe the consulting team. This author once worked on a project in the freight railway industry, an industry in which none of the consultants had any experience. In order to translate what we were hearing into a language that we understood, the project lead borrowed a consultant from a sister company: someone who had worked in the industry. A few weeks into the project, the project lead asked his counterpart in the client organization if he was satisfied with the performance of the consultants to date. The client lead responded by saying that he loved the way the team members performed, with one exception. He explained that the one person who had worked in the industry came with all of the baggage and preconceived ideas that were endemic to the freight railway industry. As he put it: “if we wanted old ideas, we could just talk to each other”. A review of resumes in advance might have identified this one individual as the only person qualified to work on the project.
There are three basic ways to pay for consultants: time and materials, fixed fees, or pay for results. There are different circumstances that make one more relevant than the others:
- Time and materials transfers risk to the client. This makes sense if the client has control over the timeline or activities. For example, if the project is run by a client project manager and a lone consultant is employed to support the work, then a time and materials contract makes sense. However, if the consulting team controls the project activities and timeline then a time and materials contract provides an incentive for them to stretch out the work.
- Fixed fees are normally tied to the completion of work packages, and therefore make sense when the consulting firm has control over the creation of those work packages. For a software implementation, this may be when testing is complete or when the system goes live. For an analysis project, it may be when a final report is presented. Fixed fees don’t make sense where the consultants are reliant on the client for direction.
- Pay for results is commonly discussed but rarely used in the consulting industry. The problem with it is that business improvements are rarely the result of a single action or initiative. If sales increase, is this because of an initiative or because the market improved, a competitor messed up, or an existing client landed a big contract? A second problem is that the consultants can’t take the final step to realize benefits. For example, you may employ consultants to reduce your inventory but it is ultimately employees who decide when to place purchase orders. Where pay for results does work is where the cause and effect are understood and the consultants have a reasonable amount of control over both.
If a client isn’t used to working with consultants and isn’t comfortable leaving the consultants to manage their deliverables, then time and materials should be used rather than fixed fees.
On one project that this author was involved in, most of the fees were put at risk, to be paid only if the client realized improvements in accounts receivable and inventory. The business was fairly stable, the client had trouble managing their collections process and their material flows due to system limitations, and the project was to implement an enterprise resource planning system that would dramatically improve the company’s ability to manage these processes. Some of the fees were paid based on project milestones but most were paid after the system’s go-live; a period of 12 months being allowed for the improvements to flow through to the company’s finances. In this case, the company was able to implement a system that they otherwise could not have afforded, the consultants were paid their full fees, and the project was executed in an extremely short period of time, given that the consultants’ incentive was to complete it as quickly as possible while still providing the functionality that was needed.
DON’T NICKLE AND DIME THE EXPENSES
Consultants often live out of a suitcase. To be more precise, they typically pack everything they need into a roll-on case and laptop bag on Monday morning, stay in a hotel for three nights, fly home on Thursday evening, and work from a local office or their home on Friday. This isn’t a great lifestyle. As someone who lived this life for many years, this author can attest that the travel was glamorous for about the first week. After that, it was a necessary evil in order to work on interesting projects. Trying to save money by finding cheaper accommodation for the consultants doesn’t go down well. You may save $30 per night but lose many times that in productivity. Not that the consultants require a five-star hotel, but put yourself in their shoes and ask if you would be comfortable staying in a hotel where bed bugs rule and drive-by shootings are a regular occurrence.
If you want to minimize travel expenses, allow consultants to invoice for flights when they are booked. This can mean paying $300 rather than $900 for their flight, due to advance bookings.
One of this author’s least favorite examples of penny pinching was when working on a project on the opposite coast and being told by the client that they would pay for a flight home only once per month. Consultants fly often enough to know how to get the best airline deals and it didn’t take long to prove that flying home was less expensive than staying the weekend, never mind the impact on our families. That argument didn’t work as the client thought they were going to lose productivity on Monday mornings if the consultants flew every week. At this point, the consultants’ incentives were the polar opposite of the client’s. The client wanted highly motivated, dedicated consultants. The consultants wanted to go home. The project was cancelled after about a month due to lack of progress, costing the client far more than a few hours of productivity on a Monday morning.
INVOLVE YOUR BEST EMPLOYEES
“We’re going through a downsizing and Bob would have been let go but we are keeping him around to work on this initiative with you.” This is not what you want to hear when you are about to be introduced to your key contact in the client organization, yet it is all too common. Think about the people whom you would trust with the project if you weren’t using consultants. Those are the people who should be working on it. Do those people not have time to get involved because they are in so much demand elsewhere? Then they are absolutely the right people to staff on the project. Consultants rely on the internal network of their client contacts to get the right information. Without a good contact, they are working blind. If the initiative is large and risky then this is a great opportunity for the client’s star performers to get experience and exposure that will help them and the company in the long term.
This author was once staffed on a project where most of the team was made up of client staff, all of whom had lost their jobs in a reorganization and most of whom were looking outside for a new position. To say that focus was an issue would be an understatement. Contrast that situation with another project that this author was involved with that was led by an individual whom the client considered to be high potential and who was promoted to an executive role during the initiative. The second client contact knew that this was an opportunity to showcase his talents, had the internal network and respect needed to succeed, and was able to leverage the success of the project into another step on his career ladder.
Consultants refer to competitive screenings as beauty contests. The typical structure is for each consulting firm to be given an agenda and a fixed amount of time to make their presentation. There may be a couple of rounds with the number of competing firms whittled down after the first round. These are a waste of time for most consulting firms and they know it. If a client is going through a beauty contest process, it typically means that they want to appear objective in their selection process, but consulting engagements are normally given based on trust, which comes from familiarity. It is similar to the doctrine that ‘you should never respond to a request for proposal unless you helped the client to write it’. There is always a consulting firm with the inside track.
Beauty contests are expensive for consultants and this cost will be passed on to you as the client. Don’t do them unless you have to.
Where beauty contests do work for you as a client is when you have a fairly standardized project, such as a systems implementation, and need to distinguish between the potential consulting firms. You may have a preferred partner but it is still worthwhile to check out others and see if there is something that you are missing. On the other hand, if the project is small or the approach doesn’t differentiate the consulting firm, as is often the case for an analysis project, the cost of a beauty contest isn’t justified. In these cases, go with the consulting firm that you are already comfortable with or meet consultants to discuss the initiative but without the formality of a selection board or fixed agenda.
The best setup that this author has seen for a beauty contest was where the client had a checklist and scoring mechanism developed in advance, which they shared with the consultants. The decision ultimately wasn’t made based on the scoring mechanism – it never is – but this brought enough structure to the discussions that the consultants knew if they were in the running or not and the selection panel was able to focus on the key elements of the presentation.
How do you know that a consulting firm is no longer providing the value that you require? The mere fact that you are asking the question indicates that you are not. Individual projects can go badly for a variety of reasons, but if there is a pattern of underwhelming results then it’s likely systemic and also time to cut the cord.
If you would like to discuss this topic in more detail, please contact us at firstname.lastname@example.org.