How To Employ The Right Consultancy For Your Business
In the 1970s, people claimed ‘no-one ever got fired for buying IBM’. Today, the same might be said about McKinsey & Co. or Boston Consulting Group, but do they actually deliver the best value, and if not, how can great consultancies be found?
Joe O’Mahoney, Professor of Consulting at Cardiff University, explains how to employ the right consultancy for your business.
Oddly, whilst the top ten consultancies have grown seven-fold since 1990, it seems that not a week goes by without a major failed project or scandal hitting the business headlines. The two are not unrelated. Resisting pressure on their profit margins and with much bigger pipelines to fill, consultancies are often too keen to take on work that hasn’t been well defined, increasingly utilising a one-size-fits-all model and general staff projects with hordes of over-worked and under-seasoned MBA graduates.
One result of these pressures is that whilst senior buyers are still wined and dined by partners, the actual value of consulting projects for clients is not always worth the sums invested. Indeed, recent research on the NHS colleagues of mine showed that ‘using consultants was associated with inefficiency down the line’. Unsurprisingly perhaps, whilst the majority of client CXOs say they are happy with their consulting purchases, typically only 23% of those client employees working with the consultants agree.
Yet, in my own experience and research, poor outcomes are rarely the fault of the consultancy alone. More commonly, it is because the buying process has been badly managed. So, how can you ensure that you get the right consultancy that will deliver maximum value for your firm?
Avoid procurement if you can
A few years ago, I was asked to be a judge for the Management Consultancies Association awards where I joined a panel assessing the best consulting projects from a long list of submissions from client-consultant teams. Chatting with some of the other judges afterwards, it emerged that not a single winner had gone through a procurement tendering process.
Why is this? The simple reason is that most procurement teams treat professional services in the same way as they treat paperclips and printer ink. They go for the lowest cost and assess quality on accreditation, insurance and other bureaucratic matters. The result is known as Winner’s Curse, where the consultancy that bids the lowest to get the job then cannot afford to do a good job.
This is perhaps not surprising. Procurement teams rarely have the skills or experience to understand the ambiguities and emergent nature of consulting projects. As one Big 4 partner said to me recently, ‘if you were going for brain surgery, would you choose the cheapest surgeon?’.
There are of course some exceptions. Some procurement functions have been trained well in buying consulting services (usually by consultants) and act to support managers who might otherwise over-pay. But these are exceptions.
Separate out problem/opportunity identification, solution design, and implementation
There are three stages to most projects: finding out what the problem/opportunity is and how important it is; designing an appropriate solution within the given constraints, and implementing that solution. There is no reason why all, or indeed any of these stages, should be done entirely by a consultancy – or indeed the same consultancy – but it is important that the stages are separated because conflicts of interest may emerge and the final phase of a project should not be tendered until it is completely understood.
Listening to what a wide variety of consultancies have to offer at each stage will help your firm understand exactly where it needs help. Early on, firms often forget about their unknown unknowns – things they don’t know that they don’t know. Listening to (though not necessarily buying) senior consultants early on can ensure that you at least get to know what you were previously ignorant of.
At the beginning of each stage, it is important to get clear about exactly what you want the outcomes to be – most consulting projects overrun because clients keep shifting their requirements. An open, honest dialogue about the project is the only way to develop clear outcome-based objectives.
Set up for success
You now know the outcomes you want and have an idea of the budget. The next step is to write a tender. Large projects often have two phases – a Request for Information (which asks for ideas) and a Request for Proposal (which asks for specific, costed plans).
A tender process that is set up for success will:
- allow for conversations between the end-buyer and the consultancy
- be open to innovation
- consider an element of payment by results (though more suitable in some projects than others)
- focus on the quality of individual consultants rather than the reputation of the firm
- have the involvement and support of a CXO – buy-in is the biggest correlator for consulting success
- include some capacity building/knowledge transfer to your own team
Even if you have been referred to a consultancy by a trusted source, it’s still a good idea to get a proposal from a few good consultancies, not least because this may give you some new ideas on maximising value
Consider the boutiques
In my own practice, which advises boutiques on growth, I see a vast number of senior consultants leaving the large firms to startup by themselves because they feel their previous employers were not giving value for money and were often focused only on sales. One told me that he was pressured to bill for hours that he had not actually delivered.
Smaller consultancies are more dependent on your repeat business, testimonials and referrals because they don’t have a ‘brand name’. This often means that they will go further to ensure that you are delighted with their work. In addition, they are often considerably cheaper than large firms. In my own research, smaller, local firms had client satisfaction levels nearly 30% above those of the largest firms.
In my experience, a client is more likely to scupper a consultancy project than their supplier. A lack of director-level buy-in, vague and shifting requirements and, above all, poor communication, will quickly destroy any potential project value. Consultants are experts in what they do – often experiencing things 4 or 5 times a year that most managers will see once in their lifetime. But if this potential is to be realised, it is up to the client to make it work.
About the author: Prof. Joe O’Mahoney is a Professor of Consulting at Cardiff University and helps small consulting firms grow successfully at Consulting Pathway. Joe is the author of Growth: Building a Successful Consultancy in the Digital Age out now priced £25.99.