Consultants With No Real-Life Experience Can Kill Your Business
23 October 2014 Leave a comment
A few weeks back, my attention was drawn to an article written by Richard Branson: My problem with consultants. Reading the article, I came to the conclusion that the problem was something that everybody knew, but nobody wanted to talk about: why are consultancy firms sending out school leavers? As a consultant myself, I may be biased, but I have also worked on the receiving end. And seen a lot of well-educated and inexperienced consultants coming in. Is this dangerous or not?
Why do customers hire young consultants?
I used to think “Why do clients demand an army of 20-somethings who have only run a lemonade stand?” The puzzle is why firms pay huge sums to big name consulting firms, when their advice comes from kids fresh out of college, who spend only a few months studying an industry they previous knew nothing about. How could such quickly-created advise from inexperienced college students be worth the vast amounts paid?
Getting more insight into the way consulting firms work, I realized that “Client firms don’t ‘hire’ the young consultants. They are staffed there by the consulting firm” The clients get an entire team, and this team is served mostly by these young consultants. And they bill €200 per hour for each consultant (new college grad that is, partners can bill €450 per hour) and pay the consultants somewhere around €65K per year while pressuring them to work 60 to 80 hour work weeks. That’s a good deal for the consulting firm, they’re only actually paying the consultant €17 to €30 per hour while making €200 depending on how hard they utilize them. At some consulting firms utilization has to be 80% at all times or the consultant runs the risk to land on the chopping board.
Does this approach endanger your company?
No doubt it will. Finding the right consultant can make the difference between whether or not a company achieves its goals. Unfortunately, far too many consulting firms harm the companies they’re being paid a whole lot of money to serve. If you’re thinking of hiring a consultant or currently working with one, keep an eye out for these most common damaging behaviors:
- Substituting Perception for Reality – If your consultant is heavily engaged with high-level theories and complex concepts, it might be worthwhile to raise an eyebrow. There are times when the answer to a business problem is complicated, but that’s the exception to the rule. In most cases, the best advice is simple, direct, and presented in clear English
- Taking Sidestep Tactics – Often a consultant will present a seemingly impressive solution backed up with a whole lot of charts, figures, and statistics. But when you attempt to implement what you’ve received, you will find there really isn’t much there in the way of actionable steps to take. And more often than not, employees won’t speak up about the lack of useful material because they don’t want anyone to perceive them as not being able to understand what’s going on
- Putting Their Brand Before Yours – Many times, a consulting firm will spend a lot of marketing euros on making its own brand famous, which is often represented by a trademarked report, whitepaper, or analysis. While these special advice packages can have real value, many consulting companies have so much of a vested interest in their own proprietary products that they fail to adjust to the unique set of issues specific clients are currently experiencing
- Relying on the Tried-and-True – Picture this: You bring on a consulting expert to help you figure out how to adapt to the new reality of marketing in the digital era. The solution the consulting firm comes up with involves a high tech presentation and even higher tech case studies. Before accepting at face value what a consultant says you should do, conduct at least a little bit of your own research to make sure they aren’t just rehashing old ideas with a new cover page
- Presenting Themselves as Experts on Everything – The bigger a consulting firm gets, the more companies, industries, and types of advice they begin to give out (and charge for). Management. Accounting. Software. Hardware. IT. Digital marketing. This is also called one-stop shopping. But just because a consulting firm made its name giving one kind of advice doesn’t mean they’re equally adept at dealing with every business problem. Before hiring a consultant based on size and reputation, make sure the service line you’re considering has been successful in eliminating the specific pain points you’re struggling with
Has the consulting industry changed?
Management consulting’s fundamental business model has not changed much since it was created in the late 19th century. It has always involved sending smart external professionals into dealing with challenging problems for a limited period of time and asking them to recommend solutions for the most difficult problems confronting their clients. Today many management consultancies have also branched into execution, helping their clients to both solve the problem and execute the implementation. In October last year, Harvard Business Review published an article written by Clayton M. Christensen, Dina Wang and Derek van Bever, titled Consulting on the Cusp of Disruption. I’ve read it early 2014 and it’s been in my mind ever since.
The three business models in consulting
In the HBR article, the following business models for consulting were addressed:
- Solution Shop – The traditional solution shops are structured to diagnose and solve your problems with an undefined scope. They deliver value primarily through the senior consultants’ experience and judgment, and you pay high prices in the form of fee for service. Solution shops are hired by customers who are not capable of understanding or solving major challenges themselves, or because the clients would like an external view to bring new ideas and competence for change. Examples includes the traditional management consulting firms, like McKinsey, Bain and Boston Consulting Group, but also niche players like IDEO
- Value-Added Process – The value-added process business model is structured to address problems of known and defined scope with standard processes. This can be outsourcing of services or part of value chains and the processes are usually repeatable and controllable. You pay for output only and can measure the value of the service by comparing with previous internal cost or in benchmarking with others. Examples include Salesforce.com, McKinsey Solutions, Accenture and Deloitte. The last two have been solution shops but are moving towards value-added business process. This sector has historically had much lower margins than the solution shops so profitability lies in scale or specialization, like Salesforce.com
- Facilitated Network – Facilitated networks are structured to enable the exchange of products and services among a network of competent resources. You pay fees to the network, which in turn pays the service providers. Service providers tend to be squeezed in the middle, as they cannot get a personal relation with you as a customer and show the full extent of their competencies, so their advice is treated like a commodity product. They are only asked to work on their exact expertise area for a pre-defined set of specifications. To be selected as an expert then becomes a matter of charging the lowest price
Consulting firms have created a negative image for supplying junior consultants at top rates. Many customers, due to limited budgets, have kept the consultants outside and are now implementing many changes themselves. Whether that’s good or bad, depends on the results. Generally, in-house consultants can be compared with junior external consultants, they lack real-life experience, and can damage your business. Big consulting firms now work with three different business models, the traditional Solution Shop, Value-Added Process and Facilitated Network. Consultants, who formerly worked at consulting firms or have gained real life experience elsewhere, are now service providers in the Facilitated Network.
Now it’s your turn
What has been your experience with consulting firms and their consultants or working as a consultant yourself? Share your experience in the comments.