A recent report from Forbes Insights, “Perception Versus Reality: Are You Getting Enough Value From Your Consultants,” discusses the current state of the consulting industry.
A vast majority of executives say they are satisfied with the outcomes of their consulting projects. But a deeper analysis shows some cracks in this pretty picture, which taken together, add up to a high cost: failure to gain the optimum value. These shortcomings include challenges with scope, project management, change management and the overall desire to rehire the same consulting firm again. On top of that, three-fourths of companies do not pay consultants based on results, forgoing the opportunity of a guarantee to achieve the value they seek.
To shed light on this issue, Forbes Insights conducted a survey of 169 senior executives based in the U.S. and U.K. in October 2014.
Forbes Insights spoke with Dan Reardon, CEO of North Highland:
What are the top trends shaping the consulting business?
The consulting industry has been changing due to the aftereffects from the recession. Executives were in a constant cost-cutting mode and empowered the procurement departments to approve all buying decisions. Linked to that is their mission is to reduce the cost of professional services, which I totally respect. What it means for us is that, while in the past our client used to be the business owner, today procurement has the final say over purchasing. Part of the challenge is that their success performance measures are based on lowering overall cost. As a result, they approach consulting with a rate-based view instead of the value-based view.
The second reason consulting is viewed as rate-based is that many large companies have hired a lot of senior-level consulting professionals over the last couple of years. They are now, in effect, often serving as internal consultants, and hire consulting firms more for non-strategic work. The project goals are established internally, and for consultants engagements may be geared more to managing tasks than designing the solution.
I would estimate that a third of consulting engagements have gone that way, as opposed to maybe 10% a decade or so ago. In the next five years, I foresee that this trend will only deepen, to 60%.
Is this rate-based approach appropriate for all types of consulting engagements?
For non-critical projects getting the best rate makes sense. However, for mission-critical projects aimed to drive strategic value, it is necessary to work with the best in class in specific areas. That's the marketplace that we want to play in.
What are some of those mission-critical projects where only a value-based approach will do?
They include mergers,where you've got to get the value out of the merger within 18 months, or new product launches. Another critical area is moving to a more customer-centric view.
And yet, three-fourths of companies do not pay consultants based on results, according to the Forbes Insights report “Perception Versus Reality.” Why not pay for value?
I think that the root of what was uncovered in the report was inconsistent performance by consultants in the past. So the clients decided that if they can't get consistent performance, they may just as well adopt a rate-based approach. If you view consultants as a commoditized service, then as a buyer, you don't want to pay success fees.
How do you define value?
Our measure of success at North Highland is based on being able to positively answer these questions: “Were the client’s goals achieved? Did the business problem that they were trying to solve get solved? Did the revenue lift? Did the costs go down?” It is not about answering the question: “Did we finish the project?”
We guarantee all of our work because we feel that if we're not doing what we say we're going to do, then we shouldn't be there in the first place. Our teams talk to the client at least every two weeks about any issues that might keep us from being successful.
What are the short-term and long-term perspectives for the consulting industry?
I think the short-term implication is further commoditization of consulting. Long-term, I think there will be a backlash on some of the quality issues that we're already seeing from the very low-cost firms. There will be a move back toward more value, focused on outcome-based consulting work. I don't think the current trend is going to produce the results that our clients are looking for.
