The risks and rewards of hiring management consultants can be as varied and opaque as the industry itself. You must be clear about what you need if you are to stand any chance of getting it.
There are many reasons a company might think about bringing in the consultants, but in the end they are all the same. Whether it is to revolutionise business processes or IT systems, to outsource, to reduce headcount, or to deal with more nebulous concepts like strategy, in the end it is only to do what all businesses must do, and maximise value for shareholders.
Which is precisely why there is often such resistance towards, and in some cases downright cynicism about, doing it. Spending money to save money is the ultimate act of counter-intuitiveness. And all sorts of company bosses might bristle at the thought that someone else could know better how to sort out their business than they do.
In his notorious 2005 book Rip-Off!, management consultant David Craig claimed: “We were proud of the way we used to make things up as we went along... It’s like robbing a bank but legal. We could take somebody straight off the street, teach them a few simple tricks in a couple of hours and easily charge them out to our clients for more than £7,000 per week.”
It was, he said, an industry built on “lies, lies and even more lies”.
But there are compelling reasons why even the most ruthless and efficient companies need consultants, and the world of consultancy is far more varied and more specialised than the one occupied by Craig, whose real name turned out to be Neil Glass, and who mainly dealt with huge companies hiring huge teams from huge consultancy firms.
According to David Wright*, a former senior consultant at Deloitte, who left to go in-house at a large financial services company, the rewards can be significant, but companies need to be aware of the risk.
“I worked in technology. We would do complete transformations, things that the business didn’t have capacity to do,” he says. “Where I work now, I have brought consultants in to entirely replace all the financial systems. Another company might want someone to look at HR, or to help them start outsourcing parts of their business.
“Some consultants really do have huge expertise. They will know a whole marketplace better than any individual business. They can benchmark a little guy against a big guy, show them how to do it best. And it’s easy to see if they have succeeded or failed, because when they leave they can they, ‘Look. We have fundamentally transformed your systems and your processes. That is what you asked for and that is what has been done.’”
Much of what consultants do will, in the end, result in reduced headcount, which is of course the easiest way for a business to reduce its costs. While some companies will dislike the idea that a consultant knows best how to do this, one way to think about it is to consider every company as a tech start-up.
“Consultants don’t want to be tied in to the profit or loss of the business; there are too many variables outside their control”
More often than not, they will begin with one person with an idea, and will grow to meet their specific needs. A coder here, an accountant there, then marketing, HR, support staff. Five years down the line, the person whose only real expertise is in how to control your central heating via an app, has 25 staff and no real idea which ones are needed, which ones aren’t, and what might be needed next. Almost every company began in this way, and some are so large and complex only fresh eyes can see what needs to be done.
One such example is Google. It was one of the world’s largest companies before it hired its first consultant. Now it has them all over the place. Many industry insiders are of the view it was via a consulting team that the recent decision to restructure its businesses under the Alphabet name came about.
Even so, evaluating whether it was all worth it can be extremely difficult.
“It’s often completely impossible,” says Wright. “But it’s in a consultant’s interest to make that clear. If a senior figure in a business brings in consultants to do a major piece of work, one that might go on for two years, or even longer, by the time it’s done so much in the market has changed. And the person who brought them in has probably been promoted, or moved on.
“In that time period, wriggle room will always develop for the consultant with regard to whether they have delivered what they said they could deliver. Not only that but it’s usually in the interest of the specific person within the business who hired them to start making excuses if things have gone wrong.”
For many in the industry, it has become common to offer a risk/reward arrangement, in which the fee is conditional on the savings delivered over a specified time period. But it is not a practice the bigger players in the industry enjoy. For understandable reasons, consultants don’t want to be tied in to the profit or loss of the business. There are too many variables outside their control.
Also, they know very well that all too frequently the problem they are being brought in to solve is not a complex procedural or technical one, but a political one.
“If the CEO, or the board, have got a big decision to make, don’t underestimate the assurance you get from bringing in a Deloitte, or a PwC, who if they’re any good will have knowledge across the market, and will benchmark you against the best in the industry,” says Wright.
“And it makes the person who hired them look good. It adds authority to what they want to say, especially when it comes to delivering bad messages. It gives the manager the option to say, ‘Well it’s not me saying this, it’s Deloitte saying this.’”
No business, big or small, should have internal change as its core business, and all businesses can gain from consultants, if the right ones are hired and for the right reasons. If the reasons are wrong, however, even those with the very best intentions will not deliver the right results.
* David Wright spoke under condition of anonymity. His name has been changed.
Five questions to ask a consultant before hiring
- Why do we need you? All consultants will claim to have wondrous things to offer, but even those who genuinely do may not actually be offering what you need.
- What can you tell me about my business? The consultant must understand your business just as well as his own. If not, how can you be sure they will be able to help it?
- Have you done this before? With no shortage of options available, find a consultant with extensive experience delivering precisely what you require, and who has the references to support this. Their core business must match your needs.
- What do you need from me? Any consultant who promises to solve the problem without your having to do anything at all is likely to lead your business in a direction you don’t want it to go in.
- What happens if you don’t deliver? In some cases, the fee can be results driven. But even if this is not the case, the consultant must not be afraid to set out what is and isn’t within their scope to achieve.
Consultants don’t want to be tied in to the profit or loss of the business; there are too many variables outside their control