4 Practical Strategies to put your Consulting Spend back on tracks
“Consultants have credibility because they are not dumb enough to work at your company.” – Scott Adams.
Just joking! Now, that we have your attention, let’s talk about strategies, data utilization, value of services, and price.
When you start to look at your consulting spend and realize the drift in costs, amongst the various immediate initiatives that you can consider, think about scanning your consulting spend. It’s about slicing and dicing the data you gathered, to identify the outliers. You’ve seen the patterns and have a clear idea what’s going on. Discrepancies in the spending or the practices are often indicators of something that went wrong. Let us walk you through the most common situations.
Spending more is not always a problem. What matters is the value being created. Let’s check first if the money is well spent if synergies could be created and ways to avoid waste.
When one part of the organization is spending more than others?
What could be the root causes of this situation?
- The scope of responsibilities determines Spending & Value created
All parts of the organization are not equal in their scope of responsibilities. Since Consulting is roughly proportional to revenues, a large Business Unit, for instance, is prone to higher Consulting Spend than a small one. Looking at the ratio spending vs. revenues can be a good way to look at a situation. Conversely, in a turnaround situation, you might be spending more on smaller GBUs to bring them back to value creation. Be careful not to throw good money after bad though.
The corporate can also be a good client of Consulting Services. For a company with an integrated Corporate in charge of Strategic decisions and Excellence programs, the Corporate can have the larger Consulting Spend whereas a decentralized Company with a light Corporate should expect a minimal spend for the Corporate functions if you have the later with High Consulting Costs, you may want to question either your governance model or your demand management.
Create Value Through Consulting
But you need to know that the Consulting Industry is not one homogeneous block. There some regional specificities, including on the capabilities.
- How the context and the strategy affect Consulting Spend
A regulatory change, a reorganization or an acquisition and the associated PMI can inflate the Consulting spending. If a part of the organization has launched a major transformation or has an ambitious strategy, it can increase its expenses for Consulting to accelerate the process. This can make sense to capture value faster, just make sure however you don’t end up overspending with luxury consultants and put in place a monthly reporting of consulting costs. This will avoid unpleasant surprises.
Sometimes Executives use Consulting as a workaround for strict HR policies since the rules on Consulting are often looser. Creating surprisingly a bump on Consulting Spend in the middle of a recruitment freeze. Cost reduction objective was then perfectly achieved.
- Consulting Fees vs Consulting Expenses – the footprint
Keep in mind that most Consulting Projects separate the Consulting Fees from the Expenses of the Consulting Teams during work on the projects. If you are not cautious, you might end up paying up to an additional 30% of the total cost of your project only on expenses. If Consulting Fees are really tight, this ratio might end up being quite high. In this case, mostly make sure consultants are respecting your travel policies. There is nothing worse than consultants flying business while the rest of the company is in a travel ban.
If the entity selecting the Consulting Firms is based in Europe and tends to shop locally, every project in North America or Asia will have a premium attached to it. And don’t think that you are safe because you work with a large global Consulting Firm. Because most of them are set up with local P&Ls and are pressured to optimize their local resources, they would rather send their understaffed European resources than find local resources for your project.
When a Consulting Firm is charging more than others
When looking at the numbers, you realize that John Doe Consulting is charging 40% more than your other Consulting Providers on similar projects. Or maybe they are charging more only when working with Business Unit B, the most profitable of your BUs.
- The scope and deliverables
Look closely at the scope and the deliverables of the projects. For broad projects with several phases, you can either contract in one large project and in several small projects following the phases. Another point you want to look at is the range of the projects. For instance, for a Lean Manufacturing project, one Business Unit might have decided to work on all the factories at the same time, when another one will work on a small pilot group, and then implement in the rest of the organization.
- The complexity
The complexity of the project can also have an impact on the price. Maybe you are using John Doe Consulting only on more complex projects because they are knowledgeable and can mobilize a huge volume of expert resources in a short period of time. Obviously, this often comes at a premium. In the same way, if only a handful of companies can complete a given strategic project, supply and demand rules prevail.
- The footprint
The footprint of the organization can also have an impact on the price of the projects, through the expenses as mentioned earlier. A business unit heavily centralized and solely based in one region will probably face lower Consulting Expenses than a Company based in several regions.
- The price – value dilemma
Some Consulting Firms are just more expensive than others. The real question that you should ask yourself is: “What is worth the investment?”. Spending more is not always wrong if the return on investment is excellent. What matters most is the fit and the impact.
- The Culture
If your teams are culturally homogeneous, or on the contrary, extremely diverse, the performance evaluation will probably not be impacted by individual cultural differences. However, if your Business Units have different cultural structures, then it might not make sense to compare the performance results from one with the other. In other words, your Brazil Headquartered BU will probably have better scores, independently of the latest results of the soccer team.
- The quality of their providers
Lower-Performance scores can come from the quality of the providers. It can be linked to the quality of the local Consulting Market. The logic behind when you are sourcing the best providers for your direct business should also apply for your consulting expenses. The probability of finding them in a 5-mile radius is fairly poor. Having been classmates with one of the partners or belonging to the same baseball fan club is not much better.
When Department D works almost exclusively with one Consulting Firm
Working with familiar consultants is comfortable. The Consultants know very well your business, its complexity, and even internal politics. However, we are always amazed to see the same senior partner morphing from a pricing specialist to a lean expert or a digital guru. And if it was only the senior partner teaming with other qualified partners, but you see the same phenomenon at the principal and consultant level. Or simply put, always the same team, different color jerseys.
Here is an interesting take on expertise –
“Chess masters don’t evaluate all the possible moves. They know how to discard 98% of the ones they could make and focus on the best choice of the remaining lot. That’s the way expertise works in other fields too: Wise practitioners recognize familiar patterns and put their creativity, improvisation, and skill towards the marginal cases.” – John Dickerson.
So now you know who is spending and why. Now what?
There is a myriad of ways to approach this challenging situation. What really drives the way forward is the sense of urgency you have. Here are four from the simplest to the most disruptive.
1) Implement a systematic competition policy to keep providers on their toes.
2) Centralize consulting budgets in each business line to align priorities.
3) Set a ceiling in consulting spend per unit vs historical or top line.
4) Implement a demand management process to match spend and ROI.
Agree? Disagree? How does your Consulting Spend look like?
Don’t hesitate to reach out and share your experience.
We love to hear from you.