You’ve heard the story before, a new executive has joined the business, has ignored all processes and bought in ‘their favourite consulting company’ to review operations and they started 3 weeks ago….
Managing consulting and professional services organisations is a challenge almost every organisation grapples with. It is often compounded by the consulting company having contacts, relationships and often alumni at all levels of your organisation, meaning that, to manage them effectively, you also need to manage your own internal stakeholders effectively as well. Here we look at the common challenges faced in managing consulting companies and some techniques to help you.
10 common challenges in managing consulting companies:
- They manage you – you can guarantee that if you aren’t managing them, they will be managing you. There is typically one client partner or executive that is ultimately responsible for your organisation and they have visibility of all that is being sold and delivered to you. Their lively-hood depends on achieving both sales and profit margins targets set for your organisation, so they are focused on ensuring your account is well managed to maximise their sales and profit.
- Executive team access – often the large consulting companies have alumni or personal connections in executive or very senior roles within your organisation. This gives them better access to the executive team than you can achieve under normal circumstances.
- Land and expand – the catch cry of all consultancies. They often will look for small pieces of work that will enable them to ‘get boots on the ground’ in your organisation, using any insider knowledge to spot opportunities to ‘on-sell’ or ‘cross-sell’. Note: this technique is used at both organisation and department level.
- You can’t challenge them – a great technique used by the consultancies is to ensure that key stakeholders are involved in developing any presentations or pitches. Often this is a positive, but be aware that by doing this they can remove the ability for that stakeholder to challenge what they are presenting or selling to the organisation as they are part of the solution (or problem if anything goes wrong).
- Getting ‘air-cover’ – this is a technique where they get executive sponsorship from within your organisation, and keep them up-to-date on both the project and the people they are working with. While this can help give the project momentum, it also ensures that if 1) anyone disagrees with the approach then they have been highlighted as a potential ‘problem’ to the executive and 2) if there are any problems with the project they are covered/protected.
- Commercial models – whilst there is a lot of work put into differing commercial models, fundamentally it all comes down to day rates and multiples of the day rate and then how much risk the consultancy is willing to take on these day rates. Very simply, the higher the risk the consulting company takes the more ‘upside’ they will want to make over and above their normal day rate.
- Using the contract for their benefit – in order to win work, consultancies may under-price the project or task, knowing they will use a very tightly scoped contract/work order and then use change controls for new pieces of work or price increases. This tends to happen in a few scenarios, for example, when they are trying to get into a new area (see Land and expand) or in order to keep a competitor out of your organisation. You can also contribute to this behaviour when you squeeze them too tightly on a project budget and they know that once you start you will have to keep going.
- Changing grades – like all business, consulting firms seek to develop and stretch their people. This can result in staff being assigned to a piece of work at a grade higher than they actually are. This can result in two things. Firstly they are developing their staff at your expense and to a certain extent your risk. And secondly they make more margin over their ‘loaded cost model’ (the total cost to employment plus a share of overhead) for that individual. Always ensure that the skills and grade profile agreed for a project matches the team actually assigned and the mix doesn’t change without your agreement. Another thing to watch out for is where a consultant gets promoted mid-assignment and their rate goes up.
- Measuring success – most organisations are set up to measure KPI’s, products and services which in itself can be difficult, even more so for consulting projects which often have an element of change management that needs to be measured.
- Getting them out again – consulting firms brief their people to seek out areas of your business where there are challenges or that need improvement. Once embedded they will be active (especially more senior consultants) in pursuing business development opportunities. They aim to become your ‘go to’, which in turn means they can be very difficult to get out.
Some techniques to help you manage consulting firms (and address some of the challenges above).
Category strategy and sourcing – consultancy will be sub-category within the professional services category. For the reasons stated above, many organisations will have struggled to scope it sufficiently to have developed an effective category strategy. It’s important that some of the myths surrounding consulting category strategies and management are busted. At the end of the day consultants are ‘suppliers’ and should be subject to the same controls and obligations. Types of services can be defined and tested in the market, master services agreements and rate cards can be established and genuine competition promoted. Key to achieving this is a strong business case, robust processes and senior executive support.
Developing a ‘Joint Account Plan’ – easier said than done, this is getting the consulting company to do away with their ‘Key Account Plan’ they would traditionally have developed on you and replacing it with a Joint Plan that both parties share. The difficulty lies in getting both parties to trust each other enough to share and align targets and bonus structures. Joint plans are hugely powerful in aligning and managing the relationship when you do reach that level of trust and structure.
Stakeholder mapping – to manage stakeholders and understand the influencers and decision makers, we recommend mapping all those who have contact (commercial, decision making or managerial) with the consulting organisation. We recommend this is done for both your organisation AND the consulting organisation. Often this is a large exercise due to the size, complexity and history of the relationship with the consulting organisation and it requires constant updating (see using technology).
Procurement policy – a robust policy needs to be in place that governs the engagement of the consultant in line with the category strategy.
Developing a governance structure – once you have mapped your stakeholders it is useful to define what happens at each level of the relationship. Things like:
- What should the ‘drum beat’ of meetings look like at each level?
- What should be discussed (and not discussed) at these meetings?
- What decision making levels are at each level?
- How are problems dealt with?
- What behaviours are expected?
Defining roles & responsibilities – within the stakeholder map we also want to ensure everyone understands what their role is and what they are responsible for. We recommend defining the roles and responsibilities for both your organisation and the consulting company so there is no ambiguity and no cross over. This removes the ability for the consulting company to ‘divide and conquer’ within your organisation. Note: preferably these role & responsibilities are also transferred into individual’s job descriptions as well.
Segmentation – are the consulting firms you use genuinely strategic? Depending largely on the type of services they provide some will be and others won’t. Ensure that consulting firms are included in your supplier segmentation and the appropriate treatment strategies are put in place.
360° reviews – where a consulting firm is considered as strategic and a long term relationship is anticipated then a deep dive 360° relationship assessment is a valuable tool. These are designed to measure the perception of the relationship based on a number of key attributes that can be grouped into trust attributes and control attributes. We recommend using the 360° review as a key input into a Joint Account Planning workshop where you can focus on initiatives to either close gaps in perception between your organisation and the consulting organisation, or, initiatives to improve where both organisations feel the relationship is poor.
Performance management – typically organisations have struggled putting measureable KPI’s on services (compared with product which is much easier). However, more and more items are now purchased as a service rather than a product, so having defined and measurable KPI’s for these services are critical. A common mistake is to use perception to measure performance, rather than adherence to delivery on time, quality of service delivered, quality of outputs or outcomes. Each project and service is different so we recommend KPI’s are develop to reflect this and then ‘rolled up’ to high level KPI’s of quality, delivery and cost. Note: you will need to use technology to do this correctly.
Training – in order to align the two organisations, we recommend training is conducted. Not only will this increase the respective skills and understanding, but it’s a good way of building understanding and trust. Recommended topics are:
- How to set and measure KPI’s
- How to empathise with the other party (getting inside the buyer’s and inside the account manager’s head)
- How to create a joint account plan
- How to manage risks within the relationship
- How to harness innovation
Note: individuals should also be trained on their respective roles & responsibilities which will incorporate some of the above. It is recognised that very senior executives will often not attend training courses, so this needs to be delivered by coaching or ‘information briefings’
Developing trust – people tend to buy from those who they trust and key to the success of the relationship, is developing this trust between both organisations. Interestingly, from our annual SRM research we see that many organisations do not put specific effort into developing trust with key suppliers and consultancies. This can be being more open with information sharing, attending joint training, aligning key goals and objectives, and undertaking joint team bonding exercises.
Relationship charter – to support the development of trust between the two organisations we recommend that a relationship charter is put in place, this should formalise a number of the points from the governance model (for example, what behaviours can be expected from both parties). Not as formal as a contract, but should be signed by both parties.
Using technology – we recommend using technology to drive a more rigorously structured and repeatable way of managing the consultancy (and all key suppliers). Key aspects to using the technology is: using contract management to provide visibility of key contracts, changes, and obligations; using risk management to understand project and cross organisational risks, mitigations and action plans; having a structured and performance management approach; providing visibility of the governance structure, roles, responsibilities and management; running automated 360 reviews and action items.
Whilst managing these large consultancies is challenging, we have seen that if you use the above techniques you can achieve considerable additional value from the relationship, at the same time reducing the risks of projects or relationships going wrong.