Firm Believers
Crushed by two years of steep revenue decline, the consulting arena has transformed. Sagging software sales have constrained large-scale implementations and a rising number of CG companies are now focusing their efforts on segmented modules.
"A lot of people are sitting on the bench as the big wave of ERP implementation is over," says John Fontanella, analyst, AMR Research. "There will be big projects but it's not going to be the huge package systems like an SAP."
So how does this affect the future growth and practices within the consulting industry?
Like all businesses, consulting firms seek to increase revenues and margins. Too often, that includes tactics like scope creep (growing the assignment like a building contractor with change orders), ghost trusting (the past-project high-achievers you bought are no longer there), rate and switch (start with great people at bargain rates and smoothly replace them with weaker ones), and baby billing (invoicing consultant rates for young staff).
These questionable tactics might become more prevalent in an effort to stem the bleak outlook on profitability. Systems integration consulting, for instance, dropped 24 percent in 2001 and even more in 2002. The Institute of Management Consultants recently asked its members if they had been considering a career change. A staggering 87 percent said they had.
To scare up new business, some general consulting firms are reducing their rates, sometimes bidding 30 to 40 percent lower than a few years ago. At one time, consulting firms enjoyed the comfort of cushy buyout offers, sometimes equaling more than three times the company's revenue. Not anymore. PWC was reportedly sold to IBM at 0.7 times its revenue.
Firms like KSA, Infosys and BristleCone are holding their own. Larger firms Bearing Point and Clarkston also offer competetive services.
With this in mind, CGT combined the advice of six consulting industry leaders to help wade through the protocol of what to look for in a consulting firm. Padman Ramankutty, CEO of Bristlecone, Mary Haigis, CMO of Clarkston Consulting, Jess Scheer, Editor of Consultants News, Peter Brown, CEO of Kurt Salmon Associates, Steve Schlehuser, a top IT consulting partner for 35 years and Don Vehlhaber, partner at SPI offer the following consulting tips:
>Pay more attention to the individuals than the firm.
>Don't expect a consulting firm to volunteer whether it has a beneficial interest in any IT products/vendors that might be recommended. Ask.
>There should be no problem with several firms working together on one project and being managed by internal staff.
>Be wary of performance fees. Some result in vast payments while others aren't relevant such as stock options for a software project.
>Numerous individual consultants will tell the truth, even if it means reduced consulting fees. Find that individual on your team early.
>Have internal people responsible for clearly defined deliverables and consultants reporting to them.
>Clearly communicate internal sponsorship, accountability and ROI expectations and hold review meetings every 2-3 weeks.
>Consider having only one firm as the sole project manager.
The industry leaders also recommend altering negotiation strategies according to the type of consulting project:
Commodity/Body Shop Consulting can be squeezed for bargain rates, which often range from $50-75/hour. However, you must clearly match productivity standards to the number of staff assigned and weed out poor performers.
Offshore Outsourcing rates, which can range $15-20/hour for offshore and $100-150/hour for onsite, can also be squeezed. However, offshore needs exactingly detailed requirements and definitions that few companies have the discipline to create.
Technical Expertise consulting requires infrequently needed special skill/knowledge. Rates of $100-150/hour can be negotiated down somewhat, but team chemistry is more important, as is knowledge transfer.
Business Transformation initiatives have often been disappointing. These projects should be broken up into bite-size three to six-month chunks and studied for revision/abandonment on a regular basis.
Business Innovation consulting has very high returns and risks. Rates often range from $250-400/hour. Lock in guarantees for the specific people you want on your project.
When it comes to choosing a consulting firm, a little persistence goes a long way. By proactively seeking out the hidden benefits while avoiding questionable tactics, the right strategy should become clear.