“There is nothing less productive than to make more efficient what should not be done at all.” – Peter Drucker
How does that apply to you and your consulting projects? Have you ever seen an internal project not delivering fast and strong enough because of players stuck into their daily operations, petrified at the idea of jeopardizing their careers? Of course, you have. Consulting can be a powerful lever for companies to accelerate value creation and avoid these pitfalls. It addresses two main challenges: focus and independence. Projects supported by the right consultant can achieve a higher value than the same projects done internally.
But companies do not always optimize the way they use consulting.
- They underutilize consulting. This situation is quite frequent in traditional industries, such as chemicals or manufacturing, and applies to small to mid-sized companies. Executives tend to think that consulting is expensive or that consultants do not really create value. Using consulting is seen as a sign of weakness and a waste of money.
- They overutilize consulting. In some companies, executives cannot move a finger without the help of a consultant. A large European bank noticed during a budget exercise supported by a large consulting firm that all the different functions of the group had prepared the meeting with their “private” consultant. Another change management consultant realized that all participants in the team-building workshop he was facilitating for his manufacturing client came from various consulting firms.
- They utilize consultants on the wrong projects. This mistake is the most common one. Companies don’t always anticipate and prioritize their needs for consulting and defer to their consultant anytime they are stuck or need to accelerate. The first one to use the budget often gets the resources. But is implementing a brand new ERP on a division that is about to be divested a smart move?
- They get lost between internal and external. It is a tricky mistake. These companies have identified the priorities of their projects, but they underestimated the challenges of handling them internally or the benefits of third-party intervention.
- They use the wrong compensation models. There are many ways to compensate consultants, and each has a range of applications when it benefits both sides. Few companies have mastered this subject and apply optimized compensation models. Should you compensate for time or impact? How do you handle a project that is late by one year?
The first step in optimizing your use of consulting is to make sure you are spending your money on the right projects.
Is your consulting spend aligned with your strategy?
Your strategy reflects your vision, and your consulting projects should be fully synchronized with both.
“Face reality as it is, not as it was or as you wish it to be.” – Jack Welch
No one-size-fits-all strategy will magically produce a competitive edge for your company. But most executives would recognize that, besides an ambitious strategy, success cannot happen without aligning all elements of the business, including the spend and the organization, to the overall strategy. For the consulting spend, it means spending the right amount of money on the right projects.
Are your projects strategic?
Among the consulting projects done during the last 12 months, how many were supporting your strategy, or were at least considered strategic when they were launched?
There are mainly two types of strategic projects:
- The project is supporting a core strategic workstream that will directly advance the long-term vision of the company. Projects enabling strategic projects fall in this category as well. For instance, your company has decided to implement a customer-centric organization. The consulting project supporting the transformation will be considered a Core Strategy Project.
- The project is needed to adapt to an issue or a new regulation. For instance, when the French government decided to regulate gas distribution in 2000, all gas operators in France had two years to comply with the new regulation. The project supporting the adaptation of internal rules and organizations was a Strategic Adaptation Project.
You can sort your projects into these two categories. You can have a limited number of non-strategic projects, such as, in particular, small projects under the demand management threshold. If you have a significant amount of non-strategic projects, or if you have larger non-strategic projects, take the time to ask yourself the following questions:
- Why did we hire consultants on that specific project?
- What was the decision-making process?
- Was the project necessary?
- What was the return on investment?
Answering these questions will help you build guidelines for your teams when assessing if a project is strategic or not.
“Some people want it to happen, some wish it would happen, others make it happen.” – Michael Jordan.
Are your efforts congruent?
Whatever strategic model you are using, be it Competitive Strategy from Michael Porter, Blue Ocean Strategy from Chan Kim and Renée Mauborgne, or Playing to Win from Alan George Lafley and Roger Martin, creating a sustainable competitive position relies on making choices and strengthening specific activities to achieve a unique value proposition.
Those activities also referred to as capabilities, will reinforce each other and make your positioning very difficult to replicate for the competition. If your competition can only achieve 95% of a given capability, it compounds when you combine seven of them.
Therefore, the efforts you are deploying to implement your strategy need to be congruent. You need to make sure you have mapped the key activities to execute your strategy and not leave some key pieces on the side. This will probably require regularly reviewing the allocation of your resources and particularly utilizing your consulting budget.
Imagine a situation where a steel company wants to change its positioning from a commodity player to a pure specialty materials player. To advance that agenda, they will have to work on their innovation pipeline, product mix, marketing, sales organization, operation organization and Effectiveness, talent, etc. If they focus their consulting budget on Innovation, for instance, they can launch several strategic projects in a row. However, the other elements of the strategy will not benefit from the same acceleration and thus become a bottleneck to the overall strategy execution.
“Positions built on systems of activities are far more sustainable than those built on individual activities.” – Michael Porter.
Is your sequencing/timing optimal?
You know the saying, “Timing is everything.” It can make all the difference when you are planning projects through the years and sequencing them smartly.
Take another look at the projects you launched last year.
- Did you launch the projects at the right time?
- Were all projects high priority?
- Did you break down the projects into relevant phases?
- Were there phases that could have been launched later?
- Did you evaluate the interdependencies with other activities or projects in your sequencing/timing of the project?
- Were you able to self-fund some of your projects?
- Did your projects integrate quick gains to facilitate change?
High priority doesn’t always mean that the best timing is now. We have discussed strategic project enablers: these projects contribute to the success of core strategy projects. There is obviously no point in launching the core strategy project before its enablers.
Strategies are usually set for a period of 3 to 5 years. Short-term goals and enablers for major projects should be the focus of the beginning of year 1. Starting in the middle of year 1 and through year 2, you should work on the major projects. Year 3 is the consolidation year.
“Lost time is never found again.” – Benjamin Franklin
Did you define a consulting strategy?
Like any strategic level, consulting must be integrated early on in the strategic cycle to get the full benefits of its utilization. We have mentioned the importance of aligning your consulting spend and your overall strategy. Going one step further, you can define how you use consulting in your company by translating your strategy into a consulting strategy.
- Translate your high-level priorities into clusters and define what resources you want to allocate to each cluster.
- Identify the potential projects and determine the contribution to each of your clusters.
- Define priorities, smartly sequence your projects, manage interdependencies, and run a make-or-buy assessment.
The clusters to use for this exercise can be fully customized to your organization. What really matters is to make sure you cover the full spectrum of projects with a methodology that will allow you to make choices. If you don’t know where to start, you can use the following four clusters:
- Strategic Planning (where to play, how to win, resource allocation priorities)
- Operational Effectiveness (efficiency and effectiveness of the activities)
- Growth and Innovation (set of activities to grow and go beyond your core)
- Enablers and Governance (all enablers for the above, including change)
Defining the consulting strategy is a team exercise. If your volume of consulting is significant, you should consider devoting a small team to run the consulting strategy definition cycle and guarantee the execution of the strategy. Don’t hesitate to mix roles between strategy and procurement teams and the various business lines.
Ultimately, the goal of this exercise is not to take over decision-making. The business lines need to keep control over their consulting spend. However, you still need to make sure that they get the most value from consulting by implementing the right best practices.
When implementing, are you optimizing your utilization of consulting?
If you have reached this point in the book, you are already quite advanced in implementing best practices for your consulting procurement. There are a few more steps you can take to reach the best-in-class level and unleash your value-creation machine.
“If I had more time I would have written you a shorter letter.” – Blaise Pascal.
Do you have the right ROI?
We cannot talk about strategy alignment and consulting spend without touching upon return on investment and performance. Now you know if you have spent your money on the right projects, but did you get the results you expected?
- Were you able to attain the strategic goals you had defined at the beginning of the year?
- Are you satisfied with the ROI of the projects you launched last year?
- Are you satisfied with the performance of the consultants you hired last year?
- Do you have the feeling you got the right value for the money you spent?
Measuring the performance of your consulting project and evaluating the return on investment is the first step to optimize your use of consulting.
Are you grouping similar projects?
Among the strategic projects, you might find some redundancies on the projects and/or potential synergies. You might find yourself in one (or more) of the following situations:
- You have launched roughly the same projects in different parts of the organization. When a strategic direction is set, all the business units and functions must translate into their strategy. And often, it is translated on the same actions and projects.
- You have worked with the same consulting firm across the board. Some consulting firms have unique niche expertise. If different parts of the organization had to work in the same field, they might have worked with the same consultants. Client familiarity and personal recommendations are two major drivers of choice for consulting providers.
- You have worked on the same subject through a set of projects. It can be because your teams wanted to stay under the demand management threshold or because the uncertainty was too high at the beginning of the project to engage on a larger scale.
As you can see, there are many ways to find synergies on projects. One common mistake in the situations mentioned above is the lack of anticipation.
Did you design a make-or-buy strategy?
Most companies weigh the benefits of handling a project internally rather than hiring consultants. But all executives don’t have the same understanding of project management, consulting, and procurement leading to uneven decisions and thus value creation.
You should define a make-or-buy strategy closely related to your demand management system to even the field and take control of the process. Your strategy should guide your executives through three main steps:
- Is my project a good candidate for externalization? Project cemeteries are full of projects with a vague scope and unclear deliverables. And they usually didn’t end well.
- Is this project key to execute my strategy? Or in other words, is the project aligned with my strategy?
- Will hiring external consultants on this project create more value than building an internal team? It is a key element of the make-or-buy dilemma. You can decide to outsource a project to access niche skills or leverage a third-party intervention. But in every case, you need to get a higher value.
Work with your business lines to make sure the change sticks, and you capture all the benefits of your make-or-buy strategy.
How do you handle the tail of your consulting spend?
A lot of companies are taking an interest in tackling their tail spend. They realize that the tail can represent huge savings potentials. Since the pressure on operational expenses is not going away, it can be another initiative to reach their savings target.
The consulting category adds a layer of complexity. The consulting market is exceptionally diverse, with a portfolio of broad potential projects. Interpersonal relationships and cultural fit are also important dimensions that impact procurement and the performance of the consulting teams.
More than in other categories, the tail spend has to be assessed by executives with a solid understanding of both procurement practices and consulting market and economics. But when the tail spend is properly managed, a company can expect 5 to 40% in savings.
Do you get the best of the different compensation models?
Finally, companies should take advantage of the different compensation models. Companies can easily get lost among daily fees, flat fees, and performance-based fees.
Apart from daily fees, which are rarely a good deal, the different fee structures have pros and cons and can apply to a range of projects to benefit both sides.
Flat fees can be interesting for projects with intangible results such as leadership or culture projects. In contrast, performance-based fees are extremely efficient for projects with tangible results such as sales effectiveness or cost-cutting.
Mastering the different compensation models can allow companies to get more value and invest less upfront on some projects and use the value created to pay for the rest of the project.
For most companies, focus and independence are the main challenges when it comes to their consulting spend. The key to optimizing your consulting spend and developing a highly effective consulting strategy lies with navigating the demanding business landscape today, avoiding underutilizing or overutilizing consulting, using improper compensation models, or working with the wrong consultants on the wrong projects. But with a congruent and well-defined consulting strategy, you can successfully accelerate the execution of your business strategy and unleash substantial value. The next level to create more value is to learn how to leverage the disruptions happening in consulting and procurement in particular.
5 takeaways for busy executives
- Very few companies are connecting their strategy to their utilization of consulting.
- A consulting strategy can be built around four clusters: strategic planning, growth & Innovation, Operational Effectiveness, and Governance & enablers.
- Best practices, such as grouping projects and managing the tail spend, can yield savings and free additional budgets.
- Implementing a make-or-buy strategy can have a multiplier effect on your demand management system.
- Consider using different compensation models to get the best of your projects.