Buying consulting: A Consultant’s perspective w/ Marc Jantzen

Key Takeaways

Probably, the most difficult part of buying consulting is to define your expectations, then everybody knows where you are, where you want to go, what’s the issue you’re trying to solve. So consultants can really build an unique solution that fit your needs.

Transcript

Hello and welcome to episode 33 of our podcast, Smart consulting sourcing. The podcast about consulting procurement.

My name is Helene and I’ll be your host today.

Each week I’ll give you the keys to better use, manage and source consulting services.

This week I’ll discuss with Marc Jantzen from the Consultancy Growth Network about the sourcing process from a consultant’s perspective.

Last week I explained how to anticipate your consulting needs to start building relationships and intimacy with your providers.

We saw that embodying and developing consulting providers was helping to get there more ready and more successful with their project, with your internal clients and cherry on the cake, always having on hand a list of potential providers will help you to take control of the tale.

Helene: Hi Marc. Welcome to the podcast.

Marc: Thank you

Helene: So today I wanted to take advantage of having you on the podcast to really talk about how consultants see the sourcing process and in working with consultants.

But before we dive in I would like you to tell us a bit more about you and how you work with consultants, and what the consultancy growth network is doing? You know the drill. It’s usual.

Marc: Yes sure. So very briefly I started life as a chartered accountant with Pricewaterhouse, moved into an operational role with Pepsico, and then built a consulting management, consulting and training business from a scratch through till sort of 10 million turnover, exited to Capita back in 2013 and so yeah sort of 17 years running a boutique consulting business.

Since then I’ve been advising owners of consulting businesses, supporting them on their growth journey and also last year, I founded the Consultancy Growth Network which is a community specifically for owners of consulting businesses looking to accelerate growth.

What are the main issues when buying consulting?

Helene: So I’m sure you’ve worked with buyers before and so I’d like you to tell me from your perspective what are the main issues that consultants face during that sourcing process with procurement?

Marc: So it’s an interesting one. I think that what strikes me is if you look at what makes the difference between an average consultant and what makes a great consultant.

A lot of that is about the quality of their questions and a typical sourcing process does two things. Firstly it drives us as consultancies into a binary Q&A process.

So rather than having the ability to probe, to explore hypotheses, to understand you know what’s worked in the past and what the operational buyers’ vision of success is we’re kind of pushed into this mechanism where we have to answer sort of ask specific questions and get binary answers so that’s one of the biggest challenges I would say.

And a link to that what that requires is us, as consultants to share our questions. So we you know often have to put the questions on to the portal.

And of course, the competitors all then get access to both the questions we’ve asked and the answers and so it’s a real balance in terms of what you ask and how much you therefore share and I think that’s probably my biggest gripe in terms of the process.

Helene: Yeah, I think that’s interesting because I always recommend to do Q&As to my clients and to share that with all the consultants so they’re all on the same page.

But I agree with you that the ones that have the right questions, the good questions would have more of an edge rather than if it was not shared.

But I think that when you put yourself in the shoes of the procurement group and the company, what they want are great proposals and they want to be able to choose from excellent proposals two or three are great.

I mean it’s better to have two or three great proposals than one excellent in two mediocre ones. So it’s kind of like the interests here are not so aligned right?

Marc: Absolutely! And I completely understand you know where or whoever is sourcing the work is coming from. I get that.

They want to compare apples with apples right. But what you lose is actually through the conversation you know.

Through having that access where access is restricted that’s where the challenge comes to the operational buyers to be able to go deeper and to really test out different potential routes because there’s always more than one way to skin the cat, right…

Helene: So I see your point. It’s having just an RFP and being able to ask questions is great, it’s a good start. But at some point, you need to talk directly to the potential clients and ask those specific questions, understand what’s the culture, what’s the organization, what’s the legacy in general in the organization or you know whatever they’ve done before that didn’t work. All of these cannot be put into an RFP.

Yeah, I agree with you and it shouldn’t be done in RFP because you don’t want to have like a 40-page book. So at some point interactions are good and that’s also you know to your point I’d say that, that’s also where you will as a procurement person or a potential client be able to test if you can work with that person, if this doesn’t fit because it’s a human to human business right, you need to have trust, you need to have a fit, you need to blend in some way and make a team that works and so like on that I think that’s a very good point.

So we talked about the sourcing process and the necessity of being able to interact more directly with the client and ask those questions.

What are the main challenges for consultants during a project?

But once the selection is done you sign the contract and you’re starting working with those clients, at that point what are the main challenges that the consultant can face with a project?

Marc: Well probably the biggest challenge is going to be under the heading of changes in scope. I would suggest, as you know, all too often the clients, well either the procurement process has taken so long that things have now changed right that’s option one.

Option two is that not enough evaluation and work was done to truly understand the problem and there are other problems that need to be resolved, before the kind of core problem that the RFP is all about to ensure that it is successful.

So fairly early on through you know effective diagnosis activities, it’s often the case that you identify things that need to be fixed that aren’t in the scope of the work.

And often the relationship between the operational buyer is now the key relationship because procurement is generally not involved you know. And I think they should be.

They should be more connected, particularly to those conversations and they should also I guess set it up for success.

So I would always encourage the consultants that I work with to when they bid to also put in a contingency line you know.

And in the interest particularly if the operational buyer is going to procure or you know to secure budget then to secure some contingency for that eventuality which is almost certainly going to come along.

This is going to be some stuff that’s out of scope far better to ask once now and then not have to go back and ask for more later so I think that change in scope is the biggest challenge and I think procurement can certainly have a role in that.

I think the second area would be around new stakeholders creeping out of the woodwork or even existing stakeholders potentially sabotaging the intentions of the project due to internal politics, those are probably the key challenges.

I think for consultancies you know because that’s really hard to manage as people. You’re in there trying to build a relationship, trying to make a difference, make things happen and then you’ve got infighting going on and you don’t really understand all the politics that are going on.

And again procurement is in a fairly good sort of neutral position I think to be able to support that.

Helene: I think what is really interesting is that both of those cases like changes in scopes and stakeholders are really part of project management per se it’s those are the basics of project management.

And I think that when you outsource a project and you work with external consultants, you tend to forget that this project you have to manage it just like any other project that you do in general.

So you need to put in place a steering committee, you need to have governance, you need to involve the stakeholders early on so they really embrace the project and they want to come on board and they don’t at the end try to oppose it and make it fail.

So I think this is like a key thing to tell to clients and procurement alike is when you launch a project with a consultant you need to manage it and you need to put those consultants in really the best positions because you’ll be on the loose end if they fail.

This is your company, this is your problem your issue they’re trying to solve. Of course, they’re trying to make money but on you from in your shoes you’re going to be on the loose end. So this is like so important.

What is the difference between large and small consultancies?

I have another question. I know you’re working now with small consultancies and you’ve worked in a large consultancy and what I would like you to tell us is from a client perspective what is different when you work with a small consultancy and when you work with a large consultancy.

Marc: So I think, probably the main thing is the level of engagement of the team and in fact, I remember pitching for work with Prudential and we went through this big procurement broken process and we were down to the last two and they turned to me and said okay so it’s you or this company, why you?

And my response was because we care. It was really simple because we really care because it matters so if you’re working in a boutique consulting firm whether it’s an owner, so it may be owner led as a consulting firm.

The project may also be owner-led or it may not be but either way those people working on that project are generally emotionally connected to the owner, emotionally connected to the success or failure of the business and that project is typically quite important to the success or the failure of the business.

So I would say that the number one thing you get with a boutique consulting firm is you’ll get people who are prepared to go really above and beyond and that’s not to say people in big firms don’t go above and beyond.

Because they will but they’ll do it for different reasons. So for example when I worked at Pricewaterhouse, you always know there’s another project. And if this project doesn’t quite work out or the scope changes or something happens, you just get moved as a team onto another project.

You’re not as connected to the impact of something not quite going right. So you don’t take as much ownership for the kind of end-to-end experience and ensuring that those outcomes are delivered I’d say that’s the probably the biggest difference for me.

Helene: Yeah you need to be the biggest fish in the pond right.

Always and you know I think that’s what is very important is you’re always trying to push yourself to become a strategic client for that consultant and with small companies it you’re almost always a strategic client so you know that you’re going to get the best.

Because they really care as you say and not only because it’s a strategic account and they want to make money but I agree with you that you will interact with partners more often, you will have more seniority on field and also they have more skin in the game because very often they’re partners and they are shareholders of the company and so they have literally their skin in the game.

How do consultants make money?

So, that’s also kind of quite different so since we’re talking about skin in the game and and making money, that’s a question I’m sure you know my friends that aren’t procurement professional would be very interested to learn more about that how do consultants make money? That’s a tough one.

Marc: So sometimes they don’t.

I’ve worked with a few that have struggled in that department for sure.

In simple terms on a project basis, it’s all about ensuring that they can charge more for their consultants than they pay them right.

So, that’s a basic principle and whether that’s a contractor they’re bringing in on 500 a day and selling out at a thousand a day or a permanent consulting they’re paying 80,000 pounds a year too and needs a certain level of utilization to make sure that they deliver a certain number of days and they make a margin on them. So at its core consultancies make a margin on the people that they put out delivering the work.

However, how much margin they make is a factor of a number of variables. Firstly scarcity of expertise so if there are lots and lots of consultancies out there that do similar work then inevitably the rate’s going to be lower.

The margins are going to be tighter but if there’s loads of demand and the resource is relatively scarce, the methodologies are quite unique then obviously rates and margins can improve and then I guess, you know there are probably the three primary pricing mechanisms: Timing, materials, fixed fee or risk and reward.

And as the consultancy takes more risk and has more confidence in their ability to deliver outcomes then, I would say the opportunity to make more money is greater.

For example, I remember we did a deal with Carphone Warehouse it was a you know on a fee rate it would have been 240,000 pounds and we would have made let’s say 50-55% gross margin on that, bearing in mind we have overheads that obviously need to come off that as well.

However, we offer them a risk and reward deal so we said we cut the fee in half to 120,000 but we would take a percentage of the upside that we created in terms of their revenue generation.

During the 12-month period we created a significant uptick we ended up getting paid over half a million pounds for that 240,000 pound project.

We made an 80% margin but we took the risk and they ended up with a nine and a half million pound contribution on the bottom line.

So everybody was happy. So I think in terms of you know that’s at the sort of far end of the spectrum; that’s where you can make a lot more money if you’re able to demonstrate and link your fees and deliverables to outcomes then that’s where the opportunity comes.

Helene: Yeah that’s a very good point. I think that a value-sharing model is very interesting and many companies are starting to get interested in that.

But I think there are limitations to working with value-sharing models. The limitation is that you’re able to measure a baseline where we start and then you’re able to identify which part of the improvements that you see over the six or 12 months is really linked to the project.

So at some point it goes back to how you measure the impact or the value of a consulting project.

And you know that I always do that, I will say that because it’s the joke, it’s like consultants tell the clients to measure almost everything, right.

Measure these, measure that and you can’t improve if you don’t measure, you know they’re saying and so on. So how to measure the impact and the value in a consulting project?

What are the ways to really assess that? Because that’s the only way to measure ROI, right?

Marc: Sure. So, any well-run consulting project should have a definition of success phase. So we need to sit down and figure out what the success looks like for this project.

That requires us to identify key performance indicators, to set targets, to analyze the past and this is where people I don’t think generally you know go far enough. You need to analyze the path but you also need to predict the future to some extent.

So if we were not going to run this consulting project what do we anticipate our conversion rate would be or our productivity levels would be or our engagement levels would be, whatever the KPI is that consulting project is geared towards.

And then if we’re able to say okay, well if we do nothing we think it’ll look like this. So let’s make you know an agreement that says anything above that level is going to be worthy of additional reward. So that’s one way.

Other ways are using control groups so we might say okay, well let’s just take a portion of the business right now and we’ll have a parallel control group that we do nothing with and we’ll have a group that we work intensely with and we’ll measure the key performance indicators and look at the change.

Sometimes it’s really easy, I remember when we worked with the big travel company, TUI, their conversion rate was static for the previous two years.

So, no one was going to argue if we came along and all of a sudden they get an uptick. They all know that it’s down to the project.

But in contrast, you know I mentioned Carphone Warehouse early when we did that deal, that risk and reward deal with them, they were in the midst of launching a new iPhone and all sorts of stuff was going on.

It really comes down to the spirit of the agreement then we want to do whatever we can to strip out the noise so that we can focus on the KPIs that we believe we’re accountable for delivering on. But we accept there’s going to be some noise and so it’s about documenting what you can and being you know working in a spirit of partnership really to do what’s right.

Helene: Yeah I agree.

I think that you know collaboration, discussion always you know the conversation starts during the sourcing phase, but have to continue during the delivery phase and has to have that relationship that you’re building between the consultant the procurement and the business line, who’s the user.

Because that’s the only way that you can maximize the chances of success of the project that’s the way to go.

I like your suggestion to, especially when you have a value-sharing model, seat at the very beginning of the project and say okay, so what does success look like and how are we going to measure that? What level of compensation will we get depending on the level of success?

Because if you do that then it’s really clear where you’re going to end up. Everyone is clear on the expectations and then it’s much easier to deal in particular if things don’t go well.

Because that story to always talk about if it goes great we’re going to be paid more. But we also need to know what happens if it doesn’t go well and everyone has a reference to argue; to build their case and say I deserve this because one, two, three and that’s kind of a good relationship.

I would say that it’s: ” a contract with a consultant is just like a marriage”, right? Everything is great until it isn’t. And so you need to prepare sometimes for things being not that great. And I think that’s in interest of both sides to really be clear.

So, you don’t have to go to the lengths to write a super long list of things that can go wrong. But I think that being clear on what are the expectations, what is the measure of success and make sure you involve the right stakeholders at the beginning, make sure you trace the change of scope. Hence, you know exactly what has been asked and how the consultant answered.

That’s I think that’s the key. Well, thank you! Do you have anything else that you wanted to add, Marc?

Marc: I guess I’d probably end on the hope that we start to see some change in the way in procurement procures consulting services.

And I guess referencing back to something with the early conversations also not to constrain the creativity. Sometimes you know as a procurer you won’t know what you actually need or what you actually want or you don’t know what’s out there.

So to create space for people to be creative, I in fact have one last example, one of our members was telling us on a workshop, the other day how he wanted to submit a video as part of his pitch.

Helene: I remember

Marc: In fact Helene you were there, you had given this. So he wanted to submit a video as part of his pitch because he felt it was a really effective way of articulating how he could support this organization transform. But procurement said no because it would disadvantage the others. But for me, that’s just the wrong way to look at it. If the others want to do a video then they can you know.

Helene: Yes yes I agree.

I think this really shouts for more expert buyers for the consulting category. Because the reason why they refused this is because they didn’t realize that; because of the very nature of consulting which is intangible meaning that each proposal will be different even if it’s a piece of paper.

Whatever is inside is can be extremely different and the approaches are different, everything’s different.

So having someone do with a video on you with paper doesn’t matter, what matters is what’s inside. So I agree with you that probably the most difficult part of buying consulting is to define the expectation in a way that is at the same time clear, so everybody knows where you are, where you want to go, what issue you’re trying to solve.

They have all the information to really build a solution that fits your needs but at the same time give them enough room to create a solution that is unique to your needs. That’s why I always say write an RFP, always to clarify expectations.

But limit yourself to the necessary. Everything else can be said during conversations with the consultants, it can be said during a pitch if you have one or during a Q&A.

Sometimes you have Q&A that are made individually so you do you just come and you ask your questions to the client all of these are very good ways to squeeze the other information that you want to tell the consultant.

But that could be if you write in an RFP a little bit too rigid and then you just close the RFP. It’s just you treat consulting as a commodity which is not.

Marc: Yeah I mean I guess my final comment would just be to keep in mind that you’re looking for the best solution, not for the provider who can just tick all the relevant boxes and stay within the constraints of what you’ve asked for.

And I like to say it’s an intelligent purchase at the end of the day, it’s not a commodity purchase. Trying to turn it into a commodity purchase I think is a big risk

Helene: I agree I think that’s the word of the end. Thank you, Marc

Marc: Thank you very much

Helene: That’s it for today.

Next time I’ll discuss how to measure your consulting performance.

In the meantime, if you have any questions or want to learn more about what we do at Consulting Quest just send me an email at helene.laffitte@consultingquest.com.

You can also have a look at our website smartconsultingsourcing.com to know more about our book and download free templates and guides to improve your consulting sourcing.

Bye and see you next week! Au revoir!

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