Hello and welcome to Tenth episode 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. In this tenth episode, I’ll explain why I think consulting is a standalone category.
Last week I explained how to negotiate a consulting agreement. Mastering the sourcing process is essential to make more value through consulting. But to unleash greater value, you need to start looking at consulting as a category.
So, many companies have implemented a category management system. And if we will look at the benefits of category management, we can list breakthrough savings, for instance. On average, companies that have a category management system have recorded savings from 10 to 30 percent.
We can also see improvements in supplier performance, internal client satisfaction, and supplier relationship. And finally, you know increased visibility on spending.
But the companies that really record those benefits are those that look at category management with at least two objectives in mind. The first one is generating savings, of course. And but more importantly, they’re looking to maximize value creation.
So, what are the criteria that make a category?
I personally use Jonathan O’Brien’s reference. You know, his book “Category Management in Purchasing”, a book that I really recommend for the wannabe category manager. And in that book, he defines five different elements that describe a category.
First, it is a discreet market-facing area; it’s small enough to work on, large enough to find opportunities; it has homogeneous customer preferences and it has homogeneous regulation.
So, let’s drill down into each one of these criteria.
What does the consulting category look like
First discrete marketplace, consulting is often part of the internal procurement with travel insurance. Some companies have created a professional services category where you find, of course, consulting but also legal, engineering, executive search, and Real estate services.
But the problem is that the function and the supply bases are entirely different from consulting services.
The consulting market is global and extremely diverse, but most consulting firms use the same delivery models and fee structure. So, in that sense, it’s a discrete marketplace. So, it is small enough to work on and large enough to find opportunities.
Consulting can be a significant part of the indirect spend. It can be up to 0.5 percent to 3 percent of your revenues. It’s very often an important lot and largely untapped in terms of management optimization. And the good thing is that you have a limited number of suppliers in the world.
Is it a homogeneous marketplace?
So, do we have homogeneous customer purposes and regulations? Well, the consulting market is very little regulated. Some countries are trying to introduce some norms.
You have the EU with the EN ISO 20700 that’s called “Guidelines for management consulting services” that tries to structure the way you deliver services to your clients, how you use that feedback to improve your services. But there is no standardized methodology to evaluate the performance for instance.
However, in terms of customer preferences, you will find always the same thing across the globe. They are looking for impact and expertise. So, we see that consulting fits all the criteria to be a category in itself.
But if we go one step further, you see that not only the size of the spend which can be significant but also the impact on the business makes it a key enabler of the strategy.
So, no offense to travel management but even though savings can be significant; it rarely moves the needle when looking at the share price or the enterprise value. Well actually consulting can, and as such, it should be recognized as a strategic category.
So, when you’re looking at optimizing your consulting spend, this is probably the very first step you should take.
That’s it for today next week I’ll discuss how to monitor this consulting category.
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
Bye and see you next week! Au revoir!
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