Welcome back to Smart Consulting Sourcing, the most trusted podcast for insights into the world of consulting procurement. My name is Helene and I’m your host, and today we will continue from where we left off last week where we talked about asymmetrical information.
Last week we looked at what asymmetrical information is all about and that it occurs when one party in a transaction has more or better information than the other. In the grand marketplace of life, this imbalance can tilt the scales, affecting not just the price but also the quality of goods and services that are exchanged.
But today, we will delve deeper into the realm of asymmetrical information and examine effective strategies for overcoming this imbalance. Buckle up, as we’re about to embark on an insightful journey!
Missed our last episode? No worries! You can catch up on all our insightful discussions anytime on Spotify, Apple Podcast, and YouTube. Hungry for more? Head over to consultingquest.com for white papers, e-books, and even transcripts of our podcasts.
And if you’re loving the insights, why not share the love? Pass these episodes along to your circle and drop us a review. It helps more than you know. Plus, we’ve got some thrilling workshops on the horizon, from honing your negotiation skills with consulting firms to nailing those RFPs. Want in? Just shoot an email to hcl@consultingquest.com. Can’t wait to see you there!
Alright then! Now let’s get back to today’s discussion on how to get started with asymmetrical information. We’ll also shed some light on the importance of performance management and client advocacy. So, let’s dig in!
Overcoming Asymmetrical Information in Consulting
How to get started, you ask? Well, stepping into the consulting market can indeed feel overwhelming. It’s vast, with a maze of services and firms each claiming to be the best. But let’s cut through the noise together.
Here’s the lowdown on understanding this market to make informed choices for your business.
First off, let’s get one thing straight: the consulting world isn’t a one-size-fits-all. It’s segmented into various specialties, from strategy and operations to IT and HR consulting. It’s not just about picking the big names off the shelf; it’s about finding the firm that shines in addressing the specific needs of your company. Need a revolution in your IT infrastructure? Or maybe a complete overhaul of your operational processes? Rest assured, there’s a firm out there that’s made a name for itself in exactly that domain.
And here’s an insider tip: consulting firms often tailor their services not just to industries but to specific regions. In fact, you’ll notice that firms in certain regions naturally gravitate towards serving particular industries and capabilities. Take Europe, for instance, known for its prowess in operations excellence, while the US leads in leadership and innovation strategies. Even within a single country, the focus can shift dramatically—New York is a powerhouse in finance, while Seattle takes the crown in aerospace.
Getting to grips with the mechanics of how consulting works is more than just business savvy—it’s your key to mastering negotiations. Take, for example, the fact that most partners in consulting firms bill only 50% of their time. Surprised? The other half is often dedicated to commercial work, laying the groundwork for future projects and engagements. This insight into their business model is invaluable when you’re evaluating a proposal that they’ve put in front of you.
When consulting firms draft a proposal, they’re essentially estimating the workload required to achieve your objectives and then applying their pricing. Typically, this follows a cost-plus-margin approach, where they calculate the cost of delivering the project and add their profit margin on top. However, it’s not always cut-and-dry. Sometimes, they opt for a value-based pricing strategy, particularly for projects where the anticipated impact or value to the client is significantly high.
Understanding the nuances behind these proposals—how the project is structured, including phasing, staffing, timeline, and pricing—is critical. It’s about knowing what’s reasonable and what’s not for your specific project. For instance, consider the length of a strategy project. A six-month timeline might raise eyebrows; strategy projects, by their nature, tend to be more intensive but shorter in duration, often around 12 weeks.
Navigating the complexities of consulting proposals requires a keen understanding of not just workload and staffing but also pricing. Consulting rates can feel like a labyrinth, varying significantly by region, industry, capabilities, and consultant profiles. For instance, the price gap between a tier 1 and a tier 2 consultant for the same capability can hover around 40%, while the difference between a strategy consultant and an operations consultant might double. Gaining a reference in pricing is like having a map in this maze, ensuring you’re not caught off guard by quotes. Remember, being knowledgeable is your greatest asset in negotiations.
But it’s not just about having the right information. The team you bring to the negotiation table plays a pivotal role. Your procurement teams need to navigate the unique landscape of consulting negotiations, where the traditional, aggressive “I-will-crush-you” approach just doesn’t work. Consulting is about value, not just cost. A fair price reflects the value delivered, and if it’s not met, you might find the scope of your project narrowing as if by magic. It’s a dance of mutual respect, where both parties acknowledge and appreciate the value the other brings.
Each project—and consequently, each negotiation—is a unique beast. Preparing means understanding all possible alternatives, familiarizing yourself with market rates for similar projects, and having a grasp on typical project durations. This isn’t just about not going in blind; it’s about negotiating from a position of strength, armed with knowledge and insight.
And then there’s competitive bidding, arguably your most effective tool in the negotiation toolkit. It’s the mechanism that allows you to compare offerings on a like-for-like basis, laying out how different firms approach your project, their pricing models, and what they’re promising to deliver. This not only bolsters your negotiating position but also provides a crystal-clear picture of the market landscape.
We often say that knowledge is power, and when it comes to navigating the consulting world, this couldn’t be truer. The key to overcoming asymmetrical information in consulting procurement? It boils down to doing your homework and upskilling your teams.
If you don’t, consultants naturally have the upper hand. They’re experts in their domain, knowing every nook and cranny of their trade. But when you equip yourself with similar expertise, the game changes. You’re no longer at the mercy of their proposals; instead, you become a formidable counterpart in the negotiation process.
This doesn’t mean gearing up for battle in an ‘Attila the Hun’ style. Far from it. It’s about ensuring that you’re only buying what you genuinely need and that expectations are crystal clear on both sides of the table. In short, it’s about creating a win-win scenario, the only real way to work effectively with consultants.
The Importance of Performance Measurement
In consulting, measuring value and performance often feels like navigating uncharted waters. Each consulting firm and client seems to whip up their own recipe, and seldom do these recipes get shared. It’s a silence that echoes across the industry, leaving room for ambiguity and missed opportunities for improvement.
Just yesterday, I was on a call where a consultant expressed genuine gratitude for feedback on a proposal they didn’t win. ‘Thank you so much for this feedback. It means so much to me,’ they said. And it struck me—how rare is that moment of connection of learning?
Perhaps my sensitivity to continuous improvement stems from my early days, implementing ISO 9000 standards. That experience ingrained in me the value of structured feedback loops and the pursuit of excellence. And here’s the thing—most consultants aren’t just open to improvement; they’re eager for it. They want to fine-tune their proposals, enhance their service delivery, satisfy their clients, and, naturally, win more projects.
This brings me to one of my biggest pet peeves. The absence of a standard measure of performance in the consulting industry. Imagine a framework that not only tracks performance metrics but also facilitates transparent, standardized feedback. This would be a game-changer, moving us from relying on brand reputation—which, let’s be honest, sometimes boils down to just brand awareness—to a more concrete and realistic measure of quality.
Brand awareness, in simple terms, is how familiar people are with a brand. It doesn’t necessarily reflect the quality or effectiveness of a consulting firm’s services, but rather how recognizable their name is in the market. This distinction is crucial when we talk about measuring the true value consulting firms bring to their clients.
And I know what some of you might be thinking: ‘But, but, but we have consulting firm rankings…’ Yes, I could spend hours discussing this (and I did in episode 104, which I’ll reference at the end). But to cut to the chase, these rankings come with three main biases:
- Often, these rankings are more a measure of a firm’s market visibility than its actual performance or client satisfaction.
- There’s a tendency to spotlight the bigger players, perpetuating the notion that bigger automatically means better.
- These evaluations assess firms at the brand level, which doesn’t necessarily speak to the quality of individual consultants or specific project outcomes. After all, it’s the people, not the brand, that make consulting engagements successful.
These rankings are interesting, sure. But they rely on proxies for quality, like brand reputation and marketing budgets, skewing the playing field in favor of the larger firms. They don’t tell us, ‘For this specific type of project, this firm excels,’ which is precisely the kind of feedback we need.
The solution? It’s clear: we need a standardized process to evaluate consulting performance. Imagine a system that could be shared from client to client, always respecting confidentiality, of course. A system that digs deep into project specifics—examining project management, expertise level, trust-building capacity, impact, and value for money. These are the markers that really say, ‘This project was a triumph.’
Why is this so crucial? Because it offers consultants a transparent platform to show potential clients exactly what they’re capable of, beyond the superficial. It’s an opportunity to move past the flashy presentations adorned with hundreds of logos, some of which might not have seen a consultant’s touch in over five years.
And yes, you caught me—I’ve noticed that those old logos didn’t get swapped out for the updated ones. It’s a little telltale sign, isn’t it? 😄 Instead of boasting, ‘We’ve worked for Disney!’ they could be sharing, ‘We’ve tackled a similar project for a major player in the entertainment industry, and here’s the detailed feedback we received.’
This approach changes the game. It shifts the focus from who you’ve worked for to what you’ve actually accomplished. It’s about providing concrete evidence of success, laying out the ‘what,’ ‘how,’ and ‘why’ of past projects in a way that’s meaningful and relevant to potential clients. This is the kind of transparency and accountability that can transform the consulting industry, fostering a marketplace where quality and performance are visible and valued above all.
Now, you might wonder, if this solution is so clear-cut, why hasn’t it happened yet? Let’s turn the tables for a moment and consider: who holds the reins in the market? And who has the resources to develop and implement such standards? That’s right, the big players. But here’s the million-dollar question: Why would these industry giants pave the way for a methodology that could potentially undercut their own position? The short answer? They wouldn’t.
This push for transparency, while beneficial for the industry at large, poses a risk to those at the top. It would throw open the doors for smaller consulting firms, evening out the competition. And while that’s a win for fairness and quality, it’s not necessarily seen as a win for those who currently lead the pack. Many smaller firms that might champion such change simply lack the financial muscle to bring these standards to life.
So, who’s left that can make a real difference? You, the clients. You’re the ones who stand to gain the most from this transparency and standardization. And, paradoxically, you’re the ones with the collective power to demand and drive this change. It’s a classic case of needing to be the change you want to see. The big consulting firms have little incentive to disrupt the status quo that works so well for them.
But here’s the ironic part: I truly believe that the big consulting firms would actually benefit from this kind of transformation, too. It would give them a chance to sharpen their positioning, showcasing their true areas of expertise rather than spreading the all-too-common ‘We can do it all’ message.
And let’s be real—as a professional and a mother of three, I can confidently say nobody does everything perfectly. There are always concessions, always corners that need to be cut. If you could see my living room right now—where my dog, my cat, and my son’s rugby cleats are living their best life—you’d get exactly what I mean. 😄
But ironically this transformation could empower the leading firms to rightfully claim the title of ‘Best in X or Y capability,’ thereby justifying their premium fees. It’s a win-win that refines their value proposition and reassures clients they’re investing in top-tier expertise. So, whether you’re on the client side of consulting or you’re a consultant yourself, and this conversation strikes a chord with you, I encourage you to reach out. Let’s connect and explore these ideas further together.
Conclusion
As we wrap up this second episode on the intriguing world of asymmetrical information, let’s ponder a question that might seem straightforward at first glance: Are you okay with buying something unknown to you? Let me spin that a bit—would you ever consider buying a house without walking through its rooms, without checking the electrical wiring, insulation, or how well the heating works? I thought not.
In France, there’s a saying that you should conduct your business dealings “as a good family man.” Now, I’ll be the first to admit that it sounds a tad outdated and maybe a smidge paternalistic. So, let’s give it a little 21st-century polish and say, “You should shop for your business like you’re shopping for yourself.” This means doing your homework, understanding the stakes, diving into comparisons, and weighing the performance—not just on a broad scale but specifically tailored to your needs.
Imagine you’re in the market for a new car, mainly to drop off your kids at a school that’s merely a stone’s throw away—about 4 km from your doorstep. Do you really need a Formula 1 car for that? Sure, it’s the crème de la crème, but it might be a tad overkill for school runs. Catch my drift?
So, how do we tackle asymmetrical information in the consulting realm? It boils down to knowing your market, understanding the services on offer, and really getting to grips with your suppliers. It’s about making informed choices, not just taking a leap in the dark based on glossy presentations or big names. Just like you wouldn’t buy a sports car for urban school commutes, you wouldn’t engage a high-powered consulting firm for a project that doesn’t match their or your scale.
As we wrap up today, for those eager to explore more about consulting, check out Episode 104, ‘Consulting Rankings and How to Use Them as Consulting Buyers,’ available on consultingquest.com under thought leadership. I break down popular ranking systems and their implications. Also, visit consource.io for the article ‘What Makes a Performance Evaluation System for Consulting Work?‘ where we delve into creating effective measurement systems for consulting projects.
Next week, we’re diving into a topic that’s sure to pique your interest: the nuts and bolts of consulting pricing. We’ll unravel the complexities of how consulting rates are determined and what it means for you. It’s shaping up to be a fascinating discussion, so make sure you tune in!
Thanks for hanging out with me today as we navigated the twists and turns of asymmetrical information in consulting. I hope you found it as intriguing as I did. Catch you next week for another deep dive into the consulting world!
Your thoughts and feedback are always welcome, so feel free to connect with me on LinkedIn or drop an email at hcl@consultingquest.com. You know I am always game for a chat.
Until next time, stay safe and keep up the smart consulting sourcing game. Au revoir for now, and happy sourcing!
; 
