Hello and welcome to episode 20 of our podcast: Smart Consulting Sourcing, THE podcast about Consulting Procurement.
My name is Hélène, 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 talk about the make or buy strategy and how it looks like for the consulting category?
Last week, I discussed how to measure the performance of a consulting project.
We saw that it is important to measure the performance to improve the value you get from your consulting. But it is not always possible or recommended to work with external consultants.
Listen to the Podcast How to measure the performance of a consulting project
But when you launch a project, you know, that assigning an independent task force can bring focus, speed, and pressure to the table, which is sometimes enough for the success of a project.
What are your options when you launch a project?
And then in order to execute that project, you have two options.
And your first option is to rely on internal resources, but you have to make sure that those resources are available, that they are given the right authority and responsibilities, that they have the right skills, but also that they are independent.
You know, this is really tough when you have as an employee to challenge the boundaries. And often the people that we put into those projects are high potential, fast-tracked people.
And it’s hard for them to really kind of push the boundaries and say, what has to be said, as opposed to someone who’s external.
So your other option is to work with external consultants. And here, of course, you will have independence, you will have more flexibility, but you have to make sure that they have the right expertise and also your industry experience in order to understand your business needs.
And there’s also the matter of confidentiality that comes into play. It’s a well-known fact that consultants tend to use as a benchmark, what they learn on other projects. And that’s also why we hire them. Right?
But also on some specific projects, it can be a problem. So you have to take all of this into consideration before you make your decision.
How do you build your make or buy strategy?
So how do you crack the make or buy dilemma? Luckily, it’s the same way that you do for other categories. You just have to answer some difficult questions.
- The first question is what are the key activities that can be outsourced? It’s really important to be really clear on what part of a project can be outsourced and if that makes it a standalone project.
- Another element is to look at the pool of potential suppliers: Who are they, how many of them, how mature they are in providing their services, and are they appropriate for us?
- And the last question is, is it worth it for us to outsource this activity in the long term?
These are kind of the general questions that you have to ask yourself, but then how do you really from a practical standpoint get started?
Well here, I’d say that there is a prerequisite to implementing make or buy strategy. And that prerequisite is to have, to some degree, centralized your category.
It’s gonna be very, very difficult to establish a rule or a framework if the handling of the consulting matters is just scattered all over the company. So you need to have some degree of centralization, and then you can start building a framework.
You need to have a list of questions that executives should answer in order to know if they’re in a make or in a buy situation. And you have to remember that that framework has to be in line with your strategy and your culture.
And depending on how procurement savvy your executives are, you might want to describe in more or less detail what each of these questions really means. Sometimes you need to have them go through all those steps and be very clear on what is expected from them at each step of the process.
Is it a project that we can externalize?
Well, the first question in your framework should be around: is it a project that we can externalize? So what is exactly an externaliz-able project? It’s a project where that has boundaries that are clear. So the deliverables are clear.
The deadline is clear and firm and the level of uncertainty is low to medium. And in particular, there are no interdependencies with other parts of the company. And you have the access to the necessary resources, which means that you have consulting firms with the right skills available.
So if you have answered yes to all these criteria, then you can move forward. If you haven’t, then you need to reassess your project scope, or you need to find some internal solutions.
What is the strategic value of the project?
Next question, what’s the strategic value of this project? So a project has a strategic value when, captain obvious, it is strategic for the company, when the expected impact is high when you can afford a project right now, when now is the right timing for this project. And when you know that you will need the skills for other projects in the next few years.
So you see here that we are introducing some demand management to the framework and it’s normal because usually you define your make or buy strategy just after you implement demand management. So it’s kind of the way to go.
What is the externalization value of the project?
And your last question now is what is the value of externalizing the project? So first reason the skills are not core to the company, and you can find them in more expert niche companies.
You can have a specific reason for working with external services like access to independent expertise or third-party validation for your management decision, or you want to leverage a consultant’s brain to justify a painful decision.
There’s one thing that you need to ask yourself as well, is, are we improving the business case if we accelerate the project, because that’s what it is about, right?
Working with external consultants, an independent task force, is about accelerating the execution of a project.
Is it really worth it? Do we really have a significant impact by accelerating the project? Is a very relevant question.
One thing that is extremely overlooked is making sure that you have the necessary skills and resources to supervise the project.
A project has to be managed. If it’s not, you are taking the risk to fail and you don’t want that. So that’s a very important point.
Do you have internally the resources and the skills to make sure that that project will stay on tracks and deliver as promised?
Do you have access to companies that can deliver the project, that have the right expertise, that have the availability to deliver what you’re looking for?
And finally, there is little to no sensitive information. Again, I think it’s important to say, you know, IP is a little bit the contrary of the more, the merrier, right?
You need to have as little people involved as possible in confidential activities. And here, when you work with consultants, you are always taking the risk of breach of confidentiality.
Of course, you can cover yourself with an NDA and make sure that it’s really well, you know, well organized and covered. However, you are always taking that risk and you have to keep that in mind when you are on a project that has low IP sensitivity, you’re fine.
But when you are in a very strategic, very secret project, is it really worth it to work with an external consultant? That’s a very good question.
Start building your make or buy strategy framework
Now that you have all those answers, you can start building a matrix with on one axis the strategic value and on the other one, the external value.
And then you can look at the different quadrants, right? So everything that has low strategic value, this is demand management. You don’t do the project unless you have extra budget, but honestly that’s not worth it.
So when you start with medium strategic value, and depending on the externalization value, you will find your internal and your external project.
If you’re more familiar with the make or buy, you can add another dimension, which is the priority of a project. And you can also add some new options like hybrid projects, you know, that are mixing internal and external consultants.
And you can have also team development projects, which are project that you do, because you know that you will need the skills in the future.
And you’re just taking the time to train your employees in order to get them to grow in that specific area that you’re interested in.
So you see that implementing a system like make or buy requires some degree of centralization, and also increased collaboration between procurement business lines, strategy, finance, and human resources.
But the value created can be really significant. So what are you waiting for?
That’s it for today. Next time, I’ll discuss the RFP and why I think it is a mandatory part of the sourcing process for consulting?
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 email@example.com
Bye and see you next week! Au revoir!
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