Does growth mean consulting rethink?

MANY CFOs used the downturn years to tighten up controls on spending. A recent MCA report found that they are much more likely to be involved in signing off consulting projects today than pre-2008.

Now, as consulting spend picks up, buyers are professionalising still further. A new generation of procurement professionals is working with the MCA’s Consultancy Buyers Forum to establish good practice – for themselves and for consulting firms. Many clients have learned a lot and become more effective in how they choose and work with consultants. More are focussing on securing best value, not just on achieving a lower price.

Making best use of consulting presents a different set of challenges from most procurement decisions.

For instance, clients need to test any decision to engage outside consultants against their capacity to deliver a project in-house. They must be able to set out their business needs clearly, and define for prospective suppliers ‘what success looks like’. When planning, it is important to understand that other projects and activities within the client firm may have a strong influence on the outcome of a consulting project. And searching the consulting industry to find the right provider can be daunting – but will often make the difference between success and disappointment.

Share risks

Agreeing the best contractual arrangements can be complex, and require a degree of risk-sharing on all sides. And managing the relationship with consulting firms as they work on a project can demand a significant investment of time by the client if the best results are to be achieved. It is also important to work with the consultancy to deliver the best legacy for their project, whether in the transfer of knowledge, better systems, improved in-house capability or continuing access to outside experts.

Within client businesses, it is always important to ensure that there is strong co-ordination between those who have identified the need for external support and their colleagues who have the budget and authority to pay for it. Both should also strive to work closely with the procurement team that is given the task of identifying and contracting with the consulting supplier.

Price is important, of course. But, equally, quality consultancies want to deliver real value and be appropriately rewarded. Independent research for the MCA suggests that, on average, consulting projects deliver benefits that are worth around £6 for every £1 spent in fees. This is only an average ROI – it can be a lot higher (up to 20 times) and, of course, lower. The key task for any consulting firm and their client – working together – is to ensure that this return on investment is as high as possible.

One good way of achieving this is to negotiate a contract and payment mechanism that aligns interests, and ensures that innovation and good value can come to the fore. These sort of risk-reward agreements – popularly known as ‘putting skin in the game’ – are becoming more common.

But they can also be quite difficult. They require an open and collaborative relationship between buyer and supplier and are not appropriate for all types of project. Consultancies are becoming more experienced in making these arrangements work effectively for their clients and it is always a good idea to explore them prior to making an appointment.

A good time to review spend

The current upturn in the economy, with a period of rapid change in many markets and sectors, is a good moment to review and upgrade the use of consulting services. Firms that have no consulting incumbents can start to source new suppliers intelligently. Incumbent relationships that have survived the most severe downturn should be able to withstand frank and constructive conversations about value.

And there are many things that CFOs can do to make life easier for their firms and their suppliers. Streamline the bidding process so that unnecessary costs are ditched. Open up supply chains to ensure that you are encouraging innovation and new ideas. Share the results of projects you have commissioned so that the whole firm can learn about them. Be prepared to share more of your thinking about goals and priorities in advance of commissioning consulting work.

Consulting is on the move because the economy is on the move. This is an ideal moment to take advantage of the Forum.

Alan Leaman is CEO of the Management Consultancies Association (MCA). The MCA’s Consultancy Buyers Forum involves more than 100 major buying organisations