If you are planning to procure consultancy services from one of the large firms (by large I mean over 150 in staff numbers) then aside from the normal questions relating to price, quality and experience, I think there are three vital questions you should ask. You should also ask them about the workgroup whose services you intend to use but it’s not a bad idea to ask them of the firm as a whole.

  1. What are your current average and target utilization rates by grade and what have they been per quarter for the last two years?
  2. In respect of the services you propose to sell me, when was the method or approach developed, by who and based on what theory and research?
  3. What is the current ratio of partner to consultant and what has been its average per quarter for the last two years?

Now the reason for these questions may not be self-evident, so for reasons and context read. If you want to get to the specific reasons then go to the end and skip the reflections that precede them.

Now it is the way of blogs that one comes to a subject as a result of some stimulation in the news, or more frequently from other blogs. While the theme of consultancy has come up from time to time here I have not addressed it directly. I decided to do so today as a result of a reference from Jon Husband to this piece from Rob Patterson, by way of generous comparison by Euan of my Wence goeth KM? with this example of consultacy speak. Rob also suffered an unreasonable level of attack for making the distinction between complex and complicated by the way which is worth a scan

Reading Rob’s post got me thinking about the nature and future of consultancy, the study of which was a part of my job brief for many years. My conclusions conflicted somewhat with those of my employer at the time and was a part of the reason that Cognitive Edge was created outside IBM, rather than continuing as The Cynefin Centre, within.

One of the things I was pretty much convinced of back then, was that the days of the large consultancy firms in the present form were numbered. My forecast while in IBM (and I have kept to it since) was that consultancy would fall back to its level before Business Process Re-engineering (BPR), allowing for organic growth. I also forecast that the acceptance and use of smaller boutique consultancies and individuals would grow, something I have now bet my future on.

The reason for this was simple. If you study the growth of consultancy then it is closely linked to the rise of BPR. I used to have a lot of figures on this but they were left with my former employer so I will have to rely on my memory. The big growth in the consultancies lagged interest in BPR by a year or so, and it took of exponentially when the enterprise wide software packages such as SAP came out. Of course it was not simple causality, the decision by SAP to create a new software marketing model by which the consultancies did not have to compete with SAP for the implementation revenue was another important factor. Overall I think the reason for this is simple to understand. BPR and SAP implementation (remember what you used to pay for SAP accredited consultants?) created a vast market for large teams of analytically inclined consultants who would spend the best part of year carrying out a form and function review of the organisation, followed by a software design, procurement and implementation.

This fundamentally changed the business model of the large (and soon to be very large) consultancy firms. In effect they went from an apprentice model with a partner to consultant ration or around 1:5 or there or thereabouts, to 1:20 or greater. Of course this increased partner drawings and profit, and also placed more pressure on partners to sell. It wasn’t just BPR/SAP of course; IT systems were growing rapidly in complexity and Consultancies moved to fill the gap. The technology industry, IBM being the most noticeable entered the field late by acquisition and had to follow a less advantageous business model in consequence. Of course with pressure to sell more, brings issues of ethics. The confusion of accounting and consultancy, the anything goes if it is not expressly forbidden ethics of the Thatcher-Reagan era all resulted in Enron, and to be honest it is is surprising there were not more such cases.

It also changed the business schools, or rather to a large part created them in their current form. The growth in consultancies based around analytic work, the lack of resources driving up salary, al combined to create a market that the Universities grew to provide. Of course this became self reinforcing and we have had several examples of an individual doing a BA in Business Studies, followed by an MBA leading to a stint in a major consultancy firm before getting to board level in an operational company. Now this is absurd. When I first applied to be a General Manager, I was expected to do a period in sales, marketing and production so I had some practical experience and understanding of what I was going to manage. The MBA generation learnt to mange indifferently (I use that with double meaning) based on numbers. This was compounded by the change in partner-consultancy rations which reduced the amount of apprentice type learning and mentoring that had taken place in the past. I am not sure the sideways move from accounting helped much either. Accounting leaves little room for ambiguity, as do most case based MBAs. However the essence of organisational work is to live with and embrace ambiguity and uncertainty. An over case based approach with too little experience can lead to that essential ambiguity and uncertainty being disguised or ignored. A lot of that went on during the BPR days …..

Of course as BPR work started to decline, the forms looked for a replacement. Knowledge Management suffered from that. The old pairing of BPR and SAP implementation was to be replaced by a KM audit and a Lotus Notes implementation. That trend has continued. If you look at the IBM Consultancy web site (or any of the big guys) you will see a focus on an idealistic consultancy process followed by a technology implementation. The manufacturing business model of the consultancy firms, the need for the sort of partner drawings that came from the shifts in partner-consultancy rations and the gradual, but then more rapidly shift from experienced consultants to MBAs whose only career was consultancy locked in the model. Oh and don’t tell me that advising lots of companies is the equivalent in experience to actually doing a job because it isn’t. Only someone with no experience other than consultancy could advocate such a position.

The upside of this is that a market gap is opening up for the smaller firm, the experienced individual and the network. Also organisations now know that there is little difference (other than being able to sue) between a large and impersonal consultancy firm allocating people from the bench and working with people with whom you build a long term relationship based on their personal qualities and knowledge. A lot of people have had the experience of being sold something, then getting people off the bench without relevant experience. Consultants are driven by utilization and a resource manager or partner will use someone for whom they are responsible to up achieve their utilization target, rather than allocate someone with more relevant experience from another group or unit. Attempts to create centralised skills databases make that fundamental error of early KM, the believe that things like skills can be codified and searched in advance of need. Its one of the mistakes that is being carried forward in off shoring as well, taking an explicit approach to skills registration and discovery, removing human judgement.

Of course the other big change which is going on is that while supply of consultants has gone up, the market has not grown in proportion. It is also ironic that every time a consultancy firm lays off staff, they in effect increase their competition. This supply/demand equation is resulting in lower rates. But rather than sacrifice revenue or profit, the leadership of these firms are increasing utilization so that even with lower rates they can achieve the same profit. The problem is the more you utilise people, the less time they have for education, reading and thinking – just the thing they need to do, if they are to provide value to their clients. One of the consequences of this has been an increasing tendency to pick up simplistic recipes from popular management books with little investment; package it with templates and standard form results (packaged up as knowledge management) and you can for a period do more with less. The problem is that as the utilization levels go up the problem gets worse and in effect you are burning your seed corn.

The ease with which the consultancy firms popularize established market needs is scary. I saw it with narrative. A few of us pioneered this, but as soon as it became popular consultancy forms who had ignored the work, rapidly allocated some bench time people to read some books, attend a conference or two and then packaged up an offering on story in short order and of little value. When that was burn out they moved on to the next subject. For this reason I think Rob Patterson is wrong to say that the large consultancies will not pick up on Social Computing. They will, to trivialize it into simplistic formula suitable to a manufacturing model. It won’t work, but it may damage things.

Either way, that is a long preamble to my three questions. So lets talk about why you should ask them!

  1. The utilization rate is key. If its around 60/65% for junior staff and 30% for partners then its healthy. As those figures go up it gets dangerous. More and more manufacturing models, and less and less time for people to learn, reflect and educate themselves. Some people a I know are targeted at over 90% which is a form of torture.
  2. Knowing who created the offerings or services, and what effort was put in is vital to understanding the depth and critically the adaptability of the method to your circumstances. One of the things we do in Cognitive Edge is to restrict new things to experienced people who know the theory behind the method. Once its established it goes open source. In the early days you need to have a deep understanding of why in order to handle how. If the firm has just picked up on, or has a franchise for a method from an academic, an author or ex business leader approach with extreme caution. You are paying for a chef, not a recipe book user.
  3. Ratios of partner to consultancy of less than 1:10 indicate that a full apprentice scheme is in place with space for supervision. As the ratio goes up then its more and more a recipe book approach. You need to check who or what counts as a partner. Basically the check point is the ration between people with low and those with high utilization.

Hopefully all of that makes sense. Incidentally if a consultancy forms says they cannot provide the data then they are probably not telling the truth. These are the basic measurement systems and all will be aware. The figures can also be audited if you don’t trust what you are being told.

A final point on the recipe book user V Chef metaphor. A recipe booker user will want your kitchen to be properly equipped with everything in the right place and proportions and all the ingredients neatly arranged in small bowls on the work surface before they even start to cook a meal. The Chef, who knows, will take what ever you have available and make it into a wonderful meal. These days you are more likely to find Chefs amongst the smaller consultancies and networks than you are in the big firms although there are honorable exceptions.

Lastly an apology, this blog has been silent for some days due to domestic and business issues taking priority. The normal flow should now start again!

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