The Pros & Cons of Using Consultants

Many business managers and executives question the value of management consultants: “Why do I pay a high price for someone who does not know my business? Wouldn’t we be better served to hire or train someone in house?” Often the best approach IS to hire someone internally, but as we’ve covered in our piece 5 Occasions for Engaging Management Consultants…, there are occasions where clients benefit greatly from consulting services.

A quick recap of those occasions where using a consultant or consulting firm is the right choice:

  • A skill gap exists
  • The project needs are temporary
  • External perspective is required
  • Testing is required before a full-time hire
  • Hiring isn’t an option

In the article above, we really focused on the reason to hire a consultant, but here we would like to cover both the pros AND the cons of levering outside consulting help.

Pros

Specialists / niche experts

Perhaps the most important and common reason to partner with management consultants is the need for specific subject matter expertise. The necessary skills may not reside in-house or be available for leverage when organizations most need it. While sole industry focus has its own risks (see Cons below), in our experience, those firms and individuals focused on specific practice areas or industries have a better chance of success.

Flexibility

When a client has temporary or project-based work, it makes sense to be able to flex their workforce up and down as needed. Onboarding and offboarding employees can take months, and often immediate needs cloud judgement when properly vetting hires. Consultants, theoretically, have subject matter expertise, so ramp up time should be minimal, results realized quickly, and termination easy, if needed.

Note: We want to call out the difference between management consulting and staff augmentation, as often consulting firms pitch services which are more the latter for predictable revenue. Staff augmentation is periodic (usually more long-term than consulting) scaling of up and down of typical day-to-day work versus management consulting which is a specific project or engagement with an end objective (and expected return on investment).

Cross-industry / functional experience for comparison

A bit of a challenge (or supplement rather) to the above Pro is the breadth of experience gained when employing an outside consultant. While specific experience is highly beneficial, a well-rounded resource will have invaluable insight into other industries, geographies, etc. which can provide unique insight not attained through industry “lifers.” Regularly, lessons learned and results from other industries are highly applicable to clients’ current or future state. There is a reason many executives ask their team members to think “outside the box.”

No preconceived perceptions

There is a saying in companies and organizations which gets thrown around when consultants try to initiate change or challenge convention, and while it sounds like an easy obstacle, it can be a major roadblock to innovation or change. That saying? “But that’s the way we’ve always done it…” Sometimes clients just need an outsider’s perspective on identifying and seizing opportunities, and if they partner with a smart consultant or firm, innovative ideas can come simply from a fresh set of eyes.

The objectivity consultants are hired for also affords them the ability to ask hard questions and challenge procedure without hurting feelings or needing to tread lightly due to company politics. This third-party is often the agent needed to make changes or take risks not previously bought into by company leaders.

Smart & hard-working resources

Management consulting is generally considered a difficult field to succeed in and top academic institutions are feeders to the field (15% of 2015 Harvard graduates entered consulting).(1) The combination of skills required (interpersonal skills, critical thinking, discipline, willingness to work long hours) is not for those wishing to coast through their careers. This drive is especially present in younger and up-and-coming consultants, whose competitive nature often makes them feel they have something to prove.

“Client is King” mentality

When clients hire management consultants for a project, the consultants are tasked with satisfying the needs of the client within reason and usually within a relative scope. In almost all cases, the project team is focused on that engagement explicitly and takes a “client is king” mentality. Having this focus is an advantage over many internal employees who may not be as enthusiastic about taking orders outside of his or her understood and agreed upon responsibilities. The ardent attitude, coupled with the hard work, of a consulting partner can be a great addition to a client’s team.

Speed

Another advantage to the dedicated resources of a consulting resource is the speed in which they execute as they strive to prove worth and can focus on specific goals and actions. Many of the other pros contribute to this benefit, and the use of consultants is highly recommended if a requirement for the task is speed to completion.

Costs

Some readers will question the inclusion of costs as a pro, but clients will see there are some tangible cost advantages when using management consultants versus hiring full-time. The costs associated with employees include benefits, RHO (recruiting, hiring, and onboarding), taxes, and potential legal fees and are not shared when leveraging consultants (directly at least). Also, with true management consulting partners, clients should be realizing a substantial ROI on the projects they work on and this should justify any of the expenses associated with contracting. Lastly, consulting contracts are typically non-recurring and easily terminable providing the client a lot of flexibility when it comes to exiting partnerships and limiting the costs affiliated with dissatisfactory delivery.

Cons

Hourly cost is typically high

Just to contradict ourselves, we also show why consulting is considered expensive on the surface. Hourly rates for consultants vary tremendously depending on the experience, reputation, and level of consulting resource staffed. So wide in fact that you may expect to pay $100 per hour (or less) for some independent consultants or up to $1,200 per hour or more for a partner at MBB (McKinsey, Bain, BCG) firms. (Note: many firms now bill by the day, month, or project as reviewed in our piece on 3 Consulting Fee Structures).

However, when you consider the firepower and expertise you receive with the more prestigious firms, often the spend is well worth it. As with any initiative, it is imperative to understand what the goals are to assess your willingness to invest in those results.

Limited to no experience with company / industry

We us the term “third-party” in our definition of management consultant, and we saw above that this external perspective can be very valuable. On the contrary though, clients must consider that a new consulting partner or one working within a new division of an existing client is going to have to learn about the client’s operations, culture, etc. as they go (and learn on the client’s dime). It can be painful for your internal stakeholders to get the consultants up to speed, but the impact can be lessened by sharing information (e.g. processes, systems, stakeholder organizational structures, current struggles) with the consulting partner ahead of time. Often the resources assigned to the project will want to appear knowledgeable and will conduct pre-work and research to achieve that.

Limited long-term investment

With all the benefits (and worries) of an external partner, perhaps one of the main concerns is that the consulting partner is not truly vested in the long-term success of the project. Clearly long-term relationships and quality work will generate more work and referrals, and, thus, consulting fees, but fees really are the primary objective of consultants and consulting firms. Picking the right partner, monitoring milestones, and getting creative with value-based fees are all ways to share accountability with consulting partners.

Team engagement risk

Another potential issue, and one which is very common and difficult to mitigate, is the risk of consulting resources not integrated well with team members. When we surveyed 472 consulting buyers, approximately 25% were not satisfied with the cohesion with their internal personnel. Furthermore, North Highland consulting firm and Forbes Insights surveyed 169 executives and “revealed that communicating with internal teams and management is among the top five challenges for consulting firms.”(2) Mitigation techniques here are difficult because consulting projects touch so many stakeholders whose professional relationships styles are all unique. Clients should find partners they know their teams can work with and be sure to have multiple team members vet any new partners before contracting.

Limited client exposure to staffed resources

Keeping on topic with personnel-based concerns and as we pointed out in 5 Occasions for Engaging Management Consultants…, knowing the exact, or at least a similar, resource which will be staffed on the project can be highly beneficial. Again, clients rely on their consulting partners to hire great consultants, but timing and availability affect the consulting partner’s ability to commit specific resources. This along with the possibility that some or all the client’s work will be executed off-site, or even in another country, can lead to issues with work quality or communication to rectify any problems. This is often why clients will keep specific consultants on board for multiple projects when they find someone they like.

Expertise leaves when project completes

While we point out consulting needs are usually temporary, the downside to this is the fact that the consulting expertise and knowledge leave when they are no longer contracted. It is imperative that internal stakeholders who will be leveraging or taking over work completed by the management consultants become the experts and understand the methods, reasons, work, and continuity plan from the partners. This sustainability / hand-off phase is very important and should not be overlooked when scoping a project.

Limited control

Within external contractors lies a certain trust that these parties know how to get the work done. Technically, too, those clients who leverage independent contractors and consultants are not permitted to dictate HOW the work is to be done (see some information on IRS misclassification risk here). The idea is a client can only explain WHAT they would like done and dictating how work is to be done would classify that relationship as “employer-employee.” Why does the IRS care? Increasing the use of independent contractors decreases the amount of taxes the IRS receives and increases administrative burden versus an employer reserving those resources as traditional W-2 employees. If both parties agree on outcomes, set the right expectations, and agree on methods for measuring progress, these concerns should be alleviated.

No guarantees

This is true with any resource(s), but with management consulting partners, there are no guarantees into the quality of work or team members. There are ways to mitigate risk of failure, such as checking reviews here on Consensus and proper project scoping. Partnering with an external firm requires some level of comfortability with uncertainty and finding partners you can work with on a regular basis helps alleviate some risk exposure.

We have laid out some mitigation techniques for each of the potential issues, and the benefits of using the right partner and being prepared will offset the potential negative impacts of the common issues. There are many actions clients can take to ensure preparedness and conduct diligence on partner options, including leveraging our Consensus consulting review / feedback platform. We are working to build a database of honest and valuable feedback from those who have worked with specific partners to make we bring more transparency and accountability to the management consulting industry.

 

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Consensus is a directory and review database of management consulting firms and their services. At Consensus, we believe there is lack of information pertaining to the quality of work executed by consultants in the eyes of the client stakeholders. We are working to build the largest database of genuine, accurate, and helpful testimonials from  consulting clients.

 

Sources

  1. Hofherr, Justine (2015, May). Why all those Harvard kids are consultants, even when they don’t really want to be. The Boston Globe. Retrieved from: https://www.boston.com/jobs/jobs-news/2015/05/29/why-all-those-harvard-kids-are-consultants-even-when-they-dont-really-want-to-be.
  2. Forbes Insights (2015, February). Perception Versus Reality: Are You Getting Enough Value from Your Consultants? Forbes Insights and North Highland. Retrieved from: http://www.northhighland.com/en/insights/thought-leadership/perception-versus-reality-are-you-getting-enough-value-from-your-consultants.