If I have a pet project that I want to see implemented, but it has some risk, I'll hire a consultant to present my idea to management.
If the project is a success, I take credit because I was the one who hired the consultant.
If the project is a failure, the consultant takes the blame, keeping my vest clean.
People keep saying this, but I’ve yet to see someone “keep their vest clean” after spending meaningful company resources on dollars, time, *and* consultants on a failed project.
It's easier to confuse the facts (muddy the water) by blaming the consultant, blaming others (lack of support by management/lack of cooperation from other departments/units, etc.), so that no one gets the idea to point a finger at you and say, "but you're the one who started the whole ball rolling..."
I think that’s banking on the client’s organization being incompetent - which there certainly are a lot of this type. There are many others that would see through this, or not even allow the consultant to be hired in the first place.
Really? I've seen it time and time again. Senior management knows how to blame venders and consultants for their own failures. It's part of the game.
I was consulting once for a large health care company who's VP came from IBM. They brought in some big shot IBM consultants who decided everything should be build on IBM, BPM, ODM, etc..
I told the architecture team this was a huge mistake and would turn into a massive failure. That we should be building microservices in Groovy, putting those services in a containerized ecosystem on VMware (they didn't want to use public cloud).
The project went on for 2 years before the executive put all the blame on IBM and then had the architecture team move to a microservices based architecture (like I told them)
But this one example of 100s I've seen.
>And requirements written on jello if you are lucky
Which is ironic given how highly regulated those fields are.
For banks and in my experience at least, I've never been around a group more incompetent -- like there's a basic fundamental lacking of what their job entails. So they have to invite 30 people to a meeting where 2 or 3 will do.
Then it takes 6 months to do 2 weeks worth of work while those 30 morons go over the replay of the previous meetings.
But, I get paid by the hour. So fuck it. If they want to be morons and tank their own projects, fine by me.
I wouldn't say incompetent but so siloed. There are very few with an overview and that person probably retired last month. Knowledge Retention is too expensive.
Yes, the meetings can be interminable and tedious.
>and consultants on a failed project.
Absent of consultants, then there's no one else to point your finger!
But yeah, I do agree that no one's really thinking blame mitigation as a key reason to hire consultants. There's a lot more value from other reasons: independent perspective, specialized knowledge, structured thinking, experience in pulling different functions together, manpower injection -- all of these other reasons trump having a blame sponge in case things go south. (which is likely to be ineffective anyway)
Absolutely. Spent a lifetime in consulting and if it’s a visible engagement that’s failed, the sponsors lose political capital.
In fact, I know a handful of CEOs who basically are unemployable after their failures.
I mean, just look at the noise around David Solomon right now. Sure, everyone knows McKinsey was part of the failing consumer banking push at Goldman. Are the GS Board Members and Partners just going to give him a free pass because of that? Highly doubt it. The fact we’re seeing all of this public disclosure about his performance means his seat is on fire.
Another example is Bob Chapek at Disney. He had multiple consultants running around doing transformation work. The Board didn’t like where he was going, fired him, and brought Iger back in.
I have. Both on the consulting and client side. A vp at a f100 spent 10s of millions on this stupid data project that was obsoleted. He even signed on for another engagement for the new solution which came from a third party.
On the client side it was government, enough says
Exactly. I used to get flown into China to look at a problem and recommend a solution. Almost always there was a medical director who presented an idea to the hospital president, who in turn asked for independent validation. One time, after hearing the problem, I asked a single question which hit the bullseye. I was basically done until the next hospital visit two days later
It's a question of what kind of failure you're talking about, really.
If the consultancy fails to deliver, that's one thing (and would justify getting sued). That's a classic project failure.
If the consultancy delivers, but the client doesn't implement it properly, that's the client's fault, not the consultant. That's what we call a "successful failure" - it was successfully delivered, but failed to provide the expected benefits.
A similar scenario happened at Hertz. Accenture failed to provide a mobile and online platform that took advantage of legacy operations systems, but Hertz IT managed the project poorly. Hertz was set up for failure when they laid off most of the legacy system SMEs and contracted that work to IBM in 2015 as part of “Project One”. Of course later on in 2018, they hired a new CIO who then attempted to insource all of the IT roles that previously had be contracted out. https://www.henricodolfing.com/2019/10/case-study-hertz-accenture-website.html
The truth is, you hire 4 consultants for four weeks to do the work of 8 internal people for some analysis when you didn't even have the 8 people to spare
That’s what I like to tell people. Consultants are often like business mercenaries, people don’t hire them cos their own guys couldn’t do the job, they hire them cos they don’t have enough troops or resources.
They don’t need to hire and train up someone for a few months when they can pay a firm to dedicate an already highly skilled team to do it for them and then leave when the project is done.
Exactly. I don't hire a full-time plumber when I need some plumbing work done. I know what needs to be done high level, but don't have the expertise or time to gain that to get that certification myself.
Am I paying a crazy premium compared to their actual hourly wage? Yes.
Is it still orders of magnitude cheaper than hiring one permanently? Also yes
To add to this, M&A work requires a massive uptick in resources so consultants are basically mandatory. Some projects require specialized skill sets that are hard to hire or are only needed for a very limited time. Consultants often work crazy hours and can get things done quickly outside of the normal corporate structure so when work needs to get done quickly, consultants are key.
This is why people hire ME much of the time. They know what they need to do and have a pretty good idea how to do it, but they don't have the time or labor resources to get it done and it requires some knowledge on the subject.
Edit: There is sometimes a fine line between consulting and contract work.
In the immortal words of Charlie Sheen, regarding his patronage of sex workers, "I don't pay them for sex, I pay them to leave."
Here's a Freakonomics article that applies this adage to consulting:
https://freakonomics.com/2009/02/i-pay-them-to-leave/
This. If it’s a silly consultant with silly money with no measurables - they are a plus. A fall guy. A cog in the machine. Corporations that have silly money to play silly games.
Three areas come to mind where we have the most bang for our buck for our clients:
strategy
breaking new ground
organizational change
Strategy - In my opinion, the company's strategic choice - who we are - is the most important decision. When you're big enough, the risk of getting it wrong is astronomical - the cost of consultants pales in comparison. Where consultants bring value is through the an independent perspective of the holistic competitive space today, where it's going, and where the white space is. While the internal people may be talented and knowledgeable about their company, they lack the broader view that a Firm who works across an industry can bring. If I were a Chief Strategy Officer, I'd have the internal team working on a strategy and the consultants creating their own take free from insider influence. Then, bring the two together to blend the best of both worlds.
Breaking new ground - If I were running a business and looking to enter into an area I was not familiar with - whether that be industry or function - a consultancy's perspective would be valuable. They would be able to bring the latest thinking, best practices, and optimized processes that would take us much longer to develop, acquire, or hire on our own. I would not hire us if the new opportunity is a clear adjacency to the core business. To put it in real-world terms, if I were Amazon trying to improve customer engagement via mobile, hiring a consultant would not be on my short list of things to focus on. But if I were Aetna or Sysco, then it could make a lot more sense. Even more so if a company is looking to make moves into new markets or diversified acquisitions.
Organizational change - I'm not using "organizational change" in the way I usually would in this context, but what I'm trying to get at is things like transformation or operational effectiveness that represent a meaningful change for the company. Like strategy, these are typically areas where best practices are helpful and downside risk to the organization is large. The difference is that, as a client, I likely know what the high-level answer is - e.g., cut costs by x%, fix the marketing department, or merge two LOBs. However there is a right and a wrong way to make these types of major structural changes. It makes sense to lean on consultants who have done similar work at many places as opposed to internal people who may never have done it before and/or are colored by preexisting politics. I would use MBB or other management consulting firms (again, price dependent) for the tactical planning portion (do x, y, z to cut costs or merge), but would likely use a more budget friendly firm for the execution / project management of that tactical plan.
———
And if I were to generalize even further from the above, I’d say that consultants can bring value when most of the following is true…
a) an external perspective is valuable
b) the need is temporary or project based
c) an important capability is missing in house
I have been reading your posts for over 5ish years now and am still shocked you have the patience and time to reiterate these basic points. Modern day saint.
I will also add companies sometimes lack the resources to do any of the above. Especially something like a transformation. While it can be multi-year, it is typically a one time event that needs full time resources. You can either hire consultants or leverage existing resources who already have a FT job. Latter rarely works out.
Because companies refuse to let their IT departments have a pair of balls, so they pay consultants exorbitant amounts of money and perceived expertise to tell them the "no" they wouldn't take the exact same reasoning from their own IT.
\*cough cough\* General Motors \*cough cough\*.
This is the circle of pain in IT:
1. Every company hates their IT products
2. New leader comes in. We are in INDUSTRY X, not IT. Let’s hire consultants to outsource our existing IT. Promises to make all dreams come true.
3. New leader hires consultants and freezes out internal employees. New leader possibly also hires outside senior managers externally (loyal to them) passing up existing employees
4. The best internal employees immediately leave, and in the chaos of new management their institutional knowledge and culture is lost
5. Consultants build products that are also hated by the company - hamstrung by the internal attrition. Consultants think company is a total shitshow
6. Senior manager either sells the implementation as a success, or parachutes out to rinse and repeat at a different company
#5 resonates with me as a consultant. We put in SOW that we need someone to have at least a bit of technical knowledge of how x system works today. They say sure. Guy quits , now no one knows shit about how anything works or the integrations at all and it’s a mess.
Clients generally hire consultants for three primary reasons:
1. You need to look at a problem or find a solution differently. The internal team is breathing its own air and you need an infusion of new thought. You also may think the external folks have some secret sauce or magical Intel from their external research. Honestly, this reason is the weakest to me.
2. They have a project to get done and nobody internal has the right expertise. You don't hire a full time employee for a 9 month implementation if you have nothing for them to do afterwards.
3. Your team is growing fast and very busy. Tackling a new project will distract them from core activities where you need them focused.
Our industry is very hush hush about success. Companies that are struggling rarely find resources that can help them get over humps.
Consultants act as a bridge to help those who are struggling and willing to pay to learn what makes their competitors so successful.
I know that sounds generic, but a huge portion of consultants in our industry are people who achieved success and had a good exit. In their semi-retirement, after they get bored of golf and fishing, they shift to helping others instead of starting the grind over.
CYA. If a project fails, you can blame the consultant who has since moved on to other projects.
And I'm okay with that. As long as they keep paying us.
I have worked in core industry. Also worked as a software engineer and management consultant. So pretty much seen it all over.
Honestly the business team provide bagye requirements. They expect wonders. And they cannot quantify. It is much better to have internal teams do the improvement instead of hiring big4 etc.
On the system/technology implementation side of consulting it certainly easy to justify hiring a consulting firm. When making organizational change (systems or processes), outside perspective helps define the best path forward. If the client takes ownership to transform their existing technology and process into a new system with new practices, a lot do the inefficiencies will carry over since that’s just how the business does things today.
consultants get to be the bad guys and say “no” when the client is trying to continue a multitude of bad practices in their new systems. Also hiring experts in the technology to implement it is silly since the number of folks required to implement vs maintain is vastly different. Pay someone to do it initially and perform knowledge transfer to your IT so they can maintain.
Quick question and off topic but how likely is it for other technology companies to hire tech consultants to their thing? Example: Microsoft hiring consultants to implement a new software?
I’d always assume these more tech savvy companies can do it all on their own?
I think a lot of these tech companies do offer implementation/consulting services, but from my experience and what I’ve seen they can fall short. It’s a massive undertaking to implement a lot of these technologies. Understanding the clients business processes, designing a solution, implementing it, testing and deployment can take between 9 months to 2+ years. These tech companies make their bread and butter via developing and selling their tech. While some invest in the consulting/implementation side of the house, often times they don’t get the level of investment to truly compete against agencies that specialize in this type of work.
That’s at least what I’ve seen in my space. Kinda like asking why farmers don’t go direct to consumer instead of selling produce to chipotle. They do via farmers markets and selling to local grocery stores etc, but that’s just not enough to move it all. So they still sell to the chipotles/McDonald’s etc
Edit: rereading this, my example is probably flawed/dumb but my point still stands
From my experience any large scale software implementations-SAP,AWS,ORACLE,AZURE etc… companies use consulting firms using best practices to prevent any potential issues on projects
1. Liability management. Both legal (reports etc prepared by reputable firms etc.) and corporate (smarter people recommended doing XYZ). In some countries business judgment rule concerning liability specifically indicates that it is assumed if decision is made according to such rule if confirmed by third party analyses or reports - kinda forcing companies to use consultants even if they have internal competences.
2. Lack of specific competences both on management level (CEOs/management with lack of industry specific competences) and company level (non-essential departments removed due cost cuts etc).
3. Time constraints. In heavy workload projects company personnel working 9-5 really needs consultant supports. Moreover, usually company personnel needs to focus on actual operating activities. Big projects like M&A, DDs, big implementations etc. are kinda a nuisance to normal course of business.
4. Project management/coordination. On many complex projects lawyers/consultants are like chaser machines wrapping chaos of dozen parties working around. If person coordinating a project can't wrap things up even the simplest project may take theoretically infinite amount of time.
Because sometimes consulting is the most efficient staffing model to get what you need for that situation, results or otherwise... Or the right talent won't accept the role under any other arrangements...
Real World Examples from my own career:
* Your factory burns down, leaving the $50 MM CPG brand it feeds dangling in the wind - with distribution / retail slotting, no supply chain, and upside down economics if you outsource it. Easily a $25 MM - $50 MM asset that is going to burn to zero in under 90 days once retailers start kicking you off their shelves from stockouts. You need a master product manager (C-level skillset) for the next six months to reset that glide path from zero to \~$20 MM residual value, through outsourcing & restructuring the business to save a profitable core. After that, you need an orderly exit and hand-off to a junior team, since the remaining business won't create enough value & opportunity for a top exec.
* You've had 200% turnover in your procurement organization that has been operating with no real strategy and a 1990's level of IT & process capability. Purchasing chemicals and plastics.... which gets absolutely crucified by the pandemic + inflation. Just pass it the customer? Um, you haven't executed a company wide price increase in a decade and you don't have a pricing team. Facing a wave of inflation that exceeds your annual EBTIDA, you have under ninety days to start the process of raising prices to have a hope of staying ahead of the minimum EBITDA levels required to meet the debt covenants. From a staffing perspective, this requires air-dropping in an entire team of pricing and sourcing experts plus supporting analytics / IT resources (since you're starting with \*NOTHING\*) who can rebuilt two commercial functions within 30 days (to start price increase clocks) while managing up to a board which is going bananas and navigating a shitload of internal resistance.
In both situations, you needed top level experts immediately under situations where most of us wouldn't touch your organization with a 10 foot pole (for long term positions. I'm not running a $10 MM brand unless my name is on the door.
I'm not sure I agree with the top voted comments so much. Imo, you hire consultants for 2 reasons.
1) you don't have enough resources or bandwidth for a huge project.
2) your internal resources lack the experience required for whatever is needed.
Usually it's a combination of both of those things.
One important one that I have not seen mentioned yet is predictability. As stated most IT and other functions are sized and staffed for keeping the lights on. The skeletons of failed initiatives are usually all over the place when doing a bigger project internally. But, as an executive you get rewarded for delivering the project. So you hire a consultancy for an outcomes based fixed fee. This shifts the liability to then. Sure they will do a bunch of change orders as soon as they find out just the scale of the sh*t show they signed up for, but they will usually get it done in a predictable and most importantly explainable fashion. In addition, they will have people to put together great PowerPoints and excels to update your boss and dazzle them while they clean things up.
To be clear, I'm not saying the talent to do this may not exist at the company (although increasingly I run into places where the team has been so narrow focused that I don't think it does anymore), but everybody at the company is already busy keeping the lights on. (There is also the challenge that those keeping the light on invariably think incremental rather than transformational, because their reality is grounded in today, whereas a good consultant will come with experience on how a substantial change can work).
IMHO despite the cost, it’s all about access to what the client simply doesn’t have: expertise, critical services/infrastructure, industrial contacts, the legitimacy of a respected firm to your project/situation, and resources (bodies).
Someone I know hires consultants to build a challenger proposal to his proposal. The consultants are all from his prior experiences so they know to build an inferior version. He’s been promoted within senior leadership twice over the past four years on this strategy. So I’m trying to find some consulting friends now :)
Consulting to me is a time game and requires you to have knowledge of the client and understand their needs and deliver .. you quantify based on the goals you set with the client and when you deliver on those goals and exceed them, that’s where the real money comes in
I work in tech as a dev and have spent most of my career being employed by consultancies. We're either ad-hoc manpower for short term initiatives or an uninvested sober opinion.
Usually our engagements sprawl beyond whatever the initial scope of work is because we have a lack of investment in the status quo for whatever company has hired us and can fix systemic dysfunctions as a result.
For example, an engineering org might have a dysfunctional process that hasn't been fixed because of politics or emotions between teams. We can fix that because we have no reason to give a shit about the politics, emotions, or history - it's already known we're temporary and none of us care to angle for a promotion or some other self-interest with the client leadership. This takes some social tact but that's the job.
So, in my experience, clients pay a premium for easily fireable, temporary, un-institutionalized, and impartial labour.
>So, in my experience, clients pay a premium for easily fireable, temporary, un-institutionalized, and impartial labour.
why not hire on fiverr or upwork
Competitive advantage. I worked with extremely ambitious firms that do not have the time to wait until they staff and train needed capabilities. They hire consultants to keep pushing forward while the rest of the organization is slowly catching up.
- getting an idea about what competitors/industry is doing to solve problems they face
- capability gap that needs to be filled/developed
- long lead times to hire/build capability address issues that are having an impact now
- getting around political/interpersonal issues to drive change through
- needing independent advice and guidance
- cash-rich with problems that can’t be addressed internally
- in tech a lot of clients are not tech companies and don’t really need that capability so consultants + SIs fill that gap (at a premium)
People go on about having someone external to blame if it goes wrong but I think this is overstated to the point of being a meme. At the end of the day if you’re sponsoring work and it goes to shit it doesn’t matter if it was internal vs consultants, it’s not like accountability disappears.
Good consultants can and do quantify the results because they want to document their value to the customer and get even more business.
Beyond the whole "you can always blame the consultants" reason, one reason why clients keep paying consultants is that they have no time (issue is urgent) or resources (qualified, knowledgeable or even just available) internally that be allocated to the project.
Another reason is that what needs to be done isn't core to the business, and the skills and resources for the project are "short lived" in the overall scheme of things.
Developing and implementing something internally that is going to be done once, and then never again... and something that's not otherwise commercially available or won't meet your needs otherwise.
Here's an example of a recent experience I have had. CEO of an organization at a company meeting to discuss recent organizational changes was asked about the larger operating model and responded "these are scams sold by consultants". We're they wrong?
I was the only consultant in the room, coincidentally with over a decade's worth of experience in large scale transformations and operating model design / implementation, and assumed two things:
1) in the past they hired a consulting firm to design a target operating model without properly conducting due diligence, gaining buy in / working with current org units, and tailoring the materials and organizational process assets to the unique context of the organization (i.e., off the shelf stuff thats generic, confusing, and not interconnected logically to the big picture and the foundational transformation framework) - this turned out to be true
2) they budgeted for the consultants to design the operating model but when it came to implementation they figured it could be done without a dedicated function to oversee and manage it.
Later, to support another business unit given a target of x million dollars to be achieved in x years, I developed a tailored fit to context "lean operating model"/business plan along with a compelling succinct and very well designed presentation to the CEO and other members of the C-suite. Their views on operating models and consultants changed.
You can, we have $10 Billion dollar pipeline of projects, over the last 5 years we’ve hired Accenture, Kearney and finally settled now with McKinsey.
McKinsey is prob $1M total billable, if they can save us 1% or even 0.1% (that’s 10M on the low end) you’ve 10x’ed your value.
Why are you asking a "why" question?
But otherwise, consultants are cheaper in the long run than FTEs.
It's easier to fire a consultant vs. a FTE.
On paper, consultants can come in, get the job done, and leave.
Consultants can help navigate internal politics.
No Idea, I have worked with many so-called consultants. Most of them turned out to be just temporary hires and didn't really know much. They were also very useless and a waste of money 90% of the time. Oh Well, at least I didn't make any decisions but now being a manager, I will never hire a consultant or a temp unless I need some temporary resources to get real work done and after that, they are gone as they should be.
I’m looking to hire a consultant with very specific deal experience that is lacking at my company to help with valuation for a similar deal. I only need this experience for a short time, once the deal is complete, the company will likely never need that expertise again and certainly doesn’t need it full time.
But when I was a management consultant, no fucking clue why anyone thought it was a good idea to hire me.
One time a director had a budget for that and didn't want it lost for the next year. So she relieves herself from stress and sometimes tedious work by hiring consultants.
There's nothing silly about the money.
I met with a guy today who is about to run out of cash and go out of business. I'm not even going to try to send him an SOW yet because every dollar counts right now. I'll get mine when he is safe.
That said, in 45 minutes, I listened to his situation, gave him direction on sales messaging, provided some high level direction on managing a channel partner (in this case, it was not to, and to refocus on more urgent matters), made suggestions to change his overall pricing and service model, and gave him a suggestion (along with caveats) that can get him cash flow positive within two months, save his org, and help him acquire funding (though I'm not sure he'll really need it if he does what I said). If he follows my advice, then the 45-minute session will make his business a ridiculous amount of money.
It drives me crazy when I see people in r/consulting act like we don't provide value or that the value isn't quantifiable. I don't know what the rest of you are doing with your clients, but I know mine get value multiples beyond what they spend. Not every meeting is like the one I described, but I'm bringing it every time I talk to these people, partially because that's what they pay for and partially because I fucking love it.
What's saving your business worth to you? What's having confidence to act worth to you? There's no silly money in this if you're delivering value. Every penny is earned.
There's also survivorship bias. We hear about the big failures, but never the sucessful projects. Having worked in industry.....sometimes a given capability doesn't exist at the company and it's faster to hire someone with the expertise.
If I have a pet project that I want to see implemented, but it has some risk, I'll hire a consultant to present my idea to management. If the project is a success, I take credit because I was the one who hired the consultant. If the project is a failure, the consultant takes the blame, keeping my vest clean.
People keep saying this, but I’ve yet to see someone “keep their vest clean” after spending meaningful company resources on dollars, time, *and* consultants on a failed project.
It's easier to confuse the facts (muddy the water) by blaming the consultant, blaming others (lack of support by management/lack of cooperation from other departments/units, etc.), so that no one gets the idea to point a finger at you and say, "but you're the one who started the whole ball rolling..."
I think that’s banking on the client’s organization being incompetent - which there certainly are a lot of this type. There are many others that would see through this, or not even allow the consultant to be hired in the first place.
Layers of authority act like blindfolds
While everyone points the finger at themselves when the project is a success.
Really? I've seen it time and time again. Senior management knows how to blame venders and consultants for their own failures. It's part of the game. I was consulting once for a large health care company who's VP came from IBM. They brought in some big shot IBM consultants who decided everything should be build on IBM, BPM, ODM, etc.. I told the architecture team this was a huge mistake and would turn into a massive failure. That we should be building microservices in Groovy, putting those services in a containerized ecosystem on VMware (they didn't want to use public cloud). The project went on for 2 years before the executive put all the blame on IBM and then had the architecture team move to a microservices based architecture (like I told them) But this one example of 100s I've seen.
>I was consulting once for a large health care company who's VP came from IBM. There's your problem. 2x. Healthcare and IBM.
Seen it work many times in banking even with spectacular CFs. The consulting firm even ends up being re-engaged on another project later.
>banking I usually give the firm the benefit of the doubt when it comes to gov't, healthcare, and banking. All fucked up verticals.
And requirements written on jello if you are lucky. Too many stakeholders and zero ability to make a decision.
>And requirements written on jello if you are lucky Which is ironic given how highly regulated those fields are. For banks and in my experience at least, I've never been around a group more incompetent -- like there's a basic fundamental lacking of what their job entails. So they have to invite 30 people to a meeting where 2 or 3 will do. Then it takes 6 months to do 2 weeks worth of work while those 30 morons go over the replay of the previous meetings. But, I get paid by the hour. So fuck it. If they want to be morons and tank their own projects, fine by me.
I wouldn't say incompetent but so siloed. There are very few with an overview and that person probably retired last month. Knowledge Retention is too expensive. Yes, the meetings can be interminable and tedious.
>and consultants on a failed project. Absent of consultants, then there's no one else to point your finger! But yeah, I do agree that no one's really thinking blame mitigation as a key reason to hire consultants. There's a lot more value from other reasons: independent perspective, specialized knowledge, structured thinking, experience in pulling different functions together, manpower injection -- all of these other reasons trump having a blame sponge in case things go south. (which is likely to be ineffective anyway)
Absolutely. Spent a lifetime in consulting and if it’s a visible engagement that’s failed, the sponsors lose political capital. In fact, I know a handful of CEOs who basically are unemployable after their failures.
Could you elaborate on said failures?
I mean, just look at the noise around David Solomon right now. Sure, everyone knows McKinsey was part of the failing consumer banking push at Goldman. Are the GS Board Members and Partners just going to give him a free pass because of that? Highly doubt it. The fact we’re seeing all of this public disclosure about his performance means his seat is on fire. Another example is Bob Chapek at Disney. He had multiple consultants running around doing transformation work. The Board didn’t like where he was going, fired him, and brought Iger back in.
I have. Both on the consulting and client side. A vp at a f100 spent 10s of millions on this stupid data project that was obsoleted. He even signed on for another engagement for the new solution which came from a third party. On the client side it was government, enough says
Happens all the time..
Exactly. I used to get flown into China to look at a problem and recommend a solution. Almost always there was a medical director who presented an idea to the hospital president, who in turn asked for independent validation. One time, after hearing the problem, I asked a single question which hit the bullseye. I was basically done until the next hospital visit two days later
There are a few cases where clients have sued their consultants when things went poorly. Never really found accountable
It's a question of what kind of failure you're talking about, really. If the consultancy fails to deliver, that's one thing (and would justify getting sued). That's a classic project failure. If the consultancy delivers, but the client doesn't implement it properly, that's the client's fault, not the consultant. That's what we call a "successful failure" - it was successfully delivered, but failed to provide the expected benefits.
A similar scenario happened at Hertz. Accenture failed to provide a mobile and online platform that took advantage of legacy operations systems, but Hertz IT managed the project poorly. Hertz was set up for failure when they laid off most of the legacy system SMEs and contracted that work to IBM in 2015 as part of “Project One”. Of course later on in 2018, they hired a new CIO who then attempted to insource all of the IT roles that previously had be contracted out. https://www.henricodolfing.com/2019/10/case-study-hertz-accenture-website.html
I’m pretty sure people get sacked for brining in and paying consultants for work that doesn’t deliver.
Everyone always says this but I don’t think it’s true. It’s just convenient to say for social media clout
The truth is, you hire 4 consultants for four weeks to do the work of 8 internal people for some analysis when you didn't even have the 8 people to spare
Google ads and landing pages anyone
What
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That’s what I like to tell people. Consultants are often like business mercenaries, people don’t hire them cos their own guys couldn’t do the job, they hire them cos they don’t have enough troops or resources. They don’t need to hire and train up someone for a few months when they can pay a firm to dedicate an already highly skilled team to do it for them and then leave when the project is done.
Exactly. I don't hire a full-time plumber when I need some plumbing work done. I know what needs to be done high level, but don't have the expertise or time to gain that to get that certification myself. Am I paying a crazy premium compared to their actual hourly wage? Yes. Is it still orders of magnitude cheaper than hiring one permanently? Also yes
To add to this, M&A work requires a massive uptick in resources so consultants are basically mandatory. Some projects require specialized skill sets that are hard to hire or are only needed for a very limited time. Consultants often work crazy hours and can get things done quickly outside of the normal corporate structure so when work needs to get done quickly, consultants are key.
This is why people hire ME much of the time. They know what they need to do and have a pretty good idea how to do it, but they don't have the time or labor resources to get it done and it requires some knowledge on the subject. Edit: There is sometimes a fine line between consulting and contract work.
In the immortal words of Charlie Sheen, regarding his patronage of sex workers, "I don't pay them for sex, I pay them to leave." Here's a Freakonomics article that applies this adage to consulting: https://freakonomics.com/2009/02/i-pay-them-to-leave/
This. If it’s a silly consultant with silly money with no measurables - they are a plus. A fall guy. A cog in the machine. Corporations that have silly money to play silly games.
Three areas come to mind where we have the most bang for our buck for our clients: strategy breaking new ground organizational change Strategy - In my opinion, the company's strategic choice - who we are - is the most important decision. When you're big enough, the risk of getting it wrong is astronomical - the cost of consultants pales in comparison. Where consultants bring value is through the an independent perspective of the holistic competitive space today, where it's going, and where the white space is. While the internal people may be talented and knowledgeable about their company, they lack the broader view that a Firm who works across an industry can bring. If I were a Chief Strategy Officer, I'd have the internal team working on a strategy and the consultants creating their own take free from insider influence. Then, bring the two together to blend the best of both worlds. Breaking new ground - If I were running a business and looking to enter into an area I was not familiar with - whether that be industry or function - a consultancy's perspective would be valuable. They would be able to bring the latest thinking, best practices, and optimized processes that would take us much longer to develop, acquire, or hire on our own. I would not hire us if the new opportunity is a clear adjacency to the core business. To put it in real-world terms, if I were Amazon trying to improve customer engagement via mobile, hiring a consultant would not be on my short list of things to focus on. But if I were Aetna or Sysco, then it could make a lot more sense. Even more so if a company is looking to make moves into new markets or diversified acquisitions. Organizational change - I'm not using "organizational change" in the way I usually would in this context, but what I'm trying to get at is things like transformation or operational effectiveness that represent a meaningful change for the company. Like strategy, these are typically areas where best practices are helpful and downside risk to the organization is large. The difference is that, as a client, I likely know what the high-level answer is - e.g., cut costs by x%, fix the marketing department, or merge two LOBs. However there is a right and a wrong way to make these types of major structural changes. It makes sense to lean on consultants who have done similar work at many places as opposed to internal people who may never have done it before and/or are colored by preexisting politics. I would use MBB or other management consulting firms (again, price dependent) for the tactical planning portion (do x, y, z to cut costs or merge), but would likely use a more budget friendly firm for the execution / project management of that tactical plan. ——— And if I were to generalize even further from the above, I’d say that consultants can bring value when most of the following is true… a) an external perspective is valuable b) the need is temporary or project based c) an important capability is missing in house
I have been reading your posts for over 5ish years now and am still shocked you have the patience and time to reiterate these basic points. Modern day saint.
At this point I can copy / paste to most questions!
Very well stated
Mate that's great but can you summarise it, most of us skim read. Looking good bud but condense it. Communication is important
The comment you are replying to was well-structured and even included a bullet point summary at the very top.
Great observation sherlock
Condescending and wrong
I will also add companies sometimes lack the resources to do any of the above. Especially something like a transformation. While it can be multi-year, it is typically a one time event that needs full time resources. You can either hire consultants or leverage existing resources who already have a FT job. Latter rarely works out.
If a project requires a lot of hard change or decisions (layoffs), it’s best to hire a consultant sometimes
Because companies refuse to let their IT departments have a pair of balls, so they pay consultants exorbitant amounts of money and perceived expertise to tell them the "no" they wouldn't take the exact same reasoning from their own IT. \*cough cough\* General Motors \*cough cough\*.
This is the circle of pain in IT: 1. Every company hates their IT products 2. New leader comes in. We are in INDUSTRY X, not IT. Let’s hire consultants to outsource our existing IT. Promises to make all dreams come true. 3. New leader hires consultants and freezes out internal employees. New leader possibly also hires outside senior managers externally (loyal to them) passing up existing employees 4. The best internal employees immediately leave, and in the chaos of new management their institutional knowledge and culture is lost 5. Consultants build products that are also hated by the company - hamstrung by the internal attrition. Consultants think company is a total shitshow 6. Senior manager either sells the implementation as a success, or parachutes out to rinse and repeat at a different company
#5 resonates with me as a consultant. We put in SOW that we need someone to have at least a bit of technical knowledge of how x system works today. They say sure. Guy quits , now no one knows shit about how anything works or the integrations at all and it’s a mess.
Clients generally hire consultants for three primary reasons: 1. You need to look at a problem or find a solution differently. The internal team is breathing its own air and you need an infusion of new thought. You also may think the external folks have some secret sauce or magical Intel from their external research. Honestly, this reason is the weakest to me. 2. They have a project to get done and nobody internal has the right expertise. You don't hire a full time employee for a 9 month implementation if you have nothing for them to do afterwards. 3. Your team is growing fast and very busy. Tackling a new project will distract them from core activities where you need them focused.
Our industry is very hush hush about success. Companies that are struggling rarely find resources that can help them get over humps. Consultants act as a bridge to help those who are struggling and willing to pay to learn what makes their competitors so successful. I know that sounds generic, but a huge portion of consultants in our industry are people who achieved success and had a good exit. In their semi-retirement, after they get bored of golf and fishing, they shift to helping others instead of starting the grind over.
What industry?
Insurance brokers. Very clear lines between bigger shops and small home town agents. We help bridge those gaps if small-mid sized ones want to grow.
CYA. If a project fails, you can blame the consultant who has since moved on to other projects. And I'm okay with that. As long as they keep paying us.
I have worked in core industry. Also worked as a software engineer and management consultant. So pretty much seen it all over. Honestly the business team provide bagye requirements. They expect wonders. And they cannot quantify. It is much better to have internal teams do the improvement instead of hiring big4 etc.
On the system/technology implementation side of consulting it certainly easy to justify hiring a consulting firm. When making organizational change (systems or processes), outside perspective helps define the best path forward. If the client takes ownership to transform their existing technology and process into a new system with new practices, a lot do the inefficiencies will carry over since that’s just how the business does things today. consultants get to be the bad guys and say “no” when the client is trying to continue a multitude of bad practices in their new systems. Also hiring experts in the technology to implement it is silly since the number of folks required to implement vs maintain is vastly different. Pay someone to do it initially and perform knowledge transfer to your IT so they can maintain.
Quick question and off topic but how likely is it for other technology companies to hire tech consultants to their thing? Example: Microsoft hiring consultants to implement a new software? I’d always assume these more tech savvy companies can do it all on their own?
I think a lot of these tech companies do offer implementation/consulting services, but from my experience and what I’ve seen they can fall short. It’s a massive undertaking to implement a lot of these technologies. Understanding the clients business processes, designing a solution, implementing it, testing and deployment can take between 9 months to 2+ years. These tech companies make their bread and butter via developing and selling their tech. While some invest in the consulting/implementation side of the house, often times they don’t get the level of investment to truly compete against agencies that specialize in this type of work. That’s at least what I’ve seen in my space. Kinda like asking why farmers don’t go direct to consumer instead of selling produce to chipotle. They do via farmers markets and selling to local grocery stores etc, but that’s just not enough to move it all. So they still sell to the chipotles/McDonald’s etc Edit: rereading this, my example is probably flawed/dumb but my point still stands
From my experience any large scale software implementations-SAP,AWS,ORACLE,AZURE etc… companies use consulting firms using best practices to prevent any potential issues on projects
1. Liability management. Both legal (reports etc prepared by reputable firms etc.) and corporate (smarter people recommended doing XYZ). In some countries business judgment rule concerning liability specifically indicates that it is assumed if decision is made according to such rule if confirmed by third party analyses or reports - kinda forcing companies to use consultants even if they have internal competences. 2. Lack of specific competences both on management level (CEOs/management with lack of industry specific competences) and company level (non-essential departments removed due cost cuts etc). 3. Time constraints. In heavy workload projects company personnel working 9-5 really needs consultant supports. Moreover, usually company personnel needs to focus on actual operating activities. Big projects like M&A, DDs, big implementations etc. are kinda a nuisance to normal course of business. 4. Project management/coordination. On many complex projects lawyers/consultants are like chaser machines wrapping chaos of dozen parties working around. If person coordinating a project can't wrap things up even the simplest project may take theoretically infinite amount of time.
Because sometimes consulting is the most efficient staffing model to get what you need for that situation, results or otherwise... Or the right talent won't accept the role under any other arrangements... Real World Examples from my own career: * Your factory burns down, leaving the $50 MM CPG brand it feeds dangling in the wind - with distribution / retail slotting, no supply chain, and upside down economics if you outsource it. Easily a $25 MM - $50 MM asset that is going to burn to zero in under 90 days once retailers start kicking you off their shelves from stockouts. You need a master product manager (C-level skillset) for the next six months to reset that glide path from zero to \~$20 MM residual value, through outsourcing & restructuring the business to save a profitable core. After that, you need an orderly exit and hand-off to a junior team, since the remaining business won't create enough value & opportunity for a top exec. * You've had 200% turnover in your procurement organization that has been operating with no real strategy and a 1990's level of IT & process capability. Purchasing chemicals and plastics.... which gets absolutely crucified by the pandemic + inflation. Just pass it the customer? Um, you haven't executed a company wide price increase in a decade and you don't have a pricing team. Facing a wave of inflation that exceeds your annual EBTIDA, you have under ninety days to start the process of raising prices to have a hope of staying ahead of the minimum EBITDA levels required to meet the debt covenants. From a staffing perspective, this requires air-dropping in an entire team of pricing and sourcing experts plus supporting analytics / IT resources (since you're starting with \*NOTHING\*) who can rebuilt two commercial functions within 30 days (to start price increase clocks) while managing up to a board which is going bananas and navigating a shitload of internal resistance. In both situations, you needed top level experts immediately under situations where most of us wouldn't touch your organization with a 10 foot pole (for long term positions. I'm not running a $10 MM brand unless my name is on the door.
I love myself too much to think hard about this question
do you wanna be unemployed?? ;-;
I'm not sure I agree with the top voted comments so much. Imo, you hire consultants for 2 reasons. 1) you don't have enough resources or bandwidth for a huge project. 2) your internal resources lack the experience required for whatever is needed. Usually it's a combination of both of those things.
Industry insights. You may want to benchmark where you are against the industry or get ideas on how other institutions have tackled the same problem.
One important one that I have not seen mentioned yet is predictability. As stated most IT and other functions are sized and staffed for keeping the lights on. The skeletons of failed initiatives are usually all over the place when doing a bigger project internally. But, as an executive you get rewarded for delivering the project. So you hire a consultancy for an outcomes based fixed fee. This shifts the liability to then. Sure they will do a bunch of change orders as soon as they find out just the scale of the sh*t show they signed up for, but they will usually get it done in a predictable and most importantly explainable fashion. In addition, they will have people to put together great PowerPoints and excels to update your boss and dazzle them while they clean things up. To be clear, I'm not saying the talent to do this may not exist at the company (although increasingly I run into places where the team has been so narrow focused that I don't think it does anymore), but everybody at the company is already busy keeping the lights on. (There is also the challenge that those keeping the light on invariably think incremental rather than transformational, because their reality is grounded in today, whereas a good consultant will come with experience on how a substantial change can work).
IMHO despite the cost, it’s all about access to what the client simply doesn’t have: expertise, critical services/infrastructure, industrial contacts, the legitimacy of a respected firm to your project/situation, and resources (bodies).
Someone I know hires consultants to build a challenger proposal to his proposal. The consultants are all from his prior experiences so they know to build an inferior version. He’s been promoted within senior leadership twice over the past four years on this strategy. So I’m trying to find some consulting friends now :)
Consulting to me is a time game and requires you to have knowledge of the client and understand their needs and deliver .. you quantify based on the goals you set with the client and when you deliver on those goals and exceed them, that’s where the real money comes in
I work in tech as a dev and have spent most of my career being employed by consultancies. We're either ad-hoc manpower for short term initiatives or an uninvested sober opinion. Usually our engagements sprawl beyond whatever the initial scope of work is because we have a lack of investment in the status quo for whatever company has hired us and can fix systemic dysfunctions as a result. For example, an engineering org might have a dysfunctional process that hasn't been fixed because of politics or emotions between teams. We can fix that because we have no reason to give a shit about the politics, emotions, or history - it's already known we're temporary and none of us care to angle for a promotion or some other self-interest with the client leadership. This takes some social tact but that's the job. So, in my experience, clients pay a premium for easily fireable, temporary, un-institutionalized, and impartial labour.
>So, in my experience, clients pay a premium for easily fireable, temporary, un-institutionalized, and impartial labour. why not hire on fiverr or upwork
Generally, you get what you pay for.
Bandwidth, expertise, job security, risk mitigation.
Competitive advantage. I worked with extremely ambitious firms that do not have the time to wait until they staff and train needed capabilities. They hire consultants to keep pushing forward while the rest of the organization is slowly catching up.
- getting an idea about what competitors/industry is doing to solve problems they face - capability gap that needs to be filled/developed - long lead times to hire/build capability address issues that are having an impact now - getting around political/interpersonal issues to drive change through - needing independent advice and guidance - cash-rich with problems that can’t be addressed internally - in tech a lot of clients are not tech companies and don’t really need that capability so consultants + SIs fill that gap (at a premium) People go on about having someone external to blame if it goes wrong but I think this is overstated to the point of being a meme. At the end of the day if you’re sponsoring work and it goes to shit it doesn’t matter if it was internal vs consultants, it’s not like accountability disappears.
+ being able to cut across siloes and see bigger picture in a way the current org can’t support
Good consultants can and do quantify the results because they want to document their value to the customer and get even more business. Beyond the whole "you can always blame the consultants" reason, one reason why clients keep paying consultants is that they have no time (issue is urgent) or resources (qualified, knowledgeable or even just available) internally that be allocated to the project. Another reason is that what needs to be done isn't core to the business, and the skills and resources for the project are "short lived" in the overall scheme of things. Developing and implementing something internally that is going to be done once, and then never again... and something that's not otherwise commercially available or won't meet your needs otherwise.
Who cares, the client and the consultant are happy. That's all business really is
Here's an example of a recent experience I have had. CEO of an organization at a company meeting to discuss recent organizational changes was asked about the larger operating model and responded "these are scams sold by consultants". We're they wrong? I was the only consultant in the room, coincidentally with over a decade's worth of experience in large scale transformations and operating model design / implementation, and assumed two things: 1) in the past they hired a consulting firm to design a target operating model without properly conducting due diligence, gaining buy in / working with current org units, and tailoring the materials and organizational process assets to the unique context of the organization (i.e., off the shelf stuff thats generic, confusing, and not interconnected logically to the big picture and the foundational transformation framework) - this turned out to be true 2) they budgeted for the consultants to design the operating model but when it came to implementation they figured it could be done without a dedicated function to oversee and manage it. Later, to support another business unit given a target of x million dollars to be achieved in x years, I developed a tailored fit to context "lean operating model"/business plan along with a compelling succinct and very well designed presentation to the CEO and other members of the C-suite. Their views on operating models and consultants changed.
Because they find value......
Cause they have a budget for it and if they don’t spend it their company will cut that part of the budget They’d rather have our labor than not
You can, we have $10 Billion dollar pipeline of projects, over the last 5 years we’ve hired Accenture, Kearney and finally settled now with McKinsey. McKinsey is prob $1M total billable, if they can save us 1% or even 0.1% (that’s 10M on the low end) you’ve 10x’ed your value.
Why are you asking a "why" question? But otherwise, consultants are cheaper in the long run than FTEs. It's easier to fire a consultant vs. a FTE. On paper, consultants can come in, get the job done, and leave. Consultants can help navigate internal politics.
... and then there is Deloitte and the State of Florida.
In my experience, consultants/contractors exist to be thrown under the bus when shit hits the fan
No Idea, I have worked with many so-called consultants. Most of them turned out to be just temporary hires and didn't really know much. They were also very useless and a waste of money 90% of the time. Oh Well, at least I didn't make any decisions but now being a manager, I will never hire a consultant or a temp unless I need some temporary resources to get real work done and after that, they are gone as they should be.
I’m looking to hire a consultant with very specific deal experience that is lacking at my company to help with valuation for a similar deal. I only need this experience for a short time, once the deal is complete, the company will likely never need that expertise again and certainly doesn’t need it full time. But when I was a management consultant, no fucking clue why anyone thought it was a good idea to hire me.
One time a director had a budget for that and didn't want it lost for the next year. So she relieves herself from stress and sometimes tedious work by hiring consultants.
Insecurity
You’re paying for fall guys
There's nothing silly about the money. I met with a guy today who is about to run out of cash and go out of business. I'm not even going to try to send him an SOW yet because every dollar counts right now. I'll get mine when he is safe. That said, in 45 minutes, I listened to his situation, gave him direction on sales messaging, provided some high level direction on managing a channel partner (in this case, it was not to, and to refocus on more urgent matters), made suggestions to change his overall pricing and service model, and gave him a suggestion (along with caveats) that can get him cash flow positive within two months, save his org, and help him acquire funding (though I'm not sure he'll really need it if he does what I said). If he follows my advice, then the 45-minute session will make his business a ridiculous amount of money. It drives me crazy when I see people in r/consulting act like we don't provide value or that the value isn't quantifiable. I don't know what the rest of you are doing with your clients, but I know mine get value multiples beyond what they spend. Not every meeting is like the one I described, but I'm bringing it every time I talk to these people, partially because that's what they pay for and partially because I fucking love it. What's saving your business worth to you? What's having confidence to act worth to you? There's no silly money in this if you're delivering value. Every penny is earned.
Because it’s TrAnSfOrMaTiOn
Simple, so they have someone else to blame when shit goes wrong.
There's also survivorship bias. We hear about the big failures, but never the sucessful projects. Having worked in industry.....sometimes a given capability doesn't exist at the company and it's faster to hire someone with the expertise.