Measuring the value of consultants
To achieve consulting results consistently and reliably you have to measure, monitor and manage the successes being achieved at all stages of the process. You also need, incidentally, to create way stations, or milestones, at which some elements of business success become tangible.
The challenge
In a perfect world, every consulting project would have measurable outputs which would allow the contribution of a consulting firm to be compared, not just with the client’s expectations in that one instance, but with other work done by the same firm and even work done by other firms. Think how different the consulting industry might be if clients could rate the productivity of a consulting firm in the same way it might rate that – say – of an office cleaning company. Of course, part of the mystique of consulting is maintained precisely because you cannot evaluate consulting in the same way that you evaluate office cleaning, so it has not been in the interests of consulting companies to resolve the issue in the past.
Today, however, most consulting firms are now acutely aware that, if they are to defend their fee rates, they need to be able to demonstrate value, not simply promise it. The problem is how best to do this. More than ever before there cannot be a single solution that compares, say, strategy projects with outsourcing on a similar basis. A single standard reducing the output of consulting to the point where most consulting projects can be compared will also blur the different ways in which value is genuinely created. This means that the first step has to be to sub-divide projects and examine the concept of value for each element, so that comparisons can be made more meaningfully.
Clients see consultants as generating three different types of value:
- Value from effectiveness occurs where the inputs into a project are uncertain but output can be measured. What this means is that, while it is possible to identify a clear goal for the consulting project, it is hard to draw a clear set of causal relationships between that goal being achieved and what the consultants actually do. Clients have to trust that the consultants they have hired have contributed to achieving the goal, but neither side can prove this is the case. In this situation, you need to establish those clear goals from the outset, and make them the combined objective of everyone involved in the project, whether consultants or internal staff. Everyone has to be given an incentive to do whatever it takes to meet the objectives.
- Value from efficiency takes place where the output of a project remains uncertain (it is not possible to ascribe a clear set of goals with which everyone in an organisation agrees), but where the work carried out by a consulting firm can be measured. An example here would be a complex change management project. The overall objective of the project might be hard to define (how can you measure whether an organisation has changed?), but consulting firms involved in the project might be playing quite clearly defined roles – designing and delivering an internal communications strategy for example. In such situations, the discussion of what constitutes value needs to be focused around the input the consulting firm makes.
- Value from economy occurs a consulting firm, perhaps through the use of offshore resources, can simply undertake routine technical tasks more cheaply. This new phenomenon arises from the growth of consulting in India, China and Eastern Europe – these regions have marketed their high skills and low costs and are often subcontracted to do work for western consulting firms. Some of those same firms have also built low-cost offshore practices so as to reduce average prices through their own staff. Clients have responded. General Motors, for example, will not now contemplate major technology programmes that do not include significant offshore resources.
Seek to set out a mix of targets – some tangible, some intangible, and the means to measure them. For intangibles, measurement will be through opinion surveys and feedback, independent reviews and the like. Make this whole process transparent and be flexible in changing targets as the project unfolds.
The pharmaceutical industry has a perennial problem with the costs and effectiveness of research and development (R&D). Research is “blue sky”, and product development has a phenomenal failure rate, with only one in ten thousand of more compounds proving valuable and safe enough to make it to market, years after their initial discovery. Precious few of these are the “blockbusters” that drive profits. Consulting to this process is a black art and tracking value is nigh‑impossible. Smart clients in this sector never hire consultants in tightly defined areas without specific links to the bottom line. One client engaged consultants to improve management of their R&D programme with the stated objective of reducing headcount costs by 30 percent, but with value measured by the likely increase in the output of marketable compounds going into clinical testing. The consultant suggested a host of other intangible success measures, all designed to concentrate the minds of R&D staff on how they used their time. The result? The consultant made one huge difference – R&D began to focus more on commercial results and less on pure science. Two years on, R&D efficiency by the output measure was up 300 percent with 30 percent less staff, and with demonstrably better science.
The rules are simple: The criteria set for success should be shared by as many organisational stakeholders as possible. It is the medium-term, practical impact of a project that matters, not its short-term ‘wow’ factor. The fundamental anchor, nevertheless, is getting results – if these can be demonstrated, particularly if they can be produced in stages as the project evolves, the evaluation process is easier to do, and produces more convincing results for all.
This is an edited extract from Business Consulting: How it Works and How to Make it Work, by Gilbert Toppin and Fiona Czerniawska, published by the Economist.
