Advisors, consultants, and the ROI promise
Before reading this, go ahead and read the below reference articles I listed at the end.
So to apply myself to the previous post's mission statement (aka: write more often, about any topic of personal interest...etc.) I have some time on my hand here and I had a subject I long wanted to vent about.
If you didn't know, I have spent a good portion of my professional life working for consulting companies. Overall it was 2 distinct companies operating in 2 different continents/countries.
In-between, I have lived on the other side of the service contract, aka being the client.
With this combined perspective, I have developed somehow a personal view on the value of consulting as a service, and as an economic agent, with a certain level of expected contribution to economic growth and development.
In recent years, I have pondered the value proposition of tech vendors, consulting services, and the ROI promise of externalizing the building of critical parts of a business's operations, either through buying tools and, or through bringing onboard consultants.
On the face of it, with the way accounting is set up in all major economies, externalizing services has the advantage of being temporarily tied to a project's lifetime. When the need ends, the cost is offloaded and wont necessarily show up as a permanent expense used in the evaluation of the company itself, offering this sought after flexibility.
I am not arguing here this choice, as it will lead me to dive into foundational concepts of corporate and finance functioning. Not necessarily what I wish to talk about now.
So, when a company has a shortage of people to work on a specific project, or when the specific skills would take too much time to develop internally, calling help from the outside is a way to go.
If a company needs a tool, where this company is not specifically expert in the matter, eg. an "XYZ corp" is not supposed to be a software company, and this way, the focus is centered towards its core business, and buying a tool make much more sense.
The main goal here would be to solve a set of problems, "now" :
Lake of talent, urgency, not enough people onboard, not part of the core business...etc. In the hopes of an ROI resulting from the direct involvement of the additional force added to the project, or from the efficiency gain resulted from using a more adapted tool.
Here is my question, in the form of a thought train;
A consulting company as any economic agent, has a duty of generating revenue, expanding its client list and maintaining a positive growth trend.
This happens by placing its consultants within other companies and billing by the day.
As common-sensible as this may sound, the economic interest of these entities leans towards maximizing the billables, by intrinsically following the subsequent logic:
- Increasing the number of days billed in the contract.
This happens in a multitude of ways, many of them come across as evident and coherent to the average person, since the underlying math is as simple as 1+1.
Albeit what I just mentioned, when laid down, things become clearer:
More billed days. are achieved by:
- increasing the count of consultants in the initial project
- extending the duration of the said project
- getting new projects and applying the above
On the basis of the aforementioned reasoning, one cannot imagine, from a self-interest point, these strategies inclining even remotely towards:
- Doing the most efficient and neat work and finishing the job sooner, thus billing less days, placing less consultants and not getting new projects.
Because by applying such logic, the economic agent in the current day and age, will condemn themselves into nonexistence by being the reason of decreasing the revenue generating tactic and by association, holding back on financial growth.
My endpoint for this train of thought is relatively unmistakable: When the primary objective is maximizing revenue through increased billable days, an inherent conflict of interest arises from this situation.
A firm with a fundamental economic structure of working to expand their project and client base and maintain growth, having this objective, puts them at odds with the client's best interests—to achieve an efficient and cost-effective solution to the above-mentioned problems.
Conflict you say?
Well,
Let us delve deeper into the mechanics of this situation.
Providing specialized expertise and flexibility is almost always how consulting firms present themselves.
Facing internal shortage of skilled personnel or an urgent project deadline, outsourcing becomes an attractive solution to most companies. A simple strategy to address immediate needs while promising a relatively swift return on investment.
However, if we scrutinize the business model from a game theory perspective , we reveal a stark realization. It's a classic prisoner's dilemma type of situation.
A trap where operating with self-interested actions will result into sub-optimal outcomes for all involved parties.
Let me explain it : The consulting firm's drive to maximize revenue results in inefficiencies and inflated costs for the client, thereby increasing billables and extending service contracts. This ultimately undermines the intended benefits of the consulting engagement.
The 2 prisoners have 2 choices for each:
Company : Hire Consultants - Do Not hire consultants
Consulting firms: Be fast and efficient - Be greedy (aka more billables)
I will let you work your mind a little bit to combine outcomes and figure out how this is a slippery-slope (or research John Nash and read about PD).
This dynamic creates a situation where the consulting firm's success hinges on extending projects and maximizing billables, rather than delivering optimal outcomes for the client.
So, beyond the illusion of swift ROI, flexibility and temporary reinforcements, do consultants bring anything to the table?
The economic argument is clear. Consulting firms emphasize value over cost, yet this assertion often masks the reality that the perceived value may not always justify the exorbitant fees charged.
The allure of flexibility and scalability is tempered by the risk of creating dependency on external consultants, thus undermining the development of internal expertise.
Strategic insights, touted as a key benefit, may lack the deep industry knowledge unique to the client's business, leading to misaligned solutions.
Efficiency and effectiveness are frequently cited by consulting firms, but the temptation to extend project timelines for additional revenue can compromise these very goals.
Long-term partnerships, while seemingly beneficial, may stifle internal growth and innovation. Success stories highlighted by consulting firms often showcase exceptional cases, not necessarily reflective of typical outcomes. Ethical business practices, although claimed, are at risk of being overshadowed by profit motives.
Moreover, measuring the true ROI and value addition of consulting engagements is fraught with challenges, often leading to ambiguous or negative returns.
Adding to this quandary is the prevalent practice in consulting firms of hiring junior staff and presenting them as experienced professionals. This deceit is not merely a minor infraction but a systemic issue that undermines trust and diminishes the quality of work delivered.
If I try to be sarcastic, I would say that it has never been the case where consulting firms submit resumes that overstate qualifications of junior hires, and never promise to provide a supervision of a "principal" or a "senior" member to support and help with extensive expertise, to have that principal vanishing overnight, impacting the client's project with the lack of experience of the junior, a skill-mismatch impacting the performance of the said consultant and the outcome of the project.
Is this the end of the world?
I believe it is a definite (high risk / high reward) gamble, if said clients do not ensure the added-value of relying on consultants and do not supervise, control and check the delivered work quality, which is to say the least, a result of major lack of investment in developing internal talent which exacerbates this problem.
So what are the implications of hiring inexperienced consultants, who lie about their experience and skill level.
Projects suffer delays and inefficiencies as these junior consultants climb steep learning curves on the client’s dime.
I must state that inexperience is not the issue here, it is the trust relationship and the mismatch of skill-billable cost at stake.
The expertise that the client sought by outsourcing the work is compromised, leading to subpar deliverables. This practice aligns perfectly with the previously discussed economic incentives: by keeping junior consultants billable for longer periods, consulting firms continue to maximize their revenue, albeit at the client's expense (while paying pennies on the dollar to these poor kids).
I am all for getting the right people in the right place, at the right moment.
My go-to strategy would first be to make internal tools and people accountable for projects outcomes FIRST.
Again, why?
Because of the running insider-joke that, blaming the consultants as the ultimate scapegoat has kept many getting paid salaries, pointing fingers and not breaking a sweat...
I might go on and write a part 2 for this post, on a rainy day
Now I just got tired of this topic... Ain't no love lost anyways. Get consultants, or don't... it's not my circus and not my monkeys
Hold your horses, breathe and read the below articles before thinking the above is a unique point of view:
[1] The Big Con: How the Consulting Industry Weakens Our Businesses, Infantilizes Our Governments, and Warps Our Economies – review : https://blogs.lse.ac.uk/impactofsocialsciences/2024/04/02/the-big-con-how-the-consulting-industry-weakens-our-businesses-infantilizes-our-governments-and-warps-our-economies-review/
[2]Why most consulting is bullshit : https://bigthink.com/leadership/why-most-consulting-is-bullshit/
[3] Powerful firms that put the 'con' into consulting: https://www.sydney.edu.au/news-opinion/news/2023/08/22/powerful-firms-that-put-the--con--into-consulting.html
[4]Need a consultant? This book argues hiring one might actually damage your institution: https://www.npr.org/sections/money/2023/03/21/1162242773/need-a-consultant-this-book-argues-hiring-one-might-actually-damage-your-institu
