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Do You Have What It Takes to Fire Your Consultants?

 |  By Philip Betbeze  
   June 04, 2010

Why don't you fire your consultants? It's a provocative question and its tough to answer, but CEOs, you're part of the problem. In fact, when it comes to getting value from your multitude of consulting engagements, you're the main problem. The simple truth is that you don't often fire your consultants because you depend on them. They nurture that dependent relationship, in fact. It's just good business for them.

So says Gordon Perchthold, co-author of Extract Value from Consultants: How to Hire, Control, and Fire Them. Perchthold, a consultant himself, says overreliance on consulting talent can mean a lot of wasted money for the widget manufacturer as well as the hospital or health system. Overconsulting can as well mean lackluster results and lower morale from lieutenants and the rank-and-file. Right, you're saying. So tell me something I don't know.

OK, try this contention on for size: CEOs get addicted to consultants, and no matter how savvy they are, top executives often get roped in by tricks of the trade that sometimes stretch a consulting engagement for a relatively small matter into a years-long relationship that's more beneficial for the consultant's employer than for, you, the client.

Like substance abuse, says Perchtold, the first step to getting help is to admit you have a problem.

"Consultants do have a role," he says. "Organizations have execs who build up silos that work against change and consultants can help with that. But as soon as they are on board, consultants start working the relationship. They spend quite a lot of time to persuade the execs take actions that the consultants want and that usually results in follow-on work."

So why are Perchtold, and his coauthor Jenny Sutton, spilling the secrets of the trade? First, they do have a book to promote, and they've seen the way some consulting firms build long-term relationships with clients that may not serve the client as much as the consulting company. A lot of CEOs are former consultants themselves, so they might be familiar with "problem creep." That's the practice of consultants working to find engagements for their colleagues back in the office who are looking for billable gigs. But that makes consulting engagements inefficient at least and borderline unethical at worst.

"A lot of CEOs are former consultants and what happens is they bring in their former employer," Perchtold says. "We've challenged that because there's a conflict of interest in the selection process."

But who's watching to make sure the client is the one who's benefitting from the relationship? In many cases, no one, Perchtold says. He's careful to note that he's not trying to denigrate the profession or to contend that something illegal or unethical is going every time a certain group of consultants gets ingrained into an organization's culture. Consultants are often brought in to cure inefficiencies or find ways to cut costs. The irony is that the consulting budget may be among the most bloated and inefficient of all categories of spending within an organization.

Perchtold contends that a few large organizations have such a poor grasp on how much they're spending on consultants across the board that they sometimes have to hire a consultant to figure that out.

"A lot of times the consultants will be one of the highest-spend categories, but they do all they can to minimize the truth that they are one of the major categories," he says.

The issue with a lot of consulting spending is that the employees who are doing the work with them in the organization come from the operational side.

"They never learn about managing the consultants, and what you have is inexperienced operations people matched up with consultants who come from the best business schools and who manage their own consultant colleagues every day. The result is that they are good at managing clients for their own objectives."

The idea isn't that you're being swindled, rather that most consulting firms will deliver something, but not as much as they could, because they have "leveraged" themselves into activities over which they have less and less knowledge over time.

"That's how they drive up their own revenue," he says.

It's difficult to distill a lot of the lessons Perchtold and Sutton have for those who hire consultants based on a half-hour conversation, but the essence is that most clients haven't stepped back and analyzed whether they're getting the most value out of the engagement. The authors have some fairly simple rules to follow when purchasing consulting time and talent:

1. Define the problem yourself
Too often, executives leave it up to the consulting firm to define the problem. But consulting firms will view each client's problem through the prism of their own capabilities and solutions. Executives must understand the desired results of the project and ensure the consultants are focused on finding the specific solution to their problem.

2. Dictate how to structure the project
Consulting firms will always attempt to maximize the consulting headcount for the projects they propose. Commonly, buyers complacently accept the project structure that comes along with the proposal. However, most projects underuse the resources in the buyer's organization. From the first draft of a proposal, buyers need to analyze what is being offered, look into their own organization for dollar-saving opportunities, and challenge the proposed approach and team composition with their own recommended changes.

3. Oversee the execution of the project with adequate direction
Consultants should be managed just as any other team reporting to the manager, and should not be allowed to reschedule work, redefine scope, substitute resources or make significant decisions without the knowledge and agreement of the client manager.

4. Ensure the desired results are achieved before consultants walk away with all their fees
Without proper management and evaluation, consultants too often get paid for just putting in the work hours instead of producing the results. In today's economic climate, there is greater expectation and governance surrounding pay for true performance over the mid to long-term. Buyers must create a stronger tie between fees paid to consultants and the benefits a business receives over the mid to long-term to ensure they are receiving maximum value.

Further, you need a check on your employees who might hire consultants, including yourself, Perchtold says. It's good practice to form an independent review committee to make recommendations about consulting work, chaired by the chief financial officer, who should know exactly how much the organization is spending on consulting as well as have some idea of the value gained, independent of any analysis the consulting firm is conducting. It's also never a bad idea to have a board member on that committee who understands consulting and value.

Second, never sign a contract for follow-on work to an existing consulting engagement without putting it out for competitive bidding. Watch out for consulting firms that define your problem, rather than having a relationship that starts with you or your people defining the problem and bringing it to the consultant in the search for solutions.

After all, it's your organization's money. Don't depend on a consultant to tell you whether you're getting the right value in spending it.

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Philip Betbeze is the senior leadership editor at HealthLeaders.

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