How to Define a Qualified Consultant1 Jul, 2012 By: Tom Callinan, Strategy Development imageSource
Consultants can help business leaders achieve greater success than they could have achieved on their own - or be a tremendous waste of money. If you are a principal of a company or a senior manager, you’d probably stand in line for the former but the thought of hiring the latter scares you to the point of inaction. After all, before you cut that big check or sign the contract, how do you know which consultant you are going to get?
Before I try to answer that question, you need to reflect on whether your company has the culture for a qualified consultant to help you achieve greater success. I’ll use a period in my career as a short case study:
When I was an executive at a former large public company, the CEO decided to implement Six Sigma. To help achieve his goal he hired a Six-Sigma consulting firm and signed a contract that approached $10 million dollars. Improving the company’s processes wasn’t a bad idea, but we happened to be about three months into a multi-year Oracle implementation with scores of Oracle consultants working with the company. For the previous two years the company worked with the consultants to ensure that IT mapped the ERP to the company’s current processes, or changed the processes to match the capabilities of Oracle. Like most large IT projects—the average large IT project goes 300% over budget—all didn’t go as planned, and the IT team, working with a line of business leadership, were scrambling to get the implementation back on track. Now add a group of 300 Six-Sigma “black belts in training” into the mix; 300 high-quality employees that could have been helping with the chaos around the Oracle implementation, and you have a disaster. The company hired a really smart CFO and he pulled the plug on the Six-Sigma project in no time flat. $10 million down the drain!
Six-Sigma might have been able to improve this company’s processes—an admirable goal and one the Strategy Development Team focuses on—but the company simply had too much going on. My team likes to call it “digestibility,” the company could not digest all of the projects that were in process. Not assessing an organization’s ability to commit to the project was a critical mistake made by the CEO. A second critical mistake was that the CEO made the unilateral decision to add Six-Sigma to the mix of projects already taking place at the company, despite the objections of his senior team. Without resources and commitment, a project—and therefore a consultant—has no chance of success. It had nothing to do with Six Sigma - a process improvement program that has made hundreds of millions of dollars for companies around the world. Just make sure you have both commitment and resources before engaging a knowledgeable consultant.
Define the Project
Now that you have the commitment and the resources, it is time to define the project. Some projects are simple to define: I want to raise my service gross profit from 42% to 50%+. In this case you’d need a service operations consultant. Other projects might not be as simple: My operating income is 6% when the SD Scorecard clearly demonstrate a copier dealership can achieve 15% operating income. For this type of project it would be a mistake to jump directly to some simple solution, like chopping heads. I’ll give you another example from my past:
In Jan. 1999, I assumed responsibility as Marketplace President of IKON NYC. In the two-year period prior to my appointment, the marketplace’s revenue had declined from $83M to $47M. To cut costs my predecessor rapidly reduces staff without any consideration to balancing cost cuts with investments to grow, or taking into consideration the ability to continue to provide quality customer service. Service staff was cut so thin that we were on three-day response time with service margins of 37%, and the sales management team was so underdeveloped that turnover was over 75%. My predecessor had a simple solution to a complex problem.
When you do engage the consultant ensure that you have metrics in place, and make sure if the goal is to increase margin that it flows to the bottom line. Let’s look back at that service margin improvement engagement I used as an example. If your service margins improved from 42% to 50%, and service revenue represents 33% of your total revenue, then your bottom line, which we shall call operating income, should improve by 2.67% (50% - 42% * 33%).
If you did not experience this 2.67% improvement in operating income from your 8 point GP increase in service then it is possible some revenue, margin, and cost were moved around. There is absolutely zero benefit in improving service margins by moving around income statement categories; you want to improve service margins because you want to improve your bottom line results. Make certain you have metrics in place that ensure you achieve your goal.
Define the Consultant
You want to ensure that the consultant or consulting team that you hire has the experience to diagnose your issues and put together a plan to achieve your goal. Selecting that person or team is the next critical failure area. The two top career choices out of business school are banking and consulting. Graduates go to firms with names like McKinsey and Bain; they are hired by large companies to work on strategy. The newly minted graduates typically work at an analyst level and are teamed with senior consultants who have the experience to actually analyze strategy. The goal for the new consultant is to learn from a senior consultant and either move into a more senior position or leverage their consulting experience into a big job in an industry.
What I have found in my six years of working at a boutique-consulting firm is that many small businesses don’t have a robust definition of what a consultant does. There is confusion between a consultant and a trainer, and there is little vetting of qualifications before the consultant is hired. If the hiring company experiences the “tremendous waste of money” described in the first paragraph, it will probably be the last consultant hired by that company. That might be a mistake.
At the point of hiring your consultant to help you achieve great results you:
- Are confident that you have commitment and resources
- You’ve clearly defined the project
- You have metrics in place to measure project success
- And you’ve started to vet the consultant’s qualifications
Next month in imageSource, we will pick-up on the vetting process and provide other tips so that you get the results you desire from your consultant.