DALLAS, Texas (May 17, 2009) – Long ago, before I became a consultant, I was a client. And as a client I learned some very important lessons that today shape the way I look at my business and the values on which my Firm, JohnMarch Partners, was founded. This is a column about my thoughts on our existing consulting business model, the fees that are charged, and some questions regarding how we should marry the concept of entitlement and accountability.
Some of my lessons as the client of consultants were embarrassing. I will always remember being summoned to the CEO’s office who was outraged at an expense invoice he received from a consultant that he had hired but I was assigned to manage. The offending expense was a rather costly dinner – with wine that the consultant selected – at a high-end steakhouse. I was stunned, evidence of my obvious inexperience in the dealing with clever consultants. The consultant had invited me to dinner. He had picked the restaurant. But alas I got the bill – and a severe lecture from my boss – a month later. Never again, I resolved.
In another case of what I consider consulting run amok, a North Texas health system was interested in acquiring the services of consultants to help evaluate strategy and financing of a new business venture. We selected a nationally recognized firm for the work based on the knowledge, experience, and reputation of the partner who led the presentation. He made a compelling presentation. However, as the engagement unfolded, the partner was AWOL except for an occasional whirlwind site visit, or in a service recovery mode in response to telephone calls from the CEO. Even that improvement in visibility was short lived. I have learned over the years that the definition of partner is “bringing in new business;” the actual client work is all too often relegated to junior staffers.
While my experiences as a client working with consultants occurred during relatively robust economic times and may well have been the exception to the rule, I have noted that the one thing that is absolutely certain about our current deep recession is that it causes the smart leaders to take a step back, re-examine expense management and ask some basic questions:
1. Do we need to spend this money now?
2. Do we trust our judgment or do we need outside consultants to confirm our options and validate our judgments?
3. Do we have the resources and talent to execute the work internally? If we use outside resources, what value – what measurable benefit – will flow to the organization?
As the economy continues its profound slump, healthcare leaders are looking at the very real possibility that some type of healthcare reform will pass Congress this year (read: reimbursement will be cut again). I am hearing current and potential clients begin to ask questions about the linkage between the professional fees paid to consultants and the concept of entitlement and accountability. The underlying principle for the consulting business model is much like any other service business: we performed the work; ergo we are entitled to our fee. So far so good. Consultants, auditors, strategic advisors and, yes, executive recruiters, should be paid for the work they perform, and the advice they give, assuming they delivered their services according to the terms of the engagement. That is simple enough.
Now this is where it gets a little dicey. What about the value proposition? What value does the client derive from the work performed? Did the client benefit from the advice? What about the quality of the work product? Did the report, recommendations, or the panel of recommended candidates have credibility with the organization’s employees, customers or other stakeholders? Should we connect the idea of fee entitlement with the concept of holding people accountable for the quality of their work and the results? In other words, if the critical value benefits do not present themselves, should the clients be paid as much? Should consultants and search firms be willing to share this risk?
Another way to look at this interesting proposition is to ask ourselves should we expand the scope of how consultants define a successful engagement? For example, in executive search, should the client hold their search consultant responsible for developing a panel of qualified candidates as well as the tenure and performance of the successful candidate? Most top-tier firms currently receive a final payment based on a percentage of the candidate’s bonus. This “true-up” payment is typically tied to the same rate used to calculate the processional fee, usually 30 to 33 percent of the first-year cash compensation. Should we consider shifting more of the fee to the back end, tied to the candidate’s performance?
In the case of a turnaround firm, should they be paid as much if they fail to return the organization to profitability, assuming that is what they proposed to do in the course of a very costly engagement? If they make tactical missteps or botch an MIS implementation that will cost the organization millions of dollars, shouldn’t a portion of their professional fee be denied?
We have all received bad consulting advice – on strategy and marketing, in law, with our taxes, or the money we invest. Is it possible to shift the various consulting or professional service business models so that consultants are willing to share financial risks?
Perhaps this concept of accountability is not practical but I do think that it is a conversation worth having.
These tough economic times are forcing clients to question their consultants in ways that would have never occurred two or three years ago. Moreover, I sense that a larger question is emerging. Are we going to surface from this turbulent economic period with a new set of beliefs and values that will forever change how we look at these issues?
John G. Self is Chairman and Senior Client Advisor of JohnMarch Partners. He is a Co-Founder of the Firm. A former investigative reporter and crime writer with more than 30-years of healthcare leadership experience in public relations, national marketing, and business development and as Chief Executive Officer of hospitals and consulting firms, Mr. Self is highly regarded for his keen insight into operations, business culture and for his ability to select consistently the right leaders for a client’s organization. You can contact Mr. Self at 214.220.1234 or JGSelf@johnmarch.com. Or, you can follow him on Twitter at Self_JohnMarch.