Selecting a Consultant

The CFO and the Consulting Market                                                                                 

Ritobaan Roy recently wrote about how CFO's select consultants or consulting firms. He says, "The consulting industry has had an upswing; none more so than the Big Four as the market polarizes towards extremes in lean times. For the CFO hiring a consulting firm, looking only at cost though is short-sighted.

                                                               

 

Looking only at costs of hiring consultants may not work out well for the CFO

It has been a good crisis for consultants. The Management Consultancies Association (MCA) in the UK recorded a 5% growth in fees earned in 2011 and 2012. Demand for consulting services from the private sector went up 14% in 2011 and 10% in 2012 which made up for public sector austerity.
 

But this growth in business has been skewed. There are either the big brand firms or specialist, boutique firms that are taking on much of the work. Tom Rodenhauser, managing director of Kennedy Consulting Research and Advisory, thinks that the 20 largest firms will dominate revenue share in an industry estimated to be worth $200 billion globally today. “The irony is that as consulting markets have polarised and the middle has grown thinner, clients have been left searching for firms with a mix of local experience and global contacts,” says Fiona Czerniawska at Source for Consulting.

However, Christopher McKenna, a historian of the management consulting industry at Oxford’s Saïd Business School, is skeptical that the middle market in consulting will fade away. “In lean times, service markets always tend to polarize towards providers who differentiate themselves strongly and providers who commoditize certain services. When good times come back, there is plenty of opportunity again for mid-market players to make a profit.”

 

Size Versus Quality

Size will matter as consulting firms push themselves to provide the widest possible range of services spanning disciplines such as tax, risk assessment, strategy, operations and technology. This is where the Big Four firms, traditional auditing firms that have now morphed into consulting firms, will have an advantage. Mike Dobby, partner at Deloitte’s financial transformation practice, says, “Clients are getting better at bundling non-core services and outsourcing them to, for instance, Indian IT services firms. That has created intense price competition. But what we can do better is offer services that can look at deeper, more connected issues that affect the client’s business such as the tax dimensions of changes in a firm’s reporting and analytics.”

But size makes quality assurance that much more difficult. While a global brand is shared across countries, there can be quite a difference in the quality of the consulting brains on offer. Clients are frequently surprised when they hire a big brand firm in another country with confidence and then find out that the consulting expertise in not up to par.

As the Big Four firms expand into new service lines and geographies, they develop global tools and methodologies so that the work they produce is of a common standard. But this doesn't work all the time. Mark Hutchinson, partner at KPMG, says it can sometimes be a challenge to maintain uniformity in quality of service and human resources across many locations. “It’s tough to standardize quality when local prices vary so greatly. It also depends on the work. If a client in a low-cost market needs work that requires expertise from a high-cost market, there can be a tension in making the economics work and delivering what’s needed. But I could equally say this of any other multi-national enterprise,” he adds. McKenna agrees: “It's unrealistic for clients to assume a perfectly uniform standard of services across markets and countries. The large consulting firms could do this but then would have to increase their billing rates dramatically, something clients in those countries would not be prepared to pay for.”

Not Just Cost

These factors make it all the more important that the CFO invests in the right consultants and wisely. And much goes wrong in what CFOs hold dear – the price of the service. “If the company’s procurement staff is incentivized to simply drive down costs, then that’s a mistake when it comes to engaging consulting services. The key consideration should be the value that can be delivered, not just price that is paid,” says Alan Leaman, CEO of the MCA.

 

Looking at deriving value for the long run helps too. Bernd Brunke, executive committee member and CFO at Roland Berger Strategy Consultants, advises CFOs to treat consultants as intellectual sparring partners, not just a service to be procured. “More and more CFOs see this additional value that notably small teams of senior consultants with a certain depth of experience can offer."

 

At the end of the day, the CFO should choose the right tool for the right job. “In my experience, when CFOs look at consulting services, they tend to hire individual consultants or contractors for cost considerations,” says Michael Knott of M-Comm Consulting and former partner at Booz and Accenture. “If it’s an incremental change, this could work. But for large, transformational changes, it is more cost effective for the CFO to hire an established consulting firm even though it may be more expensive. Often, the consulting firm can play the role of an unbiased change agent and help drive big changes through.”