The purpose of consultants (and consequent pitfalls)

I went to business school after just six months of graduating from engineering school. I spent those six months as one of the thousands of faceless “software engineers” in India, writing pretty low-end code. After two years in business school, I joined the “consulting” industry. There was a brief period when the term “consultant” sounded mighty glamourous and I walked around with a swagger, looking down (figuratively, I am too short to do it literally) over the lesser mortals joining FMCG, general management or worse, HR. I was lucky to be from a campus without the plum US I-banking jobs (it was before 2008, you see), because they are the “true Brahmins” and would have looked down on us lowly salaried advisors without “bonus components!”

The first assault on my swagger came from none other than my own father. It was our convocation dinner and parents were invited. My father was approaching retirement then, after more than thirty years of building science museums for the Government of India. The futility of trying to create Nehru’s “modern Indian” by infusing scientific rationality among a population safely cocooned in elaborate superstitions and religious opiates never seemed to hit him. What on earth he would know about the glamourous “private sector” and ultra-glamourous “consulting,” I wondered. I was therefore rather miffed when he and another parent seemed to find the concept of a 24-year old without any experience becoming a consultant rather hilarious.

The second assault came from that painful thing called “reality.” It took just a few months of mind numbing excel sheets, PowerPoint slides and inedible airline meals to replace the swagger with a hunch. Existential musings about the purpose of life, universe and everything was replaced with the more specific question around why “consultants exist,” or rather, why do clients, who are perfectly capable themselves, hire consultants (especially those kids in their twenties with a couple of decades’ less experience than the average in-house middle manager?)

In my limited experience, I have come across the following reasons as to why clients hire consultants:

• To fill a genuine capability gap: Occasionally, consultants are called in to fill a genuine capability gap in the client’s organization. Typically, the client is faced with an important challenge which she is unable to solve internally and realizes that she needs the “specialist skills” of a consultant. Being called in for this reason is a major ego boost for most consultants. In fact, I know a number of consultants who believe that this is the only reason why clients call in consultants (which is rather self-delusional, but consultants are human too right?)
• As a stop gap measure: This is similar to the above in as much that the client perceives a genuine capability gap in her organization which needs to be filled by outsiders. But her strategy is to bring in consultants to develop internal capability. Such engagements are ironic, as the consultant is charged with training client resources to deliver his own redundancy (and occasionally proving it too!)
• To augment bandwidth: Basically glorified “body shopping.” The client often faces the need for relatively high quality people within short notice but does not see the justification of creating the expertise permanently in-house. So she literally outsources to consultants. This comes with the added advantage that the “consultants” can be driven far more than employees since the consultants have to justify their “premium.”
• For validation: Ever so often, the client will need “external validation and benchmarking” of her own ideas and strategies by “reputed external consultants.” Put bluntly, she needs a rubber stamp, albeit a high quality branded rubber stamp. The basic assumption here is that the reputed external consultant will be unbiased by the prospects of future work from the same client and deliver a neutral verdict. The validity of this assumption is anybody’s guess, but this reason tickles the consultant’s ego too, often as much as the first reason

Now, if these are the reasons, what must a consultant offer to fit the bill? To my mind, there are two clear propositions:

• Differentiated high-quality people: This is fundamental to all the four reasons mentioned above. The consultant must be able to deliver, and visibly appear to deliver, better capabilities and results than the client’s own employees. This is critical to justify the consulting premium. Moreover, there is nothing worse than the client’s employees feeling that they could have done as good a job at a fraction of the cost for the prospects of repeat work of the consulting firm. This fact is a major ego boost for consultants and often forms an integral part of their identities (there is no better delusion than the illusion of self-grandeur!)
• Differentiated Intellectual Property: The consulting firm must have differentiated intellectual property which cannot be procured from the market. It is fundamental to demonstrate the results from this differentiated intellectual property to the client. Or else, he will simply try to recruit the “high-quality” people (even if it costs a bit more than regular employees) and save on the consulting premium.

Both of these factors add up to the consulting firm’s brand. At the end of the day, it is the monetization of this brand that determines the consulting firm’s bottom-line.

And herein lies one of the most obvious (though often unacknowledged) pitfalls of the consulting industry. The “people” (rather their billable hours) are what drives the consulting firm’s P&L. The IP is a part of the balance sheet. As is often the case in all businesses, disproportionate focus on the P&L leads to neglect of the balance sheet. It takes time, effort (and an appetite for risk) to dedicate resources to develop IP. It implies sacrifice of “billable hours” and a hit on the bottom-line. No wonder then that many consulting firms focus on maximizing the billable hours of their people rather than building differentiated IP.

The unfortunate result is that very soon, clients see just the “people” and fail to perceive what value the “firm” adds. This leads to questions regarding the “consulting premium” which can have three results, none of which are positive from the consulting firm’s perspective:

• The client tries to directly hire the consulting firm’s people, or people of similar profiles
• The client gravitates towards the consultant with the “lowest cost” per man-hour
• The client terminates the consultant and replaces with her own “internal team

Result: this converts a high end consulting firm into a glorified “body shop.”