Like many of you reading this, I’m beholden to the clock….from a work perspective, time is the only key performance indicator which has commercial value in a consultants life. Everything else, like creativity, intuition, relationships and network, analytical ability, highly specialised knowledge about certain sectors or subsectors or processes or functions, or specific transformation events like mergers and acquisitions, is merely a precursor to the ultimate target, which is charging for your time. They may impact on what you can charge but the denominator stays the same.
Now some of you will talk about performance related fees, or risk sharing with the customer, others might raise the concept of a fixed fee….but in reality, we’re dancing around the edges of the issue. Even those slightly more interesting ways of charging for our input have time at their heart…the debate around fixed fee is almost always one around recovery (what percentage of my daily rate do I charge) versus utilisation (what percentage of my time is dedicated to the project).
So what’s the issue then? Well, there are two fundamental issues with the current system. The first is the basic presumption that the more time you spend on a problem, the better your solution will be. May be the case in certain situations but not in many.
The second presumption which I object to, is that for many consultancies, the older (and by implication the more experienced) you are, the more you charge for your time. Whilst I can understand that from a subject matter expertise perspective, the scope for that type of intervention is surely limited to the transfer of knowledge rather than the implementation of a solution. Actually, as discussed before in this blog, the challenge for any consultant is to reach a solution with the client, where ownership rests equally or indeed mostly with the client….that way you’ve got a chance of it being implemented. That requires consultants who are matched in some way to the client, perhaps demographically or in terms of culture and language / country knowledge. At the risk of perhaps damaging my own prospects (!) older and more experienced is not always better.
In my opinion, charging on a time basis encourages exactly the wrong type of behaviour. For example, the creation of a bunch of false deliverables which give the impression to the client that we’re producing something but in reality we’re just justifying our presence there. It also doesn’t match the reality of the situation which is that a moment / a small, seemingly insignificant intervention / a sudden realisation often results in a step change in the task of implementation. The value of that intervention is as unquantifiable as the previous 2 months of work!
So what’s a better solution? Well perhaps risk sharing does offer a way forward but it needs to be meaningful for both the client and the consultancy…offering the margin between cost and some ROI number for the consultant is not that. Equally for the client, if the intervention has resulted in something significant either in terms of cost reduction or performance improvement, the reward should reflect that in a noticeable way, the way perhaps an employee might be rewarded for a game changing intervention.
Increasingly, the balance between ‘fixed cost’ employees and ‘flexible cost’ consultants is changing as companies try to manage their cost base more actively and adjust their models to suit the market in a more dynamic manner. The reward models need to be updated to reflect this change.
Categories: Change management, Consulting
Tags: human capital, innovation, Reward, selling
It’s an interesting problem.
I work (or am able to) very quickly, so an hourly fee (even a high one) really does not reflect the value I can bring to a client. I don’t know how else to set a fee, though! As it is, my hourly rate is much higher than that of many of my competitors — which is much more a reflection on the commoditization of my field (writing, editing) than my skills. I know the income I want to make and the level of skill I bring — when others charge 50% of my fee, or less — it looks odd to some clients. (Very few balk though.)
We live in commercial worlds where the business model has been set long ago and not really moved on…I suspect that fees based on time was the clever idea of some internal accountant who wanted to be able to track what his / her employees were up to on a more quantifiable basis…it seems to have moved from a internal productivity measure to the only way of operating in a consulting environment!