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Meet
the MasterMinds: Fiona
Czerniawska on Trends in Consulting
 MCNews
is pleased to welcome back Fiona Czerniawska, an author
and recognized authority on the consulting industry.
Her books include Value Based Consulting,
Management Consultancy in the 21st Century,
The Intelligent Client and Management
Consultancy: What next? She's also co-author
of the recent report, Offshore Consulting: Benchmarking
Future Success.
She is founder and managing director of Arkimeda,
a research and consulting company that focuses on the
challenges facing consulting firms and their clients.
Czerniawska is also the Director of the Think Tank for
the Management Consultancies Association (MCA), where
she is responsible for research on trends in consulting.
MCNews talked to Czerniawska to get her take on the
past year in consulting and what she sees on the horizon.
MCNews: Looking back over the past year, how would
you characterize the state of the consulting industry?
Czerniawska: It's a bit like we've landed on
a strange planet. We're getting out of the spaceship,
blinking in the sunlight and wondering how much the
landscape around us has changed over the last two years
and whether it will go back to what it was. We're learning
what the new world of consulting looks like.
The year 2003 was an interesting one. The first six
months of the year were about maintaining equilibrium
between supply and demand for services. Confidence in
the industry rose slightly in the summer. But I think
people were concerned that their hopes were going to
be dashed again and we were going to have another demoralizing
round of redundancies and cuts like we had in 2002.
But certainly in Europe things seem to have made a
significant turnaround since then. Consultancies
are recruiting more and more work does seem to be available,
perhaps because more clients are making decisions to
spend on projects again. I think that a degree of
pent up demand for consulting services is surfacing.
MCNews: When you consider the trends in the industry,
what are the three most interesting ones that you see?
Czerniawska: The first one is multi-sourcing.
I see a growing trend amongst clients to switch away
from the mega-deal with one consultancy, and pressure
to get multiple firms to collaborate on projects.
Clients may feel that no one firm can handle either
the scale or complexity of their large projects, and
they may want a partnership with five or six firms.
Or clients may cut projects down into small pieces that
they give to specialist firms.
The message is that clients want consultants to
work together. They don't expect one firm to supply
everything.
It's going to be interesting to see how this trend
plays out. And it raises questions about how good consultants
are, in fact, at working together. It sounds like a
nice ideal to get three experts from different firms
who are brilliant in their fields, but can they actually
work together? The individuals may get on okay, but
it's complicated at the firm level.
MCNews: How will this trend impact individual consulting
firms?
Czerniawska: I think it has huge ramifications
for firms. Why bother having a consulting firm if clients
are pulling the best people from different firms to
create project teams? What role does the firm play?
It's about quality, consistency and brand assurance,
of course, but how much do clients really want to pay
for that? The firm could become just a flag of convenience.
MCNews: So what's the second trend you see?
Czerniawska: The second trend is about pricing
strategies. One question that needs to be addressed
is how much can a consulting firm shift the payment
a client owes them out over a period of years, either
amortizing it or simply deferring payments? When
do we get to the point that consulting firms are acting
as banks? They may end up with the equivalent of a bank's
bad debts.
MCNews: Don't some of the outsourcing firms already
have this problem?
Czerniawska: Absolutely. But it's now affecting
more than just outsourcing companies. It's rolled up
with the consulting that often goes with outsourcing,
but I can see it expanding into other areas. For example,
some firms price services at a lower rate with a
guaranteed volume over a period of years. That's financing
a lot of work for the client.
And then you've got the notion of utility consulting--clients
paying for what they want when they want it, rather
than agreeing to a price up front. That has ramifications
for software and hardware suppliers, which are used
to annuity licenses. Now they have to plan on upfront
license fees rather than annuity income. So everybody's
going to be affected by this in some respect.
If clients say we will only deal with consultants and
suppliers who can do this kind of financing, everybody
must start thinking about pricing strategies to be remain
part of that value chain.
MCNews: Is that kind of pricing strategy becoming
more prevalent because of clients' view of consultants
and the value they provide, or is it simply a financial
convenience for clients?
Czerniawska: I think it's a mixture of both.
It's partly convenience. Clients' budgets are tight,
and this is how they ensure better value for money.
This wouldn't be happening if clients were completely
comfortable about the value that consultants provide
or were sure of the return on investment they would
obtain.
It's quite clear that consulting firms haven't stepped
up to the mark in terms of defending the value they
deliver. Of the two strategies consultants could
have adopted to respond to price pressure, they chose
to discount rather than stand their ground and argue
the case for value.
With the economic downturn, clients have been trying
to manage the variable cost side of their businesses,
including consulting. The growth of consulting is
going to be constrained unless consultants can find
a better way for clients to account for their expenditures
on consultants.
MCNews: Does it seem to you that consultants have
educated clients to focus on price rather than value?
Czerniawska: I think that's absolutely right. The
conversations have started with consultants saying,
we'll knock 5% off rather than, hang on a second, this
is what we can add to your business. And I think
it is very difficult if one firm goes the discount price
route for the others not to follow suit.
MCNews: The last time we talked, you said value-based
pricing hadn't really gone anywhere. What's going on
with this pricing strategy these days?
Czerniawska: I'm not sure value pricing is going
anywhere at all. Consultants haven't made a good
enough case for their value and therefore can't shore
up the price using it. I see a fair amount of experimentation
with different pricing mechanisms, but I think at least
50% of pricing is still based on time and materials.
MCNews: Shouldn't small firms or independent consultants
be better able to price based on value?
Czerniawska: That's a fair point. I think the
more specialized you are, the greater the possibility
that you can make value pricing work. It's much
harder for larger firms.
It's complicated for consultants to forecast a project's
value, and clients, too, find it complicated. Faced
with choosing between bids competing on price and one
that proposes a value-based approach, clients will probably
feel it's less risky to select one of the discounted
bids.
MCNews: You said there were three trends to watch.
What's number three?
Czerniawska: The third item on the agenda is
offshoring. The issue is not so much about doing work
in different parts of the world or high-cost economies
versus low-cost economies, but about the balance of
costs firms should have going forward. How many high-paid
people do you need and how many less expensive people?
Do they have to be in the same firm? If not, how do
you join them together?
With the higher profit margins of five or six years
ago, you could get away without asking these questions.
But now the balance of high-cost and low-cost resources
is going to be fundamental.
MCNews: Do you think the rush to offshoring will
continue, or is it a bubble that will burst?
Czerniawska: Well, I honestly think it's too
soon to tell for sure. But if you look at all of the
scenarios that are likely to evolve, three out of four
of them involve quite radical changes to the nature
of the consulting industry and the consultant-client
relationship. And only a very small number of consulting
firms would do well under all the possible scenarios.
If you look at one scenario, though, offshoring does
look like a bubble. If consultants jump on the bandwagon
without doing the proper business cases, the result
might be similar to what happened in the late 1990s
with the dot-com's--lots of negative coverage, people
pulling out of deals and a lot of bad press for the
consulting industry.
MCNews: You mentioned potential changes to the consultant-client
relationship. How is the nature of that relationship
evolving these days?
Czerniawska: Clients tend to be clear about the
value of consulting projects that fall into two categories:
big, transformational projects and very small projects.
Clients are sometimes reluctant to buy consulting services
for big projects, but they have little choice because
of the level of resources and the complexity involved.
For small projects, clients know what they want and
they hire specialists to give them exactly that.
It's all the stuff in the middle that clients are less
sure about. They are much more skeptical about the
value they will get from consultants on medium-sized
projects that entail a medium level of change.
In talking to clients, I hear a common theme, which
is that they want to take control of what's going on.
That's part of the impetus behind multi-sourcing.
Clients seem to be saying well, we know it will involve
more overhead but we want to pick and choose who works
together. And that's interesting because we genuinely
don't know if that's the right way of doing things.
Can clients--or their proxies--really pull together
a variety of consulting firms and make a collaboration
work?
Another aspect to clients wanting to take control is
how they realize the benefits consultants bring.
Clients need to be able to understand and measure consultants'
contributions. So I think there should be more hard
conversations with clients about how clients can determine
benefits.
MCNews: Are clients now choosing consultants based
on the individuals rather than on firms and brands?
Czerniawska: Clients still use both to a degree,
but in different ways. They use brands to shortlist
consultants. So undoubtedly there's a real issue about
how clients find out what individual consultants do
in firms. And they still find it very hard to distinguish
between firms at the corporate level. They also find
it hard to find specialist who are in smaller, more
focused firms.
MCNews: Is that because clients won't make the effort
to find them?
Czerniawska: It's partly that. But also because
clients do a search on the Internet or wherever they
start and find that the firms in a category are all
saying the same things. So how do they work out which
ones they might want to shortlist?
MCNews: They need a referral or something else to
go on.
Czerniawska: Exactly. Referrals and brands help
clients to shortlist the firms they want to talk to.
But I think it's absolutely true that when it comes
to who clients want to hire, the personal chemistry
is the deciding factor. It's more like a job interview
than a beauty parade.
I was at a forum recently and many audience members
really just wanted to know which firms to go to; they
wanted names and recommendations--some way to clear
the fog of all the information out there.
MCNews: So consulting firms are not doing a good
job of helping clients sort out their choices?
Czerniawska: No. Consultants have to start rethinking
how they get their messages across. High level advertising,
white papers and so on play a part, but have not solved
the problem. It's just not clear enough what consultants
are actually doing.
MCNews: In your opinion is there an approach that
can bridge that communication gap?
Czerniawska: I haven't seen a real solution
yet. We are already seeing people who claim to be experts
at helping clients hire consultants. So now clients
need another set of advisors to advise them on who they
should hire as advisors. That's just exacerbating the
problem in my view. How do these people find out about
who's out there either?
MCNews: Consultants do seem more homogenous than
ever. You'd think somebody would break out of the pack
based on a brand. Why do you think that hasn't happened?
Czerniawska: I guess it's partly the economic slowdown,
but consulting firms were hit by a degree of paralysis
and have been unwilling to experiment or be innovative.
The thinking has been we'll just stick to one thing--it's
too scary out there.
An exercise I did earlier in the year on thought leadership
reinforced the same point, which is that there is a
lot of white space out there and nobody is trying to
fill that space. Consultants could take the skills,
techniques and tools that they've honed in one sector
and apply them to another sector. And there are
all kinds of issues that clients are concerned about
that consulting firms are not addressing.
If consulting firms don't start to work on new approaches
and be a bit more adventurous, someone's going to come
and fill the gap. Maybe it will be some of the offshoring
companies.
MCNews: Because they bring a different set of solutions
or services?
Czerniawska: Yes, that's right. Obviously innovation
can be about processes and the way of doing business
as much as about intellectual capital.
And some of the offshore firms are quite large. Three
of them are approaching the $1 billion mark. Even so,
of course, the top fifty added together have less revenue
than IBM. But still I think we'll see the top ten
offshore firms moving into higher-end consulting, trying
to establish onshore positions and building client relationships.
MCNews: Is that to pursue a new profit opportunity
or to protect their outsourcing businesses, or both?
Czerniawska: I think it's to gain direct access
to clients. Many of the offshoring companies have
worked through partners based in the West, and obviously
that means they can't control prices, go after other
clients or get out of the commodity category. So they
have to go around their partners at some point if that's
what they're going to try and do.
MCNews: As you look ahead in 2004, are you bullish,
bearish or neutral on the consulting industry?
Czerniawska: I'm neutral to bullish. I'm bullish
because we're seeing a bit of a recovery. However, I
don't see any rocket fuel--big ideas or technology--that
could power the market up to the performance we saw
five or six years ago. So in my opinion, consulting
will see growth, but it's going to be closer to 5% than
10%.
But it's also going to be quite patchy again.
Some consultants are going to do very well and others
will do less well. It may not be the same consultants
in each category that we've seen over the last two years.
Most people agree that spending on information technology
will go up, but not that much. I'm more bullish about
strategy, which has been in the doldrums now for so
long. Clients are facing some enormous issues about
how they must change their businesses and improve performance.
Clients have been down the technology path, and have
learned that technology itself is not the answer to
all problems. So the pendulum is swinging back again
to other solutions, like human resources and strategy,
and no doubt it will swing back again at some point
in the future. I'm a great believer, I'm afraid, in
business cycles.
MCNews: So what's on your research agenda now?
Czerniawska: You can probably guess, given what
I've been saying. I'm currently working on a report
on multi-sourcing. I'm looking at the different strategies
firms are adopting, what makes them work or not work,
and therefore be able to rate firms on their ability
to make options work. That promises to be interesting
and thoroughly contentious. I'm expecting a fair amount
of hate mail from the results!
MCNews: Then you'll know you've hit the target.
Czerniawska: Exactly. I'm also going to be doing
something on pricing strategies. And, with a UK- specific
focus, I'll be looking at public sector consulting and
where that will go in the future.
MCNews: We'll look forward to hearing about those
projects. Thanks for your time.
Find out more about Fiona Czerniawska, her books, reports
and services at www.Arkimeda.com.
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Deborrah
Himsel is Vice President of Organizational Effectiveness
at Avon. Her focus is on leadership development, succession
planning and performance management programs. She has
practiced and taught leadership theory for nearly two
decades.