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.
See our other interview with Fiona Czerniawska,
in which she discusses the
future of the consulting industry.
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