FT Report – Business of Consulting:

More bang for your buck – How to get the best out of Strategy Consultants.

The chief executive of Fulcrium spells out his opinion of what boards should consider when choosing management consultants.

Despite the platitude, one often hears, that strategy consultants should be independent, clients want their consultants to be partial. They want them to “express and justify views put forward” rather than sit on the fence.

Strategy consultants such as Roland Berger, Monitor Group, Bain, Boston Consulting Group and McKinsey are generalists. So clients are really hiring them to help manage “the key stages in a strategy consulting process” – which means identifying the problem or question to investigate, framing the business problem, scoping the work, staffing it, and helping manage the execution or delivery of the engagement.

Typical issues these consultants address include mergers and acquisitions, new market entry, portfolio rationalisation (chopping and changing business units), organisation (structure) and economic modelling.

Examples of their advice include recommending the strategy that “Abbey will significantly increase shareholder value if it expands beyond its core mortgage franchise by entering the commercial banking market” (reminiscent of a strategy that distressed Abbey, leading ultimately to its takeover by Spain’s Santander). Or the strategy that the “life insurer Standard Life should demutualise” (of course strategy consultants will be taken a lot more seriously than carpetbaggers who had previously reached the same conclusion after conducting a quick back-of-the-envelope analysis).

And finally, remember the strategy that “the NHS can save the government a bundle by taking budgetary authority away from professional doctors and clinicians and redeploying it to business-style commercial managers (who would then be able to overrule doctors and determine what treatment patients can and cannot receive)”.

The good news is that clients are getting more innovative in the way they engage and manage strategy consultants. For example, they may mix and match consultants from different firms – like engaging McKinsey and Bain simultaneously.

Clients may also evaluate individual consultants rather than simply be blinded by mystical brands. It is not uncommon for clients to demand that individual strategy consultants be swapped-out as the engagement progresses.

Such client assertiveness has been commonplace when using non-strategy consultants for technology, systems integration or outsourcing projects, but board executives and to a lesser extent government officials now seek similar consistency in value delivery from strategy consultants.

There is also a greater inclination to challenge consultants’ invoices because billing transparency is still a concern to many clients who often cannot understand how a strategy firm can attempt to charge monthly fixed fees of £500,000 or more, for a team of four to six strategy consultants (meaning a single engagement could easily cost £10m).

The bad news, on the other hand, is that clients are all too easily their own worst enemies. A classic case is where the client secures the right individuals from the consulting firm but then pays much less attention to selecting the right calibre and number of employees from his or her own side, resulting in a sub-optimal consultant-client mix.

Seldom will a strategy consultant walk through the door and find the key question all ready and waiting to be addressed. It is through a process of structured diagnosis and dialogue with the client that issues are highlighted. These might be shrinking market share, margin erosion, and structural market shift. Such issues might be linked but a decision is needed on how to maximise bang for buck.

Clients cynical about this early collaborative inquiry process are highly unlikely to settle on the key question, and in such cases there would be no basis for a consulting engagement.

Some clients fail to deliver on their own commitments, especially in providing contextual information or arranging internal interviews in a timely manner.

Lack of maturity can be another problem, as some client employees allow egos and emotions to get in the way. This comes down to team skills. If the client is overly challenging, inflexible or personally insecure as hypotheses are tested and ideas generated, then the strategy consultant might as well withdraw or risk a failed engagement.

Another common trap is where a budget-rich client, typically an individual well below board level, hires a strategy consultant and belatedly realises the outputs are unusable. This is because strategy consultants are usually good at providing board-level advice (blue-sky thinking) but poor at translating it to actions taken by junior managers.

The whole reason for engaging a strategy consultant is so the client can gain a competitive advantage, but clients may fail to see the forest for the trees by failing to focus on “value”.

It is the responsibility of the client constantly to monitor the value being delivered and if needed to alter the direction of the engagement mid-stream rather than cry foul after three months when fees have been racked-up.

Consulting is a people, ideas and knowledge business. The smart client who proactively manages each stage of the strategy consulting process will reap enormous value.

Raju Patel is chief executive of benchmarking firm Fulcrium.