I suggested in “Tough times in consulting industry open door for long-term rate savings” that IBM’s acquisition of PwC and Microsoft’s new focus on enterprise business had created a favorable negotiating environment for the opportunistic CIO. By negotiating now for long-term projects with these “big dogs,” a CIO would be in a great position to get the consulting services groups of these organizations for lower rates over longer terms.
While I haven’t heard from any CIOs who disagreed with my strategy, I was inundated with responses from consulting companies that bristled at the suggestion that CIOs would consider this approach. Many TechRepublic members made valid points about related issues in making decisions of this magnitude, and I felt it only fair to share their feedback in this forum.
Ability to deliver
Almost everyone who responded to the article listed an inability to deliver on time and on budget as a key argument against making any long-term commitment to a large consulting firm. The president of a large regional consulting firm stated it best:
“I have had the opportunity to work with a good cross-section of these top-end firms during the last couple of years. In the functional areas where they have true value, they are solid and even exceptional, but these areas are extremely limited in the full system development cycle. Their ability to successfully deliver end-to-end solutions to the client, on their own, is minimal and basically a guarantee that the client will be overcharged. That being said, they are normally a good sales target for our firms to come in and help to clean up some of the train wrecks that they have in progress.”
It’s been my experience that local or regional consulting companies tend to focus on technologies for which they can guarantee delivery rather than trying to commit to being able to handle any engagement. They cannot survive for very long by taking jobs that they can’t finish. The “big dogs,” however, have enough margins built into their proposals to allow them to rent the resources from another company if they can’t provide their own. This brings up the second issue common to most respondents: price.
The cost issue
Pricing for many large firms represents a need to meet quarterly or annual billing targets rather than the desire to match a customer’s needs to the true cost of delivery plus a reasonable margin.
Because they’ve built a strong national brand and, in many cases, a track record of successful (if not timely) delivery, larger firms use these assets to convince customers that their pricing must be right since they have a large body of experience to support it. Many TechRepublic members submitted anecdotal evidence of pricing practices of large firms—I think this one, from a consultant, represents this phenomenon best:
“I am experiencing [a large company]’s inability to deliver first hand. They brought us in on a BizTalk job because of our expertise. When I provided them with an estimate, I came up with three people for six weeks and I felt that it was VERY conservative. They [large company] turned around and made a proposal to the customer recommending six people for eight weeks! Despite the fact that [large company] botched up the customer’s [ERP accounting package] implementation, this customer still gave this job to [large company]. Now we have two resources on this project and [large company] has six. However, the two of us are producing 95% of the core deliverables while [large company] is wasting time producing 58 different useless documents! The [large company] resources know nothing about BizTalk, ASP, or the Microsoft platform. They are recycled Lotus Notes developers that don't even know HTML and are utterly useless on this project. They actually consumed so much of our time when we asked them to produce four simple ASP pages that we decided we would be much better off to do it all ourselves. Now they are charging the customer $250/hr for those resources which are nothing more than glorified tech writers working on docs that will mostly go into the trash.”
These are common frustrations echoed by many small consulting companies attempting to get engagements with larger corporations. The corporations have billing relationships with the larger consulting companies and are willing to pay a little more to reduce the paperwork nightmare by engaging the large consulting company and looking the other way when that large company engages the smaller consulting company.
In fact, in some companies the CIO is more overt, requiring that the large consulting company engage the smaller consultancy to get the resources he or she knows are necessary to complete the job successfully. I don’t believe that CIOs who consciously use large consulting companies as billing services to get to the real delivery resources contained in smaller, boutique consulting firms really understand how much they’re overpaying for the services they’re receiving.
The CIO responsibility
Some of the respondents went as far as to suggest that CIOs who make decisions to use large consulting companies do so only because they don’t really understand their responsibility to and within the organization.
The larger the project, the more the risk; therefore, more risk management and mitigation is required. What these large consulting companies do well is manage risk, not deliver on technical capability. Having run successful consulting organizations in the past, I can tell you that there’s not a hot-shot engineer or developer who would choose to work within the hierarchy of a large consulting organization if given the option of working with a financially stable smaller consulting organization.
Many of the companies that responded to the initial article indicated that although they had lost key consultants to the big firms during down times, they expected—and have begun to see—these key consultants come back to them as they win the projects required to support them.
Given that smaller organizations will have a better concentration of talent in the regions that they serve, and that larger organizations will have better structure and procedures (that mitigate risk) across all of their locations, CIOs have to balance the choices of risk management and quality delivery. As one respondent wrote:
“I think that CIOs have to start looking at whether their job is risk management or delivering quality business systems that will make a difference to the bottom line. If it's the former, then [large organizations] are the choice. If it's the latter, then [they should] start looking for the organizations with technical skills and working out how to reduce the risk profile. Find companies who specialize in project management and have them involved to lower risk. Break projects down from one or two extremely large ones into smaller chunks that can be delivered more quickly and with less risk.”
This approach would require companies to provide their own internal project management resources or to convince large consulting companies with those resources to be satisfied providing just the risk management and mitigation services. But it would give CIOs another choice when deciding how to staff and deliver a long-term project that formerly would have only been given to one of the “big dogs.”
When considering whether to use large firms exclusively by negotiating favorable rates, or to find a way to combine the project management expertise of larger firms with the demonstrated technical ability of smaller ones, this reader summarized it best:
“I’m not saying dump the big boys, rather, focus on who can deliver and then structure agreements based on how well they execute. Now, when firms do that, I strongly believe that the smaller firms make a lot more sense. How ANYONE can justify paying $200+/hour for a consultant just out of school or $500/hr for a senior consultant is beyond me.”