Unit 11, 61 Flynn St, Wembley, WA, 6014
08 9242 2085 ots@otsmanagement.com.au
Advice from Outside the Square

The Use Of Consultants – Why and When?

The Use Of Consultants – Why and When?

Full disclosure! I make my living as a business and management consultant, mainly to Indigenous organisations.

I don’t charge market rates, in fact working for myself I can afford to adjust my rates so that on occasions I can “give back” to worthy causes. The market rate for someone with my experience, especially if you compare to the Big 4 or other financial services firms is about $4,500 to $6,000 a day.

I charge between $2,000 to $3,000 per day, and I’m proud to say that most of my clients are “repeat” clients in that I am called back from time to time to solve problems and help them continue to grow and improve.

I believe I get “repeat” business because of a number of things – my skills and 30 years’ of experience in business, financial matters, management systems, and working with Aboriginal people; emotional intelligence, empathy and listening skills; relationships and trust built; and above all, my 100% effort to produce a result for a client.

I have seen reports from other so-called experts without depth, which shilly-shally around “suggestions” rather than the necessary hard-hitting recommendations, and which often avoid providing a clear result, in case they offend anyone or in case they might get sued.

I don’t go into assignments looking for a continued relationship – I go in looking for a result for the client, even if they don’t like it – and that is what I believe builds me those relationships.

But that’s all well and good – why should an Indigenous organisation hire me? Why hire any consultant? Why not employ someone (who will work out costing less per hour in a salary than paying for a consultant)?

In June this year The Australian published an op-ed entitled “Paying consultants to do public servants’ job is waste of money”. In it they reveal that the Commonwealth and State governments paid $1 billion to consultants in 2015. CEO’s reading this today will recognise that they pay consultants and are probably considering, or at least under some pressure from their Boards, to pay less to consultants and hire more Indigenous staff.

So is it a good thing or not to hire a consultant?

Like many things in life – “it depends”.

It is good, and right, to hire a consultant at the right time – and a waste of money to hire a consultant when you don’t need to.

So, what’s the right time?

You should use a consultant when you have a short-term project you need to work on, and you don’t have the capacity or the capability internally. If you hire internally to gain the extra capacity or to employ the right capability (experience), what do you do with the new hire after the project is finished?

I have seen many Indigenous organisations end up with staff hired to tackle a short term project (and by that I mean one with an end date, not necessarily short term in time) and then remain in the organisation and be shuffled to other duties. That’s a waste of money.

Let’s look at an example of what I mean.

An Indigenous organisation is setting up a social enterprise, perhaps a cleaning service for a mining company. They do not have staff who have experience in business or setting up a business. Perhaps one senior person on staff has had experience in setting up a (non-profit) housing organisation.

They have four choices:

  1. They can ask the senior person to “set up” the business – but setting up a social enterprise and setting up a non-profit housing organisation are two different things, and besides this person is really busy internally running their members’ accommodation service. They don’t pay any more money, but it could cost them a lot of money due to delays and the business not being set up properly.
  2. They can hire a new manager to set up and run the business – however let me tell you that running a business after it is set up and setting it up needs two different skill-sets. You might be lucky and find someone with both skill-sets, but the most likely result is that the new manager will set it up wrong, and this won’t be found out until a few years when things like missing tax registrations and incorrect structures become apparent. They save a bit of money because they needed a manager anyway but saved on setup costs, but again it will cost them money in the long run.
  3. They can hire a new employee with business skills to set up the business, and work with the nominated manager, or even become the manager after set up. The question is what will you do with this new hire once the business is up and running under a manager? How do you utilise his or her skills on a permanent basis? Even if this person later became the manager the problem is not solved because, as above, running the business needs a different skill-set.
  4. Finally they could hire a consultant to set up the business (correctly) with all the structure, registrations, systems, checks and balances in place, and hand over to a full time manager. They spend on consulting fees, but they save time, capacity and future cost.

In the above example the consultant is in and out – but what is key is, through a proper scoping and terms of reference exercise before they are engaged, that they leave having built up structures and resources for internal capacity building.

Deliverables, including any capacity-building requirements are put into the contract. In this way the value of the assignment can be measured and, if necessary, final payments held until final delivery. In other words, you want quality delivered by the consultant, so the consultant must be of the right quality.

Let’s now talk about “quality”. What makes a quality consultant? Is it a big firm, say one of the Big 4 because they have great systems that produce quality?

Let me tell you a personal story about Big Firms.

I was Principal of Arthur Andersen in Perth in the 80’s. AA was then one of the “Big 8” and in fact internationally was the largest consulting firm in the world. With another senior executive, I set up the Perth Office’s consulting division.

In those days, AA had unimpeachable systems. While I was engaging with clients, I nevertheless had to have my reports reviewed by another Partner (who may not have known anything about the client of the task, or even the subject) for a quality review. In extremely large assignments, this review was trebled, first by our Managing Partner, and then by our Head Office in New York.

This meant quality in many layers – my engagement and understanding of the task and my writing of the report or recommendations, a second layer of common sense and quality (“you spelled it wrong”) review, a third layer of review over potential legal problems, and a fourth review to see if the overall report fitted with the firm’s methodology and “brand”.

All good, except that you can see it cost a lot of money to produce a report. And it was a good report, because fundamentally we had good consultant.

Then when I left, AA went through a period of internal entrepreneurship. There were many reasons, but basically it was about making more profits by decentralisation. So, reviews by New York went out. Eventually independent Partner reviews went out (same fee, less internal cost).

As a result, Enron happened to AA. A Partner looking after the audit of the world’s largest company cut corners, and it failed. As a result AA collapsed.

So, the moral of that story is that quality systems are only as good as the people running the engagement. A good, ethical, experienced consultant doesn’t need the weight of multiple systems. They will have their own personal (built by experience) checks and checklists that they use. It is the quality of their experience and thinking that will benefit the client, not the system.

In summary, the use of consultants is not automatically a bad thing. Consultants can bridge the gap if you need a result and don’t have the experience or resources to do it internally.

To use them effectively, you need to make sure that you have worked out a proper scope of works and terms of reference, and agreed all the deliverables.

Negotiate the fee based on effectiveness, not cost, and make sure you  check that the agreed deliverables have been met.

Choose someone who will give you an effective result. Choose this person not by who they work for or what systems they bring with them but on a proven track record – obtained through due diligence including past results or testimonials and references.

If you want to know more about what a properly engaged consultant can do for you, contact us by clicking on this link https://www.otsmanagement.com.au/contact-us/ or giving me a call in Perth on 08 9242 2085.

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