Consulting has become an attractive occupation and internal consultants have proliferated just about everywhere. Much of HR is now performed by HR consultants. Performance consultants are now permeating learning and development. There is a compelling reason for this growth: Internal consultants can play an influential role.
External consulting continues to grow, too. Although large companies seem to dominate the space, small firms account for the largest number of consultants. The U.S. consulting market grew 7.7 percent in 2015 to reach $54.7 billion, up from $50.8 billion in 2014. Although 2016 data hasn’t yet been published, the growth trend was expected to continue with the U.S. accounting for nearly half (44 percent) of the global market, according to analysis from Greentarget, a public relations firm.
This growth comes along with concerns that tarnish the image and effectiveness of consultants. Consultants represent a cost to the organization that can be cut in uncertain times if executives don’t see consulting as an investment. Warren Buffett, CEO of Berkshire Hathaway, one of the most valuable companies in the world, goes to great lengths to stop his company from using consultants, joking at his 2017 shareholder meeting that he would come back from the grave to stop the practice.
In addition, many consultants offer off-the-shelf solutions that may not be appropriate for a particular problem or opportunity. They can also be reluctant to deliver results that executives want to see. Clients who fund consulting want to see the business value and sometimes even the ROI. Worse yet, consultants can become a habit — once they get inside the organization they are hard to eradicate.
Consulting can also be a risky business. According to the Bureau of Labor Statistics, consulting has the highest failure rate among professional occupations, with as many as 80 percent of new consulting firms failing during the first two years.
Being an effective consultant is not easy. You must have expertise, experience and a passion for the topic. That’s not to mention the ongoing costs to sustain a consulting practice.
The Four Challenges for Consultants
To continue to thrive, consultants must tackle four key challenges. The first challenge is to deliver credible business results to clients. In today’s climate, showing ROI for major projects can be a market differentiator.
The second challenge is to keep clients satisfied, particularly in the face of changing projects, fast-paced environments and ever-changing demands. If clients aren’t happy, client referrals won’t develop and it’s difficult to have a sustainable business.
The third challenge is to avoid creating a narcotic effect where consultants always need to return to address the situation. The key is to solve the problem, implement the correct solution and eliminate the need for consultants in the future. Although this sounds counterproductive, it’s the best way to sustain the practice in the long run. The focus is on sustainable process improvement.
The fourth challenge is to explore the prospect of ROI forecasting and guaranteeing results. Some clients are now asking for a forecast before they go into the project. A few will add the prospect of a guarantee of results. This could be a risky proposition but it’s feasible when addressed properly.
Designing Effective Consulting
Consultants have to be consistent, effective and deliver value, every time with every project. This is best achieved by using design thinking at all stages of consulting.
With roots in innovation, design thinking suggests that detailed goals should be set around what you want to achieve, with everyone involved in the consulting project mobilized to achieve the goals. Eight important steps based on design thinking are necessary to deliver results and use those results to enhance the image of and investment in consulting.
Step 1. Start with Why: Aligning Consulting with Business. The first task is to identify the business need (the problem or opportunity that should be addressed) with a specific measure or measures. Examples include reducing out-of-compliance fines by 50 percent in one year or reducing product returns by 20 percent in six months.
Step 2. Make It Feasible: Selecting the Right Solution. With the business need clearly defined, the next step is to decide on a feasible consulting solution to improve the business measure. The focus is on what the organization should be doing or stop doing that will have the appropriate influence on the business measure. This may involve a few questions or additional analysis using problem-solving methodologies, brainstorming, fishbone diagrams or records review.
Step 3. Expect Success: Designing Consulting for Results. Objectives are developed to define the success needed at each level. The ROI objective is the minimum acceptable return on investment from the project, if ROI is pursued. Objectives should also be set for business impact, application, learning and reaction. Specific objectives are important to the success of the program as they provide design guidance and expectations for everyone involved in the consulting project.
Step 4. Make It Matter: Designing for Early Stages of the Project. The consulting project must be relevant, meaningful and important to the individuals and the organization. This requires selecting the right people at the right time to be involved in the project and requires the consultant to provide activities and simulations that reflect what the project participants are learning and what they will do with what they’ve learned.
Step 5. Make It Stick: Designing for Application and Impact. If the people involved in the project do not use what they’ve learned, then it has failed. Transfer of learning from the consulting project to the workplace occurs over time and involves all the stakeholders.
Step 6. Make It Credible: Measuring Results and Calculating ROI. This step can be one of the most rewarding parts of the process. The first part of this step is to sort out the effects of consulting from other influences. Simple, easy-to-use techniques are available for this. If ROI is needed, three more actions are needed. The impact measures are converted to money to create project monetary benefits using values developed internally or externally. Next the costs are tabulated and then the ROI is calculated and expressed as a percentage. In formula form, the ROI is:
Net benefits are project monetary benefits minus project costs. This formula is essentially the same as the ROI for capital investments.
The challenge is to overcome the barriers to moving to this level of evaluation and evaluate at this level only when consulting projects are expensive, important, strategic and attract the interest of top executives. The principal barrier is the fear of results. ROI evaluation should be tackled in a proactive way. If consulting is not successful, the consultant must understand why it’s not working and correct it. If consultants are proactive, clients will accept this easily even if the results are negative. But if consultants wait to be asked for the impact or ROI, it places the consultant at a disadvantage.
Step 7. Tell the Story: Communicating Results to Key Stakeholders. The consultant must communicate results. Presentations can range from executive briefings to blogs, from a detailed report to a one-page summary. The important point is to tell a story with results. Storytelling is effective and it’s the best way to get the audience’s attention and have them remember the results. The five levels of outcome data (reaction, learning, application, impact and ROI) represent a compelling story with credible, executive-friendly evidence and anecdotes.
Step 8. Optimize Results: Using Black Box Thinking to Increase Funding. If the results are disappointing, you know how to correct it. Black box thinking is needed at this step. In the airline industry, black boxes point to the cause of a crash of an airplane and investigators analyze the data and identify the actions to be taken to prevent this type of accident in the future. Consultants can take the same approach.
When consulting projects are evaluated, the data are used to make them better. When this happens, results will improve and ultimately the ROI is enhanced. Optimizing the ROI presents the best case for increasing funding, providing a very credible rationale for additional funding. This approach ensures that executives see consulting as an investment and not a cost that can be controlled or reduced.
Make sure consulting delivers value and satisfies all clients, including those who ultimately fund the consulting project. That’s absolutely necessary in today’s climate. An eight-step approach based on design thinking shows how to deliver results and protect the consulting investment in the future.
Jack J. Phillips is chairman and Patti P. Phillips is president and CEO of the ROI Institute. They are authors of “Maximizing the Value of Consultants: A Guide for Internal and External Consultants” can be reached at editor@CLOmedia.com.Filed under: StrategyTagged with: consultant, performance management, ROI