Friday Rant: Quick, Target the Consultants! When McKinsey Gets a Haircut…

Over a Belgian ale at my local low-budget yet high-end gastropub in Chicago (Hopleaf) last week, I caught up with my good friend Kevin Brooks. Kevin is an extremely forward-thinking fellow when it come to contemplating where the procurement sector is going and what organizational priorities will be. And he's usually -- except when he's really out on a limb -- quite accurate in his spend prophecies. One topic he brought up made me connect the dots between some in the consulting business I know and a quiet but growing priority in services procurement. This rather hush-hush conversation is about the best ways to go after the truly sacred spend consulting cow: McKinsey and the other strategy firms.

If you talk to most Global 1000 CEOs and CFOs, the one thing they've not been willing to touch in past downturns are their strategy consulting relationships. Sure, maybe they did fewer projects, but they spent just as much per consultant, proffering up $20K or more every 24 hours during the workweek for a small project team to do their board-level tidings. This time around, things are different. High-level strategy consulting is no longer such a sacred cow. In fact, procurement is getting more involved in targeting it in some places. According to Kevin, they're getting smarter about doing it.

For one, they're beginning to use services procurement platforms to manage engagement life cycles (which are nearly all SOW-based). Or at least they should be. I've been on both sides of six and seven figure strategy projects in the past, often done with a simple engagement letter without a formal statement of work -- and certainly not one on the buying company's paper. But more than simply rigging a VMS for $700 per hour workers (which is what it usually works out to be for the highest-end firms), procurement organizations are getting much smarter about negotiation. Instead of just agreeing to an arbitrary amount based on an estimated time involved, they're learning to segment the types of high-end consulting projects they buy and are coming up with target price ranges for what they should cost based on their own benchmarking efforts and the estimated time involved for each.

For example, perhaps McKinsey may have charged $500K for a straightforward, up-front four-week M&A study in the past. But after talking with boutiques and taking some work in-house, it's become clear that McKinsey and others are off-shoring much of the work to their lower cost resources and actually spending far less "high-end" time on the project. In other words, what cost $500K a decade ago should really only cost $250K or less today. With benchmarks likes this for routine projects (other routine engagements might include go-to-market strategies, product launch work, make/buy analyses), organizations are in a far better position to go back to their consulting partner of choice and to dictate take it or leave it terms for things they order off of the regular strategy menu.

As an aside, it would appear that tactics like these are beginning to take their toll. I saw an old neighborhood friend in the local coffeehouse the other day who used to work in an administrative role at McKinsey in the Chase building in downtown Chicago. She suggested to me that layoffs were hitting hard and they were rapidly consolidating their multiple floors. Based on this comment as well as having spoken to other alumni in recent years who were on the line, it would appear that the market is dictating that far more associates, managers and senior managers are headed "out" instead of "up," which at the end of the services procurement day may speak more to the commoditization of high-end management consulting rather than less buying of actual board-level strategy projects.

Jason Busch

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