Procurement of Consultancy – it’s the value, not the cost that matters

I was very honoured to be asked to serve as a judge for this year’s Management Consultancies Association Awards, I suspect based on the huge success of my book, Buying Professional Services, co-authored with Fiona Czerniawska, which has single-handedly restored the fortunes of the UK book retailing industry*.

Joking aside, it is an honour, and I’ve now read the entries that I’m assessing, and very impressive they are too.

The point that strikes me most strongly though is something we wrote about in the book, and we touch on in our recent research paper “Managing Indirect Services – Procurement’s Greatest Opportunity”? (Available for download free of charge here).  And that issue is the potential leverage effect of consulting spend and assignments. A successful consulting assignment can generate a huge multiple of its cost in benefits for the buying organisation. A lousy piece of work could bankrupt – literally – a company. Few other spend categories share that characteristic in quite such a stark manner.

There are some great examples of the positive side of this in the entries I’ve seen - projects where the benefits were out of all proportion to the actual cost of the consulting assignment. That can be in terms of pure cost savings, where an assignment costing a small six figure sum might bring millions of pounds of real benefits. Or it might be in terms of driving the top line of a business. Or, in the case of a couple of the case studies I reviewed, it can mean, quite literally, people’s lives being saved.

Procurement people and functions do therefore need to be mindful of this, when we get involved with this spend category. There’s nothing wrong with formal processes, and there’s nothing wrong with questioning and negotiating day rates, fixed price offers, or risk / reward mechanisms. But you have to remember that the results, outputs or outcomes of an assignment – and therefore the benefits -  might vary massively from different suppliers.

Consulting firm A says “I can do this piece of work for £100K”.

Consulting firm B says “I’ll charge you £200K”.

In both cases, the output might be a piece of analysis, a report and set of recommendations. But the value created by Firm A might barely cover the cost, while Firm B may come up with ideas that create £ millions of value.

That’s what makes this category so challenging and interesting, and why procurement still struggles. And it means that we have to take a thoughtful approach to managing consulting spend. Just saying, “I can get someone to do this for half the price” is not always the right answer.

(Fiona my co-author, has also written on this issue in a recent article – read her take on it here. She suggests that the nature of the consultancy purchase means that procurement will never influence a large proportion of consulting spend. Very thought provoking!)

* slight exaggeration

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