Procurement of Professional Services – a view of value drivers (part 4)

In the final part of this series (continued from last week), we’ll look at the most fundamental issue in many ways – how to get real value from the consulting or professional services assignment.

Here we are moving up the value ladder even further than in our previous posts. In part 2 we saw that commercial techniques around understanding how to contract with the firm  might be worth 30-40% of the potential cost of an assignment. In part 3 we talked about how understanding the type of professional  services resource that is appropriate might be worth a multiple of the daily rate. But when we come to real value, the gain or loss is virtually infinite in all practical terms.

For instance, take the case of a consulting, investment banking or legal firm advising on an acquisition. It could be the making of the firm – Google buying Android, or RBS acquiring NatWest. Decisions that added massive shareholder value. Or it could be a disaster -  TimeWarner buying AOL, or RBS takeover of  ABN AMRO (the RBS examples show how fine the line is between success and disaster). The advice from the professional services firm might make all the difference in these cases and could be priceless.

So how do we ensure we obtain real value? Well, or course, we can’t be sure. We can go through all the best practice we can, some of which we’ve discussed in previous parts of this series, to try and make sure we engage the right firms and get the right people, but we can’t be sure.

However, there are some further mechanisms that can help to improve the chances. They tend to revolve around performance based fees and risk /reward mechanisms that aim to align your objectives with those of the professional services firm – making sure somehow that they share your goals and desired outcomes in the assignment.

Fixed price contracts are a simple example of transferring risk to the provider but aware – it can lead to firms cutting corners to increase their margins, so it is only suitable when you can define the outputs very clearly. Linking fees to the outcome or output is another route. So can you link reward to how well an acquisition actually works if that is the area of advice? Defer an element of the payment until  you can see how things have worked out based on the firm’s recommendations?  Professional Services firms aren’t always keen on doing this for obvious reasons but it is worth considering.

We came across one major consulting firm last year that was aiming to have a reasonable  element of payment on most of its projects linked to the client’s satisfaction rating of their performance. That’s another possible route.

And having argued in previous posts that procurement should and can take a strong line, if you really do have an assignment that is a matter of huge strategic importance to your organisation, this is a time to focus on getting the very best advice you can rather than pure price. Getting a day rate of £1500 a day instead of £2000 is pretty inconsequential if it means bad advice that costs you the business!

So a category manager in this area needs to develop a number of skills; understanding the strategic consequences of the work, assessing which commercial options really are appropriate and even knowing when it is appropriate to pay for the top firms; they're all important. It's a challenging spend category to be sure; but one of increasing importance in most organisations, and one where procurement can certainly make its mark.

(And we haven't even focused in this series on the tools and technology that can support the procurement professional here; that's for another day).

 

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