Friday Rant: Is Kicking Out Consultants a Smart Cost Cutting Strategy?

In the past few weeks, I've heard of more than one case where companies (especially in the manufacturing center) are freezing new spend-related cost reduction initiatives that won't deliver very near-term (e.g., 30-60 day results). This freeze, of course, is temporary and represents a last ditch effort to rein in costs during a time when demand and volume uncertainty is driving behavior all the way up the ladder. In other words, it's hard to plan and invest in any set of activities -- even those that can drive material results -- when you're still up in the air and gravity is pulling you to the ground, a surface that you can't yet see below. The problem is that nobody is sure where the bottom of this market is and how far we have to go to hit it.

When it comes to really short-term cost reduction, the only levers to pull are typically compliance and labor related. You can cut out travel. You can reduce headcount. You can implement zero spending policies in discretionary areas. And you can also choose to kick out contingent workers and consultants. Siemens recently announced it was doing just this. The FT recently picked up on this news in an article (registration required) that gives some of the details and rationale behind the move. It notes that by banning consultants, Siemens hopes to "save about €300m ($386m)". Siemen's CEO "wrote to managers at the end of last month to say that all contracts with external consultants have to be phased out quickly" which he hopes will reduce overhead by 10% for 2010. The one exception is that "the consultants will need to show that the economic benefit of their work will exceed their costs and that it will fall in this business year."

Is banning the consulting armies a good idea? It's certainly a few steps beyond strategically sourcing consulting and contract labor and then managing their onsite lifecycle via a services spend management solution. I suppose time will tell, but methinks this might amount to throwing the baby out with the bathwater. With apologies to those in the East End of London, the poh lit'le thing wa so skinny and thin ee shuld av been washed in a jug -- you get the idea. Perhaps a more surgical approach or smaller wash vessel would be a better solution.

Jason Busch

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