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Introduction

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

There are a number of reasons for using consultants. These include the provision of interim or other temporary services, specialist expertise such as employment law, and general support such as coaching. They also include more substantial involvement with change, either just at the diagnostic stage or throughout the change process. There are different modes of consulting, of which the process mode is preferable whenever problems are at all complex.

This unit looks both at sub-contracting particular HR services which could otherwise be provided internally, and at change consultancy, where the consultant brings an external perspective which could not be obtained in any other way. HR consultants are often called in initially for their specific expertise but many find that, even in this case, diagnosis is important, and there are often follow-on opportunities for broader organisational development. A masters degree should provide a good basis for expanding into this type of consultancy, and the ability to do so is likely to make a consultancy more financially viable.

I have chosen to start by looking at a key distinctive aspect of HR consultancy – that it is a service. Marketing a service is different from marketing something more tangible. To do it effectively you need to understand the distinctive characteristics of service provision and the impact that these have on how buyers approach a purchase.

This unit is an adapted extract from the Open University course The human resource professional (B855).

Original Copyright © 2006 The Open University. Now made available within the Creative Commons framework under the CC Attribution – Non-commercial licence (see http://creativecommons.org/licenses/by-nc-sa/2.0/uk/).

Learning outcomes

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

After studying this unit you should be able to:

appreciate the characteristics of consultancy when viewed as a service offered for sale;
as client, identify suitable contexts for using consultants;
as client, identify, gather information on, and evaluate the suitability of competing consultants.

1 Characteristics of service provision

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

Choosing a service provider tends to be far more difficult than choosing a supplier of goods. While there may be tangible components in the service an HR consultant offers, what HR consultants provide is largely intangible. As a starting point the following activity asks you to consider the issues likely to be involved in the initial decision to use a consultant.

Activity 1

Imagine that you are considering using consultants for one of the reasons given in the introduction to this unit. What issues would you want to consider before deciding to go ahead? Draw on previous reading and your experience of working with or as a consultant.

Discussion

There are major issues of control and risk to be taken into consideration. Thus you may have raised questions similar to those which follow.

Issues to be addressed when deciding whether to employ consultants include:

How central to the organisation is the work in question?
What loss of control might be involved and what might be the significance of this?
What risks are associated with use of a consultant? Where would the power lie in the relationship?
What expertise does the consultant bring that you lack?
Would it be better to develop this expertise internally rather than seek it externally?
How can you be sure that the consultant has the claimed expertise and will actually deliver as promised?
What other advantages are there to using a consultant and are there alternative ways of achieving these?
What impact might use of a consultant have on others involved?
What impact might using a consultant have on your own reputation within the organisation?
What personal development might you gain from working with a consultant?
What is it likely to cost?
Might there be more cost-effective ways of achieving a similar outcome?

Choosing a HR consultant can be particularly problematic. This becomes clear when you consider consultancy in terms of the key characteristics of services in general and their implications for the purchaser, as shown in Table 1.

Table 1: Key characteristics of services

Characteristic	Implications
Intangibility	It is harder to assess the quality of the intangible aspects of a product than of the tangible ones.
Variability	Services tend to be more variable – the provider of the service might have an ‘off day’, or not be suited to that particular context.
Compatibility	Many services depend on the quality of the interaction between provider and client, which depends on both parties. You may hate a hairdresser's non-stop chatter; an elderly client may love it.
Untestability	It is often difficult to ‘try out’ a service – whether a ‘trial’ haircut, or a ‘trial’ change intervention.
Perishability	The service is consumed as it is produced – the shelf life of a shortlist for a CEO vacancy is only slightly longer than that of an airline seat.
Scope for misunderstanding	Intangibility means that it is much easier for there to be misunderstanding between provider and purchaser as to the exact nature of the service to be provided.
Difficulty of evaluation	It is often far harder to evaluate a service once it has been received than it is to evaluate tangible goods.

Rashid (1998) points out that in markets where entry barriers are low, quality has the greatest tendency to vary. This applies to the market for HR consultancy, and such variability compounds the impact of the characteristics above. The situation is further exacerbated by the degree of ‘churn’, particularly among smaller consultancies: the ease of entering the market contributes to this. Keeble et al. (1994) found that around half of the one- or two-person consultancies in business at the time of their study had not been in business five years previously. (None of the consultancies employing 100 or more people had gone out of business during this five-year period.)

The factors in Table 1 combine to create real problems for purchasers of any service, not least management consultancy. The risks attached to purchase of a service are inevitably higher – a service cannot be tested beforehand, nor returned if found faulty. Purchasers of services tend in general therefore to spend more time on information gathering than purchasers of physical products. And the information will never be complete. Past good experience with a provider is of great importance. Word-of-mouth recommendations tend to carry substantial weight, as do credentials: qualifications of some sort, and relevant experience, are seen as a ‘guarantee’ of service. (This point was stressed in an advertisement for the Institute of Management Consultancy, with its assertion that ‘To be a Certified Management Consultant is to carry the hallmark of a consultant who can do what they say they can do’.) ‘Physical evidence’ is given a disproportionate weight: thus good premises, quality of brochures or letters, and of handouts at presentation can be highly influential. If a service has to be taken on trust, it is important to reinforce, by whatever means possible, the impression of provider reliability and competence.

If you are seeking HR consultancy, choice of service provider is both difficult and critical. While a good consultant, and one who is suitable for your context, can be hugely successful, the cost of a poor choice may substantial. A failed change intervention is not only more expensive than a bad haircut but seriously more disastrous. Clients seeking HR consultancy often face real and urgent problems to which they are expecting consultants to provide a solution. When major change exercises are being planned, any changes made in the light of consultant recommendations are likely to be extensive, expensive and irreversible. For this reason, evaluation of provision is important throughout the consultancy, to allow for adjustments where necessary during the process, to ensure that the consultant has delivered what was promised, to identify what else needs to be done and, most importantly, to inform future involvement with consultants.

In change consultancy, where the consultant is working as collaborator rather than contractor, the key question will be ‘What has the client – and the organisation – learned from the collaboration?’ As with much of HR activity, assessing benefits is notoriously difficult. Long timescales, the difficulty of finding objective measures, and the impact of other changes contribute to this difficulty. Client learning, although of central importance, is perhaps the hardest to quantify. Nevertheless, while it is important to evaluate the more obvious outcomes of a consultancy intervention, it is essential not to let this get in the way of paying substantial attention to answering the question ‘What have I, the client, learned from this exercise?’.

Activity 2

Consider a recent choice of consultants with which you have been involved. List the information used in making that choice and assess its reliability. Given the size of the investment, both in consultant fees and in making subsequent changes, how adequate do you feel the information was?

Discussion

It would not be surprising if you felt that the information had been inadequate, as it is extremely difficult to identify and obtain relevant information. When dissatisfaction with consultants arises, possible reasons are that the choice was based on inadequate information, or there was misunderstanding as indicated in Table 1, or that the pool from which the choice was made did not include any really suitable consultants.

Clark (1995) suggests the following difficulties in choosing a consultant:

determining the precise nature of the consultant's services in advance – what exactly is being offered
comparing this service to the services offered by other providers (and identifying these in the first place)
knowing what to pay
evaluating the service afterwards.

I would add a further, or rather, prior point:

knowing the nature of the service that you wish to purchase.

Clearly, it is no use knowing what services are on offer if you cannot match them against those you need, even assuming that you can determine what these are. (Indeed, it might be that when you investigate the nature of this service more fully, it becomes apparent that it could be better provided internally.)

But remember how difficult it is to know what a problem is before a proper diagnosis had been conducted. Herein lies one of the major difficulties. Many issues in HR are highly interconnected. An apparent ‘symptom’ in one area may result from a deeper problem in quite another. For example, a need to recruit staff urgently may indeed be an immediate recruitment issue, but if it results from lower pay than is reasonable, poor supervision or inadequate job design, the ‘solution’ will be temporary as the new staff themselves will shortly need to be replaced. Thus a consultant chosen because their offering matches your initial, possibly premature, diagnosis may deliver what you ask, perhaps very well, but fail to solve your longer-term problem. If even ‘simple’ requirements such as the need to replace staff are potentially problematic, the more ‘messy’ and amorphous problem situations which many change interventions are designed to improve are infinitely more so.

It is for this reason that the diagnosis part of a change intervention is often separated out as a separate assignment.

Activity 3

Offering diagnosis as an assignment to a consultancy might seem a useful way of testing their services. If their diagnosis is convincing, their conduct professional, and you enjoy working with them, does this address the ‘untestability’ aspect of a service in Table 1?

Discussion

Certainly, this might be a good way of testing a consultant for compatibility and professionalism, but there is one very real danger. Many consultancies offer a particular type of intervention as their main offering. This might be anything from a particular form of restructuring to a particular form of training. The danger is that their diagnosis will constitute a case for the consultants’ particular form of consultancy. While it is possible that this is a cynical marketing ploy it may simply be because that is the way they see the world and therefore the way their diagnostic tools are designed, or that their strengths lie more in the delivery of predetermined services than in diagnosis.

Diagnosis is clearly difficult to locate within a logical sequence of identifying, selecting and then contracting consultants, as it may be needed, to increasing depth, at each stage. This is why I have dealt with it first. You will find it recurs, however, in the discussion of stages which follows.

2 Identifying potential consultants

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

Once you have decided on the sort of consultancy needed, the first problem, mentioned by Clark (1995), is identifying potential consultants. I asked an associate with considerable experience in this how she went about identifying potential consultants. Her initial, and unhelpful, response was ‘you just know’. Tacit knowledge is clearly important here. Probing elicited the following:

Firstly my organisation was large and so has an extensive corporate memory. Each consultancy contract is evaluated at its completion and the performance of the consultants involved is recorded. When another project is considered there is already a list of known possible consultants. The solicitors maintained that list, and it is they who wrote the contracts.
In addition, there are Universities and other organisations who do consultancy work, and these are also known. The emergence of new potential consultants is monitored. In addition, consultants present their abilities in all sorts of situations, at international conferences or cosy seminars, or by sending books which they have just published or articles in the learned journals. They may offer hospitality, although that is often difficult for a public sector client to accept. Colleagues may have met useful contacts and pass on their details.
Consultancy work for Government is very transparent. Mistakes are visible and expensive disasters get onto the front pages of newspapers. I suspect that consultants’ mistakes in the private sector are often swept under the carpet.
(Senior civil servant)

Organisations are increasingly seeking to ‘rationalise’ provision of services, both in the interests of obtaining better ‘deals’ as major purchasers, and in the interests of ensuring consistency. Such rationalisation often includes keeping lists of ‘approved’ consultants from which choice must be made and standardising procurement procedures. You may well need to work closely with your organisation's procurement services. If so, it becomes critical to develop a good working relationship with them, and a clear mutual understanding of your requirements, and your respective roles in sourcing consultants.

Activity 4

List what you see as the potential advantages and disadvantages of such ‘approved lists’, from the perspective of both purchaser and provider.

Discussion

Advantages for the purchaser may include: vetted suppliers; economies of scale, leading to potentially better deals; speedier provision of services as there are fewer stages in the tendering process for suppliers to go through; control over maverick managers who may otherwise employ their own unsuitable preferred suppliers; greater control over quality; and increased bargaining power over costs.

Advantages for the provider may include: less time/cost spent in the tendering process; less time wasting as the purchaser more likely to buy from you; the ability to build up knowledge of the client; greater likelihood of being paid if a formal agreement exists; improved forecasting/knowledge of where future business will come from.

Disadvantages for the purchaser may include: working from a list which features only the ‘big’ players – major names who tend to have a range of fairly standardised packages that may not fit your particular needs, and which they are reluctant to tailor them to your specific needs; being faced with different consultants each time, even though you are using the same consultancy, which makes it difficult to build a relationship and reduces the consultant's opportunity to gain tacit knowledge of the organisation.

For a consultant the disadvantages will depend on whether they are on or off the list! Traditionally, there have been few barriers to entry to offering consultancy. A move towards approved lists' constitutes a major barrier, which means that new entrants will need to focus on organisations not operating such a list or on open invitations to tender.

If your organisation does not have such a list, and has not used consultants for this sort of project before (or would not wish to use particular customers again), what sources of information are available? Consultants have a range of ways of making their services known to potential clients. Most will network highly effectively through professional and other organisations. Many will publish ‘success stories’ in the professional press. The larger consultancies often encourage their consultants to produce books, which serve, among other things, to impress clients.

Activity 5

List ways in which reading consultants' success stories may give a biased picture.

Discussion

This question is not intended to suggest that failures are deliberately misrepresented as success, nor to detract from the success of many interventions. However, such successes might be only a tiny proportion of a particular consultant's interventions. Many may be less successful, but only the successes will be publicised. Furthermore, the perception of success may be that of the consultant and of the immediate client, whose own reputation in the organisation may depend on the success of the intervention. Both parties may therefore be more likely to perceive the positive outcomes than potential negative ones. The perceptions of different stakeholders may be less favourable. Finally, short-term benefits may have been succeeded by longer-term problems. I have interviewed many people working in organisations which have experienced ‘successful’ consultancy interventions, who would rate them very differently. It is important to treat evidence of any kind with caution, whether it relates to consultancy or other issues.

You may well have cited publications or networking as sources of information in your response to Activity 2. If so, you may or may not have seen bias as a hazard. However, you always need to think about the potential for bias when using information provided by a consultancy. Many potential clients seek recommendations from colleagues who have used consultants in the past, but you should bear in mind that past clients may have had different requirements from yours in terms both of the skills required of the consultant and their preferred ‘style’.

If the above methods of selecting a suitable consultant do not appeal, the Chartered Institute of Personnel and Development (CIPD) offers a consultancy service in all the main areas of HR, including change and organisational development (OD). It maintains a register of consultants – all CIPD members who meet certain criteria – on which it draws to deliver these services.

3 Seeking relevant information

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

Once you have a reasonably clear idea of what you are looking for and have identified potential consultants, you may need to find out more about them before you can choose. Ideally, you will gather information from as many sources as possible, and, as with any such information, evaluate its reliability and relevance to your particular context. The clearer you are about the nature of the intervention that you require, and the key features of the context in which this will occur, the better placed you will be to select an appropriate provider. I asked my previous informant what information she sought. She said:

My list of questions would include:

Can they do the task as described and do they add something extra beyond my own staff?
Can they listen as well as talk?
Can they write well?
Will they fit into the organisational culture? If not, can they be adapted or will I need to find a ‘bridge'?
Are their presentation skills good enough to be convincing in front of the most senior levels of civil servants and politicians, and can they adapt to presenting to a range of different levels?
Is the team (often it is a team) of the right mix, and is there other expert back-up if necessary?
Are they local enough that they can attend regular meetings, indeed can they be based at desks on my site? If not, have they good electronic links?

Consultants reply to an invitation to tender (ITT). Then there is a ‘beauty contest’. Trying new consultants is perceived as high risk – indeed my organisation now actively encourages use of consultants who have previously worked with us. The ITT is not necessarily a competition. In the past I have forced 2 or 3 consultancy proposals to be combined in order to gain the combined skills.
Within sensible limits, price is not very relevant. Quality and value for money is key. And all work has to be done on time. The Civil Service works to serious deadlines, at least in the policy-making areas. For example, if a Minister is committed to giving a speech then the text has to be ready beforehand.
(Senior civil servant, quoted previously)

Clark (1995) quotes four surveys of clients on reasons for choosing consultants. Prior experience of the consultancy and/or the consultants concerned and the reputation of the consultant and/or consultancy were top of the lists in all four cases. Given the difficulties in judging a service provider beforehand, this is not at all surprising. As suggested earlier, a diagnostic assignment which is felt to have gone well may be a powerful factor in determining who gets the subsequent contract.

There are two further factors on which you may require information: the models underpinning the consultancy activity and fees charged. These are important enough to be considered separately.

4 models and methodologies offered

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

One of the more visible parts of the service many consultants offer is the model or models on which they base their work. When consulting, activity always needs to be related to the local situation. The consultant will normally start by trying to understand the client perspective, but then seek to expand that perspective, using theory and experience from elsewhere.

So you will probably need information on the theoretical models used by any consultants you are considering. In addition to any model of the consultancy process, models may be used primarily as ‘ideals’ – models of a desired state towards which any intervention might hope to lead – or may form the basis for analytical tools, for questionnaires or for training. Some consultants will offer only one or two such models; others may profess to offer a range of models chosen to suit the situation.

Such models may look superb in publicity material and may impress the majority of ‘naïve’ purchasers. You should be able critically to assess both individual models used and the ‘package’ they comprise. Relevant questions include:

Is the model meaningful?
Does it make sense to you in the light of your own experience?
Is there relevant and adequate empirical evidence for the model/theory?
Does the proposed approach include an element of diagnosis?
Is the model or set of models likely to include all the key elements in the situation which are likely to need addressing?
Having started to discuss the situation with the consultant, have I already come to understand it better?

The significance of these questions should be fairly self-evident. If a model does not make sense to you or feels ‘wrong’, and questioning does not enable you to understand it, then it is unlikely to form a useful basis for working together. This applies both to the model of the consultancy process and to aspects of the organisation and its context.

The final question is important because all models are simplifications, highlighting only a few aspects in a situation. Even models which are familiar, relevant, based on solid research evidence and which have served you well in the past need to be assessed. Will this model constrain or enrich the planned initiative? If it excludes key elements in the situation, it may prevent these elements being addressed. Even if it includes the elements you consider important, remember the dangers of premature diagnosis. Does the proposed approach include a questioning of the initial diagnosis? Even if you are sure what the problem is, there are usually advantages in using a methodology which includes a thorough diagnostic and information-gathering stage.

The following case is a ‘horror story’, describing what was, even at the time, an extreme exercise in cynicism. I have included it because it shows the importance of choosing your consultant carefully, and demonstrates an extreme case of a model driving the outcome.

Box 1 Case: performance improvement

Craig (2005) has been a consultant for decades. His first consultancy job was with a consultancy he calls, for obvious reasons, ‘The Butchers’. Their product was cost savings by ‘improving management processes’ and ‘enhancing supervisor capability’ (p. 36) – an attractive offering. The reality was rather different. They offered an initial ‘free analysis’. This was a work study exercise carried out by extremely junior, unqualified and inexperienced ‘consultants’, who were instructed to find 30% over-staffing in each area of the organisation. It was made clear to these junior staff that their jobs depended on their findings showing this, even if it required falsification of their results. (The ‘model used by this consultancy was that a version of scientific management could reduce the labour needed in any organisation by 30%.)

Having shown the potential client just how much money they could save, ‘The Butchers’ were well placed to gain a highly lucrative contract to implement the necessary changes. Craig cites an assignment in a retail organisation, where first he timed a window dresser dressing a dummy, then calculated the time required to dress the number of dummies in all the windows in the 500 shops concerned. Calculations miraculously showed that this was 30% less than the time currently employed. Daily reports were completed on those employees who retained their jobs. If their efficiency failed to reach the desired level they were ‘coached’, and if this was ineffective they were fired.

Based on Craig (2005)

This combination of reducing headcount and exercising tight control over remaining staff was the standard method by which the consultants in the case above operated. Time and motion study and the implementation of tight controls by production targets, daily reports and extremely close supervision was all that their junior consultants knew how to do. The consultancy approach was simple and standard. First, they identified the number of surplus staff in each area (where possible they would replace staff by cheaper, part-time or temporary workers) and then they introduced very tight controls. If you hired this particular consultancy, this was what you got. Now if the problem was over-staffing because of loose control, this may well have been the appropriate action but, unless the client had correctly diagnosed this before contacting the consultants, this particular consultancy was unlikely to be helpful.

In general, if an in-depth diagnosis has already come up with a fairly clear idea of the problem, you can afford to use a well-defined model that makes sense to you, and offers a good framework for addressing that particular problem.

Conversely, if you know that a problem is fairly messy and you are not at all sure about the pattern of causal relationships, significant diagnostic investigation will be required. In this case you want to beware of any consultancy which bases its activities on only a few ‘tight’ models. An approach which looks at the broader context as well as at interactions between factors within the area of concern – that is, an approach incorporating systems thinking – is needed.

Models, and the methodologies derived from them, are one of the more visible parts of what a consultancy offers. Processes are another. A model may have been used as the basis for fairly systematised procedures by which the consultancy operates. It may drive particular methods of data generation, such as surveys, or particular ways of interacting with stakeholders, such as training days according to a fairly standard pattern. This allows obvious economies of scale for the consultancy. In exploring the ‘product’ you are being offered, you would need not only to consider the model itself, but also these derivatives, considering their compatibility with your particular context, and the extent to which you feel they are likely to contribute to, or constrain, the generation of a range of appropriate ways forward.

Activity 6

Review your last experiences of consultancy.

What models were used to underpin the work?
How explicit were they?
Did they form part of the ‘product’ described when the consultant was bidding for business?
How useful were they in that particular initiative?

In the light of this reflection, make notes on possible models that might underpin your own consultancy business, and any additional questions about models that you might ask when selecting consultants in future.

5 Making a choice

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

If you are interviewing a shortlist of potential providers, the clearer you are in your own mind about what you require, the more effective your selection is likely to be. Given the size of the investment you are likely to be considering and its potential impact on the organisation, this selection process may be at least as significant as the selection of a senior manager, and you should invest appropriate effort in making your choice. You will want to think carefully about the process you wish to use for the ‘beauty parade’, and about the information it would be useful to give candidate consultancies beforehand, to enable their presentations to address issues of importance to you and in a way that is likely to be informative. If you are selecting the consultant, but are not the prime client, then there are clear advantages to involving the client in the process from the earliest possible stage.

A fast-growing area of HR consultancy in recent years has been coaching. Let us consider what is involved in choosing a consultant to work as a coach/mentor for a chief executive. You would clearly need to ensure that both parties felt they could work productively together, and that the HR director or other selector was convinced that the coach had the credibility and experience to be successful in the role.

In such a case the selection process might involve the following stages:

Identify and specify the exact issue to be addressed with the CEO (e.g. this might include their management style)
Identify consultancy firms who have experience of working successfully with top managers
Ask these consultancies to indicate how they work in general terms, how they would approach the specific issue, and what they would charge
Draw up a shortlist of two or three possible coaches on the basis of this information
Interview the coaches on this shortlist and arranging for them to meet the CEO
The CEO selects their preferred coach
Give the chosen consultant a more in-depth briefing about the organisation and the issues, and arrange for them to have a much longer meeting with the CEO
Go back to an earlier stage if at any point the HR personnel involved, the CEO or the consultant have reservations about the possible success of the relationship and/or assignment
Once no reservations remain, draw up any necessary contractual arrangements, and arrange a first session.

This example makes clear that, as when selecting a new employee, you may need information on previous consultancy experience. Previous clients’ views about the consultants might often be useful, although in obtaining such views you would want to discuss similarities and differences between the two contexts, and strengths and weaknesses of the consultant as perceived by past clients. You would then need to filter this information through your knowledge of your own situation and your preferred ways of working. Consultants may be highly effective in some situations but unfitted to others.

The CIPD (2004), in its useful guide to Coaching and Buying Coaching Services, offers an example of a coaching profile form for use when selecting coaches. A link to this is provided from the CIPD website. You are strongly encouraged to look at it. With modifications, something similar might be used to select HR consultants more generally. In the CIPD version the right-hand column is blank, as it is designed to allow the client to detail the requirements specific to their circumstances. For convenience I have used the space for my own annotations (in italics).

Table 2: Example of a profile form for use when selecting consultants

Area	Desired requirements*
Previous coaching experience	Obviously this would need to be altered to fit the expertise (e.g. pay, training, OD/change agency).
Relevant business/industry experience	What would count as ‘relevant’ would depend upon the circumstances.
References
Membership of professional bodies
Qualifications/training
Relevant experience	The CIPD report suggests that an important point is also to check the consultant's understanding of the limits of their own expertise, although this is not featured as a separate area on the checklist.
Professional indemnity insurance
Supervision
Qualities/personal attributes
Tools/techniques/models	The CIPD suggests that coaches should have an extensive ‘kit bag’ of tools and techniques from a wide range of theoretical backgrounds, as suggested above for HR consultants in general.

Source: CIPD (2004, p. 53)

* My comments added in italics.

Further important influences on your decision, particularly if you are seeking a consultant to work on a change project, where process consultancy would be likely to be important, might include:

the extent to which you feel the consultant understands your problem and its context
whether they have the necessary experience and expertise to be able to address it effectively
whether their way of working is appropriate for your organisation
whether you personally feel comfortable about working with the consultant (although perhaps not too comfortable – an important role of a consultant may be to challenge your way of thinking)
whether the consultant has any concerns about taking on the assignment (assuming they are open about these).

It is possible to gain a lot of free information from consultants through a tendering process. Consultancies will invest considerable effort in their bids, and even the unsuccessful may leave you with several useful ideas. Clearly, it would be unethical to set up a process merely for this purpose. Rejected consultants rightly feel sour about being ‘exploited’ in this way if no contract is eventually awarded (even if there was originally a genuine intent to award a contract). However, if the invitation to tender is genuine, it is sensible to design the process in a way that generates the maximum information about how the consultant would approach the problem. Indeed, it might be worth considering paying selected consultants to do a more detailed bid than you could otherwise expect in order to maximise the learning from this stage.

6 Agreeing fees

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

At first sight, consultancy fees can appear astronomical, but they need to cover fairly substantial overheads. A critical reader commented:

When I worked as an associate director for an HR consultancy it was the practice to charge out consultants’ time for up to four times their salary. But in addition to earning fees, I spent time marketing, building client relationships, managing accounts, selling (sometimes to clients who only wanted to pick my brains – it is short-sighted to think that this comes for free, costs must be recouped somehow), personal development, developing more junior consultants, and administration. My fees also needed to cover a proportion of office accommodation, support staff, managerial staff, finance team, office services, product development time, profits etc. A proportion of overall profits were shared with staff but these were by no means enormous.
Very little of senior partners’ time may be spent with clients. Their emphasis is upon shaping and managing a business and building relationships/networking with other executives, consultants and, indirectly, clients. Most partners become partners because of their skill set and achievements.
(Critical reader)

While a minority of consultancies may engage in questionable accounting practices to justify exorbitant fees (e.g. as described by Craig, 2005), reputable ones will need to charge substantial fees for ‘invisible’ activities such as those described above, and to maintain the expertise for which the client is paying. (Nevertheless, it might be prudent, if you are working with a particular consultant for the first time, to clarify what ‘expenses’ you could expect to be charged in addition to any agreed fee.)

The fee structure is likely to depend to some extent on the nature of the consultancy offered. Clark (1995) found two common structures in management consultancy:

time-based fees according to consultant hours/days/weeks
fixed fees, agreed at the outset, either on a retainer base, or contingent on results

Clients may be invoiced regularly on a monthly or quarterly basis, or on completion of key stages. In the executive search consultancies that Clark researched it was common for payments to be made first at the start of the assignment, then on submission of an acceptable shortlist, with the final tranche of the payment depending on a candidate from this shortlist being employed. He observed that the total cost of the assignment was almost always between 30% and 33% of the appointee's guaranteed first-year renumeration package.

Contingent fees (such as this final tranche) shift a substantial part of the direct financial risk from client to consultant. This might be seen as an indication of the consultant's confidence in their ability to deliver as promised, but might equally reflect the client's preferred approach to managing their cash flow and their power to insist on it.

Fee structures and levels often have less influence on choice than might be expected, appearing fairly low in lists of client priorities (see the factors quoted in Section 3 as the main influences on client choice). Quality and value may justifiably be deemed more important than price. A consultancy may use pricing as a means of creating an impression of value, but it may be wrong to assume that ‘more expensive’ is always ‘more effective’. If you use a smaller consultancy you may find yourself working with far more experienced consultants than will be the case with a large one, where the only contact you might have with an experienced consultant is during initial negotiations. And you may pay less.

Although I have adopted a client perspective on fees here, it is important to note that as a consultant setting fees you will need to consider a range of disparate factors. First is the need to provide an adequate income. To work this out you need to consider the proportion of the year that will necessarily be devoted to non-fee-earning activities such as marketing and personal and product development, as well as an allowance for illness and holidays. You also need to make allowance for overheads, including premises, any employees, insurance and professional advice, and personal development. A second factor may be an assessment of your worth to the organisation. Third may be an assessment of what competitors would be charging. Although fees may not be a major influence on choice, if you are wildly out of line with comparable providers this might be a cause for concern.

7 Designing evaluation

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

So far in this unit we have considered information used in making a selection. What about information about consultants thereafter? Evaluating consultants’ work was highlighted as one of the difficulties in this area, yet such information is important. You may need to evaluate a small initiative (perhaps a limited diagnosis, feedback and initial planning contract) with a view to deciding whether to work more extensively with the consultant. You may need performance measures to contribute to performance management of the consultant while the project is ongoing. You may need to justify the expenditure to your superiors. You may be considering further use of the consultants or you may be asked for your opinion by colleagues considering their services. And you may wish to learn from the experience, with a view to making more effective use of consultants in future. Even in fairly straightforward interventions, measurement can be difficult and interpreting measures even more so.

For this reason it is important to think about the information needed to evaluate a proposed consultancy, and the processes for obtaining this information, from the very first stages. In addition to clarifying the purposes of evaluation, you need to consider the nature of the information sought. Often a ‘measure’ is merely an indicator: it may be possible for the person measured to influence the indicator directly without changing the substance of what it purports to measure. (This is the equivalent of winding back the odometer on a car, and you will be familiar with many such ways of influencing alleged measures from your experience of performance appraisal.) When establishing ‘measures of effectiveness’, you need to be alert to this possibility.

Activity 7

Imagine that you have hired a consultancy firm to improve your graduate recruitment. They convinced you that the best way forward was for them to design and run a new assessment centre to select graduate recruits. How might you measure the success of such consultants, and what questions might such measures leave unanswered?

Discussion

You may have identified a number of potential measures, for example:

the extent to which agreed price and timescale targets were met – easy to measure
the cost of the process compared with the previous methods
acceptance rates for those offered jobs compared with previous experience
retention rates for those selected by the new method, in the short and longer term
the percentage of recruits selected as potential high fliers at the end of probation
candidate satisfaction with the process (for successful and unsuccessful candidates)
candidate assessment of the organisation
the identification of development needs in successful candidates.

In the scenario described, a total disaster would become apparent before too long. If you had measures for the previous system you might be able to detect less dramatic strengths and weaknesses over a suitable period. What is much harder is to know whether another solution would have been better. Might another consultancy have recommended training internal staff to run the assessment centre? While the initial investment might have been higher, the overall costs might have been lower, and there might have been other benefits. Hidden potential disadvantages of this approach may have included that the better graduates rapidly become aware if off-the-shelf exercises are being used, as they encounter the same ones time after time, and become ‘sophisticated testees’. Furthermore, the organisation loses the opportunity to ‘sell itself from the outset to strong candidates, and managers miss the chance to start to build a relationship with their new staff at the very first stage – I have inherited many staff selected for me by others, and have never had the same relationship with them that I have with those I was instrumental in choosing. Relative success is far harder to evaluate than outright failure! It is virtually impossible to say whether a consultancy was superb or merely competent.

You can begin to see from the above discussion why evaluation is so problematic. Designing graduate recruitment is simple relative to some of the change interventions with which HR consultants may be involved, yet even here evaluation presents significant problems. In any initiative which takes months, as many do, while it is possible to compare ‘before’ and ‘after’, many other factors may be influencing the measures. Key personnel may have changed, the external environment may have changed, and either or both may be affecting any of your chosen measures. And even if you can be relatively sure that the intervention is the major influence, you will never know whether a different intervention, or one managed differently by another consultancy, might not have been more effective.

Despite the difficulties, it is important to attempt to evaluate any initiative, not only for the reasons outlined above, but to maximise the learning (for both client and consultant) from the experience. Such evaluation is helped by discussing evaluation from the outset, and in particular by:

clarity about what the consultancy is initially intended to achieve, and within what constraints (essential in any case)
clarity about the measures of effectiveness to be used
careful logging of any changes to these initial objectives, with a discussion of the reasons for these changes
notes on what went well and what went less than well in the project, together with an assessment of the contribution of client and consultant in each case
notes, at the time, on any lessons learnt
an overall ‘open and honest’ assessment of the assignment with the consultant once it is complete.

If your organisation makes extensive use of consultants, and does not already have a system for sharing evaluation information, you may wish to investigate whether such a system should be devised. However, it is important to ensure that evaluation does not work against the collaboration that is necessary in many forms of HR consultancy. For this reason the evaluation needs to be clearly designed to aid learning by both parties. For collaborative working, ‘evaluating the relationship’ will be a key part of this learning.

Activity 8

If you are involved in hiring consultants, review your experience to date and, in the light of the factors described in this unit, consider how the quality of future hiring decisions might be improved. If you work as a consultant, then use the same material as the basis for considering how you might increase your chances of being hired by a potential client. Draw up an action plan for taking the necessary steps to bring about relevant improvements.

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The Open University — Tue, 12 Jul 2011 15:21:03 GMT

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References

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

Chartered Institute of Personnel and Development, (2004) Coaching and Buying Coaching Services, [online], London, CIPD. Available from CIPD.

Clark, T. (1995) Managing Consultants: Consultancy as the Management of Impressions, Milton Keynes, Open University Press.

Craig, D. (2005) Rip-Off, London, Original Book Company.

Keeble, D., Bryson, J.and’ Wood, P. (1994) Pathfinders of Enterprise: the Creation, Growth and Dynamics of Small Management Consultancies in Britain, Small Business Research Trust Business Services Research Monograph no. 3, School of Management, Milton Keynes, The Open University.

Rashid, S. (1998) Quality in contestable markets: a historical problem’, Quarterly Journal of Economics, vol. 103, 245–50.

Acknowledgements

The Open University — Tue, 12 Jul 2011 15:21:03 GMT

Except for third party materials and otherwise stated (see terms and conditions), this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence

Grateful acknowledgement is made to the following sources for permission to reproduce material in this unit:

Tables

Table 2 Institute of Personnel and Development (2004) Reorganising for Success: a Survey of HR’s Role in Change, CIPD.

Unit Image

Adapted from Tidewater Muse: www.flickr.com/photos/tidewatermuse/116833322/ [Details correct as of 23rd April 2008]

All other materials included in this unit are derived from content originated at the Open University.

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