How is your industry meant to work?
Consulting firms provide a range of services to their clients as a trusted advisor. Delivered through a series of engagements (also known as projects or cases) the overall impact of these is a holistic improvement in the position of the client. Think enhanced performance, lower risk, better compliance. This means there is someone at the firm looking at all the engagements and making sure that they all fit together and the client is getting the best services, from the right people to deliver the best outcome.
To deliver these engagements the consulting firm hires an army of people at all levels of experience, and with different capabilities. This team is built in such a way that the client engagements can be delivered to a high standard, while the consulting firm makes money and their people learn and develop to become better and more valuable professionals.
How does your industry actually work?
What actually ends up happening is that consulting firms work engagement-by-engagement with little consistency between engagements. When one person rolls off an engagement they are done and onto the next one. Clients might get the outcome they intended within the engagement but there is little motivation to make sure overall value is created.
The incentives explain why this is: each partner in a professional services firm is given a yearly revenue target. For example, $2.5 million. If they hit their $2.5 million target they get their total compensation of $2 million and maybe a little extra next year too. So each individual partner wants to hit their target and is motivated to do so, not necessarily work with other partners or make sure the outcome to the client is the best one.
So everything is actually driven by:
Firm Revenue = Number of Partners x Average Partner Revenue Target
This means that consulting firms focus on having as many partners as possible that can sustain the revenue target, and partners focus their time on hitting their revenue target. Everything else including team building, training and development happens downstream of this and is heavily influenced by this dynamic.
What’s the most surprising thing people don’t know about your industry?
How little consulting professionals, on average, care about the outcome for their client. Of course, there are exceptions. Most if not all, start their careers deeply caring about their client and the impact they could have. Nearly all end up reverting to the mean. That said, everyone will say until they are blue in the face that they care about their clients, they’ll never admit it. Talk of caring and impact is just that, talk.
To be fair and add a little balance, in my experience the incentives, motivations and level of care on the client side are all shared by the consultants' counterparts. So we shouldn’t be too hard on them, I’m just trying to trace out the incentives and dynamics so your readers can navigate them.
What do you know that few others know about your industry?
Most consulting firms are organized into clusters focused on different service offerings and industries. Within each cluster, or practice, everyone thinks and acts like it’s really important and vital to the future of the overall firm. However when you abstract up to the level of the executives and management overseeing the firm as a whole, it’s shocking how little they care or value each individual cluster. If these firms are organized right, no cluster is ever big enough to impact the whole in any significant way. So if your team went away, they wouldn’t care or lose any sleep about it.
What’s the last thing you would want outsiders to know about your industry?
Just how profitable the industry as a whole is, and particularly how much margin is baked into the pricing on some engagements. The top-tier consulting firms and some boutiques have gross margins north of 60% and the equivalent of net profit margins hitting 40%. These are software like margins, some of the best in any industry. If clients knew this well I would think they would push back harder on pricing. But the economics appear to be quite stable.
What would shock most people about your industry if they knew about it?
How inefficient the teams on engagements can be. There is so much friction, wastage and slippage on just about every engagement. Added up over all the tens of thousands of engagements that happen every year, there is so much room for improvement.
What’s the dirty little secret in your industry?
The inside joke is that it’s funny how the client almost never has the team listed in the proposal on the actual engagement. If there are 10 people listed as experts and experienced professionals on the pitch, less than five will ever work on it if it’s won.
The other dirty little secret is the use of juniors on engagements, and how the juniors know very little about the industry or domain area. Most of the time they are literally making it up as they go using Google searches and flying by the seat of their pants. They are smart people and will figure it out, in a way that’s what the client is paying for. The best way to learn this is to talk to people who are previous graduates but when they are 10-years into their careers, they’ll tell you the truth then.
What tips would you have for people so that they get the best outcome when dealing with your industry?
Never accept the pricing in the first proposal, and never engage a consultant without first speaking to at least 3-5 other qualified consultants. Then, ask for a discount. There’s always room baked into the pricing. The other argument here is to pay full price, but let them know that you’re accepting full price in return for commitment to the project, or staffing the A-team (or something else you want that will be valuable to you).
There is an added benefit in speaking to 3-5 other qualified consultants first too. They’ll give you great ideas on how the project should be structured and ways to create value in their proposals and sales work. It’s a cost of sale to them and you may as well accept the free thinking. Use this sparingly though, I don’t recommend that you make it a habit.
What do you wish your stakeholders would do to make your life easier?
Be clear on scope. Create a brief for the consultants before you start so that your thinking is clear, and if it’s not clear yet and that’s why you’re bringing in consultants, then at least they know you have fleshed it out as much as possible.
What corners are people who work in your industry most likely to cut?
Most people deliver to the scope only, and nothing more. Sometimes it’s not even that, they’ll deliver what they think they can get away with. It’s the clients job to be on top of this. Another way this happens is by using the space between the slides to hide logic jumps, sloppy thinking or missing assumptions. If you’re the client, always ask for all the work and workings so you know where the skeletons are.
What information do you often keep from your stakeholders?
That the client is often the problem, second only to the partner being the problem. It’s often the case that the client or the partner gets in the way of good work or any work at all, but no-one will ever tell them that.
Is this a good industry to work in?
Yes, you learn a lot and the pay is good. At the start of your career you are getting paid to learn and at the end it can be a quite rewarding way to make a living.
What would the haters say about this industry?
That we don’t add any real value, or the value is short lived.
But the industry does add value, just not in the way you probably think or that consultants will tell you it does. It’s like a portfolio, some engagements will be winners and some will be losers. It's far too much to ask for them all to be a success. Plus, this work needs to be done. There’s a reason clients are engaging someone to complete the work. And consultants do get it done. Overall the economy is much better off to have a thriving ecosystem of consultants in it.
The industry could just add more value if we changed the incentives.
What is the outlook for your industry?
Good. People will always need extra capacity or capability they don’t have internally.
On the other hand, they say consulting is a fair weather industry and that hasn’t been tested properly at a large scale for a long time. So overall, the outlook is good. There just might be some more peaks and troughs in the coming years than we have seen in the last decade.
Do you have any advice for people who want to work in this industry?
Interview preparation is everything. There are two areas I’d highlight:
- The case interview: You don’t really want to work at a consulting firm that doesn’t give case studies to interviewees. It’s a right of passage and an important sign that they value the consulting skill set and profession. That said, there is a 99.9% chance you’ll be given a case study and the only way to ace it is to study the mechanics of case studies, and practice. Then practice some more. Ask your friends, family, even your hairdresser to ask you practice questions. Take them seriously. Make up your own questions and answer them, anything to get more practice.
- Your cultural fit: Many consulting firms stress the importance of culture. It’s easy to see why, you spend a lot of time together and you all need to be on the same page with the client. So it’s important that you present yourself as a good fit. Pro tip here: if you know someone who already works in the practice or at the firm, ask them for some inside information on your interviewers. What cause is close to them? What’s their pet project? How do they operate? Then tailor your approach to fit with their world view.
Otherwise, enjoy the ride and make sure you learn as much as you can.
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