Insights In Hindsight - Edition 19

Break the Hourglass: Challenging the Consulting Paradigm

The consulting industry is built on a foundation of billable hours. This traditional concept is a relic of the industrial era, where employers paid workers by the hour and daily, primarily due to the then economic circumstances. Despite some key differences, such as bi-weekly or monthly payments, the fundamental concept of hourly billing in the consulting space has remained largely unchanged for over a century. The profitability of consulting firms and pricing for clients is still predominantly determined by the hours billed. This model, effective in its time, is no longer aligned with the dynamic needs of today’s businesses. Clients pay a premium for expertise and for the impact that it could have on improving business performance, but the focus is often on time spent, not value delivered.

In my experience, this creates a misalignment of incentives and fails to capture the true essence of what consulting should be: a strategic partnership driving measurable results.

It’s a Flawed Hourglass: The Inequities of Traditional Pricing

Imagine this scenario; you hire a consulting firm to help your business grow revenues or improve profitability. They spend weeks analyzing data, crafting reports, and presenting recommendations. In the end, you have a well-researched plan, but your sales figures remain flat or worse your profits dip. While the blame should not be laid at the door of the consulting firm and the onus of running the business is still on the company, under the traditional model (which is currently the case), the consultant still gets paid – after all, they put in the hours particularly when they have been brought in to help improve business performance. But you, the client, are left frustrated, having paid a premium for little tangible benefit. As I see it, there are at least two major problems here:

• Profit Overrun: Consulting firms benefit from any deviation that requires additional hours, creating an imbalance where clients end up paying more, regardless of the outcome. It is often a “heads I win, tails you lose” situation.
• Inefficiency Costs: Delays in project completion can often be due to the consultant's inefficiency rather than the complexity of the work. Clients frequently end up paying for these inefficiencies, which is neither fair nor sustainable.

On the flip side, there is limited upside for consulting firms who exceed expectations and serve as true partners in generating optimum outcomes. Overall, the current system incentivizes activity over outcomes.

Why Not Break the Hourglass? Moving Beyond Billable Hours

The DNA at Practus is to view ourselves as partners in our clients' success. Our goal is to develop solutions that commit results and more importantly to deliver concrete results. This necessitates a shift in focus from billable hours to value delivered.

Here are the key elements of this new paradigm:

• Outcome-Based Engagement: Consultants should link their fees to the results achieved for clients. Did we help improve business outcomes? Then we share in that success. This aligns our interests and ensures we are both laser-focused on moving the needle.
• Investing in People: Our people are our greatest asset and the backbone of the firm. By continuously upskilling and mentoring our teams, we equip them to deliver exceptional value to our clients. An engaged, well-trained workforce translates to higher client satisfaction and stronger financial performance for the firm.
• The Power of Intellectual Property (IP): We are constantly developing proprietary tools and methodologies that unlock greater value for our clients. As unique solutions, our IPs streamline processes, generate data-driven insights, and ultimately, help businesses achieve their objectives faster and more efficiently.
• Value and Impact-Driven Partnering: The traditional model treats consultants as simply a pool of billable hours. We believe consultancies must move beyond this approach. By leveraging our intellectual property, we can offer a more strategic and impactful service to our clients.

These shifts can foster stronger, long-term relationships, where clients will start seeing consultants not just as service providers but as invested partners who contribute directly towards higher revenue, improved cash flows, and increased profitability for their organizations.

Leveraging Innovation: Intellectual Property (IP) Development in Consulting

Traditionally, consulting firms view themselves as manpower; with profitability derived from the difference between pay rate and billing rate. However, one area that we tend to undermine is the value of our intellectual property – all the proprietary tools and methodologies that we develop in the process of delivering to our clients. A 2021 McKinsey study found that in 1975, 90% of the value of S&P 500 companies stemmed from tangible assets like land, buildings, and machinery. Almost half a century later, that figure is less than 10%. Intangible assets – intellectual property, brand reputation, and human capital – are now the primary drivers of value creation. This includes manufacturing companies, where there is a noticeable shift in focus from physical assets to innovation and knowledge work. In my view, consulting firms must also invest in IPs that unlock value for clients. Continuously developing and enhancing repeatable IPs not only improves client outcomes but also boosts the efficiency of the firm’s workforce.

An Era of Collaborative Value Creation

Regardless of size or origin, every consulting firm has the choice to break the hourglass and step into an era of collaborative value creation. For smaller players, I say, there is no shame in learning from the established players. Indian-origin consulting firms, in particular, have a significant opportunity to disrupt the market by embracing this paradigm shift. It is time to stop obsessing over what we lack and instead, focus on looking at what can be done to significantly create value for clients and for the firm. By empowering our people with these tools and fostering a client-centric approach that weighs outcomes over activities, Indian firms have the potential to become formidable competitors in the global consulting landscape. The future of consulting belongs to those who prioritize results over activity, and consider themselves as true partners to their clients’ progress.

#futureofconsulting #impactdrivenpartnering #outcomebasedpricing #valuecreation

Snippets of Articles That May Interest You        

From Discovery to Delivery: Navigating the Impact of Labor Shortages in the U.S. Life Sciences Sector

In the relentless pursuit of unraveling the intricacies of biology, medicine, and human health, the U.S. life sciences sector faces an unprecedented labor shortage crisis. Discover the impending crisis and explore potential solutions that can fortify the sector, enabling it to not only meet today's demands but also drive the breakthroughs of tomorrow — a journey from "discovery" to "delivery." Read on

#LifeSciences #TalentGap #LaborShortages #Innovation #Healthcare #Upskilling #UnitedStates #USA #LaborShortageInUSA Practus

The Nexus of Technology, Human Interaction, and Sustainability - An Evolving Digital Ecosystem for a Better Tomorrow

From impact assessments and predictive maintenance to sustainable practices and investments, AI and technology play a critical role in enhancing corporate sustainability goals. They also present tremendous potential to redesign the support and field services landscape, augmenting human capabilities and driving efficiencies through the convergence of automation and human interaction. Read on

#gennerativeAI #humaninteraction #technology #sustainabilitygoals Practus

Updates from Practus        

In an in-depth interview with CEO REVIEW MAGAZINE, I discussed Practus' storied journey from 2007 to 2024, and the vision for 2030: to be a $1 billion company that leads the way for Indian consulting firms to think and act global.

You can read the full interview here: https://lnkd.in/dRT5YUYd

#entrepreneurship #BusinessConsultancy #FinancialTransformation #DigitalTransformation #CEO Practus

A couple of weeks back, I got an opportunity to share my thoughts on "Fostering an Enabling Business Environment: Indian Businesses' Expectations from the New Government" with ETCFO. In my article, I have highlighted key business requests to improve the economic climate. From a stable tax structure and streamlined GST rates to simplified filing and reduced legal disputes, I discussed a number of measures to encourage greater #innovation amongst #startups.

You can read the full article here: https://lnkd.in/gQfrjewz

That's all for this month. See you all next month!