There are two schools of thought out there when it comes to catching up with crushing workload and/or crushing customer demand (which may only be seasonal).
ONE: Consultants are parasites that charge ridiculous rates, waste precious time, and present obvious conclusions so you should hire the minimum number of FTs you need to “get by” with everyone working crazy over time until things settle down.
TWO: FTs are expensive. They demand benefits. They take fixed overhead. And, if they don’t work out as well as you’d hoped or demand drops, in many locales, you can’t just fire them, or even if you can, you have to give them severance and long-term health-care or other benefits or you can be sued or fined. So just hire third parties. Sometimes consultants, but usually service organizations (who likely employ contingent workers, but not highly skilled consultants).
Both of these schools of thoughts are wrong. Why? In the latter case, for the right job descriptions, FTs are the best resource to have as they build organizational knowledge and get more efficient over time. (But not all jobs fall into the right categories.) In the first case, while consulting does draw some of the sleaziest individuals out there, it draws less than highly demanding sales jobs or executive jobs (that statistically often have more psychopaths than law firms and media organizations). The majority of consultants want to deliver ROI. The only question is how far out of their “comfort zone” can the consultant deliver the ROI you want. (But that’s the beauty of using consultants, you can find specialists for each problem you need solved and guarantee an ROI – more on that below).
As you know, the doctor won’t pay two bits for traditional rhetoric and likes arguments that are backed up with facts and numbers. So he’s going to remind you of the nice little calculations that he presented a decade ago about why you should hire consultants to not only help you with your problems today, but help you design better processes to be more efficient, profitable, and less reliant on contingent help or consulting for repetitive tasks on a regular basis tomorrow.
First of all, we need to cost a top performer.
- A top performer demands a high salary.
Usually 200K to 300K for a high-performer. Let’s say $250K.
- A top performer demands pricey benefits.
Health insurance (10K+), life & disability insurance (5K), 401K matching (10K), and a performance bonus of at least 10% to 20% (25K to 50K) in a good year. This will cost you another 50K to 100K. Let’s be very conservative and say 50K .
- A top performer comes with overhead.
First off, there’s all the standard overhead of maintaining the nice office, the telecommunications equipment, and the IT equipment. There’s also a share of an administrative assistant’s salary, a transportation budget, and a reasonable expense account. This could easily eat up 25K to 50K (or more). Let’s be moderate and say 30K.
- A top performer needs a decent vacation to recharge.
Depending on how long this performer has been with the company, we’re probably talking 4 to 6 weeks. This is a hidden cost, as it means you’re only getting 46 to 48 weeks of work, at most.
- A top performer needs to keep his skills up to date, and this will require good training.
You should allow at least two weeks for any employee. For a top performer, I’d highly recommend three or four weeks of training and education related activities. Let’s be conservative and say this person is an extremely fast learner and you can get away with two weeks. Now your top performer is only working 44 to 46 weeks, at most.
- Training costs money.
Whether it’s courses, workshops, conferences, or self-study guides, expect to shell out for this. A couple of conferences and a couple of courses could easily run you 15K to 25K to keep your top performer at above average performance levels. We’ll be realistic and say 20K.
- There will be other costs that arise with respect to raises, promotions, recognition, and performance.
However, since you can always make them next year’s budget problem, we’ll ignore them for simplicity.
This says that your 250K top performer, that you believe is only costing you approximately 1K a day is actually costing you over 1.6K a day in a conservative estimation, and possibly over 2.1K in reality. (350K to 450K+ over 220 days, vs 250K over 260 days)
This is pretty damn expensive. And while it’s still less than a top consultant, who will charge you 4K to 40K a day (depending upon how much market intelligence she brings with her and how much of that valuable IP she is going to perpetually license or give you), we cannot forget the following:
- Your top-performer will have most of his or her time consumed with the tactical day-to-day operation of the business.
- If your top-performer is struggling to complete two weeks a year of training or education related activities, he or she is not going to be up to date on new ideas, technologies, and movements within the marketplace.
- If you’re starting to run into stiff competition or problems within your business, you can be too close to the problem to make good, objective decisions.
- Even a top-performer can only be an expert on a handful of technologies, processes, or business functions. At least collectively, outsiders will always know more about the best way to run your business with today’s technology in today’s market than you do.
- It’s an innovate-or-die marketplace out there today. And if we’re in a recession, that’s doubly true.
- A consultant can focus purely on the strategic, and purely on the problems you need help with.
- A consultant will spend a considerable portion of his or her time keeping up to date on new processes, technologies, and advancements. Their knowledge is there to be used.
- A consultant can be much more objective. Furthermore, a consultant probably has a better comprehension of the state of the market you compete in than you do.
- Even though, like any top performer, a consultant can only be an expert on a handful of technologies, processes, or business functions, you are free to pick the consultant with the skills you need to advance your business.
- When a consultant puts in a day, a consultant puts in a day. Usually 10 to 12 hours, compared to the 9-5 with a 2 hour lunch an employee will often try to get away with when he or she can. Plus, a good consultant can’t stop thinking about your problem until she goes to sleep at night, and usually starts thinking about it the minute she wakes up.
- Consultants live by the innovate-or-die mantra.
and, most importantly,
- When the project is over, you can cut the consultant loose without any additional cost. In contrast, it could easily cost you six figures to cut a top-performer loose. Furthermore, if you’re smart and do a short initial engagement with a new consultant before agreeing to a long term engagement, the loss associated with hiring the wrong consultant is next-to-nothing. In comparison, the loss associated with hiring the wrong person for a director or vice president job will be hundreds of thousands by the time you add up the losses with dismissing the current employee, finding a replacement, and getting that replacement up to speed.
So, given that a consultant can bring you the badly needed 1) expertise, 2) objectivity, 3) credibility, 4) leadership, and 5) time that you need to be successful, don’t balk at standard consulting day rates. It’s a bargain compared to the value they can bring, especially when you remember that it’s not tactical day-to-day operations that bring you substantial cost savings and new markets, but strategic improvements that consultants can bring with them.
Let’s say with your current Sourcing / Source-to-Contract / Source-to-Pay platforms, your top buyer can only do 7 major sourcing events (10M + a year) a year which garner an average negotiated savings of 6% (and the total spend under her purview is 100M), which typically result in an average realized savings of 4%. That’s not a bad ROI in this particular situation, given that your organization just saved 4M on a fully burdened superstar that cost you 400K, a 10 to 1 ROI. In fact, you’re probably saying to yourself — how could a consultant beat that.
Let’s say you brought in a powerhouse consultant for a 6 week process evaluation, strategic realignment, and platform redesign project who, for a modest fee of 300K helped you design new processes and select new systems that, when fully implemented a year later, allowed this same senior buyer to handle 15 major sourcing events a year representing 180M worth of spend (not unreasonable at all — some modern platforms and processes take events that used to take 3 months of buyer effort a year ago down to 3 weeks) and identify an average negotiated savings of 8% (and then realize 6%). In other words, 300K of consultant time allowed your top buyer to go from saving you 4M a year to 10.8M a year. Even if you gave the buyer a 20% bonus, 300K more than doubled your ROI from that buyer even after subtracting the 300K for the consultant (as the ROI went from 10 to 1 to 21 to 1). That’s FRAKING cheap! So next time a top consultant proposes to help you, ignore the top line. It’s only the bottom line that counts.