May 1, 2014

The Consultant Dilemma

It might pay to hire an outside expert—unless you can do it yourself.  

A few years ago, Klein Steel Service Inc. needed to train its staff on lean production methodology, but internal resources were limited and the training would involve 25% of Klein’s team members. It was time to bring in the experts.

“As a mid-market company with finite resources, we choose to source the expertise we need when we need it, rather than owning it in-house,” says Todd Zyra, president of the Rochester, N.Y.-based company. So Klein hired the Rochester Institute of Technology’s Center for Integrated Manufacturing Studies, which trained Klein’s team on-site. “Through the improvements gained by our team members’ hard work and the expert advice, we have greatly improved efficiencies and customer service,” Zyra says.

The company uses consultants 10 to 12 times a year for projects that require specialized knowledge or an independent third-party eye. Klein has also found consultants useful for coaching senior leaders and high-potential talent, and training in specialized areas such as NQA-1 and geometric dimensioning and tolerancing.

Other companies, however, are not as sold on this kind of outsourcing. “We don’t really use consultants,” says Frank McKnight, president of McKnight Steel & Tube Company in Ivyland, Pa. “This isn’t to say that they aren’t important. However, I think they come more into play with scale. As you get larger, you may want to bring a consultant in to look at specific areas of your business. Otherwise, you may end up with a consulting group coming in and wanting to evaluate your whole business, being there longer and at more cost than you might have anticipated.”

McKnight tried it once. “We arranged for a consulting group to come in eight or nine years ago to evaluate our business, because it was offering a very attractive ‘teaser rate,’” he says. “They sent a consultant in for a week, and he evaluated various areas, including IT, sales and marketing, warehouse and logistics processes, and finance.” At the end of that week, McKnight and the consultant met for a couple of hours for the final evaluation. “During our conversation, he admitted that about 75% of the evaluation could have been accomplished internally by our own people, by identifying some team leaders, setting up some processes, and making sure these processes remained in place until they became second nature,” McKnight says.

So—should you do it yourself? Or get some help? Here are some things to think about when weighing the consultant question.

First, the Pitfalls

Working with consultants can pose a number of challenges, not the least of which is misunderstood expectations. “Probably what I hear most from disappointed executives is that they are not able to implement the recommendations made by consultants,” says Rita McGrath, an associate professor at Columbia Business School and author of The End of Competitive Advantage.

Thomas L. Tanel, president and CEO of CATTAN Services Group Inc. in College Station, Texas, which specializes in logistics and supply chain consulting, identified other potential land mines. One is scope creep, where a consultant is called in to do one thing, but over time the project expands and he or she has to take on a lot of additional tasks.

Another is dealing with the potential fallout of consultants who are “in bed” with vendors. “You need to be careful of consultants who receive ‘finder’s fees’ from certain manufacturers, making it a practice to recommend certain software, hardware or other equipment,” Tanel says.

Some companies don’t use outside experts because of their culture or a specific approach to strategic planning. Before becoming a consultant specializing in cost management projects, Bob Herbold, managing director of The Herbold Group LLC in Bellevue, Wash., spent 26 years at Procter & Gamble and almost 10 years at Microsoft. “Both of these companies viewed consultants as a waste of money and time,” he says. Both organizations have a commitment to growing their own talent, so embracing challenging projects by themselves is part of that strategy.

The Potential Payoff

Nevertheless, a well-focused consultant can help companies understand the kinds of data they need to collect and the innovative ways they should analyze it. “If you don’t have the expertise inside, you can often get things done quickly and cost-effectively by hiring a consultant,” Tanel says.

“Good consultants are able to share best practices, and they have the ability to leverage outside information,” Tanel continues. “Often, people in an organization tend to be focused on solving problems. They don’t have the time to do anything but take the short-term view.”

But They Do Need Managing

There are several steps you can take to increase the chances of a successful engagement.

  • Don’t hire a consultant until you have determined what exactly you want to accomplish. “When we worked with one company, our role was to help clean up a mess that had resulted from the company working with a previous consultant,” Herbold says. “The problem was that, when working with the previous consultant, the company hadn’t decided which direction it wanted to go. It invited the consultant to come in and create the direction and the plan.”
  • Though it may seem obvious, hire a consultant who is already familiar with your industry. “Otherwise, they will need to spend a lot of time trying to get up to speed, and that time will end up being very expensive,” Herbold says.
  • Carefully examine your expectations and try to identify any that may be unrealistic. “One of the most common misconceptions executives have is that consultants will do their thinking for them,” says Columbia’s McGrath. “Another is that consultants have some kind of magic mirror into the future that makes their predictions superior to those of others.”
  • Start out with a “work session,” during which the consultant and client sit down to define the problem and the objective. This session also should produce a written document that specifies the program objectives as well as the deliverables designed to achieve those objectives.
  • Identify a dedicated project manager who will work directly with the consultant to monitor the project and make sure things are done on budget, on time and within the agreed-upon work plan.
  • Set an end point for the engagement. “It is not a good idea to have consultants around for a long time,” Herbold says. “They tend to become entrenched, and you end up paying a premium and becoming dependent on them.”

Managing Costs

“Companies should make room in their budgets at the beginning of each year for consultants,” says Michael Pfeifer, president of Industrial Metallurgists LLC, Northbrook, Ill., which provides engineering consulting services. “If they don’t, it’s unlikely they will ever call in a consultant, even when it’s really important to do so.”

Still, engaging outside help doesn’t always have to be an expensive proposition. Sometimes, you may need to do nothing more than pay for one or two hours of a consultant’s time to get all of the information and direction you need. “If you are familiar with consultants who really do know your industry, don’t be afraid to call them in on occasion simply to act as sounding boards,” Herbold says. “If you’re thinking about a new strategic direction or a change in your operating practices, these meetings can be short and inexpensive, and most importantly, the information you get can be very valuable in terms of the insight you gain.”

William Atkinson has been a full-time freelance business magazine writer since 1976. He has also had seven books published.

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