Five Obstacles with Management Consulting Spend and the Simple Solutions to Crack their Code!

management consulting

The Management Consulting Category – Say What?

Let’s first start this blog by saying that Management Consulting (the category of spend) holds a special place in my heart.  It was the first EVER category I managed at Amgen.

Good lord was it a doozy to start my career off with. But I did learn a lot from it I will never be able to un-forget.

Issue #1 – EVERYTHING is NOT Consulting!

The first major problem in this category of spend is that everybody thinks everything is consulting. Breaking news, management consulting is not a catch-all. Just because they are a service and managing things for you, does not make them a consultant. Nope.

But, it is a great place to dump all the un-categorized spending you aren’t sure about! Which makes your job as a sourcing and category manager a complete pain in the ass.

Hiring a project manager? Code it to consulting. Going out to get market research on competitors? Yup, let’s code that to consulting too.  Having an expert speak on a panel? Definitely code that one to consulting, cause they’re an expert.

And yet NONE of these things are even close. Nope. No way. No How.

Issue #1 – The Fix

As much as I hate to say it, this is one of the categories you should have the supplier itself help to create the category. If you see McKinsey, Bain, Booze, BCG (Boston Consulting Group), odds are that not only do you have a consulting engagement, but it also may fall into management consulting.

So I’m going to throw up some fighting words with this next call out.  Because in their defense, they do have an arm of the company that does focus strictly on strategy consulting.  (You can always tell since their rates are the highest).

You have firms such as PwC, E&Y, KPMG, A.T.Kearney, Towers Watson, and my favorite underdog – Point B.

That said, this is nowhere near a comprehensive list. For that, please check out Forbes’ article that tells you how they define and who they consider to be America’s Best Management Consulting Firms of 2022.

But even after checking it out, I would argue not all of these are “management consulting” firms, but I digress. I’ll pick a fight with Forbes later.

I would say the simplest way to decide if it’s management consulting services, would be to ask, is the end product or deliverable a strategy?  If the answer is yes, odds are you can call it one of many management consulting projects.

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Issue #2 – Ego

I won’t generalize and say “all”, but I’d sure love to in this case. That’s because the exceptions are typically rare, few, and far in between.

Ever meet a partner from a firm that makes upwards of $2,000/hr? Let’s just say humility may have been erased from their vocabulary.  Not that they aren’t extremely intelligent and it may be warranted, it’s just annoying. I get it, you’re smarter and better than me.  Can we just move on?

Issue #2 – The Fix

Ignore them. Just kidding, although avoidance is a great tactic, you’d probably get fired since they know your CEO and CFO by their first names. In all seriousness, I think you have to take a different approach.

If you have awareness, I think you tend to be a step ahead.  That way you can mentally prepare yourself for the fun of the interactions.

Second, make sure you are fair and don’t give them any special treatment when it comes to response time, emails, etc. In my experience, they want something and they want it NOW. Which is nice, but I do have other responsibilities, thank you very much.  I will be fair, but I’m not going to kill myself over it.

Last but not least, know your stuff.  You need to be overly prepared in your interactions. That coupled with the data to back up your stance is key. Worst case scenario, just ask lots of questions. If someone is on uneven grounds, they are less likely to be going for the attack.

Issue # 3 – Pricing and Negotiation

If you’ve ever tried to negotiate with a consultant, it can be exhausting. Not only do they love to use the “I’m going to escalate this to the highest person I know if your organization,” they will try tons of other methods to go around you.  Every. Single Time. Let’s be honest, they know it’s in their best interest, so you can hardly blame them.  (Doesn’t stop it from being irritating though!).

Not to mention, have you seen their rate cards lately? For their sake, I hope that they are getting at least half to 3/4 of what they are charging for going rates.

Or even better, how about the lump sum project cost? The “I’m going to charge you $5M for this project and not give you any details” on the people involved so we can bury the profit. This is by far my favorite. $5M you say for a PowerPoint deck? Why the heck not?! I’ve got money to burn.

Issue #3 Fix

The devil is always in the details.  Especially when it comes to consultants.  You may start WWIII asking for the detail, but it will never let you down in a negotiation. Consulting is a service so this is what you would need for any project:

1. Staff / Level of Staff Involved

2. Hours of each staff member

3. Experts (outside of internal staff) involved and billing rates/hours

4. Material costs and upcharges

Once you have that you can do a simple rate build. (Check out 👉🏼 my blog on Hourly Rate Analysis if you don’t know how). And then you can enjoy taking a look at the immense profit margins of the industry.  I really picked the wrong career!

Issue #4 – Maverick Spend

Due to the nature of work Consultants provide, you can end up with a lot of Non-PO or ‘outside the policy’ spending. And typically it’s at the top of the organizational pyramid.  Which is issue number #5.

Yes, I know that the project is very top-secret.  Yes, I know they are super double-secret meetings you are having about company strategy. But by no means does that mean you should go around the process without due diligence!

Even more reason for the consultants to over-charge you on company shaping strategy. If it’s important to you, the price is going to go up correspondingly.

Issue #4 Fix

There are a bunch of strategies around fixing Maverick spending.  I know I wrote another blog on it (Link Here).

With consultants, the category strategy can be as simple as having a preferred supplier list with negotiated rate cards. (By business support/unit AND location).

Although very timely to complete and complex, having these rate cards nailed down by region, can’t prevent a LOT of price gouging. I’ve seen consultants charge different rates for different people for the same services. Even if you have rogue spending, you’ll at least be confident it’s at a favorable rate.

Issue #5 – Executive Connections

I’m not sure you’ve noticed, but these projects always end up with Executive involvement.  Even if they aren’t requesting the services, being asked to trump you in negotiations, they can still end up involved. By overriding your RFP selection to a different firm. That they once belonged.

So inherently, this category is high visibility for many reasons.  Therefore, you need to maintain your cool and calm when going through the sourcing and category management process.  You really don’t want a C-Suite Executive calling you into their office about it. Because odds are it won’t end up well.

Issue 5 Fix

Really, there isn’t much you can do to avoid the situation. That said, you can always be prepared for the escalation and inclusion of Executives.  Knowing you may have the rug pulled from underneath you, can be half the battle.  And knowing when to shut up, is really a good second.

So play it smart when it comes to consultants! Odds are they’ve already got a strategy and they aren’t afraid to use it! Be prepared and have one of your own.

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