Six tips for clients when buying consulting services


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A good part of the grey hair on my head today can be attributed to negotiating consulting related topics with my clients 🙂

Clients and customers can often behave as if they are from two different planets and nobody wins in those cases. They can also work together extremely well and amazing things happen as a result. Despite the grey hair part – I have been fortunate in having way more positive experiences with my consulting clients than negative experiences. Let me offer a half dozen suggestions from my experience to clients on how to engage with consulting companies . There are of course a lot more things involved and lots of nuances, but this should be a decent start for the conversation.

1. Buy on net-value, not on net-cost 

If you are buying gas , you can buy on net cost. The reason you can do it is because the variance between gas across gas stations is perceived to be low. That is not the case for consulting . Even if you think you have nailed down your requirements well – you won’t get a good deal if you only care for cost, and not of value. While there are a few customers and buyers agents who take the time to do a quantitative business case and then make determinations of vendor selection based on value, many just try to be a hard negotiator for cost alone.

Let me give you an example where I lost a deal a few years ago on price.

The customer wanted a specific project done for reporting on CRM service management. We bid for it along with a couple of competitors. We lost the deal on price. Why was our price higher? I knew from my long experience at the client that they had a complex system and relatively new staff taking care of service management. So I made the proposal with an extra onsite consultant with expertise in service management whereas the competitor made it mostly remote work with generic business objects skills. A year later, I ran into the client at a social event and asked about the project. Apparently my competitor had delivered on time and on budget and on spec – except the business owners rejected the final solution saying it is not what they wanted. And many change orders later – and a 3X budget over run – they scrapped the project.

2. Decide upfront – Do you want someone to milk the cow for you, or someone who can explain on phone how to milk the cow ?

A lot of outsourcing is done by customers who don’t appreciate the stress of going through change. If you are used to shouting out loud to the help desk guy to come fix your problem and tomorrow you have to spend 15 mins filling up a form for 10 minutes and then wait for half a day for someone to call back, you will hate it. Sounds simple – but I have sat across customers many a time who don’t understand this impact on their employees.  What is worse – they will even skimp on the cost of change management . The result is a large number of employees who never got clarity on what changed and why it changed. And more than the people who signed the agreement on both sides, the poor consultants delivering the unrealistic contract gets yelled and screamed at, and people who can’t get their job done get all frustrated (rightfully).

Some customers do reference checks – but at the wrong levels. If you are a CIO wanting to do a reference call on an outsourcing arrangement – don’t call just the CIO on the other side. Go visit the people who are living in the outsourced world and visit the outsourcing staff and learn how a “day in the life” plays out. Ask how the transition was managed and learn from it.

A related aspect is clients who buy consulting as an insurance, and then feel happy when they don’t have to use it (same as with a car insurance where you are happy to spend money on insurance, but never want an accident even though you are covered) . When you need insurance for your software – your best bet in most cases is to buy support from the software vendor. Buy consulting to add value above and beyond what comes with software out of the box. This applies as much or even more to sellers. Do not sell consulting as insurance – it undermines the value of the offering over time, since most customers will buy but not use it.

3. Make a planned transition from contracting to delivery

In most cases, the consultants delivering the project don’t know much about what got signed. And in almost as many cases – the customer staff working with these customers also do not have the full context of what transpired during the contracting process. Having led many a project rescue mission – how I wish the people who signed the contract on both sides would hold a workshop for the delivery teams to get the context and ask questions and clarify things upfront in every project. My best estimate is about 20% of all projects do this . In many cases – both the customer procurement and consulting sellers know there are unrealistic assumptions , but they don’t give the context to delivery teams, resulting in nasty surprises and flamed tempers down the road. It is eminently avoidable .

Also – remember that requirements and people both change with time. So I would highly encourage a “big picture” meeting periodically to make sure that everyone is aligned .

If I am a client with a major project at hand, I would also ask if my sellers are compensated on successful project delivery. If not – I will need a lot of convincing before I sign a big contract.

4. Choose wisely between Agile and Waterfall

Agile is cool – and it is useful in many cases, especially in product companies. Waterfall gets ridiculed for both good and bad reasons. If you want the flexibility of Agile, you should be able to compromise on the fixed deliverables on fixed dates that you do in traditional contracts. Most agile projects typically are done on time and materials basis. Or they are done on fixed price basis for a certain time. If I am the client with long term projects – I would rather leave the methodology to my consulting partner, and demand a schedule of deliverables. And if I have short projects where agile is the better fit – I will either do it inhouse with own staff, or do a staff augmentation for few skills.  Bottom line – you can’t mix and match in every combination and expect this to work equally well.

 5. Trust and verify

The best professional (and personal) relationships are based on trust. When either side needs to go back to the written contract, it usually shows a lack of trust. The written contract should be the last line of defense, not the regular play. This only happens if you are both in it for the long term. Far too many customers shy away from long term relationships – I think it is mostly because they forget (or are not aware of the fact) that trust also comes with verification. Verification is not a negative exercise – the idea is to see if both sides held up their commitments, and when that is not the case a decision needs to be made on what fixes, change requests or compromises are needed.

Change orders have a bad rap – many CIOs have told me that they are scared of change orders, and in many cases they have been burned before. Change orders serve a genuine purpose – they exist because not all requirements can be judged upfront, and no one does perfect estimations. SI market is uber competitive – companies routinely undercut each other to win projects. Customers try to make use of this by negotiating on net cost as opposed to net value . The combination of these two behaviors is the genesis of change orders being used/seen as a way to nickel and dime. Essentially this plays out in a low trust environment. Don’t fall for it – be reasonable in contract negotiations, and play fairly in delivery. Get into a mode where change orders become a good thing.

6. Long term relationships between people, not just companies

Long term relations have many advantages on both sides – consolidated demand usually gets better pricing and delivery schedule. It also is a great risk mitigation exercise as communication will improve. No doubt, it is a lot of work – with different groups, different budgets, different goals etc.

Always remember – contracts are done between companies, but actual business of the project is done between real people.

By all means, negotiate hard on the net-value aspect and get as reasonable a deal as you can. But once the deal is inked – and it is time to deliver, replace “you and us” with “we” in your thinking. Many customers interview a slate of candidates for the lead roles in their projects. But very few consulting companies will ask the customer if they can meet and talk to the customer staff before the project. Not every consultant lead person will work well with every customer lead. A match of personalities is needed on both sides. If I am a client – I will encourage my consulting partner to interview my staff and then offer me lead candidates from their side who are good matches, along with suggestions for training etc. When people are comfortable working with each other with trust, magic happens in projects.

 

 

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18 thoughts on “Six tips for clients when buying consulting services

  1. I like that you mention staying in for a long term. I can see how the time involved can bring about trust. I’ll have to keep that in mind when looking for consulting services. Thanks for the advice!

  2. I really appreciate the advice to consider a long term relationship when working with a business consultant. It seems like the best way to focus on the big picture by working on long term goals together. I can definitely see how it could help both parties to become more unified through experience.

  3. I like that you said that our result won’t be the best if we only worry about cost when looking for IT services. You may want to look at reviews of the company before you decide to hire a company. If I needed to get an IT service I would want to know that I am paying for a good company to work for me. https://www.skycomm.com.au/services/

  4. I really liked what you said about trust. I think it is really important to trust the person you are working with, and to only go back to the written contract if you have to. I was unaware of that. I think this information would be perfect for someone that might not be confident in the consulting agency they are with. Thanks again for the advice!

  5. I agree that when it comes to hiring consulting services you need to make sure they are reliable. I would want to hire someone who inspires trust and not only helps me with my issues but also helps me prevent them. I can see how finding someone with this qualities could save people a great deal of money and could help them succeed.

  6. “Decide upfront – Do you want someone to milk the cow for you, or someone who can explain on phone how to milk the cow?” — This one is very insightful. As a businessman, one should take initiative in everything. We shouldn’t let everything be done for us. Besides, it’s our business that is at stake. We should have the willingness to make our business grow. What a great satisfaction when you accomplish things by yourself, even with the help of others. Great article you have here! Til then~:)

  7. Hi Vijay! I’m starting a local business here in Minneapolis. I’m planning to have consulting services because I look highly to professional’s opinion. Thank you for sharing your insights in this!

  8. Pingback: Six Tips for Clients When Buying Consulting Services - — MIPRO Unfiltered

  9. Great Blog Vijay,
    I think another important thing for customers to think about is whether to use staff augmentation or a prime contractor approach. If you know what you want in architectural terms and have experience managing the various contractors you can use staff augmentation. If you just know what end product you want and do not have the expertise to manage several experts with varying ideas of the solution architecture, you will be better off going with the “one throat to choke” approach.

    Shyam

  10. We talk about “lock-in” a lot in the software industry. Consultants who just know the technology are replaceable (maybe it’s because I am not a people person, but I find the technology to be the easy bit), but people who know the customer’s business are not. Knowing the business provides a way to lock in a customer, by building on the points you raise
    * You know where you can provide added value to the business (whether inside or outside the package that you are selling),
    * You know where the stress points for change lie within the customer, including the difference between the “client” (the people who write the cheques) and the users and administrators of the system (who have a lot more to do with the success or failure of the system or services),
    * You know the difference between what the contract says and what the client thinks the contract says, and more importantly, are willing to explain these differences,
    * You have no problem with verification, because you want to know where you are dropping the ball, and you are willing to engage in a constructive dialog about what changes are needed in how you provide your services,
    * and all these indicate to the customer that you care about the success of their organisation and the people in their organisation, not just whether they can pay you on time 🙂

    hth

  11. Vijay,

    An outstanding blog, the first point though is one that I see being violated time and again – mostly through interference by Procurement departments. I knew a customer who hated their outsourcer with a passion and when the contract came up for renewal it went again to the incumbent. When I asked the UK CIO why that had happened – he remarked that they got an amazing price for it. What I later learnt was that the SLAs were awful, for example they had a multi-day SLA to reboot a non-Production server. I have no idea how that was considered to be value when this company was using external consultants and contractors on high rates and could potentially be waiting over a day for a server reboot.
    What many customers do not realise is that it is easy for hosting/outsourcing companies to remove people from service specifications to reduce cost, or use junior people. It is much more difficult to remove services, so my advice to friends negotiating contracts is to add services into the contracts to increase value and not to push for cost decrease. So for example, I know a friend managed to get a metric into a contract with relation to removal of old unused legacy code/reports which has resulted in an improvement in time required for patching.

    Chris

  12. As always great Insights Vijay!!
    I can relate to many points in my existing project, contract extension and some bids which we in IBM lost to our competitors in India 🙂

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