By Susan Kelly November 26, 2002 -- (From Yesterday's Part One) It’s a fact: value is leaving the industry. We inch our way up by taking two steps forward in a good year and give it all back in the next year. Graphic arts businesses can no longer cut costs or generate revenues fast enough to keep the bottom line from slowly but surely sliding in the wrong direction. Do the math. The economics of the industry combined with accelerating print buyer price-cuts quickly quantifies the need for a new cost reduction model. Here’s a new twist to cutting costs…it’s called contingency services…..or what we have known as Consulting.) Three Burning Questions Raine recently surveyed industry consultants to better understand how to best use consulting services in this new cost-cutting model. Here’s a summary of their answers to three burning questions: 1) How do I know when I get value from a consultant? Value can be achieved before the project even starts. A written agreement that provides details about the project scope, the consultant’s work approach, fees, and engagement terms go a long way to achieve results and manage expectations for both parties. Starting with clear and concise company objectives reduces consulting costs and increases the probability for success. Measurement of value analyzes the following before, during, and after an engagement: - How much time is spent, and by how many employees, on each of the engagement-relevant tasks? - How much salary is paid out for tasks that not directly generate revenue? - What is the estimated time to recovery of capital invested in the consulting engagement? - What are the projected savings over the next 12-24 months? Although there is no standard formula, consultants do have an ROI. As a rule, the consultant cost is usually considered 33% of the overall costs of the project (although ratios can jump up to 50% for IT Consultants). 2) What should I pay a consultant and how should it be paid? Or maybe the question should be: How do I cut costs using the consulting model? Some suggestions: - Resist any new fulltime hires for specialized needs and use flexible resources instead - Investigate revenue-generating opportunities by leveraging consultant networks - Engage third-party audits and assessments that accelerate recommendations for cost-reduction actions - Use variable resources to prove new growth opportunities are successful before hiring full time staff. It’s easier to cut variable costs than fixed costs - Use variable resources to backfill missing functions: Marketing, Product Development, RFP proposals, and Project Management - Reduce head count, and related activities, to critical mass and engage consultants to help manage peak periods. Bill Lavelle, Senior Analyst at Point Balance, recommends "that 8-10% of the executive management salary spending be budgeted for flexible expert services. This should provide a company enough resources to make a visible difference to improve overall company performance and profitability". - Retainer is dead Gone are the days when retainer amounts are paid in monthly rounded amounts for ongoing program with undefined deliverables. A recent study by Kennedy Information entitled "Management Consultancy 2010" showed that the majority of financial arrangements between clients and consultants will be (in order of priority): Time-based fees, fixed price contracts, payment by results, shared risk/reward, and equity stake. Thanks to the Internet, even consulting fees are being benchmarked and tracked like any other product or service today. To get value from these service investments, soft dollar benefits need to track to hard cost savings. 3) What are the key criteria I should use when selecting a consultant to meet my needs? The Golin/Harris Trust Index indicates that Consultants are in the middle of the pack when it comes to trust with customers, partners, employees, and communities. Very much an unregulated industry, the barriers to entry are low in consulting which makes a company’s qualifying processes even more important. Sample Checklist for buying consulting services: - Can demonstrate proven methodology - Can demonstrate industry experience - Can demonstrate consulting experience - Can provide comprehensive proposals that clearly articulate the deliverables - Can deliver adequate resources, a team of people if required - Can perform tactical and strategic tasks, locally and virtually - Can provide multiple models and solutions to support various business cultures - Can demonstrate and detail value added, business capability, and sustainability - Can demonstrate references in similar organizations and cultures - Can demonstrate a proven track record: on-time, on-budget project performance - Can demonstrate how work will be performed, value derived, and invoiced It’s time to look for a new consultant if projects started this year are not complete, are over budget, or are under-delivering against projections; or continue to drain valuable resources that begin to impact daily business. It’s also a good idea to test drive a new consultant by starting with a short engagement (i.e. 1-2 days) to make sure relationships and results meet expectations. When to use Consulting in 2003 The need for contingent services will range widely from company to company. However, there are some specific areas that consultants can provide immediate value-add to companies in the year 2003. 1) Know your customer economics In a recent McKinsey article entitled "Fight for your Price", their client experience showed that the sales reps and managers of a supplier often have only a vague understanding of their customer’s economics. This makes them vulnerable to competitors and professional outsourcing organizations. The printing industry has been devastated with price decreases and one of the best weapons to maintain profitability is to know your customer’s economics. Consultants can consolidate vast amounts of information to help analyze economic and customer data into specific pricing strategies and contract negotiations. 2) Know your customer’s technology initiatives Given the latest trends around Print E-Procurement, Digital Asset Management, Content Management, Direct Marketing, and CRM integration this information is becoming critical to any decisions around short and long-term technology investments. There are research firms that track the latest in technology perspectives, market data, and trends (i.e. providers, buyers, and analysts). A consultant can be a cost-effective translator of requirements between your customer’s technology initiatives and your company’s objectives. Right now it’s a buyer’s market for consulting, making it a very economical time for companies to engage in developing comprehensive IT strategies and technology roadmaps. 3) Buy a "Business Clarity Snapshot" To protect value, companies need a wellness program just like people do. Consultants concentrate fulltime on assessing market dynamics and methodologies to help their clients compete. It is an amazing exercise to amass as much relevant information as quickly as possible to achieve a "business clarity snapshot"; and then funnel the results into a company business plan. A strategic audit is great but generating operational momentum is even better. If you intend to have a liquidity event within the next 3 years, engage a consultant to do a rapid assessment of the key market drivers, your company’s positioning, and restructuring options. 4) Update or Augment your Sales and Marketing efforts Full time Sales and Marketing talent is expensive. Consultants can deliver immediate and sustainable results where it counts the most: conversion of a sales pipeline to sales revenues. Some consultants have the sales savvy and marketing know-how to quickly assess your existing talent and value differentiators in your preferred market segment. Equipped with a deep understanding of the sales process as well as the customer’s buying habits, these consultants can assist sales organization articulate a more compelling value proposition to ultimately, win more profitable deals. If generic "sales training" is on your agenda to improve sales, consider a more targeted program which combines re-evaluation of your sales drivers with an updated sales approach. Consulting in the 21st Century Bottom line, Consulting is a formula: Knowledge Capital + Speed + Analysis = Enlightenment The formula seems simple, however the consulting business model is all about aggregating knowledge capital cheaper, better, and faster than clients can do it in-house. Companies are faced with mastering the risky business of integrating quickly emerging technologies, redesigning business processes, and crafting profitable strategies. Companies, especially those that are moving into eBusiness solutions, are turning in greater numbers to flexible contracts with qualified consultants to meet their needs as a new way to manage costs and redefine growth management. Business Planning Quiz for 2003: What areas in your company (i.e. customer management, sales or marketing, operations, technology) could immediately benefit by a consultant focused on delivering measurable, impactful results to your bottom line in 2003?