The purpose and dimension of management consulting, over the years, have changed a lot, especially in the past decade, with the focus shifting towards long-term strategy consulting than the traditional short-term study/recommendation-based model. Several strategy consulting firms, including the MNC biggies, have also changed tack to try and cater to clients through a more skin-in-the-game model. Before delving into details, let’s find how business strategy consulting helps, and what value they offer clients.
How Does Strategy Consulting Help?
According to a Harvard Business Review article , the goal of strategy consultancies is to advise companies, and possibly help in implementing their own suggestions so that client companies can enjoy a higher level of performance. Strategy consulting can be summarized as having eight objectives:
1. Providing information to a client
2. Solving a client’s problems
3. Making a diagnosis, which may necessitate redefinition of the problem
4. Making recommendations based on the diagnosis
5. Assisting with the implementation of recommended solutions
6. Building consensus and commitment around corrective action
7. Facilitating client learning —that is, teaching clients how to resolve similar problems in the future
8. Permanently improving organizational effectiveness
While outlining the basics of strategy consulting, Arthur N. Turner writes, “Goals 6 through 8 are best considered by-products of earlier purposes, not additional objectives that become relevant only when the other purposes have been achieved. They are essential to effective consulting even if not recognized as explicit goals when the engagement begins.”
In a nutshell, strategy consulting is generally a long-term activity, and requires the business strategy consultant to get involved at a deeper level from the very beginning of the process to lead it to a more result-oriented end. Since one of the major cribs of clients is that consulting companies have no real consequence if their recommendations go wrong, one way in which consulting companies are trying to engage with customers in these long-term engagements is to put their “skin in the game”.
Skin-in-the-Game Model of Consulting
Not only helping clients achieve their desired goal by handholding them through the whole process, but also ensuring that the consulting company’s revenue is at least partially linked to the gains of the client, is how strategy consultancies emphasize their skin-in-the-game model. For instance, if the consulting company has provided a solution for sales, it will charge a part of the accrued sales revenue as part of the payment. This may be actual sales or sales extrapolated (e.g. for the whole country for two years) from an actually executed implementation in one or a few areas of the country. Another popular way by which strategy consulting firms operate the skin-in-the-game model is by directly involving the strategy consultants in implementing the recommendations provided by them, say, for helping their clients cut costs for better productivity. The customer pays for their services out of this savings.
This method of collecting payment for services rendered is called ‘contingent pricing’ or ‘variable fees’ – i.e. it involves either the payment of equity in lieu of fees, or fees contingent on the consultant’s hitting certain performance targets. Some consultants, including a few strategy consulting firms in India, also call it a ‘success fee’, as several big corporate clients these days attach a part of the consulting fees to successful delivery of promises.
There are increasing number of clients now demanding such a risk sharing model of consulting and consequently, more and more consulting firms are trying to offer something that works for both their clients and for themselves. So even before Nassim Nicholas Taleb came up with his book, Skin in the Game, in 2017, many strategy consulting firms had already begun using this model – even though they may not have added any such nomenclature to their marketing communication.
Major Strategy Consulting Firms With Skin-in-the-Game Model
MNC giants such as IBM and Accenture as also relatively smaller players now offer strategy consulting with some skin-in-the-game, along with a more traditional approach. For instance, Accenture promised to forgo most of its fees to win a five-year Can$240-mn re-engineering project, until it started to deliver cost savings.
The Parthenon Group is another example of a firm that offers consultancy with a counter-trend in this traditional and risk-averse industry. Considered one of the pioneers in using a “skin-in-the-game model” through stock options, Parthenon had asked modem-maker Microcom for 195,000 of its shares with a $2 strike price, at a time when its share price had gone down to $1.5, for a project that could turn around the company’s fortunes.
For Celerant Consulting, the idea is clear: it agrees to forgo part of its fees if their consultants fail to meet expectations. Now, this applies to at least 75 per cent of its engagements.
While this model is not yet very popular among strategy consulting firms in India, some, including a Mumbai-based firm called Vector Consulting Group, follow this model. According to a Business Today article , more than 40 per cent of this firm’s total revenues come from variable fees linked to actual gains of its clients.
Obviously, times are changing in the consulting industry.
Must Read: The Theory Of Constraints (TOC)— Features And Benefits
