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Fixed Knowledge and Variable Knowledge and Valuing The Consultant's Time

CEF participants from right to left: Aankit Patel of Datran Media; Eric Green formerly of Ernst+Young; Saul Orbach, turnaround consultant/private equity partner; Richard Sackett, Ph.D of Sackett Consulting; and Francisco Acosta of Internal Business Consulting
(Wordcount: 1,893; Pages: 5) If you consider yourself a consultant - whether you're advising on legal process, medical concerns, fixing a computer, or business challenge - you're always asked for some tid-bit of information, which, based on the manner by which it was asked, won't be followed by a big, fat check. Of course, to you, this effrontery is blasphemous to the value you deliver by the mere fact that you contain the correct answer in your cerebellum. And what's more, you are also aware that your bits of information are valuable only when someone needs them, so offering them for free when needed is abominable.

That minute you're taking to deliver that bit of information gratis is a minute you could be spending finding someone with the economic means to pay for your bits of information. It goes without saying that this attitude contributes to why people hate consultants. Since you can't make money from conversing with regular people, you don't. Regular people are a waste of time and they know you think so. They clearly perceive that you value their relationship based only on how much they pay you to share your bits with them.

Fixed Knowledge: An Implementer's Value

After 7 years in school, all of them interning in courtrooms, closely observing legal history, familiarizing yourself with precedent, you join a firm that, in no less than 10 years, elects you into their global participating partnership, where you spend your billable time lunching with folks from your early law school days to see if their companies, where they're now general counsels, wouldn't mind hiring your firm for gobs of money.

In your late 40s, you're on top of the world, considered an expert in your area, and not without indignation, you stop spending your billable time with anyone other than members of your firm and assorted big-swinging Richards of the business world. So when some sneaky in-law somehow overextends his reach past your carefully constructed obstacles, and inquires as to how to get around some annoying dry cleaning problem, you're left with that bitter taste that forced pro-bono work (read: favor for the wife) leaves in your mouth.

It's at this moment when you hire a coach who tells you that your yield could increase by simply cutting out all of these casual free-bes, never mentioning that in the process, you risk becoming absolutely dependent on your current circle, a circle that inevitably plateaus and even shrinks as companies merge, golfing buddies expire, and your firm becomes a cumbersome corporation.

And as you're faced with a changing world, one in which teenagers are familiar with legal history and precedent from reading it online and watching it on CourTV, you come across a paradigm-shifting epiphany: should you continue to bill for every minute needed to tap into your finite reservoir of knowledge and execution experience or should you now bill for every bit of information you possess, irregardless of how much time it takes to tap into, which a client may potentially ignore because they're going to outsource the execution 10,000 miles away and your bits of information were too stale to be of any actual use anyway?

In 2006, eight-year old Google's market cap is almost 10 times bigger than 98-yr old General Motors'. GM's debt is rated junk. And everyone's buying each other's junk over the internet. As our economy changes, and the rest of the world with it, there's one thing that's clearer and clearer: anyone can know anything without paying as much money for it as you did to know it. Thus, when anyone can know anything, neither the information, nor the time it takes to access it, are premium products; they're commodities. Knowing this, consultants continue to wrongly believe that possessing vaster quantities of information, sliced up by specialties, and delivered wrapped around a "solution" only they can provide is the only way to remain competitive and continue charging higher and higher fees.

Implementation is profitable, no question about it. Once you implement, you have a methodology that is more valuable when applied numerous times - the costs of implementing that process naturally decline with efficiencies, while your fee for implementing goes up as you accumulate "experience". No one would fault you for including this particular process in nearly every recommendation you offer a client.

But, inevitably, with every implementation, there are new processes developed that may be applicable to other clients until finally, out of 3 possible scenarios, 3 are processes you can implement profitably. Is this strategy?

Variable Knowledge: A Strategic Thinker's Value

Clients, continuously shifting accountability for their actions further and further away from under their roofs on the recommendation of those willing to accept those responsibilities for a fee, have somehow concluded that it's none of their business how their business actually happens as long as it happens under budget and on schedule. In this fascinating dynamic, consultants that don't implement are apparently not worth consulting.

Moreover, how could any advisor set up to offer a basket of solutions ever advise a client on any solutions not within their basket of solutions? Like a financial planner who designs portfolios that include products from his firm, "strategy advisors" who offer pre-fixed solutions have an inherent conflict of interest in their advice. They, in fact, aren't advisors, but salesmen a la IBM.

But it's easier to justify tangible solutions than advice. Giving advice is tough when no one does what you tell them and it costs more than clients are willing to pay for it. These and many more reasons are invariably in the subconscious of the biggest firms, but are simply the lazy way in which many consultants address their missions. Do what you know and charge for experience. But don't clients also have experience?

Recall what happened over at Nike. Its former CEO quit after having his Bain consultants tell the company to do stuff they could have done but didn't due to it's culture. Nike employees all hailed from top "strategy" firms and were practically offended at being told things they already knew. Because Bain forgot what strategy was, they delivered no value and further tarnished the profession's stature among important clients.

The maxim of "telling clients the time with their own watch" holds true here if you're charging to basically be outsourced tech guys, outsourced operations guys, or outsourced finance guys, especially since you're not providing anything to the client that they couldn't do themselves, given the time. Thus, "speed to market" has become the implementer's new catch phrase, as prominently illustrated in the March 27 issue of BusinessWeek.

But as pure strategy consultants, the more ideas you come up with, the easier it is to do things like working for competitors without risking selling your client's trade secrets since you're not married to any idea and the investment in coming up with that idea was minimal.

Profiting From Pure Strategy

In fact, there is just one way to effectively be considered a valued strategic advisor to your clients, as argued during our Consultant Entrepreneur's Forum on Thursday, May 11, 2006: manage or eliminate your client's risks. In the opinion of this consultant, the following phases of a relationship are how pure strategy consultants manage or eliminate their client's risks:

Phase 1: Referenceability. The common business knowledge that you can never go wrong by hiring IBM has its roots in a business culture obsessed with shifting blame and accountability. Hiring any such huge company, considered the best at everything in their space, can't possibly get the hiring executive in trouble. Because if not that big, huge firm, then who? In the event there was a better alternative that the hiring executive wasn't aware of and lost his job over, IBM would always welcome him with open arms. This "referenceability" is what keeps the "top tier" at the top. But if you're not IBM, how can you be referenceable?

Walking through any food court in the U.S., you will encounter "free samples", that marvelous marketing gimmick that's more powerful than any television ad. You either like it or you don't, but in this near-perfectly competitive environment, you, the consumer, rule your choices. Consultants unwilling to offer free samples in the form of free research, complimentary invites to conferences, and free "brain-pickings" are forcing prospects to accept their flavor of consulting as the only flavor, which is not always the best flavor.

Advice is one of those products that is completely based on how much an individual likes it, not some universal standard. So, not advertising, as is traditional industry practice, or worse yet, not readily offering up advice and other tid-bits, is completely irrational since a consulting prospect indeed requires as many choices as possible to make a selection.

Despite the strong argument supporting referenceability, not every consultant at our forum agreed that free advice has its merits, given the nature of some areas of professional services. To them, I ask, do you then understand the difference between the value of your bits versus the value of your time?

Phase 2: KISS. Receiving the call to present your wares to a prospect is a beautiful thing. But, make the pitch too complex, and you increase the level of risk associated with working with your firm. Thus, KISS and you'll handily move on to the next step: negotiating your fee.

Phase 3: Always underpromise. Assuming your firm was engaged to conduct some sort of study, managing the expectations of what the study will accomplish from the beginning was further suggested at the forum to pre-emptively kill blame for any work delivered by your firm perceived to be less than spectacular, while simultaneously conditioning a client to pay higher fees for incrementally better work. In other words, it's at the beginning, during negotiations between client and service provider, where the service provider must always underpromise, since in many instances, the client himself is not aware of what they want or what they should expect from you.

Phase 4: Always overdeliver. At the conclusion of the engagement, when the consultant overdelivers, the client is now at the proverbial mercy of the consultant, where the relationship helps the executive in diminishing the risk involved in soliciting outside counsel, and in fact, trains them to want all advice in the format in which you delivered it, rendering all other advice irrelevant.

Your relationship solidified, you're now free to hire more "experts" and then solicit more work (not the other way around) for justifiably greater gobs of money. In fact, at this point, you're even permitted a near-unlimited number of "mistakes", as proven over and over by large engineering consultants Halliburton, without endangering your relationship with the executive overseeing your work.

Phase 5: Profit. At some future date, when the executive moves on (or is fired), you're in a position to hire that executive, place him as an account manager to pitch and deal with their old company, train him to invoke the "pain/pleasure" sales tactic since they've never really worked within your infrastructure to know how to sell your firm's services properly anyway, and voila, your firm will be rehired by a new exec within the client who wants to "shake things up", a term implying their desire to renegotiate the terms of your last agreement with them so it's better for them, but somehow, more profitable for your firm.

Al Berrios is Managing Director of al berrios & co., an innovative strategy consulting firm advising leaders on the impact of human behavior on their strategies and on how to change their organizations to address the behavior. Write to Consumer Strategies Report at editor @ alberrios.com.


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