From the other side of the table - the (de)commoditization of consultant's services

About one and a half years ago, I made the transition from being a consultant to being a consultant's client. I effectively moved to the other side of the table. I have written before about decommoditization of consulting services. This is a revisiting of some of that earlier work from my new vantage point.

Consultants fear commoditization

Believe it or not, but underneath that power seller across the table from you is a person afraid of not making their sometimes very high revenue targets. Being confronted with a client which plays one provider against another raises the very real spectre of service commoditization. Consultants all fear commoditization of their services.

And they are right in doing so. Commoditization of traditional consulting services, from reengineering to strategy development, has led to a price competition in which all competitors have lost. Now, you'd think that we, as clients, would have reaped the benefit. But it turned into an aggressive race to the bottom. Those are never pretty, not even for clients which appear to benefit.

Why? I note a significant decline in the quality of service as the pressure to sell more and more catches up with the quality of service delivery.

Where commoditization occurs

I'm convinced quality decline of this nature should not occur and can be avoided. From where I'm looking at it, most consultants fail to understand the mechanism of commoditization, or at least see it differently from their clients.

How? Well, consultants believe service commoditization occurs at the level of the solution they provide. Now, it is true that most consulting organizations offer similar services. But what consultants fail to understand is that to a client these are rarely a commodity. If they are relevant to the need that exists in the market, they are an answer to a problem. While they may seem similar, the people delivering them have their own experience, expertise and approach, which will either be a unique fit to the my needs or no fit at all.

So what consultants erroneously consider to be a commodity is in the best case not a commodity at all because of the way in which individual consultants combine their understanding of the problems the client faces with the standardized services of their organization. If we get what we pay for, they will develop a unique solution for me. Unique, hence not commoditized.

I believe the added value of the individual is more important than the relevance of the solution the company provides from its solution framework. Sadly, rather than attention to the expertise of the individual, most proposals focus on generic methodologies which I can read in any management book.

Knowledgeable sales approaches are the basis for removing the commodity status of services

Let's start from the assumption that the biggest challenge for a consultant is not finding the market, but truly understanding the market's needs. Even better would be if they would understand the needs of individual clients in this market. The only way a consultant will ever understand the market's needs is through its people.

Therefore, consultant collaborators need to be trained in attentive listening skills and in respectful probing of issues. But before that is possible, they really need to learn how to bring a current or potential future client in a position where he or shee feels safe enough to speak to them about his fears and uncertainties.

Let's be clear, the highly assertive sales pitch by the smooth and slick consultant will not do it. The big car in front of the door does not give me assurances you know what you are doing. It only confirms that I may be paying too much.

No, you will need to invest in building that trust relationship over the longer term. You will need to make it clear that it's worth working with you.

The lesson

As a client, I am convinced that even this crisis hit market with significant budget reductions, especially in public services, is plenty full of commercial opportunity for consultants. Now, the market is abundant enough, but it needs to be thoroughly understood and respected. In order to see how plentiful it really is, companies will need to let go of their aggressive stance to the market and abandon the hard selling method.

Why, because as a consultant you may not understand this, but hard selling profiles a business as a commodity. And as stated above, whereas the services may seem similar, the people delivering the services make all the difference. They are not purely intellectual assets which are replaceable, they are people with skills in talking to people.

The organization or the individual consultant which will come out on top in the next five to ten years will not be the firm with the best or most innovative solutions. It will be the firm with the best listeners, the firm will to invest in developing long term relationships with clients on a basis of equality.

Not at the table, but perched on the radiator

Headline

A number of recent publications have extoled the virtues of internal audit having a seat at the management table. I don’t agree. I think that a seat at the table for the Chief Audit Executive would probably be the worst place to be. We need to be in the room, but probably sitting on top of the radiator, listening to the conversation, and on a regular basis raising a finger and saying the sacred words, “Yes, but …”

The curse of the “trusted business advisor”

Becoming the trusted business advisor has been a fad for a lot of consulting and advisory organizations for the past 20 years. I know, I’ve had to hear the mantra many times in my years at the other side of the table. I’ve been a consultant. The problem is that it’s a mantra. When asked as to the why, the answer always turns out to be: “to sell more work.”
Anyone speaking about trust without being invited to do so automatically deserves my distrust. I may be cynical, but I’m an internal auditor. I was bred that way.

Our role

Let’s revisit the definition of internal auditing:

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

I can’t help but notice that the fifth word of that definition is “independent”. Independence, of course, serves a purpose. I’ve written about that in the past. Independence aims to ensure the highest possible objectivity. And in order to be able to be objective, you need to develop at least some distance to activities of the management team.

I also note the word evaluate which again implies the ability to look at something from a certain distance, without being to distant not to be able to observe it at all (see my rants about where internal audit should be positioned in the Belgian federal government, for example).

Our role, extended

There is another role we have as internal audit, which I have yet to see formalized in the definition. But perhaps I’m reading it wrong. For me, an essential role of internal audit is the following:
As an evaluator of risk management, control and governance processes, we need to be the moral compass of the organization and its management team in a world where competitive and other pressures push relentlessly on the individuals making up such a team.

Where we need to be

I believe we do not need a seat at the table, no matter how enticing it may be for some of us. Getting a seat at the table means sharing the warmth of companionship of your peers which you work with every day. But you’re the auditor, they’re the management. It also means that you may be to close to be able to evaluate objectively. This is called parallax, and it’s an issue in measurement.
However, we do need to be in the room. Perhaps we should be, as I said before, not at the table, but off to the side, sitting on top of the radiator, listening to the conversation, respectfully pointing out where true North is if it tends to get lost.

Sense and nonsense of risk maturity assessments

Can you “manage” maturity?

Maturity assessments are the new fad of management. You encounter them everywhere. Also, and perhaps most often, in risk management. Risk management and internal control systems need to be assessed and benchmarked and turned upside down and inside out. These tendencies appear to be indicative of an overly strong desire for micro management. Organizations are afraid of a big unknown which may come to haunt them, so they check the doors; then they benchmark their doors against the doors of their neighbors (peer group). The problem is that it is yet another way many organizations hide from their core responsibility, which is managing their risks, not talking about managing their risks, or planning to manage their risks.

Maturity assessments can favor form over substance

The formal process of assessment has gotten in the way of the actual execution. How wrong can that be? Time spent assessing performance, which is not bad in and of itself, is not spent on doing actual work. All other things remaining equal, the relative part spent on actual management should significantly outweigh the effort invested in assessment.

The new frontier of Risk Management

Matthew Leitch stated a couple of years ago that risk management was a practice which was in full development. He mentioned the wild risk management frontier, with snake oil salesmen trying to sell you the newest fad. This time, it’s not hair growth potion, it’s multi dollar investments.

Back stage pass

Now, how would you do this? Snake oil salesmen had an accomplish in the audience, with a “bald” wig (hiding his hair) who all of a sudden appeared to have had hair growth at an amazing speed. He told a wonderful story, which appeared possible (although not likely); and he provided a benchmark, a recognizable reference which could be used as a baseline for own future hair growth assessment. “Hey, I may be balding, but I am not as bald as this guy was, therefore, this tonic will do me even more good.” Any comparison in the paragraphs below between risk consultants and snake oil salesmen is - by the way - purely coincidental.

Objective maturity assessments

Your consultant develops a risk maturity assessment tool. Quite likely he will use the most often referenced framework, COSO-ERM. This framework, written by accountants for accountants , is most certainly not the best risk reference framework out there for anything but financial processes. Using COSO-ERM, your consultant creates a reference framework which will allow you to assess your risk maturity across different dimensions. If they do their jobs right (remember, their job is not giving you the best possible risk management framework), The tool will score your performance higher in some aspects, lower in some others, for a total score which is just about a tiny bit lower than the average for your sector, industry or whatever. In other words, the consultant took their own mirror, held it in front of you and claimed an objective assessment. Do this: match your weaknesses with their preferred product portfolio. You’ll likely see a trend. Risk maturity assessments against an external benchmark are irrelevant, because there is no organization like your own organization. Your risk response is tailored to the environment you are working in, the structure and constitution of your organization and the exposures you have. There is no wrong or right risk response, there is only your own risk response, which is entirely based on your risk perception and your risk appetite.

When risk maturity assessments are relevant

Risk maturity assessment are not inherently bad. They will contribute value if their scope contains at least the following elements: * you compare the risk maturity evolution for your own organization over time * you compare the evolution with the evolution of your risk profile: the exposure of your organization to risks.

If you repeat this assessment on a regular basis with the same assessment team will provide you with insights on how the risk management focus of your organization shifts with the changes in your organizational risk exposures.

There is no ideal risk management profile

There are risks, and there are people that manage those risks as best as they can, with the available means, within certain limits. We should focus on building this kind of systems instead of overanalyzing and providing snake oil salesmen with a gullible audience. I’m not saying there are no good consultants in this area (I consider myself one) but there are quite a few charlatans as well. Be aware and remain critical. After all, the management of your external provider risk is a key risk to manage.