Why Do Companies Need Consultants?

WHY DO COMPANIES NEED CONSULTANTS, ANYWAY?

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Isn’t that a great question! This question ranks up there with the related questions as to why consultants are often held in higher esteem than in-house employed experts and are often paid more than in-house employed experts, when the reality in many cases is that the employed experts are probably more highly qualified than the consultant is. People have been debating the question ‘Why Do Companies Need Consultants?’ for years.

So while I drum up some answers to this conundrum for you, why don’t you stop a while and take the ‘Two Dozen Questions to Show Why I Need a Consultant Test’ below:

Warning: There is a considerable amount of information here concerning the use of consultants. I understand how important this information is to you when making up your mind as to who can best help you with the expansion of your business. Consequently, as the guide covers a lot of ground, expect a long read.

Consultants: are they valued assets, rapacious predators or quirky eccentrics who can’t get a normal job?

Hi there! It’s good to see your interest in this webpage about consultants. Although this webpage title poses a specific question that is very hard to give a definite answer to, I thought it might be useful for you if I first dig a little into the consulting profession and explain a few things about consultants and their work generally. Who knows, but after reading this webpage, you may want to try your hand at consulting yourself. Depending upon your particular attitude, the common view of consultants is that they are valued assets, rapacious predators or quirky eccentrics who can’t get a normal job.

Is consultancy a unique profession? After all, do you know of any other reputable profession that permits anyone to accept an assignment for a sizable dollop of money to provide a client with added value that can have far-reaching consequences for many, many people, with no pre-conditions, no licenses, no permits and no operating criteria?

Let’s look at this in perspective. Doctors have to pass university examinations and receive a government licence before they can touch a patient, lawyers have to pass university examinations and either a bar examination or an articled-clerks’ curriculum before they can practice law. It’s the same thing with accountants, architects, engineers, financial advisers and other professionals who give advice to, and carry out work for individuals and companies.

But the principle doesn’t only apply to professionals. Even the driver of a school bus has to have a special licence from the Department of Transport and a ‘blue card’ permit from the Department of Children’s Services. An electrician, plumber or gas fitter has to first obtain technical qualifications and then receive an accrediting licence from government before they can work for clients. Most professions and technical trades require accreditation by government, but not so consultants

I’m sure you get the idea here. For most professions and technical trades there is a clear and unambiguous definition of the criteria required to work in those professions and technical trades. These criteria require formal qualifications and accreditation by government licence. Significantly, what comes with the accrediting licence are enforceable limitations, breaches of which can result in substantial penalties such as fines, imprisonment and/or the loss of the right to work in that profession or technical trade.

But there are no such constraints on consultants! Consequently, anyone, anywhere at any time can become a consultant. Alan Weiss, the very influential international consultant and author (to whom I am indebted for some of the thoughts outlined here), has suggested that there is only one other calling that exerts as much influence over the public and requires very few formal qualifications. That calling is astrology. Alan makes the point in his best-selling book ‘Million Dollar Consulting’ (McGraw Hill Books, 1998, ISBN 0 07 069628 4: http://www.mcgraw-hill.com/) that it is probably tougher to get into astrology than into consulting. Any person contemplating a career in consulting should read Alan’s book.

What is a consultant, really?

Consultant: a definition. There is a continuing debate about what actually defines a consultant. From my perspective, the most important criterion that differentiates a consultant from a contractor who simply supplies services on a fee-for-service basis is this. A consultant, in response to a client company’s need, must provide the client with independent specialised expertise, information, advice, knowledge, skill, representation or other resource that materially improves the client’s status quo in a clearly identifiable way.

Key points. The first key point here is that the consultant must provide to the client something unique that the client will highly value. The second key point is that the value of that ‘something’ must be of sufficient magnitude to justify the client paying a fee to the consultant that is clearly above and beyond what the client would consider a ‘normal’ investment. I know that not everyone will agree with that definition, but it reflects my view of a consultant’s role, duty and responsibility to a client.

Misuse of the term is endemic. To extend my point of view, I would say that the misuse of the term ‘consultant’ is endemic. For example, a person who develops a training program for salespersons and sells it to a company is not, within my definition, providing a consultancy service. That person is simply providing a service for a fee, despite the fact that he or she may call himself or herself a ‘training consultant’. That situation is no different to the situation of a company sending its sales people to a seminar or workshop to learn new sales techniques and information. The organisation conducting the seminar or workshop is not providing a consultancy service to the company, yet it provides a service similar to the ‘training consultant’.

The consultancy profession: the good, the bad & the ugly

All the above notwithstanding, consultancy is a profession. It is a profession in which ethical conduct, personal reputation, trust and integrity are the keys to success. Professionalism is therefore vital. To be seen as professional, the consultant must exercise discipline and responsibility in all dealings with clients. In turn, this will enhance the consultancy profession. For example, even though a consultant has a need to work in order to eat, the consultant should not accept every assignment just because it is there. There are some important side issue factors to be considered here.

Consultants’ responsibilities. For example, a consultant must not accept any assignments for which he or she is not qualified or competent to complete. This requires the consultant to know his or her limitations and accept them. If a consultant is not the right person for an assignment, that consultant owes it to the client to introduce a specialist who is. If the consultant however is ‘ethically challenged’ and completes an assignment for which he or she was not adequately competent, the consultant

  • probably will be paid,
  • probably will not be sued for malpractice, but
  • almost certainly will be unlikely to receive another assignment from that client.

Ethics are important. Most importantly, the consultant will have acted unethically, and that will adversely reflect on the consultant’s reputation. As a professional consultant, this is the single worst thing that can possibly happen, because more than in just about every other profession, a consultant’s reputation is his bond, his raison d’être. Without reputation, the consultant will cease to attract business. Worse, and most insidious, the consultant will taint the whole profession and create a climate of mistrust and low expectations among potential clients. This can adversely affect the overall market for consultancy services.

Consultants therefore face a number of sensitive ethical issues. How they deal with those issues will determine their reputation, trustworthiness and credibility. Without reputation, trustworthiness and credibility, the consultant will not get work. Consultants without reputation, trustworthiness and credibility will be forced from the profession. The rest of us consultants will not shed a tear at their departure.

Yes! This is personal. So how do I, as Chiron! the business doctor.™, deal with these important issues of ethical conduct, personal reputation, trustworthiness and integrity? I explain how I deal with them in my webpage The Chiron Code of Ethics.

Why do companies need consultants, anyway? Why do companies use consultants?

Let’s return to the original question posed at the top of this webpage. The question itself raises the point that that there are puzzling questions surrounding the hiring of consultants by companies and governments. After all, generally speaking, companies and governments already employ executives with a high degree of expertise in a number of business disciplines. In fact, the reality is that in many cases, the employed executives are probably more highly qualified than the consultant is. The conundrum therefore is this: why are consultants held in higher esteem than in-house employed experts and paid more than the in-house employed experts?

Despite debate, consultants rule! These are questions that will most probably never be conclusively resolved, but will continue to spark debate. That notwithstanding however, there are some valid reasons why companies and governments use consultants, and use them repeatedly. Some of these reasons are:

1. The almost constant demand for capital

The need for capital is a continuing need. Every company, whether an early-stage start-up company or a successfully operating company, needs capital from time to time for business development and expansion purposes. The need for capital is a continuing need. Consequently, in the frequent situation where a company does not want to use a substantial amount of borrowed money to fund a particular expansion project, companies will hire consultants such as Chiron! the business doctor.™, who can help them to tap into the private equity market for capital funds.

2. Turning around companies in distress

Business failure is endemic throughout society. Company liquidation statistics tell us that there are always a great many businesses in trouble or distress. Statistically, most of these troubled or distressed businesses will fail! Of course, it is possible to save many of these troubled or distressed businesses, but the initiative to do so must come from them. After all, they are the only ones who actually know how dire the situation is.

Prepare a Plan B. If they want help to save themselves, they must have a Plan B in place with a trusted consultant turnaround specialist – someone such as Chiron! the business doctor.™. In turnaround management, time is a very precious commodity and it is always in short supply. Any delay in calling me may significantly contribute to the complete close-down and liquidation of your company because not enough time is available to implement an effective recovery plan.

3. Filling the need for special skills, expertise or experience

Many companies find an occasional need for a person with particular skills, expertise or experience that are not held by anyone employed in the company to undertake some specific task or tasks. Alternatively, a company may just need someone to help out during a period of high activity where existing staff cannot cope with the workload volume. Then there is the problem of the extended absence of a business owner who has no one in-house to take over the management responsibilities during the absence. If you are faced with any of these situations from time to time, call me on (+61) 0404 631 230. I offer no guarantees, but I may be able to help you at the time.

4. The obligation to shareholders for high-level business efficiency

Companies must operate efficiently. Inefficiency leads to higher costs, which inevitably leads to uncompetitive selling prices for the company’s products or services. Uncompetitive selling prices mean that businesses that are more efficient will infiltrate the company’s market share, thereby devastating the company’s sales revenue. A reducing sales revenue situation must be corrected quickly or it will have fatal consequences for the business.

In these circumstances, companies will hire consultants who can look at the company from a ‘whole-of-business’ perspective in ways that are beyond the scope of existing executives. The consultant therefore can make independent recommendations to improve the company’s overall efficiency, however the company wants to define that term.

5. There is a constant demand to increase sales

No business can carry on without enough sales to cover all its operating costs and make a profit. A company that needs to increase its’ sales relatively quickly may hire a consultant to bring in some new ideas to re-invigorate the sales effort.

6. Companies need problems solved and conflicts resolved

When faced with difficult or intransigent internal management problems, a company will sometimes need an independent or neutral person to objectively review its internal management or functional operations in specific areas and make recommendations for improvement.

7. Companies need new ideas to keep ahead of their competitors

Sometimes a company will face an apparently complicated or unusual problem for which a solution seems difficult. Senior management may feel that employees are too close to the problem to be objective in recommending solutions. Consequently, the company will bring in an external consultant with problem-solving skills to provide a fresh approach to solving the problem.

From senior management’s point of view, there are distinct advantages in a ‘neutral’ consultant dealing with the problem because of the consultant’s impartiality. Moreover, the consultant will not have any conflicts of interest in recommending possible options to resolve the difficulty. This is actually the traditional consulting assignment situation.

8. Company politics: shareholders’ nightmares

It is not unknown or unexpected that sometimes internal competitive pressures between senior executives, or company working divisions, can have an adverse effect on problem solving, particularly where solutions may have an unfavourable effect on particular executives or company divisions. So it is not beyond comprehension to understand that the solution to a specific problem may be readily identifiable, but for sensitivity reasons, those who understand the problem cannot present the solution, let alone implement the solution.

The appointment of an independent or neutral consultant to review the problem, make recommendations and implement a solution can take the heat out of the matter. In such a sensitive situation, the consultant, who is an unbiased, impartial and disinterested participant in the resolution process, will not be influenced by company politics in reaching a solution to the problem. This is another form of the traditional consulting assignment situation.

9. Government regulatory compliance

Companies can be subject to fines and company executives can be subject to fines and imprisonment if government regulations are broken. There is no exception, there is no escape: all companies are subject to government regulations. These regulations cover every aspect of business: financial reporting, fiduciary responsibility, taxation, capital raising, trade practices, consumer protection, industrial relations, environmental protection, you name it; it’s there, and its covered by government regulations.

It is simply impossible for a company officer today to have complete knowledge of all applicable government regulations. Consequently, companies hire consultants with expertise in particular areas of government regulation to review specific areas of their operations to ensure regulatory compliance.

10. Coaching staff

Business today operates in a very competitive commercial environment that is becoming more and more complex. There is therefore a continuing requirement to educate staff at all levels to be effective. The business reality is that those companies whose staff cannot contribute effectively in today’s very competitive commercial environment are doomed to failure.

Chiron! the business doctor’s™ ‘Two Dozen Questions to Show Why I Need a Consultant’ Test

If you answer ‘Yes’ or ‘Don’t Know’ to any of the following two dozen questions, you may be in need of a consultant’s help:

  • Do you lack a comprehensive, written business plan?
  • Has your overall sales revenue declined over the past two reporting quarters without a commensurate decline in your overall operating costs?
  • Over the past two reporting quarters, have sales for your key products or services declined even though your overall sales may be holding steady?
  • Are you experiencing a loss of market position?
  • Do you lack detailed information about your competition?
  • Do you lack important information about your market demographics and your customer base?
  • Do any of your individual customers or clients account for 30% or more of your revenue?
  • Are you experiencing a steady, constant increase in costs?
  • Do you experience regular shortages of cash?
  • Is your working capital presently insufficient to purchase all the raw materials you need to manufacture goods for sale in the next sales period or all the inventory you need for sale in the next sales period?
  • Does your bank account balance keep reducing?
  • Has your bank account been frozen occasionally?
  • Are you completely sure that some of your cash flow is not being diverted to non-revenue producing uses when it should be used solely for essential purchases of raw materials or inventory goods for sale?
  • Do you experience chronic delays or late deliveries of product to customers?
  • Is your business presently unable to afford the purchase of new technology or equipment required to keep you competitive with business adversaries?
  • Do you experience excessive rework on stock products or returned products?
  • Are you continually experiencing raw material supply deficiencies?
  • Are your staff overworked (i.e., do you get regular complaints about too much overtime)?
  • Do your employees suffer from unexplained low morale and commitment?
  • Is it becoming more difficult or too expensive to maintain your company’s professional corporate image?
  • Have you received rent arrears notices or an eviction notice for non-payment of rent for your premises?
  • Have you been threatened with the repossession of company machinery or vehicles?
  • Has litigation been initiated against your company by customers, suppliers or financiers?
  • Are you facing action from the Taxation Office?

I reiterate, if you answered Yes or Don’t Know to any of these questions, you should call me without delay on 61 (0) 405 702 644 so that your circumstances can be confidentially discussed with me on a ‘no obligation’ basis. The next move is up to you!

Please Note This Personal Limitation. As a sole-practitioner, I simply cannot accept every assignment I receive. There are unfortunately not enough hours in each day. That’s why, if you can see the advantages of you and I working together to improve your business in some tangible way, you must call me without delay on (+61) 0404 631 230. For fairness, I must operate on the ‘first up, best dressed’ principle. Why not call me now, this minute, and go for it!

Yours sincerely,

Graham  Segal

Chiron! the business doctor.™ ... relieves business pain!™ 

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© Graham Segal, Author. March 2013. All Rights Reserved

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This website and the associated webpages content are produced by Graham Segal trading as Chiron! the business doctor.™. They are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License based on Graham's work at http://chironthebusinessdoctor.com.

Date this webpage last reviewed/updated: 5 May 2013

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