Consulting attracts intellectual individuals, and those individuals collectively form the core product of a management consultancy. Packaging the knowledge and skills of its people, and delivering these skills through services and solutions, creates differentiation for a consulting firm.
The people side of the consulting business can’t be under-emphasized. As evidence of this priority, we have found that the vetting process of candidates at many firms, particularly mid-sized, can average 45 hours of interviews per hire. This time investment is necessary since proper selection leads to very low turnover and avoids the costly measures of retaining or replacing talent.
With all the emphasis on talent selection and human capital as a means of creating such levels of differentiation, it is surprising that the methods used by consultancies to manage these resources are relatively staid by comparison. In fact, this phenomenon reinforces the fact that while consultants are expert in advising clients on best practices, they often face difficulties with their own operations.
Managing a consulting firm, as one comes to realize, is significantly different than being a consultant. Often the management challenge can be rooted in philosophical differences among owners, which manifests itself in the boot-strap approach of “who does what” with client-facing partners assuming the roles of internal managers. In other cases, basic delegated operational structures and decision-making that served a firm well in its early stages, become unwieldy as consultancies grow.
Not surprisingly, even seemingly minor issues can have a significant effect on growth and profitability. Not unlike the companies they serve, managing and developing a consultancy’s resources becomes more complicated as the business expands.
Consultancies typically follow a fairly linear path in terms of growth and maturity. There are various thresholds that firms face—primarily in size—that can prove difficult to cross. As firms reach certain revenue levels, they face increased complexity in back-office operations, specifically with HR management issues and structure. Many firms remain mired at levels <$20m due to their inability to manage rapid growth. Additionally, early-stage growth is characterized by ad hoc HR management; senior consulting practitioners/partners typically implement such functions as recruiting and training with tactical assistance from staff-level personnel. As firms grow, the underlying HR management at successful consultancies becomes more structured. Meanwhile, firms that remain unstructured with its HR function usually fail in their efforts to scale the business.
Many boutique consultancies struggle as business scales because the operational demands of running the firm consume increasing amounts of otherwise billable time. The consulting industry has a very large population of smaller firms whose owners fail to relinquish day-to-day management of back-office operations. Conversely, partners may recognize the management conundrum, but opt to address the issues through a hybrid approach whereby partners still control decision-making while handing off tactical execution to in-house staff.
While either approach is perfectly reasonable from the owner/partner perspective, in each case, those managing the firm face the same challenges as their clients, namely, what activities should be managed with internal resources, and what can (and should) be outsourced for efficiency and profitability? By not addressing the challenge head-on, firms ultimately stymie their own growth prospects and potentially limit the long-term viability of their business.
As evidenced by the growing size gap between global consulting providers and small boutiques, there is also a separation with the HR function within those two camps. The largest consulting firms make sizable investments in both the people and systems to manage their human capital assets. Small firms’ historical seat-of-the-pants approach to HR has evolved to some degree. But it’s obvious that many consulting firms would benefit greatly with a commitment to efficient and effective HR management.
Written by Tom Rodenhauser