Selling Professional Services to the Fortune 500

By GARY S. LUEFSCHUETZ

The McGraw-Hill Companies, Inc.

Copyright © 2010 Gary S. Luefschuetz
All right reserved.
ISBN: 978-0-07-162282-0

Contents

Chapter One

Understanding the Consulting Services Market and Delivery Landscape

At a macro level, the global consulting market consists of a wide variety of service offerings that span two major domains—management consulting and information technology (IT) consulting. There are many ways to segment the market beneath these two major domains. Management consulting is typically broken down into three additional focus areas: strategy, operations management, and human resources. The information technology domain can be broken down into four discrete phases: strategy and analysis, design, implementation, and operation.

In terms of understanding the market itself, it is critical to understand that there is a fairly strong line of demarcation across these two major domains, which ultimately differentiates the leading service providers, the substance of services being provided, the engagement profile that includes the leverage model (ratio of senior to junior staff), the skills and experience of the deployed staff, and the rate structure associated with delivery. While many organizations have tried to straddle the boundary and provide full consulting lifecycle services, few have achieved this objective.

I like to think of the market a little bit differently and very simplistically. I believe three major activities occur in the overall consulting life-cycle, which ranges from strategy development through implementation. Those three categories are think, build, and run.

Lifecycle Phases: Think, Build, and Run

These three categories will determine the delivery profile including the team size and engagement duration, the team composition and capabilities, the leverage model, the rate structure, and the service providers capable of delivery. In my experience, most Fortune 500 entities tend to group the build and run components together and to draw a very thick protective box around those organizations that will provide think services to their C-suite and extended leadership teams.

Think is pretty clear on its face; it refers to the phase of the lifecycle in which the underlying corporate, business unit, acquisition, sourcing, supply chain, IT, or other strategy is developed by working with client management to help set their agendas, solve critical business problems, and help them evaluate their most promising opportunities in the marketplace. This type of work requires rapidly understanding and resolving business issues by using a variety of business strategy, diagnostic and market, and economic analysis skills. The think portion of an engagement is relatively short in duration and is typically staffed by a small team with extensive industry and domain expertise.

Because of the importance of the think component of the lifecycle, the team itself will typically be drawn from a global roster of staff in an effort to bring the most qualified resources to bear. In addition, the think team will usually be senior in tenure and hierarchical level, will typically have MBAs or other advanced degrees, and will draw from their organization’s proprietary frameworks, industry models, and robust bank of intellectual capital to develop their solution. For these reasons, “think” resources tend to command hourly rates much greater than any other resources that will be deployed during the entire consulting lifecycle.

Examples of “think” engagements would include general business strategy, manufacturing and supply chain strategy, pre and post merger analysis, geographic strategy and globalization, corporate competitor and market analysis, corporate capital and financial structure, corporate organization design and strategy, acquisition and divestment identification, sourcing strategy, IT architecture strategy, corporate performance management, and corporate partnerships, alliances, and joint ventures. Four primary competitors provide think/strategy services to Fortune 500 entities: The Boston Consulting Group (BCG), Bain & Company (Bain), Booz & Company, formerly Booz Allen Hamilton’s Global Commercial Market Business (Booz), and McKinsey & Company (McKinsey).

As mentioned previously, think/strategy engagements are evidenced by rates that run from approximately $250 per hour for a recent MBA graduate to over $1,000 per hour for a senior executive/partner/director. Strategy services are very much a relationship-based sale, and there tends to be rate structure parity across the four major strategy providers.

As I mentioned previously, the primary providers of pure corporate strategy consulting services are BCG, Bain, Booz, and McKinsey. Overall, strategy services make up approximately 10 percent of the global consulting market, or roughly $30 billion in 2008. Among the four of them, I would estimate that they have previously provided or are currently providing high-end strategy services to 100 percent of the Fortune 200 and most likely 75 percent of the Fortune 500. Typically, a partner or director in one of these firms will build a relationship with and become a trusted advisor to the board of directors, CEO, or executive management team and will provide all strategy services until there is a change in leadership. Although we will dive much more deeply into the actual substance of these services, suffice it to say that corporate strategy services are typically contracted directly with the CEO on a noncompetitive basis, can be sizeable in amount, tend to be outside the purview of anyone in the procurement organization (procurement), have extensive senior executive involvement and a corresponding lower leverage model throughout delivery, are not subject to extensive price negotiation, are in some cases a line item in the annual budget, and are generally exclusively provided by one party.

The bottom line is that the strategy provider is pretty much sacrosanct when it comes to procurement process and price reasonableness. A former colleague of mine once told me that as a director for one of the major firms just identified, he had developed a longstanding trusted advisor relationship with the CEO of a financial services company where he and his team were the exclusive providers of strategy services. For a specific engagement that he was positioning with the CEO, he looked him directly in the eye and said, “The cost for the engagement will be $1 million. And that is my cost; my team is free.” This is an extreme and humorous example, but it serves to epitomize the delivery of high-end strategy services, which are sold primarily on a relationship basis and are exempt from the much more rigid procurement process associated with build and run engagements.

Build and run, which are also commonly referred to as design and implementation engagements, follow the strategy/think phase of the lifecycle and are focused upon transforming strategic direction into action by developing conceptual designs, blueprinting transformative solutions, and successfully implementing them across the client organization. These engagements typically include (1) advising clients on developing a design of operations for future state capabilities and (2) determining a transformation roadmap or implementation plan to move the client to a desired future state. Typical engagements include projects involving processes, systems, project management, change management, and implementation services.

Build and run engagements are typically much longer in duration than a strategy engagement, and the range of skills required for these engagements is functionally based. As a result, teams can be quite large and can consist of staff from a variety of disciplines. These types of engagements are typically led by a project director who manages a large team of junior staff. Given the functional nature of the work, the staffing model tends to be more locally based with consultants working where they live. Because of the nature of these services, these types of engagements are typically staffed by individuals who command much lower rates than their think/strategy counterparts. The range will vary depending upon the opportunity, but a good rule of thumb is that the average hourly rate across a build or run engagement will decrease as the substance of the services being provided progresses farther to the right (closer to implementation) in the engagement lifecycle. In sharp contrast to a strategy engagement, the rate structure for a build and run engagement may range from as low as $75 an hour for entry-level resources to anywhere from an hourly rate of $300 to $500 for more senior project directors and subject matter experts.

The design and implementation domain, which accounts for the other 70 percent of the global consulting market, is much more heavily populated from a competitor set perspective and includes firms such as Accenture, Capgemini, CSC, Unisys, IBM, Booz Allen Hamilton, Deloitte, Lockheed Martin, SAIC, and many other niche providers that focus on either the commercial or public sector markets. In addition, many of the companies whose applications would be implemented in a build and run phase, such as Oracle and SAP, have built robust services organizations that are a major part of the competitive landscape as well. Examples of build and run engagements would include large-scale program management; business process redesign; change management planning and execution; IT architecture and infrastructure planning; IT supply including sourcing, vendor management, and service level agreements; the implementation and rollout of software and other technology solutions; and supply chain optimization.

Although we will discuss it in much greater detail later, a major distinguishing factor between strategy and design/implementation engagements is the level of procurement involvement in the sales process. Historically, procurement organizations within Fortune 500 entities were extremely decentralized and played a very limited role in the procurement process for consulting services. This resulted in business unit or geography leadership with complete autonomy over their consulting budget. However, over the past few years, a fundamental change has occurred in the manner by which the overwhelming majority of Fortune 500 companies procure consulting services. They have undertaken significant restructuring efforts to centralize procurement in an effort to optimize their global consulting spend and share best practices among operating entities. This trend has resulted in a tremendous amount of downward pricing pressure being placed on vendors trying to sell design and implementation services to the Fortune 500 buying community. Unlike strategy engagements, these types of services are very price sensitive, are treated as commodities by many procurement organizations, are subject to rigorous request for proposal processes and to influence by procurement officials, may be limited to a set of preferred vendors who hold a master services agreement, and tend to be much less influenced by relationships during the sales cycle.

Which Path Is Right for You? Picking Your Sweet Spot

Given the size of the global consulting market and the wide range of delivery opportunities, it might seem like a viable option to build staff capabilities and to sell and deliver services across the think, build, and run components of the lifecycle. While this seems like a great idea, it is much easier said than done. Just like choosing a major in college, most professional services firms develop a delivery footprint and corresponding set of sweet spots within either the commercial or government market under which they will capitalize and structure their organization; hire staff with the requisite industry, domain, or functional expertise; establish brand awareness; develop a pricing model; deliver quality products and services; develop a bank of intellectual capital; and build a strong reference base.

A number of organizations have made attempts to and currently deliver a blended set of services that span the commercial and government markets as well as the strategy and design/implementation domains including Accenture, IBM, Deloitte, and Booz Allen Hamilton. Even the high-end strategy firms of McKinsey and BCG have attempted to make inroads into the public sector market, which is evidenced by their executing agreements under the General Services Administration (GSA) MOBIS (Mission Oriented Business Integrated Services) contract vehicle, which would facilitate their sale of consulting services to the U.S. federal government.

Attaining a successful blended delivery model is highly desirable, as it allows for an extremely compelling value proposition that is appealing to clients for the following reasons:

* The client can rely upon one provider for strategy development and the ensuing design and implementation of the programs, initiatives, or technology required to achieve the future desired state as articulated in the strategy plan.

* The client’s ability to rely upon one provider will result in a seamless handoff between the strategy and design/implementation teams without any substantial knowledge loss typically realized during the transition.

* The client can count upon the services provider to deliver staff with industry, functional, and domain expertise that is commensurate with the nature of the services being provided and tailored to the appropriate phase in the lifecycle.

* The client will be able to negotiate a dual rate structure that is commensurate with the nature of the services being provided and priced competitively with other vendors in the marketplace.

* Given this blended services construct, the client will not be paying think/strategy rates for build/design and run/implementation work. To the extent that a master services agreement exists, a dualrate structure based upon the nature of the services being provided will yield a clear approach that can be easily utilized by the broader buying community for similarly situated engagements in the future.

Although this approach and the value proposition it embodies is quite strong and typically very well received by Fortune 500 clients, it can be quite challenging to successfully deliver upon a blended model, as it requires a number of factors including:

* Establishing the internal business process, rigor, discipline, and structure necessary to operate and be competitive from a cost perspective in the commercial market as well as the more complex and more highly regulated public sector market to the extent you wish to cross over the public/private sector domain.

* Maintaining separate sets of workforces with different career paths and pricing structures across the public and private sector domains and the strategy, design, and implementation phases of the consulting lifecycle. The inability to maintain separate workforces with different rate structures will typically result in a complete failure of the blended model. Having a successful blended model hinges upon the ability to articulate and distinguish the respective staff that will be brought to bear throughout the engagement lifecycle. It is therefore critical to provide resources that are commensurate with the nature of the services being provided and competitive with other vendors in the marketplace.

* Allowing for the commingling of resources on a client engagement. This in and of itself can be the death of the blended delivery model. Once you break this rule, there is no turning back. As soon as strategy resources deliver design and implementation work or vice versa, the entire foundation of the blended model is undermined, the integrity of the rate structure is compromised, and it is extremely difficult, if not impossible, to repair.

* Maintaining brand awareness, a reputation for delivering in a timely, quality, and cost- effective manner, and developing a strong reference base across multiple markets and delivery domains. These can become quite challenging to achieve when competing with organizations that develop targeted solutions within a unique industry and specific phase of the consulting lifecycle. Over time, those vendors will perfect their capabilities, refine their solutions, become extremely cost-competitive, and develop a strong reference base that will make it difficult to thrive across multiple domains.

The point is that even with a large staff base, ample financial resources, a global footprint, and diverse delivery capabilities, it is difficult for one organization to straddle over the public and private sector domains or multiple phases of the consulting lifecycle. The most recent example of a large, global, and extremely successful management consulting firm that attempted to cross the public and private sector delivery and strategy, design, and implementation lifecycle domains was Booz Allen Hamilton’s launch of its one-firm evolution that was publicly announced in the 2005 timeframe. In its 2005 Annual Report, CEO Ralph Shrader discussed the fundamental changes that have occurred in the global delivery landscape, namely that clients want their consulting firms to fuse ideas and strategy with functional expertise to deliver results. Despite this clear client mandate, Shrader articulated how little the market had changed. He stated, “I’ve observed how little most consulting businesses have changed in response to that shift in the market. Strategy firms sell strategy; technology firms advise on technology; and implementation firms implement, much as they always have. Most firms similarly draw arbitrary distinctions among different geographies.” He went on to describe how Booz Allen Hamilton is different in that it is able to fuse strategy and technology and deliver measurable results for its clients, irrespective of the industry or geography in which they reside. “Booz Allen Hamilton is the one firm that corporations, governments, and nongovernmental organizations can turn to for help in solving their toughest problems. We know that today’s strategic solutions are entwined with technology at the deepest level, and that no strategic transformation succeeds on paper—or in PowerPoint. Implementation is critical.”

(Continues…)

Excerpted from Selling Professional Services to the Fortune 500by GARY S. LUEFSCHUETZ Copyright © 2010 by Gary S. Luefschuetz. Excerpted by permission of The McGraw-Hill Companies, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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