(Note: the names, client details and even spend categories in this post have been changed to protect the “not so innocent”!)
Following on the heels of my posting “Can a Spend Analysis Have an ROI?” I feel obligated to provide a living breathing example of a situation where someone – in this case a consulting firm - decided NOT to do a spend analysis but plow ahead with sourcing. Okay, it wasn’t just any consulting firm – it was the firm that yours truly was working for at the time (but I’ve worked for so many you’ll never guess which one). And okay, it wasn’t just any project at this consulting firm but it was the project that I was working on at the time. Shame on you, Mark. But hey - I was young and I definitely needed the money!
Anyway here’s the back-story. Our firm had just won a major strategic sourcing project for a $5B consumer products company. Big – about $1.5M in total fees for sourcing of seven spend categories including office supplies, MRO, temps, janitorial services, PCs, corrugated packaging, and travel. How do you think we picked the Magnificent Seven? They sound the typical band of villains, right? Well, it was a very scientific process that unfolded late one Thursday afternoon in the middle of a mid-west summer. I know it was a Thursday afternoon because we would fly in to the client on Monday mornings and fly home Thursday night, and I remember the meeting where the Seven were picked took place just before we all grabbed our taxis for the airport. My Partner and I were sitting with the client’s VP Procurement and a snippet of the conversation went something like this:
CONSULTING FIRM PARTNER: Well Chris, looking at the GL numbers from Charlie (Charlie was a Financial Analyst in Accounting) I’d say we have seven candidates that look perfect for strategic sourcing.
CLIENT VP OF PROCUREMENT: What’s the rationale, Brian?
CONSULTING FIRM PARTNER: Well we usually find that the best categories to pursue are the ones with reasonable spend that haven’t been sourced – that means higher savings – and ones that also don’t present too much of a challenge from a complexity or stakeholder resistance point of view. That way you stand the best chance of capturing some decent benefits while also building the skills and confidence in your organization for taking on more challenging categories later.
CLIENT VP OF PROCUREMENT: Makes sense. So these are the categories? (Looks at the list of the Magnificent Seven). Total spend about $100 million…….that would net us about $10-15 million savings from your estimates, right? I like it. What’s next? Your team will create the detailed work plan?
CONSULTING FIRM PARTNER: Mark’s on it.
What happened next? Well it turned out that three of the categories proved to be massive disappointments after we found that the spend available for sourcing in each of these categories was much less than what had originally been thought. Embarrassingly less, in fact. The reason for this was very simple – the accounting data used to make the sourcing decisions (spend by general ledger code with a few cuts of spend by supplier) had failed to provide the necessary detail and accuracy to make an informed decision. What should have happened? We should have conducted a spend analysis to cleanse the accounting data and classify it into commodity groups based on all the clues available such as vendor name, GL code and cost center. Where we didn’t have enough clues in the data to break out a commodity we should have asked the using departments to help clarify what had been spent with whom. Oh, and we should also have asked whether there were any planned reductions in usage in any of the categories. If we’d done that we would never have picked three of the Magnificent Seven, would never have wasted months of our time and the client’s time chasing minuscule benefits (one category was canned early on, but the other two were continued largely to save face) and – most important – would not have disappointed our client.
What really happened in this case? We believed Charlie from Accounting! Now Charlie is a good guy and does good work. His accounting data works fine for financial reporting and budget planning. But in its raw form it just doesn’t cut it for making effective major resource deployment decisions during the planning of a strategic sourcing program. To accomplish this you need to invest in a spend analysis to transform Charlie’s numbers into meaningful purchasing intelligence. Ignore this advice while recruiting your next “Magnificent Seven” and you may find yourself riding into Sourcingville firing blanks with Charlie watching safely from the saloon.
Sunday, August 31, 2008
Monday, August 25, 2008
Can a Spend Analysis Have an ROI?
Would a private equity firm ever think about investing in a company without conducting a comprehensive analysis of its ability to generate an attractive future return? Of course not! A friend of mine in private equity once told me that for every one hundred million dollars a PE firm invests it has spent a million dollars in internal salaries and due diligence consulting fees analyzing the deal prior to pulling the trigger.
In a somewhat similar vein, would you ever think about buying a new or used car without carrying out at least a rudimentary analysis of the comparative reliability and performance of the various models? I didn’t think so. If you’re like me, in addition to burying yourself in Consumer Reports you also spend all the weekends between February and July test driving every vehicle under the sun until your significant other finally explodes “enough already – make up your mind!”
What about hiring someone for your company? You wouldn’t make an offer to a person without a rigorous evaluation of their capability to perform the job would you? You pick apart resumes, fly candidates in for interviews, give them case studies, call their references, and conduct drug screens and background checks before extending an offer.
What’s the common theme in each of the above examples? It’s that in each case someone is making an investment of money (the due diligence consulting fees, the job candidate travel expenses) or time (lost family time at weekends doing test drives, lost work time interviewing candidates) to gather information critical to a particular decision making process. The return on the investment is an increased probability of a favorable outcome from the decision – a higher profit when the PE firm sells the company three years later, a pleasurable ownership experience for the car buyer, and a high performing employee for the hiring company.
So Mark, I hear you all saying exasperatingly, what the Sam Hill does all this have to do with spend analysis? Quite simply, numerous companies of all sizes across many industries are making high dollar resource deployment decisions in procurement while having little or no access to a piece of information that is critical to the procurement decision making process. That piece of information would be about SPEND. Information providing answers to massively important questions such as: What is total spend? What is spend by commodity, supplier, and department? How much spend is currently under contract, in total and within each commodity? How many suppliers account for the top 80% of spend in each commodity? With how many different departments are your highest spend suppliers doing business? How much spend in each commodity is with non-approved suppliers? Which departments are responsible for the non-approved spend? Only by having answers to these type of questions will an organization be able to identify those commodities, suppliers and departments where the application of scarce procurement resources will yield the highest return.
How does an organization get these answers? By conducting a SPEND ANALYSIS, a process for producing a consolidated and accurate view of an organization’s purchasing expenditures by commodity, supplier and department. I won’t go into the intricate details of the spend analysis process here or the various tools available in the market to conduct one but, yes, to perform a spend analysis you will need to….make an investment! Depending on the approach you take the investment will take the form of people cost to conduct an internal analysis, software license fees for a tool, consultant fees, or a combination of all of these. The key is to perform an effective spend analysis that allows your procurement organization to focus its people, processes and technologies in the areas that will yield the greatest benefits. Examples of such areas are commodities with the highest total spend across the enterprise, commodities with too many suppliers, suppliers doing high volumes of business with different departments, and departments spending large amounts with non-approved vendors.
One of my clients with $500M of total spend recently conducted a spend analysis that identified just over $100M of spend with opportunities for sourcing, incumbent renegotiation and maverick spend reduction. Following the spend analysis this company focused its best and brightest commodity managers exclusively on this $100M and realized $28M of annualized cost savings. Without the spend analysis the same talent would have been wandering blind amongst the $500M and would have been very lucky to have found half of the $28M. Let’s say they were very lucky and found over half, say $18M. That would still mean that conducting the spend analysis had led to an additional $10M of savings. And what did the spend analysis cost? Less than $100K in software and services. Guess what, there’s a spend analysis ROI. And an attractive one at that.
You would be surprised (unless you get to see as many procurement departments as I do) just how many companies today are not able to identify the opportunity areas described above, and by inference are not able to prioritize the deployment of their procurement resources. Many of these companies will tell you they know where the cost savings are. They’ll tell you they know their business and that they know where to look. But they don’t really. They guess where to focus their people. They roll the dice on where to conduct a reverse auction. And they come up with dry holes again and again. Why? Because they haven’t invested. They haven’t done the due diligence. They haven’t test driven the commodities. They haven’t fully evaluated the candidates. They haven’t done a spend analysis.
In a somewhat similar vein, would you ever think about buying a new or used car without carrying out at least a rudimentary analysis of the comparative reliability and performance of the various models? I didn’t think so. If you’re like me, in addition to burying yourself in Consumer Reports you also spend all the weekends between February and July test driving every vehicle under the sun until your significant other finally explodes “enough already – make up your mind!”
What about hiring someone for your company? You wouldn’t make an offer to a person without a rigorous evaluation of their capability to perform the job would you? You pick apart resumes, fly candidates in for interviews, give them case studies, call their references, and conduct drug screens and background checks before extending an offer.
What’s the common theme in each of the above examples? It’s that in each case someone is making an investment of money (the due diligence consulting fees, the job candidate travel expenses) or time (lost family time at weekends doing test drives, lost work time interviewing candidates) to gather information critical to a particular decision making process. The return on the investment is an increased probability of a favorable outcome from the decision – a higher profit when the PE firm sells the company three years later, a pleasurable ownership experience for the car buyer, and a high performing employee for the hiring company.
So Mark, I hear you all saying exasperatingly, what the Sam Hill does all this have to do with spend analysis? Quite simply, numerous companies of all sizes across many industries are making high dollar resource deployment decisions in procurement while having little or no access to a piece of information that is critical to the procurement decision making process. That piece of information would be about SPEND. Information providing answers to massively important questions such as: What is total spend? What is spend by commodity, supplier, and department? How much spend is currently under contract, in total and within each commodity? How many suppliers account for the top 80% of spend in each commodity? With how many different departments are your highest spend suppliers doing business? How much spend in each commodity is with non-approved suppliers? Which departments are responsible for the non-approved spend? Only by having answers to these type of questions will an organization be able to identify those commodities, suppliers and departments where the application of scarce procurement resources will yield the highest return.
How does an organization get these answers? By conducting a SPEND ANALYSIS, a process for producing a consolidated and accurate view of an organization’s purchasing expenditures by commodity, supplier and department. I won’t go into the intricate details of the spend analysis process here or the various tools available in the market to conduct one but, yes, to perform a spend analysis you will need to….make an investment! Depending on the approach you take the investment will take the form of people cost to conduct an internal analysis, software license fees for a tool, consultant fees, or a combination of all of these. The key is to perform an effective spend analysis that allows your procurement organization to focus its people, processes and technologies in the areas that will yield the greatest benefits. Examples of such areas are commodities with the highest total spend across the enterprise, commodities with too many suppliers, suppliers doing high volumes of business with different departments, and departments spending large amounts with non-approved vendors.
One of my clients with $500M of total spend recently conducted a spend analysis that identified just over $100M of spend with opportunities for sourcing, incumbent renegotiation and maverick spend reduction. Following the spend analysis this company focused its best and brightest commodity managers exclusively on this $100M and realized $28M of annualized cost savings. Without the spend analysis the same talent would have been wandering blind amongst the $500M and would have been very lucky to have found half of the $28M. Let’s say they were very lucky and found over half, say $18M. That would still mean that conducting the spend analysis had led to an additional $10M of savings. And what did the spend analysis cost? Less than $100K in software and services. Guess what, there’s a spend analysis ROI. And an attractive one at that.
You would be surprised (unless you get to see as many procurement departments as I do) just how many companies today are not able to identify the opportunity areas described above, and by inference are not able to prioritize the deployment of their procurement resources. Many of these companies will tell you they know where the cost savings are. They’ll tell you they know their business and that they know where to look. But they don’t really. They guess where to focus their people. They roll the dice on where to conduct a reverse auction. And they come up with dry holes again and again. Why? Because they haven’t invested. They haven’t done the due diligence. They haven’t test driven the commodities. They haven’t fully evaluated the candidates. They haven’t done a spend analysis.
Thursday, July 31, 2008
A State Gets Smart
Those of you who follow the public sector space may know that the State of Georgia recently selected SciQuest's e-procurement tool. State agency employees in Georgia who need to buy anything from pens to asphalt will shop in SciQuest's web-hosted electronic catalogs which will be populated with pre-priced goods and services from the State's existing supplier agreements. This decision by the State of Georgia is notable for two reasons - (i) it is another example of an organization electing to carry out its purchasing transactions in a best-of-breed e-procurement tool as opposed to the purchasing module its existing ERP system (numerous Fortune 500 companies have gone the EP route following sunk ERP investments and the State of Georgia already has PeopleSoft) and (ii) it is also an example of another state government that is moving ahead strongly with a strategic procurement initiative (other states moving to transform their procurement function include Virginia and Indiana to name just two).
The shunning of ERP's historically much-maligned inbuilt purchasing functionality in favor of e-procurement is a trend that I would expect to continue both in the private and public sectors. Not so much due to application functionality (a gap that that I would say doesn't really exist anymore since the ERP vendors have refined the workflow in their own e-procurement modules) but due to the fundamentally different way that the best-in-breed providers and ERP vendors handle catalog content. All of the e-procurement providers utilize web-hosted catalogs pre-populated with many of the vendors and products that most buying organization will need (and with the capability to have the organization's specific contract pricing built in). And if a customer has vendors that are not already in the pre-populated catalog it is a simple task for the e-procurement provider to request product and pricing from those vendors and load them into their web catalog. With an ERP provider's e-procurement solution, however, you are most likely going to have to build your catalogs behind your firewall, involving considerably much more time and expense. And now that the best-in-breed e-procurement providers all integrate so perfectly with ERP (e.g. with accounts payable to enable payment reconciliation), why would you ever go the ERP purchasing route? I wouldn't.
As regards Georgia's general procurement transformation initiative, expect to see a lot more of this from state governments in the next 2-5 years. State governments have long presented a massive challenge for creating value from procurement due to their extreme decentralization. Often hundreds of state agencies within a state making their own procurement decisions and developing their own price agreements with suppliers. To complicate matters even more, agencies usually have their own financial and purchasing systems meaning there is no centralized store of data from which to build a consolidated picture of total state spend by category, supplier and agency - key information for identifying and developing aggressively discounted price agreements with suppliers. Rounding out the challenges for states in the this area are a lack of a strong mission/vision/strategy for a center-led approach to procurement and a shortage of strategic sourcing skills among current state procurement staff.
As regards my state procurement crystal ball I would expect to see (or would HOPE to see) state governments address the following five areas:
- Develop and broadly communicate a center-led strategy for procurement in the state with the centerpiece being a strategically focused, "center of excellence"-based central procurement group
- Conducting a best practice spend analysis to develop a consolidated cross-state picture of spend by agency, supplier and agency
- Based on the spend analysis, develop and implement a sourcing roadmap with the objective of maximizing the amount of state spend under cross-agency ("state-wide") leveraged price agreements
- Upskill the central procurement group with the required training in best practice strategic sourcing methods (or hire where needed)
- Implement a state e-procurement system with web-hosted electronic catalogs to drive maximum spend through the new price agreements
The shunning of ERP's historically much-maligned inbuilt purchasing functionality in favor of e-procurement is a trend that I would expect to continue both in the private and public sectors. Not so much due to application functionality (a gap that that I would say doesn't really exist anymore since the ERP vendors have refined the workflow in their own e-procurement modules) but due to the fundamentally different way that the best-in-breed providers and ERP vendors handle catalog content. All of the e-procurement providers utilize web-hosted catalogs pre-populated with many of the vendors and products that most buying organization will need (and with the capability to have the organization's specific contract pricing built in). And if a customer has vendors that are not already in the pre-populated catalog it is a simple task for the e-procurement provider to request product and pricing from those vendors and load them into their web catalog. With an ERP provider's e-procurement solution, however, you are most likely going to have to build your catalogs behind your firewall, involving considerably much more time and expense. And now that the best-in-breed e-procurement providers all integrate so perfectly with ERP (e.g. with accounts payable to enable payment reconciliation), why would you ever go the ERP purchasing route? I wouldn't.
As regards Georgia's general procurement transformation initiative, expect to see a lot more of this from state governments in the next 2-5 years. State governments have long presented a massive challenge for creating value from procurement due to their extreme decentralization. Often hundreds of state agencies within a state making their own procurement decisions and developing their own price agreements with suppliers. To complicate matters even more, agencies usually have their own financial and purchasing systems meaning there is no centralized store of data from which to build a consolidated picture of total state spend by category, supplier and agency - key information for identifying and developing aggressively discounted price agreements with suppliers. Rounding out the challenges for states in the this area are a lack of a strong mission/vision/strategy for a center-led approach to procurement and a shortage of strategic sourcing skills among current state procurement staff.
As regards my state procurement crystal ball I would expect to see (or would HOPE to see) state governments address the following five areas:
- Develop and broadly communicate a center-led strategy for procurement in the state with the centerpiece being a strategically focused, "center of excellence"-based central procurement group
- Conducting a best practice spend analysis to develop a consolidated cross-state picture of spend by agency, supplier and agency
- Based on the spend analysis, develop and implement a sourcing roadmap with the objective of maximizing the amount of state spend under cross-agency ("state-wide") leveraged price agreements
- Upskill the central procurement group with the required training in best practice strategic sourcing methods (or hire where needed)
- Implement a state e-procurement system with web-hosted electronic catalogs to drive maximum spend through the new price agreements
Thursday, July 17, 2008
Guest Starring on E-Sourcing Forum
Just a heads up to my global audience that for a while I will be guest blogging regularly on E-Sourcing Forum, one of the most widely read blogs on procurement and spend management. E-Sourcing Forum is written by my friend David Bush, CEO of Iasta. Iasta is one of the leading providers of e-sourcing software and services, providing solutions for spend analysis, strategic sourcing and contract management. I'm not sure that Dave knows what he's letting himself in for, and I fully expect to be fired when Dave realizes how much my posts are lowering the tone of the place. Nevertheless, ESF will be where you can find me. Some of my upcoming posts will include:
Can Spend Analysis Have an ROI?
".....Numerous companies of all sizes across many industries are making high dollar resource deployment decisions in procurement while having little or no access to a piece of information that is critical to the procurement decision making process....."
A Cautionary Tale of Zero Investment (Released in the UK under the title "I Didn't Do a Spend Analysis but I Sourced Anyway")
A tale of dry holes and those who drilled them.
Surefire Strategy #8 For Producing a Consulting Train Wreck: "Just Focus on what You Can Control, You Can't be Blamed for Someone Else's Actions"
The pitfalls of assuming that you will not be held accountable for the mis-deeds of those over which you hold no sway.
Can Spend Analysis Have an ROI?
".....Numerous companies of all sizes across many industries are making high dollar resource deployment decisions in procurement while having little or no access to a piece of information that is critical to the procurement decision making process....."
A Cautionary Tale of Zero Investment (Released in the UK under the title "I Didn't Do a Spend Analysis but I Sourced Anyway")
A tale of dry holes and those who drilled them.
Surefire Strategy #8 For Producing a Consulting Train Wreck: "Just Focus on what You Can Control, You Can't be Blamed for Someone Else's Actions"
The pitfalls of assuming that you will not be held accountable for the mis-deeds of those over which you hold no sway.
Sunday, July 6, 2008
Can a Spend Analysis Have an ROI?
First of all I hope everyone had a great 4th of July holiday! To those of you who spend much of your work week waiting in airport security lines I also hope you were able to take valuable time out to spend with your loved ones.
This is a just a quick line to give some some early warning that one of the subjects I will be diatribing about next week will be the oft-asked question "how do I quantify the ROI of a spend analysis?". Now come on, admit it, you've asked this question at least as many times as "what happened to the equity in my home?" or "how do I get hold of a Prius?".
See you in the week...
This is a just a quick line to give some some early warning that one of the subjects I will be diatribing about next week will be the oft-asked question "how do I quantify the ROI of a spend analysis?". Now come on, admit it, you've asked this question at least as many times as "what happened to the equity in my home?" or "how do I get hold of a Prius?".
See you in the week...
Monday, June 30, 2008
Surefire Strategy #9 For Producing A Consulting Train Wreck - "Sub Out the Work, Go Do Something Else, then Check in with the Contractor at the End"
Welcome to my next surefire strategy for bewildering your customer with your ability to snatch defeat from the jaws of consulting project victory. Strategy #9 is an oft-followed approach that goes something like this
1. Prime contractor wins a major piece of business following an RFP process
2. Prime contractor now realizes that he won't be able to do all (or in some cases ANY) of the work that he so creatively described himself as being able to do in his RFP response. This could be for a number of reasons including but not limited to:
- he doesn't have the expertise required
- he doesn't have the bandwidth or the staff to do the work himself
- he would rather spend time selling the next piece of work rather than deliver this one
3. Prime contractor rapidly finds and hires a subcontractor (who is generally an expert in the work that has been sold) to do the work. Prime contractor reviews proposal with subcontractor, provides cursory explanation of promised deliverables, and negotiates hourly rate for subcontractor to complete the work while still leaving a fairly attractive profit margin for himself.
4. Prime contractor leaves subcontractor to do the work while he, well, does something else.
............................TWELVE WEEKS LATER............................
5. Prime contractor returns from Maui and drives directly from LAX to client site to meet with subcontractor for review of final deliverables. On arrival at client, prime contractor is horrified to learn that:
- Project is four weeks behind schedule
- Subcontractor has already billed an amount equal to your budget and is demanding additional payment to complete the project
- Subcontractor's travel expenses are equal to 40% of project fees
- Customer is withholding your final payment pending delivery and acceptance of the final deliverable, still four weeks away
6. Prime contractor fires subcontractor and completes the work himself. In some cases the prime contractor will even need to hire another sub if the work requires expertise completely outside of his comfort zone, making the project economics even worse. Results? Late and sub-par deliverables, miserable profit margin, and - perhaps worst of all - a very unimpressed client who will likely hire their mother-in-law rather than you the next time they need a consultant.
What went wrong? Well, by following "Surefire Strategy #9 for Producing a Consulting Train Wreck" the prime contractor above completely failed to adhere to some of the cardinal rules of SUBCONTRACTOR MANAGEMENT, namely:
Rule 1: Clearly identify subcontractor requirements for your project DURING THE SALES PROCESS and identify and shortlist subcontractor candidates well in advance of you winning the work and certainly well before kicking the project off.
Rule 2: Should you win the work, interview your shortlisted subcontractor candidates. Evaluate them based on their understanding of the project's deliverables (which you will VERY clearly define for them) and their ability to persuade you of their expertise and capability to deliver.
Rule 3: Negotiate compensation with your selected subcontractor whereby payment is tied to the SUBCONTRACTOR COMPLETING DELIVERABLES THAT ARE ACCEPTED BY THE CUSTOMER. That way, even if you are indeed in Maui, the sub has an incentive to produce high quality and timely deliverables.
Rule 4: For goodness sake, demand at least twice-weekly status reports from your subcontractor during the project. Preferably, visit the project site at least every other week.
Rule 5: STAY IN TOUCH WITH THE CUSTOMER. Although you are outsourcing the delivery of the work, NEVER OUTSOURCE THE CUSTOMER RELATIONSHIP. Put in at least a weekly call to your main client sponsor to make sure that she is happy with the progress of the project. Remember, the customer doesn't necessarily need to know that your subcontractor is actually a subcontractor (unless, of course, you are bound by the terms of your contract with the customer to disclose this) - for all they know the subcontractor is one of your employees. And you would always keep on top of the work of one of your employees, wouldn't you?
In other words, AVOID AT ALL COSTS Surefire Strategy #9 for Producing a Consulting Project Train Wreck – “Sub Out Major Parts of the Work, Go Do Something Else, and then Check in With the Contractor at the End”!! Implement the antithesis of Strategy #9 instead! In this particular case, this means following the CARDINAL RULES OF SUBCONTRACTOR MANAGEMENT above.
Are you getting into the swing of this "Implement the Antithesis" thing yet? Good!!
Next week, visit 1Procurement Place for Surefire Strategy #8 for Producing a Consulting Train Wreck - "Just Focus on Things You Can Control - You Can't Be Blamed for the Actions of Others".
1. Prime contractor wins a major piece of business following an RFP process
2. Prime contractor now realizes that he won't be able to do all (or in some cases ANY) of the work that he so creatively described himself as being able to do in his RFP response. This could be for a number of reasons including but not limited to:
- he doesn't have the expertise required
- he doesn't have the bandwidth or the staff to do the work himself
- he would rather spend time selling the next piece of work rather than deliver this one
3. Prime contractor rapidly finds and hires a subcontractor (who is generally an expert in the work that has been sold) to do the work. Prime contractor reviews proposal with subcontractor, provides cursory explanation of promised deliverables, and negotiates hourly rate for subcontractor to complete the work while still leaving a fairly attractive profit margin for himself.
4. Prime contractor leaves subcontractor to do the work while he, well, does something else.
............................TWELVE WEEKS LATER............................
5. Prime contractor returns from Maui and drives directly from LAX to client site to meet with subcontractor for review of final deliverables. On arrival at client, prime contractor is horrified to learn that:
- Project is four weeks behind schedule
- Subcontractor has already billed an amount equal to your budget and is demanding additional payment to complete the project
- Subcontractor's travel expenses are equal to 40% of project fees
- Customer is withholding your final payment pending delivery and acceptance of the final deliverable, still four weeks away
6. Prime contractor fires subcontractor and completes the work himself. In some cases the prime contractor will even need to hire another sub if the work requires expertise completely outside of his comfort zone, making the project economics even worse. Results? Late and sub-par deliverables, miserable profit margin, and - perhaps worst of all - a very unimpressed client who will likely hire their mother-in-law rather than you the next time they need a consultant.
What went wrong? Well, by following "Surefire Strategy #9 for Producing a Consulting Train Wreck" the prime contractor above completely failed to adhere to some of the cardinal rules of SUBCONTRACTOR MANAGEMENT, namely:
Rule 1: Clearly identify subcontractor requirements for your project DURING THE SALES PROCESS and identify and shortlist subcontractor candidates well in advance of you winning the work and certainly well before kicking the project off.
Rule 2: Should you win the work, interview your shortlisted subcontractor candidates. Evaluate them based on their understanding of the project's deliverables (which you will VERY clearly define for them) and their ability to persuade you of their expertise and capability to deliver.
Rule 3: Negotiate compensation with your selected subcontractor whereby payment is tied to the SUBCONTRACTOR COMPLETING DELIVERABLES THAT ARE ACCEPTED BY THE CUSTOMER. That way, even if you are indeed in Maui, the sub has an incentive to produce high quality and timely deliverables.
Rule 4: For goodness sake, demand at least twice-weekly status reports from your subcontractor during the project. Preferably, visit the project site at least every other week.
Rule 5: STAY IN TOUCH WITH THE CUSTOMER. Although you are outsourcing the delivery of the work, NEVER OUTSOURCE THE CUSTOMER RELATIONSHIP. Put in at least a weekly call to your main client sponsor to make sure that she is happy with the progress of the project. Remember, the customer doesn't necessarily need to know that your subcontractor is actually a subcontractor (unless, of course, you are bound by the terms of your contract with the customer to disclose this) - for all they know the subcontractor is one of your employees. And you would always keep on top of the work of one of your employees, wouldn't you?
In other words, AVOID AT ALL COSTS Surefire Strategy #9 for Producing a Consulting Project Train Wreck – “Sub Out Major Parts of the Work, Go Do Something Else, and then Check in With the Contractor at the End”!! Implement the antithesis of Strategy #9 instead! In this particular case, this means following the CARDINAL RULES OF SUBCONTRACTOR MANAGEMENT above.
Are you getting into the swing of this "Implement the Antithesis" thing yet? Good!!
Next week, visit 1Procurement Place for Surefire Strategy #8 for Producing a Consulting Train Wreck - "Just Focus on Things You Can Control - You Can't Be Blamed for the Actions of Others".
Friday, June 27, 2008
Is There Such a Thing as Knowledge Transfer?
This consultant was talking with one of his clients this week about knowledge transfer on consulting projects. Specifically, does it ever actually happen? The standard vanilla consultant script on this subject (which I have personally delivered OH so many times) is something like:
"Well, there are a three main ways we could make knowledge transfer happen for you, Steve. One approach is for us to lead the engagement and for one of your guys to shadow the consultant lead on each category team. That way, your people will pick up the skills as they watch our consultants do the work. A second way is formal classroom training courses which we would deliver to your folks. At the completion of the training your staff would have the skills to execute the work themselves. A third way is to use a combination of the two". (Have you noticed how the third way is always a combination of the first two? Hmm.)
What do you all think? Which is the best way to transfer knowledge to client staff on consulting projects? Do any of them really work? I have my views. I want to know yours. Let's discuss next week.
Also next week - a little late I know, but what's new (Hey! I'm Working Here!) - Surefire Strategy #9 for Producing a Consulting Project Trainwreck - "Sub Out Major Parts of the Work, Go Do Other Stuff, then Check in with the Contractor at the End".
"Well, there are a three main ways we could make knowledge transfer happen for you, Steve. One approach is for us to lead the engagement and for one of your guys to shadow the consultant lead on each category team. That way, your people will pick up the skills as they watch our consultants do the work. A second way is formal classroom training courses which we would deliver to your folks. At the completion of the training your staff would have the skills to execute the work themselves. A third way is to use a combination of the two". (Have you noticed how the third way is always a combination of the first two? Hmm.)
What do you all think? Which is the best way to transfer knowledge to client staff on consulting projects? Do any of them really work? I have my views. I want to know yours. Let's discuss next week.
Also next week - a little late I know, but what's new (Hey! I'm Working Here!) - Surefire Strategy #9 for Producing a Consulting Project Trainwreck - "Sub Out Major Parts of the Work, Go Do Other Stuff, then Check in with the Contractor at the End".
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