In 2014, Accenture reported revenue of 30 billion USD with net income before taxes of 3.1 billion USD. Over half (15.7B) of that revenue was derived from the consulting business. Now compare Accenture’s consulting revenue to your IT consulting budget. If your consulting budget is, say, 30 million dollars a year, then Accenture consulting revenue is 500 times the size of your budget! Put differently, for every single program or contractual relationship you establish with Accenture, they have the advantage of executing 500 programs just like yours.
In every customer / supplier relationship there is always a balance of value. A supplier is working to assure that the customer is satisfied with the value of the service levels provided and that those service levels are justified by the profit they are deriving from the engagement. The customer should always be assessing whether they are deriving the value from the supplier that justifies the cost. With 4 billion dollars in profit, it is clear that Accenture understands how to convince customers that they are receiving value for their dollar.
Then the question is – are customers using the correct yard sticks to evaluate the maximum value possible they could be obtaining? When customers do not receive maximum value, we define the lost value as leakage. From our experience, it is not uncommon for customers to experience 10-30% value leakage over the life of a contract. With our hypothetical 30 million dollar consulting budget, that is the equivalent to 3 million to 9 million dollars of lost value!
The Seven Sources of Value Leakage:
There are seven broad areas of value leakage that can be addressed throughout the life cycle of a consulting engagement. Individually, these broad areas can lead to 2-10% of value leakage, and combined they can create the 10-30% opportunity across the time frame of a typical contract.
1. Contract Development and Management – The establishment of the initial contract is critical to forming the baseline for value derivation. The rigor with which the contract or the engagement is managed is also just as essential. Accuracy in billing, task definition, scope management, and tax planning can all lead to significant savings across the life of the contract.
2. Consultant Enablement – with consultant rates being what they are, there are clear advantages to maximizing the productivity of each individual consultant. Individual consultant productivity is influenced by initial knowledge transfer, administrative and technical support, and the proper matching / pairing of consultant and customer talent.
3. Staffing Assignments – clearly an area that is ripe for leakage. Specific opportunities include: overstaffing the program organization, missed opportunities for knowledge transfer, miss-matching job levels with tasks to execute, and not accounting for productivity assumptions over the course of a long program.
4. Failure to Leverage Assets – consulting firms advocate the use of the firm’s assets to reduce the cost of a client’s program, however, many customers fail to take advantage of these assets and constantly re-invent the wheel, paying for each new wheel as it is developed. Assets that are established over the life of the program can also be leveraged to reduce the costs for future deployments. These new assets should be factored into the productivity assumptions of the resources on the project.
5. Consulting Organizational Value – customers often make the mistake of assuming that the value to be derived from an engagement is to be received solely from the resources assigned. Additional value can be derived through the leverage of the consultant’s sales and marketing organization, the centers of expertise, and relationships with other consultants’ clients.
6. Lack of Execution on Exit or Re-cycle Plans – a clear area of value leakage is the unintended consequences of developing a dependency on specific consulting resources. This dependency results in the client’s inability to release the resource on schedule and, as a result, incur costs that exceed what was originally planned.
7. In-effective Program Governance – Undoubtedly, this is the area with the potential for the greatest loss in value. Slow decision making, poorly executed risk management, and improper alignment of client owned tasks create significant risks in on-time / on budget delivery with a legitimate out clause from previously negotiated incentives. This can result in months of delay and additional costs for the fixed value that was initially identified.
Maximizing the value that customers can derive from system integrators requires attention and diligence throughout the lifetime of the engagement. With a potential payoff of 10-30% of the value derived, the efforts are clearly worth it.
To learn more about the UpperEdge Consulting Engagement Value Extraction Process contact us at:
Direct: (617) 412-4335
Email: [email protected]