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Corporate leaders call upon management consultants for a number of reasons.
Yet, a stubborn gulf persists between buyers of consulting services and their perceived return on investment. Fewer than half of consulting firm clients report that the value created from their engagements was greater than the fees paid. In our view, this is unacceptable.
It is hard to think of another area where it would be acceptable for an investment to pay off less than 50% of the time. At our consulting firm West Monroe, we know our business depends on delivering real, apparent value. Unless the ratio of satisfied clients improves dramatically, the consulting industry is in danger of settling into a reputation for wasting money.
In the best cases, engaging business consultants around a specific opportunity can lead to tremendous growth. Deployed strategically, the investment can yield outsized returns. Recently, a private equity firm engaged us to lead the integration of two merging health providers. In just 150 days, the newly integrated entity emerged with $4.5 million in annual savings on a new EMR platform, an additional $3 million in savings from eliminating redundant technology solution—and a 10x return on our project fees. That experience should be the norm, not the exception.
Why was this project so successful? The client and our team began where so few consulting engagements begin: We collaborated to identify specific financial return targets at the very beginning. This exercise not only dimensioned the value of the project, but it allowed both parties to become very clear, and therefore focus on, the drivers of financial value.
Doing the Math Is Easy, Building the Equation is Hard
Business leaders and consultants can work together to change the perception of value with a relentless focus on delivering ROI—before, during, and after the engagement. Defining the value of a potential engagement requires doing the math to calculate expected returns. That needs to be followed by consistent communication at the beginning and throughout to execute a clear, specific business case. That business case needs to be broadly communicated to all key stakeholders after the project ends and the original business case revisited periodically for continuous improvement.
While math may be the easy part, building the equation is the trickiest, and that requires an understanding of financial value drivers. Focusing on financial value creates alignment between both parties so that the priorities are identified and everyone can be on the same page making informed decisions and responding to business needs. Far from a burdensome exercise, focusing on mapping out financial value with robust business cases and models will help create a more nimble, cohesive team.
With solid business cases in place at the outset of engagements, clients can increase the chances that they will experience outsized returns. Without business cases, clients run the very real risk of wasting time and money on projects that never should have started or were ill-conceived at the outset — and the consulting industry as a whole will continue to experience lackluster customer satisfaction.
Build a Business Case—Every Time
As financial executives know, the operations of a business come down to hundreds of decisions about how to allocate budget. But the decisions made at the other end of the spectrum, the kind that determine the future strategic direction of a company, are also the ones that come with the largest price tags and the greatest risk: Should we go after a new customer segment? Should we offer a new product line? Should we invest in machine-learning technology? Is now the time to rethink our back-office processes? How do we remain competitive to avoid losing market share?
The answers to these questions are the same: It depends on the business case.
A business case is the lens through which market conditions, industry trends, and customer experiences are viewed together to provide a business rationale for one strategic direction over another. The business case is the financial reasoning behind any decision. It takes into account the financial cost—how much time, labor, materials, and capital—and weighs it against both the size and risk of achieving projected gains. It should be a formal exercise with plenty of written documentation and mathematical models that can be used to articulate the potential returns of any given investment.
Under the guise of “moving fast”, we see too many companies bypass this crucial step — or turn to us to answer these harder, long-term strategic questions for them. They want us to tell them how they should be investing in the future.
The best leaders build business cases into everything they do. At Amazon, one of their most famous practices is the six-page memo business case. In the new book, Working Backwards, two of Amazon’s most senior product executives detail why well-written business cases that explored potential future directions of the company were so critical to their success: “The stakes of these decisions were so high, and the potential consequences were large,” they wrote. “Before we make an important decision about where to invest time and money, we need to have a thorough understanding of the variables, market conditions, and reasoning.”
Like any important strategic question deciding whether or not to engage consulting services will benefit from Amazon-esque business case rigor. Focusing on financial value as a clear signal to direct strategy is an effective way to drown out the noise and home in on what really matters at the end of the day.
For any business deciding how to allocate budget, expenses must be justified. And the best way to justify an expense is with an expected return.
Read the rest of our point-of-view, “Demonstrating the financial value of consulting” to learn how to build financial models specific to consulting investments. Need help defining the value of your next consulting engagement? Fill out this form to see if we can help.
Tom Bolger is the Chief Strategy Officer at West Monroe. Casey Foss is the Chief Marketing Officer at West Monroe.