Reforming the Professional Interim and Independent Consultant Supply Chain Model?

English: Francis Maude MP, Minister for the Ca...

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This week, I have,  somewhat belatedly, carefully read the  House of Commons Committee of Public Accounts (“PAC”) report entitled “Central government’s use of consultants and interims” (“the PAC report”) dated December 14 2010. This followed a visit to the Cabinet Office with my colleague Tony Colwell and numerous conversations with fellow interims and intermediaries.

This blog is primarily focused on the Public Sector but there is no reason why the views are not generalizable across the whole supply chain.

The invitation to the Cabinet Office came indirectly from the Rt. Hon. Francis Maude, Minister for the Cabinet Office & Paymaster General following receipt of a copy of my Catch 22 White Paper from my MP, Don Foster. Francis Maude replied to the Don Foster:

 “To ensure value is both improved and sustained, work is currently underway to develop a new strategy to centralize and simplify how Departments buy common types of consultancy and contingent labour”.

 Francis Maude kindly forwarded a copy of my White Paper to the appropriate team at the Cabinet Office and invited me to speak with the official leading the team and this resulted in a very successful meeting last Friday. I was accompanied by Tony Colwell who is a Supply Chain expert.

I met with Tony ahead of our visit to the Cabinet Office and kicked around our views of the professional interim supply model. This resulted in the schematic entitled the “Professional Interim Community” which we used as a discussion aid at the Cabinet Office – this contains five archetype models of intermediary. The meeting went very well and we had a good exchange of views and were able to empathize with each others’ perspectives. In passing, the PAC report was mentioned as evidence confirming both the importance and dependence of Central Government on consultants and interims for the foreseeable future. I strongly encourage the reader to take some time and read the PAC report carefully, in particular the evidence provided by Sir Gus O’Donnell (Cabinet Secretary and Head of the Home Civil Service) and Ian Watmore (Chief Operating Officer, Efficiency Reform Group, Cabinet Office).

Reading LinkedIn forums’ views from the professional interim community over the last twelve months (including those of a former chair of the Interim Management Association), one tended to get the impression that all of the difficulties in Public Sector procurement emanated from OGC Buying Solutions (now subsumed into the Cabinet Office). From our discussions and reflection, Tony and I came to the conclusion that reform was needed to the Professional Interim and Independent Consultant Supply Chain model. Francis Maude had confirmed that the Government were committed to reform but we tentatively concluded that important reforms were perhaps needed from intermediaries, as well.

At this stage, let me embellish this blog with a personal example to highlight the challenges of the context. Last year, a Central Government Department was looking for Shared Services Specialist and I was approached by five intermediaries in a ninety minute period. I attended the interview and soon realized that the brief had failed to properly reflect the challenge. The role went to a former Civil Servant with whom members of the interview panel had previously worked. This little story highlights the inefficiency and gross waste for all stakeholders, namely client, intermediary and interim. Most importantly, it highlights the critical significance of the brief or Statement of Requirements (“SoR”). The final irony is that one of the interview questions was: “Which is more relevent to Public Sector Shared Services Centres, Lean or Six Sigma”? Perhaps, there is one final final sober point for reflection, all five of the intermediary consultants have lost their jobs in the last year.

The PAC report challenged the Cabinet Office for more effective evidence of value creation from consultants and interims which translated into robust output measures.   Tony and I have developed a Professional Interim (PI) Life Cycle Model to explain the value creation process and this will be covered in a future blog. At this stage, what is important is to again stress the criticality of the brief and SoR.

Focussing on the PAC’s paramount challenge to the Cabinet Office, it is well-recognized in innovation research that the best opportunity for cost reduction or maximizing value is in the design stage for the product or service. This applies to PIs, as well. Top quality, professional intermediaries are able to add enormous value to the client by genuinely helping in the design of the PI intervention. Where the client does not give appropriate attention to the Specification of Requirements (“SoR”) the subsequent stages in the life cycle have progressively reduced opportunity to add value. This point is really important because of the wide range in intermediaries’ margins. For example, intermediaries providing a basic timesheet/payment service might have the lowest margin, followed by volume providers, then specialists, with search-based providers probably at the top-end.  Clients who seek help or genuine partnership with the intermediary in creating the PI Objectives and the SoR should carefully consider the value-added of more specialized intermediaries’, who would typically expect to charge higher margins. Where the PI Objectives and the SoR are prepared independently of the intermediary, the client would perhaps turn to a volume intermediary with a lower margin – many would argue that this is contracting rather than professional interim management. Overall, there are three critical output measures to consider when comparing the specialist/search-based intermediary to the volume provider:

  • The total cost of procurement (internal and external)
  • The net benefits receivable from the professional interim’s intervention
  • The composite risk of the intervention

 Intermediaries’ typically currently add a margin to a day rate to cover all services provided within the life cycle, including recruitment, administration and specialized services. This blog favours greater transparency of pricing, with individual services priced separately. For example:

  • Recruitment of the PI at fixed one-time “finder’s fee”
  • Specialized services, like personality tests, at a fixed one-time fee per a rate card (perhaps with discounts for volume)
  • Administration of time sheets and payment to the PI, an uplift percentage on the PI’s fees, or a fixed fee per time sheet/payment cycle

 Best Practice in industries with a strong record for innovation, cost reduction and value creation includes Open Book Costing and visibility of profitability on individually priced products and services. Accordingly, this blog encourages greater pricing transparency from intermediaries as a pivotal element of reform.

The current Chair and the Deputy Chair of the Interim Management Association are in active discussions with the Cabinet Office and it will be interesting to see what transpires.

This theme will be picked up again in future blogs, so I would welcome feedback, whether you agree, disagree or want to share a different perspective? In particular, I would welcome views from full-service, specialist/search-based intermediaries, who typically have not joined framework agreements in the past? Also do you agree with my five archetype models of intermediary?

4 responses

  1. Alf,
    You can be transparent by quoting a project fee which is all inclusive, incorporates a given number of days, allows something for the intellectual capital we bring which is never properly reflected in daily rates and has a small contingency reserve.

    This is how most costly services are sold in this country and across the pond unless you are talking about things such as group insurance which has to be an aggregation of individual risk premiums.
    The day you start itemising everything you will be at a severe disadvantage particularly in this sort of buyers market and the prospect of a severe double dip once the cuts start to be applied with vigour.
    This is because you put yourself in a position of being a supplicant having to justify every line of cost rather than being like a Master builder or outsourced provider on privatizations who simply says your house or are fees will be around about £2 million.

    This and the oversupply situation is why so many interims are being squeezed by clients on rates to the point where rates are halved.

    What happens then is that clients think that there is little difference between a fresh redundant manager and an interim who has been on the bench.

    Indeed in some cases the on the bench interim is viewed with suspicion because he/she will be rusty(in the mind of the prospective client), will not have recent experience etc.

    Consequently they remain on the bench and a lot of them without alternative incomes,capital and supportive spouses suffer financially.

    People like BT Global Services,IBM Global Services and the Big 4 itemise for themselves but never for the client or potential client.

    In fact they even charge for the work they do to produce a quote as I discovered at Essex County Council when BT Global Services were handling IT on a strategically insourced basis.

    At GE Capital when we were selling database marketing services to insurers we quoted for the entire package and then outlined a list of benefits.

    This is how it is done by top flight sales professionals and by executives cast in that role.

  2. John,

    Many thanks for your response.

    You may well be right but greater pricing transparency is Best Practice in industry’s recognized for innovation, cost reduction and market orientation. Please remember my start point was the Public Accounts Committee challenging the Cabinet Office for greater transparency & demonstration of value from consultants & interims.

    It is interesting that a number of top-end interim providers have always operated on the “finder’s fee model” rather than on an uplift on the daily fee.

    Am not sure that too many ISP or interim group’s will feel particularly “well- heeled” right now!

    Thanks again

    Alf

  3. Greater transparency in pricing sounds wonderful but ignores the dynamics of supply and demand and how people behave in the real world when prices are “unbundled”.

    What happens is that buyers or potential buyers will fasten on some aspect of the unbundled price and attempt to renegotiate it.

    If that works they will then try to renegotiate additional pricing strands which will have the effect of making the negotiation process even longer which in turn adversely affects cashflow and ultimate profitability.

    A one-off finder’s fee works well in a situation where residential landlords in a powerful position are dealing with tenants who in this marketplace are normally in a much weaker position.

    In the current marketplace for interims the roles are reversed in that interims relative to clients and ISP’s are in a weak position.

    During the period before the financial crash/bankers bailouts the position was of course very different.
    Thus,if an interim was compelled to negotiate fees directly with the client, the client would be able to work out whether the interim was desperate for money and push them harder than they could push a well heeled ISP or an interim group.

    Often in Local Authorities and in certain other areas parts of HR have been taken over by outsourced providers such as Capita PLC and Commensura so there is less scope for charging for timesheet services than one might suppose.

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