This is the first in a two-part series to determine when your operation needs a consultant. This week, we’ll address the risks. Next week, we’ll evaluate the benefits.
Your company’s gross sales during the past three years have been increasing at a rate of 12%-18% annually. Sales forecasts project continued growth during the next five years. A retail rollout makes the operational task more complicated. Wholesale distribution is expected to increase as your primary distributor is expanding rapidly, and more sales are expected with smaller single unit customers. At the same time, catalog and Internet orders continue to jump.
The variables in the above scenario are not atypical. Clearly a critical strategic choice must be made: Do you want to undertake this effort yourself, or to seek the outside help of a consultant and to what degree? This decision will be felt through the entire organization for the duration of the project, and for years after completion. There is no right or wrong answer at this point. Ultimately right or wrong is defined by the success of the project during and after completion. But making the right decision prior to commencing a project will immediately impact the initial stages, which will determine long-term success or failure.
Understand the risks of relying too heavily on your own resources. The most common is when estimating the abilities of the project team. If you underestimate, you can incur unnecessary consultant fees, and underutilize salary dollars. If you overestimate, the project is at risk of time and cost overruns, and ultimately, a less than desirable delivered result.
A commonly overlooked risk to “going it alone” is managing project scope. Executive level management can be influenced by many factors to change or add onto a project once it has been initiated. When outside consultants are used, a project has the natural tendency to stay within the contracted/defined scope simply for cost reasons. Anything outside of scope, results in change orders, which means more money. This is a strong deterrent to prevent “scope creep” from the upper levels of the company.
When a project is done internally, the only check to “scope creep” is someone saying no, which is rarely done. Who wants to be perceived as being “not onboard” or lazy, or any other negative connotation? As a result, the project grows beyond its original intent, which means more time, more complications, and ultimately more cost.
Once a project is spinning out of control it is difficult to stop and even harder to put back on track.
As much risk as there is “going it alone,” there is also risk in relying too heavily on outside consulting. The most significant is the actual added value of the services performed compared to cost, which unless prior business has been established, is based on trust and word of mouth from referrals. There isn’t much to say about this one. There are good firms, and others not so good, ultimately it comes down to buyer beware.
But if we assume all companies are equal in this regard, what are the inherent risks of outsiders coming inside to do your work?
The learning curve to understand the intricacies of your company must be considered. It takes several weeks, and sometimes months before an external team can become fully functional and effective within an organization. This includes understanding personalities, how functional groups work and interact with each other, and of course office politics. These all come down to the bottom line, in understanding the full ramifications of an accurate and realistic return on investment and obtaining project approval from executive level management.
Does the outside firm have the capability to complete the project? Most companies have clients in addition to your company. Do they have the resources to provide the services needed to meet your expectations? What are the qualifications of those assigned to your project? Can they add resources if required?
Using our growing marketer example from above, suppose the company was changing its SKU mix? What kind of technology would the consultant suggest? Or, as our example illustrates, what happens to its order profile during the company’s retail rollout? What effect will this have on order velocity and shipping for example? What automation will the consultant suggest to make this transition palatable?
While the sheer scope of the project is an issue for companies using internal resources, it’s definitely an issue for consultants. If the project is not clearly defined, and all the desired deliverables included in the project scope, change orders can be costly, and add up quickly. Avoid this with a carefully drafted agreement including as many contingencies as possible. It may cost more in the initial contract, but more often than not, it will save you in the long run by avoiding costly change orders, and project timelines being extended.
Considering the choices of having consultants heavily involved, or relying on internal resources, most executives ask themselves, “Why not do both?” Look at the critical project milestones and determine either a date (phased approach) to bring in help, or break the project up into functional areas (segmented approach), and delegate specific areas to outside firms where you need the greatest help.
This too has its risks.
Clearly defining the start and stop of delivered services must be documented in a clean contract. Without it, ambiguity can lead to delays, cost overruns, and a poorly delivered result.
Projects never run as planned, there are always times of challenge. Accountability when different elements of the project are failing, and the impact to the total project scope is an issue. With a phased or segmented project approach allocated to internal and external groups, the line of accountability can become ambiguous. Which again results in delays, costs, and less than satisfactory results.
Project management is critical in the day-to-day success of the project. When internal groups, and external consulting share this role, the lines of authority can become convoluted. If this method is selected, having a clearly defined project leader, with the final say on important aspects of the project is imperative. Typically, executive management identifies the leader by who has the greatest stake in the success of the project as defined in the agreement or contract.
The other area of impact in a shared project approach is dealing with vendor/manufacturer relationships. Managing outside contractors is challenging. They will be loyal to who writes the checks for their services. With a shared project approach the consulting firm may be tasked with managing the project, but your company is writing the check… this will be an issue as the project grows. Particularly when vendors have managers from both groups giving them orders that contradict each other. This can be avoided by having the checks come from the same source as those managing the vendors, and respecting those boundaries.
Wonil Gregg is an account executive for Brentwood, TN-based systems and distribution firm Fortna.