Performance based pay gaining speed in consulting

17 November 2014 Consultancy.uk

Consultancy firms are redefining the way they price their services. Driven by changing customer expectations, consultancies are increasingly replacing traditional ‘fixed-price’ and/or ‘time-material’ costing methods for performance-based pay methods, or a hybrid form.

In recent years the external landscape of the consulting industry has undergone significant change, eroding the lifeline of some fundamentals which have been in place for over a century. One of these areas is pricing. For decades it was arguably one of the most rigid aspects of a consultant’s business model: clients could either hire advisors for an hourly or daily rate or agree a fixed price for a project. Yet against the backdrop of changing customer demands, in combination with the pressure they face to cut costs and their ability to more effectively measure the impact of consultancy services, gone are the days when a consulting firm could charge based on its track record only.

Pay for performance

Key trend
In 2011 Kennedy already earmarked ‘performance-based pay’ as one of the key trends in the consulting industry, and since, its use has continued to grow, both internationally and in the UK. In the lower-end of the market uptake has accelerated, but also large established firms such as A.T. Kearney, Bain & Company, The Boston Consulting Group and EY have acknowledge that they have increased the use of variable performance. In a more recent research the US-based analyst firm asked consulting firms to indicate the key criteria they use to determine ‘performance’, with a mesh of different constructions the result. In some cases performance is pegged to ‘hard’ results such as shareholder value, the realisation of cost saving or revenue growth, or FTE reductions, yet in other cases firms opt for a host of different ‘soft’ targets. Examples include an improvement to the culture at the client firm, higher job satisfaction of employees, higher knowledge levels and the ability for client teams to apply best practices in future projects.

Despite the hype in the industry surrounding performance-based pay – also known as risk and reward or contingent fees – the deployment of the model is still relatively low. Only around 12% of projects are performance based, up from 8% a decade ago, says the MCA. And often the outcome based fee is only an element of the wider fee structure of the consultancy program. For instance, when Coventry Council hired iMPOWER to consult on reducing costs to their transport programme for special educational needs children, the contract terms allowed for 50% of the fee to be performance based, contingent on achieving a 25% reduction in costs. “There are a small number of cases where 100 per cent contingent can work,” says Michael Robinson, UK head of Management Consulting at KPMG.

Consulting

The success of performance based pay is typically dependent on several contextual factors, such as the type of project, the expertise area and the industry. Its application is generally trickier for high-impact strategy work, as consultancy recommendations find themselves part of a landscape filled with uncertainties, compared to operational improvement projects – boosting the efficiency of a manufacturing plant by 10% is less prone to external influences.

Fees based on outcome are also not without risks. Since the implementation phase is also contingent on the client working with the consultancy firm to bring about changes, the consultancy firm needs to be sure that their client is ready, willing and able to change before such an agreement can be entered into with some high degree of success. Secondly, it requires a high level of sophistication on the part of both the consultant and the client, in particular in the area of benefit tracking and data analytics. And thirdly, it requires detailed KPI-setting and contractual agreements upfront, often slowing the proposal / negotiations phase, and later on in the project risking the focus to be shifted towards ‘target realisation’ instead of realisation of wider, often changing client / project goals.

Change to business model
Looking ahead, the popularity of performance-based pay within the industry is not surprisingly predicted to increase in the coming years. With competition in the market intensifying – the number of consulting firms in the UK has grown by more than 25% to ~140,000 in the past 5 years – and clients increasingly critical on external spending, consultants will be ‘obliged’ to jump on the bandwagon, and at least experiment with different fee models. For the business as a whole, the changing pricing mechanics will have implications. Internal processes and systems will need to be customised to allow for the greater flexibility in pricing, and in addition skills required for performance-based pay will have to be embedded within the organisation, in particular across Manager-up levels. This in turn will also have an impact on talent management in the long term, says Jason Gordon, the partner leading value-based billing at Deloitte: “All these changes do have impact on talent management, recruitment and the traditional pyramid shape of consulting firms.”

Quote's of Michael Robinson and Jason Gordon obtained from the recently released 'The Business of Consulting', a special report from the Financial Times.

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Accenture's push into the creative sector is an identity crisis

18 April 2019 Consultancy.uk

In its latest push into the creative sector, Accenture Interactive acquired New York and London-based ad agency Droga5 earlier this month, adding illustrious clients such as HBO, Amazon and The New York Times to its roster of clients. With the latest in a long line of similar purchases, Accenture Interactive further demonstrated its ambition of becoming the globe’s leading trusted advisor to chief marketing officers. Yet according to Ben Langdon, Chairman of Class35, Accenture’s strategy may be heading in the wrong direction.

A press release on Accenture’s website announcing the acquisition sits next to a quote stating that “brands aren’t built through advertising” – a huge contradiction from a consultancy firm hell-bent on becoming the ‘CMO agency of choice’. It’s not alone of course. The entire consulting industry wants a piece of the creative pie right now. In addition to Accenture Interactive, recent acquisitions by PwC Digital, IBM iX, and Deloitte Digital meant that in 2017, for the first time ever, four of the world’s ten largest creative agencies were consultancies.

So just what it is that Accenture wants to achieve from this? For one thing, it’s clearly trying to be a digital transformation business. A one-stop creative shop rivalling more traditional models, it wants to lure CMOs in with the promise of lower ad spend and a “more impactful customer experience”. At the same time, though, it’s still in thrall to those same slinky, shiny branding and advertising agencies it’s attempting to disrupt. The Droga5 acquisition and that of Karmarama a few years before are both testament to this.

There’s a fundamental problem with this, though. Digital transformation businesses don’t sell to CMOs. These people have enough on their plates trying to transform their own marketing skills in order to keep up with an ever-changing market – they just don’t have the time or the energy to concern themselves with digitally transforming a whole business. If Accenture’s purpose is digital transformation, then going after creative agencies is barking up the wrong tree.Is Accenture's push into the creative sector an identity crisis?

Worlds apart

Perhaps more importantly, these two industries are worlds apart in terms of the way they think. Creative agencies are all about ideas, campaigns and consumers. Digital businesses, on the other hand, are customer-driven – they think in terms such as lifetime value, measurement, and efficiency. Customer-led thinking is an entirely different beast to consumer-led thinking.

The reality is that the arrival of digital and an all-encompassing obsession with technology, measurement and social has led to the death of agencies in a reductive, zero-sum, efficiency-focused battle with brands. Indeed, agencies have become so obsessed with the latest tech fads, they’re beginning to forget how brands work. Worse still, they’re beginning to forget how brands are built. And, by forgetting, they’re destroying their own values.

Killing creativity

All things considered, it really feels to me as though Accenture is a chip leader in a game it doesn’t understand. Expensive acquisitions like these show that they’ve got the big money, but they don’t appear to have any idea what they’re doing with it. Take talent, for example. The best talent in the creative industry right now is out in the market; it’s not tied to any one agency. Both agencies might well be at the top of their game, but why would a consulting firm waste so much money on buying them when they could hire high-quality creative talent on a contingent basis instead?

As their presence in the top 10 creative agencies shows, there is a growing trend in which Accenture, like many of the other big players, are buying up agencies as if they were nothing more than keywords. What they’re really buying, though, is a collection of credentials, clients and IP. Unfortunately, the talent that created those credentials aren’t going to stay at the business, the clients that hired the agency in the first place won’t be interested in buying what is basically just another part of Accenture, and the IP never really existed to begin with.

Droga5, for example, was one of the few agencies that did great brand work the old-fashioned way – undoubtedly something that made it attractive to Accenture in the first place. The irony, though, is that by leading it further away from the way of working that made it so special, the consulting giant will kill its creativity.

“Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record…. But, in flashing its cash, it is spending millions on acquiring nothing of any value.”

If pressed, the recently acquired agency staff at Accenture will tell you just how dysfunctional the new arrangement is. They’re largely unfulfilled. Rarely do they feel their work has any sort of meaning or purpose. What’s more, the different disciplines have found little or no common ground, and find it hard to work together as a cohesive whole. It’s not surprising, then, to see talented people leaving in droves.

Beyond the window dressing 

It’s clear, then, that consulting firms and creative agencies are no easy bedfellows. But in his company’s defence, Accenture Interactive’s Senior Managing Director for North America, Glen Hartman, described its culture as being “far, far away from what a stereotypical consulting firm would look like. Our office and studios look a lot like Droga5’s.”

In demonstrating a belief that office design equates to workplace culture, this statement serves as an illustration of how confused Accenture is right now. It wants to justify its new strategy so badly, it’s started dressing like a creative agency. But if you look beyond the window dressing and see that you and your partners are speaking a different language with a different purpose, selling to different people in a different market, there’s no getting away from the fact that you’re different.

Accenture Interactive has been dazzled by its ambitions to become the CMO agency of record, and it wants to dazzle others with its new direction. But, in flashing its cash, it is spending millions on acquiring nothing of any value.

Related: Space between consulting firms and creative agencies is converging.