I have been involved in consulting for about 20 years now, and I think one of the biggest challenges (in the long term) for consulting firms is building a sense of ownership and fairness within the company.
One of the biggest problems with people, in general, is that they overvalue what they do and undervalue what others do. IT professionals are no different. The more of a diva a consultant is, the more obscure his sense of contribution and value is. So I think one of the key things to manage within companies is a shared sense of value. Anything less than that makes you a burden, anything more makes you valuable (in varying degrees). It isn’t of course possible to come up with rigid numbers – they’d be more like ranges and they’d vary a lot on a case-to-case basis – perhaps to the point of making them useless. Nevertheless, I think having a vague reference to what is “fair” within a company is better than having none.
My take on what adds value in a consulting company is that there are just three kinds of people who add value:
- Sales and marketing people: They add value by taking the expertise of the company to a target audience and converting that into revenue
- Delivery people: People who do the work
- Management: People who minimize bench time (non-billable hours). These people justify their existence only if resource utilization is better for them than if they weren’t there.
How does one come up with a quantification of value? My approach is to look at the budget spent by large and small consulting firms across varied scenarios and develop a range from there. In my mind what is “fair” in terms of spending and compensation is defined by the market. Using that norm takes away any environmental variation.
- Sales and Marketing. Most companies will spend between 8-30% of their revenue as a cost of acquisition. This would include sales and marketing and would include recurring and new sales. With net new sales taking a lot more effort, most companies rely heavily on recurring long-term clients. Otherwise, this figure shoots up pretty quickly.
- Management. Management takes up about 10-20% of companies in the US and around 40% in the offshore industry. Largely because the roles of a manager are different. In the west, he’s usually making project plans and managing resources whereas in the offshore industry this also includes training, mentoring, and day-to-day oversight.
- Delivery. Pretty much the rest of it, between 50-80% of this goes as compensation for resources. This can include bench times, salaries, and fringe benefits (yes the ping pong table doesn’t pay for itself).
I think having a broad understanding of these numbers and more importantly, a general consensus on these within an organization goes a long way in setting up expectations and a generally motivated workforce.
How is your organization splitting the pie, I’d love to know.