Some good advice

Entrepreneur,  May, 2004  

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Five years ago, the management consultant was a key part of any business strategy. In many companies, consultants ran the show.

But management consultants are exiting the stage lately: Consultants News, a publication that tracks the consulting industry, estimates that total revenue over the past two years at the Big Three strategy firms--Bain & Co., The Boston Consulting Group and McKinsey & Co.--has decreased 5 percent, 13 percent and 12 percent, respectively.

A huge realignment of consulting is underway that's "bigger than at any other time in the industry's history," says Mark Lipton, author of Guiding Growth: How Vision Keeps Companies on Course (HBS Press) and a management professor at New School University in New York City.

The slow economy hasn't helped the management-consulting industry's bottom line, but perhaps the biggest change is that Fortune 500 companies have grown cynical about the benefits of management consulting. And when large companies do hire consultants, they'll want to see a measurable return on investment.

"[Large companies] are looking more to partner with their consultants," says Norman Eckstein, founder of Eckstein Management Consulting in Chicago and chair of the Institute of Management Consultants USA Inc., a professional organization for management consultants. To keep their large clients happy, the big consulting firms are scaling back projects to include fewer consultants working on much shorter time frames.

What does this trend mean for small businesses, which tend to rely on very small consulting firms? Small companies still need management consultants, and there are a lot of them for hire.

But it's a good time to renegotiate the terms of the entrepreneur-consultant relationship, Lipton says. You want a consultant who sees your company as unlike any other rather than just another company to fit onto a template. Avoid consultants who see their methods as proprietary and propose strategies that take years instead of months to implement--good terms for the consultant but not for you.

Also ask consultants to show you how they'll transfer their knowledge to you] senior management. How the consultant transfers knowledge "needs to be a part of the deal, and even more, a part of the contract," Lipton says.

If business owners demand a new kind of partnership with management consultants, like the Fortune 500 companies are, it will change consulting as we know it. "The entrepreneur is in a real sweet spot right now to reshape the rules," Lipton says. "It sets the stage for a whole new [era] of contracting."--C.P.

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