AR Classics: The ups and downs of using consultants to select vendors (1990)

It’s Not That Simple, writes Efrem Mallach.

Since World War II, the growth of management consulting has literally skyrocketed. At the beginning of this decade management consulting was a $32 billion industry. In the five ensuing years its economic growth had doubled.(n1) And nowhere has the impact of this growth made more of a mark than in using consultants to select vendors.

All this explosive growth gave new meaning to the term “consultant.” It bestowed the title with considerable prestige. In fact, the consultant moniker grew to carry so much weight it is not only used by contract programmers but also by out-of-work professionals who find part-time employment “consulting” being managed by online time clock systems, and even in the retail industry to describe the sales force. Some are now considered sales consultants.

These twists and turns aside, the conventional definition of a consultant describes an individual who is not on the payroll of the firm for which he or she labors, who contributes specialized expertise or an outside perspective for a limited time, and whose recommendations shape what the employees of the firm will ultimately do.(n2,n3) Typical consultant activities include advising on marketing strategies, expansion, divestiture, and the implementation of technologies ranging from acid storage to zero-based budgetting.

Most discussions of consulting focus on the interactions among the consultant, the firm that engages the consultant (the word “hires” is not used in polite consultant circles) and the problem to be solved. It is assumed that, if a consultant can solve the problem and navigate the organizational politics, the engagement will be a success.

This traditional view is valid as long as the field of battle remains entirely within the firm in question. This was once almost universally the case. However, it no longer is. Consultants are increasingly called upon to represent their clients in dealings with third parties, especially in regard to vendor selection. This happens when three conditions exist.

  • The client doesn’t often purchase the product or service in question
  • The technology of the product or service is sufficiently complex that the prospect doesn’t understand it and doesn’t mind admitting this lack of understanding
  • The potential damage from making the wrong choice is significant

This combination of circumstances arises frequently in high-tech purchases such as computer and communications equipment. How often? Schueler Communications of Syracuse, N.Y., estimated that in 1987 consultants exerted significant influence over about $87 billion worth of computer-related purchases.(n4) This is well over half the total industry sales volume. When one considers that a large fraction of computer sales go automatically to a satisfactory incumbent vendor, the fraction becomes even more impressive. In a different area, Mitel’s Debra Rabin has reported that consultants are involved in 60% of her firm’s PBX sales from 100 to 500 lines, and in 76% of its sales over 500 lines.(n5) These figures suggest that consultants as a group wield a tremendous amount of widely unrecognized power.

Moreover, the combination of circumstances that leads to calling in consultants is arising with increasing frequency. The permeation of “hightech” into all areas of business is increasing.(n6) Whereas production managers could easily understand lathes and conveyor belts, digitally controlled milling machines run by computer aided design workstations or material handling robots may be beyond their capabilities. Furthermore, the pace of change is increasing.(n7) Major conceptual changes in the way whole areas of a business work may happen every decade. Changes that affect technical decisions are far more frequent than that.

Benefits and Disadvantages

Using a consultant to assist in vendor selection offers clients many potential benefits. Properly used, consultants can provide a degree of objectivity that is often lacking within the client’s organization. (This is especially true when an incumbent vendor is one of several firms vying for a new sale.) In an era of corporate downsizing and smaller staffs, their use offers another opportunity for management to replace full time overhead with occasional help. They can provide expertise on new technology which the client firm is considering introducing. They can translate technical jargon into the client’s language. Their regular exposure to the selection process, where the client may make a similar decision once in a decade, can benefit all concerned. And they can guard against the tendency of a few vendor representatives to “put one over” on a technically unsophisticated prospect. Lest one suspect this doesn’t really happen: in one procurement with which the author was involved, a major computer vendor had proposed a system with twenty-two 456MB disk drives costing approximately $18,000 each. Within 48 hours of the vendor’s learning that a consultant was now advising the prospect on system configurations, a revised proposal with eight drives was submitted. Client savings: over a quarter of a million dollars. The opposite also occurs: vendors “buying in” with an unrealistically small system, knowing that, by the time the problem is recognized, it will be cheaper for the customer to upgrade than to switch. For these reasons use of consultants as vendor selection advisors is likely to expand still further in the future.

There are, of course, disadvantages that accompany the use of consultants in this role. The primary risk is that the consultant will follow his or her own preconceived notions rather than taking the time and making the effort to learn the client’s true needs. This can result in selecting a system that was exactly what a previous client needed but wide of the mark for the current situation. A related risk is that of favoring a particular vendor before full evaluations have been made. This can result in a tendency to recommend a vendor with whom a consultant has worked successfully in the past, or in a tendency to recommend a “safe” industry leader. Either can result in a less-than-optimal client recommendation.

The expansion of the consultant’s role into vendor selection has important implications for all parties to the relationship: to consultants, to their clients, and to vendors whose sales are affected by consultant recommendations. For consultants to maximize their effectiveness, for clients to obtain the greatest possible benefit from consultant engagements, and for vendors to sell effectively into this new world, all three must recognize these implications.

Consultant Implications

Consultants must recognize that dealing with vendors is more than a simple extension of dealing with client personnel. Some consultants, despite unassailable technical credentials and meritorious prior service on internally focused engagements, are unequal to the task through no fault of their own. Dealing with vendors requires new skills, among them many from the handbags of the diplomat and the lawyer. Some of these skills are not likely to have been tested in internally focused situations. Consultants, who after agonizing and brutally honest self appraisal do not find themselves equal to the task, must have the strength to say so. Those who do not may find themselves even more at the mercy of sophisticated vendor sales people than the client would. Clients may not know the technology, but at least they know the score.

Client Implications

In a sense clients have already done their job. They have voted with their checkbooks.They have engaged the consultants. They have told them to study the requirements and to recommend a solution with vendor name attached. What remains,

What remains is for clients to recognize that they are thrusting a great deal of responsibility onto the consultant’s shoulders. This may be appropriate. But, as noted above, not all consultants are equal to this task. Clients must look beyond technical credentials and satisfactory completion of prior engagements. They must look for concrete evidence of the ability to deal with vendors on a fair, objective, informed, and constructive basis. They must recognize a few common danger signs: a tendency to say “it’s too technical” when asked to explain the basis for a statement, an attempt to impress the client by making potential vendors “jump through hoops” (including writing unreasonably complex Requests for Proposals (RFPs), perhaps with a view to billing unreasonably many hours while evaluating vendor responses) or comments that suggest the winning vendor has been preselected before requirements have been analyzed.

This comes down to recognizing that vendor selection is not simply another component of an overall management consulting task. It may be part of the overall job, but it places its own unique requirements on the consultant. These requirements must be considered carefully before a consultant is asked to help with vendor selection.

Having engaged the consultant, clients must maintain open channels of communication at all times. This happens naturally when a consultant works on an internally-focused engage meet. There is a tendency to let communication slide, however, when the consultant’s primary task lies in working outside the client organization. Open communication channels are the best safeguard against the consultant’s misconstruing true client needs.

Unfortunately, most guides to dealing with consultants don’t address these points. The trade press is full of articles telling potential clients how to deal with consultants.(n8,n9,n10,n11) None of these, nor any others which the author has seen-not even a full-length book on the subject(n12) address the consultant in this role of vendor selection advisor.

Finally, clients must remember that the ultimate responsibility for a correct decision is theirs. They will have to live with their purchase long after the consultant has left. Their responsibility can be delegated but not abdicated. Clients must meet with their consultants regularly, must make sure consultants’evaluation criteria mirror their own, must ask probing questions to verify that the consultant has done a thorough and objective evaluation, and must understand the reasons for consultant recommendations before endorsing them and issuing purchase orders.

Vendor Implications

Vendors whose sales are influenced by consultants must develop a mental attitude of willingness to deal with the consultant. The traditional sales force mentality stresses developing a relationship with the customer as a route to account control. Any third party who might disturb this relationship is seen as an interloper, to be mistrusted and outflanked.

This attitude will backfire against the salesperson who uses it when a prospect or customer engages a consultant. The prospect engaged the consultant, is paying the consultant, trusts the consultant, and will listen to the consultant. This is true whether the salesperson likes it or not. How much more productive for the salesperson to treat the consultant as an extension of the customer and to support the consultant’s efforts constructively! In addition to its immediate payoff with the current prospect, this support will be repaid many fold when the same consultant is in a similar position with future potential prospects for that vendor’s products and services.

Many computer and communications firms have recognized this fact of life at the headquarters marketing level. The largest firms, such as IBM, AT&T, and Digital Equipment Corporation, have put in place groups of several dozen people expressly to support consultants. Their approaches vary: IBM stresses regional representatives, while Digital tends to provide dedicated nationwide support to major consulting firms from a central location, but the seriousness of their commitment is without question.(n13) smaller counterparts, often with smaller consultant support budgets, also recognize the need for this function.

Where these efforts often fall down is in their translation to the sales force in the field. This is not for lack of trying. A module on the consultant’s role is a fixture of many sales training programs. Consultant support departments write memos to the field, produce booklets for salespeople, arrange seminars for consultants, and more. But old habits die hard. With time the new reality will become part of the sales culture. Until then, the need for continued headquarters support for the consultant’s role is essential.

Bottom Line

A firm about to spend $4,000,000 on a computer system, be it one $4 million mainframe or a thousand $4,000 micros, hopes for a substantial return on that investment. If consultants can increase the expected value of this return by 10%, perhaps by reducing the likelihood of failure or by accelerating system cut over to production use, they can justify a substantial fee and add value far beyond their cost. (While this is a hypothetical example, the utter helplessness that many managers feel in the face of such decisions suggests that it is, if anything, conservative.! This logic is not lost on purchasers. Consultants are used today, and will increasingly be used in the future, in support of this and similar decisions.

Getting the most from this new consulting role is not a trivial undertaking. All parties to the process must recognize that a new form of consulting has come into being. It requires rethinking traditional assumptions. Those who rethink their assumptions correctly will benefit the most from this new role of the consultant.

(n1) Kishel, Gregory F., and Kishel, Patricia Gunter: Cashing In on the Consulting Boom (John Wiley Sons, New York, 1985)

(n2) Block, Peter, Flawless Consulting (Learning Concepts, Austin, Texas, 1981)

(n3) Lant, Jeffrey L.: The Consultant’s Kit (JLA Publications, Cambridge, Mass., 1984)

(n4) Schueler Communications, Information Resources Division: Industry Overview (Schueler Information Services, Syracuse, N.Y., 1988)

(n5) Mitel, Inc.: Consultant Liaison Program news release (Sept. 27, 1987)

(n6) Naisbitt, John: Megatrends (Warner Rooks, New York, 1982

(n7) Toffler, Alvin: Future Shock ;Random House, New York, 1970)

(n8) Goldstein, Stephen H.: “Choosing Strategy Assistance,” Mass High Tech, vol. 5, no. 25 (Aug. 31-Sept. 13, 1987), p. 1

(n9) Hein, Jonathan J., CDR, USN: “What the Contracting Officer Should Know About Consultants,” Navy Supply Corps Newsletter, vol. 45, no. 8 (Aug. 1982), p. 4

(n10) Hodgkins, Robinson: “Negotiating Points for Working with Consultants,” MIS Week, vol. 10 no. 9 (Feb. 27, 1989), p. 6

(n11) Rodrigues, John: “Choosing a Consultant Carefully,” Computer world, vol. 23, no. 34 Aug. 21, 1989), p. 87

(n12) Easton, Thomas A., and Conant, Ralph W: Using Consultants: A Consumer’s Guide for Managers (Proteus Publishing Co., Chicago, Ill., 1985)

(n13) Mulqueen, John T.: “Consultants: For Better or Worse, Business is Booming,” Data Communications, vol. 17, no. 12 (Nov. 1988), p. 142

Efrem Mallach