A consultant is an individual who possesses special knowledge or skills and provides that expertise to a client for a fee. Consultants help all sorts of businesses find and implement solutions to a wide variety of problems, including those related to business start-up, marketing, manufacturing, strategy, organization structure, environmental compliance, health and safety, technology, and communications. Some consultants are self-employed, independent contractors who offer specialized skills in a certain field; other consultants work for large consulting firms, such as Anderson Consulting or Gemini Consulting, that offer expertise in a wide range of business areas; and still other consultants hail from academia.
The consulting industry has grown rapidly since its origins in the 1960s. In fact, Business Week reported that the ten largest consulting firms in the United States averaged growth of 10 percent annually in the late 1990s and achieved 14 percent growth in 2000. Several factors have contributed to the growth of consulting. First, as a result of the trend toward corporate downsizing, many companies have found that they lack the internal manpower to complete all necessary tasks. Second, the complexity of today's business climate—as a result of deregulation, globalization, and technology advancements—has outpaced many companies' levels of expertise. Finally, consultants provide a way for companies to get special projects done without adding employees to the payroll.
The decision to hire a consultant is not one that a small business should take lightly. Consultants can be very expensive, although their expertise can prove invaluable. The small business owner must first decide whether the situation facing the company requires the input of a consultant. If it does, then advance preparation should be done to ensure a successful consulting experience. The small business owner is then ready to find and negotiate a contract with the right consultant. An important part of this process is understanding the ways in which consultants charge for their services. Hopefully, after completing the consulting process, the small business will emerge with a successfully implemented solution to its problem.
DECIDING WHETHER TO USE A CONSULTANT
In deciding whether or not to hire a consultant, the small business owner should consider the nature of the problem, the reasons why internal resources cannot be used to solve it, and the possible advantages a consultant could offer. In her article "Do's and Don'ts of Hiring Consultants," Joan Adams describes several situations in which a consultant's services are likely to be required. "You want to call a consultant when you feel like your business is 'stuck.' Your revenues are flat or growing very slowly. Your costs are growing at a faster rate than revenue … Something isn't working but you don't quite know what it is—or what to do about it." A small business should not hire a consultant simply in order to have someone else implement unpopular decisions.
MAKING THE CONSULTING EXPERIENCE WORK
Once the decision has been made to enlist the help of a consultant, there are several steps the small business owner can take in advance to increase the likelihood that the consulting experience will be successful. First and foremost, the company's managers should define the problem they need the consultant to address. Using probing questions to go beyond superficial symptoms to underlying causes, the managers should attempt to state the problem in writing. Next, they should define the expected results of the consulting experience. The objectives the managers come up with should be clear, realistic, and measurable.
Another important step in preparing for a successful consulting experience is to communicate with employees. The small business owner should explain the problem fully and honestly, in as positive terms as possible, and ask employees for their understanding and cooperation. When employees feel surprised or threatened, they may hamper the consultant's efforts by withholding information or not providing honest opinions. It is also helpful to gather all important company documents relating to the problem in order to make them available to the consultant. The consultant's job will be easier if he or she has ample information about both the company and the problem at hand.
Once the consulting project begins, there are several other steps a small business owner can take to help ensure its success. For example, it is important to manage the project from the top in order to give it the visibility and priority it deserves. The small business owner should appoint a liaison to assist the consultant in gathering information, and should receive regular progress reports about the project. In the implementation stage, the small business owner should adequately staff the project and empower those involved to make any necessary changes.
HOW TO SELECT A CONSULTANT
Selecting the right consultant for the company and the type of problem at hand is a vital part of the process. The first step is to assemble a list of candidates by getting recommendations from people in the same line of business, contacting consulting associations or consultant brokers that represent the same industry. Trade and professional journals are also a source of potential consulting firms and a place where such firms advertise. Several library reference books, such as Thomson Gale's Consultants and Consulting Organizations Directory, provide contact information for consultants in a variety of fields. It is important to avoid selecting a consultant based upon a current management fad; instead, the decision should be based upon the company's particular needs.
The next step is to determine, based on the nature of the problem, what type of consultant is needed. An advisory consultant analyzes the problem and turns recommendations over to the client, but is not involved in implementation of the solution. In contrast, an operational consultant remains on hand to assist the client in proper implementation, or in some cases handles the implementation without the client's assistance. Part-time consultants are generally employed full-time within their field of expertise—marketing, for example—but also offer their services to other companies on the side. They usually charge less money than full-time consultants, but they also cannot devote their undivided time and energy to the client.
Process consultants are skills-oriented generalists. With expertise in one or more technical areas, these consultants can apply their skills to any industry or organization. In contrast, functional consultants apply their skills to a particular environment; for example, a hospital facilities planner would concentrate on consulting to hospitals, rather than to other types of businesses that require facilities planning. Another distinction between consultants is based on the size of their operation. Consultants can work for large firms, small firms, or even independently. Large firms offer greater resources, but also have higher overhead and thus charge higher fees. Small firms or independent consultants may offer more attentive service, but may not have access to the precise type of talent that is required. Finally, consultants can be academically or commercially based. In general, academic consultants may be most helpful with problems requiring research or a background in theory, while commercial consultants may be able to offer more practical experience.
Once a small business owner has determined what type of consultant would be best suited to handle the company's problem and assembled a list of candidates, the next step is to interview the candidates. Some of the traits to consider include experience with the company or industry, availability, knowledge of the problem at hand, communication skills, flexibility, and compatibility. Since consultants are usually required to work within the corporate culture, often in times of crisis, it is important that their style is compatible with that of the firm.
After discussing the problem in detail with the leading candidates, the small business owner may opt to ask each consultant to submit a written proposal to aid in the selection process. In some cases, the contents of these proposals may convince the small business owner that the problem could be better handled using in-house resources. After deciding to hire a specific consultant, the small business owner should ask that consultant to draw up a contract, or at least a formal letter, confirming their arrangements. It is important to note that the contract should be based on negotiations between the two parties, so the small business owner may wish to add, delete, or clarify the information included. There are several peripheral issues that the small business owner may want to address in the contract, including the consultant's proposed methods of handling conflicts of interest, subcontractors, insurance/liability, expenses, confidentiality, and nonperformance.
Recent growth in Internet applications for businesses has created a simultaneous growth in the number of E-commerce and Web consultants. Many of the same general guidelines that apply to choosing a traditional business consultant also apply to choosing a Web consultant. As Tara Teichgraeber wrote in an article for the Dallas Business Journal, the first step in selecting a Web consultant is deciding what goals the company hopes to achieve by establishing a presence on the Internet. For example, some companies want to set up an interactive online store in order to sell products or services over the Internet, while others may just want a basic Web site to enhance the company's image. "Deciding what a consultant should do helps narrow down a candidate with similar experience and proven success, as well as helps the business owner stick to a financial plan," Teichgraeber noted.
Many different types of Web consultants exist, each offering various types of services and charging widely disparate fees. "In hiring a consultant, you can choose from among independent site developers, Web design shops, technology consulting firms, traditional advertising and public relations agencies, and interactive agencies," Reid Goldsborough explained in an article for Link-Up. "A Web consultant can build you a Web site from scratch or enhance an existing one. Costs are all over the place, from several hundred dollars for a simple site consisting of a few pages, to a million dollars or more for an e-commerce site with product databases that are easily updated, a search engine, animated product demonstrations, secure online transactions, and audio and video enhancements."
Goldsborough suggested that small business owners looking to hire a Web consultant contact their Internet Service Provider for referrals. It may also be helpful to look online for sites you like and then find out who designed them. Upon contacting potential consultants, it is important to ask to see a list of sites they have designed. Goldsborough also recommended that small business owners be sure to ask about arrangements for maintaining the site once it is up and running. Some consultants provide this service to their clients, while others supply the tools and training for in-house personnel to take over site maintenance tasks.
HOW CONSULTANTS CHARGE CLIENTS
Most consultants use the same basic formula to determine the fees charged for their services, but clients are asked to pay these fees in a wide variety of ways. All consultants' fees are based on a daily billing rate, which reflects the value they place on one day's labor plus expected overhead expenses. In some cases, this daily billing rate—multiplied by the amount of time the consultant spends on the project—is the amount the company actually pays. But other consultants may estimate the amount of time needed and quote the client a fixed fee. Other consultants may provide a bracket quotation, or a range within which the total fee will fall. Another way in which consultants charge clients is a monthly retainer, which covers all the necessary services for that month. Finally, some consultants—especially in high-technology fields—charge on the basis of the company's performance linking payments to measurable outcomes.
THE CONSULTING PROCESS
The consulting process begins when the client company decides to enlist the services of a consultant. The consultant then analyzes the company's problem and provides recommendations about how to fix it. Small business owners should avoid the temptation to blindly follow a consultant's recommendations; instead, they should seek to understand the diagnosis and be prepared to negotiate any necessary changes. The consulting process should not be mysterious or unusual, but rather a mutually beneficial business arrangement between consultant and client. Finally, after implementing the consultant's recommendations, the client company should formally evaluate the success of the consulting experience so that those lessons can be applied to future problems.
Adams, Joan. "Do's & Don'ts of Hiring Consultants." Supply House Times. March 2005.
"Avoid Hiring Consultants with Conflicts of Interest." Managing Benefits Plans. August 2005.
Goldsborough, Reid. "How to Hire a Web Consultant." Link-Up. July-August 1999.
"It's Getting Quieter in the Advice Business." Business Week. 26 February 2001.
Lewis, Harold. Consultants and Advisers. Kogan Page, August 2004.
Teichgraeber, Tara. "What to Look For: E-Commerce Consultants." Dallas Business Journal. 14 July 2000.
Zahn, David. The Quintessential Guide to Using Consultants. HDR Press, Inc., January 2004.
Hillstrom, Northern Lights
updated by Magee, ECDI
During the 1950s, as the military competition between East and West intensified, the use of consultants hired by the Department of Defense (DoD) on a contractual basis became increasingly institutionalized through the establishment of nonprofit “think tanks,” later known as federally funded research and development centers (FFRDC). These organizations owed their principal source of funding to annual contract subsidies from the DoD. Most engaged in research and development of one sort or another; rarely did they actually produce a manufactured item. FFRDCs had two distinct advantages: they bypassed low government pay scales in the hiring of expert technical and scientific personnel; and they provided relatively easy and direct access to the industrial, academic, and scientific communities which had the knowledge and expertise the military services needed. Two early examples of such collaboration were the development in World War II of the proximity fuse, a joint endeavor of the navy and the Applied Physics Laboratory of the Johns Hopkins University; and the systematic application of operations research to air warfare through Project RAND, started in 1945 by Douglas Aircraft and reconstituted as a nonprofit corporation funded by the air force in 1948.
The next decade witnessed a veritable explosion in the number of FFRDCs, reaching a total of thirty‐nine by the early 1960s. Among the larger and more prominent were the Institute for Defense Analyses (IDA), founded in 1956, to help support the Weapons Systems Evaluation Group under the Joint Chiefs of Staff; Analytic Services (ANSER), created in 1958, to provide specialized operations analysis for the air force; MITRE (1958), another air force–sponsored technical organization, which grew out of the Lincoln Laboratory of the Massachusetts Institute of Technology; Aerospace Corporation (1960), which initially specialized in ballistic missile systems; Research Analysis Corporation (RAC), the 1961 successor to the Operations Research Office (ORO), which had performed technical evaluations for the army since 1948 under contract with Johns Hopkins; and the Center for Naval Analyses (CNA), established in 1962 to consolidate scattered navy‐sponsored technical research activities.
Accompanying the growth in FFRDCs was an increase in the number of for‐profit contracting and consulting firms in the private sector. The greatest opportunities generally awaited contractors involved in hardware development and production, but a growing number of profit companies also emerged in direct competition with the FFRDCs. Many of these new companies moved into the burgeoning field of “systems analysis” that Secretary of Defense Robert S. McNamara introduced in the 1960s in an effort to streamline and improve Pentagon planning and fiscal management through the application of computerized models.
Criticism by Congress and public interest groups that the Defense Department was becoming overly dependent on outside consultants and contractors led to periodic investigations and calls for reform. Initially targeted were the FFRDCs, whose activities their rivals in the private sector often strenuously lobbied to have curbed. At one point Congress imposed a funding ceiling on FFRDCs, until DoD agreed in 1972 to exercise closer controls and to shed all but ten FFRDCs from the military budget. In 1976, a task force of the Defense Science Board concluded that consulting arrangements with profit and nonprofit companies alike were an essential part of the Defense Department's operations. However, a year later, amid continuing controversy, President Jimmy Carter ordered a governmentwide crackdown on what he termed “the excessively large volume of consulting and expert services.”
Over the years Congress frequently debated legislation to curtail the use of consultants and contractors and the jobs they could perform. Congress tried to halt one alleged abuse—the so‐called “revolving door”—when in 1985 it barred presidential appointees for two years from taking related jobs in the private sector. But as a rule efforts to legislate reform produced few dramatic changes in the system, due largely to the difficulty of finding workable definitions for terms like consulting and consulting services. Though it was clear that the number of consultants and contractors had increased enormously since World War II, no one was ever able to say with certainty how many there were, who they were, or how much DoD was spending on their services. According to a General Accounting Office audit in 1988, the Department of Defense devoted anywhere between $2.8 and $15.9 billion for consulting services in fiscal year 1987, excluding individual consultants earning under $25,000 per year.
Despite criticism, consultants and contractors performed functions that the military departments found difficult and expensive to do on their own. One appealing feature of “contracting out” was that it was less costly and more efficient in certain cases—small jobs especially—than doing the work in house; and in 1994, responding to recommendations from a task force headed by Vice President Albert Gore, Jr., Congress enacted legislation relaxing the rules and paperwork so that DoD and other government agencies could make freer use of contractors.
[See also National Laboratories; Science, Technology, War, and the Military.]
H. L. Nieburg , In the Name of Science, 1966.
Daniel Guttman and and Barry Willner , The Shadow Government, 1976.
James A. Smith , The Idea Brokers: Think Tanks and the Rise of the New Policy Elite, 1991.
David M. Ricci , The Transformation of American Politics: The New Washington and the Rise of Think Tanks, 1993.
Steven L. Rearden