By Kiran Kothekar

Management consulting industry and all IT vendors in enterprise space, promising productivity improvement have a business cycle well aligned with the overall economy. They grow fast when the overall economy is booming and they get into trouble when recession strikes the economy. This looks rather strange. Logically speaking, this entire industry (dealing with productivity improvement), should be recession proof just like the pharmaceuticals or the healthcare industry. On the face of it, both are similar in nature. One deals with improving health of the human kind while the other deals with improving health of the organization. When there is a wide spread epidemic (read poor performance of organizations in recession), how do the doctors (consulting organizations promising performance improvement) have lesser business? On the contrary they should have booming business in the hard times. Though most consulting firms do not publish their numbers in public domain, but one does hear about recruitment freeze or even retrenchment in times of recession. Many IT companies in the enterprise space also start shedding manpower in these times. The newspaper is full of such reports.

Have you been perplexed with this question?

The answer lies perhaps in the engagement model of these firms. The engagement model demands an upfront investment in time and money and promised benefits are realized long after initial investment. This is best depicted in the graph below:

It takes about 6 to 8 months of initial investment in time and efforts of the outside consultant to either implement an IT tool (if one is dealing with an IT product implementation to get the desired benefits) or to do a study and come out with recommendation on possible cost reductions that can be achieved (if one has engaged a management consultant). In either case, during this period, the client does not gain anything. On the contrary, there is an outflow of money (as explained in the dipping green curve). When an organization is going through difficult times, it is almost very difficult to commit to this initial investment as the net performance dips down due to this outflow.

It becomes even more difficult, when the promised benefits is not very clear and cannot be easily translated to bottom line benefits ( happens in case of enterprise IT products) and one has to rely of vague terms like "transparency", "flexibility" etc to explain the benefits. There are other issues of initial excitement fizzling out when it takes long to get the initial benefits. Many times, even the benefits are debated and the connection between action and results becomes fuzzier with greater time elapsed between action and results. The "not so great" experience of past similar projects makes it even difficult to approve a similar long term project at the time of recession. Even if one is sure of the results (like the material cost or overhead reduction recommendations of consultants), during recession, people are extremely short term sensitive. They are wary of doing anything that affects the financial performance in the short term. The significant outflow to consultants in the short term puts the short term financials under jeopardy. When short term is under jeopardy, we cannot expect organizations to further jeopardize it in the hope of a better future. This explains why this industry is not able to beat the downturn in economy.

This curve means that the companies have to only invest 1 or 2 months of efforts and resources where they do not get any benefits. After 2 or 3 months, the engagement starts not only funding itself but also providing the returns, much beyond normal expectations of management. VCG's engagement model follows the above curve. We aim at providing significant benefits within 2 or 3 months of our engagement, which is unimaginable by management. At the same time the benefits should keep accruing at the same pace. To reduce the risk of clients further, we also link significant part of our fees with client getting the desired benefits. At each step of the engagement model, there is an inherent de-risking done to protect VCG as well as the client.

Vector Engagement Model