VideoWhile it's often asserted that these are quiet times in technology, don't tell that to your CIO. Particularly at larger companies, the list of initiatives is as long as it is complex. Projects can range from overhauling IT infrastructures to bolstering information security to launching a supply-chain-management strategy.
Any of these efforts could have a significant financial and strategic impact on an organization, and the pressure to deliver is fierce. But with so many internal resources devoted to maintaining the status quo (a study by The Yankee Group last year found that 60 to 70 percent of most IT budgets is devoted to sustaining business as usual), companies often lack the expertise or manpower to plan, launch, and maintain new technology projects.
Enter the IT consultant, with promises of domain expertise, strategic vision, and a can-do attitude — at a price. Demand for consulting services is up as enterprises seek help with IT strategy and business transformation, corporate compliance and risk management, E-commerce, security, new outsourcing/offshoring options, utility computing, and more. There are hundreds, if not thousands, of IT consulting firms — from one-person operations that focus on small projects to midsize boutique firms with expertise in a specific technology to huge global entities that pledge to transform your business.
Fees vary widely, but Forrester Research cites the following average hourly billing rates for U.S.-based IT consultants: partners, $300; senior managers, $250; senior consultants, $175; junior consultants, $150; and analysts/developers, $100. Based on those figures and the estimated amount of effort each type of consultant would expend on an engagement, Forrester calculated a "blended" rate of $155 per hour. That means that a 26-week project involving 10 consultants would cost a company about $1.6 million.
Despite the high price tag, consulting engagements don't always result in successful deliverables, and it is incumbent upon buyers to both shop wisely and manage the arrangement carefully. In talking to finance and IT executives, and the consultants themselves, certain themes are hammered home time and again. Some of the advice may sound obvious, but as one consulting industry executive notes, it's surprising how many companies don't do their homework when it comes to choosing, and working with, outside consultants.
When looking for IT consultants — particularly for a large-scale project that could have a huge impact on the business — a company should seek a firm that is not only equipped to handle the task, but is also financially viable and understands the client's business. The term partner is thrown around rather loosely in business circles, but when it comes to this type of engagement, it's important that the consultant — er, partner — is a solid fit on multiple levels.
Blue Cross/Blue Shield Michigan, for example, tapped Hewlett-Packard for a range of consulting and outsourcing services, including help-desk and desktop support, server consolidation, asset management, and other functions. Blue Cross chose HP both because it had plenty of experience in those areas and because it had expertise in the health-care business, says Dave Doney, director of information systems customer support services at Blue Cross.
Doney says Blue Cross also wants to take advantage of the new on-demand services HP is offering for hardware, software, and services, also known as the utility computing model, which enables companies to pay for processing, applications, and consulting as the need arises.
Evaluate Current and Future Needs
Having a broad set of needs certainly helps create a (very) short list of possible candidates, and it is precisely understanding your needs now and down the road that will allow you to pick the best partner. For any consulting relationship to be successful, a company must articulate its immediate and long-term business objectives and expectations, and describe how they relate to a given technology initiative. That exercise will eventually lead to the setting of specific deadlines for every phase of a project.
Not only should you articulate your needs to a prospective consultant, but you should also discuss them with the references that the consultant provides. Spend enough time on the phone with a consultant's previous clients and you can get a good idea of how the engagement really went. Don't just ask for a thumbs-up or thumbs-down, but explore the project as a model for your own. And don't forget to ask about measurable results and how the dollars spent ultimately translated into profits.
Enterprises should identify at the outset how the consulting engagement will ultimately improve their business, says George Pohle, global leader of the IBM Institute for Business Value and a partner with IBM Business Consulting Services. "And put as much quantification on that as possible," Pohle says. "You have to set appropriate levels of expectation as to how value will be derived" from any project.
Speaking of value, IDC analyst Anna Danilenko says the market research firm has "seen a large increase in the number of consulting engagements in which price depends on a shared risk/reward structure." The traditional pricing model of time plus materials has given way to fixed-time/fixed-price arrangements in which consultants pay penalties if projects come in late. Conversely, if projects exceed expectations, the contract may give the consulting firm a slice. The service-level agreement (SLA), long a staple of outsourcing deals, has migrated into many other forms of consulting. That may be good news for clients. Since independent law firms and other experts have long experience in negotiating SLAs, they may be useful in other big-ticket consulting situations.
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