Consulting Services – Tipping the scales from Risk to Reward

Posted on : 20-07-2011 | By : john.vincent | In : General News

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As a relatively new company it is not that long ago that the partners of Broadgate Consultants were on the “buy side” for consulting services. Over the years we have worked with some great partners who have help us deliver significant and complex change programmes. We couldn’t have done it without them, that is a fact.

Now we are on the trusted advisor side building a business, we spend a lot of time talking to leadership and executives within Technology, Operations and Strategy. These conversations, coupled with our insight of services and the new world economic climate are shaping our thinking in terms of the future expectations with respect to the shape and content of consulting services. Let’s explore some themes.

Get what you pay for:

During the last 20 or so years, the skill and impartiality of consulting partners has been attractive. Indeed, it continues to be the case. With the pressure of delivering change against a companies strategic agenda at an often frantic pace, organisations need to augment their capability with specialists who can hit the ground running. During a tendering or pitch process, the “big guns” do their stuff. Strategies are explored. Confidence in execution capability fleshed out. Ultimately a winner emerges. Everyone is happy.

However, taking a look back, how many times did our level of confidence and enthusiasm wane over the period of the engagement ? Those consultant or partners that impressed with their capability appeared to have been replaced with a “reserve team”. And a much larger team at that. Concerns appeared that delivering the original scope of change in the previously agreed timescales might be a real challenge, if not impossible. Time to wheel back in the bid team again and hey presto, as far as stakeholders are concerned all is well again with the project ( if a little massaged in terms of scope and cost… ).

This “land and expand”, or as someone called it recently “school bus” approach, is on its last legs. The legacy approach of de-risking internal positions ( “…no-one ever got fired for choosing….” ) is only as good as the consistency and depth of capability. Companies are looking for all positions in projects to be resourced with fit for purpose consultants. Indeed, we see the practice of more extensively interviewing partner team members extending further. Clients want value for money, else they might as well just employ individual contractors. For those who pride themselves on only pitching for their core business competency this is a good thing !

Building a Trust Relationship:

An ex colleague recently ran a poll to gauge which characteristics CxO’s should look for most in a partner. Demonstrations of Trust and Integrity scored equally with the ability to Implement and Execute. The latter we’ll touch on a bit later, but let’s consider Trust itself. There is an equation which is useful to illustrate:

Trust = Credibility + Reliability + Intimacy / Self Orientation

The trust formula gives a structured way of analysing a quality that is essential to any consulting relationship. By scoring each from 1-10 companies can assess the level of trust. 30 is a perfect but generally unachievable score. It is a goal. However, the important element of this equation is that of Self Orientation. Consulting companies can destroy trust by appearing to be more interested in themselves than being of service to a client. Sound familiar ? Does your advisor focus on the problem or try and “guess” the solution ? Do they say they don’t know or can’t assist or are they claiming divine capability ? Why not try the equation yourself.

Delivery Capability and Track Record:

There is a clear line between advice and execution. However, in the past it was often the case that external advice was disconnected from the practical delivery implications. Both in our experiences from buying services and in discussions with clients we see an increased desire to:

1) Understand the practicalities, pragmatism and success probability for delivery of a strategy
2) Take advice from organisations and individuals who have a demonstrable track record from an equivalent project in terms of complexity and scale

The appetite for having future “shelf ware” which is good in theory but not in practice is gone. No longer can there be a hard stop between those strategising and those that are left with the implementation.

The scales are tipping – you should seek more reward from your advisors…

Banks vs Tech Companies – long term planning and thinking – is it possible?

Posted on : 19-07-2011 | By : richard.gale | In : Finance, Innovation

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Most companies have  one, two, three or five year plans – some plan for longer but most organisations do not look beyond ten years as small factors can magnify and change, the political, business, technology and cultural environment change so dramatically that most companies do not think it is practicable to think in such long term – maybe following the famous Maynard-Keynes quote “In the long-run, we’re all dead”…

We recently were chatting with some ‘Googlers’ and their thinking was that Google will either be ten times as big in ten years or would have folded and the next ‘Google’ would have taken its place – they couldn’t predict which way it would go – too many external and internal factors and black swan type events plus consequences of the  unknown-unknowns.

So – with this background of uncertainty and change –  why do some companies notably Shell, other multinationals and governments have these twenty and thirty year plans and is there value for other financial services to think long?

Investment Banking Trends

Certain aspects of Investment banking is virtually a closed shop with extremely high costs of entry into many areas. Conversely IB is a people business with a small number of ‘rain-makers’ pulling in significant percentages of the fees with large highly paid teams supporting them. Some of the capital requirements for certain functions such as inter-bank FX broking are so great that only a handful of firms can operate

Technology, historically, can be game changing and reduce or commoditise functions and operations so is there an opportunity for technology to revolutionise the banking world?

Here’s some thinking on potential trends.

Short Term – Fund raising and IPOs

 

These have been controlled mainly by the big investment banks and this is where a large percentage of their fees are created. The costs of an IPOs is 5% or more of the value of the company so the costs are substantial.

Fund raising pioneer Google cut down on its advisers at its IPO and tried to minimise their costs by providing a ‘Dutch Auction’ of shares. With a globally known brand already in existence it would always be in the driving sear but the growth in information and knowledge availability, social networks, person to person and person to crowd communications there could be alternative paths for fund raising –on a small scale there are personal peer-to-peer lending and borrowing, could there be a market or exchange for business financing?

An Ebay for company funding?

Companies could be listed on the exchange and categorised on sector, risk factors, growth plans, management track record and then presented for ‘buyers’ to purchase shares in the company. The global availability of the information would mean a much greater potential market and the buyers could be individuals, investment organisations and groups.  Prices would be determined by demand/supply demand and an Ebay type bidding mechanism could be used which would cut off when the required amount of capital has been raised.

This concept would result in a reduction in the fees paid to Investment banks and lowering the cost of capital to organisations. The upside is that it would greatly increase the numbers of organisations coming to market who would still need some assistance and guidance. Also IBs could ‘buy-up’ shares in organisations they think are undervalued and then resell at a profit later.

Medium Term – Creation of Financial Instruments

Banks employ large numbers of the brightest minds to help innovate and build new products. Often these are new more exotic types of financial instruments to help sell or productise the debt and equity of organisations and governments.

The complexity of these securities has been often noted and the lack of clarity of the underlying assets make them potentially more risky when traded.

Technology will assist the decoding of these securities and getting an understanding of the underlying risk factors but technology will also enable more and more combinations and layers of asset types so it will be an ongoing arms race between visibility and obscurity

 

Long Term – Technology Companies become Banks?

Certain Technology companies have so much capital that branching out into other areas would be easy from a cash perspective (Google, Microsoft, Oracle, Apple all have multi-billion cash piles). To date they have used this to fund strategic purchases of complementary, rival or potentially future game changing companies.

As their technology markets mature could they switch to other money making market sectors? The companies could be perfectly positioned to move into certain aspects of the banking world.

(a)    Information and speed of access – this where technology companies really have an advantage. Banks have their own proprietary research but as access and availability of information becomes more open and faster this will reduce. Combine this with the technological innovation of the IT companies and the advantages the banks have will disappear. This could open up the financial markets and reduce the cost of entry allowing smaller ‘start-up’ firms and individuals equal standing but also would increase the total market size for tools activities such as broking.

(b)   Funding, mergers & acquisitions – again these companies have sizeable teams of analysts researching trends, competitors, partners and other organisations. They could use these skills combined with capital to help other firms merge, raise capital and expand

(c)    Retail – they have well known brands, global presence, superb technology platforms and innovative thinkers. If one of the big organisations decided to build an online retail bank it would very likely be a major success

Obviously technology companies are not investment banks but there is a certain commonality of –  significant concentration of creative bright minds and large amounts of money available. Tech companies generally will want to focus on their own growth but whilst other new innovative start-ups will always be there, the more mature organisation may want to spread their range of activities beyond this initial direction.