Friday Rant: Is Kicking Out Consultants a Smart Cost Cutting Strategy?
In the past few weeks, I've heard of more than one case where companies (especially in the manufacturing center) are freezing new spend-related cost reduction initiatives that won't deliver very near-term (e.g., 30-60 day results). This freeze, of course, is temporary and represents a last ditch effort to rein in costs during a time when demand and volume uncertainty is driving behavior all the way up the ladder. In other words, it's hard to plan and invest in any set of activities -- even those that can drive material results -- when you're still up in the air and gravity is pulling you to the ground, a surface that you can't yet see below. The problem is that nobody is sure where the bottom of this market is and how far we have to go to hit it.
When it comes to really short-term cost reduction, the only levers to pull are typically compliance and labor related. You can cut out travel. You can reduce headcount. You can implement zero spending policies in discretionary areas. And you can also choose to kick out contingent workers and consultants. Siemens recently announced it was doing just this. The FT recently picked up on this news in an article (registration required) that gives some of the details and rationale behind the move. It notes that by banning consultants, Siemens hopes to "save about €300m ($386m)". Siemen's CEO "wrote to managers at the end of last month to say that all contracts with external consultants have to be phased out quickly" which he hopes will reduce overhead by 10% for 2010. The one exception is that "the consultants will need to show that the economic benefit of their work will exceed their costs and that it will fall in this business year."
Is banning the consulting armies a good idea? It's certainly a few steps beyond strategically sourcing consulting and contract labor and then managing their onsite lifecycle via a services spend management solution. I suppose time will tell, but methinks this might amount to throwing the baby out with the bathwater. With apologies to those in the East End of London, the poh lit'le thing wa so skinny and thin ee shuld av been washed in a jug -- you get the idea. Perhaps a more surgical approach or smaller wash vessel would be a better solution.
- Jason Busch
When it comes to really short-term cost reduction, the only levers to pull are typically compliance and labor related. You can cut out travel. You can reduce headcount. You can implement zero spending policies in discretionary areas. And you can also choose to kick out contingent workers and consultants. Siemens recently announced it was doing just this. The FT recently picked up on this news in an article (registration required) that gives some of the details and rationale behind the move. It notes that by banning consultants, Siemens hopes to "save about €300m ($386m)". Siemen's CEO "wrote to managers at the end of last month to say that all contracts with external consultants have to be phased out quickly" which he hopes will reduce overhead by 10% for 2010. The one exception is that "the consultants will need to show that the economic benefit of their work will exceed their costs and that it will fall in this business year."
Is banning the consulting armies a good idea? It's certainly a few steps beyond strategically sourcing consulting and contract labor and then managing their onsite lifecycle via a services spend management solution. I suppose time will tell, but methinks this might amount to throwing the baby out with the bathwater. With apologies to those in the East End of London, the poh lit'le thing wa so skinny and thin ee shuld av been washed in a jug -- you get the idea. Perhaps a more surgical approach or smaller wash vessel would be a better solution.
- Jason Busch
A: Hell, No!
Consultants are Cheap!
http://tinyurl.com/cpswwb
It's easy to get Maximum Value!
http://tinyurl.com/bxohl3
And any "We don't need no consultants here" Logic is Flawed!
http://tinyurl.com/b7hrpl
Need I go on?
A: (As I point out in "More Ways to Avoid the Graveyard",)
Fire your overpaid, under-performing executives!
<http://tinyurl.com/de466y>
(For more suggestions on smart ways to cut costs, see:
Even More Ways to Avoid the Graveyard
<http://tinyurl.com/bo6myc>
And for smart things to do, see:
Avoiding the Graveyard
<http://tinyurl.com/cnoqym>)
how cutting a few hundred grand of cost is going to "save" the business is beyond me. firms should pull back on costly functions that are not adding value to the business, or can be outsourced for better service at no extra (or less) cost (i.e. marketing and business administration areas).
I know I am talking dreams, but aren't we consultants supposed to actually bring that unknown concept usually called "value"?
I would say that if consultants at Siemens were so unuseful that they can be thrown away without a second thoughts, well:
1. This should have probably happened years ago;
2. therefore, I would kindly ask every single manager signung their contracts WHY had they exactly been hired?
All in all, you can usually throw away what you don't need - and being a business you do not need what doesn't bring value. "Ergo" you can surely throw away what doesn't generate value.
This is not cost cutting, this is getting things right, folks...
...or are we saying that an army of non-value-added consultants is what business needs to grow?
Alas, that world is long past for me. I'm now a cost cutting maniac just like the rest and have been heads down in analyzing procurement and operations technology, politics and process for nearly a decade. But I don't want to dismiss the strategy folks just for the heck of it. There is often value there despite the costs and investment mentality required.