Advancing technologies and cloud computing, a maturing millennial generation and the rise of the ‘gig economy’ are creating an environment where consulting businesses are increasingly looking beyond the traditional employed model toward more flexible employee solutions.
This way of working suits consultancies, but they need to consider how it affects the equity value of their company.
Does a stigma still exist in the minds of buyers of knowledge-intensive firms when considering an acquisition? Potential suitors may view a more traditional, fully staffed model as more attractive for reasons of consistency, continuity and a deeper entrenchment of brand values and culture. However, these characteristics and contract working are not mutually exclusive.
Lisa Hufford, chief executive at Seattle-based marketing consulting company Simplicity Consulting and author of ‘Navigating the Talent Shift’, recognizes the opposite is often true.
The more successful contingent workers/associates/freelancers (and other variations on the concept) can adapt to lots of different working environments and cultures seamlessly and immediately – they are used to hitting the ground running.
With permanent workers, the pressure to find precisely the right fit against a broader set of criteria, not to mention personality issues can not only make the search longer and more difficult to conduct, but can also often be a distraction to the actual work itself.
Two ends of the spectrum
Pip Peel, founder of P2 Consulting has taken a different approach. Believing he may have pioneered the associate model in 1992 within the project and program management space with his previous firm, PIPC, he caveats the importance of establishing certain codes of conduct for contingent workers. All the temporary contractors at P2 have either worked directly for the business in the past or have come personally and strongly recommended – either internally or by a trusted client – and are subjected to a detailed induction process.
Generally speaking, he sees neither a role nor a level of seniority that could not successfully follow the associate path. However, he concedes there may be one exception: his “rainmakers” – those owning the client relationships, which he believes to be better suited to permanent roles, allowing for mutual long-term trust to develop.
A strong core, supplemented with a proportion of contractors is optimum, according to private equity house Livingbridge partner Liz Jones.
Unconcerned over the use of associates when looking to value a consultancy in advance of sale, she says a core of employees allows for a greater sustainability of brand and corporate culture, yet if that were supplemented with the tactical appointment of associates it shows, if anything, a tighter control on costs.
Crunching the numbers
Managing that cost base is critical, although it’s difficult to ascertain a true cost comparison between using associates versus staff, as each company will offer a different employment package.
Estimates of additional costs of employment range from 25% to a 50% premium on top of the basic salary for a consultant. However, hiring a specialist consultant, who charges by the hour or day, could prove more cost-effective in the long-term – the business only pays when the consultant is undertaking profitable work for them.
The shifting shape of a career path
As younger, millennial types progress in their careers, their expectations appear quite different to those of their parents. Flexible working conditions, shorter tenures and multiple temporary contracts are becoming their norm.
While the UK may be renowned for a well-established and highly skilled freelance community, not everywhere enjoys the same reputation. Taking a global perspective, Peel says the US has always been perceived as having a more ruthless “hire and fire” attitude when compared with the UK. In Asia, the expats tend to be the contingents while the domestic workforce are culturally inclined towards permanent contracts, seeking the inherent security. Which is fine, until a downturn hits.
Looking ahead, Mark Cardiff, partner in the enterprise team at Grant Thornton, thinks cloud computing has been a huge enabler. Rather than relying on mainframes and onsite servers, technology and cyber security have advanced such that remote working is no longer a risk.
He is recognizing a shift away from the traditional consultancy pyramid model, where few senior people own the relationship with many more junior or middle-tier practitioners in supporting roles, toward a model where each individual will continue to do their role, but work for a multitude of companies on a contract basis.
This blog is a condensed version of a more in-depth article. Click here to find out how other consultancies are resourcing and balancing the makeup of their team, growing equity and driving value across the business.
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