Return on investment: Different value for different times
‘Return on investment’ can mean different things to different people
By Alan Leaman | CFO UK | Published 00:05, 12 December 12
'Return on investment' can mean different things to different people. But FDs understand that it is about financial benefit and adding real value to their organisation. Good FDs know the difference between value, price and cost.
But what is value in these volatile times? In particular, is there a good way of assessing the value that external support and resources can bring to organisations as they navigate the choppy seas of commerce?
FDs will all have a watchful eye on their level of spending. Our argument is that they need to be just as focused on the value that consultancy delivers.
This issue is now at the top of the consulting industry’s agenda. Buyers are rightly demanding more and more of their consultancies, and expect firms to go further than the extra mile to deliver it. In return, consultancies are changing their ways of working in order to respond.
Yet, still, too many conversations about consulting begin and end with the notion that it is just a financial cost of doing business. The truth is that both parties perform better when they think of consulting as a cost-effective way of achieving valuable results.
The Management Consultancies Association (MCA) has recently launched its Consultancy Buyers Forum to help bring the buyers and providers of consulting services together for mutual benefit. A huge number of major UK private sector organisations have already joined.
The Forum will be a safe space for buyers, clients and suppliers of consulting services to share knowledge and experience amongst themselves. It will help procurement teams better understand the kind of services consultancies can offer and how they can benchmark these. And it will help consultancies better understand what they need to be focusing on in tougher times.
As well as facilitating better dialogue between buyers and consultancies, the Forum will promote the highest professional standards in buying and delivering consulting and explore ways of achieving even better rates of return for clients.
To help start this conversation, we recently commissioned some independent research into the views of 200 board directors and senior procurement staff who work for large UK-based private-sector firms.
The research found that, on average and across all types of consultancy, consulting projects delivered a return on investment worth around six times the fees that were paid. Some projects delivered a value worth over 20 times the fees paid. Over 90 percent of the Board Directors in the research were able to identify the return that they felt had been achieved through a recent consulting engagement.
This research shows that clients are increasingly looking for evidence of a consultancy’s ability to demonstrate value creation when deciding which firms to invite to tender and subsequently to appoint. Clients increasingly recognise that they are not just buying a service, but also making an investment to help achieve an important business outcome.
And it really is about value, not just price. Procurement professionals and directors agreed that price was the least important factor in their purchasing decisions. Of the seven key factors, the need to show a clear deliverable or value ranked highest.
The research also confirmed that procurement departments, who have played an increasing role in buying management consultancy in recent years, are now also playing a more active role in project delivery. Our report found that almost half of procurement professionals have either some involvement, or are very involved in, the consulting projects that they buy.
How well-equipped are these procurement specialists to track and quantify the value being delivered by consultancy support, or to match it to the needs of their business? How closely are FDs and procurement departments working together?
Understandably, procurement professionals often look for different things from consultancy support. Rather than try and please two separate communities, the MCA forum is working on how best to enable both procurement departments and their internal stakeholders to gain maximum benefit from consulting.
Are consultancies currently meeting their clients’ objectives? The research reported that, in the view of clients, over 95 percent of consulting projects exceed or meet their original objectives, or meet objectives that have been revised during the course of the assignment.
But FDs may still need to work more closely with other parts of the business to better understand where they need help and the kind of support that will be delivered. Real benefit will be gained by thinking of consultancy support as not just a service, but as a partner and a way of adding real business value.
Alan Leaman is the chief executive of the Management Consultancies Association (MCA).
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