Consultants Thriving as Businesses Struggle to Survive
Senior Editor, CNBC
Nancy Shenker had seven employees at her New York-based marketing and business development practice and says it was on track to gross $1 million before the 2008 recession.
But then customers disappeared, employees were let go, and revenues fell. To save her eight year-old firm, theONswitch, Shenker did what a lot of businesses are doing these days —she turned to an outside consultant.
"My bottom line was bad and I couldn't find the right people to work for me," says the 55 year-old Shenker, who held executive positions at firms such as Citibank and MasterCard before starting her own business.
"I knew I needed someone, and I was led to the consultant I have now," Shenker explains. "He's been great."
As businesses, large and small, try to survive the slowdown in consumer spending, the need for consultants appears to be on the upswing. An estimated $149 billion was spent on consulting firms in the U.S. in 2010, up from $141 billion the previous year.
And the management and business consulting industry is one of the fastest-growing in terms of job growth, according to the Bureau of Labor Statistics.The BLS says employment in the industry should increase by 83 percent over the next decade. Salaries for the industry are among the highest-paying of the groups the BLS tracks.
"The government and the healthcare industry are hiring consultants in large quantity now," says Chris Smith, co-founder of Arryve, a multi-industry consulting firm. "That's added to the past decade where there was significant movement in software and telecommunications."
There are three main types of consulting firms: Large, diversified organizations, medium-sized management consultancies, and the smaller boutique firms that have focused areas of expertise. And of course there are indendent contractors who hire out, usually for a specific type of business. Consultants provide services from the basic — how to get workers motivated — to the complicated, such as detailed business plans and technical know-how.
Why a business needs an outside consultant is pretty basic, says Mike Meikle, CEO of the Hawthorne Group, a managment and technology consulting firm.
"A consultant can be thought of as a tool that can implement a solution or solutions that are outside the real expertise for an in-house staff," Meikle explains. "They can leave the client in a better place and more profitable condition."
For Shenker, getting to a better place meant working harder.
"My consultant insisted I write job descriptions, which I didn't want to do," says Shenker, who has paid him some $3,000 since bringing him on in July of this year.
"But that was a terrific exercise and helped me focus on what I needed from employees. He also reviews my contracts and pricing structure and nudges me to keep my pipeline full at all times."
While there are plenty of obvious reasons to hire an outside consultant, there are also obvious reasons not to, says Marv Doniger, of Doniger and Associates consulting firm.
"Firms that are not willing to accept an outsider's point of view and make changes should not hire a consultant," says Doniger. "And staffing a company's long-term needs should be done by hiring additional help and not through the perpetual use of a consultant."
Those businesses looking for consultants need to be careful who they hire, says an industry insider.
"The layoffs since 2009 have created a wave of 'overnight consultants'," explains Alan Weiss, President of Summit Consulting Group, based in East Greenwich, R.I. "They will basically do what a company wants. It's an unfortunate trend and hurts legitimate consulting services."
Businesses also need to know that a consulting firm will leave them in better shape after they've left, says Richard Lukesh, a human resources expert and managing partner of Your Part Time HR Manager."
Many consulting firms will advise laying off employees as a way to justify their fees," Lukesh argues. "This is often done without realizing the impact of losing workers. The consultants win big bucks, the company may gain in the short term, but has a long-term loss in employee commitment and productivity."
There are also those consultants who decide they need to improve their own bottom line, says Patrick Schwerdtfeger, an author and industry analyst.
"Most consulting relationships have an inherent conflict of interest," Schwerdtfeger argues. "On one hand, consultants strive to solve their clients' problems. On the other, they hope to extend the relationship as long as possible, so they come up with solutions just fast enough to keep the client happy, but no faster."
Despite the mixed perception industry, officials say they do offer a chance for a business to improve.
"There's the old joke that says 'a consultant is someone who borrows your watch to tell you the time'," says Richard Lukesh. "But the right consultants provide a valuable service by getting management to avoid all the politics and day to day distractions that hurt businesses. They can then focus on solving the problems."
Nancy Shenker says she's been solving her problems with greater success since hiring her consultant.
"My margin is up dramatically, I'm much calmer and happier and more confident in my future," Shenker explains. "He's really become like a wise business uncle to me. I wish I had hired him eight years ago."