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Commando Consulting, May 2010

Some Erroneous Yet Commonly Used Ways Of Establishing Consultants' Salaries

By Tom "Bald Dog" Varjan

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Can you imagine that a swan has up to 25,000 feathers but a hummingbird has the fewest feathers of all birds - only about 1,000 feathers.

But being so small, it has more feathers per square inch than most other birds.

Also...

A hummingbird beats its wings up to 80 times per second, flying as fast as 35 mph.

And since its heart beats more about 1,200 times per minute, it needs a hell of a lot of food for energy. This is why it eats up to 50% of its own bodyweight and drinks 8 times of its weight in water every day.

Also, the hummingbird is the only bird that can fly backwards.

Yet, we humans tend to admire the magnificent swan and ignore the hummingbird, which is, whichever way we look at it, is a nature's wonder.

And the same happens in consulting firms too. There are swan type firms that are impressive on a veneer level but that's all. And there are firms that are pretty hummingbirdish on the surface, but after careful investigation we can conclude that they are better than the swan firms.

So, how does this bird stuff relate to consulting firms?

Well, pretty easily really...

Consulting firms acquire talents differently. The "swan" firms acquire talents based on veneer and "hummingbird" firms acquire talents based on ability.

It's customary for large consulting firms to go on hiring binges and "suck up" the best MBA students of the Ivey league business schools.

Well, not really the best students, but the students with the highest grades. Now we know that there is no relationship between school grades and ability to produce.

After all, a few short months ago it was some Ivey League MBAs who had driven the US car companies and some banks to the economic slaughterhouse, and it was a massive cash injection that held the marketplace back from stabbing these companies in the heart to bleed them to death and end their miseries.

In spite of the fact that business gurus all over the world have been preaching for many years that 80% of a business success is about good people, and 80% of a good person is personality and attitude and other personality traits, most consulting firms still relegate this vital function of talent husbandry to a human resources departments or, even worse, external recruitment firms.

By the way, if you have a better name for it, please let me know. I've just come up with this talent husbandry thing, and so far this is the best I've found. But there must be something better out there.

I suggest when firms start calling their people human resources, they are in deep shit.

Why?

Because resources must be discovered and exploited by making them available at the lowest prices.

Following this "resources" thought, what is the next step?

Calling their parents ancestry resources? Their spouses reproductive resources? Their children inheriting resources?

Attracting top talents has always been and, I fear, will always be a major challenge for many consulting firms. As a result of high talent turnover - coupled with a chronic allergy to core business functions, like marketing, branding and selling - the "professional service firm" is one of the least profitable and most underperforming business models.

Firms get so busy to improve their clients' performance, that they ignore their own underperformance and hide behind protective shields like time-based fees, where clients pay for - often useless - tasks, regardless of value.

Part of this problem can be traced back to human resources departments.

But where does this underperformance actually originate from? First let's look at a key difference between pursuing jobs at industrial businesses and pursuing careers at consulting firms, that is, professional knowledge firms.

In other industry sectors, such as, manufacturing, retailing, junk food industry, etc. human resources departments are busy hiring employees to perform tasks for as little compensation as possible. Employee loyalty is virtually zero, so employers try to squeeze the most out of their employees as quickly as humanly possible.

For consulting firms it is all about recruiting highly skilled professionals for careers who buy into the firm's vision both emotionally and intellectually in order to co-create a bigger future both for themselves and their firms.

So, as long as human resources departments do the hiring, consulting firms are in deep shit. HR departments know how to hire people based on their resumes, and that is enough for performing jobs.

Dr. Brad Smart reports in his book, Topgrading, that some 75% of newly hired people are mishires, and many of them actually cost their companies to keep them on the payroll. Also, one mishire can cost as much as 15 times of his gross compensation. The majority barely produce enough to cover their costs. And a tiny percentage of the workforce produces results.

However, when it comes to performing consulting services, firms must replace their traditional hiring processes (raw technical skills) with recruiting processes based on personality traits. Why? Because performing consulting services is all about relationships.

House may be an interesting TV series about the eccentric but genius doctor, but no one in private healthcare facilities employs those people.

Of course, private healthcare facilities must be run like a business to produce revenue to stay open. In state-operated, usually unionised, facilities with unlimited amount of money and zero accountability, even obnoxious jerks can find employment, so they can freely abuse the taxpayers who pay these doctors' salaries.

Anyway...

It means that the majority of overall business success is about emotional competence not purely intellectual competence. And for many forms, this emotional competence is missing.

As McDonald's founder Ray Kroc once said...

"You are just as good as the people you hire."

This is bloody ironic, considering how McDonald's treats staff. But the phrase is true.

And I dare to bet some vital parts of my anatomy that by "good people" he didn't mean people with amazing burger cooking skills and people with Ph.D.s in food science. Ray just realised that he would go further with "emotionally talented" people than with merely technically talented people.

Where do you think this kind of ad would have led him?

"People wanted for fast food restaurant. Must have a degree in thermodynamics (we use sophisticated ovens, you know), animal husbandry (burgers are made of cows) and food science. Also, you must be certified by the local food hygiene authority."

Just look at the ultimate professional service firm: The military. It requires nothing except enthusiasm and ambition to succeed. Then it turns technically inexperienced people into fine soldiers with amazing technical skills, and does it pretty quickly.

With this fact in mind, I dare to propose that recruiting professionals to firms through HR departments based on resumes is often a call for a disaster. Some great mistakes human resources make when hiring career-minded professionals.

Overemphasising Content Skills

Bring together the ten best lawyers and watch what they do. It will be a far cry from the best law firm in the land.

Metallica is a legendary heavy metal band, but I wouldn't call Kirk Hammett a legendary guitarist, Lars Ulrich a legendary drummer, Robert Trujillo a legendary bass player and James Hetfield a legendary singer.

But as a band, they are certainly legendary in the heavy metal world.

But when "individual mediocrity" is managed well, it can turn into group genius. And that's what Metallica, U2, The Beatles and Pink Floyd have in common. "Merely" good musicians joined forces and created legendary bands.

There is a world of difference between passing the exams to earn MBAs by the bucketloads and practising consulting at the level of unparalleled excellence to improve clients' businesses through the skilful application of unique business savvy. Success at any firm is about 20% content knowledge (what do we do?) and about 80% process knowledge (how do we do it?).

Look at so many consulting firms. They are basically collections of MBAs, performing the kind of work most of which can be outsourced to India for a tiny fraction of the money. The unique aspects that require local expertise are hardly existent. But this is a far cry from consulting. Is that surprising? Not at all. The HR department was looking for trade barbarians to do predictable, step-by-step intellectual "latrine duty" in the first place, and that is what it got: MBAs, not consultants.

Hiring Not Recruiting

Hiring is about gaining access to people's heads and hands to perform tasks. It is based on a resume. This is a fine approach when hiring labourers, but is a definite no-no in consulting firms where the firm's only asset is the quality of its people and their personalities.

While hiring is about having access to certain skills, recruiting is about having access to certain personality traits. Hiring is about offering a job. Recruiting is about attracting talented people who are looking for exciting careers.

A good example is the military, as Tom Peters calls it, "the ultimate professional service firm": As long as you have the ambition to be all you can be, you can join. They will teach you content.

If you have a heart for it, they teach you the "head stuff". A great firm is about enthusiasm, passion, ambition and innovation. Oh, yes, and a bunch of horse sense, which is as good as stable knowledge. While labourers can be hired by HR departments based solely on resumes, professionals should be recruited by their future colleagues based on their personalities.

Some people are good at interviewing and some are good at producing results. And while there might be a tiny overlap, I dare to say the two are almost always mutually exclusive.

Result producers spend their time to hone their result-producing skills. Good interviewers spend their time to improve their smooth-talking skills.

Focusing On The Firm Not On The Candidate

Many firms got it the wrong way round. They ask why the firm should bring the new candidate on board. The best candidates ask back...

"What makes your firm worth investing my time, talent and effort in it? What is so exciting about your firm? Sell me on your firm and your current people?"

As we all know from Peter Drucker...

"Knowledge workers are volunteers who own the means of their performance, and whether or not they remain with any one company is totally volitional. Just like most investors, they will go where they can earn a fair economic return-measured in wages, fringe benefits, and other pecuniary rewards-as well as where they are well treated and respected, the psychological return. In the knowledge society, the most probable assumption for organisations - and certainly the assumption on which they have to conduct their affairs - is that they need knowledge workers far more than knowledge workers need them."

Candidates who could be valuable for firms don't need firms. They can sell their expertise without a corporate backdrop. They can start their own firms.

So, where is the problem?

From the HR perspective, there is an expectation of indentured servitude. HR screens candidates on how obedient and subservient they are. If they dare to have their own thoughts and dare to speak their minds, they get rejected.

Let's face it, most consulting firms operate on mantra of...

"Conformity we worship, status quo we uphold."

No one is allowed to colour outside the lines. Everything must be done pretty regimentally.

I dare to say Google's recruiting process is drastically different from mainstream HR best practices. I reckon that's why Google is such a strong magnet for top-notch IT professionals.

What's also interesting is that people who belong to the mediocre bunch don't even bother to apply. That is, Google has masterfully polarised IT professionals.

The best of the best are attracted to the high challenges, while the mediocre bunch avoid Google like the plague.

And consulting firms could polarise candidates similarly. That way they wouldn't get overwhelmed with mostly dud applicants.

Seeking Full-Time Employees

Full-time employment in consulting firms basically means "we expect you to spend 40 hours per week in our building, using our toilets, our photocopier and have lunch in our cafeteria. We watch your time-keeping like a hawk, and we'll watch the number of billable hours your you dole out.

But it has nothing to do with achieving results - effectiveness. It's all about being impressively busy for 40 hours per week - efficiency. Full-result employment is about outcomes not lists of tasks. Tell new people what they are expected to achieve by the end of the first year and help them to achieve it.

Defining Associate Salaries Based On Hourly Wages Or Commissions

Performing professional services is highly creative work, and it can't be performed on command during preset hours. Hourly payment is fine for labourers performing predictable and repetitive manual labour but it's the wrong kind of compensation for knowledge workers.

Often good ideas for projects come during a movie or under the shower.

A while ago a British firm did a survey to find out where and when knowledge workers have their "earth-shattering" ideas. It's during commute to- and from work and under the shower.

So, how do you relate this to hourly wages?

Commissions are disastrous too. They turn professionals into mercenaries, looking for short-term money grabbing and ignoring long-term profitability and prosperity. Here are some of the problems with commissions:

People are motivated to focus on short-term results, ignoring sustainable long-term improvements. This can later backfire to the firm big time.

Conflict can arise from the firm and the professional's difference of assessing the improved situation. Sometimes projected results are not achieved because management does not provide the right support. Professionals with great ideas are often overruled by the firm's super-bells-and-whistles trademarked proprietary approaches, regardless of how useless they are in certain situations.

While human resources departments are great for hiring "trade barbarians", with consulting firms HR should focus on growing people once they are working at the firm.

Professionals are professionals because they require a certain level of freedom in the way they operate. Also, they must have a very high level of emotional skills, which trade barbarians do not need.

However, as long as firms respond to applying talents with messages like...

"Thank you for applying. Your application has been successfully received and will be reviewed by our Recruitment Team. Should your qualifications meet our requirements, we will contact you for an interview. Otherwise, we will keep your application on file for future consideration in case a suitable position becomes available."

Professionals worth their salt will regard these firms as second rate punks.

It sends more or less this message to the reader...

"We will treat you like shit both as a applicant and as an employee. Be afraid, very afraid."

On Summary

Establishing fair salaries is pretty hard and complex in any industry.

But establishing fair consulting salaries is even harder.

In the world of manual labour, you can measure performance right away. In consulting you can't. So performance must be judged and discerned. And that's a completely different keg of worms.

Over the years HR best practices have proved themselves to be stuck in the industrial age, and while they are excellent at hiring labourers to dig ditches and other predictable forms of manual labour, they are utterly useless to recruit knowledge workers to invest their best and brightest in their firms' success.

The business world in general is shit scared of giving up performance measurement and not ready for performance discernment. And this is why consulting salaries are linked to some random measurable indicators, like the number of working hours.

But it would be unfair to blame HR in general. There is a huge group of compensation consultants who make huge piles of money to invent convoluted compensation methods for their clients.

And the fact that most of those compensation methods are useless is irrelevant since most of those firms charge hourly rates anyway, thus dumping full responsibility on their clients.

Clients buy consultants' time and even if the consultants' solutions don't work, clients have to pay consultants for the passage of time.

I reckon, this is one of the reasons why some consulting firms prefer to operate on time-based pricing. They offer competitive-looking hourly rates and then descend on their clients with legions of inexperienced juniors who are learning the trade on their clients' dimes, while producing precisely dick.

But in consulting profits lie in the effective application of intellectual capital not in the passage of time. And in order to apply intellectual capital to your clients' situations, your people have to be energised, excited and enthused about the work they do and the people they do it with. Otherwise consulting turns into drudgery which can seriously ruin an otherwise nice day.

So, the whole idea is that you have to create an environment that feels more like a playground for your people not a Gulag-like labour camp.

And while exorbitant salaries and bonuses can't create this playground atmosphere, low salaries can most certainly create the sense of the Gulag camp, forcing your best people to leave for greener pastures.

So, I'd like to encourage you to abolish your HR department and make it a firm-wide effort to attract and retain top-tier talents. You don't have to do much. Great talents are already motivated. All you have to do is to watch that no one in your firm destroys their innate motivation.

That's when you're on your way to running a highly attractive (to talents and clients) and profitable consulting firm.

Come and let's discuss this newsletter issue on my blog...