London: Global procurement managers have increased dramatically their use of risk-reward on consulting projects, according to new research by specialist consulting research firm Source Information Services.
Source finds that global procurement managers, half (1) of which spend over $50m per year on management consultancy services, have increased their use of risk-reward projects by around 50 percent. This method of tying fees to outcomes now represents about 15 percent of all expenditure on consulting projects.
Despite the significant growth in risk-reward, the Source report, Views on the consulting industry: A procurement perspective, released yesterday, says that questions still remain as to why it still doesn't represent a greater part of the market when clients regularly state that their future expenditure depends on it.
Over a third of procurement managers (36 percent) said consulting firms were willing to offer risk and reward payment terms, but were unable to implement them in practice, and a similar number have either been put off by their attempts to use risk-reward in the past, or found such contracts too complicated to create and/or enforce.
Thought leadership impact
Thought leadership is also becoming increasingly influential in persuading procurement managers to use consulting firms they haven't used before. The report says that with the world's leading consulting firms now producing such an enormous volume of thought leadership, this re-emphasises the need for quality, but it also suggests that consulting firms need to consider their audience very carefully.
Edward Haigh, a director of Source and an author of the report commented, "The rise in risk and reward contracts is good news for both clients and consultants, but there is still a huge number of clients that enter into discussions about risk-reward to reduce the chances of something going wrong, but get scared off the idea by a sudden realisation about what might happen if something goes right."
"It's also very striking that thought leadership is a more influential factor in persuading procurement managers to use a new firm than the recommendation of people that firm has worked with before. In fact, it's even more important — in respect of business consulting — than the stalwart of evidence-based marketing, the case study. So, what a consulting firm thinks has become more important than what it's achieved."
Technology drives consulting work
The report found that the large system integrators such as Accenture, IBM and Capgemini Consulting are taking the largest share of the market as a result of an increase in technology spend. Over a third (35 percent) of all consulting work is now driven by technology, with a slightly higher proportion (39 percent) having a technology component.
Edward Haigh said, "Technology is one of those rare areas of expenditure that even procurement managers admit is likely to rise. But change is coming — more than three-quarters say that things like cloud and software-as-a-service will change the way they use IT consultants."
Other trends identified in the report include:
- Transformation projects and other cross-functional and multi-geographical projects are on the rise. About three-quarters of procurement managers say their organisation either has a transformation project on the go at the moment or has recently completed one, and a further 11 per cent have a transformation project planned.
- According to procurement managers, implementation now accounts for almost half (42 per cent) of all consulting work. But despite the fact that most expect to pay considerably less for implementation, price doesn't top the list of things that influence them in their choice of firm. More important to them is that a firm is held accountable for the work it does and that it fits in culturally.