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Deliver and get paid: Management consultancies see result-link payout

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Updated: Nov 11, 2019, 02.36 PM IST
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Digital consultancy
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Highlights

  • Earlier, consultancy firms used to operate on fixed-pay models for projects or assignments, which companies had to either take it or leave it
  • A senior executive from a diversified conglomerate said client-management consultancy relations on the payment front are no longer the same
(This story originally appeared in on Nov 11, 2019)
MUMBAI: With companies adopting a result-oriented approach, payment models of management consultancies have undergone a drastic change. When a company hires a management consultancy, the demand is to split payment between a fixed component and a variable one that is linked to performance. Earlier, consultancy firms used to operate on fixed-pay models for projects or assignments, which companies had to either take it or leave it.

A senior executive from a diversified conglomerate said client-management consultancy relations on the payment front are no longer the same. There is a stronger emphasis on outcomes, given the fast pace of change, and returns on investment, he said. Management consultancies TOI spoke to agree that the change in payment models is something they cannot wish away and is, in fact, a win-win.

KPMG India partner and head (advisory) Vikram Hosangady, said, “The consulting world has changed significantly over the last three-four years and the clear expectation is ‘skin in the game’, which actually is a win-win for all parties.”

Hosangady said KPMG is well placed in terms of its integrated platform of services to partner the client’s transformation journey.

“Today, $5-6 million even for a mid-market company becomes affordable given the fees are linked to results that could be improved revenues/ebitda. Fees are no more a cost as the value derived by the client is a significant multiple of the fees,” said Hosangady.

For the Big Four in particular, the concept of a fixed fee in the past was derived largely from the time spent by its partners/managers on projects.



PwC India partner and leader (advisory) Deepankar Sanwalka said, “When we talk about transformation to help become fit for future, companies say: ‘You’re offering me a strategy that’s grand and sounds nice on paper. Can you demonstrate that for me?’ Value-billing is pretty much the only way to go now. Without blinking an eyelid, we offer it ourselves.”

Given the changing market dynamics and digital disruption, consultancies are in a majority of cases asking companies to reinvent themselves. This requires transformation of current business models.

“This payment model is the only way to project we know what we are talking about. If we were to only walk away with the fixed fee, we will not be able to run our shop. Also, the new model works for us. I am partaking in the benefit and typically make more money. The higher the risk, the greater the rewards,” said Sanwalka.

In their commercial negotiations, management consultancies basically give options wherein if 50% of the fee is at risk, and if it is able to demonstrate the expected value, then it could walk away with a higher percentage than that stated. And vice versa. So, the strength of a management consultancy and its brand now lies in executing the proposed strategy.

EY India partner & national leader (advisory markets) Monesh Dange said, “Outcomes are an evidence of delivering to mutually agreed plans and realising envisaged benefits. Transformational engagements where consultants have been hired by clients become a good case in point for such models.” This is because transformational journeys in revamping aspects such as rethinking the operating model, revisiting routes-to-market and exploring newer avenues of efficiencies require both knowledge and commitment.

With companies willing to share rewards with consulting firms for the benefits realised, Dange said it’s a true reflection of growing trust and greater collaboration, in a manner of speaking. BCG declined to comment, while McKinsey did not reply to TOI’s query on changing payment models.

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