If you've ever dreamed of becoming a consultant, read this advice from our expert on the hierarchiology of technology; two examples show how the Consultant's Law works and why you can't ignore it
Behemoth Insurance Company had developed one of the finest groups of computer software experts in the business. By the mid-1970s, it was generally recognized in the industry that Behemoth's improved profit position and renewed growth were due largely to its effective use of data processing techniques.
One man who played a key role in this development was Ed Vise. He had come direct from college to Behemoth shortly after the Data Processing Center was established. There he had matured as a systems analyst and programmer. No one in the Center had a better understanding of the idiosyncrasies of the computer hardware and software systems. Nor had anyone at the Computing Center made a greater effort to learn about the insurance business. When there was a problem at the Center or a requirement for an innovative approach, the manager of the Center invariably turned to Ed for help.
Thus, while Ed managed a small group of programmers at the Center, his primary role evolved to that of chief adviser or consultant to the Center's manager. It was a very satisfying position, and Ed was rewarded with the highest salary next to that of the manager himself. Yet Ed gradually became dissatisfied. He longed for a more challenging and rewarding position. There was little chance that he would be made manager of the Center in the next few years, and there was no other position for him in the company. While his salary was good, it in no way reflected the hundreds of thousands of dollars the company had earned as a result of his unique contributions.
It is, therefore, not surprising that Ed Vise began to think of becoming an independent consultant. He could supply his experience and skills to insurance companies throughout the industry. There were so many of these that he could consult for them, one at a time, and never run out of clients. Because Ed's unique skills were largely unknown outside of Behemoth, he decided to charge his clients a fairly standard daily rate, but with a bonus for early completion of assigned tasks.
His first job was most successful. By using the same techniques he had developed at Behemoth, he was able to solve the problem given to him in about half the estimated time. He was rewarded with a large bonus and a letter of thanks that was invaluable in securing his next consulting assignment.
For several years, Ed Vise was successful at giving advice to data processing groups throughout the insurance industry. Gradually, however, things became more difficult. The solutions he provided one company tended to be passed along to other companies through informal discussions or through presentations at professional meetings. Such presentations typically were made by heads of data processing centers who credited their own employees for the new concepts and felt no obligation to acknowledge the contributions of outside consultants. The presentations not only reduced the opportunities for Ed to apply his ideas, they failed to give him much-needed publicity.
Each new consulting job required more innovative ideas from him, because his original ideas were by now rather broadly adopted. Bonuses became rare. Even a man as competent as Ed could not repeatedly invent and implement on short schedules. More and more, he was scratching for his next job while trying to complete the last one. The pressure mounted until he finally began to look again for a secure job in industry where pay and productivity were more loosely coupled.
Ed's major problem as a consultant arose from his paying too much attention to technology and not enough attention to the hierarchiology of consulting. If he needed to be convinced of how important this was, he had only to observe the fortunes of Harvey Goodfellow, who had worked for him at Behemoth Insurance Company and who had also left to become a consultant.
Harvey was a good programmer and quite dependable; however, he lacked innovative capability. Under Ed Vise's management and guidance at Behemoth, he had done very well. Ed determined how the problems should be solved, and, Harvey carried out the solutions. When Ed left, Harvey's performance dropped noticeably. Without Ed's innovative leadership, Harvey's solutions to problems became circuitous. No longer could he be counted on to get his assignments completed promptly.
The basis for his decline in performance was not understood by his new manager, and Harvey himself did not appreciate what had happened. He felt he was working as hard and effectively as ever, but that his new manager failed to appreciate his efforts. Within a year after Ed left, Harvey Goodfellow also left Behemoth to become a consultant. His first customer was the same company that first hired Ed. Harvey followed through on some of Ed's suggestions that had not yet been implemented and then returned frequently to discuss the plans and problems at the Data Processing Center. Harvey showed himself to be competent by completing the work outlined by Ed. He was an interesting talker and always most congenial. Because he was unable to develop innovative solutions to problems himself, he could discuss the ideas of the members of the Computer Center at length without getting bored. He never embarrassed them by his brilliance. Frequently, he was invited to finish a day of consulting at a round of golf with the data processing manager and the executive vice president. Eventually, he was placed on a permanent retainer to consult a minimum of two days a month for the company.
Good references from this first consulting job led to new jobs where a similar pattern developed. Within two years Harvey Goodfellow had acquired 11 regular customers and was forced to advise his clients that he was now too busy to do any computer programming himself. This, however, only served to increase his value.
Programming is a relatively routine task for which only a limited fee could be charged, whereas general advice has no set value. Harvey, who was now regarded as an expert consultant for data processing throughout the insurance industry, could command a top price. Each of his clients had the benefit of all of the information he had gleaned from his other clients. As these continued to increase in number, the information he could share increased almost in proportion.
Harvey was careful not to give the identity of his sources lest he reveal proprietary information. To better protect the identity of his sources, he frequently felt obliged to claim borrowed ideas as his own.
Harvey's business was booming just when Ed's was in steep decline. After several unsuccessful attempts to find a corporate job, Ed accepted Harvey's offer of a job. With Ed working for him, Harvey could now look forward to providing clients with innovative solutions. He believed, perhaps erroneously, that such a capability would bring additional business to the new firm of Goodfellow Associates.
Harvey had no formal training in the hierarchiology of consulting, yet he managed his career as effectively as if he had been a student of the Consultant's Law:
A successful consultant never gives as much information to his clients as he gets in return.
While the truth of this law is affirmed by Harvey's success and Ed's failure, its validity should be logically self-evident. It can also be derived through simple mathematical relationships.
The value Vc to a customer of a discussion with a consultant is equal to the information given (Ig) times the price per unit (Pu) that the customer is willing to pay for the information. Stated mathematically, this becomes
Vc = Pu × Ig
The value Vo of the same discussion to the consultant can also be represented mathematically by.
Vo = (Pu × Ir) - (Pu × Ig) + F
where (Pu × Ir) is the value of the information received by the consultant, (Pu × Ig) is the value of the information which he, gives in return, and F is the fee paid to the consultant in dollars. Assuming the customer pays a fee equal to the value of the advice he receives (an interesting even if naive assumption), then F = (Pu × Ig) and the value of the discussion to the consultant becomes simply
Vo = Pu × Ir
This equation states that the value to a consultant of each discussion is proportional to the information he receives and completely independent of any information he may give in return. Even if one assumes the fee paid to him is not exactly equal to the value of advice given, the analysis produces a very similar result.
When it comes to advice, it is more important for a consultant to receive than to give.
The failure of most technical consultants can be traced directly to their mistaken presumption that the function of a consultant is to give information and advice. In reality, a consultant's job is just the reverse.