Our management consultancy columnist, Mick James, this week argues that consultants need to start charging their clients a lot more money.

Cheap advice is bad advice

Look, you're perfectly welcome to read this column for nothing, if you like, but I'd suggest you send me some money first. (You can use PayPal and the email address below -- it will only take a few moments.)

Why would I ask you to do this? It's not like I'm desperately motivated by money, my choice of profession proves that. It's that if you give me some money you are far more likely to follow my advice, which will more than likely make you a great deal of money.

And I can prove this, thanks to the redoubtable Ben Goldacre and his better-than-excellent "Bad Science" column in The Guardian.

Goldacre has unearthed some rather good science from the wonderfully named journal Organizational Behaviour and Human Decision Processes, which shows that people are more likely to take advice when they've paid for it -- even when they know it's of the same quality as the good stuff. (You can read the full account, and details on some other fascinating studies here: http://www.guardian.co.uk/commentisfree/2008/jun/14/humanbehaviour ).

Goldacre makes the rather uncharitable conclusion that "we are suckers" but I think that there are more subtle processes at work here. For a start, the fact that that someone, even if it's only the vendor, has placed a value on an object makes at least a prima facie case that it does have some value. The fact that someone has the gall to ask for money for their advice suggests a certain confidence in their abilities. Hubris, as the Greeks knew, is not a survival trait, and if that confidence is misplaced the adviser will, after a time, be weeded out -- sued, disbarred or beaten to death by an angry customer.

Sadly the experiment only made a comparison between free advice and the expensive stuff -- BusinessLink versus McKinsey, if you like. But it, and some of the other studies cited, strongly suggests that there would be a continuum. The more expensive things get, the more we value them. One experiment found that people thought wine tasted better simply because they were told it was more expensive. This is doubly weird, because not only were they deciding that a wine tasted better than itself, they were also right, because taste is an entirely subjective experience.

These results suggest that many of the consultants I speak to are pursuing a misguided -- or at least misrepresented strategy.

"We provide McKinsey (or Big Four) quality advice at much lower prices," they tell me. But that can't be. It might be the same advice, but all advice is worthless if it's not taken. So by making it more expensive we really do make it better.

You can see this from the client's point of view. If the advice is really that good, then why not charge the full market rate for it? If you are that good, why aren't you working for one of the g names you're dropping? And then we spiral off into all sorts of other narratives -- I didn't like the work-life balance at those places; We don't have bog offices to support; It's all about branding.

All those are valid points, but frankly who cares? Once a consultant starts talking about inputs he's on soggy ground. I invited you to my office to find out how to make my business vastly better. I don't care if you came here by taxi or by bicycle. Quoting a cheap rate -- for whatever reason -- is about as likely to impress as wearing a cheap suit.

There's a concept going round called "Freeconomics" that argues that the evolving business model for any kind of digital or online product will be to simply give it away. People with loose morals and a peer-to-peer connection already live in such a world. That's great -- in my lifetime we've already gone from a world in which only a very rich man would actually own a copy of a movie to one where people have walls lined with the things. Do we value digital content less as a result? Probably. Does it matter? Probably not.

But out there in that digital world is everything -- from the works of the great philosophers to the Harvard Business Review -- that you could possibly need to make yourself happier, healthier, wiser and more successful. Are people taking all this free advice? A quick glance at the world suggests not.

The punchline to all this -- and you really need to send me that cash now, or the magic won't work -- is that consultants need to start charging their clients a lot more money. Imperceptibly over the last few years we've been sleepwalking into an era of bargain basement consultancy. Fee rates haven't kept up with any measure of inflation, and what progress there has been on wages has been at the expense of margins. This is bad, not just because, as we have seen, bargain advice is bad advice, but because it threatens the viability of the industry. Clever people will start to drift into other industries where they will either be wasted or do more harm than good. (It's clear from the events of the past year that banking should se an upper limit in the intelligence of recruits and that it shouldn't be particularly high.)

Acting on this advice is going to lead to some entertaining conversations with clients. At a time when clients are beset with problems from the credit crunch to oil prices, and rivals are tempted to lowball, it will take balls of steel to be the boy who asks for more. But the long-term consequence of not doing this is that consultancy may become an amusing but irrelevant backwater.

By the way, if this all goes horribly wrong, I don't do refunds.

All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.

Contact Mick with your views or suggestions at: mick.james@top-consultant.com
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