The great divide?

One of the ways in which this recession is proving to be different from the last one is that demand for freelance consultants appears to have shrunk. Although there’s no hard data on the shift, anecdotal evidence from clients, consulting firms and even freelance consultants confirms it.

There are several possible explanations for this.

The 2002 downturn saw a huge increase in the number of freelance consultants and in their acceptability even within blue-chip organisations. This was fuelled by the fact that many of the consultants had all the credentials of having worked for big consulting firms but had been made redundant as the latter struggled to shed surplus capacity. Freelance consultants were therefore seen as a good, cheap alternative to consulting firms. This time, consulting firms have been husbanding their resources more carefully: lay-offs have been small-scale, so there has been no flood of new, highly qualified labour entering the freelance pool.

Clients, too, are more circumspect about using freelance consultants: while often very specialised and offering good value for money, they are more likely to take on quasi-line roles in the organisations that hire them, carrying out work which could be undertaken by a full-time employee. Precisely because of this, freelance consultants have been able to fly under the procurement radar, even though over time their fees can be considerable.

Increased centralised scrutiny of consulting expenditure by procurement teams has revealed that freelance consultants, none of whom individually gets paid a lot, can still add up to a large slug of money for a big organisation, perhaps as much as 20 percent of its total consulting spend. And, if you’re looking to cut expenditure on consultants, that’s a comparatively easy saving to go after.

However, this points to another, perhaps much more fundamental reason for the decline of the freelance consultant. Clients are making a clearer distinction between “staff substitution” and bona fide consulting. The former involves an individual working with a client’s own staff for a long period of time; the latter is more likely to be a team (big or small) working on a specific project for a defined, usually short period. Crucially, the former comes down to skills, the latter to a solution. People usually understand the term “solution” to imply a commoditised package, but it highlights the crucial point that clients are buying a defined outcome or benefit and are less concerned about what it takes to deliver that. They’re buying an end, rather than a process.

As the skill/solution divide widens, it raises interesting questions about the position of traditional consulting firms. Most consulting firms still see themselves fundamentally as collections of skills: their pyramid structure and models of resource allocation and utilisation are all predicated on this; it’s also how they market themselves and the basis on which they recruit. But, as demand diverges, consulting firms are likely to find themselves stretched to tearing point. Are they going to be skills-providers (interim management firms, networks of individuals or other types of virtual firms) or are they going to be providers of packaged outcomes?