£1bn: the prize for tying fees to outcomes?

As part of the research for our latest UK consulting market report we asked clients (senior end-users of consulting services) about the factors that would have a "significant impact" on the volume of consulting services they bought.

Top of the list - chosen by a little more than half (53%) of respondents to our survey - was consulting firms lowering their fees by 50%. Fat chance. But also good news for consulting firms, as we discussed in a recent blog.

We're not going to talk through all 18 factors here, but number two (chosen by 47% of respondents) seems worth a mention: more willingness to tie fees to the results achieved by the project. Yes, that old chestnut. Few things have been talked about as much in recent years, but few things have resulted in such little action.

That's been the subject of much postulation in most of our reports this year and the upshot of the the debate seems to be this: clients enter discussions about tying fees to outcomes out of fear about what happens when something goes wrong. At a time when expenditure is so heavily scrutinised nobody wants to be the one whose name is written all over a failed consulting project. But sitting across the table from clever consultants, other things start to play on their minds: How are we going to measure success? Can we trust the consultant enough to go one step further and enter into some sort of risk-reward arrangement with them? Forget about what happens if it all goes wrong, am I going to have trickier questions to answer if it all goes right?

Nowhere is that concern more acute than in the public sector. It's one thing to be seen as a responsible guardian of the public purse, and to try to make sure that potential downsides are mitigated. But what's harder: explaining why a project failed or explaining why you ended up paying £5 million under a risk-reward arrangement when you could have fixed the price at £3 million? That's not to say that risk-reward is the only way to tie fees to outcomes, but it's often where conversations along these lines end up because consulting firms are keen to mitigate their own potential downside and to work out what's in it for them beyond simply getting paid.

And yet time and again this is what people in the public sector tell us is the key to the rebuilding of consulting in the sector. Because, let's be clear here, rebuilding is what we're talking about. At its peak, the UK's public sector consulting market was about the same size as that of the financial services sector. Now it's about half the size. The good news is that the corner appears to have been turned - in fact growth of more than 4% made it the fastest growing sector in the UK between 2011 and 2012 (we provide a breakdown of the size and growth rate of every sector - and consulting service - in our report) - but much remains to be done.

Perhaps the more telling statistic isn't the proportion of respondents who told us that a willingness to tie fees to outcomes would have a significant impact on the amount of consulting they bought, but rather the proportion who said they were already seeing that willingness from consulting firms. Which was 0%. We suspect that's a fairly biased, and not altogether accurate, view of reality (not least for the reasons we've just outlined) but it seems important never the less. The idea that a lack of willingness may be playing any part (let alone a big part) in holding back the regeneration of a critically important sector to the UK consulting market seems somewhat galling. After all, if you buy into the idea that the market can recover the value it has lost, there may be a £1bn prize up for grabs.