Risky business!

‘Bright reflections’ explore business topics and aim to make you think: they are always teasing, sometimes provoking, but never judging.
“Safe is Risky” by Tom Fishburne’s marketoonist.com

If you are ‘in business’, you try to process input into output to make some money, while limiting risk. If you have not automated your whole shop, then one of your important inputs is probably people. These people can be on your payroll or procured from different sources. Let’s call them your internals and externals respectively. You probably try to balance them, depending on why you need them (temporary capacity versus specific capability), how long you need them, the numbers you want to report to the board, etc.

Traditionally, you can procure your externals from two sources, with different breadth and depth of knowledge and experience, different availabilities, risk profiles, engagement models and pricing:
• Individuals or Independent Contractors; let’s call them INCOs;
• Employed Consultants, working for consulting firms; let’s call them EMCOs.

Although it is probably not this strict, a comparison of both sources could be:

As with many options, your procurement decision for your externals can be justified either way, depending on your requirements and evaluation of their characteristics, pros and cons.

Two interesting questions in this context are: can you get more value for money and is there another (maybe better) source? Let’s explore the first question first.

More value for money means paying less for the same value or paying the same for more value, right? This value is not only reflected in business outcomes (the result of work done by your external) but also in the risk of not delivering this business outcome or the opportunity that other business outcomes are delivered ‘on the side’, which probably requires an experienced, committed external.

Although this can never be guaranteed, like with your internals, you can align the engagement-model and pricing with this objective. I am always surprised, disappointed even, by how many externals are promising the world before you sign them up, but not willing to share the risk of non-delivery. Why is it so hard to put a portion at risk when you are so convinced that you can deliver?

INCOs may say “I do not want to postpone part of my income” but then I suggest that they should manage their personal cash-flows better and act like real independent professionals rather than having an employee-mindset.
Consulting firms, selling their EMCOs, may say “I struggle to include contingent fees in my complex performance indicators and partner accountability” but then I suggest that they should listen more to their clients rather than their traditionally conservative accounting firm partners.

Both answers may be common practice but does this help you as client? All you want is value for your money, right?

A more helpful engagement model and pricing would be value-based rather than time-based, something that I have included in many of my contracts, both as external and as hiring executive. These risk/reward engagement models support the principle of ‘put your money where your mouth is’, to deliver outcomes rather than just time, thus matching your risk appetite. My evolving risk/reward pricing includes models in a continuum from pure time-based to full value-based in shared ownership. Examples of intermediate models may be known as ‘bonus/malus’ and ‘money for nothing and change for free’.

The essence with bonus/malus is that less (malus) is paid for less value and more (bonus) is paid for more value. The trick is to define performance metrics and constraints well. These do not have to be limited to the hard stuff (technical deliverables) and can also include the soft stuff such as stakeholder management and quality of relationships in general.

Money for nothing and change for free is useful in agile environments and allows for free changes within the same total (through collaborative reprioritisation of things to do) and early termination when there is insufficient remaining value to be delivered (while limiting externals risk of being idle).

Now let’s look at our second question: is there another source than our INCOs and EMCOs?

This question relates to one of my earlier reflections. There is another source that combines the best of the two worlds of the INCOs and EMCOs. I call them Community Consultants or COCOs. They will play an important role in our future digital world and sharing economy, potentially being better externals for you as their client, again depending on your specific requirements and your evaluation of their characteristics, pros and cons. So, who are these COCOs?

A COCO is a curated, committed consultant, often with a history as an EMCO, with strong values in a community of fellow-COCOs. They share their knowledge and network mutually and pro-actively and interact with each other, their clients and the wider community in a way that can be described as can-do, loyal, trusted, transparent, respected, confident without arrogance, healthy and fun.

If you are a client, looking for outcome-focussed consultants, with breadth and depth, community-support, some risk-sharing on the side and prefer not to deal with EMCOs with their high rates, internal processes and junior resource-swapping, then you could consider hiring a COCO. On the other hand, if brand as ‘insurance’ for your board is important or if you require temporary capacity for some well-defined work, then you may be better off with an EMCO or INCO respectively.

You may have procured externals for a while now, always asking yourself “do I get independent contractors or employed consultants from a consulting firm?” Your decision can be justified either way, depending on your specific requirements and evaluation of pros and cons. But now there is a new kid in town! The Community Consultant or COCO. This COCO may be able to deliver more value for your money, through sharing of their knowledge and network and risk/reward engagement models with value-based billing, matching your risk appetite. Interested? Excited? Scared? All of this? Let’s continue to reflect, learn and share our bright thoughts.

Bob is founder and managing director of i4bright, a consulting platform that connects bright people, aiming to share knowledge and network and work with passion and fun. He is a constant learner, coach and strategic business partner for IT, finance and more. His passions include innovation with business value, thinking differently and travelling.

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