About Modern Job Trade — Consulting Firms
Where did we leave off? Recruiters? Freelancers? Decentralized peer-to-peer networks? No, that’s not it. Consultants? There we go — consultants.
We’ve already seen how companies outsource their recruitment process to third-parties, also known as recruiters — consulting firms offer the same service, plus a little extra.
A consulting firm is a company that lends resources to other companies on short-term contracts. Roughly speaking, the firm is organized as a hierarchy — offering employees a career path from junior, through senior, to project manager, to junior partners, all the way to the top — partners (owners).
What exactly is this ‘extra’ they offer? Scalability — get as many (or as few) consultants as you want, whenever you want, for as long as you want. Cross-functional teams — complex problems are best solved in teams, they say — consultants do exactly that. Access to expertise — your project involves some niche problem no one knows how to solve? Someone in the firm’s international expert network knows how to solve it and the firm will make the expert exclusively available for you.
So consulting firms are recruitment bureaus with a little extra on top. Let’s call it triple cheese. But the triple cheese pizza costs more than the plain vanilla one (sorry about the culinary confusion, vanilla is a finance term — they’re supposed to be confusing) — and companies have to pay for it.
Remember how recruiters cost anything from $12k to $20k? Consultants charge between $100-$1000. Well, that’s cheap? By the hour. One consultant billing for a full year may cost you anything from $150k to $1.5M.
Even with those prices, the product is in demand — for IT consulting alone, the 2021 market was $900 Billion. How? Remember the main drivers of middlemen in job trade:
- The trust barrier
- The scarcity of resources
Consulting firms take care of the trust barrier through their recruitment process (and client references, existing client relations, reputation — but let’s keep it simple) and they take care of the scarcity problem with their extras (scaling, cross-functional teams, international experts) — this is obviously a precious value proposition for companies — and precious products are often pricy.
We’ve claimed in earlier posts that Nomad can replicate the value proposition of consulting firms at a minimum cost — removing the pricey from precious. Before we restate the claim, let’s scope in on that value proposition and their cost of delivering it.
Recruitment is a natural starting point. Consulting firms either recruit 1) from competitors 2) directly from universities or 3) from companies — producers of commodities and services society desires.
The recruitment process looks something like:
- Personal interview — conducted by juniors in the firm
- Case interview(s) — conducted by consultants of increasing seniority
- Partner interview — conducted by, well, partners.
Notice the agent-problem resulting from lack of skin-in-the-game, assuming that partners are the only owners of the firm. Sorry about the detour, we just love agent-problems at Nomad.
Back to consulting — different firms will have different tweeks on their recruitment, but the firms all have one thing in common — getting a job there is difficult. Hell, getting an interview there is difficult. And if you get the interviews, they are terrifying. They involve brainteasers (how many vacuum cleaners…), personal questions (your three biggest weaknesses), cases (program this, program that…), and mental arithmetics (the square root of 1369). Why? To not only surpass the trust barrier, to slam dunk it — these guys are the best of the best, and everyone knows it — especially their clients.
Recruitment isn’t enough to convince clients — consulting firms also have to deliver value. A typical consulting delivery may look something like this:
A cross-functional team solves a complex project according to the project plan the consulting firm delivered to win the project (a plan based on the latest/greatest technology/methodology from the firm’s R&D department). But projects never go according to plan. Suddenly, the input of a cybersecurity expert is needed or else the project halts — two hours later, the consulting firm delivers the required expertise and the project continues. Then, new information hastens the deadline by two weeks and two more resources are required to complete the project on time — two new consultants show up the next day. The following Sunday, the project manager (PM) informs the team that due to private reasons, he will have a leave of absence for an undecided period of time — leaving the project in scrutiny. No worries, already by Monday afternoon the team is back on track with a new PM behind the wheels. He spent the morning in onboarding sessions with the previous PM and is now up to date. The show goes on. Upon project completion, the team onboards client stakeholders and transfers the documentation needed to maintain and further develop the deliveries.
Voila — now you have the brand new data platform you need to fully exploit your data. If you need to improve your data quality first, check out the data engineers of the consulting firm, or if you need an analytics platform on top, check out their data scientists. Some firms even deliver end-to-end solutions — sit back, relax, and watch your business develop.
Marx claimed that the value of any commodity or service is determined by the cost of labor that went into producing it. For consulting firms, their cost of operation almost defends this preposterous claim — it’s very expensive. We’ve already mentioned recruitment, then you also have the cost of development (especially for graduates), the cost of turnover, fancy office facilities, business administration, marketing, and sales. Only partners have skin-in-the-game incentive to reduce these costs (and perhaps employees dreaming of the day they can update their Linkedin to ‘partner’) — everyone else are incentivized to maximize salary while minimizing effort (maximizing salary might mean securing promotions, which might require some effort — but you’ll get far with a big smile and a hurry).
How can blockchain disrupt this form of organization? Costs are quite simple, give employees fair ownership based on contribution — now everyone has the incentive model of the consulting firm partner. What about delivering the same value proposition? Help freelancers collaborate.
If you hired a cross-functional team of freelancers, you couldn’t expect such a smooth journey. One man down, and the project is delayed — maybe even shut down. A team of Nomads, on the other hand, could deliver the exact same journey — only at a minimum cost.
How? First off — skin-in-the-game recruitment. Second, free internal trade in a decentralized peer-to-peer network owned and controlled by Nomads. In need of state-of-the-art technology/methodology? Someone in Nomad has it. Cybersecurity? Some Nomad is waiting for your call. More resources? More Nomads. PM with a need for paternity leave? Onboard a Nomad.
So the solution is not only ‘hello, skin-in-the-game recruitment’ as with recruiters, it’s also ‘goodbye partners, hello fair ownership.’
Thus, blockchain can help reduce the need for third-parties, offering society a cheaper solution to the trust issue and the scarcity of resources in the process.
In the next post, we’re going to take a look at how freelancers work now and why they’re struggling to get rid of a special type of third-parties (talent platforms) without the support of blockchain technology.
In the meantime, check out our whitepaper and subscribe at www.nomadlabs.xyz
References
Consulting Point, Attrition and Tenure
CSI Market, Industry Profitability and Ratios
Pulse, Staffing Markups
Upwork, Future Workforce
McKinsey, Beyond Hiring
BCG, Freelancing in Europe
