An Obsession For Skin In The Game (Part II)

In our last posting we introduced the topic of incentives and consulting agreements by asking the question: It is possible to have so much skin in the game that the consultants start taking over how the client operation is run? We also described how a fees for performance arrangement differs from a fees at risk structure, highlighting the risk of driving unintended results.

If your aim is to ensure that your consulting partner bears some risk in a program, a fixed fee/fixed deliverables agreement is intuitive. If the program requires more time or resources to achieve the contractually stated outcomes, the consultants will provide them. Fulfilling their side of the arrangement, the client is responsible for adequate resourcing, access to leadership and an effective management system to drive decisions and keep the program on track. All of this helps both parties uphold their mutual obligations and work to provide the resources that will keep the program adequately resourced and working toward a common goal.

A good fixed fee/fixed deliverables contract also aligns interests and manages risk; it represents a meeting of minds and intents. It is neither a weapon for the client in the case of project failure, nor a blank check for the consultant encouraging over-delivery. It encourages delivery of results and outcomes while maximizing change and learning on the part of the client. It does not incentivize the consultant to run ahead of the client, as effective implementation requires the client design, test and practice transformation for themselves.

Pay for performance arrangements may make paying for consulting help easier to swallow, and I am in favor of identifying ways of procuring help that make it feasible for cash-strapped firms to get what they need. Incentivizing performance above and beyond expectations, however, gets us into tricky waters. It risks shifting the focus on a project from making clients more successful towards maximizing bonus fees for the consultancy. Your consulting partner may turn out to be so committed to your success that they start doing your job for you – nailing the coffin shut in terms of sustainability. Consider the contract; it probably incentivizes them to do so. Ultimately, most clients want to maximize the ownership and learning of their own people and heavily incentivized contracts run counter to that.

What do you think? What structures do you find work to ensure delivery of the right outcomes and results while maximizing sustainability of improvement programs?

John Norcross

Though Canada is a long way from Antarctica, both places offer vast terrain for exploration. Inspired by the great 20th Century Antarctic explorer Ernest Shackleton, Evolve Partners’ John Norcross leads the firm’s efforts to expand our presence in Canada’s exciting, and rapidly growing, energy industry.