Will you get your Money’s Worth?
Abstract: This article is a continuation of the series on the value proposition of Interim Executive Consulting. In this article, I look at the value proposition from the consultant’s perspective.
Recently, I was discussing an interim opportunity in a smaller hospital with a referral source. The prospective argument was that the client did not have the capacity (did not want) to pay a market rate fee. You never hear hospitals argue with their lawyers or other consultants on this point, but I digress.
Based on my experience, there are two things that you can be sure of in any interim engagement. One is that as soon as you think you have an idea of what is going on around you, you had better get ready for a big and sometimes very nasty surprise. The other is that you are going to find challenges and problems in the situation that the client either intentionally withheld or that the client had no idea of in the first place. Some clients have told me after skeletons started falling from closets that they harbored the fear that if they were fully transparent that an interim consultant would refuse the gig. What they do not know is that as professional Interim Executives, we usually do not get the call until the situation is challenging and that if we are distressed by the surprises and uncertainty that characterize Interim Executive Services, we would have found something else to do. Remember, firefighters run toward a fire when everyone else is running away.
Another principle of doing interim work in my experience is that there is no correlation between the size of the organization and its capacity to produce drama, challenges, and vexing problems. An argument can be made, and my on-point experience confirms that the risk is higher the smaller the organization because smaller organizations do not have the intellectual and bandwidth resources necessary to avoid creating or falling into serious problems. If the issues have anything to do with compliance, the potential risks to the interim executive increase exponentially, especially if they are going to be executing documents or making representations on behalf of the organization. Compliance related signatory authority risk is a risk that cannot be insured by either the consultant or the client. I told the referral source that if anything, there should probably be a significant premium associated with going into a smaller place.
What is a client to do? I try to mitigate this risk for my client by offering a no-notice, no-fault termination clause in my contract. The day that the client decides that I am not providing value, I am out of there. I do not wish to become a perceived burden to an organization during what is already likely an awkward transition. I have not been released from an interim engagement. To the contrary, the opposite is true. In every one of my interim engagements, the timeline has been extended, extensively in some cases once the client appreciates the value proposition. My average ’90 – 120′ day gig lasts around nine months, and my longest has been over two years.
I have stated repeatedly in these articles that I do not follow bad people and I stand by that contention. However, this does not mean that there will not be serious problems in an organization. I followed a CFO that was compelled to resign among other things for digging in over what he believed was a non-compliant acquisition of a physician practice that had millions of dollars of goodwill baked into the deal along with lavish estimates of the value of furniture, fixtures, and equipment. In another situation, the CEO had been overridden on multiple occasions by a Board that was determined to do non-compliant deals with physicians. I could go on and on about these types of challenges.
Problems do not have to be compliance related to be challenging and of high potential value. During the course of every engagement, I am routinely asked, “Is this the worst you have ever seen?” Most of the time the answer is no, and in every case, it is situation specific. I was engaged by a hospital to assess the revenue cycle. Other than the AR being currently fairly valued following multiple unfavorable audit adjustments, about everything else in the revenue cycle process was broken as the client had expected. The resulting intervention increased cash collections more than $10 million in the next year on around $300 million of revenue. As an aside, in an organization of this size with a typical operating margin in the 3% range, this intervention more than doubled operating income so, in context, it was a pretty big deal. This organization was trying to save money by doing things like buying thinner tongue depressors and cutting the amount of soap housekeeping could put in mop buckets while it threw away all of the savings and more in the revenue cycle. It was the worst revenue cycle operation I have seen measured by results or lack thereof. This same organization had some of the strongest and highest performing functions in other areas that I have experienced. Even in the revenue cycle, I got to meet some of the smartest, most dedicated people I have ever known. They were handicapped by a dearth of leadership and decrepit systems. None of this supported a conclusion that the organization was terrible or on balance, it was the worst I have ever seen although the revenue cycle concerns did have something to do with the prior CFO being ‘freed up to seek other opportunities.’
What is a consultant to do? My advice is to the degree possible and reasonable, stand your ground on your professional fee. It would be nice if you knew you were going to a cake-walk that would mainly be a paid vacation and that you could confidently offer a come-on rate to land the gig. You know the reality is that you are probably going into a complicated, high-stress situation that is going to tax all of your physical and mental capacity. This situation is exacerbated by desperate or ignorant consultants and firms that will take any gig at any rate when they have an unsophisticated buyer or just to have something to do. I have considered offering such a price based on not finding any problems. For example, I could offer a 30% – 50% discount for a lush sabbatical that would be reversed if (when) issues begin to emerge. Maybe I could even bargain to double my rate upon discovery of the first compliance problem. Unfortunately, the world does not work this way, and if you are up against an unsophisticated or ignorant potential client, there is an excellent chance you are going to be undercut by an equally ignorant potential consultant. You have to decide for yourself how much risk you are willing to take on. How much is it worth to you to put yourself, your net worth and your family’s livelihood into play in a situation where you may be exposing yourself to the risk of becoming the target of a government compliance investigation? In a bad case scenario, you could become a witness in a hostile position vis-a-vis the client. The government is currently pursuing multiple felony charges against John Holland even though he alleges and there is apparently little evidence that he benefited directly or indirectly from compliance problems that occurred in organizations he served. By the way, John may and probably did inherit some of the issues that resulted in criminal charges, i.e., the problems were present in the organization when he started. Tell me again Mr. cut-rate consultant or firm how anxious you are to get yourself into a situation like this? By the way, if you are placed by a firm and compliance problems emerge, you are going to be on your own. Do not forget this
If you are a decision maker and you are getting resistance to rate discounting from interim executive services providers, it is probably because of their prior experiences and bias about potential problems in your organization. Instead of dismissing them for something cheaper, you might want to understand better where they are coming from and how that might translate into risk you are bearing that you might not even recognize. You have to accept the fact that you would not be seeking interim services if you did not have a significant challenge on your hands. Your best defense against getting into a deal that could make the situation worse is to negotiate an agreement that can be exited rapidly and without recourse. You may have problems that are as yet undiagnosed. Your run in your current situation could be riding on the ability of the interim executive you choose to pull your bacon out of a fire and potentially save many of your direct reports’ jobs in the process. What is that worth to you?
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