Consulting company issues

It's the outsourcing, Gov'n'a.

In this day and age we see that consulting companies have grown up like mushrooms in the forest. It's amazing how many of these firms there are, for the most part they have been doing well (from a business perspective), but why so many, why so fast?

It does not take a genius to note that in lock-step with the growth of consulting companies has been the outsourcing of IT jobs through-out Corporate America. Most large corporations have only the most minimal permenantly retained IT staffs. Most corporations depend on getting people on a temporary basis from one of the many consulting companies.

This has proven to have significant short term cash implications to the corporations that outsource. They have found that without all the pensions and other benefits, without all the vacation allowances, without all the actual employees, they save money on the bottom line. Additionally, the people brought in to do the work that still needs doing can be written off as a cost of business and hence reduce the tax bill. A double bonanza.

But there is a major downside, one that most corporations are a) not willing to think about, and b) may actually be extinguishing their future prospects.

In outsourcing people, companies institute an implicit policy of throwing away business knowledge. This knowledge was built up in the heads of the people that analyzed the problems, created the solutions to the problems, then coded and made the solutions work. These people, on completion of the project walk out the back doors of the company effectively draining the company of the very knowledge that keeps it going. Outsourcing does not lend itself to the long term retention of business knowledge. Furthermore, the people that are outside the IT groups often feel a lack of job security and their rates of departure skyrocket, leading to permenant business knowledge compromises, let alone the HR nightmare of permanent recruitment just to keep employee numbers static.

By killing off internal IT groups companies have affected significant cost savings. It's probably fair to say they could do better by eliminating the Executive in most corporations, as the companies that do outsource quite rapidly realize that the cost of implementing new systems skyrockets. This cost goes up because the new systems, while initially cheap to create, never do what was initially intended as the outsourcers have no clue to a company's internal processes, therefore the software normally needs significant and costly rework to bring it in line with initial project expectations. The delay this causes, crimps the ability of the company to respond to other external factors in other areas of business, and ultimately leads to a company with less overall efficiency. Penny wise, pound foolish.

Co-operation

What To Do?

Having let the outsourcing Genie out of the bag, what can companies do to stem the rot?

Simply rehiring employees will not eliminate the stigma employees feel, nor the fear that the company will do it all over again. No one in their right mind will ever feel that the corporate beast is suddenly incapable of doing the deed and getting rid of everyone again.

I content two things will be needed:

1. Tax code reform, removing specific computer contracting provisions from the tax code.
2. Making consultants co- beneficiaries of business systems improvements (and failures).

Tax Code Reforms

The tax code, and the IRS interpretations of it, have several nasty surprises for consultants. Some of the surprises are the results of idiot consultants taking advantage of situations, others are the results of corporations wanting to get one-up on their employees. These articles need to be removed. Without their removal, consultants cannot work the long timeframes with single companies that are needed to develop the systems the companies need and then claim a benefit from the knowledge retention the consultants gain over time with that single client. The IRS wants to make sure that responsibility for tax payments is not falling down a crack in the pavement, but the rules while fine for laborers, don't work well for individuals with much longer contract timelines. Companies faught to get these provisions in the tax code first off, companies now outsource to save themselves from the very taxes that they want to be collected.

Beneficiaries

To make a better working environment companies will have to treat consultants and contractors in a manner that enhances the prospect that a project will succeed; consultants will have to agreee to constraining their abilities to flee, unless there are mitigating contractual issues. The contracts must be simple, most consultants are not lawyers, the industry does not need lawyers, and most consultants faced with a legal tour de force will simply use there right to work where they please - not at the company sueing them. That said, the consultant will have to contract to do a term of work in a specific manner, and the company will contract to pay the hours and a portion of any accrued benefits. This will create the incentive to build on ties, and better the projects, to the company's business benefit.

To monitor such activities, the contracting and consulting community would set up organizations, and web sites, that would retain the status of contracts and agreements between parties. These organizations would be used by companies to forge alliances with contractors, and for contractors to monitor the forthrightness of the companies they were to do business with.

Of course a company could say it never gained a benefit from a project effort, either due to failure in implementing the solution or changing circumstances. If a company were found to be doing this on in a consistent manner on a number of contracts, the contractor support organizations would be able to signal this to their membership. A credit rating, of sorts, would be created ranking both consultants and companies.