In Consulting, Human Capital Matters More than Financial Capital, Part 2

In the previous post in this series, we explored the relationship between consulting and financial capital, and how the latter often is very harmful to the former, particularly in large amounts.

The real question, though, is what that implies.  Indeed, the chief reason given of why companies must always grow, is that:

  1. Capital seeks the highest possible rate of return
  2. Companies, who need financial capital, must compete for capital to expand
  3. Expansion raises the rate of return, based on economies of scale
  4. Higherrate of return attracts more capital
  5. Go back to step 1.

This is, of course, why you and I are not as rich as the heirs to the Walmart fortune.  Traditionally under capitalism, more capital meant you were more competitive, and you would grow, edging out all your competitors until either a.) the anti-trust police get you (from Standard Oil to AT&T to IBM to Microsoft) or b.) you somehow screw up and lose all your customers (GM, Chrysler, PanAm, Arthur Andersen).

Of course, if you consider the size of financial capital as only a minor factor, then you would want to look for other factors that control how a consulting firm differentiates itself.  How might such a firm do that?

Well, that depends on the kind of business you are.  The success of a technology consulting organization is going to depend chiefly on:

  • Relationship building capabilities of the consultants and demand generation teams
  • Brand reputation – being known for solving hard problems
  • Recruiting capabilities – ability to attract people who have both technical aptitude and relationship skills

So how does one increase those?  Especially if you can’t buy it directly?  Well – you have to become very good at attracting the best people, and once they are there, keeping them engaged.  If people matter most – you have to wonder how you attract and retain the people you want.

Can money buy people?  One approach to building a great consulting firm might be to offer to pay everyone $1 million us dollars per year.  People have done studies that indicate money does not, in fact, buy happiness.  If suspect what occurs in this scenario is you end up with a bunch of very rich, but very nervous, consultants who still will search for meaning in their work after a few months of “being rich”.  If anything, my experience with people who have sudden wealth is that they either become people you would rather not work with from sudden materialism, or people who suddenly retire and do something else to find more meaning once they have enough money to not worry about work.  I doubt you build a successful technology consulting firm that way.

On the other hand, my sense is that if you provide a real mission – not one of the fake mission statements that most companies have… but a real mission that matters, you will get levels of workplace engagement that exceed those workplaces where the mission is mercenary.

What happens when you have high levels of engagement?  You get more work out of people.  People row the boat harder.  They may work more hours, they may not (personally, I hope they don’t work more hours and burn out)… but you are highly likely to get more out of each hour from someone engaged in what she is doing than someone who is watching a clock.

So, if engagement is what helps you get the most from a given amount of human capital, and larger social goals and missions – beyond money drive engagement, it means that technology consulting companies must compete by persuing worthwhile social goals that drive engagement.  At scale, it also means these goals have to be near universal virtues (i.e. transcending religion, politics, etc.).

In the next post in the series, I will explore other businesses where this model is imporant, as well as types of businesses where frankly, this model does not work, due to dependence on attracting capital.

In Consulting, Human Capital Matters More than Financial Capital, Part 2

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