Leverage
Consulting firms are in the professional services business. An important aspect of professional service firm 2 organization is leverage. This is the factor that dictates the the ratio of junior, middle and senior staff i.e. the shape of the organisation.
What are the three consulting leverage models?
The three models are Brains, Grey Hair, and Procedural. Each reflects different levels of technical complexity, staff seniority mix, and client engagement type.
What defines a Brains model engagement?
Brains model engagements involve highly technical, bespoke work requiring senior expertise. Junior staff ratios are low. Strategy development and transformation projects typically fall into this category.
When is the Grey Hair model appropriate?
When clients seek proven experience over technical brilliance. The work has some familiarity, allowing a broader mix of middle and junior staff alongside senior professionals.
What characterises a Procedural model firm?
Procedural engagements involve familiar problems with systemised solutions. They can be staffed predominantly by trained junior staff under light senior supervision, enabling high leverage ratios.
Why does leverage matter during engagement planning?
Correct leverage protects margins. Overstaffing with senior people on routine work reduces profitability. Firms should delegate as much as realistic competence allows, matching staff skills to actual engagement requirements.
The skill and experience requirements of the services you provide and engagements you undertake determine the shape of the organisation. A consulting firm's target leverage model is of critical importance to all aspects of business planning. There are three leverage models that you may have heard of:
- Brains
- Grey Hair
- Procedural
Brains Model
In the Brains leverage model, the client engagement is of extremely technical nature. The firm's operating model is based on superior technical competence. It's message is:
hire us, because we are smart
The projects typically involve bespoke solutions developed by a few highly skilled professionals. While there may be some scope for the junior staff, such as data collection, analysis etc., the ratio of junior to middle or senior staff on engagements tends to be very low. Most strategy development and transformation projects fall under this category.
Grey Hair Model
Grey Hair engagements involve less bespoke activities. Though some of the specifications might be unique, the scope is something that the client might have already seen before. Hence, the client engages a firm with relevant experience as opposed to super-smarts. A grey hair model requires the firm to sell its knowledge and client delivery track record. The messaging is:
hire us because we have done this before
As there is a degree of pre-familiarity in this work, this model allows for more middle-level and junior staff into the leverage structure.
Procedural Model
Finally, the Procedural project is one that involves a familiar client problem. The solution can be fairly systemized and easily operationalized. While such engagements require bright people, such projects can be staffed by more junior staff that have been trained on the procedures under relatively light levels of senior supervision. An example of such an engagement might be software implementations. The messaging is:
hire us, because we can deliver this effectively
Such firms can be very highly leveraged. If possible, you should seek to make your engagements as highly leveraged as realistic delegation can accommodate for, but no more 3. The challenge is to match an estimate of your engagements' requirements with the skills and experience available you possess. When staffing an engagement during the planning stage, you should get the leverage right as this is key to protect the margins.
To summarize, leverage is central to profitability in a professional services firm. Don't skip the thinking, and planning, required to get the leverage right.
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