This is not a joke. When it isn't your money, your incentive is to make a decision that cannot be second-guessed. Imagine you do five projects. Accenture come in and have a big heavyweight process and they follow the process each time, and four of the projects are ok but cost 2x what they could have cost, and the fifth project is late and over budget. Well, the fault clearly lies somewhere other than your decision to hire Accenture, they have a process and a brand name! So you blamestorm a bit and it turns out that there were unknown unknowns that couldn't have been foreseen and so on, and you keep your job.

But if you decide to hire BoutiqueCo and things go wrong, your head is on the block. If you do this five times and four times you save money but the fifth time things blow up, you're fired. BoutiqueCo don't have any credibility when blaming unknown unknowns with their "agile process" and what-not, and nobody remembers the fact that you saved so much money on the first four projects you could fund the fifth and sixth projects with the savings.

Small boutiques cannot get gigs with the companies that can afford to pay the rates of the big firms unless they manage to create a very unique brand or find other markets.

The company I am right has people who spend all day looking at "risk-reduction" in the engineering effort. They map the process and anywhere there is a question mark, they bundles of money to turn it into a check mark, especially if it is on the critical path. As an engineer you definitely don't introduce question marks for silly reasons like "lower billable hour rate", you would get chewed out for even thinking about that.

When you pay $250 an hour for a major consulting firm, you get $50 worth of consultant, and $200 worth of "Nobody ever got fired for hiring IBM/Accenture/CGI/Thoughtworks."

The assumption above is somewhat flawed. Here is why.

Most large companies have department budgets, project budgets etc and are usually sensible enough not a pay $250 for a huge team of developers etc. Most of the time, they hire a couple of devs at that rate. And usually when they bring in contractors, these contractors work with an existing team of in-house developers, project leads, PM's. Very rarely, they bring in a whole team of consultants/developers to run the whole show within the company. If they do that, the company better fire the whole IT or software department.

So it is ludicrous to think that when a project fails, the blame should go to the consultant or to the choice of the consulting co. and that is why people choose to use 'the big 4" to be safe. That assumption is flawed. Like i said, consultants usually work with a team of in-house devs, leads, PM's etc. So it wrong to think that your head is on the chopping block because of a small number of consultants working on the project or the consulting company that you choose to bring in. If the project fails, it is mostly due to mismanagement of the project by whoever is responsible. Not the small number of consultants or consulting company you choose to bring in.

I can vouch this is not rare at all, from my experience.

Anybody who can afford SAP can afford to pay the full freight, in which case they want the full package including insurance against being blamed for problems.

I was going to add that boutiques can charge the same rate as the big firms, but they do so in different markets. One example: Above I noted that the person buying the service has downside of being blamed but no upside for saving money.

That isn't always the case. When the person making the decision is also under a lot of budget pressure, boutiques can make the same hourly rate by being more productive. That productivity often comes at the expense of insurance against blame, for example you can't have as heavyweight a process.

But if you are working for someone who cares about the money, being more productive can get you the gig and the rate.

Your information about what share of revenues individuals receive is wrong in my experience. They way this business works is that a project gets staffed with a few who know what they are doing (and are often not employees), who may get 100% or more of their nominally billed rate, filled with the 1/3 to 1/8 people you mentioned whose main task it is to look busy and not say too much.

Yes, some consulting firms do charge a premium for their brand†. But all consulting firms charge a premium for shouldering project, scheduling, and employee retention risk on behalf of their clients; those factors alone, before you even factor specialization into the picture, seem likely to be worth more than $50/hr.

I think you may be falling into the same trap Jason Cohen fell into (which would be weird, because, aren't you a consultant?).

† On the other hand, note that some big shops, particularly in the big 4, offer huge discounts on consulting rates that they make up on audit works.

I'd be very surprised to see this in 2011.

Giving discounts to ensure audit work was one of the evils at the core of the Enron collapse and led directly to the _Big 5_ becoming _Big 4_ [1].

Even before Enron, the writing was on the wall. The Big 4 were very cautious about the conflict between highly paid "consulting" and audit work. How can you audit the effectiveness of the financial controls built into someone's SAP deployment, if it was you who implemented them!? This was partially the reason some of the Big 5 spun off their consulting arms [2] [3].

Don't forget, a large chunk of the Big 4 brand is their "independence" and "impartiality". How can you win audit work without those? (OK, doesn't work _exactly_ like that).

[1] http://en.wikipedia.org/wiki/Arthur_Andersen [2] http://en.wikipedia.org/wiki/Capgemini [3] http://en.wikipedia.org/wiki/Accenture

LOL.

Jason has extensive experience with consulting companies, as you would know had you taken the 20 seconds necessary to read his bio before starting your argument with ad hominem. Congratulations on following it up with a straw man argument that replaces 99% of companies with the 1% that he blatantly wasn't targeting.

sigh

Again, it's irrelevant if you redefine "typical consulting company" as one of a clearly atypical group of big-name firms with tens to hundreds of thousands of employees.

> Secondly he asserts that consulting doesn't scale.

He makes two assertions. First, that with all the details accounted for, your profit will likely be half of what a naive assumption would find. And second, that as a founder you'd end up doing a lot of stuff outside your core competency or interest. At no point does he say, "Given these facts, it's clear that consulting cannot scale." If he had, sure, you could take two seconds, point out a single point to the contrary, and feel good about "demolishing" an easily refuted argument. He didn't, so we're back where we started.

If you had five of these employees you’d be clearing $300,000 per year, which sounds more like it. Except not because scaling brings more time and expense:

It was obviously worth it for the partners at the old Andersen Consulting, or VPs at Accenture or any other consulting firm. These were small companies once...

A gigantic slice of the economy is services work. This blog post is not that slice's Rosetta Stone.

Only because they don't know better. When I was working for a language/IDE vendor, we saw project after project that was 3 to 10 times larger than it had to be. (The project that actually needs more than 12 people in a language like Smalltalk is very exceptional.) Why is it like this? Because they are structurally motivated to waste the client's money.

Such companies facilitate a transaction. (Charging hourly for a consultant.) They siphon a little money off of this transaction. Naturally, they are motivated to hire as many consultants as possible. Basically, big consulting company sends people who give off the right competent business-suit vibe. They talk their to the customers, who are usually suits themselves and know almost nothing about making software first-hand, into thinking that their problems are deadly rocket-science and that they are just the uber-competent people to solve the super-hard problem. Then, they turn around and hire the cheapest resources they can (often fresh out of school) herded by a few politically adept managers, and hire them out for the highest mark-up possible.

I've also worked at a software product company that actually made most of its money from body-shop consulting. I know it was body shop consulting, because most of their people were hired (by the hundreds and housed in several football-field sized floors) out of local podunk community colleges and didn't know any better than to rewrite doubly linked lists every time they needed a collection. Yes, the product had probably hundreds of doubly linked list implementations in it. It was so bad that one client's IT group wrote what they called "super-link" and heroically rammed it through against amazing amounts of push-back from their management and from the body-shop vendor. What was this controversial thing? A linked list library.

[cue dramatic music]

Paying for junior programmers to fix their newbie linked-list implementation dozens of times -- this is "the cost of doing business?" I think there's opportunity to disrupt an industry here. On the other hand, the fact that it's this bad indicates that there are very powerful forces maintaining the information asymmetry.

EDIT: Let me put it this way -- what if someone tried to bill you big company hourly consulting rates for a dozen newbies repeated debugging their linked-list programming project?

Yeah, sure, you and I would hate that. Anyone spending their own money would.

But consulting companies target the publicly traded. the guy making the decision, there's no upside in it for saving money. It gets done or it doesn't. If he hires a big name, he doesn't get fired if it doesn't get done. If he goes with a no-name, that's not so certain.

I think this is a natural inefficiency that happens when the decision makers spend other people's money. they spend a lot of that money on insurance.

Of course, I'm just bitter because I failed as a body shop, in spite of having very good people who were able to immediately move in to other body shops, getting paid quite a bit more than I billed out retail.

There are other companies that focus on quality and delivering actual and not just perceived value. Those are not mere "body shops."

>There are other companies that focus on quality and delivering actual and not just perceived value. Those are not mere "body shops."

If so, they are providing actual value that I can not see. I have never seen such an agency consistently deliver good people.

Or maybe I haven't seen the right agency? as far as I can tell, only the very best of them pay contractors on time.

The very best body shop I've ever worked for or seen was one guy who never actually met me in person. But he paid me on time, and the guys he sent to the client were consistently technically better (and socially worse; or, at least, more weird. Remember, this guy hired me.) than other body shops.

I think the main problem with quality is that all other things being equal, people prefer safe jobs with benefits. Even the really top end body shops that give benefits usually don't pay you for bench time, so a full time job is safer, and generally more desirable, so the people who end up working for the body shop (or contracting house or whatever you want to call it) are people who, for whatever reason, can't hold down a full-time job. the inexperienced or otherwise less desirable.

Yes, there is a premium paid for contractors by the client, but that is nearly always entirely taken as overhead or profit. So long as the contracting house doesn't pay significantly more than full-time work, this disparity will remain.

"Clients by and large are fine with it." --Only big companies are fine with it. If you're a web designer for local business, they would not be fine with it.

That's kind of the definition of "clients that are not worth having."

I can see the attraction in that. I've seen it up close. It's not worth selling your soul for. Broken systems that lack accountability will destroy your soul, one way or another. You might even be warm, fat, and happy all the while it's happening.

My typical client has less than 30 employees, the ability to react to issues fairly quickly by the standards of large corporations (i.e. squash a consequential bug in minutes, do a complete site revamp in weeks), more than enough money to pay any conceivable consulting rate for something with predictable ROI.

Sounds like you've hit the sweet spot!

EDIT: My comments on this article are railing against firms like Accenture, not against folks like Jason.