Consulting vs. Contracting: A Costly (Lack of) Distinction

So what!? What’s the difference?

There are many folks who call themselves consultants. There are also many who call themselves contractors. Humorously — and I only know this because I fell into the same trap — there are many folks who call themselves one when they are really the other. Clients, especially those who aren’t used to working with consultants, often aren’t really thinking about the labels either. Legally, at least in the United States, you’re generally paid the same way (1099). But the two roles — namely the value delivered and the expectations — are very different from each other.

Not being completely clear about which role you are operating in — and thus what the expectations are — is costly, for both you and the client. Costly in terms of money, frustration, and mismatched expectations.

Alan Weiss has a wonderful post on the subject and even mentions “IT consultants” specifically:

If you call yourself a “consultant” but are usually hired merely to complete a task for the client, you are not a consultant, you are a subcontractor or part-time employee. This is especially prevalent among “IT consultants.” If you are paid to write code or program some sequence simply because the client has no one around who can do it—and a thousand people like you can do it equally well and exactly the same way—you’re not a consultant. (And you’re subject to enormous price pressures, because you’re a commodity.)

Sometimes, in your IT business, you may switch back and forth — depending on the client and the project. Let me explain what I mean so that you can avoid this costly and frustrating mistake.

On Consulting

I like to think of consulting like this: you (pretend you are the client) call up a trusted friend or respected colleague. You ask them to join you the next day at your place of business. You share with them some of the current goals, concerns, troubles, and hopes. You ask them to take a look around, to observe, and to ponder what you’ve shared and what they see. You encourage them to not hold anything back. You tell them that you know things are so-so in some areas, quite weak in others, and perhaps excellent in still others.

Unfortunately, it can be tough to sort everything out amidst day to day pressures and priorities. You also know you cannot see nor become an expert in everything. You ask your friend to stick around a bit, that you’ll compensate him for his assistance, and that you’d appreciate his perspective, expertise, and unique background applied to your business. You may also suggest, because of his background or a particularly nagging problem you are having (or both), that he take a close look at one area or situation in particular.

The consultant is your trusted advisor, perhaps one among several that you have. He or she helps you unlock — or at least get a bit closer to — the best version of your organization — and yourself.

On Contracting

Contracting is different. It is more akin to asking a friend, associate, or friendly looking stranger to “pitch in” because you are short of hands — temporarily because of peak demand, a special project, or because of an intermittent shortage of staff.

The line may seem a little blurry if your new contractor is also something of an expert in the work you’ll be having him do, but he is still primarily there to DO rather than help you figure out what to do.

Some consultants, perhaps most, can and do help with implementation, however the advice they provide is central to the relationship and engagement. In theory someone else could be substituted in to DO (implement) what they help you architect around your business objectives, but as a matter of convenience, flexibility, or risk reduction you prefer they DO the implementation as well — or at least remain involved in it alongside you and/or your staff.

It is for this reason that the most value is delivered when consulting, whether or not the consultant is involved in the implementation. On the other hand, sometimes all you need is some help with implementation, and hence a contractor, even one that is a specialist in the area you’ll be using them, is what you should be looking for.

The Value Difference

With consulting, the value is in your brain: insights, observations, ideas, and suggestions drawn from your unique background, experiences, skill set, and area(s) of expertise. You are not a commodity. Typically, focused on the right business problems, consulting is extremely valuable to the client who needs guidance such as help making a decision, fixing a serious business problem, or figuring out how to go after an attractive business opportunity. Generally, you are working with management.

With contracting, the value is in the labor: having an extra set of hands around to complete a pre-defined task. Your expertise may be involved, but only so far as is needed to implement a task that is already well defined. You aren’t involved in helping the client come to a decision as to which path to task (such as choosing among this project or several others). Any assistance in decision making you provide is ancillary. Generally, you are working for management.

Both roles are important. Both have quite different value propositions. Both are delivered differently. Both are priced differently. Both are different businesses, with different competitive concerns, marketing, sales, and proposal processes.

Some examples of differences:

  • Consultants can, generally speaking, charge more per hour of labor input into a particular project (whether or not they charge literally by the hour is irrelevant). This isn’t to say that consultants “work less” — it’s just that much of their work was done long before the client came into the picture: they are charged with applying their unique background of experiences and skills and perspectives to a the client’s situation. Contractors are literally paid for their efforts (inputs). Consultants are paid for their thoughts and guidance and, optionally, their assistance with implementation. It is a subtle difference, but a critical one.
  • Consultants are more likely to structure their proposals differently and charge differently for different types and phases of the project. For example, a common situation would be a hybrid project: Phase 1 being analysis and advisory work, Phase 2 being design and project management, and Phase 3 being implementation. The consultant would definitely do Phase 1, while they would optionally do Phase 2 and Phase 3 which are closer to traditional implementation (contractor) roles. Phase 2 is something of a hybrid: while, in theory, any project manager (internal staff or contracted) could be put into place to implement the project as designed, there is still added valued from having the consultant play this role (assuming they are also good at being in this role). Phase 3 could be internal staff, contracted labor, or some combination. With the analysis and advisory work done and a firm design and project management handled, the actual implementation can relatively easily be done by just about anyone skilled and motivated enough. The task is to — essentially — follow orders. Important, but more of a commodity than the other roles. If the consultant is to fill all of these roles, they should consider what they charge for for Phase I to have little relation to what they charge for Phase 3. One thing that must be taken into account: The value declines and commodity-like nature of the work accelerates between Phase 1 and Phase 3. If you are a so-called contractor, yet find yourself doing lots of Phase 1 and 2 work, perhaps you should re-think your positioning, proposal structure, and fees — after all, you are doing the work of a consultant withing charging for it (Gary Klaben, head of Protinus, would probably call this “shadow work”, which comes up a lot in his industry of financial advisors). On the other hand, if you find yourself mostly doing implementation work and mostly whatever you’re told by your client, than you are a contractor with a very different value proposition than a consultant: you are face a very different competitive situation as a result.
  • Any given consultant may be more of an expert in one particular area than another. The best consultants (and business leaders) realize, however, that all organizations with a mission are complex living organisms. There are goals, rules, and guidelines to keep everyone organized, but there are also humans involved, human nature to integrate, and creativity and innovation to apply constructively. Even seemingly unrelated things have an impact in other areas. A consultant, regardless of his area of focus, takes an interest in understanding the client business as a whole. While 80% of his efforts may be targeted in a specific area, having a holistic perspective of the client’s business will help him help the client in the best way possible within that 80%. Even a contractor will benefit from doing this, but a consultant benefits the most.

It’s important you know which role you are in. It’s probably important you know which one you prefer.

Questions to Ask Yourself

  • Are you a primarily a consultant or a contractor?
  • Which does your client want?
  • Are the answers different depending on the client and project?
  • Do you prefer one role over the other?
  • Are you doing “shadow work” and not getting compensated for it?

You may enjoy this post from Alan Weiss from last year, which explains very well what a consultant is.

The above is drawn from my research, brainstorming, observations of successful (and not so successful) consultants and contractors in IT and other fields, and experiences in my own business. What are your thoughts on the topic?

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