Why digital transformation means utilisation can no longer be the key metric for engineering consultancies.

Engineering consultancy is a strange business.
We have high fixed costs in terms of staff salaries, so our day-to-day driver of business performance is utilisation. (In other words, what proportion of your weekly time you are charging to the client). Young consultants rapidly learn that, if you have a quiet week and your utilisation drops below 70%, you’ll get a call from your Operations Director by lunchtime the following Tuesday. Allow this to happen a couple more weeks in a row, and the conversation gets really tricky.
So what is a consultant to do if all her client-chargeable tasks for the week can be done in 20 hours? Does she – and I’ll call her Jenny – do them diligently and well, and then go and do some other useful things (like writing up a case study or going on a training course)? No, she stretches the work – to 30 hours or more – so that she keeps her Ops Director off her back. Design the structural steelwork reeaalllyy sloooowwwly. Even if this time is not charged to the end client, it is charged to the project. So some poor project manager sees the margin on her job fall. (We used to call people who did this margin munchers. Yes, I’m looking at you, Jenny!)

What other sector would set up itself up in this way? How would it be if the garage servicing your car incentivised its mechanics to take twice as long if they weren’t very busy that week.

Frankly, utilisation is a rubbish way to run a businesses. We all know that. We know that we should be focusing on efficiency. But utilisation is easy. It is a simple fraction (numerator = chargeable time; denominator = total time). Efficiency requires some objective view of how long a particular task should take. It works well in the garage, where the time taken to check the oil or change a tyre is clear. But how long should Jenny take to design her structural steelwork? Well, every building is different and it depends on the scale, the complexity, the interaction with the other disciplines… Who is to say that it should not take 30 hours? Whereas the next tyre changed in the garage will be the same task as the previous one, Jenny’s next building will be different again.”

Engineering consultancies have declined to grapple with this conundrum for the last century or more. Businesses driven by utilisation do well when keeping the humans busy is the key requirement for success. But digital transformation is changing all this. Utilisation looks very different when Jenny could choose to use a steelwork design package connected to the BIM model (with key parameters entered via a configurator). That way, with automated design, she could do the entire task in, say, 20 minutes. With the software running millions of different permutations to optimise the design against a set of boundary conditions. But then Jenny’s utilisation for the week would only be 0.8%!
Interlude. The story of Kodak and digital cameras may be seen as something of a cliché, but it is instructive because Kodak did not fail for the reason that many people think. It did not stick its head in the sand and try to ignore the advent of the new technology. No, nothing could be further from the truth. In fact, Kodak invented the first digital camera in 1973. A much more functional one, created in 1989, became the basis of its patent in 1991 – a patent from which Kodak made billions until it expired in 2007. No, the reason why Kodak failed (and it filed for bankruptcy in 2012) was that it should not shift its view that photographs were physical things. Its idée fixe was that it made its money from film and developing physical prints. So it invested much of the money it made from its digital camera patent in the development of home photo printing systems. It failed to predict the rise of the smartphone with high resolution screens, huge memories and vast numbers of images. So, today, who bothers to have actual photos printed, when you can display them on your phone, share them on Facebook and store them in the cloud? Interlude over.

Like Kodak, engineering consultants have the challenge to wean themselves off their current business model – which is that human consultants deliver work and we keep them busy by driving utilisation. This is why it is is refreshing that the Association of Consultancy and Engineering (ACE) has launched its Future of Consultancy campaign. This will, amongst other things, identify and explore new business models for consultancy, particularly around new technology and the rise of digital. As part of this, ACE is considering five business models for the future, only one of which is based around ‘time-and-materials’.
ACE has organised two conferences to consult on and explore these themes. The first was the Future of Consultancy Conference, held on 6th June. The second, is its Digital Leadership Conference, which takes place on Thursday (20th June). I shall be sharing a platform with Hannah Vickers, Chief Executive Offocer of the ACE and, with others, we will be discussing the role of the digital leader. Evolving new business models will one of our key themes. ACE has a crucial role in helping us evolve as an industry, learning and sharing from each other, for the benefit of clients, employees and wider society. I am pleased to have the opportunity to have an input into this important debate.

John Priestland is a Director at Priestland Consulting Ltd

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