Consultants Law & Legal Definition


A consultant is someone who gives expert or professional advice. Consultants are ordinarily hired on an independent contractor basis, therefore, the hiring party is not liable to others for the acts or omissions of the consultant. As distinguished from an employee, a consultant pays their own Social Security, income taxes without payroll deduction, has no retirement or health plan rights, and often is not entitled to worker's compensation coverage.

Additional Definitions

Consultants

A consultant is an individual who possesses special knowledge or skills and provides that expertise to a client for a fee. Consultants help all sorts of businesses find and implement solutions to a wide variety of problems, including those related to business start-up, marketing, manufacturing, strategy, organization structure, environmental compliance, health and safety, technology, and communications. Some consultants are self-employed, independent contractors who offer specialized skills in a certain field; other consultants work for large consulting firms, such as Anderson Consulting or Gemini Consulting, that offer expertise in a wide range of business areas; and still other consultants hail from academia.

The consulting industry has grown rapidly since its origins in the 1960s. In fact, Business Week reported that the ten largest consulting firms in the United States averaged growth of 10 percent annually in the late 1990s and achieved 14 percent growth in 2000. Several factors have contributed to the growth of consulting. First, as a result of the trend toward corporate downsizing, many companies have found that they lack the internal manpower to complete all necessary tasks. Second, the complexity of today's business climate—as a result of deregulation, globalization, and technology advancements—has outpaced many companies' levels of expertise. Finally, consultants provide a way for companies to get special projects done without adding employees to the payroll.

The decision to hire a consultant is not one that a small business should take lightly. Consultants can be very expensive, although their expertise can prove invaluable. The small business owner must first decide whether the situation facing the company requires the input of a consultant. If it does, then advance preparation should be done to ensure a successful consulting experience. The small business owner is then ready to find and negotiate a contract with the right consultant. An important part of this process is understanding the ways in which consultants charge for their services. Hopefully, after completing the consulting process, the small business will emerge with a successfully implemented solution to its problem.

DECIDING WHETHER TO USE A CONSULTANT

In deciding whether or not to hire a consultant, the small business owner should consider the nature of the problem, the reasons why internal resources cannot be used to solve it, and the possible advantages a consultant could offer. In her article "Do's and Don'ts of Hiring Consultants," Joan Adams describes several situations in which a consultant's services are likely to be required. "You want to call a consultant when you feel like your business is 'stuck.' Your revenues are flat or growing very slowly. Your costs are growing at a faster rate than revenue … Something isn't working but you don't quite know what it is—or what to do about it." A small business should not hire a consultant simply in order to have someone else implement unpopular decisions.

MAKING THE CONSULTING EXPERIENCE WORK

Once the decision has been made to enlist the help of a consultant, there are several steps the small business owner can take in advance to increase the likelihood that the consulting experience will be successful. First and foremost, the company's managers should define the problem they need the consultant to address. Using probing questions to go beyond superficial symptoms to underlying causes, the managers should attempt to state the problem in writing. Next, they should define the expected results of the consulting experience. The objectives the managers come up with should be clear, realistic, and measurable.

Another important step in preparing for a successful consulting experience is to communicate with employees. The small business owner should explain the problem fully and honestly, in as positive terms as possible, and ask employees for their understanding and cooperation. When employees feel surprised or threatened, they may hamper the consultant's efforts by withholding information or not providing honest opinions. It is also helpful to gather all important company documents relating to the problem in order to make them available to the consultant. The consultant's job will be easier if he or she has ample information about both the company and the problem at hand.

Once the consulting project begins, there are several other steps a small business owner can take to help ensure its success. For example, it is important to manage the project from the top in order to give it the visibility and priority it deserves. The small business owner should appoint a liaison to assist the consultant in gathering information, and should receive regular progress reports about the project. In the implementation stage, the small business owner should adequately staff the project and empower those involved to make any necessary changes.

HOW TO SELECT A CONSULTANT

Selecting the right consultant for the company and the type of problem at hand is a vital part of the process. The first step is to assemble a list of candidates by getting recommendations from people in the same line of business, contacting consulting associations or consultant brokers that represent the same industry. Trade and professional journals are also a source of potential consulting firms and a place where such firms advertise. Several library reference books, such as Thomson Gale's Consultants and Consulting Organizations Directory, provide contact information for consultants in a variety of fields. It is important to avoid selecting a consultant based upon a current management fad; instead, the decision should be based upon the company's particular needs.

The next step is to determine, based on the nature of the problem, what type of consultant is needed. An advisory consultant analyzes the problem and turns recommendations over to the client, but is not involved in implementation of the solution. In contrast, an operational consultant remains on hand to assist the client in proper implementation, or in some cases handles the implementation without the client's assistance. Part-time consultants are generally employed full-time within their field of expertise—marketing, for example—but also offer their services to other companies on the side. They usually charge less money than full-time consultants, but they also cannot devote their undivided time and energy to the client.

Process consultants are skills-oriented generalists. With expertise in one or more technical areas, these consultants can apply their skills to any industry or organization. In contrast, functional consultants apply their skills to a particular environment; for example, a hospital facilities planner would concentrate on consulting to hospitals, rather than to other types of businesses that require facilities planning. Another distinction between consultants is based on the size of their operation. Consultants can work for large firms, small firms, or even independently. Large firms offer greater resources, but also have higher overhead and thus charge higher fees. Small firms or independent consultants may offer more attentive service, but may not have access to the precise type of talent that is required. Finally, consultants can be academically or commercially based. In general, academic consultants may be most helpful with problems requiring research or a background in theory, while commercial consultants may be able to offer more practical experience.

Once a small business owner has determined what type of consultant would be best suited to handle the company's problem and assembled a list of candidates, the next step is to interview the candidates. Some of the traits to consider include experience with the company or industry, availability, knowledge of the problem at hand, communication skills, flexibility, and compatibility. Since consultants are usually required to work within the corporate culture, often in times of crisis, it is important that their style is compatible with that of the firm.

After discussing the problem in detail with the leading candidates, the small business owner may opt to ask each consultant to submit a written proposal to aid in the selection process. In some cases, the contents of these proposals may convince the small business owner that the problem could be better handled using in-house resources. After deciding to hire a specific consultant, the small business owner should ask that consultant to draw up a contract, or at least a formal letter, confirming their arrangements. It is important to note that the contract should be based on negotiations between the two parties, so the small business owner may wish to add, delete, or clarify the information included. There are several peripheral issues that the small business owner may want to address in the contract, including the consultant's proposed methods of handling conflicts of interest, subcontractors, insurance/liability, expenses, confidentiality, and nonperformance.

WEB CONSULTANTS

Recent growth in Internet applications for businesses has created a simultaneous growth in the number of E-commerce and Web consultants. Many of the same general guidelines that apply to choosing a traditional business consultant also apply to choosing a Web consultant. As Tara Teichgraeber wrote in an article for the Dallas Business Journal, the first step in selecting a Web consultant is deciding what goals the company hopes to achieve by establishing a presence on the Internet. For example, some companies want to set up an interactive online store in order to sell products or services over the Internet, while others may just want a basic Web site to enhance the company's image. "Deciding what a consultant should do helps narrow down a candidate with similar experience and proven success, as well as helps the business owner stick to a financial plan," Teichgraeber noted.

Many different types of Web consultants exist, each offering various types of services and charging widely disparate fees. "In hiring a consultant, you can choose from among independent site developers, Web design shops, technology consulting firms, traditional advertising and public relations agencies, and interactive agencies," Reid Goldsborough explained in an article for Link-Up. "A Web consultant can build you a Web site from scratch or enhance an existing one. Costs are all over the place, from several hundred dollars for a simple site consisting of a few pages, to a million dollars or more for an e-commerce site with product databases that are easily updated, a search engine, animated product demonstrations, secure online transactions, and audio and video enhancements."

Goldsborough suggested that small business owners looking to hire a Web consultant contact their Internet Service Provider for referrals. It may also be helpful to look online for sites you like and then find out who designed them. Upon contacting potential consultants, it is important to ask to see a list of sites they have designed. Goldsborough also recommended that small business owners be sure to ask about arrangements for maintaining the site once it is up and running. Some consultants provide this service to their clients, while others supply the tools and training for in-house personnel to take over site maintenance tasks.

HOW CONSULTANTS CHARGE CLIENTS

Most consultants use the same basic formula to determine the fees charged for their services, but clients are asked to pay these fees in a wide variety of ways. All consultants' fees are based on a daily billing rate, which reflects the value they place on one day's labor plus expected overhead expenses. In some cases, this daily billing rate—multiplied by the amount of time the consultant spends on the project—is the amount the company actually pays. But other consultants may estimate the amount of time needed and quote the client a fixed fee. Other consultants may provide a bracket quotation, or a range within which the total fee will fall. Another way in which consultants charge clients is a monthly retainer, which covers all the necessary services for that month. Finally, some consultants—especially in high-technology fields—charge on the basis of the company's performance linking payments to measurable outcomes.

THE CONSULTING PROCESS

The consulting process begins when the client company decides to enlist the services of a consultant. The consultant then analyzes the company's problem and provides recommendations about how to fix it. Small business owners should avoid the temptation to blindly follow a consultant's recommendations; instead, they should seek to understand the diagnosis and be prepared to negotiate any necessary changes. The consulting process should not be mysterious or unusual, but rather a mutually beneficial business arrangement between consultant and client. Finally, after implementing the consultant's recommendations, the client company should formally evaluate the success of the consulting experience so that those lessons can be applied to future problems.

BIBLIOGRAPHY

Adams, Joan. "Do's & Don'ts of Hiring Consultants." Supply House Times. March 2005.

"Avoid Hiring Consultants with Conflicts of Interest." Managing Benefits Plans. August 2005.

Goldsborough, Reid. "How to Hire a Web Consultant." Link-Up. July-August 1999.

"It's Getting Quieter in the Advice Business." Business Week. 26 February 2001.

Lewis, Harold. Consultants and Advisers. Kogan Page, August 2004.

Teichgraeber, Tara. "What to Look For: E-Commerce Consultants." Dallas Business Journal. 14 July 2000.

Zahn, David. The Quintessential Guide to Using Consultants. HDR Press, Inc., January 2004.

                                Hillstrom, Northern Lights

                                  updated by Magee, ECDI