The approach came out of the blue, their representative had found me via my LinkedIn profile, he contacted me to see if I would be interested in some consulting work, to which I immediately said yes.
The task that they wished me to undertake for one of their clients, was to provide opinions on three underground mines and their common contractor. The questions posed were as follows:
- comment on the overall quality of asset, from an underground hard rock mining perspective
- express a view on the estimated mine life of each site?
- comment on the cost structure of the mines – current cash cost and all-in-sustaining cost?
- answer the question as to whether these were high-cost mines and what opportunities there may be for the miner to reduce costs?
- provide any insights that I had on the performance of the contractor, and the likelihood that they would be able to renew their contracts at those sites.
Whilst I knew all three mines and the contractor, my knowledge of the assets and the contractor was not current and would have required me to sit down and research current data available on the three mines as well is gaining a more current understanding of the order book for the contractor concerned and possibly talk to a couple of people who may be familiar with their work and how they are currently performing. Anything less would be doing a disservice to the client and my reputation.
The agent of the Expert Network Company (ENC) was a little oblique in his explanation of how this work would be paid for, simply saying that the client would pay for the duration of a phone call during which they would pose questions and I would provide answers.
I naïvely thought that this meant that the necessary research that I would need to undertake, would be compensated for via a telephone call, no matter how long or short it may be. In other words I anticipated being paid the full value of the work involved and this necessarily would result in a phone call that would be charged at thousands of dollars an hour.
It therefore came as a thundering shock to the system to read that they would only pay US$200 per hour for the phone call.
Examination of their Terms and Conditions indicated that the duration of the call would be whatever it would be but would be rounded up to the nearest 15 min. In order to get paid, one had to lodge a claim that the consultation had taken place within two days of the call and once the claim had been lodged I could expect to wait 30 days to get paid.
Not surprisingly at this stage I lost all interest in this "opportunity".
At the same time their agent decided that if I required time to research the mines concerned that I probably wasn't the right person to be providing an "expert opinion" on them.
We agreed to go our separate ways.
The more that I've thought about this model of consulting, the more concerned I have become about the quality of service that is being delivered to clients. I am certain that the ENC concerned would be charging their client considerably more than US$200 per hour and the client is no doubt happily paying believing that they are getting well informed expert advice.
How many people working in the mining industry carry in their head, an intimate knowledge of all of the operating mine sites in Australia, let alone anywhere else in the world? I would suggest that it would be very few indeed and the group probably comprise exclusively mining analysts. Even then I would suggest that it is highly unlikely that any one analyst would know every single mine site in Australia, in detail.
Unless someone is really desperate for income, they are not going to do the background research required, effectively at their cost, in order to earn US$200. Therefore, whilst they may purport to have an understanding of those assets and an opinion on the contractor, they will inevitably go into such meetings poorly prepared.
The client, who is no doubt paying thousands of dollars for the service provided by the ENC, will in fact be relying on uninformed opinion in order to make a decision on what could be a significant investment. If the expert is cautious in their approach, they may persuade the client that the investment is too risky and therefore they decide not to proceed with what may have been a profitable transaction, an outcome that may or may not be revealed by another party subsequently investing. Conversely a less cautious expert could encourage the client to make an investment that is highly risky and subsequently proves to have been ill advised.
I could not in all conscience go into such a meeting without having done the background research and as I was not prepared to do the research at my cost, the decision to withdraw was a simple one.
The ENC makes it clear in its Terms and Conditions that you are, "acting in your personal capacity as an independent contractor and not as an employee or representative of ENC".
Another term requires that, "you are fully acquainted with the subject matter and the scope of the Consultation".
Whilst there are terms relating to the ENC’s liability to the expert, it appears silent on the expert’s liability to the client.
These two clauses look to me like they are designed to set up the expert as the fall guy in the event that things go pear shaped. In my opinion, for US$200, it simply isn't worth the risk.
In the course of doing my background research on the ENC concerned I came across an article by Gurav Dayal, an MBA candidate at Columbia Business School. In his article Gurav argues that the McKinsey Bain model of management consulting is potentially up for disruption by expert network companies and websites such as Clarity. Although, he also argues that advice per se, is not necessarily the only reason why companies engage management consultants, so there is likely to continue to be a role for such entities.
I would further qualify Gurav’s conclusion, because I believe that whilst it may be true that expert networks can replace management consultants if the advice being provided is general or generic in nature. The model falls down as soon as the advice sought is specific. Such specificity will inevitably require research in order to arrive at an informed opinion and the compensation system used by these expert networks, does not facilitate this.
The success of expert networks is undeniable as several of the larger companies have developed a global presence. I also have no doubt that if the solutions sought are generic then they may well represent good value for money for clients. However, I am of the opinion that as soon as these companies start purporting to offer expert advice on specific businesses that there is a high probability that the advice provided will be poorly informed, inadequate and potentially extremely expensive.
For companies contemplating investments in a specific business, I believe that there is no substitute for proper due diligence leading to informed opinion. That takes time and money, but is cheap in comparison to the likely investment and it may well avert a very expensive, poorly advised investment decision.
In business, there are few “cheap” shortcuts that don't have a significant price attached at some point in time.