Management consulting: measuring performance and the use of success fees

Abstract

The questions of how management consultants’ performance can be measured and whether the use of success fees is an appropriate tool for enhancing consultant performance have been subjects of controversial discussions. Despite of the usual principal-agent-theoretical arguments that favour such incentive schemes, there seem to be many obstacles that make those schemes hardly applicable. This article analyses four case studies that show how success can be systematically determined and how success fees are used in practice. Our main contribution is that we provide a framework that distinguishes between different phases of a consulting project and varying roles of project partners and project managers. In practical terms, we provide insights how compensation issues related to consultancy projects are typically handled and what the possible pitfalls of contingent fees are, allowing client managers and consultants to re-think whether and how they want to build on this compensation concept in the future.