Finding the Right Management Consultant is difficult
If you have watched the globally famous TV show, Who wants to be a millionaire? you will have known what the three lifelines are in this game. It is not much different in a business context.
When companies are looking for the right management consultant to help them with business critical projects - they typically go through a fairly set pattern. This pattern is akin to going through the three lifelines mentioned above.
In this article I trace the typical pattern using the case example of one company. The patterns might vary slightly, but if you are not careful, and recognise the pattern early enough, you are bound to repeat at least some of the mistakes this company made.
Choosing a management consultant is almost as important as choosing a heart surgeon
Here is the story, excerpted from my 2015 book Unchain Your Corporation (I have simplified it a bit to make it shorter):
Rob knew his company was in trouble and it had been brewing for a while.
In retrospect their problems appear easy to discern now. However, at that point in time, it was really a very confused mess in their company.
Rather than describe the confused thinking across the ranks, let me, at the outset, tell you the real problem they faced.
Over the decades, the company had configured their entire sales and marketing effort around selling to end-users in a multitude (hundreds) of sites wherever their product was being used.
However, with modern management techniques, most of their customers had changed the buying methods. They had now centralizing procurement and purchasing.
As a result, a new kind of buying organization had emerged within the customers' companies which wanted to consolidate the entire purchasing and used volume as a leverage to drive down prices.
This central buying authority did not care about all the ancillary services delivered to the end-users by Rob's company.
In the eyes of the centralized purchasers, the users were meant to be experts in using the product and should not need any additional hand-holding or service worth paying for.
However, Rob's company had built its entire supply chain and a sales force on the assumption that the current site-based purchasing and consumption methods would continue indefinitely.
Nobody in his company was aware of how massive a change had occurred in the customer space. Hence, his company was over-servicing the key large customers and losing money quarter after quarter for the previous several years.
DIY Approach to management consulting rarely works for major business transformations
To staunch the flow of the losses, initially, Rob enlisted in-house support. The internal business transformation experts tried for nearly one year to reduce costs and increase profits by tackling the business's cost-base.
The steps taken included firing some people within the business who were being redundant, as well as closing the plant and moving production to a low-cost country.
As it turned out, the cost of transportation from the new manufacturing location to the customers more than nullified the savings from producing in a low-cost country.
sometimes, asking the audience is a waste of time
The health and safety problems in the new manufacturing location started taking up so much management time that they had to hire additional people to monitor the quality and safety standards.
The final analysis revealed that closing the plant and moving the production to the low-cost country was a net cost increasing move, which they did not know at the time.
To be fair, many of the steps the internal team took were right. But they could not bring a number of them to closure where they could reap the reward of the ideas. On top of it, their missteps outweighed the steps in the right direction.
There is a big difference between the business-as-usual (BAU) skill sets, and the business transformation (BT) skill sets. Read this blog Why Supply Chain Business Transformations (BT) Jobs Differ From Supply Chain Business-As-Usual (BAU) Jobs to get our perspective on the topic. That is also the reason why hiring a fresh BAU person with successful track record rarely works for business transformations.
Noticing that the tide kept growing higher despite all new efforts, Rob decided to call one of his best friends who had been a senior executive in a similar company for many years before being made redundant and had opened up a small one-person consulting operation afterwards.
asking a friend works only if your friend is a world class expert in the subject matter
A number of executives, on retirement or being made redundant, resort to management consulting. Nothing wrong with that - they have an expertise, and there is a market for that expertise. Anybody who hangs a shingle with their name, has something useful to sell. You just have to make sure you know exactly what they are selling.
The problem arises when they overestimate their expertise. In their careers as an executives, they have worked on a project or two alongside a McKinsey or BCG team and observed them in action. That gives them the false confidence that there is nothing much to the scientific method and report writing - skills learned by deep diving over at least 18 months under the mentorship of an experienced strategist. That is similar to sitting in a cockpit alongside a pilot and believing that next time you can fly the plane.
Rob had placed an enormous amount of trust in this friend. His friend worked in Rob's best interest, as he cared a lot about making Rob look good.
Yet, without doing much analysis, this person came in and was able to convince Rob that he had gotten to the root of the problem after some one-on-one management interviews.
In his view, how performance was being measured and how people were being rewarded was the problem. After all, he had seen this gambit work a number of times in the past. Reward people better, and they pull out all stops to justify the rewards.
He introduced a few additional performance measures and, at the same time, created and ran several highly expensive workshops with the management team. He thought the issue must be resolved after these steps.
However, this friend lacked scientific method, consulting sophistication, and deep expertise in going within companies caught in a negative cycle, to correctly diagnose their problems.
His experience as a senior executive was only handy for surface analysis and managing reasonably well running operations, which is very different that stabilising a declining operation. This experience was less than adequate for strategic analysis of businesses that needed massive transformations.
It will be accurate to say that his diagnostic was almost entirely incorrect. The surface changes that Rob's friend made in performance measures did not result in any significant change in the business's profitability.
The changes in business conditions had happened so gradually, and imperceptibly that only a scientific method would detect the market changes and accurately measure them.
His friend had now been trying to turn around the business for more than 18 months when one fine day, Rob got convinced that his friend would not be able actually to turn the company around.
When the penny dropped, Rob understood that he needed professional intervention from a consulting company with deep expertise, high-level skills, and business transformations capability.
Large scale Professional consulting world is Divided 50:50 among top tier strategists and second tier large accounting/IT firms
Rob asked his 2IC to find a professional company for this very purpose. His 2IC scanned the market and found five or six top tier strategy consulting companies who were more than capable of doing the job, each of them with a very high reputation.
At the same time, there were also about four or five substantial professional services companies with hundreds of thousands of people worldwide, whose core competence was either in information technology or accounting but also offered professional consulting services as another line of business.
His 2IC was torn between the top tier strategists and the second tier large organizations. His decision was nearly 50/50 as each had its own merits.
The top tier strategy consulting house employed the most intelligent people and were experts in business transformation.
However, their billing was extremely high, sometimes running into thousands of dollars per hour for the team. Also, the senior people, who came in and sold the project, were usually only present for no more than 10% of the time it took to carry out the actual work. In many cases, their scrutiny was barely minimal.
The second tier – accounting and IT services firms – carried great brand cachets and would not be considered career-limiting in recommendation.
Their billing was low, but their track record was not stellar, if not less than adequate. His 2IC spoke to many people and found out that the second tier relied on its relationships through other professional services such as information technology or auditing to get consulting bids.
In the end, despite the high costs, Rob decided to bite the bullet, and finally award the contract to one of the top tier strategy consulting companies.
This strategy consulting company was highly recommended and hired people only from top Ivy League universities or the best two or three universities in every country. Not only that, they engaged only the top graduates each year. As expected, the people were brilliant.
Rob was relieved to see a extremely high level of expertise - much higher than what he saw in the previous two attempts at business transformation. There were many intelligent young people who came into Rob's business for the transformation project.
However, his 2IC quickly noticed that the experienced people who had come into the sales talks were rarely present in the project. The senior partners showed up only a few days during the project. They were keener on the internal politics within their own firm and building it rather than investing time delivering the client's objectives and understanding the client's problems thoroughly to offer a suitable solution.
At the end of the project, after billing which ran into hundreds of thousands of dollars per month, a shiny report was handed to Rob's 2IC, which was presented to Rob and his board as the transformation plan.
In its own right, the report this consulting company produced was an excellent piece of research, based on scientific method, robust data and flawless analysis.
Big Consulting Firms Look Good From Far - But Unless You Are Their Top Priority They Prove To Be Far From Good
Yet Rob was disappointed to see that, despite spending top dollar and a lot of time, and the report only captured an ideal state, i.e. what the company should look like. Something was missing.
The senior partners had barely invested any emotion or time in creating the strategy. Because of this lack of emotional engagement, they were not interested in implementing their own recommendations beyond mere physical presence.
As a result, there was no clear understanding of how the company could get from where it was to this ideal state. The consulting company offered to prepare the transition plan and implementation but at a massive cost.
Nonetheless, it was clear that they could not implement the program and didn't even expect to do so. Knowing this fully well in advance, they had weaved it into the plan, which looked good to the board and could pass muster in a board room, but would be very difficult to implement in reality.
It seemed like a map of the terrain had been handed to Rob's company, but they were being asked to climb the mountain without any guide.
Later, someone in the company showed us the following short video of Steve Jobs talking at the MIT to explain how they felt:
Having expended all the three lifelines – ask the audience (working with the internal people), call a friend as well as 50/50 - the company was still no better that where it started from.
This was when Rob was told by one of his ex-colleagues about a new type of professional consulting firm - a professional boutique.
This type of firm is made up of world class experts who were originally trained in top-tier strategists but want to continue to work only as master craftsmen in their own area of expertise.
world class boutiques with subject matter expertise can work seamlessly with the internal teams
A far more rigorous due diligence was initiated to make sure that the missteps of the past three project experiences were not repeated.
The proposed project approach was thoroughly scrutinised several times. References were interviewed. Even the writings - articles, blogs and books - were carefully perused to discern discordant thinking.
Reluctantly, Rob called in this boutique company for a small trial project. After all nobody in his company had experience with this company before, and they did not have a brand cachet that big firms brought. Rob could no longer boast to his friends in the cyclists' group or in the country club that he had McKinsey on project.
On rapid success of this small trial project, a full fledged business transformation program was launched with a combined team made of internal experts and the boutique company.
They used the scientific method to model the root causes in-depth, including how the market situation has changed. They also then created a new business model that was more suitable to the changed market place.
Rob was also offered help to implement the changes - taking the company's business model from the current state to the future state. This boutique company was with Rob's team all the way through the business transformation, working closely, shoulder-to-shoulder, without massive billing.
In contrast to the larger consulting firms, the boutique company's senior experts were very closely involved in actually diagnosing the problem, designing the solution, and then creating an organization as per the new design.
Finally, Rob's company achieved a long-overdue business transformation.
I'm happy to say in this particular case, we were the boutique company, and I was part of this project.
What pained me was that Rob, and his team, had spent such a lot of time looking for the solution with the other three lifelines, while profits were still bleeding.
Nonetheless, it was not their fault, because what they did came logically to anybody in their situation.