Integrating Behavioral Economics and Consulting

Over the past few years, I have been involved with a number of projects that utilize behavioral economics principles to improve outcomes or change people’s behavior. Since this blog has a long history covering management consulting, I thought I would share some thoughts on integrating behavioral economics into the practice of consulting.

For those unfamiliar with the term “behavioral economics”, I generally describe behavioral economics as a combination of psychology and a traditional science like economics or finance. Whereas models in traditional economics and finance often assume that people are supercomputers and can maximize complex notions of utility over a number of parameters, behavioral economics tries to account for the beauty and shortcomings of the human mind and spirit. For example, why do some people help or punish others when it is not in their best economics interests to do so? Why do some people not help themselves (e.g., fail to save enough for retirement) when they clearly can from other measures and/or field testing? How do we know when a commercial or public system has been set up in a behaviorally unfriendly way, and what can or should be done about it?

These last questions get at the heart of one model I have seen for integrating behavioral economics into the consulting model.  This model is the notion of integrating behavioral audits and recommendations into the consulting process.

In the book, “Save More Tomorrow” http://www.amazon.com/Save-More-Tomorrow-Practical-Behavioral/dp/1591844843, Dr. Shlomo Benartzi introduced the notion of a behavioral audit for 401(k) and defined contribution plans. In such an audit, questions are asked to the effect of:

  • Do employees have to opt-in or opt-out relative to joining the 401(k) plan? (This question addresses the behavioral challenge of inertia)
  • Are employee savings rates automatically escalated when a person gets a pay raise? (This question addresses the behavioral challenge of loss aversion)
  • Do participants get 401(k) statements that show projected income at retirement? (This question addresses the behavioral challenge of myopia)

The behavioral audit then opens the door for strategic recommendations such as defaulting employees into plan or at least providing them easy ways to get into a plan, changing employer match rates, restructuring choices in the investment menu, etc. If a company wants to go really deep on implementation, they have an opportunity to work with their consultant or financial advisor to create options, prioritize, and work on an implementation plan.

More generally, the notion of a behavioral audits and recommendations can be designed to assess many other processes. For example, how well does a software application work from a behavioral perspective in terms of getting people to take action? How effective are our management dashboards and processes for managing a portfolio of projects? How good is our website in terms of disseminating information and facilitating choices?

Beyond audits and strategic recommendations, there’s also a tremendous opportunity to apply behavioral economics principles to a second area: the design and implementation phases of consulting projects. Behavioral economics recognizes that people are influenced by things that won’t make a difference to a robot but do matter to humans – we have to pay a lot more attention to design, because design is there whether intended or not. And any design architecture, explicitly or implicitly imposes a value system. Such a value system could be to maximize value for a specific party.  Another value system might be to do the most good for the most people.

So where to start?

A first step is to open your eyes more broadly to behavioral economics. I think that cross-functional disciplines (whether behavioral economics or other) tend to be underappreciated because appreciation requires knowledge that cut across areas that are not traditionally combined.

A second step is developing a good base of knowledge regarding behavioral economics and applications. You can do this by working with people experienced in the area. You can also start to get introduced to these concepts through reading books like “Nudge” (by Thaler and Sunstein) or “Thinking, Fast and Slow” (by Kahneman). Although I am biased (since I was part of team to help with the book), Benartzi’s “Save More Tomorrow” book is a great book for shedding light on how behavioral economics principles are applied in detail to a very specific problem (i.e., design of defined contribution plans for retirement savings).

A third step is recognizing that while it is important to draw from research and core principles (done by academics and from certain areas of the industry), it is important to test your application of behavioral economics, whether that application be for consulting, a solution, or a product. Sometimes we think one behavioral principle will apply in a scenario when something else turns out to be the case. The use of solid behavioral principles based on research should improve the odds of success. Yet in my experience how we make judgments and decisions as people is, at times, both scary and fascinating. So remember that your application of behavioral economics should be tested before it is rolled out.

Posted in Behavioral Economics, Business Development, General Management, Innovation, Management Consulting, Professional Services, Sales And Marketing, Technology | Leave a comment

Secret Techniques to Overcoming Obstacles as a Manager or Consultant

Over the years, I have had to opportunity to manage different groups and perhaps more importantly observe how different managers and consultants face obstacles. Often these techniques for addressing obstacles are passed down through mentorship or peer exchanges, and as such, these techniques are less documented. Here are some of the techniques that come to mind and are especially more common in entrepreneurial or intrapreneurial situations:

  1. The Experiment – In this case the obstacle that the manager wants to overcome is to make forward progress into an unknown area. For example, suppose a manager wants to adapt a software product for an adjacent customer market. The manager may allocate a budget to a small business development and delivery team to explore and develop a lead customer in the new market.
  2. The Audition – In some cases, the problem to be tackled is either new or the prime resource to deliver is an unknown. For example, suppose the manager needs someone to serve as the principal consultant to lead a new group of services professionals. The unspoken audition may be that the manager may want the principal to lead one engagement with key folks on the delivery team as part of the engagement. The other aspect of the audition may be to have the candidate assist with proposal development and lead an aspect of a customer sales pitch meeting.
  3. The Process Versus Milestones Approach – Some situations arise where it is not possible for one group to dictate the larger process that a company (or another group) should follow. In these cases, the basis of the conversation can be shifted so that groups agree to measure key milestones and outputs. For example, suppose one internal group wants a sales organization to follow a certain process to control focus and quality of customer messaging. While the internal group may find it difficult to instill explicit processes within the other group, the two groups can agree to have review meeting milestones and measurements to assess focus and quality indirectly. So the technique is based on the concept that processes and milestones go hand-in-hand. If one has trouble on the process, try working from milestones angle instead.
  4. The Associations Versus Strategic Approach – Strategy ideally comes before tactics. However, strategy often requires a lot of top-down thinking and heavy analytical brain power. For example, in top-down marketing one may need to define targeting and positioning methods after one has done a complete analysis of the customer segments, value propositions, competitors, company strengths, etc. Yet the battles in the field are happening today & right now. What are the soldiers supposed to do at this moment? Here’s where intuitive thinking, improv, and emergent strategies come to mind. In these cases, immediate tactics are based on doing something consistent with what has been done in the past, creating connections, or taking actions that create consistent associations (such as brand associations).

There are obviously many more techniques that managers use for overcoming obstacles in dynamic situations. What are some techniques that you’ve learned in the field?

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How My Father and Fatherhood Have Transformed Me as a Professional

On this Father’s Day, I wanted to give a short tribute to my dad, and reflect on his professional influence on me. My father is a great man. He received an education in electrical engineering, served in the U.S. Army, been involved in numerous industrial and technology companies around the world, started a number of entrepreneurial ventures, had two kids with my mom (myself and my brother), been successfully married for more than forty years, supported numerous workers and business partners, and managed to stay energized and reasonably healthy to date.

Although that’s the backdrop, when I was growing up I had very little understanding of what my father did. As a young child, I think I even slightly hurt his feelings when I made a remark to him something to the effect of, “Dad. I understand things now. Mom is mom, right? But you are just a relative, right?”

So much of my early life can be (dramatically) portrayed as being a stuck-up narcissist. I only cared about myself, how I was perceived, and whether I could excel. Yet my father loved me. He helped me to develop some tangible core skills and traits that continue to support me as a professional. These included math, science, analysis, and logic skills. What I didn’t appreciate until many years later was that he also provided me with a tremendous safety net and helped me to build my self-confidence. He was extremely supportive. Decades later, I became more acutely aware of the importance of being supportive and was of clear enough mind to write the post “A Supportive Manager Outweighs All”. Father’s Day lesson #1 for professionals.

As a teenager and undergraduate, my father brought me into various start-up situations to get me beyond engineering and to think about business more. How much I wanted to focus on just engineering. Yet through the new experiences he introduced me to, I developed a better tacit understanding of dynamic organizations and paving new ground. I also learned a lot more about real people, how they behave, and what pressure draws out. So my father helped to guide my professional development in terms of understanding people & organizations, getting street smart, and connecting with people on a
deeper-level. Lesson #2.

As an adult and father, I touch the skin on my face and those of my kids, and I realize that the legacy of my father propagates. I cherish the elements that my kids and I all have from him. And I now more fully recognize the importance of valuing not only the people you know but also those you do not know and the interconnected world. Reflecting on fathers and fatherhood brings mortality, humanity, and the importance of leaving a legacy into greater focus. The influence of my father and fatherhood has taken me to new interests in the past decade or so, some of which include providing probono work (e.g., for nonprofits), seeking meaningful consulting projects that impact current human and societal issues (e.g., healthcare, retirement, organizational development), and teaching in the business school. Father’s Day lesson #3 is refining the understanding of one’s values and doing something about it. I shared a post on “Management Consulting Manifesto” to illustrate my evolved personal values and how they map to my perspectives on management consulting.

Readers, thanks for reading, and please share what lessons you’ve learned from your fathers (e.g., please post links and comments below).

Dad, Happy Father’s Day. I look forward to many more lessons from you. Thank you. I love you. Your son, Stephen.

Posted in General Management, Uncategorized | 1 Comment

Eight Secret Weapons of the Modern Consultant

Although I’ve developed a number of blog posts addressing the practice of management consulting, I have spent little time tying things together into a framework of secret weapons of the modern consultant. Secret weapons are a spectrum of tactics and skill areas – while some may be used widely, they are often passed through mentorship or apprenticeship in bits and pieces. A modern consultant is a professional that can work in dynamic industries, operate within multiple types of consulting organizations (e.g., niche, large traditional), and has experience as both an operating manager and an advisor.

So here are eight secret weapons of the modern consultant (arranged roughly in order from foundational to more advanced)

  1. Problem Statement Articulation Skills – This skill requires a consultant (or
    manager) to define the boundaries of a scope of work. Implicit to this is being able to define what decisions points need to be met and the managerial significance of the issue at hand. Because the organization is preparing to commit resources to investigating a problem, this is core to getting started. For some further discussion on this topic, I wrote a management consulting post awhile back on “Articulating and Rearticulating Problem Statements” (http://steveshuconsulting.com/2007/04/articulating_an)
  2. Structured Problem-Solving Skills and Industry Knowledge – Facility with structured approaches may be developed by learning key frameworks such the popularized McKinsey MECE approach (see here http://firmsconsulting.com/2010/09/22/a-complete-mckinsey-style-mece-decision-tree). Skills can also be gleaned from thinking about how one would practice consulting science versus giving simple advice (see post by me here http://steveshuconsulting.com/2006/12/an_illustration-2). Aspects of industry knowledge come through experience and specialization and can be augmented by reading trade magazines, etc.
  3. Engagement Management Mastery – This skill ties together problem statement, structured approaches, and industry knowledge. Mastery goes further by synthesizing the resources that will solve the problem at hand along with managing advisor-level relations with the executive sponsor. For more info on the engagement management topic, readers may consider reading my post at http://steveshuconsulting.com/2007/05/perspectives_on.
  4. Interpersonal, Facilitation & Leadership Skills – Interpersonal and leadership skills are pretty well-documented in other areas. One of my favorite foundational books on leadership is the Leadership Challenge by Kouzes and Posner (http://www.leadershipchallenge.com/WileyCDA). On facilitation skills, I have seen less documentation on the subject in a concise format. Facilitation skills are especially important because they help a professional in cases where authority does not exist and where influence must be used to achieve management goals. Here is a post on facilitation skills that I wrote before http://steveshuconsulting.com/2008/01/a-perspective-o.
  5. Storytelling and Executive Analysis Skills – At least two core frames of thinking come to mind, when I think about this subject. The first frame is best illustrated by how one ties together presentation slides in a storyboard using “bottom-line titling” versus “topical titling” as described here (http://steveshuconsulting.com/2007/02/what_a_sample_c). The second key frame is driving towards answering “So What?” questions all along the way in an analysis presentation. An example of answering the “So What?” question might be, “Client needs to focus on improving six red-flagged areas which cost the client $X per annum in above average churn.” Without bottom line or prescriptive messages to analyses, consultants may find themselves in an unfortunate spot of brain-dumping information with no end purpose or goal.
  6. Adaptation Skills – When I think of developing adaptation skills, I think of developing skills that improve behavior and communications skills “in the moment” a la Business Improvisations at http://www.businessimprov.com (Disclosure: Client). I also think of changing one’s reference of thinking with
    concepts such as “there are no sacred cows”. Something that I have a lot in consulting environments is the idea of constantly seeking better ideas, better ways to describe things, and new approaches. With this in mind, one can’t get too protective of one’s work because one’s goal is really to further the quality of work of the engagement team and ultimately the end goals of the client.
  7. Business Development and Management Skills – Consulting services sales and marketing are unique topics, and turning to folks like Michael McLaughlin at http://www.mwmclaughlin.com, Ford Harding http://www.hardingco.com/blog, and Ian Brodie http://www.ianbrodie.com are some of the best investments that one can make. For the management of consulting firms, one of my go-to references is Managing the Professional Services Firm by David Maister http://www.amazon.com/Managing-Professional-Service-David-Maister/dp/0684834316/ref=ntt_at_ep_dpt_2.
  8. Forecasting and Envisioning Skills – The eighth secret weapon is quite elusive. Do you develop these skills by understanding systems thinking (a la Peter Senge and the “Fifth Discipline”)? Does it come from understanding economics or innovation processes better? Does it come about by trying to apply social responsibility concepts (a la Umair Haque and “New Capitalist Manifesto”)? It is possible that the eighth secret weapon is analogous to the mysterious Dragon Scroll from the animated movie, “Kung Fu Panda”. For me, I see three prototypes of people that develop the eighth secret weapon: those that have innate talent and vision already, those that develop such skills by mastering a craft (or a practice area), and those that use their networks to help develop insights into the future.

So there you have it. Eight secret weapons to further one’s mastery of consulting.

Posted in Business Development, General Management, Improvisation, Management Consulting, Professional Services | 1 Comment

What To Do When Your Professional Services Organization Is Not Professional Enough

In helping companies develop, tune-up, or reboot their professional services organizations, here are some example of complaints I’ve heard that reflect the need for change:

  • Customer: “Instead of providing consulting services, your organization is marketing its products to me and asking me to pay the bill.”
  • General manager of services organization: “I am not sure we know what services we sell versus what services are provided as part of the product pre-sales cycle.”
  • Manager of services organization: “We have project in XYZ area, we’re doing another thing with company ABC, and we also have a lot of internal work on DOG. It’s really hard to report on where our time is spent.”
  • Customer: “The consultants you’ve assigned seem to have good technical and analytical skills. I am not sure what they are doing to help me though.”
  • Field manager: “Customer A is pretty much dead and will need a restart. We got to step 10 in the process before we realized our services team forgot to perform step 2 for quality control.”
  • Manager of services: “How do we price jobs? How do we cost jobs? No particular method.”
  • General manager of services: “Our folks have traditionally provided services for free, and now we are trying to charge money for them because the services have value. But our quality is not there, and we don’t have the discipline built into our DNA.”

One way to think about fixing these organizations is from the ground-up (roughly from delivery to project management to sales to strategy):

  1. Inventory the delivery team - What skills do these folks have on the technical side? What soft skills do they have in terms of dealing with clients? How can we develop the team’s leadership skills?
  2. Inspect either the project management or engagement management areas - To what extent is a cadence and communication structure established between the organization and the customer? Have there been frameworks or tools developed to support the customer-facing processes? Are there knowledge management processes in place to help with delivering greater value to the customer? What role does mentorship play in the organization?
  3. Analyze the sales process and key contacts with customer organization - What is the strategy for services? Do we have a crisp story on getting from needs to solutions and services? Do we proactively manage the sales pipeline? Who owns and follows-through on key customer contact points? Is there a customer satisfaction process that involves both direct parties delivering and independent parties objectively evaluating the quality of services delivered?
  4. Assess what’s next for customers and how your company’s boundaries fit into a larger, whole solution for the customer - What role should thought leadership play? How can the services organization figure out how greater value can be added to the customer experience? Should we expand the offerings? Should we partner with other companies? Or maybe we should change the total mix of products and services so that the customer can derive additional value on their own?

Professional services organizations are complex, and the above framework enables one to start to think about how one can make improvements that affect services delivered today, while keeping other areas in perspective for handling somewhat further down the road.

Please feel free to let me know about your thoughts and experiences. Thanks!

Related post: Special Discussion On Starting Consulting Services Organizations Within Product Companies

Posted in Business Development, General Management, Management Consulting, Professional Services, Uncategorized | Tagged , , | 1 Comment

Management Consulting Manifesto

Got an idea from Dan Wallace (Twitter handle: @Ideafood) to write a manifesto (link to some other examples here). As many regular readers may know, I am pretty passionate about the practice of business and management consulting. Without further ado, here is a working draft of my management consulting manifesto:

  1. Do what’s best for the client before the consulting firm.
  2. Lead and practice ethically.
  3. Love the client and commit fully or leave at the earliest, ethical moment.
  4. Like the arts, mastery of leadership and business excellence are worthy pursuits.
  5. Practice consulting and avoid dispensing shallow advice.
  6. Apply analytics, process, and problem-solving rigor as your strengths to enlight and lead versus obfuscate.
  7. Strive to introduce and apply principles of sustainability and social good wherever possible.
  8. Recognize limitations of consultative methods wherever they may be; seek noble, clever, and pragmatic solutions.
  9. Mentor colleagues & clients as appropriate and seek mentors to improve oneself.
  10. Pursue mastery of interpersonal and organizational communications ; get clients as far as you can along the strategy curve in terms of understanding, commitment, and resolve.
  11. Seek a balance between personal and business life that complements and strengthens one another.

Related links: An Illustration of the Consulting Spectrum: Giving Simple Opinions Versus Practicing Consulting “Science”

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How To Make Project Closure and Client-Consultant Transitions Smooth

Eventually projects with consultants come to an end. Similar to completion of a good run as an employee of a firm, feelings at the end of a consulting project can be bittersweet. For me, the sweetness of successfully completing a project feels great, while the end of the day-to-day, close working relationship with the client can make one reflect for a moment longer.

Over the years through consulting mentors, peers, and personal experience, I’ve learned of some tricks to making transitions smoother for both clients and consultants. Here are some:

  • Clients and consultants should develop a mutual understanding of how the relationship will eventually end in terms of time of transition. While we don’t need pre-nuptials, recognize that relationship communication is a two-way street. Some consulting partners explicitly discuss with client executives the notion of gradually winding down longer-term relationships over periods of months (versus days or weeks) so that business and operational needs are met.
  • The mutual understanding of project duration with clients and consultants may be specified in terms of project phases. Using product development lifecycle terms, the two parties may define a relationship scope to be around early phases such as ideation, planning, design, development, & incubation versus ongoing management. A twist on this may be identifying the strategic roadmap, blue sky, whiteboard areas, etc. that the client will work on regardless of consultant involvement (and then picking where the consultant will work). Once the areas are complete, the client-consultant relationship will end.
  • Support the transition process with documentation, project closeout meetings, and the like. These are basic project management fundamentals, and in the cases where project boundaries may be less clear (e.g., due to a long-term relationship with a client), having tangible outputs and meeting points can help parties to transition.
  • In cases of certain strategic initiative, interim management, and special-situation consulting arrangements, transition success can be measured by how effective permanent hires are onboarded. The tactical transitions can include the consultant helping with securing new financial budgets for an organization, providing knowledge transfer of strategy and planning efforts, shadowing new hire efforts, and helping to build out the initial ongoing processes.

Finally, celebrate both the relationships built and advances made together. This is where marriage and the client-consultant relationship analogy works better – hard work makes the bond stronger. And your “ex” may actually refer you in this case.

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Special Discussion on Starting Consulting Services Organizations Within Product Companies

When people think about consultants, they often think about those that work for companies like McKinsey, Accenture, Deloitte, etc. These are companies that are essentially independent from product vendors. However, there are a number of companies that provide consulting or professional services as part of product companies (e.g., companies like Cisco, Avaya, Nortel, Ericsson, IBM) that may sell things like hardware or software. I’ve had the opportunity to incubate and/or reboot the management, sales, marketing, and delivery for a number of these types of consulting practices, and they definitely face a number of issues that are unique from independent consulting firms.

As an example of a jumpstart “Consulting Services for Product Company” engagement, I have often found four common failure points to look out for when examining the organization from an end-to-end view from strategy through sales and delivery (see figure below which hints at the sales learning curve an organization must work through). The failure points are:

  • Unclear, strategy for providing consulting services – An example of unclear strategy includes not being able to articulate to what extent consulting services should be designed to protect product lines versus providing a new revenue stream. Also, what are the types of consulting services to be provided (the services portfolio)?
  • Unclear method for getting leads into the pipeline – Depending on strategy, consulting services organizations within product companies are often implemented as overlay organizations, and as such, the process of getting in front of customers and managing prospects can lack proper definition, discipline, and support tools. Often the buyer in the organization is different too.
  • Improper tone for sales meetings – Product companies are often used to marketing-push type sales strategies (e.g., “here’s the benefit and features of our product – its the best”). On the other hand, consulting services sales are often more diagnosis, empathy, and solution-driven. Getting the right mix between product and services messaging takes some work.
  • Irregular quality of consulting services project delivery – In some cases, consulting services may be may be provided as an afterthought or on a “free” basis to customers (e.g., subsidized by product sales). Unfortunately, a customer’s time is money, so even if the service cost is covered elsewhere, the consulting organization still needs to provide quality work to the customer.

Implementing consulting organizations within product companies can be a great opportunity. That said, I’ve provided a peek at some of the hazards involved. What has your experience been with consulting and professional services organizations within product companies?

Posted in Business Development, General Management, Intrapreneurship, Management Consulting, Sales And Marketing | Tagged , , , | 2 Comments

Business Development Chronicles – The Story of Us (Doesn’t Have to End in Tragedy)

It’s a tale of Big Company and Small Company.

Big Company likes Small Company’s:

  • focus and style
  • entrepreneurial attitude and skills.

Small Company likes Big Company’s:

  • scale of resources
  • scope and number of customers.

Big Company hates thing like:

  • getting embarrassed by Small Company in front of customers
  • getting burned and stuck with Small Company’s software source code
  • worrying about loose cannons in Small Company’s organization
  • working with Small Company’s legal paper.

Small Company hates things like:

  • working with Big Company’s cumbersome processes
  • getting whipped round navigating Big Company’s large organization and jumping through hoops
  • waiting for the whale to speed up
  • failing to get real deals cut
  • getting RFIs from Big Company and worrying whether Big Company is playing around with others
  • answering the RFI question about financial stability of Small Company
  • getting paid six months late by Big Company.

The Story of Us doesn’t have to end in tragedy. “Us” requires hard work, like courtship. It requires an honest assessment of values and one another’s strengths and weaknesses. It requires regular communication. It requires bridge building skills on fluctuating ground, and should be viewed as an opportunity for those up to the challenge.

Endnotes:                                                                                                     

  • Business Development is about new initiatives and incubation
  • The percentage of alliance failures cited often exceeds 60 percent (example Entrepreneur article).
  • The title for this post was inspired by Taylor Swift’s song, The Story of Us from the Speak Now album
  • I wrote this post reflecting upon doing consulting & contract business development activities and representing mega, mid-market, and small companies over the past year.
Posted in Business Development, General Management, Intrapreneurship, Management Consulting, Sales And Marketing | Tagged , , , , | Leave a comment

What I’ve Learned From Buyers of Management Consulting Services

Many blog posts and articles address when to use management consultants versus not. Some argue that using consultants for strategy development intimate incompetence by management (example here). Others argue that consultants should be used in cases when expertise is higher than that of existing employees.

Companies should definitely examine the needs and tradeoffs for using management consultants. Tradeoffs include expertise, background in similar projects, knowledge retention, cash outlay, incentives, organizational dependency issues, etc.

But I’ve learned something entrepreneurial from a number of buyers that deeply understand how to use consultants and how to lead:

Many smart buyers of management consulting services focus on making forward progress. They focus on solving problems. Whether using consultants is the cheapest option or the best discount of future profits that a client has ever seen or anywhere in-between – the choice of whether to use consultants is less relevant than getting things done with a positive return.

As a long-time consultant, I am clearly somewhat biased. But I’ve been on the buyer side for consulting services too. My main point is to encourage folks to spend a balanced amount of time focusing on how to solve a problem as opposed to pointing fingers.

Posted in General Management, Intrapreneurship, Management Consulting | Tagged , | 2 Comments