An Illustration Of Where Clients Look To Management Consultants For Value-Add: Quantitative Analysis and Polish

I’ve seen a number of posts around the internet that question the value of management consultants and really beg the question of in what situations can consultants add value better than managers within a company. Rather than answer that broad question, I thought that I would take an opportunity to illustrate an area where I have seen a lot of clients get value and where they would have struggled to structure the analysis given the resources they had available. The gap area is quantitative analysis.

Such a gap is often related to organizational structure. Companies often organize themselves to produce products and services efficiently. One company may be organized to produce PCs at the lowest cost while another may provide construction services with high customer satisfaction rates. Such companies may not always be optimized for solving specific problems related to entering new lines of business, making strategic shifts, etc. Additionally, in many companies there is a limited number of either finance people, financially-trained managers in non-financial roles, project-based financial analysts, database analysts, or statistics specialists. And in cases where such skilled people are more numerous, often they are either unavailable or essentially unavailable to focus on solving specific problems raised by the business.

Management consulting firms often have a lot of financial and numerically-trained people – it would not be unusual for every consultant assigned to a project to have in-depth quantitative skills. At risk of sounding like I am drinking my own Kool Aid, some gap-plugging and value-add consulting exampes I have seen include:

  • providing not only an qualitative assessment of offering a new set of telecom services but also a quantitative assessment of how much shareholder value is built by offering the services (e.g., NPV analysis) and a quantitative rank ordering of cost areas that affect each service (e.g., NPV waterfall analysis)
  • constructing a business plan to enter a new market and also providing full financial statement benchmarking against publically available financial statements of existing pure players and multiplayers within the industry to shed light on the business economics required to succeed (or fail) in the current world
  • providing both a qualitative assessment of why backoffice clearinghouse started to slip on their service level agreements with customers and a quantitative analysis of how more than 70% of the problem statistically had to do with Little’s Law in operations where increases in inventory mapped directly into average cycle time (and then showing how the components of operations throughput failed and could be made more fault-tolerant for the future)
  • providing a operations process flow for renegotiating commercial real estate properties and also a per property financial analysis template coupled to a real estate database to identify the most important negotiating parameters and the money at stake for each parameter.

So I guess my observation would be that the areas of financial and numerical analysis are commonly recurring patterns where consultants provide value-add (or at least polish and high-touch) to solving client problems. Often the quantitative analysis goes even one step further, e.g., to help the client build committment and resolve to either enter the new business, take on the development project, or move on to something else with no regrets.

Articulating and Rearticulating Problem Statements

Engineering and management consulting share a core aspect in that each discipline tends to be very problem-solving oriented. In engineering, one may be posed the problem of trying to figure out the optimal circuit or filter for removing or minimizing noise from a radio station transmission. There are structured, mathematical ways for doing this. As another example, management consultants may be posed the problem of trying to figure out the market opportunity and business strategy for a company to extend its product line for a portion of a client’s customer base. There are common business methodologies for addressing these types of problems too.

To pick on consulting for a moment, sometimes it’s very tempting to disappear and run off and solve the problem that’s been articulated in the statement of work signed with the client. But I think that it’s also important to have a good client relationship and regular communication structure that enable the problem statement to be adjusted and refined with the client. As an example for some of the engagements I oversee, I ask consulting teams to write down the problem statement in their own words near the beginning of the project (which may sometimes be a list of key questions in paragraph form that the customer has asked plus the objectives of the project) and refine the problem statement to a finer level of detail throughout the project. The end result of these efforts often culminate at the final executive presentation where the consultant can put the refined problem statement as either slide one or two of the slide deck. The problem statement reaffirms the need for the project and consultant.

So while at the beginning of an engagement, a problem statement might be something like, “Purpose of project will be to determine the technology strategy for XYZ”, in the end, the refined problem statement might be “Purpose of the project is to address the following: 1) determine the business attractiveness of A, B, and C services in XYZ market, 2) identify technology options for approaching the market and tradeoffs, 3) perform full financial assessment of options, including worst case/walkaway price for auction PDQ, which is prerequisite for one of the options, and 4) determine optimal business model for approaching market, which includes consideration of leasing and buy/own models with respect to CBA.

By both breaking the problem statement down to a lower level of granularity and repositioning the statement for accuracy, it becomes easier to determine whether the team is solving the right problem and to divide the problem in such a way so as to let numerous big brains attack the pieces.

Although I’m not much into social commentary, I was in part motivated to write this post based on what is going on in Iran with nuclear fuel and the interests of both Iran and the United States. From the perspective of the US (though I’m no expert) it seems as though some have articulated the problem statement as being, “how do we prevent weapons-grade nuclear fuel from getting into the wrong hands?”. Just for argument’s purposes (since this may not be the right problem statement), what if the problem statement was rearticulated to be, “how do we help countries to achieve their nuclear energy goals while preventing weapons-grade nuclear fuel from getting into the wrong hands”? With a refined problem statement, one might think of more tailored approaches for addressing each issue, such as supporting or even funding nuclear energy goals, while requiring monitoring for process control purposes.

The real point of all of this rambling is that rearticulating problem statements can often lead to better outcomes, stimulate creative ideas, and offer opportunities for teams to get around roadblocks.

Update (4/12/07): I wanted to elevate the visibility of an excellent point made below by Michael Stein. He writes “the problem statement is often different for different stakeholders, and to articulate a statement that encompasses the entire picture may be in itself a major step towards a solution.”

Update (6/13/2016): The other day I was just rewatching the movie Moneyball (original book by Michael Lewis). I think these two scenes from the movie are wonderful in terms of illustrating how people can focus on the wrong problem statement and how rearticulating problem statements can trigger new, valuable possibilities:

 

Musings On The New Loyalty In Business

Note: I was motivated to write the following post based on interacting with a few ex-military people in the UK and getting a sense of their notions of loyalty in business.

In the late-80s, I took a college course on Business Ethics. I remember coming across a characterization of a type of employee that may be close to extinct in this world, the "Company Man" (or Company Woman).  This is the type of person that is so dedicated to a firm that they breathe the company mantra, let the company guide both their professional and personal lives, and would fall on a sword to defend the reputation of the company. The reason why this type of employee may have come close to extinct (at least in the US) is in part due to the era of downsizing in corporations. Many companies let devoted employees down by laying them off without warning, without recognition, and without compassion. Some companies backed down from previously protecting their employees (which might have been ok), but then some companies went completely off the other end by being negligent and losing their employees pensions or retirement assets. Yet other companies squandered company resources at the expense of working employees and shareholders. All of these types of things rattled (if not completely shattered) the notion of loyalty from an employee to a company.

I can appreciate the notion of people being loyal to themselves before a company, but I struggle with that simple resolution a bit because I have seen a loyalty voids shatter business relationships. Legal contract asides, here are some areas where a lack of loyalty rubbed me the wrong way:

  • subcontracting partner decides to go around the prime contractor and solicit the end customer directly, cutting the prime out of the loop of ongoing sales and taking away business
  • customer verbally cuts a deal with a partnership, but then tries to go back on its word by edging out one of the partners through playing one partner off of the other
  • project member that is key to a project proposal (and sets themselves up that way) decides to move to a competitor late in the ninth inning before a contract is signed

Whether a person is loyal to the business they work for is one thing, but I think that I have stronger feelings about whether a person should be loyal to others that they work with or that they work directly for. I think that loyalty, at a micro-level, helps to ensure that people are aligned to get actual work done. To me, a "new loyalty" in business lies between loyalty to oneself and loyalty to Big Brother.