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Behavioral Economics Versus Behavioral Science

There will be different perspectives on the definitions of these two terms depending on context. Put simply, behavioral economics lies at the intersection of economics and psychology. Behavioral science is a somewhat broader term than behavioral economics as it is more inclusive of things that do not lie at the intersection (e.g., pure social psychology or neuroscience).

While the boundaries are evolving due to the nature of knowledge discovery, some things that lie at the intersection (i.e., behavioral economics as I’ve depicted) include choice under risk and uncertainty, prospect theory and loss aversion, myopic loss aversion, behavioral time discounting, heuristics, biases, mental accounting, behavioral game theory, and neuroeconomics. You will find that some people have a perspective that behavioral economists have foundational training in economics (i.e., come from economics departments) whereas other use the term more loosely and include those in the behavioral science area.

Note that when when you visit the intersection of these two circles you will inevitably see the distinction between how people behave versus how people should behave. You may also see the concept of nudges and behavioral solutions that try to address issues that people face.

Behavioral science is inclusive of the intersection and may also include things beyond that like memory processes, empathy, emotions, learning, moral foundations theory, group decision making, neuroscience, psychology of aging, etc.

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Thoughts About Finder’s Fees to Other Professional Services Providers as a Consultant

This answer is based on a question posed to me on Quora.

I’ve only used finder’s fees sparingly over the course of my professional services career. Here are some reasons why:

  1. Some of the best referrals for me have come from other people that currently work either for the client or as a consultant to the client. Providing a referral fee can sometimes create a conflict for those parties providing a referral. The same applies to me providing referrals.
  2. Other referrals come through people that know me or know of me. In these cases, I may provide a referral fee (or something else) more as a unwritten gesture than as a contractual, business regularity, mainly since business through these channels is very much appreciated but more irregular.
  3. Unless designed properly, the referral fee can be stranded between a space where not enough incentive is provided (or even insulting to the referrer), too much incentive is provided and margins are decreased too much, and/or an unwritten obligation is created where the referrer feels overly responsible as to whether the referred is successful or not (as opposed to being arms length from both the referred and the client).

Others may have different experiences, so make sure to get some other perspectives.

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How Do Consultants Handle Situations With Clients Who May “Laugh” at Them Relative to Projections and Opportunity Outcomes?

Here are some thoughts on how consultants prepare for and handle these types of situations:

  1. Projections may be initially tested in safer settings. If projections end up being perceived as too wild or aggressive, it is better for this to happen in a working meeting or separate session before a “final” presentation is made. Following an iterative process and managing client expectations reduces risk for the consulting team.
  2. Projections are usually based on models with assumptions being made transparent. By making assumptions and modeling transparent, some focus can be taken off of the actual projections. The focus is more on the process and the assumptions, which of course lead to the projections. If the client disagrees with the assumptions or the process and modeling, problems can be resolved to minimize the possibility of clients “laughing” at the consulting team for the projections.
  3. Models and projections are often built by keeping the client team involved during the build process. This further minimizes risk of the client being surprised at the end. It also helps to increase ownership of the projections by the client. All projections have limitations of some sort. So let’s all own both the insights and limitations of the analysis.
  4. If the consulting team was not able to follow any of the processes above or if the consulting team could only feasibly do some of the elements above, then senior people on the team may need to handle a client that disbelieves the numbers and “laughs”. As example of how this could work, the partner could simply assert confidently that they believe the numbers and that a separate session could be set up to go through them. Another alternative might be for the partner to say that the consulting team will take a second look and perhaps one or more of the client members could be involved. Yet another option might be for the partner to suggest that some other scenarios and sensitivity analyses be performed. I will say though that consultants use their analytical training try to avoid being orders of magnitude off when putting forth projections. Or if they are going to provide projections that may be wildly off, they caveat that up-front.

All said, consultants try hard not to let situation #4 come up by actively working on items #1-#3 to reduce risk. It is important to remember that in consulting, the process is an essential part of the deliverable.

The post above was reproduced from a question that I originally answered on Quora.

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The Real Key to Performing a Competitive Assessment

Assuming that one has capable resources to get the job done, the most important thing needed for a competitive analysis is an articulation of the true problem statement. The need to perform a competitive analysis is not a problem statement in of itself. Is the problem statement a broad one to simply formulate strategy? Unlikely. Not focused enough. Perhaps it is about assessing the atrractiveness of services A, B, and C in a particular market? Or perhaps it is about a financial assessment of competitiveness from a risk management perspective? Or maybe the purpose is to determine the robustness of an organizational model relative to competitors? All of these? Some of these? Other?

The point is that competitive analysis is just a tool, and there are many tools. Which tool and approach one picks actually depends on refining the problem statement properly. Why do we want a competitive analysis? What problems are we actually trying to solve? Who in the organization is the analysis for? Get to the core needs. Then determine what competitive analysis approaches are the right ones given the problem, audience, time, effort, precision, and resources required.

Steve Shu specializes in incubating new initiatives with a primary focus on strategy, technology, and behavioral science. He is author of Inside Nudging: Implementing Behavioral Science Initiatives and The Consulting Apprenticeship: 40 Jump-Start Ideas for You and Your Business.

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One Tip to Prepare Yourself Before Starting a Job with McKinsey, Bain, or BCG

Prepare yourself for the situation that every Powerpoint slide that you create will get tossed out of the window. The slides you initially create will unlikely look like the ones from the firm. It may be discouraging at first, especially since many are used to being high achievers. However, it is a process that most people go through when they join a consulting firm because consulting is based apprenticeship and learning from others in the firm.

One of the early lessons will be opening your eyes to synthesizing data into killer pictures. Another lesson will be about making sure that slide titles drive to the “So What” message and bottom line versus being topically titled. And another lesson will include storyboarding the presentation deck, perhaps even creating the deck with just the titles of each slide as sentences and containing no content other than that. That construction allows one to read only the titles in the deck and glean the executive-level messages and deductions / inductions.

Of course there will be many more lessons both tacit and explicit. Look out for them carefully because not all lessons will be marked explicitly as such. But the slides you create…your mini Mona Lisas…will inevitably be trashed. Remember that the process is not about hazing. It really is about getting to the right end product with more senior people managing the quality of the product and training you according to cultural norms of the firm.

Edit 2/13/2019: Special mention to Kevin Johannes Wörner who has a nice video covering advice for new strategy consultants (9 lifehacks) based on his experiences, including at Roland Berger. I really resonate with Kevin’s comments about how to deal with massive amounts of data and information coming at you in the client environment and focusing on the few items that really drive results.

Steve Shu specializes in incubating new initiatives with a primary focus on strategy, technology, and behavioral science. He is author of Inside Nudging: Implementing Behavioral Science Initiatives and The Consulting Apprenticeship: 40 Jump-Start Ideas for You and Your Business.

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The So What Strategy – A Highly Recommended Book for Business Communications

By way of background, I have long history in the consulting space and believe that effective communications separates leaders from the pack. And it’s something that one can continually work on to improve. Over the years I’ve read a number of books on communications such as books on writing, storyboards, logic, presentation construction, visual design, and verbal delivery. I’ve recently read “The So What Strategy,” a book on business communications, and wanted to share my thoughts on the book.

So what do I think about “The So What Strategy” by Davina Stanley and Gerard Castles (formerly communications specialists at McKinsey & Company)? “The So What Strategy” is an excellent book and provides readers with essential tools for more effective business communications related to writing, storyboards, logic, and presentation construction. Here are three reasons why it will be one of the top books for me to recommend to other consultants and business professionals:

  • First, the book establishes a solid foundation from a structural point of view. The authors cover fundamentals from understanding one’s audience, the drivers for particular communications (e.g., context, triggers, and key question), bottom line messaging, and logical storyboards for key patterns that come up in business situations. The book also goes further to suggest concrete steps as to how one might incorporate storyboarding and other elements into both one’s own work and the internal processes of an organization.
  • Second, the book is differentiated from other books, especially as it relates to addressing classic patterns one encounters in business. One classic book in consulting relative to communications is “The Pyramid Principle” by Barbara Minto (also ex-McKinsey). While Minto does a great job at explaining logical concepts that are pervasive in management consulting approaches such as mutually exclusive, collectively exhaustive (MECE) frameworks and tying these concepts to writing, Stanley and Castles dovetail with the same concepts and also cover seven classical storyline patterns that are suitable for business. These storyline patterns includes things such as communicating actions plans, suggesting recommendations, pitching ideas, providing updates, and several others.
  • Finally, “The So What Strategy” comes in a modern package. While I feel the other two points I mention above are strengths, the book’s package is one of the biggest selling points for me. First, for the time-pressed professional, the book is a very rich but quick read. I got through the book in about two hours, which is surprising given how rich the book is in terms of content and substance. And yet the book can easily fit into the messenger bag of a road warrior consultant. Second, the book has concrete examples of emails, storyboards, and presentations; this helps readers actually see where communications can be improved and how following the authors’ frameworks can help. Third, the book provides concrete tools (such as checklists) and is well-structured for being a quick handbook.

I highly recommend “The So What Strategy”. Davina Stanley and Gerard Castles have done a remarkable job putting this book together. You can get a sample chapter on their website at http://www.sowhatstrategy.com. You can also take advantage of their online courses here.

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Why Do Management Consulting Firms Hire MBAs?

Prior to my current role, I spent many years in the traditional management consulting space. As I see it, the traditional segment of the management consulting industry values MBAs primarily because it facilitates a plug-and-play kind of model where people are interchangeable and can start working on a broad swathe of business problems. Management consulting projects can span diverse areas from operational to finance to marketing to strategy to IT management, etc. An MBA training provide consultants with some minimum common business language, culture, methodologies, and skills that they can use in the field. The traditional management consulting firms need a lot of these plug-and-play type resources since the whole consulting business model is based around selling more and more projects to solve unique business problems. This requires some level of scalability and both MBA training and the business school hiring venues directly support a volume-based model.

While its been a proven model that these consulting firms can successfully scale by hiring lots of MBAs, will the model sustain forever? Are there other models? There are other modern, consultative models emerging. And the models don’t need to be exclusive. For example, you can see this in some of the digital agency like efforts (e.g.,investigate careers at Digital McKinsey or BCG Digital Ventures). There you will see that these firms add a lot of other roles that don’t have to be MBA-types (in some cases might not even be culturally desirable, such as in the case one sometimes gets a vibe with the branding and traditional ad agencies). Roles in these newer consulting firms are positions analogous to product manager, UX design, digital marketing, data scientist, etc. plus traditional consulting roles. We are even starting to see some initiatives relative to adding in behavioral science experts, an area that I mostly play in these days.

While the MBA population is very large within the management consulting space, there are many other backgrounds both present and emerging.

This answer is reproduced from a question that I was asked on Quora.

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How Management Consultants Are Evaluated At Different Levels

I’ve been asked on a number of occasions to describe how consultants are evaluated in terms of performance, so I thought that I’d finally write these thoughts down publicly. Here’s a whirlwind overview of an illustrative consulting firm evaluation framework for single career tracks. In a nutshell:

  1. Analyst / Associate – Performance on project activities and workstreams for a project as evaluated by the manager and partner/principal for the project plus any client feedback, minimum threshold for billable hours, support for internal firm activities and some professional development.
  2. Manager – All of the items for Analysts/Associate, plus performance for managing entire workstreams and entire engagements with feedback from principals/partners and clients, evidence of mentoring new consultants, potentially some support for proposal development for existing clients, and potentially some evidence of starting to develop an expertise.
  3. Principal (pre-partner type) – All of items for the previous levels but some slanting toward more evidence of specialization, thought leadership, business development at current clients, and potentially evidence of business development at new clients (may be more true of smaller firms). Compensation can have a more substantial component related to sales for some firms. Minimum billable hours starts to drop a bit, but this level (if pre-partner) can be a real gaunlet because the principal is stretched between sales, delivery, while trying to build their case for becoming partner.
  4. Partner/Managing Partner – Here we get into sustaining a business to support teams, multiple consultants, and potential practices. At the managing partner level it is about P&L and developing the business, including from strategic areas (e.g., new initiative, focus areas, offices). Also manages the higher level strategic relationships. Minimum billable hours can fall quite dramatically depending on the firm (e.g., cut in half plus/minus or even more at managing level).
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Do Consulting Firms Rely On Hiring Salespeople to Sell Work?

Many consulting firms (especially management consulting firms) rely on prior consultants in terms of selling work. Why? Mostly it is because people are the product. In consulting sales, you are selling yourself and your team. More specifically, you are affirming the problem statement, the problem-solving approach, and your team’s experience with solving similar (or comparable) problems in comparable situations. It is hard for external, non-consultant salespeople to do this.

Suppose the problem statement is to develop a new product. People who have experience in the relevant consulting area will know how to refine unstructured problem statements like this, design an engagement to solve the problem, and get the right people staffed on the project. Hiring people from the outside to sell unstructured consulting work (say professional salespeople who do not have consulting experience) may not work very well, although success of this type of approach usually depends on the type of work. For example, some large professional services firms do have more dedicated business development people in cases when the realm of consulting is more focused (e.g., HR consulting, accounting) and solutions are more regular, common, or repeatable.

In summary, to sell many types of consulting services (not all), one often needs to know how to actually do consulting work. That tends to be the primary reason why consultants sell work and not salespeople brought in from the outside. A corollary to this is that partners in consulting firm will often have to do some minimum amount of consulting work and not just sell services; consultants need some continuing involvement with field work to stay fresh and be able to sell.