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Somewhere Between Goal Management, Client Facilitation, and CYA

As I work through my own professional goals plan for the year, I am reminded of an early lesson in management consulting. This technique has do more with firms that are implementation-oriented as opposed to strategy-based, and it is related to getting a client organization to move. I don’t know if there is a name for the technique, but for the purposes here, I’ll call it "progress to goal management".

The essence of the technique begins with the consultant working with the client organization to establish one or more measureable goals and then reporting on actual performance regularly with a gap diagnostic. Let’s say a goal is to create $5.5 million in annual revenue for a new start-up initiative (say $500K in Q1, $1M in Q2, $2M in Q3, and $2M in Q4). The consultant then works with the client to put a regular measurement system in place, say monthly. Suppose that by the end of Q1 that the client has only achieved 15% of the goal. The consultant should be working with the manager owning the revenue to report not only the numeric gap in performance but also a diagnostic of why things are off track (from both quantitative and qualitative perspectives).

Although the technique may seem obvious, in implementation consulting, one is often trying to diagnose problems or set up operations for things that happen below a corporate-level or business unit-level. The devil may be in the details and low-levels of the company so-to-speak. Thus, things like board-level measurements and control may neither be enforced nor visible. Other situations where measurements may not be readily available include setting up new business structures (e.g., new business line) or bypassing old business structures (e.g., where old methods too cumbersome or bureaucratic).

Other than trying to help the client (which is the primary goal, of course), the flip side of this is that the consultant is pulling a "CYA" in some sense. One can’t start a project and then six months later show up and simply report to executive management that the goal wasn’t met by the business unit or functional area management. Progress to goal (and gap) reporting is needed every step of the way along with mid-course control and corrections. In this way, the consultant separates the aspects of proper management control from management’s ability to execute.

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Adding Some Color (Blue Tone) To The MBA Discussion

David Maister has a great post entitled, "Why Business Schools Cannot Develop Managers". While I generally agree with what David says there, in that business schools can teach primarily only analytical skills, I think that it may be worthwhile to shed some additional light on that subject so that people who are evaluating business school (or those that come from business school backgrounds) can better appreciate the underlying value.

I view business as a bit of a craft and art, so to continue with the color theme, I see the business value of MBA programs as covering three primary color schemes:

  • Blue – the cold hard facts, the analysis aspects, the language, and theory of business (learning WHAT to do)
  • Yellow – knowing where the warning lights are, when something is good or bad, going to work or not, and going to incent parties (learning the HOW to do something)
  • Red – the passion, the leadership, the drive, and the fortitude of business (WANTing to do something)

For now, I will concede that the MBA only works on the "blue tones", and one can’t create a business without other primary colors.

That said, when my one of my kids gets crayons at the local restaurant consisting of black, green, and orange, and my kids want to draw Captain America or Cinderella – I tell them to "please make the best of the situation". You be surprised how creative kids can be with even the wrong tools for the job.

So here’s some perspectives on the "blue aspects" of the MBA:

  1. MBAs Are From Mars and Engineers Are From Venus – Having both MBA and engineering degrees, I can see where parties can misunderstand one another in situations such as capital raising meetings, sales pitches, and executive presentations. The MBA provides a common communication language for business people. Sure there can be too much business-speak going on with MBAs, but I have seen many situations where engineers in start-ups are unable to pitch their stories to angels or venture capitalists because the two are speaking different languages. At the same time, I have seen MBAs better left out of the meetings with venture capitalists because they are just too shallow. All said, recognize that each type of participant has a different communication style and that MBAs add some value. When one tries to do business in Japan, one tries to speak Japanese and not French, right?
  2. MBA Training Is A Portable Skill And Can Facilitate Working Relationships – Just like C/C++/Java programmers follow conventions for putting things in reusable functions or libraries, apply different methodologies for avoiding deadlock or multithreading of executing code, and communicate using different diagramming techniques, MBA have toolkits too. Toolkits may include common frameworks for competitive analysis (such as the 3Cs), profitability analysis (such as 5 Forces), or operational process breakdown (such as ABC or "activity-based cost" analysis). Having these types of frameworks have helped me to quickly interface with other consultants (even ones from other firms), business people, and even overseas folks whom are outsourcing more straightforward MBA activities.
  3. MBA Frameworks As A Way To Make Sure Analysis Is Thorough – One of the common cases covered in business school is one that covers the pricing of a contact lens product for chickens. The purpose of having such an outrageous case is to teach students how to analyze business problems where they may have no prior business experience. Since students can’t leverage past experience and industry-knowledge, the case teaches students to use structured methods for attacking pricing problems. Students are trained to look for things such as cost data, competitive data (such as the market prices of alternative products being used to solve the real business problem at hand – in this case, perhaps the true operational problem is the cost to farmers of losing chickens in a cannibalistic world where chickens kill one other because they can see one another). In the end, students are supposed to get an in-depth look at how pricing can be addressed, e.g., in terms of cost, margin, value, and competition.

A good analysis foundation is invaluable. From that foundation, one can apply other skills to get business "street-smart" and to develop leadership skills. Although I have not pointed out some of the other aspects of the MBA that can help out in these latter areas, I do feel that there are some yellow and red tones to be found in the business schools too. David Maister even goes on to say in his post that the title of his post is perhaps "too pessimistic" on the value of business schools. On this point, I also agree. Perhaps I’ll post more on this subject at a later date if folks are interested.

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Musings On Crowd Wisdom

As I have mentioned before, I have been watching the bird flu developments with concern. Seeing how things have spread (e.g., here  and here [animation dated on later link]) – well the graphics help people to visualize what has been going on.

But what draws me to write this post is how markets and polls sometimes seem to diverge substantially in terms of predictions. For example, CNN reports that 60% in the US worry about the bird flu but that less than one-third think it will show up in the US this year. In December of 2005, InTrade (one of the exchange markets carrying futures contracts on whether bird flu will hit) announced, "Trading on Bird Flu — 65% probability of U.S. case by March 2006!".

Although I’m no expert in reading the financial stats associated with the InTrade contracts, what I glean from information is that the predicted probability of bird flu hitting the U.S. by March 2006 (as per the InTrade market) has fallen substantially since December. Of course, I’d venture to say that much of this has to do with the fact that the expiration period of the futures contract is approaching.

There is a general belief that an incented market (e.g., the Intrade market) where parties are financially motivated to make good predictions generates better predictive results than pure polls where people have no vested interest to be right or wrong in their predictions. In any case, betting for or against bird flu seems weird. But I suppose there is value in using these types of markets for planning purposes and for greater understanding.

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Taking On A Life Of Its Own

I was emptying my refrigerator as I was thinking about a title for this post, but this post really has to do with something that I’ve encountered in certain consulting environments.

To put things in perspective, a few years ago I was working on a consulting project related to a launch of a new business within a large multinational company – a company that is so large that it had the Russian doll (these are the wooden dolls where you unscrew one and then there is another one inside, perhaps seven nested within one another) equivalent in organizational structures, e.g., three levels of CEOs. The company had a long history with legacy organizations and people and wanted to introduce new products in an entrepreneurial-like setting within the larger organization.

In an informal setting, our team presented some options in terms of potential product line scopes, and the options ranged from simple to complex. At this point, one of the other consultants to the company, an ex-CXO at Booz Allen Hamilton and a person I admire quite a bit, raised a point that he did not think that it would be wise for the client to undertake one variation of the product line incarnations, even though the financials looked much more attractive than the others. This was sage advice in my mind. He did not want the client to get caught up in a business that could potentially "take on a life of its own". An organization that had not yet proved whether it could walk let alone run in a new entrepreneurial market should be discouraged from pursuing the sexiest product line model of the lot.

Another version of things taking on a life of its own … I can think of at least a few cases where a management consulting firm introduced a methodology for running a certain aspect of the business only to find later that the client readapted the methodologies for other purposes (e.g., other business lines, other functions). In concept, this is great as the company should get mileage out of what had been produced elsewhere. All said, some organizations can forget the original premises and goals of the process and/or methodologies installed. The steps and processes aren’t forgotten though. They are followed to the letter. With the goals and premises long forgotten, the organization may be executing a bunch of processes and bureaucracy while accomplishing close to nothing results-wise.

None of this is to say that the client is stupid. I’m not discouraging the use of consultants either. I’m just saying that things can take on a life of their own in business like things do in one’s refrigerator. It’s a special sauce that you have to watch out for in business.

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Central Banker Heaven and the U.S. Economy

Last Friday I attended the Business Forecast Luncheon in Dallas, sponsored by the University of Chicago Graduate School of Business. Guest speakers were Dr. Robert Aliber, Professor of International Economics and Finance (Emeritus) at the University of Chicago and Dr. Harvey Rosenblum, Executive Vice President and Director of Research, Federal Reserve Bank of Dallas. The talks were excellent as they were last year.

What really drives me to write this post is that we are seeing Alan Greenspan retire. When I think about things, he’s close to the only central banker that I have experienced during my entire adult/business life, where Greenspan has reigned for some 18+ years. Central banking has an important effect on business and the health of the economy, and this something that the luncheon speakers are renowned experts on.

The general consensus was that Alan Greenspan will go to “Central Banker Heaven”. More on this later.

While last year’s forecasts focused on the deficit and the exchange rates, what came to the forefront this year were three things that will impact the economy for the next twelve months. These are: the (deflating) housing bubble, term structure of interest rates (and the inverted yield curve), and the philosophies and makeup of the new chairman (Ben Bernanke).

Although I will gloss over the individual perspectives of the two speakers, my general takeaways on the three areas were the following:

  • Housing bubble is deflating – Apparently in the areas of concern (e.g., Boston, Southern FL, CA), prices are starting to fall 10%ish. Well-known builder, Toll Brothers, has had its stock price fall some 50% (note I have not verified), plus they have cut back their forecast on building out. More generally beyond Toll Brothers, housing inventories are starting to build up. If one subscribes to a doom-and-gloom forecast, housing bubbles have historically demonstrated price declines of an additional 40%.
  • Inverted yield curve is disturbing – In 8 of 9 times when the yield curve inverted, the economy had slumped into a recession within one year.
  • New chairman philosophically tends towards being a price-level setting person, as opposed to one that takes a long-term view of the economy first – Price-level setting philosophies involve having a target inflation rate in mind and then setting the interest rates to obtain that rate. In some countries, this policy is taken to an “extreme” where concern for other factors, such as unemployment rates, are ignored. Wild cards in the U.S. include the fact that the international world is less stable, and that long-term energy/oil impacts associated with unstable countries (which may each comprise 5% to 6% of supply) should not be ignored when pursuing price-level setting at the central bank.

So all-in-all, the forecast for the U.S. economy over the next twelve months was mildly positive, with some areas for attention. The March meeting for the central bank will be key, as this will shed some light on how the new Fed chairman handles his new role.

Which brings me to my earlier about getting into Central Banker Heaven. Greenspan has been praised by having all of the key skills and a proven-performance record:

  • an ability to show independence from the administration and partisan views
  • deep knowledge of history and economics (which both Greenspan and Bernanke share)
  • inflation-fighting skills with a long-term view.

But in some sense, while Greenspan has had all of these skills, it could be argued that he also got lucky (being good and lucky is the best of all worlds). During Greenspan’s tenure, he did not have to deal with chronic problems. Now, Ben Bernanke has a tough and important job ahead of him. He has a chronically unstable international world to deal with, and he has to show his inflation-fighting abilities with a long-term view that people like Greenspan so carefully considered.

I thank Alan Greenspan for his service. I wish Ben Bernanke the best of luck for our people and future generations.

Update (2/16/06): Bernanke addresses Congress just yesterday.

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Schools Of Thought In Management Consulting

These days I’m in an environment where I’m working with other management consultants, working with those formerly with other management consulting firms, and experiencing the second-order effects of management consultants currently in the business. Being immersed in all of this led to an interesting discussion on two "schools of thought" in management consulting regarding styles of either 1) laying out options for clients or 2) making recommendations. (I should note that by highlighting these two schools of thought, I don’t mean to imply that every engagement lends itself to one style or the other – for example, many implementation consulting engagements may simply be change management oriented or facilitative. Strategy engagements, on the other hand, typically lead to decision-making crossroads, etc. where a pre-dominant school of thought would play out).

Now sometimes people have drawn similarities between consultants and doctors in the way that advice should be dispensed. Now, I’m no medical doctor, but I doctors are typically trained to lay out options for patients, not to make decisions for them.

I am generally with that school of thought. That consultants should lay out options for clients with the qualitative and quantitative tradeoffs, risks, and benefits. It is the client’s responsibility to make a decision. In fact, some clients would be put off by an outsider telling them what they should do.

But I see that there is another school of though that depends on either the consulting partner leading the engagement or the client wishes. Frankly, some clients believe that if consultants work for them that the consultants should also state their own opinions on how to proceed, e.g., what would the consultant do if the consultant were in the client’s shoes.

This is delicate ground, but to be frank, I have at times stated my personal opinion while distancing my personal opinion from the facts presented. I also make sure to caveat my personal opinion with any biases that I may have, while also emphasizing that I have kept personal biases out of the analysis given to the client.

Maybe people have different opinions on how they’d like consultants to treat them. Or perhaps people have opinions on what they prefer doctors do when giving diagnoses. I have not seen any scientific analyses of how the school of thought I’ve presented affects client satisfaction or client propensity to enlist services from a consultant, but I would venture to say that perhaps I’m too old school on the consultant and doctor front.

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Blogs In Management (Also Management Consulting Blogs?)

I just discovered the blog of management guru David Maister, acknowledged as one of the world’s authorities on the management of professional services firms. I particularly like David’s Fast Company article from 2002, "Are All Consultants Corrupt?" because it touches on topics that one needs to address regularly as a management consultant, particularly about how can one ensure that one produces services that one can be both proud of from an ethical point of view and a quality of product perspective. To this, all I can say is that one should leave the management consulting profession if ethics and quality can’t be met.

But the real purpose of this post was to point to David’s post on internal blogs as a management tool. His text here gets at a real pain point linked to diseconomies of scale in management:

As firms get larger, more dispersed and more complex, the disaffection of partners (in professions and businesses of all kinds) is becoming more evident. I get calls all the time enquiring about my availability to consult on the issue of partners’ unhappiness and their feeling that they are treated like employees in an increasingly corporate culture.

I am a believer that blogs can help with this sort of thing (essentially flattening the communication structure associated with complex organization structures). That said, blogs are not a panacea for organizations and managers that do not know how to 1) use written communications to complement the management style and 2) deal with the semi-structured and dynamic nature of the blog medium. These latter items are table stakes in my opinion, but they can be easily underestimated.

In the comments section of David’s post, I was also encouraged to learn of a tip that Ernst & Young may be using blogs internally. I have blogged before about consulting firms using/not using blogs (e.g., here, here, here). It’s good to hear of more activity in the consulting area and to learn of consulting/management blogs like David’s.

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How Empathetic Are You?

In a prior post, I mentioned how empathy plays a role in consulting. But I wonder how many consultants are really empathetic a la this test? I tested as a 47 (average for women is 47 versus men is 42). One person (past consultant) I know very well basically tested as an autistic (score of 25). Interesting.

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