Management Consulting: The Spring Cleaning Method And Getting Over Humps

I had a lunch meeting the other day, and my contact and I talked briefly about one method that a number of management consulting firms use. I used this method now, and I used it at PRTM and prior companies. I suspect the method may be more typical in execution-oriented management consulting firms as compared to pure strategy firms. The technique never had a formal name, but I call it "The Spring Cleaning Method". It goes with the time of year, and it captures the spirit of the idea. Note that method should not be confused with the Al Dunlap ("Chainsaw Al") version of "cleaning house" though!

The Spring Cleaning Method of Management Consulting consists of an executive- or management-level meeting (e.g., 1.5 days) to talk about the business in great breadth, capture issues (no-holds barred), rank issues, strategize, and divide and attack.

The basic value of a Spring Cleaning management team meeting is as follows:

  • The meeting forces people to think proactively. While management may have regular weekly management meetings, it becomes easy to become caught up in the day-to-day grind and push off things that people don’t have time for but know are important.
  • The manager (e.g., CEO, COO, President, GM) that oversees the functional line roles has an opportunity to reset expectations and goals. This can be psychological or real. Whatever works to get people moving and thinking actively.
  • Involvement of a management consultant provides both an independent (non-political) fresh look and extra, versatile, project bandwidth. The management consultant may be expected to work with all of the above parties above to prepare information in advance, facilitate the meeting discussion using standard- or firm-specific business frameworks (or choke, create one on the fly), gather notes, organize and triage, and develop a proposed project plan and/or a traceable set of issues and action items. The management consultant is generally brought in to be a right-hand man to the sponsoring manager/executive.

In the Spring Cleaning meetings that I have worked on, a typical meeting may last 1.5 days. Roughly speaking, the first meeting is brainstorming and getting the info out. Through the night the consultant works to organize the notes, data, perform analyses, etc. The next half-day is spent working through the high points, prioritizing, and drilling down next steps.

While different clients vary, post-meeting the management consultant may be retained both as a generalist for project managing things forward and as specialist for working with a specific functional group (e.g., that has more items to work on, less bandwidth, more time critical items, more need for competitive or quantitative analysis). In change management, the goal of the organization is to get over humps or change course while running the business – not to employ a management consultant for the long-haul or create a dependency of the organization on the consultant.

As a final note, the project management aspect should not be underestimated (a form of overconfidence bias). As with many change management efforts, there is tremendous value to monitoring, measuring, and cracking the whip. Professional sports players (e.g., golf, tennis) don’t cut corners on coaches when making critical changes in technique. Why should a company be any different? If there is enough value to resolving issues, make sure that someone signs up a diplomatic and detailed-oriented person to make sure things drive forward.

Steve Shu

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Management Consulting and Getting Seated in Client Interviews (Part 2)

Changing gears from my prior post on the overall character of solution building in management consulting, I thought I would skip around a bit to cover the client interview. It is a very important topic in management consulting. Ethan Rasiel, in his book, "The McKinsey Way" dedicates a whole chapter to it.

One benefit of bringing in certain types of management consultants is that they can float up and down the chain from the CXO-level to the trench-level worker. I find it important to gather both hard data and soft information in the interview. Here are some examples of quotes I have experienced in the trenches (watered down from some past clients):

  • "I feel like I have failed. It’s hard to ask for help in this environment."
  • "Headquarters: The regional management will have the measurements you are looking for."
  • "I don’t have those reports. You should go to sourcing."
  • "I have no idea. You go to processing to get that information."
  • "Who cares about those reports? Headquarters does something with that. They should have the reports."
  • "People that deal with our personnel say that our competitor has a higher-class of industry expertise and it shows."
  • "Morale is really bad. We’ve tried everything but continue to show bad service."

Rasiel indicates that McKinsey usually conducts interviews with two management consultants at a time. I can see how this could be of benefit as it is hard to both ask questions and take notes at the same time. That said, I have generally conducted with interviews by myself or with one other person under special circumstances.

Rasiel also indicates that McKinsey generates interview guides before an interview. Preparation helps, and the amount of prep is a bit sensitive to how familiar one is with the industry and functional area you are working with. I often use a spreadsheet or Microsoft Word document that covers the main questions and topics that I want to cover.

The real key to a client interview in my mind though is getting seated properly. This is the question I get asked most by client prospects and business acquaintances. How do you get people to open up? I find it is one of the biggest risk points in a project. If you cannot get on the same side of the table as the client, project risk goes way up in being able to deliver.

I don’t have a formula for getting on the same side of the table as the client, but here are some things that have worked for me:

  • It is important that everyone up and down the chain know that you are there to help. You need to go in with the attitude that the client comes first, even if that means putting yourself out on the street. Your client sponsor has a right to "fire" you at any time if you are not adding value.
  • You must be sensitive to fact that people are people and not just a bunch of names or boxes on an org chart.
  • You must establish trust. If people confide in you, you must not violate trust.
  • You must make it clear to the people that you talk to as to who you are working for and what your goals are.
  • You should be there to solve problems without passion, prejudice, or politics. You should have enough fortitude to tell the client when they are wrong, but you should have enough sense and ethical grounding to admit when you are wrong, don’t know something, or can’t add value and need to redraw subproject scope boundaries.
  • You must realize that clients, in many situations, know their business better than an outside consultant does. The consultant brings other value to the table, such as being independent and less connected to politics, having structured analysis tools and specific functional expertise, bringing additional bandwidth to get over hurdles, providing an opportunity for change, and drawing in experiences from other companies.
  • You must strive to get concurrence with the client throughout the project – regular communication and working sessions.
  • You must learn to develop capabilities to become a servant-leader (some of the same capabilities required for an executive or chairman of the board).

The aspect of not playing politics is very key. Many new consultants get too involved with politics (I did too when I first started). Although you may feel that it is ingratiating yourself with the client, clients are not paying money for that. Playing politics can also create bad side effects and factions within the company. Take no part in that.

Finally, I have found that blogging has helped provide a personal side to my practice of consulting. In many cases, I know that a client has read my blog to figure out what I’m all about, what values I represent, and what kinds of business methods I believe in. I want that to happen. In the words of a famous song, "You’re so vain. I bet you think this (blog) song is about you". Perhaps it is. Whatever it takes to help the client. That’s my style of effective change management consulting.

Steve Shu

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Management Consulting and Solution Building (Part 1)

In a prior post, I set a backdrop on some posts I would do on management consulting. The first topic will try to capture some styles of building the solution (I call these underlying flavors of management consulting).

In Ethan Rasiel’s book, "The McKinsey Way," he outlines the problem solving process as having three attributes:

  • Fact-based
  • Rigidly structured
  • Hypothesis-driven

Fact-based consulting is something that the majority of top, traditional management consulting firms practice. It is something I practice now and had practiced while at Pittiglio Rabin Todd & McGrath (PRTM). Fact-based consulting requires a lot of legwork to gather data, interview information, reports, benchmarks, etc., but it is about the only thing one can rely on to build an iron-clad case for a company. It provides value to clients because clients sometimes learn things they did not know collectively as a group. It also provides value to the consultant because in many cases, while the consultant may know less about the specific operations of the client, the consultant can draw on new facts gathered and experiences of working with other companies (or benchmark data).

On the second point of being rigidly structured, Rasiel’s book talks about the pervasive McKinsey thought structure of MECE (pronounced "me-see"), which stands for "mutually exclusive, collectively exhaustive". I like this structure. It reminds me of core computer programming techniques of case statements and engineering analysis related to breaking down larger chunks into orthogonal and comprehensive components.

Now McKinsey tends to be more of a generalist strategy firm than PRTM or the type of consulting I practice. In general strategy consulting firms, consultants may work in a wide varieties of industries before specializing. Thus, at firms like McKinsey, one could be working on a dog food manufacturer on one project, a valve manufacturer on another, a financial services market entry project, etc. McKinsey clearly has more detailed consulting frameworks for attacking problems, but MECE seems to be a good core framework.

Management consulting firms like PRTM, on the other hand, have historically had a different structure. In part, it is because PRTM is less than 1/10 of the size of McKinsey (say 350ish consultants versus 4500ish [don’t quote me on exact numbers]). In the Eastern region of PRTM, consultants join a practice in a particular industry space, and they are usually expected to have experience in that space prior to business school. While I was at PRTM, I was in a sector that covered telecommunications companies, and to a lesser extent, companies in the software space. PRTM tends to have management consultants that have both science or engineering degrees, plus an MBA from a top-tier business school. If you didn’t have some of this background, you’d better be an exceptional leader and client driver (times two at least). On top of having less of a generalist structure, PRTM has historically fortified around three functional areas: product development, operations and supply chain management, and customer service operations. Over the years, PRTM has expanded and fortified around strategy, marketing and sales, and strategic IT management (see home splash page), but it has grown out of the core competencies in the three first areas I mentioned (more or less). These are the core aspects of high-tech firms anyway, right? How all of this affects the problem solving structure for PRTMers, is that the consulting method tends to de-emphasize intellectually-driven approaches and focuses more on a core motto of "results not reports". What this means is that PRTM consultants are more focused on being facilitators and leaders of client projects and less intellectually-driven. This is not to say that that PRTMers are not intellectual and smart – most certainly they are – it’s just that when the rubber hits the road, if push comes to shove, consultants would probably throw a report out the door in favor of helping a client move forward with results that stick. Pragmatism over intellectualism.

I should note that in Rasiel’s book, he does indicate that it is best practices for McKinsey consultants to only make recommendations that can be implemented based on client capabilities, bandwidth, etc. – "all roads lead to Rome" so to speak in my book when it comes to providing quality consulting services. I just wanted to point out the difference in flavor between the two firms. FWIW – I tend towards being a pragmatic person, but I have a wife who is both an academic and former consultant with ZS Associates. I’ll let you decide what style of consulting I practice.

On the final point of being hypothesis-driven (i.e., developing formulations of what the options are for improving the business), what struck me about Rasiel’s depiction of McKinsey was how front-loaded the process was in terms of brainstorming and coming up with hypotheses. Some of the team sizes were characterized as quite large, but more importantly, the intensity of the up-front process was striking. In essence, developing the hypotheses in an exhaustive roadmap and then being able to test each branch is very methodical. It also reminds me of a core team under pressure type model that breeds excellence.

People probably have differing experiences at PRTM. From my experience, I would say that we typically either had a core framework in advance of the project (e.g., improving product development cycle-time) as a baseline or used more of a facilitative approach to working with the client to determine the best way to proceed. Hypothesis testing was more typically pursued slightly later during project execution. I would say that this probably has more to do with the fact that the majority of the PRTM projects I worked on were implementation-oriented or strategy + implementation-oriented. At McKinsey, the firm historically grew out of strategy into more strategy + implementation projects.

In any case, some of the differences seem to stem from both market & product focus and where the companies came from. Worthwhile to be aware of when considering these firms (e.g., as an employer). May also shed some light for companies that are looking to use management consultants (i.e., is there a particular style that will serve your specific situation better?).

Steve Shu

Management Consulting and MBAs (Part 0)

Over the past few weeks I’ve been getting an increased amount of traffic from three groups of readers (as far as I can tell):

  1. those pursuing MBAs or contemplating MBAs
  2. those seeking information on McKinsey
  3. those seeking information on PRTM (see below).

Let me give a short preface by saying this:

  • I am not a McKinsey alum, but there is a post I wrote about a lack of management consultant blogs – this appears to have attracted some attention (here)
  • I have a number of McKinsey alumni friends whom I compare notes with (to the extent allowed by ongoing confidentiality obligations to either PRTM, McKinsey, or clients of these firms)
  • I am a present freelance management consultant, and I am an alum of the firm Pittiglio Rabin Todd & McGrath (PRTM), a relatively well-known firm at the top 20 business schools or so
  • I have an MBA from the University of Chicago

Given the above, I thought I would write some posts that compare both PRTM and my freelance management consulting practices to the McKinsey practices outlined in the well-known book by Ethan Rasiel, "The McKinsey Way". Although I am slightly late in terms of typical business school recruiting seasons, perhaps these posts will be of interest to those looking to gain more insight to the profession. Anyway, Ethan’s book is an excellent introductory book on general management consulting, and many of the practices can be used as a general manger within a company as opposed to just a consulting firm. Whether Ethan’s account is an accurate representation of all vintages of McKinsey consulting, I cannot say because there has been some shifting around in the past five years. That said, his book is likely not too far off in terms of breath. It is definitely a great foundation to base a discussion on because it is publicly accessible by all.

In the interest of full disclosure, I should also mention that, in general, I am a fan of both PRTM and McKinsey. I do not plan to make any disparaging remarks about either firm, and I will tend to highlight my perspectives on greatest strengths as opposed to weaknesses. If I highlight weaknesses, they will likely be directed at the general industry.

Posts will be forthcoming. Stay tuned.

Steve Shu

The Oracle-SAP Bids For Retek and History Review

The following has been cross-posted at The CIO Weblog but is also listed here as it references some core M&A valuation studies done in the management consulting industry. What is only lightly touched upon here is the importance of program management and operations during deal follow-through (operations and execution have been my past bread and butter work [shameless plug]).

Oracle’s latest bid for Retek, a category leader in business management software for large retail chains, could be a windfall for Retek shareholders. Oracle’s bid at $504 million US ($9.00/share) outpaces SAP’s bid Tuesday for $496 million US ($8.50/share).

Where this will ultimately wind up is anybody’s guess, but here are some facts pertaining to what has happened with this deal, and what has happened historically with other companies with respect to both shareholders and customers:

  • SAP’s bid of $8.50/share represented a 42% premium over Retek’s price of $6.00/share on the close of February 25. Shares of Retek have recently soared 21% to $10.40 (source).
  • Past McKinsey studies have shown that shareholders of acquired companies have received on average a 20 percent premium on friendly M&A (source).
  • Many mergers have failed largely because bidders paid too much ("the winners curse") with average takeover premiums in the 40% range (source McKinsey).
  • Although other studies by consulting firms such as Boston Consulting Group have shown that  companies  that systematically pursue acquisitive growth outperform competitors that pursue few or no merger deals, the large majority seem to agree that if deals go through post-acquisition integration is *key*.
  • BusinessWeek investigation in 2002 and 2004 have shown that big M&A deals have left customers dissatisfied half of the time (source).

So deal makers ought to take extra pause and pay attention to operations and the customer, especially since Retek is a prized category leader. On the good news side of things, boards seem to have been getting smarter about  M&A all the time.

Steve Shu
Managing Director, S4 Management Group

Musings on a Management Consulting Premium Puzzle

This post was motivated by a recent social meeting where my friend and I talked about the management consulting industry. Both of us are University of Chicago MBAs, and as such, I think it is fair to characterize that we believe in the notion of mostly efficient markets, i.e., where buyers and sellers reach fair prices for doing business in aggregate.

Now there are a number of examples in behaviorial finance, economics, and finance areas where puzzles exist and where free market theories do not seem to hold. For example, there is the equity premium puzzle, which tries to address why required rates of return for equity securities is so high relative to risk-free rates of government bonds. There is also the closed end fund puzzle. In this case, it is perplexing why funds comprised of individual stocks trade (when the fund is closed) at a deep discount of the total sum value of the stocks. It seems as there would be close to a riskless opportunity (called an arbitrage opportunity) for someone clever to buy up the entire fund and then sell each of the shares of stock for a profit (even net of transaction costs).

So here’s why I called this post the "Management Consulting Premium Puzzle". My friend basically questioned why management consultants should be able to charge so much money for their services over the cost of using existing employees (to put this in some perspective, average annual billings for the larger consulting firms can go anywhere from $400,000 to over $1 million per year per consultant). Even though I am a management consultant (now freelance), I didn’t take this as a shot at me. I have worked in both camps numerous times, and I can see valid arguments by both operating managers and consultants as to why or why not consultants should have high premiums.

Part of it comes through calibrating the value of management consultants (as I’ve posted before), but there is another way to look at this. Consider some typical questions operating company managers raise:

  1. is there value to having a third-party facilitator (the management consultant) that is apolitical?
  2. is there value to outsourcing this vs. insourcing?
  3. is there value to having a consultant that has seen other businesses?
  4. is there value to having a specialist consultant?
  5. is there value to having extra bandwidth to get over a hump?
  6. is there value to having a high-caliber resource for a temporary period?
  7. is there value to having a well-known brand consulting firm involved (e.g., no one got fired for hiring McKinsey or IBM)?

My gut feel is that the answer to at least five of these questions must be yes for a company to feel very comfortable in using an outside consultant. Therein lies the reason for the premium.

What would be an interesting study, however, would be to run a statistical analysis that regresses the $ cost of using either internal employees or outside consultants against the factors above (although the factors above are not entirely orthogonal). By doing this, one could get a more scientific idea about which factors clients weigh most and how much those factors contribute to the value proposition (in terms of $, how much value is attributed to the brand, etc.).

Steve Shu
Managing Director, S4 Management Group