Consulting Skills as a Competitive Advantage
Developing strong consulting skills such as the ability to communicate in a way that holds the attention of the room, the ability to solve complex problems in a structured and effective way, and the ability to build a peer-level relationship with the most senior executives of major companies. Developing strong consulting skills can be the competitive advantage that will allow you rise above the average and gain the momentum, respect, and opportunities you want.
Not everyone working for major consulting firms have strong consulting skills. Similarly, you can develop strong consulting skills without ever working for a major consulting firm.
In this post we are going to explore how to achieve career advancement from manager and above, and how to use consulting skills to help you achieve career growth.
What is Career Advancement?
Career advancement refers to the upward trajectory of someone’s career. Top professionals know the importance of professional and personal development. For anyone in the corporate world having a secure job to go to each week is important, but it is not enough. Humans crave progress.
If we do not grow, we degrade. We do not stay still. Our skills deteriorate.
So the opportunity for career advancement is one of the most essential elements for people to feel a sense of well-being and job satisfaction. Opportunities for career growth are a powerful employee motivator. That’s why it makes good business sense for companies to ensure their employees are clear on their career growth plans and career growth opportunities.
Differences Between Advancing as a Junior Employee vs. Manager and Above. How Developing Consulting Skills Can Help
When someone is a junior employee, career advancement is usually more straightforward. Do a great job for your superiors, make them look good, and develop a strong technical skill-set, and you will have growth in your career.
As you continue advancing in your career and moving to more senior levels, however, you will notice that your technical skills are becoming less and less critical to get the next promotion. What becomes essential are your soft skills.
- Can you convince and motivate people to do the work they do not want to do?
- Can you effectively lead people?
- Are you able to get people together that do not want to work together?
- What is your level of influence within your organization?
Developing strong consulting skills means developing strong soft skills. You can’t be a successful consultant without the ability to communicate well, without the ability to have a lot of executive presence during your meetings with clients, and without the ability to build a long-term relationship with your clients.
Qualities of an Exceptional Leader
There are many qualities that exceptional leaders need to possess. If you look back at the best boss you ever had, what qualities immediately come to mind? Generally, the qualities of exceptional leaders include the following:
Integrity – Great leaders have integrity. If they promised you something, they keep their word. If you told them something in confidence, they keep it confidential. They do not go and cut corners to get some quick revenue or earn a favor. An exceptional leader would also not do unethical and illegal things for clients to keep big clients happy. They understand they set an example, and they take their role very seriously.
Gratitude – You feel that your input is meaningful and sincerely appreciated. When you go above and beyond, it is noticed and acknowledged and ultimately rewarded.
Growth mindset – exceptional leaders have a growth mindset. They believe that you can improve if you put enough work into it. They give you opportunities to grow instead of locking you into a dead-end job. They create growth opportunities for their team because they believe that humans can grow and develop powerful skills.
Influence – Great leaders are able to connect with others. They can be a connecting tissue that brings together stakeholders who are not interested in speaking to each other. They have a high level of influence within the organization and with clients.
Empathy – Great leaders have empathy. They understand that their team members are only human and can make mistakes. As long as they see the mistake was made not out of malicious intent, they help their team members recover from mistakes. They empower instead of push down. They support instead of humiliating.
Self-Awareness – Great leaders also have a high level of self-awareness. You do not find them losing it and screaming at a client or their team members. They are calm, collected, professional, and focused a lot of the time. They are, of course, only human and, at times, may become anxious or angry, but because of their high level of self-awareness, they remain very professional at all times.
Excellent communication – As we have mentioned earlier, excellent communication is one of the key consulting skills that can help you transform your career. Exceptional leaders are great communicators. They are able to hold the attention of the room. They are able to connect with their audience, be it one person or 100 people. They speak from their heart and are able to move people to action.
Great at delegation – Great leaders understand that they can’t do everything on their own. They are great at delegation. They grow and develop strong teams under them. They do not hesitate to train people under them because they understand that it is best for the organization, the best for clients, and it is the only way that they can ever be promoted. They start succession planning early.
Tips for Career Advancement
Career advancement within the same organization may be the result of gaining work experience and potentially completing additional advanced training. There are some things to keep in mind as you are planning out your career advancement plan.
Start from maintaining very good health. Health is the most important asset you have. Without it, you do not have anything. So always pay attention to your health. As driven professionals, we often do not take sufficient care of our health early in our career, only to pay for it a way too big of a price later on. It is essential to pay attention to protecting your health from the start or as soon as you can.
Build your skillset. Many business professionals stop developing their skills beyond what they learn on the job. Years go by, and they start to wonder what happened. Why has their career stalled? We live in a very competitive world, especially if you look at countries like the United States, Canada, the UK, Australia, and New Zealand. While in some developing countries, you can get away with being average and still have a great career because there is such a massive lack of skills, in developed countries, you compete with the best people from all over the world. If you do not invest in your skills beyond what average performers do, then you will likely have average results.
Work on your confidence. If you do not come across as someone who believes in their abilities, other people will also not believe you have what it takes to be a leader. So it is crucial to work on your confidence. When it comes to confidence, what you need to remember is what matters is your belief in your ability to figure things out. It is as simple as that. As long as you believe that you will find the way to make things work, that you will figure things out, that is what is required to have a sufficient level of confidence. So, as you can see, it is quite simple and manageable.
Work on your communication skills. Another essential and powerful way to build confidence is by working on your communication and executive presence skills. We have a powerful program for our clients on developing executive presence and communication skills and a number of resources, including a video below.
The Benefits of a Career Advancement
Organizations shouldn’t minimize the importance of supporting their employees’ career advancement. When companies do not pay attention to career growth opportunities for their employees, they undermine morale and productivity and end up with a high turnover. This is how companies or specific divisions within companies end up having to deal with a problem of a revolving door, where most employees leave as soon as they can, taking all the knowledge and experience with them, sometimes taking it to competitors.
Here are some benefits of career advancement and career progression:
- It results in lower turnover
- It results in higher job satisfaction
- It reduces stress and missed work days due to illness
- It boosts productivity
- It increases engagement within the team
- It creates a positive work environment versus a toxic work environment
- It gives employees a sense of well-being and a sense of purpose
Improving Career Growth
Gaining experience and receiving additional training help you advance up the corporate ladder within the same industry. The career advancement process is divided into two phases, career growth planning, and career management. Career growth planning requires you to map out your career. You, of course, can’t map out your career with 100% certainty, but it allows you to understand where you are going and what is required to achieve your goals.
When we work with our clients, we help them develop what we call The MasterPlan. We have a coaching program called The MasterPlan Acceleration Coaching program, as well as an online light version of the program on StrategyTraining.com, available to Insiders and Legacy members. And we also have The MasterPlan book. All those resources help our clients access a proven process to help them develop their career growth plan. You can download a template from The MasterPlan Acceleration Coaching program here.
Even if you do not use any of the resources above (the book, the coaching program, or the StrategyTraining.com advanced strategy and problem-solving training programs), you can still use the downloadable template to help you guide your thinking as you develop your career growth plan. This template was used by many clients who were able to transform their life. During our coaching programs, you also get to witness other clients complete this template and get coaching on various sections, which will give you ideas you may not have considered.
Now, as you are thinking about your career growth plan, consider what type of career growth is most important to you. The reason I ask you to think about this is because it is one of the saddest things to see when clients spend decades in a certain career, they put tremendous work into it, only to realize that they were pursuing the wrong career. So an essential element of thinking through your career growth plan is understanding what your life’s work is.
Gaining more clarity on what is your life’s work is one of the critical areas I help clients with. Because without it does it even make sense to work on your career growth plan? What is the point of investing above-average efforts into a plan that will not lead you to live a fulfilling life?
You might as well then enjoy your hobbies and have an average career, and be happy. I know so many people who lost their health, their spouses, and their children because they invested everything they had into a career that wasn’t even aligned with their life’s work or their competitive and comparative advantage, which is another area we speak a lot about as part of the MasterPlan program.
Keys to Successful Career Advancement
Now, what are some of the keys to successful career advancement?
Make a positive impression – Here, you need to learn how to make a positive impression when dealing with your peers and superiors. You need to be likable.
Are you the kind of guy or lady they would enjoy having a beer with on Friday night?
Think of a person you know who makes you feel good about yourself because they never say anything negative. We live in a culture where many things that people find funny are at the expense of someone. Think of someone who is not “two-faced,” not belittling.
How do you feel when you are with those people?
You actually look forward to seeing them.
You may even marry a person like this.
If you are lucky, you know one person that makes you feel amazing. And the rest are on a sliding scale. Think about how you respond to someone who makes you feel good. You are drawn to them, you smile, you are happy, and you feel you can do anything around that person.
You want to be that person, you want to be a person to whom everyone is drawn to.
Seek opportunities where others are not looking – You also need to learn to seek opportunities where others are not looking. For example, there may be a rare skill that you have, such as knowing a specific language, which may make you uniquely positioned to work on a particular project. Other people may not be trying to get on that project because they don’t have any advantages related to that project.
Become a great communicator – Learn to communicate effectively. Again we are coming back to the importance of enhancing your executive presence and communication skills, as key consulting skills that can help you set yourself apart. Specifically, learn to communicate like a partner from a major consulting firm or a senior executive from a large company.
Here is a video on communication that may be very helpful for you. This video is focused on how to learn to speak as a management consultant. If you have ever spoken to management consultants, you know that consultants speak in a certain way. They tend to speak in a very logical and structured way. They tend to pause at the right places. Consultants speak in a very logical, structured, and professional manner. And this ability to hold a logical and structured conversation is an ability that is a great asset when it comes to career advancement.
You want to make sure you can communicate. If you can’t communicate well but have excellent technical skills, you will likely struggle to get promoted. Consultants are very good at using stories. They are also very good at telling what they read in a newspaper.
It’s, of course, not about being able to recite what someone read in a newspaper. It is about if you can tell the key message in the article, the assumptions underpinning that article, and your thoughts on those assumptions, and your views on what will happen.
Consultants speak in that way. They don’t just recite what they read. They give you their opinions because they are trained to give you their opinions.
Develop a strong business acumen – You also need to determine a strong business acumen, which we refer to as business judgment. Strong business acumen is, of course, one of the key consulting skills that are required for you to be an outstanding leader and to get promoted. Without strong business acumen, you will not be able to make good decisions. We cover how to build business judgment in detail in our programs. Business judgment becomes more critical as you are moving up to higher and higher levels within your organization.
Become a skillful critical thinker versus a critic – Critical thinking ability is vital for career advancement and one of the most important consulting skills. And one of the essential requirements to be a great critical thinker is business judgment. Everyone already has business judgment. You will do much better when it comes to problem-solving if you learn to apply your judgment instead of ignoring your life experiences when solving problems. You have the ability to interpret things that is unique in the world.
Now there is a big difference between a critical thinker and a critic. They are not the same.
The critical thinker is doing two things. They are learning as much as they can from what is in front of them, and they are trying to analyze it. There is a difference between analyzing something and finding flaws in it. You can analyze something completely wrong and find useful information within it.
Think of case studies of why things succeeded. If something we analyzed, and it failed, you can learn even more from it. If you follow Partnership. Memoir, an extensive program we have where one of our coaches discusses how he became a partner in his 20s. During the first three years of his career, he had a lot of failures, he got promoted once. During the next three years, he got promoted four times. Not because he was good at analyzing the successes but because he was open to analyzing the failures.
When you go into any discussion, if your default mode is to find the flaws with whatever the person is saying, then you are not a critical thinker, you are a critic. A critical thinker is not just there to find flaws. A critical thinker is there to understand, to be open to learning, to explore things.
We have a show called The Bill Matassoni Show. Bill was a prominent senior partner at McKinsey and BCG. He was the partner that, along with his colleagues, but he was the architect of this, who led McKinsey’s strategy in the 80s to reposition itself and leap ahead of BCG and Bain.
Now, how do you know Bill is a critical thinker? Because he doesn’t dismiss people.
We’ve done multiple video shoots with Bill for our StrategyTraining.com library of training, and we watched him talk to contractors on site and really have friendly discussions with them. He wanted to learn what they had to say. Think about it, many senior people look at videographers on set and think, “Well, you are not Steven Spielberg, I have nothing to learn from you,” and ignore them. The critical thinker is trying to understand. The critic is trying to find flaws.
The Western education system grooms critics because our basis of belief is that if we first find something to be erroneous or flawed, we got to discard it. So our first step is to be critical. Once it passes the critical checklist, we then say, “Okay, let’s learn from it.”
Here’s the thing. The act of being critical blinds you to learning things from essentially a flawed case study.
No one likes a critic. Critics are called jerks. If someone goes into a conversation and they are critical and find flaws in their argument, people are going to hate that person. Worse, if they are someone who finds flaws in another’s argument and who cannot control their facial expressions, we’ve all been in discussions with people where not only are they critical because they think they are being smart, but they have a smirk and condescending look on their face.
If you would like to develop strong consulting skills and other skills that can help you get promoted and gain massive momentum in your career, email [email protected] describing your objectives and goals, and we will be happy to help you design a training roadmap so you can make the next 12 months count.
Corporate Strategy for Power Utility
Corporate strategy is not like a business unit strategy whereby the corporate objectives of the parent are guiding the business unit/division.
Understanding business unit strategy is much easier if you think of a lighthouse analogy.
The direction and objectives of the parent company are the lighthouse, and the purpose of the business unit strategy engagement is to watch the lighthouse and build a plan to get there. So, the lighthouse may be, for example, insisting on no less than 30% market share and a return of 18% on all investments.
In business unit strategy, the consultants need to build a path to these objectives.
In corporate strategy, there is no lighthouse. The job of the corporate strategy engagement team is to develop that lighthouse. What should be the purpose, direction and objective of the parent? The canvas of options is blank and it is scary. The longer the team takes, the longer you have life rafts aka the operating divisions floundering around for direction.
This is why corporate strategy is so complex. There are so few rules and boundaries and an inexperienced consultant can end up causing a lot of damage. A too conservative management consultant would stick to the core business while a too adventurous management consultant could recommend a leap in a direction that is just too far to make.
The key is, of course, to follow the data. But it is naïve to think that is enough. It is also about judgment and the ability to extract a different understanding from the data.
An outstanding corporate strategy partner will need to think about where the market is going, what competitors would do and whether the client has the resources to execute the recommendations.
I was a corporate strategy partner and I have actually done very little business unit strategy work. The jury is, of course, still out on my abilities as a corporate strategy partner because we need to wait about 10 to 15 years to see how my clients will do.
Why so long? I worked in slow sectors like resources, utilities, and state-owned-enterprises. They do not work as fast as Apple, and even if the advice I provided shows some results in the short-term, we need to see if it is sustainable in the long-term.
To imagine a state-owned-enterprise doing a victory lap, close your eyes and picture a snail jogging through molasses.
I could have written any piece about corporate strategy, but I want to focus on one area.
It will be very easy for me to talk about the data analyses and the fairly creative techniques we used in this study. I am going to do that a little because it is important to understand them for context. However, I am going to focus this piece on the method we used to help the executive board of a power utility in Asia understand their strategy choices.
In all my time in management consulting, this is the most elegant piece of work I have ever had the privilege to lead and help a client understand. When I die, I will think back to this study and consider it a crowning moment in my career.
I really consider all the mentoring I received as an associate, consultant and project leader, etc., was building up to this moment.
Context to the Corporate Strategy Study
“Utility” is the name given to a business that typically does not see radical shifts in its business model over short periods of time. Given the steep barriers to entry and the massive costs to change, once the utility is operational it will generate a predictable flow of cash.
Think of your local water provider. That business has probably not changed much in the last 20 years. It is usually profitable but has very low margins.
Although this is true on average, there are pockets of rapid change. Deregulated markets where private companies can operate, customers can pick service providers and prices are set in the market tend to see lots of competition.
Parts of the US and Canada have experimented with allowing renewable power which allows consumers like you and me to put a solar panel on our roof and sell the power to the local utility. So there is movement in some parts of the world.
But most markets are dominated by one or two giants and in most places just one giant. Since it takes so many years to build a power station or the lines connecting power stations to cities, the opportunity for change is limited.
If you have one dominant player, regulated or controlled by the government, then you can imagine how many corporate strategy studies will be done. Very few actually since the dominant utility in a market does not need a corporate strategy every year. Maybe a review every two to three years but never a full study.
As a firm, we had done a lot of work on power utility corporate strategy out of the German offices. The German offices have always been the flagships for corporate strategy work.
Particularly in that period from 1992 to 2000, the collapse of the USSR saw many Eastern European countries require help on restructuring and privatizing their power assets. So that is why the German offices had so much experience in this field.
Outside of Germany, we were not doing as well. McKinsey, in particular, was doing a lot of good work but there were not so many opportunities beyond the emerging markets.
We saw a shift begin around 2000. Massive urbanization around the world, consumerism, and industrialization led to the start of huge power plant and transmission line construction projects around the world.
A good strategy partner needs to identify a trend that will impact a client and help a client understand that trend.
One of the things we noticed is that all corporate strategy work, including our German offices and competitors, build their recommendations on power plant construction around least cost analyses. I do not want to get into the details, but basically, it meant which power plants cost the least to build and maintain over their lifetime.
Power plant construction analyses had been done that way for years. It was the gold standard.
When something is conventional wisdom it is ripe for disruption.
The Insight on How to Present Corporate Strategy Options
At a utilities conference in London, I had witnessed an academic by the name of Shimon Awerbuch present a very crude and theoretical way to advise power utilities on their construction projects.
When I saw what he presented, it is a little bit like seeing the answer to the meaning of life. While this poor guy was being obliterated by the energy planning executives in the audience, I could see the brilliant value of what he was presenting.
I think I saw more in his work than he saw in his own work.
We spent a lot of time talking and he shared much of his work with us. It was very crude and there was much more to be done for this to work. He had not even discovered the balance sheet constraints or how to fix them. Yet, the principle was brilliant.
Basically, it takes a well-established principle in financial economics and applies it to corporate strategy in power plants. Harry Markowitz and William Sharpe won the Nobel Prize in Economics for their work on mean-variance analyses.
Basically, imagine a graph with stock returns on the y-axis and risk (volatility of the stocks) on the x-axis. Markowitz and Sharpe independently showed that if you had a portfolio of 100 stocks and changed the mix of stocks in your portfolio 10,000 times. You would get 10,000 different stock portfolios.
Each portfolio would generate a different risk and different return. If you plotted the risk and returns for each of the 10,000 portfolios you would get this beautiful efficient frontier graph. On a single page, you could visually see the impact of adding more tech shares to your portfolio.
The mechanics and math of this is not important.
Basically, Awerbuch was saying you could do the same things with a construction project. If you wanted to generate 100 Gigawatts of power, you could have 10 nuclear stations do it, or 1 nuclear station and 9 coal stations, or 2 nuclear stations, 3 wind plants and 4 coal stations.
Each of these combinations produces the same output but have different returns and risk profiles.
When I looked at that I realized something important. A consulting partner wants the executive board in a strategy session to not become inundated with lots of data points. Basically, I do not want the board to get involved in vetting painfully specific data. That is not their job.
I would want the board to see the big picture and make decisions on the big picture. I have led several corporate strategy sessions with utilities and the board always struggles to understand the trade-off between different data points using different techniques and from different sources.
For example, the board will typically receive a pack of about 60 slides in a presentation, and not all are from the same consulting firm.
Some slides will be from the internal planning department showing the costs of building each plant. Another team will have a slide showing the risks to the transmission system. Another set of slides will show cash-flow projections. Yet, another may come from bankers showing the impact on the bond ratings if more debt was used. You get the point.
I have always seen board members struggle to understand what would happen if they took more debt. How would it impact all the other issues? Therefore, a meaningful discussion could not take place because those answers cannot be provided in the meeting.
What happens is the board will speculate and ask for further analyses, which merely paralyzes discussions. The trick is to give the board enough to make a decision, but not so much that the data is confusing or stalls decision-making.
All you end up seeing is a bunch of frustrated executives trying to make some decisions blindly.
What I saw in this new approach from this professor was an elegant way to get the board to make decisions. Rather than giving them 60 slides, we could give them 1 slide. Each of the options available to the company plotted on one simple graph, and you could intuitively see which option created more risk or return.
Granted, he had not figured out how to do it beyond very crude calculations, but the principle was sound.
For that matter neither had we.
Whenever you are introducing a new way of thinking to a client there is a level of education involved. The concept was and is unusual. It would take time for clients to understand its value.
Therefore, we decided to start discussing the idea with an Asian utility planning a large construction program. We had been retained to evaluate the different nuclear design options that the client could use. It was a basic feasibility study.
As that study was coming to an end, we began talking to the head of the planning committee to determine how his team could analyze the trade-offs and how he would get the board to analyze the trade-offs.
Conducting the kind of analyses required to produce this simple chart was extremely difficult. I had not seen it done anywhere else. Given its complexity, the head of the committee was intrigued but not really qualified to know if it had the rigor of its current planning process.
Therefore, before he would commit to anything, he wanted us to meet the head of the cost-planning department to see if our approach would pass the rigorous standards of that department. Basically, did the new approach take into consideration all the factors currently taken into consideration? If not, why?
Proud engineers ran the cost-planning department. These were not guys who were simply waiting it out for a promotion to a management role. Some of them had had the same slide-rule desk for their entire career. If you enter the department all you see is a sea of slide-rule desks used by architects.
They check everything, in painful detail and with painfully long explanations.
That meeting morphed into 8 meetings over 4 months. They would raise questions and concerns and we would need to go back to the office and think through the approach. Now, clearly, this was taking up a lot of my team’s time and my engagement team of consultants was pretty busy on the main study.
So, we proposed the idea of doing a higher-level version of the study, just to test the idea. If that worked, we could consider the more detailed study. In many ways, this was a paid proposal to the client that allowed our team to begin working on the corporate strategy before the client issued a request for proposals.
As a state-entity, they had to tender everything.
Corporate Strategy Proposal Strategy
I do not want to turn this piece into a discussion on the intricacies of the power sector because the lessons are useful to readers in all sectors.
Suffice it to say, we did an outstanding job thinking through the approach we will use to do the full study. We worked with the cost-planning team for 5 weeks to come up with the issues they wanted addressed in our analyses. We had still not figured out how to actually do the work, but the cost planning engineers believed we knew enough to proceed to the full study.
All this time, we did not care much about the fees or even the smaller high-level study we were conducting. It was nice to have it but we had two other more important objectives.
First, to ensure the cost-planning engineers signed-off on our approach. That was crucial for credibility.
Second, we were following a Trojan-horse strategy to plant ourselves in the department, which would be writing the request for proposals.
As we were showing the cost-planning engineers this simple and elegant way to get the board to understand the construction options, the engineers became excited. They believed that for the very first time, the board could receive a document that crisply articulated the trade-offs.
In a normal board meeting, the engineering opinion would be in a separate document while the business issues would be in another. The boards technically spent most time on the business issues. With everything on one page, the board could no longer ignore the technical impact.
For example, it frustrated the engineers that they were never allowed in board meetings. Yet, crucial decisions were made which they had to implement and which the board failed to analyze fully.
In one case that became the most cited tale of failure, the board had voted to reduce costs by changing the engineering standards applied. The board had failed to realize that the new standards did not apply to all the power plants and one plant had to be scrapped when it could not be run safely based on those standards.
The cost-planning engineers felt that although our approach did not discuss any engineering issues, the impact of those decisions could be plainly seen and that excited them.
Seeing this, the planning engineers basically wrote out the requirements, for the analyses portion of the corporate planning request for a proposal, which was asking for something no other consulting firm had heard of.
So imagine you are Accenture or Booz receiving this document and you see very detailed requirements on a technique to measure and integrate all the risk and return probabilities into one simple metric. What do you do?
You assume, like they did, that the client was just listing everything they could think of and was not really sure of what they wanted. So Accenture and Booz presented their usual approaches and did not meet the requirements.
Therefore, while we never influenced or wrote the request, our presence led to the authors of the request having very specific ideas of what the study should look like.
Why was this important?
Therefore, the request for proposals is written in this manner. They typically are a list of items that must be completed. It is assumed that if the list of work is done, the strategy can be generated. It is not uncommon to see things like “scenario planning” and “economic model of the options” listed in these requests.
This is not what strategy is about, especially corporate strategy.
If the request is written in this way, it is conceivable a very weak consulting firm can secure the work if their proposal perfectly matches the listed requirements. These proposals typically work on a scoring system and the highest score can win.
We faced a bigger problem. Through our extensive efforts to educate the client about our new approach to present strategy options, we were implicitly telling the client our old approach was slightly inferior.
In addition, the client knew we had never tried the new approach at a single client, beyond the mini-study we had done for them.
Our problem was that to show the value of the new approach, we had to show the flaws of our old approach. So we had basically destroyed any chance of getting a meaningful portion of the 25% of scoring points allocated to prior work.
Therefore, the committee reviewing our proposal could simply conclude our past experience was not relevant. It is possible the committee would be mature about this and not do so. However, we did not know for sure.
In a state-entity request for a proposal, a major requirement is to dedicate about 15% to 25% of the scoring to previous work done of a similar nature. This contribution is so high because the request for a proposal is written as a scandal hedge.
Should something go wrong in the study or the strategy fail, the entity can also say they hired someone who had done this before and how could they have done anything more to vet the consultants.
Therefore, part of our effort was to make the team writing the request understand that prior experience should not count as extensively, but a greater proportion of the scoring should be allocated to how the study would be uniquely tailored to this client.
That was a fair way to do it because a management consulting firm should not rely solely on its past work. It should demonstrate a unique approach for every client.
Therefore, this did not give us an advantage but eliminated an unfair disadvantage we had at this point in time.
Executing the Corporate Strategy Study
We won the right to advise the client. I believe we won it because we had a superior way to allow the board to make decisions.
When you are building any financial model, the bigger the model the greater the trade-offs in accuracy. Our approach was certainly less accurate everywhere but provided a more useful output overall.
Other firms were going to partner with specialists and amalgamate all the different data. However, it still meant the board would need to pull out their reading glasses, squint and try to understand what was being done.
Make no mistake this was a tough modeling study where we would have nothing at the end of the day unless the model worked. However, I did not want the client to see that side of the study. We did not want them to think of this as a modeling assignment so we hid that part from them while we were finishing the model.
Therefore, for the first four to five weeks of the study, we were in the awkward position of presenting theoretical updates to the committee.
Rather than showing them actual results in those updates, we had to show them dummy numbers and use that moment as an opportunity to teach them how to have the main discussion when the real output started arriving.
That was really tough to plan and manage. We had to resort to almost discussing case studies of competitors to help the board think about how to analyze the issues in the industry. This was hard to do because the board consisted of CEOs of other utilities as well, who felt they did not need the exercise.
I think there was a lot of frustration on the part of the client because the output was taking so long to come out.
What we did was very challenging but I think it is important to discuss this a little further. I want to talk about one of the many challenges, which made this work difficult to do. It is called the balance sheet constraint.
Anyone with basic math skills and exposure to Monte Carlo simulations can put together a model in one night and use different power fuel mixes for the power plants. You can have 100% coal, 80% coal and 20% nuclear, 20% coal – 20% hydro – 60% nuclear and so on, and generate the graph.
Yet, life is not that simple. In fact, this is what most people do when applying this technique to power plants. They, therefore think it is easy to do but get meaningless numbers.
Remember, to plot this graph you need about 10,000 different portfolios of power stations generating the same output.
If you allow the model to plot a portfolio consisting of 100% nuclear power stations in the mix, that may very well be the portfolio which generates the highest return with the lowest risk.
Obviously, every sane board of directors in the world would want to pick that portfolio. They would want to build a portfolio of power stations consisting of 100% nuclear stations.
Ha, but there is a problem.
You already have 70% of power generated by coal stations. So clearly, the model must distinguish between new and existing stations.
There is another problem.
The power stations are not built at the same time. They are built over time and the model must simulate this. It needs to determine when capacity is being reached, how long it will take to build, and then begin the building at the appropriate time.
There is still another major problem.
Assuming it does all of this, some nuclear station designs need to be built near specific locations to help them cool. So if the model started building that type of nuclear power station, it would need to do so near the basin of a river, and it would need to also build transmission lines if they did not already exist there.
Therefore, we needed to understand the transmission costs and constraints.
Moreover, the model calculates the return from the power stations. It works out the return and risk of each portfolio of power stations.
Here is the problem. Let’s assume the perfect portfolio is 20% coal and 80% nuclear. However, the company may not have sufficient cash to build that portfolio, and if it tried to do so, its credit rating could drop and the cost of borrowing increases. So, as you can see, the volatility of the returns is a different risk from the credit rating change due to the deterioration of the balance sheet.
The solution was to model the entire balance sheet. Now, when you run 10,000 permutations of portfolios on a laptop or PC in the early 2000’s, it is going to take a basic Dell laptop 8 hours to run one permutation. We had to run 10,000 permutations.
That is a problem we honestly did not predict. This was before cloud computing, Amazon S3 or big data. There was no easy way to do this work.
We initially rented 50 Dell laptops and had to manually set the models to run and collect the results in the morning. We wanted to do the simulation on a small scale to see if the data at least worked.
That first few nights we had to have consultants work in shifts to watch the laptops and make sure they did not crash or freeze. If they did, we needed to reset the machine and rerun the analyses on that machine. So if the machine crashed at 6 am and the other results were coming out at 8 am, we needed to work with one less data point or wait for the resent laptop to complete its run.
The reason I am mentioning this is because in some ways we were well before our time in using big data and technology. Management consultants today drop around those words like it is easy to just plug in and play around with big data technology.
I agree that technology is exponentially much better, but the problems have become even more complex. So, the net impact is that it is still confusing if you are working at the frontier of using technology to solve consulting problems.
Unfortunately, we had to completely rely on our fabulous office IT team for help. They were very nice about it, but this was well outside their league. We needed 10,000 portfolios a night at the bare minimum and 100,000 portfolios run to generate meaningful results.
But they really tried. They were up most nights trying to figure this out.
Eventually, the cost-engineers came to the rescue. They were working with Accenture to use the mainframe at a university to run their infinitely more complex models. They worked with Accenture to write the code to string together everything and run the models at night.
Discussing The Power Utility’s Corporate Strategy
Therefore 6 weeks into the study we had our very first results. There were some kinks and bugs in the analyses, but we quickly ironed them out and developed this simple, elegant and insightful single view of the client’s choices as a business.
While we were waiting for the results, we could have easily have shown the data from parts of the model.
For example, we had to calculate labor benchmarks for each power station, to use in the model and we had these. However, when we tried to present this to the client they would also push back and say “but you said the relationship between the data was more important so we will wait for the first cut of the numbers.”
Yet, it was well worth the wait.
The discussion went as we expected. Though, I really took a lot of stress in the initial update sessions because we had little to present and used the sessions as education sessions. This paid off in the end because the board and project committee could easily understand and discuss the findings.
When I say “I” note that the associates and consultants typically do not attend the board meetings. So it was senior partners, the project leaders and myself. It was the senior partners who were putting gentle stress on me. It was stress nonetheless.
Let me give you an example of the counter-intuitive findings this approach presented.
There was an off-take agreement the utility was negotiating with a neighboring country in the South and it was generally assumed the deal was not beneficial. In the agreement, the country agreed to buy power from the client. The rates were not fixed and fluctuated with demand. Moreover, to meet that agreement, the utility could only build gas plants since the agreement was to provide peak power.
Peak power is a generic phrase for power demand that happens very quickly and is expensive to supply because the plants producing them are expensive to run.
We call it the peak because if you visualized a graph of power supply over time across the country, the graph is typically drawn by horizontally layering the source of the power. So think of a lasagna dish cross-section. At the bottom, you have very cheap power like coal and nuclear plants.
The layer on top of this cheap layer is slightly more expensive. The layer at the top is the most expensive. That is usually gas. When power demand peaks it happens really quickly and you need to produce the power needed fast and for a short period. Gas stations are best for this.
They are called peaking power since they occupy the peaks of the graph.
The study showed that while this contract by itself destroyed value, its impact on the overall portfolio of power generation was very beneficial. For one, the behavior of gas prices hedged out the behavior of nuclear prices. So they were canceling out each other. Roughly speaking, when the price of nuclear fuel went up 7% the price of gas tended to drop 5%, so the portfolio only saw a 2% increase in costs.
Typically, the least-cost analyses could not show this type of relationship.
So we could have this type of discussion with the board. The kind of discussion they never had before. For the final board meeting, they even requested we run five special strategic options they had considered and we could show them the impact.
The biggest finding of the study was the client was not running their optimal portfolio. In other words, they were generating a much lower return for the risk they were taking on and to increase that return while keeping the risk the same, they could make a few operational adjustments.
The approach does not work in every sector, but it is an effective way to present options on a single piece of paper.
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How to deal with hard questions from a client
A lot of times when you want advice on how to handle hard questions from clients, you would usually talk to someone that you think knows what they are doing. And they will tell you to do x, y and z. And you may think, “Ok, right, I will do x, y and z. I am going to run with it.”
And here is the problem, and I am going to explain this in a lot more detail below. Depending on your philosophy of how you show value, how you view yourself, how you build confidence, the advice that you have been recommended to follow may be worthless. It may not even be useful, given your philosophy.
This sounds like such a cryptic comment. What did I mean by that?
Your philosophy has the single greatest impact on your ability to handle a client’s hard questions
Well, think about it this way. Imagine you believe that as a consultant, as someone who is supposed to know everything, you should never ever be challenged publicly. You believe it will simply destroy your worth.
If that is your philosophy in life, then when you are openly challenged, when a client asks you a complex question for which you don’t have immediate answers, you will struggle to respond effectively. In fact, you most likely will promptly shut it down.
So before you even take advice on how to deal with hard questions from a client, you have to understand what is your philosophy in terms of how you bring value to the client and what makes someone a great management consultant.
Let me give you an example of this.
If you believe, “Hey, the only way I can do this workshop is if I have a stunning resume, the client knows my stunning resume, and the client never challenges me because of my stunning resume.” If this is your philosophy, when you are challenged by a client, when a client asks you hard questions for which you may not have immediate answers, it’s a very disconcerting experience.
It hurts you because it challenges your central philosophy. Most advice teaches you how to handle this problem without changing your underlying philosophy of your self-worth.
And even if someone gave you advice in terms of how to handle hard questions it’s not going to work for you because you will give signals to the client not to ask you hard questions, you will give signals that you just can’t handle it. In other words, taking advice to answer complex questions does not work when you see the act of being challenged as a weakness on your part.
On the other hand if you are someone who believes, “You know what, I love talking to clients. I love answering their hard questions. I don’t think it is bad for my profile if clients raise difficult questions which I cannot immediately answer. I want them to raise hard questions so I can address these questions.” If that is your philosophy then you are going to be quite fine at taking advice that helps you handle situation when these hard questions are put forward.
So before you think, “Oh, this is a great article. It’s going to help me with how to deal with hard questions from clients”, I want you to think about how you define your self-worth as a consultant.
Is it someone who is an expert who should never be challenged or is it someone who is going to work with a client, take their hard questions at its sincere face value and help them figure it out?
There are quite a lot of people who would tell themselves, “If a client challenges me obviously I did something wrong and I don’t deserve to be here.” There are a lot of people who are trained to think this way.
This is wrong. Being challenged is not a weakness. You should expect this at times.
And if this is your philosophy, then no matter how well we guide you in terms of how to approach answering hard questions, the fact that you were asked hard questions in the first place makes you think something went wrong and your worth as a consultant has diminished or disappeared.
Focus on demonstrated competency
At Firmsconsulting I absolutely insist that consultants need to stay away from trying to signal that they are overconfident. I don’t like when consultants come in and are pompous, using unnecessarily big words, being arrogant or talking down to the client.
And plenty of McKinsey and BCG consultants do this. You may think you are not doing this, but it happens.
Speaking very confidently, being a bit arrogant and acting like you know everything is also a signal that you are sending to a client. You are sending a signal, “I know what I am talking about. Don’t ask me hard questions.”
Now, if you think about it, all of those signals we send to clients are done so that they don’t question us and, consequently, make us look bad. We try to have great resumes. We try to push out our chest, speak eloquently and create the impression that we know what is happening. Yet, this is the wrong approach if your goal is to be a great management consultant.
Simply because the most important role of a consultant is not to have the answer. It is not even to find the answer. It is to find the right question to solve. And clients need to push back at times. It is part of the process.
In fact, if a client does not push back your ideas are probably not uniquely brilliant. If your ideas are easily accepted, are they truly unique?
If you actually know what is happening, if you know how to analyze any problem even if you are not a subject matter expert on the issue, if you can clearly communicate your thinking then you don’t have to worry so much about avoiding hard questions.
You should focus on demonstrated competency. Obviously, be polished, be polite, but don’t brush off a client’s tough question and don’t be afraid of hard questions. Hard questions are an opportunity to engage the client and to strengthen your and your firm’s credibility in the eyes of the client.
Two courses of action when hard questions are raised
Now that we established the importance of your philosophy, we can look at how you can address hard questions.
When a client raises a question during a workshop or a presentation, you have to address it.
You can do one of two things. You can choose to answer the question during the meeting or you can choose not to address it immediately and, instead, take it offline.
And there may be valid reasons for doing both.
For example, sometimes a client will raise something completely irrelevant and it’s going to delay the entire workshop.
You can say, “Look, I am definitely going to take time to answer this question because I think it is an important question to address. And may I suggest that we discuss it offline to ensure we use the workshop time effectively? I think we can make a preliminary decision here today. We can then have a discussion offline and if you still will feel the change needs to happen because it is a preliminary decision we can always incorporate your input at a later stage. Are you comfortable with that?”
If you do it like that almost no one will think you are rude. Most clients are going to be quite happy with that because you handled it very politely. You have explained to them you are not brushing it aside, you are not pushing them away so that they can’t influence it. You are telling the client the decision will be preliminary. Their input can be included later.
When someone asks you hard questions don’t dismiss them. Don’t say, “Well, our research shows this” or “This is what best practice is”. As soon as you have to revert to saying this is the answer because this is the answer, which is basically what you are saying when you say this is what best practice shows or this is what the research shows, you come across as defensive.
And what that signals to me and to the client is that you are someone who believes his self-worth is driven by the fact that he should not be questioned. I don’t like those people as consultants. They should not be consultants. Clients don’t like those people as consultants. They are very abrasive. They are usually not very insightful. And they usually do not take the necessary time to understand what they are doing.
On the other hand, you may choose to address the question during the workshop, in which case you can say something along the following lines, “Look, that is a great question. And what I am going to do is I am going to step out of the workshop agenda right now for 5 minutes and show you if we went down the path I believe you are thinking about what could happen and then we should decide if that is the path we want to follow.”
So when clients question you and you believe that this is an important question, you should run with it.
And, again, you should not care about how it may impact your self-worth, because if you address the question your self-worth goes up. You should take the question, build it into the workshop, and that takes skill. It takes a lot of skill of being able to explain things, communicate things, being able to work with a tense situation.
You have to know your material, you have to be able to speak very succinctly and you have to be able to adjust and adopt and move things forward.
Communication, brainstorming and hypotheses development are some of the tools you need to answer hard questions
I think I have pretty good communication skills. I speak as I think. I have trained myself to do that. People who do fit interviews with me are generally surprised by how much I restructure what they are saying to me, making it much more eloquent, focused and pinpointed on the question.
The reason I do that is because I am always thinking, “What question are we trying to answer?“ That skill, that ability to structure words, adjust it, change it while keeping track of the big picture is a very important skill.
So the point I am trying to make here is this, when you are dealing with hard questions from the audience you are never going to be able to handle it well if you are one of those people who believes you are a successful consultant only if you always have an answer for hard questions or if you feel that your worth is diminished when a client challenges you.
If that is your philosophy you just can’t handle hard questions, which means you have to change your philosophy.
Your philosophy has to be one, “Look, if a client asks me difficult questions it’s an opportunity for me to engage the client.”
Now let’s assume that is your philosophy. The next step is to say, “Should I answer the question in the workshop or should I take it offline?”
If you choose not to answer the question right away there has to be a reason. And you have to present it to a client in such a way that you don’t alienate them, like the example I offered earlier.
If you choose to answer the question in the workshop you have to make sure that you are not seen as condescending, you are not answering the question by brushing off the client, or you are not saying something like, “Well, our research shows”, because that is the same as saying nothing. You have to take the question, weave it into the workshop and work with it.
You have to show the client what could happen if the team takes the client’s line of reasoning forward.
And sometimes you may not have the answer and that is ok. There is a lot of times clients ask me things and I say, “Look, I don’t have the answer but I am going to hypothesize what I think could happen.”
And just about every time I have done that I am able to figure out what will be the answer for the client and they never go to me and say, “Oh, go find the answer.” Instead, they usually say, “Well, that makes a lot of sense. No, I don’t think we need to worry about doing additional research. That makes perfect sense to me.”
This ability to think on your feet, develop hypotheses, work with the English language, work with brainstorming, use estimations and so on, is a very important skill-set when dealing with clients.
If you can only answer hard questions after excessive preparation, failure is inevitable
For a lot of you, when you think about how to build confidence in speaking, what you do is you memorize the subject matter.
Here is the problem. What happens if you don’t have time to memorize the subject matter?
You just can’t take it.
If your boss comes up and says, “The board wants to hear from you in two hours”, you can’t really do anything because you did not have time to prepare your response and memorize it.
So an important lesson here is that you can’t memorize everything. If you could it is still a bad strategy because you need time to prepare and if an opportunity is time dependent you can never respond.
Building foundational skills to be able to handle hard questions
So how do you handle hard questions when you had no time to prepare your answers? Well, it’s the ability to think, think, think and be able to work with things when you don’t have a deep subject matter knowledge, which is why we teach skills like brainstorming, hypotheses development so much.
The conversation with the client is basically a kind of a weird case where you have some background knowledge but you usually don’t know everything about a particular issue and have to use analytical tools we teach to discern the answer.
All of the skills we teach in The Consulting Offer and in the advanced programs are needed by executives. I always tell people who subscribe to the Premium membership, “Its good that you are working through the advanced programs but the some of foundational skills that you take for granted, that you should have learned when you were 21 years old we teach in The Consulting Offer and that is where you want to get it from.”
All these skills that I am using with you now are the skills that are used to solve the cases in The Consulting Offer. And you probably have seen me do cases in real time. You have seen people give me something that I know nothing about and you have seen how eloquently I am being able to explain it. Why? Because I use these skills.
So to wrap up, decide if you are someone whose worth is defined by the fact that clients never challenge you. If you are that person you might as well go into a cave because you are not going to go very far.
If you are someone who can put up with being challenged, be ready to decide which issues you are going to deal with in the workshop or presentation and which issues you will take offline.
And remember, don’t be someone who can only answer hard questions if they are a subject matter expert because you can never ever be a subject matter expert in everything that may be raised by the client. It is not possible.
Instead, you need to develop strong analytical skills (brainstorming, hypotheses development, etc) to be able to handle hard questions, especially if those questions are in areas where you are not a subject matter expert. You can watch or read here an example of how one of our clients developed the skills we teach to answer clients’ hard questions to client’s satisfaction, without knowing anything about the subject.
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Inner circle member? How to resign without burning bridges
In this article, I want to talk to you about how to resign the right way, especially if you are a part of the inner circle.
I think it is important you read this post because at some point in your life you will likely want to leave an organization. And you will want to leave an organization in a way whereby they don’t feel that you were selfish when you resigned, in a way so you don’t damage the relationship with people who may have very well gone above and beyond in helping you and grooming you.
Being a part of the Inner circle
When you are a consultant, or an executive, you are either a part of the inner circle of key people that the organization relies on or not. This distinction matters.
Now, what defines the inner circle?
- Are you a part of the inner circle if you have a specialized skill the organization needs?
- Are you a part of the inner circle if you have some unique knowledge or connections that the organization requires?
No. That does not make you a part of the inner circle.
What makes you a part of the inner circle are three requirements that must be met at all times:
- Does the leadership of the organization consider you to be important to the future of the organization?
- Does the leadership of the organization rely on and listen to your opinion?
- Does the leadership of the organization break rules for you?
Examples of what it means to be a part of the inner circle
I am going to give you some examples of these from my own career.
Does the leadership of the organization consider you to be important to the future of the organization?
I always was good at building relationships with senior people. When I was an analyst at the firm the managing director for that office used to speak to me a lot. He would come in on Monday morning, arriving late from whatever meeting he had to attend, and he would stop at my desk, if I was in, and tell me how his weekend went.
He would tell me whom he played golf with or whom he had dinner with over the weekend, or if he had a funny meeting with a client. He would discuss it with me in front of everyone. He has even shown me funny videos on his phone, in front of everyone.
I did not have any special skills at that point in my career and I was certainly not the best business analyst in the office. But I just got along much better with senior people.
And we got along enormously well. In fact, we got along so well that I remember one of my friends who worked at the knowledge center, the library for a lack of a better word, told me that people were advised not to be friends with me because I was so close to the managing director that if they did anything wrong or if they said anything it is going to get to managing director.
The managing director and other partners felt it was important enough to have a good relationship with me. They felt it was important to keep me locked-in to the network.
Does the leadership of the organization rely on and listen to your opinion?
Does the organization take your opinion seriously?
Let me give you an example involving that managing director. He attended a university with a very prominent woman in business and he wanted her to join the firm to head up some part of the business as a director or partner.
She was going through the recruitment process and I was asked to be one of the interviewers at round two. I interviewed this lady and I did not like her. I thought she was very entitled. And entitled in a bad sense of this word, not in a good sense of believing that she deserved to be successful no matter the odds that Kris often talks about.
Anyway, I did not think she would work hard and protect the firm’s values. It’s a common thing you notice about partners who retire. Many of them don’t work hard enough once they leave consulting.
And I remember telling the managing director in the office, “Look, I know she is your friend. I know you like her. But my personal feeling is that she is not going to work hard enough.”
What do you think happened?
Well, you know you are part of the inner circle when there is no push back. They just take your opinion seriously.
I was an analyst at that time. I should not even be interviewing a partner level candidate, but they asked me to do it. Maybe they thought I would say yes. But I said no. There was no dispute. She never joined the firm.
So that is the second criteria.
Does the leadership of the organization break rules for you?
The 3rd criteria is they break rules for you.
As an example, it was an ongoing joke and ongoing example by the finance department in the office where I worked that I had the most ridiculous laundry bills. Everywhere I traveled I would give my shirts, which were quite expensive, to the most prestigious laundry service or dry-cleaning service in that city.
I remember once this really nice lady from the finance department, whom I really liked and respected, came to me and said, “I have done a calculation and I looked at how much you spend on dry-cleaning and I looked at how much your shirts cost. Why don’t you just buy new shirts and expense it to the company?”
I was never reprimanded for this at all. No partner brought it up ever. The leadership simply decided this is one of the costs of keeping someone that they wanted within the business.
There are obviously guidelines and rules on expenses but I never really followed them.
As another quick example, my cell phone bill was more than my salary in some months because I just called everyone I needed to speak to, which can be costly on international engagements.
If you a part of the inner circle there are certain ways you resign
So these three criteria make you a part of the inner circle.
Now, if you are not part of the inner circle it’s ok. Not everyone can be a part of the inner circle. But you should be doing important work for the firm.
I would say that I was part of the inner circle no matter which firm I joined. I started off at a smaller firm and moved between firms. And no matter which firm I went to I became part of that firm’s circle of influence; when I was an analyst I was part of the influential analysts, then part of the influential associates, when I became a partner I was part of the influential partners.
And I remember sitting down with a managing partner when I was a partner and he was telling me some of the partners think that he goes a little bit too easy on me. And I said, “Look, the day I don’t deliver the values of the firm and stop adding value to clients is the day you can say that you are going too easy on me.”
So that day eventually came. It was not bad. Everyone has a bad engagement as a partner. It is normal.
But my point is this, if you are a part of the inner circle there are certain ways you resign and certain ways you don’t resign. I would say that even if you are not part of the inner circle, you resign as if you are a part of the inner circle because it shows a level of maturity and values, and allows you not to burn bridges on the way out.
How to resign
Now, I will talk you through two examples of the ways you should not resign and then I am going to talk you through the opposite of that, which is how to resign.
Here is the first example.
When I was a very young partner, I was noted for the way I trained people. So if you sent someone into my team it was well known that they will come up really well skilled because of the way I invested in training, mentoring and coaching people. Like now at FC, I also took training very seriously in the past.
And one of the things I did over my career was to pick certain people that I thought had enormous potential and work with them over many years to develop them. No matter their reputation in the firm, I made my own judgments.
There was one guy in particular that I really liked. Let’s call him Josh.
We worked together very closely after he came into the firm. He was a friend of one of the senior partners.
And that senior partner said, “Josh is very good. I can’t ask you to groom him but I think put him on one of your engagements. See how he does. And if you think Josh has potential I want you to take him through that training program that you take everyone through.”
So Josh came in and we worked together very closely. We grew to become pretty good friends actually, or so I thought. He was a good, reliable person that I could send to clients to deal with issues. Josh also took feedback well and I am a tough taskmaster.
We got to know each other very well socially and I thought we had a very good relationship. We socialized often outside work and with our families. He was clearly being groomed to replace me wherever I would end up. And Josh was under my wing all the way until the point when he was promoted to principal.
Everything was going well with Josh but I had a disagreement with his friend, the senior partner who brought him in. Shortly thereafter I remember coming in on a Monday morning and getting this email from that senior partner saying, “I spoke to Josh. He has come to me and said that he wants to move out of the strategy practice and go to the operations practice in a different city and this is his personal desire. So I am writing to you to see if you will be willing to release Josh ASAP and if you could expedite it it would be wonderful. “
Now, imagine you spent 3 years, maybe even longer, training this person, grooming him, working with him very closely and you get an email from someone else, another partner, copying this principal whom you groomed, asking for the principal to be moved!
To me, when someone does that I am going to release them anyway because it is a betrayal.
Josh did not even have the courtesy to tell me he wanted to move. So I did not respond to this email immediately. I wanted to see what Josh would say. Because he was copied on it.
If Josh agreed with this and instigated it that is a different issue. If he did not agree with it and being forced into it I would expect him to come up to me and explain it to me.
So I did not say anything. I was waiting until midday. No response. I even walked by Josh’s desk to see how he is doing. He did not mention anything.
So I just decided to release him.
You can say that this is a shortsighted move. I invested so much time and effort, placed this guy into some of the most core clients I was working with.
But it is a very simple issue to me. Here is someone who knows you very well and chooses to leave not by telling you but by getting his friend to write an email, even no courtesy to call me, to ask to be released even though he knows that I invested so much time and built teams around him.
I released Josh by 1pm that day.
I just said, “Ok, no problem. We will make this happen.”
Later on, I heard that Josh was very upset that I did not fight for him to stay in the practice. But here is my issue. Why did he not fight to stay in the practice?
One thing you will learn is that partnerships are personal decisions to work with people. And if you breach that trust there is a small chance you are going to work with someone again, if they can help it.
To me, that was a breach of trust. He did not had the courtesy to raise this with me. When the email went through he did not take the time to discuss this with me. So I released him. I released him and that was it.
He went on to do operations work which, as I heard, turned out to be not a very happy experience for Josh. Josh never made director which is a pity because under the right guidance he could have been a star partner.
No. When you are in the inner circle you trust people and they trust you. You are not expected to just follow the protocol.
You are expected to be courteous. Remember that.
The second example is someone again whom I was spending an enormous amount of time training. Let’s call her Rita. I was spending so much time training Rita. I remember people at the firm telling me, “Why do you spend so much time training her? You spend an inordinate amount of your time explaining concepts to her, exposing her to key clients and so on.”
How this person chose to resign from the firm was to send me an email at 11.10pm at night. And I know why she sent an email at 11.10pm at night. It was because she wanted to leave in a month and she sent the email on the last day of the month giving her exactly 31 days to leave. Rita had some personal things she wanted to do and she wanted to leave. So if she resigned the next day she could not have the month-long notice that is required.
It was deeply upsetting to me to get that email from Rita. Needless to say, I did not got good night sleep that day.
Firstly, she did not had the courtesy to tell me she was resigning well in advance and give me sufficient time to arrange a proper hand over. Instead, she informed me in the last possible minute. Rita did not worry about the engagements we had running and that I had a lot invested in her and a lot of ongoing work was organized around her.
Secondly, she sent me an email. She did not even had courtesy to tell me in person, or in the least to call me.
Third, I had actually helped Rita work from home at some stretches to manage her personal life. So we clearly could accommodate her needs.
She just resigned. It was a horrible mess to deal with because I had invested a lot in building a relationship with her, introducing her to clients, giving her more responsibility and authority than was necessary for the role and she just left.
The issue to me is not that she left.
The issue is she resigned with an email and gave the shortest possible notice period. If she has spoken to me we would have created a plan for her to leave.
And what was even worse is the way Rita acted when she resigned. The quality of work significantly deteriorated. She was sending slides which were just horrible. The worst part, I could not get her to do a proper handover.
In fact, she would do things that she thought was needed versus what was actually needed.
After she left the team had to scramble to piece together engagements that she was involved in.
So how do you resign?
So how do you resign? Well, you resign as if you are a part of the inner circle.
First, when you want to resign the person with whom you have the key relationship must be told first and in person, before everyone else.
And you don’t tell them you want to resign.
You build up to it.
You say something along the following lines, “Look, I know the investment made in me has been significant. I enjoyed all parts of it. But over the last few months I have been thinking about leaving. Now I know that it is going to be difficult for me to leave so I am telling you really early so we can think of some way to make this work.”
Have you noticed there is no ultimatum? There is no, “This is the day I am leaving on.” No, you are telling me in advance so I can start planning for it.
I am not going to hold it against you. If you want to leave, it’s fine but work towards it. If you tell me you are thinking about this I can help you work out a transition plan.
Irrespective of whether you send an email or tell me in person, don’t have a hard deadline saying, “I am leaving by the 15th”. You can do that if you are not important to the organization. But if you are a part of the inner circle and the relationship is personal and your mentor invested time and effort in you if you resign this way you are unlikely going to get your mentor to ever speak to you again.
I don’t speak to those two people who resigned. Those people have reached out to me since they resigned but I never responded to them because what they have done was a breach of trust. I made an enormous investment but they chose to leave in such a disrespectful way.
To this day I have never spoken to those people. And this is years later. Yet, I supported them. I even supported Josh’s partnership vote though he never received it. I just did not want to have anything to do with them personally.
You can say it’s being petty. It’s not being petty. Consulting firms are basically a group of people who agreed to work together because we trust the other person will be there to have our back. And when you leave by getting someone else to write an email, or when you leave and cannot care less about fixing loose ends, there is no recourse.
Moreover, if you leave with an ultimatum with just 1 month notice even though you know the investment the firm and I made to develop you and protect you, and groom you, and give you opportunities you did not have before, again the relationship ends because of the way you chose to resign.
Note, in consulting we expect you to eventually leave. The issue is the way this was done.
So if you want to resign don’t just get another job and say, “I am resigning.” While the firm has processes and will accept it, and will smile about it, and will say it is all good, the key people who rely on you are going to feel slighted.
If you are a part of the inner circle, and therefore within the purview of the key things within the firm, it is a betrayal to resign just following company policy.
More is expected of you. Much, much more.
In my own case, when I have resigned I have always done so on terms that suited the firm. I always offered to stay longer, help with things or even return to provide guidance. In the boutique firm, where I started my career many years ago, I even worked when the firm was closing and our salaries were not guaranteed.
I stayed at the firm till the end as one of the last employees when clients deserted and cash flow dried up. I stayed because I had the partner’s back as he tried to rebuild the firm. It was painful and hard, and I even passed up many good career opportunities.
No one understood why I did it. That is teamwork.
That is how you resign, especially if you are a part of the inner circle. By leaving an unimpeachable reputation.
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What is scenario planning and how to use it
In today’s post we are going to talk about scenario planning, the last technical input that went into the visioning workshop /strategy workshop as part of the Corporate Strategy & Transformation study.
We will discuss what is scenario planning, some reasons why the scenario planning tool is insufficient to make decisions and steps in scenario planning. We will also offer an example of how to use this tool in visioning workshops with clients.
What is scenario planning
Before we discuss how to conduct scenario planning let’s look at what is scenario planning.
So what is scenario planning? Scenario planning is a planning tool used to make flexible long-term plans to deal with major, uncertain shifts in the organization’s environment.
It is also a tool that allows companies to develop a resilient strategy or test the flexibility of the existing company strategy against various possible future alternatives.
In other words, scenario planning is a structured way for an organization to identify and gain a deeper understanding of the underlying major drivers of change, think about how those potential changes may impact an organization, determine what is required for the organization to succeed if potential changes occur and develop the strategy accordingly.
And no surprise, scenario planning has its roots in military strategy, with the use of scenario planning in business pioneered by Shell.
One interesting aspect of running a scenario planning workshop for a client is that as we run a scenario planning exercise we are basically admitting to the client that we cannot predict the future. We just can’t do it. There are too many uncertainties.
No consulting firm anywhere in the world can do this since no analytic technique exists to predict the evolution of a market. This is an important insight to keep with you.
And even of uncertainties we are certain will occur, we can’t predict how those variables will change. They can go up or down, or sideways. For example, the price of oil could go up or down. We know it is uncertain but we don’t know which side it can go.
So in a scenario planning exercise the first thing you are doing is you are admitting to the client that there are uncertainties and, even if you can predict some of the uncertainties with certainty, you can’t predict with certainty which side the uncertainty will go.
Instead, you are helping the client to determine which of these uncertainties are the most important ones. And given the fact that uncertainties can go in either direction, you are helping client to understand what would a market look like depending on the multiple combinations and permutations of the most important uncertainties.
Some limitations of the scenario planning tool
Scenario planning is something that is useful, definitely spurs conversation, yet this tool is by itself not sufficient for client to make a decision. It is just one of the tools in a strategist’s armoury.
There are number of problems with scenario planning.
One, with scenario planning you get these very loose guidelines about the future and you still have to figure out what to do with it.
There is also a risk that the organization’s leadership will act like deer in the headlights if faced with a broad range of uncertainties and possible outcomes. That is one of the reasons why we prioritize uncertainties so it can be displayed on a two-by-two matrix, as explained below.
Scenario planning also runs the risk of executives becoming complacent. Executives can assume that all potential futures were considered so there is no need to keep their mind open and constantly scan the environment for drivers of change, their potential impact on business and actions required to prevent negative impact.
Extreme scenarios are also often ignored as they are deemed highly unlikely to happen. Yet, as financial crises and many other events showed us, this type of limited scenario planning can be very deficient. Instead all extremes, positive and negative, must be considered during scenario planning.
Scenarios are also often viewed as right or wrong, and as static. With this line of thinking “wrong” scenarios are often disguarded. Instead, scenarios should be viewed as something that are a work in progress and which are adjusted over time as more information becomes available and as environment changes. It is crucial to remember that scenario planning is an iterative process.
Despite the limitations of scenario planning, it is still a powerful tool to have in the strategist’s armoury. You need to know this because it is still useful as a staging point for a discussion.
Firmsconsulting’s 6 scenario planning steps
We usually do the scenario planning exercise nearly a 3rd of the way into the visioning workshop. And, unless you have educated the executive team about the issues and you would have done that through the case studies and the industry analysis discussion, they are going to start throwing out issues that are not really issues. So the scenario planning exercise only works well if you have seeded the right concepts in there.
If you haven’t and they are working off with context base that is completely inappropriate you are going to have a problem. The entire exercise will fail.
Once an organization’s environment is well understood after discussing industry analysis and case studies, scenario planning can begin.
Scenario planning is run following a logical sequence of steps, which are actually the same in every single study.
Step 1 – “Brainstorm” major issues impacting the sector
The first step of the scenario planning exercise is to sit down with the executive team and “brainstorm” major issues impacting the sector.
Here we need to do the kind of brainstorming that Alex Osborn (the “O” of legendary ad agency B.B.D.O.) invented in the 1930s and popularized in his 1953 book “Applied Imagination“. The kind of brainstorming where a group of people throw out ideas in a meeting, or in Osborn’s words “using the brain to storm a creative problem”, and do so with the absence of criticism or negative feedback. The kind of brainstorming that, according to Osborn, was central to B.B.D.O.’s success.
However, please keep in mind that usually when we talk about brainstorming within the context of case interviews and management consulting, we are talking about a very different process vs. the type of brainstorming process which we use in scenario planning. Usually when we refer to brainstorming we are referring to a structured, methodical, logical process of identifying drivers of the issue, which ultimately can be showcased as a decision tree.
As the “brainstorming” process gains momentum, it helps to ask executives to look beyond the medium term. If executives only focus on the short- and medium-term they will tend to extrapolate current environment conditions into the future. Asking them to think beyond the medium-term resets their mindset and makes it easier to see what are the major drivers of change, how those drivers may change in 5-10 years and how they can impact the organization.
Issues are ideally listed with a thick marker on separate Post-It Notes and placed on the wall. All the participants should provide input so they feel a sense of ownership. All inputs must be publicly displayed versus being captured on a laptop by a consultant who resembles a squirrel.
Step 2 – Cluster Issues into groups
Once you have listed all these issues, you need to cluster them into two groups.
The one group is what are the predictable things we know will happen. And the other group is what are the uncertainties.
Step 3 – Select top 2 drivers of change
Then we can put aside certainties and we need to determine which uncertainties are highly correlated and can be combined (Post-It Notes stuck to each other and placed on the wall) and which uncertainties are not key drivers of future scenarios (removing Post-It Notes from the main wall to a separate area in case the group wants to go back and reconsider adding back certain variables).
Key independent uncertainties are then prioritized to identify those having the most impact on the business. Specifically, we need to rank independent uncertainties from one that has the biggest impact on organization to the one that has the least impact on organization. So if we come up with 10 independent uncertainties we will list them, one having the biggest impact, two having second biggest impact and so on.
This exercise should help to cut down the number of uncertainties to 3-4, usually because independent variables can be clustered into 3 or 4 groups. And out of top 3-4 we should further prioritize the top 2. And, as stated above, it is a key to make sure such 2 variables are not dependent on each other.
Step 4 – Develop a two-by-two matrix
For those top two independent uncertainties we develop a two-by-two matrix. The base assumption here is that by defining the extreme corners of any given environment one explores the correlation between all relevant uncertainties, recognising that reality will likely be somewhere in the middle. Defining scenarios is not meant to describe the most likely case. It purely explores uncertainty correlation and illuminates the “what might be” to better understand associated risks with any path forward.
As a side note, if, lets say, the four top uncertainties are highly important to consider, we can create additional two-by-two matrixes to depict additional outcomes, but this is usually not necessary as generally key drivers can be prioritized to only two.
Moreover, if the result of scenario planning work is more than 4 scenarios managers tend to just focus on the most important (in their opinion) scenario and ignore other scenarios. Therefore, it is best to prioritize issues to the point that the top two drivers can be selected.
Each scenario should be given a catchy name so it can be more easily internalized by executives, such as “All bets are off”, “Sustainable Growth” and “First Frost”. Internalizing scenarios will help executives keep scenarios at the top of their mind, ask better questions and, as a result, better prepare for the future.
Step 5 – Understand each scenario and adjust strategy accordingly in light of scenarios
Each scenario is then analysed to understand what will it take to succeed in such environment.
The two-by-two matrix gives you four scenarios of the future. Scenarios A, B C and D. That is what the market could look like in the future.
Then you need to facilitate a discussion addressing the following types of questions:
- What products and services do we need to offer in each of these four possible future markets?
- What would our pricing strategy be for each of these 4 future possible markets?
- What our channel strategy will look like?
- What sales and marketing will look like?
- What would alliances and acquisitions look like?
- What would our core business be?
- Why would that be our core business?
That is the type of discussion you need to have with the executive team. And this analyses of each scenario should be captured in written form by someone on your team. Again, always in public versus clicking away on a noisy keyboard.
Scenarios can then be used to shape the ongoing strategy of an organization.
Step 6 – Iterate
As mentioned above, scenario planning is an iterative process. While the consulting team can help kickstart the process and run the initial scenario planning analysis, scenario planning exercise should not end at the conclusion of the visioning workshop. Instead the major drivers of change and scenarios generated should be revisited by executives on an ongoing bases to factor in new information and changes in the environment.
An example of using a scenario planning tool in visioning workshops
We are going to pick two uncertainties here for the point of explaining them. Lets assume one uncertainty is market openness and the other one is degree of commoditization of the energy market.
A market can either be highly opened or not open at all. So you get two options for market openness. Markets can also be commoditized or specialized.
Therefore, on one axis you have got market openness, high or low. On the other axis you have degree of commoditization, either commoditized or specialized.
So you can see you have 4 options. Markets can either be very open and commoditized or very open and specialized. Or it could be closed and commoditized and closed and specialized. These are the only 4 options.
For each of those options you then have to figure out what that market looks like and what it means to play in each of those segments. That is the kind of discussion you are having with the client.
You are saying, “If the market is closed and very specialized what kind of skills do we need to play in this market?” So you are basically saying, “What is the winner looks like in this market?” And what you are trying to do here you are trying to determine what is common for these 4 options, because what is common for each of 4 options is the attribute or skill that the client must possess if they are to win in any scenario.
If something is only a requirement to succeed in, maybe, one of those four options, and not a likely one, you can say, “Hmm, may be we don’t really need it. But if we could have it, it would be great.”
If something is needed in 3 of those 4 possible scenarios of the future, and not needed in all four, you can say, “Ok, we need it in 3. So even though it is not needed for every option I think this is a skill we need to have.”
Through the process of attrition you are collecting the skills you need to succeed here. And at the end of the day you say, “Ok, if this is what the market could look like (looking at 4 options) these are the skills we must have to compete and what would a strategy for us look like if we had those skills?”
That is the kind of discussion you are having here. And someone from your team needs to be capturing everything.
The question of how to amass so many skills for so many scenarios is for a different update. This refers to the note at the bottom about the evolution of scenario planning and this is the part most companies get wrong. How does one pick one future and bet on it while remaining flexible to all possible futures?
At the end of the day what you will have is four scenarios. Scenarios A, B, C and D. Only your final scenarios will have catchy names as per above.
Because you are dealing with two axes of uncertainty, market openness and the degree of commoditization and there are only 2 outcomes for both of them, you have got a two-by-two matrix.
And remember it is a role of the partner to keep the group focused. To say, “Even though you think this is highly unlikely, remember that Empire Energy may do the opposite? Do you want to be further away from them or be closer to them? What does it mean to go further away from them?”
At the end of this you are going to get some critical principles. Not hard and fast rules, but you will have some critical principles for what it is going to take to win in the future. These principles are the boundaries of our thoughts. They are like flagpoles with rope around them. We will not stray outside them unless we have a damn good reason to do so.
And one of the critical principles we came up with for this study is that given the amount of turbulence and uncertainty it is far better to be anchored to some large client and work with them, which is a vital, vital principle because going forward that large client is likely to be Empire Energy, which again reinforces this notion that we should only do what is in Empire Energy’s best interest.
Running a scenario planning workshop
That is how you run a scenario planning workshop. It is not difficult once you know the principles and steps to follow. And it is a lot of fun.
The skill level required to run this type of workshop is very high. We have seen junior people do it but they make it too mechanical and wooden. They also usually fail to get the leadership team to see a unique future. Juniors typically generate plans for a company that are evolutionary versus revolutionary because it is far easier to recommend a slight change to the strategy versus a radical change.
It takes an enormous amount of skill to allow the executives to be free flowing yet keeping them focused on the overall objective function, which the partner will know but cannot make obvious.
It is very easy to just go off on a tangent, especially with all this talk about technology and so on. People may go as far as suggesting to put drones in the air to deliver electricity. You have got to keep them focused.
You have got to say, “What is going to happen in a deregulated market? Well in a deregulated market it means competitors arrive and they steal market share. Less market share means less revenue. Less revenue means less free cash flow to do fancy things that could appear in the sci fi channel.”
You have got to be able to tie these logical pieces together. You have got to know where you are trying to get them to go and shepherd them there. This is very hard to do because if the executives raise material differences, they need to be seriously considered and that means the partner needs to re-juggle the workshop structure in his or her head, in real time and while managing the conversation.
If you are leading this kind of workshop this can make or break your career because the impact can be so significant. You get a lot of airtime with senior executives. You get to coordinate the discussion. You get to guide them and shepherd them. And it’s a really big opportunity so don’t mess it up. This is an opportunity very few people get.
In effect, you are being observed and judged by very senior people in industry. It is a live job interview.
And when you get the opportunity you have to make it count, make it exciting. And you need to brace yourself for hard work. Running a workshop like this is incredibly tiring.
Summary of steps for scenario planning
To wrap up, remember that scenario planning is an admission that the future is uncertain. And it means that you are going to present ideally four scenarios of the future to make sure the strategy can operate in all four scenarios.
To do this you have got to rank the issues facing the company, cluster them into two groups, things that are certain (we call them trends) and things that are uncertain (we call them uncertainties).
Then you need to determine which uncertainties are highly correlated and can be combined and which uncertainties are not key drivers of future scenarios and can be removed. Then you rank the remaining independent uncertainties.
For the top two uncertainties you need to build a two-by-two matrix and each quadrant of a two-by-two matrix becomes a potential future scenario.
And then you need to have an elaborate discussion about many vital aspects such as skills, competencies, resources required to succeed in each scenario, what should be company’s core business given each scenario, and those become principles which you will use to shape the on-going strategy for the organization.
Lastly, make it clear to executives that this process has to be iterative.
And, of course, you can see us conducting scenario planning in training videos which are part of the Executive Program.
We hope you enjoyed this post. We hope that through these type of posts and related podcasts you are more excited about strategy. We hope you can see the power, the impact, just enormous change we can bring to people’s lives.
Because that is what we are doing. We want to go out and we want to help this utility overcome damaging blackouts, shutting down of schools and hospitals, and make them into a successful company that can compete in the future.
This drive to change the world should be the only reason to want to be a strategy consultant.
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Effective Practice for Building Client Relationships and Driving Sales
In this article and related podcast, we discuss an effective practice for building client relationships and driving sales. This is a critical article if you run a smaller boutique consulting firm or running a weaker consulting practice and trying to conduct more impactful studies.
The issue I want to discuss today is related to what consulting firms would call sales but also related to building client relationships. Sales is not a common term at the elite firms, but ultimately that is what is done.
A very common strategy for a consulting firm to displace an incumbent consulting firm and serve a client is to show an insight/problem/opportunity that the client has not seen before. Yet, this does not work that well in building client relationships and driving sales.
This is because the new consulting firm makes one critical mistake. In fact, the mistake may lead to the incumbent consulting firm securing the work the new consulting firm pointed out!
New insights help in building client relationships and driving sales, but only under certain conditions
Many consulting firms try building client relationships and driving sales by presenting an insight or presenting an issue, or presenting an opportunity that the client didn’t know they had. And by providing this unique viewpoint that no other consulting firm is providing they assume that this gives them permission to then serve the client.
What I am going to point out to you today is why, even if the problem you pointed out is valid and significant, the insight may often not lead to you serving the client.
Example from my consulting career
Think about this, imagine you work in a consulting firm and you are generating all these insights for the client or the potential client that you want to serve but it is not leading to new work.
Why is that?
I will explain that through a story. When I was a consulting partner the resources practice was not as significant as it is now. It was OK in some parts of the world but it was not as established as the financial services practice, insurance practice or the public sector practice. We were still building out the resources practice at that point.
And I remember being sent to Santiago office to help with a discussion that we were going to have with a very important potential mining client. It’s a company we had not worked with. One of our primary competitors was there. And we wanted to get our foot in the door.
This company had these very complex liability problems sitting in their mining operations and they wanted to know how to deal with that.
We had a long discussion. They loved our ideas. They thought it was “amazing”, it was “just brilliant”. But, the problem is, while they liked our ideas we had zero experience of doing this type of work. We have not even done anything close to this. It was a completely new area for us.
And the issue here was that while this potential client liked our thinking and they liked our insights they didn’t believe that we could do it.
It was something that they felt was better to be given to a firm that had done this before or, at the very least, understood their operations even if the firm had not done this before. So in this particular case, we came up with the idea, we identified the problem and we ended up basically giving the work to a rival consulting firm.
What is the insight here
Now, what is the insight here?
The insight here is just because you have identified a legitimate issue does not mean you have convinced the client you are the best firm or the best person or the best partner to solve that issue.
Think about it for a second. When most firms go to a client and present this really interesting concept or idea, they kind of take it for granted that because they introduced the concept the client is going to link their key competencies to solve the problem to the fact that they brought up the issue. And it does not always work that way.
Most times it does work if you are a firm like McKinsey or BCG, or another major consulting firm. I remember when we used to go into client situations the stature of the firm meant that 9 times out of 10 we would get the work even though we may have never done it before because the brand of the firm was so strong. But there were times we lost. This is one example where we have lost.
How to overcome this problem
Let’s assume you work at a consulting firm that is not known for strategy or corporate finance work, and you want to do the strategy or corporate finance work. You could very well come up with a legitimate issue for a client that needs to be fixed that they have not identified. But unless you prove that you can do it, it does not matter how important the issue is. The client will likely go to someone else. You just created work for a rival consulting firm.
So how do you overcome this problem? How do you show you can do it?
After that disastrous meeting in Santiago some of the changes I made, when I used to represent the firm when going to client meetings, is I used to propose a phased-out approach.
Its very simple. You can offer that in the first phase you will simply sketch out what needs to be done. For example, you can offer a two-week phase where you say, “Ok, in two weeks we are going to sketch out the problem in more detail and we are going to help you understand the problem.”
Then you can have another phase to sketch out how you going to solve the problem. And so on and so forth.
So what you are doing here is you are breaking down a potential project into smaller pieces. While client may be able to say “No” to a 5 million dollar 12 week project, they are less likely to say “No” to a two weeks 300,000 dollars project, because they know if it does not work out over two weeks they can just gut the entire thing and only lose 300,000 dollars.
The smaller project fee is like an option. At the end of the project, the client has the right but not the obligation to move to the next phase. And if they choose to go to the next phase they are exercising their option. If they choose not to go to the next phase then the cost is quite small to write-off.
So the first thing here is to recognize that identifying the problem is not enough. It is not the same as proving that you are the best person or the best consulting firm to address that issue.
And the solution here is to break projects into small phases. Have a front end piece where you sketch out the problem. Another small piece where you design a high-level approach you are going to take. You get the idea.
It is all about educating the client and getting them comfortable. That is what you are doing. You are showing them through these multiple phases that you understand the work and you are helping them to understand it and you are showing them you know how to take this forward.
This is not exactly a new way of building client relationships. But this insight that identifying an issue is not the same as showing credibility to solve the issue is something you have to keep in mind.
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Every consulting firm talks about value-based fees and they usually want to price themselves in this way since the value-based fees model offers a very high margin. Sometimes they succeed. Yet, they usually fail.
This post and related podcast address why value-based fees are widely misunderstood and rarely work in consulting. The key insight is about the forces of supply and demand.
You often find people trying to implement a value-based consulting approach as a cost savings measure, without realizing that they would get more value out of a different approach. So, what’s the goal behind value-based pricing? Why does value pricing not work as a pricing strategy in many instances? Let’s look at the economic value, how value-based pricing consulting fits in the consulting business, and what you should know if you’re considering it with a prospective client.
Value-based fees can only work if certain supply and demand conditions in the market are met, or if your client is naïve. If a firm understands this concept, they have a higher probability of securing higher-margin value-based fees.
What are value-based fees
So let us take a look at what value-based fees are. Let’s assume you go to a client and you tell them, “We believe we can generate a hundred million dollars of savings for you. Will you be interested in considering this engagement? In terms of pricing, we believe value-based fees will be appropriate here, given the enormous value we can deliver. How about fees in the amount of 10% of the value we deliver?”
Now, think about this for a second. Some of you may say, “Hey, hold on a second! That makes sense. We are going to generate $100 million of value for this client, so we should get paid 5% or 10%. That seems reasonable.”
And that is what value-based fees are. You get paid for the value you create.
Package pricing, hourly fees – none of that applies when you’re talking about value-based consulting. Rather than an hourly fee, you get a piece of the pie, i.e. the value you’ve delivered to the client.
Increasing profit, of course, is only one example of delivering value. As another example, you could find a way to create 200 million dollars worth of new revenue for a client and that is how you can try to justify value-based fees. You could go to the client and say, “We believe we can create 200 million dollars worth of additional revenue. If you are interested in considering this engagement we believe value-based fees will be appropriate, given a significant return to you. How about fees in the amount of 10% of the value we deliver?”
Why value-based concept rarely works in consulting
Let’s look at another example to illustrate why this logic often does not work. Assume you have a friend named Sara who has solid skills in software engineering and she works at a company like Adobe or Facebook, or one of the other major tech companies. And because she has these amazing skills she goes to her boss and says, ”I have these great skills that the company truly needs and because of these outstanding skills I think I deserve a 20% increase. Are you open to discussing this?”
The problem with Sara’s logic here is this is not how economics works when it comes to markets. Open markets anyway.
In economics, you are worth what the market says you are worth. So, for example, if there is another person out there in the market who has the same skills as Sara, or worse for Sara, if there are a lot of other people with similar skill-set as Sara, her worth will not be judged by her skills, it will be judged by the availability of those skills in the market.
And if there are a lot of people in the market, Sara’s boss will likely say something along the following lines, “Sara, we appreciate your work and understand you want to be rewarded. However, to stay competitive we can’t afford to pay you 20% more. I hope you will stay with us but if you choose to leave we will just have to hire someone else with a similar skill-set, maybe even at a lower level of compensation.”
So the insight here is that Sara’s salary is not exactly determined by her skills but by the availability of those skills in the market. This is a very important insight, which many people don’t realize.
When multiple people can offer a similar skill-set the leverage lies with the buyer. The only way to charge higher rates is to have a skill or some capability or combination of the skills that the rest of the market doesn’t have and which the buyer needs.
Linking this to using value based fees in consulting
Now how is this linked to the use of value-based fees in consulting?
Many consulting firms think about value-based fees without realizing they have to ask themselves, “Is there anyone else who could do this?” And when I say “do this” I mean to conduct a specific engagement the consulting firm is considering to undertake, such as generating the hundred million dollars of cost savings or 200 million dollars of additional revenue examples we mentioned earlier.
This question is crucial to ask because if there are other consulting firms that could do this, then value-based fees will not work unless the client is naive. Value-based fees will not work in such a situation because there is someone else in the market who can do this work and who could probably do it at a lower fee.
When people think why value-based fees don’t work in consulting, they often think it’s because the value consulting firms create is insufficient or too uncertain to justify value-based fees. This is not the reason. It’s about the value you create but it’s also whether you are the only one who could create that value.
If a client believes your consulting firm is the only one who could create that value then you could go with the value-based fees model. If a client believes many other consulting firms could create that value then they put out a tender, they allow many consulting firms to bid, and they generally will go with the firm that has the best price versus value.
And when the firm hires McKinsey or BCG, a client usually does that because they believe that McKinsey or BCG has something other companies don’t have, which justifies higher fees. The client usually believes that the skills McKinsey or BCG will bring to a consulting engagement are not common in the market.
So when you are working with a client, and you want to use the value-based fees approach, it’s important you convince the client that you have an ability to do what the rest of the market cannot do and that this work is something the client needs.
This is the insight. It’s not enough that you can generate 200 million dollars of additional revenue for a client. It is the fact that the way you will generate 200 million dollars worth of additional revenue is unique and is unique in a way that is beneficial to a client. Basic economics is at play here.
It is common to misunderstand the concept of value-based consulting fees concept. People often think the skills they have is what determines how much they get paid. It is actually the scarcity of those skills and demand for those skills that determines how much they get paid.
The same with a consulting firm. Value-based consulting fees are not based on whether a consulting firm can generate value. It’s whether the consulting firm is the only one able to generate that value.
You can see these supply and demand forces at play all the time in consulting work that becomes commoditized.
Think of something like business process reengineering, which is highly commoditized work. When firms put out a tender they usually go for the lowest-cost provider. Alternatively, think about outsourcing centers. It is a significant way to cut costs but have you ever heard of someone winning an outsourcing tender because they were the best at it? Most likely your answer is no. It’s a combination of price vs value that usually determines which firm will win such a type of engagement. And the power usually lies on the lower end of that scale, meaning price usually plays a bigger role in awarding contracts compared to value when commoditized consulting work is being awarded.
Final thoughts on value based consulting fees model
So in anything you compete, it is not enough whether you are adding value to a client, ask yourself whether you are the only one who could do that. The odds are you are not the only one who could do that. Then the question becomes: can you do it in a way that is unique and can you get the client to understand that your value is unique.
And if you could do that then value-based pricing will work. If you can’t do that, don’t try value-based fees because it will just put a strain on your relationship with your client. The client will likely consider you unreasonable for suggesting value-based fees in such a situation and you will likely get upset with the client when they don’t want to pay you what you think you are worth. And unfortunately, the sad reality is you are not worth value-based consulting fees if your consulting skill is available in surplus capacity in the market.
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Leadership Challenge on A Consulting Engagement
We will discuss a common leadership challenge consultants face on a consulting engagement. There are, of course, many challenges. But one central leadership challenge is how to balance needs for the success of a company/client and the personal happiness of the executive leading the company.
In many situations, the personal happiness of the CEO of a company is always subordinate to the success of the company. Even if the CEO is going through a bad personal situation, consultants tend to define success as whether the company is successful in the short-term. They do not define success through the metric of the executives’ happiness. The CEO may end up personally unhappy and burnt out from being forced to undertake the recommendations we put forward.
And that is a problem for the longer term, shareholder value creation, and succession planning. A company that is performing well but has an unhappy CEO is essentially going to lose that CEO soon.
Setting your consulting firm apart
The problem is that client is not the CEO. If you position your consulting firm so that your client is the primary shareholder, and this makes sense when you are serving a publicly listed company or a SOE (stated-owned-enterprise), the CEO is not your client. The shareholder is your client and you do what is necessary for the shareholder and the CEO gets dragged along to implement those things that are necessary to please the shareholder.
Consulting firms engage with CEOs, but they need to please shareholders.
As such, many consultants put the needs of shareholders first without paying too much attention to the needs of the CEO. The interest of the shareholder and the CEO are not the same. The company can be successful while the CEO may always be burnt out. And this is very common.
Positioning your client as the primary shareholder, and not the CEO, will also help you set your consulting firm apart. It will make you different from other firms like McKinsey and BCG, who would tell you that their primary client is the CEO. On a side note, we believe that serving CEO can be a good model in the private sector. But when you do work in the public sector or for a public company the CEO cannot be your primary client. It has to be the shareholder, which in case of a SOE will be the government and by default the people.
Leadership challenge analyzed: the career success and personal happiness matrix
And, as consultants, we don’t want our clients to burn out. That is something we have learned from many of our consulting engagements. You can implement the right strategy, everyone can be successful but you can end up with a CEO who is unhappy. CEOs who are unhappy leave and nobody benefits from that outcome. Not the shareholders, not the CEO, not his leadership team, not customers and certainly not employees.
That problem may be simplified in a two-by-two matrix.
One axis is made up of personal success, personal unhappiness/happiness and the other is made up of career success and career unhappiness/happiness. When management consultants come in, they focus on career success. They are not interested in personal success. They naturally assume that when the consulting engagement is successful and all the company’s problems are fixed, the CEO’s career would be secure as well.
But what we find with the studies is that executives often have a short shelf-life. They burn out fast. And this leadership challenge is especially noticeable if your client is a primary shareholder(s) and you are serving a state-owned enterprise or a public company.
One of the things that is very common is that while the consulting team is pushing through the project, no one is really helping the CEO and the management team to understand how they can leverage the changes taking place to set personal goals, achieve those goals and manage the uncertainty to balance their own success with the success of the business.
At the end of the day, what would be ideal for us is that we saved the company and developed the strategy that makes perfect sense but we do not alienate the CEO. To that end, we want to have someone who can ensure that there is a balance in the CEO’s life and that he/she is going through the process without burning out.
Who should care?
Sometimes CEOs suffer traumatic personal situations and there is no one looking after them. Consultants cannot do so given the way they have traditionally engaged clients and because we represent (or at least should represent) the shareholders. This comes back to what we call a ‘Jeanie Duck’ moment.
At FC, when dealing with this leadership challenge on consulting engagements we realized pretty quickly we needed someone who has the ability to work with the executive team, preferably one or two members, to ensure that while all the study changes are taking place, they are able to manage their personal development. So, that as a result of the consulting engagement, they are able to be fulfilled, happy and not burnt out.
We needed to find someone who would be a mentor to CEOs. A peer-counselor. When we first started doing this, all of the people misunderstood the role. We needed someone who is sincere and can gain the trust of the CEO and not breach that trust. That for us was the number one criterion.
Besides, we needed someone who was going to offer feedback to the engagement team without betraying the client’s confidence. We codified that into a set of rules to help with selecting the person.
When thinking about these rules, remember that the nature of the work we do in consulting is for male clients primarily. As a management consultant serving large organizations, you are not going to have many female clients. Unfortunately, this is still the case and going to be the case for quite a while. There are some positive changes occurring but they are happening very slowly.
The second criterion was that we did not want someone with big three (McKinsey, BCG and Bain / MBB) firm experience, but the person should have some exposure to management consulting. This was deliberate because, as an operating practice, we hire people with enormous potential and then train them in our way of thinking. We believe our value system is different and worth preserving.
Third, we felt that the person should be female because we are a bunch of alpha males and we needed a different viewpoint. Someone who is coming from a different background and who would challenge the things we are saying.
The other point is that we wanted someone who was young and accomplished because of all the changes taking place in management consulting with big data, restructuring and the new field of integrating psychiatry with leadership. Plus the person would have to deal with very senior executives. Moreover, if we just bring in a carbon copy like us we would never inject new ways of thinking into our firm.
Finally, we wanted someone who has done some thinking on issues facing big companies. It does not have to appear in any major journal but it has to do with practical leadership: motivating and getting the best out of them. That may be considered our Jeanie Duck moment.
Jeanie Duck was the first person appointed into BCG in 1988 directly into the partnership. She was an artist, a sculptor with a masters degree in arts education, and did not have an MBA background and she was brought in to lead the people development and change side.
So FC recruited a new partner initially dedicated to working with our executive clients. For every project, our objective was to make sure we engineer the delivery of shareholder value in a way that the CEO ends up having a fulfilling experience. We wanted to make sure we found a way to reinvent the CEO’s desires, passions, and enthusiasm for the business while we did the same for his/her company.
How to approach the CEO’s leadership challenge on any consulting engagement
The lesson here is that career success is not the same as career happiness. One can be very successful in their career but they may burn out quickly and therefore not grow. That would be unsustainable. We want to make sure that executives of our clients use our interventions as an opportunity to reinvent their careers in a way that enhances their happiness. Change is not meaningful if the consulting firm is only interested in shareholder value and the technical side of things. The people side of things is very important.
The CEO needs to feel personally motivated, invested and incentivized about what is happening. We believe if the CEO is happy through the process, his happiness would cascade across his leadership team. This is a new model but it has worked for us.
Fundamentally, we would like Firmsconsulting members to approach any consulting engagement from two sides. One side is from the pure and traditional consulting intervention where you have to fix the client problem. The other side is the human side where you have a team looking at how to grow with the leadership team and make sure that they see it as an opportunity to reinvent their careers.
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