This is the second podcast for the power sector corporate strategy study we will soon release as part of our Executive Program.

This podcast explains a critical challenge in most major transformation type studies: early hypotheses. There are usually 4 to 6 streams of work from business case analyses to business unit strategy. The issue here is that all the other streams are dependent on guidance from the corporate strategy stream, but the corporate strategy stream needs time to arrive at its recommendation.

Coming up with that initial set of recommendations is scary and hard to do. We essentially need to be about 80% correct after only being with the client for a few days. How do we do that?

In this podcast we explain the technique and logic we use to arrive at the likely recommendation despite being just a few days into the study. This initial recommendation is vital in the first few days of the consulting study to guide the other streams. We also explain how to generally validate the initial hypotheses.

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22 responses to Early, bold hypotheses for the study

  1. Hi Vinay,

    We had a look on the system and it seems you are not a subscriber to the Executive Program. We may very well be wrong about this, so maybe email through the website and we can check some of your login information to confirm your details!

    It is best to not post login details in the comments.

    Michael

  2. Michael,

    For some reason my videos section is not playing the videos.

    Can you help me resolve the issue. I will watch the videos that you mentioned and look into your questions as i mentally revisit the study.

    Appreciate your help.

    Vinay

  3. Hi Vinay,

    I have done many, many studies across about 11 years in consulting and we use this approach for them all. Every McKinsey and BCG study uses them and it is very accurate.

    Why it is accurate is explained in some detail in the training videos. I am not aware if you are a subscriber and watching them.

    Think about it this way. You mentioned you did 2-3 months of very technical analysis. Why did you conduct those analyses? Should the choice of analyses not be driven by the hypotheses? Are those hypotheses not the early version of the answer? Are those analyses not linked to the drivers of the core problem? What was the core problem you where trying to solve?

    if you where simply conducting a lot of analyses without any direction, then is it not inefficient? How do you know the analyses you did simply covered a lot of problems versus the main issues related to the core problem?

    I have done studies across many sectors and types of clients and I have never seen this approach fail if it is done right. So my advice is to watch the training videos to see how we break them down step by step. You will have to see it to understand it.

    Michael

  4. Michael,

    I know that Week 1 at any client engagement is very crucial in terms of Image management, Expectation Setting and establishing the team as an “A” team – so that the client’s nerves are settled and they believe that they have made the right choice in selection of the consultant.

    However, how can you have a 80-85% accuracy rate on the hypothesis being built in first 2-3 days of being at a client place

    E.g. We were trying to help a health insurance company with “missing dollars” related to deductibles,co-payments etc…however it took nearly 2-3 months of intense technical and data analysis to finally figure out where the issue really was…. and no amount of decision trees could have helped us figure out that the problems was in fundamental design of the core product….

    hence my question…about accuracy rates.

    Also how does this apply to consulting engagements around Regulatory compliance, PMI which are more projects required an “body of knowledge” and then complete look into client environment to figure out if they are in compliance or out of it…..or how to draw out an integration road map.

    Vinay

  5. You are welcome Kevin.

    This is a very complex study so I understand you will have many, many questions.

    Michael

  6. Bonjour Michael,

    I undertsand now that EI has had enough power to walk away from EE’s needs. I have missed this big ‘management layer’ was causing so much trouble in the podcasts.

    Thanks for explaining,
    Kevin.

  7. Hi Kevin,

    Wholly owned does not imply EI can be ordered around. EI has its own board and is currently committed to client ventures which pull it away from EE.

    While the EI board should theoretically do what is in EE’s interests, it does not mean they will.

    The aim of divisionalizing EI is to carve out that huge management layer which slows down decision making since EE always needs EI’s board approval to shift.

    This management layer is a big problem.

    Michael

  8. Hi Michael,

    Thanks for explaining again.

    Having listened the next podcasts helps understanding better the solution.

    So, regarding the final customer, is it always the company shareholders? Is it because they literally own the company and have thereby the final word? Because they are one of the financial stream and could support the need of money?

    If EE owns EI, can EE force EI to be the priority over other customers? I ask this because I make so little difference between being a subsidiary or a division that I don’t understand why EI skills cannot be deployed fully for EE, straight away (EI could still be recentered though).

    Kevin.

  9. Hi Kevin,

    Thanks for the questions. These answers are definitely provided in the podcasts. I just cannot which ones they are. I would recommend listening to all.

    In a nutshell, there is no reason for EI to have the independence of a subsidiary. There is a severe skills shortage in the sector worldwide and those skills and the divisions in which they operate need to be better connected to EE’s needs. EI was created to pursue non-regulated work and that need no longer exists.

    Finally, due to the way electricity prices are set, the regulator would look at the costs incurred by the regulated asset base and allow those to be claimed via increases to the electricity prices. This is another reason to integrate it.

    Yet, the main reason, is that the need to remain independent no longer exists.

    We focus on the shareholder because if you focus on the shareholder we will ALWAYS do things that create value for the company. If we focus on the CEO, we could end up doing things useful for the CEO, that are not beneficial to the shareholders.

    Technically speaking, EI’s shareholder is EE, and EE’s shareholder is the government, and the governments shareholders are the households. So we are doing what is good for the households.

    Yet you have to be pretty strict to distinguish between what is good versus what is populist. We will focus on what is good for them versus what is popular with them.

    Hope that makes sense.

    Michael

  10. First, thanks for giving access to the power study podcast. It is extremely interesting.
    It rise 2 important questions:
    1. Defining your client : I understand your thought process but I remain confused. Why Empire International’s shareholder is your customer, rather than its CEO, businesses’ CEOs, Empire Enegry’s shareholder(s) or households?
    2. Despite your podcasts, I have not been able to understand why Empire International would be much useful to the client as a division than a subsidiary, it is not clear what would be the additional benefits. Could you explain me a bit?

    Kevin.

  11. Hi Marut,

    Happy to hear that. Yes, there is a great deal of ambiguity in these massive studies. Consultants who must follow a process or dislike chaotic environments will not enjoy transformation studies.

    Things change all the time.

    Michael

  12. Michael, the podcast on TRANSFORMATION VS CORP. STRATEGY also answered my question to a very large extent. As you highlight in that podcast, this is a transformation study and not a general study and that simply means that the “advance team” will have to play the role of study team’s eyes and ears during the initial part of the study. There may be some alteration / alignment as study progresses, but this is necessary due to the nature of the study (transformation) – things are not so clear and pinned down to begin with.

    Marut

  13. You are welcome Marut.

  14. Thanks for clarification Michael!

    Marut

  15. Hi Marut,

    There are two reasons.

    First, they do not need to wait long. The delay is a week at most since we are fairly confident of our hypotheses being correct. That delay is manageable.

    Second, this is a transformation study where time is not really in our control. The country could fail the longer we take so we need to compress things. I may be being a bit dramatic here, but at the very least they will suffer extensively.

    We do not have the luxury of perfect planning for the study.

    In another time and for another client without such pressing needs, we would have phased the study as you recommended.

    Michael

  16. Great podcast Michael!

    I could really see how thinking about the shareholders as the client rather than the CEO can make such a major difference to the strategy and logic being thought out.

    A quick question though: you mentioned that several other streams are waiting for a outcome from the corporate strategy stream, especially the business unit strategy stream. Why was the study structured in this manner? Would it not have been better to do corporate strategy as a phase-1, and start out with business unit strategies in phase-2?

    Marut

  17. Hi Bill,

    You are asking all the right questions and those are things we need to indirectly answer to some degree. At this point surviving is more important than thriving so we believe the case can be made.

    Yet, they are going to be giving up lots of money. Yet, we will soon finish the top-down financial analyses to see if Empire International is actually making money in the unregulated business. That is assumed, but we feel it is unlikely.

    It is just too competitive and it is unlikely a major strategy review would be needed for a business making enormous amounts of money.

    Michael

  18. Krishna,

    This is something the study is now trying to determine – how/why it is beneficial for the change to occur.

    Michael

  19. Framing the client as the shareholder versus the CEO is unconventional but, I’m more convinced after this podcast that its absolutely right. This study is going to be interesting to follow. It seems hard to believe that the CEO / Management Team of Empire International will be holistic enough in their thinking to accept, trust, and buy-in to the concept of divisionalizing their firm. What will be more intriguing to follow will be the reaction of Empire Energy to this dialogue. They chose to spinoff a set of capabilities that they saw as non-core years ago and have now come to realize that these capabilites are now core to their continued success. Will they accept this? What opportunities are they giving up with the growth of Empire International as a subsidiary in order to divisionalize the firm and shed capabilities that don’t matter to the immediate term needs of Empire Energy?

  20. Thanks for the clarification Michael. I think the last point of gradual buy-in of recommendation is a good one. I am always challenged when to push too hard very early on vs the other way around.

    On the note of legal shareholders, how is it beneficial for them if Empire international is divisionalized vs standalone? It would be mean lesser absolute profits, loss of control for them right? Maybe I am missing the point on how to frame the key question.

    Regards,
    Krishna

  21. Krishna,

    We refer to the legal shareholder which is the power utility. They are our ultimate client.

    We can proceed as far as we want to. Just because there is a threat of the client shooting down the idea does not imply the idea is wrong. If you worry about whether or not a client will accept the correct recommendation, you will never be able to say the truth as you see it.

    We will not approach the CEO on this just yet. We need to gradually bring them around to our thinking.

    So we will be honest, but not arrogant. We will slowly build up to the recommendation by bringing on board many of the key stakeholders.

    Michael

  22. Great podcast Michael. Quick clarification though, here the Shareholders refer to Citizens of Africa not the Company Shareholders right?

    Am curious to know if one does approach the CEO with such radical ideas, how far can the consulting team proceed before the idea is shotdown by client (Case of absolute defiance)?

    -KSK

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