Moral Duty in Management Consulting & Business
I want to end today’s issue of Monday Morning 8 a.m. with the final story, which is titled, “Moral Duty.” This comes from an event in my past. For those of you who follow our programs like Partnership. Memoir or Rebuilding a Consulting Practice, you know that I made a big switch in my career. I changed offices when I was an up-and-coming associate. I was being promoted rapidly, and I moved into a new office.
I was in the energy sector when I moved, and I moved to the new office and attended a meeting with the energy partners and energy consultants from that office. I assumed that I would be welcomed with open arms because their primary client, an energy company, was a client at my old office. I’d spent many years there—I basically built my entire career there. I knew the chief executive officer, the chief financial officer, the chief operating officer. I had served as chief of staff to the CEO when he had just joined. The consulting firm has seconded me as his chief of stuff. The CEO would also wave at me, even in a busy area from across the hall.
I’d worked with them on their information technology strategy, business unit strategy, energy security of supply studies, organizational design studies, R&D studies, and corporate strategy studies. I’d worked on all of their recent strategy planning work. Even though I was an associate, I had a deep knowledge of this client.
When I joined the new office and attended this meeting, I was very happy because I thought that while I joined a new office, I had a deep track record with a client that was a major client for this office. It was an important client. It was a great privilege to serve them, and these were consultants and partners who would clearly want to know how I could work with them. I remember going into this boardroom as a new member of the team. There were about 12 people in that meeting: three partners, one senior partner, two junior partners, a mix of engagement managers and associates and what we now call expert specialists.
I had assumed that because I had done so much work with this client, my views would be taken into consideration. They were to some degree, but the majority of the discussion was the fact that that senior partner had a different point of view from me in terms of what this energy client should do. That partner believed that the energy client needed to get ahead of the climate change trend and start investing in carbon capture and going carbon neutral and moving into new technologies.
I was of a different viewpoint. I knew climate change was a big issue, but it’s one thing to know a trend. It’s another thing to time a trend. You have to enter a trend at the right time. If you enter too soon, you incur costs, and you never get the return from it. So, I thought they should go down the climate change path, but they should do it slowly, maybe acquiring companies that were specialized in this. Secondly, they should not move into new technologies that were untried. They should buy-in slowly but keep their current operations as a cash cow to fund the transition.
We both presented and talked about it. The firm has a right to dissent rule, so I could talk and no one could tell me to stop. But what normally happens when you have a senior partner and two junior partners is that everyone listens to them and follows their viewpoint because they don’t want to upset that partner because they need to be on his projects. They don’t want to be seen as challenging a partner in a meeting.
I was the lone wolf, saying, “You shouldn’t do this. The company does not have a strong enough balance sheet. If you go down this route, it’s going to be a huge distraction. They can’t manage the level of capital projects. The trend is real, but you have to time the trend. You’re going all-in on unproven technologies that are extremely capital intensive. At the same time, you’re offloading old and dirtier technology, which is cash-flow positive, and you’re going to create a cash trap for yourself. It’s not going to look pretty.”
So, we had this challenge. In this meeting, I took an action which I now consider one of the deepest regrets of my life. I didn’t feel that I agreed with the partners, and I left the energy practice. For those of you who followed my career, you know that I went into the resources practice. That is the reason why. I didn’t agree with the advice they were giving the client, and I didn’t want to be part of it so I left.I've obviously followed that client over many years, and it's in a little country. It's a big taxpayer there. Securing energy supplies is a big deal in a little country. If you don't price fuel correctly, you can cause spiraling inflation, lines… Click To Tweet
But there was a deeper regret here. I’ve obviously followed that client over many years, and it’s in a little country. It’s a big taxpayer there. Securing energy supplies is a big deal in a little country. If you don’t price fuel correctly, you can cause spiraling inflation, lines outside of gas stations, and foreign direct investment to collapse.
Over many years, I’ve watched that company follow that senior partner’s strategy and basically collapse into chaos. As it happened and warning signs were raised by credit agencies and lenders from around the world; as each subsequent, massive capital expansion project and the new technology went over-budget and over-timeline; as it was commissioned and didn’t work; as it had to be abandoned in some cases so that more money had to be spent; as each of those things trickled through year by year, I watched the narrative of this country change from hope to despair. Today, because the energy sector is in so much turmoil, the country is pretty much a disaster.My regret here is I had a moral duty to not say because I could not convince the partners to change their mind, I was going to back out from it. It is probably the biggest regret of my career that I did not force the partners to change their… Click To Tweet
What is my regret here? My regret here is I had a moral duty to not say because I could not convince the partners to change their mind, I was going to back out from it. It is probably the biggest regret of my career that I did not force the partners to change their minds. I should have said, “No, I disagree with it.” I should have done everything I could to change their minds because I knew it was a bad decision. You can imagine the impact on the country and the citizens’ well-being. Generations are going to be affected by this. Poverty has gone up. Foreign direct investment has collapsed. Diversification of the economy is a pipe dream. Children aren’t able to get the medicine they need because the government doesn’t get its tax revenues to pay for that.If I think I have a better way of solving a problem, a better way of developing a leader, a better way of helping people unleash their careers, it's my moral duty to do everything in my power to make sure that I get them to work with me versus… Click To Tweet
By not speaking up, it caused a tremendous, burdensome, traumatic ripple effect across the country. Today, I believe I don’t want to make that mistake again. Therefore, I now act on my moral duty. If I think I have a better way of solving a problem, a better way of developing a leader, a better way of helping people unleash their careers, it’s my moral duty to do everything in my power to make sure that I get them to work with me versus working with someone else who may not care about them, may not take the time and effort to give them the best training, and, worse, may give them something that’s actually going to damage their career.
This is why I work so hard to put out podcasts, training programs and video programs—because I want as many people as possible to not experience what that client experienced. I feel if someone doesn’t work with me, they’re going to work with someone who might just not care. They may just get the money, move on and everyone will suffer.Everything we do is driven by a moral duty. It’s our job to make sure that clients know about what we're doing and try it because we know it works. We know the results are there. Click To Tweet
What you need to think about is your moral duty. Everything we do is driven by a moral duty. It’s our job to make sure that clients know about what we’re doing and try it because we know it works. We know the results are there. Clients who work with us see a tremendous and dramatic change—huge changes in their careers over a few years, from being analysts all the way to SVPs, EVPs, COOs and CFOs. But it’s the impact they make on their economies, on their businesses, on their communities and on their families that matters the most.
I want to leave you with that thought: What is your moral duty? How will you act on it? That’s the most important task you will have in your entire life.
This is an excerpt from Monday Morning 8 a.m. newsletter, issue #21. Many of you have found Monday Morning 8 a.m. so useful that you’ve asked us to release a book version of these newsletters. We’ve obliged and released a Kindle version, which you can find on Amazon under “Strategy Insights.” It contains the insights from previous Monday Morning 8 a.m. issues, edited into a bite-sized format that’s very easy to use. And you can learn about other FIRMSconsulting books here.
We use affiliate links whenever possible (if you purchase items listed above using our affiliate links, we will get a bonus).
Starting a strategy consulting firm (ex-McKinsey, BCG, Bain, Deloitte, etc.)
Hi everyone and welcome to another episode of the management consulting podcast series where we discuss the business of running a consulting firm. In today’s episode I would like to talk about the route behind the creation of most boutique strategy consulting firms and offices of larger firms.
For example, if KPMG wants to open an office in a new territory, it will bring in a consultant who has either worked at KPMG or a consultant with expertise in that local region from a rival firm. If you are launching your own business, the odds are very high that you have already worked at a Deloitte, a McKinsey, Accenture, or even at a tech firm.
In fact, you bring in the skills of your prior firm into your new organization.
Who usually establishes boutique strategy consulting firms and offices of larger strategy consulting firms
A majority of strategy consulting firms and smaller offices are created by consultants who worked at larger firms and larger offices.
One of the biggest challenges faced by such consultants is that they take an idea, concept, toolkit, framework, or some kind of intellectual property which is usually a very narrow set of frameworks that they repurpose for their new role. This is the way all such consulting firms are founded whereby the root of the firm is that they have been exposed to a toolkit of frameworks which the consultants feel they know enough about and feel there is a market for. The challenge is what happens after that narrow set of skills is exhausted in the market.
Every firm is founded this way whereby the founders learn a set of skills and they feel that that narrow set of skills can be the foundation of a new firm.
What is required to build a sustainable strategy consulting firm or office
There will be challenges if this is the sole source of the value in the strategy consulting firm.
Every single strategy consulting firm when it is founded or every single person interested in management consulting looks at books or journals such as the Harvard Business Review or McKinsey Quarterly. So, for example if one wants to learn how to do a corporate finance strategy study, they will most likely go to the McKinsey Quarterly or read a book on valuation and hope to be exposed to a framework or an approach.
Even when consultants think from 1st-principles, they will use this approach to solve a problem and realize that approach is useful across more than one client. This is how a methodology is born. So there are always these tools and techniques sitting at the heart of a firm and/or office.
Strategy publications are intended for executives
When information or publications are written about strategy, there are two audiences. The first audience is executives, people that run Ford, Google AT&T, who are not interested in how to develop a framework. They are not interested in how the study is structured or in the thinking that goes into the development of the approach. They just want to see the overall final picture. A lot of strategy publications cater to this audience.
The other audience are strategy consulting practitioners, the people that put together the analysis and the thinking that serves a client executive. Those are the people who need to know how to develop a framework to figure out, for instance, how AT&T can reduce expenses for the capital needed to rollout a new network.
A lot of the things you read about strategy, if you are a strategy consulting practitioner aka strategy consultant, is not designed for you.
When McKinsey is publishing the McKinsey Quarterly, it is not trying to advise other consultants on how to develop new ways of thinking and develop new frameworks and new ways to solve a problem. In fact, it is trying not to educate you to do that because then you become a competitor to McKinsey. So, its audience is executives and the material it publishes is about how those executives can understand some important insights to manage their business.
But it’s not explaining to the executive “okay if you’re in the telecom sector – how do you go about figuring out the problem you have? How do you go about constructing the framework to solve the problem?” McKinsey does not want to train people to do that neither does Bain neither BCG or the Harvard Business Review.
Although with the Harvard Business Review, maybe 10% of the articles do concentrate on that category but it is a very tiny group and shrinking as well.
As a strategy consulting practitioner you need to figure out how to develop frameworks
A lot of strategy consulting practitioners assume that the content in publications such as McKinsey Quarterly are targeted at them. But the McKinsey Quarterly audience is not that of strategy consulting practitioners, but the end user of the engagement. The client. So, as you are learning how to do things as a strategy consulting practitioner, your job is not to memorize frameworks. Those frameworks are for executives. Your job as a strategy consulting practitioner is to figure out how to develop a framework.
Even today the most sophisticated MBA programs in strategy in the world teach you the Porter’s framework or a corporate finance or corporate strategy framework. I have colleagues who are ex-partners at McKinsey who teach at major MBA schools and they also teach frameworks.
But as a strategy thinker your job is not to source all the frameworks in the world but to figure out how to develop them. For instance, if you go to a telecom client you need to ask yourself ”How do I develop this framework to solve this problem?” And it is a very hard skill.
So, how do I learn how to develop these frameworks?
There are two ways to do it.
One is to look at what we teach in TCO around brainstorming and how to develop structures which are frameworks. The other two areas where you can learn this is in our program called “Follow a full McKinsey, BCG et al. engagement”, which has about 270 videos. My favorite one is the Corporate Strategy and Transformation Study where FC Insiders can go to the beginning of the study to see how we structure the problem.
The reason I like this particular program is because in this study there is no clear objective function and no clear problem statement and nothing that you are maximizing. So, it’s a much harder problem statement to develop and then you have to build out the way you’re going to solve it. That becomes your structure, which is a fancy word for saying framework.
A brilliant concept is not enough to establish a sustainable strategy consulting firm
You will quickly realize that the brilliant concept you have – probably learned from your previous employer – does not have that much traction and quickly loses its luster in the market.
As I mentioned before, developing frameworks is very hard. I know many partners obviously and what I have noticed is that over time they develop a framework of a concept, which they think is incredibly useful, and then just stick to it forever. That means that every single client they go to, they have this framework which they have spent their whole lives thinking about and they use it to solve every problem.
There is nothing wrong with that. In case you have a way of thinking about shareholder value creation, you should take it to every client but it shouldn’t be the only thing you take to every client because shareholder value creation is a big field. You have to manage assets within assets, and you need a way of thinking about how to maximize returns on those assets. You would need to develop another framework because every client is so different, and every issue is so nuanced.
Now if you look at the latest work we do around market entry strategy, you would see that our thinking on market entry strategy is radically different from anything anyone else has out there.
When we explain it to people, it makes perfect sense to them but the gist of that is that the first rule of market entry strategy is not to consider entering a market and when we teach that to people they don’t really see how that makes sense until we explain it to them.
FC Insiders have access to all these programs (email [email protected] to learn how to become an FC Insider). Although, for a limited time only, if you go to firmsconsulting.com/promo and optin for email updates you will get access to sample advanced episodes that we used to teach FC Insiders. But I am also going to teach you some concepts here.
The idea is new. You love the idea. You evangelize it. Clients listen
I have known many people who have left consulting firms at various levels. One of the primary reasons they leave is that they have an idea that they have been exposed to at the consulting firm. They have used it with the client in an engagement or a series of engagements and they love the idea. They think there is a market for the idea. They love the idea so much that when they take it to the client, they evangelize the idea. They think so highly of it and the client listens just because the consultant is so captivated by the idea.
But here is the thing you are going to face.
You develop idea fatigue. You have less enthusiasm. You need to dress up the idea.
Over time, if you are still repeating the same idea to clients, even if the idea is new to a client, it is not going to be new to you. You know the idea is getting old. You know your original employer is coming up with new ways of thinking. Even if the client does not know your idea is old, you are aware that your idea has a sell-by date.
So, whether you like it or not, you develop idea fatigue. You’re so used to repeating the whole song and dance about the framework, structural approach to solving a problem that you go into a mechanized approach whereby you just talk through it not because you’re excited or because you’re following what the client is saying, but because you have an elevator pitch.
You stop thinking and just talk.
When you have an elevator pitch, you always have less enthusiasm and you feel the need to dress up the idea. So over time when you take the approach to 50 clients you think that at least 12 of them need to be more impressed, even though its really you suffering from idea fatigue. So you start expanding the idea even though the idea may make perfect sense and still may be valuable.
You start dressing it up because in your mind the idea does not make a lot of sense anymore or at least it’s tired.
The idea is old. You have no ideas. Your business is built on the original idea. You double down
The idea is now officially old. You have no new ideas because you never learned how to develop frameworks. You just memorized a few that got your business off the ground. Your entire model of being a consultant was to go find a framework and then show it to a client and get paid for it.
Just because you have a new framework that you do not fully understand and do not know how to use properly doesn’t mean you are adding any value to a client. The job of a consultant is not to have a good framework that they misuse, but to have at least an okay framework that generates a good solution for a client. So, focus less on having the best framework and doing more with that framework you have.
We get a lot of emails from people asking for frameworks and I understand that they are under pressure and they want to use a framework but what if you have a framework? How many people have the Porter’s five forces framework? I think we can all agree that Michael Porter probably spent a lot of time thinking through that framework. But I have never seen a strategy developed on the Porter’s five forces framework mainly because people do not know how to use it.
Same with the profitability framework. It is probably the most well-known framework in the world, but most people do not know how to use it.
An older framework used correctly is far more effective than a new framework that you cannot use appropriately.
Coming back to this. You are stuck with the framework you have. You left the firm so you cannot get access to new frameworks, so you double down on the framework aka the type of business you have. I was looking at something developed by a pharmaceutical pricing consultant from McKinsey a few days ago and he has this very detailed approach but that is all he has because it is the only thing he knows.
Every single problem he sees in pharmaceuticals is related to his framework and even if it is not related he will bring it back there. That is the danger you face when you have not developed a skill of building unique frameworks for a particular unique problem. If a client problem arises which could be very lucrative but you don’t have the ability to build an approach to solve it, you will default to the frameworks you already have.
And if problems could be solved with standard frameworks no-one would need to pay consultants millions of dollars. Clients could buy a textbook with frameworks for $50 and use the frameworks from there.
You are older. It’s hard to develop new ideas. You methodize the idea. You make yourself an expert in the idea
Now as you get older, and in consulting we age much faster, it is hard to develop new ideas. Never ever develop age defying serum from the DNA of a management consultant. Its a bad idea.
What I have seen is that all the consultants who have not developed the ability to develop frameworks, and new ways of thinking, double down on the idea that started their business and develop methodologies around it. So rather than approaching every problem as new and building a unique framework around it, they take that framework that they inherited from their previous employer and start building in detailed steps behind it.
Then they will go to clients saying this is their approach and that they know exactly what they are doing. They will then make themselves an expert in the idea and may trademark the framework. They will start saying “My name is Malcolm Peterson who is the founder of the advanced procurement optimization methodology. Registered trademark…”
These things develop with good intentions but indicate bad underlying problem-solving skills. And this happens to all firms. Even firms founded by ex-McKinsey partners. How many ex-McKinsey partners have founded thriving boutique consulting firms? Think about it, how many of them have lasted more than five years, let alone 10 years? I personally only know of one. They all have given up.
Not because they are not smart. They get lazy. Developing a new customized approach to solve every problem takes up a lot of brainpower and nobody wants to do that. It is incredibly hard to really solve a problem from 1st-principles each time. But each time you do, you create a new framework.
And if you could develop that knowledge, which the is the main competitive advantage of a consultant, it is virtually impossible to use. That sounds counter-intuitive, but it is not. (Let us know if you want to know more about this competitive advantage and why consultants fail to maintain it.)
So, for example, if you are an MBA student or you are starting your own firm you’ve been taught that strategy is a set of frameworks. Remember, that is strategy for an audience that are executives. They are interested in frameworks. If you are a strategy practitioner or strategy consulting practitioner, you need to start developing frameworks and approaches and not memorizing them and collecting them.
Self-Assessment: Compare your own performance/planning to where you should be
So, here is a self-assessment. When you are talking to clients, ask yourself this, “I will focus on a problem versus an approach because…” I have explained to you why you will focus on the problem versus the approach. The approach is the framework. You do not focus on the framework because if you only focus on frameworks and never focus on the problem, you never learn how to build a framework to solve the problem. You need to focus on the problem and then develop an approach to solve the problem, which becomes your framework. If you focus on the approach, all you are doing is looking for the right framework.
I use the market entry strategy as an example because it is a classic example where everyone is taken aback when they see why a very conventional framework is wrong for market entry. You must explain this to the client because clients always see standard frameworks. You must be able to explain to them why you are not going in with the standard framework.
Or let us assume that you have a framework that is perfect for the client. In that case use it. But a lot of times what you find is that the framework that the client wants is not correct because they have not assessed their problem correctly. If the problem statement changes, the approach to solve the problem will change. If the approach changes, the framework will change because the framework is the approach.
So how do you lower a client’s resistance to not using traditional frameworks?
So, must get comfortable explaining to a client why in certain situations you are not using a traditional framework. But you need to develop a new way to solve the problem.
How will you lower resistance to this? Well, I’ll talk about it more later but basically you lower resistance by offering them a chance to see how you would do this for free and I’ll show you how this is done in a few more episodes but when I say free I don’t mean working for free completely.
I have done such work when I was at the firm and we charged hundreds of thousands of dollars, but there are times when you do free work. You have to do it strategically and I’ll talk you through that.
Avoid the urge to build long presentations. People always fall for this trap whereby they think that things will just be easier if they can have some long-detailed presentation to support their thinking and talking. It never works that way. It is just going to slow you down and never teach you how to talk to clients. Clients buy on trust. Not the length of a presentation.
If you are interested in more information on how to build a strategy consulting firm, what I would recommend is to write a comment on YouTube under this video. This is because we use the comments on YouTube and Reviews on iTunes to guide future episodes. So, tell me what are the things that you liked about the episode and questions that you want answered in future episodes. Put it in and we will build it into future episodes. As always, I look forward to speaking to you in the next episode.
If you want to see samples of our advanced training materials go to FIRMSconsulting.com/promo and sign up for free to receive sample materials.
Succeeding as a Management Consultant
When people think about the business strategy we often think about the field of strategy consulting/management consulting and firms like McKinsey, BCG, et al. If you are interested in learning how to conduct a management consulting engagement, you will likely enjoy this book. Succeeding as a Management Consultant is a book set in the Brazilian interior. This book follows an engagement team as they assist Goldy, a large Brazilian gold miner, in diagnosing and fixing deep and persistent organizational issues. This book follows an engagement team over an 8-week assignment and explains how they successfully navigate a challenging client environment, develop hypotheses, build the analyses, and provide the final recommendations. It is written so the reader may understand, follow, and replicate the process. It is the only book laying out a consulting assignment step-by-step. A great book if you want to enhance your presentation skills.
Bill Matassoni’s (Ex-McKinsey and Ex-BCG Senior Partner) Marketing Saves The World is a truly unique book. Never before has a McKinsey partner published his memoir publicly. This book is a rare opportunity – a true exclusive – to see what shapes the thought process of a partner and learn about marketing and strategy. The memoir essentially lays out McKinsey’s competitive advantage and explains how it can be neutralized. A great book if you want to enhance your presentation skills and communication skills.
Turquoise Eyes started off the groundbreaking new genre developed by FIRMSconsulting that combines compelling narrative while teaching problem solving and critical thinking skills. Set after a bank begins implementing a new retail banking strategy, we follow Teresa García Ramírez de Arroyo, a director-general in the Mexican government, who has received some disturbing news. A whistleblower has emailed Teresa with troubling news about a mistake in the loan default calculations and reserve ratios. The numbers do not add up. The book loosely uses the logic and financial analyses in A Typical McKinsey Engagement, >270 videos.
WHAT IS NEXT? Sign up for our email updates on FIRMSconsulting.com/promo. This way you will not miss exclusive free training episodes and updates which we only share with the Firmsconsulting community. And if you have any questions about our membership training programs (StrategyTV.com/Apps & StrategyTraining.com/Apps) do not hesitate to reach out to us at support @ firmsconsulting.com. You can also get access to selected episodes when you sign-up for our newsletter above. Continue developing your strategy skills.
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What is productivity and how can it be increased?
Every company wants to raise its productivity. We all want to raise our personal productivity. Most businesses understand the importance of productivity and believe they have a plan in place to improve it.
We often assume doing more, producing more or completing more tasks increases our productivity. Despite sitting at the heart of competitive strategy, productivity is often misunderstood. We will define productivity and explain how it should be used to develop a strategy and manage the operations of a business.
Summary: Productivity is the ratio of the total value of output divided by the total input cost. A competitive strategy is a plan to deploy a competitive advantage to increase productivity. A company essentially pursues one of two strategies to increase productivity: focusing on the output value or focusing on the input costs. It is a common mistake to increase productivity in the short-term by focusing on the wrong lever. The task of a COO is to organize the business to raise productivity by maximizing the lever the board has endorsed.
Viviana ran a lemonade stand. It was a basic stand outside her home composed of some old apple boxes. Viviana had the most basic ingredients, no branding, no marketing, and no real understanding of the market.
She was 10 years old after all.
She plucked some lemons from the scrawny-looking lemon tree in her backyard, used tap water and sugar she could find in her pantry. The sugar was so old it had settled into crystalline blocks in the packages and needed to be broken apart with a spoon.
Viviana sold 20 cups in that day for $1 each, but her total cost of running this operation was $10 (her initial investment to set up everything) and there was no opportunity cost. That means if she did anything else with the $10 investment, she could not make more than $20. So, her profit was $10.
Elena’s competing business
Her friend, Elena, a few blocks away decides to do the same thing. Elena is competitive. She is far enough away that she does not impact Viviana’s business in any way. She figures out a way to use riper lemons, so they are naturally sweeter. So, she cuts down on sugar costs. Elena also sells 20 cups at $1 but makes a profit of $14 off a cost base of $8.
She takes the $4 additional profit (versus the $10 Viviana made) and invests in better branding for her cups. Her mom prints out a photo of Elena with her dog and sticks them on the cups. Due to this, her profits rise to $20 the next day.
Elena now has $10 additional profits (versus the $10 Viviana is making) which she invests in better lemons, sparkling San Pellegrino water and setting up another stand.
Her profits rise to $30 a day.
WHAT IS PRODUCTIVITY
Productivity is measured as the output value divided by input cost. There is no other definition of productivity.
It is incorrect to define productivity as the speed at which one completes a task or the number of tasks completed in a year. This is because completing a task quickly that is of little value or completing many tasks that add little value will actually lower productivity. Incurring a significantly higher cost to perform the same task of the same value as a competitor makes one relatively less productive.
Completing just one task over an entire year that is very valuable, relative to the cost of completing the task, means one is very productive. Understanding productivity is important.
It will change your life if you manage your schedule with this definition.
Elena is more productive than Viviana. Her ratio of output value divided by input costs is higher since Elena’s profits are higher off a lower cost base. Assuming Elena wisely invests this tiny additional profit, she will slowly but surely grow and become more and more profitable than Viviana.
Elena starts with changing the branding on the first day.
By the second day, she has changed the lemons, water, and opened a new location.
Imagine the impact of the improvements if she makes 20 such improvements in each month.
This is why productivity matters.
A more productive enterprise generates incrementally more value which can be reinvested in the business to keep growing.
An unproductive enterprise cannot make the necessary investments to grow, fight in the market, introduce new products, block competitors, attract talented employees, etc.
A productive business can do so, and the most productive enterprise can do the most. It will have a major advantage in the market. Crucially, unless Viviana raises her productivity or finds an investor, she will never have sufficient excess cash to compete with Elena. And if she continues to invest in less productive activities, Elena will always overtake her.
And as Elena expands, this becomes harder for Viviana to do. So, coming from behind is hard to do with the same business and/or business model.
There is no such thing as a productive or unproductive business/person. There is no absolute measure of productivity. A business can only be less or more productive relative to some comparison business.
Productivity is always a relative measure.
So, when someone says, “I am very productive,” the response should always be, “Relative to whom?” This is because competition is always between two or more companies/people and if productivity is essential to competing, it can only be measured relative to competitors.
The next question should be, “Why are you comparing yourself to this person/company?”
The principle of productivity applies to people, their lives, and/or careers. In a manner of speaking, we all start with the same cost base, only 24 hours in a day. For example, someone who invests in themselves to study, build relationships, understand clients, etc., will likely earn a higher salary than someone who does not do much of the above and, partly as a result, earns a lower salary.
The high-income earner is typically left with greater cash on hand at the end of the year to further invest in their development. Provided the investments are made wisely, their productivity ratio (total output value divided by total input costs) should rise. That is, their productivity should keep rising.
It is a virtuous cycle that starts with very little results at first.
And they will have incrementally larger and larger excess funds to reinvest to sustain earning higher and higher returns. Yet, it does not matter where you start. Even if you start at the lowest possible career level, as long as you keep earning some excess value and continue wisely reinvesting this excess in your development, you will benefit significantly in the long-term.
It adds up like compounding interest. This is compounding productivity. It’s a term we coined.
Within FIRMSconsulting we follow this philosophy.
COUNTRY / CITY/ REGIONAL PRODUCTIVITY
The very same principle applies to a country. A country is more productive if it is producing incrementally more value relative to other countries. It does not matter how poor the country is. Provided it keeps investing the money wisely to increase productivity (raise output value at a faster rate than input costs relative to competing countries), it will end up with more funds to invest.
And since a country’s total productivity is the aggregate of the productivity of all individual businesses, people, organizations, etc., we can look at one business to explain country productivity.
For example, a factory in a relatively poor country may have a total input cost of $20 to produce one product item and let’s assume it takes a full work day to produce that one item and it takes only one worker to make that item.
Of the $20, let’s assume $13 is labor costs and $7 is all other costs. If we assume the factory is paid $22 for the product, it generates $2 of profits.
Assume $0.50 is invested in better production, $0.50 in R&D, and $0.50 in salaries, the factory takes a $0.50 profit on each product.
That may not seem like much.
Assuming the investments are made wisely, the factory can grow, and two things happen.
First, more people who never earned much start earning this base salary as the factory hires them. They are naturally better off, can consume more, save, and pay taxes.
Second, over time, their salaries increase due to inflation, improvement in skills, and demand for skills. Over 30 to 50 years the changes can be dramatic.
Look at China, Singapore, and South Korea. This is essentially what they did. The key is to be consistent. Countries, like people, sometimes start with unfair disadvantages. Provided you are earning even a little excess cash that can be redeployed and provided it is redeployed into the business wisely, things will improve.
A person, company, and country must be productive. The point of being competitive is to drive up productivity. Without greater productivity, you cannot hope to win. And one cannot be competitive unless one is productive. They reinforce each other.
HOW PRODUCTIVITY DRIVES COMPETITIVE ADVANTAGE
A person, organization, or country must be productive to succeed in the long-term. Competitive advantage is how one will go about being productive. We know that productivity is total output value divided by total input costs.
Competitive advantage is knowing whether the company will mostly differentiate itself on the numerator or denominator and how it will differentiate itself to be productive.
See the two exhibits below from Succeeding as a Management Consulting, 2nd Edition.
Exhibit 1: Productivity Definition – Output lever
Exhibit 2: Productivity Definition – Input lever
There is no other reason to be competitive nor a way to be competitive. You have to do both but truly excel at one. To make this point, let’s step outside the lemonade example and think about the luxury auto sector.
AUTOMOTIVE PRODUCTIVITY EXAMPLE
Let’s assume an Italian sports car maker has a productivity ratio of 2.7.
The formal calculations for productivity can be tedious. They need to factor in opportunity cost, cost of labor, cost of time and many other things. You do not need such a detailed calculation to significantly improve your life or your company’s performance. The most rudimentary calculation is just as valuable. Just knowing the definition is going to add value to the way your work.
The company designs and handmakes cars in Italy. Most of the suppliers are domestic and it launches two new models a year in very limited volumes of about 5,000 total vehicle sales per year across all models.
All the cars are sold in company-owned showrooms or through select prestige online distributors. Broadly speaking, the input costs are driven by five areas:
Handcrafted/assembled (Labour costs)
Manufactured in Italy (Production costs)
Domestic suppliers (Raw materials costs)
Two new models (R&D costs)
Private showrooms (Distribution costs)
The CEO and board want to keep the company in the high-end luxury performance vehicle space. They have defined the positioning of the car as such.
The job of the COO is to maintain this position, but he has quite a lot of freedom in how he manages the production process to achieve this goal.
At the highest level, and in aggregate, a person, organization, or country is either trying to raise productivity by competing primarily by raising output value or lowering input costs. While they will pursue a combination of both, only one lever is the goal that cannot be compromised.
This company is clearly competing on the output value side. They incur steep costs to produce a car that sells for the highest possible output value. That is not to say they ignore input costs, but it is not their point of differentiation. If they have to spend more to manufacture the car, they will do it provided the return is very high as evidenced in the sales price and margin.
This is where it gets interesting. It is possible to raise productivity significantly by hurting the company. That is a counterintuitive yet common strategy and operations mistake made in business.
And this is why it is not sufficient to just raise productivity. One has to raise productivity by pursuing the right competitive strategy.
LET’S LOOK AT SOME OF THE THINGS THE COO COULD DO TO INCREASE PRODUCTIVITY TO ILLUSTRATE THIS POINT
Keep the status quo. That seems plausible since they are very profitable. In this option, he runs everything as is but does it better. The same production line, the same suppliers, same components, same factories, the same configurations, etc.
Focus on the value output lever but change things to improve the car. Leather crafting would move to France for the seats and interior. The design would move to Germany or the UK. He may find some cheaper suppliers and have different dates for the rollout of the sedans and SUVs. He may allow test drives in the showrooms.
The changes are not radical but since Germany, the UK, and France have higher labor costs than Italy, total input costs will rise at a faster rate than output value in the short-term and the productivity ratio drops to 1.9 from 2.7.
However, the positioning remains the same and it is believed in the long-term, as more production moves to France and Germany, the cost savings and better quality reflected in higher prices will lead to rising productivity that will eventually exceed 2.7.
Vault the productivity up to 8.7. Who wouldn’t want that? That is essentially a tripling of productivity. To accomplish this, he would radically lower the costs.
He would shift all design and R&D work to Bulgaria, knowing that the skill level and track record of this new team is inferior to the previous design and R&D team. Assembly would shut down in Italy and move to a less advanced facility in Hungary.
For the components of the car hidden from consumers, they would use suppliers who supply cheaper rival passenger vehicles. SUVs would be rolled out first and sports car rollouts would be pushed back since the latter requires more costly development.
Online sales would be prioritized across all viable platforms versus high-end sites, and glitzy showrooms would close.
Exhibit 3: Options to raise productivity
As you can see, the third option would be a disaster. While productivity rises steeply due to dramatically lowering the cost base, they are no longer making a luxury car and that will lead to a steep and sustainable drop in revenue over time.
The COO is also competing on the cost lever versus the required value lever.
Initially, sales will rise as the volume of cars produced rises in Hungary. Yet, over time, the car will lose its appeal for two reasons.
First, it is no longer exclusive since more people own the car.
Second, customers will notice the poorer quality and cheaper parts.
That will drive down demand and prices. Over time, productivity will suffer and drop far below 2.7. As this example shows, it is not enough to increase productivity in the short-term, one has to do it by focusing on the competitive advantage that is appropriate to the company’s strategy and think how actions will impact productivity in the long-term.
RESOURCES PRODUCTIVITY EXAMPLE
A resources company can be analyzed in the same way. It’s productivity is a ratio of total output value to total input costs. As a commodity business, almost all resources are commodities, a resources company automatically struggles to compete at the output value level.
It can do a few things to increase output value but not much.
First, it can improve mining techniques to extract more valuable ore from a ton of rock. For example, rather than extracting 1 ounce of gold from a ton of rock, it could try to extract 1.2 or 1.5 ounces from the same weight of rock using better crushing and chemistry.
Second, it can operate in commodities with higher prices and lower extraction costs. There is not much else it can do. The prices are set by the market and attempts to manipulate the market generally do not go down well with the U.S. Justice Department.
Exhibit 4: Productivity options resources company
That leaves the total input costs side. Fixed costs tend to be very high in mining. It takes years to bring a mine to the point of production and even highly automated mines have high costs. Even so, this is the only lever the company can manipulate.
It must find ways to lower fixed and variable costs. So, a COO at a resources company will try to raise total output value by increasing production volume and the quality of the ore mined, but much remains out of his control since prices are set in the market. Knowing how much to push the lever requires strong business judgment.
He really needs to focus on driving down costs at all times, even when he is trying to increase production volume.
Exhibit 5: Saudi Oil Productivity Example
Given the cyclical nature of resources, having the lowest cost position is key. And this is hard to achieve. When demand is rising and prices for commodities subsequently surge, companies ignore lowering costs since high prices can mask poor cost containment.
Under pressure to benefit from the higher commodity prices, management typically focuses on output versus cost containment. So as prices climb with demand, companies tend to score big profits but on the back of creeping costs. When prices fall, those with a high-cost base suffer.
It is not easy to quickly lower costs. In fact, as prices fall, demand typically falls, and companies must fight for market share just to stay in business. One way to do this is to charge clients less for the commodity. This is hard to do when you are a high-cost producer but easier to do if you are the lowest-cost producer. The lowest-cost producer can offer prices that are lower than the production costs of competitors but higher than their own production costs.
They, therefore, lower their profit per ton/ounce/barrel but offset this with high market share gains. Eventually, the higher-cost producers close facilities, shut down, or are acquired.
HOW TO PUSH PRODUCTIVITY DOWN IN AN ORGANIZATION
We can take this example further.
Exhibit 6: Pursuing Productivity aka Operations Strategy
As the COO in a resources company, we know that both the total output value lever and total input cost lever must be managed.
Yet, we need to be best on the total input cost side and volume production side.
So, we can take the costs and break them down into fixed and variable costs.
We can keep breaking it down and then identify the tools like strategic sourcing, goldplatting, service operations management, just-in-time delivery, etc., that can be used to lower the costs.
These tasks should be assigned to the operating teams to execute.
This is, in effect, how the COO should be pushing down priorities to his teams.
If you have followed the article you can see how we used productivity to explain operations strategy and how priorities should be set in an organization focused on trying to raise its productivity.
Make no mistake. All organizations/people should be raising their productivity.
PRODUCTIVITY RESOURCES FOR SUBSCRIBERS
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This article is adapted from Succeeding as a Management Consultant, 2nd Edition.
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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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After major scandals driven by ex-McKinsey employees like Jeff Skilling (Enron debacle), Rajat Gupta (former 3x McKinsey managing director) and Anil Kumar, McKinsey is on their toes trying to prevent another disgrace. The ethical standards of prospective candidates and employees has never been under a more searing spotlight.
Other top consulting firms have a similar mindset, as their success depends on an unimpeachable reputation for integrity. Will you measure up?
I recently put out a note about a trend around the world where candidates record their telephone-based case interviews with McKinsey, BCG and Bain. They doing it knowing full well it is wrong to do so. Moreover, they are sharing it with us and their network, and asking for comments.
We believe that you should not do this, since it is illegal to record someone without his or her permission. A few people wrote back to me and said they did not know it was illegal or it is not illegal in their country, that’s why they did it.
This highlighted a great misunderstanding some candidates have about what is ethics, how to approach ethical decisions and how to determine if you measure up to be considered a person with high ethical standards, the kind of person McKinsey and other leading consulting firms seek.
My concern is, as it stands now, some of you will not measure up unless you spend sufficient time understanding what is ethics, how to think about ethics, how to make ethical decisions and what changes you need to make to build an unquestioned reputation for high ethical standards.
However, I believe ethics can be taught and mistakes can be fixed with the appropriate guidance.
First, it is important to understand that ethics usually applies to three types of actions. Actions not covered by law, actions for which the law is not enforced or actions for which the law is clearly wrong.
Therefore, when someone tells me, “Michael, I made this recording because it is legal in my country”, what I hear is that the individual is very unethical. This is because even though the person would not like to be recorded without permission and knows it is wrong, they have gone ahead and done it.
Ethics generally covers actions which are not covered by law. For this act where the law does exist, but is not appropriate and we rely on our ethical judgment, the person has demonstrated poor ethical judgement.
This does not make the person evil or bad. Wonderful people sometimes do unethical things.
Many people believe that ethics is an absolute concept, that you know what is ethical with absolute certainty, you know what is not ethical with the same certainty, it is clear as night and day.
In the West we have a tendency to think with absolute certainty that our beliefs are ethical and correct. However, the best way to think about ethics is that it is evolving, what is ethical is often a hypothesis and sometimes there is no right answer.
Judging people for ethical breaches
When judging people for ethical breaches, we have to understand the context. Depending on the person you are analyzing you have to apply more severe or less severe definition of ethics. Imagine someone who grew up in a challenging part of central Africa, surrounded by warlords. The social construct they are part of is obviously not as ethical as that of someone who grew up in Vancouver, the home of Greenpeace. For someone growing up in the strife-torn context in central Africa, we would expect him or her to not be as ethically conscious as someone who was raised in Vancouver.
If both people breach the same ethical value, we should look at the situation and ask, what were their unique circumstances, what was normal for them and did they do what was abnormal for them. That is why our legal system allows judges to apply discretion when casting judgement. It recognizes the importance of context.
A lot of times when we judge people for ethical breaches, we put them on the same level. We think that a person who was raised by a loving family in the United States and went to a great school should have the same punishment as someone who was an orphan in a rural northern China and hardly had exposure to anything good his entire life.
You cannot measure people this way because their actions are shaped by their social network and their environment. We must compensate for this context.
Ethical dilemmas & trade-offs
I will now give you some examples of different ways to think about ethics.
Let’s assume you are walking down a street and you see a burning building. You see a baby in that building and you want to save that baby. The only way to save that baby is to jump on the car parked on the street and put some kind of garbage can on a car to reach the window where baby is, but to do this you will need to damage the car. Would you damage the car to save the baby? Most people would.
Would it change your mind if I told you that the car belonged to someone who needed a very important treatment for a life threatening illness and they needed the car because they were going to sell the car next morning to pay for the treatment?
Clearly, that is a tough decision to make. Do you save the baby now knowing full well that you could kill this person because they won’t get the money for treatment? A lot of people will choose to save the baby. Not because they know with any certainty that they can find an alternative means to pay for the treatment without the car, they may not even be committed to look for one, but because if they don’t save the baby they appear to be evil or unethical in the present moment.
A lot of times when people do things that are ethical, they are not doing it because it is ethical, they are doing it because they are trying to avoid being labeled as being evil or unethical. The flip-side of this is that a lot of actions that we see as being unethical, we see without context.
Just because something looks unethical does not mean it is. You can only make that judgement call when you know the trade-off.
We need to think about trade-offs. There is always a trade-off. A lot of discussions about ethics do not consider trade-offs. That is the problem with an absolute view of ethics.
This is typically a western view. We assume we know with absolute certainty what is right and wrong. We like lecturing other nations. We assume that if we decided that x was the “right thing” to do in 2014, then every other nation who does not come to that same conclusion at the same time as us is wrong. To lecture others is to assume your rate of development in testing and accepting ethical concepts is the norm. Other nations may take longer to get there but who is to say the speed of arrival is the main issue. Is it not the quality of the implementation when it does arrive that matters?
Knowledge of the trade-off will help you make better decisions. A lot of times we hide the trade-off so that when we are judged for the action publicly, saving the baby for example, we end up looking better. No one knows about the guy who was trying to sell his car to get treatment, so we end up not looking bad.
If they knew, they may end up judging us less positively. A lot of times we make ethical decisions because there is an incentive attached to it. This is one example of a way to rethink ethics.
Let’s look at another example. Let’s assume that you run a company and you have a supplier who lost all other clients and is now totally dependent on you. You want to lower your purchasing price from the supplier. You are buying chairs for $200 and you want to lower the price to $150. The supplier proved to you that if he lowers the price to $150 he goes out of business, but on the other hand if he does not lower the price you need to lay off employees to pay for the chairs.
What would you do in this situation? Would you say, “I will do the right thing and lay off people. I will not put someone out of business”? What if you knew that the reason this supplier will go out of business if prices go to $150 is because he hires mostly family members and he overpays them. What would you do knowing this new information?
There is no right answer. But there is a rule. Do things ethically provided it does not put you in a situation where you will cause harm to yourself or anyone else. When I say harm, I mean what the average person will consider being sufficiently harmful to justify sacrificing your values, such as putting yourself or your family in physical danger.
Now let’s look at example of an extreme situation of being too ethical, whereby being too ethical can be damaging to you and others. Let’s look at the massive, and justifiable, debate taking place in the United States about raising minimum wage. Let’s further assume we wanted to do the ethical thing – generously raise the minimum wage.
Economics will dictate that is wrong for a couple of reasons, including the following:
- First, by increasing money supply inflation will spike. The price of goods will eventually go up because there is more money in the system. Even though people are getting paid more, things will end up costing them more to buy, therefore, cancelling the impact of the salary increase. Therefore, in the medium term, the salary increase will not really matter. The system will adjust itself.
- Second, what does it do to the system on which capitalism is built? You should reward people not only for how hard they work but for skills they bring to the job.
If you raised the minimum wage across the United States, you will undertake what is called populist economic measure. You will do something to make people happy because the social construct to which you belong dictates that it is an ethical thing to do. Yet, you are going to cause extreme damage to the system, because you just giving away money without any return. Therefore, you can take extreme ethical stances that actually cause more harm than good.
Personally, I would like to see the minimum wage raised. However, I know this would not solve the problem since the minimum wage is driven by many factors which need to be fixed.
Lastly, here is an example of an ethical decision where there is no right answer.
Let’s assume you are a mother of two sons. Let’s further assume you are from the middle of India. There are a lot of kids in your community and your family is very poor. You’ve got one child who is incredibly promising academically. He is truly brilliant. He aces all the exams. He will probably end up at McKinsey and then as a CEO of some Fortune 500 company. You are almost certain he is going to change the world and take family out of poverty. You have another child who is probably not going to end up at any college anywhere in the world.
Both need a kidney, but only one can get it. Which one will you give it to, assuming you are the only available donor?
This is an extreme ethical situation whereby you know on the one hand the child who is probably not going to go to some good university is not going to have financial resources in the future to take care of himself so you should probably give the kidney to him. The one who is going to make it in the world probably will have financial resources but it is likely he will not make it unless he gets a kidney from you.
If you give the academically weaker child a kidney, the rest of the family will most likely suffer. If you give academically stronger child a kidney, the entire family will most likely be better off, but the academically weaker child will suffer.
There is no right answer. You have to determine what is acceptable.
Addressing 3 myths about ethics
Let us conclude our discussion with addressing 3 myths about ethics.
Myth #1: It is ethical as long as it is legal. These are different concepts. When someone says I did not know it is unethical since it is legal in my country, it is clear they misunderstand ethics. Ethical decisions are required when the legal system fails or there are no laws covering action in question, or related laws are wrong. When legal system is not there, not enforced or wrong you should be guided by your ethical standards.
You can be grossly unethical while obeying the law. You can be extremely ethical while disobeying the law.
Myth #2: If you are ethical, you are by default a nice person and usually a pushover. Being ethical does not mean you are a pushover. People can be tough and demanding, and yet still be values driven in every possible way. Being ethical does not mean you have to be nice to people. Personality and your value system are completely different concepts.
Myth #3: Following the rule the softest pillow is a clear conscience is a sure path to ensure high ethical standards. It only matters if you have a clear conscience if your conscience is attuned to what is actually right. If it is calibrated to things that are incredibly cruel, you will have fundamental problems making judgement calls.
The social construct you belong to determines what you consider to be a clear conscious. You are your friends. When you are deciding whether you are ethical, or not, look no further than at your friends and all those dumb things they do that you find acceptable. By condoning their behavior you are desensitizing yourself to those elements you know to be wrong. You should think twice about whether those are things you should be a part of.
The social network you choose to belong to shapes your values, or lack thereof. When clients ask me if they are ethical I usually tell them I cannot answer this with any certainty. I say this if I do not know their significant others well enough. Your significant other is the most influential member of your social network. At the end of the day, when it really comes down to it, your decisions will be heavily driven by what your significant other considers right. Never ever forget that.
I say this because 95% of people who breach ethical values almost always cite personal circumstances. Here are few examples:
- “I would not normally do this but my husband and I discussed this and…”
- “My partner recently lost his job and we decided…”
- “I would normally never do this, but due to personal reasons…”
You can fill in the rest. The last one is very telling. Somehow, many assume that a personal reason is a license to be unethical. It never was and never will be. Let’s hope you chose your significant other well.
QUESTION(S) OF THE DAY: What is your advice to readers who realize that their social network negatively impacts how ethical they choose to be or even could be? Please let us know in the comments.
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In light of major scandals driven by ex-McKinsey employees (e.g. Jeff Skilling, Rajat Gupta and Anil Kumar) and consequent sharper focus on ethics by top consulting firms, lets continue our discussion about ethics and delve deeper into how to think about ethics, and what shapes ethics.
Ethics is required when the law is not written, not enforced or wrong
To think about ethics, let’s picture a bar chart running vertically. The entire bar represents all the actions you could undertake in your country. It is obviously a hypothetical bar since we could not list every action we could take. Yet, we know we can do countless things.
The bar chart goes from one all the way to the one billion things you could do. The bar is split into two parts. Twenty percent of the bar is dark blue and eighty percent of the bar is white.
Everything that is dark blue depicts every action you can undertake in your country that is covered by the legal system. Therefore, for the dark blue part there is a law that determines if what you are doing is legal or illegal.
Everything in the white section depicts actions not covered by laws in your country.
When we talk about ethics we are most of the time talking about the actions within the white space, where the laws have not been written to cover your actions. If there was a law telling you how to behave in a situation, would it be an ethical debate given the law instructed you what to do? In most cases it will not be.
However, the world is not perfect.
There are times when the law is wrong. For example, when black people were not allowed to attend universities in South Africa or parts of United States. There are laws like that, unjust laws, right now in parts of the world. Therefore, in situations where the law is wrong, ethics should dictate your actions.
That is one example where ethics does not just apply to the white space but also applies to the blue space.
There are other situations where ethics applies to the blue space as well.
Think of countries that have exceptional constitutions. Their constitutions are so amazing that other legal systems around the world quote from these country’s constitutions and higher court opinions. For example, South Africa’s constitutional court rulings are highly referenced internationally.
However, there are parts of that country that are lawless. Clearly the law is not enough if there is no enforcement. If there is no enforcement people will misbehave unless they are ethically bound to behave themselves. Therefore, there are two situations where we need to apply ethics to actions governed by law, when the laws are wrong and when the laws are not enforced.
To summarize, ethics is required when the law is not written, not enforced or wrong.
The application of ethical principles is inversely proportional to the correctness of the law, the reach of the law and the enforcement of the law. If there are no laws, or the law is weak, or the law is wrong, or the law cannot be enforced, you are reliant on your personal judgment to make decisions.
The question is, how good is your judgment.
If ethics is about judgment, what drives our judgement?
We established that ethics is about judgment. Now I will give you 4 situations and I will show you what drives our judgment.
Imagine it is 1940 and you are a brilliant engineering student in Germany – blue eyes, blond hair, handsome but a bit naive. All you know is what is told to you, and you just happened to be a member of the armed forces. You are sitting at a hip Berlin bar. You are in a situation where everyone thinks it is just fine to persecute the Jewish and Slavic nations. Not only is this the kind of group you belong to, it is also aligned with the law in your country.
Let’s take another situation. Let’s assume it is 1910 in Canada. You are going out with your buddies, upstanding gentlemen who don’t agree that women should have the right to vote. That is all you see in the press. That is what people talk about. That is accepted.
How do you break away from that, when it is the only thing you know to be right?
Some of you will say, “Well, we actually know that’s wrong”. However, the reality is, to a large degree, we are defined by our circumstances. It is easy to apply a higher ethical standard in hindsight. We can prove this.
In the first two examples I have presented scenarios that today, in hindsight, we know to be wrong. In the next two examples I will give you things that we don’t necessarily know to be wrong today.
Think about eating animals. Human beings consume millions of tons, may be tens of millions of tons, of animal carcasses every year. It is completely acceptable to do this. It is acceptable to make jokes about it. In a hundred years people may look back at us and think we were animals for doing this.
We think it is acceptable because the network we belong to thinks it is acceptable. If you belonged to a social network whereby your friends thought it was horrible and distasteful to eat animals, you would probably not do it.
If your reaction to this was, it is not so bad so I am going to do it, then remember this is how unethical behavior becomes acceptable. We justify it based on what we see as being commonplace.
Let’s look at another example. Something that I notice every single time I am in a group of people – sexist comments. It is remarkable how much we tolerate sexist comments on television and in social settings. In fact social settings reinforce this behavior. Comments like “you are acting like a girl”, “you throw like a girl” or “only girls do that” are basically accepted discriminatory banter.
Just about every major comedy show in the United States has made some off-hand sexist comments. Some thrive on it and their ratings are directly proportional to this behavior.
One of the most popular shows in United States, “How I Met Your Mother”, actually has a scene whereby the main antagonist, Barney Stinson, talks about how he may have sold a woman into slavery. That show went on to have one of the highest ratings in prime time television for United States. It was a joke, obviously, but the fact is we find those things funny.
This happens right now. We think it is acceptable to belittle half of the human race. So why do we do that?
We do it because everyone else is doing it.
The social group you belong to shapes your ethics
In conclusion, the social group you belong to (your friends, the people from whom you seek acceptance, the people you spend time trying to impress, the people with whom you socialize, engage with, build relationships with etc.) shapes your values, or lack thereof.
The social network you choose to belong to will determine how ethical or unethical you choose to be, want to be or even could be.
So ask yourself: “How do the groups I choose to belong to shape my career and my life?”. If you are not happy with an answer to this question, make the necessary changes.
QUESTION(S) OF THE DAY: Which behaviours or beliefs currently acceptable in Western culture will, in your opinion, not be socially acceptable 100 years from now? Please let us know in the comments.
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Storyboard matters in studies because useful insights mean very little unless they can be woven into a compelling story. Critical insights which are not presented as a story, generally fail to get any traction at a client. In fact, that is one reason strategy studies collect dust on a client’s desk: they did not present a clear message.
When I was a corporate strategy partner, I pretty much drove teams a little crazy to constantly refine the story. I still do that. If you are following the US Retail Banking Study you would have seen us push for a crisp and compelling story. We do the same on the current power sector study. We just push and push for the best story out of the data. A great storyboard will get the client to act.
And that is what you want at the end of the day.
Where a storyboard fits in a strategy study
Boiled down to the basics, the strategy engagement structure can be explained as follows. First the key question team needs to answer in the engagement is determined. The key question has to be split into smaller questions in a logical format. This allows the team to develop a decision tree.
The decision tree has to meet two criteria. It has to be mutually exclusive and collectively exhaustive (MECE). There are two other criteria to be met and that is taught in our online strategy training program, though if you stick to the MECE rule that will be fine. Based on the decision tree, the hypotheses are developed.
The storyboard is the message engagement team delivers to the client, using the decision tree and hypotheses that has been developed, and it is based on the anticipated results of the study.
Next the team develops analyses to test each hypothesis. Based on the results of the analyses the hypotheses are proved or disproved and the storyboard is refined.
The diagram below shows a structure of a strategy study and a point at which the rough storyboard is developed. Although this diagram helps to understand how strategy engagements are conducted from the structural perspective, keep in mind that a strategy engagement is an iterative process and can be messy. In fact, it is usually messy.
Finally, the idea of using an objective function works in almost all types of strategy and operations engagements, but does not work in corporate strategy. In corporate strategy a very different approach is used because those engagements are different. That will be covered in a different article since corporate strategy studies are so rare.
What is a storyboard
To explain the management consulting storyboard concept, lets use an example from the animation industry. Before producing detailed animations and more, the animation team must first agree on the story.
The animation team gathers together in a room and takes blank pieces of A4 paper, they write out a short 10-word description of a scene on the top of the page and produce a rough 15-second pencil sketch to outline the animation which could go into this part of the movie.
In all, they can produce about 30 to 120 such A4 pages, stick them on a wall in sequence and everyone will be able to follow the story. This allows the animation team to debate the story and messaging without expensive animation work which would definitely change as the story changes.
To extend this analogy to a management consulting storyboard, the team needs to prepare a story of their message so that everyone in the team can understand their thinking and provide feedback. The management consulting storyboard is basically the headlines of the presentation which summarize the anticipated results from the work stream or from the entire strategy study.
Question from a reader about developing a storyboard
To dig deeper into the concept of developing a storyboard, I will answer a question we received from a reader, lets call him Henry.
Henry was avidly following the life blog on a study we did in the United States, where we were helping one of the largest Latin American banks to put together a strategy to enter the profitable, large and rapidly growing US financial services market. The study was focused around providing financing to low income entrepreneurs, either immigrants or US citizens.
We had been live blogging the study so everything we did you could follow it in real time and we spent a lot of time discussing what we were putting together. Fascinating work. It is definitely a new way to teach strategy consulting and tends to be very popular.
“Michael, what you are doing is very interesting but one thing I don’t understand is how is it that you are able to come up with a storyboard for the client only in the beginning of your 3rd week of a 8 to 10 week strategy study?
This kind of seems to me as if you are giving a client a solution that you already have versus relying on the analysis to tell you what the answer will be. And isn’t that the criticism that consultants get that they don’t really develop new ideas for clients but put out what they already know? It does not make any sense to me so I am not sure how it can be right. “
I can understand the reader’s confusion but he is wrong and I want to explain why he is wrong.
Piece of advice on how to communicate
First I want to point out one thing about this guy’s communication style. And, to be fair, many people have this style of communicating so it is worthwhile to address it here.
Henry is basically saying, “I don’t understand something. And because I don’t understand it, it must be wrong“. This is a really bad way to communicate.
It is extremely naïve or egotistical, or arrogant, you pick, to assume that if there is something you don’t understand then it must be wrong. For all you know, it may make perfect sense but you don’t have the necessary mindset or the necessary prerequisite knowledge to understand it.
If you don’t understand, it is better to say, “Look, I am sure it makes sense. I don’t actually get it so I will let you try it out and maybe I will get it later.” But don’t make it sound that if you don’t understand it then there is something wrong with the actual work.
It is just not appropriate. It sounds really bad to clients, superiors and colleagues when you do it. You sound like a 5 year old child.
How we could come up with a storyboard in such a short time
Besides that piece of advice on how to communicate, lets get into how we were able to write a storyboard in such a short time.
Note that anything that I will be able to teach you here will be at a high level. You can learn these concepts in depth as you go through our strategy training. How to develop a storyboard and other strategy capabilities is also taught in our book “Succeeding as a Management Consultant“.
Now lets address how we were able to come up with the storyboard so early.
Think about the logic here. We are not doing analysis just because we have to do it. We are doing analysis because we are trying to answer some questions.
If you just doing the analysis because this is the analysis you always do in a strategy study (e.g. market segmentation, cost effectiveness and revenue analysis), then yes, you have to wait for the analysis to be done to see what the analysis will tell you.
But this is not the way we do things at elite strategy firms. We do the analysis for a reason and that is the fundamental mind shift you have to make.
We start off with the objective function. What is the problem we are trying to solve for the client? We then break that objective function into the direct drivers of the problem. We then continue breaking down those drivers until we get what looks like a Christmas tree, that is actually a decision tree.
The objective function is the apex of the tree and the tree breaks out. We then prioritize the branches that are most important in the decision tree to help us figure out where to spend most of our time (refer to the exhibit below for an example).
For each of those prioritized branches we then say, “Ok, what is the hypothesis to explain why this is the issue impacting the objective function?”.
Once we have the hypotheses, we can then say, “Hey, if this is the hypotheses, what tests do we need to do to prove or disprove the hypotheses?”.
Those tests then become the analyses.
We do the analysis which directly help us answer the hypotheses, which directly helps us determine if each of the prioritized branches should in fact be prioritized and, therefore, what drives the objective function.
So even before we finish the analysis, because we know why we doing the analysis, we can say, “Ok, if the analysis turns out to be this, what is the message we will give to the client?”.
For each analysis you probably will have one or two, at most 3, possible outcomes. Rather than writing a storyboard for each outcome, we write a storyboard for what we think is the most likely outcome. And then, if the analyses turn out to be a little bit different than we expected, obviously the storyboard will be revised.
But more or less we don’t turn out to be wrong. We turn out to be right most of the time because of the logic we apply and because we are attacking the problem from so many angles that this allows us to cross reference and cross check things.
And that is the crucial point here. We don’t just do analysis for the sake of doing it. And, therefore, we don’t have to wait to see what the analysis is telling us. The analysis is being done to check certain hypotheses that we developed at the start of the study. And the hypotheses are not random. They are built off the decision tree, which is also not random because the decision tree is actually brainstorming the issues which are driving the objective function.
And this is the important difference in which elite firms do analysis. We don’t just decide, “Ok, this is the checklist of analysis we need to do, lets do it”.
We say, “Hey, hold on a second, why are we doing the analysis? What purpose does it serve?”. In our mind we are developing the storyboard which states if these are the issues and this is the way the issues turn out in the analysis, then this is the recommendation we give to the client.
We can write that storyboard in the first, second or third week. And once we complete the analysis, we can go back and check if the storyboard we wrote out, based on what we thought the analysis will turn out to be, makes sense.
And if it does not, we will revise the storyboard. But I can tell you right now, 80-90% of the storyboard usually turns out to be correct. The more and more you think about it, even 95% of it could turn out to be correct.
By the 3rd week of the study, the storyboard is more or less there. Yes, few things will change. The data will definitely change. For example, we may know that certain segment of the market is unprofitable, but likely will not know why it is unprofitable or by how much it is unprofitable. But we more or less will be able to figure out it is unprofitable.
So that explains how we are able to come up with the storyboard so early. Because we are not doing analysis for the sake of doing it but because we have a reason for doing it, and the reason allows us to structure the storyboard.
QUESTION(S) OF THE DAY: What challenges will you face in applying this technique in a corporate or tier-2 firm? Please let us know in the comments.
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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.
WHAT IS NEXT? Hope you enjoyed this another insightful article from Michael. If you are new to FC, make sure you sign up above for email updates. Once you opt-in we will send you sample episodes from various training programs, including from programs within FC Insider (StrategyTraining.com / Strategy Training apps). If you have any questions do not hesitate to reach out to us at support @ firmsconsulting.com. Cheers, Kris