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There are some very common misconceptions and myths about analytical problem solving. Most candidates simply skim over this phrase on consulting profiles without thinking about the meaning. This post will tell you what management consulting firms like McKinsey, Bain and BCG mean by analytical problem solving.

This is important advice so it is worth reading carefully.

What is analytical problem solving

To be an analytical thinker does not mean you must have a degree in science, engineering, finance, economics or any other quantitative subject. While some subjects, like those listed, imply you could be analytical in your thinking, not having quantitative background does not mean you cannot think analytically. Thousands of candidates with quantitative backgrounds fail to get offers from McKinsey, Bain and BCG every year. Therefore, having a quantitative background can be an advantage, but it does not guarantee analytical problem solving ability.

Being analytical refers to the way you think and not to the problem you solve. This is a very important statement. Lawyers, social scientists, linguists and historians can all be extremely analytical in their thinking. Yet, they are not solving quantitative problems. So the problem is not what determines if you are analytical, it is the way you solve the problem.

Good analyses are grounded in hypotheses. Can you develop hypotheses? It always surprises us how many people do not know what is a hypothesis. A hypothesis is not the problem. It is not a fact. It is not an opinion. It is a statement which captures the observed phenomenon as well as the likely cause of the phenomenon. Both must be present for it to be a hypothesis. A surprising number of candidates do not understand this.

Are you able to reason using only the facts provided? Analytical thinkers are not unemotional. No one is unemotional. However, analytical thinkers are able to separate their emotion from the situation and use the data provided to arrive at a conclusion. Analytical problem solving means reasoning using facts and logic. Past experience or opinions which cannot be substantiated are ignored.

Can you assemble data and facts to develop an argument or line of reasoning? Analytical thinkers can take pieces of information, compare them and decide what the information is saying. They can assemble the information to produce new insight into the problem rather than simply restating the information.

Analytical thinkers do not blurt out answers. Assuming your answer is even correct, the fact that you knew the answer means you did not need to analyse the facts. Therefore, your analytical problem solving skill could not be tested.

Logic has nothing to do with numbers. There is a misconception that if your reasoning lacks numbers than it must be incorrect. That is ridiculous. In many case interviews you will need to reason based on logical arguments and with very little numbers. Your line of reasoning is more important than your final answer.

Analytical thinkers can show you how they arrived at the answer. This should be obvious, right? After all, it is the foundation of the case interview method. If you followed a path of reasoning to arrive at an answer, you should be able to explain that path to someone. That is why the method is used. The interviewer is more interested in how you arrived at the answer than the answer you developed. How you arrived at the answer shows the strength of your analytical problem solving skill.

Logical thinkers apply MECE, even if they do not know it. I have some impressive friends in the legal profession. Watching them reason and debate is worth doing so. When you ask them how they arrived at an answer or why they eliminated an option, you realize they are applying the rules of MECE perfectly. Yet, they never heard of MECE. Reason and logic is not exclusive to management consulting, but is it essential to management consulting.

You do not need to know anything about an income statement, balance sheet or cash-flow statement to develop analytical problem solving capability. I should not need to say this but I will say it anyway. The thought process is more important than the topic. You can learn accounting and financial concepts when you need it. It is not very difficult to do so.

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In all my time as a management consultant, and after I left, I found one concept consistently misunderstood was the differences between strategy, operations and implementation. Here are the common misinterpretations I hear:

McKinsey only does strategy work.

Deloitte and other accounting firms are great at implementation.

• Implementation is the same as operations.

I am going to explain the differences and which firms are good at which type of consulting.

Strategy

Strategy work refers to helping senior executives determine the overall direction in which they will take the business. It is about taking a top-down view of the business and looking at the allocation of scarce resources. Strategy consulting is difficult. It requires deep analytical skills and the application of strong and disciplined problem solving skills. Principles like decision trees, MECE and hypotheses led research are used. Examples of strategy work include:

• What should be our long-term vision?

• Should we retain the same portfolio of businesses?

• Should we enter this market?

• What is the best way for us to extract value from our SUV division?

At the end of a strategy engagement, the client is given a detailed report outlining the exact market shares, pricing, volumes and other conditions under which the recommended strategy will work. The end of a strategy engagement must be a report. That’s because a strategy is a plan. And before you implement anything, you need a plan.

Strategy engagements tend to involve long hours; they have a high intensity and involve senior client engagement. Throughout the engagement, strategy consultants must work with the most senior executives of a firm. Proper strategy consulting can only be done for the most senior executives. These are after all the decision makers of a business.

The top firms in strategy work are Mckinsey, BCG and Bain. Other firms like Roland Berger, Marakon and Booz are good at strategy in selected markets and sectors. They are not consistently good.

Operations

Operations consulting is actually very similar to strategy and is not implementation work. In an operations engagement the consultants are again usually working for senior executives to determine how to extract value (e.g. how to extract more value from a facility, plant, mine or division). Operations consultants apply the same problem solving approach as strategy consultants: MECE, decision trees and hypotheses led research. Examples of strategy work include:

• How do we increase the throughput of this plant?

• How do we reduce costs in this facility?

• How do we increase productivity in this factory?

• How do we reduce bottlenecks in this plant?

Here is a crucial similarity between operations and strategy engagements. At the end of an operations project, the client also will receive a detailed report outlining metrics, benchmarks and a laundry list of changes to improve the operations. At this stage the client and consultants have not yet implemented the recommendations.

Operations and strategy engagements use the same highly disciplined problem solving processes, but they apply it to different parts of the business. This is a very important point. Operations consulting is just as tough, just as intense and just as appealing as strategy consulting, provided it is done correctly.

The top firms in operations consulting are still Mckinsey, Bain and BCG. To this list you can also add AT Kearney and Booz. In some areas of operations, firms like Deloitte, PWC, E&Y, KPMG and Mercer also do well. The accounting firms tend to be good at financial processes and operations. These latter firms are not consistently good across all sectors and markets.

Implementation

Implementation consulting is totally different from operations and strategy consulting. The consulting skill sets are different, the hours are different, the type of work is different and so is the profile of consultants and fee structures. In an implementation engagement, the consulting team must take the recommendations from the strategy and operations engagement and help the client realize the targets. Let’s assume Bain advised an airline to set up a new low-cost airline division. The strategy calculated that doing this would lead to the airline saving $100 million over 3 years.

The implementation consultants need to determine the pieces of activity required to take all the existing employees within the airline, create a new division, brand it, set up the operating structures and move the employees to the new division. Although the implementation consultants will not do everything, like branding where a brand specialist firm would do the work, they will manage everything.

Here are some of the things involved in doing this:

• Setting up the new division

• Transferring employees and making adjustments to their employment contracts

• Creating a new profit center

• Setting up a new accounting system and adjusting SAP

• Assisting in deciding if the low-cost fleet will be leased or bought

• Creating a new organizational structure in micro-detail

• Set the start date for the new division and begin migrating process and employees

• Set up a trial run for the new division

• Determine the go live date

• Manage the labor unions

You get the picture right? Implementation is not just for the smartest MBAs. It’s for smart people who can roll up their sleeves and literally work alongside a client to solve countless tedious problems and march towards a common goal. Yet, a dumb person who can make things happen is a far more effective implementation consultant than someone with the best solution which is never used. Implementation consultants also use the strategy or operations plan as a guide only. No matter how good a firm is, they can never predict all the problems with implementing a strategy. The implementation team will need to find a way to make the strategy work. Implementation projects also have less stressful work hours. Since the team is working hand-in-hand with the client, they generally need to work to the clients’ schedule. This slows down implementation projects. There is also a need to blend in more closely, use processes which can be used by everyone and focus more on transferring knowledge.

In my experience, despite the countless adverts, not many firms do implementation well. Capgemini used to be good at implementation through their United Research team. Accenture is great at technology implementation. E&Y is quite good and so is IBM. The rest have poor records. Of course, there are also regional and sector specialists.

So the next time someone says McKinsey only does strategy, know they are wrong. McKinsey does plenty of operations work which is just as rigorous as any strategy engagement. They also do implementation work. The difference is that none of the elite consulting firms do implementation work very well, and I am not sure they could do it well even if they tried.

Image from Jon Herbert under cc.

Before reading this, remember that it is a successful Firmsconsulting strategy to sometimes “park” MBA clients in internal strategy units at banks before we feel they are ready to apply to MBB (McKinsey, Bain and BCG) and other consulting firms. This works because the client is in an internal strategy unit that has some cache with consulting firms, but crucially, this is a temporary stop before they go on to join McKinsey, BCG, etc.

The article below is about readers who simply want to stay in internal strategy units to learn management consulting skills. There is a major difference between both strategies. We recommend the former and not the latter if you want to become a capable management consultant.

***

Management consultants are all over the place. The big-3 alone have an estimated 50,000 alumni working across the world. Moreover, the rise in the use of management consultants throughout the 1990s accompanied by their rising fees led to some clients actively trying to replicate consulting skills in-house by creating internal strategy units. This professionalized the development of internal strategy consulting teams and created a second-act for many exiting consultants who did not want to immediately jump into operating roles.

The banks have been particularly guilty of propagating this trend. They also never seem to learn from the difficulties associated with such past attempts. Every three years or so another banking executive, usually in the same bank, thinks he can set up an internal strategy unit which will work. Despite years of failure, he thinks it can be done correctly this time. It’s a predictable pattern, like death and taxes.

Every bank we have met is doing this, trying to do this or exploring the idea. If I tried to name them all it would take too much time.

The thinking behind internal strategy unit is almost always the same:

(1) Hire ex-McKinsey/Bain/BCG/etc managers to run and control assignments.

(2) Hire associates and analysts to do the work.

(3) Save money by not hiring management consultants.

The idea that a few smart people can find ideas for improvement and opportunities for growth is a supposed no-brainer.

Each week we get several queries asking about the value of joining these internal strategy teams at banks.

The reader surmises that since the team is led by ex-BCG or ex-McKinsey partners and managers, then it would be the same as joining a management consulting firm. The reader is sometimes, though not always, trying desperately to justify their wish to take the opportunity.

And why would they not? Given how hard it is to get into McKinsey surely the idea of working for an internal strategy consulting unit staffed with consulting alumni must be the second best option.

7 reasons why working for internal strategy unit may not be right for you

There are some major and critical differences between working for an internal strategy unit at a bank versus joining an élite management consulting firm. If you really want to join an internal strategy consulting unit, then that is fine. There is value and merits to doing that. In fact, in many countries it can help you eventually land a consulting position, but does not teach you the same skills as what you would learn at an elite management consulting firm.

That sounds counter-intuitive but it is true.

Just do not justify it on the basis that it is the same as joining a top management consulting firm. It is not. Here are the critical reasons why:

1) First, in a management consulting firm you will be carefully taught a rigorous problem solving approach which you can apply to any situation. This flexibility is one of the values of management consultants. They can work in any situation, at anytime, anywhere in the world and at a moment’s notice.

In a bank, you will be working on very similar issues. Therefore, it is unlikely you will learn the ability to apply the problem solving approach across issues and industries. In a perverse case, you will acquire industry knowledge and rely on this knowledge versus applying basic and rigorous problem solving to understand the fundamental issues. If you see how much effort goes into testing the case interview capabilities at the top firms, you will realize just how important basic problem solving really is.

2) Second, when you work in a bank, you will be encouraged to bond with your peers, colleagues in other divisions and basically make friends. Given that close bonding and the fact that recommendations need to be publicly debated for them to have any impact, how likely is it that you will produce analyses calling for a colleague’s department to be right-sized? What about an analyses pointing out that the leader of the largest and most important business division is actually underperforming? Do you have the backbone to do this? Are you willing to put your career on the line given the fact that power lies in the operating divisions?

Unfortunately, when you work in internal strategy units at banks, the existing power structure forces you to put out politically correct recommendations. You have no choice. If you put out the correct material which challenges an important person, it is sidelined. You can choose to continue being sidelined or play the game and progress. Offering lukewarm recommendations to get ahead is not management consulting.

3) Third, speaking about power structures, in any bank anywhere in the world, the power and influence lies with the operating units and the operating leaders. It is a badge of honor, a sign of recognition to be awarded the chance to run an operating unit.

In fact, you can Google this, read about the careers of Jamie Dimon and Mike Carpenter. Dimon was a brilliant HBS graduate who led Sam Weill’s strategy and planning. Dimon did everything in his power, according to his biography, to get into the operating units and lead a profit centre. In his words, “planning was half of the game”. Carpenter was a star BCG partner who was recruited by Jack Welch. He ran Kidder Peabody and eventually went to Citigroup. There he was “exiled” into strategy planning when his performance dipped.

Sir Deryck Maughan the former head of Salomon Brothers experienced the same issues. When his performance dropped he was asked to move into strategy planning.

The bottom line (no pun intended) is that internal strategy units at banks are seen as killing fields for under-performing executives. It’s hard to admit this but it is true. The exception to this rule is Goldman Sachs. Of course, they do not staff the internal strategy unit with ex-consultants and the unit works on organizational issues. Assuming you are not going to Goldman Sachs’ internal strategy unit, why would you want to work in a part of the business with such a bad reputation and absolutely no influence?

4) Fourth, consultants from even the top consulting firms are given a really tough time when they work at banks. What makes you think you will fare any better? It will be much worse by a factor of 10 to 50! Your advice will be ignored, analyses openly ridiculed and questioned. It can become debilitating. This would not happen to you if you were a BCG case-team assigned to JP Morgan. You would get respect even if the employees resented you.

The internal consulting units inevitably respond to these internal organizational issues in two ways:

Despite their moniker of being an internal strategy unit they end up picking up fairly mundane work. They focus on conducting surveys, and, especially, undertaking business-process-reengineering work. There is nothing wrong with business-process-reengineering work, but even here, they struggle to get any traction for the reasons listed above.

They also become quant jockeys. They put out fancy analyses which makes them feel all warm inside but which is never ever used. A management consultant’s job is to give the correct recommendations AND make an impact at a client. Consultants are sometimes unfairly mocked for producing reports which sit on a client’s desk, I would argue that dishonor belongs to internal strategy teams at banks who want to act like management consultants and do not realize they face a very different set of expectations. No one really wants their reports. They are seen as implementation managers.

5) Fifth, whether you like it or not, you must realize that in a bank, to rise you must run a business. Please make sure you understand this distinction. Consulting firms are designed to promote and reward thinkers. That is how you make partner and eventually senior partner. In the internal strategy unit at a bank, your reward for doing great work is to have your entry into the operating units fast-tracked.

Understand that for a minute. No matter how well you do in the internal strategy unit, you will still need to very much prove yourself in the operating side. Even if you came to Bank of America from BCG as a manager, while you will have that incredible brand on your résumé and respect it confers, you will still need to eventually move into the operating units.

6) Sixth, banks do not reward smart ideas. A bank’s currency is its share price, net profits and risk profile. If a bank produces this then it is a success. Those who help the bank produce these things are rewarded and recognized. Smart internal strategy unit’s guys and ladies are not rewarded unless they meaningfully and directly contribute to the bottom-line.

Management consulting firms on the other hand build value via ideas, publications and influence. Can you see the mismatch? Your internal strategy unit will march to a different beat.

About 70% of McKinsey, Bain and BCG employees are managed out of the firm. That means they are asked to leave since the firm did not think they would make partner. In laymen terms, they are not good enough. So when you meet an alumnus of these firms you have to ask yourself the following:

  • Were they managed out?
  • They may be a McKinsey alumnus, but how long were they actually there?

Do not be afraid to ask these questions. Just do not ask them directly. It is your career on the line. Can you learn anything from someone who was managed out? What can anyone teach you who spent just 12 or 18 months at a management consulting firm? If they left as a partner that is a different story. The bottom line is to be wary of working with internal strategy units stocked with alumni of the top firms. Quality is an issue.

7) This point comes at the end but it is probably the most important. People who served at the junior levels of consulting firms think true management consulting is all about analyses. They are wrong. Unless they made case manager or associate principal they have likely never learned how to take the pieces of information from analyses and construct recommendations.

This is a critical point. Knowing how to break down an issue with analyses is only part of the way in an engagement. The other part is to bring it all together to create the recommendations. Only partner level consultants can do this. Junior employees are always analyses junkies.

My point is that you can only be exposed to the full collection of required skills at a management consulting firm. Moreover, you need to learn the consulting value system. It is vague but without it learning how to size a market means little. Learning the culture and value system of management consulting takes time to understand.

So if you get an offer to join the internal strategy unit at a bank or another company, even if it is led by “ex-McKinsey managers”, think very carefully about what you are getting into. I can assure you it will not teach you to be a management consultant or expose you to even 10% of the true experience. If anything, you may learn the wrong skills and never gain the correct training, or worse end up thinking this watered-down version of consulting is management consulting.

If you do not get into McKinsey, Bain or BCG then do not subject yourself to an internal strategy unit unless it is just a stepping stone to move into consulting. In that case, you need to be very careful about doing things which make you attractive to consulting firms. Merely being in the internal strategy unit is usually insufficient.

6 things to do if you want to join an internal strategy unit as a step to join MBB

If you want to join an internal strategy unit at a bank, you should do the following:

  1. First, ensure you have the capability to see through your plan to the end. If you have weak grades, a weak leadership profile and a poor profile in general, then the odds are that even if you worked in a good internal strategy unit, you will not be successful when you eventually apply to BCG. Simultaneously fix these gaps.
  2. Second, choose roles where the impact you are having is very specific, quantifiable and your role in influencing others is very clear. That is very important to your personal experience interview discussion.
  3. Third, show rapid progression in everything you do. Mediocrity will not play well when your application is reviewed.
  4. Fourth, try to avoid the habit of picking up and using consulting jargon. This is irritating to McKinsey interviewers who all speak in very crisp, clear and jargon free language. Understand the basic principles of what you are doing and explain things in English.
  5. Sixth, create a network of ex-consultants from outside your group at work so you have an independent source against which to verify and corroborate the expectations of management consulting firms.
  6. Seventh, before you start any initiative ask yourself how it will look written up in your resume and only proceed if it is acceptable to you. If it looks weak, you still have time to alter the initiative, your role in the initiative or possibly avoid the work altogether. Show initiative on things that matter and see it through to the end. Before you assume responsibility for a 3-months project to save $15,000 in printing costs ask yourself how this story is going to play out in a case interview. Is it really that impressive?

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A McKinsey or BCG partner, or consulting partner of any other firm, must question and challenge a client in a professional manner. The basis of the relationship must be one where the client allows the partner to be candid about what he/she thinks. The best partners build relationships where this is expected of them. The worst partners pander to the client.

There is no point claiming to be the advisor to a client when you are afraid to tell him/her the painful truth.

External parties reading the phrase “the client always comes first” routinely misinterpret this to mean the client must be given whatever they want and must be always happy. That could not be further from the truth. Putting the client first routinely means putting the client needs first, even if that upsets the client.

Sometimes, the client’s needs and the client’s wants do not sync, so while their needs are met they end up being bitter or angry from the process. That happens far more often than you would think.

The best clients are mature and professional. They are seasoned and understand a consulting recommendation is just that – a recommendation that does not need to be followed. Therefore, they do not overreact if the recommendation does not support their expected answer.

In an earlier piece I discussed taking a huge risk in a proposal that paid off when I was a management consultant. This piece, in some ways, discusses a risk I took as a consulting partner that did not pay off. In fact, the fall out was pretty big.

That is the inherent nature of taking risks and being creative. When it works, the payoff is significant, but when it fails the crevasse is equally deep. And it is pretty dark down there.

This piece explores a topic you will rarely find anywhere since consulting partners rarely discuss the dynamics at play between equity partners. How do BCG partners support each other? How do McKinsey partners react to crises that can hurt a relationship, and ultimately a firm’s revenue? Who pays the price for this impact? Do heads roll?

The context to the failure of a Consulting Partner

The client in question was an energy company ranked in the top 5 of companies in their sub-sector by market capitalization. They were a rapidly expanding behemoth.

Given the number of acquisitions they were driving and the scale of their capital projects they were an ideal choice for a strategy firm. There was just one problem. The CEO did not like management consultants and had forbidden the divisions from using any consulting firms for studies.

The head office in the US was relatively much smaller than peers, and the CEO wanted as much of a decentralized structure as possible. The operating divisions carried as much of the costs as possible and corporate overhead was a mere fraction of the total expenses.

The executive team was unique in that they were truly involved in strategy. Most companies say they are like that, but they have bloated head offices getting involved in all manner of operating issues. There were only 3 assistants in the entire head office. One for the CEO and 2 shared between the other executive officers.

This company believed in efficiency.

The CEO therefore appointed very analytic teams to run each division. He wanted the divisions to have the skills to run themselves versus running back to the head office for direction.

If someone with 20 years of operating experience ran a division, he was paired up with an MBA from the corporate office who had about 5 to 10 years experience in the M&A team. In this way, each division had an operator and a dealmaker at the top. Though the dealmaker was not doing any deals, he was just a numbers person who knew how this operation fit within the broader strategy.

This meant the banks tended to be locked out to a large extent. They would meet the MBA from the operating division and present to him, assuming he could open a door to head office, but head office never took meetings through this route. The same thing happened to consulting firms.

It was almost a diversionary tactic. All services firms congregated around the operating divisions, but the operating divisions did not have the power to hire anyone. Well, probably they could do it anyway but they were too scared to do it.

Ironically, since everything was so decentralized, the only services firms making inroads were Deloitte, Accenture and E&Y. The reason had to do with the decentralized structure and wave of acquisitions.

During the wave of acquisitions a lot of firms with different accounting, payroll and management IT systems had been gobbled up. To ensure efficiencies were extracted post acquisition, a significant amount of SAP, risk review and IT strategy work was being done.

The head office allowed this to happen at the divisional level and did not seem to need oversight over this provided the IT-related consulting studies led to actual savings. So, in many ways these firms were able to operate independently of corporate oversight because the value they created could be measured.

They were doing a good job.

Despite this, at a sector conference we had presented an idea of how a number of different players in the energy sector could work together to unlock a major energy basin in South America. It was a clever idea and we had built a crude model to show how about 6 different stakeholders could bring different skills at different times to undertake a fairly complicated capital project.

We met the team from the Brazilian division at the conference and they expressed interest in learning more about the work we had done. Since the work was still fairly crude, and needed substantially more data to be completed, we though meeting them could would help us plug up some of our assumptions.

So I, along with another partner and an engagement manager, went along to talk them through our idea, where we were in our thinking and what more was needed to prove our hypothesis. The meeting went well, about 6 people attended from the client’s side and they clearly thought the idea was compelling.

We left and heard nothing from them until a week later when they asked us if we could meet an executive from the Canadian operations who looked after business development for this commodity. We went ahead and that meeting went even better. The executive liked the idea and concurred with the need to explore this further.

In our 3rd meeting the local team asked if we would consider completing the study on their behalf. This was quite significant for the firm since none of our offices anywhere in the world, even the large mining offices like Moscow, Perth and Calgary had found a way in to do business strategy work for this client.

So this was an exciting time for us to get involved with a client on one of their most important growth initiatives.

The study began in early October and concluded around early December. It was a good clean study with a very engaged and competent client. Putting this M&A/Operations combination in to jointly head each division was a very effective move and our case team was able to test ideas quickly.

I was surprised at how quickly the client made decisions and obtained data. They also have a very lean structure that meant we could easily work our way up and down the operating teams to confirm hypothesis and test ideas.

In many ways, they were the perfect client.

The final presentation was also very well received and the division convened a planning session of the operating heads to see how they could take this forward. What surprised us just a little about that meeting was that no one from head office was present.

If this project went ahead, it would be a $20B capital investment and that could only be decided at the head office. So, when we were preparing to run this planning session I remember thinking that the outcome of the session was odd.

What were they trying to achieve?

Were they trying to get the operating heads of the division aligned? Why was that necessary? They had no say in the matter.

What would happen if all the operating division heads agreed? Probably nothing.

Anyway, we went ahead and managed the session, which went very well. But as predicted, nothing concrete could come out of this.

A week after the planning session, we went back to wrap up the study and basically hand-over all the material. At this session, the client asked if we could prepare a 1-page summary of the findings and recommendations and send it to him. He would like to share it at a more senior planning session.

That is a normal request and we were more than happy to oblige. In fact, the client even provided us the names of the executives to whom we should send the letter. Again, a normal request.

I emailed that letter at 10am on a Wednesday. By 5pm on that very same Wednesday, a rumor started circulating around the office that the CEO had summoned a very senior partner in the New York office to complain that we had done the work and bypassed his planning team.

What had happened?

Any time we enter a new client we have little understanding of the background mechanics and politics at the client. We have to learn as we go along and while we hit some problems, rarely do they derail us.

To understand what was happening here, you need to understand the unique culture of this company. The culture had driven certain behaviors that led to the misunderstanding.

Given the fact that head office was so small, only the top lieutenants to the CEO had access to him: his M&A team and the heads of his energy division. Therefore, to get any face time with the CEO, regional and divisional employees would have to go through this team of lieutenants.

Moreover, the deal making culture of the company meant that many felt that if they just did enough to bring together a landmark energy deal, they could vault into this inner circle. In fact, the M&A leader in the Latin American office was probably thinking just this. He alluded to it in some of his comments.

We later found out that when he had the Canadian business development executive officer meet us, while the executive was pleased with the work and found it interesting, he had asked the local division to shut it down. Such work was not under the purview of the local division. He asked the work be sent to head office.

I can only speculate why the local division did not transfer the study. They probably wanted credit for it and felt a more completed version would allow the CEO to see the brilliant value they could bring to the organization.

Should they have immediately complied with the business development executive? It is hard to say. The company is structured by operating divisions so the business development executive can only make suggestions but cannot control an operating division. Also, was his request an order or a suggestion?

As you can see, it is hard to know if the Brazilian unit merely implemented the suggestion at their own pace, or blatantly ignored orders.

In fact, if the business development executive did not agree with the work being done by the operating division, he probably should not have attended the meeting in the first place. That said, we were not involved in any of these internal maneuverings.

In essence, the Brazilian office was allegedly running a rogue study. At least now we knew why the Moscow, Perth and Calgary offices were not doing any work at this client.

There was another issue at stake here. As mentioned earlier, the company was organized by divisions and not regions. Therefore, the executive whom was responsible for this office commissioning the study was not based in the office and had not commissioned this study.

He was based in Calgary and several offices reported to him: all those offices involved in the production of an energy product.

You can imagine his surprise when he finds out about this major strategy piece advocating a big change in the direction of his group and he knows nothing about it?

To the CEO, it looks like that executive does not have a handle on his own people.

Had we been played by the client?

I sincerely believe the divisional executives who commissioned this study felt they were not doing anything wrong, nor do I think they were using us. I believed they wanted the study to come from us since it was seen as an unbiased and credible source.

There is also the corporate culture to blame for this.

Surely these divisional executives must have felt that this behavior would be rewarded in the right situation. They must have seen something similar done in the past and saw what happened if it was done right. So while the CEO was up in arms, I suspect he bore some of the blame for allowing his employees to think this was acceptable.

Was the CEO really up in arms?

That is hard to say. The meeting with the senior partner from the New York office touched on the study but it seemed the CEO ended up discussing other things during the bulk of that meeting.

In hindsight there seems to have been tension between the CEO and executive running this division and this study merely allowed that tension to surface. In fact, it was possible the CEO was using this study as an opportunity to create the impression of lack of control in the executives division.

Although, based on what was happening, there was a lack of control.

Dead man walking

You will find that impression matters far more than reality.

All of this was happening during the festive period so no one was in the office. The senior partner met the CEO but there did not seem to be any major issues from that meeting. Yet, he had not had the opportunity to widely discuss this with the other partners. So the original rumors dominated the discussion.

The main problem with these events is that the uncertainty creates more trauma than anything else.

My first day back at the office involved a big dinner for the partners in that office. You will notice partners have a lot of dinners. So all the partners were back but they had not gotten together since the initial rumors. So all they were able to discuss WAS the supposed fall out from this event, but with no new information of what had happened since.

I was a principal at this stage but fairly senior because I led a practice group and also some key client relations. Generally principals would not have that responsibility. It would be fair to say some other principals and directors felt my extra responsibility was not deserved. Maybe they were right. Maybe they were wrong. You will learn in life that no group is ever in 100% agreement.

So I was concerned this event would be used as an opportunity to curtail my responsibility and trajectory through the firm.

When I arrived at the dinner, there was a definite change in the behavior of some partners. Many avoided me, because they assumed I had done something pretty bad and being seen around me would not help their careers.

In fact, the group of partners I generally associated with was fairly distant. At this dinner were 3 senior partners who were my sponsors in the firm. One was clearly upset about what happened and while he did not say anything to me directly, once he had a little to drink, he made sufficient crude comments, as a joke, to let me know what he thought of things.

While he was the only person who publicly made those comments, I let them stand because I believe this senior partner meant well and it was his way of communicating that I needed to be more careful. We had and continue to have a great relationship.

My main sponsor, another senior partner, basically said hello and left, as did my other sponsor.

Overall, it was not a great start to the year.

I was taken off the client relationship. I did not agree with this decision because my role across the firm was a trouble-shooter and I had a reputation for going and fixing problems, even those that emanated from my own study teams.

I did not fight the decision. I let it happen and simply moved on to other clients. There were enough of them.

The question remains: was being taken off the client relationship a punishment?

The answer is both yes and no.

The senior partner, who wanted me off the study, probably did not have a great relationship with me and saw this as an opportunity to manage the account differently. Different is not necessarily bad so I did not worry too much about this.

One senior partner, on the executive committee of the firm, was trying to protect me.

At the first partner planning session, the events at the client over Christmas obviously came up for discussion. Partners are always collegial. There is no screaming, finger pointing or kicking. The mere fact the event is being discussed is bad enough for you, even if it was done in a polite way.

Everyone is smiling and talking about how this is just a chance to learn. Velvet death.

So everyone goes around the room offering their insights on what had happened and how it could be prevented in the future. I, of course, said nothing because my views would be seen as a defensive gesture. So, I let everyone continue speaking.

The senior partner, on the executive committee, let it continue. I suspect he thought it would just die out. It did not. The discussion was moving towards a motion to change the way clients were being managed.

This is when the senior partner made a crucial observation. I am paraphrasing here.

“We had done nothing wrong as a firm. The misunderstanding and angst created at the client was due to the way the client had managed the situation. We just happened to have been the trigger. Moreover, we had not lost anything with this client. We managed to meet the CEO, open a dialogue and had agreed to continue speaking on these issues further. If anything, we ended up better off.”

It was not a long statement delivered with brilliant wit or charm. The guy was not a great speaker. Yet, he was senior, did not play politics and was right.

So any discussion of my lynching ended in that meeting. Thankfully, since tar and feathers do not go well with my skin color.

Was the senior partner being sincere? I believe so because shortly thereafter I was offered to become a director of the firm: a senior partner.

Lessons

One of the biggest lessons is the answer to this question: what is strategy?

When I left management consulting several rival firms approached me to join and help build their capabilities. The discussions were always sincere and interesting. They would show their work which was very analytic, data-intensive, seemingly hypotheses driven and, I would assume, creative.

The thing that nagged me a lot was the clients they were serving for these studies. In every case the client was a manager or mid-level executive who wanted a decision made. There are many definitions of strategy work, but a key one is that it must be done for the most senior executive of the client who can act on the recommendation.

If you are doing work for a mid-level executive, it does not matter how good the work is, it is not strategy work. It is a plan or interesting analyses because he or she cannot act on it.

Linked to this, I hear the word “strategic” thrown in a lot into these discussions. “Strategic” and “Strategy” are worlds apart. When the city of London was trying to improve its status in the world, the mayor of London pushed through a strategic plan to install a sewer system.

I think we can all agree that installing a sewer system may be “strategic” imperative but installing the system is an engineering problem. Therefore, to do “strategic” work does not always imply the use of strategy skills.

By the same note, installing a new ERP system may be of paramount strategic importance to increase efficiencies. However, doing the business case is not strategy, nor is the implementation work.

My lesson from this is to be very careful of complex strategy projects when the supposed decision maker is curiously not involved. In fact, this was the only time I made this mistake. A rookie mistake.

Some general rules of thumb to follow here:

1) It is not strategy work unless you are reporting to the most senior executive who can act on the study.

2) Strategic is not the same as strategy.

3) Important work is not confined to strategy. So do not be obsessed about being a strategy consultant. The majority of McKinsey consultants have never done corporate strategy work reporting to the CEO. They just create the impression they did because it sounds cooler.

My role with the client did not end. The senior partner encouraged me to not give up the relationships I had built, but slowly get back to being involved with the client. He had a discussion with me and mentioned that I had always being a creative consultant who tried risky things. Sometimes it worked and sometimes it did not.

While this time things where not my fault, I should view it as an example of when a risky strategy failed.

I invited the divisional leaders to attend a 3-day conference in Rio de Janeiro as our guests, which they did. In those 3-days I said nothing about the event. It did come up once as a joke but they really felt it was nothing to worry about.

It was actually a very successful conference because we were the firm hosting a client who had a reputation for never hiring consultants. We did not have to say anything to potential clients. The message was quite clear through our association with the client.

There is another very valuable lesson in all of this.

Things are never what they seem.

When I first received word that the CEO had summoned a senior partner to “complain” I think we let our imaginations run a little wild. Everything we were hearing was hearsay and rumor. In fact, if you are doing well, the rumor mill goes into overdrive to paint a salacious picture.

There are numerous moving parts behind the scene, egos within the client, egos within the firm, all pushing and pulling to use the event to end up looking slightly better than they did before. Therefore, when anything happens, it is best to calmly evaluate the mechanics of the situation before reacting.

We had also naturally assumed that since the CEO and Divisional Executive Vice-President was supposedly upset, the divisional leaders who had hired us were in a lot of trouble. For about 3 weeks we limited our communication with them lest our association hurt them even more. But that is not what happened.

No one in the division was reprimanded, no one was fired and certainly no one was told they had stepped out of line. In fact, these guys just continued plowing along. Therefore in crises it is crucial not to isolate oneself from the supposed issues, but to find out what is really happening on the ground.

The other lesson is to as much as possible work for the decision maker. Now, at McKinsey and BCG this is an age-old tradition. Consultants work for the CEO. However, it is not always like that. A lot of work is done for divisional leaders and operations executives. So, consultants cannot always work for the CEO.

However, for the issue we are studying, we should have been more careful about understanding the decision-making structure within the organization, and reported to the executive who had purview for that decision. That was a major mistake we made in this study. A stupid mistake as well.

If there was one thing we did wrong in the study, it was this.

This incident taught me the importance of image management. One needs to carefully cultivate and manage one’s image. I allowed the rumors and incorrect facts to become the basis of discussions within the firm. That certainly damaged my career. My directorship was pushed back by about 6 months.

I should have been more active in using this incident as a teaching moment within the firm rather than simply trying to survive and get past it. I certainly had several senior partners who would have backed such a move.

In fact it took another client to remind me of this. She had close relationships with partners within this firm and told me that my decision to not openly discuss what had happened had hurt me. I did not end up looking good. By choosing not to discuss what had happened, I had let other people build its own narrative.

Moreover, she was upset that I had withdrawn from the client and team “managing” things from the fallout. She felt the other partners, while not necessarily vindictive, were going to protect the firm and not me. She rightly pointed out that withdrawing made it look to the client like we were wrong, and it created that impression within the firm.

So rather than trying to get past troubling situations, I have since focused on using them as a moment to teach others. It serves the dual purpose of mentoring and ensuring rumors do not displace the facts.

The other lesson was not to treat the client CEO as more than a human being. For making this mistake, I should kick myself. Even as a young associate, I had always been excellent at understanding and building relationships with senior executives. For some reason, I failed to apply that rational lens to this situation.

Was the CEO so illogical in his thinking that he was going to berate the firm? Almost certainly not! If I think back to when I first heard he had summoned the senior partner from New York, the message was actually from my assistant who had been tipped off by the senior partner’s assistant and neither of them had heard the actual conversation. The senior partner’s assistant simply saw his reaction and assumed it was a tough call.

That took on it’s own life.

The words “upset” were never used in the conversation. Much later I found out that the actual discussion was more along the lines of the CEO had heard about a study we had done and was “very concerned about that type of work being done at the operating division.” He was not concerned about us at all.

This feedback came straight from the senior partner in the call.

I can understand why the actual conversation happened as it did between the senior partner and CEO. When the CEO first heard of the study, he would have had to have a serious lack of confidence if this was to have upset him.

On the other hand, if the cost upset him, then that was also troubling. A $3MM study for a multi-billion behemoth was a mere decimal point on its ledger.

All roads therefore point to the relationship between the CEO and the executive running that division. And we were not at all involved in that dynamic.

Finally, I would say having a solid internal compass matters. These kinds of incidents can make or break a career. It stalled mine a little. However, in grand scheme of things it does not have any impact at all.

I took solace in the fact that every single senior partner I knew had a similar story to recount. They seemed to have done fine. Heck, Dominic Barton had to move from Canada to South Korea to kick-start his career.

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Chief Strategy Officer: Promotion or Demotion?

This piece is based on my own experiences when I left as a partner and that of many colleagues who left as principal or partner, and took roles as the chief strategy officer or head of corporate strategy and planning.

Note that when I say chief strategy officer, I am referring to the senior most level where you are working with the CEO and his executive committee. I am not referring to leading a smaller strategy unit within a division of a bank or a company. I am only looking at the senior most strategy officer who has the ear of the CEO. Though, the insights apply just as much to all levels of strategy leaders.

In terms of full transparency, I have been offered such roles. I have declined them, politely, for the reasons I will mention here.

Let’s look at an example of a colleague who joined a large industrial conglomerate. I have changed some details to hide his identity since he is still in this role.

Luis was a McKinsey strategy principal specializing in manufacturing and advanced materials. He had the typical career path from FMCG/CPG to a top school in Europe and then 7 years at McKinsey. He was a solid partner who was capable, friendly and well liked.

He was head hunted to take over as a chief strategy officer at a rapidly growing diversified European conglomerate. The company was growing so fast that the board wanted the CEO to ensure the appropriate rigor was being applied to strategy, growth, investment and efficiency measures.

When I spoke to Luis before he made this decision, I voiced by strong concerns about the enormous limitations of the chief strategy officer role. To avoid repetition I will discuss my concerns at the end of this piece. Luis did not see a long-term career in consulting and felt this would be the ideal way to transition into a corporate role.

Just to be clear about this, 90% of BCG and McKinsey partners are considering operating roles. At a certain point partners no longer want to advise, but want to control the situation.

chief strategy officer

Every single consultant, except the most senior partners or lucky junior consultants (analysts, associates etc.) will have to enter corporate through some form of role in the internal strategy department.

Luis took the role and I did not hear from him for about 9 months. I sent him a short follow-up message and he responded asking to speak, seeking some advice on his career.

This is what happened to Luis

At first, all was fairly wonderful. Luis inherited a team of 5 and was allowed to build this up to a team of about 10 people helping him think through issues important to the company. Luis had spent time in his first 2 to 3 weeks touring the divisions to understand the major issues facing the company.

After his travels, he returned, fairly excited at that, and wrote up his views on the problems/opportunities the company was facing. The genesis of his argument was the company was investing a ton of cash in businesses that generated a good but not great return.

Moreover, the conglomerate underestimated the amount of investment needed to take substantial share in each of these markets. Luis believed the company was investing in too many initiatives, none they could fully see through to completing, and many were low margin endeavors.

Luis raised this point with the CEO who asked him to address them point by point with the CFO. Though the CFO listened carefully, nothing really happened.

Luis was encouraged to help build a screening process to assess future acquisitions. Luis reasoned that if his team built an effective screening process for M&A they could prove their worth and be given access to broader leadership discussions. At this point, it is important to remember that the company was still moving well ahead with their program of acquiring and integrating a bucket load of companies.

Luis worked with his team to build a new M&A process. I have not personally seen his approach, but given that he was a partner and M&A processes are not complex to develop, it is fair to reason he probably delivered a lot of value.

Again, Luis was asked to brief the CFO on the process and, thereafter, present to the management committee by facilitating a daylong session to get the leaders of the business units to rethink their approach to M&A.

The process went well and Luis felt he had allowed the divisional leaders to explore a new more effective way to think through the process of identifying and integrating new acquisitions. Despite expecting time to educate the board on his approach, Luis was, thereafter, tasked with coming up with a post-merger integration approach all the divisions could use.

The post-merger work was positioned as an outcome of the successful management committee meeting. The CFO and CEO mentioned that given how much interest he had stirred among the generally impatient operating leaders, Luis should use this opportunity to help them with the integration and, therefore, build better relationships.

Luis went ahead and began a fairly large internal project to have his team map out the full sequence of steps divisions would need to follow to complete the integration of acquisitions.

The work was complex since different divisions had very different integration considerations. As a diversified conglomerate, each of these considerations had to be mapped out and a solution developed.

For example, sectors like insurance faced different needs versus sectors like textile sales. Within sectors, different countries had different legislation. The operating systems for technology differed across regions, countries and divisions. Labour standards were uneven and the operations adhered to global guidelines to varying degrees: some did while others routinely ignored them.

Is Luis frustrated? Yes, he is. He joined as the chief strategy officer with the intention to help a rapidly growing conglomerate chart its future. He expected to be working with the CEO and board to think through where the company should operate and what should be their next move.

Unfortunately, he was working on the operational side of business development: target screening processes and post-merger integration.

In fact, BCG had been appointed to help the board determine if they should bid to enter the power sector. To Luis, this felt like the ultimate insult. After all, that was meant to be his role.

To understand what happened and what chief strategy officers do, we will unpack this with a set of questions.

Did Luis make the right move joining as chief strategy officer?

Luis absolutely made the right move joining as chief strategy officer. Given his background and lack of operating experience, this was the ideal role. This role was perfect for two reasons.

First, it helped him directly leverage his prior experience as a strategy partner. Second, it allowed him to learn about an operating company before taking on an operating role.

In a previous piece and podcast I discussed why internal strategists are not given as much respect as those working on the operating side of the business. I will not repeat those points here. What is crucial to note is that moving from consulting to internal strategy, en route to an operating role is a good path to follow.

However, moving from an operating role to internal strategy is, 9 times out of 10, the end of a career. For a very senior person at the operating, executive or management committee level, moving to strategy is always a move to sideline a person’s career.

I cannot think of a single executive, that I personally know or in the media, that moved from a major operating role into the strategy advisory role and it improved his or her career.

Moving from running a profit center with thousands of people to running a little cost center think-tank with 20 people, if you are lucky, and a personal assistant leaves you with little room to influence a company.

There are surely people who have made the move work. I would say they are the absolute minority and they had unique skills to understand the limitations/punishment of their move and find a way out of it.

If Luis made the right move from partner to chief strategy officer, why did it fail? The reason is simple: no two chief strategy officer roles are the same. Beyond the title, you need to consider many items when making this decision.

Where there mismatched expectations?

When a CEO wants to bring a chief strategy officer, does he want him/her to conduct high-level corporate strategy or merely inject the skills of a consulting firm into an organization?

In many ways, this was a failing on Luis’s part. While he had a discussion about the changes taking place at the company, and the company’s priorities and issues, he assumed the company’s priorities would mirror that of the chief strategy officer.

That is a common mistake we make when accepting these roles, or any role for that matter. We assume our understanding of a role is the same as that of the hiring party. In this case, that would be the CEO.

Luis went in thinking that if his title was chief strategy officer that it was reasonable to assume his priorities would mirror that of the company.

It would have been much more effective for him to have a candid discussion about some of the priorities the CEO wanted him to tackle once he arrived.

What is good strategy advice?

You may not have picked this up, but Luis was being forced to report to the CFO and Luis did not have a seat on the board. This is a problem since the board makes strategy decisions. It is a myth that the CEO makes the decision.

The CEO can recommend a strategy but the board must endorse it. By having Luis report to the CFO, it indicates that the CEO assumed the strategy work was finished when the analyses was done. The CEO assumed that once the analysis was handed over to the CFO, everything would click into place and the recommendations would be accepted.

This demonstrates two problems.

First, given the reporting line to the CFO, it was fairly clear Luis would be doing a lot of business development work. That explains why he was being asked to report into the CFO. Business development is interesting but it is not strategy. Being able to determine the viability of acquiring a paint company and extracting value from the asset is not even close to understanding how to reorganize a bloated conglomerate.

Business development can be highly numbers oriented with M&A target screening or very operational around securing sites and integrating assets.

This shows a common misunderstanding about strategy on the part of the CEO.

Second, Luis was not on the board. When the complex strategy decisions where being discussed, he had no way of influencing the decision. Good strategists have the analyses on hand but also the skill to explain their points and test the pulse of the board.

They, thereafter, alter their approach to explain the best course for a company. It is a common myth to think strategy is all about analyses. That is the starting point but the ability to communicate is far more important.

If you are not on the board of a corporation, irrespective of the title chief strategy officer, you are not influencing the corporate strategy.

Is a brilliant insight enough to influence a company?

A brilliant strategy is usually counter intuitive. If it is not counter intuitive we typically respond by claiming, “anyone could come up with this.” If a strategy is counter intuitive, then it requires significant “selling” or convincing of the management team.

This raises two very important considerations when taking chief strategy officer roles.

First, a chief strategy officer, assuming they are lucky enough to do corporate strategy, must be able to influence the operating units and management committee. That is pretty tough to do because the operating units do not report to the chief strategy officer and, therefore, would likely ignore him or her.

The operating units also do not report to the CFO and usually do not pay that much attention to him or her either.

Influence is driven by respect, power, credibility and impartiality.

The point about impartiality also explains why external firms like BCG will always do the corporate strategy work even with a chief strategy officer present.

It is extremely naïve to think that just because someone is credible, they will be listened to. The world just does not work that way.

Imagine you are the divisional executive vice president of a $2B unit being told that the only way for the company to succeed in the future is that if you lower your growth targets so that another unit could use the cash to grow?

No executive vice president is going to do that unless it came straight from the CEO, and even then, some executives do not listen. Most chief strategy officers fall into the painful trap of trying to be too logical. They assume that there is some brilliant piece of analyses that can convince the executive vice president.

There is none. The chief strategy officer can never ever know more about the division than the executive. The chief strategy officer may be able to see an additional insight, but that is not going to change the executive’s mind because the resistance to change is not driven by the validity of the answer.

This is about understanding power structure within a conglomerate and understanding how economic decisions affect an executive’s overall positioning with a company.

A great chief strategy officer will, therefore, recommend a strategy, which creates economic value while considering the personalities of the key executives. This is a very practical point because in strategy studies it is widely overlooked.

When I was an associate I once worked on the reorganization of a massive oil company. The analyses recommended that the CEO centralize decision making to reduce waste and inefficiency. On paper, this was a sound analysis. However, in the first meeting the CEO called, none of the 3 operating division presidents arrived.

The operating division presidents were powerful, controlled the assets and had the support of their employees. The CEO had no power to compel them to attend and could not fire them because the turmoil would have led to an even larger drop in productivity.

In this situation, an economically sound strategy did not consider the personalities at play. The CEO eventually resigned because he could not control the operating units.

It took 9 years for a new CEO to come in and implement the strategy by offering the operating heads a change in their power base, but not a reduction of their power.

It is far too easy to get entranced by spreadsheets about enterprise value and economic profit, but you need to be able to understand how the strategy changes impact the organizational power structure.

Anyone losing power is going to fight the changes. Therefore, they must be offered something of reciprocal value or they will hold onto the status quo.

The crucial point is that unless the chief strategy officer sits on the board, or can influence the CEO, he will not be able to recommend such tactics.

Who is responsible for corporate strategy?

It is the role of the CEO and board to set strategy. Period.

Even in a company where the chief strategy officer is celebrated and comes the closest to setting strategy, he is not doing it.

Think about this in practical terms. Do you really imagine this chief strategy officer comes in from Monday to Friday and sits with his team to plot and plan the future of the company? Do you think that 4 months later he asks for time to present his final thoughts to the CEO?

Hell no!

The best a chief strategy officer can do is to serve as a sounding board for the strategy discussions taking place, facilitate the discussions or analyze discrete areas for the CEO or board.

To put this in perspective, remember that the CEO cannot institute merger discussions without the board’s approval. If the CEO cannot do so, why would the board allow the chief strategy officer to control strategy?

Therefore, the chief strategy officer is really a wise ear for the CEO. That is why you typically see two types of strategy officers.

The first type is usually grizzled veteran of the company with 20 or 30 years experience. They typically do not want the stress of an operating role but know enough about the company and have sufficient credibility to help the CEO think through issues.

The second type is a usually younger ex-partners of BCG and McKinsey. This type is usually brought in when the company wants to run a series of operating interventions, which require a high degree of energy. A new metric needs to be rolled out, process efficiencies need to be created or a new operating model must be created.

Sadly, this requires a lot of work: typically not what chief strategy officers had in mind when they accepted the position.

Lessons

The first lesson is not to be enamored with the title of chief strategy officer, head of strategy or even strategy analyst. Many companies use the titles as bait to lure in talented consultants and even their own employees. Be critical about evaluating the actual on the job responsibilities you will have.

Second, unless you can personally see some unique way to leverage a strategy role into a better operating role, never ever give up an operating role if you intend to stay in corporate for a long time. There are some unique exceptions to this.

Earlier in my career, when I was a consultant, the newly appointed CEO of a power producer asked the firm to second a consultant to serve as his chief of staff for about 6 months. I was given that role. Chief of staff is a fancy word for executive assistant to the CEO. In many ways I was his personal number cruncher.

That was a good role. Not many consultants get to sit in on board meetings at the age of 24!

If you work in operations and have the opportunity to serve as the chief of staff to the CFO or COO, it is not a bad idea, provided you are at a relatively early stage of your career.

Third, remember that strategy consultants tend to come in on a back foot in a corporate setting since we have little operating experience and tend to play up our analytic strength. It is important to focus on building your communication, influence and listening skills. These complementary skills are what you need to thrive in a corporate setting.

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Competition in the workplace: competing with a high-performing consultant

Competition in the workplace: competing with a high-performing consultant

Competition in the workplace is the reality at any high performing organization, be it Amazon, McKinsey, BCG, Bain or Google. So if you want to work at a leading organization its impossible to avoid having to compete with your collegues.

I recently had a few discussions with Michael about a high-performing associate at the firm who was overshadowing me. Michael invited me to contribute this article based on my experiences and the actions I took to differentiate myself and change my profile. While it took a few months for the results to show, I was eventually able to build a very strong profile for myself and receive numerous positive endorsements from partners and directors.

I was recently staffed on a project that would last for a few months and, therefore, my performance on this engagement was very important for my standing in the firm.

A guy on that project, lets call him Mike, was at the associate level and had a legendary reputation. Many felt that Mike was one level below the level he should have been at. In fact it was not clear why he was an associate since he already had many years of experience after MBA. I am not entirely sure about the rules for hiring experienced hires since they tend to differ from office to office and even between countries.

Mike was very pleasant, with everyone who was more senior than him, smart, clearly too mature and even too old to be an associate. He probably was in his mid to late 30s.

This high-flyer had established a great reputation with the study engagement manager and partner, while I never worked with any members of the team before this engagement. Mike was a go-to guy for the engagement leadership.

How do you deal with this if you are at a similar level as Mike but, on this project, for all intended purposes, just “helping” while Mike is running the show?

When you are on a team with someone who has an amazing reputation and who outshines you, you need to commit to getting an edge. It will not happen overnight.

Below are few points that I found effective in dealing with this situation.

Competition in the workplace: 13 points on how to approach it

1: Don’t rock the boat

The high-performing consultant has an established reputation. You don’t. Try to establish your reputation. If your life and your journey in management consulting can be seen as a movie, my advice is to stay in your own movie.

Don’t pay attention to how good the star consultant is and how your input is ignored. Just pay attention to what you can control to display your excellence and to contribute to the team’s success in a way that is visible to the engagement leadership and to the client.

2: Learn from the high-performing consultant

You need to learn from this outstanding consultant. Watch what he does. This is a great opportunity to learn what makes this person appear as a star performer and emulate it.

Also remember that since you are in management consulting it is most likely that you will not work with this person for a long time. Soon you will be staffed on another engagement and will have an opportunity to utilize things you learned from this high-performing consultant.

3: Come up with a plan to outshine this consultant over time

Try to find where you have a competitive advantage that will allow you to do things that he or she cannot.

For example, maybe you know industry experts that can provide valuable information for your project. Maybe you know people within the firm that can share prior deliverables that will be very helpful for your engagement. Try to see where you are strong and leverage those areas.

Remember “there is only one number 1”. Everyone at your level is your competition.

4: Be on the lookout for opportunities to own important pieces of work

Do important pieces of analyses to make yourself visible. When you work on important analyses you will end up sending it to senior people and sometimes to the client, since you will hold the master document.

You will also be working on something that everyone will be reviewing and providing input for, so the quality of your work will be visible and your level of effort will be well known.

5: Limit doing things that are not visible

For example, when someone completed an analyses on the engagement I would spend hours making their work better, for the benefit of the team. The thing is the engagement manager or partner does not know I am doing it and, as a result, I get no credit for it.

So I have to limit the amount of effort I dedicate to invisible work. I have to find a balance between helping the team and focusing on the real priorities, which tend to be visible.

6: Act as if this engagement is the most important thing for you

You need to show an unbelievable level of commitment, and go above and beyond what is expected, in every visible way possible, to leave no reasonable doubt about your level of performance.

7: Speak up but be conscious of your impact

Speak during meetings but be careful. Since you do not have an established reputation with the engagement partner, or your reputation is not as strong as that of a high performing consultant, try to emulate the communication style of someone on your team who is clearly very successful.

8: Always be ready to present at client meetings

However, again be careful. You can get into a lot of trouble if you present poorly or if you come across as aggressive. Be very polite, be ready to change your work if the client raises any objections, however many times they ask you to change it, and follow the lead of the engagement manager and partner. Try to emulate the way they communicate with the client.

9: Be the first one to arrive and the last one to leave, within reason

However, make sure you do not burn out. Ensure you are getting sufficient sleep and taking advantages of opportunities to rest when you can.

10: Your engagement manager and partner must see themselves in you

If you work very hard, enough of senior people will see themselves in you and will want to help you.

The difference between being exceptional and average is not that big in terms of the effort required. What you need is to mobilize your focus on the engagement in critical times and consistently over deliver. In the downtime, you can take breaks almost as much as the average consultants.

For example, I once had to write a proposal in 5 hours for a client I never met on a type of study with which I was not familiar. I pushed extremely hard. There was almost no eating and no breaks during those 5 hours. Just like a 5-hour exam. Once I delivered the proposal, I could relax and get some rest.

Another example was when I had to deliver a business case over night. I pushed extremely hard and delivered the business case on time. After that I could take things easy for a few hours to recover.

11: Take rest when you can, to avoid burnout

Engagement leaders or client should not be commenting on you looking tired or your hands shaking. You need to look like you can handle the pressure and know how to balance your work and life priorities.

12: Look for opportunities to shine and exploit them

Use every opportunity to show that you care about the team and that you are a leader.

As an example, you can share a great idea that will help improve the relationship with the client. Let’s say you are based in the client’s office for the duration of the engagement and client is planning a baby shower for an employee on the client’s team. Everyone on the client’s team is bringing gifts. Your team has no plan for it and the engagement leaders don’t even know that your team was invited for the baby shower.

You can send an email to engagement partner and CC your team suggesting to buy something on behalf of your engagement team and expense it. Then, once you get a go ahead from your engagement partner or director you can decide what you will buy, send an email to a client confirming that your team will attend, and CC your team.

Let’s analyze this situation. It was a piece of cake, no work at all, to send those emails, buy the gift and expense it. Yet you are visible to client and to project leaders and you are seen as someone who displays leadership potential and looks out for the team.

13: Build a relationship with the top-performing consultant

This is an opportunity for you to build a relationship with this consultant. Who knows, this relationship could turn into an amazing friendship for life. You need to surround yourself with exceptional people to up your game and working on an engagement with someone is a great opportunity to build a relationship, given the common long hours and intense level of teamwork.

Look at the bright side in this situation, you can learn to be an even better management consultant. You will also learn to leverage every ounce of advantage you have.

Also, this consultant may soon leave the firm, given the high turnover in consulting. You just have to outlast him or her, which is not hard in consulting.

Since your career is a marathon, not a sprint, there is no reason to panic. As we mentioned above, Competition in the workplace is something unavoidable when it comes to high performing, leading organizations like McKinsey, BCG and other leading companies. You just need to make sure that every day your level of performance brings you closer and closer to the star performer status.

It is like Will Smith once said, “You don’t set out to build a wall. You don’t say I’m going to build the biggest, baddest, greatest wall that’s ever been built. You don’t start there. You say, I’m going to lay this brick as perfectly as a brick can be laid. You do that every single day. And soon you have a wall.”

Image from Jesus Solana under CC license

HBR

Reading the Harvard Business Review (HBR) or the McKinsey Quarterly to develop your critical thinking ability is a flawed approach. Reading these publications helps a little, but not a lot.

This article explores why this is the case and dives into what pieces to read, and how to read them, to develop your own critical thinking ability.

I recently received an email from a client. On the Firmsconsulting website we have a complimentary section called What Firmsconsulting is Reading (under community and in groups). And what I do in this section is I post all of the major online articles I’ve read on each day. I read much more, but the pieces I post are the most useful to me. So that way you can track and see what a consulting partner reads.

And my thinking was that by replicating my reading process you can replicate my strategy to build my business judgement. And someone wrote in, a client that I have known for a long time, and asked the following questions.

“Michael, I noticed that you read about fashion, you read about what is happening in Ukraine, you read about business topics, but most of it are newspaper articles. You read the New York Times a lot, you read Bloomberg, Wall Street Journal and so on.

The articles usually about news events. Why don’t you recommend HBR articles for us? Why is that you don’t recommend McKinsey Quarterly articles for us? If you want us to learn to think like a consulting partner shouldn’t we be reading those things?”

My answer is no, that is not what you should be reading if you want to think like a consulting partner. “Think” is the operating word here. And this post, and related podcast, explains why that is the case.

If you read HBR or McKinsey Quarterly you are going to learn about some new concept or idea in business, which is good. And if your objective is to learn about some new concept in business and be able to talk about it at a cocktail party, with your friends at the office or with clients, continue reading those publications.

They teach you useful nuggets of information to share.

HBR consulting

Yet, that’s not the objective we have with our clients. The objective we have is to train you to be able to think in the way that allowed the author of the HBR article to develop the insight in the article. And that is a profoundly different objective.

Our objective is not to train you to memorize useful insights. We want to train you to independently develop useful insights.

That is a different objective and a different skill.

So we don’t teach people to just sound as if they know what they are saying. If we made you read some of the most popular articles in the HBR you will sound as if you know what you’re talking about. However, it doesn’t make you an outstanding management consultant, strategist or business leader.

It does not improve your ability to generate your own insights.

We teach the ability to go through a thought process and come up with the same level of insight that you see in the HBR. That’s what you should learn. That is what is useful. To come out with a great insight, you need to logically analyze the issue and thereafter apply your business judgement to interpret the findings of the analysis.

Many people focus on building their logical problem solving skills while they lack the business judgement to interpret the analysis. Brilliant analyses coupled with weak business judgement leads to weak insights. Wider reading on critical issues which are controversial improves your business judgement.

Striving to recreate the HBR

I was recently corresponding with a member of a business journal at a very prominent MBA program in North America. And he was telling me about how they wanted to move their student publication to the same status as the HBR. That is certainly possible.

He was saying, “Look at the quality of our writing. Look at the quality of our publication. We have invested money putting together good graphics. Our style of writing is very similar to the Harvard Business Review. The way we analyze issues is very similar to the way HBR analyzes issues.”

And I pointed out to him that actually it’s not. There is a profound difference between his publication and the HBR. They may look the same but the process to produce the insights is very different.

In the Harvard Business Review, and I’m just using the HBR as an example because everyone knows it, the people who publish the articles do a lot of work. I don’t know what is the validity of their research or veracity of their findings. Yet, I do know that they do a lot of work: bottom-up analysis, working with real clients, testing the ideas before it’s written up.

For example, I was reading an article recently written by a Bain partner, which was a pretty good article. And he was talking about how he has learned about the process of growth expansion through working with clients and solving their real problems. He has noticed certain patterns and he wrote it up. That is the process he used. His ideas have been battle tested with clients, adjusted as the data disproved their initial hypotheses and tested again until he could see some replicable pattern emerge.

Compare this to the process used by the upstart business journal in question. The business school gets undergraduate students to do desktop research and then write-up these articles.

Just because their articles look similar to Harvard Business Review articles, sound like HBR articles, does not mean the upstart business journal team captured the process to produce articles of that quality. The process matters. Making an article pretty does not make the insight useful.

They are mainly using desktop research. Desktop research is a very limited type of research. Unless authors actually worked with the client all they are relying on is what some journalist is reporting or what some journalist thinks is the issue. So when people base their work on desktop research they are basically regurgitating someone else’s interpretation.

This story is important because it explains the importance of the process followed to create an insight.

Learn to think the way a consulting partner thinks

What I’m teaching you to do in getting you to read the articles I read is to apply critical thinking. I’m teaching you how to build those very important analytical problem solving skills that will allow you to think the way consulting partners think. I am forcing you to learn business judgement. I give you articles to read that sharpen your critical judgment skills and I nudge you towards questions you should be asking while you are reading each article.

I force you to read things that do not conform to your world views. I guide you to see multiple sides and some of it may make you uncomfortable but you are certainly thinking about the core issues. I am helping you to build your business judgment because that is somewhat more important than just the analytic skills.

Another example of a display of a weak critical thinking ability

I will give you another example of a display of a weak critical thinking ability that I am trying to help readers improve.

The immigration debate is a massive debate in the United States. Actually go to almost any country in the world, immigration is a vitally important topic.

And I was having a discussion with someone, lets call him Josh, who was telling me how Asians dominate the Ivy leagues in the US and, therefore, Asians must be more intelligent than any other race. I was careful to not get into a discussion on which race is more intelligent because it’s automatically going to be an explosive topic. However, I needed to help Josh see why his opinion was not based on logic. Our discussion went like this.

Michael: Why do you say that?

Josh: I have read so many different publications. They all say the same things. The Asians dominate the Ivy Leagues.

Michael: Okay, that makes sense. But where does it say that one nation is more intelligent than the other.

Josh: Well, you can infer that.

Michael: You can’t infer that. Logic would dictate that in the 1950s Asians didn’t dominate the Ivy leagues. Are you then saying that Asians were not intelligent in the 1950s?

Josh: Well no, I’m not saying that. I am just saying the Ivy leagues were not popular for Asians then.

Michael: Okay, by that logic if Asians dominate the Ivy leagues now, how do you know the Ivy leagues are not popular with another race which is equally or more intelligent than Asians, but are not applying or permitted to study in the US in large numbers?

What I see with Josh above is a tendency to select data which proves his pre-determined hypothesis. He has already decided this to be true, and he is simply selecting the data to prove it. Now, it may be true or it may not be true. It is just that his data does not support his conclusion.

One could easily argue that attending the Ivy’s are a means to securing wealth. Now, if you could secure wealth without studying, you would do it. So, should we not measure the end goal? Which group is wealthiest? Is that not a better measure of intelligence? I hope you see my point. And I could develop even more arguments.

When you are critically assessing a situation don’t get caught into the media bias. Learn to think critically so you can evaluate information and form your own opinion, free from bias.

When you go in looking for one answer, you will never see the answer.

What news articles teach you and HBR does not

As you approach reading, you need to ask yourself: do I want to be a guy or a lady who can recite the HBR article or who has the ability to produce something of the HBR quality? The reading regimen for these two goals differs substantially.

What you should learn is not how to memorize and recall key concepts from HBR or McKinsey Quarterly, which is what anyone can do. Instead, you should build the skills to critically evaluate any situation, see patterns, link seemingly unconnected data points, develop as well as test hypotheses and form your own opinion, which should be data driven and free from bias.

And this is what the news articles are teaching you to do, if you read them with the right mindset. They are teaching you very foundational skills.

HBR consulting quote 2

It is important to keep your pulse on the current sources of discussion around the world. And to build the ability to think about what’s happening, ask critical questions, see the insights that are not obvious and form your own viewpoints. You have to ask such questions as:

  • Why was this article published?
  • Why was it published today?
  • Who published the article?

Those three questions, which can be answered before you even read the article will tell you more about the article than the content of the article. Try it, you will be surprised!

  • In the article, what part is news and what part is the interpretation of the news?
  • Why are people saying this?
  • What is actually being said here?

And over time, as you start reading more of these articles and pose the right questions as you read them, your critical reasoning skill will develop.

In What Firmsconsulting is Reading most of the time I give you a one line question/comment. Some of them are a bit snarky. As you probably know I can’t hide my feelings sometimes. Yet, I try. I am careful to do so. I usually try not to disclose a personal view. I generally don’t say, “I am mentioning this article because I think this nation or this person did the right or wrong thing“. I usually come from the basis that the article may or may not reflect my viewpoint but I want you to pick up the following item.

And I choose controversial pieces. I don’t shy away from it because you have to be able to critically evaluate things. I put out stuff about the poverty debate in the United States, immigration, the issues in Ukraine and so on. And I pick words very carefully to not show bias because our job is not to be biased.

You will also notice I always recommend you read the New York Times and the Wall Street Journal (liberal and conservative viewpoints). They attack problems from completely different sides. If you only read the New York Times or Wall Street Journal you will struggle to form an informed opinion about issues.

There is another reason I rarely read HBR. A lot of the things they publish are actually fairly obvious. Some of the things are interesting. I do like some of the new pieces they put out where they talk to CEOs about the experiences they had. However, a lot of the other things are basically an analysis which is very easy to do and a few interesting insights. And rarely are HBR articles mind-blowing.

Overall, reading the finished product in the HBR article or McKinsey Quarterly article is useful. However, it is not teaching you how to think in a logical and critical way.

And that’s a fact. So I am not saying don’t read the HBR or McKinsey Quarterly. Definitely read them. Yet, don’t be so thrilled with yourself if you can only repeat what’s there.

It’s more important to develop the skills to produce the quality of thinking HBR publish. Even though you will not get there immediately, it is better to slowly get to a point where you can structure a study to test a hypothesis and come up with a finding that you can write-up at the HBR level.

When you are reading remember to choose your objective: do you want to be able to recite the HBR article or have the ability to come up with your own insights, the kind of ability a consulting partner has? The reading regimen to achieve each of these two goals is very different. You have got to be very strategic in what you read and how you read if your goal is to develop a solid critical thinking ability.

Be critical. Turn the story around in your head in different ways. Do not simply take the facts you want to take, because you may be closing your mind to something that will truly change your viewpoint.

QUESTION(S) OF THE DAY: Why do you think business judgement matters more than analytic ability when developing insights? Please share in the comments.

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how to build hypotheses

In today’s post we will explain the steps to build hypotheses in a more effective, methodical and, for a lack of a better word, a more MECE (mutually exclusive and collectively exhaustive) way.

When we do cases with candidates, even our own clients, what always surprises us is how messy their hypotheses can be.

Its almost as if people are just throwing out ideas they have without any real understanding of how to create a structure, with a help of a decision tree, to ensure the hypotheses derived from the structure are on point and MECE.

I think most people are right brain thinkers by nature. That means that they will throw out an idea first and then decide if it solves the problem they are trying to address. They are basically brainstorming in a traditional sense of this word. In a very messy way without priorities and a link to the issue.

And what I find with most hypotheses is that they are very ill considered, they have poor structure beneath them and most importantly they are not collectively exhaustive nor are they mutually exclusive.

And by their very nature hypotheses are difficult to make mutually exclusive or collectively exhaustive.

Think about it. You are developing these ideas and then you have to explain why the problem exists, which is hard by itself. And then you have to compare each hypothesis with the next hypothesis you develop to make sure you have listed every possible hypothesis.

You also have to make sure the issue you covered in one hypothesis doesn’t overlap in another hypothesis. Trying to package issues into hypotheses while trying to get all the issues listed and in the right order is naturally going to be very difficult.

This is not something that is taught in MBA programs or any training programs that we know of outside of leading management consulting firms.

Hypotheses vs. a decision tree approach. Which approach does MBB prefer?

Leading management consulting firms, whether it is BCG, McKinsey or Bain (collectively called MBB), like the hypotheses-led approach. This is also called the answer-first approach. The answer being the hypothesis.

Although, BCG tends to also be accepting of a decision tree-leading-to-hypotheses approach to solve the case. We also have had candidates who interviewed at McKinsey and used a decision tree approach to solve the case and did well. They basically did not go into formal hypotheses.

The approach of using a decision tree is usually less appropriate at Bain where they tend to be quite frigid in wanting hypotheses upfront.

At McKinsey it depends on how well you use the decision tree approach. If you use it poorly they probably would think you couldn’t develop hypotheses. That is why you avoided the hypotheses. And at BCG it is again like at McKinsey. They are not adamant they want hypotheses. They are OK with the decision tree approach as long as you use it effectively to arrive at the likely problem.

And in fact, if you use the decision tree approach very well they generally would be very happy with the technique.

You can also avoid decision trees to build hypotheses, but I have yet to see anyone build neat and logical hypotheses without using a decision tree. Even I do not do that, and I was a corporate strategy partner.

An effective technique to build hypotheses using a decision tree – the best of both worlds

So what I want to talk you through today is a very effective technique we teach all of our clients in terms of how to build hypotheses that are MECE, by using a decision tree.

In our strategy training program we teach, in depth, how to go through the entire process from defining the issue, all the way through structuring the problem, developing hypotheses, building an analysis plan, conducting analyses, synthesizing and providing the recommendation. In The Consulting Offer training program we teach the part of this process applicable to case interviews.

At a very high level, the strategy engagement structure can be simplified into 6 basic steps, keeping in mind that it is an iterative process (shown in the exhibit below). Structuring the problem (developing a decision tree) fits within the step 2 of this process and developing hypotheses fits within the step 3, as shown in the diagram below.

We get a lot of questions from our audience about how to use this technique well and how to adopt it for case interviews with firms so this post should provide some clarification.

The technique we teach candidates is to develop a key question upfront – define the problem (step one in the exhibit below). Then from your key question brainstorm out the sub-drivers of the key question, which gives you the first-level branches of your decision tree.

hypotheses firmsconsulting strategy consulting decision tree

For each sub-driver/branch of the first level of the decision tree brainstorm the drivers of that particular driver. This part of the approach is called structuring the problem or brainstorming (refer to a step 2 in the exhibit above called structure the problem). Each level of drivers/branches of the decision tree must be mutually exclusive and collectively exhaustive (MECE).

All the drivers/branches are collectively called the framework/structure for the case. An example of a decision tree is shown below.

brainstorming decision tree

Finally when you complete the decision tree, the branches must be prioritized and hypotheses are developed ONLY for the prioritized branches. You can sometimes solve a case without hypotheses because the drivers are so specific and point out the problem. Only use hypotheses if the decision tree is not generating an answer quickly.

Hypotheses, for the prioritized branches/drivers, should be worded as follows:

  1. Event causing the observable phenomenon…
  2. Observable phenomenon…
  3. Event caused by the observable phenomenon…

An example of a properly structured hypothesis is below:

hypotheses example

The development of decision trees and hypotheses are the core skills behind strategy consulting.

On an actual consulting study, when the hypotheses are developed the team comes up with analyses necessary to test the hypotheses. They then build the work plan, conduct the analyses, synthesize the findings and present the final recommendation to the client.

All well planned studies work this way. If you are on a study that does not follow this approach, you are almost certainly doing unnecessary analyses.

Lets look at an example of applying the technique of developing hypotheses using a decision tree 

Let’s assume I gave you a case whereby I told you that a famous French restaurant, a single restaurant in downtown Manhattan, faced a steep drop in profits over the last three years. Their profitability has gone from something like $10,000 a day to about $2,000-$1,000 dollars a day and they think it has a lot to do with the changes in the way they’ve altered their opening times, the menu, the clientele they serve and so on.

And most of all, they think the drop in profitability is driven primarily by the change in working hours. They went from being open during lunch and dinner to being open throughout the day from 10am to 1am in the morning. They want you to solve the case.

Help them address the problem. Maybe try to solve this case before reading the solution below.

hypotheses firmsconsulting strategy

The way we would teach candidates to apply hypotheses with decision tree approach is to start by taking some time to think about clarifying questions. Then come back once you’ve got your clarifying questions.

Now, it is possible you have no clarifying questions, but if you do, always take some time to think about it.

A clarifying question is a question to understand the information provided to you. It is NOT to dig for more new information to solve the case. It is to understand what you have. If you ask clarifying questions to gain new information without understanding and using the information already provided, the interviewer will wonder what is the value of providing you with new information if you could not use the information initially offered.

You could ask interviewer, “Is it possible for me to go through my clarifying questions. I have four of them. They could help me develop my structure or would you prefer to see my structure upfront knowing full well that my clarifying questions, if answered, may change my structure a little bit.”

That is a good technique because it gives the interviewer an option with regards to which approach they prefer and they can guide you.

Let’s assume the interviewer said, “It’s okay. Ask your clarifying questions.

You can go ahead. Ask no more than four. If you come up with additional questions during this discussion you can say, “I asked the four but two more came up based on the conversation we had.” Most of the time the interviewer will allow you to ask it. But don’t go into 7, 8 or 10 questions. Don’t try to solve the case. That is for later. You want to merely understand what you have been given.

The clarifying questions are not there to solve the case. They are used to identify the key question.

Then you would take the information from the clarifying questions and you rephrase the initial problem statement to say, “Okay, I’m going to paraphrase what you’ve given to me. We need to figure out how can a French restaurant located in downtown New York move from $1,000-$2,000 of profits to $10,000 of profits without altering its menu and without changing the cuisine it offers”.

Assume that not altering its menu and the cuisine it offers are the answers to the two of the clarifying questions. So you have to build in the information you received from asking clarifying questions.

Please do not present the key question without using the answers from your clarifying questions. If you did that, what would be the point of even asking the clarifying questions? They would be wasted since you are not using them to narrow down the problem statement.

Narrowing down the problem statement makes the case really easy to solve. Most candidates struggle in a case since they do not understand the problem statement.

It must be noted that Bain and McKinsey tend to have very clear problem statements and this step may not be needed. BCG tends to have broader questions and this step may be needed. In general, if the problem statement is vague, you want to narrow it down.

Next you could say, “What drives profitability? Well clearly it will be revenue and cost. And what are the drivers of revenue and cost? The drivers of revenue are different revenue streams. So its food, alcoholic beverages and non-alcoholic beverages. It will also be the time of the day that the restaurant is open. The drivers of cost will be fixed and variable cost.

What many candidates would do is they would simply ask the clarifying questions up front and throw out hypotheses. Don’t do that. Your hypotheses would be too vague at this point.

Develop your key question. Develop your decision tree to the second level of branches.

The first level of branches would be revenue minus cost. The second level of branches would be the drivers of revenue and the drivers of cost.

Once you have the drivers of revenue and the drivers of cost, you can develop a hypothesis for each prioritized branch that you think is important to solve the case. Not all the branches will be important. Use your judgement and information provided in the case to prioritize the branches.

So develop a hypothesis for the food revenue stream, the nonalcoholic beverage revenue stream, the alcoholic beverage revenue stream, and the hours when the restaurant is open. Then develop hypotheses for fixed cost and for variable cost. That is assuming you wanted to prioritize them all. You could just as easily have prioritized fewer branches.

Lets go through some hypotheses. I would say, “Since the restaurant is open longer hours, they may have alienated some clientele, attracted new clientele and also incurred higher cost, which is not compensated by higher revenue. That is one hypothesis.

This steep drop in revenue is probably driven by the fact that there is a different clientele coming in which is demanding different prices.”

On the alcoholic beverage side I would come up with a similar hypothesis, and on the fixed as well as variable cost side.

Let’s look at the variable cost side. I would hypothesize that it is possible that although variable cost have decreased due to the drop in revenue it have not decreased sufficiently to compensate for the drop in revenue.

On the fixed cost side I would hypothesize that due to the longer operating hours our fixed cost may have increased to carry the longer operating hours.

Notice how specific hypotheses for the sub-drivers are. They are more useful than throwing out drivers for revenue.

Your hypotheses need not have all three parts as in the image above, but they MUST be tightly linked to the issue in that one branch. This prevents overlap with other branches.

The point I am trying to make here is that if you build your hypotheses off the branches of the decision tree you maximize your chances to build useful hypotheses because you will have to make sure that your decision tree is mutually exclusive and collectively exhaustive.

So if you build your hypotheses off your decision tree, and if you did a thorough job, your hypotheses by default would be collectively exhaustive. And if your decision tree is mutually exclusive your hypotheses would also be mutually exclusive.

And obviously your hypotheses are dependent upon the information they have given you in the case and the clarifying information you have collected when you asked clarifying questions up front.

This is an effective and simple technique to build hypotheses in a mutually exclusive and collectively exhaustive way. If you just throw hypotheses out without deriving them from a decision tree you will have no way of knowing whether they made sense and whether they are MECE.

Our clients are trained to do all of this in 60 – 120 seconds flat. That is pretty fast and will only work if you understand the process. This video teaches this entire process above in great detail for generalist interviews.

This additional video is for experienced hires where you can use the same approach to demonstrate how you could structure teams to run studies. This is necessary to show the firm you can hit the ground running and add immediate value. Those interviewing for Deloitte S&O, Roland Berger, McKinsey Implementation, etc. are strongly advised to watch this second video.

How to apply hypotheses with the decision tree technique at MBB

When you get to a McKinsey interview you follow the process above, but you need not show the interviewer the entire process. That is key. With the McKinsey interviewer or Bain interviewer you don’t tell them what your key question is because for McKinsey and Bain the key question in the case is very obvious. The clarifying questions are largely redundant because they tend to give you the key question very clearly up front. So there is no reason to narrow it or rephrase it.

The case is not conceptually difficult as, for example, a BCG case.

Therefore, for McKinsey and Bain you build out your decision tree as we thought you above. Yet, you don’t discuss your key question, your clarifying questions and your decision tree. What you do is you build your key question and your decision tree purely to help you develop a framework and then based on prioritized branches of your decision tree you develop hypotheses.

Therefore, just explain your hypotheses and very briefly how you created them.

To recap, in McKinsey and Bain interviews they are not going to see your key question. They may want to see your approach. But what you really want to show them is your hypotheses.

QUESTION(S) OF THE DAY: Which part of the hypotheses with decision tree technique do you find most challenging? Please share in the comments.

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SUSTAINABLE COMPETITIVE ADVANTAGE

Earlier in the year we published two important posts about ethics. It is worth building on them today because Firmsconsulting is built around the principle of strong values. And we should be discussing this concept more frequently as it is widely misunderstood.

In the first post, entitled Ethical Standards are No Small Matter for McKinsey, we looked at how to make ethical decisions, we also discussed the trade-offs and addressed 3 myths about ethics.

In the second post, entitled Ethics is Shaped by Your Social Networkwe pointed out that ethics is about judgment and we addressed what is one aspect of your life that has a considerable impact on your judgement and determines how ethical or unethical you choose to be, or even could be. We also discussed what you should consider doing to influence that impact.

Ethics as a sustainable competitive advantage

We discuss ethics today not because it is a nice thing to do, but because being ethical gives you a sustainable competitive advantage. Values and ethics are not feel good concepts that should be taught at the end of an MBA program, as it is currently often done. Values is a material competitive advantage that is difficult to replicate and has a tangible financial impact. It is worth understanding and building your life around this. It is one of the most formidable tools you can have to build your career and life. So before the year comes to an end let’s revisit the subject of ethics.

sustainable competitive advantage

When you begin your adult life, your ethical position is determined mostly by what you tell people. As you mature, your ethical position is increasingly determined by your actions and track record.

When you are young you flash around career enhancing jewelry. Little baubles that indicate your worthiness. You want to have Harvard on your resume, McKinsey on your resume and a GMAT 780 score on your resume.

You don’t yet have a track record of being outstanding in a specific line of work so people use these metrics/baubles to determine if you have a good standing in the world.

They look at this career enhancing jewellery to judge your worth.

As your career progresses, you begin to be judged more by your actions and less by the jewelry. If you lack character and integrity you always need more additional hard skills and career enhancing jewelry to compensate for your lack of ethics/weak reputation. It forces you into this skills arms race because you do not have a reputation which encourages people to work with you.

You need some other incentive to encourage people to work with you.

How McKinsey and BCG use ethics as a sustainable competitive advantage

If you are someone whom people trust implicitly, they will hire you just because having you there signals enormous credibility and because they know you will do the right thing. That is one of the reasons BCG and McKinsey are hired to do corporate strategy.

It is not just because they can do something many other consulting firms cannot do. It is because when you offer your chairman of the board a McKinsey or a BCG report, there is an implied credibility there whereby it is known that BCG and McKinsey have a reputation for walking out of the engagement if it is wrong for the client.

The fact that they completed the engagement is a credibility stamp on the report.

In other words, both firms have developed a track record of taking short-term pain (walking out of engagements or not undertaking engagements and losing revenue from such engagements) to do what each firm thinks is right.

It takes years to build true credibility.

Other firms that do not have such credibility look for baubles. They look for technical skills to impress the client. They may claim to have a new methodology, lower prices etc. So you see how this plays out.

Also note that two consulting firms growing very fast may be enjoying high growth for very different reasons. One could be growing fast because it is benefiting from its credibility in the market, which was built years ago. Another could be growing fast since it is discounting fees and paying too much for talent.

In other words, not all growth is equal. The drivers of that growth matter enormously.

An example of ethics as a sustainable competitive advantage outside of consulting

Of course, ethics is a major sustainable competitive advantage outside of consulting as well.

In 1956 Warren Buffett returned to Omaha, after a stint at Graham-Newman in New York City, where he worked for his teacher and idol Ben Graham. Warren had about $174,000 and he was going to “retire.”

In pursuit of his goal of becoming a millionaire he decided to start a partnership like Graham-Newman’s sister hedge fund, Newman & Graham. This would allow him to raise money to manage and invest it from his house, putting money into the same stocks as he bought for himself. The plan was to invite friends and family into the partnership.

The key for Warren was to deal only with people whom he was sure trusted him.

Eventually he opened multiple partnerships and partners no longer had to be his family and friends. His name was passed along like a secret with advice to “invest with Warren Buffett if you want to get rich.” But one thing stayed the same – the people who invested trusted Warren.

The reputation that Warren developed by being consistently transparent and honest with his partners became his sustainable competitive advantage. This is in addition, of course, to his highly intelligent approach to investing and phenomenally hard work.

sustainable competitive advantage

By 1960 Warren no longer asked people to invest, they had to bring it up. This is the same strategy as Marvin Bower used for McKinsey. If the other party asks you for your service they don’t have a “prove you are worthy” attitude. You are doing them a favour and not the other way around. Of course, this is only works when people trust you, as they did in Warren Buffett’s case and in Marvin Bower’s case.

Imagine how tough it is to work for a client who does not trust you, constantly checks your work and always wants you to prove your worth? That is a pretty horrible experience.

What does this mean for your career in practical terms?

sustainable competitive advantageIt means that at a certain point technical skills and career enhancing jewelry have declining returns.

Someone with adequate skills from an unknown school who is seen as highly trustworthy will almost always be appointed over the vastly skilled person who studied at an elite school but is seen as untrustworthy. Too many young consultants focus on technical skills and career enhancing jewelry. Yet, credibility is more important.

Think about it. Lets say you are the world’s greatest financial modeler. What does that mean?

Does it mean that when you will be 59 years old you still going to build financial models? I hope not. Because by the time you are 59 years old you hopefully should have been CEO and now chairman of the board.

A lot of young people think if they have technical skills and impressive career enhancing jewelry everyone will want to hire them. That is not true. At certain age you have to break out into managing people and leadership. And when it comes to managing people and leadership the trust element becomes crucial.

Do people trust you to follow you? Do people trust you to put you in a leadership position?

This is where a reputation for being ethical, which is earned by being consistently ethical over a prolonged period of time, leads to a formidable and sustainable competitive advantage. It cannot be won overnight via grandiose action, it cannot be bought, and it cannot be faked.

sustainable competitive advantage

And the true, and only, test of ethics is whether you can cite numerous examples of when you left money on the table because it was not the right thing to do. Unless you  have left money on the table without hesitation, you have never lived by your values or your values are inappropriate.

You either earned it or not, so you better get started while you have the runway to get this done. And it will not be easy to do. Like Michael Porter said, a competitive advantage is not one single thing you do, but how you organize your life to produce this advantage. That means you need to change everything.

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Image from Steven Feather under cc, cropped, added text.

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